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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-17189
KOLL REAL ESTATE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 02-0426634
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4343 VON KARMAN AVENUE
NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 833-3030
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $.05 PER SHARE
(TITLE OF CLASS)
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK,
PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
12% SENIOR SUBORDINATED PAY-IN-KIND DEBENTURES DUE MARCH 15, 2002
(TITLE OF CLASS)
12% SUBORDINATED PAY-IN-KIND DEBENTURES DUE MARCH 15, 2002
(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO ___
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ X ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF MARCH 1, 1995 WAS $14,195,987.
THE NUMBER OF SHARES OF CLASS A COMMON STOCK OUTSTANDING AS OF MARCH 1, 1995
WAS 46,603,817.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE 1995 ANNUAL MEETING OF
STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS ANNUAL REPORT
ON FORM 10-K.
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PART I
ITEM 1. BUSINESS
Koll Real Estate Group, Inc., a Delaware corporation, formerly known as The
Bolsa Chica Company (from July 16, 1992 to September 30, 1993) and as Henley
Properties Inc. (from December 1989 to July 16, 1992), is a real estate
development company with properties principally in Southern California, as well
as on the coastline of New Hampshire. The principal activity of Koll Real Estate
Group, Inc. and its consolidated subsidiaries (the "Company") is to obtain
zoning and other entitlements for land it owns and to improve the land
principally for residential development. Once the land is entitled, the Company
may sell unimproved land to other developers or investors; sell improved land to
homebuilders; or participate in joint ventures with other developers, investors
or homebuilders to finance and construct infrastructure and homes.
The Company's principal activities also include providing commercial,
industrial, retail and residential real estate development services to third
parties, including feasibility studies, entitlement coordination, project
planning, construction management, financing, marketing, acquisition,
disposition and asset management services on a national basis, through its
offices throughout California, and in Dallas, Denver, Phoenix and Seattle. With
the November 1994 acquisition of the Kathryn G. Thompson Company, the Company's
principal activities have been expanded to include single and multi-family
residential construction.
The Company's executive offices are located at 4343 Von Karman Avenue,
Newport Beach, California 92660 (telephone: (714) 833-3030).
PRINCIPAL PROPERTIES
The following sections describe the Company's principal properties.
BOLSA CHICA. The Bolsa Chica property is the principal property in the
Company's portfolio. The Company owns approximately 1,200 acres of the 1,600
acres of undeveloped Bolsa Chica land located adjacent to the Pacific Ocean in
northwestern Orange County, California. Bolsa Chica is bordered on the north and
east by residential development, to the south by open space and residential
development, and to the west by the Pacific Coast Highway and the Bolsa Chica
State Beach. Bolsa Chica is one of the last large undeveloped coastal properties
in Southern California, located approximately 35 miles south of downtown Los
Angeles. As further described below, in December 1994 the Orange County Board of
Supervisors unanimously approved a 3,300 unit residential development and
wetlands restoration plan for this property which remains subject to other
governmental approvals.
In 1986, the California Coastal Commission certified a local coastal
program/land use plan for the Bolsa Chica property, which was subject to certain
conditions, including further presentation of favorable economic, environmental
and physical feasibility studies. The 1986 proposed development of the Bolsa
Chica property as a marina/residential development provoked substantial
controversy and highlighted public and political awareness of the property and
the potential impact of development on the environmentally sensitive lowland
areas, among other issues. In order to achieve a public consensus on the plans
for Bolsa Chica's development and to expedite development of the property, in
1988 the Company helped organize the Bolsa Chica Planning Coalition (the
"Coalition"), consisting of representatives of the Company, city, county and
state officials, and the Amigos de Bolsa Chica, a local citizens' environmental
organization. The objective of the Coalition was to consider alternative land
use plans for Bolsa Chica. In 1989, the Coalition reached an agreement in
principle on a concept plan permitting the development of an oceanfront
residential community of up to 5,700 residential units featuring protected
wetlands (the "Coalition Plan").
In November 1991, in accordance with the Coalition Plan, the Company
announced its plan to develop a master planned community of approximately 4,900
homes at Bolsa Chica, including approximately 4,300 units on the Company's land.
In September 1992, environmental impact documents for the Bolsa Chica project's
master planned community were released by the City of Huntington Beach,
California, and the U.S. Army Corps of Engineers for a ninety-day public comment
period which concluded in December 1992.
1
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In March 1993, the Company transferred local processing of the Coalition
Plan to the County of Orange in order to integrate the Bolsa Chica regional park
and wetlands restoration with the rest of the land use planning. Given the
extent of comments received from the public, including a variety of state and
federal agencies, the County of Orange recirculated a revised draft of the
environmental impact report in December 1993, for public comment which concluded
in February 1994. The revised draft contained an in-depth analysis of an
alternative plan which included 3,500 homes, in addition to the in-depth
analysis of the Coalition Plan.
In August 1994, the Orange County Environmental Management Agency proposed a
lower density development alternative that contained options for the Bolsa Chica
project with and without housing development in the lowland. The County planning
staff's option with lowland development called for a maximum of 3,200 units and
a wetlands restoration plan, without a tidal inlet, which would be financed by
the Company. County staff also proposed a second option without lowland
development which included a maximum of 2,500 units and would not require
financial participation by the Company for wetlands restoration.
During the fourth quarter of 1994, following input from the community on its
August 1994 proposal, the Orange County Environmental Management Agency proposed
a development plan which includes a wetlands restoration plan modified to
include a tidal inlet to be financed by the Company and would allow a maximum of
3,300 residential units at Bolsa Chica. The planned community at Bolsa Chica is
expected to offer a broad mix of home choices, including single-family homes,
townhomes and condominiums at a wide range of prices. In December 1994, the
Orange County Board of Supervisors unanimously approved the 3,300 unit plan,
which remains subject to their approval of a development agreement, for which a
public hearing and vote are scheduled for April 1995, and the approvals of the
California Coastal Commission and the U.S. Army Corps of Engineers. The Company,
working with various governmental, community and environmental groups, has
developed a quality master plan which reflects a 42% reduction in density (from
5,700 to 3,300 units) and a wetlands restoration plan to be funded by
development of up to 900 units in the lowlands. The Company therefore
anticipates that the remaining approvals will be secured on a timely basis.
However, due to a number of factors beyond the Company's control, including
possible objections of various environmental and so- called public interest
groups that may be made in legislative, administrative or judicial forums, the
required approvals could be delayed or modified substantially. In this regard,
on January 13, 1995, two lawsuits were filed disputing the validity of the Bolsa
Chica project approval by the Orange County Board of Supervisors. See "Item 3.
Legal Proceedings". Subject to these and other uncertainties inherent in the
entitlement process, the Company's goal is to obtain all material governmental
approvals in 1995 and to begin infrastructure construction in 1996, depending on
economic and market conditions.
The Company is engaged in preliminary negotiations with various governmental
agencies regarding alternative proposals for wetlands restoration, which include
the possibility of the Company selling all of its approximately 930 acres of
lowlands at Bolsa Chica. The ability of the Company to complete any such sale is
subject to substantial contingencies including obtaining all final approvals
from various governmental agencies for development of up to 2,500 residential
units on the Company's approximately 200 acres (and approximately 21 acres owned
by third parties) on the Bolsa Chica mesa. Therefore, there can be no assurance
that these negotiations will result in any transaction being completed. Under
the 3,300 unit residential development and wetlands restoration plan approved by
the Orange County Board of Supervisors, the Company is committed to restoring
the wetlands at Bolsa Chica. The Company believes that the approved plan is
currently the only viable alternative for wetlands restoration. However, during
the ongoing entitlement process for the Bolsa Chica project, the Company will
continue to evaluate a potential sale of the lowlands and any other viable
alternative for restoring the wetlands and accelerating development of this
property. If the Company accepts any such alternative which results in the
number of residential units being materially reduced below 3,300 units, a
significant reduction in the book value of the Bolsa Chica project currently
reflected in the Company's financial statements would result. Any such potential
impact on the statement of operations and stockholders' equity would be
partially offset by a decrease in deferred taxes. Realization of the Company's
investment in Bolsa Chica will also depend upon various economic factors,
including the demand for residential housing in the Southern California market
and the availability of credit
2
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to the Company and to the housing industry. While the December 1994 bankruptcy
filing by the County of Orange is not indicative of the state of the overall
Orange County economy, it may adversely affect residential real estate.
EAGLE CREST. In the City of Escondido in San Diego County, approximately 30
miles north of downtown San Diego, the Company is developing an 850-acre, gated
community consisting of 580 residential lots surrounding an 18-hole championship
golf course which has been operating since May 1993. In December 1994, the
Company completed a financing agreement with a major financial institution which
provides for a $5 million construction loan for the Eagle Crest project and
includes a one-time option to reborrow $5 million after repayment, subject to
certain restrictions. The Company plans to utilize the construction loan, along
with available cash, to fund completion of infrastructure construction in
anticipation of selling residential lots to homebuilders in the second half of
1995. During the first quarter of 1995, the Company entered into an agreement
with an Orange County homebuilder, Akins Communities, Inc. ("Akins"), under
which Akins will assist the Company in managing the residential development of
Eagle Crest and the sale of lots to other homebuilders. Akins and the Company
are also discussing the potential of jointly building some of the homes at Eagle
Crest.
FAIRBANKS HIGHLANDS. This property consists of approximately 390 acres near
the communities of Fairbanks Ranch and Rancho Santa Fe in the northern part of
the City of San Diego. The property is located within an area designated by San
Diego as the "North City Future Urbanizing Area" which prohibits any density
increases without voter approval. An initiative placed on the June 1994 election
ballot which would have changed the property's designation and allowed
development of significantly greater density (up to 800 residential units) was
defeated. Existing zoning allows estate-sized lots, limited by a four acre to
one-lot ratio, which would allow 92 lots to be developed. The current
entitlement process, which includes tentative map approval and environmental
clearance, is anticipated to be completed by the end of 1995.
WENTWORTH BY THE SEA. This 100-acre project is currently being managed, at
the direction of the Company, by a local real estate management and development
company, which is developing 130 new residential and vacation homes in New
Hampshire, approximately 60 miles north of Boston. In September 1994, the
Company sold the 18-hole golf course and to date, has sold 19 of 21
single-family detached condominium homes built by the previous owner. Also in
September 1994, the Company began marketing its next phase of 20 lots and since
then, two lots and one home have been sold and six homes are in escrow and under
construction. In December 1994, the Company completed a financing agreement with
a major financial institution which provides for a construction loan of up to
$6.5 million to fund completion of infrastructure improvements and construction
of homes for the Wentworth By The Sea project. The Company is also in
discussions with a corporation interested in purchasing and restoring the
original Wentworth Hotel, which closed in 1981.
ALISO VIEJO. With the acquisition of the Kathryn G. Thompson Company on
November 9, 1994, the Company acquired a 49% general partnership interest in a
230-acre project approved for 1,421 single family residential units in southern
Orange County. The property is well located, within close proximity to
transportation infrastructure, employment centers and other attractions,
including the Orange County (John Wayne) Airport (approximately 25 minutes), the
San Joaquin Transportation Corridor (a quarter mile) and Laguna Beach
(approximately 10 minutes). In March 1995, grand openings were held for the
first two phases and 32 units were offered for sale.
OCEANSIDE HILLS. As a result of the acquisition of the Kathryn G. Thompson
Company, the Company also acquired a 40% general partnership interest in a
30-acre project approved for 92 single family detached homes in northern San
Diego County. Marketing for the first phase of 14 units began in December 1994
and since then 11 have been sold and one is in escrow. The second phase of 18
units was released for sale in March 1995 and eight are in escrow.
OTHER PROPERTIES. The Company owns various other commercial and industrial
properties in Southern California, including land zoned for
commercial/industrial use in Coronado, Rancho Murrieta, Ontario and Signal Hill,
California and resort/residential property in Michigan. All of these properties
are currently held for sale, subject to market conditions.
3
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PROPERTY DISPOSITIONS. See Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a description of the
Company's property dispositions during 1993 and 1994.
ENVIRONMENTAL AND REGULATORY MATTERS
Before the Company can develop a property, it must obtain a variety of
discretionary approvals from local and state governments, as well as the federal
government in certain circumstances, with respect to such matters as zoning,
subdivision, grading, architecture and environmental matters. The entitlement
approval process is often a lengthy and complex procedure requiring, among other
things, the submission of development plans and reports and presentations at
public hearings. Because of the provisional nature of these approvals and the
concerns of various environmental and public interest groups, the approval
process can be delayed by withdrawals or modifications of preliminary approvals
and by litigation and appeals challenging development rights. Accordingly, the
ability of the Company to develop properties and realize income from such
projects could be delayed or prevented due to difficulties in obtaining
necessary governmental approvals.
As more fully described above, the Company is in the process of seeking the
necessary state and federal approvals and permits to begin development of its
Bolsa Chica property. In December 1994, the Orange County Board of Supervisors
approved the 3,300 unit residential development and wetlands restoration plan
proposed by the Orange County Environmental Management Agency. The Company's
goal is to obtain a development agreement with the County of Orange and all
necessary approvals of the California Coastal Commission and U.S. Army Corps of
Engineers in 1995. The Company, working with various governmental, community and
environmental groups, has developed a quality master plan which reflects a 42%
reduction in density (from 5,700 to 3,300 units) and a wetlands restoration plan
to be financed by development of up to 900 units in the lowlands. The Company
therefore anticipates that the remaining approvals will be secured on a timely
basis. Nevertheless, the approval process for the Bolsa Chica property remains
subject to the uncertainties described above, and there can be no assurance that
such approvals will ultimately be obtained or will not be substantially delayed.
Failure to obtain such approvals would have, and a substantial delay in
obtaining such approvals could have, a material adverse effect on the Company.
As discussed under the heading "Principal Properties -- Bolsa Chica," during the
ongoing entitlement process, the Company will continue to evaluate viable
alternatives for restoring the wetlands and accelerating development of this
property.
The Company has expended and will continue to expend significant financial
and managerial resources to comply with environmental regulations and local
permitting requirements. Although the Company believes that its operations are
in general compliance with applicable environmental regulations, certain risks
of unknown costs and liabilities are inherent in developing and owning real
estate. However, the Company does not believe that such costs will have a
material adverse effect on its business, financial condition or results of
operations, including the potential remediation expenditures proposed in
connection with certain indemnity obligations discussed below in "Corporate
Indemnification Matters."
CORPORATE INDEMNIFICATION MATTERS
The Company and its predecessors have, through a variety of transactions
effected since 1986, disposed of several assets and businesses, many of which
are unrelated to the Company's current operations. By operation of law or
contractual indemnity provisions, the Company has retained liabilities relating
to certain of these assets and businesses, including certain tax liabilities.
See Note 8 "Income Taxes -- Tax Sharing Agreements" in Notes to Financial
Statements on pages F-19 to F-21 of this Annual Report. Many of such liabilities
are supported by insurance or by indemnities from certain of the Company's
predecessor and currently or previously affiliated companies. The Company
believes its balance sheet reflects adequate reserves for these matters.
Under the terms of a 1992 transition agreement, Abex Inc. ("Abex") and the
Company have generally agreed that, following the Company's 1992 merger with The
Henley Group, Inc., each company is responsible for environmental liabilities
relating to its existing, past and future assets and businesses and will
indemnify the other in respect thereof.
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The United States Environmental Protection Agency ("EPA") has designated
Universal Oil Products ("UOP"), among others, as a Potentially Responsible Party
("PRP") with respect to an area of the Upper Peninsula of Michigan (the "Torch
Lake Site") under the Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"). UOP is allegedly the successor
in interest to one of the companies that conducted mining operations in the
Torch Lake area and an affiliate of Allied Signal Inc., a predecessor of the
Company. The Company has not been named as a PRP at the site. However, Allied
Signal has, through UOP, asserted a contractual indemnification claim against
the Company for all claims that may be asserted against UOP by EPA or other
parties with respect to the site. EPA has proposed a clean-up plan which would
involve covering certain real property both contiguous and non-contiguous to
Torch Lake with soil and vegetation in order to address alleged risks posed by
copper tailings and slag at an estimated cost between $6 and $7.5 million. EPA
estimates that it has spent between $3 and $4 million to date in performing
studies of the site. Under CERCLA, EPA could assert claims against the Torch
Lake PRPs, including UOP, to recover the cost of these studies, the cost of all
remedial action required at the site, and natural resources damages. An earlier
settlement in principle with EPA staff pursuant to which UOP would pay $1.7
million in exchange for a release similar to those normally granted by EPA in
such circumstances was rejected by certain other governmental authorities in
July 1993. Settlement negotiations between the Company, on behalf of UOP, and
EPA resumed shortly thereafter. In January 1995, EPA indicated that any
settlement would require UOP to pay in the range of $2.6 to $3.3 million. The
Company, without admission of any obligation to UOP, has since determined to
vigorously defend UOP's position that the EPA's proposed cleanup plan is
unnecessary and inconsistent with the requirements of CERCLA given that the
EPA's own Site Assessment and Record of Decision found no immediate threat to
human health. In the Company's view the proposed remediation costs would be in
excess of any resulting benefits.
EMPLOYEES
As of March 1, 1995 the Company and its subsidiaries had approximately 140
employees.
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EXECUTIVE OFFICERS OF THE COMPANY
Certain of the executive officers of the Company are also executive officers
of The Koll Company ("Koll") and its affiliates. Accordingly, they will devote
less than all of their working time to the businesses of the Company. Set forth
below is information with respect to each executive officer.
<TABLE>
<CAPTION>
NAME AND TITLE AGE* BUSINESS EXPERIENCE
------------------------------ ---- ------------------------------------------
<S> <C> <C>
Donald M. Koll 62 Chairman of the Board of the Company since
Chairman of the Board March 1993. Managing Director-President
and Director of the Company from 1990 to
1992. Chairman of the Board and Chief
Executive Officer of Koll (general
contracting and international real estate
development since prior to 1990) and
Chairman of the Board of Koll Management
Services, Inc. ("KMS") (real estate
management) since 1991.
Ray Wirta 51 Vice Chairman of the Board and Chief
Vice Chairman of the Board and Executive Officer of the Company since
Chief Executive Officer March 1993. President and Chief Operating
Officer of Koll since prior to 1990. Vice
Chairman of the Board and Chief Executive
Officer of KMS since 1991.
Richard M. Ortwein 53 President of the Company since October
President 1993. President, Southern California
Division of Koll from prior to 1990 to May
1994. Executive Vice President of KMS from
1991 to 1993, and Director of KMS from
1992 to March 1994.
Raymond J. Pacini 39 Executive Vice President and Secretary of
Executive Vice President, the Company since 1993; Chief Financial
Chief Financial Officer, Officer and Treasurer of the Company since
Treasurer and Secretary 1992. Managing Director of the Company
from 1990 to 1992. Executive Vice
President and Chief Financial Officer of
KMS from March to November 1993.
<FN>
------------------------
* As of April 1, 1995
</TABLE>
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Newport Beach,
California. The Company and each of its subsidiaries believe that their
properties are generally well maintained, in good condition and adequate for
their present and proposed uses. The inability to renew any short-term real
property lease would not be expected to have a material adverse effect on the
Company's results of operations.
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The principal properties of the Company and its subsidiaries, which are
owned in fee unless otherwise indicated, are as follows:
<TABLE>
<CAPTION>
PROPERTY LOCATION ACRES PRESENT OR PLANNED USE
----------------------- -------------------- ----- --------------------------
<S> <C> <C> <C>
Newport Beach* Newport Beach, CA -- Headquarters
Bolsa Chica Huntington Beach, CA 1,200 Oceanfront residential
community
Eagle Crest Escondido, CA 850 Golf/residential community
Fairbanks Highlands San Diego, CA 390 Residential community
Wentworth By The Sea New Castle, NH 100 Resort/marina/residential
community
Aliso Viejo** Aliso Viejo, CA 230 Residential community
Oceanside Hills** Oceanside, CA 30 Residential community
Michigan Land Upper Peninsula, MI 3,900 Resort/residential lots
Grand Caribe Isle*** Coronado, CA 5 Commercial land
Rancho Murrieta Murrieta, CA 20 Commercial/industrial land
Business Park
Ontario**** Ontario, CA 11 Commercial/industrial land
Signal Hill Signal Hill, CA 2 Commercial/industrial land
<FN>
------------------------
* Leased
** Minority interest in partnership
*** Ground lease
**** Fee title will be obtained upon completion of deed-in-lieu of foreclosure
procedings
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
On April 13, 1994, Abex Inc. ("Abex") and Wheelabrator Technologies Inc.
("WTI") filed suit in Delaware Chancery Court (the "Court") against the Company
seeking, among other things, declaratory relief, specific performance, and
monetary damages for the Company's alleged failure to pay approximately $21
million claimed to be owed pursuant to tax sharing agreements entered into in
1988 and 1989 (Note 8), plus pre-judgement interest and attorneys' fees. This
suit was filed after the Company contested the alleged obligation and asserted
various defenses to making any payment under these agreements. The Company
vigorously defended its position with respect to the nonpayment of the alleged
tax sharing obligation, including filing counter-suit in the Supreme Court of
the state of New York. On December 22, 1994, the Court decided against the
Company, prompting the Company to file for an appeal on January 11, 1995. On
February 6, 1995, the Company entered into an agreement with WTI and Abex to
settle both state actions in order to avoid the ongoing cost of litigation.
Under the terms of the settlement, the Company paid an aggregate of $22 million,
of which $15.5 million was funded by borrowings under a financing agreement with
a major financial institution (Note 6) and $6.5 million was funded by the
Company's restricted cash.
On January 13, 1995, two lawsuits challenging the Orange County Board of
Supervisors approval of the Bolsa Chica project were filed in Orange County
Superior Court. Although the lawsuits differ in the particular issues that they
raise, generally they each allege, among other things, violations of the
California Environmental Quality Act and violations of the California Government
Code planning and zoning laws. The plaintiffs in both actions are not seeking
monetary damages, but are instead asking the Court to set aside the approval of
the Bolsa Chica project. The plaintiffs in both lawsuits also seek attorneys'
fees in unspecified amounts if they prevail.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following tables set forth information with respect to bid quotations
for the Class A Common Stock of the Company for the periods indicated as
reported by NASDAQ. These quotations are interdealer prices without retail
markup, markdown or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1994
First Quarter............................................................. $ .531 $ .250
Second Quarter............................................................ .406 .125
Third Quarter............................................................. .344 .188
Fourth Quarter............................................................ .625 .281
1993
First Quarter............................................................. $ .343 $ .188
Second Quarter............................................................ .313 .125
Third Quarter............................................................. .219 .063
Fourth Quarter............................................................ .969 .125
</TABLE>
The number of holders of record of the Company's Class A Common Stock as of
March 1, 1995 was approximately 27,000. The Company has not paid any cash
dividends on its Class A Common Stock to date, nor does the Company currently
intend to pay regular cash dividends on the Class A Common Stock. Such dividend
policy is and will continue to be subject to prohibitions on the declaration or
payment of dividends contained in debt agreements of the Company. See Note 6
"Debt" in Notes to Financial Statements on pages F-17 to F-18 of this Annual
Report, which Note is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data with respect to the Company and its subsidiaries
are set forth on pages F-1 to F-2 of this Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is set forth on pages F-3 to F-6 of this Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements, schedules and supplementary data of the Company and
its subsidiaries, listed under Item 14, are submitted as a separate section of
this Annual Report, commencing on page F-7.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS. The information appearing under the caption "Election of
Directors" of the Company's Proxy Statement for its 1995 Annual Meeting of
Stockholders is incorporated herein by reference in this Annual Report.
EXECUTIVE OFFICERS. Information with respect to executive officers appears
under the caption "Executive Officers of the Company" in Item 1 of this Annual
Report.
8
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ITEM 11. EXECUTIVE COMPENSATION
Information in answer to this Item appears under the caption "Compensation
of Directors and Executive Officers" of the Company's Proxy Statement for its
1995 Annual Meeting of Stockholders, and is incorporated herein by reference in
this Annual Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in answer to this Item appears under the captions "Voting
Securities and Principal Holders Thereof" and "Election of Directors" of the
Company's Proxy Statement for its 1995 Annual Meeting of Stockholders, and is
incorporated herein by reference in this Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in answer to this Item appears under the captions "Certain
Transactions" and "Compensation of Directors and Executive Officers" of the
Company's Proxy Statement for its 1995 Annual Meeting of Stockholders, and is
incorporated herein by reference in this Annual Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
The following financial statements and supplementary data of the Company are
included in a separate section of this Annual Report on Form 10-K commencing on
the page numbers specified below:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Financial Data................................................. F-1
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... F-3
Independent Auditors' Report............................................ F-7
Balance Sheets as of December 31, 1993 and 1994......................... F-8
Statements of Operations for the Years Ended December 31, 1992, 1993 and
1994................................................................... F-9
Statements of Cash Flows for the Years Ended December 31, 1992, 1993 and
1994................................................................... F-10
Statements of Changes in Stockholders' Equity for the Three Years Ended
December 31, 1994...................................................... F-11
Notes to Financial Statements........................................... F-12
</TABLE>
(2) Financial Statement Schedules:
All schedules have been omitted since they are not applicable, not required,
or the information is included in the financial statements or notes thereto.
(3) Listing of Exhibits:
<TABLE>
<C> <S>
3.01 Restated Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.01 to the Registrant's Annual
Report on Form 10-K for 1992.
3.02 Amended By-Laws of the Registrant, incorporated by reference to
Exhibit 3.02 to the Registrant's Annual Report on Form 10-K for
1992.
4.01 Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3.01).
4.02 Amended By-Laws of the Registrant (filed as Exhibit 3.02).
4.03 Indenture dated as of July 15, 1992 for 12% Senior Subordinated
Pay-In-Kind Debentures Due March 15, 2002 ("Senior Subordinated
Debentures"), issued by the Registrant in the aggregate principal
amount of $127,550,000, incorporated by reference to Exhibit 4.08 to
the Registrant's Annual Report on Form 10-K for 1992.
</TABLE>
9
<PAGE>
<TABLE>
<C> <S>
4.04 Indenture dated as of July 15, 1992 for 12% Subordinated Pay-In-Kind
Debentures Due March 15, 2002, ("Subordinated Debentures"), issued
by the Registrant in the aggregate principal amount of $75,688,000,
incorporated by reference to Exhibit 4.09 to the Registrant's Annual
Report on Form 10-K for 1992.
4.05 Form of Senior Subordinated Debentures (included in Exhibit 4.07).
4.06 Form of Subordinated Debentures (included in Exhibit 4.08).
4.07 Letter of Credit and Reimbursement Agreement dated as of December
20, 1994 between the Registrant and Nomura Asset Capital
Corporation.*
4.08 Construction Loan Agreement dated as of December 20, 1994 between
the Registrant and Nomura Asset Capital Corporation.*
4.09 Construction Loan Agreement dated as of December 29, 1994 between
Great Island Trust Partnership and The First National Bank of
Boston.*
4.10 Unconditional Guaranty of Payment and Performance dated as of
December 29, 1994 between the Registrant and The First National Bank
of Boston.*
10.01 Tax Sharing Agreement dated as of December 18, 1989, between the
Registrant and The Henley Group, Inc. ("Henley Group") incorporated
by reference to Exhibit 10.03 to the Registrant's Annual Report on
Form 10-K for 1989.
10.02 Tax Sharing Agreement dated as of December 15, 1988, between
Wheelabrator Technologies, Inc. (formerly The Wheelabrator Group,
Inc.) ("WTI") and the Registrant ("WTI Tax Sharing Agreement"),
incorporated by reference to Exhibit 10.02 to Amendment No. 3 on
Form 8 to the Registrant's Registration Statement on Form 10.
10.02A Amendment No. 1 to WTI Tax Sharing Agreement dated February 14,
1994, incorporated by reference to Exhibit 10.02A to the
Registrant's Annual Report on Form 10-K for 1993.
10.03 1993 Stock Option/Stock Issuance Plan, incorporated by reference to
Exhibit 10.03A to the Registrant's Annual Report on Form 10-K for
1993.
10.04 Deferred Compensation Plan for Non-Employee Directors of the
Registrant, incorporated by reference to Exhibit 10.14 to the
Registrant's Registration Statement on Form 10.
10.05 Retirement Plan for Non-Employee Directors of the Registrant,
incorporated by reference to Exhibit 10.15 to the Registrant's
Registration Statement on Form 10.
10.06 Retirement Plan of the Registrant, incorporated by reference to
Exhibit 10.16 to Amendment No. 3 on Form 8 to the Registrant's
Registration Statement on Form 10.
10.06A Amendment to Retirement Plan of the Registrant dated December 8,
1993, incorporated by reference to Exhibit 10.07A to the
Registrant's Annual Report on Form 10-K for 1993.
10.07 The Koll Company 401(k) Plus Plan and Trust Agreement dated July 1,
1989 under which the Registrant elected to participate as an
employer effective as of October 1, 1993, incorporated by reference
to Exhibit 10.08 to the Registrant's Annual Report on Form 10-K for
1993.
10.08 Restated Environmental Matters Agreement dated as of July 28, 1989,
among a predecessor to the Registrant, Allied-Signal, New Hampshire
Oak, Fisher Scientific Group Inc. ("Fisher Group") and the
Registrant, incorporated by reference to Exhibit 10(b) to the
Registrant's quarterly report on Form 10-Q for the quarter ended
June 30, 1989 as amended by the Assignment, Assumption and
Indemnification
</TABLE>
10
<PAGE>
<TABLE>
<C> <S>
Agreement dated as of December 21, 1989, among the Registrant,
Henley Group, New Hampshire Oak, Fisher Group, WTI and
Allied-Signal, incorporated by reference to Exhibit 10.21 to the
Registrant's Annual Report on Form 10-K for 1989.
10.9 Environmental Expenditures Agreement dated as of July 28, 1989,
among the Registrant, WTI, New Hampshire Oak and Fisher Group,
incorporated by reference to Exhibit 10(b) to the Registrant's
quarterly report on Form 10-Q for the quarter ended June 30, 1989 as
amended by Assignment and Assumption Agreement dated as of January
1, 1990, among the Registrant, Henley Group, New Hampshire Oak,
Fisher Group, WTI and Henley Holdings, Inc., incorporated by
reference to Exhibit 10.22 to the Registrant's Annual Report on Form
10-K for 1989.
10.10 Transition Agreement dated as of July 16, 1992 ("Transition
Agreement"), among the Registrant, Henley Group and Abex Inc.,
incorporated by reference to Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for 1992.
10.10A Amendment to Transition Agreement dated April 1, 1993, incorporated
by reference to Exhibit 10.12A to the Registrant's Annual Report on
Form 10-K for 1993.
10.11 Tax Sharing Agreement dated as of June 10, 1992, between Henley
Group and Abex Inc., incorporated by reference to Exhibit 10.15 to
the Registrant's Annual Report on Form 10-K for 1992.
10.12 Conditional Guarantee dated as of July 9, 1992, among the
Registrant, Abex Inc., Henley Group and Allied-Signal, incorporated
by reference to Exhibit 10.16 to the Registrant's Annual Report on
Form 10-K for 1992.
10.13 Reimbursement Agreement dated as of July 16, 1992, among the
Registrant, Henley Group and Abex Inc., incorporated by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for
1992.
10.14 Pension Agreement dated as of July 16, 1992, among the Registrant,
Henley Group and Abex Inc., incorporated by reference to Exhibit
10.18 to the Registrant's Annual Report on Form 10-K for 1992.
10.15 Option Agreement dated as of July 16, 1992, between the Registrant
and Abex Inc., incorporated by reference to Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for 1992.
10.15A Option Termination Agreement dated August 27, 1993 between the
Registrant and Abex Inc., incorporated by reference to Exhibit 10.1
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
10.16 Asset Purchase Agreement ("Asset Agreement") dated as of September
30, 1993 between the Registrant and The Koll Company, incorporated
by reference to Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
10.16A Amendment No. 1 to the Asset Agreement dated as of December 29,
1993, incorporated by reference to Exhibit 10.18A to the
Registrant's Annual Report on Form 10-K for 1993.
10.17 Stock Purchase Agreement ("Stock Agreement") dated December 17, 1993
between the Registrant, certain of its subsidiaries and Libra Invest
& Trade Ltd. ("Libra") incorporated by reference to Exhibit 10.19 to
the Registrant's Annual Report on Form 10-K for 1993.
10.17A Amendment No. 1 to the Stock Agreement dated as of February 15,
1994, incorporated by reference to Exhibit 10.19A to the
Registrant's Annual Report on Form 10-K for 1993.
</TABLE>
11
<PAGE>
<TABLE>
<C> <S>
10.18 Exchange Agreement dated December 17, 1993, between the Registrant
and Libra, incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for 1993.
10.19 Financing and Accounting Services Agreement dated as of September
30, 1993 between the Registrant and The Koll Company, incorporated
by reference to Exhibit 10.21 to the Registrant's Annual Report on
Form 10-K for 1993.
10.20 Management Information Systems and Human Resources Services
Agreement dated as of September 30, 1993 between the Registrant and
Koll Management Services, Inc., incorporated by reference to Exhibit
10.22 to the Registrant's Annual Report on Form 10-K for 1993.
10.21 License Agreement dated September 30, 1993 between the Registrant,
The Koll Company and Mr. Donald M. Koll, incorporated by reference
to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993.
10.22 Sublease Agreement dated September 30, 1993 between the Registrant
and the Koll Company, incorporated by reference to Exhibit 10.24 to
the Registrant's Annual Report on Form 10-K for 1993.
10.23 Netting Agreement dated as of October 1, 1993 between a subsidiary
of the Registrant and an executive officer of the Registrant,
together with a schedule identifying five (5) substantially
identical documents not filed therewith, incorporated by reference
to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994.
10.24 Agreement of Limited Partnership dated as of October 1, 1993 between
a subsidiary of the Registrant and an executive officer of the
Registrant, together with a schedule identifying five (5)
substantially identical documents not filed therewith, incorporated
by reference to Exhibit 10.3 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994.
10.25 Agreement Respecting Vesting of Rights dated as of October 1, 1993
between a subsidiary of the Registrant and an executive officer of
the Registrant, together with a schedule identifying five (5)
substantially identical documents not filed therewith, incorporated
by reference to Exhibit 10.2 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994.
10.26 Second Amended and Restated Asset Purchase Agreement dated as of
October 28, 1994 between the Company and Kathryn G. Thompson
Construction Company and affiliates, incorporated by reference to
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.
10.27 Promissory Note Agreement dated as of December 16, 1994 between the
Registrant and AV Partnership.*
21.01 Subsidiaries of the Registrant.*
27.01 Financial Data Schedule.*
</TABLE>
------------------------
* Filed herewith.
(b) Reports on Form 8-K:
Report on Form 8-K filed December 29, 1994, reporting under Item 5 Other
Events, completion of financing transactions relating to (i) the financing of an
appeal bond and any judgment or settlement in connection with the litigation
involving the Company vs. Abex Inc. and WTI, and; (ii) construction loans for
the development of the Eagle Crest and Wentworth projects.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 29, 1995 KOLL REAL ESTATE GROUP, INC.
By: /s/ RAYMOND J. PACINI
------------------------------------
Raymond J. Pacini
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------------------------------- --------------------------- --------------
<C> <S> <C>
/s/ DONALD M. KOLL Chairman of the Board March 29, 1995
-----------------------------------
(Donald M. Koll)
/s/ RAY WIRTA Vice Chairman of the Board March 29, 1995
----------------------------------- and Chief Executive
(Ray Wirta) Officer (Principal
Executive Officer)
/s/ RAYMOND J. PACINI Executive Vice President March 29, 1995
----------------------------------- and Chief Financial
(Raymond J. Pacini) Officer (Principal
Financial Officer)
/s/ HAROLD A. ELLIS, JR. Director March 29, 1995
-----------------------------------
(Harold A. Ellis, Jr.)
/s/ PAUL C. HEGNESS Director March 29, 1995
-----------------------------------
Paul C. Hegness)
/s/ J. THOMAS TALBOT Director March 29, 1995
-----------------------------------
(J. Thomas Talbot)
/s/ KATHRYN G. THOMPSON Director March 29, 1995
-----------------------------------
(Kathryn G. Thompson)
/s/ MARCO F. VITULLI Director March 29, 1995
-----------------------------------
(Marco F. Vitulli)
</TABLE>
13
<PAGE>
KOLL REAL ESTATE GROUP, INC.
SELECTED FINANCIAL DATA
The following selected financial data of Koll Real Estate Group, Inc. and
its consolidated subsidiaries (the "Company") should be read in conjunction with
the financial statements included elsewhere herein. For further discussion of
the formation of the Company and the basis of presentation see the Notes to
Financial Statements.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1990 1991 1992 1993 1994
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments (a)......... $ 22.1 $ 7.8 $ 41.6 $ 43.5 $ 13.0
Total assets (a).............................................. 590.0 472.9 486.1 436.0 423.0
Senior bank debt (b).......................................... 95.3 82.4 65.4 7.0 --
Nonrecourse debt (b).......................................... 25.0 24.9 -- -- --
Subordinated debentures (b)................................... 161.5 184.7 165.1 134.9 152.9
Total stockholders' equity (c)................................ 208.0 101.3 149.6 163.5 145.5
Fully diluted shares outstanding at end of year (g)........... 20.0 20.0 86.4 91.4 102.5
Book value per fully diluted share............................ 10.40 5.07 1.73 1.79 1.42
Statement of Operations Data:
Revenues (d),(e).............................................. 97.0 34.7 28.3 16.7 21.4
Income (loss) from continuing operations (e),(f).............. 62.6 (105.5) (41.9) (20.1) (18.7)
Net income (loss) (f)......................................... 64.7 (106.7) (38.4) 14.3 (18.0)
Per common share:
Income (loss) from continuing operations (c),(e),(f).......... 3.05 (5.27) (1.44) (.24) (.43)
Net income (loss) (f),(g)..................................... 3.15 (5.33) (1.32) .17 (.41)
Weighted average shares outstanding (g)......................... 20.5 20.0 29.0 83.0 43.8
<FN>
------------------------
(a) The decrease in total assets at December 31, 1991 is primarily due to
asset revaluations and the decrease in cash and cash equivalents, which
primarily reflects principal repayments on senior bank debt. The increase
in cash and cash equivalents and total assets at December 31, 1992 is
primarily attributable to the July 16, 1992 merger with The Henley Group,
Inc. (the "Merger"; Note 1), partially offset by the elimination of hotel
assets from the Company's balance sheet in connection with the Long Beach
Airport Marriott Hotel (the "Hotel") foreclosure. The decrease in total
assets at December 31, 1993 is primarily due to the disposition of the
Company's investment in Deltec Panamerica S.A. ("Deltec") and the sale of
Lake Superior Land Company ("Lake Superior"; Note 3). The decrease in
total assets and cash, cash equivalents and short-term investments at
December 31, 1994 is primarily attributable to the funding of project
development costs and general and administrative expenses, as well as
funds deposited into a restricted cash account to secure a $25 million
letter of credit facility related to the Abex litigation (Notes 6 and 8).
(b) The decrease in senior bank debt at December 31, 1991 is due to principal
repayments on such debt. The decreases in debt at December 31, 1992
reflect the elimination of nonrecourse debt from the Company's balance
sheet in connection with the Hotel foreclosure and the reduction of
subordinated debentures and principal repayments on senior bank debt in
connection with the Merger (Note 1). The decrease in debt at December 31,
1993 reflects principal repayments on senior bank debt (Note 6) and the
exchange of subordinated debentures in connection with the sale of Lake
Superior and the issuance of 3.4 million shares of Class A Common Stock of
the Company to Libra Invest & Trade Ltd. ("Libra") (Notes 3 and 6).
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
(c) The decrease in equity at December 31, 1991 primarily reflects the net
loss for the year then ended. The increase in equity at December 31, 1992
reflects the 1992 Merger, partially offset by the net loss for the year
then ended. The increase in equity at December 31, 1993 primarily reflects
net income for the year then ended.
(d) The decrease in 1991 revenues was primarily due to a decrease in
residential sales at the Coronado Cays project, as well as a decrease in
land sales and poor market conditions in the real estate industry. The
decrease in 1992 revenues was principally due to the commencement of a
foreclosure against the Hotel in September 1992 and lower Hotel operating
revenues prior to that date. The decrease in 1993 revenues is principally
due to a decrease in land sales and the absence of Hotel revenues,
partially offset by revenues from the Eagle Crest golf course which opened
in May 1993 and development fees generated by the business acquired from
The Koll Company in September 1993 (Note 3).
(e) Amounts have been reclassified to present Lake Superior and Deltec as
discontinued operations.
(f) The loss from continuing operations, net loss and loss per common share
for the year ended December 31, 1991 include approximately $65 million
($3.24 per share) of charges related to asset revaluations. The loss from
continuing operations, net loss and loss per common share for the year
ended December 31, 1992 reflect lower interest expense related to lower
debt outstanding as a result of the 1992 Merger and concurrent prepayment
of $15 million of senior bank debt, along with lower interest rates. The
loss from continuing operations for the year ended December 31, 1993
reflects lower interest expense related to lower debt outstanding, as well
as nonrecurring income of $3 million received upon termination of a put
option agreement with Abex Inc. and a $2 million insurance reimbursement
related to costs incurred in 1992. Net income and net income per common
share for 1993 reflect gains on the dispositions of Lake Superior and
Deltec (Note 3) and an extraordinary gain on debt extinguishment (Notes 3
and 6).
(g) In July 1992, approximately 19.7 million shares of Class A Common Stock
and 42.5 million shares of Series A Preferred Stock were issued in
connection with the Merger. The Series A Preferred Stock is not included
in the loss per share calculations for 1991, 1992 and 1994 since the
effect is antidilutive. In December 1993, the Company issued 3.4 million
shares of its Class A Common Stock in exchange for all of Libra's
approximately $10.6 million in aggregate principal amount plus accrued
interest of subordinated debentures issued by the Company (Notes 3 and 6).
The 1993 earnings per share calculation includes these newly issued
shares, along with the Series A Preferred Stock and stock options
outstanding. In November 1994, the Company issued 2.0 million shares
(along with warrants for the purchase of an additional 2.0 million shares)
of its Class A Common Stock in connection with the acquisition of the
Kathryn G. Thompson Company (Note 3).
</TABLE>
F-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The principal activity of the Company is to obtain zoning and other
entitlements for land it owns and to improve the land for residential
development. Once the land is entitled, the Company may sell unimproved land to
other developers or investors; sell improved land to home builders; or
participate in joint ventures with other developers, investors or homebuilders
to finance and construct infrastructure and homes. The Company's principal
activities also include providing commercial, industrial, retail and residential
development services to third parties, including feasibility studies,
entitlement coordination, project planning, construction management, financing,
marketing, acquisition, disposition and asset management services on a national
basis, through its offices throughout California, and in Dallas, Denver, Phoenix
and Seattle. With the acquisition of the Kathryn G. Thompson Company on November
9, 1994, the Company's principal activities have been expanded to include single
and multi-family residential construction. The Company intends to consider
additional real estate acquisition and joint venture opportunities; however,
over the next year the Company's principal objective is to maintain adequate
liquidity to fully support the Bolsa Chica project entitlement efforts.
Real estate held for development or sale and land held for development (real
estate properties) are carried at the lower of cost or estimated net realizable
value based on undiscounted cash flows (Note 2). The Company's real estate
properties are subject to a number of uncertainties which can affect the future
values of those assets. These uncertainties include delays in obtaining zoning
and regulatory approvals, withdrawals or appeals of regulatory approvals and
availability of adequate capital, financing and cash flow. In addition, future
values may be adversely affected by heightened environmental scrutiny,
limitations on the availability of water in Southern California, increases in
property taxes, increases in the costs of labor and materials and other
development risks, changes in general economic conditions, including higher
mortgage interest rates, and other real estate risks such as the demand for
housing generally and the supply of competitive products. While the December
1994 bankruptcy filing by the County of Orange is not indicative of the state of
the overall Orange County economy, it may have a negative impact on residential
real estate. Real estate properties do not constitute liquid assets and, at any
given time, it may be difficult to sell a particular property for an appropriate
price. The state of California's economy has had a negative impact on the real
estate market generally, on the availability of potential purchasers for such
properties and upon the availability of sources of financing for carrying and
developing such properties.
LIQUIDITY AND CAPITAL RESOURCES
The principal assets in the Company's portfolio are residential land which
must be held over an extended period of time in order to be developed to a
condition that, in management's opinion, will ultimately maximize the return to
the Company. Consequently, the Company requires significant capital to finance
its real estate development operations. During 1994, the Company generated an
aggregate of approximately $9 million through the sales of residential homes and
the golf course at its Wentworth By The Sea project in New Hampshire, and
utilized $7 million of such proceeds to retire outstanding senior bank debt. At
December 31, 1994 the Company's unrestricted cash and cash equivalents
aggregated $13 million. Historically, sources of capital have included bank
lines of credit, specific property financings, asset sales and available
internal funds. The Company has reported losses since 1991, with the exception
of 1993 results which included gains on dispositions and extinguishment of debt,
and expects to report losses in the foreseeable future. While a significant
portion of such losses is attributable to noncash interest expense on the
Company's subordinated debentures, the Company's capital expenditures for
project development are significant.
On February 6, 1995 the Company entered into an agreement with Wheelabrator
Technologies, Inc. and Abex Inc. ("Abex") a former subsidiary of The Henley
Group, Inc., which settled litigation over an alleged tax deficiency that is the
subject of certain tax sharing agreements (Note 8). Under the terms of the
settlement, the Company paid an aggregate of $22 million, $15.5 million of which
was funded by borrowings under a $25 million financing agreement entered into in
December 1994 with a major financial institution
F-3
<PAGE>
and the balance of $6.5 million was funded from restricted cash. Since the
financing agreement provides up to $25 million solely for settlement or appeal
of the Abex litigation, no additional funds are available under this facility. A
related credit facility provides for a $5 million construction loan to partially
fund infrastructure construction at the Company's Eagle Crest project and allows
for a one-time right to reborrow $5 million after repayment of the initial loan,
subject to certain restrictions. A second financing was also completed in
December 1994 with a major financial institution which provides the Company with
a construction loan of up to $6.5 million to fund completion of infrastructure
improvements and construction of homes at its Wentworth By The Sea project in
New Hampshire. Given the limited availability of capital for residential real
estate development under current conditions in the financial markets, the
Company will continue to be dependent primarily on real estate sales, existing
financing arrangements and cash and cash equivalents on hand to fund project
investments and general and administrative costs during 1995. While the
potential remediation expenditures proposed in connection with certain indemnity
obligations discussed in "Corporate Indemnification Matters" could have an
adverse effect on liquidity, the Company intends to vigorously defend its
position.
FINANCIAL CONDITION
DECEMBER 31, 1994 COMPARED WITH DECEMBER 31, 1993
Cash, cash equivalents and short term investments aggregated $13.0 million
at December 31, 1994 compared with $43.5 million at December 31, 1993. The
decrease in cash, cash equivalents and short term investments primarily reflects
the funding of restricted cash described above, project development and general
and administrative costs, as well as the activity presented in the Statements of
Cash Flows. Restricted cash of $7.5 million at December 31, 1994 reflects funds
on deposit to secure a $25 million letter of credit facility arranged to finance
the settlement of the Abex litigation described above (Notes 6 and 8).
DECEMBER 31, 1993 COMPARED WITH DECEMBER 31, 1992
Cash, cash equivalents and short-term investments aggregated $43.5 million
at December 31, 1993 compared with $41.6 million at December 31, 1992. The
change in cash and cash equivalents reflects the activity presented in the
Statements of Cash Flows and described below.
The $15.9 million decrease in real estate held for development or sale is
primarily due to the November 1993 sale of the Company's office properties in La
Jolla, California, as well as the placement into service in May 1993 of the
Eagle Crest golf course and its related reclassification to operating
properties.
The $25.0 million decrease in other assets primarily reflects the sale of
the Company's investment in Deltec, partially offset by the acquisition of the
domestic real estate development business of The Koll Company (Note 3).
The $9.5 million increase in accounts payable and accrued liabilities
primarily reflects reclassification of approximately $21 million in taxes
payable from other liabilities in 1993 (Notes 7 and 8), partially offset by the
first quarter 1993 payments of $7.6 million in income taxes (Note 8) and $3.2
million to settle shareholder litigation related to the July 1992 merger with
The Henley Group, Inc. (the "Merger"; Note 1).
The $58.4 million decrease in senior bank debt reflects principal
prepayments to Bank of America and Bank of Boston in connection with the January
1993 Lake Superior Land Company's financing, the August 1993 disposition of the
Company's investment in Deltec (Note 3) and the November 1993 sale of the
Company's two office buildings in La Jolla, California.
The $30.2 million decrease in subordinated debentures reflects the exchange
of approximately $42.4 million in aggregate face amount of senior subordinated
debentures held by Libra Invest & Trade Ltd. ("Libra") for the Company's Lake
Superior Land Company subsidiary, and the exchange of approximately $10.6
million in aggregate face amount of subordinated debentures held by Libra for
approximately 3.4 million shares of the Company's Class A Common stock (Notes 3
and 6), offset by payments of interest through the issuance of additional
pay-in-kind debentures on March 15 and September 15, 1993 and the accrual of
interest since September 15, 1993.
F-4
<PAGE>
The $25.4 million increase in other liabilities is principally due to the
adoption of FAS 109 (Note 8), as well as the tax effect of the extraordinary
gain on extinguishment of debt, partially offset by the reclassification of
approximately $21 million in taxes payable to accounts payable and accrued
liabilities.
RESULTS OF OPERATIONS
The nature of the Company's business is such that individual transactions
often cause significant fluctuations in operating results from year to year.
1994 COMPARED WITH 1993
The $4.7 million increase in revenues from $16.7 million in 1993 to $21.4
million in 1994 and the increase in cost of sales from $16.3 million in 1993 to
$20.2 million in 1994 were both principally related to operations of the
domestic real estate development business acquired from The Koll Company in
September 1993, as well as residential home sales and the golf course sale at
the Company's Wentworth By The Sea project during 1994, offset by the absence in
1994 of the Company's November 1993 sale of two office buildings in La Jolla,
California.
The decrease in interest expense from $24.4 million in 1993 to $19.4 million
in 1994 reflects both the reductions in outstanding subordinated debt in
connection with the Libra transaction in December 1993 and prepayments of senior
bank debt principally during 1993 (Note 6).
The change in other expense (income), net from $2.4 million of income in
1993 to $2.1 million of expense for 1994 primarily reflects nonrecurring income
of $3.0 million received in August 1993 in connection with the termination of a
put option agreement with Abex and a $2.0 million insurance reimbursement
received in February 1993, offset by $.7 million of carrying costs related to
the two La Jolla office buildings sold in November 1993.
The gain on disposition of discontinued operations, net of income taxes in
1994 reflects the receipt of cash for the February 1994 termination of the
contingent payment provision of a December 1993 agreement with Libra whereby the
Company exchanged its Lake Superior Land Company subsidiary for approximately
$42.4 million face amount of the Company's senior subordinated debentures held
by Libra and other consideration (Note 3).
1993 COMPARED WITH 1992
The $11.6 million decrease in revenues from $28.3 million in 1992 to $16.7
million in 1993 and the decrease in cost of sales from $26.5 million in 1992 to
$16.3 million in 1993 were both principally related to the Company's 1992 sale
of California properties in Ontario, Long Beach and Coronado, along with the
February 1993 foreclosure sale of the Long Beach Marriott hotel (the "Hotel"),
offset by the Company's sale in November 1993 of two office buildings located in
La Jolla, California and revenues from golf operations at the Company's Eagle
Crest project and the domestic real estate development business acquired from
The Koll Company in September 1993. The pro forma impact of this acquisition
assuming it had occurred on January 1, 1993, would have been to increase the
Company's revenues and income from continuing operations before income taxes and
amortization of goodwill by $10.0 million and $2.4 million, respectively.
The $1.8 million decrease in general and administrative expenses for 1993 as
compared with 1992 was primarily attributed to reduced personnel and occupancy
costs.
The decrease in interest expense from $31.2 million in 1992 to $24.4 million
in 1993 primarily reflects the reduction in outstanding subordinated debentures
and senior bank debt in connection with the July 1992 Merger and the 1993
prepayments of senior bank debt.
The improvement in other expense (income), net from $2.9 million of expense
for 1992 to $2.4 million of income for 1993 primarily reflects $3.0 million
received in 1993 in connection with the termination of a put option agreement
with Abex and a $2.0 million insurance reimbursement received in 1993 related to
prior year environmental litigation costs.
The Company adopted Financial Accounting Standard No. 109 "Accounting for
Income Taxes," in the first quarter of 1993, resulting in an increase in its
deferred tax liability of $36.0 million through a charge to
F-5
<PAGE>
income at the time of adoption (Notes 2 and 8). Under this new accounting
standard, the Company also recognized $10.4 million and $10.3 million of tax
benefits on continuing operations for the years ended December 31, 1993 and
1994, respectively.
1992 COMPARED WITH 1991
The decrease in revenues from $34.7 million in 1991 to $28.3 million in 1992
and the decrease in cost of sales from $28.8 million in 1991 to $26.5 million in
1992 were both principally due to the commencement of foreclosure proceedings
against the Hotel in September 1992, and lower Hotel operating revenues prior to
that date.
The decrease in gross operating margin from $5.9 million in 1991 to $1.8
million in 1992 is primarily attributable to lower margins on asset sales and
lower Hotel operating margins in 1992 discussed above.
The $3.3 million decrease in interest expense from 1991 to 1992 is primarily
due to the reduction in outstanding subordinated debentures and senior bank debt
in connection with the Merger, as well as lower interest rates on the senior
bank debt.
The change in other expense (income), net from $65.5 million of expense for
1991 to $2.9 million of expense for 1992 primarily reflects approximately $65
million of charges in 1991 related to asset revaluations.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
of Koll Real Estate Group, Inc.:
We have audited the accompanying balance sheets of Koll Real Estate Group,
Inc. (formerly The Bolsa Chica Company) as of December 31, 1994 and 1993, and
the related statements of operations, cash flows and changes in stockholders'
equity for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Koll Real Estate Group, Inc.
at December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
The Company carries its real estate properties at the lower of cost or
estimated net realizable value. As discussed in Note 2, the estimation process
is inherently uncertain and relies to a considerable extent on future events and
market conditions. As discussed in Note 5, the development of the Company's
Bolsa Chica project is dependent upon obtaining various governmental approvals
and various economic factors. Accordingly, the amount ultimately realized from
such project may differ materially from the current estimate of net realizable
value.
As discussed in Note 8, the Company changed its method of accounting for
income taxes in 1993.
DELOITTE & TOUCHE LLP
San Diego, California
March 21, 1995
F-7
<PAGE>
KOLL REAL ESTATE GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
------- -------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 21.8 $ 13.0
Short-term investments...................................... 21.7 --
Restricted cash............................................. -- 7.5
Real estate held for development or sale.................... 40.4 42.7
Operating properties, net................................... 13.3 10.2
Land held for development................................... 315.9 325.8
Other assets................................................ 22.9 23.8
------- -------
$ 436.0 $ 423.0
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities.................. $ 30.7 $ 31.8
Senior bank debt.......................................... 7.0 --
Subordinated debentures................................... 134.9 152.9
Other liabilities......................................... 99.9 92.8
------- -------
Total liabilities....................................... 272.5 277.5
------- -------
Stockholders' equity:
Series A (convertible redeemable nonvoting) Preferred
Stock -- $.01 par value; 42,505,504 shares authorized;
42,505,504 and 41,255,340 shares outstanding,
respectively............................................. .4 .4
Class A (voting) Common Stock -- $.05 par value;
625,000,000 shares authorized; 43,192,847 and 46,569,867
shares outstanding, respectively......................... 2.2 2.3
Class B (convertible nonvoting) Common Stock -- $.05 par
value; 25,000,000 shares authorized and no shares
outstanding.............................................. -- --
Capital in excess of par value............................ 230.0 230.5
Deferred proceeds from stock issuance..................... (1.5) (1.6)
Minimum pension liability................................. (1.5) (2.0)
Accumulated deficit....................................... (66.1) (84.1)
------- -------
Total stockholders' equity.............................. 163.5 145.5
------- -------
$ 436.0 $ 423.0
------- -------
------- -------
</TABLE>
See the accompanying notes to financial statements.
F-8
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
------------------------------
1992 1993 1994
-------- ------- -------
(IN MILLIONS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues:
Asset sales..................................... $ 16.3 $ 11.1 $ 11.1
Operations...................................... 12.0 5.6 10.3
-------- ------- -------
28.3 16.7 21.4
-------- ------- -------
Costs of:
Asset sales..................................... 15.5 11.1 10.7
Operations...................................... 11.0 5.2 9.5
-------- ------- -------
26.5 16.3 20.2
-------- ------- -------
Gross operating margin............................ 1.8 .4 1.2
General and administrative expenses............... 10.7 8.9 8.7
Interest expense.................................. 31.2 24.4 19.4
Other expense (income), net....................... 2.9 (2.4) 2.1
-------- ------- -------
Loss from continuing operations before income
taxes............................................ (43.0) (30.5) (29.0)
Provision (benefit) for income taxes.............. (1.1) (10.4) (10.3)
-------- ------- -------
Loss from continuing operations................... (41.9) (20.1) (18.7)
Discontinued operations:
Income from operations, net of income taxes of
$1.5 and $3.1, respectively.................... 3.5 5.8
---
Gains on dispositions, net of income taxes of
$1.4 and $.3, respectively..................... -- 41.0 .7
-------- ------- -------
Income (loss) before extraordinary gain and
cumulative effect of accounting change........... (38.4) 26.7 (18.0)
Extraordinary gain on extinguishment of debt, net
of income taxes of $12.5......................... -- 23.6 --
Cumulative effect of accounting change............ -- (36.0) --
-------- ------- -------
Net income (loss)................................. $ (38.4) $ 14.3 $ (18.0)
-------- ------- -------
Earnings (loss) per common share:
Continuing operations........................... $ (1.44) $ (0.24) $ (0.43)
Discontinued operations......................... 0.12 0.56 0.02
Extraordinary gain.............................. -- 0.28 --
Cumulative effect of accounting change.......... -- (0.43) --
-------- ------- -------
Net income (loss) per common share................ $ (1.32) $ 0.17 $ (0.41)
-------- ------- -------
-------- ------- -------
</TABLE>
See the accompanying notes to financial statements.
F-9
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
------------------------------
1992 1993 1994
-------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) before extraordinary gain and
cumulative effect of accounting changes........ $ (38.4) $ 26.7 $ (18.0)
Adjustments to reconcile to cash used by
operating activities:
Depreciation and amortization................. 2.7 1.2 1.2
Non-cash interest expense..................... 22.9 21.9 18.0
Gains on asset sales.......................... (4.3) -- (.4)
Gains on dispositions of discontinued
operations................................... -- (41.0) (.7)
Proceeds from asset sales, net................ 16.7 10.4 10.5
Investments in real estate held for
development or sale.......................... (3.1) (3.8) (6.1)
Investment in land held for development....... (5.6) (7.3) (9.9)
Decrease (increase) in other assets........... 3.5 (10.0) (.6)
Decrease in accounts payable, accrued and
other liabilities............................ (9.9) (14.9) (9.7)
Other, net.................................... (.2) (.2) (.1)
-------- ------- -------
Cash used by operating activities........... (15.7) (17.0) (15.8)
-------- ------- -------
Cash flows from investing activities:
(Purchase) sale of short-term investments....... -- (21.7) 21.7
Proceeds from disposition of discontinued
operation...................................... -- -- 1.0
Sale of fixed assets............................ 8.2 -- --
Acquisitions.................................... -- (9.8) (1.2)
Sale of equity investment....................... -- 43.7 --
-------- ------- -------
Cash provided by investing activities....... 8.2 12.2 21.5
-------- ------- -------
Cash flows from financing activities:
Repayments of senior bank debt.................. (17.0) (58.4) (7.0)
Net proceeds from nonrecourse debt.............. -- 43.4 --
Deposit of restricted cash...................... -- -- (7.5)
Proceeds from Merger............................ 58.3 -- --
-------- ------- -------
Cash provided (used) by financing
activities................................. 41.3 (15.0) (14.5)
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents...................................... 33.8 (19.8) (8.8)
Cash and cash equivalents -- beginning of year.... 7.8 41.6 21.8
-------- ------- -------
Cash and cash equivalents -- end of year.......... $ 41.6 $ 21.8 $ 13.0
-------- ------- -------
-------- ------- -------
</TABLE>
See the accompanying notes to financial statements.
F-10
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
DEFERRED
CAPITAL IN PROCEEDS MINIMUM
PREFERRED COMMON EXCESS OF FROM STOCK PENSION ACCUMULATED
STOCK STOCK PAR VALUE ISSUANCE LIABILITY DEFICIT TOTAL
---------- ------ ---------- ---------- --------- ----------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1991...... $-- $ 1.0 $142.3 $-- $-- $(42.0) $101.3
Net loss..................... -- -- -- -- -- (38.4) (38.4)
Minimum Pension liability.... -- -- -- -- (1.1) -- (1.1)
Merger....................... .4 1.0 86.4 -- -- -- 87.8
----- ------ ---------- ----- --------- ----------- ------
Balance December 31, 1992...... .4 2.0 228.7 -- (1.1) (80.4) 149.6
Net income................... -- -- -- -- -- 14.3 14.3
Minimum pension liability.... -- -- -- -- (.4) -- (.4)
Deferred proceeds from stock
issuance.................... -- .2 2.0 (2.2) -- -- --
Valuation adjustment to
deferred proceeds from stock
issuance.................... -- -- (.7) .7 -- -- --
----- ------ ---------- ----- --------- ----------- ------
Balance December 31, 1993...... .4 2.2 230.0 (1.5) (1.5) (66.1) 163.5
Net loss..................... -- -- -- -- -- (18.0) (18.0)
Minimum pension liability.... -- -- -- -- (.5) -- (.5)
Valuation adjustment to
deferred proceeds from stock
issuance.................... -- -- .1 (.1) -- -- --
Issuance of stock related to
acquisition................. -- .1 .4 -- -- -- .5
----- ------ ---------- ----- --------- ----------- ------
Balance December 31, 1994...... $ .4 $ 2.3 $230.5 $(1.6) $(2.0) $(84.1) $145.5
----- ------ ---------- ----- --------- ----------- ------
----- ------ ---------- ----- --------- ----------- ------
</TABLE>
See the accompanying notes to financial statements.
F-11
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- FORMATION AND BASIS OF PRESENTATION
On December 31, 1989, The Henley Group, Inc. separated its business into two
public companies through a distribution to its Class A and Class B common
stockholders of all of the common stock of a newly formed Delaware corporation
to which The Henley Group, Inc. had contributed its non-real estate development
operations, assets and related liabilities. The new company was named The Henley
Group, Inc. ("Henley Group") immediately following the distribution. The
remaining company was renamed Henley Properties Inc. ("Henley Properties") and
consisted of the real estate development business and assets of Henley Group,
including its subsidiary Signal Landmark.
On July 16, 1992, a subsidiary of Henley Properties merged with and into
Henley Group (the "Merger") and Henley Group became a wholly owned subsidiary of
Henley Properties. In the Merger, Henley Properties, through its Henley Group
subsidiary, received net assets having a book value as of July 16, 1992 of
approximately $45.3 million, consisting of approximately $103.6 million of
assets, including $58.3 million of cash and a 44% interest in Deltec Panamerica
S.A. ("Deltec"), and $58.3 million of liabilities. In connection with the
Merger, Henley Properties was renamed The Bolsa Chica Company.
On September 30, 1993, a subsidiary of The Bolsa Chica Company acquired the
domestic real estate development business and related assets of The Koll
Company. In connection with this acquisition, The Bolsa Chica Company was
renamed Koll Real Estate Group, Inc. (the "Company").
Immediately prior to the July 1992 Merger, Henley Group distributed to its
stockholders among other consideration (the "Distribution"), in respect of each
share of its outstanding common stock (the "Henley Group Common Stock"): (i)
$6.00 aggregate principal amount of the 12% Senior Subordinated Pay-In-Kind
Debentures due March 15, 2002 of the Company (the "Senior Subordinated
Debentures"); and (ii) $1.50 aggregate principal amount of the 12% Subordinated
Pay-In-Kind Debentures due March 15, 2002 of the Company (the "Subordinated
Debentures", and together with the Senior Subordinated Debentures, the
"Debentures"). Approximately $159.4 million aggregate principal amount of the
Debentures were distributed in the Distribution and approximately $43.8 million
aggregate principal amount of the Debentures were retained by the Company's
Henley Group subsidiary in the Merger. In the Merger, Henley Group stockholders
also received, in respect of each share of Henley Group Common Stock, the
following securities of the Company: (i) two shares of Series A Convertible
Redeemable Preferred Stock (the "Series A Preferred Stock"); and (ii) one share
of Class A Common Stock (the "Class A Common Stock").
Certain amounts have been reclassified to conform with the current year
presentation.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
EARNINGS PER COMMON SHARE
The weighted average numbers of common shares outstanding for the years
ended December 31, 1992, 1993 and 1994 were 29.0 million, 83.0 million and 43.8
million, respectively. The Series A Preferred Stock, as well as outstanding
stock options are not included in the loss per share calculation for 1992 and
1994 because the effect is antidilutive. The 1993 earnings per share calculation
includes the Series A Preferred Stock and the effect of 5.7 million shares of
common and preferred stock granted under the 1988 Stock Option Plan (Note 13).
The 1994 earnings per share calculation includes the effect of 2.0 million
shares of Class A Common Stock issued on November 9, 1994, in connection with
the acquisition of the Kathryn G. Thompson Company (Note 3) and the conversion
of 1.2 million shares of Series A Preferred Stock to an equal number of shares
of Class A Common Stock during the fourth quarter of 1994.
In connection with the Merger, on July 16, 1992, the Company issued
approximately 19.7 million shares of its Class A Common Stock and 42.5 million
shares of its Series A Preferred Stock.
F-12
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On December 17, 1993, the Company issued 3.4 million shares of its Class A
Common Stock to Libra Invest & Trade Ltd. ("Libra") in exchange for all of
Libra's approximately $10.6 million in aggregate principal amount of
Subordinated Debentures plus accrued interest.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS
At December 31, 1993, the Company's short-term investments consisted
primarily of commercial paper and government securities carried at amortized
cost which approximated fair market value.
REAL ESTATE
Real estate held for development or sale and land held for development (real
estate properties) are carried at the lower of cost or estimated net realizable
value based on undiscounted cash flows. The estimation process involved in the
determination of net realizable value is inherently uncertain since it requires
estimates as to future events and market conditions. Such estimation process
assumes the Company's ability to complete development and dispose of its real
estate properties in the ordinary course of business based on management's
present plans and intentions. Economic, market, environmental and political
conditions may affect management's development and marketing plans. In addition,
the implementation of such development and marketing plans could be affected by
the availability of future financing for development and construction
activities. Accordingly, the ultimate net realizable values of the Company's
real estate properties are dependent upon future economic and market conditions,
the availability of financing, and the resolution of political, environmental
and other related issues.
The cost of sales of multi-unit projects is generally computed using the
relative sales value method, with direct construction costs and property taxes
accumulated by phase, using the specific identification method. Interest cost is
capitalized to real estate projects during their development and construction
period. No interest expense incurred during the years ended December 31, 1992,
1993, and 1994 was capitalized.
Operating properties are generally depreciated using estimated lives that
range principally from 5 to 30 years. For financial statement purposes,
depreciation is computed utilizing the straight-line method. For tax purposes,
depreciation is generally computed by accelerated methods based on allowable
useful lives. Accumulated depreciation amounted to $9.7 million and $10.4
million at December 31, 1993 and 1994, respectively.
INTANGIBLE ASSETS
Goodwill, which represents the difference between the purchase price of a
business acquired in 1993 and the related fair value of net assets acquired, is
amortized on a straight-line basis over 15 years. Goodwill of $9.1 million and
$8.5 million as of December 31, 1993 and 1994, respectively, is included in
other assets. The carrying value of goodwill is reviewed periodically based on
projected cash flows to be received from related operations over the remaining
amortization period of the goodwill. If such projected cash flows are less than
the carrying value of the goodwill, the difference will be charged as an
expense.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company accounted for the cost of post-retirement benefits other than
pensions, which are primarily health care related, during each employee's active
working career under a plan which was frozen in 1993. As of December 31, 1993
and 1994 the accrued unfunded costs totalled $1.5 million and $1.4 million,
respectively.
F-13
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). FAS 109 supersedes both APB Opinion No. 11 and FAS No. 96, "Accounting
for Income Taxes." With the adoption of FAS 109 in the first quarter of 1993,
the Company changed to the liability method of accounting for income taxes,
which resulted in an increase in its deferred tax liability of approximately $36
million, through a charge to income (Note 8). Also see Note 8 for a discussion
of the tax sharing agreements with Abex Inc. ("Abex") and Wheelabrator
Technologies Inc. ("WTI").
RECOGNITION OF REVENUES
Sales are recorded using the full accrual method when title to the real
estate sold is passed to the buyer and the buyer has made an adequate financial
commitment. When it is determined that the earning process is not complete,
income is deferred using the installment, cost recovery or percentage of
completion methods of accounting.
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS
On November 9, 1994 the Company acquired the stock of Kathryn G. Thompson
Company and related assets ("KGTC"). The principal activities of the acquired
business are residential real estate development and homebuilding, focusing on
the entry-level and first time move-up market segments. Current projects of the
acquired business include a 49% general partnership interest in a 230-acre
project approved for 1,421 residential units in Aliso Viejo in southern Orange
County ("AV Partnership") and a 40% general partnership interest in a 30-acre
project approved for 92 single family detached homes in Oceanside in northern
San Diego County ("Oceanside Hills"). In connection with the acquisition, the
Company paid $1.2 million in cash and a $.5 million note, issued 2 million
shares of Class A Common Stock and warrants to purchase an additional 2 million
shares. The Company has guaranteed approximately $4.8 million of capital
contribution notes related to the Aliso Viejo partnership interest, which notes
are primarily payable out of positive net cash flow to be generated by the
partnership interest and are not due until the earlier of the completion of the
project or April 1999. In addition, on November 9, 1994, KGTC, Ms. Kathryn G.
Thompson who was appointed as an officer and director of the Company and Mr. J.
Harold Street, who was appointed as an officer of the Company, entered into
covenants not to compete with the Company with respect to real estate
development, subject to certain limited exceptions. The KGTC covenant is
perpetual in duration while the covenants of Ms. Thompson and Mr. Street are
limited to the five-year period following their ceasing to be either officers or
directors of the Company.
Summarized financial information of AV Partnership is presented below at
December 31, and for the year then ended (in millions):
<TABLE>
<CAPTION>
UNAUDITED
1994
-----------
<S> <C>
Balance Sheet Data:
Total assets.................................................................... $ 67.7
Total project debt and other liabilities........................................ 63.8
-----
Partners' capital............................................................... $ 3.9
-----
-----
Statement of Operations Data:
Net loss........................................................................ $ (.8)
-----
-----
</TABLE>
The Company uses the equity method to account for its investment in AV
Partnership and accordingly, the statement of operations includes a $.1 million
loss for the period from the acquisition date through
F-14
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS (CONTINUED)
December 31, 1994, and the Company's $1 million investment in this partnership
at December 31, 1994 is included in other assets. The Company consolidates its
investment in Oceanside Hills since this partnership is controlled by the
Company.
In August 1993, the Company disposed of its entire 44% interest in Deltec
for $43.7 million in net cash proceeds, resulting in a gain of $1.9 million.
Discontinued operations for the years ended December 31, 1992 and 1993 also
includes $.9 million and $4.2 million of net income through the date of
disposition. The Company used $23.8 million of the proceeds to make principal
prepayments in accordance with term loan agreements with Bank of America and
Bank of Boston. The Company also terminated its put option agreement with Abex
(Note 9) in August 1993 and received $3 million in cash from Abex which was used
to prepay senior bank debt.
In September 1993, the Company acquired the domestic real estate development
business and related assets of The Koll Company ("Koll"). In connection with the
acquisition, the Company paid $9 million in cash, including $4.25 million paid
in December 1993 for the termination of an earn-out provision, and approximately
$1 million in reimbursement of investments in transferred development projects.
In addition, in September 1993, Koll and Mr. Donald M. Koll (an officer and
director of the Company and owner of Koll) entered into covenants not to compete
with the Company with respect to domestic real estate development, subject to
certain limited exceptions. The Koll covenant is perpetual in duration while the
covenant of Mr. Koll is limited to the five-year period following his ceasing to
be either an officer, director or stockholder of the Company.
In December 1993, the Company completed a transaction with Libra whereby it
exchanged the Company's Lake Superior Land Company subsidiary for approximately
$42.4 million in aggregate face amount of Senior Subordinated Debentures held by
Libra, and net cash proceeds to be generated by Libra's periodic sale of up to
approximately 3.4 million shares of the Company's Class A Common Stock held by
Libra through a series of transactions to be effected in an orderly manner
within a three-year period. Accordingly, the financial information included in
the statements of operations for all periods has been reclassified to present
Lake Superior Land Company as a discontinued operation. Revenues related to the
discontinued operation were $8.9 million for the year ended December 31, 1992
and $10.6 million for 1993 through the date of disposition. Net income for the
discontinued operation for 1992 and 1993, through the date of disposition was
$2.6 million and $1.6 million, respectively. The Company also completed a
separate transaction with Libra in December 1993, whereby the Company exchanged
approximately 3.4 million newly issued shares of its Class A Common Stock for
approximately $10.6 millon in aggregate face amount of Subordinated Debentures
held by Libra. In connection with these transactions, the Company recorded an
after-tax gain of $39.1 million on the disposition of Lake Superior Land Company
and an after-tax extraordinary gain on extinguishment of the Debentures of $23.6
million (Note 6). After these transactions, Libra and affiliates held
approximately 11.9 million shares, or 28% of the Company's preferred stock and
approximately 7.4 million shares, or 16%, of the Company's Class A Common Stock,
including approximately 3.4 million shares which have been deposited in a
custodial account for periodic sale in accordance with instructions from the
Company. In February 1994, the Company received $1 million in cash from Libra in
exchange for the immediate termination of the contingent payment provision of
the December 1993 transaction with Libra.
NOTE 4 -- REAL ESTATE HELD FOR DEVELOPMENT OR SALE
Real estate held for development or sale consists of the following at
December 31 (in millions):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Residential.................................................................. $ 37.0 $ 41.3
Commercial/industrial........................................................ 3.4 1.4
--------- ---------
$ 40.4 $ 42.7
--------- ---------
--------- ---------
</TABLE>
F-15
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- LAND HELD FOR DEVELOPMENT
Land held for development consists of approximately 1,200 acres known as
Bolsa Chica located in Orange County, California, adjacent to the Pacific Ocean,
surrounded by the City of Huntington Beach and approximately 35 miles south of
downtown Los Angeles ("Bolsa Chica"). The Company is currently seeking approvals
from state and federal governmental entities for the 3,300 unit residential
development and wetlands restoration project approved for this site by the
Orange County Board of Supervisors in December 1994. The development plan
remains subject to the Orange County Board of Supervisors' approval of a
development agreement, for which a public hearing and vote are scheduled for
April 1995, and the approvals of the California Coastal Commission and the U.S.
Army Corps of Engineers. The Company, working with various governmental,
community and environmental groups, has developed a quality master plan which
reflects a 42% reduction in density (from 5,700 to 3,300 units) and a wetlands
restoration plan to be funded by development of up to 900 units in the lowlands.
The Company therefore anticipates that the remaining approvals will be secured
on a timely basis. However, there can be no assurances that the project will
receive
final approvals as currently proposed. Due to a number of factors beyond the
Company's control, including possible objections of various environmental and
so-called public interest groups that may be made in legislative, administrative
or judicial forums, the required approvals could be delayed substantially. In
this regard, on January 13, 1995, two lawsuits challenging the Orange County
Board of Supervisors' approval of the Bolsa Chica project were filed in Orange
County Superior Court. Although the lawsuits differ in the particular issues
that they raise, generally they each allege, among other things, violations of
the California Environmental Quality Act and violations of the California
Government Code planning and zoning laws. The plaintiffs in both actions are not
seeking monetary damages, but are instead asking the Court to set aside the
approval of the project. The plaintiffs in both lawsuits, also seek attorneys'
fees in unspecified amounts if they prevail. Subject to these and other
uncertainties inherent in the entitlement process, the Company's goal is to
obtain all material governmental approvals in 1995 and to begin infrastructure
construction in 1996, depending on economic and market conditions.
