<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1998
REGISTRATION NO. 333-56889
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ARBOR NATIONAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK (6282) (11-3440746)
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
</TABLE>
------------------------
333 EARLE OVINGTON BOULEVARD
UNIONDALE, NY 11553
(516) 832-8002
(Address, including zip code and telephone number, including area code
of registrant's principal executive offices)
------------------------------
IVAN KAUFMAN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
333 EARLE OVINGTON BOULEVARD
UNIONDALE, NY 11553
(516) 832-8002
(Name, address, including zip code and
telephone number, including area code of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JONATHAN A. BERNSTEIN, ESQ. RICHARD A. LIPPE, ESQ. FRED B. WHITE III, ESQ.
STEPHEN M. GOODMAN, ESQ. MELTZER, LIPPE,GOLDSTEIN, WOLF SKADDEN, ARPS, SLATE,MEAGHER
PRYOR CASHMAN SHERMAN & & SCHLISSEL, P.C. & FLOM LLP
FLYNN LLP THE CHANCERY 919 THIRD AVENUE
410 PARK AVENUE 190 WILLIS AVENUE NEW YORK, NY 10022
NEW YORK, NY 10022-4441 MINEOLA, NY 11501
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective. If any of the
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 23, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SHARES
[LOGO]
COMMON STOCK
------------------
All of the 3,300,000 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by Arbor
National Holdings, Inc., a New York corporation (the "Company" or "ANHI").
Prior to this Offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be between $ and $ per share. See "Underwriting" for
information relating to factors considered in determining the initial offering
price. The Company has applied to have the Common Stock approved for quotation
on the NASDAQ National Market under the symbol "ARBH."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 14.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds to
Price to Public(1) Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share..........................................
Total..............................................
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $900,000. The Company intends to retire its outstanding borrowings to its
principal stockholder from the proceeds of the Offering which borrowings
include accrued and unpaid interest, aggregating $18,411,000 as of July 21,
1998.
(3) The Underwriters have been granted an option, exercisable within 30 days of
the date hereof, to purchase up to 495,000 additional shares of Common Stock
on the same terms and conditions as set forth above. If the Underwriters
exercise such option in full, the total price to public, underwriting
discount and proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
The Common Stock is offered by the Underwriters when, as and if delivered to
and accepted by them, subject to their right to withdraw, cancel or reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of the shares to the Underwriters will be made through
the facilities of The Depository Trust Company, New York, New York on or about
.
LEHMAN BROTHERS FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus is , 1998.
<PAGE>
CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS CONSTITUTES
"FORWARD-LOOKING STATEMENTS" WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-
LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "BELIEVE,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY. THE STATEMENTS IN "RISK FACTORS" CONSTITUTE CAUTIONARY
STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-1 (as amended, the "Registration Statement") of which this
Prospectus is a part under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document are summaries of the material terms
of such contract, agreement or other document. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement (including the exhibits thereto)
filed by the Company with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available
for inspection and copying at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a website that contains reports, proxy and
information statements and other information. The website address is http://
www.sec.gov.
The Company has applied to have the Common Stock approved for quotation on
the NASDAQ National Market, and the Registration Statement and such reports,
proxy and information statements and other information concerning the Company
may also be inspected at the offices of the NASDAQ National Market located at
1735 K Street, N.W., Washington, D.C. 20006.
Upon the effectiveness of the Registration Statement, the Company will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and, in accordance therewith, will file
reports, proxy and information statements and other information with the
Commission. Such reports, proxy and information statements and other information
can be inspected and copied at the addresses set forth above. The Company
reports its financial statements on a year ended December 31. The Company
intends to furnish its shareholders with annual reports containing consolidated
financial statements audited by its independent certified public accountants and
with quarterly reports containing unaudited condensed consolidated financial
statements for each of the first three quarters of each fiscal year.
Arbor National Holdings, Inc. is a New York corporation formed in June 1998.
The Company's principal executive offices are located at 333 Earle Ovington
Blvd., Uniondale, New York 11553 and its telephone number is (516) 832-8002.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING THE COMBINED FINANCIAL STATEMENTS AND THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE FACTORS SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED (I) THE INFORMATION IN
THIS PROSPECTUS ASSUMES THAT THE TRANSACTIONS DESCRIBED BELOW UNDER "ACQUISITION
BY ANCM OF ASF" AND "REORGANIZATION TRANSACTIONS" HAVE BEEN COMPLETED AND THAT
THE OVER-ALLOTMENT OPTION DESCRIBED IN "UNDERWRITING" IS NOT EXERCISED; AND (II)
REFERENCES TO THE "COMPANY" MEAN, AS APPROPRIATE, PRIOR TO THE EXCHANGE
TRANSACTION (AS DEFINED BELOW), ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC ("ANCM")
AND ARBOR SECURED FUNDING, INC. ("ASF"), AND AFTER THE EXCHANGE TRANSACTION,
ARBOR NATIONAL HOLDINGS, INC. ("ANHI") AND ITS SUBSIDIARIES.
CAPITALIZED AND OTHER TERMS USED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THE
GLOSSARY THAT BEGINS ON PAGE 10.
THE COMPANY
Arbor National Holdings, Inc. is a real estate financial services company
that funds, on a negotiated basis, high-yielding lending and investment
opportunities in commercial real estate through mezzanine loans, bridge loans,
note acquisitions and other customized financing structures ("Customized
Financing"). It also derives substantial revenue from the origination for sale
and servicing of government-sponsored and conduit mortgage loans ("Permanent
Loans") for multifamily and other types of commercial properties. Although the
Company's Customized Financing activities involve higher risk loans than typical
first mortgage loans made by traditional lending institutions, the Company
structures these transactions to compensate for the additional risks, generally
by charging higher fees.
In recent years the Company has experienced significant growth. Total
revenues increased from $16.7 million to $24.3 million for the years ended
December 31, 1996 and 1997, respectively, and from $4.3 million to $8.0 million
for the quarters ended March 31, 1997 and 1998, respectively. Pro forma net
income increased from $2.5 million to $5.2 million for the years ended December
31, 1996 and 1997, respectively, and from $0.7 million to $2.0 million for the
quarters ended March 31, 1997 and 1998, respectively. At March 31, 1998, the
Company's commercial servicing portfolio consisted of 136 loans aggregating
approximately $536 million and its portfolio of loans held for investment
consisted of 38 loans aggregating approximately $56 million.
The Company targets the market for transactions under $20 million,
particularly in the $1 million to $5 million range, which in the Company's
experience is an underserved market. The Company generates a continuing pipeline
of real estate finance and investment opportunities through its six full-service
offices in Atlanta, Boston, Chicago, Dallas, San Francisco and Uniondale, New
York, its three satellite offices in Miami, Los Angeles and Florence, Kentucky
(greater Cincinnati, Ohio) as well as on-going business relationships with
investment banking firms, brokers, developers, real estate owners and operators,
and other financial institutions. None of these relationships are contractual.
The Company's Customized Financing activities highlight its strengths.
First, the Company's presence and established relationships in the marketplace
facilitate its ability to source and identify many lending opportunities. These
opportunities arise because the borrowers' financing needs or the condition of
the property present specific characteristics or additional risks which prevent
the loan from being structured as a long-term, first mortgage financing. Second,
the specialized lending expertise and entrepreneurial abilities of its staff
enable the Company to provide creative, flexible financing structures, thus
enhancing value for the Company and its borrowers. Third, the Company, as a
provider of both transitional financing under its Customized Financing
activities and permanent mortgage financing under its Permanent Loan activities,
is positioned in its targeted market as a single source of financing solutions.