The Company is engaged in preliminary negotiations with various governmental
agencies regarding alternative proposals for wetlands restoration, which include
the possibility of the Company selling all of its approximately 930 acres of
lowlands at Bolsa Chica. The ability of the Company to complete any such sale is
subject to substantial contingencies including obtaining all final approvals
from various governmental agencies for development of up to 2,500 residential
units on the Company's approximately 200 acres (and approximately 21 acres owned
by third parties) on the Bolsa Chica mesa. Therefore, there can be no assurance
that these negotiations will result in any transaction being completed. Under
the 3,300 unit residential development and wetlands restoration plan approved by
the Orange County Board of Supervisors, the Company is committed to restoring
the wetlands at Bolsa Chica. The Company believes that the approved plan is
currently the only viable alternative for wetlands restoration. However, during
the ongoing entitlement process for the Bolsa Chica project, the Company will
continue to evaluate a potential sale of the lowlands and any other viable
alternative for restoring the wetlands and accelerating development of this
property. If the Company accepts any such alternative which results in the
number of residential units being materially reduced below 3,300 units, a
significant reduction in the book value of the Bolsa Chica project currently
reflected in the Company's financial statements would result. Any such potential
impact on the statement of operations and stockholders' equity would be
partially offset by a decrease in deferred taxes. Realization of the Company's
investment in Bolsa Chica will also depend upon various economic factors,
including the demand for residential housing in the Southern California market
and the availability of credit to the Company and to the housing industry. While
the December 1994 bankruptcy filing by the County of Orange is not indicative of
the state of the overall Orange County economy, it may adversely affect
residential real estate.
F-16
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- DEBT
SENIOR BANK DEBT
On December 23, 1994, the Company entered into a letter of credit and
reimbursement agreement with Nomura Asset Capital Corporation. The agreement
provides for up to $25 million for the posting of an appeal bond or payment of
any final judgment against the Company in connection with the Abex litigation,
or for settlement of the lawsuit in excess of $7.5 million to be funded by the
Company, which is reflected as restricted cash at December 31, 1994. In February
1995, the Company paid an aggregate of $22 million to settle the litigation, of
which $15.5 million was funded by borrowings under the letter of credit and
reimbursement agreement and the balance of $6.5 million from restricted cash.
Since this financing agreement was solely for the purpose described above, no
additional funds are available under this facility. Also on December 23, 1994,
the Company entered into a $5 million construction loan agreement with Nomura
Asset Capital Corporation to partially fund infrastructure construction at one
of the Company's residential properties in San Diego County ("Eagle Crest").
This loan agreement allows for a one-time right to reborrow $5 million after
repayment of the initial loan, subject to certain restrictions. As required
under the construction loan agreement, the Company deposited $5 million into an
escrow account in January 1995 to be used solely for funding of infrastructure
construction costs at Eagle Crest.
There were no borrowings under either agreement at December 31, 1994. Both
agreements are principally secured by deeds of trust on Eagle Crest and the
Company's residential property in the City of San Diego ("Fairbanks Highlands").
Amounts outstanding under the letter of credit and reimbursement agreement and
the construction loan agreement bear interest at 30 Day LIBOR plus 4% which was
9.875% as of December 31, 1994. The agreements require principal prepayments
equal to 80% of the net proceeds from any sales at Eagle Crest and Fairbanks
Highlands, with any remaining amounts due on December 20, 1996. The agreements
contain certain restrictive covenants that limit, among other things, (i) the
incurrence of indebtedness, (ii) the making of investments and (iii) the
creation or incurrence of liens on existing and future assets of the Company.
The agreements also contain various financial covenants and events of default
customary for such agreements.
On December 29, 1994, the Company entered into a $6.5 million construction
loan agreement with the Bank of Boston, principally secured by resort and
residential property in New Hampshire ("Wentworth"). The construction loan
agreement requires principal prepayments equal to 90% of the gross proceeds from
any asset sales at Wentworth and additional scheduled principal repayments of
$.6 million by June 30, 1995, an additional $.4 million by September 30, 1995
and an additional $.8 million by June 30, 1996, with any remaining balance due
at maturity on December 29, 1996. During the first quarter of 1995, $1.2 million
in gross proceeds from Wentworth sales were applied to satisfy the required
prepayments, reducing scheduled repayments by an equal amount. There were no
borrowings under this agreement at December 31, 1994. Under the construction
loan agreement, the Company has the option to choose the rate of interest for
each month from either the bank's prime rate plus 1% or the 30, 60 or 90 day
Eurodollar Rate plus 2.75%. The construction loan agreement with Bank of Boston
is secured by a first mortgage on the Wentworth property and contains certain
restrictive covenants that limit, among other things, (i) the incurrence of
indebtedness, (ii) the making of investments, loans and advances, and (iii) the
creation or incurrence of liens on existing and future assets of Wentworth or
its subsidiaries. The construction loan agreement also contains various
financial covenants and events of default customary for such agreements. In
addition, the Company has provided a corporate guaranty for the loan.
F-17
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- DEBT (CONTINUED)
SUBORDINATED DEBENTURES
The Debentures were comprised of the following as of December 31 (in
millions):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Senior Subordinated Debentures............................................. $ 109.4 $ 123.0
Subordinated Debentures.................................................... 27.4 30.7
--------- ---------
Total face amount...................................................... 136.8 153.7
--------- ---------
--------- ---------
Less unamortized discount.................................................. (6.7) (6.2)
Plus accrued interest...................................................... 4.8 5.4
--------- ---------
$ 134.9 $ 152.9
--------- ---------
--------- ---------
</TABLE>
The Debentures give the Company the right to pay interest in-kind, in cash
or, subject to certain conditions, in the Company's common stock. It is
currently anticipated that interest on the Debentures will be paid in-kind. The
Debentures, which are due March 15, 2002, do not require any sinking fund
payments and may be redeemed by the Company at any time in cash only, or at
maturity in cash or stock, subject to certain conditions. The Debentures
prohibit the payment of any dividends or other distributions on the Company's
equity securities.
As a result of the transactions with Libra in December 1993 (Note 3) in
which approximately $42.4 million in aggregate principal amount of Senior
Subordinated Debentures and $10.6 million in aggregate principal amount of
Subordinated Debentures held by Libra were retired, the Company recorded an
extraordinary gain of $23.6 million, net of an applicable income tax provision
of $12.5 million, in the 1993 statement of operations.
At December 31, 1994 the estimated aggregate fair value of the Company's
Debentures was within a range of approximately $50 million to $75 million. The
fair value of the Debentures is estimated based on the negotiated values in the
Libra transactions (Note 3; lower end of range) and current quotes from certain
bond traders making a market in the Debentures (upper end of range). However,
due to the low trading volume and illiquid market for the Debentures, such
current quotes may not be meaningful indications of value. The carrying amount
for all other debt of the Company approximates market primarily as a result of
floating interest rates.
INTEREST
The Company made cash payments for interest of $7.4 million, $2.5 million
and $1.4 million for the years ended December 31, 1992, 1993 and 1994,
respectively.
NOTE 7 -- OTHER LIABILITIES
<TABLE>
<CAPTION>
Other liabilities were comprised of the following as of December 31 (in
millions):
<S> <C> <C>
1993 1994
--------- ---------
Net deferred tax liabilities (Note 8)........................................ $ 45.1 $ 35.4
Other tax liabilities (Note 8)............................................... 14.5 14.5
Accrued pensions and benefits................................................ 12.0 11.9
Accrued indemnity obligations................................................ 28.3 27.3
Majority interest and other liabilities of consolidated partnership (Note
3).......................................................................... -- 3.7
--------- ---------
$ 99.9 $ 92.8
--------- ---------
--------- ---------
</TABLE>
F-18
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). FAS 109
required a change from the deferred method of accounting for income taxes under
APB Opinion No. 11 to the asset and liability method of accounting for income
taxes. Under FAS 109, deferred income taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect in the years in which these
differences are expected to reverse. At January 1, 1993, the Company recorded
the cumulative effect of this change in accounting for income taxes as a $36
million charge to earnings in the statement of operations.
The tax effects of items that gave rise to significant portions of the
deferred tax accounts are as follows for the years ended December 31 (in
millions):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Real estate held for development or sale and operating properties (due to
asset revaluations and interest capitalized for tax purposes)........... $ 25.3 $ 26.7
Accruals not deductible until paid....................................... 10.5 10.4
Net operating loss carryforwards......................................... 37.1 52.0
Other.................................................................... 1.5 2.8
Valuation allowance...................................................... (13.9) (23.3)
--------- ---------
$ 60.5 $ 68.6
--------- ---------
--------- ---------
Deferred tax liabilties:
Land held for development,
(principally due to accounting for a prior business combination)........ $ 101.6 $ 101.6
Other.................................................................... 4.0 2.4
--------- ---------
$ 105.6 $ 104.0
--------- ---------
--------- ---------
</TABLE>
At December 31, 1994, the Company had available tax net operating loss
carryforwards of approximately $145 million which expire in the years 2003
through 2009 if not utilized. The Internal Revenue Code (the "Code") imposes an
annual limitation on the use of loss carryforwards upon the occurrence of an
"ownership change" (as defined in Section 382 of the Code). Such an ownership
change occurred in connection with the Merger. As a result, approximately $24
million of the Company's net operating loss carryforwards will generally be
limited to the extent that Henley Properties and its subsidiaries recognize
certain gains in the five-year period following the ownership change (ending
July 16, 1997).
The following is a summary of the income tax provision (benefit) applicable
to losses from continuing operations for the years ended December 31 (in
millions):
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Income Tax Provision (Benefit):
Current.......................................................... $ (1.1) $ (2.9) $ (.3)
Deferred......................................................... -- (7.5) (10.0)
--------- --------- ---------
$ (1.1) $ (10.4) $ (10.3)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Cash payments for federal, state and local income taxes were approximately
$1.3 million, $7.8 million and $.6 million for the years ended December 31,
1992, 1993 and 1994, respectively. Tax refunds received for the years ended
December 31, 1993 and 1994 were approximately $5.1 million and $.8 million,
respectively.
F-19
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- INCOME TAXES (CONTINUED)
The principal items accounting for the difference in taxes on income
computed at the statutory rate and as recorded are as follows for the years
ended December 31 (in millions):
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Provision (benefit) for income taxes at statutory rate............ $ (14.6) $ (10.7) $ (10.2)
State income taxes, net........................................... .2 (.6) (.1)
Nondeductible expenses............................................ 2.0 -- --
Nonbenefitable book losses........................................ 7.5 -- --
Excess of book over tax basis of assets sold during the year...... 2.6 -- --
Effect of tax rate increase....................................... -- .9 --
All other items, net.............................................. 1.2 -- --
--------- --------- ---------
$ (1.1) $ (10.4) $ (10.3)
--------- --------- ---------
--------- --------- ---------
</TABLE>
TAX SHARING AGREEMENTS
Henley Group and Abex, a former subsidiary of Henley Group whose stock was
distributed to stockholders of Henley Group in July 1992, entered into a tax
sharing agreement in 1992 prior to the Distribution to provide for the payment
of taxes for periods during which Henley Group and Abex were included in the
same consolidated group for federal income tax purposes, the allocation of
responsibility for the filing of tax returns, the cooperation of the parties in
realizing certain tax benefits, the conduct of tax audits and various related
matters.
1989-1992 INCOME TAXES. The Company is generally charged with
responsibility for all of its federal, state, local or foreign income taxes for
this period and, pursuant to the tax sharing agreement with Abex, all such taxes
attributable to Henley Group and their consolidated subsidiaries, including any
additional liability resulting from adjustments on audit (and any interest or
penalties payable with respect thereto), except that Abex is generally charged
with responsibility for all such taxes attributable to it and its subsidiaries
for 1990-1992. In addition, under a separate tax sharing agreement between
Henley Group and a former subsidiary of Henley Group, Fisher Scientific
International Inc. ("Fisher"), Fisher is generally charged with responsibility
for its own income tax liabilities for this period. The Internal Revenue Service
("IRS") is currently conducting an audit of the Company's tax returns for the
years 1989 through 1991. The Company expects that the IRS will propose material
audit adjustments. However, the Company intends to vigorously defend its
position.
PRE-1989 INCOME TAXES. Under tax sharing agreements with WTI and Abex, the
parties are charged with sharing responsibility for paying any increase in the
federal, state or local income tax liabilities (including any interest or
penalties payable with respect thereto) for any consolidated, combined or
unitary tax group which included WTI, Henley Group or any of their subsidiaries
for tax periods ending on or before December 31, 1988. Under the agreements, the
Company is charged with responsibility for paying $25 million, plus amounts
payable with respect to liabilities which are attributable to certain of the
Company's subsidiaries. The Company's $25 million limitation amount was accrued
in the Company's financial statements in December 1989, and following payments
made in the first quarter of 1993, $22 million remained and is included in
accounts payable and accrued liabilities as of December 31, 1993 and 1994.
In January 1993, the IRS completed its examination of the Federal tax
returns of WTI for the periods May 1986 through December 1988 and asserted a
material deficiency relating to the tax basis of a former subsidiary of WTI.
WTI, Abex and the Company disagreed with the position taken by the IRS and WTI
filed a petition with the U.S. Tax Court. In March 1994, prior to the June 1994
trial date, WTI and the IRS entered into a Stipulation of Settlement that
resulted in a tax payable together with interest of approximately $72 million.
F-20
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- INCOME TAXES (CONTINUED)
In April 1994 the Company contested the alleged obligation and asserted
various defenses to making any payment under these agreements. On April 13,
1994, Abex and WTI filed suit in Delaware Chancery Court ("the Court") against
the Company seeking, among other things, declaratory relief, specific
performance, and monetary damages for the Company's alleged failure to pay
approximately $21 million claimed to be owed pursuant to tax sharing agreements
entered into in 1988 and 1989, plus pre-judgement interest and attorney's fees.
The Company vigorously defended its position with respect to the nonpayment of
the alleged tax sharing obligation, filing suit in the Supreme Court of the
state of New York against WTI and Abex. On December 22, 1994, the Court decided
against the Company, prompting the Company to file an appeal on January 11,
1995. On February 6, 1995, the Company entered into an agreement with WTI and
Abex to settle both state actions in order to avoid the ongoing cost of
litigation. Under the terms of the settlement, the Company paid an aggregate of
$22 million, of which $15.5 million was funded by borrowings under a financing
agreement with a major financial institution (Note 6) and $6.5 million was
funded by the Company's restricted cash.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
TRANSITION AGREEMENTS
Pursuant to a 1989 transition agreement, Henley Group provided to the
Company and its subsidiaries certain services, including management, strategic
planning and advice, legal, tax, accounting, data processing, cash management,
employee benefits, operational, corporate secretarial, insurance purchasing and
claims administration consulting services for a quarterly fee of $750,000,
commencing on the date of the 1989 distribution, plus an amount for the use of
office space in Henley Group's Hampton, New Hampshire offices for such period.
This rent amounted to approximately $.4 million for the first half of 1992. The
1989 Transition Agreement was cancelled in July 1992 in connection with the
Merger.
Pursuant to a 1992 transition agreement, amended in March 1993, each of Abex
and the Company provided to the other certain administrative support services
until March 31, 1994. The amendment provided for the Company to pay $.5 million
quarterly for such services and for the termination of the New Hampshire
facilities lease on March 31, 1993. Accordingly, the Company reimbursed Abex
approximately $1.0 million and $1.8 million for the years ended December 31,
1992 and 1993. Fees accrued but not paid in the fourth quarter of 1993 and the
first quarter of 1994 totalling $1.0 million were waived by Abex in connection
with the February 1995 settlement with Abex described in Note 8. In connection
with the Merger, the Company entered into a put option agreement with Abex,
through December 31, 1995, which provided the Company the right to require Abex
to purchase certain assets of the Company at 85% of appraised value, subject to
an annual limitation of no more than $50 million and an aggregate limitation of
$75 million for such assets. In August 1993, the Company received $3.0 million
from Abex in exchange for the termination of this agreement.
LEGAL PROCEEDINGS
See Note 8 for a discussion of certain litigation relating to tax sharing
agreements.
See Note 5 for a discussion of certain litigation relating to the Orange
County Board of Supervisors' approval of the Bolsa Chica project.
There are various other lawsuits and claims pending against the Company and
certain subsidiaries. In the opinion of the Company's management, ultimate
liability, if any, will not have a material adverse effect on the Company's
financial condition or results of operations.
CORPORATE INDEMNIFICATION MATTERS
The Company and its predecessors have, through a variety of transactions
effected since 1986, disposed of several assets and businesses, many of which
are unrelated to the Company's current operations. By
F-21
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
operation of law or contractual indemnity provisions, the Company has retained
liabilities relating to certain of these assets and businesses. Many of such
liabilities are supported by insurance or by indemnities from certain of the
Company's predecessor and currently or previously affiliated companies. The
Company believes its balance sheet reflects adequate reserves for these matters.
Abex and the Company agreed that, following the Distribution and the Merger,
each company will be responsible for environmental liabilities relating to its
existing, past and future assets and businesses and will indemnify the other in
respect thereof.
The United States Environmental Protection Agency ("EPA") has designated
Universal Oil Products ("UOP"), among others, as a Potentially Responsible Party
("PRP") with respect to an area of the Upper Peninsula of Michigan (the "Torch
Lake Site") under the Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"). UOP is allegedly the successor
in interest to one of the companies that conducted mining operations in the
Torch Lake area and an affiliate of Allied Signal Inc., a predecessor of the
Company. The Company has not been named as a PRP at the site. However, Allied
Signal has, through UOP, asserted a contractual indemnification claim against
the Company for all claims that may be asserted against UOP by EPA or other
parties with respect to the site. EPA has proposed a clean-up plan which would
involve covering certain real property both contiguous and non-contiguous to
Torch Lake with soil and vegetation in order to address alleged risks posed by
copper tailings and slag at an estimated cost between $6 and $7.5 million. EPA
estimates that it has spent between $3 and $4 million to date in performing
studies of the site. Under CERCLA, EPA could assert claims against the Torch
Lake PRPs, including UOP, to recover the cost of these studies, the cost of all
remedial action required at the site, and natural resources damages. An earlier
settlement in principle with EPA staff pursuant to which UOP would pay $1.7
million in exchange for a release similar to those normally granted by EPA in
such circumstances was rejected by certain other governmental authorities in
July 1993. Settlement negotiations between the Company, on behalf of UOP, and
EPA resumed shortly thereafter. In January 1995, EPA indicated that any
settlement would require UOP to pay in the range of $2.6 to $3.3 million. The
Company, without admission of any obligation to UOP, has since determined to
vigorously defend UOP's position that the EPA's proposed cleanup plan is
unnecessary and inconsistent with the requirements of CERCLA given that the
EPA's own Site Assessment and Record of Decision found no immediate threat to
human health. In the Company's view the proposed remediation costs would be in
excess of any resulting benefits.
NOTE 10 -- RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT
In June 1990, the Company entered into a management agreement with Koll. In
September 1993, in connection with the Company's acquisition of the domestic
real estate development business and related assets of Koll, the Company paid
Koll $325,000 to terminate the management agreement in lieu of continuing to
receive and pay for duplicative services during the 90-day notice period which
would otherwise have been required under the management agreement. Under the
terms of the management agreement, the Company was obligated to pay a quarterly
management fee equal to .125% of the average book value of its assets managed by
Koll. Additionally, the Company was obligated to reimburse Koll for certain
personnel costs and other expenses and Koll was generally entitled to a
disposition fee of 1% of the net sale proceeds (as defined) upon the sale of any
real estate property (other than the Bolsa Chica and Wentworth properties)
managed by Koll. During 1992 and 1993, the Company incurred management fees of
$2.0 million and $1.4 million, respectively, and reimbursable personnel costs
and other expenses of $.9 million and $.1 million, respectively, under this
management agreement. In 1990, the Company also entered into construction
management agreements with Koll Construction, a wholly owned subsidiary of Koll,
with respect to the
F-22
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- RELATED PARTY TRANSACTIONS (CONTINUED)
Eagle Crest and Murrieta projects. In 1993, the Company entered into a
construction management agreement with Koll Construction for demolition of
bunkers at the Bolsa Chica project. During 1992, 1993 and 1994 the Company
incurred fees aggregating approximately $.2 million, $.1 million and $.1
million, respectively, to Koll Construction in consideration for these services
and related reimbursements.
SERVICE AGREEMENTS
In September 1993, the Company entered into a Financing and Accounting
Services Agreement to provide Koll with financing, accounting, billing,
collections and other related services until 30 days' prior written notice of
termination is given by one company to the other. Fees earned for the years
ended December 31, 1993 and 1994 were approximately $.1 million and $.4 million,
respectively.
The Company also entered into a Management Information Systems and Human
Resources Services Agreement in September 1993 with Koll Management Services,
Inc. ("KMS"), a company 48% owned by Koll. Under this agreement, KMS provides
computer programming, data organization and retention, record keeping, payroll
and other related services until 30 days' prior written notice of termination is
given by one company to the other. Fees and related reimbursements accrued
during the years ended December 31, 1993 and 1994 were approximately $.1 million
and $.2 million, respectively.
SUBLEASE AGREEMENTS
In September 1993, the Company entered into a month-to-month Sublease
Agreement with Koll to sublease a portion of a Koll affiliate's office building
located in Newport Beach, California. The Company also entered into lease
agreements on a month-to-month basis for office space in Northern California and
San Diego, California with KMS and Koll Construction, respectively. Combined
annual lease costs on these month-to-month leases during the years ended
December 31, 1993 and 1994 were approximately $.1 million and $.4 million,
respectively.
DEVELOPMENT FEES
For the three month period ended December 31, 1993 and the year ended
December 31, 1994, the Company earned fees of approximately $.7 million and $3.5
million, repectively, for real estate development and disposition services
provided to partnerships in which Koll and certain directors and officers of the
Company have an ownership interest. In addition, the Company paid $.3 million
to, and received $.1 million from Koll Construction related to services provided
to each other in conjunction with two separate development service transactions
for the year ended December 31, 1994.
JOINT BUSINESS OPPORTUNITY AGREEMENT
The Company and Koll entered into an agreement to jointly develop business
opportunities in the Pacific Rim. Effective February 1, 1995 Koll agreed to
transfer its interest to KMS. Under the terms of the agreement, the Company and
KMS share on a 50%-50% basis all costs and expenses incurred in connection with
identifying and obtaining business opportunities, and will share in all revenues
generated from any such opportunities on a 50%-50% basis. The Company's share of
such costs and expenses was $.2 million for the year ended December 31, 1994.
LOAN RECEIVABLE
In December 1993, the Company purchased a nonrecourse construction loan,
secured by a first trust deed on four multi-tenant industrial buildings, for
which the borrower was a partnership in which Koll and certain directors and
officers of the Company have an ownership interest. Final repayment on the loan
balance of $.8 million as of December 31, 1993 was made in May 1994 from
proceeds generated by sales of the buildings, resulting in a profit to the
Company of $.2 million.
F-23
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- RELATED PARTY TRANSACTIONS (CONTINUED)
NOTE RECEIVABLE
In December 1994, the Company entered into a promissory note agreement to
lend up to $6 million to AV Partnership (Note 3). The note, which is secured
principally by an interest in AV Partnership, bears interest on the outstanding
balance at 12% per annum. The Note balance of $2 million as of December 31, 1994
is included in other assets and was repaid along with additional advances on
March 15, 1995, the maturity date.
OTHER TRANSACTIONS
See Notes 1, 3, 8 and 9 for descriptions of other transactions and
agreements with Koll, Libra, Abex and WTI.
NOTE 11 -- RETIREMENT PLANS
The Company has noncontributory defined benefit retirement plans covering
substantially all employees of the Company prior to September 30, 1993 who had
completed one year of continuous employment. Net periodic pension cost for the
years ended December 31 consisted of the following (in millions):
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost................................................................... $ .1 $ .1 $ .0
Interest cost.................................................................. 5 .5 .5
Actual return on assets........................................................ (.1) (.2) .1
Net amortization and deferral.................................................. (.2) (.3) (.5)
Curtailment loss............................................................... -- .8 --
--------- --------- ---------
Net periodic pension cost...................................................... $ .3 $ .9 $ .1
--------- --------- ---------
--------- --------- ---------
</TABLE>
The benefit accrual for all participants was terminated on December 31,
1993. The curtailment loss in 1993 resulted from the freeze of benefit accruals
for former participants in April 1993.
The funded status and accrued pension cost at December 31, 1993 and 1994 for
defined benefit plans were as follows (in millions):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested................................................................................ $ (6.9) $ (7.4)
Nonvested............................................................................. -- --
--------- ---------
Accumulated benefit obligation.......................................................... $ (6.9) $ (7.4)
--------- ---------
--------- ---------
Projected benefit obligation............................................................ $ (6.9) $ (7.4)
Plan assets at fair value............................................................... 5.5 5.5
--------- ---------
Projected benefit obligation in excess of plan assets................................... (1.4) (1.9)
Unrecognized transition liability....................................................... -- --
Unrecognized prior service cost......................................................... -- --
Unrecognized net loss................................................................... 1.3 2.0
Adjustment required to recognize additional minimum liability........................... (1.5) (2.0)
--------- ---------
Accrued pension cost.................................................................... $ (1.4) $ (1.9)
--------- ---------
--------- ---------
</TABLE>
The development of the projected benefit obligation for the plans at
December 31, 1992, 1993 and 1994 is based on the following assumptions: discount
rates of 8%, 7% and 7%, respectively, rates of increase in
F-24
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- RETIREMENT PLANS (CONTINUED)
employee compensation of 4%, 0% and 0%, respectively, and expected long-term
rates of return on assets of 9%. The date used to measure plan assets and
liabilities was October 31 in 1993, and December 31 in 1994. Assets of the plans
are invested primarily in stocks, bonds, short-term securities and cash
equivalents.
NOTE 12 -- CAPITAL STOCK
COMMON STOCK
Under its restated certificate of incorporation, the Company has authority
to issue up to 750 million shares of common stock, par value $.05 per share,
subject to approval of the Board of Directors (the "Board"), of which 625
million shares of Class A Common Stock and 25 million shares of Class B Common
Stock are initially authorized for issuance and an additional 100 million shares
may be issued in one or more series, and have such voting powers or other rights
and limitations as the Board may authorize.
On December 17, 1993 the Company issued 3.4 million shares of its Class A
Common Stock in exchange for all of Libra's approximately $10.6 million in
aggregate principal amount of Subordinated Debentures plus accrued interest. In
connection with the Company's sale of Lake Superior Land Company to Libra, the
net cash proceeds from the sale of 3.4 million shares of Class A Common Stock
held by Libra will be forwarded to the Company. The estimated amount of proceeds
to be received from such sale is reflected in the equity section of the balance
sheet as deferred proceeds from stock issuance.
On November 9, 1994 the Company issued 2 million shares of its Class A
Common Stock and warrants for the purchase of an additional 2 million shares in
connection with the acquisition of the Kathryn G. Thompson Company. The warrants
have an exercise price of $.25, are exercisable over a ten year period, vest in
equal installments over five years and are subject to certain cancellation
rights of the Company. Also during the fourth quarter of 1994, 1.2 million
shares of Series A Preferred Stock were converted into an equal number of shares
of Class A Common Stock.
Under the Company's Indentures for the Debentures (Note 7), the Company is
prohibited from purchasing shares of its common stock.
PREFERRED STOCK
Under its restated certificate of incorporation, the Company has authority
to issue 150 million shares of preferred stock, par value $.01 per share, in one
or more series, with such voting powers and other rights as authorized by the
Board. Effective July 16, 1992, in connection with the Merger, the Board
authorized approximately 42.5 million shares of Series A Preferred Stock, which
have a liquidation preference of $.75 per share, participate in any dividend or
distribution paid on the Class A Common Stock on a share for share basis, and
have no voting rights, except as required by law (Notes 1 and 2).
The Series A Preferred Stock is redeemable at the Company's option, on 30
days' notice given at any time after the second anniversary of issuance, at the
liquidation preference of $.75 per share, in cash or generally in shares of
Class A Common Stock. Each share of the Series A Preferred Stock is convertible
at the holder's option, at any time after the second anniversary of issuance,
generally into one share of Class A Common Stock.
NOTE 13 -- STOCK PLANS
1993 STOCK OPTION/STOCK ISSUANCE PLAN
The 1993 Stock Option/Stock Issuance Plan ("1993 Plan") was approved at the
1994 Annual Meeting of Stockholders as the successor equity incentive program to
the Company's 1988 Stock Plan. Outstanding options under the 1988 Stock Plan
were incorporated into the 1993 Plan upon its approval. Under the 1993 Plan, 7.5
million shares each (including 3 million shares each originally authorized under
the 1988 Stock Plan) of Series A Preferred Stock and Class A Common Stock were
reserved for issuance to officers, key
F-25
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- STOCK PLANS (CONTINUED)
employees and consultants of the Company and its subsidiaries and the
non-employee members of the Board. Options generally become exercisable for 40%
of the option shares upon completion of one year of service and become
exercisable for the balance in two equal annual installments thereafter.
The 1993 Plan includes an automatic option grant program, pursuant to which
each individual serving as a non-employee Board member on the November 29, 1993
effective date of the 1993 Plan received an option grant for 125,000 shares each
of Series A Preferred Stock and Class A Common Stock with an exercise price of
$.4063 per share, equal to the fair market value of the underlying securities on
the grant date. Each individual who first joins the Board as a non-employee
director after such effective date will receive a similar option grant. Of the
shares subject to each option, 40% will vest upon completion of one year of
Board service measured from the grant date, and the balance will vest in two
equal annual installments thereafter. Each automatic grant will have a maximum
term of 10 years, subject to earlier termination upon the optionee's cessation
of Board service.
Each non-employee Board member may also elect to apply all or any portion of
his or her annual retainer fee to the acquisition of shares of Series A
Preferred Stock or Class A Common Stock which vest incrementally over the
individual's period of Board service during the year for which the election is
in effect. During 1994, 126,856 shares were issued under this provision.
A summary of the status of the Company's stock option plans for the three
years ended December 31, 1994, follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PRICE PER SHARE
------------------------ --------------------------
SERIES A SERIES A
PREFERRED CLASS A PREFERRED
OPTIONS OUTSTANDING STOCK COMMON STOCK STOCK
----------- ------------ ------------
CLASS A
COMMON
STOCK
-----------
<S> <C> <C> <C> <C>
December 31, 1991....................................... -- -- -- --
Granted............................................... 2,060,000 2,060,000 $.23 $.14
Exercised............................................. -- -- -- --
Cancelled............................................. -- -- -- --
----------- ----------- ------------ ------------
December 31, 1992....................................... 2,060,000 2,060,000 .23 .14
Granted............................................... 6,340,000 6,340,000 .25 -- .41 .28 -- .41
Exercised............................................. -- -- -- --
Cancelled............................................. (2,050,000) (2,050,000) .23 -- .25 .14 -- .28
----------- ----------- ------------ ------------
December 31, 1993....................................... 6,350,000 6,350,000 .23 -- .41 .14 -- .41
Granted............................................... -- -- -- --
Exercised............................................. -- -- -- --
Cancelled............................................. -- -- -- --
----------- ----------- ------------ ------------
December 31, 1994....................................... 6,350,000 6,350,000 $.23 -- .41 $.14 -- .41
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Options exercisable at December 31, 1994................ 2,600,000 2,600,000 $.23 -- .41 $.14 -- .41
Options available at December 31, 1994.................. 1,023,144 1,150,000
</TABLE>
RESTRICTED STOCK PLAN
Under the Restricted Stock Plan, each individual joining the Company as a
non-employee Board member prior to November 1993 received an immediate one-time
grant of 2,000 shares of Class A Common Stock. The shares are subject to certain
transfer restrictions for a specified period, during which the director has the
right to receive dividends and the right to vote the shares. After the
restricted period expires, the shares will vest based upon certain terms related
to service. The shares are forfeited if the director ceases to be a nonemployee
director prior to the end of the restricted period. During 1993, 8,000 shares
were granted
F-26
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- STOCK PLANS (CONTINUED)
and 3,600 shares were forfeited under such Restricted Stock Plan. No shares were
granted during 1992. The Restricted Stock Plan was terminated effective November
1993 in connection with the implementation of the 1993 Plan.
NOTE 14 -- UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of quarterly financial information for 1993 and
1994 (in millions, except per share amounts):
<TABLE>
<CAPTION>
FULL
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1994
Revenues (a)................ $ 3.4 $ 4.8 $ 8.4 $ 4.8 $ 21.4
Cost of sales (a)........... 3.2 4.8 7.9 4.3 20.2
Loss from continuing
operations................. (4.7) (4.5) (4.4) (5.1) (18.7)
Net loss.................... (4.0) (4.5) (4.4) (5.1) (18.0)
Loss per common share....... (.09) (.11) (.10) (.11) (.41)
Weighted average common
shares outstanding (b)..... 43.3 43.3 43.3 45.2 43.8
1993
Revenues (c)................ $ .2 $ .9 $ 2.2 $ 13.4 $ 16.7
Cost of sales (c)........... .6 .9 1.5 13.3 16.3
Loss from continuing
operations................. (4.5) (5.4) (4.8) (5.4) (20.1)
Net income (loss) (d) (e)... (38.4) (3.5) (2.1) 58.3 14.3
Income (loss) per common
share...................... (.96) (.09) (.05) .69 .17
Weighted average common
shares outstanding (b)
(f)........................ 39.8 39.8 39.8 84.9 83.0
<FN>
------------------------
(a) The Company recorded revenues and cost of sales of approximately $3.3
million and $3.1 million, respectively, in the third quarter of 1994 from
the sale of the golf course at its Wentworth By The Sea project in New
Hampshire.
(b) The Series A Preferred Stock is not included in the calculation of weighted
average shares outstanding in 1994 and the first three quarters of 1993
because the effect is antidilutive.
(c) The Company recorded revenues and cost of sales of $10.0 million from the
sale of the La Jolla office buildings in the fourth quarter of 1993.
(d) The Company recorded a $36 million ($.90 per share) charge to income in the
first quarter of 1993 in connection with the adoption of FAS 109 (Note 8).
(e) The Company recognized a $39.1 million gain on the disposition of Lake
Superior Land Company and a $23.6 million extraordinary gain on the
extinguishment of debt in the fourth quarter of 1993 (Notes 3 and 6).
(f) On December 17, 1993 the Company issued 3.4 million shares of Class A
Common Stock to Libra in exchange for $10.6 million face amount plus
accrued interest of Subordinated Debentures. The fourth quarter 1993
calculation of weighted average shares outstanding includes these newly
issued shares, along with the 42.5 million shares of Series A Preferred
Stock and outstanding options for 5.7 million common and preferred shares
granted under the 1988 Stock Plan.
</TABLE>
F-27
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LETTER OF CREDIT AND
REIMBURSEMENT AGREEMENT
DATED AS OF DECEMBER 20, 1994
BY AND BETWEEN
KOLL REAL ESTATE GROUP, INC.
A DELAWARE CORPORATION
AND
NOMURA ASSET CAPITAL CORPORATION
A DELAWARE CORPORATION
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
THIS LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT ("AGREEMENT") is
made and entered into as of December 20, 1994 (the "CLOSING DATE"), by and
between KOLL REAL ESTATE GROUP, INC., a Delaware corporation ("KREG") and NOMURA
ASSET CAPITAL CORPORATION, a Delaware corporation ("NACC").
RECITALS:
A. On April 13, 1994, Abex, Inc. ("ABEX") and Wheelabrator
Technologies, Inc. ("WTI") filed suit in Delaware Chancery Court against KREG,
as Action No. 13462 (the "ABEX TAX LITIGATION"), seeking, among other things,
declaratory relief, specific performance and monetary damages for KREG's alleged
breach of certain tax sharing agreements among Abex, WTI and KREG. In the event
that the Delaware Chancery Court enters a judgment in connection with the Abex
Tax Litigation in favor of Abex and WTI, KREG intends to appeal such judgment
(which appeal is hereinafter referred to as the "APPELLATE ACTION"). All of the
disputes relating to the Abex Tax Litigation described in this paragraph are
hereinafter collectively referred to as the "ABEX TAX DISPUTES."
B. In connection with the Appellate Action, KREG may need to post a
bond in an amount up to $25,000,000 (the "BOND") to secure the payment and stay
the enforcement of the trial court judgment. In order to obtain the Bond, KREG
and SAFECO Insurance Company of America (the "BENEFICIARY") will enter into a
letter of credit collateral agreement (the "BOND AGREEMENT"), pursuant to which
(i) the Beneficiary shall deliver the Bond to the applicable court on behalf of
KREG and (ii) KREG shall agree to deliver the Letter of Credit (as hereinafter
defined) to the Beneficiary to secure KREG's obligations under the Bond
Agreement.
C. In order to provide security for, and to assure timely payment of
KREG's obligations under the Bond Agreement, KREG has requested that NACC cause
The Sumitomo Bank, Limited, Los Angeles Branch to issue to the Beneficiary, the
Letter of Credit (as hereinafter defined) pursuant to and upon the terms and
conditions stated in this Agreement.
<PAGE>
D. In addition to KREG's request regarding the issuance of the
Letter of Credit, KREG has requested that NACC loan to KREG an aggregate
principal amount not exceeding the Settlement Amount (as hereinafter defined) in
the event that the parties to the Abex Tax Litigation enter into a settlement
agreement with respect to the Abex Tax Disputes. NACC is prepared to make such
loan upon the terms hereof.
E. KREG agrees to reimburse and/or repay NACC for (i) all payments
made by the LOC Issuer under the Letter of Credit, (ii) all amounts loaned to
KREG by NACC in connection with any settlement of the Abex Tax Dispute and (iii)
all other amounts payable to NACC hereunder (such obligations being hereinafter
collectively referred to as the "REIMBURSEMENT OBLIGATIONS").
F. As a member of the KREG Consolidated Tax Group, Signal Landmark,
a California corporation ("SIGNAL"), is severally liable for the Federal income
tax liability of the KREG Consolidated Tax Group for the 1988 and 1989 tax
years, including, without limitation, for those Taxes which are the subject of
the Abex Tax Disputes, and Signal will derive substantial benefit from NACC's
agreement to cause the issuance of the Letter of Credit and to make the
Settlement Loan.
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS.
1.1 DEFINED TERMS. As used herein, the following terms shall have the
following meanings (all terms defined in this Section 1.1 or in other provisions
of this Agreement in the singular shall have the same meanings when used in the
plural and VICE VERSA):
"ABEX" shall have the meaning assigned thereto in the recitals
hereof.
"ABEX TAX DISPUTES" shall have the meaning assigned thereto in the
recitals hereof.
2
<PAGE>
"ABEX TAX LITIGATION" shall have the meaning assigned thereto in the
recitals hereof.
"AFFILIATE" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person and, if such Person is an individual, any member of
the immediate family (including parents, spouse and children) of such individual
and any trust whose principal beneficiary is such individual or one or more
members of such immediate family and any Person who is controlled by any such
member or trust. As used in this definition, "CONTROL" (including, with its
correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH)" shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise) of a Person.
"AGREEMENT" shall mean this Letter of Credit and Reimbursement
Agreement, including all amendments, modifications and supplements hereto and
any appendices, exhibits or schedules to any of the foregoing, and shall refer
to this Letter of Credit and Reimbursement Agreement, as the same may be in
effect at the time such reference becomes operative.
"APPELLATE ACTION" shall have the meaning ascribed thereto in the
recitals hereof.
"ASSESSMENT" shall mean a deficiency of Federal or state income taxes
that have been assessed, as such terms are used in the Code or applicable state
income tax statutes, as the case may be, against KREG or a member of the KREG
Consolidated Tax Group.
"ASSET PURCHASES" shall have the meaning ascribed thereto in Section
13.1(b) hereof.
"ASSET SALE" for any Person shall mean the sale, lease, conveyance or
other disposition (including, without limitation, by merger, consolidation or
sale or leaseback transaction, and whether by operation of law or otherwise) of
any of that Person's assets (including, without limitation, the sale or other
disposition of stock or other ownership interest of any Subsidiary of such
Person, whether by such Person or such Subsidiary), whether owned on the date
hereof or subsequently acquired.
3
<PAGE>
"ASSIGNMENT OF CONSTRUCTION FUND ACCOUNTS AND AGREEMENTS" shall mean
one or more instruments executed by Signal and delivered to NACC, in form and
substance reasonably acceptable to NACC, upon the establishment of the
Construction Fund, pursuant to which Signal shall collaterally assign to NACC
all of its right, title and interest in, to and under the Construction Fund (and
any replacements or substitutions therefor) and any and all agreements executed
in connection therewith, including all amendments, modifications, supplements,
extensions or novations thereto and any appendices, exhibits or schedules
thereto, and shall refer to each such agreement as the same may be in effect at
the time such reference becomes operative and such collateral assignment shall
be subject to the restrictions on the use of such funds contained in the
agreements or documents establishing any such Construction Fund.
"ASSIGNMENT OF MANAGEMENT AGREEMENT" shall mean that certain
Assignment of Management Agreement, dated as of the date hereof, executed by
Signal and consented to by Eagle Crest Management Corp., a California
corporation, pursuant to which Signal shall collaterally assign to NACC all of
its right, title and interest in, to and under the Management Agreement for
Eagle Crest Golf Course, dated as of January 26, 1993, including all amendments,
modifications, supplements, extensions or novations thereto and any appendices,
exhibits or schedules thereto.
"BASIS POINT" shall mean 1/100 of one percent (1/100%).
"BANKRUPTCY CODE" shall mean Title 11 U.S.C., as amended.
"BENEFICIARY" shall have the meaning assigned thereto in the recitals
hereof.
"BOLSA CHICA MORTGAGE" shall have the meaning assigned to such term in
Section 12.8 hereof.
"BOLSA CHICA PROJECT" shall mean the approximately 1,200 acre
undeveloped property, as more particularly described on EXHIBIT A-1 attached
hereto, owned by SBC, located in Orange County, California.
"BOLSA CHICA TITLE POLICIES" shall have the meaning assigned to such
term in Section 12.8 hereof.
4
<PAGE>
"BOND" shall have the meaning assigned thereto in the recitals
hereof.
"BOND AGREEMENT" shall have the meaning assigned thereto in the
recitals hereof.
"BUSINESS DAY" shall mean any day on which commercial banks are not
authorized or required to close in New York City and, for purposes of
determining the Facility Rate, which is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"CLOSING DATE" shall have the meaning assigned to such term in the
preamble hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL" shall mean any and all Property of Signal which is, from
time to time, subject to the Lien of the Signal Security Documents, including,
without limitation, the Collateral Properties and the stock of SBC.
"COLLATERAL PROPERTIES" shall mean, collectively, the Fairbanks
Highlands Project, the Eagle Crest Project and such other real property which
from time to time may comprise the Collateral.
"CONSOLIDATED SUBSIDIARY" shall mean, as to any Person, each
Subsidiary of such Person (whether now existing or hereafter created or
acquired) the financial statements of which shall be (or should have been)
consolidated with the financial statements of such Person in accordance with
GAAP.
"CONSTRUCTION FUNDS" shall have the meaning assigned to such term in
Section 10.3 hereof.
"CONSTRUCTION LOAN AGREEMENT" shall mean that certain Construction
Loan Agreement, dated as of the date hereof, by and among KREG, Signal, and
NACC.
"CONSTRUCTION LOAN DOCUMENTS" shall mean the Construction Loan
Agreement and all other documents and agreements (other than the Loan Docu-
5
<PAGE>
ments) executed or delivered by KREG, Signal or any of their Affiliates in
connection with the transactions contemplated by any of the foregoing documents,
including all amendments, modifications and supplements thereto and any
appendices, exhibits or schedules to any of the foregoing, and shall refer to
each such document as the same may be in effect at the time such reference
becomes operative.
"DATE OF ISSUANCE" shall mean the date on which the Letter of Credit
is delivered by the LOC Issuer to the Beneficiary.
"DEFAULT" shall mean an Event of Default or an event which with notice
or lapse of time or both would become an Event of Default.
"DEFERRED TAX AMOUNT" shall have the meaning assigned thereto in
Section 11.2 hereof.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"DRAW" shall mean a draw under and in accordance with the terms of the
Letter of Credit.
"DRAW FEE" shall mean a fee equal to 1.5% of the amount of any Draw or
Settlement Loan, paid to NACC at the time any Draw or Settlement Loan is funded
by NACC.
"EAGLE CREST PROJECT" shall mean the approximately 850 acre golf
course and planned community in the city of Escondido, California, as more
particularly described on EXHIBIT A-2 attached hereto, owned by Signal, which
planned community is entitled for 580 single-family lots surrounding the
existing 18-hole public golf course.
"EAGLE CREST SECURITIES ACCOUNT" shall mean that certain securities
account # 1686007179, established with Delaware Trust Capital Management in the
name of KREG and Signal, as debtor, and NACC, as secured party, which, together
with the KREG Securities Account, is the subject of the Securities Account
Agreement.
6
<PAGE>
"EFFECTIVE RATE" shall mean the LIBOR Base Rate plus 400 Basis
Points, or such alternative rate as may be established pursuant to Section 8.2
hereof.
"ENVIRONMENT" shall mean soil, surface waters, ground waters, land,
stream sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL CERTIFICATE" shall have the meaning assigned to such
term in Section 14(f) hereof.
"ENVIRONMENTAL CLAIM" shall mean any claim, action, cause of action,
investigation or written notice by any Person alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, natural resource damages, property damages, personal injuries, or
penalties) arising out of, based upon or resulting from (i) the presence,
threatened presence, release or threatened release into the Environment of any
Hazardous Substances from or at the Collateral Properties or any property
adjacent to the Collateral Properties or (ii) the violation, or alleged
violation, of any Environmental Law relating to the Collateral Properties, or
(iii) any threat to the Environment (or human health from Hazardous Substances)
that is related to Signal's (or Signal's immediate predecessor in interest in
the Collateral Property) management, use, control, ownership or operation of the
Collateral Property, whether occurring, existing or arising prior to, or from or
after, the date hereof.
"ENVIRONMENTAL LAWS" shall mean all present or future Federal, state
and local laws, statutes, rules, ordinances, and regulations relating to the
pollution or protection of the Environment or the effect of Hazardous Substances
on human health, including, without limitation laws, statutes, rules, ordinances
and regulations relating to emissions, discharges, releases or threatened
releases of Hazardous Substances, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Sections 9601 ET SEQ.; the Resource Conservation and Recovery Act of
1976, 42 U.S.C. Sections 6901 ET SEQ.; the Toxic Substance Control Act, 15
U.S.C. Sections 2601 ET SEQ.; the Water Pollution Control Act (also known as the
Clean Water Act), 33 U.S.C. Section 1251 ET SEQ.; the Clean Air Act, 42 U.S.C.
Section 7401 ET SEQ.; and the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801 ET SEQ., as any of the foregoing may be hereafter amended or
modified.
7
<PAGE>
"ENVIRONMENTAL REPORTS" shall have the meaning assigned to such term
in Section 14(a) hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Guarantors or is under common
control (within the meaning of Section 414(c) of the Code) with the Guarantors.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
Section 15 hereof.
"EXCLUDED HAZARDOUS MATERIALS" shall mean any Hazardous Materials
that are customarily and normally used, in accordance with applicable
Environmental Laws in all material respects, in (i) the operation, management,
maintenance and use of a first class golf course, (ii) the grading, construction
and development of infrastructure and residential improvements in the State of
California and (iii) automobiles and construction related trucks, equipment and
supplies.
"EXEMPT SUBSIDIARIES" shall mean Henley Facilities, Inc., Henley/KNO
Holdings, Inc., and New Henley Holdings, Inc. (and each of its Subsidiaries) for
so long as each such entity (i) has no assets or (ii) has liabilities which
exceed the fair value of its assets.
"EXTENSION FEE" shall mean an investment banking fee payable to NSI in
connection with the extension of the Maturity Date in accordance with the terms
hereof in an amount equal to .75% of (i) the Stated Amount, or (ii) if a Draw
has occurred or a Settlement Loan has been made hereunder, the Repayment Amount.
"FAIRBANKS HIGHLANDS PROJECT" shall mean the approximately 391 acres
of vacant land in the city of San Diego, California, as more particularly
described on EXHIBIT A-3 attached hereto, owned by Signal.
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state or local
government or any other political subdivision thereof exercising executive,
legislative, judicial, regulatory or administrative functions.
8
<PAGE>
"GUARANTORS" shall mean, collectively and individually, Signal, The
Henley Group, Inc., Henley Holdings Two Inc., Wentworth Holdings, Inc., NC
Holding Company and KREG Holdings, Inc.
"GUARANTY" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock of any corporation, or an agreement to purchase, sell or lease (as
lessee or lessor) property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of his, her or its
obligations or an agreement to assure a creditor against loss, and including,
without limitation, causing a bank to open a letter of credit for the benefit of
another Person, but excluding endorsements for collection or deposit in the
ordinary course of business. The terms "GUARANTY" and "GUARANTEED" used as a
verb shall have a correlative meaning.
"HAZARDOUS SUBSTANCE" shall mean any material waste or substance
(other than any Excluded Hazardous Material) which is:
(A) included within the definition of
"hazardous substances," "hazardous materials," "toxic
substances," or "solid waste" in or pursuant to any
Environmental Law;
(B) listed in the United States
Department of Transportation Optional Hazardous Materials
Table, 49 C.F.R. Section 172.101 enacted as of the date
hereof or hereafter amended, or in the United States
Environmental Protection Agency List of Hazardous Substances
and Reportable Quantities, 40 C.F.R. Part 302, as enacted as
of the date hereof or as hereafter amended; or
(C) explosive, radioactive, asbestos, a
polychlorinated biphenyl, oil or a petroleum product and
lead-based paint.
9
<PAGE>
"HENLEY FACILITIES AUDIT" shall have the meaning assigned thereto in
Section 11.9 hereof.
"INDEBTEDNESS" shall mean, as to any Person: (a) indebtedness created,
issued or incurred by such Person for borrowed money (whether by loan or the
issuance and sale of debt securities); (b) obligations of such Person to pay the
deferred purchase or acquisition price of property or services (including trade
accounts that are payable after 90 days of the date the respective goods are
delivered or respective services are rendered) arising, and accrued expenses
incurred, in the ordinary course of business; (c) indebtedness of others secured
by a Lien on the property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for the account of such Person; (e)
capital lease obligations of such Person; and (f) indebtedness or obligations of
others Guaranteed by such Person.
"INDEMNIFIED ENVIRONMENTAL PARTIES" shall have the meaning assigned
thereto in Section 14(d) hereof.
"INFRASTRUCTURE" shall mean infrastructure improvements to real
property, including, without limitation, sewers, storm drains, water mains,
community wall and landscaping.
"INITIAL EXPIRY DATE" shall have the meaning assigned thereto in
Section 2.2 hereof.
"INITIAL MATURITY DATE" shall mean the second anniversary of the
Closing Date; provided, however, that if the Initial Maturity Date falls on a
date that is not a Business Day, then the Initial Maturity Date shall be deemed
to be the next Business Date following such date.
"INTEREST PAYMENT DATE" shall mean the first Business Day of each
calendar month following a Draw by the Borrower hereunder through and including
the Maturity Date.
"INVESTMENT" in any Person shall mean: (a) the acquisition (whether
for cash, property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of
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such Person; and (b) any deposit with, or advance, loan or other extension of
credit to, such Person (other than any such advance, loan or extension of credit
having a term not exceeding 90 days representing the purchase price of
inventory, Property (other than real property) or supplies purchased in the
ordinary course of business) or Guaranty of, or other contingent obligation with
respect to, Indebtedness or other liability of such Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person.
"IRS" shall mean the Internal Revenue Service.
"KGT AFFILIATES" shall mean the AV Partnership, a California general
partnership, The Kathryn G. Thompson Company, a Delaware corporation, The
Kathryn G. Thompson Company, a California corporation, Vistas Audobon, a
California limited partnership, Mystra Homes, Inc., a California corporation, AV
Development Corporation, a California corporation, The Oceanside Company, a
Delaware corporation, KGT Construction Corporation, a Delaware corporation, DKS
Construction, Inc., a Delaware corporation, or any Subsidiary of any of the
foregoing entities.
"KREG" shall have the meaning assigned thereto in the recitals hereof.
"KREG CONSOLIDATED TAX GROUP" shall mean (i) the consolidated group of
corporations, including, without limitation, Signal and SBC, having The Henley
Group, Inc., a Delaware corporation, which changed its name to The Wheelabrator
Group, Inc., a Delaware corporation, as its common parent during the 1988 tax
year and (ii) the consolidated group of corporations, including without
limitation, Signal and SBC, having Henley Newco, Inc., a Delaware corporation,
which changed its name to The Henley Group, Inc., a Delaware corporation, as its
common parent during the 1989 tax year.
"KREG SECURITIES ACCOUNT" shall mean that certain securities account #
1686007160, established with Delaware Trust Capital Management in the name of
KREG and Signal, as debtor, and NACC, as secured party, which, together with the
Eagle Crest Securities Account, is the subject of the Securities Account
Agreement.
"LEASE" shall mean any lease, sublease, license, franchise,
concession, or other agreement (other than a property management agreement),
whether
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written or oral, permitting another to use, occupy or possess any Collateral
Property.
"LETTER OF CREDIT" shall mean the irrevocable direct-pay letter of
credit, in substantially the form of EXHIBIT B hereto, to be issued by the LOC
Issuer in accordance with the terms hereof in favor of Beneficiary as security
for the Bond.
"LETTER OF CREDIT FEES" shall have the meaning set forth in Section 5
hereof.
"LIBOR BASE RATE" shall mean the rate per annum determined by Lender
to be the rate at which deposits in U.S. Dollars are offered by NACC to leading
banks in the London interbank eurodollar market at approximately 11:00 a.m.
(London, England time) on the date which is three (3) Business Days before each
Interest Payment Date for a one (1) month period and in an amount substantially
equal to the outstanding principal amount of the Draw or the Settlement Amount,
as applicable, on such day, in each case as quoted on Telerate page 3750 or on
such replacement system as is then customarily used to quote the London
interbank offered rate. Notwithstanding the foregoing, for the purposes of
determining the interest rate for the period preceding the first Interest
Payment Date, the LIBOR Base Rate determination shall be made as of the day
which is three (3) Business Days before the date of the Draw or the making of
the Settlement Loan. If two or more such rates appear on Telerate page 3750 or
associated pages, the applicable rate shall be the arithmetic mean of such
offered rates. Each determination of the LIBOR Base Rate shall be conclusive
and binding absent manifest error.
"LIBOR RATE LOANS" shall mean any Reimbursement Obligation which
bears interest at the Effective Rate in accordance with the terms hereof.
"LIEN" shall mean, with respect to any asset, any mortgage or deed of
trust, lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset. For purposes of this Agreement, KREG and each of its
Subsidiaries shall be deemed to own subject to a Lien any asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
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"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Letter
of Credit, the Reimbursement Note, the Settlement Note, the Signal Guaranty, the
Reimbursement Guaranties, the Security Documents, and all other documents and
agreements (other than the Construction Loan Documents) executed or delivered to
the Trustee or NACC by KREG or any of the Guarantors in connection with the
transactions contemplated by any of the foregoing documents, including all
amendments, modifications and supplements thereto and any appendices, exhibits
or schedules to any of the foregoing, and shall refer to each such document as
the same may be in effect at the time such reference becomes operative.
"LOC ISSUER" shall mean The Sumitomo Bank, Limited, Los Angeles
Branch or any other Bank that may issue a substitute Letter of Credit pursuant
to the terms hereof.
"MATERIAL CONTRACT" shall have the meaning assigned to such term in
Section 9(j) hereof.
"MATURITY DATE" shall mean (i) the Initial Maturity Date or (ii) if,
on or before the ninetieth (90th) day preceding the Initial Maturity Date, KREG
delivers to NSI the Extension Fee together with a notice stating that KREG
elects to extend the Maturity Date, and (a) KREG is in compliance with all
operating and financial covenants, (b) KREG has obtained all forecast
entitlements and approvals and has satisfied development and budget targets with
respect to the Collateral Properties, all as set forth and projected on EXHIBIT
C hereto, (c) there is no continuing Event of Default as of such notice date or
as of the Initial Maturity Date, and (d) all matters relating to the Henley
Facilities Audit have, in NACC's sole and absolute discretion, been fully and
satisfactorily resolved, then the Maturity Date shall be extended twelve (12)
months to the third anniversary of the Closing Date. Notwithstanding any of the
foregoing, if the Maturity Date falls on a date that is not a Business Day, then
the Maturity Date shall be deemed to be the first Business Day following such
date.
"MINIMUM NET WORTH AMOUNT" shall have the meaning ascribed thereto in
Section 12.2 hereof.
"MORTGAGES" shall mean, collectively, each mortgage, deed of trust,
assignment of rents, security agreement and fixture filing and similar
instrument executed by Signal in favor of the Trustee, acting for the benefit
of NACC, to the
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secure the obligations of Signal under the Signal Guaranty, including all
amendments, modifications, supplements, extensions or novations thereto and any
appendices, exhibits or schedules thereto, and shall refer to such mortgages as
the same may be in effect at the time such reference becomes operative.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been made by the
Guarantors or any ERISA Affiliate and which is covered by Title IV of ERISA.
"NACC" shall have the meaning assigned to such term in the preamble
hereof.
"NACC SHARE" shall have the meaning assigned to such term in Section
7.4 hereof.
"NACC SHARE DEPOSITS" shall mean each and every deposit of NACC Share
to be made to the KREG Securities Account pursuant to the terms hereof.
"NET CASH PROCEEDS" shall mean the net cash received by KREG or any
of its Subsidiaries in connection with any Permitted Sale after deducting
reasonable commissions, documentary transfer taxes, title insurance premiums,
recording and escrow fees, reasonable attorneys' fees and disbursements and
other customary closing costs, but only to the extent such amounts are paid to
third parties which are not Affiliates of KREG and are equal to or less than
six percent (6%) of the gross Permitted Sale proceeds or a greater percentage
reasonably approved by NACC.
"NSI" shall mean Nomura Securities International, Inc., an Affiliate
of NACC.
"OWNED REAL ESTATE" shall have the meaning assigned thereto in Section
14(a) hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERMITTED EXCEPTIONS" shall have the meaning assigned to such term in
Section 13.2 hereof.
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"PERMITTED SALES" shall have the meaning assigned to such term in
Section 7.4 hereof
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, limited partnership, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"PLAN" shall mean an employee benefit or other plan established or
maintained by the Guarantors or any ERISA Affiliate and which is covered by
Title IV of ERISA, other than a Multiemployer Plan.
"PLEDGE AGREEMENT" shall mean that certain Stock Pledge Agreement,
dated as of the date hereof, executed by Signal to secure its obligations under
the Signal Guaranty, with respect to the stock of SBC, as such may be modified,
amended, or supplemented and in effect from time to time.
"POST-DEFAULT RATE" shall mean, in respect of any Draw or any other
amount payable by Signal under this Agreement that is not paid when due (whether
at stated maturity, by acceleration or otherwise), a rate per annum during the
period from and including the due date to but excluding the date on which such
amount is paid in full equal to four percent (4%) above the Prime Rate.
"PRIME RATE" shall mean the rate of interest publicly announced by
Mellon Bank, N.A. from time to time as its prime rate effective in New York, New
York, adjusted as of the date of an announcement in New York, New York of any
change in such prime rate, whether or not Signal has notice thereof. Each
change in Prime Rate shall be effective as of 12:01 a.m. on the Business Day on
which the change in the prime rate is first announced or published, unless
otherwise specified in such announcement or publication, in which case the
change shall be effective as so specified.
"PROPERTY" shall mean assets and properties, whether real, personal or
mixed, tangible or intangible.
"QUICK FLIP TRANSACTION" shall have the meaning ascribed thereto in
Section 13.1(d) hereof.
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"REGULATORY CHANGE" shall mean any change after the Closing Date in
United States Federal, state or foreign law, rules or regulations or the
adoption or any making after the Closing Date of any interpretation, directive
or request (whether or not having the force of law) applying to a class of
financial institutions including NACC by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"REIMBURSEMENT GUARANTIES" shall mean the Guaranties, dated as of the
date hereof, executed by each of the Guarantors in favor of NACC, including all
amendments, modifications, supplements, extensions or novations thereto and any
appendices, exhibits or schedules thereto, and shall refer to each such guaranty
as the same may be in effect at the time such reference becomes operative.
"REIMBURSEMENT NOTE" shall have the meaning assigned to such term in
Section 2.3 hereof.
"REIMBURSEMENT OBLIGATIONS" shall have the meaning assigned thereto in
the recitals hereof.
"RELATED PERSON" shall mean, with respect to any specified Person, any
other Person that is an Affiliate of the specified Person or any partner of the
specified Person (if such Person is a partnership) or any shareholder of the
specified Person (if such Person is a corporation).
"RELEASE" shall mean any satisfaction, release, assignment instrument,
deed of reconveyance or similar instrument or instruments (each in recordable
form and otherwise in form reasonably satisfactory to Signal but without any
representation or warranty of NACC (other than a warranty as to NACC's own
acts)) necessary to release any portion of any Collateral (including the
Securities Accounts) from the Lien of all applicable Signal Security Documents.
"REMEDIAL WORK" shall have the meaning assigned to such term in
Section 14 hereof.
"REPAYMENT AMOUNT" shall have the meaning assigned to such term in
Section 7.1 hereof.
"SATISFACTORY RESOLUTION" or "SATISFACTORILY RESOLVED" shall mean,
with respect to the Henley Facilities Audit: (i) except for the Abex Tax
Disputes,
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expiration of the applicable statute of limitations prior to the assertion by
the IRS of any Assessment or adjustment in Taxes for the 1988 and 1989 tax years
for KREG or any member of the KREG Consolidated Tax Group for such years; (ii)
dismissal of any claims for any Assessment or receipt of a technical advisory
letter from regional or national counsel for the IRS that the Henley Facilities
Audit will not result in an Assessment; or (iii) subject to the terms of Section
13.7 hereof, entry into a settlement agreement with the IRS.
"SBC" shall mean Signal Bolsa Corporation, a California corporation
and Wholly-Owned Subsidiary of Signal.
"SECURITIES ACCOUNT AGREEMENT" shall mean the Securities Account,
Security, Pledge and Assignment Agreement, dated as of the date hereof, executed
by the KREG, Signal and NACC, including all amendments, modifications,
supplements, extensions or novations thereto and any appendices, exhibits or
schedules thereto, and shall refer to such securities account agreement as the
same may be in effect at the time such reference becomes operative.
"SECURITIES ACCOUNTS" shall mean, collectively, the KREG Securities
Account and the Eagle Crest Securities Account.
"SECURITIZATION" shall have the meaning assigned thereto in Section 18
hereof.
"SECURITY DOCUMENTS" shall mean, collectively, the Securities Account
Agreement, the Signal Guaranty, the Reimbursement Guaranties, the Signal
Security Documents and all Uniform Commercial Code financing statements required
by this Agreement, the Securities Account Agreement and any of the Signal
Security Documents to be filed with respect to the security interests in
personal property created pursuant to the Securities Account Agreement, any
Signal Security Document or any other document or agreement executed and
delivered to the Trustee or NACC by KREG, Signal, SBC or any of the Guarantors
in connection with any of the foregoing documents, including all amendments,
modifications, supplements, extensions or novations thereto and any appendices,
exhibits or schedules thereto, any Bolsa Chica Mortgage created pursuant to
Section 12.8 of this Agreement, and shall refer to such documents as the same
may be in effect at the time such reference becomes operative.
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"SETTLEMENT AGREEMENT" shall have the meaning assigned to such term
in Section 3.1 hereof.
"SETTLEMENT AMOUNT" shall have the meaning assigned to such term in
Section 3.1 hereof.
"SETTLEMENT LOAN" shall have the meaning assigned to such term in
Section 3.1 hereof.
"SETTLEMENT NOTE" shall have the meaning assigned to such term in
Section 3.3 hereof.
"SIGNAL" shall have the meaning assigned to such term in the recitals
hereof.
"SIGNAL FINANCIAL STATEMENT" shall mean that certain Signal Landmark
balance sheet, statement of operations and statement of cash flow (in Thousands)
for the nine months ended September 30, 1994 and September 30, 1993 attached
hereto as Exhibit G.
"SIGNAL GUARANTY" shall mean the Secured Guaranty executed and
delivered by Signal pursuant to the terms of this Agreement, including all
amendments, modifications, supplements, extensions or novations thereto and any
appendices, exhibits or schedules thereto, and shall refer to such guaranty as
the same may be in effect at the time such reference becomes operative.
"SIGNAL SECURITY DOCUMENTS" shall mean, collectively, the Signal
Guaranty, the Mortgages, the Securities Account Agreement, the Pledge Agreement,
the Assignments of Construction Funds Accounts and Agreements, the Assignment of
Management Agreement and all Uniform Commercial Code financing statements
required by the Signal Guaranty, the Mortgages or the Pledge Agreement to be
filed with respect to the security interests in personal property and fixtures
created pursuant to the Mortgages and all other documents and agreements
executed or delivered to the Trustee or NACC by Signal in connection with any of
the foregoing documents, including all amendments, modifications, supplements,
extensions or novations thereto and any appendices, exhibits or schedules
thereto, any Bolsa Chica Mortgage created pursuant to Section 12.8 hereof, and
shall refer to such documents as the same may be in effect at the time such
reference becomes operative.
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"STATED AMOUNT" shall have the meaning assigned thereto in Section 2.1
hereof.
"SUBORDINATED DEBENTURES" shall have the meaning assigned thereto in
Section 11.11 hereof.
"SUBSIDIARY" shall mean, with respect to any Person, any (i)
corporation of which at least a sufficient number of the outstanding shares of
stock having by the terms thereof ordinary voting power to elect a majority of
the board of directors of such corporation (irrespective of whether or not at
the time stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person and/or one or
more of such Person's Subsidiaries or (ii) partnership or other entity with
respect to which such Person has possession, directly or indirectly, of the
power to direct or cause the direction of management or policies of such
partnership or other entity. "WHOLLY-OWNED SUBSIDIARY" shall mean, with respect
to any Person, any such Subsidiary of which all of the equity, other than
directors' qualifying shares, is so owned or controlled by such Person.
"TAXES" shall mean all Federal, state, local or foreign taxes, and
other assessments, fees or charges of a similar nature (whether imposed directly
or through withholding), including any interest, additions to tax, or penalties
applicable thereto.
"TAX SHARING AGREEMENTS" shall mean, collectively, (i) that certain
Tax Sharing Agreement dated as of December 15, 1988 by and between The Henley
Group, Inc., a Delaware corporation and Henley Newco Inc., a Delaware
corporation; (ii) that certain Tax Sharing Agreement dated as of December 18,
1989 by and between The Henley Group, Inc., a Delaware corporation and New
Henley, Inc., a Delaware corporation; and (iii) that certain Tax Sharing
Agreement dated as of June 10, 1992 by and between The Henley Group, Inc., a
Delaware corporation and Abex Inc., a Delaware corporation.
"TENANTS" shall mean any and all tenants, licensees, occupants,
concessionaires, or other Person or Persons possessing, occupying or otherwise
using or having a right to use, any space at any Collateral Property, whether
under written agreement or otherwise.
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"TERMINATION NOTICE" shall mean that certain notice delivered to the
Beneficiary by NACC upon the occurrence of an Event of Default or deemed to have
been delivered to and received by the Beneficiary in the event that the Initial
Expiry date has not been extended in accordance with Section 2.2 hereof,
pursuant to which the Beneficiary shall have thirty (30) days to Draw on the
Letter of Credit before the Letter of Credit shall terminate.
"TRUSTEE" shall mean Chicago Title Insurance Company in its capacity
as trustee under the Mortgages.
"WENTWORTH PROJECT" shall mean an approximately 100 acre planned
residential / marina community owned by Great Island Trust Partnership, a New
Hampshire general partnership, located in New Castle, New Hampshire.
"WTI" shall have the meaning assigned thereto in the recitals hereof.
1.2 ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all financial statements
and certificates and reports as to financial matters required to be delivered to
NACC hereunder shall be prepared, in accordance with generally accepted
accounting principles applied on a consistent basis. All calculations made for
the purposes of determining compliance with the terms of this Agreement shall
(except as otherwise expressly provided herein) be made by application of
generally accepted accounting principles applied on a consistent basis.
(b) KREG shall deliver to NACC at the same time as the delivery
of any annual or quarterly financial statement under Section 5.1 hereof a
description in reasonable detail of any material variation between the
application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the immediately preceding annual or quarterly financial
statements, and reasonable estimates of the difference between such statements
arising as a consequence thereof.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 6 hereof, KREG will not
change the last day of its fiscal year from December 31, or the last days of the
first three
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fiscal quarters in each of its fiscal years from March 31, June 30 and September
30, respectively.
Section 2. TERMS OF THE LETTER OF CREDIT FACILITY.
2.1 ISSUANCE OF THE LETTER OF CREDIT. Subject to the terms and
conditions of this Agreement, NACC agrees that upon its receipt of written
request by KREG following the entering of a judgment in favor of Abex and WTI in
the Abex Tax Litigation, NACC will cause the LOC Issuer to issue and deliver to
the Beneficiary, the Letter of Credit in an amount of up to $25,000,000 (the
"STATED AMOUNT"), which amount shall equal the amount of the Bond. Subject to
the preceding sentence, the Letter of Credit shall be issued and delivered to
Beneficiary concurrently with the Beneficiary's delivery of the Bond in the
Stated Amount to the applicable court in connection with the Appellate Action.
2.2 EXPIRATION OF THE LETTER OF CREDIT. The Letter of Credit will
expire in accordance with its terms upon the date which is the earlier to occur
of (i) December 31, 1996 (the "INITIAL EXPIRY DATE") and (ii) the date on which
the Letter of Credit terminates or is terminated by NACC pursuant to the terms
hereof. In the event that KREG delivers to NACC a notice on or before the 90th
day preceding the Initial Expiry Date, which notice requests an extension of the
Initial Expiry Date, then, so long as the Maturity Date has not then occurred
and NACC has not terminated the Letter of Credit pursuant to the terms hereof,
on or before the Initial Expiry Date, NACC shall allow the Letter of Credit to
be extended in accordance with its terms or cause the LOC Issuer (or another
bank with a minimum long-term unsecured debt rating equal or better than the
rating assigned to the LOC Issuer as of the date hereof by Standard and Poor's
Rating Group) to issue a substitute Letter of Credit in a form substantially the
same as the Letter of Credit issued on the Date of Issuance, which substitute
Letter of Credit will expire in accordance with its terms upon the earliest to
occur of (i) the Maturity Date, (ii) the first anniversary following the Initial
Expiry Date and (iii) the date on which the Letter of Credit terminates or is
terminated by NACC pursuant to the terms hereof. Notwithstanding any of the
foregoing, if the Letter of Credit expires on a date that is not a Business Day,
then the expiration date shall be deemed to be the first Business Day following
such date. In the event that KREG fails or is unable to extend the Initial
Expiry Date in accordance with this Section 2.2, then NACC shall be deemed to
have delivered a Termination Notice to KREG and KREG shall be deemed to have
received such Termination Notice as
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of the thirtieth (30th) day preceding the Initial Expiry Date, and the Letters
of Credit shall terminate on the Initial Expiry Date.
2.3 DRAWS.
(a) The Beneficiary shall have the right to Draw upon the Letter
of Credit pursuant to the terms of the Bond Agreement, which shall provide that
the Beneficiary shall only be entitled to Draw an amount equal to the amount the
Beneficiary is required to pay under the Bond pursuant to a demand, writ of
execution or levy in connection with the Appellate Action plus an amount equal
to the Beneficiary's costs for which it is entitled to be reimbursed by KREG
under the Bond Agreement, which amount shall be paid to the Beneficiary by the
LOC Issuer on the third (3rd) Business Day following the LOC Issuer's receipt of
the Drawing Certificate (as defined in the Letter of Credit) with respect to
such Draw.
(b) The Letter of Credit shall provide that the Beneficiary
shall have the right to Draw upon the Letter of Credit on or before the
thirtieth (30th) day after the Beneficiary receives a Termination Notice from
NACC.
(c) Upon the occurrence of any Draw on the Letter of Credit, (i)
KREG shall be obligated to reimburse NACC in accordance with the terms hereof,
(ii) the Letter of Credit shall immediately terminate notwithstanding the fact
that the Draw may have been in an amount less than the Stated Amount and (iii)
KREG shall execute and deliver to NACC a promissory note (the "REIMBURSEMENT
NOTE") in the form of Exhibit D-1 attached hereto and in the original principal
amount of the Draw.
2.4 MANDATORY PARTIAL REPAYMENT OF DRAW
(a) Upon the occurrence of a Draw, KREG shall promptly (but in any
event within three days) pay to NACC an amount equal to (i) $7,500,000 plus (ii)
the sum of all NACC Share Deposits theretofore deposited into the KREG
Securities Account.
(b) In the event that KREG fails to pay such amount to NACC within
three days following the occurrence of a Draw, then NACC shall be entitled to
direct the "Financial Intermediary" (as defined in the Securities Account
Agreement) to cause all "Collateral" (as defined in the Securities Account
Agreement) then held in or on behalf of the KREG Securities Account to be
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immediately liquidated and disbursed to NACC; provided, however, that in the
event that such disbursements yield a sum of less than (i) $7,500,000 plus (ii)
the sum of all NACC Share Deposits theretofore deposited into the KREG
Securities Account, then KREG shall pay to NACC within one Business Day
thereafter the difference between the sum of such NACC Share Deposits and the
amount actually yielded by the liquidation of the KREG Securities Account.
(c) NACC shall apply all amounts received pursuant to subsections (a)
and (b) above against KREG's Reimbursement Obligations with respect to such Draw
and shall reimburse the LOC Issuer for the amount of such Draw.
2.5 LETTER OF CREDIT DRAWS; LIABILITY OF NACC.
(a) Neither NACC, the LOC Issuer nor any of their respective
officers or directors shall be liable or responsible for (a) the use which may
be made of the Letter of Credit or for any acts or omissions of the Beneficiary
and any transfer in connection therewith; (b) the validity, sufficiency or
genuineness of documents presented under the Letter of Credit, or of any
endorsement(s) thereon, even if such documents should in fact prove to be in any
or all respects invalid, insufficient, fraudulent or forged; (c) payment by the
LOC Issuer against presentation of documents which do not comply with the terms
of the Letter of Credit, including failure of any documents to bear any
reference or adequate reference to the Letter of Credit; or (d) any other
circumstances whatsoever in making or failing to make payment under the Letter
of Credit, except only that KREG shall have a claim against NACC for acts or
events described in the immediately preceding clauses (a) through (d), and NACC
shall be liable to KREG, to the extent, but only to the extent, of any direct,
as opposed to consequential, damages suffered by KREG which KREG proves were
caused by (i) the LOC Issuer's willful misconduct or gross negligence in
determining whether documents presented under the Letter of Credit comply with
the terms of the Letter of Credit or (ii) the LOC Issuer's willful failure or
gross negligence in failing to pay under the Letter of Credit after the
presentation to it by the Beneficiary of a sight draft and certificate strictly
complying with the terms and conditions of the Letter of Credit. In furtherance
and not in limitation of the foregoing, the LOC Issuer may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary.
(b) Neither NACC nor the LOC Issuer shall be liable or
responsible in any respect for (a) any error, omission, interruption or delay in
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transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with the Letter of Credit or (b) any action, inaction
or omission which may be taken by it in good faith in connection with the Letter
of Credit. KREG further agrees that any action taken or omitted by NACC or the
LOC Issuer under or in connection with the Letter of Credit or the related draft
or documents, if done in good faith without gross negligence, shall be effective
against KREG as to the rights, duties and obligations of NACC and the LOC Issuer
and shall not place NACC or the LOC Issuer under any liability to KREG.
2.6 UNCONDITIONAL OBLIGATION. Except as otherwise expressly provided
to the contrary in Section 2.5 hereof, the Reimbursement Obligations of KREG
under this Agreement shall be absolute, unconditional and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including, without limitation, the following
circumstances:
(a) the Bond Agreement or any of the Loan Documents (other
than the Letter of Credit) proves to be forged, fraudulent, invalid,
unenforceable or insufficient in any respect;
(b) any amendment or waiver (other than an amendment or waiver
consented to by NACC) of, or any consent (other than by NACC) to departure from,
the Bond Agreement or the Loan Documents (other than in accordance with the
provisions hereof);
(c) the existence of any claim, setoff, defense or other rights
which KREG may have at any time against the Beneficiary or any permitted
transferee of the Letter of Credit (or any persons or entities for whom the
Beneficiary or any such transferee may be acting), NACC, or any other person or
entity, or any dispute between or among NACC, Beneficiary or KREG, or any claim
whatsoever of KREG against NACC or the Beneficiary, or any transferee, whether
in connection with the Bond Agreement, the Loan Documents or any unrelated
transaction;
(d) the existence of any claim, setoff, defense or other rights
which the Beneficiary may have at any time against KREG, NACC, the LOC Issuer or
any other person or entity, or any claim whatsoever of the Beneficiary against
NACC, the LOC Issuer or KREG, whether in connection with the Bond Agreement, the
Loan Documents or any unrelated transaction;
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(e) any demand presented under the Letter of Credit (or any
endorsement thereon), and honored by the LOC Issuer without gross negligence or
willful misconduct, proving to be forged, fraudulent, invalid, unenforceable or
insufficient in any respect or any statement therein being inaccurate in any
respect whatsoever; or
(f) the use to which the Letter of Credit or the proceeds of any
Draw thereon may be put or any acts or omission of the Beneficiary in connection
therewith.
Section 3. SETTLEMENT OF TAX LITIGATION.
3.1 SETTLEMENT LOAN. In the event that KREG, Abex and WTI enter into
a settlement agreement (the "SETTLEMENT AGREEMENT"), pursuant to which (i) Abex
and WTI agree to dismiss, with prejudice as to all parties, the Abex Tax
Litigation, (ii) all of the parties to the Tax Dispute execute mutual general
releases as to the Abex Tax Dispute, (iii) the Bond is fully released by the
court or is never issued, and (iv) KREG's total gross payment obligation (the
"SETTLEMENT AMOUNT") does not exceed $25,000,000, then:
(a) NACC shall be released from its obligation to cause the
issuance of the Letter of Credit or the Letter of Credit shall immediately
terminate and the Beneficiary shall return the Letter of Credit to the LOC
Issuer; and
(b) KREG shall have the right to borrow from NACC and NACC shall
lend to KREG an amount not to exceed the amount by which the Settlement Amount
exceeds the greater of (i) $7,500,000 plus the sum of all NACC Share Deposits
theretofore deposited into the KREG Securities Account or (ii) the then
outstanding balance of the KREG Securities Account as the time such loan is
disbursed in accordance with the terms hereof (the "SETTLEMENT LOAN"), provided
that all proceeds of the Settlement Loan are applied solely to the Settlement
Amount.
3.2 RELEASE OF KREG SECURITIES ACCOUNT. Upon the making of the
Settlement Loan hereunder, KREG and NACC agree that the KREG Securities
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Account at the time of the making of the Settlement Loan shall be released from
NACC's Liens hereunder and under the Construction Loan Agreement.
3.3 SETTLEMENT NOTE. The Settlement Loan shall be evidenced by a
single promissory note made by KREG, substantially in the form of EXHIBIT D-2
attached hereto (the "SETTLEMENT NOTE").
Section 4. SUCCESS IN ABEX TAX LITIGATION.
In the event that the Delaware Chancery Court enters a judgment in
connection with the Abex Tax Litigation (prior to any appeal of an earlier
judgment in connection with the Abex Tax Litigation) which is either in favor of
KREG or awards Abex and WTI damages in an amount less than or equal to the sum
of (i) $7,500,000 plus (ii) the sum of all NACC Share Deposits theretofore
deposited into the KREG Securities Account, then in such event NACC shall be
relieved of its obligations to fund the Settlement Loan and cause the issuance
of the Letter of Credit, all of the Collateral pledged to secure the
Reimbursement Obligations shall be Released from the Lien of the Security
Documents (provided that such Release shall have no effect on the Lien of the
security documents on the collateral pledged to secure KREG's and Signal's
obligations under the Construction Loan Documents) and this Agreement shall
terminate and be of no further force or effect.
Section 5. FEES AND OTHER LETTER OF CREDIT PAYMENTS.
5.1 INVESTMENT BANKING FEE. Concurrently with the execution hereof,
KREG shall pay to NSI an investment banking fee for investment banking services
rendered in connection with this Agreement equal to $468,750. Such fee shall be
paid to NSI by wire transfer to its account with Mellon Bank Pittsburgh, ABA
Number 04300261, Account Name: NSI, Account Number: 198-2122, Reference: Koll
Real Estate Group.
5.2 LETTER OF CREDIT FEES. KREG hereby unconditionally agrees to pay
to NACC an annual fee (collectively, the "LETTER OF CREDIT FEES"), payable
quarterly in advance commencing on the Closing Date, calculated at the rate of
2 1/4% per annum on (i) $25,000,000 prior to the issuance of the Letter of
Credit or (ii) the Stated Amount following the issuance of the Letter of Credit,
together with interest on such Letter of Credit Fees from the date payment
thereof is due until paid at a rate per annum equal to the Post-Default Rate.
The Letter of Credit Fees
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shall be payable in advance, commencing on the Closing Date and thereafter on
each March 1, June 1, September 1, and December 1 thereafter until the Letter of
Credit is terminated or NACC is released from its obligation to cause the
issuance of the Letter of Credit and, on a PRO RATA basis upon such termination
or release. Such fee shall be computed on the basis of actual days elapsed for
a year consisting of 360 days.
5.3 DRAW AND LOAN FEES. KREG hereby unconditionally agrees to pay to
NACC on demand (i) a Draw or Settlement Loan fee equal to 1 1/2% of the
Repayment Amount and (ii) the amount of any taxes (other than any taxes measured
by or based upon the overall net income of NACC imposed by any jurisdiction
having control over NACC), fees and charges required to be paid by NACC from and
after the date hereof or any other reasonable out-of-pocket costs or expenses
whatsoever incurred by NACC in connection with any payment made by NACC under or
with respect to the Letter of Credit or the Settlement Loan, as to which amounts
NACC shall notify KREG in writing, together with interest on such amounts
referred to in the immediately preceding clauses (i) and (ii) from the date such
payment is due in the case of such amounts referred to in such clause (i) and
from the date of payment specified in such notice in the case of such amounts
referred to in such clause (ii) (which shall be not earlier than five (5)
Business Days after the effective date of such notification), in either case
until paid at a rate per annum equal to the Post-Default Rate.
Section 6. INCREASED COSTS.
If any law, regulation or change in any law or regulation adopted
after the Closing Date or in the interpretation thereof or any ruling, decree,
judgment, guideline, directive or recommendation (whether or not having the
force of law) by any regulatory body, court, central bank or any administrative
or governmental authority charged or claiming to be charged with the
administration thereof (including, without limitation, a request or requirement
that affects the manner in which NACC or the LOC Issuer allocates capital
resources to its commitments, including its obligations hereunder or under the
Letter of Credit or in connection therewith) shall either:
RED impose upon, modify, require, make or deem applicable to NACC or the
LOC Issuer any reserve requirement, special deposit requirement,
insurance assessment or similar requirement against or affecting the
Letter of
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Credit, or
(ii) subject NACC or the LOC Issuer to any tax, charge, fee, deduction or
withholding of any kind whatsoever in connection with the Letter of
Credit or change the basis of taxation of NACC or the LOC Issuer
(other than a change in the rate of tax based on the overall net
income of NACC or the LOC Issuer), or
(iii) impose any condition upon or cause in any manner the addition of any
supplement to or increase of any kind to NACC's or the LOC Issuer's
capital or cost base for issuing, maintaining or participating in the
Letter of Credit that results in an increase in the capital requirement
supporting the Letter of Credit, or
(iv) impose upon, modify, require, make or deem applicable to NACC or the
LOC Issuer any capital requirement, increased capital requirement or
similar requirement, such as the deeming of the Letter of Credit to be
an asset held by NACC or the LOC Issuer for capital adequacy
calculation or other purposes (including, without limitation, a
request or requirement that affects the manner in which NACC or the
LOC Issuer allocates capital resources to its commitments including
its obligations hereunder or under the Letter of Credit),
and the result of any events referred to in (i), (ii), (iii) or (iv) above shall
be to increase the actual cost in any way to NACC or the LOC Issuer of issuing
or maintaining the Letter of Credit or to reduce the amounts payable by KREG
hereunder or reduce the rate of return on capital, as a consequence of the
issuing or maintaining or participating in the Letter of Credit, to a level
below that which NACC or the LOC Issuer could have achieved but for such events;
then and in such event, KREG shall within ten (10) Business Days after written
demand therefor by NACC (together with reasonable evidence of such costs and the
events causing such costs to be incurred) immediately pay to NACC from time to
time as specified by NACC all such additional amounts as shall be sufficient to
compensate NACC and the LOC Issuer for all such increased actual costs and/or
reduced payments and/or reduced rate of return together with interest at the
Post-Default Rate on each such amount from the tenth (10th) Business Day after
demand therefor to the date of payments, all as certified by NACC in said
written notice to KREG. Such certification shall be conclusive and binding on
the parties hereto, absent manifest
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error.
Section 7. PAYMENTS AND PREPAYMENTS.
7.1 REPAYMENT OF DRAW OR SETTLEMENT LOAN. Subject to the prepayment
provisions set forth in Section 7.4 hereof, KREG will pay to NACC an amount
equal to the amount of the Draw or Settlement Loan (less amounts received by
NACC pursuant to Section 2.4 hereof) (the "REPAYMENT AMOUNT") together with all
interest, fees and charges due thereon, on the Maturity Date.
7.2 INTEREST. After a Draw or the making of the Settlement Loan and
prior to the Maturity Date, interest on the Repayment Amount shall be payable in
arrears, on each Interest Payment Date, at the Effective Rate. Notwithstanding
the foregoing, KREG will pay to NACC interest at the applicable Post-Default
Rate on any principal of the Draw or Settlement Loan and (to the fullest extent
permitted by law) on any other amount payable by the Borrower hereunder or under
the other Loan Documents, which shall not be paid in full when due (whether at
stated maturity, by acceleration or otherwise), for the period from and
including the due date thereof (or the date on which any applicable notice or
cure period expires) to but excluding the date the same is paid in full.
7.3 METHOD AND TERMS FOR PAYMENTS.
(a) (i) All payments made by KREG (other than those fees to be
paid pursuant to Sections 5 and/or 7.5 hereof) or otherwise in connection with
the Loan Documents shall be made to NACC to its account with Mellon Bank
Pittsburgh, ABA Number 04300261, Account Name: Nomura Asset Capital Corporation,
Account Number: 091-0944, Reference: Koll Real Estate Group, in lawful money of
the United States of America and in funds immediately available on or prior to
3:00 p.m. (New York City time) on the date such payment is due. Any such
payments received after 3:00 p.m. (New York City time) on any day will be deemed
to have been received on the next succeeding Business Day.
(ii) All payments of fees made by KREG pursuant to Sections
5 and/or 7.5 hereof shall be made to NACC to its account with Mellon Bank
Pittsburgh, ABA Number 04300261, Account Name: NACC Clearance Account, Account
Number: 109-2525, Reference: Koll Real Estate Group, in lawful money of the
United States of America and in funds immediately available on or prior to 3:00
p.m. (New York City time) on the date such payment is due.
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Any such payments received after 3:00 p.m. (New York City time) on any day will
be deemed to have been received on the next succeeding Business Day.
(b) If any payment hereunder becomes due and payable on a day
other than a Business Day, unless sooner paid such payment shall be extended to
the next succeeding Business Day and interest thereon shall be payable at the
then applicable rate during such extension.
(c) The Letter of Credit and Settlement Loan fees and interest
payable hereunder shall be calculated on the basis of actual days elapsed for a
year consisting of 360 days. Any change in the interest rate on any amounts
remaining unpaid by KREG hereunder resulting from a change in LIBOR Base Rate
shall become effective as of the opening of business on the day on which such
change in LIBOR Base Rate shall become effective. In no event shall the amount
of interest payable under this Agreement exceed the maximum amount permitted by
applicable law.
(d) Whenever a payment is due to NACC under this Agreement, KREG
shall be deemed to have made such payment at the time such payment is received
by NACC.
7.4 MANDATORY PREPAYMENTS. In the event that KREG or any of its
Affiliates elects to sell any portion of the Collateral Property in accordance
with the Signal Guaranty or the Construction Loan Documents (which sales shall
be referred to herein as "PERMITTED SALES"), then with respect to any Permitted
Sale, eighty percent (80%) of all Net Cash Proceeds from such Permitted Sale
(the "NACC SHARE") shall be paid to NACC at the closing of such Permitted Sale
and applied as follows: (i) first, if a Draw has occurred or a Settlement Loan
has been made hereunder NACC Share shall be paid to NACC at the closing of such
sale and applied against the Repayment Amount, together with all interest, fees
and charges due thereon, in such order and priority as NACC may determine in its
sole and absolute discretion; (ii) then, the remaining balance of NACC Share
shall be paid to NACC and applied against any and all amounts owing under the
Construction Loan Documents, if any, in such order and priority as NACC may
determine in its sole and absolute discretion, and (iii) then, any remaining
balance of NACC Share shall be deposited into the KREG Securities Account and
immediately invested in accordance with the terms of the Securities Account
Agreement.
7.5 OPTIONAL PREPAYMENTS.
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(a) KREG shall have the right to prepay the Repayment Amount at
any time and from time to time, in whole or in part, provided that KREG shall
give NACC prior written notice of each such prepayment (the "PREPAYMENT
NOTICE"), which Prepayment Notice shall (i) state the amount of the Repayment
Amount to be prepaid (which shall be an amount not less than $1,000,000) and the
date of the prepayment (which shall be an Interest Payment Date) and (ii) be
irrevocable and effective only if received by NACC not later than 3:00 p.m. New
York time at least ten (10) Business Days prior to the prepayment date
designated in the Prepayment Notice. Except with respect to any mandatory
prepayment made pursuant to Section 7.4 hereof, in connection with any
prepayment of a Draw or Settlement Loan, KREG shall pay to NACC a prepayment fee
equal to two percent (2%) of the prepayment amount and any expenses payable
under Section 8.3 hereof.
(b) Notwithstanding anything to the contrary herein, in the
event that the amount to be paid to the Beneficiary pursuant to a Draw on the
Letter of Credit hereunder is paid to the Beneficiary by a party other than NACC
prior to the payment on such Draw by the LOC Issuer, then (i) notwithstanding
anything to the contrary herein or in the Letter of Credit, the Letter of
Credit shall immediately terminate and (ii) upon such payment to the
Beneficiary, KREG shall pay to NACC a prepayment fee equal to two percent (2%)
of the Stated Amount.
Section 8. LIBOR BORROWINGS AND ILLEGALITY.
8.1 LIMITATIONS ON LIBOR BORROWINGS. Notwithstanding anything herein
to the contrary, if, on or prior to any determination of the LIBOR Base Rate
hereunder, NACC determines (which determination shall be conclusive) that
quotations of interest rates for the deposits referred to in the definition of
"LIBOR Base Rate" in Section 1.1 hereof are not available, then the applicable
rate shall be the rate per annum which NACC reasonably determines to be either
(i) the arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of 1/32%) of the United States dollar lending rates for a one (1) month
period that leading New York City banks selected by NACC are quoting, on the
relevant determination date, to the principal London offices of at least two of
the following banks: Bank of Tokyo Ltd., Barclay's Bank plc, National
Westminster Bank plc and Bankers Trust Company or (ii) if NACC cannot determine
such arithmetic mean, the lowest United States dollar lending rate for a one (1)
month period that leading New York
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City banks selected by NACC are quoting on such determination date to leading
European banks.
8.2 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for NACC to honor its
obligation to make or maintain the Settlement Loan or loan pertaining to any
Draw under the Letter of Credit, then NACC shall promptly notify KREG thereof
and NACC's obligation to fund the Settlement Loan or any Draw shall be suspended
until such time as NACC may again make and maintain such loans; provided,
however, that if such illegality is based upon NACC's inability to fund or
maintain LIBOR based loans, then the Effective Rate shall be the Prime Rate plus
200 Basis Points for so long as NACC is prevented from funding or maintaining
LIBOR based loans.
8.3 COMPENSATION. KREG shall pay to NACC, upon the request of NACC,
such amount or amounts as shall be sufficient (in the reasonable opinion of
NACC) to compensate it (and any assignee or participant) for any loss, cost or
expense which NACC reasonably determines are attributable to LIBOR breakage
costs resulting from any payment or prepayment of any amounts due hereunder for
any reason (including, without limitation, a prepayment resulting from the
acceleration of the such amounts pursuant to Section 15 hereof) on a date other
than an Interest Payment Date.
Section 9. CLOSING CONDITIONS.
9.1 DELIVERIES PRIOR TO THE CLOSING DATE. On or before the Closing
Date, KREG shall have delivered to NACC each of the following:
(a) CORPORATE ACTION. Certified copies of the charter and by-
laws of KREG and Signal and all corporate action taken by KREG and Signal
approving the Loan Documents and any and all future borrowings by KREG
hereunder and all other Loan Documents to which KREG or Signal is a party
(including, without limitation, a certificate setting forth the resolutions of
the Boards of Directors of KREG and Signal adopted in respect of the
transactions contemplated hereby).
(b) INCUMBENCY. A certificate of KREG and Signal in respect of
each of the officers (i) who is authorized to sign on its behalf this Agreement,
the Note and all other Loan Documents to which KREG or Signal is a party and
(ii) who will, until replaced by another officer or officers duly authorized for
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that purpose, act as its representative for the purposes of signing documents
and giving notices and other communications in connection with the Loan
Documents and the transactions contemplated thereby (and NACC may conclusively
rely on such certificate until it receives notice in writing from KREG or
Signal, as applicable, to the contrary).
(c) REIMBURSEMENT GUARANTIES. The Reimbursement Guaranties,
duly executed and delivered by the Guarantors.
(d) SECURITY DOCUMENTS AND DELIVERIES. All of the Security
Documents, duly executed and delivered by KREG and Signal, as applicable,
together with all of the documents, instruments and certificates to be delivered
to NACC pursuant to the Security Documents on or before the Closing Date,
including, without limitation, the deposit of $7,500,000 into the KREG
Securities Account in accordance with the terms of the Securities Account
Agreement.
(e) FINANCIALS. A certificate of a senior officer of KREG
attaching thereto financial statements of KREG together with a certificate of
such senior officer to the effect that such information is accurate to the best
knowledge of KREG and such senior officer.
(f) OPINION OF COUNSEL TO KREG AND THE GUARANTORS. An opinion
of counsel(s) to KREG and the Guarantors with respect to (i) the enforceability
of the Loan Documents against KREG and the Guarantors, as applicable, and (ii)
such other matters as NACC may reasonably request and otherwise in form and
substance and from counsel reasonably satisfactory to NACC.
(g) INSURANCE. Certificates of insurance evidencing the
existence of all insurance required to be maintained by KREG and its Affiliates
pursuant to the Loan Documents and the designation of NACC as the loss payee
thereunder to the extent required by the Loan Documents, such certificates to be
in such form and contain such information as is specified in the Loan Documents.
(h) ENVIRONMENTAL AUDIT. Evidence reasonably satisfactory to
NACC that, except as otherwise disclosed to NACC in writing in the Bolsa Chica
environmental impact report or the surface use agreement prior to the Closing
Date and except for Excluded Hazardous Materials, (a) there are no pending or
threatened claims, suits, actions or proceedings arising out of or relating to
the existence of any Hazardous Materials at, in, on or under any
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Collateral Property or the Bolsa Chica Project, (b) each Collateral Property and
the Bolsa Chica Project is in full compliance with all applicable Environmental
Laws, (c) no Hazardous Materials exist at, in, on or under any Collateral
Property or the Bolsa Chica Project, except in compliance with applicable
Environmental Laws, (d) KREG and its Subsidiaries have complied (or has made
arrangements to comply) with the recommendations of all environmental
consultant(s) referred to in this subparagraph with respect to the Collateral
Property, and (e) all Hazardous Materials have been removed from each proposed
Collateral Property to the extent required by applicable law. Such evidence
shall include, without limitation, (i) an updated environmental audit as to each
of the Collateral Properties (which shall include, without limitation, Phase I
environmental studies and, if recommended by the consultant who prepared the
Phase I study and if NACC shall reasonably request, Phase II environmental
studies), reasonably satisfactory, in form and substance, to NACC, conducted and
certified by a qualified, independent environmental consultant licensed by the
State of California, which reports shall include a statement that all required
Environment-related approvals from all governmental and quasi-governmental
authorities having jurisdiction with respect to the Collateral Properties, if
any, have been obtained and (ii) such other environmental reports, inspections
and investigations as NACC shall, in its reasonable discretion, require,
prepared, in each instance, by engineers or other consultants reasonably
satisfactory to NACC. All such audits, approvals, reports, inspections and
investigations shall be paid for by KREG and shall be satisfactory, in form and
substance, to NACC.
(i) PROJECT BUDGETS. Project budgets and development schedules
for each Collateral Property for the two-year period following the Closing Date,
in form and substance reasonably satisfactory to NACC.
(j) MATERIAL CONTRACTS. Certified copies of all material
contracts and agreements (collectively, "MATERIAL CONTRACTS") that (i) relate to
a Collateral Property, including, without limitation, all material construction
and service contracts and management agreements covering or affecting each
Collateral Property and all permits, approvals and licenses issued with respect
to each Collateral Property, but excluding any contract, agreement, permit
approval or license which may be terminated upon no more than thirty (30) days
notice without penalty or payment or (ii) are required to be filed as an exhibit
to KREG's periodic reports under or in accordance with the requirements of the
Securities and Exchange Act of 1934, as amended, and specifically requested by
NACC in writing prior to the Closing Date.
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(k) PROPERTY CONDITION REPORT. To the extent available, reports
covering the geologic and soils condition of each Collateral Property, which
reports shall have been prepared, in each instance, by an engineer or other
professional reasonably satisfactory to NACC.
(l) TAX ASSESSMENT. Evidence that each Collateral Property is
assessed separate and apart from any other Property for local property tax and
subdivision purposes.
(m) OTHER DOCUMENTS. Such other documents relating to the
transactions contemplated hereby as NACC or counsel to NACC may reasonably
request.
(n) FEES AND EXPENSES. Evidence (including, without limitation,
payment instructions given by KREG) that (1) all fees and expenses payable to
NACC or NSI hereunder, to the extent then due and payable, have been paid in
full, and (2) all recording charges required to be paid in connection with the
execution, delivery or recording of the Signal Security Documents as well as all
title premiums and other title and survey charges have been paid in full.
Section 10. CONDITIONS PRECEDENT TO ISSUANCE OF THE LETTER OF CREDIT
AND THE MAKING OF THE SETTLEMENT LOAN.
10.1 LETTER OF CREDIT DELIVERIES. On or before the Date of Issuance,
KREG shall have delivered to NACC each of the following:
(a) KREG CERTIFICATE. A certificate, executed by a duly
authorized officer of KREG, dated as of the Date of Issuance, certifying the
matters set forth in clauses (a) and (b) of Section 10.3 hereof.
(b) CERTIFICATE REGARDING BOND AGREEMENT. A certificate,
executed by a duly authorized officer of KREG, dated the Date of Issuance, to
the effect that all of the conditions precedent to the issuance of the Bond
under the Bond Agreement to be fulfilled by KREG shall have been fulfilled and
that simultaneously with the issuance of the Letter of Credit by NACC, the Bond
shall be duly authorized, executed and delivered in accordance with the Bond
Agreement.
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(c) BOND AGREEMENT. The Bond Agreement substantially in the
form of EXHIBIT E attached hereto, duly executed and delivered by KREG and the
Beneficiary.
(d) RE-AFFIRMATION OF REIMBURSEMENT GUARANTIES. A letter (in
form and substance reasonably acceptable to NACC) addressed to NACC and executed
by each of the Guarantors, pursuant to which each of the Guarantors reaffirms
that the Reimbursement Guaranty executed by such Guarantor is in full force and
effect and reaffirms and remakes all of its representations, warranties,
covenants and waivers contained therein as of the Date of Issuance (except for
representations and warranties expressly made or deemed to be made as of a
specific date (which representations and warranties shall be expressly stated to
be true and correct on and as of such specific date when made again on the Date
of Issuance)).
(e) GUARANTIES BY SUBSIDIARIES. A Guaranty (in substantially
the form of the Reimbursement Guaranties) given by each direct Wholly-Owned
Subsidiary which (i) is not then a Guarantor and (ii) has assets the fair value
of which exceed its liabilities.
10.2 SETTLEMENT LOAN DELIVERIES. On or before the date that the
Settlement Loan is funded, KREG shall have delivered to NACC each of the
following:
(a) SETTLEMENT NOTE. The Settlement Note in the original
principal amount of the Settlement Loan, executed by a duly authorized officer
of KREG, dated as of the date of the making of the Settlement Loan.
(b) SETTLEMENT AGREEMENT. A fully executed original Settlement
Agreement.
(c) KREG CERTIFICATE. A certificate, executed by a duly
authorized officer of KREG, dated as of the Date of Issuance, certifying the
matters set forth in clauses (a) and (b) of Section 10.3 hereof.
(d) RE-AFFIRMATION OF REIMBURSEMENT GUARANTIES. A letter (in
form and substance reasonably acceptable to NACC) addressed to NACC and executed
by each of the Guarantors, pursuant to which each of the Guarantors reaffirms
that the Reimbursement Guaranty executed by such Guarantor is in full force and
effect and reaffirms and remakes all of its representations, warranties, cove-
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nants and waivers contained therein as of the Date of Issuance (except for
representations and warranties expressly made or deemed to be made as of a
specific date (which representations and warranties shall be expressly stated to
be true and correct on and as of such specific date when made again on the Date
of Issuance)).
(e) GUARANTIES BY SUBSIDIARIES. A Guaranty (in substantially
the form of the Reimbursement Guaranties) given by each direct Wholly-Owned
Subsidiary which (i) is not then a Guarantor and (ii) has assets the fair value
of which exceed its liabilities.
10.3 OTHER CONDITIONS. In addition to the other conditions set forth
herein, the obligation of NACC to cause the LOC Issuer to issue the Letter of
Credit on the Date of Issuance or to make the Settlement Loan shall be subject
to fulfillment of the following conditions precedent on or before the Date of
Issuance or the date of the making of the Settlement Loan, as the case may be,
in a manner reasonably satisfactory to NACC and its counsel:
(a) NO DEFAULT. No Event of Default shall have occurred and be
continuing under any of the Loan Documents and no default shall have occurred
and be continuing with respect to Sections 15(a), (j), (k) and (l) hereof. In
addition, no default shall have occurred and be continuing with respect to
Section 15(d) hereof to the extent that such default would have a material
adverse effect on the financial condition of KREG or the Guarantors or the value
of the Collateral.
(b) REPRESENTATIONS. The representations and the warranties made
by KREG in this Agreement or the other Loan Documents and made by the Guarantors
in the Reimbursement Guaranties and the Security Documents shall be true and
complete in all material respects on and as of the Date of Issuance with the
same force and effect as if made on and as of such date.
(c) ACCOMMODATION DOCUMENTS. KREG and the Guarantors shall have
executed and delivered to NACC such documents and agreements and taken such
action including, without limitation, executing such amendments or supplements
to the Loan Documents, which in the reasonable discretion of NACC, are necessary
or appropriate so that NACC shall not (as determined in the sole discretion of
NACC) be required to qualify to do business in or obtain any licenses or
authorization in any jurisdiction in which any Collateral Property is located.
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(d) OTHER LEGAL MATTERS. All other legal matters pertaining to
the authorization, execution and delivery of the Loan Documents, and any other
documents or instruments required to be delivered pursuant to or in connection
herewith shall be reasonably satisfactory to NACC and its counsel.
(e) NO ADVERSE CHANGE. No material adverse change (other than
changes which may result from the Abex Tax Litigation or with respect to
litigation or administrative proceedings challenging the Orange County Board of
Supervisors Certification of the Environmental Impact Report and approval of the
local coastal plan, each dated on or about December 14, 1994, shall have
occurred in the condition (financial or otherwise) of KREG between the date of
KREG's most recent 10-Q quarterly filing with the Securities and Exchange
Commission and the Date of Issuance, and on or prior to the Date of Issuance no
material transactions or obligations (not in the ordinary course of business)
shall have been entered into by KREG or subsequent to the date of such quarterly
filing. No material adverse change shall have occurred in the condition of the
Collateral Properties from that set forth in the most recent appraisals and
engineering reports delivered to NACC with respect thereto. Except for the Abex
Tax Disputes, no Assessment including, without limitation, any Assessment
resulting from the Henley Facilities Audit, has been made, filed, or otherwise
assessed against KREG, any of its Affiliates, the Collateral, or any of the
property, assets or revenues of KREG.
(f) ESTABLISHMENT OF CONSTRUCTION FUNDS. Signal shall have (i)
established with NACC or the City of Escondido and/or such other political
subdivisions and utility authorities with jurisdiction over the Eagle Crest
Project, one or more construction funds (collectively, the "CONSTRUCTION FUNDS")
into which Signal shall have deposited $5,000,000 in the aggregate (in addition
to any Initial Draw Proceeds to be deposited therein pursuant to the terms of
the Construction Loan Agreement and such Construction Fund) and Signal shall
have executed and delivered to NACC an Assignment of Construction Fund Accounts
and Agreements with respect to each Construction Fund so established (other than
with respect to any Construction Fund established with NACC); or (ii) shall have
deposited such $5,000,000 into the Eagle Crest Securities Account pursuant to
the terms of the Construction Loan Agreement and the Securities Account
Agreement, in addition to any other amounts to be deposited therein pursuant to
the terms hereof, or of the Construction Loan Agreement or the Securities
Account Agreement.
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(g) OTHER ASSURANCES. NACC shall receive evidence reasonably
satisfactory to NACC that all necessary action required to be taken in
connection with the authorization, execution, issuance, delivery and performance
of the Bond Agreement, the Loan Documents and any other documents and
instruments required to be delivered pursuant to or in connection with the Bond
Agreement, the Loan Documents or the transactions contemplated hereby or
thereby, has been taken.
(h) FEES AND EXPENSES. Evidence that (1) all reasonable fees
and expenses payable to NACC or NSI hereunder, to the extent then due and
payable, have been paid in full, and (2) all fees and charges required to be
paid in connection with the Signal Security Documents and the Securities
Accounts have been paid in full.
10.4 REVIEW AND APPROVALS. Notwithstanding anything to the contrary
contained in Sections 10.1, 10.2 or 10.3 hereof, to the extent that NACC shall
have a right of approval with respect to any condition precedent to the issuance
of the Letter of Credit, NACC shall not unreasonably withhold, condition or
delay such approval. Upon receipt of a request from KREG pursuant to Section
2.1 hereof asking NACC to cause the issuance of the Letter of Credit, each of
the parties shall act diligently to complete all deliveries and reviews as soon
as possible so as to comply with all legal requirements relating to the time
within which the Bond must be delivered to the applicable court.
Section 11. REPRESENTATIONS AND WARRANTIES. In order to induce NACC
to enter into this Agreement and to cause the LOC Issuer to issue the Letter of
Credit provided for in this Agreement, KREG hereby represents and warrants, as
of the date hereof and as of the Date of Issuance and as of the date that any
Settlement Loan is funded, as follows:
11.1 CORPORATE EXISTENCE. KREG (i) is a corporation that was duly
organized and is validly existing under the laws of the jurisdiction of
incorporation, (ii) has all the requisite corporate power and all material
government licenses, authorizations, consents and approvals necessary to own its
assets and carry on its businesses as it is now being conducted; and (iii) is
qualified to do business in all jurisdictions in which the nature of the
business conducted makes such qualification necessary, except where the failure
of any of the foregoing would not have a material adverse effect on the value of
the Collateral or the financial condition of KREG or the Guarantors.
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11.2 FINANCIAL STATEMENTS.
(a) All financial data with respect to KREG, the Guarantors, or
the Collateral heretofore delivered to NACC in writing is true, complete and
correct in all material respects and accurately represents the financial
condition of the Persons covered thereby in all material respects and the
Collateral as of the date set forth therein. There has been no material adverse
change in the financial condition of KREG or the value of the Collateral since
the date of such data. To the knowledge of KREG, after due inquiry, neither
KREG nor any of its Subsidiaries has incurred any obligation or liability,
contingent or otherwise, not reflected in such financial data or not otherwise
disclosed to NACC in writing prior to the Closing Date, which might materially
adversely affect its financial condition or the value of the Collateral.
(b) The line item on the Signal Financial Statement designated
as $89,422,000 for "Other liabilities" for the nine month period ending on
September 30, 1994 includes approximately $1,000,000 of pension and litigation
reserves and approximately $88,422,000 of deferred tax liabilities (the
"DEFERRED TAX AMOUNT"), which deferred tax amount represents deferred income
taxes which will become due only upon the entitlement and sale of the Bolsa
Chica Project, based on the difference between Signal's tax basis in such
property and its financial statement basis for such property. No portion of the
Deferred Tax Amount shall be due or owing prior to a sale of all or any portion
of the Bolsa Chica Project with respect to which the sale price exceeds Signal's
tax basis for the property so sold. Upon the consummation of any such sale,
Signal's tax liability in connection with such sale shall not exceed Signal's
effective tax rate multiplied by the amount by which the sale price of the
property sold exceeds Signal's tax basis in such property.
11.3 MATERIAL LITIGATION. Except as set forth on EXHIBIT F attached
hereto, there are no legal or arbitral proceedings or any proceedings by or
before any governmental or regulatory authority or agency, now pending or (to
the knowledge of KREG) threatened against KREG or any of the Collateral which,
if adversely determined, could have a material adverse effect on the financial
condition of KREG or the Guarantors or a material adverse effect on the value of
the Collateral. The November 8, 1994 letter from Joseph Thomas at Brobeck,
Phleger & Harrison to Rand April at Skadden, Arps, Slate, Meagher & Flom and
the November 16, 1994 letter from Raymond Pacini at KREG to Allan Mutchnik at
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Skadden, Arps, Slate, Meagher & Flom, and each of the attachments thereto,
contain a true and reasonable assessment of KREG's liability with respect to the
Abex Tax Litigation.
11.4 NO BREACH. None of the execution and delivery of this Agreement
or any other Loan Document to which KREG is a party, the consummation of the
transactions herein and therein contemplated and compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent (except such consents as have been obtained) under the
charter or by-laws of KREG, or any applicable law or regulation, or any order,
writ, injunction or decree of any court or governmental authority or agency, or
any agreement or instrument to which KREG is a party or by which it is bound or
is subject, or constitute a default under any such agreement or instrument, or
(except for the Liens arising under the Security Documents) result in the
creation or imposition of any Lien upon any of the revenues or assets of KREG or
any of its Subsidiaries pursuant to the terms of any such agreement or
instrument.
11.5 CORPORATE ACTION. KREG has all necessary corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the other Loan Documents to which KREG is a party; and the execution,
delivery and performance by KREG of this Agreement and the other Loan Documents
to which it is a party have been duly authorized by all necessary corporate
action on the part of KREG.
11.6 APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency are necessary for the execution, delivery or performance by KREG of this
Agreement and the other Loan Documents to which it is a party or for the
validity or enforceability thereof, except to the extent that the failure to
obtain or to make such authorizations, approvals, consents, filings or
registrations would not have a material adverse effect on KREG's financial
condition or the value of the Collateral.
11.7 MARGIN STOCK. KREG is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying margin stock
and no part of the proceeds of any Draw will be used to buy or carry any margin
stock.
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11.8 ERISA. The Guarantors, KREG and the ERISA Affiliates have
fulfilled their respective obligations under the minimum funding standards of
ERISA and the Code with respect to each Plan and are in compliance in all
material respects with the presently applicable provisions of ERISA and the
Code, and have not incurred any liability to the PBGC or any Plan or
Multiemployer Plan (other than to make contributions in the ordinary course of
business).
11.9 TAXES. KREG and each of its Affiliates have filed all United
States Federal income tax returns and all other material tax returns which are
required to be filed (and, where KREG or any of its Affiliates has been a member
of a consolidated group, the parent of such consolidated group has filed all
such returns) and all such returns are true, complete and correct in all
material respects. All Taxes due pursuant to such returns or pursuant to any
assessment have been paid, except as disclosed to NACC in writing prior to the
Closing Date, the Date of Issuance, or the date of any disbursement of the
Settlement Loan. The charges, accruals and reserves on the books of KREG and
each of its Affiliates in respect of Taxes are, in the opinion of KREG,
adequate. No deficiency or adjustment for any Taxes has been threatened,
proposed, asserted or assessed against KREG, or any its Affiliates, or the
Collateral, or against any other Person to whom KREG or its Affiliates may have
an indemnification, reimbursement, contribution or similar obligation, except as
disclosed to NACC in writing prior to the Closing Date, the Date of Issuance, or
the date of any disbursement of the Settlement Loan. KREG has disclosed to NACC
that it is under audit by the IRS for the 1989 tax year (hereinafter referred to
as the "HENLEY FACILITIES AUDIT"). KREG shall diligently contest any Assessment
or proposed Assessment arising out of or relating to the Henley Facilities
Audit. KREG shall retain independent counsel, reasonably acceptable to NACC (and
Brobeck, Phleger & Harrison is hereby deemed acceptable by NACC), to represent
it in connection with the Henley Facilities Audit and KREG has the right of
approval with respect to any agreement, resolution, stipulation, or other
settlement with respect to the Henley Facilities Audit. The Lien of the Mortgage
and the Lien of the Security Documents securing the Reimbursement Obligations
shall have priority over any tax lien levied by the IRS in connection with any
Assessment, including any Assessment resulting from the Henley Facilities Audit.
11.10 INVESTMENT COMPANY ACT. KREG is not an "investment company",
or a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
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11.11 CAPITALIZATION. Except for (i) KREG's Series A Convertible
Redeemable Preferred Stock, (ii) options issuable or exercisable under KREG's
1993 Stock Option / Stock Issuance Plan and all predecessor plans exercisable in
the aggregate for 15,000,000 shares of Class A Common Stock and Series A
Convertible Preferred Stock and (iii) warrants issued to Kathryn G. Thompson and
J. Harold Street exercisable in the aggregate for 2,000,000 shares of Class A
Common Stock, KREG does not have outstanding any other capital stock or
securities convertible into or exchangeable for capital stock of KREG nor any
right to subscribe for or to purchase, or any options for the purchase of, or
any agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, capital stock of KREG
or any securities convertible into or exchangeable for capital stock of KREG.
Upon maturity in accordance with the terms of the Indentures governing KREG's
12% Senior Subordinated Pay-In-Kind Debentures Due March 15, 2002, and KREG's
12% Subordinated Pay-In-Kind Debentures Due March 15, 2002 (collectively, the
"SUBORDINATED DEBENTURES"), the Subordinated Debentures are payable at the
option of KREG in shares of Class A Common Stock. The Subordinated Debentures
are in all respects subject and subordinate to the Loan Documents and the
Construction Loan Documents, to the Liens created hereby and thereby, to the
payment obligations hereunder and thereunder, and the Indebtedness arising under
the Loan Documents and the Construction Loan Documents constitutes "Senior Debt"
and "Senior Indebtedness" under the Subordinated Indentures.
11.12 EMPLOYEES. KREG has no employees other than its corporate
officers.
11.13 SOLVENCY.
(a) None of the transactions contemplated by the Loan Documents
will be or have been made with an actual intent to hinder, delay or defraud any
present or future creditors of KREG and KREG will not be rendered insolvent by
such transactions or will have received fair and reasonably equivalent value in
good faith for the grant of the Liens created by the Security Documents. KREG
is able to pay its debts as they become due, including contingent obligations
reasonably likely to become due.
(b) The fair value of KREG's assets exceeds and, immediately
following the funding of the Loan and the consummation of the other transactions
contemplated to take place simultaneously therewith, will exceed, KREG's
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liabilities, including, without limitation, subordinated, unliquidated, disputed
and contingent liabilities. The fair value of KREG's assets is and, immediately
following the funding of the Loan, will be greater than KREG's liabilities,
including, without limitation, the maximum amount of its contingent liabilities
on its debts as such debts become absolute and matured. KREG's assets do not
and, immediately following the funding of the Loan and the consummation of the
other transactions contemplated to take place simultaneously therewith, will
not, constitute unreasonably small capital to carry out its business as
conducted or as proposed to be conducted. KREG does not intend to, and believes
that it will not, incur debts and liabilities (including, without limitation,
contingent liabilities) beyond its ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be received by KREG and
the amounts to be payable on or in respect of obligations of KREG).
11.14 INSURANCE. KREG will keep insured by financially reputable
insurers all property of a character usually insured by parties engaged in the
same or similar business similarly situated against loss or damage of the kinds
and in the amounts customarily insured against by such parties and carry such
other insurance as is usually carried by such parties.
11.15 CONTRACTS. KREG has delivered to NACC a schedule and
description of each Material Contract (including all amendments thereto) to
which KREG, the Guarantors or any other Subsidiary of KREG (other than the KGT
Affiliates) is a party and the information set forth in such schedule is correct
and complete in all material respects as of the date thereof. A correct and
complete copy of each such Material Contract (including all such amendments) has
been provided to NACC and each such Material Contract is unmodified and in full
force and effect and neither KREG nor, to KREG's knowledge, any other party to
any Material Contract is in default (or with the giving of notice or the passage
of any applicable cure period would be in default) thereunder (other than any
defaults which, if uncured, would not have a material adverse effect on the
value of the applicable Collateral and KREG has no knowledge of the existence of
any other such material agreements with respect to any of the Collateral
Properties or the Bolsa Chica Project.
11.16 EXEMPT SUBSIDIARIES. Each of the Exempt Subsidiaries either
(i) has no assets or (ii) has liabilities which exceed the fair value of its
assets.
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11.17 KREG CONSOLIDATED TAX GROUP. Signal and SBC are both members
of the KREG Consolidated Tax Group, and pursuant to the terms of the Tax Sharing
Agreements and Section 1.1502-6(a) of the Federal Income Tax Regulations, Signal
and SBC are each severally liable for the Federal income tax liability of the
KREG Consolidated Tax Group for the 1988 and 1989 tax years, including, without
limitation, for those Taxes which are the subject of the Abex Tax Disputes, and
Signal and SBC will each derive substantial benefit from NACC's agreement to
cause the issuance of the Letter of Credit and to make the Settlement Loan.
11.18 OBLIGATORY DISBURSEMENT AGREEMENT. This Agreement constitutes
an obligatory disbursement agreement under Section 6323(c)(3) of the Code.
11.19 FULL DISCLOSURE. To the best knowledge of KREG, no information
contained in this Agreement, the other Loan Documents, the financial statements,
the appraisals or any written statement furnished by or on behalf of KREG which
has previously been delivered to NACC, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not materially misleading in light of the
circumstances under which made.
Section 12. AFFIRMATIVE COVENANTS OF KREG. KREG agrees that so long
as any of the Loan Documents are in effect and until all Reimbursement
Obligations shall have been paid in full, KREG shall do the following:
12.1 FINANCIAL STATEMENTS. KREG shall deliver or cause to be
delivered to NACC:
(a) as soon as available and in any event within 60 days after
the end of each quarterly fiscal period of each fiscal year of KREG, unaudited
consolidated and consolidating statements of income, retained earnings and
changes in financial position of KREG for such period and for the period from
the beginning of the respective fiscal year to the end of such period, and the
related consolidated and consolidating balance sheet as at the end of such
period, setting forth in each case in comparative form the corresponding
consolidated figures for the corresponding period in the preceding fiscal year,
accompanied by a certificate of a senior financial officer of KREG, which
certificate shall state that said financial statements fairly present the
consolidated and consolidating financial
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condition and results of operations, as the case may be, of KREG in accordance
with generally accepted accounting principles, consistently applied, as at the
end of, and for, such period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 105 days after
the end of each fiscal year of KREG, consolidated and consolidating statements
of income, retained earnings and changes in financial position of KREG for such
year and the related consolidated and consolidating balance sheets as at the end
of such year, setting forth (after 1994) in each case in comparative form the
corresponding consolidated and consolidating figures for the preceding fiscal
year, and accompanied by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state that said
consolidated financial statements fairly present the consolidated and
consolidating financial condition and results of operations of KREG as at the
end of, and for, such fiscal year;
(c) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, which KREG or the
Guarantors shall have filed with the Securities and Exchange Commission (or any
governmental agency substituted therefor) or any national securities exchange;
(d) promptly upon the mailing thereof to the stockholders of
KREG, copies of all financial statements, reports and proxy statements so
mailed, if any;
(e) as soon as possible, and in any event within ten days after
KREG knows or has reason to know that any of the events or conditions specified
below with respect to any Plan or Multiemployer Plan have occurred or exist, a
statement signed by a senior financial officer of KREG setting forth details
respecting such event or condition and the action, if any, which the Guarantors,
KREG or its ERISA Affiliate proposes to take with respect thereto (and a copy of
any report or notice required to be filed with or given to PBGC by the
Guarantors, KREG or an ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA and the
regulations issued thereunder, with respect to a Plan, as to which
PBGC has not by regulation waived the requirement of Section 4043(a)
of ERISA that it be notified within 30 days of the occurrence of such
event (provided that a failure to meet the minimum funding standard of
Sec-
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tion 412 of the Code or section 302 of ERISA shall be a reportable event
regardless of the issuance of any waivers in accordance with Section
412(d) of the Code);
(ii) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan;
(iii) the institution by PBGC of proceedings under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer,
any Plan, or the receipt by the Guarantors, KREG or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal by the Guarantors, KREG or any
ERISA Affiliate under Section 4201 or 4204 of ERISA from a
Multiemployer Plan, or the receipt by the Guarantors, KREG or any
affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA
or that it intends to terminate or has terminated under Section 4041A
of ERISA; and
(v) the institution of a proceeding by a fiduciary of any Multiemployer
Plan against the Guarantors, KREG or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30
days;
(f) promptly after KREG knows that any Default has occurred, a
written notice of such Default describing the same in reasonable detail and,
together with such notice or as soon thereafter as possible, a description of
the action that KREG has taken and proposes to take with respect thereto; and
(g) from time to time such other information regarding the
business, affairs or financial condition of the Guarantors, KREG or any of their
respective Affiliates (including, without limitation, any Plan or Multiemployer
Plan and any reports or other information required to be filed under ERISA) and
such additional statements, reports, projections, budget and other information
regarding the Collateral as NACC may reasonably request.
KREG will furnish to NACC, at the time it furnishes each set of financial
statements pursuant to paragraphs (a) or (b) above, a certificate of a senior
financial officer of KREG to the effect that no default has occurred and is
continuing (or, if
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any default has occurred and is continuing, describing the same in reasonable
detail and describing the action that KREG has taken and proposes to take with
respect thereto).
12.2 NET WORTH. KREG shall at all times maintain a net worth of no
less than Seventy Million Dollars ($70,000,000) (the "Minimum Net Worth
Amount"). As used herein the "net worth" of KREG shall be calculated by
subtracting the amount of any and all liabilities of KREG, whether direct or
indirect, including, without limitation, any unliquidated, disputed and
contingent liabilities, from the book value (as set forth in KREG's Financial
Statements) of those assets held directly or indirectly by KREG; provided,
however, that any and all interest of KREG in SBC and the Bolsa Chica Project,
together with related deferred taxes, and liabilities related to the
Subordinated Debentures, shall be excluded from the calculation of KREG's assets
and liabilities for purposes of calculating the Minimum Net Worth Amount.
12.3 LITIGATION, ETC. KREG will promptly give to NACC notice of (a)
all legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
respect of such legal or other proceeding affecting KREG or the Collateral
except proceedings which, if adversely determined, would not have a material
adverse effect on the financial condition of KREG or the value of any of the
Collateral and (b) any written proposal known to KREG by any public authority to
acquire all or any portion of the Collateral.
12.4 CORPORATE EXISTENCE, ETC. KREG will (i) preserve and maintain
its corporate existence and all of its material rights, privileges and
franchises; comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure to
comply with such requirements would materially and adversely affect the
financial condition, operations, business or prospects taken as a whole of KREG,
(ii) except as disclosed in writing to NACC prior to the Closing Date or
contested in good faith with adequate reserves therefor, pay and discharge all
taxes, assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its property prior to the date on which penalties
attach thereto; and (iii) maintain all of its properties used or useful in its
business in good working order and condition, ordinary wear and tear excepted;
and permit representatives of NACC, during normal business hours and upon
reasonable prior notice, to examine, copy and make extracts from its books and
records, to inspect its properties, and to discuss its
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business and affairs with its officers, all to the extent reasonably requested
by NACC.
12.5 INSURANCE. KREG will keep insured by financially sound and
reputable insurers all property of a character usually insured by parties
engaged in the same or similar business similarly situated against loss or
damage of the kinds and in the amounts customarily insured against by such
parties and carry such other insurance as is usually carried by such parties and
as required in accordance with the terms of the Loan Documents.
12.6 EAGLE CREST INFRASTRUCTURE COSTS.
(a) In order to provide funds for Eagle Crest Project
infrastructure costs in excess of $10,000,000, KREG shall, or shall cause Signal
to, deposit an aggregate amount of $2,000,000 (the "ADDITIONAL CONSTRUCTION
DEPOSIT AMOUNT") into the Construction Funds; provided, however, that until the
applicable Construction Fund has been established, KREG shall, or shall cause
Signal to, deposit (in accordance with subsection (b) below) the Additional
Construction Deposit Amount directly into the Eagle Crest Securities Account.
Notwithstanding the foregoing, in the event that the cost of the Eagle Crest
Project infrastructure is reasonably expected by KREG and/or Signal to exceed
$12,000,000, then KREG shall, or shall cause Signal to, promptly (but in no
event prior to such time as KREG would be required to deposit the Additional
Construction Deposit Amount pursuant to subsection (b) below) deposit funds
equal to such excess into the applicable Construction Fund (or the Eagle Crest
Securities Account if such Construction Fund has not then been established) and
such excess amounts shall be treated as "Additional Construction Deposit
Amounts" hereunder and under the Securities Account Agreement.
(b) On or before the earliest to occur of (i) the date on which
funds in excess of the Initial Draw Proceeds of $5,000,000 and the additional
$5,000,000 deposited in the Construction Funds by KREG and/or Signal pursuant to
this Agreement or the Construction Loan Agreement are needed to pay for Eagle
Crest Project infrastructure costs or (ii) the date on which a re-Draw is funded
pursuant to Section 6.2(g) of the Construction Loan Agreement or (iii) January
30, 1996, KREG shall, or shall cause Signal to, deposit into the applicable
Construction Fund, if then established, or, if not, the Eagle Crest Securities
Account, the Additional Construction Deposit Amount, which amount shall be
disbursed from such fund or account in accordance with the terms of the
agreements
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governing such fund or account.
12.7 GUARANTIES BY EXEMPT SUBSIDIARIES. In the event that at any
time prior to the Maturity Date a direct Wholly-Owned Subsidiary of KREG (i) is
not then a Guarantor and (ii) has assets the fair value of which exceed its
liabilities, KREG shall promptly cause such first tier subsidiary to execute and
deliver to NACC a Guaranty (in substantially the form of the Reimbursement
Guaranties).
12.8 BOLSA CHICA PROJECT MORTGAGE. From and after July 1, 1996,
unless the Henley Facilities Audit has been satisfactorily resolved, and
provided that at least an aggregate principal amount of $10,000,000 of principal
amount is then outstanding under the Loan Documents and/or the Construction Loan
Documents (inclusive of the Stated Amount in the event that the Letter of Credit
is then in existence), and in recognition of the substantial benefit which SBC
receives from the agreement of NACC to cause the issuance of the Letter of
Credit and to make the Settlement Loan, NACC may direct KREG to cause SBC to
deliver to NACC a deed of trust for the Bolsa Chica Project (the "BOLSA CHICA
MORTGAGE").
(a) DUE DILIGENCE. In the event that NACC elects to obtain the
Bolsa Chica Mortgage, then KREG shall cause SBC to:
(b) PRELIMINARY TITLE REPORT. SBC shall cause the Title Company
to deliver to NACC a preliminary title report (the "PTR") issued by the Title
Company, together with legible copies of all documents referenced therein.
(c) ENVIRONMENTAL AUDIT. SBC shall deliver to NACC (i) an
updated environmental audit as to the Bolsa Chica Project (which shall include,
without limitation, Phase I environmental studies and, if recommended by the
consultant who prepared the Phase I study and if NACC shall reasonably request,
Phase II environmental studies), reasonably satisfactory, in form and substance,
to NACC, conducted and certified by a qualified, independent environmental
consultant licensed by the State of California, which reports shall include a
statement that all required Environment-related approvals from all governmental
and quasi-governmental authorities having jurisdiction with respect to the Bolsa
Chica Project, if any, have been obtained and (ii) such other environmental
reports, inspections and investigations as NACC shall, in its reasonable
discretion, require, prepared, in each instance, by engineers or other
consultants reasonably satisfactory to NACC. All such audits, approvals,
reports, inspections and investigations shall be paid for
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by SBC and/or KREG and shall be reasonably satisfactory, in form and substance,
to NACC.
(d) DUE DILIGENCE REVIEW. NACC shall conduct its due diligence
review with respect to the Bolsa Chica Project, which review may include,
without limitation, a review of the PTR, surveys, leases, service contracts,
options, entitlements, existing approvals, environmental impact reports,
financial and operating statements, engineering and geological reports,
environmental assessments, plans and specifications, market and feasibility
studies and all other items relating to the Bolsa Chica Project which NACC and
its agents and representatives deem reasonably necessary to review in connection
with obtaining a Lien upon the Bolsa Chica Project. At all reasonable times
during the period of such due diligence, NACC, its agents and representatives
shall be entitled to (i) enter onto the Bolsa Chica Project (accompanied, at
SBC's option, by a representative of SBC) on reasonable notice to SBC to perform
inspections and tests of the Bolsa Chica Project and (ii) examine and copy any
and all plans, specifications, books and records maintained by SBC or its agents
relating to the Bolsa Chica Project for the three most recent full calendar
years and the current calendar year.
(e) COSTS AND EXPENSES. KREG and SBC shall pay any and all
reasonable costs and expenses, including, without limitation, all reasonable
attorneys' fees, charges and disbursements and reasonable consultants' fees,
charges and disbursements arising or incurred in connection with NACC's due
diligence on the Bolsa Chica Project, regardless of any satisfactory resolution
of the Henley Facilities Audit prior to the time that the Bolsa Chica Mortgage
is (or would be) delivered.
(f) DELIVERIES. From and after September 1, 1996, unless the
Henley Facilities Audit has been satisfactorily resolved, NACC may direct SBC to
execute and deliver to the Trustee for the benefit of NACC, the Bolsa Chica
Mortgage. In connection with the delivery of the Bolsa Chica Mortgage, SBC
shall additionally deliver to NACC the following:
(g) FINANCIALS. A certificate of a senior officer of SBC
attaching thereto financial statements of SBC, together with a certificate of
such senior officer to the effect that such information is accurate to the best
knowledge of SBC and such senior officer.
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(h) CORPORATE ACTION. Certified copies of the charter and by-
laws of SBC and all corporate action taken by SBC in approving the Bolsa Chica
Mortgage, then Loan Documents and any and all future borrowings by KREG
hereunder (including, without limitation, a certificate setting forth the
resolutions of the Boards of Directors of SBC adopted in respect of the
transactions contemplated hereby).
(i) INCUMBENCY. A certificate of SBC in respect of each of the
officers (i) who is authorized to sign on its behalf the Bolsa Chica Mortgage
and (ii) who will, until replaced by another officer or officers duly authorized
for that purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection with the
Bolsa Chica Mortgage (and NACC may conclusively rely on such certificate until
it receives notice in writing from KREG to the contrary).
(j) SECURED GUARANTY. A secured guaranty, duly executed and
delivered by SBC, in substantially the form of the Signal Guaranty, guarantying
KREG's Reimbursement Obligations.
(k) OPINION OF COUNSEL TO SBC. An opinion of counsel(s) to SBC
with respect to (i) the enforceability of the Bolsa Chica Mortgage and (ii) such
other matters as NACC may reasonably request and otherwise in form and substance
and from counsel reasonably satisfactory to NACC.
(l) BOLSA CHICA MORTGAGE. A duly executed, acknowledged and
recorded first priority deed of trust in substantially the form of the
Mortgages, which shall constitute a valid first mortgage lien on the fee simple
title to the Bolsa Chica Project and which shall secure all of the Reimbursement
Obligations, subject only to the liens shown on the Bolsa Chica Owner's Title
Policy, Permitted Exceptions, and such defects, liens, encumbrances,
assessments, security interests, restrictions, easements and other title
exceptions as shall be reasonably approved by NACC.
(m) TITLE INSURANCE. A policy or policies of title insurance
(collectively, the "BOLSA CHICA TITLE POLICIES"), each on forms of and issued by
the Title Companies, showing fee simple title vested in SBC and insuring the
first priority of the Liens created under the Bolsa Chica Mortgage in an amount
equal to not less than the Maximum Loan Amount, subject only to the liens shown
on the Bolsa Chica Owner's Title Policy, Permitted Exceptions, and such defects,
liens,
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encumbrances, assessments, security interests, restrictions, easements and other
title exceptions as are reasonably satisfactory to NACC. Such Bolsa Chica Title
Policies shall also contain such endorsements and affirmative insurance
provisions as NACC may reasonably require, including, but not limited to, a tie-
in endorsement with respect to the Collateral Properties. In addition, KREG
shall have paid (or caused to be paid) to the Title Companies all expenses and
premiums of the Title Companies in connection with the issuance of such Title
Policies and an amount equal to the recording fees payable in connection with
recording the Mortgages in the appropriate county land offices.
(n) INSURANCE. Certificates of insurance evidencing the
existence of all insurance required to be maintained by SBC pursuant to the Loan
Documents and the designation of NACC as the loss payee thereunder to the extent
required by the Loan Documents, such certificates to be in such form and contain
such information as is specified in the Loan Documents.
(o) UCC FINANCING STATEMENTS. UCC-1 financing statements (in
form and substance reasonably acceptable to NACC), or amendments thereto, if
applicable, covering fixtures and personal property owned by SBC, and affixed
to, or used in connection with, the Bolsa Chica Project, in each case
appropriately completed and duly executed, acknowledged and filed in the
appropriate land offices.
(p) PROJECT BUDGETS. Project budgets and development schedules
for the Bolsa Chica Project for the eighteen (18) month period following the
date that the Bolsa Chica Mortgage is recorded, in form and substance reasonably
satisfactory to NACC.
(q) SEARCHES. Copies of the UCC filing searches, tax lien
searches, judgment, real estate tax searches and municipal department searches
setting forth any and all building violations (if available) conducted in
respect of SBC in all relevant jurisdictions and in Orange County, California
demonstrating, as of a date not more than thirty (30) days prior to the
recordation of the Bolsa Chica Mortgage, the existence of no other financing
statements with respect to SBC or the Bolsa Chica Project.
(r) MATERIAL CONTRACTS. Certified copies of all material
contracts and agreements (collectively, "BOLSA CHICA MATERIAL CONTRACTS")
relating to SBC or the Bolsa Chica Project, including, without limitation, all
material con-
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struction and service contracts and management agreements covering or affecting
SBC or the Bolsa Chica Project and all permits, approvals and licenses issued
with respect to SBC or the Bolsa Chica Project, but specifically not including
any contract, agreement, permit, approval or license which may be terminated
upon no more than thirty (30) days notice without penalty or payment.
(s) PROPERTY CONDITION REPORTS. To the extent available,
reports covering the geologic and soils condition of the Bolsa Chica Project,
which reports shall have been prepared, in each instance, by an engineer or
other professional reasonably satisfactory to NACC.
(t) FEES AND EXPENSES. Evidence that (1) all fees and expenses
payable to NACC, including, without limitation, the fees and expenses referred
to in Section 13.3 hereof, to the extent then due and payable, have been paid in
full, and (2) all filing or recording charges required to be paid in connection
with the execution, delivery or recording of the Bolsa Chica Mortgage as well as
all title premiums and other title charges have been paid in full.
Section 13. NEGATIVE COVENANTS OF KREG. Except as permitted by the
Loan Documents or the Construction Loan Documents or necessary to consummate the
transactions permitted thereby, KREG agrees that so long as this Agreement is in
effect or the Letter of Credit is outstanding and until all Reimbursement
Obligations shall have been paid in full:
13.1 PROHIBITION AGAINST FUNDAMENTAL CHANGES.
(a) Except as otherwise expressly permitted hereunder or under
the other Loan Documents or Construction Loan Documents, neither KREG nor any of
its Subsidiaries (other than the KGT Affiliates) will enter into any transaction
of sale, transfer, merger or consolidation or amalgamation of its ownership
interests, or (except with respect to the Exempt Subsidiaries) liquidate, wind
up or dissolve itself (or suffer any liquidation or dissolution).
(b) Neither KREG nor it Subsidiaries (other than the KGT
Affiliates) will acquire any business or assets from, or capital stock of, or be
a party to any acquisition of, any Person except for (a) purchases of non-real
property inventory and other assets to be used in the ordinary course of
business, (b) Investments permitted under the Securities Account Agreement, and
(c) purchases of real property or companies involved in the development,
entitlement
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or construction of residential housing or commercial projects ("ASSET
PURCHASES"), provided, however, that such Asset Purchases shall be made through
special purpose Subsidiaries and shall not exceed $2,500,000 per year in the
aggregate (inclusive of all Quick Flip Transaction deposits and acquisitions as
hereinafter described).
(c) Subject to Signal's right to effect Permitted Sales in
accordance with the Construction Loan Agreement, neither KREG nor any of its
Subsidiaries (other than the KGT Affiliates) will engage in any Asset Sales, in
one transaction or a series of transactions, whether to Affiliates of KREG or
otherwise; provided, however, that KREG or its Subsidiaries may engage in Asset
Sales with respect to (i) any non-real property inventory or other assets sold
or disposed of in the ordinary course of business; (ii) obsolete or worn-out
property, tools or equipment no longer used or useful in its business so long as
the amount thereof sold in any single fiscal year by KREG or its Subsidiaries
shall not have a fair market value in excess of $50,000 in aggregate; (iii) the
Wentworth Project; (iv) Quick Flip Transactions; and (v) any other assets (other
than the Collateral or the Bolsa Chica Project) having an aggregate value of
$2,500,000 or less per year as to any one transaction or series of transactions.
(d) Notwithstanding anything to the contrary in this Section
13.1, KREG or any of its Subsidiaries shall have the right to (i) enter into
agreements to purchase real property with the intent to sell such property to an
unaffiliated third party concurrently with the closing of such purchase (any
such transaction being referred to herein as a "QUICK FLIP TRANSACTION") and
(ii) close such Quick Flip Transactions, provided that (1) immediately after the
execution of the purchase agreement for such Quick Flip Transaction and prior to
the closing of any such Quick Flip Transaction, the aggregate dollar amount of
Asset Purchases for the then current year (inclusive of all amounts deposited by
KREG or its Subsidiaries with the sellers in all then pending Quick Flip
Transactions) does not exceed $2,500,000 per year and (2) where KREG or its
Subsidiary is forced to acquire the subject Property because the sale to the
unaffiliated third party fails to close concurrently with the acquisition, the
aggregate dollar amount of Asset Purchases for the then current year (inclusive
of the purchase price for such Property together with all amounts deposited by
KREG or its Subsidiary with the sellers in then pending Quick Flip Transactions)
does not exceed $2,500,000 per year. To the extent that KREG or its Subsidiary
is able to sell a Property in the same year that it acquired such Property
pursuant to a failed Quick Flip Transaction, then, for the purpose of
determining the dollar cap applicable to Asset Purchases in such year
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pursuant to this Section 13.1, the aggregate dollar amount of Asset Purchases
for such year shall be reduced by the sale price of such Property.
(e) Notwithstanding anything to the contrary herein or in the
Loan Documents or Construction Loan Documents, in the event that KREG fails to
obtain any forecast entitlements or approvals or satisfy any development targets
or cash flow forecasts with respect to the Collateral Properties, all as set
forth and projected on EXHIBIT C hereto, then eighty percent (80%) of the Net
Cash Proceeds from any and all Asset Sales of KREG and each of its Subsidiaries
(other than with respect to the Wentworth Project or Property owned by any KGT
Affiliate) shall be invested in the KREG Securities Account.
13.2 LIMITATION ON LIENS. Neither KREG nor any of its Subsidiaries
shall create, incur, assume or suffer to exist any Lien upon any of its
property, assets or revenues, whether now owned or hereafter acquired, except
the following Liens (referred to herein as "PERMITTED EXCEPTIONS"):
(a) Liens imposed by any governmental authority for taxes,
assessments or charges not yet delinquent; provided, however that in no event
shall any Assessment or tax lien in connection with the Henley Facilities Audit
be a Permitted Exception;
(b) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
(c) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business;
(d) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the use
of property or minor imperfections in title thereto which, in the aggregate, are
not material in amount, and which do not in any case materially detract from the
value of the property subject thereto or interfere with the ordinary conduct of
the business of KREG in any material respect;
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(e) Liens that encumber the Property of any KGT Affiliate, which
are necessary or desirable to market and develop such Property;
(f) Liens that encumber the Wentworth Project and that are
necessary or desirable to market and develop the Wentworth Project;
(g) Liens that are necessary to secure the Future Approvals for
the Collateral Properties or the Bolsa Chica Project, provided that such Liens
(i) do not secure any Indebtedness (except to the extent that (1) such Liens and
the related Indebtedness relate solely to the implementation of wetlands
restoration at the Bolsa Chica Project as set forth in the Bolsa Chica
Environmental Impact Report and only encumber portions of the Bolsa Chica
Project which constitutes wetlands or (2) such Lien and related Indebtedness
relate solely to public infrastructure financing (such as special assessment
district, Mello-Roos district or community facilities district financing) that
are utilized to construct or install public infrastructure or facilities that
are required as a condition of approval of the entitlements for either of the
Collateral Properties or the Bolsa Chica Project and only encumber portions of
the Collateral Properties or the Bolsa Chica Project upon which such
Infrastructure or facilities shall be constructed or benefited by such
construction), and (ii) do not, individually or in the aggregate, have a
material adverse effect on the value of the property which they are to encumber,
and (iii) are approved by NACC (but only to the extent that they are to encumber
a Collateral Property), which approval shall not be unreasonably withheld, or
conditioned, or delayed;
(h) Liens arising under the Loan Documents or under the
Construction Loan Documents;
(i) Liens on equipment for Indebtedness incurred in accordance
with Sections 13.3(c) or 13.3(h);
(j) any other Liens approved by NACC in writing (which approval
may be withheld in NACC's sole discretion); and
(k) any extension, renewal or replacement of the foregoing;
provided, however, that the Liens permitted hereunder shall not be spread to
cover any additional Indebtedness or property (other than a substitution of like
property).
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13.3 INDEBTEDNESS. Neither KREG nor any of its Subsidiaries shall
incur or suffer to exist any Indebtedness except:
(a) Indebtedness to NACC under the Loan Documents and the
Construction Loan Documents;
(b) unsecured Indebtedness consisting of trade accounts payable
(other than for borrowed money) incurred in the ordinary course of KREG's
business which (i) are payable within 90 days of the date on which the invoice
for such goods or services is delivered or (ii) to the extent not payable within
90 days, are in an aggregate principal amount not exceeding $50,000 at any time;
(c) Indebtedness incurred in connection with KREG's purchase of
equipment used in the ordinary course of KREG's business, which Indebtedness may
be secured by a Lien on such equipment, provided that such Indebtedness may not
exceed the purchase price of such equipment;
(d) Indebtedness to the Bank of Boston incurred by Great Island
Trust Partnership in connection with the Wentworth Project in an aggregate
principal amount not exceeding $7,500,000;
(e) Indebtedness secured by Liens permitted under Section 13.2
hereof.
(f) Indebtedness incurred by any KGT Affiliate in connection
with the acquisition, marketing, ownership, management, and development of any
Property owned or acquired by a KGT Affiliate, provided that such Indebtedness
is non-recourse to KREG, Signal and their respective Subsidiaries (other than
KGT Affiliates);
(g) The obligations of KGT Affiliates (which may be guaranteed
by KREG) to make capital contributions to the AV Partnership in connection with
the development of Property of KGT Affiliates, provided that such Indebtedness
shall not exceed $10,000,000 in the aggregate;
(h) Indebtedness incurred by a Subsidiary of KREG in connection
with the acquisition of a company involved in the development, entitlement or
construction of residential housing or commercial projects or in connection with
a Quick Flip Transaction, or an Asset Purchase permitted
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hereunder or build-to-suit transactions by KREG Operating Company or its
Subsidiaries; provided that such Indebtedness is expressly non-recourse to KREG,
Signal and the Guarantors and is not secured by any of the Collateral or the
Bolsa Chica Project and provided further that NACC shall have consented to the
incurrence of such Indebtedness, which consent shall not be unreasonably
withheld, conditioned or delayed.
(i) any extensions, renewals, replacements or refinancings of
any of the foregoing; provided, however, that any such extension, renewal,
replacement or refinancing shall not exceed in principal amount the principal
amount of the Indebtedness being replaced or refinanced.
13.4 CORPORATE ACTIVITIES.
(a) Except as provided in Section 13.1 hereof or as otherwise
approved by NACC (in its sole and absolute discretion), neither KREG nor any of
its Subsidiaries shall (i) purchase any real property, conduct any business
other than that permitted under the respective articles of incorporation and by-
laws of KREG and its Subsidiaries, or (ii) have any assets or liabilities other
than assets or liabilities derived from or related to the Collateral or any
other property owned by KREG or its Subsidiaries as of the date hereof. NACC's
approval of any of the foregoing activities shall not be unreasonably withheld
in connection with the exercise of Signal's existing option to purchase certain
land from the Metropolitan Water District, provided that such option is not
exercised by Signal unless and until all necessary and desirable entitlements
have, in NACC's reasonable discretion, been obtained for the Bolsa Chica
Project.
(b) Except as permitted in the Loan Documents or the
Construction Loan Documents, KREG shall (i) keep its own separate books and
records, (ii) maintain its own bank accounts, (iii) keep its funds or other
assets separate from the funds or other assets of its Subsidiaries and all other
Persons, (iv) fund from its own assets all of its activities, expenses and
liabilities, (v) pay its own operating expenses and liabilities from its own
funds and will be adequately capitalized for such business purpose, (vi) observe
all customary corporate or partnership procedures and formalities, (vii) in all
dealings with the public, act under its own name and as a separate and distinct
entity and (viii) maintain financial statements, records and books of account
separate from those of its Subsidiaries and all other Persons. KREG shall hold
periodic meetings of its board of directors, and will have officers who (when
acting in their capacity as officers of such
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corporation) act in such corporation's and KREG's best interests, all to the
extent necessary to maintain the existence of KREG separate and apart from its
Affiliates and all other Persons. The corporate charter of KREG provides that
the board of directors of KREG will at all times consist of at least one
director who is not a director, officer or employee of, or subject to control
by, any of KREG's Subsidiaries or Affiliates. KREG shall always maintain at
least four (4) outside directors and its Board of Directors shall always be
composed with a majority of outside directors.
(c) Prior to the date hereof, KREG has caused The Henley Group,
Inc. to transfer $17,307,012 in cash or cash equivalent assets to KREG. KREG
agrees that its shall use all of its cash and cash equivalent assets solely for
the operation of its business and the business of Signal and the others
Guarantors (but not for the business of any Exempt Guarantor or other Affiliate
of KREG in excess of $500,000 during the term of this Agreement) in each
instance in a manner consistent with the terms and conditions hereof and the
other Loan Documents and shall invest the same only in investments permitted
hereunder or under the Securities Account Agreement.
(d) Notwithstanding the foregoing subsection 13.4 (c), KREG is
permitted to make the $6,000,000 loan (the "AV LOAN") to AV Partnership provided
that: (i) such loan is fully secured by a perfected pledge of the AV Partnership
interests and/or the stock of the corporate general partners of AV Partnership,
(ii) such loan shall be repaid on or before March 15, 1995, and (iii) the
general partner of the AV Partnership shall be entitled and irrevocably
committed to make a call for capital to be used for the specific purpose of
repaying such loan on or before its maturity. The documents evidencing and
relating to the AV Loan as listed on Exhibit H attached hereto shall not be
amended or otherwise altered from the form in which such documents were approved
by NACC without the prior written approval of NACC, which shall not be
unreasonably withheld, conditioned or delayed. KREG hereby agrees that it shall
immediately and diligently exercise any and all of its rights with respect to
the AV Loan (including, without limitation the foreclosure of the partnership
interests pledged therefor) upon the failure of the AV Partnership to repay the
AV Loan in full by March 15, 1994. Upon the failure by KREG, in NACC's
reasonable determination, to diligently exercise such rights, and in any event
from and after May 15, 1994, KREG hereby appoints NACC as its agent and grants
NACC the full power of attorney (coupled with an interest) and other power and
authority to exercise, upon five (5) days prior written notice to KREG, each and
every one of the rights of
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KREG with respect to the AV Loan and the collateral therefor (the "AV
COLLATERAL"). In the event that KREG obtains title to the AV Collateral, the AV
Partnership shall be deemed a direct Wholly-Owned Subsidiary of KREG (and not a
KGT Affiliate) for all purposes hereunder and under the other Loan Documents and
the Construction Loan Documents and AV Partnership shall thereafter be deemed a
"Guarantor" hereunder and KREG shall cause the AV Partnership to execute and
deliver to NACC a Guaranty (in substantially the form of the Reimbursement
Guaranties delivered concurrently herewith by the Guarantors).
13.5 TRANSACTIONS WITH AFFILIATES AND SHAREHOLDERS. Except as
expressly permitted by or necessary or desirable to effect a transaction
permitted by this Agreement or any other Loan Document or Construction Loan
Document or is otherwise approved by NACC (which approval may be withheld in
NACC's sole and absolute discretion) and except for existing agreements with
Affiliates as set forth in KREG's 1993 10-K and September 30, 1994 10-Q reports
or KREG's April 11, 1994 Proxy Statement filed with the Securities and Exchange
Commission, KREG, shall not directly or indirectly: (a) make any Investment in
an Affiliate; (b) dividend any funds or assets to an Affiliate or shareholder;
(c) transfer, sell, lease, assign or otherwise dispose of any assets to an
Affiliate or shareholder; (d) merge into or consolidate with or purchase or
acquire assets from an Affiliate; or (e) enter into any other transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, guarantees and assumptions of obligations of an Affiliate);
provided, however, that (i) any Affiliate who is an individual may serve as a
director, officer or employee of KREG and (ii) KGT Affiliates may acquire home
sites at the Eagle Crest Project, provided that such acquisitions comply with
Section 13.13 of the Construction Loan Agreement and, provided further, that no
brokerage commissions or similar transaction costs are deducted from the
Permitted Sale proceeds in calculating Net Cash Proceeds.