3
<PAGE>
The Company's Permanent Loan activities consist of originating commercial
mortgage loans pursuant to government-sponsored and conduit loan programs, and
selling those loans, typically on a whole loan basis, to government-sponsored
entities or other secondary market investors, while retaining the servicing of
those loans for a fee. As compared to Customized Financing activities, the
Company's Permanent Loan activities generate a more stable and predictable flow
of revenue through servicing and other fee income. In addition, the Permanent
Loan activities keep the Company closely apprised of trends in the commercial
real estate market and provide an additional source for Customized Financing
opportunities. The Company primarily originates permanent loans pursuant to the
FNMA DUS Program (as defined below), under which it is one of 28 approved
lenders. To date, the Company has had no credit losses on its commercial
servicing portfolio.
The Chief Executive Officer and founding stockholder of the Company is Ivan
Kaufman, who was the co-founder, chairman and controlling stockholder of Arbor
National Holdings, Inc. ("Old Arbor"), a publicly held, NASDAQ traded company
that went public on August 7, 1992 and was subsequently sold in January 1995 to
BankAmerica Corporation. See "Business--The Company." In connection with the
sale of Old Arbor to BankAmerica Corporation, the commercial mortgage lending
operations were acquired by Mr. Kaufman. Since this acquisition, the Company has
evolved to become a multi-service provider of real estate financial services to
owners and developers of commercial and multifamily real estate properties. In
anticipation of the Offering, ANHI was formed in 1998 as a holding company for
ANCM and ASF, which were reorganized into a single entity and then acquired by
ANHI through an exchange of equity. See "Acquisition by ANCM of ASF" and
"Reorganization Transactions."
COMPETITIVE ADVANTAGES
- BREADTH OF PRODUCT OFFERINGS--Since the Company offers both short-term and
long-term funding capabilities, as well as the skills and expertise to
develop creative, flexible financing structures, the Company can present
itself as a single-source financing alternative, attracting individual
clients with diverse and complex needs.
- TARGET MARKET--The Company specializes in Customized Financing
transactions under $20 million, particularly the $1 million to $5 million
range which in the Company's experience is an underserved market.
- ORIGINATION SYNERGIES--The Company's participation in Permanent Loan
programs provides significant synergies with the Customized Financing
business by creating what the Company believes is a greater volume of each
type of transaction than there otherwise would be if the Company did not
offer both of these financing alternatives. The Permanent Loan programs
create a stream of opportunities that require transitional financing to
position the underlying property for a Permanent Loan while also providing
an effective exit strategy for Customized Financing transactions generated
from other sources.
- RAPID EXECUTION CAPABILITY--The Company's in-house expertise enables it to
act on proposals quickly and decisively and analyze opportunities, provide
commitments and close transactions within a few weeks and sometimes days,
if required. The Company believes its reputation for rapid execution
attracts, from both borrowers and other lenders, opportunities that would
not otherwise be available.
- CONTINUITY AND EXPERIENCE OF MANAGEMENT--The four senior executive
officers of the Company (including Mr. Kaufman) have an average of more
than twelve years of experience in real estate finance and investing,
while the 21 vice presidents and regional directors average almost sixteen
years of relevant industry experience. Eleven members of the Company's
management team worked with Mr. Kaufman at Old Arbor. The remainder have
been recruited because of their particular
4
<PAGE>
product specialization and expertise in analyzing and structuring complex
financial transactions in commercial real estate.
- FINANCIAL COMMITMENT OF SENIOR MANAGEMENT AND KEY EMPLOYEES--In addition
to the substantial ownership of the Company by Mr. Kaufman, all senior
executives and eighteen key employees have invested more than $2 million
of their own funds to acquire equity in the Company. These investments,
which will experience an immediate and substantial increase in value as a
result of this Offering, will be subject to 180-day lockup agreements to
be entered into at closing.
- ESTABLISHED RELATIONSHIPS--In addition to the market presence represented
by its full-service and satellite offices, the Company generates
significant opportunities through referrals from its on-going business
relationships with investment banking firms, brokers, developers, real
estate owners and operators and other financial institutions.