13.6 ADDITIONAL SUBSIDIARIES. Except as expressly permitted by or
necessary or desirable to effect a transaction permitted by this Agreement or
any other Loan Document, neither KREG nor any of its Subsidiaries (other than
KGT Affiliates) shall form or acquire any other Subsidiaries without the prior
written consent of NACC, which consent shall not be unreasonably withheld or
delayed. Except with respect to KGT Affiliates, in the event that NACC shall
permit a Person to become a Subsidiary of KREG, KREG shall (i) notify NACC
promptly after such Person becomes a Subsidiary of KREG, (ii) execute and
deliver to NACC a security agreement (in form and substance satisfactory to
NACC) providing that all of the outstanding shares of capital stock or
partnership units, as
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applicable, of such Subsidiary shall be pledged to NACC as collateral security
for the Loan, and deliver to NACC the certificate(s) representing such capital
stock or partnership units, as applicable, together with instruments of
assignment and transfer in such form as NACC may request, (iii) cause such
Subsidiary to execute and deliver a security agreement (in form and substance
satisfactory to NACC) granting to NACC a first priority security interest in all
of its assets and to deliver proof of corporate action, incumbency of officers,
opinions of counsel and other documents as NACC may reasonably request, and (iv)
cause such Subsidiary to make such representations and warranties and undertake
such obligations as NACC may reasonably request.
13.7 HENLEY FACILITIES AUDIT. Neither KREG nor any of its Affiliates
shall enter into any agreement, resolution, stipulation, or other settlement
with respect to the Henley Facilities Audit without the prior written consent of
NACC, which shall not be unreasonably withheld as long as any such settlement
does not adversely affect the priority of any of NACC's Liens or have a material
adverse effect on the value of the Collateral or the financial condition of
KREG, Signal or any of the Guarantors. KREG shall diligently contest any
Assessment or proposed Assessment arising out of or relating to the Henley
Facilities Audit. KREG shall keep NACC fully informed as to the status of the
Henley Facilities Audit, including, without limitation, any material development
in respect thereof.
Section 14. ENVIRONMENTAL MATTERS.
(a) REPRESENTATION AND WARRANTIES. KREG hereby represents and
warrants that except as set forth in the reports heretofore delivered to NACC,
the draft Environmental Impact Report for the Bolsa Chica Project and the Bolsa
Chica Project Surface Use Agreement (collectively, the "ENVIRONMENTAL REPORTS")
to KREG's best knowledge after due inquiry (i) KREG and each of its Subsidiaries
which owns the Collateral Properties and the Bolsa Chica Project (which real
property is hereinafter referred to as "OWNED REAL ESTATE") (x) is in compliance
in all material respects with all applicable Environmental Laws, (y) has all
material permits, licenses, approvals, rulings, variances, exemptions or other
authorizations under applicable Environmental Laws to operate such property as
presently conducted and, with respect to the Collateral Properties, as
reasonably anticipated to be conducted, (z) has received no written
communication, from a Governmental Authority or any other Person, alleging that
KREG (or any of its Subsidiaries which owns Owned Real Estate (each such
Subsidiary shall be referred to herein as a "REAL ESTATE SUBSIDIARY")) is not in
full compliance with all Environmental Laws, and there are no events or
circumstances, to KREG's knowl-
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edge after due inquiry, that may prevent or interfere with such full compliance
in the future, (ii) there is no Environmental Claim pending or, to KREG's best
knowledge, threatened against KREG (or its Real Estate Subsidiaries, as
applicable) or against any Person whose liability KREG (or its Real Estate
Subsidiaries, as applicable) has or may have retained or assumed either
contractually or as a matter of law that could have a material adverse affect on
the value of the Collateral or the financial condition of KREG or any Real
Estate Subsidiary, (iii) there are no past or present actions, activities,
circumstances, conditions, events or incidents including, without limitation,
the release, emission, discharge or disposal of any Hazardous Substance, that
could form the basis of any Environmental Claim against KREG (or its Real Estate
Subsidiaries, as applicable) that could have a material adverse affect on the
value of the Collateral or the financial condition of KREG or any Real Estate
Subsidiary, (iv) without in any way limiting the generality of the foregoing and
except as disclosed in the Environmental Reports, (A) there are no sites on any
Owned Real Estate in which KREG (or its Real Estate Subsidiaries, as applicable)
has stored (except in full compliance with Environmental Laws), disposed or
arranged for the disposal of Hazardous Substances, (B) there are no underground
storage tanks located on any Owned Real Estate, (C) there is no asbestos
contained in or forming a part of any improvement on any Owned Real Estate, (D)
no polychlorinated biphenyl (PCBs) are used or stored on any Owned Real Estate,
(E) all paint and painted surfaces existing within the interior and on the
exterior of improvements located on any Owned Real Estate are not flaking,
peeling, cracking, blistering, or chipping, and do not contain lead or are
maintained in a condition that prevents exposure of young children to lead-based
paint, as of the date hereof, and (F) there have been no claims against KREG or
any of its Real Estate Subsidiaries or against any Person whose liability for
such claim KREG or any of its Real Estate Subsidiaries has or may have retained
or assumed either contractually or by operation of law, for adverse health
effects from lead-based paint or requests for the investigation, assessment or
removal of lead-based paint that could have a material adverse affect on the
value of the Collateral or the financial condition of KREG or any Real Estate
Subsidiary. Notwithstanding anything to the contrary herein or in the
Environmental Reports, there exists no Environmental Event with respect to any
Owned Real Estate that would result in a Remedial Work which would cost in
excess of $150,000.
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(b) ENVIRONMENTAL REMEDIATION.
(i) If any investigation, site monitoring, containment, cleanup, removal,
restoration or other remedial work of any kind or nature
(collectively, the "REMEDIAL WORK") is required pursuant to an order
or directive of any Governmental Authority or under any applicable
Environmental Law with respect to any Collateral Property, KREG shall
promptly commence and diligently prosecute to completion all such
Remedial Work. In all events, such Remedial Work shall be commenced
within thirty (30) days after any demand therefor by NACC or such
shorter period as may be required under any applicable Environmental
Law; however, KREG shall not be required to commence such Remedial
Work within the above-specified time periods if prevented from doing
so by any Governmental Authority or if commencing such Remedial Work
within such time periods would result in KREG or such Remedial Work
violating any Environmental Law.
(ii) All Remedial Work under Section 14(b)(i) hereof shall be performed by
contractors, and, with respect to Remedial Work which costs $100,000
or more, under the supervision of a consulting engineer, each approved
in advance by NACC, which approval shall not be unreasonably withheld,
conditioned or delayed. All reasonable costs and expenses incurred in
connection with such Remedial Work and NACC's reasonable monitoring or
review of such Remedial Work (including reasonable attorneys' fees,
charges and disbursements) shall be paid by KREG. If KREG does not
timely commence and diligently prosecute to completion the Remedial
Work within the times provided for herein, then NACC may (but shall
not be obligated to) cause such Remedial Work to be performed. KREG
agrees to bear and shall pay or reimburse NACC on demand for all
reasonable costs and expenses (including reasonable attorneys' fees,
charges and disbursements) reasonably relating to or incurred by NACC
in connection with monitoring, reviewing or performing any Remedial
Work.
(iii) KREG shall not commence any Remedial Work under Section 14(b)(i)
hereof, nor enter into any settlement agreement, consent decree or
other compromise relating to any Hazardous Substances or Environmental
Laws which might impair the value of NACC's security hereunder to a
material
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degree, except as required by a Governmental Authority. Notwithstanding
the foregoing, if the presence or threatened presence of Hazardous
Substances on, under or about any Owned Real Property poses an immediate
threat to the health, safety or welfare of any person or is of such a
nature that an immediate remedial response is necessary, KREG may complete
all necessary Remedial Work. In such events, KREG shall notify NACC as
soon as practicable of any action taken.
(c) ENVIRONMENTAL COMPLIANCE. KREG covenants and agrees with
NACC that it shall comply, and shall cause each of its Real Estate Subsidiaries
to comply, with all Environmental Laws, except for such instances of non-
compliance which, singly, and in the aggregate, are not reasonably likely to
have a material adverse effect on the financial condition of KREG.
(d) ENVIRONMENTAL INDEMNIFICATION. KREG shall protect,
indemnify, save, defend, and hold harmless NACC and the LOC Issuer and all
officers, directors, stockholders, partners, employees, successors and assigns
of NACC and the LOC Issuer (collectively, the "INDEMNIFIED ENVIRONMENTAL
PARTIES") from and against any and all liability, loss, damage, actions, causes
of action, costs or expenses whatsoever (including, without limitation,
reasonable attorneys' fees, charges and disbursements) and any and all claims,
suits and judgments which any Indemnified Environmental Party may suffer, as a
result of or with respect to: (i) any Environmental Claim relating to or
arising from any portion of the Owned Real Estate; (ii) the violation of any
Environmental Law in connection with any portion of the Owned Real Estate ;
(iii) any release, spill, or the presence of any Hazardous Substances affecting
any portion of the Owned Real Estate; and (iv) the presence at, in, on or under,
or the release, escape, seepage, leakage, discharge or migration at or from,
any portion of the Owned Real Estate of any Hazardous Substances, whether or not
such condition was known or unknown to KREG; provided, however, that in each
case, KREG may be relieved of its obligations under this Section 14(d) if it can
demonstrate that the matters referred to in clauses (i) through (iv) of this
Section 14(d) initially occurred (irrespective of when such matters were
discovered) (x) after the foreclosure of the Mortgage with respect to the
Collateral Property, (y) after the delivery by the Real Estate Subsidiary to
NACC or its subsidiary of a deed-in-lieu of foreclosure pursuant to a deed-in-
lieu of foreclosure agreement executed by NACC or (z) primarily as a result of
NACC's gross negligence or willful misconduct. Promptly after NACC receives
notice of the commencement of any Environmental Claim in respect of which
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indemnification is sought hereunder, NACC shall notify KREG in writing thereof;
but the omission so to notify KREG shall not relieve KREG from any obligation
hereunder provided that KREG has not been materially prejudiced by such failure
by NACC to notify KREG. In the event that an Indemnified Environmental Party
becomes involved in any action, proceeding or investigation in connection with
any matter which is subject to the indemnification set forth in this Section
14(d), KREG shall periodically reimburse such Indemnified Environmental Party
(upon the presentation of reasonably detailed invoices, receipts or statements)
in an amount equal to its reasonable attorneys' fees, charges and disbursements
and other reasonable costs and expenses (including the reasonable costs of any
investigation and preparation) incurred in connection therewith to the extent
such legal or other reasonable fees, costs or expenses are the subject of
indemnification hereunder. Notwithstanding anything to the contrary provided in
this Agreement, the Letter of Credit or the other Loan Documents, the
indemnification provided in this Section 14(d) shall be shall be independent of,
and shall survive, the discharge of the Reimbursement Obligations.
(e) ENVIRONMENTAL MATTERS; INSPECTION.
(i) Upon reasonable prior notice, KREG shall allow, and shall cause its
Real Estate Subsidiaries to allow, NACC the right at all reasonable
times during normal business hours to enter upon and inspect all or
any portion of any Owned Real Estate, provided that such inspections
shall not unreasonably interfere with the operation or the tenants of
such Owned Real Estate. NACC may select a consulting engineer to
conduct and prepare reports of such inspections. KREG shall be given
a reasonable opportunity to review any reports, data and other
documents or materials reviewed or prepared by the engineer, and to
submit comments and suggested revisions or rebuttals to same. The
inspection rights granted to NACC in this Section 14(e) shall be in
addition to, and not in limitation of, any other inspection rights
granted to NACC in the Loan Documents, and shall expressly include the
right to conduct soil borings and other customary environmental tests,
assessments and audits.
(ii) KREG agrees to bear and shall pay or reimburse NACC within ten (10)
Business Days after receipt of demand for all reasonable costs and
expenses (including reasonable attorneys' fees, charges and
disbursements) reasonably relating to or incurred by NACC in
connection with the
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inspections and reports described in this Section 14(e) in the event that:
(x) NACC has delivered to KREG written notice requesting an
inspection and KREG fails to thereafter diligently cause such
inspections to be made and either (1) NACC had reasonable grounds to
believe, at the time any such inspection is ordered by NACC, that
there exists an Environmental Event or that a Hazardous Substance is
present on, under or emanating from any Owned Real Estate or is
migrating to or from adjoining property, except under conditions
permitted by applicable Environmental Laws and not prohibited by any
Loan Document or (2) the inspections ordered by NACC reveal an
Environmental Event or that a Hazardous Substance is present on, under
or emanating from any Owned Real Estate or is migrating to or from
adjoining property; or
(y) an Event of Default exists at the time any such inspection is
ordered, and such Event of Default relates to any representation,
covenant or other obligation pertaining to Hazardous Substances,
Environmental Laws or any other environmental matter.
(f) COPIES OF NOTICES. Except with respect to matters already
disclosed in the Environmental Reports, KREG shall promptly provide, or shall
cause its Real Estate Subsidiaries to provide, notice to NACC of:
(i) any proceeding, investigation or inquiry commenced by any Governmental
Authority and known (directly or indirectly) to KREG or such
Subsidiary with respect to the presence of any Hazardous Substance on,
under or emanating from any Owned Real Estate, which might impair the
value of NACC's security interests under any of the Security
Documents, or could reasonably be expected to have a material adverse
affect on the financial condition of KREG;
(ii) any proceeding, investigation or inquiry commenced or threatened by
any Governmental Authority and known (directly or indirectly) to KREG,
against KREG or any Subsidiary of KREG, with respect to the presence,
suspected presence, release or threatened release of Hazardous
Substances from any property not owned by KREG or any of its
Subsidiaries, including without limitation, proceedings under the
Federal Comprehensive Environmental Response, Compensation and Lia-
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bility Act, 42 U.S.C. Section 9601 ET SEQ., which might materially impair
the value of NACC's security interests under the Security Documents, or
could reasonably be expected to have a material adverse affect on the
financial condition of KREG;
(iii) all claims made or threatened by any Person against KREG or any
other party occupying all or any portion of any Owned Real Estate
which become known to KREG, relating to any loss or injury allegedly
resulting from any Hazardous Substance or relating to any violation or
alleged violation of Environmental Law which might materially impair
the value of NACC's security interests under the Security Documents or
could reasonably be expected to have a material adverse affect on the
financial condition of KREG;
(iv) the discovery by KREG of any occurrence or condition on any Owned
Real Estate or on any Property adjoining or in the vicinity of such
Owned Real Estate which reasonably could be expected to lead to such
Owned Real Estate or any portion thereof being in violation of any
Environmental Law or subject to any restriction on ownership,
occupancy, transferability or use under any Environmental Law which
might impair the value of NACC's security interests under any of the
Security Documents, or could reasonably be expected to have a material
adverse affect on the financial condition of KREG (collectively, an
"ENVIRONMENTAL EVENT") or which might subject NACC to an Environmental
Claim; and
(v) the commencement and completion of any Remedial Work.
Within thirty (30) days after the occurrence of an Environmental
Event, KREG shall deliver to NACC an Officers' Certificate (an
"ENVIRONMENTAL CERTIFICATE") explaining the Environmental Event in
reasonable detail, setting forth to NACC the estimated cost as determined
at such time of remedying such Environmental Event and the proposed method
of remediation and time to complete such remedy. KREG shall complete such
remedy as promptly as possible in the ordinary course of business.
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KREG shall deliver to NACC copies of any citations, orders,
notices or other communications received from any person with respect to
the notices described in this Section 7(f).
(g) SURVIVAL. All of the representations, warranties and
indemnities in this Section 14 shall survive the termination of this Agreement,
the Letter of Credit and the other Loan Documents.
Section 15. EVENTS OF DEFAULT. If one or more of the following
events (each, an "EVENT OF DEFAULT") shall occur and be continuing:
(a) KREG shall default in the payment when due of any
Reimbursement Obligation and such default shall continue for a period of more
than three (3) Business Days after notice thereof to KREG by NACC; or
(b) KREG or any of the Guarantors (other than the Exempt
Subsidiaries) shall default in the performance of any other covenant or
agreement contained in the Loan Documents and such default shall continue thirty
(30) days after written notice of such default shall have been given to KREG by
NACC or if NACC reasonably determines that such non-compliance shall not have a
material adverse effect on the financial condition of KREG and shall not have a
material adverse effect on the value of the Collateral and KREG shall be
pursuing a cure in a diligent and expeditious manner, for a period not to exceed
ninety (90) days after the initial notice of default thereof; or
(c) Any representation, warranty or certification made or deemed
made herein by KREG or in any other Loan Document by KREG or in the
Reimbursement Guaranties by the Guarantors or in any certificate furnished to
NACC pursuant to the provisions hereof (or thereof), shall prove to have been
false or misleading as of the time made or furnished in any material respect; or
(d) KREG shall fail to comply in any material respect with the
negative covenants set forth in Section 13 hereof; or
(e) An "Event of Default" (as defined in any of the Loan
Documents or the Bond Agreement) shall occur and be continuing; or
(f) Any provision of any of the Loan Documents (other than any
provisions relating to indemnification of liabilities under the Securities Act
of 1933) shall at any time for any reason
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cease to be valid and binding or shall be declared beyond final appeal, to be
null and void by any court or governmental authority or agency having
jurisdiction, or the validity of any of the Loan Documents or the enforceability
thereof shall be contested by KREG or any other governmental authority or agency
having jurisdiction in a judicial or administrative proceeding; or
(g) Except with respect to the Exempt Subsidiaries, KREG, Signal
or any of the Guarantors (or any of their respective Subsidiaries) shall
default, after the passage of all applicable notice and cure periods, in the
payment or performance of any obligation under any of the Loan Documents or the
Construction Loan Documents or in the payment when due of any scheduled
installment of principal of or interest on any of its other Indebtedness (the
principal amount of which equals $1,000,000 or more); or
(h) INTENTIONALLY OMITTED.
(i) (1) any of the Guarantors shall default in the performance
of any of its payment obligations under its Reimbursement Guaranty or any other
Loan Documents; or (2) any of the Guarantors (other than Exempt Subsidiaries)
shall default in the performance of any of its other obligations under its
Reimbursement Guaranty or other Loan Documents and such default shall continue
unremedied for a period of thirty (30) days after notice thereof to such
Guarantor by NACC or, if (in the sole discretion of NACC) such default shall not
have a material adverse effect on the financial condition of such Guarantor and
shall not have a material adverse effect on the value of any Owned Real Estate
or the Collateral and such Guarantor shall be pursuing a cure in a diligent and
expeditious manner, for a period not to exceed ninety (90) days after the
initial notice of default thereof to such Guarantor by NACC; or
(j) (1) any Guarantor, KREG, or any of their respective
Subsidiaries (other than the Exempt Subsidiaries) shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become due;
or (2) any Exempt Subsidiary shall make such an admission and such admission
could, in NACC's reasonable discretion, have a material adverse effect on the
financial condition of KREG or the value of the Collateral; or
(k) (1) any Guarantor, KREG, or any of their respective
Subsidiaries (other than the Exempt Subsidiaries) shall (i) apply for or consent
to the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property,
(ii) make a general
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assignment for the benefit of its creditors, (iii) commence a voluntary case
under the Bankruptcy Code (as now or hereafter in effect), (iv) file a petition
as debtor seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or readjustment of debts,
(v) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to any petition filed against it in an involuntary case under the
Bankruptcy Code, or (vi) take any corporate action for the purpose of effecting
any of the foregoing; or (2) any Exempt Subsidiary shall take such action and
such action could, in NACC's reasonable discretion, have a material adverse
effect on the financial condition of KREG or the value of the Collateral; or
(l) (1) a proceeding or case shall be commenced with respect to
any of the Guarantors, KREG, or any of their respective Subsidiaries (other than
the Exempt Subsidiaries), without such party's application or consent of in
any court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or readjustment of
its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of such party or of all or any substantial part of its assets, or (iii)
similar relief in respect of such party under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts,
and such proceeding or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of sixty (60) or more days; or an order for
relief against any of the Guarantors, KREG, or any such Subsidiary shall be
entered in an involuntary case under the Bankruptcy Code; or (2) any Exempt
Subsidiary shall suffer such action and such action could, in NACC's reasonable
discretion, have a material adverse effect on the financial condition of KREG or
the value of the Collateral; or
(m) (1) A final judgment or judgments for the payment of money
in excess of $500,000 in the aggregate (other than with respect to the ABEX Tax
Disputes) shall be rendered by a court or courts against any of the Guarantors,
KREG, or any of their respective Subsidiaries (other than the Exempt
Subsidiaries) and the same shall not be discharged (or provision shall not be
made for such discharge), or a stay or execution thereof shall not be procured,
within thirty (30) days from the date of entry thereof and such party shall not,
within said period of thirty (30) days, or such longer period during which
execution of the same shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal; or (2) such a judgment is
rendered against any Exempt Subsidiary and such judgment could, in NACC's
reasonable discretion, have
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a material adverse effect on the financial condition of KREG or the value of the
Collateral; or
(n) An event or condition specified in Section 12.1(e) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan and, as a
result of such event or condition, together with all other such events or
conditions, any of the Guarantors, KREG, or any ERISA Affiliate shall incur or
in the opinion of NACC shall be reasonably likely to incur a liability to a
Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which
is, in the determination of NACC, material in relation to the consolidated
financial condition of such Guarantors and KREG taken as a whole; or
(o) Except for expiration or termination in accordance with its
terms, any of the Security Documents shall be terminated or shall cease to be in
full force and effect, for whatever reason (other than NACC's failure to file or
record any Security Document); or any of the Security Documents shall be
declared null and void, or shall fail to create the Liens, rights, powers and
privileges purported to be created thereby (including, without limitation, a
perfected security interest in and Lien on all of the material then-existing
Collateral), subject to no equal or prior Lien other than Liens permitted under
Section 13.2 hereof.
Notwithstanding anything to the contrary contained in this Agreement,
any other Loan Document, or the Bond Agreement, no grace period or right to
notice granted to KREG herein with respect to any Event of Default is intended
to duplicate any other grace period or right to notice granted herein, in the
other Loan Documents or in the Bond Agreement with respect to such Event of
Default and in the event of any inconsistency, the longest applicable grace
period or right to notice granted herein shall apply.
Upon the occurrence of an Event of Default, NACC may (a) deliver to
the Beneficiary the Termination Notice and direct the Beneficiary to draw on the
Letter of Credit amounts sufficient to pay the face amount of the Bond and upon
the delivery of such Termination Notice, (b) commence foreclosure or similar
proceedings against the Collateral pursuant to the Security Documents, (c)
require KREG to deliver to NACC a sum equal to the Stated Amount (which sum,
upon receipt thereof by NACC, shall be held by NACC as additional cash
collateral for the Reimbursement Obligations), (d) declare all Reimbursement
Obligations immediately due and payable, whereupon the same shall be immediately
due and payable, without presentment, demand, protest or further notice of any
kind, all of
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which are hereby expressly waived by KREG, (e) otherwise proceed to enforce all
other remedies available to it under the Loan Documents and applicable law, and
(f) at any time request that an appraisal to be performed by an appraiser
reasonably satisfactory to NACC and/or a market study to be performed by an MAI
satisfactory to NACC with respect to any Collateral. KREG shall pay all
reasonable fees for any appraisals and market studies performed pursuant to this
Section 15.
Section 16. INDEMNIFICATION. KREG hereby agrees to indemnify,
defend and hold NACC, the LOC Issuer and each of their respective Affiliates and
their respective officers, directors, partners, employees, representatives,
lawyers and agents and each other person, if any, controlling NACC, the LOC
Issuer or any of their respective Affiliates within the meaning of either
Section 15 of the Securities Act of 1933, as amended, or Section 20 of the
Securities Exchange Act of 1934, as amended (collectively, the "SECURITIES
LAWS"), and each of their respective officers, directors, partners, employees,
representatives, lawyers and agents (NACC, the LOC Issuer and each such other
person or entity being referred to as an "INDEMNIFIED PERSON"), to the fullest
extent permitted by law, harmless from and against any and all losses, claims,
damages, costs, expenses or liabilities arising out of or in connection with the
Collateral Properties, the Loan Documents or the matters referred to or
contemplated therein, except to the extent that it is determined that any such
loss, claim, damage, cost, expense or liability results primarily from the gross
negligence, wilful misconduct or bad faith of such Indemnified Person. In the
event that an Indemnified Person becomes involved in any action, proceeding or
investigation in connection with any transaction or matter referred to or
contemplated in this Agreement or any of the other Loan Documents, KREG shall
periodically reimburse such Indemnified Person (upon the presentation of
reasonably detailed invoices, receipts or statements) in an amount equal to its
reasonable attorneys' fees, charges and disbursements and other reasonable costs
and expenses (including the reasonable costs of any investigation and
preparation) incurred in connection therewith to the extent such legal or other
fees, costs or expenses are the subject of indemnification hereunder. The
indemnity contained in this Section 16 shall survive the expiration of the
Letter of Credit, the Maturity Date and the payment of the Reimbursement
Obligations.
Section 17. MISCELLANEOUS.
17.1 AMENDMENTS, ETC. No amendment, supplement or other modification
or waiver of any provision of this Agreement, nor consent to any departure from
any provision of this Agreement by any of the parties hereto, shall
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be effective unless the same shall be in writing and signed by all of the
parties hereto, and then such amendment, supplement, modification, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
17.2 NOTICE. All notices, demands, requests, consents, approvals and
other communications (any of the foregoing, a "NOTICE") required, permitted, or
desired, to be given hereunder shall be in writing sent by registered or
certified mail, postage prepaid, return receipt requested or delivered by hand
or reputable overnight courier addressed to the party to be so notified at its
address hereinafter set forth, or to such other address as such party may
hereafter specify in a Notice delivered in accordance with the provisions of
this Section 17.2. Any such Notice shall be deemed to have been received three
(3) days after the date such Notice is mailed or on the date of delivery by hand
or courier addressed to the parties as follows (PROVIDED that neither NACC nor
KREG shall be deemed to have received any Notice not actually received):
If to NACC: Nomura Asset Capital Corporation
First Interstate World Center
633 West Fifth Street, 68th Floor
Los Angeles, California 90071
Attention: Richard A. Magnuson
Director
and Nomura Asset Capital Corporation
2 World Financial Center, Building B
New York, New York 10281-1198
Attention: Sheryl E. McAfee
Vice President
With a copy to: Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, 34th Floor
Los Angeles, California 90071
Attention: Rand S. April, Esq.
If to KREG: Koll Real Estate Group
4343 Von Karman Avenue
Newport Beach, California 92660
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Attention: Raymond J. Pacini
Executive Vice President
With a copy to: Brobeck, Phleger & Harrison
4675 MacArthur Court, No. 1000
Newport Beach, California 92660
Attention: Gregory W. Preston, Esq.
and
Brobeck, Phleger & Harrison
550 South Hope Street, Suite 2100
Los Angeles, California 90071
Attention: Gerard J. Walsh, Esq.
17.3 NO WAIVER; REMEDIES. No failure on the part of NACC to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other further exercise thereof or the exercise of any other right.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
17.4 SUCCESSORS AND ASSIGNS. This Agreement shall (a) be binding
upon KREG and its respective successors and assigns, and (b) inure to the
benefit of, and be enforceable by, NACC and its successors and assigns;
PROVIDED, HOWEVER, that NACC may not assign all or any part of the Loan
Documents without the prior written consent of KREG, which may be withheld in
KREG's sole and absolute discretion.
17.5 TAXES, FEES AND EXPENSES. KREG hereby agrees to pay any and all
documentary stamp, intangible and other similar taxes, if any, and fees payable
in connection with the execution, delivery, filing and recording of any of the
Loan Documents and to hold NACC harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees; PROVIDED, HOWEVER that NACC agrees to promptly notify
KREG. Without limiting the foregoing, KREG hereby agrees to pay all reasonable
costs and expenses of preparing the Loan Documents as well as all costs and
expenses relating to the issuance of the Letter of Credit and of KREG's
performance of and compliance with all agreements and conditions contained
herein on its part to be performed or complied with, and the reasonable fees,
charges and disbursements of NACC's counsel, and all of NACC's out-of-pocket
costs and expenses in connection with the preparation, execution and delivery,
adminis-
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tration, interpretation, amendment and enforcement of the Loan Documents and all
other agreements, instruments and documents relating to this transaction.
Notwithstanding any other provision contained in this Agreement, the provisions
of this Section 17.5 shall survive the repayment of the Reimbursement
Obligations and the termination of this Agreement.
17.6 SEVERABILITY. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
17.7 WAIVER OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default, NACC is hereby authorized at any time and
from time to time, without notice to KREG (any such notice being expressly
waived by KREG), and to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by NACC to or
for the credit or the account of KREG against any and all of the Reimbursement
Obligations now or hereafter existing under the Loan Documents, irrespective of
whether or not NACC shall have made any demand hereunder and although such
obligations may be unmatured.
17.8 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California. KREG hereby
submits to the nonexclusive jurisdiction of the United States District Court for
the Central District of California and of any State Court sitting in the City of
Los Angeles for the purposes of all legal proceedings arising out of or relating
to this Agreement or the transactions contemplated hereby. KREG irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
17.9 WAIVER OF JURY TRIAL. KREG AND NACC HEREBY IRREVOCABLY WAIVE,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
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17.10 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by each party hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
17.11 HEADINGS. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
Section 18. SECURITIZATION. As a material inducement to NACC to
enter into this Agreement and to cause the issuance of the Letter of Credit,
KREG hereby agrees on behalf of itself and its Affiliates that in the event that
at any time following the Closing Date and prior to the termination of this
Agreement, KREG or any of its Affiliates enters into a public or semi-public
debt or equity offering (each being hereinafter referred to as a
"SECURITIZATION"), then NSI or its Affiliate shall act as a co-manager in any
such Securitization and shall receive a split of the management fee,
institutional pot and underwriting concessions equal to the largest split
received by any other co-manager in connection with such Securitization,
provided that NSI or its Affiliate performs substantially the same services as
such other co-manager in connection with such Securitization. KREG, NSI (or its
Affiliate) and such other co-manager shall negotiate the terms of any
Securitization on commercially a reasonable basis and in a manner consistent
with the terms for similar transactions then being completed. KREG further
agrees to do any and all such further acts as are necessary in connection with
becoming a co-registrant of the offering of the securities if so required by
applicable Securities Laws.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
KOLL REAL ESTATE GROUP, INC.,
a Delaware corporation
By: ________________________
Raymond J. Pacini
Executive Vice President and
Chief Financial Officer
NOMURA ASSET CAPITAL CORPORATION,
a Delaware corporation
By: ________________________
Richard A. Magnuson
Vice President
<PAGE>
EXHIBIT A-1
LEGAL DESCRIPTION OF BOLSA CHICA PROJECT
<PAGE>
EXHIBIT A-2
LEGAL DESCRIPTION OF EAGLE CREST PROJECT
<PAGE>
EXHIBIT A-3
LEGAL DESCRIPTION OF FAIRBANKS HIGHLANDS PROJECT
<PAGE>
EXHIBIT B
FORM OF LETTER OF CREDIT
<PAGE>
EXHIBIT C
ENTITLEMENT FORECAST AND
DEVELOPMENT AND BUDGET TARGETS
<PAGE>
EXHIBIT D-1
FORM OF REIMBURSEMENT NOTE
<PAGE>
EXHIBIT D-2
FORM OF SETTLEMENT NOTE
<PAGE>
EXHIBIT E
FORM OF BOND AGREEMENT
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EXHIBIT F
LITIGATION
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EXHIBIT G
SIGNAL FINANCIAL STATEMENT
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EXHIBIT H
AV PARTNERSHIP LOAN DOCUMENTS
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CONSTRUCTION LOAN AGREEMENT
DATED AS OF DECEMBER 20, 1994
BY AND AMONG
KOLL REAL ESTATE GROUP, INC.
A DELAWARE CORPORATION
SIGNAL LANDMARK
A CALIFORNIA CORPORATION
AND
NOMURA ASSET CAPITAL CORPORATION
A DELAWARE CORPORATION
AS LENDER
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CONSTRUCTION LOAN AGREEMENT
THIS CONSTRUCTION LOAN AGREEMENT ("AGREEMENT") is made and entered
into as of December 20, 1994 (the "CLOSING DATE"), by and among KOLL REAL
ESTATE GROUP, INC., a Delaware corporation ("KREG"), SIGNAL LANDMARK, a
California corporation ("SIGNAL"), and NOMURA ASSET CAPITAL CORPORATION, a
Delaware corporation (together with its successors and assigns, the "LENDER").
RECITALS
KREG and Signal have requested that the Lender make loans to KREG,
which are guaranteed by Signal and the other Guarantors, in an aggregate
principal amount not exceeding $5,000,000. The Lender is prepared to make such
loans upon the terms hereof. In consideration of the terms and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.1 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.1 or in
other provisions of this Agreement in the singular shall have the same meanings
when used in the plural and VICE VERSA):
"ADDITIONAL CONSTRUCTION DEPOSIT AMOUNT" shall have the meaning
assigned to such term in Section 8.6(a) hereof.
"ADDITIONAL COSTS" shall have the meaning assigned to such term in
Section 5.1 hereof.
"AGREEMENT" shall mean this Construction Loan Agreement including
all amendments, modifications and supplements hereto and any appendices,
exhibits or schedules to any of the foregoing, and shall refer to this
Construction Loan Agreement as the same may be in effect at the time such
reference becomes operative.
"AFFILIATE" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled
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by, such Person and, if such Person is an individual, any member of the
immediate family (including parents, spouse and children) of such individual and
any trust whose principal beneficiary is such individual or one or more members
of such immediate family and any Person who is controlled by any such member or
trust. As used in this definition, "CONTROL" (including, with its correlative
meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise) of a Person.
"ASSESSMENT" shall mean a deficiency of Federal or state income
taxes that have been assessed against KREG or any Guarantor or any member of the
KREG Consolidated Tax Group, as such terms are used in the Code or applicable
state income tax statutes, as the case may be.
"ASSET SALE" for any Person shall mean the sale, lease, conveyance
or other disposition (including, without limitation, by merger, consolidation or
sale or leaseback transaction, and whether by operation of law or otherwise) of
any of that Person's assets (including, without limitation, the sale or other
disposition of stock or other ownership interest of any Subsidiary of such
Person, whether by such Person or such Subsidiary), whether owned on the date
hereof or subsequently acquired.
"ASSIGNMENT OF CONSTRUCTION FUND ACCOUNTS AND AGREEMENTS" shall
mean one or more instruments executed by Signal and delivered to the Lender, in
form and substance reasonably acceptable to the Lender, upon the establishment
of the Construction Fund, pursuant to which Signal shall collaterally assign to
the Lender all of its right, title and interest in, to and under the
Construction Fund (and any replacements or substitutions therefor) and any and
all agreements executed in connection therewith, including all amendments,
modifications, supplements, extensions or novations thereto and any appendices,
exhibits or schedules thereto, and shall refer to each such agreement as the
same may be in effect at the time such reference becomes operative and such
collateral assignment shall be subject to the restrictions on the use of such
funds contained in the agreements or documents establishing any such Fund.
"ASSIGNMENT OF MANAGEMENT AGREEMENT" shall mean that certain
Assignment of Management Agreement, dated as of the date hereof, executed by
Signal and consented to by Eagle Crest Management Corp., a California
corpora-
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tion, pursuant to which Signal shall collaterally assign to the Lender
all of its right, title and interest in, to and under the Eagle Crest Management
Agreement.
"BASIS POINT" shall mean 1/100 of one percent (1/100%).
"BANKRUPTCY CODE" shall mean Title 11 U.S.C., as amended.
"BOLSA CHICA MORTGAGE" shall have the meaning assigned to such
term in Section 8.7 hereof.
"BOLSA CHICA PROJECT" shall mean the approximately 1,200 acre
undeveloped property, as more particularly described on Exhibit A-3 attached
hereto, owned by SBC, located in Orange County, California.
"BOLSA CHICA TITLE POLICIES" shall have the meaning assigned to
such term in Section 8.7 hereof.
"BUSINESS DAY" shall mean any day on which commercial banks are
not authorized or required to close in New York City and, for purposes of
determining the Facility Rate, which is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"CLOSING DATE" shall have the meaning assigned to such term in the
preamble hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"COLLATERAL" shall mean any and all Property of KREG or Signal
which is, from time to time, subject to the Lien of the Security Documents
including, without limitation, the Collateral Properties and the Bolsa Chica
Stock.
"COLLATERAL PROPERTIES" shall mean, collectively, the Fairbanks
Highlands Project and the Eagle Crest Project and such other real property which
from time to time may comprise the Collateral.
"CONSOLIDATED SUBSIDIARY" shall mean, as to any Person, each
Subsidiary of such Person (whether now existing or hereafter created or
acquired)
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the financial statements of which shall be (or should have been)
consolidated with the financial statements of such Person in accordance with
GAAP.
"CONSTRUCTION FUNDS" shall have the meaning assigned to such term
in Section 6.2(f) hereof.
"DEFAULT" shall mean an Event of Default or an event which with
notice or lapse of time or both would become an Event of Default.
"DEFERRED TAX AMOUNT" shall have the meaning assigned thereto in
Section 7.2 hereof.
"DOLLARS" and "$" shall mean lawful money of the United States
of America.
"DRAW" shall mean each loan requested by KREG to be funded by the
Lender to KREG pursuant to the terms of this Agreement, which Draws shall not in
the aggregate exceed $5,000,000.
"DRAW FEE" shall mean a fee equal to 1.5% of each Draw, paid to
the Lender at the time any Draw is funded by the Lender.
"EAGLE CREST PROJECT" shall mean the approximately 850 acre golf
course and planned community in the city of Escondido, California, as more
particularly described on Exhibit A-1 attached hereto, owned by Signal, which
planned community contains an existing 18-hole public golf course and is further
entitled for 580 single-family lots surrounding such golf course.
"EAGLE CREST MANAGEMENT AGREEMENT" shall mean the Management
Agreement for Eagle Crest Golf Course, dated as of January 26, 1993, including
all amendments, modifications, supplements, extensions or novations thereto and
any appendices, exhibits or schedules thereto.
"EAGLE CREST SECURITIES ACCOUNT" shall mean that certain
securities account # 1686007179, established with Delaware Trust Capital
Management, Inc. in the name of the Lender, as secured party, which, together
with the KREG Securities Account is the subject of the Securities Account
Agreement.
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"ENVIRONMENT" shall mean soil, surface waters, ground waters,
land, stream sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL CERTIFICATE" shall have the meaning assigned to
such term in Section 10(f) hereof.
"ENVIRONMENTAL CLAIM" shall mean any claim, action, cause of
action, investigation or written notice by any Person alleging liability
(including, without limitation, liability for investigatory costs, cleanup
costs, natural resource damages, property damages, personal injuries, or
penalties) arising out of, based upon or resulting from (i) the presence,
threatened presence, release or threatened release into the Environment of any
Hazardous Substances from or at the Collateral Properties or any property
adjacent to the Collateral Properties or (ii) the violation, or alleged
violation, of any Environmental Law relating to the Collateral Properties, or
(iii) any threat to the Environment (or human health from Hazardous Substances)
that is related to Signal's (or Signal's immediate predecessor in interest in
the Collateral Property) management, use, control, ownership or operation of the
Collateral Property, whether occurring, existing or arising prior to, or from or
after, the date hereof.
"ENVIRONMENTAL LAWS" shall mean all present or future Federal,
state and local laws, statutes, rules, ordinances, and regulations relating to
the pollution or protection of the Environment or the effect of Hazardous
Substances on human health, including, without limitation laws, statutes, rules,
ordinances and regulations relating to emissions, discharges, releases or
threatened releases of Hazardous Substances, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Sections 9601 ET SEQ.; the Resource Conservation and Recovery Act of
1976, 42 U.S.C. Sections 6901 ET SEQ.; the Toxic Substance Control Act, 15
2601 ET SEQ.; the Water Pollution Control Act (also known as the Clean Water
U.S.C. Sections Act), 33 U.S.C. Section 1251 ET SEQ.; the Clean Air Act, 42
SEQ.; and the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 ET
SEQ., as any of the foregoing may be hereafter amended or modified.
"ENVIRONMENTAL REPORTS" shall have the meaning assigned to such
term in Section 10(a) hereof.
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Guarantors or is under common
control (within the meaning of Section 414(c) of the Code) with the Guarantors.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
Section 11 hereof.
"EXCLUDED HAZARDOUS MATERIALS" shall mean any Hazardous Materials
that are customarily and normally used, in accordance with applicable
Environmental Laws in all material respects, in (i) the operation, management,
maintenance and use of a first class golf course, (ii) the grading, construction
and development of infrastructure and residential improvements in the State of
California and (iii) automobiles and construction related trucks, equipment and
supplies.
"EXEMPT GUARANTORS" shall mean Henley Facilities, Inc., Henley/KNO
Holdings, Inc. and New Henley Holdings, Inc. (and each of its Subsidiaries) for
so long as each such entity (i) has no assets or (ii) has liabilities which
exceed the fair value of its assets.
"EXTENSION FEE" shall mean an investment banking fee payable to
NSI in connection with the extension of the Maturity Date in accordance with the
terms hereof in an amount equal to .75% of the Loan Amount.
"FACILITY RATE" shall have the meaning assigned to such term in
Section 3.2(b) hereof.
"FAIRBANKS HIGHLANDS PROJECT" shall mean the approximately 391
acres of vacant land in the city of San Diego, California, as more particularly
described on Exhibit A-2 attached hereto, owned by Signal.
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state or local
government or any other political subdivision thereof exercising executive,
legislative, judicial, regulatory or administrative functions.
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"GUARANTORS" shall mean, collectively and individually, Signal,
The Henley Group, Inc., Henley Holdings Two Inc., Wentworth Holdings, Inc., NC
Holding Company, KREG Holdings, Inc. and Signal Landmark Holdings, Inc.
"GUARANTY" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock of any corporation, or an agreement to purchase, sell or lease (as
lessee or lessor) property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of his, her or its
obligations or an agreement to assure a creditor against loss, and including,
without limitation, causing a bank to open a letter of credit for the benefit of
another Person, but excluding endorsements for collection or deposit in the
ordinary course of business. The terms "GUARANTY" and "GUARANTEED" used as a
verb shall have a correlative meaning.
"HAZARDOUS SUBSTANCE" shall mean any material waste or substance
(other than any Excluded Hazardous Material) which is:
(1) included within the definition of "hazardous
substances," "hazardous materials," "toxic substances," or "solid waste"
in or pursuant to any Environmental Law;
(2) listed in the United States Department of
U.S.C. Section 7401 ET Transportation Optional Hazardous Materials Table,
enacted as of the date hereof or hereafter amended, or in the United
States Environmental Protection Agency List of Hazardous Substances and
Reportable Quantities, 40 C.F.R. Part 302, as enacted as of the date
hereof or as hereafter amended; or
(3) explosive, radioactive, asbestos, a
polychlorinated biphenyl, oil or a petroleum product and lead-based
paint.
"HENLEY FACILITIES AUDIT" shall have the meaning assigned thereto
in Section 7.9 hereof.
"INDEBTEDNESS" shall mean, as to any Person: (a) indebtedness
created, issued or incurred by such Person for borrowed money (whether by loan
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or the issuance and sale of debt securities); (b) obligations of such Person to
pay the deferred purchase or acquisition price of property or services
(including trade accounts that are payable after 90 days of the date the
respective goods are delivered or respective services are rendered) arising,
and accrued expenses incurred, in the ordinary course of business;
(c) indebtedness of others secured by a Lien on the property of such Person,
whether or not the respective indebtedness so secured has been assumed by such
Person; (d) obligations of such Person in respect of letters of credit or
similar instruments issued or accepted by banks and other financial
institutions for the account of such Person; (e) capital lease obligations of
such Person; and (f) indebtedness or obligations of others Guaranteed by such
Person.
"INDEMNIFIED ENVIRONMENTAL PARTIES" shall have the meaning
assigned thereto in Section 10(d) hereof.
"INFRASTRUCTURE" shall mean infrastructure improvements to real
property, including, without limitation, sewers, storm drains, water mains,
community walls and landscaping.
"INITIAL DRAW" shall mean the Draws of the Initial Draw Proceeds
made by KREG pursuant to the terms hereof.
"INITIAL DRAW PROCEEDS" shall mean the first Five Million Dollars
of principal drawn by KREG pursuant to the terms hereof, which shall be
disbursed by the Lender directly into the Construction Funds.
"INITIAL MATURITY DATE" shall mean the second anniversary of the
Closing Date; provided, however, that if the Initial Maturity Date falls on a
date that is not a Business Day, then the Initial Maturity Date shall be deemed
to be the next Business Date following such date.
"INTEREST EXPENSE" shall mean, for any period, all interest in
respect of Indebtedness accrued or capitalized during such period (whether or
not actually paid during such period).
"INTEREST PAYMENT DATE" shall mean the first Business Day of each
calendar month following the initial Draw by KREG hereunder through and
including the Maturity Date.
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"INVESTMENT" in any Person shall mean: (a) the acquisition
(whether for cash, property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of such Person; and (b) any deposit with, or advance, loan or
other extension of credit to, such Person (other than any such advance, loan or
extension of credit having a term not exceeding 90 days representing the
purchase price of inventory, Property (other than real property) or supplies
purchased in the ordinary course of business) or Guaranty of, or other
contingent obligation with respect to, Indebtedness or other liability of such
Person and (without duplication) any amount committed to be advanced, lent or
extended to such Person.
"IRS" shall mean the Internal Revenue Service.
"KREG" shall mean Koll Real Estate Group, Inc.
"KREG CONSOLIDATED TAX GROUP" shall mean (i) the consolidated
group of corporations, including, without limitation, Signal and SBC, having The
Henley Group, Inc., a Delaware corporation, which changed its name to The
Wheelabrator Group, Inc., a Delaware corporation, as its common parent during
the 1988 tax year and (ii) the consolidated group of corporations, including
without limitation, Signal and SBC, having Henley Newco, Inc., a Delaware
corporation, which changed its name to The Henley Group, Inc., a Delaware
corporation, as its common parent during the 1989 tax year.
"KREG SECURITIES ACCOUNT" shall mean that certain securities
account # 1686007160, established with Delaware Trust Capital Management, Inc.
in the name of the Lender, as secured party, which, together with the Eagle
Crest Securities Account is the subject of the Securities Account Agreement.
"LEASE" shall mean any lease, sublease, license, franchise,
concession, or other agreement (other than a property management agreement),
whether written or oral, permitting another to use, occupy or possess any
Collateral Property or the Bolsa Chica Project.
"LENDER" shall have the meaning assigned to such term in the
preamble hereof.
"LIBOR BASE RATE" shall mean the rate per annum determined by the
Lender to be the rate at which deposits in U.S. Dollars are offered by the
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Lender to leading banks in the London interbank eurodollar market at
approximately 11:00 a.m. (London, England time) on the date which is three (3)
Business Days before each Interest Payment Date for a one (1) month period and
in an amount substantially equal to the outstanding principal amount of the Loan
on such day, in each case as quoted on Telerate page 3750 or on such replacement
system as is then customarily used to quote the London interbank offered rate.
Notwithstanding the foregoing, for the purposes of determining the interest rate
for the period preceding the Initial Draw, the LIBOR Base Rate determination
shall be made as of the day which is three (3) Business Days before the date of
the Initial Draw. If two or more such rates appear on Telerate page 3750 or
associated pages, the applicable rate shall be the arithmetic mean of such
offered rates. Each determination of the LIBOR Base Rate shall be conclusive
and binding absent manifest error.
"LIEN" shall mean, with respect to any asset, any mortgage or deed
of trust, lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset. For purposes of this Agreement, KREG and each of its
Subsidiaries shall be deemed to own subject to a Lien any asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
"LOAN" shall mean the loan provided for by Section 2 hereof.
"LOAN AMOUNT" shall mean, from time to time, the outstanding
principal which has been drawn by KREG and remains unpaid.
"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the
Note, the Security Documents, and all other documents and agreements (other than
the LOC Documents) executed or delivered to the Trustee or the Lender by KREG,
Signal or the other Guarantors in connection with the transactions contemplated
by any of the foregoing documents, including all amendments, modifications and
supplements thereto and any appendices, exhibits or schedules to any of the
foregoing, and shall refer to each such document as the same may be in effect at
the time such reference becomes operative.
"LOAN GUARANTIES" shall mean the Guaranties, dated as of the date
hereof, executed by each of the Guarantors (other than Signal) in favor of the
Lender in the form attached as Exhibit B hereto, including all amendments,
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modifications, supplements, extensions or novations thereto and any appendices,
exhibits or schedules thereto, and shall refer to each such guaranty as the same
may be in effect at the time such reference becomes operative.
"LOC DOCUMENTS" shall mean the Reimbursement Agreement and all
other documents and agreements executed or delivered by KREG or any of its
Affiliates in connection with the transactions contemplated by any of the
foregoing documents, including all amendments, modifications and supplements
thereto and any appendices, exhibits or schedules to any of the foregoing, and
shall refer to each such document as the same may be in effect at the time such
reference becomes operative.
"MANAGEMENT AGREEMENTS" shall have the meaning assigned to such
term in Section 9.9 hereof.
"MATERIAL CONTRACT" shall have the meaning assigned to such term
in Section 6.1(g) hereof.
"MATURITY DATE" shall mean (i) the Initial Maturity Date or (ii)
if, on or before the Initial Maturity Date, KREG delivers to NSI the Extension
Fee together with a notice stating that KREG elects to extend the maturity of
the Loan, and (a) KREG and Signal are in compliance with all operating and
financial covenants, (b) Signal has obtained all forecast entitlements and
approvals and has satisfied development and cash flow forecasts with respect to
the Collateral Properties and the Bolsa Chica Project, all as set forth and
projected on Exhibit C hereto, (c) there is no continuing Event of Default as
of such notice date or as of the Initial Maturity Date, and (d) all matters
relating to the Henley Facilities Audit have been satisfactorily resolved, then
the Maturity Date shall be extended twelve (12) months to the third anniversary
of the Closing Date. Notwithstanding any of the foregoing, if the Maturity
Date falls on a date that is not a Business Day, then the Maturity Date shall
be deemed to be the first Business Day following such date.
"MAXIMUM LOAN AMOUNT" shall mean $5,000,000.
"MINIMUM NET WORTH AMOUNT" shall have the meaning assigned to such
term in Section 8.2 hereof.
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"MORTGAGES" shall mean, collectively, each mortgage, deed of
trust, assignment of rents, security agreement and fixture filing and similar
instrument executed by Signal in favor of the Trustee, acting for the benefit of
the Lender, covering the Collateral Properties, which as of the Closing Date
shall be the deeds of trust covering the Fairbanks Highlands Project and the
Eagle Crest Project, in substantially the form of Exhibit D attached hereto,
including all amendments, modifications, supplements, extensions or novations
thereto and any appendices, exhibits or schedules thereto, and shall refer to
such mortgages as the same may be in effect at the time such reference becomes
operative.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as
such in Section 3(37) of ERISA to which contributions have been made by the
Guarantors or any ERISA Affiliate and which is covered by Title IV of ERISA.
"NSI" shall mean Nomura Securities International, Inc., an
Affiliate of the Lender.
"NACC SHARE" shall mean eighty percent (80%) of all Net Cash
Proceeds from each and every Permitted Sale.
"NET CASH PROCEEDS" shall mean the net cash received by Signal in
connection with any Permitted Sale after deducting reasonable commissions,
documentary transfer taxes, title insurance premiums, recording and escrow fees,
reasonable attorneys' fees and disbursements and other customary closing costs,
but only to the extent such amounts are paid to third parties which are not
Affiliates of KREG or Signal and are equal to or less than six percent (6%) of
the gross Permitted Sale proceeds or a greater percentage reasonably approved by
the Lender.
"NOTE" shall mean the promissory note provided for by Section 2.3
hereof and substantially in the form of Exhibit E annexed hereto, including
all amendments, modifications, supplements, extensions or novations thereto and
any appendices, exhibits or schedules thereto, and shall refer to such
promissory note as the same may be in effect at the time such reference becomes
operative.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
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"PERMITTED EXCEPTIONS" shall have the meaning assigned to such
term in Section 9.2 hereof.
"PERMITTED SALES" shall have the meaning assigned to such term in
Section 13.13 hereof.
"PERSON" shall mean any individual, corporation, company,
voluntary association, partnership, limited partnership, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"PLAN" shall mean an employee benefit or other plan established or
maintained by the Guarantors or any ERISA Affiliate and which is covered by
Title IV of ERISA, other than a Multiemployer Plan.
"PLEDGE AGREEMENT" shall mean that certain Stock Pledge Agreement,
dated as of the date hereof, executed by Signal to secure its obligations under
this Agreement and the Secured Guaranty, with respect to the stock of SBC (the
"BOLSA CHICA STOCK") substantially in the form of Exhibit F annexed hereto,
including all amendments, modifications, supplements, extensions or novations
thereto and any appendices, exhibits or schedules thereto, and shall refer to
such pledge agreement as the same may be in effect at the time such reference
becomes operative.
"POST-DEFAULT RATE" shall mean, in respect of any principal of the
Loan or any other amount payable by KREG, Signal or the Guarantors under this
Agreement or the Note or the other Loan Documents that is not paid when due
(whether at stated maturity, by acceleration or otherwise), a rate per annum
during the period from and including the due date to but excluding the date on
which such amount is paid in full equal to four percent (4%) above the Prime
Rate.
"PRIME RATE" shall mean the rate of interest publicly announced by
Mellon Bank, N.A. from time to time as its prime rate effective in New York, New
York, adjusted as of the date of an announcement in New York, New York of any
change in such prime rate, whether or not KREG has notice thereof. Each change
in Prime Rate shall be effective as of 12:01 a.m. on the Business Day on which
the change in the prime rate is first announced or published, unless otherwise
specified in such announcement or publication, in which case the change shall be
effective as so specified.
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"PRINCIPAL OFFICE" shall mean the principal office of the Lender,
located at 2 World Financial Center, New York, New York 10281 or any other
office designated as such in writing by the Lender.
"PROPERTY" shall mean assets and properties, whether real,
personal or mixed, tangible or intangible.
"REGULATORY CHANGE" shall mean any change after the Closing Date
in United States Federal, state or foreign law, rules or regulations or the
adoption or any making after the Closing Date of any interpretation, directive
or request (whether or not having the force of law) applying to a class of
financial institutions including the Lender by any court or governmental or
monetary authority charged with the interpretation or administration thereof.
"REIMBURSEMENT AGREEMENT" shall mean the Letter of Credit and
Reimbursement Agreement, dated as of the date hereof, between KREG and the
Lender, including all amendments, modifications, supplements, extensions or
novations thereto and any appendices, exhibits or schedules thereto, and shall
refer to such reimbursement agreement as the same may be in effect at the time
such reference becomes operative.
"REIMBURSEMENT GUARANTY" shall mean the Secured Guaranty, dated as
of the date hereof, between Signal and the Lender, including all amendments,
modifications, supplements, extensions or novations thereto and any appendices,
exhibits or schedules thereto, and shall refer to such secured guaranty as the
same may be in effect at the time such reference becomes operative; the
performance of KREG's obligations under the Reimbursement Agreement are
unconditionally Guaranteed by Signal pursuant to the Reimbursement Guaranty.
"RELATED PERSON" shall mean, with respect to any specified Person,
any other Person that is an Affiliate of the specified Person or any partner of
the specified Person (if such Person is a partnership) or any shareholder of the
specified Person (if such Person is a corporation).
"RELEASE" shall mean any satisfaction, release, assignment
instrument, deed of reconveyance or similar instrument or instruments (each in
recordable form and otherwise in form reasonably satisfactory to KREG and Signal
but without any representation or warranty of the Lender (other than a warranty
as to the Lender's own acts)) necessary to release any portion of any Collateral
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(including the Securities Accounts) from the Lien of all applicable Security
Documents.
"REMEDIAL WORK" shall have the meaning assigned to such term in
Section 10(b) hereof.
"SATISFACTORY RESOLUTION" or "SATISFACTORILY RESOLVED" shall
mean, with respect to the Henley Facilities Audit: (i) except for the Abex Tax
Disputes, expiration of the applicable statute of limitations prior to the
assertion by the IRS of any Assessment or adjustment in Taxes for the 1988 or
1989 tax years for KREG or any member of the KREG Consolidated Tax Group for
such years; (ii) dismissal of any claims for any Assessment or receipt of a
technical advisory letter from regional or national counsel for the IRS that the
Henley Facilities Audit will not result in an Assessment; or (iii) subject to
Section 9.10 hereof, entry into a settlement agreement with the IRS which is
reasonably acceptable to the Lender.
"SBC" shall mean Signal Bolsa Corporation, a California
corporation and Wholly-Owned Subsidiary of Signal.
"SECURED GUARANTY" shall mean that certain Secured Guaranty, dated
as of the date hereof, by and between Signal and Lender, including all
amendments, modifications, supplements, extensions or novations thereto and any
appendices, exhibits or schedules thereto, and shall refer to such secured
guaranty as the same may be in effect at the time such reference becomes
operative.
"SECURITIES ACCOUNT AGREEMENT" shall mean the Securities Account,
Security, Pledge and Assignment Agreement, dated as of the date hereof, executed
by Signal, KREG, and the Lender, including all amendments, modifications,
supplements, extensions or novations thereto and any appendices, exhibits or
schedules thereto, and shall refer to such securities account agreement as the
same may be in effect at the time such reference becomes operative.
"SECURITIES ACCOUNT NOTICE AGREEMENT" shall mean the Notice and
Account Agreement, dated as of the date hereof, executed by Signal, KREG, the
Lender, and Delaware Trust Capital Management, Inc., including all amendments,
modifications, supplements, extensions or novations thereto and any appendices,
exhibits or schedules thereto, and shall refer to such notice and account
agreement as the same may be in effect at the time such reference becomes
operative.
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"SECURITIES ACCOUNTS" shall mean, collectively, the KREG
Securities Account and the Eagle Crest Securities Account.
"SECURITY DOCUMENTS" shall mean, collectively, the Loan
Guaranties, the Secured Guaranty, the Securities Account Agreement, the Pledge
Agreement and all Uniform Commercial Code financing statements required by this
Agreement or the other Loan Documents executed and delivered to the Trustee or
the Lender by KREG, Signal, SBC, or any of the Guarantors in connection with any
of the foregoing documents, including all amendments, modifications,
supplements, extensions or novations thereto and any appendices, exhibits or
schedules thereto and any Bolsa Chica Mortgage created pursuant to Section 8.7
of this Agreement, and shall refer to such documents as the same may be in
effect at the time such reference becomes operative.
"SIGNAL FINANCIAL STATEMENT" shall mean that certain Signal
Landmark balance sheet, statement of operations and statement of cash flow (in
Thousands) for the nine months ended September 30, 1994 and September 30, 1993
attached hereto as Exhibit J.
"SUBORDINATED DEBENTURES" shall have the meaning assigned to such
term in Section 11.11 of the Reimbursement Agreement.
"SUBSIDIARY" shall mean, with respect to any Person, any (i)
corporation of which at least a sufficient number of the outstanding shares of
stock having by the terms thereof ordinary voting power to elect a majority of
the board of directors of such corporation (irrespective of whether or not at
the time stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person and/or one or
more of such Person's Subsidiaries or (ii) partnership or other entity with
respect to which such Person has possession, directly or indirectly, of the
power to direct or cause the direction of management or policies of such
partnership or other entity. "WHOLLY-OWNED SUBSIDIARY" shall mean, with
respect to any Person, any such Subsidiary of which all of the equity, other
than directors' qualifying shares, is so owned or controlled by such Person.
"TAXES" shall mean all Federal, state, local or foreign taxes, and
other assessments, fees or charges of a similar nature (whether imposed
directly or
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through withholding), including any interest, additions to tax, or penalties
applicable thereto.
"TENANTS" shall mean any and all tenants, licensees, occupants,
concessionaires, or other Person or Persons possessing, occupying or otherwise
using or having a right to use, any space at any Collateral Property, whether
under written agreement or otherwise.
"TITLE COMPANIES" shall have the meaning assigned to such term in
Section 6.3 hereof.
"TRUSTEE" shall mean Chicago Title Insurance Company in its
capacity as trustee under the Mortgages.
1.2 ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all financial
statements and certificates and reports as to financial matters required
to be delivered to the Lender hereunder shall be prepared, in accordance
with generally accepted accounting principles applied on a consistent
basis. All calculations made for the purposes of determining compliance
with the terms of this Agreement shall (except as otherwise expressly
provided herein) be made by application of generally accepted accounting
principles applied on a consistent basis.
(b) KREG shall deliver to the Lender at the same time as
the delivery of any annual or quarterly financial statement under
Section 8.1 hereof a description in reasonable detail of any material
variation between the application of accounting principles employed in
the preparation of such statement and the application of accounting
principles employed in the preparation of the immediately preceding
annual or quarterly financial statements, and reasonable estimates of the
difference between such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 8 hereof, KREG will
not
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change the last day of its fiscal year from December 31, or the last days
of the first three fiscal quarters in each of its fiscal years from March
31, June 30 and September 30, respectively.
Section 2. AMOUNT AND TERMS OF LOAN.
2.1 DRAWS.
(a) Upon and subject to the terms and conditions hereof,
from time to time, KREG may request, and the Lender shall fund, Draws, not
to exceed $5,000,000 in the aggregate outstanding. Draws shall only be
used to pay for the construction costs incurred by Signal and approved by
the Lender, in accordance with the terms hereof, in connection with
Signal's development of the Eagle Crest Project, until substantial
completion of the Eagle Crest Project Infrastructure, subject to KREG's
one-time right to re-Draw proceeds in accordance with Section 6.2(g)
hereof. KREG agrees that all Initial Draw Proceeds shall be immediately
deposited into and disbursed in accordance with, the Construction Funds.
(b) Each Draw shall be made on notice, given no later than
3:00 P.M. (New York Time) on the Business Day which is five (5) Business
Days prior to the proposed Draw, by KREG to the Lender. Each such notice
shall be in writing in substantially the form of Exhibit G hereto,
specifying therein the requested date and amount of such Draw. The Lender
shall, within five (5) Business Days approve or disapprove such requested
Draw in the Lender's reasonable discretion and, if such Draw is approved
and upon fulfillment of the applicable conditions set forth in Section 6
hereof, wire to KREG the amount of such Draw. If any such Draw is
disapproved, the Lender shall specify in writing the reasons for such
disapproval and the actions required to be taken by KREG to obtain the
Lender's approval.
2.2 FEES.
(a) INVESTMENT BANKING FEE. Concurrently with the
execution hereof, KREG shall pay to NSI an investment banking fee for
investment banking services rendered in connection with the Loan equal to
$93,750. Such fee shall be paid to NSI by wire transfer to its account
with
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Mellon Bank Pittsburgh, ABA Number 04300261, Account Name: NSI,
Account Number: 1982122, Reference: Koll Real Estate Group.
(b) DRAW FEE. Upon the funding of each Draw, KREG shall
pay to the Lender a Draw Fee equal to 1.5% of such Draw. Such fee shall
be paid to Lender by wire transfer to its account with Mellon Bank
Pittsburgh, ABA Number 04300261, Account Name: NACC Clearance Account,
Account Number: 109-2525, Reference: Koll Real Estate Group.
2.3 NOTE. The Loan shall be evidenced by a single promissory
note of KREG in the form of EXHIBIT E attached hereto. The date and amount of
each Draw under the Loan, and each payment made on account of the principal
thereof, shall be (i) recorded by the Lender on its books and (ii) prior to any
transfer of the Note, endorsed by the Lender, by way of a notation deducting
such payment from or adding such Draw to the principal amount of such Loan on
the schedule attached to the Note (or any continuation thereof) which notation
and endorsement shall be controlling absent demonstrable error; provided that
the failure of the Lender to make any such notation or endorsement shall not
affect the obligations of KREG hereunder or under the Note. The Note shall be
secured by the Secured Guaranty, which is secured by the Collateral owned by
Signal, including, without limitation, the Collateral Properties and the Bolsa
Chica Stock.
2.4 MANDATORY PREPAYMENTS OF THE LOAN. In the event that Signal
elects to sell any portion of the Collateral Property in accordance with Section
13.13 hereof, then with respect to any Permitted Sale, the NACC Share shall be
paid to the Lender at the closing of such Permitted Sale and applied as follows:
(i) first, if a Draw has occurred under the LOC Documents or a Settlement Loan
has been made under the LOC Documents, the NACC Share shall be paid to the
Lender at the closing of such sale and applied against the "Repayment Amount"
(as defined in Section 7.1 of the Reimbursement Agreement), together with all
interest, fees and charges due thereon, in such order and priority as the Lender
may determine in its sole and absolute discretion; (ii) then any remaining
balance of the NACC Share shall be paid to the Lender and applied against all
amounts outstanding under the Loan Documents, if any, in such order and priority
as the Lender may determine in its sole and absolute discretion; (iii) then any
remaining balance of the NACC Share shall be deposited into the KREG Securities
Account.
2.5 OPTIONAL PREPAYMENTS OF THE LOAN. KREG shall have the right
to voluntarily prepay the entire outstanding amount (or any portion thereof
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provided that such portion shall equal no less than $1,000,000) of the Loan at
any time, provided that KREG shall give the Lender irrevocable prior written
notice of such prepayment at least five (5) Business Days prior to the
prepayment date designated in the prepayment notice. Such prepayment shall be
accompanied by the payment of any interest and fees on the amount of such
prepayment that have accrued and remain unpaid through the date of such
prepayment.
2.6 CONSTRUCTION LOAN.The Loan is a construction loan, as such
term is used in Section 6323(c)(2) of the Code.
Section 3. PAYMENTS OF PRINCIPAL AND INTEREST.
3.1 REPAYMENT OF LOAN. Subject to the prepayment provisions set
forth in Section 2 hereof, KREG will pay to the Lender the Loan Amount together
with all interest, fees and charges due thereon, on the Maturity Date.
3.2 INTEREST.
(a) MONTHLY PAYMENT. Prior to the Maturity Date, interest
on the Loan shall be payable in arrears, on each Interest Payment Date, at
the Facility Rate. Notwithstanding the foregoing, KREG will pay to the
Lender interest at the applicable Post-Default Rate on any principal of
the Loan and (to the fullest extent permitted by law) on any other amount
payable by KREG hereunder or under the Note or under the other Loan
Documents, which shall not be paid in full when due (whether at stated
maturity, by acceleration or otherwise), for the period from and including
the due date thereof (or the date on which any applicable notice or cure
period expires) to but excluding the date the same is paid in full.
(b) FACILITY RATE. Except as otherwise provided herein,
interest on the Loan shall accrue at the following interest rate (referred
to herein as the "FACILITY RATE"): the LIBOR Base Rate plus 400 Basis
Points.
Section 4. PAYMENTS; COMPUTATIONS; ETC.
4.1 PAYMENTS. Except to the extent otherwise provided herein,
all payments of principal, interest and other amounts to be made by KREG under
this Agreement and the Note shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the account
of
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the Lender maintained with Mellon Bank Pittsburgh, ABA Number 04300261,
Account Name: Nomura Asset Capital Corporation, Account Number: 091-0944,
Reference: Koll Real Estate Group (or at such other place as the Lender may
designate in writing from time to time), not later than 3:00 p.m. New York time
on the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day). All payments of principal of the Loan under this Agreement
(including, without limitation, prepayments as a result of the acceleration of
the Loan pursuant to Section 11 hereof) shall be applied to the Loan in such
order of priority as the Lender shall elect. If the due date of any payment
under this Agreement or the Note would otherwise fall on a day which is not a
Business Day such date shall be extended to the next succeeding Business Day and
interest shall be payable for any principal so extended for the period of such
extension.
4.2 COMPUTATIONS. Interest on the Loan shall be computed on the
basis of a 360 day year and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which interest is payable.
4.3 SETOFF. KREG agrees that, in addition to (and without
limitation of) any right of set-off or counterclaim the Lender may otherwise
have, the Lender shall be entitled, at its option, to offset balances held by
the Lender or any of the Lender's Affiliates for account of KREG at any of its
offices, in Dollars or in any other currency, against any principal of or
interest on the Loan, or any other amount payable to the Lender hereunder, which
is not paid when due (regardless of whether such balances are then due to KREG),
in which case it shall promptly notify KREG thereof, provided that the Lender's
failure to give such notice shall not affect the validity thereof.
Section 5. YIELD PROTECTION AND ILLEGALITY.
5.1 ADDITIONAL COSTS.
(a) KREG shall pay to the Lender from time to time such
amounts as the Lender may reasonably determine to be necessary to
compensate it for any increase in costs which the Lender actually incurs
as a direct result of its making or maintaining the Loan or its obligation
to fund any portion of the Loan hereunder, or any reduction in any amount
receivable by the Lender hereunder in respect of the Loan or such
obligation
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(such increases in costs and reductions in amounts receivable
being herein called "ADDITIONAL COSTS"), resulting from any Regulatory
Change which:
(i) imposes or modifies any reserve or similar
requirement relating to any extensions of credit or other assets of
the Lender or any commitment of the Lender; or
(ii) imposes any other condition affecting this
Agreement or the Note (or any of such extensions of credit).
(b) The Lender will notify KREG of any Regulatory Change
occurring after the date of this Agreement that will entitle the Lender to
compensation under Section 5.1(a) hereof as promptly as practicable but in
any event within thirty (30) Business Days after the Lender obtains actual
knowledge thereof; provided, however, that if the Lender fails to give
such notice within thirty (30) Business Days after it obtains actual
knowledge of such an event, the Lender shall, with respect to compensation
payable pursuant to this Section 5.1 in respect of any costs resulting
from such event, only be entitled to payment under this Section 5.1 for
costs incurred from and after the date that is thirty (30)
Business Days prior to the date that the Lender does give such notice.
The Lender will furnish to KREG a certificate setting forth the basis and
amount of each request by the Lender for compensation under paragraph
Section 5.1(a), which certificate shall include reasonably detailed
evidence of such Additional Costs. Determinations and allocations by the
Lender for purposes of this Section 5.1 of the effect of any Regulatory
Change pursuant to Section 5.1(a) hereof, on its costs or rate of return
of maintaining the Loan or its obligation to fund any portion of the Loan,
or on amounts receivable by it in respect of the Loan, and of the amounts
required to compensate the Lender under this Section 5.1, shall be
conclusive, absent manifest error, provided that such determinations and
allocations are made on a reasonable basis.
(c) The Lender shall take such actions as it deems
reasonable to avoid or reduce Additional Costs resulting from any
Regulatory Change; provided, however, that the cost of any such actions
shall be included in the Additional Costs to be paid by KREG to the Lender
hereunder.
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5.2 LIMITATIONS ON LIBOR BORROWINGS. Notwithstanding anything
herein to the contrary, if, on or prior to any determination of the LIBOR Base
Rate hereunder, the Lender determines (which determination shall be conclusive,
absent manifest error) that quotations of interest rates for the deposits
referred to in the definition of "LIBOR Base Rate" in Section 1.1 hereof are not
available, then the applicable rate shall be the rate per annum which the Lender
reasonably determines to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 1/32%) of the United States dollar
lending rates for a one (1) month period that leading New York City banks
selected by the Lender are quoting, on the relevant determination date, to the
principal London offices of at least two of the following banks: Bank of Tokyo
Ltd., Barclay's Bank plc, National Westminster Bank plc and Bankers Trust
Company or (ii) if the Lender cannot determine such arithmetic mean, the lowest
United States dollar lending rate for a one (1) month period that leading New
York City banks selected by the Lender are quoting on such determination date to
leading European banks.
5.3 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for the Lender to honor its
obligation to make or maintain the Loan hereunder, then the Lender shall
promptly notify KREG thereof and the Lender's obligation to fund any further
portions of the Loan shall be suspended until such time as the Lender may again
make and maintain the Loan; provided, however, that if such illegality is based
upon the Lender's inability to fund or maintain LIBOR based loans, then the
Facility Rate shall be the Prime Rate plus 200 Basis Points for so long as the
Lender is prevented from funding or maintaining LIBOR based loans.
5.4 COMPENSATION. KREG shall pay to the Lender, upon the
request of the Lender, such amount or amounts as shall be sufficient (in the
reasonable opinion of the Lender) to compensate it (and any assignee or
participant) for any actual loss, cost or expense which the Lender reasonably
determines are attributable to LIBOR breakage costs resulting from any
prepayment of the Loan for any reason (including, without limitation, a
prepayment resulting from the acceleration of the Loan pursuant to Section 11
hereof) on a date other than an Interest Payment Date.
Section 6. CONDITIONS PRECEDENT.
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6.1 DELIVERIES PRIOR TO THE CLOSING DATE. On or before the
Closing Date, KREG shall have delivered to the Lender each of the following:
(a) CORPORATE ACTION. Certified copies of the charter and
by-laws of Signal and KREG and all corporate action taken by Signal and
KREG approving the Loan Documents and any and all future borrowings by
KREG hereunder and all other Loan Documents to which Signal or KREG is a
party (including, without limitation, a certificate setting forth the
resolutions of the Boards of Directors of Signal and KREG adopted in
respect of the transactions contemplated hereby).
(b) INCUMBENCY. A certificate of Signal and KREG in
respect of each of the officers (i) who is authorized to sign on its
behalf this Agreement, the Note and all other Loan Documents to which
Signal or KREG is a party and (ii) who will, until replaced by another
officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices
and other communications in connection with the Loan Documents and the
transactions contemplated thereby (and the Lender may conclusively rely on
such certificate until it receives notice in writing from Signal or KREG
as applicable, to the contrary).
(c) NOTE. The Note, duly executed and delivered by KREG.
(d) SECURED GUARANTY. The Secured Guaranty, duly executed
and delivered by Signal.
(e) LOAN GUARANTIES. The Loan Guaranties, duly executed
and delivered by the Guarantors (other than Signal).
(f) PLEDGE AGREEMENT. The Pledge Agreement, duly executed
and delivered by Signal, together with all of the documents, instruments
and certificates to be delivered to the Lender pursuant to the Pledge
Agreement, including, without limitation, the SBC Stock.
(g) SECURITIES ACCOUNT AGREEMENT AND SECURITIES ACCOUNT
NOTICE AGREEMENT. The Securities Account Agreement, duly executed and
delivered by KREG and Signal together with all of the
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documents, instruments and certificates to be delivered to the Lender
pursuant to the Securities Account Agreement, including, without
limitation, the Securities Account Notice Agreement duly executed and
delivered by Signal, KREG and Delaware Trust Capital Management, Inc.
(h) FINANCIALS. A certificate of a senior officer of
KREG attaching thereto financial statements of KREG, together with a
certificate of such senior officer to the effect that such information is
accurate to the best knowledge of KREG and such senior officer.
(i) APPRAISALS/ STUDIES. Such appraisals and/or market
studies as the Lender may reasonably request.
(j) OPINION OF COUNSEL TO KREG AND THE GUARANTORS. An
opinion of counsel(s) to KREG and the Guarantors with respect to (i) the
enforceability of the Loan Documents against KREG and the Guarantors, as
applicable, (ii) the enforceability of the Lender's rights with respect
to the Securities Accounts, and (iii) such other matters as the Lender may
reasonably request and otherwise in form and substance and from counsel
reasonably satisfactory to the Lender.
(k) MORTGAGES. A duly executed, acknowledged and recorded
first Mortgage which shall constitute a valid first mortgage lien
on the fee simple title to each Collateral Property and which shall secure
all of the Obligations (as defined in the Mortgage), subject only to such
defects, liens, encumbrances, assessments, security interests,
restrictions, easements and other title exceptions as shall be reasonably
approved by the Lender.
(l) TITLE INSURANCE.
(1) A policy or policies of title insurance
(collectively, the "TITLE POLICIES"), each on forms of and issued
by one or more title companies reasonably satisfactory to the Lender
(the "TITLE COMPANIES"), showing fee simple title vested in
Signal and insuring the first priority of the Liens created under
the Mortgages in an amount for each Collateral Property equal to not
less than the Maximum Loan Amount, subject only to such defects,
liens, encumbrances, assessments, security interests, restrictions,
easements and other title exceptions as are reasonably satisfactory
to the Lender.
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Such Title Policies shall also contain such endorsements and
affirmative insurance provisions as the Lender may
reasonably require, including, but not limited to, a tie-in
endorsement with respect to each other Collateral Property. In
addition, Signal and/or KREG shall have paid to the Title Companies
all expenses and premiums of the Title Companies in connection with
the issuance of such Title Policies and an amount equal to the
recording fees payable in connection with recording the Mortgages in
the appropriate county land offices.
(2) An owner's policy of title insurance in form
reasonably satisfactory to the Lender and issued by the Title
Companies, showing fee simple title in the Bolsa Chica Project
vested in SBC, in an amount equal to no less than $1,000,000,
subject only to such defects, liens, encumbrances, assessments,
security interests, restrictions, easements and other title
exceptions as are reasonably satisfactory to the Lender.
(m) INSURANCE. Certificates of insurance evidencing the
existence of all insurance required to be maintained by Signal and/or KREG
pursuant to the Loan Documents and the designation of the Lender as the
loss payee thereunder to the extent required by the Loan Documents, such
certificates to be in such form and contain such information as is
specified in the Loan Documents.
(n) UCC FINANCING STATEMENTS. UCC-1 financing statements
(in form and substance reasonably acceptable to the Lender), or amendments
thereto, if applicable, covering fixtures and personal property owned by
Signal and/or KREG, and affixed to, or used in connection with, each
Collateral Property, in each case appropriately completed and duly
executed, acknowledged and filed in the appropriate land offices.
(o) MANAGEMENT AGREEMENT ASSIGNMENT. A first priority
assignment to the Lender (in form and substance reasonably acceptable to
the Lender) of the Eagle Crest Management Agreement, and all amounts,
issues and profits to be derived from the Eagle Crest Management Agreement
or any other Management Agreement.
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(p) ENVIRONMENTAL AUDIT. Evidence reasonably satisfactory
to the Lender that, except as otherwise disclosed to the Lender in writing
prior to the Closing Date (including, without limitation, matters
disclosed in the Reimbursement Agreement) and except for Excluded
Hazardous Materials, (a) there are no pending or threatened claims, suits,
actions or proceedings arising out of or relating to the existence of any
Hazardous Materials at, in, on or under any Collateral Property or the
Bolsa Chica Project, (b) each Collateral Property and the Bolsa Chica
Project is in full compliance with all applicable Environmental Laws, (c)
no Hazardous Materials exist at, in, on or under any Collateral Property
or the Bolsa Chica Project, except in compliance with applicable
Environmental Laws, (d) Signal has complied (or has made arrangements to
comply) with the recommendations of all environmental consultant(s)
referred to in this subparagraph, and (e) all Hazardous Materials have
been removed from each proposed Collateral Property to the extent required
by applicable law. Such evidence shall include, without limitation, (i)
an updated environmental audit as to each of the Collateral Properties
(which shall include, without limitation, Phase I environmental studies
and, if recommended by the consultant who prepared the Phase I study and
if the Lender shall reasonably request, Phase II environmental studies),
reasonably satisfactory, in form and substance, to the Lender, conducted
and certified by a qualified, independent environmental consultant
licensed by the State of California, which reports shall include a
statement that all required Environment-related approvals from all
governmental and quasi-governmental authorities having jurisdiction with
respect to the Collateral Properties, if any, have been obtained and (ii)
such other environmental reports, inspections and investigations as the
Lender shall, in its reasonable discretion, require, prepared, in each
instance, by engineers or other consultants reasonably satisfactory to the
Lender. All such audits, approvals, reports, inspections and
investigations shall be paid for by Signal and/or KREG and shall be
reasonably satisfactory, in form and substance, to the Lender.
(q) PROJECT BUDGETS. Project budgets and development
schedules for each Collateral Property and the Bolsa Chica Project for the
two-year period following the Closing Date, in form and substance
reasonably satisfactory to the Lender.
(r) SEARCHES. Copies of the UCC filing searches, tax lien
searches, judgment, real estate tax searches and municipal department
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searches setting forth any and all building violations (if available)
conducted in respect of Signal and KREG in all relevant jurisdictions and
in each county where a Collateral Property is located demonstrating, as of
a date not more than thirty (30) days prior to any requested Draw date,
the existence of no other financing statements with respect to Signal and
KREG or any Collateral Property.
(s) MATERIAL CONTRACTS. Certified copies of all
material contracts and agreements (collectively, "MATERIAL CONTRACTS")
relating to each Collateral Property, including, without limitation, all
material construction and service contracts and management agreements
covering or affecting each Collateral Property and all permits, approvals
and licenses issued with respect to each Collateral Property, but
specifically not including any contract, agreement, permit, approval or
license which may be terminated upon no more than thirty (30) days notice
without penalty or payment.
(t) PROPERTY CONDITION REPORTS. To the extent available,
reports covering the geologic and soils condition of each Collateral
Property and the Bolsa Chica Project, which reports shall have been
prepared, in each instance, by an engineer or other professional
reasonably satisfactory to the Lender.
(u) TAX ASSESSMENT. Evidence that each proposed
Collateral Property and the Bolsa Chica Project is assessed separate and
apart from any other Property for local property tax and subdivision
purposes.
(v) OTHER DOCUMENTS. Such other documents relating to
the transactions contemplated hereby as the Lender or counsel to the
Lender may reasonably request.
(w) FEES AND EXPENSES. Evidence (including, without
limitation, payment instructions given by KREG) that (1) all fees and
expenses payable to the Lender, including, without limitation, the fees
and expenses referred to in Section 13.3 hereof, to the extent then due
and payable, have been paid in full, and (2) all filing or recording
charges required to be paid in connection with the execution, delivery or
recording of the
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Security Documents as well as all title premiums and
other title and survey charges have been paid in full.
6.2 CONDITIONS TO FUNDING. The Lender's obligation to fund any
Draw hereunder shall be conditioned upon the following, both immediately prior
to the funding of such Draw and also after giving effect thereto:
(a) DEFAULT. No default with respect to Sections 11(a),
(g), (h) and (i) hereof shall have occurred and be continuing and no
default with respect to Section 11(d) that would have a material adverse
effect on the financial condition of KREG or the value of the Collateral
shall have occurred and be continuing.
(b) EVENT OF DEFAULT. No Event of Default shall have
occurred and be continuing.
(c) REPRESENTATIONS. Except for representations and
warranties expressly made or deemed made as of a specific date (which
representations and warranties shall be expressly stated to be true and
correct in all material respects on and as of such specific date when made
again on the date of funding any portion of the Loan), the representations
and the warranties made by KREG and Signal in Section 7 hereof and
elsewhere in this Agreement or the other Loan Documents and made by the
Guarantors in the Secured Guaranty and the Loan Guaranties shall be true
and complete in all material respects on and as of the date of the
funding of such portion of the Loan with the same force and effect as if
made on and as of such date.
(d) NO ASSESSMENTS; RECORDING TAXES. No Assessment
including, without limitation, any Assessment in connection with the
Henley Facilities Audit, has been made, filed, or otherwise assessed
against KREG, the Guarantors, the Collateral, or any of the property,
assets or revenues of KREG. KREG and Signal shall have paid or caused to
be paid all mortgage recording taxes payable (if any) in each jurisdiction
in which any Collateral Property is located and shall have delivered to
the Lender any and all supplemental or additional mortgages, in form and
substance reasonably satisfactory to the Lender, as may be reasonably
required by the Lender in connection with such funding.
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(e) RE-AFFIRMATION OF LOAN GUARANTIES. Prior to the
funding of any Draw, KREG shall deliver to the Lender a letter (in form
and substance reasonably acceptable to the Lender) addressed to the Lender
and executed by each of the Guarantors, pursuant to which each of the
Guarantors reaffirms that its respective Guaranty is in full force and
effect and reaffirms and remakes all of its representations, warranties,
covenants and waivers contained therein as of the funding date (except for
representations and warranties expressly made or deemed to be made as of a
specific date (which representations and warranties shall be expressly
stated to be true and correct on and as of such specific date when made
again on the date of such funding)).
(f) ESTABLISHMENT OF CONSTRUCTION FUNDS. Signal and/or
KREG shall deposit $5,000,000 in the aggregate (in addition to the Initial
Draw Proceeds to be deposited therein) into either (i) one or more
construction funds (collectively, the "CONSTRUCTION FUNDS") established
with the Lender and/or City of Escondido and/or such other political
subdivisions and utility authorities with jurisdiction over the Eagle
Crest Project, or (ii) the Eagle Crest Securities Account in addition to
any other amounts to be deposited therein pursuant to the terms hereof or
of the Securities Account Agreement. Concurrently with the establishment
of each such Construction Fund, (i) Signal and/or KREG and the various
authorities which shall control such Construction Fund shall execute and
deliver one or more escrow agreements approved by the Lender, which
agreements shall (1) govern disbursements from such Construction Fund, (2)
require all such funds be used solely for the cost of the Eagle Crest
Project infrastructure and (3) include commercially reasonable
construction loan disbursement procedures and procedures for reporting the
activity with respect to such accounts to the Lender and (ii) the Lender
shall allow KREG to withdraw from the Eagle Crest Securities Account
solely for deposit into such Construction Fund amounts required to be
deposited into such Construction Fund pursuant to the agreements governing
such Construction Fund and (iii) Signal shall execute and deliver to the
Lender an Assignment of Construction Fund Accounts and Agreements with
respect to such Construction Fund.
(g) ADDITIONAL REQUIREMENTS FOR A DRAW SUBSEQUENT TO THE
INITIAL DRAW. KREG shall have a one-time right to re-Draw funds for the
Eagle Crest Project and the Fairbanks Project and to satisfy KREG's
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obligation to deposit an additional $2,000,000 for the Eagle Crest Project
Infrastructure costs into the Construction Funds or the Eagle Crest
Securities Account pursuant to Section 8.6 hereof, and subject to
satisfaction of the additional conditions set forth in Section 9.6, for
the Bolsa Chica Project if and only if: (1) the Initial Draw Proceeds,
together with all interest, fees and other charges thereon have been
repaid in full and no Event of Default has occurred and is continuing
under the Loan Documents or the LOC Documents; (2) no fewer than eighty
(80) home sites at the Eagle Crest Project have been sold in accordance
with the terms and conditions hereof and for an average of no less than
$80,000 per lot; (3) not more than two hundred (200) home sites at the
Eagle Crest Project have been sold in total; (4) the "Gross Operating
Profit" (as set forth in the manager's statement delivered pursuant to the
Eagle Crest Management Agreement) (such statement to be in substantially
the same form and following the same accounting principles as in previous
statements) of the golf course at the Eagle Crest Project for the fiscal
year preceding the re-Draw is at least $750,000; (5) all matters relating
to the Henley Facilities Audit have been satisfactorily resolved or no
Assessment (including, without limitation, any Assessment resulting from
the Henley Facilities Audit) has been made, filed, or otherwise assessed
against KREG, any of its Affiliates, the Collateral, or any of the
property, assets or revenues of KREG and KREG shall have delivered to the
Lender an opinion of counsel, in form and substance reasonably acceptable
to the Lender, confirming that the Lien of the Mortgages on the Collateral
Properties shall have priority over the lien of any Assessments; and (6)
the funding date of the re-Draw is on or before June 1, 1996.
(h) GUARANTIES BY SUBSIDIARIES. A Guaranty (in
substantially the form of the Exhibit B hereto) executed and delivered to
the Lender by each direct Wholly-Owned Subsidiary of KREG which (i) is not
then a Guarantor and (ii) has assets the fair value of which exceed its
liabilities.
(i) SEARCHES. Copies of the UCC filing searches, tax
lien searches, judgment, real estate tax searches and municipal department
searches setting forth any and all building violations (if available)
conducted in respect of Signal and KREG in all relevant jurisdictions and
in each county where a Collateral Property is located demonstrating, as of
a date not more than thirty (30) days prior to any requested Draw date,
the exis-
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tence of no other financing statements with respect to Signal and
KREG or any Collateral Property.
(j) FEES AND EXPENSES. Evidence that (1) all fees and
expenses payable to the Lender or NSI hereunder, to the extent then due
and payable, have been paid in full, and (2) all fees and charges required
to be paid in connection with the Security Documents and the Securities
Accounts have been paid in full.
Section 7. REPRESENTATIONS AND WARRANTIES. KREG hereby makes
each of the representations and warranties set forth in Section 11 of the
Reimbursement Agreement as though set forth fully herein, as of the date hereof
and, subject to the qualification set forth in Section 6.2(c) hereof, as of the
date on which each Draw is funded (notwithstanding any earlier termination of
the Reimbursement Agreement). Signal represents and warrants to the Lender, as
of the date hereof and, subject to the qualification set forth in Section 6.2(c)
hereof, as of the date on which each Draw is funded, that:
7.1 CORPORATE EXISTENCE. Signal (i) is a corporation that was
duly organized and is validly existing under the laws of the jurisdiction of
incorporation, (ii) has all the requisite corporate power and all material
government licenses, authorizations, consents and approvals necessary to own its
assets and carry on its businesses as it is now being conducted; and (iii) is
qualified to do business in all jurisdictions in which the nature of the
business conducted makes such qualification necessary; and (iv) together with
its Wholly-Owned Subsidiary, SBC, is a member of the KREG Consolidated Tax
Group.
7.2 FINANCIAL STATEMENTS.
(a) All financial data with respect to Signal, the other
Guarantors, the Collateral Properties and the Bolsa Chica Project heretofore
delivered to the Lender in writing is true, complete and correct in all material
respects and accurately represents the financial condition of Signal in all
material respects and the Collateral Properties and the Bolsa Chica Project as
of the date set forth therein. There has been no material adverse change in the
business, operations, prospects or financial condition of Signal, the Collateral
Properties or the Bolsa Chica Project since the date of such data. To the
knowledge of Signal after due inquiry, Signal has not incurred any obligation or
liability, contingent or other-
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wise, not reflected in such financial data which might materially adversely
affect the financial condition of Signal or the value of the Collateral.
(b) The line item on the Signal Financial Statement designated as
$89,422,000 for "Other liabilities" for the nine month period ending on
September 30, 1994 includes approximately $1,000,000 of pension and litigation
reserves and approximately $88,422,000 of deferred tax liabilities (the
"DEFERRED TAX AMOUNT"), which Deferred Tax Amount represents deferred income
taxes which will become due upon the entitlement and sale of the Bolsa Chica
Project, based upon the difference between the Signal's tax basis in such
property and its financial statement basis for such property. No portion of the
Deferred Tax Amount shall be due or owing prior to a sale of all or any portion
of the Collateral Properties or the Bolsa Chica Project with respect to which
the sale price exceeds Signal's tax basis for the property so sold. Upon the
consummation of any such sale, Signal's tax liability in connection with such
sale shall not exceed Signal's effective tax rate multiplied by the amount by
which the sale price of the property sold exceeds Signal's tax basis in such
property.
7.3 MATERIAL LITIGATION. Except as set forth on Exhibit H
attached hereto, and any litigation challenging the approval of any entitlements
for the Bolsa Chica Project, there are no legal or arbitral proceedings or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge of Signal) threatened against Signal, any
Collateral Property or the Bolsa Chica Project which, if adversely determined,
could have a material adverse effect on the financial condition of Signal or the
value of any of the Collateral.
7.4 NO BREACH. None of the execution and delivery of this
Agreement or any other Loan Document to which Signal is a party, the
consummation of the transactions herein and therein contemplated and compliance
with the terms and provisions hereof and thereof will conflict with or result in
a breach of, or require any consent (except such consents as have been obtained)
under the charter or by-laws of Signal, or any applicable law or regulation, or
any order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which Signal is a party or by which it
is bound or is subject, or constitute a default under any such agreement or
instrument, or (except for the Liens arising under the Security Documents)
result in the creation or imposition of any Lien upon any of the revenues or
assets of Signal or any of its Subsidiaries pursuant to the terms of any such
agreement or instrument.
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7.5 CORPORATE ACTION. Signal has all necessary corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and the other Loan Documents to which Signal is a party; and the
execution, delivery and performance by Signal of this Agreement and the other
Loan Documents to which it is a party have been duly authorized by all necessary
corporate action on the part of Signal.
7.6 APPROVALS. No authorizations, approvals or consents of, and
no filings or registrations with, any governmental or regulatory authority or
agency are necessary for the execution, delivery or performance by Signal of
this Agreement and the other Loan Documents to which it is a party or for the
validity or enforceability thereof, except to the extent that the failure to
obtain or to make such authorizations, approvals, consents, filings or
registrations would not have a material adverse effect on Signal's financial
condition or the value of any of the Collateral.
7.7 MARGIN STOCK. Signal is not engaged principally, or as one
of its important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying margin
stock and no part of the proceeds of any Loan hereunder will be used to buy or
carry any margin stock.
7.8 ERISA. The Guarantors, Signal and the ERISA Affiliates have
fulfilled their respective obligations under the minimum funding standards of
ERISA and the Code with respect to each Plan and are in compliance in all
material respects with the presently applicable provisions of ERISA and the
Code, and have not incurred any liability to the PBGC or any Plan or
Multiemployer Plan (other than to make contributions in the ordinary course of
business).
7.9 TAXES. Signal and each of its Affiliates have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed (and, where Signal or any of its Affiliates has
been a member of a consolidated group, the parent of such consolidated group has
filed all such returns) and all such returns are true, complete and correct in
all material respects. All Taxes due pursuant to such returns or pursuant to
any assessment have been paid, except as disclosed to the Lender in writing
prior to the Closing Date or the date of any disbursement of Loan proceeds. The
charges, accruals and reserves on the books of Signal and each of its Affiliates
in respect of Taxes are, in the opinion
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of Signal, adequate. No deficiency or adjustment for any Taxes has been
threatened, proposed, asserted or assessed against Signal, or any its
Affiliates, or the Collateral, or against any other Person to whom Signal
or its Affiliates may have an indemnification, reimbursement, contribution or
similar obligation, except as disclosed to the Lender in writing prior to the
Closing Date or the date of any disbursement of Loan proceeds. KREG has
disclosed to the Lender that it is under audit by the IRS for the 1989 tax year
(hereinafter referred to as the "HENLEY FACILITIES AUDIT"). KREG shall hire
independent counsel reasonably acceptable to Lender (which may be Brobeck,
Phleger & Harrison) to represent KREG in connection with the Henley Facilities
Audit and KREG has the right of approval with respect to any agreement,
resolution, stipulation, or other settlement with respect to the Henley
Facilities Audit. The Lien of the Mortgage and the Lien of the Security
Documents securing the Loan and any disbursements thereunder shall have priority
over any tax lien levied by the IRS in connection with any Assessment, including
any Assessment resulting from the Henley Facilities Audit.
7.10 INVESTMENT COMPANY ACT. Signal is not an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
7.11 PARENT OF SIGNAL. Signal Landmark Holdings, Inc. is the
owner of all of the issued and outstanding capital stock of Signal, all of which
capital stock has been validly issued, is fully paid and nonassessable and is
owned by Signal Landmark Holdings, Inc. free and clear of all mortgages,
assignments, pledges and security interests and free and clear of all warrants,
options and rights to purchase.
7.12 CAPITALIZATION. Signal does not have outstanding any other
capital stock or securities convertible into or exchangeable for capital stock
of Signal nor any right to subscribe for or to purchase, or any options for the
purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
capital stock of Signal or any securities convertible into or exchangeable for
capital stock of Signal.
7.13 EMPLOYEES. Signal has no employees.
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7.14 SOLVENCY.
(a) None of the transactions contemplated by the Loan
Documents will be or have been made with an actual intent to hinder, delay
or defraud any present or future creditors of Signal and Signal will not
be rendered insolvent by such transactions or will have received fair and
reasonably equivalent value in good faith for the grant of the Liens
created by the Security Documents. Signal is able to pay its debts as
they become due, including contingent obligations reasonably likely to
become due.
(b) The fair value of Signal's assets exceeds and,
immediately following the funding of the Loan and the consummation of the
other transactions contemplated to take place simultaneously therewith
(including, without limitation, those transactions contemplated by the
other Loan Documents and those transactions contemplated by the LOC
Documents), will exceed, Signal's liabilities, including, without
limitation, subordinated, unliquidated, disputed and contingent
liabilities. The fair value of Signal's assets is and, immediately
following the funding of each portion of the Loan, will be greater than
Signal's liabilities, including, without limitation, the maximum amount of
its contingent liabilities on its debts as such debts become absolute and
matured. Signal's assets do not and, immediately following the funding of
each portion of the Loan and the consummation of the other transactions
contemplated to take place simultaneously therewith, will not, constitute
unreasonably small capital to carry out its business as conducted or as
proposed to be conducted. Signal does not intend to, and believes that
it will not, incur debts and liabilities (including, without limitation,
contingent liabilities) beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be received
by Signal and the amounts to be payable on or in respect of obligations of
Signal).
7.15 DELINQUENT PROPERTY LIENS. There is no delinquent tax,
sewer rent, water charge, assessment or other outstanding Lien against any of
the Collateral Properties or the Bolsa Chica Project; and, except as shown in
the Title Policies and SBC owner's title binder, there are no mechanics' or
similar Liens or, to Signal's knowledge, claims for overdue payment for work
performed by or on behalf of Signal or any of its Affiliates, labor or materials
provided or relating to the Collateral Properties or the Bolsa Chica Project,
which claims are or could become Liens prior to, or equal with, the Liens of the
Mortgages and, except as
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previously disclosed in writing to the Lender, there are no mechanics' or
similar Liens or claims affecting the Collateral Properties or the Bolsa Chica
Project which have not been insured or endorsed over by the Title Companies.
7.16 INSURANCE. Each Collateral Property and the Bolsa Chica
Project is covered by insurance of the type and in the amounts and provided by
the carriers required by the Mortgage encumbering such Collateral Property or
the Pledge Agreement with respect to the Bolsa Chica Project.
7.17 LIEN PRIORITY. The Mortgages will constitute valid,
subsisting and enforceable first Liens and perfected security interests on the
Collateral Properties, including all buildings and fixtures which constitute
part of such Collateral Properties under applicable law, and all additions,
alterations and replacements made at any time with respect to the foregoing,
subject only to Liens permitted under Section 9.2 hereof.
7.18 IMPROVEMENTS. Except as disclosed in the surveys or title
policies delivered to the Lender hereunder, all improvements comprising a
portion of any Collateral Property lie wholly within the boundary and building
restriction lines of such Collateral Property and no improvements on adjoining
properties encroach upon any Collateral Property in any respect.
7.19 CASUALTY; CONDEMNATION. Except as otherwise disclosed in
writing to the Lender prior to the Closing Date, the Collateral Properties and
the Bolsa Chica Project are free of material damage and waste and there is no
proceeding pending or, to the best of Signal's knowledge, threatened, for the
total or partial taking of any Collateral Property or the Bolsa Chica Project
owned by Signal and no casualty has occurred with respect to any Collateral
Property or the Bolsa Chica Project.
7.20 APPROVALS, ZONING AND OTHER LAWS. Signal (or its Affiliates,
as applicable) has obtained the certifications, approvals, consents,
authorizations, licenses and permits described on Exhibit I attached hereto
(collectively, the "EXISTING APPROVALS") in connection with the ownership, use
or development of each of the Collateral Properties. Except as otherwise
disclosed in writing to the Lender, (a) all of the Existing Approvals have been
validly obtained and are in full force and effect; (b) Signal has complied in
all material respects with all of such conditions and requirements of all
Existing Approvals as are or were required to be complied with on or before the
date hereof and paid in full all of such fees,
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charges and other payments as are or were required to be paid in connection
therewith on or before the date hereof; and (c) Signal has delivered to the
Lender true, correct and complete copies of all Existing Approvals and all
applications therefor. Signal shall use its best commercially reasonable
efforts to maintain all Existing Approvals in full force and effect and shall
not cause or (to the extent within Signal's reasonable control) permit to occur
any event or occurrence which impairs or adversely impacts any of Signal's
rights under any of the Existing Approvals. Signal shall use its commercially
reasonable efforts to apply for and obtain such certifications, approvals,
consents, authorizations, licenses and permits as may become necessary or
desirable for the use and development of the Collateral Properties and the Bolsa
Chica Project (the "FUTURE APPROVALS") in accordance with the forecast and
projections set forth on Exhibit C attached hereto.
7.21 MATERIAL CONTRACTS. Signal has delivered to the Lender a
schedule and description of each Material Contract (including all amendments
thereto) to which Signal, the Guarantors, or any Subsidiary of Signal is a party
and the information set forth in such schedule is correct and complete in all
material respects as of the date thereof. A correct and complete copy of each
such Material Contract (including all such amendments) has been provided to the
Lender and each such Material Contract is unmodified and in full force and
effect and neither Signal nor, to Signal's knowledge, any other party to any
such Material Contract is in default (or with the giving of notice or the
passage of any applicable care period would be in default) thereunder (other
than any defaults which, if uncured, would not have a material adverse effect on
the financial condition of Signal or the value of the applicable Collateral
Property or the Bolsa Chica Project) and Signal has no knowledge of the
existence of any other such Material Contracts with respect to the Collateral
Properties or the Bolsa Chica Project.
7.22 PERMITS. Except as otherwise disclosed to the Lender in
writing prior to the Closing Date, there has been issued in respect of the Eagle
Crest Project all permits and governmental approvals necessary or required to
own, develop, operate, use, occupy or sell such Collateral Property in the
manner currently operated, including any required permits relating to Hazardous
Materials, other than any such permit or approval which, if not obtained, would
not have a material adverse effect on the value of the Eagle Crest Project.
Each such permit is in full force and effect and Signal has not received any
notice of violation or revocation thereof. No other permits are required from
any governmental entity in order to operate the Eagle Crest Project as it is now
operated.
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7.23 UTILITIES. Signal has not received any notice of actual or
threatened reduction or curtailment of any utility service now supplied to the
Eagle Crest Project. Signal has no reason to believe, after due inquiry, that
necessary and sufficient utility services will not be supplied to the Collateral
Properties as and when needed upon the development thereof.
7.24 CERTIFICATES OF OCCUPANCY. Signal has not received any
notice of actual or threatened cancellation or suspension of any certificate of
occupancy for any portion of the Eagle Crest Project and all such certificates
of occupancy are in full force and effect.
7.25 ASSESSMENTS. Except as disclosed in writing to the Lender
or on the Title Policies, Signal has not received any notice of actual or
threatened special assessments or reassessments of any Collateral Property which
is not reflected on the title reports or in the financial information previously
provided to the Lender and which would have a material adverse effect on the
financial condition of Signal or the value of such Collateral Property.
7.26 CONDITIONS OF PROPERTIES. The buildings, structures and
improvements included on or within the Eagle Crest Project are structurally
sound and in good repair, and all existing mechanical, electrical, heating, air
conditioning, ventilation, drainage, sewer, water and plumbing systems are in
proper working order.
7.27 ENVIRONMENTAL REPORTS/APPRAISALS. Signal has delivered to
the Lender correct and complete copies of all environmental audits, appraisals
and market studies respecting the Collateral Properties which Signal has in its
possession and which have been prepared since January 1, 1992.
7.28 FULL DISCLOSURE. To the best knowledge of Signal, no
information contained in this Agreement, the other Loan Documents, the financial
statements, the appraisals or any written statement furnished by or on behalf of
Signal which has previously been delivered to the Lender, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not materially misleading in light of
the circumstances under which made.
Section 8. AFFIRMATIVE COVENANTS. KREG hereby covenants to
comply with each of the affirmative covenants set forth in Section 12 of the
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Reimbursement Agreement (notwithstanding any earlier termination of the
Reimbursement Agreement) so long as the Loan is outstanding and until payment in
full of the Loan, all interest thereon, and all other amounts payable by KREG
under the Loan Documents. Signal agrees that so long as the Loan is outstanding
and until payment in full of the Loan, all interest thereon and all other
amounts payable by KREG or Signal under the Loan Documents:
8.1 FINANCIAL STATEMENTS. Signal shall deliver or cause to be
delivered to the Lender:
(a) as soon as available and in any event within 60 days
after the end of each quarterly fiscal period of each fiscal year of
Signal, unaudited consolidated and consolidating statements of income,
retained earnings and changes in financial position of Signal for such
period and for the period from the beginning of the respective fiscal year
to the end of such period, and the related consolidated and consolidating
balance sheet as at the end of such period, setting forth in each case in
comparative form the corresponding consolidated figures for the
corresponding period in the preceding fiscal year, accompanied by a
certificate of a senior financial officer of Signal, which certificate
shall state that said financial statements fairly present the consolidated
and consolidating financial condition and results of operations, as the
case may be, of Signal in accordance with generally accepted accounting
principles, consistently applied, as at the end of, and for, such period
(subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 105 days
after the end of each fiscal year of Signal, consolidated and
consolidating statements of income, retained earnings and changes in
financial position of Signal for such year and the related consolidated
and consolidating balance sheets as at the end of such year, setting forth
(after 1994) in each case in comparative form the corresponding
consolidated and consolidating figures for the preceding fiscal year, and
accompanied by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state
that said consolidated financial statements fairly present the
consolidated and consolidating financial condition and results of
operations of Signal as at the end of, and for, such fiscal year;
(c) as soon as available and in any event within 90 days
after the end of each fiscal year, an updated development budget and
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project schedule, in substantially the form set forth on Exhibit C hereto
for each Collateral Property and the Bolsa Chica Project;
(d) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, which Signal
or the Guarantors shall have filed with the Securities and Exchange
Commission (or any governmental agency substituted therefor) or any
national securities exchange;
(e) promptly upon the mailing thereof to the partners or
stockholders of the Guarantors generally, copies of all financial
statements, reports and proxy statements so mailed, if any;
(f) as soon as possible, and in any event within ten days
after Signal knows or has reason to know that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan
have occurred or exist, a statement signed by a senior financial officer
of Signal setting forth details respecting such event or condition and
the action, if any, which the Guarantors, Signal or its ERISA Affiliate
proposes to take with respect thereto (and a copy of any report or notice
required to be filed with or given to PBGC by the Guarantors, Signal or an
ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section
4043(b) of ERISA and the regulations issued thereunder, with respect to a
Plan, as to which PBGC has not by regulation waived the requirement of
Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (provided that a failure to meet the minimum
funding standard of Section 412 of the Code or section 302 of ERISA shall
be a reportable event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code);
(ii) the filing under Section 4041 of ERISA of a notice
of intent to terminate any Plan or the termination of any Plan;
(iii) the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Guarantors, KREG,
or
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any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal by the
Guarantors, Signal or any ERISA Affiliate under Section 4201 or 4204 of
ERISA from a Multiemployer Plan, or the receipt by the Guarantors, Signal
or any affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or
that it intends to terminate or has terminated under Section 4041A of
ERISA; and
(v) the institution of a proceeding by a fiduciary of
any Multiemployer Plan against the Guarantors, Signal or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding is not
dismissed within 30 days;
(g) promptly after Signal knows that any Default has
occurred, a written notice of such Default describing the same in
reasonable detail and, together with such notice or as soon thereafter as
possible, a description of the action that Signal has taken and proposes
to take with respect thereto;
(h) as soon as available and in any event within 30 days
after the end of each quarterly fiscal period of each fiscal year of
Signal operating statements showing sales for each Collateral Property and
such other relevant information with respect to each Collateral Property
as requested by the Lender, in each case certified by a senior officer of
Signal; and
(i) from time to time such other information regarding the
business, affairs or financial condition of the Guarantors, Signal or any
of their respective Affiliates (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA) and such additional statements, reports, projections,
budget and other information regarding the Collateral as the Lender may
reasonably request.
Signal will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraphs (a) or (b) above, a certificate of a
senior financial officer of Signal to the effect that no default has occurred
and is
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continuing (or, if any default has occurred and is continuing, describing
the same in reasonable detail and describing the action that Signal has taken
and proposes to take with respect thereto).
8.2 NET WORTH. Signal shall at all times maintain a net
worth of no less than Fifty Million Dollars ($50,000,000) (the "MINIMUM NET
WORTH AMOUNT"). As used herein, the "net worth" of Signal shall be calculated
by subtracting the amount of any and all liabilities of Signal, whether direct
or indirect, and including, without limitation, subordinated, unliquidated,
disputed and contingent liabilities, from the book value (as set forth on the
certified Financial Statements of Signal delivered to the Lender pursuant to
Section 8.1 hereof) of those assets held directly or indirectly by Signal;
provided, however that (i) any and all interest of Signal in SBC and the Bolsa
Chica Project (together with Bolsa Chica-related deferred Taxes and liabilities)
and (ii) promissory notes or other debt instruments made by (and all amounts
owing from) KREG or other Affiliates of Signal in favor of Signal (including,
without limitation, the $107,457,000 shown as "Due from Parent" on the Signal
Financial Statement) shall be excluded from the calculation of Signal's assets
and liabilities for purposes of calculating the Minimum Net Worth Amount.
8.3 MATERIAL LITIGATION, ETC. Signal will promptly give to the
Lender notice of (a) all legal or arbitral proceedings, and of all proceedings
by or before any governmental or regulatory authority or agency, and any
material development in respect of such legal or other proceeding affecting the
financial condition of Signal, or the value of the Collateral except proceedings
which, if adversely determined, would not have a material adverse effect on the
financial condition of Signal or the value of the Collateral and (b) of any
proposal known to Signal by any public authority to acquire any Collateral
Property, the Bolsa Chica Project or any substantial portion thereof.
8.4 CORPORATE EXISTENCE, ETC. Signal will preserve and maintain
its corporate existence and all of its material rights, privileges and
franchises; comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure to
comply with such requirements would materially and adversely affect the
financial condition of Signal, any Collateral Property or the Bolsa Chica
Project; except as disclosed in writing to the Lender prior to the Closing Date
or contested in good faith with adequate reserves therefor, pay and discharge
all Taxes, assessments and governmental charges or levies imposed on it or on
its income or profits or on any of its property prior to
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the date on which penalties attach thereto; and permit representatives of the
Lender, during normal business hours and upon reasonable prior notice, to
examine, copy and make extracts from its books and records, to inspect its
properties, and to discuss its business and affairs with its officers, all to
the extent reasonably requested by the Lender.
8.5 INSURANCE. Signal will keep insured by financially sound
and reputable insurers all property of a character usually insured by parties
engaged in the same or similar business similarly situated against loss or
damage of the kinds and in the amounts customarily insured against by such
parties and carry such other insurance as is usually carried by such parties and
as required in accordance with the terms of the Mortgages and any other Loan
Documents.
8.6 ADDITIONAL INFRASTRUCTURE COSTS.
(a) In order to provide funds for Eagle Crest Project
infrastructure costs in excess of $10,000,000, Signal shall deposit (in
accordance with subsection (b) below) an aggregate amount of $2,000,000 (the
"ADDITIONAL CONSTRUCTION DEPOSIT AMOUNT") into the Construction Funds;
provided, however, that until the applicable Construction Fund has been
established, Signal shall deposit the Additional Construction Deposit Amount
directly into the Eagle Crest Securities Account. Notwithstanding the
foregoing, in the event that the cost of the Eagle Crest Project infrastructure
is reasonably expected by Signal to exceed $12,000,000, then Signal shall
promptly (but in no event prior to such time as Signal would be required to
deposit the Additional Construction Deposit Amount pursuant to subsection (b)
below) deposit funds equal to such excess into the applicable Construction Fund
(or the Eagle Crest Securities Account if such Construction Fund has not then
been established) and such excess amounts shall be treated as "Additional
Construction Deposit Amounts" hereunder and under the Securities Account
Agreement.
(b) On or before the earliest to occur of (i) the date on
which funds in excess of the Initial Draw Proceeds of $5,000,000 and the
additional $5,000,000 deposited in the Construction Funds by Signal pursuant to
this Agreement are needed to pay for Eagle Crest Project infrastructure costs or
(ii) the date on which a re-Draw is funded pursuant to Section 6.2(g) of this
Agreement or (iii) January 30, 1996, Signal shall deposit into the applicable
Construction Fund, if then established, or, if not, the Eagle Crest Securities
Account, the Additional Construction Deposit Amount, which amount shall be
disbursed
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from such fund or account in accordance with the terms of the
agreements governing such fund or account.
8.7 BOLSA CHICA PROJECT MORTGAGE. From and after July 1, 1996,
unless the Henley Facilities Audit has been satisfactorily resolved, and
provided that at least an aggregate principal amount of $10,000,000 is then
outstanding under the Loan Documents and/or the LOC Documents (inclusive of the
"Stated Amount" in the event that the "Letter of Credit" is then in existence,
as such terms are defined in the Reimbursement Agreement), and in recognition of
the substantial benefit which SBC receives from the agreement of the Lender to
enter into this Agreement and to make the Loan, the Lender may direct KREG and
Signal to cause SBC to deliver to Lender a deed of trust for the Bolsa Chica
Project (the "BOLSA CHICA MORTGAGE").
(a) DUE DILIGENCE. In the event that the Lender elects to
obtain the Bolsa Chica Mortgage, then KREG and Signal shall cause SBC to:
(i) PRELIMINARY TITLE REPORT. SBC shall cause the
Title Company to deliver to the Lender a preliminary title report (the
"PTR") issued by the Title Company, together with legible copies of all
documents referenced therein.
(ii) ENVIRONMENTAL AUDIT. SBC shall deliver to the
Lender (i) an updated environmental audit as to the Bolsa Chica Project
(which shall include, without limitation, Phase I environmental studies
and, if recommended by the consultant who prepared the Phase I study and
if the Lender shall reasonably request, Phase II environmental studies),
reasonably satisfactory, in form and substance, to the Lender, conducted
and certified by a qualified, independent environmental consultant
licensed by the State of California, which reports shall include a
statement that all required Environment-related approvals from all
governmental and quasi-governmental authorities having jurisdiction with
respect to the Bolsa Chica Project, if any, have been obtained and (ii)
such other environmental reports, inspections and investigations as the
Lender shall, in its reasonable discretion, require, prepared, in each
instance, by engineers or other consultants reasonably satisfactory to the
Lender. All such audits, approvals, reports, inspections and
investigations shall be paid for by Signal, SBC
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and/or KREG and shall be reasonably satisfactory, in form and substance,
to the Lender.
(iii) DUE DILIGENCE REVIEW. Lender shall conduct its
due diligence review with respect to the Bolsa Chica Project, which review
may include, without limitation, a review of the PTR, surveys, leases,
service contracts, options, entitlements, existing approvals,
environmental impact reports, financial and operating statements,
engineering and geological reports, environmental assessments, plans and
specifications, market and feasibility studies and all other items
relating to the Bolsa Chica Project which the Lender and its agents and
representatives deem reasonably necessary to review in connection with
obtaining a Lien upon the Bolsa Chica Project. At all reasonable times
during the period of such due diligence, the Lender, its agents and
representatives shall be entitled to (1) enter onto the Bolsa Chica
Project (accompanied, at SBC's option, by a representative of SBC) on
reasonable notice to SBC to perform inspections and tests of the Bolsa
Chica Project and (2) examine and copy any and all plans, specifications,
books and records maintained by SBC or its agents relating to the Bolsa
Chica Project for the three most recent full calendar years and the
current calendar year.
(iv) COSTS AND EXPENSES. KREG, Signal and SBC shall
pay any and all reasonable costs and expenses, including, without
limitation, all reasonable attorneys' fees, charges and disbursements and
reasonable consultants' fees, charges and disbursements arising or
incurred in connection with the Lender's due diligence on the Bolsa Chica
Project, regardless of any satisfactory resolution of the Henley
Facilities Audit prior to the time that the Bolsa Chica Mortgage is (or
would be) delivered.
(b) DELIVERIES. From and after September 1, 1996, unless
the Henley Facilities Audit has been satisfactorily resolved, Lender may
direct SBC to execute and deliver to the Trustee for the benefit of the
Lender, the Bolsa Chica Mortgage. In connection with the delivery of the
Bolsa Chica Mortgage, SBC shall additionally deliver to the Lender the
following:
(i) FINANCIALS. A certificate of a senior officer
of SBC attaching thereto financial statements of SBC, together with a
certificate of such senior officer to the effect that such information is
accurate
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to the best knowledge of SBC and such senior officer.
(ii) CORPORATE ACTION. Certified copies of the
charter and by-laws of SBC and all corporate action taken by SBC in
approving the Bolsa Chica Mortgage, then Loan Documents and any and all
future borrowings by KREG hereunder (including, without limitation, a
certificate setting forth the resolutions of the Boards of Directors of
SBC adopted in respect of the transactions contemplated hereby).
(iii) INCUMBENCY. A certificate of SBC in respect of
each of the officers (i) who is authorized to sign on its behalf the Bolsa
Chica Mortgage and (ii) who will, until replaced by another officer or
officers duly authorized for that purpose, act as its representative for
the purposes of signing documents and giving notices and other
communications in connection with the Bolsa Chica Mortgage (and the Lender
may conclusively rely on such certificate until it receives notice in
writing from Signal or KREG as applicable, to the contrary).
(iv) SECURED GUARANTY. A secured guaranty, duly
executed and delivered by SBC, in substantially the form of the Secured
Guaranty, guarantying KREG's Facility Obligations.
(v) OPINION OF COUNSEL TO SBC. An opinion of
counsel(s) to SBC with respect to (i) the enforceability of the Bolsa
Chica Mortgage and (ii) such other matters as the Lender may reasonably
request and otherwise in form and substance and from counsel reasonably
satisfactory to the Lender.
(vi) BOLSA CHICA MORTGAGE. A duly executed,
acknowledged and recorded first priority deed of trust in substantially
the form of the Mortgages, which shall constitute a valid first mortgage
lien on the fee simple title to the Bolsa Chica Project and which shall
secure all of the Facility Obligations, subject only to the liens shown on
the Bolsa Chica Owner's Title Policy, Permitted Exceptions, and such
defects, liens, encumbrances, assessments, security interests,
restrictions, easements and other title exceptions as shall be reasonably
approved by the Lender.
(vii) TITLE INSURANCE. A policy or policies of title
insurance (collectively, the "BOLSA CHICA TITLE POLICIES"), each on
forms of
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and issued by the Title Companies, showing fee simple title vested in SBC
and insuring the first priority of the Liens created under the Bolsa Chica
Mortgage in an amount equal to not less than the Maximum Loan Amount,
subject only to the liens shown on the Bolsa Chica Owner's Title Policy,
Permitted Exceptions, and such defects, liens, encumbrances, assessments,
security interests, restrictions, easements and other title exceptions as
are reasonably satisfactory to the Lender. Such Bolsa Chica Title
Policies shall also contain such endorsements and affirmative insurance
provisions as the Lender may reasonably require, including, but not
limited to, a tie-in endorsement with respect to each other Collateral
Property. In addition, Signal and/or KREG shall have paid to the Title
Companies all expenses and premiums of the Title Companies in connection
with the issuance of such Title Policies and an amount equal to the
recording fees payable in connection with recording the Mortgages in the
appropriate county land offices.
(viii) INSURANCE. Certificates of insurance evidencing
the existence of all insurance required to be maintained by SBC pursuant
to the Loan Documents and the designation of the Lender as the loss payee
thereunder to the extent required by the Loan Documents, such certificates
to be in such form and contain such information as is specified in the
Loan Documents.
(ix) UCC FINANCING STATEMENTS. UCC-1 financing
statements (in form and substance reasonably acceptable to the Lender), or
amendments thereto, if applicable, covering fixtures and personal property
owned by SBC, and affixed to, or used in connection with, the Bolsa Chica
Project, in each case appropriately completed and duly executed,
acknowledged and filed in the appropriate land offices.
(x) PROJECT BUDGETS. Project budgets and
development schedules for the Bolsa Chica Project for the eighteen (18)
month period following the date that the Bolsa Chica Mortgage is recorded,
in form and substance reasonably satisfactory to the Lender.
(xi) SEARCHES. Copies of the UCC filing searches,
tax lien searches, judgment, real estate tax searches and municipal
department searches setting forth any and all building violations (if
available) conducted in respect of SBC in all relevant jurisdictions and
in Orange
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County, California demonstrating, as of a date not more than
thirty (30) days prior to the recordation of the Bolsa Chica Mortgage,
the existence of no other financing statements with respect to SBC or the
Bolsa Chica Project.
(xii) MATERIAL CONTRACTS. Certified copies of all
material contracts and agreements (collectively, "BOLSA CHICA MATERIAL
CONTRACTS") relating to SBC or the Bolsa Chica Project, including,
without limitation, all material construction and service contracts and
management agreements covering or affecting SBC or the Bolsa Chica Project
and all permits, approvals and licenses issued with respect to SBC or the
Bolsa Chica Project, but specifically not including any contract,
agreement, permit, approval or license which may be terminated upon no
more than thirty (30) days notice without penalty or payment.
(xiii)PROPERTY CONDITION REPORTS. To the extent
available, reports covering the geologic and soils condition of the Bolsa
Chica Project, which reports shall have been prepared, in each instance,
by an engineer or other professional reasonably satisfactory to the
Lender.
(xiv) FEES AND EXPENSES. Evidence that (1) all fees
and expenses payable to the Lender, including, without limitation, the
fees and expenses referred to in Section 13.3 hereof, to the extent then
due and payable, have been paid in full, and (2) all filing or recording
charges required to be paid in connection with the execution, delivery or
recording of the Bolsa Chica Mortgage as well as all title premiums and
other title charges have been paid in full.
Section 9. NEGATIVE COVENANTS. Except as permitted by the Loan
Documents or the Reimbursement Agreement or necessary to consummate the
transactions permitted thereby, and until payment in full of the Loan, all
interest thereon and all other amounts payable by KREG and Signal under the Loan
Documents, KREG agrees to comply with each of the negative covenants set forth
in Section 13 of the Reimbursement Agreement (notwithstanding any earlier
termination of the Reimbursement Agreement) and Signal agrees:
9.1 PROHIBITION AGAINST FUNDAMENTAL CHANGES. Signal and its
Subsidiaries will not enter into any transaction of sale, transfer, merger,
consolidation or amalgamation of its ownership interests, or (except with
respect to any
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Exempt Guarantors which are Subsidiaries) liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution). Signal and its
Subsidiaries will not acquire any business or assets from, or capital stock of,
or be a party to any acquisition of, any Person except for (a) purchases of non-
real property inventory and other assets to be used in the ordinary course of
business, (b) Investments permitted under the Securities Account Agreement or
Section 9.4 hereof, and (c) purchases of real property or companies involved in
the development, entitlement or construction of residential housing, provided,
however, that such purchases shall be made through special purpose Subsidiaries
and shall not exceed $2,500,000 per year in the aggregate. Subject to Signal's
right to effect a Permitted Sale in accordance with Section 13.13 hereof, Signal
and its Subsidiaries will not engage in any Assets Sales, in one transaction or
a series of transactions, whether to Affiliates of Signal or otherwise;
provided, however, that Signal or its Subsidiaries may engage in Asset Sales
with respect to (i) any non-real property inventory or other assets sold or
disposed of in the ordinary course of business; (ii) obsolete or worn-out
property, tools or equipment no longer used or useful in its business so long as
the amount thereof sold in any single fiscal year by Signal shall not have a
fair market value in excess of $50,000 in aggregate; or (iii) assets (other than
the Collateral Property, the Bolsa Chica Stock, the Bolsa Chica Project or other
Collateral) having an aggregate value of $2,500,000 or less per year as to any
one transaction or series of transactions; provided, however, that
notwithstanding the foregoing, Signal or SBC shall have the right to sell or to
grant an option to acquire up to fifty acres of the wetland portion of the Bolsa
Chica Project to Fieldstone Company (which owns property adjacent to the Bolsa
Chica Project) and to use any proceeds therefrom as part of a mitigation credit
in connection with the implementation of the Wetlands Restoration Plan required
as a condition to securing the entitlements of the Bolsa Chica Project and the
certification of the Environmental Impact Report for the Bolsa Chica Project by
the Orange County Board of Supervisors. Notwithstanding anything to the
contrary herein or in the other Loan Documents or the LOC Documents, in the
event that Signal fails to obtain any forecast entitlements or approvals or
satisfy any development targets or cash flow forecasts with respect to the
Collateral Properties, all as set forth and projected on EXHIBIT C hereto,
then eighty percent (80%) of the Net Cash Proceeds from any and all Asset Sales
of Signal and each of its Subsidiaries shall be deposited into the Securities
Account.
9.2 LIMITATION ON LIENS. Signal shall not create, incur, assume
or suffer to exist any Lien upon any of its property, assets or revenues,
whether
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now owned or hereafter acquired, except the following Liens (referred to
herein as "PERMITTED EXCEPTIONS")
(a) Liens imposed by any governmental authority for Taxes,
assessments or charges not yet delinquent; provided, however that in no
event shall any Assessment be a Permitted Exception;
(b) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
(c) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(d) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on
the use of property or minor imperfections in title thereto which, in the
aggregate, are not material in amount, and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of Signal in any
material respect;
(e) Liens that are necessary to secure the Future Approvals
for the Collateral Properties or the Bolsa Chica Project, provided that
such Liens (i) do not secure any Indebtedness (except to the extent that
(1) such Liens and the related Indebtedness relate solely to the
implementation of wetlands restoration at the Bolsa Chica Project as set
forth in the Bolsa Chica Environmental Impact Report and only encumber
portions of the Bolsa Chica Project which constitutes wetlands or (2) such
Lien and related Indebtedness relate solely to public infrastructure
financing (such as special assessment district, Mello-Roos district or
community facilities district financing) that are utilized to construct or
install public infrastructure or facilities that are required as a
condition of approval of the entitlements for either of the Collateral
Properties or the Bolsa Chica Project and only encumber portions of the
Collateral Properties or the Bolsa Chica Project upon which such
Infrastructure or facilities shall be constructed), and (ii) do not,
individually or in the aggregate, have a material adverse effect on the
value of the property which they are to
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encumber, and (iii) are approved by the Lender (but only to the extent
that they are to encumber a Collateral Property), which approval shall not
be unreasonably withheld, conditioned or delayed;
(f) Liens arising under the Loan Documents or under the LOC
Documents;
(g) Liens on equipment for Indebtedness incurred in
accordance with Sections 9.3(c) or 9.3(f);
(h) any other Liens approved by the Lender in writing (which
approval may be withheld in the Lender's sole discretion); and
(i) any extension, renewal or replacement of the foregoing;
provided, however, that the Liens permitted hereunder shall not be spread
to cover any additional Indebtedness or property (other than a
substitution of like property).
9.3 INDEBTEDNESS. Signal shall not incur or suffer to exist any
Indebtedness except:
(a) Indebtedness to the Lender hereunder or under any of the
LOC Documents;
(b) unsecured Indebtedness consisting of trade accounts
payable (other than for borrowed money) incurred in the ordinary course of
Signal's business which (i) are payable within 90 days of the date on
which the invoice for such goods or services is delivered or (ii) to the
extent not payable within 90 days, are in an aggregate principal amount
not exceeding $50,000 at any time;
(c) Indebtedness incurred in connection with Signal's
purchase of equipment used in the ordinary course of Signal's business,
which Indebtedness may be secured by a Lien on such equipment, provided
that such Indebtedness may not exceed the purchase price of such
equipment;
(d) Indebtedness secured by Liens permitted under Section
9.2 hereof; and
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(e) any extensions, renewal, replacement or refinancing of
any of the foregoing; provided, however, that any such extension, renewal,
replacement or refinancing shall not exceed in principal amount the
principal amount of the Indebtedness being replaced or refinanced.
(f) Indebtedness incurred by a Subsidiary of KREG in
connection with the acquisition of a company involved in the development,
entitlement or construction of residential housing or commercial projects or in
connection with a Quick Flip Transaction, or an Asset Purchase Transaction
permitted hereunder or build-to-suit transactions by KREG Operating Company or
its Subsidiaries; provided that such Indebtedness is expressly non-recourse to
KREG, Signal and the Guarantors and is not secured by any of the Collateral or
the Bolsa Chica Project and provided further that the Lender shall have
consented to the incurrence of such Indebtedness, which consent shall not be
unreasonably withheld, conditioned or delayed.
9.4 CORPORATE ACTIVITIES.
(a) Except as provided in Section 9.1 hereof, under the
other Loan Documents or the LOC Documents, or as otherwise approved by the
Lender (in its sole and absolute discretion), under the other Loan
Documents or the LOC Documents, neither Signal nor any of its Subsidiaries
shall (i) purchase any real property, conduct any business other than as
permitted under the articles of incorporation and by-laws of Signal and
its applicable Subsidiary, respectively, or (ii) have any assets or
liabilities other than assets or liabilities derived from or related to
the Collateral Properties or any other property owned by Signal or its
Subsidiaries as of the date hereof. The Lender's approval of any of the
foregoing activities shall not be unreasonably withheld in connection with
the exercise of Signal's existing option to purchase certain land from the
Metropolitan Water District, provided that such option is not exercised by
Signal unless and until all necessary and desirable entitlements have, in
the Lender's reasonable discretion, been obtained for the Bolsa Chica
Project.
(b) Except as provided in the Loan Documents or the LOC
Documents, Signal shall (i) keep its own separate books and records, (ii)
maintain its own bank accounts, (iii) keep its funds or other assets
separate from the funds or other assets of the Guarantors and all other
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Persons, (iv) observe all customary corporate or partnership procedures
and formalities, (v) in all agreements and applications with any public
entity, act under its own name and as a separate and distinct entity and
(vi) maintain financial statements, records and books of account separate
from those of the Guarantors or any other Person. Signal shall hold
periodic meetings of its board of directors, and will have officers who
(when acting in their capacity as officers of such corporation) act in
such corporation's and Signal's best interests, all to the extent
necessary to maintain the existence of Signal separate and apart from the
Guarantors and any Affiliate of the Guarantors.
9.5 TRANSACTIONS WITH AFFILIATES AND SHAREHOLDERS. Except as
expressly permitted by or necessary or desirable to effect a transaction
permitted by the Loan Documents or the LOC Documents or as otherwise approved by
the Lender (which approval may be withheld in the Lender's sole and absolute
discretion), Signal, shall not directly or indirectly: (a) make any Investment
in an Affiliate; (b) dividend any funds or assets to an Affiliate or
shareholder; (c) transfer, sell, lease, assign or otherwise dispose of any
assets to an Affiliate or shareholder; (d) merge into or consolidate with or
purchase or acquire assets from an Affiliate; or (e) enter into any other
transaction directly or indirectly with or for the benefit of an Affiliate
(including, without limitation, guarantees and assumptions of obligations of an
Affiliate); provided, however, that (i) any Affiliate who is an individual may
serve as a director, officer or employee of Signal and (ii) "KGT Affiliates" (as
defined in the Reimbursement Agreement) may acquire home sites at the Eagle
Crest Project, provided that such acquisitions comply with Section 13.13 hereof
and, provided further, that no brokerage commissions or similar transaction
costs are deducted from the Permitted Sale proceeds in calculating Net Cash
Proceeds.
9.6 USE OF LOAN PROCEEDS. The amounts funded hereunder shall be
used solely for the purpose of paying for construction costs incurred by Signal
and approved by the Lender, which approval shall not be unreasonably withheld or
delayed, in connection with the development of the Eagle Crest Project
Infrastructure and, upon completion of such Infrastructure (as determined by the
Lender in its reasonable discretion, which determination shall not be
unreasonably withheld, conditioned or delayed), for construction costs related
to the Collateral Properties. KREG and Signal agree that all Initial Draw
Proceeds shall be immediately deposited into the Construction Funds and that the
Loan is a "construction loan" as used in Section 6323(c)(2) of the Code.
Notwithstanding
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the foregoing, KREG shall be entitled to use funds drawn by KREG
subsequent to the Initial Draw Proceeds for construction costs related to the
Bolsa Chica Project so long as (i) the Eagle Crest Project Infrastructure has,
in the Lender's sole and absolute discretion, been substantially completed, or
(ii) funds sufficient to complete the Eagle Crest Project Infrastructure are
being held in the Construction Funds and/or the Eagle Crest Securities Account
and the Lender has determined, in its sole and absolute discretion, that (x)
such funds are sufficient for completion of the Eagle Crest Project
Infrastructure and (y) no third party financing will be necessary for the
completion of such Infrastructure.
9.7 USE OF ASSET SALE PROCEEDS. KREG and Signal shall use any
and all proceeds of permitted Asset Sales for no purpose other than (i) first,
to repay outstanding amounts under the Loan Documents or the LOC Documents
and/or to deposit into the Securities Account to the extent required by and in
accordance with the terms of this Agreement and the Securities Account
Agreement; and (ii) second, for those purposes permitted necessary or reasonably
desirable in order to carry out those corporate activities permitted under any
of the Loan Documents or the LOC Documents.
9.8 ADDITIONAL SUBSIDIARIES. Except as expressly permitted by
or necessary or desirable to effect a transaction permitted by the Loan
Documents or the LOC Documents, Signal shall not form or acquire any
Subsidiaries without the prior written consent of the Lender, which consent
shall not be unreasonably withheld or delayed. In the event that the Lender
shall permit a Person to become a Subsidiary of Signal, Signal shall (i) notify
the Lender promptly after such Person becomes a Subsidiary of Signal, (ii)
execute and deliver to the Lender a security agreement (in form and substance
satisfactory to the Lender) providing that all of the outstanding shares of
capital stock or partnership units, as applicable, of such Subsidiary shall be
pledged to the Lender as collateral security for the Loan, and deliver to the
Lender the certificate(s) representing such capital stock or partnership units,
as applicable, together with instruments of assignment and transfer in such form
as the Lender may request, (iii) cause such Subsidiary to execute and deliver a
security agreement (in form and substance satisfactory to the Lender) granting
to the Lender a first priority security interest in all of its assets and to
deliver proof of corporate action, incumbency of officers, opinions of counsel
and other documents as the Lender may reasonably request, and (iv) cause such
Subsidiary to make such representations and warranties and undertake such
obligations as the Lender may reasonably request.
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9.9 PROPERTY MANAGEMENT. Signal shall not enter into any
property management agreement concerning the Collateral Properties which is not
terminable upon fewer than thirty days notice without penalty or premium,
without the Lender's prior written consent, which consent shall not be
unreasonably withheld, conditioned, or delayed provided that the manager
thereunder is an Affiliate of Signal. Any management agreement approved by the
Lender in accordance with this Section 9.9 shall be referred to herein as a
"MANAGEMENT AGREEMENT." Signal shall not appoint any manager (or permit any
manager under a Management Agreement to assign any interest in any Management
Agreement to a Person) that is not an Affiliate of Signal, without the Lender's
prior written consent which shall not be unreasonably withheld, conditioned, or
delayed. The Lender hereby approves the Eagle Crest Management Agreement.
9.10 HENLEY FACILITIES AUDIT. Neither KREG nor any of its
Affiliates shall enter into any agreement, resolution, stipulation, or other
settlement with respect to the Henley Facilities Audit without the prior written
consent of the Lender, which shall not be unreasonably withheld as long as any
such settlement does not adversely affect the priority of any of the Lender's
Liens or have a material adverse effect on the value of the Collateral or the
financial condition of KREG, Signal or any of the Guarantors. KREG shall keep
the Lender fully informed as to the status of the Henley Facilities Audit,
including, without limitation, any material development in respect thereof.
Section 10. ENVIRONMENTAL MATTERS.
(a) REPRESENTATION AND WARRANTIES. KREG and Signal
hereby jointly and severally represent and warrant that except as set
forth in the reports heretofore delivered to the Lender the draft
Environmental Impact Report for the Bolsa Chica Project and the Bolsa
Chica Project Surface Use Agreement (collectively, the "ENVIRONMENTAL
REPORTS") to the best knowledge of KREG and Signal after due inquiry (i)
each of KREG and Signal and SBC, respectively, (x) is in compliance in all
material respects with all applicable Environmental Laws, (y) has all
material permits, licenses, approvals, rulings, variances, exemptions or
other authorizations under applicable Environmental Laws to operate the
Collateral Property as presently conducted or as reasonably anticipated to
be conducted, (z) has received no written communication, from a
Governmental Authority or any other Person, alleging that KREG, Signal or
SBC is not in full compliance with all Environmental Laws, and there are
no events or circumstances, to
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KREG's and Signal's knowledge after due inquiry, that may prevent or
interfere with such full compliance in the future, (ii) there is no
Environmental Claim pending or to KREG's and Signal's best knowledge
threatened, against KREG, Signal, or SBC (or its immediate predecessor
in interest in any of the Collateral Properties) or against any Person
whose liability KREG, Signal, or SBC or (its immediate predecessor in
interest in any of the Collateral Properties) has or may have retained or
assumed either contractually or as a matter of law that could have a
material adverse effect on the value of the Collateral or the financial
condition of KREG, Signal, or SBC, (iii) there are no past or present
actions, activities, circumstances, conditions, events or incidents
including, without limitation, the release, emission, discharge
or disposal of any Hazardous Substance, that could form the basis of any
Environmental Claim against KREG, Signal, or SBC that could have a
material adverse effect on the value of the Collateral or the financial
condition of KREG, Signal, or SBC, (iv) without in any way limiting the
generality of the foregoing and except as disclosed in the Environmental
Reports, (A) there are no sites on any Collateral Property in which KREG,
Signal, or SBC has stored (except in full compliance with Environmental
Laws), disposed or arranged for the disposal of Hazardous Substances, (B)
there are no underground storage tanks located on any Collateral Property,
(C) there is no asbestos contained in or forming a part of any improvement
on any Collateral Property, (D) no polychlorinated biphenyl (PCBs) are
used or stored on any Collateral Property, (E) all paint and painted
surfaces existing within the interior and on the exterior of the
Collateral Properties are not flaking, peeling, cracking, blistering, or
chipping, and do not contain lead or are maintained in a condition that
prevents exposure of young children to lead-based paint, as of the date
hereof, and (F) there have been no claims against the KREG, Signal or SBC
(or its immediate predecessor in interest in any of the Collateral
Property) or against any Person whose liability for such claim KREG,
Signal or SBC (or its immediate predecessor in interest in any of the
Collateral Property) has or may have retained or assumed either
contractually or by operation of law, for adverse health effects from
lead-based paint or requests for the investigation, assessment or removal
of lead-based paint that could have a material adverse effect on the value
of the Collateral or the financial condition of KREG, Signal or SBC.
Notwithstanding anything to the contrary herein or in the Environmental
Reports, there exists no Environmental Event with respect to any
Collateral Property that would result in a Remedial Work which would cost
in excess of $150,000.
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(b) ENVIRONMENTAL REMEDIATION.
(i) If any investigation, site monitoring,
containment, cleanup, removal, restoration or other remedial work of any
kind or nature (collectively, the "REMEDIAL WORK") is required pursuant
to an order or directive of any Governmental Authority or under any
applicable Environmental Law with respect to any Collateral Property, KREG
and Signal shall promptly commence and diligently prosecute to completion
all such Remedial Work. In all events, such Remedial Work shall be
commenced within thirty (30) days after any demand therefor by the Lender
or such shorter period as may be required under any applicable
Environmental Law; however, KREG and Signal shall not be required to
commence such Remedial Work within the above-specified time periods if
prevented from doing so by any Governmental Authority or if commencing
such Remedial Work within such time periods would result in KREG, Signal
or such Remedial Work violating any Environmental Law.
(ii) All Remedial Work under Section 10(b)(i) hereof
shall be performed by contractors, and, with respect to Remedial Work
which costs $100,000 or more, under the supervision of a consulting
engineer, each approved in advance by the Lender, which approval shall not
be unreasonably withheld, conditioned or delayed. All reasonable costs
and expenses incurred in connection with such Remedial Work and the
Lender's reasonable monitoring or review of such Remedial Work (including
reasonable attorneys' fees, charges and disbursements) shall be paid by
KREG and Signal. If KREG and Signal do not timely commence and diligently
prosecute to completion the Remedial Work within the times provided for
herein, then the Lender may (but shall not be obligated to) cause such
Remedial Work to be performed. KREG and Signal jointly and severally
agree to bear and shall pay or reimburse the Lender on demand for all
reasonable costs and expenses (including reasonable attorneys' fees,
charges and disbursements) reasonably relating to or incurred by the
Lender in connection with monitoring, reviewing or performing any Remedial
Work.
(iii) KREG and Signal shall not commence any Remedial
Work under Section 10(b)(i) hereof, nor enter into any settlement
agreement, consent decree or other compromise relating to any Hazardous
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Substances or Environmental Laws which might impair the value of the
Lender's security hereunder to a material degree, except as required by a
Governmental Authority. Notwithstanding the foregoing, if the presence or
threatened presence of Hazardous Substances on, under or about any
Collateral Property poses an immediate threat to the health, safety or
welfare of any person or is of such a nature that an immediate remedial
response is necessary, KREG and Signal may complete all necessary Remedial
Work. In such events, KREG and Signal shall notify the Lender as soon as
practicable of any action taken.
(c) ENVIRONMENTAL COMPLIANCE. KREG and Signal jointly and
severally covenant and agree with the Lender that they shall comply with
and shall cause SBC to comply with, all Environmental Laws, except for
such instances of non-compliance which, singly, or in the aggregate, are
not reasonably likely to have a material adverse effect on the financial
condition of KREG, Signal or SBC or the value of the Collateral.
(d) ENVIRONMENTAL INDEMNIFICATION. KREG and Signal shall
jointly and severally protect, indemnify, save, defend, and hold harmless
the Lender and all officers, directors, stockholders, partners, employees,
successors and assigns of the Lender (collectively, the "INDEMNIFIED
ENVIRONMENTAL PARTIES") from and against any and all liability, loss,
damage, actions, causes of action, costs or expenses whatsoever
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) and any and all claims, suits and judgments which any
Indemnified Environmental Party may suffer, as a result of or with respect
to: (i) any Environmental Claim relating to or arising from any
Collateral Property; (ii) the violation of any Environmental Law in
connection with any Collateral Property; (iii) any release, spill, or the
presence of any Hazardous Substances affecting any Collateral Property;
and (iv) the presence at, in, on or under, or the release, escape,
seepage, leakage, discharge or migration at or from, any Collateral
Property of any Hazardous Substances, whether or not such condition was
known or unknown to KREG and Signal provided that in each case, KREG and
Signal may be relieved of its obligation under this subsection if it
demonstrates, by a preponderance of the evidence, that any of the matters
referred to in clauses (i) through (iv) of this Section 10(d) did not
occur (but need not have been discovered) prior to (x) the foreclosure of
the Mortgage with respect to such Collateral Property, (y) the delivery by
Signal to the Lender of a deed-in-lieu of foreclosure
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with respect to such Collateral Property or (z) primarily as a result of
the Lender's gross negligence or willful misconduct. Promptly after the
Lender receives notice of the commencement of any Environmental Claim in
respect of which indemnification is sought hereunder, the Lender shall
notify KREG and Signal in writing thereof; but the omission so to notify
KREG and Signal shall not relieve KREG and Signal from any obligation
hereunder provided that KREG and Signal have not been materially
prejudiced by such failure by the Lender to notify KREG and Signal. In
the event that an Indemnified Environmental Party becomes involved in any
action, proceeding or investigation in connection with any matter which is
subject to the indemnification set forth in this Section 10(d), KREG and
Signal shall periodically reimburse such Indemnified Environmental Party
(upon the presentation of reasonably detailed invoices, receipts or
statements) in an amount equal to its reasonable attorneys' fees, charges
and disbursements and other reasonable costs and expenses (including the
reasonable costs of any investigation and preparation) incurred in
connection therewith to the extent such legal or other reasonable fees,
costs or expenses are the subject of indemnification hereunder.
Notwithstanding anything to the contrary provided in this Agreement or the
other Loan Documents, the indemnification provided in this Section 10(d)
shall be shall be independent of, and shall survive, the discharge of the
Indebtedness, the release of the Lien created under the Mortgage, and/or
the conveyance of title to any Collateral Property to the Lender or any
purchaser or designee in connection with a foreclosure of the Mortgage or
conveyance in lieu of foreclosure.
(e) ENVIRONMENTAL MATTERS; INSPECTION.
(i) Upon reasonable prior notice, the Lender shall
have the right at all reasonable times during normal business hours to
enter upon and inspect all or any portion of any Collateral Property,
provided that such inspections shall not unreasonably interfere with the
operation or the tenants of such Collateral Property. The Lender may
select a consulting engineer to conduct and prepare reports of such
inspections. KREG and Signal shall be given a reasonable opportunity to
review any reports, data and other documents or materials reviewed or
prepared by the engineer, and to submit comments and suggested revisions
or rebuttals to same. The inspection rights granted to the Lender in this
Section 10(e) shall be in addition to, and not in limitation of, any other
inspection rights granted to
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the Lender in the Loan Documents, and shall expressly include the right
to conduct soil borings and other customary environmental tests,
assessments and audits.
(ii) KREG and Signal agree, jointly and severally, to
bear and shall pay or reimburse the Lender within ten (10) Business Days
after receipt of demand for all costs and expenses (including reasonable
attorneys' fees, charges and disbursements) reasonably relating to or
incurred by the Lender in connection with the inspections and reports
described in this Section 10(e) in the event that:
(x) the Lender has delivered to KREG and Signal written
notice requesting an inspection and KREG and Signal fail to
thereafter diligently cause such inspections to be made and either
(1) the Lender had reasonable grounds to believe, at the time any
such inspection is ordered by the Lender, that there exists an
Environmental Event or that a Hazardous Substance is present on,
under or emanating from any Collateral Property or is migrating to
or from adjoining property, except under conditions permitted by
applicable Environmental Laws and not prohibited by any Loan
Document or (2) the inspections ordered by the Lender reveal an
Environmental Event or that a Hazardous Substance is present on,
under or emanating from any Collateral Property or is migrating to
or from adjoining property; or
(y) an Event of Default exists at the time any such
inspection is ordered, and such Event of Default relates to any
representation, covenant or other obligation pertaining to Hazardous
Substances, Environmental Laws or any other environmental matter.
(f) COPIES OF NOTICES. Except with respect to matters
already disclosed in the Environmental Reports, KREG and Signal shall
promptly provide notice to the Lender of:
(i) any proceeding, investigation or inquiry commenced
by any Governmental Authority and known (directly or indirectly) to KREG,
Signal or SBC with respect to the presence of any Hazardous Substance on,
under or emanating from any Collateral Property, which might impair the
value of Lender's security interests hereunder, or could
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reasonably be expected to have a material adverse effect on the financial
condition of KREG, Signal or SBC;
(ii) any proceeding, investigation or inquiry commenced
or threatened by any Governmental Authority and known (directly or
indirectly) to KREG and Signal, against KREG and Signal or any Subsidiary
of KREG, with respect to the presence, suspected presence, release or
threatened release of Hazardous Substances from any property not owned by
KREG, Signal or SBC, including without limitation, proceedings under the
Federal Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 ET SEQ., which might materially impair the
value of Lender's security interests hereunder, or could reasonably be
expected to have a material adverse effect on the financial condition of
KREG, Signal or SBC;
(iii) all claims made or threatened by any Person
against KREG, Signal or SBC or any other party occupying any Collateral
Property or any portion thereof which become known to KREG and Signal,
relating to any loss or injury allegedly resulting from any Hazardous
Substance or relating to any violation or alleged violation of
Environmental Law which might materially impair the value of the Lender's
security interests under any of the Security Documents, or could
reasonably be expected to have a material adverse effect on the financial
condition of KREG;
(iv) the discovery by KREG or Signal of any occurrence
or condition on any Collateral Property or on any real property adjoining
or in the vicinity of such Collateral Property which reasonably could be
expected to lead to such Collateral Property or any portion thereof being
in violation of any Environmental Law or subject to any restriction on
ownership, occupancy, transferability or use under any Environmental Law
which might impair the value of the Lender's security interests under any
of the Security Documents, or could reasonably be expected to have a
material adverse effect on the financial condition of KREG (collectively,
an "ENVIRONMENTAL EVENT") or which might subject the Lender to an
Environmental Claim; and
(v) the commencement and completion of any Remedial
Work.
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Within thirty (30) days after the occurrence of an
Environmental Event, KREG shall deliver to the Lender an Officers'
Certificate (an "ENVIRONMENTAL CERTIFICATE") explaining the
Environmental Event in reasonable detail, setting forth to the Lender the
estimated cost as determined at such time of remedying such Environmental
Event and the proposed method of remediation and time to complete such
remedy. KREG and Signal shall complete such remedy as promptly as
possible in the ordinary course of business.
KREG and Signal shall deliver to the Lender copies of any
citations, orders, notices or other communications received from any
person with respect to the notices described in this Section 10(f).
(g) SURVIVAL. All of the representations, warranties and
indemnities in this Section 10 shall survive the full and final repayment
of the Loan.
Section 11. EVENTS OF DEFAULT. If one or more of the following
events (each, an "EVENT OF DEFAULT") shall occur and be continuing:
(a) (1) KREG shall default in the payment when due of any
principal of the Loan on the due date therefor or (2) KREG shall default
in the payment of interest on the Loan on the due date therefor and such
default shall continue for a period of more than three (3) Business Days;
or (3) KREG or Signal shall default in the payment when due of any other
amount payable by either hereunder or under the other Loan Documents and
such default shall continue for a period of more than three (3) Business
Days after notice thereof to KREG by the Lender; or
(b) Except for any Exempt Guarantors, any of KREG, Signal,
the Guarantors, or any of Guarantors' Subsidiaries shall default, after
the passage of all applicable notice and cure periods, in the payment or
performance of any obligation under any of the LOC Documents, or in the
payment when due of any scheduled installment of principal of or
interest on any of its other Indebtedness (the principal amount of which
equals $1,000,000 or more); or
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(c) Any representation, warranty or certification made or
deemed made herein by KREG or Signal or in any other Loan Document by KREG
or Signal or in the Loan Guaranties by the Guarantors or in any
certificate furnished to the Lender pursuant to the provisions hereof (or
thereof), shall prove to have been false or misleading as of the time
made or furnished in any material respect; or
(d) KREG or Signal shall fail to comply in any material
respect with the negative covenants set forth in Section 9 hereof; or
(e) KREG or Signal shall fail to comply with or otherwise
perform, keep or observe any term, provisions, condition or covenant
contained in this Agreement or any other Loan Document (other than
obligations as to which a different cure period may be applicable) and
such non-compliance shall continue unremedied for a period of more than
thirty (30) days after notice thereof to KREG by the Lender or, if the
Lender reasonably determines that such non-compliance shall not result in
a material adverse change in the financial condition of KREG or shall not
result in a material adverse change in the value of any Collateral and
KREG or Signal shall be pursuing a cure in a diligent and expeditious
manner, for a period not to exceed ninety (90) days after the initial
notice of default thereof to KREG by the Lender; or
(f) (1) Signal shall default in the performance of any of
its payment obligations under the Secured Guaranty or any other Loan
Documents or any of the Guarantors shall default in the performance of
any of its payment obligations under its Loan Guaranty or any other Loan
Documents; or (2) Signal or any of the Guarantors (other than the Exempt
Guarantors) shall default in the performance of any of its other
obligations under the Secured Guaranty or a Loan Guaranty or the other
Loan Documents and such default shall continue unremedied for a period of
thirty (30) days after notice thereof to such Guarantor by the Lender or,
if (in the sole discretion of the Lender) such default shall not have a
material adverse effect on the financial condition of such Guarantor or
shall not have a material adverse the value, of any of the Collateral and
such Guarantor shall be pursuing a cure in a diligent and expeditious
manner, for a period not to exceed ninety (90) days after the initial
notice of default thereof to such Guarantor by the Lender; or
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(g) (1) KREG, Signal, any Guarantor, or any of their
respective Subsidiaries (other than the Exempt Guarantors) shall admit in
writing its inability to, or be generally unable to, pay its debts as such
debts become due; or (2) any Exempt Guarantor shall make such an admission
and such admission could, in the Lender's reasonable discretion, have a
material adverse effect on the financial condition of the KREG or the
value of the Collateral; or
(h) (1) KREG, Signal, any Guarantor, or any of their
respective Subsidiaries (other than the Exempt Guarantors) shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code (as now or hereafter in effect), (iv) file a petition as
debtor seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or readjustment of
debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to any petition filed against it in an involuntary
case under the Bankruptcy Code, or (vi) take any corporate action for the
purpose of effecting any of the foregoing; or (2) any Exempt Guarantor
shall take any such action and such action could, in the Lender's
reasonable discretion, have a material adverse effect on the financial
condition of KREG or the value of the Collateral; or
(i) (1) A proceeding or case shall be commenced with respect
to KREG, Signal, or any of the Guarantors, or any of their respective
Subsidiaries (other than the Exempt Guarantors), without such party's
application or consent in any court of competent jurisdiction, seeking (i)
its liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of such party or of
all or any substantial part of its assets, or (iii) similar relief in
respect of such party under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order, judgment
or decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of sixty (60) or more days;
or an order for relief against KREG, Signal, or any of the Guarantors, or
any such Subsidiary shall be
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entered in an involuntary case under the Bankruptcy Code; or (2) any
Exempt Guarantor shall take such action and such action could, in the
Lender's reasonable discretion, have a material adverse effect on the
financial condition of KREG or the value of the Collateral; or
(j) (1) A final judgment or judgments for the payment of
money in excess of $500,000 in the aggregate (other than with respect to
the "Abex Tax Disputes" (as defined in the Reimbursement Agreement)) shall
be rendered by a court or courts against KREG, Signal, or any of the
Guarantors, or any of their respective Subsidiaries (other than the
Exempt Guarantors) and the same shall not be discharged (or provision
shall not be made for such discharge), or a stay or execution thereof
shall not be procured, within thirty (30) days from the date of entry
thereof and such party shall not, within said period of thirty (30) days,
or such longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or (2) such a judgment is rendered against any Exempt
Guarantor and such judgment could, in the Lender's reasonable discretion,
have a material adverse effect on the financial condition of KREG or the
value of the Collateral; or
(k) An event or condition specified in Section 8.1(e) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan and,
as a result of such event or condition, together with all other such
events or conditions, KREG, Signal or any of the Guarantors, or any ERISA
Affiliate shall incur or in the opinion of the Lender shall be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or
any combination of the foregoing) which is, in the determination of the
Lender, material in relation to the consolidated financial condition of
such Guarantors and its consolidated Subsidiaries and KREG; or
(l) Except for expiration or termination in accordance with
its terms, any of the Security Documents shall be terminated or shall
cease to be in full force and effect, for whatever reason (other than the
Lender's failure to file or record any Security Document); or any of the
Security Documents shall be declared null and void, or shall fail to
create the Liens, rights, powers and privileges purported to be created
thereby (including, without limitation, a perfected security interest in
and Lien on all of the material then-existing Collateral), subject to no
equal or prior Lien other than Liens permitted under Section 9.2 hereof;
or
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(m) KREG or Signal shall fail to perform or observe in any
material respect any of the covenants, obligations or agreements contained
in the Loan Documents relating to any Environmental Claim, Environmental
Condition, Environmental Law, Environmental Damages or Hazardous Materials
and with respect to any such failure KREG or Signal shall (i) fail to
commence actions necessary to cure such matters, including, without
limitation, the investigation, cleanup or remediation of Hazardous
Materials at, on or under the Collateral Properties, within thirty (30)
days after the earlier of knowledge thereof by KREG or Signal or written
notice of such failure having been given to KREG or Signal by the Lender;
or (ii) after receipt of such written notice and commencement of curative
action as contemplated in clause (i) above, fail to continue to pursue the
cure of such nonperformance or non-observance in a diligent and
expeditious manner until the earliest of (A) such cure is completed (B)
the time period set forth in clause (iii) below and, on a quarterly basis,
provide the Lender with written reports as to the status of such actions
or (C) the time period required by applicable Environmental Laws; or (iii)
subject to clause (iv) below, fail to cure such nonperformance or
nonobservance or otherwise remedy such default within 180 days after the
earlier of knowledge thereof by KREG or Signal or receipt of the written
notice referred to in clause (i); or (iv) fail to cure such nonperformance
or nonobservance or otherwise remedy such default within a cure period
which shall be longer than the period of 180 days referred to in the
preceding clause (iii) if such cure period shall be permitted by
applicable Environmental Laws and shall be available to KREG or Signal
pursuant to a plan of action approved by a governmental authority and
written evidence of such approved plan reasonably satisfactory to the
Lender shall have been presented to the Lender.