BUSINESS STRATEGIES
- INCREASE CUSTOMIZED FINANCING OPPORTUNITIES by using the additional
capital from this Offering to offer an expanded range of maturities and
other terms suitable for various borrowers and projects.
- GROW THE COMPANY'S STREAM OF INTEREST INCOME by using the additional
capital from this Offering to permit longer retention of bridge and
mezzanine loans on the Company's balance sheet.
- DIVERSIFY THE COMPANY'S ORIGINATIONS AND INVESTMENTS beyond loans on
multifamily properties to include financings of assisted-living
facilities, hotels and other types of commercial property developments.
- CONTINUE THE COMPANY'S GEOGRAPHIC EXPANSION into selected major real
estate markets throughout the United States to expand its origination
capabilities by increasing local awareness of the Company's capabilities
and improving the Company's ability to monitor local activity for suitable
opportunities.
- INCREASE THE AVERAGE OUTSTANDING LOAN BALANCE of Customized Financing
activities through the utilization of the additional capital from this
Offering to fund larger transactions in the under $20 million market.
- LEVERAGE THE COMPANY'S CORE COMPETENCIES TO EXPAND ITS SERVICES and
develop related products, such as the FHA-insured multifamily and
healthcare financing program, as well as acquiring or developing in-house
property management capabilities.
ACQUISITION BY ANCM OF ASF
In contemplation of this Offering, ANCM, which will become a wholly-owned
subsidiary of ANHI on the closing of this Offering (see "Reorganization
Transactions"), acquired 100% of the outstanding stock of ASF as of April 1,
1998 through the following series of transactions, all of which occurred on that
date (referred to herein as the "ASF Transactions").
Prior to its acquisition by ANCM, ASF distributed a dividend of certain
loans receivable which did not involve commercial real estate to Ivan Kaufman,
its sole stockholder, at their net book value of $1.5 million, leaving ASF with
assets consisting primarily of nineteen loans in the aggregate amount of $9.2
million. Immediately thereafter, Mr. Kaufman sold the outstanding common stock
of ASF for its remaining net book value of approximately $3.7 million to the
Ivan and Lisa Kaufman Family Trust, a trust for the benefit of Mr. Kaufman's
family members (hereinafter known as the "Trust"). Immediately thereafter, and
simultaneously with the purchase of Class B membership interests by certain
officers and employees of ANCM, the Trust, which was already a Class A member of
ANCM, purchased an additional Class A membership interest in ANCM by
transferring the ASF shares to ANCM. As a result of this transfer, the
5
<PAGE>
S corporation status of ASF terminated. In connection with such transfer, Mr.
Kaufman agreed to indemnify the Company for any and all losses which may be
incurred by the Company or ANCM relating to any assets formerly owned by ASF and
any financing commitments previously made by ASF and subsequently transferred to
ANCM.
REORGANIZATION TRANSACTIONS
All of the members of ANCM entered into an agreement (the "Exchange
Agreement") dated as of June 4, 1998 pursuant to which they agreed to exchange
their membership interests in ANCM for an aggregate of 7,500,000 shares of
Common Stock (the "Exchange Shares"). Pursuant to the Exchange Agreement, the
exchange is to be effected without further action by the members immediately
prior to the closing of the Offering, at which time each holder of membership
interests shall receive a pro rata allocation of the Exchange Shares based on
the balance in such member's capital account in ANCM on April 1, 1998 relative
to the aggregate capital accounts of all members.
As a result of this Reorganization, the Company will record a deferred tax
liability of $2.2 million and make a $6.8 million distribution to members of
previously undistributed earnings. See "Selected Financial Data."
Prior to this Offering, the Company received certain financial management,
marketing and human resources services, as well as office space, from Arbor
Management LLC ("Arbor Management"), a company owned by Mr. Kaufman, for which
the Company paid a management fee. See "Certain Relationships and Related
Transactions." In addition to the transactions which will occur pursuant to the
Exchange Agreement (the "Exchange Transaction"), the Company will also make the
following administrative changes no later than the closing of the Offering: (1)
the sub-lease for the Company's Uniondale, New York office will be transferred
to the Company; (2) all employees, including senior management, will be employed
and paid by the Company; and (3) all employee benefit programs will be provided
and administered by the Company.