Notwithstanding anything to the contrary contained in this Agreement or any
other Loan Document, no grace period or right to notice granted to KREG or
Signal herein with respect to any Event of Default is intended to duplicate any
other grace period or right to notice granted to KREG or Signal herein or in the
other Loan Documents with respect to such Event of Default and in the event of
any inconsistency, the longest applicable grace period or right to notice
granted herein shall apply.
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Upon the occurrence of an Event of Default, the Lender may (i) by notice to
KREG, cancel any further funding obligation hereunder and declare the principal
amount then outstanding of, and the accrued interest on, the Loan and all other
amounts payable by KREG hereunder and under the Note (including, without
limitation, any amounts payable under Section 2.2 and 5.4 hereof) to be
forthwith due and payable, whereupon such amounts shall be immediately due and
payable without presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by KREG except to the extent expressly
required by the Loan Documents or the LOC Documents; and (ii) at any time
request that an appraisal to be performed by an appraiser reasonably
satisfactory to the Lender and/or a market study to be performed by an MAI
reasonably satisfactory to the Lender with respect to any Collateral Property or
all the Collateral Properties. KREG shall pay all reasonable fees for any
appraisals and market studies performed pursuant to this Section 11.
Section 12. INDEMNIFICATION. KREG hereby agrees to indemnify,
defend and hold the Lender and each of its Affiliates and their respective
officers, directors, partners, employees, representatives, lawyers and agents
and each other person, if any, controlling the Lender or any of its Affiliates
within the meaning of either Section 15 of the Securities Act of 1933, as
amended, or Section 20 of the Securities Exchange Act of 1934, as amended
(collectively, the "SECURITIES LAWS"), and each of their respective officers,
directors, partners, employees, representatives, lawyers and agents (the Lender
and each such other person or entity being referred to as an "INDEMNIFIED
PERSON"), to the fullest extent permitted by law, harmless from and against any
and all losses, claims, damages, costs, expenses or liabilities arising out of
or in connection with the Collateral Properties, the Loan or any of the Loan
Documents or the matters referred to or contemplated therein, except to the
extent that it is determined that any such loss, claim, damage, cost, expense or
liability results primarily from the gross negligence, wilful misconduct or bad
faith of such Indemnified Person. In the event that an Indemnified Person
becomes involved in any action, proceeding or investigation in connection with
any transaction or matter referred to or contemplated in this Agreement or any
of the other Loan Documents, KREG shall periodically reimburse such Indemnified
Person (upon the presentation of reasonably detailed invoices, receipts or
statements) in an amount equal to its reasonable attorneys' fees, charges and
disbursements and other reasonable costs and expenses (including the reasonable
costs of any investigation and preparation) incurred in connection therewith to
the extent such legal or other fees, costs or expenses are the subject of
indemnification
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hereunder. The indemnity contained in this Section 12 shall
survive the Maturity Date or the earlier repayment of the Loan.
Section 13. MISCELLANEOUS.
13.1 WAIVER. No failure on the part of the Lender to exercise
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under this Agreement or the Note shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement or the Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
13.2 NOTICES. All notices, demands, requests, consents,
approvals and other communications (any of the foregoing, a "NOTICE")
required, permitted, or desired, to be given hereunder shall be in writing sent
by registered or certified mail, postage prepaid, return receipt requested or
delivered by hand or reputable overnight courier addressed to the party to be so
notified at its address hereinafter set forth, or to such other address as such
party may hereafter specify in a Notice delivered in accordance with the
provisions of this Section 13.2. Any such Notice shall be deemed to have been
received three (3) days after the date such Notice is mailed or on the date of
delivery by hand or courier addressed to the parties as follows (PROVIDED that
neither the Lender nor KREG or Signal shall be deemed to have received any
Notice not actually received):
If to the Lender: Nomura Asset Capital Corporation
First Interstate World Center
633 West Fifth Street, 68th Floor
Los Angeles, California 90071
Attention: Richard A. Magnuson
Director
and Nomura Asset Capital Corporation
2 World Financial Center, Building B
New York, New York 10281-1198
Attention: Sheryl E. McAfee
Vice President
With a copy to: Skadden, Arps, Slate, Meagher & Flom
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300 South Grand Avenue, 34th Floor
Los Angeles, California 90071
Attention: Rand S. April, Esq.
If to KREG or
Signal: Koll Real Estate Group, Inc. and Signal Landmark
4343 Von Karman Avenue
Newport Beach, California 92660
Attention: Mr. Raymond J. Pacini
With copies to: Brobeck, Phleger & Harrison
4675 MacArthur Court, No. 1000
Newport Beach, California 92660
Attention: Gregory W. Preston, Esq.
Brobeck, Phleger & Harrison
550 South Hope Street, Suite 2100
Los Angeles, California 90071
Attention: Gerard J. Walsh, Esq.
13.3 EXPENSES, ETC. KREG agrees to pay or reimburse the Lender
for paying: (a) all reasonable out-of-pocket expenses of the Lender and the
Trustee (including, without limitation, the reasonable fees, charges and
disbursements of Skadden, Arps, Slate, Meagher & Flom, counsel to the Lender, in
connection with the negotiation, preparation, execution and delivery of this
Agreement, the Note and the other Loan Documents and the Lender's due diligence
in connection with the Collateral Properties; (b) all reasonable out-of-pocket
travel and third party due diligence expenses of the Lender and the Trustee
(including the reasonable fees, charges and disbursements of counsel to the
Lender and the Trustee) in connection with the preparation, negotiation, review
and execution of any documents required pursuant to Section 6.3 hereof; (c) all
reasonable costs and expenses of the Lender and the Trustee (including
reasonable counsel fees, charges and disbursements) in connection with any
Default and any enforcement or collection proceedings resulting therefrom,
including, without limitation, in connection with any bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceedings involving
KREG, Signal or the Guarantors or a "workout" of the Loan; and (d) within ten
(10) Business Days after KREG receives notice thereof, all Taxes and assessments
(other than income and franchise taxes), recording fees, registration taxes,
title insurance premiums, appraisal fees, costs of surveys, fees of third-party
consultants and all other fees and expenses reasonably incurred
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by the Lender and the Trustee in connection with any Collateral (including,
without limitation, all mortgage loan servicing fees and expenses of the
Trustee in connection with the Collateral).
13.4 ENTIRE AGREEMENT, AMENDMENTS, ETC. The Lender and KREG and
Signal each acknowledges that there are no other agreements or representations,
either oral or written, express or implied, not embodied or referenced in this
Agreement and the Loan Documents, which, together, represent a complete
integration of all prior and contemporaneous agreements and understandings of
the parties hereto. Any provision of this Agreement may be amended or modified
only by an instrument in writing signed by KREG, Signal and the Lender. This
Agreement shall not be construed more strictly against any party merely by
virtue of the fact that the same has been prepared by such party or its counsel,
it being recognized that each party hereto has contributed substantially and
materially to the preparation of this Agreement, and that each party hereto
acknowledges and waives any claim contesting the existence and the adequacy of
the consideration given by any of the other parties hereto in entering into this
Agreement. Every provision of this Agreement is intended to be severable. In
the event that any term or provision hereof is declared by a court of competent
jurisdiction to be illegal or invalid for any reason whatsoever, such illegality
or invalidity shall not affect the balance of the terms and provisions hereof,
which terms and provisions shall remain binding and enforceable.
13.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. The Lender may not assign its rights or
obligations hereunder or under the Note without the prior consent of KREG and
Signal which consent may not be unreasonably withheld, conditioned or delayed.
The Lender may assign or otherwise transfer all of its rights and remedies under
this Agreement to the assignee, and such assignee shall thereupon become vested
with all of the rights and obligations in respect thereof granted to the Lender
herein or otherwise. Each representation and agreement made by KREG and/or
Signal in this Agreement shall be deemed to run to and each reference to the
Lender herein shall be deemed to refer to the Lender and all of its successors
and assigns.
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13.6 SURVIVAL. The obligations of KREG and Signal under Sections
5.1, 5.4, 10 and 13.3 hereof (and any other provisions hereof which expressly
provide for the survival of the obligations contained therein) shall survive the
repayment of the Loan and the termination or expiration of any Loan Documents
and any Release of the Collateral pursuant to the Loan Documents. In addition,
each representation and warranty made, or deemed to be made by a notice of
borrowing of any Loan, hereunder shall survive the making of such Loan and the
Lender shall not be deemed to have waived, by reason of making such Loan, any
Default or Event of Default which may arise by reason of such representation or
warranty proving to have been false or misleading, unless the Lender shall have
had actual knowledge that such representation or warranty was false or
misleading at the time such Loan was made.
13.7 CAPTIONS. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
13.8 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
13.9 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
and the Note shall be governed by, and construed in accordance with, the law of
the State of California. KREG and Signal each hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Central
District of California and of any State Court sitting in the City of Los Angeles
for the purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. KREG and Signal each
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum.
13.10 WAIVER OF JURY TRIAL. KREG AND SIGNAL AND THE LENDER HEREBY
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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13.11 MARSHALLING; RECAPTURE. Neither the Trustee nor the Lender
shall be under any obligation to marshall any assets in favor of KREG, Signal or
the Guarantors. To the extent the Lender receives any payment by or on behalf
of KREG, Signal or the Guarantors, which payment or any part thereof is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to KREG, Signal or the Guarantors or their respective
estate, trustee, receiver, custodian or any other party under any bankruptcy
law, state or federal law, common law or equitable cause, then to the extent of
such payment or repayment the obligation or part thereof which has been paid,
reduced or satisfied by the amount so repaid shall be reinstated by the amount
so repaid and shall be included within the liabilities of KREG, Signal or the
Guarantors to the Lender as of the date such initial payment, reduction or
satisfaction occurred.
13.12 CROSS COLLATERALIZATION. KREG and Signal each represents,
warrants and covenants that in the case of an Event of Default (i) the Lender
shall have the right to pursue all of its rights and remedies in one proceeding,
or separately and independently in separate proceedings from time to time, as
the Lender, in its sole and absolute discretion, shall determine from time to
time, (ii) neither the Trustee nor the Lender is required to either marshall
assets, sell Collateral in any inverse order of alienation, (iii) the exercise
by the Trustee or the Lender of any remedies against any one item of Collateral
will not impede the Trustee or the Lender from subsequently or simultaneously
exercising remedies against any other item of Collateral, and (iv) all Liens and
other rights, remedies or privileges provided to the Trustee or the Lender shall
remain in full force and effect until each of the Trustee and the Lender with
respect to the Collateral has exhausted all of its remedies against the
Collateral and all Collateral has been foreclosed, sold and/or otherwise
realized upon in satisfaction of the Loan.
13.13 RELEASE OF CERTAIN COLLATERAL. Signal will from time to
time during the term of the Loan have the right to sell (i) home sites at the
Eagle Crest Project in accordance with a disposition plan approved by the Lender
for not less than $70,000 in Net Cash Proceeds per individual lot (which lots
are set forth in the existing subdivision plans therefor), (ii) the golf course
at the Eagle Crest Project for not less than $7,000,000 in Net Cash Proceeds and
(iii) the Fairbanks Highlands Project for not less than $7,000,000 in Net Cash
Proceeds (any of the foregoing shall be referred to herein as a "PERMITTED
SALE"). Signal and Lender contemplate that the real property that is the
subject of any such Permitted Sale shall be Released from the Lien of the
Mortgage encumbering such Collateral Property. Provided that the NACC Share of
Net Cash Proceeds resulting from each and every Permitted Sale is delivered to
the
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Lender or deposited into the Securities Account as required under this
Agreement, the Securities Account Agreement, and the LOC Documents, the Lender
agrees to execute a request for partial reconveyance and deliver such request
for partial reconveyance to the Trustee for any portion of the Collateral
Properties so sold, upon the sale of such portion of the Collateral Properties
to a bona fide third party purchaser or to a KGT Affiliate or special purpose
Subsidiary as permitted by the terms hereof. Upon receipt of such partial
release request and prior to recording any partial release, Trustee shall obtain
from Signal and deliver to the Lender: (i) a copy of the closing statement for
the applicable Permitted Sale; and (ii) a completed partial release request for
execution by the Lender. The Lender shall have no obligation to execute a
partial release request with respect to any portion of the Collateral Properties
unless and until that portion of sale proceeds relating thereto which are
required to be delivered to the Lender hereunder or under the LOC Documents have
been so delivered to the Lender. Notwithstanding the foregoing, KREG and Signal
agree that if at any time KREG or Signal obtains knowledge of any Federal tax
lien or Assessment (including, without limitation, any tax lien or Assessment in
connection with the Henley Facilities Audit), then KREG and Signal shall
immediately notify the Lender thereof telephonically and in writing. In no
event shall any otherwise Permitted Sales be permitted, and all pending
Permitted Sales shall be stayed, immediately upon KREG's or Signal's knowledge
of any Federal tax lien or Assessment (including, without limitation, any tax
lien or Assessment in connection with the Henley Facilities Audit) until such
time as the Lender, in its sole and absolute discretion, agrees in writing to
permit further Permitted Sales to occur.
13.14 FURTHER ASSURANCES. KREG and Signal each agrees that, from
time to time upon the reasonable written request of the Lender, KREG and Signal
each will execute and deliver such further documents and do such other acts and
things as the Lender may reasonably request in order fully to effect the
purposes of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
KOLL REAL ESTATE GROUP, INC.,
a Delaware corporation
By: _________________________
Raymond J. Pacini
Chief Financial Officer and
Executive Vice President
SIGNAL LANDMARK,
a California corporation
By: ________________________
Raymond J. Pacini
Chief Financial Officer and
Executive Vice President
NOMURA ASSET CAPITAL CORPORATION,
a Delaware corporation
By: ________________________
Richard A. Magnuson
Vice President
<PAGE>
EXHIBIT A-1
LEGAL DESCRIPTION OF EAGLE CREST PROJECT
<PAGE>
EXHIBIT A-2
LEGAL DESCRIPTION OF FAIRBANKS HIGHLANDS PROJECT
<PAGE>
EXHIBIT A-3
LEGAL DESCRIPTION OF BOLSA CHICA PROJECT
<PAGE>
EXHIBIT B
FORM OF LOAN GUARANTY
<PAGE>
EXHIBIT C
DEVELOPMENT BUDGET AND PROJECTIONS
<PAGE>
EXHIBIT D
FORM OF MORTGAGE
<PAGE>
EXHIBIT E
FORM OF NOTE
<PAGE>
EXHIBIT F
FORM OF PLEDGE AGREEMENT
<PAGE>
EXHIBIT G
FORM OF DRAW REQUEST NOTICE
<PAGE>
EXHIBIT H
SCHEDULE OF LITIGATION
<PAGE>
EXHIBIT I
SCHEDULE OF EXISTING APPROVALS
<PAGE>
EXHIBIT J
SIGNAL FINANCIAL STATEMENT
<PAGE>
_________________________________________________________________
_________________________________________________________________
CONSTRUCTION LOAN AGREEMENT
between
GREAT ISLAND TRUST PARTNERSHIP
and
THE FIRST NATIONAL BANK OF BOSTON
December 29, 1994
________________________________________________________________
________________________________________________________________
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
Section 1 DEFINITIONS AND RULES OF INTERPRETATION
Section 1.1. Definitions.............................
Section 1.2. Rules of Interpretation.................
Section 2 AGREEMENT TO MAKE DEVELOPMENT LOAN ADVANCES;
LIMITATIONS
Section 2.1 Agreement to Make Advances..............
Section 2.2. Project Budget..........................
Section 2.3. Amount of Advances......................
Section 2.4. Quality of Work.........................
Section 2.5. Cost Overruns and Savings...............
Section 2.6. Contingency Reserve.....................
Section 3 MAKING THE DEVELOPMENT LOAN ADVANCES
Draw Request...........................................
Section 4 AGREEMENT TO MAKE RESIDENCES LOAN ADVANCES;
LIMITATIONS
Section 4.1 Agreement to Make Advances..............
Section 4.2. Project Budget..........................
Section 4.3. Amount of Advances......................
Section 4.4. Quality of Work.........................
Section 4.5. Cost Overruns and Savings...............
Section 4.6. Contingency Reserve.....................
Section 5 MAKING THE RESIDENCES LOAN ADVANCES
Draw Request...........................................
Section 6 GENERAL CONDITIONS OF ALL ADVANCES
Section 6.1. Stored Materials........................
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Section Page
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Section 6.2. Notice and Frequency of Advances .......
Section 6.3. Deposit of Funds Advanced...............
Section 6.4. Advances to Subcontractors..............
Section 6.5. Advances to Title Insurance Company or
to Others...............................
Section 6.6. Advances Do Not Constitute a Waiver.....
Section 7 THE NOTES; INTEREST; MATURITY AND PREPAYMENT
Section 7.1. The Notes................................
Section 7.2. The Record...............................
Section 7.3. Interest on Advances.....................
Section 7.4. Maturity.................................
Section 7.5. Prepayment...............................
Section 7.6. Mandatory Principal Reductions...........
Section 8 COMMITMENT FEE; PAYMENTS AND COMPUTATIONS; CAPITAL
ADEQUACY
Section 8.1. Commitment Fee...........................
Section 8.2. Funds for Payments.......................
Section 8.3. Computations.............................
Section 8.4. Interest on Overdue Amounts; Late
Charges..................................
Section 8.5. Capital Adequacy.........................
Section 9 COLLATERAL SECURITY AND GUARANTY........................
Section 10 CERTAIN RIGHTS OF LENDER
Section 10.1. Right to Retain the Construction
Inspector................................
Section 10.2. Right to Obtain Appraisals...............
Section 10.3. Charges Against Loan Check Account.......
Section 10.4. Partial Release..........................
Section 11 REPRESENTATIONS AND WARRANTIES
Section 11.1. Organization; Authority; Etc. ...........
Section 11.2. Title to Project and Other Properties....
Section 11.3. Financial Statements.....................
Section 11.4. No Material Changes, Etc. ...............
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Section Page
------- ----
Section 11.5. Franchises, Patents, Copyrights, Etc.....
Section 11.6. Litigation...............................
Section 11.7. No Materially Adverse Contracts, Etc. ...
Section 11.8. Compliance with other Instruments, Laws,
Etc. ....................................
Section 11.9. Tax Status...............................
Section 11.10. No Event of Default......................
Section 11.11. Investment Company Act...................
Section 11.12. Absence of Financing Statements, Etc. ...
Section 11.13. Setoff, Etc. ............................
Section 11.14. Certain Transactions.....................
Section 11.15. Employee Benefit Plans; Multiemployer
Plans; Guaranteed Pension Plans..........
Section 11.16. Environmental Compliance.................
Section 11.17. Subsidiaries.............................
Section 11.18. General Partners.........................
Section 11.19. Availability of Utilities................
Section 11.20. Access...................................
Section 11.21. Condition of Project.....................
Section 11.22. Compliance with Requirements.............
Section 11.23. Project Approvals........................
Section 11.24. Management Contract......................
Section 11.25. Other Contracts..........................
Section 11.26. Real Property Taxes; Special Assessments.
Section 11.27. Violations...............................
Section 11.28. Plans and Specifications.................
Section 11.29. Project Budget...........................
Section 11.30. Feasibility..............................
Section 11.31. Effect of Draw Request...................
Section 11.32. Master Plan Documents....................
Section 11.33. Development Rights.......................
Section 12 AFFIRMATIVE COVENANTS OF THE BORROWER
Section 12.1. Punctual Payment.........................
Section 12.2. Commencement, Pursuit and Completion of
Construction.............................
Section 12.3. Correction of Defects....................
Section 12.4. Maintenance of Office....................
Section 12.5. Records and Accounts.....................
Section 12.6. Financial Statements, Certificates and
Information..............................
4
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Section Page
------- ----
Section 12.7. Notices..................................
Section 12.8. Existence; Maintenance of Properties.....
Section 12.9. Insurance................................
Section 12.10. Taxes....................................
Section 12.11. Inspection of Project, Other Properties
and Books................................
Section 12.12. Compliance with Laws, Contracts,
Licenses, and Permits....................
Section 12.13. Project Approvals........................
Section 12.14. Use of Proceeds..........................
Section 12.15. Project Costs............................
Section 12.16. Insufficiency of Loan Proceeds...........
Section 12.17. Laborers, Subcontractors and Materialmen.
Section 12.18. Further Assurance of Title...............
Section 12.19. Publicity................................
Section 12.20. Sign Regarding Construction Financing....
Section 12.21. Further Assurances.......................
Section 12.22. Interest Rate Protection.................
Section 13 NEGATIVE COVENANTS OF THE BORROWER
Section 13.1. Restrictions on Leases...................
Section 13.2. Restriction on Change Orders.............
Section 13.3. Restrictions on Easements, Covenants and
Restrictions.............................
Section 13.4. No Amendments, Terminations or Waivers...
Section 13.5. Restrictions on Indebtedness.............
Section 13.6. Restrictions on Liens, Etc. .............
Section 13.7. Restrictions on Investments..............
Section 13.8. Merger, Consolidation and Disposition of
Assets...................................
Section 13.9. Sale and Leaseback.......................
Section 13.10. Compliance with Environmental Laws.......
Section 13.11. Distributions............................
Section 13.12. Loan to Value............................
Section 14 CONDITIONS TO INITIAL ADVANCE
Section 14.1 Loan Documents...........................
Section 14.2 Construction Documents...................
Section 14.3 Subcontracts.............................
Section 14.4 Other Contracts..........................
5
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Section Page
------- ----
Section 14.5 Certified Copies of Organization
Documents................................
Section 14.6 Resolutions..............................
Section 14.7 Incumbency Certificate; Authorized
Signers..................................
Section 14.8 Validity of Liens........................
Section 14.9 Deliveries...............................
Section 14.10 Construction Inspector Report............
Section 14.11 Legal Opinions...........................
Section 14.12 Lien Search..............................
Section 14.13 Notices..................................
Section 14.14 Appraisal................................
Section 14.15 Commitment Fee...........................
Section 14.16 Performance; No Default..................
Section 14.17 Representations and Warranties...........
Section 14.18 Proceedings and Documents................
Section 14.19 Interest Rate Protection.................
Section 15 CONDITIONS OF SUBSEQUENT ADVANCES
Section 15.1 Prior Conditions Satisfied...............
Section 15.2 Performance; No Default..................
Section 15.3 Representations and Warranties...........
Section 15.4 No Damage................................
Section 15.5 Receipt of the Lender....................
Section 15.6 Release of Retainage.....................
Section 16 EVENTS OF DEFAULT AND REMEDIES
Section 16.1 Events of Default........................
Section 16.2 Termination of Commitment and
Acceleration.............................
Section 16.3 Completion of Project....................
Section 16.4 Other Remedies...........................
Section 16.5 Distribution of Collateral Proceeds......
Section 16.6 Power of Attorney........................
Section 16.7 Waivers..................................
Section 17 SETOFF..................................................
Section 18 EXPENSES................................................
6
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Section Page
------- ----
Section 19 INDEMNIFICATION.........................................
Section 20 LIABILITY OF THE LENDER.................................
Section 21 RIGHTS OF THIRD PARTIES.................................
Section 22 SURVIVAL OF COVENANTS, ETC..............................
Section 23 PARTICIPATION; ETC......................................
Section 23.1. Participations...........................
Section 23.2. Pledge by the Lender.....................
Section 23.3. No Assignment by the Borrower............
Section 24 RELATIONSHIP............................................
Section 25 NOTICES.................................................
Section 26 GOVERNING LAW...........................................
Section 27 CONSENT TO JURISDICTION; WAIVERS........................
Section 28 HEADINGS................................................
Section 29 COUNTERPARTS............................................
Section 30 ENTIRE AGREEMENT, ETC...................................
Section 31 CONSENTS, AMENDMENTS, WAIVERS, ETC......................
Section 32 TIME OF ESSENCE.........................................
Section 33 SEVERABILITY............................................
7
<PAGE>
EXHIBITS
--------
A - Construction Schedule
B - Disbursement Schedule
C - Plans and Specifications
D - Project Budget
E - Borrower's Requisition for Development Loan Advances
F - Manager's Summary
G - Intentionally Deleted
H - Intentionally Deleted
I - Borrower's Requisition for Residences Loan Advances
J - Residences Loan Disbursement Schedule
8
<PAGE>
SCHEDULES
---------
1.1 - Exempt Subsidiaries
10.4 - Minimum Release Price
11.6 - Litigation
11.14 - Insider Transactions
11.16 - Hazardous Materials
11.22 - Project Approvals
13.5 - Existing Indebtedness
13.6 - Existing Liens
13.7 - Existing Investments
9
<PAGE>
CONSTRUCTION LOAN AGREEMENT
This CONSTRUCTION LOAN AGREEMENT is made as of the 29th day of December,
1994, by and among Great Island Trust Partnership (the "Borrower"), a New
Hampshire general partnership having its principal place of business at
Wentworth Road, P.O. Box 246, New Castle, New Hampshire 03854 and THE FIRST
NATIONAL BANK OF BOSTON, a national banking association (the "Lender").
Section 1. DEFINITIONS AND RULES OF INTERPRETATION.
Section 1.1. DEFINITIONS. The following terms shall have the meanings
set forth in this Section 1 or elsewhere in the provisions of this Agreement or
other Loan Documents referred to below:
ACCOUNT. Any account or accounts established at the Lender into which
proceeds from or funds for the Project including, without limitation, any funds
required under Section 12.16 are deposited, which account or accounts shall
constitute additional collateral for the Loan.
ADVANCE. Any disbursement of a Development Loan Advance or a Residences
Loan Advance.
AGREEMENT. This Agreement, including the SCHEDULES and EXHIBITS hereto.
APPRAISAL. An appraisal of the value of the Project, determined on a
market value basis, performed by a qualified independent appraiser approved by
the Lender.
APPROVED SALE AGREEMENT. A Sale Agreement with a bona fide third party
purchaser, prepared on a standard form approved in advance by the Lender,
providing for: (x) a deposit (which shall have been paid) of at least the lesser
of: (i) ten (10%) percent of the purchase price, or (ii) Fifty Thousand
($50,000) Dollars which deposit shall be deposited into the Escrow Account, and
(y) a total construction period of no greater than ten (10) months from
commencement of construction of the Residence.
ASSIGNMENT OF LEASES. The Assignment of Leases and Rents, dated or to be
dated on or prior to the Closing Date, made by the Borrower in favor of the
Lender, pursuant to which the Borrower
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<PAGE>
assigns its right, title and interest as landlord in and to the Leases and the
rents, issues and profits of the Project, such Assignment of Leases and Rents to
be in form and substance satisfactory to the Lender.
ASSIGNMENT OF PROJECT DOCUMENTS. The Assignment of Project Documents,
dated or to be dated on or prior to the Closing Date, made by the Borrower in
favor of the Lender, pursuant to which the Borrower assigns and grants a
security interest in the Borrower's right, title and interest in and to the
Management Contract, the Plans and Specifications and the Project Approvals,
such Assignment of Project Documents to be in form and substance satisfactory to
the Lender.
BALANCE SHEET DATE. September 30, 1994 with respect to the Guarantor and
the Borrower.
BORROWER. As defined in the preamble hereto.
BORROWER'S ARCHITECT. CBT/ Childs, Bertman, Tseckares & Casendino, Inc. a
Massachusetts corporation having a usual place of business at 306 Dartmouth
Street, Boston, Massachusetts .
BORROWER'S MANAGER. WBTS Management Limited Partnership, a Massachusetts
limited partnership having a usual place of business at 46 Glenn Avenue, Newton
Centre, Massachusetts 02159.
BORROWER'S REQUISITION. See Sections 3.1 and 5.1.
BUSINESS DAY. Any day on which the Lender is open for the transaction of
banking business in Boston, Massachusetts.
CAPITALIZED LEASES. Leases under which the Borrower is the lessee or
obligor, the discounted future rental payment obligations under which are
required to be capitalized on the balance sheet of the lessee or obligor in
accordance with generally accepted accounting principles.
CERCLA. See Section 11.16(a).
CLOSING DATE. The first date on which the conditions set forth in Section
13 have been satisfied and any Advances are to be made.
CODE. The Internal Revenue Code of 1986.
11
<PAGE>
COLLATERAL. All of (a) the property, rights and interests of the Borrower
that are or are intended to be subject to the security interests, assignments,
and mortgage liens created by the Security Documents, including, without
limitation, the Project, and (b) the Guaranty.
COMMUNITY. The Wentworth By The Sea community created pursuant to the
Master Plan Documents.
COMPLETION DATE. December 29, 1996 as may be extended for the Residences
Loan only until December 29, 1997 as set forth herein provided, however, for
each Residence under a Sale Agreement, construction must be completed in no
greater than ten (10) months from the commencement of construction of such
residence.
CONDOMINIUM. The Ducks Head Condominium created pursuant to a Condominium
Declaration of Ducks Head Condominium dated December 16, 1993 recorded in the
Rockingham County Registry of Deeds at Book 3026, Page 2651, as amended to date.
CONSTRUCTION SCHEDULE. The schedule, broken down by job and Major
Subcontract of the estimated dates of commencement and completion of
construction of the Improvements, prepared by the Construction Manager, approved
by the Lender and attached hereto as EXHIBIT A.
CONSTRUCTION INSPECTOR. Peter Howard Johnson, P.C. or, at the Lender's
option, either an officer or employee of the Lender or consulting architects,
engineers or inspectors appointed by the Lender from time to time.
CONTINGENCY RESERVE. The amount(s) allocated as contingency reserve(s) in
the Project Budget, to be advanced only in accordance with the provisions of
Sections 2.6 or 4.6 hereof.
DEFAULT. A condition or event which would, with the giving of notice or
lapse of time or both, constitute an Event of Default.
DEVELOPMENT LOAN. The Three Million Five Hundred Thousand Dollar
($3,500,000.00) non-revolving facility for the portion of the Project dedicated
to the construction and development of twenty (20) lots including two (2) model
spec homes, improvements
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<PAGE>
to several existing rental properties and final build-out of the Ducks Head
Condominiums and related amenities.
DEVELOPMENT LOAN ADVANCE. Any disbursement of the proceeds of the
Development Loan made or to be made by the Lender pursuant to the terms of this
Agreement.
DEVELOPMENT LOAN AMOUNT. $3,500,000.00.
DEVELOPMENT NOTE. The Note in the principal face amount of the Development
Loan Amount, dated or to be dated on or prior to the Closing Date, made by the
Borrower to the order of the Lender, such Note to be in form and substance
satisfactory to the Lender.
DEVELOPMENT PROJECT BUDGET. The budget for total estimated Project Costs
for the Development Loan, submitted by the Borrower, approved by the Lender and
the Construction Inspector, and attached hereto as Exhibit D1, which includes:
(a) a line item cost breakdown for Direct Costs by jobs and subcontracts in
excess of $200,000.00; (b) a line item cost breakdown for Indirect Costs; and
(c) a schedule of the sources of funds to pay Project Costs, indicating the
portion of the Project Costs to be funded through the Development Loan and
Required Equity Funds.
DEVELOPMENT RIGHTS. Any and all present and future rights of the Borrower
to develop, construct, and own units and/ or lots (hereinafter individually and
collectively, the "Lots" or "Units") comprising one or more phases (hereinafter,
the "Phases") of the Community to be created pursuant to the Master Plan
Documents located on the Land including, without limitation, all rights, powers,
privileges, licenses, property interests, easements, voting rights, and
residence rights reserved by and assigned to the Borrower under the Master Plan
Documents (including any and all rights, powers and privileges to amend the
Master Plan Documents).
DEFAULT RATE. The default rate of interest set forth in the Notes.
DIRECT COSTS. Mean and include the costs of the Land, the Personal
Property, and all labor, materials, fixtures, machinery and equipment required
to construct, equip and complete the Improvements in accordance with the Plans
and Specifications.
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DISBURSEMENT SCHEDULE. The schedule of the amounts of Advances anticipated
to be requisitioned by the Borrower each month during the term of the
construction of the Improvements (including an itemization of Direct Costs and
Indirect Costs to be included in each such requisition), approved by the Lender
and attached hereto as EXHIBIT B.
DISTRIBUTION. The declaration or payment of any distribution of cash or
cash flow to the partners of the Borrower; or any other distribution on or in
respect of any shares of partnership interests of the Borrower.
DRAWDOWN DATE. The date on which any Advance is made or is to be made.
DRAW REQUEST. With respect to each Advance, the Borrower's Requisition for
such Advance, and documents required by this Agreement to be furnished to the
Lender as a condition to such Advance.
EMPLOYEE BENEFIT PLAN. Any employee benefit plan within the meaning of
Section 3(3) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.
ENVIRONMENTAL LAWS. See Section 11.16.(a).
ERISA. The Employee Retirement Income Security Act of 1974, as amended and
in effect from time to time.
ERISA AFFILIATE. Any Person which is treated as a single employer with the
Borrower under Section 414 of the Code.
ESCROW ACCOUNT. The escrow account established with the Lender into which
the Borrower or its agent shall deposit the deposit required under an Approved
Sale Agreement.
EVENT OF DEFAULT. See Section 16.1.
EXEMPT SUBSIDIARIES. See Schedule 1.1.
EXTRAS. Any Improvements with respect to a particular Residence funded
directly by a buyer under an Approved Sales Agreement.
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EXTRAS ACCOUNT. The account at the Bank into which the Borrower shall
deposit all amounts received by the Borrower from the buyers under Approved
Sales Agreements for the construction of the Extras determined to be significant
by the Construction Inspector, which Extras Account shall be pledged to the Bank
as additional cash collateral for the Obligations.
FINANCING STATEMENTS. Uniform Commercial Code Form 1 Financing
Statement(s) from the Borrower in favor of the Lender giving notice of a
security interest in the Collateral, such financing statements to be in form and
substance satisfactory to the Lender.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Principles that are (a)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to time
and (b) consistently applied with past financial statements of the Borrower
adopting the same principals; PROVIDED that a certified public accountant would,
insofar as the use of such accounting principles is pertinent, be in a position
to deliver an unqualified opinion (other than a qualification regarding changes
in generally accepted accounting principles) as to financial statements in which
such principles have been properly applied.
GOVERNMENTAL AUTHORITY. The United States of America, the State of New
Hampshire, any political subdivision thereof, the towns of New Castle, Rye and
Portsmouth, New Hampshire, and any agency, authority, department, commission,
board, bureau, or instrumentality of any of them.
GUARANTEED PENSION PLAN. Any employee pension benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by the Borrower or
any ERISA Affiliate the benefits of which are guaranteed on termination in full
or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
GUARANTOR. The Koll Real Estate Group, Inc. a Delaware corporation having
a usual place of business at 4343 Von Karmen Avenue, Newport Beach, California.
GUARANTY. The Unconditional Guaranty of Payment and Performance, dated or
to be dated on or prior to the Closing Date, made by the Guarantor in favor of
the Lender, pursuant to which
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the Guarantor guaranteed to the Lender the payment and performance of the
Obligations, such Guaranty to be in form and substance satisfactory to the
Lender.
HAZARDOUS MATERIALS. See Section 11.16.(b).
HOMEOWNER ASSOCIATION. The Little Harbor Homeowner Association created
pursuant to the Declaration of the Little Harbor at Wentworth By The Sea
Homeowner Association dated November 8, 1994 recorded in the Rockingham County
Registry of Deeds at Book 3078, Page 922.
IMPROVEMENTS. The construction of twenty (20) lots including two (2) model
spec homes, improvements to several existing rental properties, final build-out
of the Condominium and the construction of single family residences to be
constructed on the Land in accordance with the Plans and Specifications.
INDEBTEDNESS. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should be
made by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indirect; (b) all liabilities secured by any mortgage, pledge, security
interest, lien, charge, or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (c) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or to assure the
owner of indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling debtor to make payment of the
indebtedness held by such owner or otherwise, and the obligations to reimburse
the issuer in respect of any letters of credit.
INDEMNITY AGREEMENT. The Indemnity Agreement Regarding Hazardous
Materials, dated or to be dated on or prior to the Closing Date, made by the
Borrower and the Guarantor in favor of the Lender, pursuant to which the
Borrower and the Guarantor agree to indemnify the Lender with respect to
Hazardous Materials
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and Environmental Laws, such Indemnity Agreement to be in form and substance
satisfactory to the Lender.
INDIRECT COSTS. Mean and include title insurance premiums, survey charges,
engineering fees, architectural fees, real estate taxes, appraisal costs,
commitment fees and interest payable to the Lender under the Loan, premiums for
insurance, marketing, advertising and leasing costs, brokerage commissions,
legal fees, accounting fees, overhead and administrative costs, and all other
expenses which are expenditures relating to the Project and are not Direct
Costs.
INVESTMENTS. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect to any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
LAND. The real property located in the towns of New Castle, Rye and
Portsmouth, New Hampshire, and described in Exhibit A to the Security Deed.
LEASES. Leases, licenses and agreements, whether written or oral, relating
to the use or occupation of space in the Improvements or on the Land by Persons
other than the Borrower.
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LENDER. The First National Bank of Boston, its successors and assigns.
LOAN. Collectively, the Development Loan and the Residences Loan which are
the subject of this Agreement.
LOAN CHECKING ACCOUNT. See Section 6.3.
LOAN DOCUMENTS. This Agreement, the Development Note, the Residences Note,
the Indemnity Agreement and the Security Documents, and all other agreements,
documents and instruments now or hereafter evidencing or securing the Loan.
LOTS. See definition of Development Rights.
MAJOR SUBCONTRACTS. The construction subcontracts between the Borrower and
subcontractors with contracts equal to or greater than $200,000.00.
MANAGEMENT CONTRACT. The contract, dated October 1, 1993, between the
Borrower and the Borrower's Manager providing for the construction and
management of the Improvements.
MASTER PLAN ASSOCIATION. The Wentworth By The Sea master plan association
created pursuant to the Master Plan Documents.
MASTER PLAN DOCUMENTS. The Declaration of the Wentworth By The Sea Master
Association, Covenants, Conditions and Restrictions dated December 16, 1993
recorded in the Rockingham County Registry of Deeds at Book 3026, Page 2596 as
may be amended and all documents, instruments and by laws executed in connection
therewith including, without limitation, the documents establishing the
Condominium and the Homeowner Association.
MATURITY DATE. December 29, 1996. However, provided (i) no event is then
existing under the terms of the Loan which is, or solely with the passage of
time would be, a Default thereunder (notwithstanding that the Lender has not
exercised its rights upon Default), (ii) the Borrower pays the Lender an
extension fee of Fifteen Thousand ($15,000.00) Dollars (which extension fee
shall not be applied to the Loan), (iii) the Borrower provides the Lender with
satisfactory evidence that the Borrower is in compliance with the Loan to Value
ratio provided in Section 12.12, below, and (iv) the Lender receives written
request for an
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extension from the Borrower no earlier than one hundred twenty (120) prior to
the Maturity Date and no later than forty-five (45) days prior to the Maturity
Date; then the Borrower may extend the Maturity Date for the Residences Loan
only, for an additional twelve (12) months until December 29, 1997.
MODEL SPEC HOMES. The homes constructed by the Borrower to market the
Improvements which are not subject to an Approved Sale Agreement.
MULTIEMPLOYER PLAN. Any multiemployer plan within the meaning of Section
3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
NOTES. Collectively the Development Note and the Residences Note.
OBLIGATIONS. All indebtedness, obligations and liabilities of the Borrower
to the Lender existing on the date of this Agreement or arising thereafter,
direct or indirect, joint or several, absolute or contingent, matured or
unmatured, liquidated or unliquidated, secured or unsecured, arising by
contract, operation of law or otherwise, arising or incurred under this
Agreement or any of the other Loan Documents or in respect of any of the
Advances or the Notes or other instruments at any time evidencing any thereof.
OUTSTANDING. With respect to the Advances or the Loan, the aggregate
unpaid principal thereof as of any date of determination.
PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of
ERISA and any successor entity or entities having similar responsibilities.
PERMITTED LIENS. Liens, security interests and other encumbrances,
permitted by Section 13.6.
PERSON. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
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PERSONAL PROPERTY. All materials, furnishings, fixtures, furniture,
machinery, equipment and all items of tangible personal property now or
hereafter owned or acquired by the Borrower, wherever located, and either (i) to
be located on or incorporated into the Land or the Improvements, (ii) used in
connection with the construction of the Improvements or (iii) to be used in
connection with the operation or maintenance of the Land or the Improvements or
both.
PHASES. See definition of Development Rights.
PLANS AND SPECIFICATIONS. The plans and specifications for the
Improvements prepared by the Borrower's Architect and more particularly
identified on EXHIBIT C attached hereto.
PLEDGE AGREEMENT. The Pledge Agreement dated or to be dated on or prior to
the Closing Date pursuant to which the Borrower shall pledge the Account and the
Escrow Account to the Lender.
PROJECT. The Land, Improvements and Personal Property.
PROJECT APPROVALS. All approvals, consents, waivers, orders, agreements,
acknowledgements, authorizations, permits and licenses required under applicable
Requirements or under the terms of any restriction, covenant or easement
affecting the Project, or otherwise necessary or desirable, for the ownership
and acquisition of the Land and the Improvements, the construction and equipping
of the Improvements, and the use, occupancy and operation of the Project
following completion of construction of the Improvements, whether obtained from
a Governmental Authority or any other Person.
PROJECT BUDGET. Collectively, the Development Project Budget and the
Residences Project Budget.
PROJECT COSTS. The sum of all Direct Costs and Indirect Costs that will be
incurred by the Borrower in connection with the construction, equipping and
completion of the Improvements, the marketing of the Improvements, and the
operation and carrying of the Project through the Maturity Date.
REAL ESTATE. All real property at any time owned, leased (as lessee or
sublessee) or operated by the Borrower or any of its general partners.
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RECORD. The grids attached to the Notes, or the continuation of such grid,
or any other similar record, including computer records, maintained by the
Lender with respect to the Loan.
RELEASE. See Section 11.16(c)(iii).
RELEASE PRICE. See Section 10.4.
REQUIREMENTS. Any law, ordinance, code, order, rule or regulation of any
Governmental Authority relating in any way to the acquisition and ownership of
the Project, the construction of the Improvements, or the use, occupancy and
operation of the Project following the completion of construction of the
Improvements, including those relating to subdivision control, zoning, building,
use and occupancy, condominium development and approvals, fire prevention,
health, safety, sanitation, handicapped access, historic preservation and pro-
tection, tidelands, wetlands, flood control, access and earth removal, and all
Environmental Laws.
REQUIRED EQUITY FUNDS. The amount of $2,200,000.00 which shall be
calculated based upon Borrower's expenditures since January 1, 1994 or such
greater amount as the Lender shall determine from time to time pursuant to
Section 12.16 hereof. In addition the Borrower shall be required to pay out of
its own funds at least ten (10%) percent of the Project Costs reflected in the
Residences Project Fund for each Residence.
RESIDENCE. A single family residence constructed by the Borrower on the
Land.
RESIDENCES LOAN ADVANCE. Any disbursement of the proceeds of the
Residences Loan made or to be made by the Lender pursuant to the terms of this
Agreement.
RESIDENCES LOAN AMOUNT. $3,000,000.00 in the aggregate, but not to exceed
ninety (90%) percent of total actual Project Costs for each Residence shown on
the Residences Project Budget.
RESIDENCES LOAN DISBURSEMENT SCHEDULE. The schedule of advances under the
Residences Loan based on stages of completion of each individual residence
annexed hereto as Exhibit "J".
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RESIDENCES NOTE. The Note in the principal face amount of the Residences
Loan Amount, dated or to be dated on or prior to the Closing Date, made by the
Borrower to the order of the Lender, such Note to be in form and substance
satisfactory to the Lender.
RESIDENCES PROJECT BUDGET. The budget for total estimated Project Costs
for the Residences Loan, submitted by the Borrower, approved by the Lender and
the Construction Inspector, and attached hereto as EXHIBIT D2, which includes:
(a) a line item cost breakdown for Direct Costs by jobs and Major Subcontracts;
(b) a line item cost breakdown for Indirect Costs; and (c) a schedule of the
sources of funds to pay Project Costs, indicating the portion of Project Costs
to be funded through the Residences Loan and Required Equity Funds.
RETAINAGE. See Section 2.3.
SALE AGREEMENT. Any executed purchase and sale agreement providing for the
sale of any Unit, Lot or Residence.
SECURITY DEED. The Mortgage and Security Agreement, dated or to be dated
on or prior to the Closing Date, made by the Borrower in favor of the Lender,
pursuant to which the Borrower grants a mortgage lien and security interest in
and to the Project, such Security Deed to be in form and substance satisfactory
to the Lender.
SECURITY DOCUMENTS. The Security Deed, the Assignment of Project
Documents, the Assignment of Leases, the Pledge Agreement, the Financing
Statements and the Guaranty, and any other agreement, document or instrument now
or hereafter securing the Obligations.
STORED MATERIALS. See Section 6.1.
SUBSIDIARY. Any corporation, partnership, association, trust, or other
business entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Interests.
SURVEY. An instrument survey of the Land and the Improvements prepared in
accordance with the Lender's survey require-
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ments, such survey to be satisfactory to the Lender in form and substance.
SURVEYOR CERTIFICATE. With respect to any Survey, a certificate executed
by the surveyor who prepares such Survey dated as of a recent date and
containing such information relating to the Project as the Lender or the Title
Insurance Company may require, such certificate to be satisfactory to the Lender
in form and substance.
TAKING. Any condemnation for public use of, or damage by reason of, the
action of any Governmental Authority, or any transfer by private sale in lieu
thereof, either temporarily or permanently.
TERMINATION DATE. December 29, 1996, as may be extended for Residences
Loan only until December 29, 1997 as provided herein or the date of the
termination of the Lender's obligations to make Advances pursuant to Section
16.2 hereof, whichever date occurs first.
TITLE INSURANCE COMPANY. Commonwealth Land Title Insurance Company, a
corporation, with a usual place of business at 50 Federal Street, Boston,
Massachusetts.
TITLE POLICY. An ALTA standard form title insurance policy issued by the
Title Insurance Company (with such reinsurance or co-insurance as the Lender may
require, any such reinsurance to be with direct access endorsements) in an
amount not less than the Loan insuring the priority of the Security Deed and
that the Borrower holds marketable fee simple title to the Project, subject only
to such exceptions as the Lender may approve and which shall not contain
exceptions for mechanics liens, persons in occupancy or matters which would be
shown by a survey, shall not insure over any matter except to the extent that
any such affirmative insurance is acceptable to the Lender in its sole
discretion, and shall contain a pending disbursements clause or endorsement and
such other endorsements and affirmative insurance as as follows: (a) Pending
disbursements clause, (b) acreage endorsement, (c) non interference endorsement,
(d) contiguous property endorsement, (e) condominium endorsement and (f)
variable rate endorsement.
UNITS. See definition of Development Rights.
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VALUE. The fair market value of the Project as of the date of measurement,
determined by reference, to in Lender's discretion, an Appraisal of the Project
or Lender's own valuation of the Project.
VOTING INTEREST. Stock or similar interests, of any class or classes
(however designated), the holders of which are at the time entitled, as such
holders, (a) to vote for the election of a majority of the directors (or persons
performing similar functions) of the corporation, partnership, association,
trust or other business entity involved, or (b) to control, manage or conduct
the business of the corporation, partnership, association, trust or other
business entity involved.
Section 1.2. RULES OF INTERPRETATION.
(a) A reference to any agreement, budget, document or schedule shall
include such agreement, budget, document or schedule as revised, amended,
modified or supplemented from time to time in accordance with its terms and the
terms of this Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification to
such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meaning
assigned to them by generally accepted accounting principles applied on a
consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not limiting.
(g) The words "approval" and "approved", as the context so
determines, means an approval in writing given to the party seeking approval
after full and fair disclosure to the party giving approval of all material
facts necessary in order to determine whether approval should be granted.
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(h) Reference to a particular "Section" refers to that section of
this Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like
import shall refer to this Agreement as a whole and not to any particular
section or subdivision of this Agreement.
Section 2. AGREEMENT TO MAKE DEVELOPMENT LOAN ADVANCES; LIMITATIONS.
Section 2.1. AGREEMENT TO MAKE ADVANCES. Subject to the terms and
conditions of this Agreement, the Lender agrees to lend to the Borrower and the
Borrower may borrow from time to time between the Closing Date and the
Termination Date upon submission by the Borrower of a Draw Request in accordance
with Section 3.1, such amounts as are requested by the Borrower up to a maximum
aggregate principal amount equal to the Development Loan Amount to pay for
Project Costs actually incurred by the Borrower and reflected in the Development
Project Budget as being funded by the Development Loan. Each Draw Request for
an Development Loan Advance hereunder shall constitute a representation and
warranty by the Borrower that the conditions set forth in Section 14, in the
case of the initial Development Loan Advance, Section 15, in the case of all
other Development Loan Advances, and Section 15.6, in the case of the Advance of
any Retainage withheld pursuant to Section 2.3, have been satisfied on the date
of such Draw Request.
Section 2.2. DEVELOPMENT PROJECT BUDGET. The Development Project Budget
reflects, by category and line items, the purposes and the amounts for which
funds to be advanced by the Lender under this Agreement are to be used. The
Lender shall not be required to disburse for any category or line item more than
the amount specified therefor in the Development Project Budget, unless Lender
approves an amendment thereto which reallocates such costs, which approval shall
not be unreasonably withheld, conditioned or delayed as long as no Event of
Default has occurred which Event of Default either has not been cured with such
cure accepted by Lender or waived by the Lender.
Section 2.3. AMOUNT OF DEVELOPMENT LOAN ADVANCES. (a) In no event shall
the Lender be obligated to advance more than the Development Loan Amount, or, if
less, total Project Costs actually incurred by the Borrower less Required Equity
Funds. In
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no event shall any Development Loan Advance for Direct Costs of constructing the
Improvements exceed an amount equal to (a) the total value of the labor,
materials, fixtures, machinery and equipment completed, approved and
incorporated into the Land or the Improvements prior to the date of the Draw
Request for such Development Loan Advance, less (b) retainage in an amount equal
to ten percent (10%) of such total value ("Retainage") with respect to any Major
Subcontracts or any other subcontracts to the extent that the Borrower is
retaining any amounts under such subcontract, equal to the amount withheld by
the Borrower, less (c) the total amount of any Development Loan Advances
previously made by the Lender for such Direct Costs. Retainage shall be
advanced by the Lender to the Borrower upon satisfaction of the conditions set
forth in Section 15.6. With respect to any other Direct Costs and all Indirect
Costs, in no event shall any Development Loan Advance exceed an amount equal to
the amount of such Direct Costs and Indirect Costs approved by the Lender,
incurred by the Borrower prior to the date of the Draw Request for such
Development Loan Advances, and theretofore paid or to be paid with the proceeds
of such Development Loan Advance, less the total amount of any Development Loan
Advances previously made by the Lender for such Direct Costs and Indirect Costs.
(b) Notwithstanding any other provision of this Agreement, the
aggregate balance of the Development Loan outstanding at any one time shall not
exceed Two Million Five Hundred Thousand Dollars ($2,500,000.00)
(c) The Borrower shall not construct more than two (2) Model Spec
Homes at any one time.
Section 2.4. QUALITY OF WORK. No Development Loan Advance shall be due
unless all work done at the date the Draw Request for such Development Loan
Advance is submitted is done in a good and workmanlike manner and without
defects which would hinder or delay the use of or any closing or sale with
respect to such Improvement, as confirmed by the report of the Construction
Inspector.
Section 2.5. COST OVERRUNS AND SAVINGS. If the Borrower becomes aware of
any change in Project Costs which will increase or decrease a category or line
item of Project Costs reflected on the Development Project Budget (as the
Development Project Budget is revised from time to time and approved by the
Lender), the
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Borrower shall immediately notify the Lender in writing and promptly submit to
the Lender for its approval a revised Development Project Budget, which approval
shall not be unreasonably withheld, conditioned or delayed as long as no Event
of Default has occurred which Event of Default either has not been cured with
such cure accepted by Lender or waived by the Lender. If the revised Development
Project Budget indicates an increase in a category or line item of Project
Costs, no further Development Loan Advances need be made by the Lender unless
and until (a) the revised Development Project Budget so submitted by the
Borrower is approved by the Lender, and (b) the Borrower has deposited with the
Lender any Required Equity Funds or the Lender has approved a reallocation in
the Development Project Budget from a line item in which savings has occurred or
a reallocation of the Contingency Reserve. If the revised Development Project
Budget indicates a decrease in a category or line item of Project Costs, no
reductions in Project Costs will be made or savings reallocated by the Borrower
unless and until (a) the revised Development Project Budget so submitted by the
Borrower is approved by the Lender, and (b) in the case of decreases in a
category or line item of Direct Costs, the Borrower has furnished the Lender and
the Construction Inspector with evidence satisfactory to them that the labor
performed and materials supplied in connection with such category or line item
of Direct Costs have been satisfactorily completed in accordance with the Plans
and Specifications and paid for in full.
Section 2.6. CONTINGENCY RESERVE. The amount allocated as Contingency
Reserve in the Project Budget will only be disbursed upon the prior approval of
the Lender. The disbursement of a portion of Contingency Reserve shall in no
way prejudice the Lender from withholding disbursement of any further portion of
Contingency Reserve.
Section 3. MAKING THE DEVELOPMENT LOAN ADVANCES.
DRAW REQUEST. At such time as the Borrower shall desire to obtain a
Development Loan Advance, the Borrower shall complete, execute and deliver to
the Lender the Borrower's Requisition in the form of EXHIBIT E attached hereto
(hereinafter referred to as "Borrower's Requisition"). Each Borrower's
Requisition shall be accompanied by:
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(a) If the Borrower's Requisition includes payments for Direct Costs, it
shall be accompanied by a completed and itemized Direct Cost Statement in the
form of Schedule I of EXHIBIT E attached hereto, executed by the Borrower, to-
gether with invoices for all items of Direct Cost covered thereby including
copies of requisitions and invoices from subcontractors and materialmen
supporting all items of cost covered by such application;
(b) A summary in the form of EXHIBIT F summarizing the terms of the
Borrower's Requisition executed by the Manager and including a list of all
supporting materials for the subject Borrower's Requisition;
(c) A certificate of the building inspector, if available;
(d) If the Borrower's Requisition includes payments for Indirect Costs, it
shall be accompanied by a completed and itemized Indirect Cost Statement in the
form of Schedule II of EXHIBIT E attached hereto, executed by the Borrower,
together with invoices for all items of Indirect Costs covered thereby;
(e) written lien waivers from the such laborers, subcontractors and
materialmen for work done and materials supplied by them which were paid for
pursuant to the next preceding Draw Request;
(f) a written request of the Borrower for any necessary changes in the
Plans and Specifications, the Development Project Budget, the Disbursement
Schedule or the Construction Schedule determined to be significant by the
Construction Inspector;
(g) as requested by the Construction Inspector, copies of all change
orders and construction change directives, accompanied by a change order summary
prepared by and executed by the Borrower, copies of all subcontracts, and, to
the extent requested by the Lender, of all inspection or test reports and other
documents relating to the construction of the Improvements, not previously
delivered to the Lender;
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(h) If the Borrower's Requisition includes payment for Stored Materials,
it shall be accompanied by evidence as to the satisfaction of the requirements
set forth in Section 6.1;
(i) A certificate from the Construction Inspector in form and substance
reasonably acceptable to the Bank;
(j) such other information, documentation and certification as the Lender
shall reasonably request.
Section 4. AGREEMENT TO RESIDENCES LOAN ADVANCES; LIMITATIONS.
Section 4.1. AGREEMENT TO MAKE RESIDENCES LOAN ADVANCES. (a) Subject to
the terms and conditions of this Agreement, the Lender agrees to lend to the
Borrower and the Borrower may borrow, repay and reborrow from time to time
between the Closing Date and the Termination Date upon submission by the
Borrower of a Draw Request in accordance with Section 5.1, such amounts as are
requested by the Borrower up to a maximum aggregate principal amount equal to
the Residences Loan Amount to pay for ninety (90%) percent of the Project Costs
for each Residence actually incurred by the Borrower and reflected in the
Residences Project Budget as being funded by the Residences Loan. Each Draw
Request for a Residences Loan Advance hereunder shall constitute a
representation and warranty by the Borrower that the conditions set forth in
Section 14, in the case of the initial Residences Loan Advance, Section 15, in
the case of all other Residences Loan Advances, and Section 15.6, in the case of
the Advance of any Retainage withheld pursuant to Section 4.3, have been
satisfied on the date of such Draw Request.
(b) Upon completion of any Extras the Lender shall release amounts
deposited in the Extras Account for such Extras to reimburse for the costs of
construction of such Extras.
Section 4.2. RESIDENCES PROJECT BUDGET. The Residences Project Budget
reflects, by category and line items, the purposes and the amounts for which
funds to be advanced by the Lender under this Agreement are to be used. The
Lender shall not be required to disburse for any category or line item more than
the amount specified therefor in the Residences Project Budget, unless Lender
approves an amendment thereto which reallocates such costs, which approval shall
not be unreasonably withheld, conditioned or delayed as long as no Event of
Default has
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occurred which Event of Default either has not been cured with such cure
accepted by Lender or waived by the Lender.
Section 4.3. AMOUNT OF RESIDENCES LOAN ADVANCES. (a) In no event shall
the Lender be obligated to advance more than the Residences Loan Amount, or, if
less, total Project Costs actually incurred by the Borrower less (i) the
proceeds of the Account toward construction of a replacement Model Spec Home and
(ii) Required Equity Funds. In no event shall any Residences Loan Advance for
Direct Costs of constructing the Improvements exceed an amount equal to (a) the
total value of the labor, materials, fixtures, machinery and equipment
completed, approved and incorporated into the Land or the Improvements prior to
the date of the Draw Request for such Residences Loan Advance, less (b)
Retainage, less (c) the total amount of any Residences Loan Advances previously
made by the Lender for such Direct Costs. Retainage shall be advanced by the
Lender to the Borrower upon satisfaction of the conditions set forth in Section
15.6. With respect to any other Direct Costs and all Indirect Costs, in no
event shall any Residences Loan Advance exceed an amount equal to the amount of
such Direct Costs and Indirect Costs approved by the Lender, incurred by the
Borrower prior to the date of the Draw Request for such Residences Loan
Advances, and theretofore paid or to be paid with the proceeds of such
Residences Loan Advance, less the total amount of any Residences Loan Advances
previously made by the Lender for such Direct Costs and Indirect Costs.
(b) The aggregate cost of construction for each Residence shall not
exceed $400,000.00.
(c) On or before requesting an Advance under the Residence Loan for a
particular Residence the Borrower shall provide the Lender with satisfactory
evidence that the Borrower has already funded the Required Equity Funds for such
Residence.
(d) In no event shall the Borrower submit a Draw Request for any
Extras.
Section 4.4. QUALITY OF WORK. No Residences Loan Advance shall be due
unless all work done at the date the Draw Request for such Residences Loan
Advance is submitted is done in a good and workmanlike manner and without
defects which would hinder or delay the use of or any closing or sale with
respect to such
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Improvement, as confirmed by the report of the Construction Inspector.
Section 4.5. COST OVERRUNS AND SAVINGS. If the Borrower becomes aware of
any change in Project Costs which will increase by Ten Thousand ($10,000.00)
Dollars or more a job or category of Project Costs reflected on the Residences
Project Budget (as the Residences Project Budget is revised from time to time
and approved by the Lender), the Borrower shall immediately notify the Lender in
writing and promptly submit to the Lender for its review a revised Residences
Project Budget and, to the extent required under an Approved Sale Agreement, a
consent to such change by the buyer under such Approved Sale Agreement. If the
revised Residences Project Budget indicates an increase in a job or category of
Project Costs which the Lender determines that the remaining undisbursed portion
of the Loan allocated for such Residence is or will be insufficient to fully
complete the Residence, no further Residences Loan Advances need be made by the
Lender unless and until (a) the revised Residences Project Budget so submitted
by the Borrower is approved by the Lender, and (b) the Borrower has deposited
with the Lender any Required Equity Funds or the Lender has approved a
reallocation in the Residences Project Budget from a line item in which savings
has occurred or a reallocation of Contingency Reserve. If the revised
Residences Project Budget indicates a decrease in a category or line item of
Project Costs, no reductions in Project Costs will be made or savings
reallocated by the Borrower unless and until (a) the revised Residences Project
Budget so submitted by the Borrower is approved by the Lender, and (b) in the
case of decreases in a category or line item of Direct Costs, the Borrower has
furnished the Lender and the Construction Inspector with evidence satisfactory
to them that the labor performed and materials supplied in connection with such
category or line item of Direct Costs have been satisfactorily completed in
accordance with the Plans and Specifications and paid for in full.
Section 4.6. CONTINGENCY RESERVE. The amount allocated as Contingency
Reserve in the Residences Project Budget will only be disbursed upon the prior
approval of the Lender. The disbursement of a portion of Contingency Reserve
shall in no way prejudice the Lender from withholding disbursement of any
further portion of Contingency Reserve.
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Section 5. MAKING THE RESIDENCES LOAN ADVANCES.
DRAW REQUEST. At such time as the Borrower shall desire to obtain a
Residences Loan Advance, the Borrower shall complete, execute and deliver to
the Lender the Borrower's Requisition in the form of EXHIBIT I attached hereto
(hereinafter referred to as "Borrower's Requisition"). Each Borrower's
Requisition for a Residences Loan Advance shall be accompanied by:
(a) With respect to the initial Draw Request for a Residences Loan
Advance for the construction of each individual Residence, the Borrower
shall provide the Lender with an Approved Sales Agreement and satisfactory
evidence that the Borrower has expended the Required Equity Funds for such
Residence;
(b) A summary in the form of EXHIBIT F summarizing the terms of the
Borrower's Requisition executed by the Manager and including a list of all
supporting materials for the subject Borrower's Requisition;
(c) A certificate of the building inspector, if available;
(d) With respect to the initial Draw Request for a Residences Loan
Advance for each individual Residence, the Borrower shall provide the
Lender with detailed plans and specifications for the building, a line-item
cost breakdown for all costs and a corresponding time line, with funds to
generally be advanced in accordance with the Residences Loan Disbursement
Schedule annexed hereto as Exhibit J;
(e) If the Borrower's Requisition includes payments for Direct Costs,
it shall be accompanied by a completed and itemized Direct Cost Statement
in the form of Schedule I of EXHIBIT E attached hereto, executed by the
Borrower, together with invoices for all items of Direct Cost covered
thereby including copies of requisitions and invoices from subcontractors
and materialmen supporting all items of cost covered by such application;
(f) If the Borrower's Requisition includes payments for Indirect
Costs, it shall be accompanied by a completed and itemized Indirect Cost
Statement in the form of Schedule
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II of EXHIBIT E attached hereto, executed by the Borrower, together with
invoices for all items of Indirect Costs covered thereby;
(g) written lien waivers from such laborers, subcontractors and
materialmen for work done and materials supplied by them which were paid
for pursuant to the next preceding Draw Request;
(h) a written request of the Borrower for any necessary changes in
the Plans and Specifications, the Residences Project Budget, the
Disbursement Schedule or the Construction Schedule determined to be
significant by the Construction Inspector;
(i) as requested by the Construction Inspector, copies of all change
orders and construction change directives, accompanied by a change order
summary prepared by and executed by the Borrower, copies of all
subcontracts, and, to the extent requested by the Lender, of all inspection
or test reports and other documents relating to the construction of the
Improvements, not previously delivered to the Lender;
(j) If the Borrower's Requisition includes payment for Stored
Materials, it shall be accompanied by evidence as to the satisfaction of
the requirements set forth in Section 6.1;
(k) such other information, documentation and certification as the
Lender shall reasonably request.
Section 6. GENERAL CONDITIONS OF ALL ADVANCES
Section 6.1. STORED MATERIALS. The Lender shall not be required to
disburse any funds for any materials, furnishings, fixtures, machinery or
equipment not yet incorporated into the Land or Improvements ("Stored
Materials"). Any disbursement for the cost of Stored Materials shall be subject
to retainage in an amount equal to ten percent (10%) and shall be contingent
upon the Lender receiving satisfactory evidence that:
(a) the Stored Materials are fully fabricated components in a form
ready for incorporation into the
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Land or the Improvements and shall be so incorporated within a period of 15
days;
(b) the Stored Materials are stored at the Land, in a bonded
warehouse, at a site controlled by the Borrower, or at such other site as
the Lender shall approve, and are protected against theft and damage;
(c) the Stored Materials have been reviewed and approved by the
Construction Inspector;
(d) the Stored Materials have been paid for in full or will be paid
for with the funds to be disbursed and all lien rights and claims of the
supplier have been released or will be released upon payment with disbursed
funds and title therein shall be, or will be upon payment with disbursed
funds, in the Borrower;
(e) the Lender has or will have upon payment with disbursed funds a
perfected, first priority security interest in the Stored Materials with
appropriate agreements as to the Lender's rights therein if stored at any
location other than at the Land;
(f) the Stored Materials are insured for an amount equal to their
replacement cost; and
(g) the Stored Materials arise solely out of costs to be incurred in
connection with Approved Sales Agreements.
Section 6.2. NOTICE AND FREQUENCY OF ADVANCES. Each Draw Request shall be
submitted to the Lender at least seven (7) Business Days prior to the date of
the requested Loan Advance, and no more frequently than once each month.
Section 6.3. DEPOSIT OF FUNDS ADVANCED. The Borrower shall open and
maintain a non-interest bearing loan checking account with the Lender (the "Loan
Checking Account"). Except as otherwise provided for in Sections 6.4 and 6.5
hereof, the Lender shall deposit the proceeds of each Advance into the Loan
Checking Account.
Section 6.4. ADVANCES TO SUBCONTRACTORS / SUPPLIERS. At its option, the
Lender may make any or all Advances for Direct Costs incurred under a
subcontract directly to a subcontractor or
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supplier for deposit in an appropriately designated special bank account, and
the execution of this Agreement by the Borrower shall, and hereby does, con-
stitute an irrevocable authorization so to advance the proceeds of the Loan. No
further authorization from the Borrower shall be necessary to warrant such
direct advances to the Construction Manager and all such advances shall satisfy
PRO TANTO the obligations of the Lender hereunder and shall be secured by the
Security Deed and the other Security Documents as fully as if made directly to
the Borrower.
Section 6.5. ADVANCES TO TITLE INSURANCE COMPANY OR TO OTHERS. At its
option, the Lender may make any or all Advances through the Title Insurance
Company and any portion of the Loan so disbursed by the Lender shall be deemed
disbursed as of the date on which the Lender makes such disbursement. At its
option, after the occurrence of an Event of Default which is then continuing,
the Lender may make Advances of portions of the proceeds of the Loan to any
Person to whom the Lender in good faith determines payment is due and any
portion of the Loan so disbursed by the Lender shall be deemed disbursed as of
the date on which the Lender makes such disbursement. The execution of this
Agreement by the Borrower shall, and hereby does, constitute an irrevocable
authorization so to advance the proceeds of the Loan. No further authorization
from the Borrower shall be necessary to warrant such direct Advances and all
such Advances shall satisfy PRO TANTO the obligations of the Lender hereunder
and shall be secured by the Security Deed and the other Security Documents as
fully as if made directly to the Borrower.
Section 6.6. ADVANCES DO NOT CONSTITUTE A WAIVER. No Advance made by the
Lender shall constitute a waiver of any of the conditions to the Lender's
obligation to make further Advances nor, in the event the Borrower fails to
satisfy any such condition, shall any such Advance have the effect of precluding
the Lender from thereafter declaring such failure to satisfy a condition to be
an Event of Default.
Section 7. THE NOTES; INTEREST; MATURITY AND PREPAYMENT.
Section 7.1. THE NOTES.
The obligation of the Borrower to pay the Loan or, if less, the aggregate
unpaid principal amount of all Advances made by the Lender under the Loans plus
accrued interest thereon, shall be
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evidenced by the Notes. In the event that either of the Notes is lost,
destroyed or mutilated at any time prior to payment in full of the indebtedness
evidenced thereby, the Borrower shall execute a new note substantially in the
form of the lost Note. The Notes shall not be necessary to establish the
indebtedness of the Borrower to the Lender on account of Loan made under this
Agreement.
Section 7.2. THE RECORD. (a) The Borrower irrevocably authorizes the
Lender to make or cause to be made, at or about the time of the Drawdown Date of
any Advance or at the time of receipt of any payment of the principal of the
Notes, an appropriate notation on the Lender's Record reflecting the making of
such Advance or (as the case may be) the receipt of such payment. The
outstanding amount of the Loan set forth on the Lender's Record shall be prima
facie evidence of the principal amount thereof owing and unpaid to the Lender,
but the failure to record, or any error in so recording, any such amount on the
Lender's Record shall not limit or otherwise affect the obligations of the
Borrower hereunder or under the Notes to make payments of principal or interest
on the Notes when due.
(b) The making of loans, advances, and credits by the Lender in
excess of the Residences Loan Amount is for the benefit of the Borrower
hereunder and made at the Lender's sole discretion; such loans shall constitute
an Advance and shall be repayable with interest as provided in the Residences
Note. The making of any such loans, credits and advances in excess of the
Residences Loan Amount on any one occasion shall not obligate the Lender to make
any such loans, credits, or advances on any other occasion nor to permit such
loans, credits, or advances to remain outstanding.
Section 7.3. INTEREST ON ADVANCES. Each Advance shall bear interest for
the period commencing on the Drawdown Date of such Advance until paid in full at
the rate or rates set forth in the Notes. The Borrower promises to pay interest
on each Advance in the manner and at the time set forth in the Notes.
Section 7.4. MATURITY. The Borrower promises to pay to the Lender on the
Maturity Date, and there shall become absolutely due and payable on the Maturity
Date, all of the Loan Advances outstanding on such date, together with any and
all accrued and unpaid interest thereon.
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Section 7.5. PREPAYMENT. The Borrower shall have the right, at its
election, to prepay the outstanding amount of the Advances prior to the Maturity
Date, as a whole or in part, subject to the terms and conditions set forth in
the Notes. No amount prepaid by the Borrower under the Development Loan may be
reborrowed.
Section 7.6. MANDATORY PRINCIPAL REDUCTIONS. The outstanding balance due
under the Development Loan shall be reduced by the following amounts by the
dates specified below:
(i) June 30, 1995 - $600,000.00
(ii) September 30, 1995 - $1,000,000.00 (inclusive of amounts paid
under (i) above)
(iii) June 30, 1996 - $1,800,000.00 (inclusive of amounts paid
under (i) and (ii) above)
Section 8. COMMITMENT FEE; PAYMENTS AND COMPUTATIONS; CAPITAL ADEQUACY.
Section 8.1. COMMITMENT FEE. The Borrower agrees to pay to the Lender on
the Closing Date a commitment fee in the amount of $63,000.00, $31,500.00 of
which has been previously paid to Lender.
Section 8.2. FUNDS FOR PAYMENTS.
(a) All payments of principal, interest, fees and any other amounts
due under the Notes or under any of the other Loan Document shall be made to the
Lender at its head office at 100 Federal Street, Boston, Massachusetts 02110, or
at such other location in the Boston, Massachusetts area that the Lender may
from time to time designate, in each case not later than 3:00 p.m. (Boston time)
on the date when due in immediately available funds in lawful money of the
United States.
(b) All payments by the Borrower under the Notes and under any of the
other Loan Documents shall be made without setoff or counterclaim and free and
clear of and without deduction for any taxes, levies, imposts, duties, charges,
fees,
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deductions, withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein unless the Borrower is
compelled by law to make such deduction or withholding. If any such obligation
to deduct or withhold is imposed upon the Borrower with respect to any amount
payable by it under the Notes or under any of the other Loan Documents, the
Borrower will pay to the Lender, on the date on which such amount is due and
payable under the Notes or under such other Loan Document, such additional
amount as shall be necessary to enable the Lender to receive the same amount
which the Lender would have received on such due date had no such obligation
been imposed upon the Borrower. The Borrower will deliver promptly to the
Lender certificates or other valid vouchers for all taxes or other charges
deducted from or paid with respect to payments made by the Borrower under the
Notes or under such other Loan Document.
Section 8.3. COMPUTATIONS. All computations of interest on the Loan shall
be based on a 360-day year and paid for the actual number of days elapsed.