6
<PAGE>
SUMMARY OF RECENT DEVELOPMENTS
The following table presents selected combined financial and other data of
the Company at the dates and for the periods indicated. The historical
operations data presented for the three and six months ended June 30, 1998 and
1997 and balance sheet data presented as of June 30, 1998 have been derived from
unaudited interim combined financial statements and include all adjustments,
consisting only of normal recurring accruals, which the Company considers
necessary for a fair presentation of the Company's results of operations for
these periods and a non-recurring, non-cash compensation charge of $1.2 million
recorded in the quarter ended June 30, 1998. Operating results for the three and
six months ended June 30, 1998 are not necessarily indicative of the results
that may be expected for any other interim period or the entire year ending
December 31, 1998. The historical combined financial information should be read
in conjunction with, and is qualified in its entirety by reference to, the
Combined Financial Statements and related notes as set forth elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest earned.......................................... $ 1,966,539 2,445,999 4,496,518 4,118,746
Fee-based services, including gain on sale of loans and
real estate............................................. 2,554,754 2,328,195 6,927,776 4,669,009
Servicing revenue, net................................... 518,329 392,627 1,057,570 697,880
Income from investment in real estate held for sale, net
of operating expenses................................... 592,297 -- 1,132,631 --
Total revenues........................................... 5,631,919 5,166,821 13,614,495 9,485,635
Net income(1)............................................ 607,146 1,549,985 4,039,256 2,725,855
Provision for pro forma income taxes(2).................. 716,654 628,042 2,099,898 1,107,590
Pro forma net income (loss).............................. (109,508) 921,943 1,939,358 1,618,265
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
1998 AT DECEMBER 31, 1997
--------------- --------------------
<S> <C> <C>
Loans held for sale, net.................................. 12,605,534 46,482,348
Loans held for investment, net............................ 90,469,820 68,609,906
Total assets.............................................. 139,091,569 140,181,758
Notes payable............................................. 98,617,501 110,227,947
Total liabilities......................................... 108,060,093 117,148,176
Minority interest......................................... 3,561,974 --
Total equity.............................................. 27,469,502 23,033,582
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE AT OR FOR THE SIX MONTHS
MONTHS ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Return on average equity(3)........................... 3.9% 6.1% 12.2% 10.6%
Return on average assets(3)........................... 0.9% 0.9% 2.2% 1.5%
Debt to equity ratio.................................. 3.6x 5.5x
Total originations:
Permanent Loans................................... 35,705,000 75,885,000 59,484,000 109,898,000
Customized Financing.............................. 40,682,000 17,310,000 52,331,000 35,390,000
Commercial servicing portfolio(4)..................... 551,315,000 487,970,000
Number of loans in commercial servicing portfolio..... 141 128
Selling and administrative expenses as a percentage of
total revenue........................................ 20.4% 15.6% 16.8% 17.2%
</TABLE>
7
<PAGE>
(1) The second quarter and six month period ended June 30, 1998 includes a
non-recurring, non-cash compensation charge of $1.2 million representing the
excess of the estimated fair value of the ownership interests issued in
April 1998 to certain employees as compared to consideration received for
such ownership interest.
(2) The pro forma provision for income taxes represents the difference between
historical income taxes and the income taxes that would have been reported
had the Company filed income tax returns as a taxable C corporation for each
of the periods presented using a pro forma income tax rate of 40%. The pro
forma tax provision for the second quarter and six month period ended June
30, 1998 was not reduced as a result of the non-recurring, non-cash
compensation charge of $1.2 million discussed in Note (1) above.
(3) Return on average equity and assets are based on pro forma net income
(loss), excluding the non-recurring, non-cash compensation charge, and
historical average equity and assets, respectively. Return on average equity
and assets are not annualized for interim periods.