Except as otherwise provided in the Notes, whenever a payment thereunder or
under any of the other Loan Documents becomes due on a day that is not a
Business Day, the due date for such payment shall be extended to the next
succeeding Business Day, and interest shall accrue during such extension. The
outstanding amount of the Loan as reflected on the Record from time to time
shall be considered correct and binding on the Borrower unless within ten (10)
Business Days after receipt of any notice by the Borrower of such outstanding
amount, the Borrower shall notify the Lender to the contrary.
Section 8.4. INTEREST ON OVERDUE AMOUNTS/LATE CHARGES. Overdue principal
and (to the extent permitted by applicable law) interest on the Loan and all
other overdue amounts payable under the Notes or under any or the other Loan
Documents shall bear interest payable on demand at the Default Rate until such
amount shall be paid in full (whether before or after judgment). In addition,
the Borrower shall pay to the Lender a late charge equal to three (3%) percent
of any amount of principal and/or interest which is not paid within ten (10)
days of the date when due.
Section 8.5. CAPITAL ADEQUACY. If the Lender shall have determined that
the adoption of any applicable law, rule, regulation,
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guideline, directive or request (whether or not having force of law) regarding
capital requirements for banks or bank holding companies, or any change therein
or in the interpretation or administration thereof of any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender with any of the foregoing
imposes or increases a requirement by the Lender to allocate capital resources
to the Lender's commitment to make Advances under this Agreement which has or
would have the effect of reducing the return on the Lender's capital to a level
below that which the Lender could have achieved (taking into consideration the
Lender's then existing policies with respect to capital adequacy and assuming
full utilization of the Lender's capital) but for such adoption, change or
compliance by any amount deemed by the Lender to be material: (a) the Lender
shall promptly after its determination of such occurrence give notice thereof to
the Borrower; and (b) the Borrower shall pay to the Lender as an additional fee
from time to time within ten (10) days after written demand such amount as the
Lender certifies to be the amount that will compensate it for such reduction. A
certificate of the Lender claiming compensation under this Section 8.5 shall be
presumed conclusive in the absence of manifest error. Such certificate shall
set forth the nature of the occurrence giving rise to such compensation, the
additional amount or amounts to be paid to it hereunder and the method by which
such amounts were determined. In determining such amounts, the Lender may use
any reasonable averaging and attribution methods.
Section 9. COLLATERAL SECURITY AND GUARANTY. The Obligations shall be
secured by a perfected first priority mortgage lien and security in the
Collateral, whether now owned or hereafter acquired, pursuant to the terms of
the Security Documents to which the Borrower is a party. The Obligations shall
also be guaranteed pursuant to the terms of the Guaranty.
Section 10. CERTAIN RIGHTS OF LENDER.
Section 10.1. RIGHT TO RETAIN THE CONSTRUCTION INSPECTOR. The Lender
shall have the right to retain, at the Borrower's cost and expense, the
Construction Inspector to perform the following services on behalf of the
Lender:
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(a) to review and advise the Lender whether in the opinion of the
Construction Inspector, the Project Budget accurately reflects all Project
Costs;
(b) to review and advise the Lender whether, in the opinion of the
Construction Inspector, the Plans and Specifications are satisfactory
for the intended purposes thereof;
(c) to make periodic inspections (approximately at the date of each
Draw Request) for the purpose of assuring that construction of the
Improvements to date is in accordance with the Plans and Specifications
and to approve the Borrower's then current Draw Request as being
consistent with the Project Budget and the Borrower's obligations under
this Agreement, and to advise the Lender of the anticipated cost of and
time for completion of construction of the Improvements and the adequacy
of the undisbursed portion of the Loan to complete the Project;
(d) to review and advise the Lender on any proposed change orders or
construction change directives;
(e) to review the subcontracts, for the purpose of providing the
Lender with an opinion as to the cost of construction to be incurred to
complete the Project, and also for the purpose of assuring that all such
subcontracts deal adequately with and are for work required by the Plans
and Specifications to be performed;
(f) to review environmental site assessment reports (to the extent
that they impact the construction of the Improvements), permits and
approvals, flood plain and wetland requirements; and
(g) any and all other information necessary for the Construction
Inspector to advise the Lender as to compliance of the Project with the
Requirements and Loan Documents.
The fees of the Construction Inspector shall be paid by the Borrower forthwith
within the earlier of (i) ten (10) days after billing therefor or (ii) the next
succeeding Borrower's Requisition and expenses incurred by the Lender on account
thereof shall be reimbursed to the Lender forthwith upon request
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therefor, but neither the Lender nor the Construction Inspector shall have any
liability to the Borrower on account of (i) the services performed by the
Construction Inspector, (ii) any neglect or failure on the part of the Con-
struction Inspector to properly perform its services, or (iii) any approval by
the Construction Inspector of construction of the Improvements. Neither the
Lender nor the Construction Inspector assumes any obligation to the Borrower or
any other Person concerning the quality of construction of the Improvements or
the absence therefrom of defects.
Section 10.2. RIGHT TO OBTAIN APPRAISALS. The Lender shall have the right
to obtain from time to time, at the Borrower's cost and expense, updated
Appraisals of the Project, PROVIDED that so long as no Default or Event of
Default shall have occurred and be continuing, the Borrower shall only be
obligated to pay for the costs and expenses associated with one such Appraisal
during any twelve (12) month period. The costs and expenses incurred by the
Lender in obtaining such Appraisals shall be paid by the Borrower forthwith
within ten (10) days after billing or request by the Lender for reimbursement
therefor. The Borrower shall cooperate fully with the Lender in obtaining such
Appraisals.
Section 10.3. CHARGES AGAINST LOAN CHECKING ACCOUNT. The Lender shall
have the right, and the Borrower hereby irrevocably authorizes the Lender, to
charge any account of the Borrower with the Lender, including the Loan Checking
Account, without the further approval of the Borrower, for (i) any installment
of interest or principal due under the Notes, (ii) any reasonable costs or
expenses incurred by the Lender which are to be paid or reimbursed by the
Borrower under the terms of this Agreement or any of the other Loan Documents
(including, without limiting the generality of the foregoing, all reasonable
Construction Inspector, reasonable Appraisal and reasonable attorney's fees) or
(iii) any other sums due to the Lender under the Notes, this Agreement or any of
the other Loan Documents, all to the extent that the same are not paid by the
respective due dates thereof. The Borrower shall at all times maintain and keep
collected balances in the Loan Checking Account sufficient to satisfy the
foregoing obligations on the respective due dates thereof.
Section 10.4. PARTIAL RELEASE. Upon the request of the Borrower, the
Lender shall release the Lots, Residences and Model Spec Homes upon payment to
the Lender of an amount equal to the
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greater of (a) ninety (90%) percent of the difference between (i) the gross
sales price and (ii) the aggregate of (A) the actual cost of any extras prepaid
by a buyer under an Approved Sale Agreement which is reflected in the gross
sales price and (B) any landscape credit provided under an Approved Sale
Agreement and not previously the subject of a Draw Request but in any event not
to exceed $35,000.00 for interior lots or $45,000 for waterview lots, or (b) the
minimum release price annexed hereto as SCHEDULE 10.4, provided, however, such
agreement shall be conditioned upon (x) said sale being in accordance with an
Approved Sale Agreement and (y) there existing at the time of such request no
event which is or solely with the passage of time, or giving of notice, (or
both) would be a Default under Sections 16.1(a), (b), (c), (r) or (s) hereunder.
Notwithstanding anything to the contrary contained herein, provided no event has
occurred which is or solely with the passage of time, or giving of notice,(or
both) would be a Default: (i) the proceeds from the sale of either of the two
Model Spec Homes will be deposited into the Account and will be redisbursed for
the completion of a replacement spec home in accordance with the terms hereof or
used to prepay the Loan; (ii) the proceeds from the sale of any or all of the
Condominium or the existing rental properties shall be applied first to the
outstanding balance under the Development Loan and then to the outstanding
balance under the Residences Loan; and (iii) the proceeds from the sale of any
or all of the Homeowners Association shall be applied first to the outstanding
balance under the Residences Loan and then to the outstanding balance under the
Development Loan.
Section 11. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Lender as follows:
Section 11.1. ORGANIZATION; AUTHORITY, ETC.
(a) ORGANIZATION; GOOD STANDING. The Borrower is a New Hampshire
general partnership duly organized pursuant to an agreement of General
Partnership dated June 30, 1993 and is validly existing and in good standing
under the laws of the State of New Hampshire. The Guarantor is a corporation
duly organized pursuant to a Certificate of Incorporation and is validly
existing and in good standing under the laws of the State of Delaware. Each of
the general partners of the Borrower is a corporation duly organized pursuant to
Certificates of Incorporation dated November 5, 1987 and July 10, 1992 and is
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validly existing and in good standing under the laws of the State of Delaware.
Each of the Borrower and its general partners and the Guarantor (i) has all
requisite power to own its property and conduct its business as now conducted
and as presently contemplated, and (ii) is in good standing as a foreign entity
and is duly authorized to do business in the jurisdiction where the Land is
located and in each other jurisdiction where such qualification is necessary
except where a failure to be so qualified in such other jurisdiction would not
have a materially adverse effect on its business, assets or financial condition.
(b) AUTHORIZATION. The execution, delivery and performance of this
Agreement and the other Loan Documents to which the Borrower or any of its
general partners or the Guarantor is or is to become a party and the transaction
contemplated hereby and thereby (i) are within the authority of such Person,
(ii) have been duly authorized by all necessary proceedings on the part of such
Person, (iii) do not conflict with or result in any breach or contravention of
any provision of law, statute, rule or regulation to which such Person is
subject or any judgment, order, writ, injunction, license or permit applicable
to such Person and (iv) do not conflict with any provision of the partnership
agreement, Certificate of Incorporation or By-Laws of, or any agreement or other
instrument binding upon, such Person, and (v) do not require the approval or
consent of, or filing with, any governmental agency or authority other than
those already obtained and the filing of the Security Deed, the Assignment of
Leases and the Financing Statements in the appropriate public records with
respect thereto.
(c) ENFORCEABILITY. The execution and delivery of this Agreement and
the other Loan Documents to which the Borrower or any of its general partners or
the Guarantor is or is to become a party will result in valid and legally
binding obligations of such Person enforceable against it in accordance with the
respective terms and provisions hereof and thereof, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors' rights and
except to the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
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Section 11.2. TITLE TO PROJECT AND OTHER PROPERTIES.
(a) Except for the Permitted Liens, the Borrower holds good clear
record and marketable fee simple absolute title to the Land and the
Improvements, and owns the Personal Property, subject to no rights of others,
including any mortgages, leases, conditional sale agreements, title retention
agreements, liens or other encumbrances.
(b) The Borrower own all of the assets reflected in the balance sheet
of the Borrower as at the Balance Sheet Date or acquired since that date (except
property and assets sold or otherwise disposed of in the ordinary course of
business since that date), subject to no rights of others, including any
mortgages, leases, conditional sales agreements, title retention agreements,
liens or other encumbrances except Permitted Liens.
Section 11.3. FINANCIAL STATEMENTS. There has been furnished to the
Lender: (i) a balance sheet and statement of income of the Borrower prepared by
the controller of the Borrower, and (ii) the balance sheet of the Guarantor as
at the Balance Sheet Date, a statement of income for the fiscal year then ended,
certified by Deloitte and Touche and projected cash flow statements for 1994,
1995 and 1996 as certified by the chief financial officer of the Guarantor.
Such balance sheet, statement of income and cash flow statements have been
prepared in accordance with generally accepted accounting principles and fairly
present the financial condition of the Borrower and the Guarantor as at the
close of business on the date thereof and the results of operations for the
fiscal year then ended. As of the date of this Agreement, there are no
liabilities or contingent liabilities of the Borrower, the Guarantor or any of
its Subsidiaries known to the officers of the Borrower, the Guarantor or any of
its Subsidiaries which are not disclosed in said balance sheet and the related
notes thereto other than the Obligations.
Section 11.4. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date,
there has occurred no material adverse change in the financial condition or
business of the Borrower, the Guarantor or its Subsidiaries as shown on or
reflected in the consolidated balance sheet of the Borrower and the Guarantor as
at the Balance Sheet Date, or the consolidated statement of income for the
fiscal year then ended, other than changes in the ordinary course of business
that have not had any material adverse effect either
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individually or in the aggregate on the business or financial condition of the
Borrower, the Guarantor or any of its Subsidiaries. Since the Balance Sheet
Date, the Borrower and the Guarantor have not made any Distributions.
Section 11.5. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the Borrower
and its general partners possesses all franchises, patents, copyrights,
trademarks, trade names, licenses and permits, and rights in respect of the
foregoing, adequate for the conduct of its business substantially as now
conducted without known conflict with any rights of others.
Section 11.6. LITIGATION. Except for the Abex Tax litigation and
litigation disclosed on SCHEDULE 11.6 attached hereto and incorporated by
reference herein, and litigation which is not likely to result in an adverse
judgment against the Guarantor in excess of $500,000.00, there are no actions,
suits, proceedings or investigations of any kind pending or threatened against
the Borrower or any of its general partners or the Guarantor before any court,
tribunal or administrative agency or board that, if adversely determined, might,
either in any case or in the aggregate, materially adversely affect the
properties, assets, financial condition or business of such Person or materially
impair the right of such Person to carry on business substantially as now
conducted by it, or result in any liability not adequately covered by insurance,
or for which adequate reserves are not maintained on the balance sheet of such
Person, or which question the validity of this Agreement or any of the other
Loan Documents, any action taken or to be taken pursuant hereto or thereto, or
any lien or security interest created or intended to be created pursuant hereto
or thereto, or which will materially adversely affect the ability of the
Borrower or the Guarantor to construct, use and occupy the Improvements or to
pay and perform the Obligations in the manner contemplated by this Agreement and
the other Loan Documents.
Section 11.7. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Borrower
nor any of its general partners is subject to any charter, corporate or other
legal restriction, or any judgment, decree, order, rule or regulation that has
or is expected in the future to have a materially adverse effect on the
business, assets or financial condition of the Borrower or any of its general
partners. Neither the Borrower nor any of its general partners is a party to
any contract or agreement that has or is
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expected, in the judgment of the Borrower's officers, to have any materially
adverse effect on the business of the Borrower or any of its general partners.
Section 11.8. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Neither the
Borrower nor any of its general partners is in violation of any provision of its
organizational documents, by-laws, or any agreement or instrument to which it
may be subject or by which it or any of its properties may be bound or any
decree, order, judgment, statute, license, rule or regulation, in any of the
foregoing cases in a manner that could result in the imposition of penalties or
materially and adversely affect the financial condition, properties or business
of the Borrower or any of its general partners.
Section 11.9. TAX STATUS. The Borrower and its general partners (a) have
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which any of them is subject,
(b) have paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and by appropriate proceedings, and (c) have set
aside on their books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the period to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Borrower know of no basis for any such claim.
Section 11.10. NO EVENT OF DEFAULT. No Default or Event of Default has
occurred.
Section 11.11. INVESTMENT COMPANY ACT. Neither the Borrower nor any of
its general partners is an "investment company", or an "affiliated company" or a
"principal underwriter" of an "investment company", as such terms are defined in
the Investment Company Act of 1940.
Section 11.12. ABSENCE OF FINANCING STATEMENTS, ETC. There is no
financing statement, security agreement, chattel mortgage, real estate mortgage
or other document filed or recorded with any filing records, registry, or other
public office, that purports to cover, affect or give notice of any present or
possible future
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lien on, or security interest in, (a) any Collateral or (b) any other assets or
property of the Borrower [or any of its Subsidiaries] or any rights relating
thereto, except with respect to Permitted Liens.
Section 11.13. SETOFF, ETC. The Collateral and the Lender's rights with
respect to the Collateral are not subject to any setoff, claims, withholdings or
other defenses. The Borrower is the owner of the Collateral free from any lien,
security interest, encumbrance and any other claim or demand.
Section 11.14. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE
9.14 hereto, none of the officers, trustees, directors, partners or employees of
the Borrower or any of its general partners is presently a party to any
transaction with the Borrower or any of its general partners (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, trustee, director, partner or such
employee or, to the knowledge of the Borrower, any corporation, partnership,
trust or other entity in which any officer, trustee, director, partner, or any
such employee has a substantial interest or is an officer, director, trustee or
partner.
Section 11.15. EMPLOYEE BENEFIT PLANS; MULTIEMPLOYER PLANS; GUARANTEED
PENSION PLANS. Except as disclosed in the Guarantor's financial statements
delivered to Lender, neither the Borrower nor any ERISA Affiliate maintains or
contributes to any Employee Benefit Plan, Multiemployer Plan or Guaranteed
Pension Plan.
Section 11.16. ENVIRONMENTAL COMPLIANCE. Except as disclosed to the
Lender in the environmental site assessment report furnished to the Lender by
the Borrower in connection with the Loan, the Borrower has taken all necessary
steps to investigate the past and present condition and usage of the Real Estate
and the operations conducted thereon and, based upon such diligent
investigation, makes the following representations and warranties.
(a) To the best of Borrower's knowledge, none of the Borrower, its
general partners or any operator of the Real Estate, or any operations thereon,
is in violation, or alleged
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violation, of any judgment, decree, order, law, license, rule or regulation per-
taining to environmental matters, including without limitation, those arising
under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as amended
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"),
the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act, or any state or local statute, regulation, ordinance, order or
decree relating to health, safety or the environment (hereinafter "Environmental
Laws"), which violation involves the Land or would have a material adverse
effect on the environment or the value of the Collateral or financial condition
of the Borrower or any of its general partners.
(b) Neither the Borrower nor any of its general partners has received
notice from any third party including, without limitation any federal, state or
local governmental authority, (i) that it has been identified by the United
States Environmental Protection Agency ("EPA") as a potentially responsible
party under CERCLA with respect to a site listed on the National Priorities
List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any hazardous waste, as
defined by 42 U.S.C. Section 9601(5), any hazardous substances as defined by 42
U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42 U.S.C.
Section 9601(33) or any toxic substances, oil or hazardous materials or other
chemicals or substances regulated by any Environmental Laws ("Hazardous
Materials") which it has generated, transported or disposed of have been found
at any site at which a federal, state or local agency or other third party has
conducted or has ordered that the Borrower or any of its general partners
conduct a remedial investigation, removal or other response action pursuant to
any Environmental Laws; or (iii) that it is or shall be a named party to any
claim, action, cause of action, complaint, or legal or administrative proceeding
(in each case, contingent or otherwise) arising out of any third party's
incurrence of costs, expenses, losses or damages of any kind whatsoever in
connection with the release of Hazardous Materials.
(c) Except as set forth on SCHEDULE 11.16 attached hereto: (i) no
portion of the Real Estate has been used for the handling, processing, storage
or disposal of Hazardous Materials except in accordance with applicable
Environmental Laws; and no underground tank or other underground storage
receptacle for
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Hazardous Materials is located on any portion of the Real Estate; (ii) in the
course of any activities conducted by the Borrower, its general partners or the
operators of their properties, no Hazardous Materials have been generated or are
being used on the Real Estate except in accordance with applicable Environmental
Laws material to the Real Estate, as determined by Lender in its sole reasonable
discretion; (iii) there has been no past or present releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping (a "Release") or threatened Release of Hazardous Materials
on, upon, into or from the Real Estate, which Release would have a material
adverse effect on the value of any of the Real Estate or adjacent properties or
the environment; (iv) to the best of the Borrower's knowledge, there have been
no Releases on, upon, from or into any real property in the vicinity of any of
the Real Estate which, through soil or groundwater contamination, may have come
to be located on, and which would have a material adverse effect on the value
of, the Real Estate; and (v) any Hazardous Materials that have been generated on
any of the Real Estate have been transported off-site only by carriers having an
identification number issued by the EPA, treated or disposed of only by
treatment or disposal facilities maintaining valid permits as required under
applicable Environmental Laws, which transporters and facilities have been and
are, to the best of the Borrower's knowledge, operating in compliance with such
permits and applicable Environmental Laws material to the Real Estate, as
determined by Lender in its sole reasonable discretion.
(d) None of the Real Estate is or shall be subject to any applicable
environmental clean-up responsibility law or environmental restrictive transfer
law or regulation, by virtue of the transactions set forth herein and
contemplated hereby.
Section 11.17. SUBSIDIARIES. The Borrower has no Subsidiaries.
Section 11.18. (a) GENERAL PARTNERS. Wentworth Holdings, Inc. and NC
Holding Company, Inc. are and shall continue to be the only general partners of
the Borrower.
(b) The shareholders of the general partners are and shall
continue to be the Guarantor.
Section 11.19. AVAILABILITY OF UTILITIES. All utility services necessary
and sufficient for the construction, development and
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operation of the Project for its intended purposes are presently available to
the boundaries of the Land through dedicated public rights of way or through
perpetual private easements, approved by the Lender, with respect to which the
Security Deed creates a valid and enforceable first lien, including, but not
limited to, water supply, storm and sanitary sewer, gas, electric and telephone
facilities, and drainage.
Section 11.20. ACCESS. The rights of way for all roads necessary for the
full utilization of the Improvements for their intended purposes have either
been acquired by the appropriate Governmental Authority or have been dedicated
to public use and accepted by such Governmental Authority, or are qualified and
approved private roads, and all such roads shall have been completed, or all
necessary steps have been taken by the Borrower and such Governmental Authority
to assure the complete construction and installation thereof prior to the date
upon which access to the Project via such roads will be necessary. All curb
cuts, driveways and traffic signals shown on the Plans and Specifications are
existing or have been fully approved by the appropriate Governmental Authority.
Section 11.21. CONDITION OF PROJECT. Neither the Project nor any part
thereof is now damaged or injured as result of any fire, explosion, accident,
flood or other casualty or has been the subject of any Taking, and to the
knowledge of the Borrower, no Taking is pending or contemplated.
Section 11.22. COMPLIANCE WITH REQUIREMENTS. The Plans and Specifications
and construction of the Improvements pursuant thereto and the use and occupancy
of the Project contemplated thereby comply with all Requirements.
Section 11.23. PROJECT APPROVALS. Except as set forth on SCHEDULE
11.22(A) hereto, the Borrower has obtained all Project Approvals. All Project
Approvals obtained by the Borrower are listed and described on SCHEDULE 11.22(B)
hereto, have been validly issued and are in full force and effect. The Borrower
has no reason to believe that any of the Project Approvals not heretofore
obtained by the Borrower will not be obtained by the Borrower in the ordinary
course following completion of the construction of the Improvements in
accordance with the Plans and Specifications. No Project Approvals will
terminate, or become void or voidable or terminable, upon any sale, transfer or
other disposition of the
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Project, including any transfer pursuant to foreclosure sale under the Security
Deed.
Section 11.24. MANAGEMENT CONTRACT. The Management Contract is in full
force and effect and both the Borrower and to the Borrower's knowledge the
Borrower's Manager are in full compliance with their respective obligations
under the Management Contract. The work to be performed by the Borrower's
Manager under the Management Contract is the work called for by the Plans and
Specifications, and all work required to complete the Improvements in accordance
with the Plans and Specifications is provided for under the Management Contract.
Section 11.25. OTHER CONTRACTS. The Borrower has made no contract or
arrangement of any kind or type whatsoever (whether oral or written, formal or
informal), the performance of which by the other party thereto could give rise
to a lien or encumbrance on the Project.
Section 11.26. REAL PROPERTY TAXES; SPECIAL ASSESSMENTS. There are no
unpaid or outstanding real estate or other taxes or assessments on or against
the Project or any part thereof which are payable by the Borrower (except only
real estate taxes not yet due and payable). The Borrower has delivered to the
Lender true and correct copies of real estate tax bills for the Project for the
past fiscal tax year. No abatement proceedings are pending with reference to
any real estate taxes assessed against the Project. There are no betterment
assessments or other special assessments presently pending with respect to any
part of the Project, and the Borrower has received no notice of any such special
assessment being contemplated.
Section 11.27. VIOLATIONS. The Borrower has received no notices of, or
has any knowledge of, any violations of any applicable Requirements or Project
Approvals.
Section 11.28. PLANS AND SPECIFICATIONS. The Borrower has furnished the
Lender with true and complete sets of the Plans and Specifications. The Plans
and Specifications so furnished to the Lender comply with all Requirements, all
Project Approvals, and all restrictions, covenants and easements affecting the
Project, and have been approved by such Governmental Authority as is required
for construction of the Improvements.
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Section 11.29. PROJECT BUDGET. The Project Budget accurately reflects
all Project Costs.
Section 11.30. FEASIBILITY. Each of the Construction Schedule and the
Disbursement Schedule is realistic and feasible, and is accurate to date.
Section 11.31. EFFECT OF DRAW REQUEST. Each Draw Request submitted to the
Lender as provided in Section 3.1 and Section 5.1 hereof shall constitute an
affirmation that the representations and warranties contained in Section 11 of
this Agreement and in the other Loan Documents remain true and correct as of the
date thereof; and unless the Lender is notified to the contrary, in writing,
prior to the Drawdown Date of the requested Advance or any portion thereof,
shall constitute an affirmation that the same remain true and correct on the
Drawdown Date.
Section 11.32. MASTER PLAN DOCUMENTS. Each of the Master Plan Documents
remain in full force and effect, the Borrower is in full compliance with each
and every covenant, restriction, agreement and provision of the Master Plan
Documents; the Master Plan Documents and the Improvements contemplated by the
Loan Documents have received all approvals including, without limitation,
approval from the New Hampshire Attorney General; the establishment of the Loan
and the obligations undertaken by the Borrower pursuant to this Agreement do not
and will not violate any term or condition of the Master Plan Documents; and the
Master Plan Documents allow for the development, construction and completion by
the Borrower of the Project.
Section 11.33. DEVELOPMENT RIGHTS. The Borrower owns all right, title and
interest in and to the Development Rights and the Development Rights possessed
by the Borrower give the Borrower all right, title, power and privilege
necessary and appropriate to develop and construct the Project.
Section 12. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants
and agrees that, so long as the Loan is outstanding or the Lender has any
obligation to make any Advances:
Section 12.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay
or cause to be paid the principal and interest on the Loan and all other amounts
provided for in the Notes, this Agreement and the other Loan Documents to which
the Borrower is a
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party, all in accordance with the terms of the Notes, this Agreement and such
other Loan Documents.
Section 12.2. COMMENCEMENT, PURSUIT AND COMPLETION OF CONSTRUCTION. The
Borrower commenced construction of the Improvements under the Development Loan
prior to the Closing Date, will diligently pursue construction of the
Improvements in accordance with the Construction Schedule, and will complete
construction of the Improvements prior to the Completion Date, all in accordance
with the Plans and Specifications, in full compliance with all restrictions,
covenants and easements affecting the Project, all Requirements, and all Project
Approvals, and with all terms and conditions of the Loan Documents, without
deviation from the Plans and Specifications unless the Borrower obtains the
prior approval of the Lender which approval shall not be unreasonably withheld,
conditioned or delayed prior to the occurrence of an Event of Default which
Event of Default has not either been cured with such cure accepted by the Lender
of waived by the Lender. The Borrower will pay all sums and perform all such
acts as may be necessary or appropriate to complete such construction of the
Improvements in accordance with the Plans and Specifications and in full
compliance with all restrictions, covenants and easements affecting the Project,
all Requirements and all Project Approvals, and with all terms and conditions of
the Loan Documents, all of which shall be accomplished on or before the
Completion Date, free from any liens, claims or assessments (actual or
contingent) asserted against the Project for any material, labor or other items
furnished in connection therewith. The Borrower will furnish evidence of
satisfactory compliance with this Section 12.2 to the Lender on or before the
Completion Date.
Section 12.3. CORRECTION OF DEFECTS. The Borrower will promptly correct
or cause to be corrected all defects in the Improvements or any departure from
the Plans and Specifications not previously approved by the Lender determined to
be significant by the Construction Inspector. The Borrower agrees that any
Advance made by the Lender, whether before or after such defects or departures
from the Plans and Specifications are discovered by, or brought to the attention
of, the Lender, shall not constitute a waiver of the Lender's right to require
compliance with this Section 12.3.
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Section 12.4. MAINTENANCE OF OFFICE. The Borrower will maintain its chief
executive office in New Castle, New Hampshire, or at such other place in the
United States of America as the Borrower shall designate upon written notice to
the Lender, where notices, presentations and demands to or upon the Borrower in
respect of the Loan Documents may be given or made.
Section 12.5. RECORDS AND ACCOUNTS. The Borrower will (a) keep true and
accurate records and books of account in which full, true and correct entries
will be made in accordance with generally accepted accounting principles and (b)
maintain adequate accounts and reserves for all taxes (including income taxes),
depreciation and amortization of its properties, contingencies, and other
reserves.
Section 12.6. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The
Borrower will deliver to the Lender:
(a) as soon as practicable, but in any event not later than one
hundred and five (105) days after the end of each fiscal year of the
Borrower, unaudited for the Borrower and the audited consolidating balance
sheet of the Guarantor and the Guarantor's Subsidiaries at the end of such
year, and the related audited consolidating statement of operations,
statement of cash flows, schedule of asset sales, agreements and
dispositions for such year, each setting forth in comparative form the
figures for the previous fiscal year and all such statements to be in
reasonable detail, prepared in accordance with generally accepted
accounting principles, and accompanied by an auditor's report prepared
without qualification by Deloitte & Touche or by another independent
certified public accountant acceptable to the Lender together with a
written statement from such accountants to the effect that they have read a
copy of this Agreement, and that, in making the examination necessary to
said certification, they have obtained no knowledge of any Default or Event
of Default under this Agreement, or, if such accountants shall have
obtained knowledge of any then existing Default or Event of Default they
shall disclose in such statement any such Default or Event of Default;
PROVIDED that such accountants shall not be liable to the Bank for failure
to obtain knowledge of any Default of Event of Default;
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(b) as soon as practicable, but in any event not later than (i) forty
five (45) days after the end of each of the first three (3) fiscal quarters
of the Borrower, copies of an internally prepared balance sheet of the
Borrower and (ii) sixty (60) days after the end of each of the first three
(3) fiscal quarters of the Guarantor copies of the unaudited consolidated
balance sheet and form 10Q of the Guarantor and the Guarantor's
Subsidiaries as at the end of such quarter, and the related unaudited
consolidated statement of operations, statement of cash flows, schedule of
asset sales, agreements and dispositions for the portion of the Borrower's
fiscal year then elapsed, all in reasonable detail and prepared in
accordance with generally accepted accounting principles, together with a
certification by the principal financial or accounting officer of the
Borrower showing compliance with all financial covenants hereunder and
certifying that the information contained in such financial statements
fairly presents the financial position of the Borrower, the Guarantor and
the Guarantor's Subsidiaries on the date thereof (subject to year-end
adjustments);
(c) contemporaneously with the delivery of the financial statements
referred to in clause (a) above, a statement of all contingent liabilities
of the Borrower, the Guarantor and the Guarantor's Subsidiaries which are
not reflected in such financial statements or referred to in the notes
thereto, and a statement of projected cash flows of the Borrower, the
Guarantor and the Guarantor's Subsidiaries for the current fiscal year, all
in reasonable detail and certified by the principal financial or accounting
officer of the Borrower;
(d) Semiannually, on or before July 31 for the six months ending June
30 and January 31 for the six months ending December 31, a statement of
operations and comparative statement of cash flows, in the form previously
provided to the Lender in the Borrower's loan request and business plan
dated February 4, 1994.
(e) with each Draw Request or if there is no Draw Request during a
particular month, monthly within ten (10) days after the end of each calen-
dar month, a sales activity report including copies of all signed purchase
and sale
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agreements executed during the subject month as of the end of such month;
(f) contemporaneously with the filing or mailing thereof, copies of
all material of a financial nature filed with the Securities and Exchange
Commission or sent to the stockholders of the Guarantor; and
(g) from time to time such other financial data and information
(including accountants' management letters) as the Lender may reasonably
request.
Section 12.7. NOTICES.
(a) DEFAULTS. The Borrower will promptly notify the Lender in
writing of the occurrence of any Default or Event of Default, specifying the
nature and existence of such Default or Event of Default and what action the
Borrower is taking or proposes to take with respect thereto. If any Person
shall give any notice or take any other action in respect of a claimed default
(whether or not constituting an Event of Default) under this Agreement or under
any note, evidence of indebtedness, indenture or other obligation to which or
with respect to which the Borrower or any of its general partners is a party or
obligor, whether as principal or surety, and such default would permit the
holder of such note or obligation or other evidence of indebtedness to
accelerate the maturity thereof, which acceleration would have a material
adverse effect on the Borrower or such general partner, the Borrower shall
forthwith give written notice thereof to the Lender, describing the notice or
action and the nature of the claimed default.
(b) ENVIRONMENTAL EVENTS. The Borrower will promptly give
notice to the Lender (i) of any violation of any Environmental Law that the
Borrower or any of its general partners reports in writing or is reportable by
such Person in writing (or for which any written report supplemental to any oral
report is made) to any federal, state or local environmental agency and (ii)
upon becoming aware thereof, of any inquiry, proceeding, investigation, or other
action, including a notice from any agency of potential environmental liability,
or any federal, state or local environmental agency or board, that in either
case involves the Project or has the potential to materially affect the assets,
liabilities, financial conditions
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or operations of the Borrower or such general partner or the Lender's liens or
security interests pursuant to the Security Documents.
(c) NOTIFICATION OF CLAIMS AGAINST COLLATERAL. The Borrower
will, immediately upon becoming aware thereof, notify the Lender in writing of
any setoff, claims, withholdings or other defenses to which any of the
Collateral, or the Lender's rights with respect to the Collateral, are subject.
(d) NOTICE OF NONPAYMENT. The Borrower will immediately notify
the Lender in writing if the Borrower receives any notice, whether oral or
written, from any laborer, subcontractor or materialman to the effect that such
laborer, subcontractor or materialman has not been paid when due for any labor
or materials furnished in connection with the construction of the Improvements.
(e) NOTICE OF LITIGATION AND JUDGMENTS. The Borrower and the
Guarantor will, and will cause each of their Subsidiaries to, give notice to the
Lender in writing within fifteen (15) days of becoming aware of any litigation
or proceeding threatened in writing or any pending litigation, proceedings
affecting the Project or affecting the Borrower, any of its general partners,
the Guarantor or any of its Subsidiaries or to which the Borrower or any of its
general partners is or is to become a party involving an uninsured claim in
excess of $500,000.00 with respect to the Guarantor or any of its Subsidiaries
or any amount with respect to the Borrower or any of its general partners, or
any defaults or events of default with respect to loan obligations of the
Borrowers, any of its general partners, the Guarantor or any of its subsidiaries
that could reasonably be expected to have a adverse effect on the Borrower or
any of its general partners and stating the nature and status of such litigation
or proceedings. The Borrower will give notice to the Lender, in writing, in
form and detail satisfactory to the Lender, within ten (10) days of any judgment
not covered by insurance, final or otherwise, (i) against the Borrower or any of
its general partners in any amount or (ii) against the Guarantor or its
Subsidiaries in an amount in excess of $500,000.00.
Section 12.8. EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower will do
or cause to be done all things necessary to preserve and keep in full force and
effect its existence as a New Hampshire
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general partnership. The Borrower will do or cause to be done all things
necessary to preserve and keep in full force all of its rights and franchises.
The Borrower (a) will cause all of its properties used or useful in the conduct
of its business or the business of its general partners to the maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment, (b) will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Borrower may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times, and (c)
will continue to engage primarily in the businesses now conducted by it and in
related businesses.
Section 12.9. INSURANCE.
(a) The Borrower will obtain and maintain insurance with respect
to the Project as required by the Security Deed. The Borrower will maintain
with respect to its other properties and business, and will cause each of its
general partners to maintain with respect to their properties and businesses,
insurance with financially sound and reputable insurers against such casualties
and contingencies as shall be in accordance with the general practices of
businesses engaged in similar activities in similar geographic areas and in
amounts, containing such terms, in such forms and for such periods as may be
reasonable and prudent.
(b) The Borrower will require each subcontractor to obtain and
maintain at all times during the construction of the Improvements the insurance
required by the Manager's Contract and such other insurance as may be
reasonably required by the Lender (including, without limitation, commercial
general liability insurance, comprehensive automobile liability insurance, all-
risk contractor's equipment floater insurance, workmen's compensation insurance
and employer liability insurance), all such insurance to be in such amounts and
form, to include such coverage and endorsements, and to be issued by such
insurers as shall be approved by the Lender which approval shall not be
unreasonably withheld, conditioned or delayed, and to contain the written
agreement of the insurer to give the Lender thirty (30) days prior written
notice of cancellation, nonrenewal, modification or expiration. The Borrower
will provide or will
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cause the Manager to provide the Lender with certificates evidencing such
insurance upon the request of the Lender.
(c) The Borrower will require the Borrower's Architect any other
architect, engineer or design professional providing design or engineering
services in connection with the construction of the Improvements to obtain and
maintain professional liability insurance covering any claims asserted with
respect to the Project for a period of not less than five (5) years after the
date of completion of the Improvements, such insurance to be in such amounts and
form, to include such coverages and endorsements, and to be issued by such
insurers as shall be approved by the Lender which approval shall not be
unreasonably withheld, conditioned or delayed, and to contain the written
agreement of the insurer to give the Lender thirty (30) days prior written
notice of cancellation, nonrenewal, modification or expiration. The Borrower
will provide or will cause the Borrower's Architect or such other design
professional to provide the Lender with certificates evidencing such insurance
upon the request of the Lender.
Section 12.10. TAXES.
(a) The Borrower will pay all taxes, assessments and other
governmental charges imposed upon it with respect to the Project or imposed upon
the Project at the time and in the manner required by the Security Deed. The
Borrower will promptly pay and discharge (by bonding or otherwise) all claims
for labor, material or supplies that if unpaid might by law become a lien or
charge against the Project or any part thereof or might affect the priority of
the lien created by the Security Deed with respect to any Advance made or to be
made by the Lender under this Agreement.
(b) The Borrower will duly pay and discharge, or cause to be
paid and discharged, before the same shall become overdue, all taxes,
assessments and other governmental charges imposed upon it and its other real
properties, sales and activities, or any part thereof, or upon the income or
profits therefrom, as well as all claims for labor, materials, or supplies that
if unpaid might by law become a lien or charge upon any of its property;
PROVIDED that any such tax, assessment, charge, levy or claim with respect to
properties other than the Project need not be paid if the validity or amount
thereof shall
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currently be contested in good faith by appropriate proceedings and if the
Borrower shall have set aside on its books adequate reserves with respect
thereto; and PROVIDED FURTHER that the Borrower will pay all such taxes, as-
sessments, charges, levies or claims forthwith upon the commencement of
proceedings to foreclose any lien that may have attached as security therefor.
Section 12.11. INSPECTION OF PROJECT, OTHER PROPERTIES AND BOOKS.
(a) The Borrower shall permit the Lender and the Construction
Inspector, at the Borrower's reasonable expense, to visit and inspect the
Project and all materials to be used in the construction thereof and will
cooperate with the Lender and the Construction Inspector during such inspections
(including making available working drawings of the Plans and Specifications);
PROVIDED that this provision shall not be deemed to impose on the Lender or the
Construction Inspector any obligation to undertake such inspections.
(b) The Borrower shall permit the Lender at the Borrower's
reasonable expense to visit and inspect any of the other properties of the
Borrower to examine the books of account of the Borrower (and to make copies
thereof and extracts therefrom) and to discuss the affairs, finances and
accounts of the Borrower with, and to be advised as to the same by, its
officers, all at such reasonable times and intervals as the Lender may
reasonably request; PROVIDED that the Borrower shall only be obligated to pay
the expenses associated with one such investigation during any twelve (12) month
period.
Section 12.12. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS.
The Borrower will comply with, and will cause each of its general partners to
comply with (a) the applicable laws and regulations wherever its business is
conducted, including all Environmental Laws and, in the case of the Borrower,
all Requirements, (b) the provisions of its partnership agreement and other
charter documents and by-laws, (c) all agreements and instruments by which it or
any of its properties may be bound, including, in the case of the Borrower, the
Architect's Contract, the Manager's Contract, and all restrictions, covenants
and easements affecting the Project, (d) all applicable decrees, orders and
judgments, and (e) all licenses and permits required by applicable laws and
regulations for the conduct of its business or the ownership, use or operation
of its properties,
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including, in the case of the Borrower, all Project Approvals.
Section 12.13. PROJECT APPROVALS. The Borrower will promptly obtain all
Project Approvals not heretofore obtained by the Borrower (including those
listed and described on SCHEDULE 11.23(a) hereto and any other Project Approvals
which may hereafter become required, necessary or desirable) and will furnish
the Lender with evidence that the Borrower has obtained such Project Approvals
promptly upon its request. The Borrower will give all such notices to, and take
all such other actions with respect to, such Governmental Authority as may be
required under applicable Requirements to construct the Improvements and to use,
occupy and operate the Project following the completion of the construction of
the Improvements. The Borrower will also promptly obtain all utility
installations and connections required for the operation and servicing of the
Project for its intended purposes, and will furnish the Lender with evidence
thereof. The Borrower will duly perform and comply with all of the terms and
conditions of all Project Approvals obtained at any time, including all Project
Approvals listed and described on SCHEDULES 11.23(a) and 11.23(b) hereto.
Section 12.14. USE OF PROCEEDS. The Borrower will use the proceeds of the
Loan solely for the purpose of paying for Project Costs in accordance with the
Project Budget.
Section 12.15. PROJECT COSTS. The Borrower will pay all Project Costs in
excess of the Loan Amount, regardless of the amount.
Section 12.16. INSUFFICIENCY OF LOAN PROCEEDS. The Borrower will deposit
funds with the Lender as follows: If at any time while the Loan is outstanding
or the Lender has any obligation to make Advances hereunder, the Lender shall in
its reasonable discretion determine that the remaining undisbursed portion of
the Loan, together with the undisbursed balance of Required Equity Funds, the
amount of any savings and Contingency Reserve reallocated with the prior
approval of the Lender as provided herein, and any other sums previously
deposited by the Borrower with the Lender in connection with the Loan, is or
will be insufficient to fully complete and equip the Improvements in accordance
with the Plans and Specifications, to operate and carry the Project after
completion of the Improvements until payment in full of the Loan by the
Borrower, to pay all other Project Costs, to pay all interest accrued or to
accrue on the Loan during the term of the
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Loan from and after the date hereof, and to pay all other sums due or to become
due under the Loan Documents (or as to any budget category or line item),
regardless of how such condition may be caused, the Borrower will, within seven
(7) days after written notice of such determination from the Lender, deposit
with the Lender such sums of money in cash as the Lender may require, in an
amount sufficient to remedy the condition described in such notice, and
sufficient to pay any liens for labor and materials alleged to be due and
payable at the time in connection with the Improvements, and, at the Lender's
option, no further Advances of the Loan shall be made by the Lender until the
provisions of this Section 12.16 have been fully complied with. All such
deposited sums shall stand as additional security for the Obligations and shall
be disbursed by the Lender in the same manner as Advances under this Agreement
before any further Advances of the Loan proceeds shall be made. Any funds so
deposited shall be placed in an interest bearing account at the Lender.
Section 12.17. LABORERS, SUBCONTRACTORS AND MATERIALMEN. The Borrower
will furnish to the Lender, upon request at anytime, and from time to time,
affidavits listing all laborers, subcontractors, materialmen, and any other
Persons who might or could claim statutory or common law liens and are
furnishing or have furnished labor or material to the Project or any part
thereof, together with affidavits, or other evidence satisfactory to the Lender,
showing that such parties have been paid all amounts then due for Labor and
materials furnished to the Project. The Borrower will also furnish to the
Lender, at any time and from time to time upon demand by the Lender, lien
waivers bearing a then current date and prepared on a form satisfactory to the
Lender from such subcontractors or materialman as the Lender may designate.
Section 12.18. FURTHER ASSURANCE OF TITLE. The Borrower will further
assure title as follows: If at any time the Lender or the Lender's counsel has
reason to believe that any Advance is not secured or will or may not be secured
by the Security Deed as a first lien or security interest on the Project, then
the Borrower shall, within ten (10) days after written notice from the Lender,
do all things and matters reasonably necessary, to assure to the satisfaction of
the Lender and the Lender's counsel that any Advance previously made hereunder
or to be made hereunder is secured or will be secured by the Security Deed as a
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first lien or security interest on the Project, and the Lender, at its option,
may decline to make further Advances hereunder until the Lender has received
such assurance, but nothing in this Section 12.18 shall limit the Lender's right
to require endorsements extending the effective date of the Title Policy as
herein set forth.
Section 12.19. PUBLICITY. The Borrower will permit the Lender to obtain
publicity in connection with the construction of the Improvements through press
releases and participation in such events as ground breaking and opening
ceremonies. The Borrower will given the Lender ample advance notice of such
events and will cooperate with and provide to the Lender as much assistance as
possible in connection with obtaining such publicity.
Section 12.20. SIGN REGARDING CONSTRUCTION FINANCING. If requested by the
Lender, the Borrower will, at Lender's cost and expense, erect and maintain on a
suitable location on the Land a sign indicating that the construction financing
for the Project is being provided by the Lender, such location and sign to be
subject to the approval of the Lender, which approval shall not be unreasonably
withheld, conditioned or delayed.
Section 12.21. FURTHER ASSURANCES.
(a) REGARDING CONSTRUCTION. The Borrower will furnish or cause
to be furnished to the Lender all instruments, documents, boundary surveys,
footing or foundation surveys, certificates, plans and specifications, title and
other insurance, reports and agreements and each and every other document and
instrument required to be furnished by the terms of this Agreement or the other
Loan Documents, all at the Borrower's reasonable expense.
(b) REGARDING PRESERVATION OF COLLATERAL. The Borrower will
execute and deliver to the Lender such further documents, instruments,
assignments and other writings, and will do such other acts reasonably necessary
to preserve and protect the Collateral at any time securing or intended to
secure the Obligations, as the Lender may reasonably require.
(c) REGARDING THIS AGREEMENT. The Borrower will cooperate with,
and will do such further acts and execute such further instruments and documents
as the Lender shall reasonably
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request to carry out to its reasonable satisfaction the transactions con-
templated by this Agreement and the other Loan Documents.
Section 12.22. INTEREST RATE PROTECTION. The Borrowers shall maintain in
effect interest rate protection arrangements, in form and substance satisfactory
to the Bank, providing for the rate of interest applicable to the Development
Loan to be capped at a rate satisfactory to the Bank with respect to the sum of
$2,100,000.00 of the Development Loan outstanding for a period through the
Maturity Date. The Borrowers shall maintain such arrangements in full force and
effect during the period specified above, and shall not, without the written
consent of the Bank, modify, terminate, or transfer such arrangements during
such period. Any such interest rate protection arrangements shall be
collaterally assigned to the Bank as security for the Obligations.
Section 13. NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants
and agrees that, so long as the Loan is outstanding or the Lender has any
obligation to make any Advances:
Section 13.1. RESTRICTION ON LEASES. The Borrower will not become a party
to, or agree to become a party to, any Lease without the prior approval of the
Lender, which approval shall not be unreasonably withheld, conditioned or
delayed. The Borrower will not amend, supplement or otherwise modify, or
terminate or cancel, or accept the surrender of, or grant any concessions to or
waive the performance of any obligations of any tenant under any Lease, without
the prior approval of the Lender. The Borrower will not, directly or
indirectly, cause or permit to exist any condition which would result in the
termination or cancellation of, or which would relieve the performance of any
obligations of any tenant under, any Lease.
Section 13.2. RESTRICTION ON CHANGE ORDERS. The Borrower will not cause,
permit or suffer to exist any deviations from the Plans and Specifications and
will not approve or consent to any change order or construction change directive
without the prior approval of the Lender.
Section 13.3. RESTRICTIONS ON EASEMENTS, COVENANTS AND RESTRICTIONS.
Except as provided in the Master Plan Documents, the Borrower will not create or
suffer to be created or to exist any
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easement, right of way, restriction, covenant, condition, license or other right
in favor of any Person which affects or might affect title to the Project or the
use and occupancy of the Project or any part thereof without (i) submitting to
the Lender the proposed instrument creating such easement, right of way,
covenant, condition, license or other right, accompanied by a survey showing the
exact proposed location thereof and such other information as the Lender may
reasonably request, and (ii) obtaining the prior approval of the Lender, which
approval shall not be unreasonably withheld, conditioned or delayed.
Section 13.4. NO AMENDMENTS, TERMINATIONS OR WAIVERS.
(a) The Borrower will not amend, supplement or otherwise modify,
whether by change order or otherwise, any of the terms and conditions of the
Manager's Contract without in each case the prior approval of the Lender, which
approval shall not be unreasonably withheld, conditioned or delayed.
(b) The Borrower will not, directly or indirectly, terminate or
cancel, or cause or permit to exist any condition which would result in the
termination or cancellation of, or which would relieve the performance of any
obligations of any other party under the Manager's Contract.
(c) The Borrower will not, directly or indirectly, waive or
agree or consent to the waiver of, the performance of any obligations or any
other party under the Manager's Contract.
Section 13.5. RESTRICTIONS ON INDEBTEDNESS. Except as permitted by the
Loan Documents, the Borrower will not create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness to the Lender arising under any of the Loan
Documents;
(b) current liabilities of the Borrower incurred in the ordinary
course of business but not incurred through (i) the borrowing of money, or (ii)
the obtaining of credit except for credit on an open account basis customarily
extended and in fact extended in connection with normal purchases of goods and
services;
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(c) Indebtedness in respect of taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies to the
extent that payment therefor shall not at the time be required to be made
in accordance with the provisions of Section 11.9;
(d) Indebtedness in respect of judgments or awards that have been in
force for less than the applicable period for taking an appeal so long as
execution is not levied thereunder or in respect of which the Borrower
shall at the time in good faith be prosecuting an appeal or proceeding for
review and in respect of which a stay of execution shall have been obtained
pending such appeal or review;
(e) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the ordinary
course of business;
(f) unsecured Indebtedness of the Borrower owing to any partner of
the Borrower that is expressly subordinated and made junior to the payment
and performance in full of the Obligations and evidenced as such by a
written instrument containing subordination provisions in form and
substance approved by the Lender;
(g) any refinancing of any of the foregoing.
Section 13.6. RESTRICTIONS ON LIENS, ETC. Except as permitted by the Loan
Documents, the Borrower will not (a) create or incur or suffer to be created or
incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (b) transfer any of its property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (c) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; (d) suffer to exist
for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against it that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any prior-
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ity whatsoever over its general creditors; or (e) sell, assign, pledge or
otherwise transfer any accounts, contract rights, general intangibles, chattel
paper or instruments, with or without recourse; PROVIDED that the Borrower may
create or incur or suffer to be created or incurred or to exist:
(i) liens to secure taxes, assessments and other governmental
charges or claims for labor, material or supplies in respect of obligations
not overdue;
(ii) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(iii) liens in respect of judgments or awards, the Indebtedness
with respect to which is permitted by Section 13.5(d);
(iv) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens on properties other than the Project in
existence less than 120 days from the date of creation thereof in respect
of obligations not overdue;
(v) encumbrances on properties other than the Project
consisting of easements, rights of way, covenants, restrictions on the use
of real property and defects and irregularities in the title thereto,
landlord's or lessor's liens under leases to which the Borrower is a party,
and other minor liens or encumbrances on properties other than the Project
none of which in the opinion of the Borrower interferes materially with the
use of the property affected in the ordinary conduct of the business of the
Borrower, which defects do not individually or in the aggregate have a
materially adverse effect on the financial condition of the Borrower;
(vi) liens in favor of the Lender under the Loan Documents;
(vii) other liens on the Project consisting of easements,
rights of way, covenants and restrictions if and to the extent the same
have been approved by the Lender; and
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(viii) liens in connection with any refinancing any of the
above provided such liens shall not spread to cover any additional
Indebtedness or property.
Section 13.7. RESTRICTIONS ON INVESTMENTS. Except as permitted by the
Loan Documents, the Borrower will not make or permit to exist or to remain
outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United States
of America that mature within one (1) year from the date of purchase by the
Borrower;
(b) demand deposits, certificates of deposit, bankers acceptances and
time deposits of United States banks having total assets in excess of
$1,000,000,000;
(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated
and the ratings for which are not less than "P 1" if rated by Moody's
Investors Services, Inc., and not less than "A 1" if rated by Standard and
Poor's;
(d) Investments existing on the date hereof and listed on SCHEDULE
13.7 hereto; and
(e) reinvestment of any of the foregoing in permitted Investments.
Section 13.8. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
(a) The Borrower will not become a party to any merger or
consolidation, or agree to or effect any asset acquisition or stock acquisition
(other than the acquisition of assets in the ordinary course of business
consistent with past practices).
(b) The Borrower will not become a party to or agree to or
effect any disposition of the Project or any part thereof.
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(c) The Borrower will not become a party to or agree to effect
any disposition of assets, other than the disposition of assets not included in
the Project in the ordinary course of business, consistent with the past
practices.
Section 13.9. SALE AND LEASEBACK. The Borrower will not enter into any
arrangement, directly or indirectly, whereby the Borrower shall sell or transfer
any property owned by it in order then or thereafter to lease such property or
lease other property that the Borrower intends to use for substantially the same
purpose as the property being sold or transferred.
Section 13.10. COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as described in
the environmental site assessment report furnished to the Lender by the Borrower
in connection with the Loan, the Borrower will not do any of the following: (a)
use any of the Real Estate or any portion thereof as a facility for the
handling, processing, storage or disposal of Hazardous Materials, (b) cause or
permit to be located on any of the Real Estate any underground tank or other
underground storage receptacle for Hazardous Materials except in full compliance
with Environmental laws, (c) generate any Hazardous Materials on any of the Real
Estate except in full compliance with Environmental Laws, or (d) conduct any
activity at any Real Estate or use any Real Estate in any manner so as to cause
a Release.
Section 13.11. DISTRIBUTIONS. The Borrower will not make any
Distributions with the exception of Disbursements:
(i) from the initial Advance as reimbursement of any advance
made by the Guarantor to the Borrower in excess of the Required Equity
Funds; or
(ii) up to the net proceeds from the sale of lots 13 and 20 of
Little Harbor (as defined in the Master Plan Documents); or
(iii) of any excess proceeds from the sale of assets not part
of the Condominium or the Homeowner Association provided: (i) no Default is
then occurring and no Event of Default has occurred and is then continuing;
and (ii) the Development Loan has been paid in full.
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Section 13.12. LOAN TO VALUE. The Borrower will not permit the
outstanding balances due under the Loan to exceed sixty five (65%) percent of
the Value of the Project at any time, which ratio shall be tested as of the
closing of the Loan and every six months thereafter.
Section 14. CONDITIONS TO INITIAL ADVANCE. The obligation of the Lender
to make the initial Advance shall be subject to the satisfaction of the
following conditions precedent:
Section 14.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been
duly executed and delivered by the respective parties thereto, shall be in full
force and effect and shall be in form and substance satisfactory to the Lender.
The Lender shall have received a fully executed copy of each such document.
Section 14.2. CONSTRUCTION DOCUMENTS. The Management Contract shall have
been duly executed and delivered by the respective parties thereto, shall be in
full force and effect, and shall be in form and substance satisfactory to the
Lender. The Lender shall have received a certified or a fully executed copy of
each such document. The Borrower's Manager shall have duly executed and deliv-
ered to the Lender a consent to the assignment of the Management Contract in
form and substance satisfactory to the Lender, and the Lender shall have
received a fully executed copy thereof.
Section 14.3. SUBCONTRACTS. The Borrower shall have delivered to the
Lender, and the Lender shall have approved, a list of all subcontractors and
materialmen who have been or, to the extent identified by the Borrower, will be
supplying labor or materials for the Project, a copy of the standard form of
subcontract to be used by the Borrower, and correct and complete photocopies of
all executed subcontracts and contracts.
Section 14.4. OTHER CONTRACTS. The Borrower shall have delivered to the
Lender correct and complete photocopies of all other executed contracts with
contractors, engineers or consultants for the Project, and of all development,
management, brokerage, sales or leasing agreements for the Project.
Section 14.5. CERTIFIED COPIES OF ORGANIZATION DOCUMENTS. The Lender
shall have received from the Borrower, each of its general partners and the
Guarantor, a copy, certified as of a recent date
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by the appropriate officer of the State in which the Borrower, its general
partners and/or the Guarantor is organized to be true and complete, of their
respective partnership agreement and corporate charters and any other of its
organization documents as in effect on such date of certification.
Section 14.6. RESOLUTIONS. All action necessary for the valid execution,
delivery and performance by the Borrower, each of its general partners and the
Guarantor of this Agreement and the other Loan Documents to which it is or is to
become a party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Lender shall have been provided to the Lender. The Lender
shall have received from the Borrower, each of its general partners and the
Guarantor true copies of the resolutions adopted by its partners, or
shareholders and board of directors authorizing the transactions described
herein, each certified by its clerk and/or secretary as of a recent date to be
true and complete.
Section 14.7. INCUMBENCY CERTIFICATE; AUTHORIZED SIGNERS. The Lender
shall have received from the Borrower, each of its general partners and the
Guarantor an incumbency certificate, dated as of the Closing Date, signed by a
duly authorized officer of the Borrower, such general partner or the Guarantor
and giving the name and bearing a specimen signature of each individual who
shall be authorized: (a) to sign, in the name and on behalf of the Borrower,
such general partner and the Guarantor, each of the Loan Documents to which such
Person is or is to become a party; (b) in the case of the Borrower, to make Draw
Requests; and (c) to give notices and to take other action on its behalf under
the Loan Documents.
Section 14.8. VALIDITY OF LIENS. The Security Documents shall be
effective to create in favor of the Lender a legal, valid and enforceable first
lien and security interest in the Collateral. All filings, recordings,
deliveries of instruments and other actions necessary or desirable in the
opinion of the Lender to protect and preserve such lien and security interest
shall have been duly effected. The Lender shall have received evidence thereof
in form and substance satisfactory to the Lender.
Section 14.9. DELIVERIES. The following items or documents shall have
been delivered to the Lender by the Borrower and shall be in form and substance
satisfactory to the Lender:
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(a) PLANS AND SPECIFICATIONS. Two complete sets of the Plans and
Specifications and approval thereof by any necessary Governmental Authority.
(b) TITLE POLICY. The Title Policy, together with proof of payment of all
fees and premiums for such policy and true and accurate copies of all documents
listed as exceptions under such policy.
(c) OTHER INSURANCE. Duplicate originals or certified copies of all
policies of insurance required by the Security Deed to be obtained and
maintained by the Borrower during the construction of the Improvements, and
certificates of insurance evidencing the insurance required by Section 12.9(b)
and (c) to be obtained and maintained by the Borrower's Manager.
(d) EVIDENCE OF SUFFICIENCY OF FUNDS. Evidence that the proceeds of the
Loan, together with Required Equity Funds delivered to the Lender on the Closing
Date, will be sufficient to cover all Project Costs reasonably anticipated to be
incurred to complete the Improvements prior to the Completion Date, to carry the
Project through the Maturity Date, and to satisfy the obligations of the
Borrower to the Lender under this Agreement.
(e) EVIDENCE OF ACCESS, AVAILABILITY OF UTILITIES, PROJECT APPROVALS.
Evidence as to:
(i) the methods of access to and egress from the Project, and nearby
or adjoining public ways, meeting the reasonable requirements of the
Project and the status of completion of any required improvements to such
access;
(ii) the availability of water supply and storm and sanitary sewer
facilities meeting the reasonable requirements of the Project;
(iii) the availability of all other required utilities, in location
and capacity sufficient to meet the reasonable needs of the Project; and
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(iv) the obtaining of all Project Approvals which are required,
necessary or desirable for the construction of the Improvements and the
access thereto, together with copies of all such Project Approvals.
(f) ENVIRONMENTAL REPORT. An environmental site assessment report or
reports of one or more qualified environmental engineering or similar inspection
firms approved by the Lender, which report or reports shall indicate a condition
of the Land and any existing improvements thereon in all respects satisfactory
to the Lender in its sole discretion and upon which report or reports the Lender
is expressly entitled to rely.
(g) SURVEY AND TAXES. A Survey of the Land (and any existing improvements
thereon) and Surveyor's Certificate, and evidence of payment of all real estate
taxes and municipal charges on the Land (and any existing improvements thereon)
which were due and payable prior to the Closing Date.
(h) REQUIRED EQUITY FUNDS. The Borrower and/or the Guarantor shall
provide the Lender with satisfactory evidence that they have contributed a
minimum cash equity contribution of $2,200,000 since January 1, 1994. The
Lender will allow the Borrower to fulfill a portion of its equity contribution
through its bonding agreement by and between Great Island Trust Partnership, the
Town of Newcastle and the Lender. Of the $1,000,000 placed in an escrow account
for the benefit of the Town of New Castle, the Lender will allow those proceeds
actually disbursed, as approved by the Town's Engineer, to be used as a portion
of the required equity contribution. In addition, the Lender will consider the
remaining funds in the aforesaid escrow account which will be disbursed within
three months of the closing of the Loan as an equity contribution provided such
amount has been previously budgeted and approved by the Lender prior to the
issuance of its Letters of Commitment in Principle dated November 9, 1994.
(i) DRAW REQUEST. A Draw Request complying with the provisions of Section
3.1 hereof.
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(j) FORM PURCHASE AND SALE AGREEMENT. The standard form of Purchase
and Sale Agreement to be used by the Borrower in connection with the
Improvements together with complete copies of all purchase and sale
agreements for Lots, Units or Residences under a Sale Agreement (which Sale
Agreement shall be subject to approval of the Lender which approval shall
not be unreasonably withheld, conditioned or delayed).
(k) MASTER PLAN DOCUMENTS. A complete current set of all Master
Plan Documents together with financial information for the Community.
Section 14.10. CONSTRUCTION INSPECTOR REPORT. The Lender shall have
received a report or written confirmation from the Construction Inspector that
(a) the Construction Inspector has reviewed the Plans and Specifications, (b)
the Plans and Specifications have been received and approved by each
Governmental Authority to which the Plans and Specifications are required under
applicable Requirements to be submitted, (c) the Manager's Contract
satisfactorily provides for the construction of the Improvements, and (d) in the
opinion of the Construction Inspector, construction of the Improvements can be
completed on or before the Completion Date for an amount not greater than the
amount allocated for such purpose in the Project Budget.
Section 14.11. LEGAL OPINIONS. The Lender shall have received favorable
opinions in form and substance reasonably satisfactory to the Lender and the
Lender's counsel, addressed to the Lender and dated as of the Closing Date, from
Brobeck, Phleger & Harrison, as to such other matters as the Lender shall
reasonably request.
Section 14.12. LIEN SEARCH. The Lender shall have received a
certification from Title Insurance Company or counsel reasonably satisfactory to
the Lender (which shall be updated from time to time at the Borrower's expense
upon request by the Lender) that a search of the public records disclosed no
conditional sales contracts, security agreements, chattel mortgages, leases of
personalty, financing statements or title retention agreements which affect the
Collateral.
Section 14.13. NOTICES. All notices required by any Governmental
Authority under applicable Requirements to be filed prior to
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commencement of construction of the Improvements shall have been filed.
Section 14.14. APPRAISAL. The Lender shall have received an Appraisal, in
form and substance satisfactory to the Lender, stating that the Project,
assuming completion in accordance with the Plans and Specifications, has a fair
market value sufficient to satisfy the Loan to Value Requirement.
Section 14.15. COMMITMENT FEE. The Borrower shall have paid to the Lender
the commitment fee pursuant to Section 8.1.
Section 14.16. PERFORMANCE; NO DEFAULT. The Borrower shall have performed
and complied with all terms and conditions herein required to be performed or
complied with by it on or prior to the Drawdown Date of the initial Advance, and
on the Drawdown Date of the initial Advance, there shall exist no Default or
Event of Default.
Section 14.17. REPRESENTATIONS AND WARRANTIES. The representations of
warranties made by the Borrower and the Guarantor in the Loan Documents or
otherwise made by or on behalf of the Borrower or the Guarantor in connection
therewith or after the date thereof shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects on the Drawdown Date of the initial Advance.
Section 14.18. PROCEEDINGS AND DOCUMENTS. All proceedings in connection
with the transactions contemplated by this Agreement and the other Loan
Documents shall be satisfactory to the Lender and the Lender's counsel in form
and substance, and the Lender shall have received all information and such
counterpart originals or certified copies of such documents and such other cer-
tificates, opinions or documents as the Lender and the Lender's counsel may
reasonably require.
Section 14.19. INTEREST RATE PROTECTION. The Bank shall have received
evidence satisfactory to the Bank that the Borrowers have obtained and are
maintaining interest rate protection arrangements in accordance with the
requirements set forth in Section 12.22 hereof, which arrangements shall be
collaterally assigned to the Bank.
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Section 15. CONDITIONS OF SUBSEQUENT ADVANCES. The obligation of the
Lender to make any Advance after the initial Advance shall be subject to the
satisfaction of the following conditions precedent:
Section 15.1. PRIOR CONDITIONS SATISFIED. All conditions precedent to the
initial Advance and any prior Advance shall continue to be satisfied as of the
Drawdown Date of such subsequent Advance.
Section 15.2. PERFORMANCE; NO DEFAULT. The Borrower shall have performed
and complied with all terms and conditions herein required to be performed or
complied with by it on or prior to the Drawdown Date of such Advance, and on the
Drawdown Date of such Advance there shall exist no Default or Event of Default.
Section 15.3. REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties made by the Borrower and the Guarantor in the Loan Documents or
otherwise made by or on behalf of the Borrower or the Guarantor in connection
therewith after the date thereof shall have been true and correct in all
material respects on the date on when made and shall also be true and correct in
all material respects on the Drawdown Date of such Advance (except to the extent
of changes resulting from transactions contemplated or permitted by the Loan
Documents and changes occurring in the ordinary course of business that singly
or in the aggregate are not materially adverse).
Section 15.4. NO DAMAGE. The Improvements shall not have been injured or
damaged by fire, explosion, accident, flood or other casualty, unless the Lender
shall have received insurance proceeds sufficient in the judgment of the Lender
to effect the satisfactory restoration of the Improvements and to permit the
completion thereof on or prior to the Completion Date.
Section 15.5. RECEIPT OF THE LENDER. The Lender shall have received:
(a) DRAW REQUEST. A Draw Request complying with the requirements
hereof, including those set forth in Section 3.1 and/or Section 5.1 hereof;
(b) ENDORSEMENT TO TITLE POLICY. A "date down" endorsement to the
Title Policy indicating no change in the
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state of title and containing no survey exceptions not approved by the
Lender, which endorsement shall, expressly or by virtue of a proper
"pending disbursements" clause of endorsement in the Title Policy, increase
the coverage of the Title Policy to the aggregate amount of all proceeds of
the Loan advanced on or before the effective date of such endorsement;
(c) CURRENT SURVEY. An updated Survey if required by the Title
Insurance Company or the Lender;
(d) APPROVAL BY CONSTRUCTION INSPECTOR. Approval of the Draw
Request for such Advance by the Construction Inspector, accompanied by a
certificate or report from the Construction Inspector to the effect that in
its opinion, based on on-site observations and submissions by the Con-
tractor, the construction of the Improvements to the date thereof was
performed in a good and workmanlike manner and in accordance with the Plans
and Specifications, stating the estimated total cost of construction of the
Improvements, stating the percentage of in-place construction of the
Improvements, and stating that the remaining non-disbursed portion of the
Loan and Required Equity Funds allocated for such purpose in the Project
Budget and any Project Budget reallocation approved by the Lender or
allocation of Contingency Reserve approved by the Lender is adequate to
complete the construction of the Improvements.
Section 15.6. RELEASE OF RETAINAGE. In addition to the conditions
hereinbefore set forth in this Section 15, the Lender's obligation to make any
Advance of Retainage shall be subject to receipt by the Lender of the following:
(a) PROJECT APPROVALS. Evidence satisfactory to the Lender that the
Borrower has obtained all Project Approvals, including, without limitation,
certificates of occupancy, from, given all notices to, and taken all such
other actions with respect to, such Governmental Authority as may be
required under applicable Requirements for the permanent use and occupancy
of the Improvements for their intended uses, together with copies of all
such Project Approvals.
(b) APPROVAL BY CONSTRUCTION INSPECTOR. Notification from the
Construction Inspector to the effect
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that the Improvements have been completed in a good and workmanlike manner
in accordance with the Plans and Specifications.
(c) FINAL SURVEY. A final Survey acceptable to the Lender showing
the as-built location of the completed Improvements.
(d) PAYMENT OF COSTS. Evidence reasonably satisfactory to the
Lender that all sums due in connection with the construction of the
Improvements have been paid in full (or will be paid out of the funds
requested to be advanced) and that no party claims or has a right to claim
any statutory or common law lien arising out of the construction of the
Improvements or the supplying of labor, material, and/or services in con-
nection therewith.
(e) FINAL LIEN WAIVERS. Final lien waivers (on AIA Documents G706
or other form satisfactory to the Lender) from such laborers,
subcontractors and materialmen as may be required by the Lender, duly
executed and notarized.
(f) INSURANCE. Duplicate original or certified copies of all
policies of insurance required by the Security Deed to be obtained and
maintained by the Borrower following completion of construction of the
Improvements.
Section 16. EVENTS OF DEFAULT AND REMEDIES.
Section 16.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following conditions or events shall constitute an "Event of Default":
(a) any failure by the Borrower to pay as and when due and payable
any interest on or principal of or other sum payable under the Notes within
five (5) days of when due; or
(b) any failure by the Borrower to deposit with the Lender any funds
required by Section 12.16 hereof to be deposited with the Lender, at the
time and otherwise in accordance with Section 12.16; or
(c) any failure by the Borrower to pay as and when due and payable
any other sums to be paid by the Borrower to
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the Lender under this Agreement and the continuance of such failure for a
period of ten (10) days after notice thereof from the Lender; or
(d) title to the Collateral is or becomes unsatisfactory to the
Lender by reason of any lien, charge, encumbrance, title condition or
exception (including without limitation, any mechanic's, materialman's or
similar statutory or common law lien or notice thereof), and such matter
causing title to be or become unsatisfactory is not cured or removed
(including by bonding) within twenty (20) days after notice thereof from
the Lender to the Borrower; or
(e) any refusal by the Title Insurance Company to insure any Advance
as being secured by the Security Deed as a valid first lien and security
interest on the Project and continuance of such refusal for a period of
twenty (20) days after notice thereof by the Lender to the Borrower; or
(f) the Improvements are not completed by the Completion Date or, in
the reasonable judgment of the Lender, construction of the Improvements
will not be completed by the Completion Date; or
(g) the entire Project or any substantial or integral part thereof is
injured by fire, explosion, accident, flood or other casualty, unless the
Lender shall have received insurance proceeds and/or sufficient equity
funds of the Borrower or Guarantor sufficient in the reasonable judgment of
the Lender to effect the satisfactory restoration of the Project and to
permit the completion of the Improvements on or prior to the Completion
Date; or
(h) the Project or any material or integral part thereof is subject
to a Taking; or
(i) any cessation at any time in construction of the Improvements for
more than ten (10) consecutive days except for strikes, acts of God, fire
or other casualty, or other causes entirely beyond the Borrower's control,
or any cessation at any time in construction of the Improvements for more
than thirty (30) consecutive days, regardless of the cause thereof; or
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(j) any failure by the Borrower to duly observe or perform any term,
covenant, condition or agreement contained in Sections 12.9, 12.17, or 13
hereof; or
(k) the Guarantor denies that the Guarantor has any liability or
obligations under the Guaranty or the Indemnity Agreement, or shall notify
the Lender of the Guarantor's intention to attempt to cancel or terminate
the Guaranty or the Indemnity Agreement, or shall fail to observe or comply
with any term, covenant, condition and agreement under the Guaranty or the
Indemnity Agreement; or
(l) any representation or warranty made or deemed to be made by or on
behalf of the Borrower or the Guarantor in this Agreement or in any of the
other Loan Documents, or in any report, certificate, financial statement,
Draw Request, document or other instrument delivered pursuant to or in
connection with this Agreement, any Advance or any of the other Loan
Documents, shall prove to have been false or incorrect in any material
respect upon the date of when made or deemed to be made or repeated; or
(m) any dissolution, termination, partial or complete liquidation,
merger or consolidation of the Borrower, any of its general partners, or
the Guarantor, or any sale, transfer or other disposition of all or
substantially all of the assets of the Borrower, any of its general
partners, or the Guarantor, other than as permitted under the terms of this
Agreement, the Guaranty, or any of the other Loan Documents; or
(n) any suit or proceeding shall be filed against the Borrower, the
Guarantor or the Project which, if adversely determined, would have a
materially adverse affect on the ability of the Borrower or the Guarantor
to perform each and every one of their respective obligations under and by
virtue of the Loan Documents; or
(o) any failure by the Borrower to obtain any Project Approvals, or
the revocation or other invalidation of any Project Approvals previously
obtained unless same relate to the construction of a Residence as to which
the Lender (i) has yet to advance any funds, or (ii) any advances relating
to such Residences have been repaid in
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full; or
(p) except as permitted by the Loan Documents, any change in the
legal or beneficial ownership of the Borrower or any of its general
partners; or
(q) any failure by the Borrower or any of its general partners or the
Guarantor or any of its Subsidiaries to pay at maturity, or within any
applicable period of grace, any obligation for borrowed money or credit
received or in respect of any Capitalized Leases in excess of $500,000.00
in the aggregate, or any failure to observe or perform any material term,
covenant or agreement contained in any agreement by which it is bound,
evidencing or securing borrowed money or credit received or in respect of
any Capitalized Leases in excess of $500,000.00 in the aggregate for such
period of time and the holder or holders thereof or of any obligations
issued thereunder have accelerated the maturity thereof with the exception
of the Guarantor's obligations to the Metropolitan Water District with
respect to the purchase of certain additional land related to the so-called
Bolsa-Chica Project; or
(r) the Borrower, any of its general partners, or the Guarantor or
any of its Subsidiaries (with the exception of Exempt Subsidiaries) shall
file a voluntary petition in bankruptcy under Title 11 of the United States
Code, or an order for relief shall be issued against the Borrower, any of
its general partners or the Guarantor or any of its Subsidiaries (with the
exception of Exempt Subsidiaries) in any involuntary petition in bankruptcy
under Title 11 of the United States Code or the Borrower, any of its
general partners, or the Guarantor or any of its Subsidiaries (with the
exception of Exempt Subsidiaries) shall file any petition or answer seeking
or acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under
any present or future federal, state or other law or regulation relating to
bankruptcy, insolvency or other relief of debtors, provided, however, it
shall not be an Event of Default hereunder if any complaint, application or
petition is filed against the Borrower, any of its general partner, or the
Guarantor or any of its Subsidiaries which is being diligently contested
until the earlier of: (i) sixty (60)
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days without the dismissal of such action; or (ii) the entry of an order
for relief or similar order, or the Borrower, any of its general partners
or the Guarantor or any of its Subsidiaries (with the exception of Exempt
Subsidiaries) shall seek or consent to or acquiesce in the appointment of
any custodian, trustee, receiver, conservator or liquidator of the
Borrower, such general partner, or the Guarantor or such Guarantor's
Subsidiary (with the exception of Exempt Subsidiaries), respectively, or of
all or any substantial part of its respective property, or the Borrower,
any of its general partners or the Guarantor or any of its Subsidiaries
(with the exception of Exempt Subsidiaries) shall make an assignment for
the benefit of creditors, or the Borrower, any of its general partners or
the Guarantor or any of its Subsidiaries (with the exception of Exempt
Subsidiaries) shall give notice to any governmental authority or body of
insolvency or pending insolvency or suspension of operation; or
(s) a court of competent jurisdiction shall enter any order, judgment
or decree approving a petition filed against the Borrower, any of its
general partners or the Guarantor or any of its Subsidiaries (with the
exception of Exempt Subsidiaries) seeking any reorganization, arrangement,
composition, readjustment, liquidation or similar relief under any present
or future federal, state or other law or regulation relating to bankruptcy,
insolvency or other relief for debtors, or appointing any custodian,
trustee, receiver, conservator or liquidator of all or any substantial part
of its property; or
(t) except for the Abex Tax Litigation and any litigation disclosed
on Schedule 11.6 annexed hereto, any uninsured final judgment shall be
rendered against the Borrower or any of its general partners or any final
judgment in excess of $500,000.00 shall be rendered against the Guarantor
and shall remain in force, undischarged, unsatisfied and unstayed, for more
than thirty (30) days, whether or not consecutive; or
(u) any of the Loan Documents shall be cancelled, terminated, revoked
or rescinded otherwise than in accordance with the terms thereof or with
the express prior approval of the Lender, or any action at law, suit in
equity
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or other legal proceeding to cancel, revoke or rescind any
of the Loan Documents shall be commenced by or on behalf of
the Borrower or the Guarantor which is a party thereto or
any of their respective stockholders, partners or benefi-
ciaries, or any court or any other governmental or regula-
tory authority or agency of competent jurisdiction shall
make a determination that, or issue a judgment, order,
decree or ruling to the effect that, any one or more of the
Loan Documents is illegal, invalid or unenforceable in
accordance with the terms thereof; or
(v) the Borrower or any of its general partners or the
Guarantor shall be indicted for a federal crime, a
punishment for which could include the forfeiture of any of
its assets; or
(w) any failure by the Borrower or Guarantor to duly
observe or perform any other term, covenant, condition or
agreement under this Agreement and continuance of such
failure for a period of thirty (30) days after notice
thereof from the Lender; or
(x) any "Event of Default", as defined in any of the
other Loan Documents, shall occur after expiration of any
notice or grace period.
Section 16.2 TERMINATION OF COMMITMENT AND ACCELERATION.
If any one or more of the Events of Default shall occur, the
Lender may by notice to the Borrower declare its obligations to
make Advances hereunder to be terminated, whereupon the same
shall terminate and the Lender shall be relieved of all
obligations to make Advances to the Borrower, and/or declare all
unpaid principal of and accrued interest on the Note, together
with all other amounts owing under the Loan Documents, to be
immediately due and payable, whereupon same shall become and be
immediately due and payable, except as specifically required by
the Loan Documents, without presentment, protest, demand or other
notice of any kind, all of which are hereby expressly waived by
the Borrower; PROVIDED that if any one or more of the Events of
Default specified in Section 16.1(r) or Section 16.1(s) shall
occur with respect to the Borrower or any of its general partners
the Lender's obligations to make Advances hereunder automatically
shall so terminate and all unpaid principal of and accrued
interest on the Note, together with all other amounts owing under
the Loan Documents,
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automatically shall become and be immediately so due and payable,
without any declaration or other act on the part of the Lender.
Section 16.3 COMPLETION OF PROJECT. If any one or more of
the Events of Default shall have occurred and be continuing, and
whether or not the Lender shall have terminated its obligations
to make Advances and accelerated the maturity of the Loan
pursuant to Section 16.2, the Lender, if the construction of the
Improvements has not been fully completed, may cause the Project
to be completed and may enter upon the Land and construct, equip
and complete the Project in accordance with the Plans and
Specifications, with such changes therein as the Lender may, from
time to time, and in its reasonable discretion, deem appropriate.
In connection with any construction of the Project undertaken by
the Lender pursuant to the provisions of this Section 16.3, the
Lender may:
(a) use any funds of the Borrower, including any
balance which may be held by the Lender as security or in
escrow, and any funds remaining unadvanced under the Loan;
(b)employ existing contractors, subcontractors, agents,
architects, engineers, and the like, or terminate the same
and employ others;
(c) employ security watchmen to protect the Project;
(d) make such additions, changes and corrections in
the Plans and Specifications as shall, in the reasonable
judgment of the Lender, be necessary or desirable;
(e) take over and use any and all Personal Property
contracted for or purchased by the Borrower, if appropriate,
or dispose of the same as the Lender sees fit;
(f) execute all applications and certificates on
behalf of the Borrower which may be required by any Govern-
mental Authority or Requirements or contract documents or
agreements;
(g) pay, settle or compromise all existing or future
bills and claims which are or may be liens against the
Project, or may be necessary for the completion of the
Improvements or the clearance of title to the Project;
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(h) complete the marketing and leasing of leasable
space in the Improvements, enter into new Leases, and modify
or amend existing Leases, all as the Lender shall reasonably
deem to be necessary;
(i) prosecute and defend all actions and proceedings
in connection with the construction of the Improvements or
in any other way affecting the Land or the Improvements; and
(j) take such action hereunder, or refrain from acting
hereunder, as the Lender may, in its sole and reasonable
discretion, from time to time determine, and without any
limitation whatsoever, to carry out the intent of this
Section 16.3.
The Borrower shall be liable to the Lender for all reasonable
costs paid or incurred for the construction, equipping and
completion of the Project, whether the same shall be paid or
incurred pursuant to the provisions of this Section 16.3 or
otherwise, and all payments made or liabilities incurred by the
Lender hereunder of any kind whatsoever shall be deemed Advances
made to the Borrower under this Agreement and shall be secured by
the Security Deed and the other Security Documents. To the
extent that any reasonable costs so paid or incurred by the
Lender, together with all other Advances made by the Lender
hereunder, exceed the Loan Amount, the amount of such excess
costs shall be added to the Loan Amount, and the Borrower's
obligation to repay the same, together with interest thereon at
the Default Rate, shall be deemed to be evidenced by this
Agreement and secured by the Security Deed and the other Security
Documents. In the event the Lender takes possession of the
Project and assumes control of such construction as aforesaid, it
shall not be obligated to continue such construction longer than
it shall see fit and may thereafter, at any time, change any
course of action undertaken by it or abandon such construction
and decline to make further payments for the account of the
Borrower whether or not the Project shall have been completed.
For the purpose of this Section 16.3, the construction, equipping
and completion of the Project shall be deemed to include any
action necessary to cure any Event of Default by the Borrower
under any of the terms and provisions of any of the Loan Docu-
ments.
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Section 16.4 OTHER REMEDIES. If any one or more of the
Events of Default shall have occurred and be continuing, and
whether or not the Lender shall have terminated its obligations
to make Advances or accelerated the maturity of the Loan pursuant
to Section 16.2, the Lender may proceed to protect and enforce
its rights and remedies under this Agreement, the Note or any of
the other Loan Documents by suit in equity, action at law or
other appropriate proceeding, whether for the specific
performance of any covenant or agreement contained in this
Agreement and the other Loan Documents or any instrument pursuant
to which the Obligations are evidenced, including as permitted by
applicable law the obtaining of the EX PARTE appointment of a
receiver, and, if any amount owed to the Lender shall have become
due, by declaration or otherwise, proceed to enforce the payment
thereof or any other legal or equitable right of the Lender. No
remedy conferred upon the Lender or the holder of the Note in
this Agreement or in any of the other Loan Documents is intended
to be exclusive of any other remedy and each and every remedy
shall be cumulative and shall be in addition to every other legal
or equitable right of the Lender. No remedy conferred upon the
Lender or the holder of the Note in this Agreement or in any of
the other Loan Documents is intended to be exclusive of any other
remedy and each and every remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or thereunder
or now or hereafter existing at law or in equity or by statute or
any other provision of law.
Section 16.5 DISTRIBUTION OF COLLATERAL PROCEEDS. In the
event that, following the occurrence and during the continuance
of any Event of Default, the Lender receives any monies in
connection with the enforcement of any the Security Documents, or
otherwise with respect to the realization upon any of the Col-
lateral, such monies shall be distributed for application as
follows:
(a) First, to the payment of, or (as the case may be)
the reimbursement of the Lender for or in respect of all
reasonable costs, expenses, disbursements and losses which
shall have been incurred or sustained by the Lender in
connection with the collection of such monies by the Lender,
for the exercise, protection or enforcement by the Lender of
all or any of the rights, remedies, powers and privileges of
the Lender under this Agreement or any of the other Loan
Documents or in respect of the Collateral or in support of
any provision of adequate indemnity to the Lender against
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any taxes or liens which by law shall have, or may have,
priority over the rights of the Lender to such monies;
(b) Second, to all other Obligations in such order or
preference as the Lender may reasonably determine; PROVIDED,
HOWEVER, that the Lender may in its discretion make proper
allowance to take into account any Obligations not then due
and payable;
(b) Third, upon payment and satisfaction in full or
other provisions for payment in full satisfactory to the
Lender of all of the Obligations, to the payment of any
obligations required to be paid pursuant to Section 9-
504(1)(c) of the Uniform Commercial Code of the Commonwealth
of Massachusetts; and
(c) Fourth, the excess, if any, shall be returned to
the Borrower or to such other Persons as are entitled
thereto.
Section 16.6 POWER OF ATTORNEY. For the purposes of
carrying out the provisions and exercising the rights, remedies,
powers and privileges granted by or referred to in this Section
16, after the occurrence and during the continuance of an Event
of Default, the Borrower hereby irrevocably constitutes and
appoints the Lender its true and lawful attorney-in-fact, with
full power of substitution, to execute, acknowledge and deliver
any instruments and do and perform any acts which are referred to
in this Section 16, in the name and on behalf of the Borrower.
The power vested in such attorney-in-fact is, and shall be deemed
to be, coupled with an interest and irrevocable.
Section 16.7 WAIVERS. Except as expressly provided
otherwise in the Loan Documents the Borrower hereby waives to the
extent not prohibited by applicable law (a) all presentments,
demands for performance, notices of nonperformance (except to the
extent required by the provisions hereof or of any of the other
Loan Documents), protests and notices of dishonor, (b) any
requirement of diligence or promptness on the Lender's part in
the enforcement of its rights (but not fulfillment of its
obligations) under the provisions of this Agreement or any of the
other Loan Documents, and (c) any and all notices of every kind
and description which may be required to be given by any statute
or rule of law and any defense of any kind which the Borrower may
now or here-
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after have with respect to its liability under this Agreement or
under any of the other Loan Documents.
Section 17. SETOFF. Regardless of the adequacy of any
collateral, during the continuance of any Event of Default, any
deposits (general or specific, time or demand, provisional or
final, regardless of currency, maturity, or the branch of the
Lender where such deposits are held) or other sums credited by or
due from the Lender to the Borrower and any securities or other
property of the Borrower in the possession of the Lender may be
applied to or set off against the payment of the Obligations and
any and all other liabilities, direct, or indirect, absolute or
contingent, due or to become due, now existing or hereafter
arising, of the Borrower to the Lender.
Section 18. EXPENSES. The Borrower agrees to pay a) the
reasonable costs of producing and reproducing this Agreement, the
other Loan Documents and the other agreements and instruments
mentioned herein, (b) any taxes (including any interest and
penalties in respect thereto) payable by the Lender (other than
taxes based upon the Lender's net income or gross revenue),
including any recording, mortgage or intangibles taxes in
connection with the Security Deed, or other taxes payable on or
with respect to the transactions contemplated by this Agreement,
including any taxes payable by the Lender after the Closing Date
(the Borrower hereby agreeing to indemnify the Lender with
respect thereto), (c) all title insurance premiums, and the
reasonable fees, expenses and disbursements of the Lender's
counsel or any local counsel to the Lender incurred in connection
with the preparation, administration or interpretation of the
Loan Documents and other instruments mentioned herein, the making
of each Advance hereunder, and amendments, modifications,
approvals, consents or waivers hereto or hereunder, (d) the
reasonable fees, expenses and disbursements of the Lender
incurred in connection with the preparation, administration or
interpretation of the Loan Documents and other instruments
mentioned herein, and the making of each Advance hereunder
(including all fees paid to the Construction Inspector, Appraisal
fees, and surveyor fees) (e) all reasonable out-of-pocket ex-
penses (including reasonable attorneys' fees and costs, which
attorneys may be employees of the Lender and the fees and costs
of consultants, accountants, auctioneers, receivers, brokers,
property managers, appraisers, investment bankers or other
experts retained by the Lender in connection with (i) the en-
forcement of or preservation of rights under any of the Loan
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Documents against the Borrower or the Guarantor or the adminis-
tration thereof after the occurrence of a Default or Event of
Default and (ii) any litigation, proceeding or dispute whether
arising hereunder or otherwise, in any way related to the Lend-
er's relationship with the Borrower or the Guarantor, and (f) all
reasonable fees, expenses and disbursements of the Lender in-
curred in connection with UCC searches, UCC filings, title
rundowns, title searches or mortgage recordings. The covenants
of this Section 18 shall survive payment or satisfaction of
payment of all amounts owing with respect to the Notes.
Section 19. INDEMNIFICATION. The Borrower agrees to
indemnify and hold harmless the Lender from and against any and
all claims, actions and suits, whether groundless or otherwise,
and from and against any and all liabilities, losses, damages and
expenses of every nature and character arising out of this
Agreement or any of the other Loan Documents or the transactions
contemplated hereby and thereby including, without limitations,
(a) any brokerage, leasing, finders or similar fees relating to
the Loan Documents or the Project, (b) any disbursement of the
proceeds of any of the Advances, (c) any condition of the Project
whether related to the quality of construction or otherwise
unless caused by the Lender's gross negligence or willful
misconduct, (d) any actual or proposed use by the Borrower of the
proceeds of any of the Advances, (e) any actual or alleged
violation of any Requirements or Project Approvals, (f) the
Borrower entering into or performing this Agreement or any of the
other Loan Documents or (g) with respect to the Borrower and its
general partners and their respective properties and assets, the
violation of any Environmental Law, the Release or threatened
Release of any Hazardous Materials or any action, suit,
proceeding or investigation brought or threatened with respect to
any Hazardous Materials (including, but not limited to claims
with respect to wrongful death, personal injury or damage to
property), in each case including, without limitation, the
reasonable fees and disbursements of counsel and allocated costs
of internal counsel incurred in connection with any such
investigation, litigation or other proceeding provided, however,
there shall be no obligation to indemnify Lender with respect to
Lender's gross negligence, willful misconduct or material breach
of the Loan Documents. In litigation, or the preparation
therefor, the Lender shall be entitled to select its own counsel
and, in addition to the foregoing indemnity, the Borrower agrees
to pay promptly the reasonable fees and expenses of such counsel.
The obligations of
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the Borrower under this Section 19 shall survive the repayment of
the Loan and shall continue in full force and effect so long as
the possibility of such claim, action or suit exists. If, and to
the extent that the obligations of the Borrower under this
Section 19 are unenforceable for any reason, the Borrower hereby
agrees to make the maximum contribution to the payment in
satisfaction of such obligations which is permissible under
applicable law.
Section 20. LIABILITY OF THE LENDER. No action shall be
commenced by the Borrower for any claim against the Lender under
the terms of this Agreement unless written notice thereof,
specifically setting forth the claim of the Borrower, shall have
been given to the Lender within fifteen (15) days after the
Borrower has acquired knowledge of the occurrence of the event
which the Borrower alleges gave rise to such claim, and failure
to give such notice shall constitute a waiver of any such claim.
The liability of the Lender to the Borrower for any breach of the
terms of this Agreement by the Lender shall not exceed a sum
equal to the amount which the Lender shall be determined to have
failed to advance in consequence of a breach by the Lender of its
obligations under this Agreement, together with interest thereon
at the rate payable by the Borrower under the terms of the Notes
for Advances which the Borrower is to receive hereunder, computed
from the date when the Advance should have been made by the
Lender to the date when the Advance is, in fact, made by the
Lender, and, upon the making of any such payment by the Lender to
the Borrower, the same shall be treated as an Advance under this
Agreement, in the same fashion as any other Advance under the
terms of this Agreement. In no event shall the Lender be liable
to the Borrower, or anyone claiming by, under or through the
Borrower, for any special, exemplary, punitive or consequential
damages, whatever the nature of the breach of the terms of this
Agreement by the Lender, such damages and claims therefor being
expressly waived by the Borrower.
Section 21. RIGHTS OF THIRD PARTIES. All conditions to
the performance of the obligations of the Lender under this
Agreement, including the obligation to make Advances, are imposed
solely and exclusively for the benefit of the Lender and no other
Person shall have standing to require satisfaction of such
conditions in accordance with their terms or be entitled to
assume that the Lender will refuse to make Advances in the
absence of strict compliance with any or all thereof and no other
Person shall, under any circumstances, be deemed to be a
beneficiary of such
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conditions, any and all of which may be freely waived in whole or
in part by the Lender at any time if in its sole discretion it
deems it desirable to do so. In particular, the Lender makes no
representations and assumes no obligations as to third parties
concerning the quality of the construction by the Borrower of the
Improvements or the absence therefrom of defects.
Section 22. SURVIVAL OF COVENANTS, ETC. All covenants,
agreements, representations and warranties made herein, in the
Note, in any of the other Loan Documents or in any documents or
other papers delivered by or on behalf of the Borrower or any of
its general partners or the Guarantor pursuant hereto and thereto
shall be deemed to have been relied upon by the Lender,
notwithstanding any investigation heretofore or hereafter made by
it, and shall survive the making by the Lender of the Advances,
as herein contemplated, and shall continue in full force and
effect so long as any amount due under this Agreement or the
Notes or any of the other Loan Documents remains outstanding or
the Lender has any obligation to make any Advances. All
statements contained in any certificate or other paper delivered
to the Lender at any time by or on behalf of the Borrower or any
of its general partners or the Guarantor pursuant hereto or in
connection with the transactions contemplated hereby shall
constitute representations and warranties by the Borrower or such
general partner or the Guarantor hereunder.
Section 23. PARTICIPATION; ETC.
Section 23.1. PARTICIPATIONS. The Lender may sell
participations to one or more banks or other entities in all or a
portion of the Lender's rights and obligations under this
Agreement and the other Loan Documents; PROVIDED that (a) any
such sale or participation shall not affect the rights and duties
of the Lender hereunder to the Borrower and (b) the only rights
granted to the participant pursuant to such participation
arrangements with respect to waivers, amendments or modifications
of the Loan Documents shall be the right to approve waivers,
amendments or modifications that would reduce the principal of or
the interest rate on the Loan, extend the term or increase the
amount of the Loan or extend any regularly scheduled payment date
for principal or interest.
Section 23.2 PLEDGE BY THE LENDER. The Lender may at any
time pledge all or any portion of its interest and rights under
this
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Agreement (including all or any portion of the Note) to any of
the twelve Federal Reserve Banks organized under Section 4 of the
Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or
the enforcement thereof shall release the Lender from its
obligations hereunder or under any of the other Loan Documents.
Section 23.3. NO ASSIGNMENT BY THE BORROWER. The Borrower
shall not assign or transfer any of its rights or obligations
under any of the Loan Documents without the prior approval of the
Lender.
Section 24. RELATIONSHIP. The relationship between the
Lender and the Borrower is solely that of a lender and borrower,
and nothing contained herein or in any of the other Loan
Documents shall in any manner be construed as making the parties
hereto partners, joint venturers or any other relationship other
than lender and borrower.
Section 25. NOTICES. Each notice, demand, election or
request provided for or permitted to be given pursuant to this
Agreement (hereinafter in this Section 24 referred to as
"Notice") must be in writing and shall be deemed to have been
properly given or served by personal delivery or by sending same
by overnight courier or by depositing same in the United States
Mail, postpaid and registered or certified, return receipt
requested, and addressed as follows:
If to the Lender;
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attn: Real Estate Division
with a copy to:
Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attention: James H. Lerner, Esquire
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If to the Borrower:
Great Island Trust Partnership
P.O. Box 246
New Castle, New Hampshire 03854
Attn: Daniel V. Main
with a copy to:
The Koll Real Estate Group, Inc.
4343 Van Karmen Avenue
Newport Beach, California 92660
Attn: Mr. Raymond Pacini
and
Brobeck, Phleger & Harrison
550 South Hope Street
Los Angeles, California 90071
Attention: Gerard J. Walsh, Esquire
Each Notice shall be effective upon being personally delivered or
upon being sent by overnight courier or upon being deposited in
the United States Mail as aforesaid. The time period in which a
response to such Notice must be given or any action taken with
respect thereto (if any), however, shall commence to run from the
date of receipt if personally delivered or sent by overnight
courier, or if so deposited in the United States Mail, the
earlier of three (3) Business Days following such deposit or the
date of receipt as disclosed on the return receipt. Rejection or
other refusal to accept or the inability to deliver because of
changed address for which no Notice was given shall be deemed to
be receipt of the Notice sent. By giving at least thirty (30)
days prior Notice thereof, the Borrower or the Lender shall have
the right from time to time and at any time during the term of
this Agreement to change their respective addresses and each
shall have the right to specify as its address any other address
within the United States of America.
Section 26. GOVERNING LAW. This Agreement and each of
the other Loan Documents, except as otherwise specifically
provided therein, are contracts under the laws of the
Commonwealth of Massachusetts and shall for all purposes be
construed in accordance
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with and governed by the laws of said Commonwealth (excluding the
laws applicable to conflicts or choice of law).
Section 27. CONSENT TO JURISDICTION; WAIVERS. THE
BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO
PERSONAL JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS OVER
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND (B) WAIVES ANY
AND ALL PERSONAL RIGHTS UNDER THE LAWS OF ANY STATE (I) TO THE
RIGHT, IF ANY, TO TRIAL BY JURY, (II) TO OBJECT TO JURISDICTION
WITHIN THE COMMONWEALTH OF MASSACHUSETTS OR VENUE IN ANY
PARTICULAR FORUM WITHIN THE COMMONWEALTH OF MASSACHUSETTS, AND
(III) TO THE RIGHT, IF ANY, TO CLAIM OR RECOVER ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER
THAN ACTUAL DAMAGES. THE BORROWER AGREES THAT, IN ADDITION TO
ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE
LAW, ALL SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION OR
PROCEEDING MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED DIRECTED TO THE BORROWER AT THE ADDRESS SET
FORTH IN Section 22 ABOVE, AND SERVICE SO MADE SHALL BE COMPLETE
FIVE (5) DAYS AFTER THE SAME SHALL BE SO MAILED. NOTHING
CONTAINED HEREIN, HOWEVER, SHALL PREVENT THE LENDER FROM BRINGING
ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY RIGHTS AGAINST
ANY COLLATERAL AND AGAINST THE BORROWER, AND AGAINST ANY PROPERTY
OF THE BORROWER, IN ANY OTHER STATE. INITIATING SUCH SUIT,
ACTION OR PROCEEDING OR TAKING SUCH ACTION IN ANY STATE SHALL IN
NO EVENT CONSTITUTE A WAIVER OF THE AGREEMENT CONTAINED HEREIN
THAT THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS SHALL GOVERN
THE RIGHTS AND OBLIGATIONS OF THE BORROWER AND THE LENDER
HEREUNDER OR THE SUBMISSION HEREIN BY THE BORROWER TO PERSONAL
JURISDICTION WITHIN THE COMMONWEALTH OF MASSACHUSETTS.
Section 28. HEADINGS. The captions in this Agreement are
for convenience of reference only and shall not define or limit
the provisions hereof.
Section 29. COUNTERPARTS. This Agreement and any
amendment hereof may be executed in several counterparts and by
each party on a separate counterpart, each of which when so
executed and delivered shall be an original, and all of which
together shall constitute one instrument. In proving this
Agreement it shall not be necessary to produce or account for
more than one such counterpart signed by the party against whom
enforcement is sought.
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Section 30. ENTIRE AGREEMENT, ETC. The Loan Documents
and any other documents executed in connection herewith or
therewith express the entire understanding of the parties with
respect to the transactions contemplated hereby. Neither this
Agreement nor any term hereof may be changed, waived, discharged
or terminated, except as provided in Section 31.
Section 31. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except
as otherwise expressly set forth in any particular provision of
this Agreement, any consent or approval required or permitted by
this Agreement to be given by the Lender may be given, and any
term of this Agreement or of any other instrument related hereto
or mentioned herein may be amended, and the performance or obser-
vance by the Borrower of any terms of this Agreement or such
other instrument or the continuance of any Default or Event of
Default may be waived (either generally or in a particular
instance and either retroactively or prospectively) with, but
only with, the written consent of the Lender. No waiver shall
extend to or affect any obligation not expressly waived or impair
any right consequent thereon. No course of dealing or delay or
omission on the part of the Lender in exercising any right shall
operate as a waiver thereof or otherwise be prejudicial thereto.
No Advance made by the lender hereunder during the continuance of
any Default or Event of Default shall constitute a waiver there-
of. No notice to or demand upon the Borrower shall entitle the
Borrower to other or further notice or demand in similar or other
circumstances.
Section 32. TIME OF THE ESSENCE. Time is of the essence
with respect to each and every covenant, agreement and obligation
of the Borrower under this Agreement and the other Loan
Documents.
Section 33. SEVERABILITY. The provisions of this
Agreement are severable, and if any one clause or provision
hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability
shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause
or provision in any other jurisdiction, or any other clause or
provision of this Agreement in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as a sealed instrument as of the date first set forth
above.
GREAT ISLAND TRUST PARTNERSHIP
By Its General Partners
Wentworth Holdings Inc.
By:___________________________
Title: Vice President
------------------------
NC Holding Company
By:___________________________
Title: Vice President
------------------------
THE FIRST NATIONAL BANK OF BOSTON
By:________________________________
Name:
Title:
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UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE
FOR AND IN CONSIDERATION OF the sum of Ten and No/100 Dollars ($10.00) and
other good and valuable consideration paid or delivered to the undersigned The
Koll Real Estate Group, Inc., a Delaware corporation (hereinafter referred to as
"Guarantor"), the receipt and sufficiency whereof are hereby acknowledged by
Guarantor, and for the purpose of seeking to induce THE FIRST NATIONAL BANK OF
BOSTON a national banking association (hereinafter referred to as Lender") to
extend credit or otherwise provide financial accommodations to Great Island
Trust Partnership, a New Hampshire general partnership (hereinafter referred to
as "Borrower"), which extension of credit and provision of financial
accommodations will be to the direct interest, advantage and benefit of
Guarantor, Guarantor does hereby absolutely, unconditionally and irrevocably
guarantee to Lender:
(a) the full and prompt payment when due, whether by acceleration or
otherwise, either before or after maturity thereof, of that certain
Development Note (hereinafter referred to as the "Development Note") of
even date herewith made by Borrower to the order of Lender in the principal
face amount of Three Million Five Hundred Thousand and No/100 Dollars
($3,500,000.00), together with interest as provided in said Note, together
with any renewals, modifications, consolidations, restatements and
extensions thereof; and
(b) the full and prompt payment when due, whether by acceleration or
otherwise, either before or after maturity thereof, of that certain
Residences Note (hereinafter referred to as the "Residences Note") of even
date herewith made by Borrower to the order of Lender in the principal face
amount of Three Million Thousand and No/100 Dollars ($3,000,000.00),
together with interest as provided in said Note, together with any
renewals, modifications, consolidations, restatements and extensions
thereof (the Development Note and the Residences Note are sometimes
hereinafter referred to collectively as the "Notes"); and
(c) the full and prompt payment and performance of any and all
obligations of Borrower to Lender under the terms of
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that certain Mortgage (hereinafter referred to as the "Security Deed") made
by Borrower in favor of Lender, of even date herewith, granting a first
mortgage lien on certain real property located in Rockingham County, New
Hampshire (hereinafter referred to as the "Land") to secure the Notes
(including, without limitation, the obligations of Borrower concerning
hazardous materials contained in Paragraph 7 of said Security Deed); and
(d) the full and prompt payment and performance of all obligations of
Borrower to Lender under the terms of that certain Construction Loan
Agreement (hereinafter referred to as the "Construction Loan Agreement") of
even date herewith made between Borrower and Lender, including, without
limitation, the obligation to complete the buildings and site improvements
described in the Construction Loan Agreement (hereinafter referred to as
the "Improvements") in accordance with the terms of the Construction Loan
Agreement and with the final plans and specifications approved by Lender,
and to provide all funds necessary for such completion of the Improvements,
or, at Lender's option, to allow Lender to complete the construction of the
Improvements and upon request therefor to reimburse Lender for all of
Lender's reasonable expenses incurred in completing the Improvements,
including any sums expended in excess of the principal face amount of the
Notes; and
(e) the full and prompt payment and performance of any and all other
obligations of Borrower to Lender under any other agreements, documents or
instruments now or hereafter evidencing, securing or otherwise relating to
the indebtedness evidenced by the Notes (the Security Deed, the
Construction Loan Agreement and said other agreements, documents and
instruments, including specifically that certain Indemnity Agreement
Regarding Hazardous Materials, are hereinafter collectively referred to as
the "Loan Documents" and individually referred to as a "Loan Document").
1. AGREEMENT TO PAY AND PERFORM; COSTS OF COLLECTION. Guarantor does
hereby agree that if the Notes are not paid by Borrower in accordance with their
terms, or if any and all sums which are now or may hereafter become due from
Borrower to Lender under the Loan Documents are not paid by Borrower in
accordance with their terms, or if any and all other obligations of Borrower
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to Lender under the Notes and the Loan Documents are not performed by Borrower
in accordance with their terms, Guarantor will immediately make such payments
and perform such obligations. Guarantor further agrees to pay Lender within
three (3) days after written demand all costs and expenses (including court
costs and reasonable attorneys' fees and disbursements) paid or incurred by
Lender in endeavoring to collect the indebtedness guaranteed hereby, to enforce
any of the other obligations of Borrower guaranteed hereby, or any portion
thereof, or to enforce this Guaranty, and until paid to Lender, such sums shall
bear interest until paid at the rates in effect under the Notes unless
collection from Guarantor of interest at such rate would be contrary to
applicable law, in which event such sums shall bear interest at the highest rate
which may be collected from Guarantor under applicable law.
2. REINSTATEMENT OF REFUNDED PAYMENTS. If, for any reason, any payment
to Lender of any of the obligations guaranteed hereunder is required to be
refunded by Lender to Borrower, or paid or turned over to any other person,
including, without limitation, by reason of the operation of bankruptcy,
reorganization, receivership or insolvency laws or similar laws of general
application relating to creditors' rights and remedies now or hereafter enacted,
Guarantor agrees to pay the amount so required to be refunded, paid or turned
over (the "Turnover Payment"), the obligations of Guarantor shall not be treated
as having been discharged by the original payment to Lender giving rise to the
Turnover Payment, and this Guaranty shall be treated as having remained in full
force and effect for any such Turnover Payment so made by Lender, as well as for
any amounts not theretofore paid to Lender on account of such obligations.
3. RIGHTS OF LENDER TO DEAL WITH COLLATERAL, BORROWER AND OTHER PERSONS.
Guarantor hereby consents and agrees that Lender may at any time, and from time
to time, without thereby releasing Guarantor from any liability hereunder and
without notice to or further consent from Guarantor, either with or without
consideration: release or surrender any lien or other security of any kind or
nature whatsoever held by it or by any person, firm or corporation on its behalf
or for its account, securing any indebtedness or liability hereby guaranteed;
substitute for any collateral so held by it, other collateral of like kind, or
of any kind; modify the terms of the Notes or the Loan Documents; extend or
renew the Notes for any period; grant releases, compro-
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mises and indulgences with respect to the Notes or the Loan Documents and to any
Persons or entities now or hereafter liable thereunder or hereunder; release any
other Guarantor, surety, endorser or accommodation party of the Notes, the
Security Deed or any other Loan Documents; or take or fail to take any action of
any type whatsoever. No such action which Lender shall take or fail to take in
connection with the Notes or the Loan Documents, or any of them, or any security
for the payment of the indebtedness of Borrower to Lender or for the performance
of any obligations or undertakings of Borrower, nor any course of dealing with
Borrower or any other person, shall release Guarantor's obligations hereunder,
affect this Guaranty in any way or afford Guarantor any recourse against Lender.
The provisions of this Guaranty shall extend and be applicable to all renewals,
amendments, extensions, consolidations, restatements and modifications of the
Notes and the Loan Documents, and any and all references herein to the Notes and
the Loan Documents shall be deemed to include any such renewals, extensions,
amendments, consolidations, restatements or modifications thereof.
4. NO CONTEST WITH LENDER; SUBORDINATION. So long as any obligation
hereby guaranteed remains unpaid or undischarged, Guarantor will not, by paying
any sum recoverable hereunder (whether or not demanded by Lender) or by any
means or on any other ground, claim any set-off or counterclaim against Borrower
in respect of any liability of Guarantor to Borrower or, in proceedings under
federal bankruptcy law or insolvency proceedings of any nature, prove in
competition with Lender in respect of any payment hereunder or be entitled to
have the benefit of any counterclaim or proof of claim or dividend or payment by
or on behalf of Borrower or the benefit of any other security for any obligation
hereby guaranteed which, now or hereafter, Lender may hold or in which it may
have any share. Guarantor hereby subordinates any and all indebtedness of
Borrower now or hereafter owed to Guarantor to all indebtedness of Borrower to
Lender, and agrees with Lender that Guarantor shall not demand or accept any
payment from Borrower on account of such indebtedness, (b) Guarantor shall not
claim any offset or other reduction of Guarantor's obligations hereunder because
of any such indebtedness, and (c) Guarantor shall not take any action to obtain
any interest in any of the security described in and encumbered by the Loan
Documents because of any such indebtedness; provided, however, that, if Lender
so requests,
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such indebtedness shall be collected, enforced and received by Guarantor as
trustee for Lender and be paid over to Lender on account of the indebtedness of
Borrower to Lender, but without reducing or affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty except to the
extent the principal amount of such outstanding indebtedness shall have been
reduced by such payment.
5. WAIVER OF DEFENSES. Guarantor hereby agrees that its obligations
hereunder shall not be affected or impaired by, and hereby waives and agrees not
to assert or take advantage of any defense based on:
(a) any statute of limitations in any action hereunder or for the
collection of the Notes or for the payment or performance of any obligation
hereby guaranteed;
(b) the incapacity, lack of authority, death or disability of
Borrower or any other person or entity, or the failure of Lender to file or
enforce a claim against the estate (either in administration, bankruptcy or
in any other proceeding) of Borrower or Guarantor or any other person or
entity;
(c) the dissolution or termination of existence of Borrower or
Guarantor;
(d) the voluntary or involuntary liquidation, sale or other
disposition of all or substantially all of the assets of Borrower;
(e) the voluntary or involuntary receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
assignment, composition, or readjustment of, or any similar proceeding
affecting, Borrower or Guarantor, or any of Borrower's or Guarantor's
properties or assets;
(f) the damage, destruction, condemnation, foreclosure or surrender
of all or any part of the Land or the Improvements;
(g) any change in the plans and specifications relating to the
construction of the Improvements;
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(h) any modification of the terms of any contract relating to the
construction of the Improvements or the furnishing of any labor or
materials therefor;
(i) the failure of Lender to give notice of the existence, creation
or incurring of any new or additional indebtedness or obligation or of any
action or nonaction on the part of any other person whomsoever in
connection with any obligation hereby guaranteed;
(j) any failure or delay of Lender to commence an action against
Borrower, to assert or enforce any remedies against Borrower under the
Notes or the Loan Documents, or to realize upon any security;
(k) any failure of any duty on the part of Lender to disclose to
Guarantor any facts it may now or hereafter know regarding Borrower,
whether such facts materially increase the risk to Guarantor or not;
(l) except as specifically required by this Guaranty, failure to
accept or give notice of acceptance of this Guaranty by Lender;
(m) except as specifically required by this Guaranty, failure to make
or give notice of presentment and demand for payment of any of the
indebtedness or performance of any of the obligations hereby guaranteed;
(n) except as specifically required by this Guaranty, failure to make
or give protest and notice of dishonor or of default to Guarantor or to any
other party with respect to the indebtedness or performance of obligations
hereby guaranteed;
(o) any and all other notices whatsoever to which Guarantor might
otherwise be entitled;
(p) any lack of diligence by Lender in collection, protection or
realization upon any collateral securing the payment of the indebtedness or
performance of obligations hereby guaranteed;
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(q) the invalidity or unenforceability of the Notes or any of the
Loan Documents;
(r) the compromise, settlement, release or termination of any or all
of the obligations of Borrower under the Notes or the Loan Documents;
(s) any exculpation of liability contained in the Notes or in the
Loan Documents;
(t) any transfer by Borrower of all or any part of the security
encumbered by the Loan Documents;
(u) the failure of Lender to perfect any security or to extend or
renew the perfection of any security; or
(v) to the fullest extent permitted by law, any other legal,
equitable or surety defenses whatsoever to which Guarantor might otherwise
be entitled, it being the intention that the obligations of Guarantor
hereunder are absolute, unconditional and irrevocable.
6. GUARANTY OF PAYMENT AND PERFORMANCE AND NOT OF COLLECTION. This is a
Guaranty of Payment and performance and not of collection. The liability of
Guarantor under this Guaranty shall be primary, direct and immediate and not
conditional or contingent upon the pursuit of any remedies against Borrower or
any other person, nor against securities or liens available to Lender, its
successors, successors in title, endorsees or assigns. Guarantor hereby waives
any right to require that an action be brought against Borrower or any other
person or to require that resort be had to any security or to any balance of any
deposit account or credit on the books of Lender in favor of Borrower or any
other person.
7. RIGHTS AND REMEDIES OF LENDER. In the event of a default under the
Notes or the Loan Documents, or any of them, Lender shall have the right to
enforce its rights, powers and remedies thereunder or hereunder or under any
other agreement, document or instrument now or hereafter evidencing, securing or
otherwise relating to the indebtedness evidenced by the Notes or secured by the
Loan Documents, in any order, and all rights, powers and remedies available to
Lender in such event shall be nonexclusive and cumulative of all other rights,
powers and
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remedies provided thereunder or hereunder or by law or in equity. Accordingly,
Guarantor hereby authorizes and empowers Lender upon the occurrence of any Event
of Default under the Notes or the Loan Documents, at its sole discretion, and,
except as specifically required by this Guaranty, without notice to Guarantor,
to exercise any right or remedy which Lender may have, including, but not
limited to, judicial foreclosure, exercise of rights of power of sale,
acceptance of a deed or assignment in lieu of foreclosure, appointment of a
receiver to collect rents and profits, exercise of remedies against personal
property, or enforcement of any assignment of leases, as to any security,
whether real, personal or intangible. At any public or private sale of any
security or collateral for any indebtedness or any part thereof guaranteed
hereby, whether by foreclosure or otherwise, Lender may, in its discretion,
purchase all or any part of such security or collateral so sold or offered for
sale for its own account and may apply against the amount bid therefor all or
any part of the balance due it pursuant to the terms of the Notes or Security
Deed or any other Loan Document without prejudice to Lender's remedies hereunder
against Guarantor for deficiencies. If the indebtedness guaranteed hereby is
partially paid by reason of the election of Lender to pursue any of the remedies
available to Lender, or if such indebtedness is otherwise partially paid, this
Guaranty shall nevertheless remain in full force and effect, and Guarantor shall
remain liable for the entire balance of the indebtedness guaranteed hereby even
though any rights which Guarantor may have against Borrower may be destroyed or
diminished by the exercise of any such remedy.
8. APPLICATION OF PAYMENTS. Guarantor hereby authorizes Lender, without
notice to Guarantor, to apply all payments and credits received from Borrower or
from Guarantor or realized from any security in such manner and in such priority
as Lender in its reasonable judgment shall see fit to the indebtedness,
obligation and undertakings which are the subject of this Guaranty.
9. BUSINESS FAILURE, BANKRUPTCY OR INSOLVENCY. In the event of the
business failure of Guarantor or if there shall be pending any bankruptcy or
insolvency case or proceeding with respect to Guarantor under federal bankruptcy
law or any other applicable law or in connection with the insolvency of
Guarantor, or if a liquidator, receiver, or trustee shall have been appointed
for Guarantor or Guarantor's properties or assets, Lender may file such proofs
of claim and other papers or documents as
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may be necessary or advisable in order to have the claims of Lender allowed in
any proceedings relative to Guarantor, or any of Guarantor's properties or
assets, and, irrespective of whether the indebtedness or other obligations of
Borrower guaranteed hereby shall then be due and payable, by declaration or
otherwise, Lender shall be entitled and empowered to file and prove a claim for
the whole amount of any sums or sums owing with respect to the indebtedness or
other obligations of Borrower guaranteed hereby, and to collect and receive any
moneys or other property payable or deliverable on any such claim.
10. FINANCIAL STATEMENTS AND OTHER INFORMATION. Except as disclosed to
Lender in writing, Guarantor hereby represents and warrants to Lender that all
consolidated and consolidating financial statements of Guarantor and its
Subsidiaries heretofore delivered by Guarantor to Lender are true and correct in
all material respects, have been prepared in accordance with generally accepted
accounting principles consistently applied, and fairly present the financial
condition of Guarantor as at the close of business on the date thereof and the
results of operations for the period then ended; that no material adverse change
has occurred in the assets, liabilities, financial condition or business of
Guarantor as shown or reflected therein since the date thereof; and except as
disclosed to Lender with respect to the Abex Tax Dispute and the Henley
Facilities Audit, that Guarantor and its Subsidiaries have no material
liabilities or known contingent liabilities which are not reflected in such
financial statements or referred to in the Notes thereto other than Guarantor's
obligations under this Guaranty. Guarantor hereby agrees that until all
indebtedness guaranteed hereby has been completely repaid and all obligations
and undertakings of Borrower under, by reason of, or pursuant to the Notes and
the Loan Documents have been completely performed, Guarantor will deliver to
Lender the financial statements, reports and other information required to be
delivered under Section 12.6 of the Construction Loan Agreement. Guarantor will
permit any officer designated by Lender, which visit shall be at Guarantor's
expense after the occurrence of an Event of Default which is then continuing, to
visit and inspect any of the properties of Guarantor or any of its Subsidiaries,
to examine the records and books of account of Guarantor and its Subsidiaries
(and to make copies thereof and extracts therefrom) and to discuss the affairs,
finances and accounts of Guarantor and its Subsidiaries with, and to be advised
as to the same by, its officers, all at
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such reasonable times and intervals as Lender may reasonably request. The
Lender shall use its best efforts to maintain the confidentiality of any
financial information or records furnished to the Lender in connection with any
commercial finance examination; provided, however, such information and records
may be disclosed (i) to the Lender's directors, officers, employees and
representatives who have the need for such information to perform their duties,
(ii) to the Lender's independent third party auditors and its directors,
officers, employees and representatives who have the need for such information
to perform their duties, (iii) to all federal and state bank examiners and to
all parties to whom the Lender is required to disclose such information and
records under any present or future federal and/or state banking law or
regulation, as determined by the Lender, and (iv) in accordance with any
subpoena or court order which the Lender in good faith believes requires such
disclosure.
11. COVENANTS OF GUARANTOR. Guarantor hereby covenants and agrees with
Lender that until all indebtedness guaranteed hereby has been completely repaid
and all obligations and undertakings of Borrower under, by reason of, or
pursuant to the Notes and the Loan Documents have been completely performed:
(a) except as otherwise permitted by this Guaranty and the Loan
Documents, Guarantor will, and will cause each of its Subsidiaries (except
for Exempt Subsidiaries) to, do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights
and franchises, to effect and maintain its foreign qualifications,
licensing, domestication or authorization, and to comply in all material
respects with all applicable laws and regulations (including, without
limitation, environmental laws);
(b) Except for the Exempt Subsidiaries, and except as otherwise
permitted by this Guaranty and the Loan Documents, Guarantor will, and will
cause each of its Subsidiaries to, continue to engage primarily in the
business now conducted by it and them;
(c) Except for the Exempt Subsidiaries, and taxes related to the Abex
Tax Dispute or the Henley Facilities Audit Guarantor will, and will cause
each of its Subsidiaries to, duly pay and discharge, before the same
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shall become in arrears, all taxes, assessments and other governmental
charges imposed upon it and its properties, sales or activities, or upon
the income or profits therefrom, as well as claims for labor, material, or
supplies which if unpaid might become a lien or charge on any of its
property; provided that any such tax, assessment, charge or claim need not
be paid if the validity or amount thereof shall currently be contested in
good faith by appropriate proceedings and if Guarantor or such subsidiary
shall have set aside on its books adequate reserves with respect thereto;
and provided further that Guarantor or such subsidiary shall pay all such
taxes, assessments, charges and claims forthwith upon the commencement of
proceedings to foreclose any lien that may have attached as security
therefor;
(d) Except for the Exempt Subsidiaries, Guarantor will, and will
cause each of its Subsidiaries to, maintain and keep the properties used or
deemed by it to be useful in its business in good repair, working order and
condition, and make or cause to be made all necessary and proper repairs
thereto and replacements thereof;
(e) Except for the Exempt Subsidiaries, Guarantor will maintain with
financially sound and reputable insurers, insurance with respect to its and
its Subsidiaries properties and business against such casualties and
contingencies and in such types and amounts as shall be in accordance with
sound business practices for companies in similar business similarly
situated;
(f) Guarantor will keep, and will keep as to each of its Subsidiaries
consistent with past practices, complete, proper and accurate records and
books of account in which full, true and correct entries will be made in
accordance with generally accepted accounting principles consistent with
the preparation of the financial statements heretofore delivered to Lender
and will maintain adequate accounts and reserves for all taxes (including
income taxes), all depreciation, depletion, and amortization of its
properties and the properties of its subsidiaries, all other contingencies,
and all other proper reserves (as reasonably determined by Guarantor based
upon the advice of independent attorneys, accountants and other
professional consultants in
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accordance with generally accepted accounting principles consistently
applied);
(g) Except as otherwise permitted in this Guaranty or the Loan
Documents, and except for Indebtedness not to exceed $1,000,000.00 in the
aggregate of Exempt Subsidiaries (provided said Indebtedness is nonrecourse
to the Guarantor and Signal and the Guarantor and Signal's other
Subsidiaries), Guarantor will not, and will not permit any of its
subsidiaries to, create, incur, assume, guarantee or be or remain liable,
contingently or otherwise, with respect to any Indebtedness (as defined in
the Construction Loan Agreement) other than:
(i) Indebtedness to Lender arising under any of the Notes, the
Loan Documents and this Guaranty;
(ii) current liabilities of Guarantor or such subsidiary
incurred in the ordinary course of business not incurred through the
borrowing of money, or the obtaining of credit except for credit on an
open account basis customarily extended and in fact extended in
connection with normal purchases of goods and services;
(iii) Indebtedness in respect of taxes, assessments and
governmental charges and claims for labor, materials and supplies to
the extent that payment therefor shall not at the time be required to
be made in accordance with the provisions of subparagraph (c) of this
paragraph;
(iv) Indebtedness in respect of judgments or awards that have
been in force for less than the applicable period for taking an appeal
so long as execution is not levied thereunder or in respect of which
Guarantor or such subsidiary shall at the time in good faith be
prosecuting an appeal or proceedings for review and in respect of
which a stay of execution shall have been obtained pending such appeal
or review;
(v) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
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(vi) unsecured Indebtedness of Guarantor or any of its
Subsidiaries which is expressly subordinated and made junior to the
payment and performance of Guarantor's or such Subsidiary's
obligations to Lender, and evidenced as such by a written instrument
containing subordination provisions in form and substance acceptable
to Lender;
(vii) Indebtedness incurred by KGT Affiliates to various lenders
(including, but not limited to FS Equity Partners III, L.P., Operating
Engineers Pension Fund, Mission Viejo Company, Philip Morris Capital
Corporation) in connection with acquisition, marketing, ownership,
management and development of the Property of KGT Affiliates as long
as such Indebtedness is non-recourse to the Guarantor, Signal and the
Guarantor's and Signal's other subsidiaries (other than KGT
Affiliates);
(viii) Indebtedness to AV Partnership incurred by KGT Affiliates
and guaranteed by the Guarantor for capital contributions in
connection with the development of the Property of KGT Affiliates in
an aggregate principal amount not exceeding $10,000,000.00;
(ix) Indebtedness incurred by Special Purpose Subsidiaries to
any lender in connection with the acquisition, marketing, ownership,
management or development of any Strategic Acquisition Property or any
Quick Flip Transaction or build-to-suit transaction by KREG Operating
Company, as long as such Indebtedness is non-recourse to the
Guarantor, Signal, and the Guarantor's and Signal's other Subsidiaries
(other than such Special Purpose Subsidiary);
(x) Indebtedness to NACC not to exceed $30,000,000.00;
(xi) The refinancing of any Indebtedness permitted hereunder.
(h) Except as otherwise permitted by this Guaranty and the Loan
Documents, Guarantor will not, and will not permit
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any of its subsidiaries to, create or incur or suffer to be created or
incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property
or assets of any character whether now owned or hereafter acquired, or upon
the income or profits therefrom; or transfer any of such property or assets
or the income or profits therefrom for the purpose of subjecting the same
to the payment of Indebtedness or performance of any other obligation in
priority of payment of its general creditors; or acquire, or agree to have
an option to acquire, any property or assets upon conditional sale or other
title retention or purchase money security agreement, devise or
arrangement; or suffer to exist for a period of more than 60 days after the
same shall have been incurred any Indebtedness or claim or demand against
it that if unpaid might by law or upon bankruptcy or insolvency, or
otherwise, be given any priority whatsoever over its general creditors; or
sell, assign, pledge or otherwise transfer any accounts, contract rights,
general intangibles, chattel paper or instruments, with or without
recourse; provided that Guarantor and any subsidiary of Guarantor may
create or incur or suffer to be created or incurred or to exist:
(i) liens to secure taxes, assessments and other governmental
charges or claims for labor, material or supplies in respect of
obligations not overdue;
(ii) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(iii) liens with respect of judgments or awards, the
Indebtedness with respect to which is permitted by subparagraph
(g)(iv) of this paragraph;
(iv) encumbrances consisting of easements, rights of way,
zoning restrictions, restrictions of the use of real property and
defects and irregularities in the title thereto, landlord's or
lessor's liens under leases to which Guarantor or a subsidiary of
Guarantor is a party, and other minor liens and encumbrances;
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none of which in the opinion of Guarantor interferes with the use of
the property affected in the ordinary conduct of the business of
Guarantor (and its subsidiaries);
(v) liens existing on the date hereof and listed on Schedule 1
hereto;
(vi) liens in favor of Lender;
(vii) liens that encumber the Property of the KGT Affiliates or
the Strategic Acquisition Property and that are necessary or desirable
to market and develop such properties so long as such indebtedness is
non-recourse to the Guarantor, Signal, and the Guarantor's and
Signal's subsidiaries (other than a Special Purpose Subsidiary);
(viii) liens that are necessary to secure the future approvals
for the Collateral Properties or the Bolsa Chica Project;
(ix) any extension, renewal or replacement of the foregoing;
provided, however, that the liens permitted hereunder shall not be
spread to cover any additional Indebtedness or Property (other than a
substitution of like Property);
(x) liens and related Indebtedness relating solely to public
infrastructure financing (such as special assessment district,
Mello-Roos district or community facilities district financing) that
are utilized to construct or install public infrastructure or
facilities that are required as a condition of approval of the
entitlements for either of the Collateral Properties or the Bolsa
Chica Project and only encumber portions of the Collateral Properties
or the Bolsa Chica Project upon which such infrastructure or
facilities shall be constructed or benefitted by such construction;
(xi) notwithstanding anything contained herein to the contrary,
the Guarantor and Signal may sell (a) the Land and/or various of the
improvements thereon,
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(b) the Collateral Properties, (c) the property of KGT Affiliates or
the property of Special Purpose Subsidiaries formed to acquire
strategic Acquisition Properties, (c) various non-strategic assets
such as the so-called Ontario, Coronado, Signal Hill and Murrietta
properties provided same do not exceed $2,500,000.00 per year in the
aggregate, (d) properties acquired in Quick-Flip Transactions, and (e)
up to 50 acres of the Bolsa Chica Property to the Fieldstone Company,
or such greater amount of the undeveloped and undevelopable wetlands
not to exceed 1,000 acres to a public entity or non-profit
conservancy, to the extent required and approved under the wetlands
restoration plan and permitted under the loan documents entered into
between the Guarantor and NACC, to facilitate the approval and/or
implementation of the wetlands restoration in connection therewith,
provided that the net proceeds of all such transactions shall be
retained by the Guarantor, or, in the case of proceeds generated under
(e) above, shall be utilized to implement the wetlands restoration of
the Bolsa Chica Project.
(i) Except as otherwise permitted by this Guaranty and the Loan
Documents, Guarantor will not, and will not permit any of its subsidiaries
(except for Exempt Subsidiaries), to, become a party to any merger or
consolidation, or agree to effect any asset acquisition or stock
acquisition (other than the acquisition of assets in the ordinary course of
business consistent with past practices) except:
(i) the merger or consolidation or one or more of the
subsidiaries of Guarantor with and into Guarantor, or the merger or
consolidation of two or more subsidiaries of Guarantor;
(ii) purchases of real property or companies involved in the
development, entitlement or construction of residential housing, or
commercial projects, which shall not exceed $2,500,000.00 per year in
the aggregate (which aggregate amount shall be subject to adjustment
for Quick Flip Transactions as provided in the definition thereof)
("Strategic Acquisition Properties").
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(j) Except as permitted by this Guaranty and the Loan Documents,
Guarantor will not, and will not permit any of its subsidiaries to, become
a party to or agree to or affect any disposition of assets, other than the
disposition of assets in the ordinary course of business, consistent with
past practices or the business plan or projected cash flows or forecasts
disclosed to Lender prior to the execution of this Guaranty;
(k) Guarantor will not make or permit to be made, by voluntary or
involuntary means, any transfer or encumbrance of its interest in Borrower,
or any dilution of its interest in Borrower;
(l) Guarantor will at all times maintain a net worth (defined in
accordance with generally accepted accounting principles consistently
applied) of at least $100,000,000 provided, however, the Lender shall
exclude from this covenant test any write down of book value in the line
item of Land Held For Development for the Bolsa Chica development on the
Guarantor's balance sheet dated June 30, 1994 not caused by physical change
to such property;
(m) (1) Guarantor and its subsidiaries will not permit their
combined unencumbered Cash and Cash Equivalents to be less than the greater
of: (i) the Borrower's loan balance with the Lender or (ii) one hundred
(100%) percent of interest and fees estimated to be due to senior creditors
during the succeeding one hundred eighty day period. As used herein Cash
Equivalent shall include (i) demand deposits, (ii) marketable securities
consisting of short term (maturity of one year or less) obligations issued
or guaranteed as to principal and interest by the United States of America,
(iii) short-term certificate of deposit, with a maturity of one year or
less, issued by any Lender or any bank organized under the laws of the
United States of America having total assets in excess of
$1,000,000,000.00, and (iv) any other securities acceptable to the Lender
as evidenced by the Lender's written approval.
(2) In the event the Guarantor's and its Subsidiaries unencumbered
Cash and Cash Equivalents falls below the requirements set forth in Section
11(m)(1), the Guarantor shall have a period of thirty (30) days to provide
the
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Lender with a plan acceptable to Lender in its sole discretion setting
forth the disposition of assets necessary to satisfy the Cash and Cash
Equivalents requirements, which disposition must be completed within sixty
(60) days thereafter.
(n) Except as otherwise permitted by this Guaranty and the Loan
Documents, or necessary to consummate transactions that are permitted by
this Guaranty or the Loan Documents, Guarantor, shall not directly or
indirectly:
(i) make any investment in an Affiliate or shareholder;
(ii) dividend any funds or assets to an Affiliate or
shareholder other than for services provided by such Affiliate and/or
shareholder;
(iii) transfer, sell, lease, assign or otherwise dispose of any
assets to an Affiliate or shareholder;
(iv) merge into or consolidate with or purchase or acquire
assets from an Affiliate if same has a negative material impact on the
financial condition of the Guarantor;
(v) enter into any other transaction directly or indirectly
with or for the benefit of an Affiliate (including, without
limitation, guarantees and assumptions of obligations of an
Affiliate); provided, however, that: (x) any Affiliate who is an
individual may serve as a director, officer or employee of the
Guarantor, and (y) Signal may enter into transactions with KGT
Affiliates and any Special Purpose Subsidiary, partnership or entity
that is formed to effectuate or consummate a Strategic Acquisition.
12. SECURITY AND RIGHTS OF SET-OFF. Guarantor hereby grants to Lender, as
security for the full and prompt payment and performance of Guarantor's
obligations hereunder, a continuing lien on and security interest in any and all
securities or other property belonging to Guarantor now or hereafter held by
Lender and in any and all deposits with Lender (general or specific, time or
demand, provisional or final, regardless of currency,
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maturity, or the branch of Lender where the deposits are held) now or hereafter
held by Lender and other sums credited by or due from Lender to Guarantor or
subject to withdrawal by Guarantor; and regardless of the adequacy of any
collateral or other means of obtaining repayment of such obligations, during the
continuance of any Event of Default under the Notes or the Loan Documents,
Lender may at any time and without notice to Guarantor set-off and apply the
whole or any portion or portions of any or all deposits held by Lender and other
sums against amounts payable under this Guaranty, whether or not any other
person or persons could also withdraw money therefrom. Any such security now or
hereafter held by or for Guarantor and provided by Borrower, or by anyone on
Borrower's behalf, in respect of liabilities of Guarantor hereunder shall be
held in trust for Lender as security for the liabilities of Guarantor hereunder.
13. CHANGES IN WRITING; NO REVOCATION. This Guaranty may not be changed
orally, and no obligation of Guarantor can be released or waived by Lender
except by a writing signed by a duly authorized officer of Lender. This
Guaranty shall be irrevocable by Guarantor until all indebtedness guaranteed
hereby has been completely repaid and all obligations and undertakings of
Borrower under, by reason of, or pursuant to the Notes and the Loan Documents
have been completely Performed.
14. NOTICES. All notices, demands or requests provided for or permitted
to be given pursuant to this Guaranty (hereinafter in this paragraph referred to
as "Notice") must be in writing and shall be deemed to have been properly given
or served by personal delivery or by sending same by overnight courier or by
depositing the same in the United States Mail, postpaid and registered or
certified, return receipt requested, at the addresses set forth below. Each
Notice shall be effective upon being delivered personally or upon being sent by
overnight courier or upon being deposited in the United States Mail as
aforesaid. The time period in which a response to any such Notice must be given
or any action taken with respect thereto, however, shall commence to run from
the date of receipt if personally delivered or sent by overnight courier or, if
so deposited in the United States Mail, the earlier of three (3) business days
following such deposit and the date of receipt as disclosed on the return
receipt. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no Notice was given shall be deemed to be
receipt of the Notice sent. By giving at least
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thirty (30) days prior Notice thereof, Guarantor or Lender shall have the right
from time to time and at any time during the term of this Guaranty to change
their respective addresses and each shall have the right to specify as its
address any other address within the United States of America. For the purposes
of this Guaranty:
The Address of Lender is:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attn: Real Estate Division
with a copy to:
Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attention: James H. Lerner, Esquire
The Address of Guarantor is:
The Koll Real Estate Group, Inc.
4343 Von Karmen Avenue
Newport Beach, California 92660
Attention: Mr. Raymond J. Pacini
with a copy to:
Brobeck, Phleger & Harrison
550 South Hope Street
Los Angeles, California 90071
Attn: Gerard J. Walsh, Esquire
and to:
Brobeck, Phleger & Harrison
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Attention: Gregory W. Preston, Esquire
15. GOVERNING LAW. Guarantor acknowledges and agrees that this Guaranty
and the obligations of Guarantor hereunder shall be
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governed by and interpreted and determined in accordance with the laws of the
Commonwealth of Massachusetts (excluding the laws applicable to conflicts or
choice of law).
16. CONSENT TO JURISDICTION; WAIVERS. GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY (A) SUBMITS TO PERSONAL JURISDICTION IN THE COMMONWEALTH OF
MASSACHUSETTS OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS GUARANTY, AND (B) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAWS OF ANY
STATE (I) TO THE RIGHT, IF ANY, TO TRIAL BY JURY, (II) TO OBJECT TO JURISDICTION
WITHIN THE COMMONWEALTH OF MASSACHUSETTS OR VENUE IN ANY PARTICULAR FORUM WITHIN
THE COMMONWEALTH OF MASSACHUSETTS, AND (III) TO THE RIGHT, IF ANY, TO CLAIM OR
RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES
OTHER THAN ACTUAL DAMAGES. GUARANTOR AGREES THAT, IN ADDITION TO ANY METHODS OF
SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN
ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED, DIRECTED TO GUARANTOR AT THE ADDRESS SET FORTH IN
PARAGRAPH 14 ABOVE, AND SERVICE SO MADE SHALL BE COMPLETE FIVE (5) DAYS AFTER
THE SAME SHALL BE SO MAILED. NOTHING CONTAINED HEREIN, HOWEVER, SHALL PREVENT
LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY RIGHTS
AGAINST ANY SECURITY AND AGAINST GUARANTOR PERSONALLY, AND AGAINST ANY PROPERTY
OF GUARANTOR, WITHIN ANY OTHER STATE. INITIATING SUCH SUIT, ACTION OR
PROCEEDING OR TAKING SUCH ACTION IN ANY STATE SHALL IN NO EVENT CONSTITUTE A
WAIVER OF THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS SHALL GOVERN THE RIGHTS AND OBLIGATIONS OF GUARANTOR AND LENDER
HEREUNDER OR OF THE SUBMISSION HEREIN MADE BY GUARANTOR TO PERSONAL JURISDICTION
WITHIN THE COMMONWEALTH OF MASSACHUSETTS.
17. SUCCESSORS AND ASSIGNS. The provisions of this Guaranty shall be
binding upon Guarantor and its heirs, successors, successors in title, legal
representatives, and assigns, and shall inure to the benefit of Lender, its
successors, successors in title, legal representatives and assigns.
18. ASSIGNMENT BY LENDER. This Guaranty is assignable by Lender in whole
or in part in conjunction with any assignment of the Notes or portions thereof,
and any assignment hereof or any transfer or assignment of the Notes or Portions
thereof by Lender shall operate to vest in any such assignee the rights and
powers,
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in whole or in part, as appropriate, herein conferred upon and granted to
Lender.
19. SEVERABILITY. If any term or provision of this Guaranty shall be
determined to be illegal or unenforceable, all other terms and provisions hereof
shall nevertheless remain effective and shall be enforced to the fullest extent
permitted by law.
20. DEFINITIONS. As used herein the following terms shall have the
following meanings:
"ABEX TAX DISPUTE" shall mean the litigation filed by Abex, Inc. and
Wheelabrator Technologies, Inc. with respect to the alleged breach by the
Guarantor of certain tax sharing obligations of the Guarantor.
"AFFILIATE" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person and, if such Person is an individual, any member of
the immediate family (including parents, spouse and children) of such individual
and any trust whose principal beneficiary is such individual or one or more
members of such immediate family and any Person who is controlled by any such
member or trust. As used in this definition, "CONTROL" (including, with its
correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH)" shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise) of a Person.
"BOLSA CHICA PROJECT" shall mean the approximately 1,200 acre
undeveloped property owned by Signal Bolsa Corporation, a California corporation
located in Orange County, California.
"COLLATERAL PROPERTIES" shall mean, collectively, the Fairbanks
Highlands Project and the Eagle Crest Project
"EAGLE CREST PROJECT" shall mean the approximately 850 acre golf
course and planned community in the city of Escondido, California, owned by
Signal, which planned community is entitled
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for 580 single-family lots surrounding the existing 18-hole public golf course.
"EXEMPT SUBSIDIARIES" shall mean those subsidiaries that are listed on
Schedule 2 annexed hereto.
"FAIRBANKS HIGHLANDS PROJECT" shall mean the approximately 391 acres
of vacant land in the city of San Diego, California, owned by Signal.
"HENLEY FACILITIES AUDIT" shall mean the audit being conducted by the
Internal Revenue Service of the Guarantor's 1989 tax return.
"KGT AFFILIATES" shall mean the AV Partnership, a California general
partnership, The Kathryn G. Thompson Companies, Delaware and California
corporations, DKS Construction, KGT Construction Corp., a Delaware corporation,
Vistas Audobon, a California limited partnership, Mystra Homes, Inc., a
California corporation, AV Development Corporation, a California corporation,
The Oceanside Company, a Delaware corporation, or any Subsidiary of any of the
foregoing entities.
"NACC" means Nomura Asset Capital Corporation, a Delaware corporation.
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, limited partnership, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"PROPERTY" shall mean assets and properties, whether real, personal or
mixed, tangible or intangible.
"QUICK FLIP TRANSACTION" shall mean an agreement to purchase real
property with the intent to sell such property to an unaffiliated third party
concurrently with the closing of such purchase, provided that (1) immediately
after the execution of the purchase agreement for such Quick Flip Transaction
and prior to the closing of any such Quick Flip Transaction, the aggregate
dollar amount of Strategic Acquisition Properties for the then current year
(inclusive of all amounts deposited by the Guarantor or its Subsidiaries with
the sellers in all then pending Quick
23
<PAGE>
Flip Transactions) does not exceed $2,500,000 per year and (2) where the
Guarantor or its Subsidiary is forced to acquire the subject property because
the sale of the unaffiliated third party fails to close concurrently with the
acquisition, the aggregate dollar amount of Strategic Acquisition Properties for
the then current year (inclusive of the purchase price for such property
together with all amounts deposited by the Guarantor or its Subsidiary with the
sellers in then pending Quick Flip Transactions) does not exceed $2,500,000 per
year. To the extent that the Guarantor or its Subsidiary is able to sell a
property in the same year that it acquired such property pursuant to a failed
Quick Flip Transaction, then, for the purpose of determining the dollar cap
applicable to Strategic Acquisition Properties in such year pursuant to Section
11(i)(ii), the aggregate dollar amount of Strategic Acquisition Properties
acquired for such year shall be reduced by the sale price of such sold property.
"SIGNAL" means Signal Landmark, a California corporation and owner of
the Collateral Properties.
"SPECIAL PURPOSE SUBSIDIARIES" means Subsidiaries formed by the
Guarantor to purchase Strategic Acquisition Properties.
"STRATEGIC ACQUISITION PROPERTIES" shall have the meaning set forth in
Section 11(i)(ii).
"SUBSIDIARY" or "subsidiary" shall mean, with respect to any Person,
any (i) corporation of which at least a sufficient number of the outstanding
shares of stock having by the terms thereof ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by such Person and/or
one or more of such Person's Subsidiaries or (ii) partnership or other entity
with respect to which such Person has possession, directly or indirectly, of the
power to direct or cause the direction of management or policies of such
partnership or other entity. "WHOLLY-OWNED SUBSIDIARY" shall mean, with respect
to any Person, any such Subsidiary of which all of the equity, other than
directors' qualifying shares, is so owned or controlled by such Person.
24
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of
the 29th day of December, 1994.
The Koll Real Estate Group, Inc.
By:___________________________
Name: Raymond J. Pacini
-------------------------
Title: Chief Financial Officer
and Executive Vice
President
------------------------
STATE OF CALIFORNIA
___________, ss. __________, 1994
Then personally appeared the above named Raymond J. Pacini, the Chief
Financial Officer and Executive Vice President of The Koll Real Estate Group,
Inc. and acknowledged the foregoing to be the free act and deed of The Koll Real
Estate Group, Inc., before me,
______________________________
Notary Public
My Commission Expires:
25
<PAGE>
PROMISSORY NOTE
$6,000,000
Newport Beach, California
Dated: December 16, 1994
On or before March 15, 1995 ("Due Date"), for value received, AV
PARTNERSHIP, a California general partnership ("Maker"), promises to pay to KOLL
REAL ESTATE GROUP, INC., a Delaware corporation, ("Holder"), or order, at 4343
Von Karman Avenue, Newport Beach, California 92660, the principal sum of SIX
MILLION DOLLARS ($6,000,000.00), or so much of such sum as may be advanced under
this Note by any holder, with interest on the principal sum from the date of
each advance under the loan until paid at the per annum rate of twelve percent
(12%) (the "Effective Rate").
Interest on funds advanced will be computed at the Effective Rate based on
a three hundred sixty-five (365) day year and the actual number of days elapsed.
Interest only will be due and payable monthly on the first day of each and every
month following the date of this Note on funds advanced and continuing to and
including the Due Date, when the entire principal sum, or so much thereof as may
be actually outstanding on such date, along with accrued but unpaid interest,
shall be immediately due and payable. Principal and interest shall be payable
in lawful money of the United States of America in immediately available funds.
LATE CHARGE
In addition to the foregoing, if Maker shall fail to make any payment of
interest or principal, including the payment due upon maturity, within
ten (10) days after the date the same is due and payable, a late charge equal to
two percent (2%) of the delinquent amount shall be immediately due and payable.
Maker willingly undertakes the obligation to pay such late charge as additional
consideration to persuade Holder to make the loan. Maker acknowledges that any
default in making payments when due will result in Holder incurring additional
expenses, in loss to Holder of the use of the money due, and in frustration and
disruption of Holder's arrangement of its financial affairs. Maker acknowledges
and represents that the late charge is not intended to be a penalty, and shall
be fully enforceable and binding upon Maker to the same, full extent as each and
all other obligations of Maker hereunder.
<PAGE>
ACCELERATION OF MATURITY
On the occurrence of any of the following, Holder shall have the right to
declare the entire balance of principal and interest immediately due and payable
in full: if there is a failure to make any payment hereunder when due; or if
the undersigned (a) becomes insolvent, (b) defaults in payment of any debt to
Holder, (c) commits an act of bankruptcy, (d) suffers a material adverse change
of financial condition, (e) defaults any note, loan, deed of trust or agreement
with FS Equity Partners III, L.P. which the undersigned fails to cure timely
within the grace period(s), if any, set forth in such document, or (f) defaults
on any note, loan, deed of trust or agreement with any other person or entity if
the default provides such person or entity with a right to foreclose against any
property owned by Maker.
INTEREST AFTER MATURITY DATE
The total amount of principal and interest unpaid on the maturity date
stated above shall thereafter bear interest at a rate of five percent (5%) per
annum over the Effective Rate.
ADDITIONAL AGREEMENTS
Maker and its successors and assigns hereby consents to renewals and
extensions of time before, at, or after the maturity hereof, and waive
diligence, presentment, demand, and notice of nonpayment, protest, notice of
protest, and notice of every kind, and waive the right to set up the defense of
any statute of limitations to any debt or obligation herein. Such waiver of
defenses shall be effective for the maximum period of time and to the full
extent permissible by law.
If this Note is not paid when due, Maker promises to pay all costs and
expenses of collection and reasonable attorney's fees incurred by the Holder to
enforce the terms of this Note, including those expenses and fees which may be
incurred in connection with the appointment of a receiver and all appearances in
bankruptcy or insolvency proceedings. In any action brought under or arising
out of this Note, Maker hereby consents to the jurisdiction of any competent
court within the State of California and to service of process by any means
authorized by California law. The Holder shall at all times have the right to
proceed against any portion of the security for this Note in such order and in
such manner as the Holder may consider appropriate without waiving any rights
with respect to any such security. Any delay or omission on the part of the
Holder in exercising any right herein or under the Deed of Trust shall not
operate as a waiver of such right or any other right under this Note. This Note
may not be terminated or amended orally, but only by a document in writing
signed by the Holder and Maker. This Note shall be governed by and construed in
accordance with laws of the State of California.
2.
<PAGE>
Upon receipt of evidence reasonably satisfactory to Maker of the loss,
theft, destruction or mutilation of this Note and, in the case of loss, theft or
destruction of this Note, upon receipt of indemnity reasonably satisfactory to
Maker from the Holder hereof (except that if Payee is the Holder of this Note,
an indemnification from Payee shall be sufficient) or, in the case of
mutilation, upon surrender of the mutilated Note, the Maker will make and
deliver a new Note of like tenor in lieu of this Note.
This Note shall be binding upon and shall inure to the benefit of Maker,
Holder, and their successors and assigns.
Notwithstanding anything herein to the contrary, the Holder has made the
loan evidenced by this Note on the basis of and has not intended to charge, take
or receive a usurious rate of interest. If for any reason a court finds said
rate to be usurious, then the rate to be charged hereunder shall be reduced to
the highest rate then found to be permissible by said court, and the remaining
unpaid balance of this Note, together with the accrued interest, shall become
and be immediately due and payable in full.
3.
<PAGE>
The Maker of this Note acknowledges that the loan evidenced by this Note
was made or arranged by a real estate broker.
MAKER:
AV PARTNERSHIP,
a California general partnership
By: AV Development Corporation,
a Delaware Corporation
Its General Partner
By: /s/ William Wardlaw
------------------------
William Wardlaw
President
By: Kathryn G. Thompson Company
a California corporation
Its General Partner
By: /s/ Kathryn G. Thompson
------------------------
Kathryn G. Thompson
Chairman of its Board of Directors
By: /s/ J. Harold Street
------------------------
J. Harold Street
Its President
By: RSB Investment, Inc.
a California corporation
Its General Partner
By: /s/ Robert S. Bennett
------------------------
Robert S. Bennett
President
36721.2
4.
<PAGE>
EXHIBIT A
KOLL REAL ESTATE GROUP, INC.
WORLDWIDE SUBSIDIARY LIST
Percentage State/Country of
Ownership Incorporation
--------- ----------------
Hengro Fifteen Inc. 100 Delaware
Henley Disc Media, Inc. 100 Delaware
Henley Facilities, Inc. 100 Delaware
Henley Group, Inc., The 100 Delaware
New Henley Holdings Inc. 100 Delaware
Air Correction International, Inc. 100 Delaware
GCC Patents Holding Company Inc. 100 Delaware
Hengro Fourteen Inc. 100 Delaware
Hengro Ten Inc. 100 Delaware
Hengro Thirteen Inc. 100 Delaware
Henley Deltec Holdings Inc. 100 Delaware
Henley Deltec Corporation 100 Delaware
Henley Investments, Inc. Two 100 Delaware
IRE Corporation 100 Indiana
H I Industries Corporation 100 Florida
LJC Investments, Inc. 100 Delaware
Moore International Inc. 80 Delaware
Newco A.C. Corporation 100 Delaware
Nichols Engineering & Research Corporation 100 Delaware
Procon International Inc. 100 Delaware
Procon Incorporated 100 Delaware
Procofrance, S.A. 100 France
Procon (Great Britain) Limited 100 United Kingdom
Pullman Environmental Services Inc. 100 Delaware
Pullman Passenger Car Company Inc. 100 Delaware
Pullman Swindell Ltd. 100 United Kingdom
Trailmobile International Ltd. 100 Delaware
Pullman Trailmobile de Mexico S.A. de C.V. 100 Mexico
Trailmobile Leasing Corp. 100 Delaware
W.O.L. Corporation 100 Delaware
W. W. C. Corporation 100 Delaware
Wheelabrator Export Corporation 100 Delaware
Henley Holdings Two Inc. 100 Delaware
Signal Landmark Holdings Inc. 100 Delaware
Signal Landmark 100 California
Calumet Real Estate Inc. 100 Delaware
1
<PAGE>
Newport Realty Corp. 100 California
Signal Bolsa Corporation 100 California
Signal Hawaii, Inc. 100 Hawaii
Signal Puako Corporation 100 Hawaii
Eagle Crest Country Club, Inc. 100 California
Glenwood Properties 50 California
Signal Development Corporation 100 California
Henley/KNO Holding Inc. 100 Delaware
KREG Holdings Inc. 100 Delaware
KREG Operating Co. 100 Delaware
KREG - LA, Inc. 51 Delaware
KREG - NC, Inc. 51 Delaware
KREG - NW, Inc. 51 Delaware
KREG - OC, Inc. 51 Delaware
KREG - SD, Inc. 51 Delaware
KREG - SW, Inc. 51 Delaware
NC Holding Company 100 Delaware
Wentworth By The Sea, Inc. * 50 Delaware
Newco A. D. Corporation 100 South Carolina
Twenty Newco Inc. 100 Delaware
Wentworth Holdings Inc. 100 Delaware
Wentworth By The Sea, Inc. * 50 Delaware
WESI Maryland Inc. 100 Delaware
WT/HRC Corporation 100 Illinois
Heat Research Corporation 100 Delaware
(*) Together NC Holding Company and Wentworth Holdings Inc. own 100% of
Wentworth By The Sea, Inc.
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 379
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 423
<CURRENT-LIABILITIES> 0
<BONDS> 153
<COMMON> 2
0
0
<OTHER-SE> 143
<TOTAL-LIABILITY-AND-EQUITY> 423
<SALES> 11
<TOTAL-REVENUES> 21
<CGS> 11
<TOTAL-COSTS> 20
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> (29)
<INCOME-TAX> (10)
<INCOME-CONTINUING> (19)
<DISCONTINUED> 1
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