(4) The Company's commercial servicing portfolio represents commercial loans
serviced for third parties for a fee and does not include loans held for
investment.
Pro forma net income (loss) was ($110,000) for the quarter ended June 30,
1998, compared to $922,000 for the quarter ended June 30, 1997. Excluding a
non-recurring charge recorded in the quarter ended June 30, 1998, the Company's
pro forma net income increased 13% to $1,042,000 for the quarter ended June 30,
1998, from $922,000 for the quarter ended June 30, 1997. The non-recurring item
was a non-cash compensation charge of $1.2 million representing the excess of
the estimated fair value of the ownership interest issued in April 1998 to
certain employees as compared to consideration received for such ownership
interest. The pro forma tax provision for the second quarter and six month
period ended June 30, 1998 was not reduced as a result of this non-recurring,
non-cash compensation charge. The increase in pro forma net income excluding
this non-recurring charge was principally the result of an increase in the
Company's Customized Financing activities.
Permanent loan volume decreased for the 1998 second quarter and year to date
periods as compared to the 1997 periods due primarily to reduced FNMA-DUS volume
offset by increased conduit volume. This decrease is primarily due to increased
competition in the permanent lending market, and management's decision not to
compete solely on price. Customized Financing volume increased for the 1998
second quarter and year to date periods as compared to the 1997 periods due
primarily to bridge loans as the Company continues to concentrate on higher
yielding lending and investment opportunities. Despite significant fluctuations
in volume of origination, total revenues increased 9% for the 1998 second
quarter and 44% for the 1998 year to date period as compared to the same periods
in 1997.
Loans held for investment, net and Notes payable increased during the
quarter ended June 30, 1998 by $34.2 million and $40.1 million, respectively.
The majority of the increase was a result of the overall increase in the
Company's Customized Financing activities. In June 1998, the Company entered
into a joint venture with a Wall Street investment banking firm. This joint
venture allowed the Company to finance the increase in its Customized Financing
activities during the quarter ended June 30, 1998 through a repurchase agreement
provided by the Wall Street investment banking firm.
8
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered hereby....... 3,300,000 shares(1)
Shares to be Outstanding After the 10,800,000 shares(2)
Offering........................
NASDAQ National Market Symbol..... ARBH
Use of Proceeds................... The net proceeds from the Offering will be used
initially to repay outstanding indebtedness of the
Company and as working capital for general corporate
purposes relating to the growth of the Company.
</TABLE>
- ------------------------
(1) Assumes that the Underwriters' over-allotment option is not exercised. If
such over-allotment option is exercised in full, up to an additional 495,000
shares of Common Stock will be issued and sold by the Company. See
"Underwriting."
(2) Including the number of shares of Common Stock to be issued simultaneously
with the closing of the Offering as a result of the Reorganization
Transactions. Does not include 1,620,000 shares of Common Stock reserved for
issuance under the Company's 1998 Stock Plan (as defined herein) including
770,000 shares issuable under options and 22,050 shares of restricted stock
(to be issued to certain employees of the Company other than the Named
Executives) which will be granted at the closing of this Offering. See
"Management--Employee Benefit Plans."
9
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
The following table presents summary historical combined financial
information for the Company at the dates and for the periods indicated. The
historical operations data for the years ended December 31, 1997, 1996 and 1995
and balance sheet data as of December 31, 1997 and 1996 have been derived from
the audited combined financial statements of the Company included elsewhere in
this Prospectus. The historical balance sheet data as of December 31, 1995 has
been derived from the Company's unaudited combined financial statements. The
historical operations data presented for the three month periods ended March 31,
1998 and 1997 and balance sheet data presented as of March 31, 1998 have been
derived from unaudited interim combined financial statements and include all
adjustments, consisting only of normal recurring accruals, which the Company
considers necessary for a fair presentation of the Company's results of
operations for these periods. Operating results for the three month period ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for any other interim period or the entire year ending December 31,
1998. The summary historical combined financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the Combined
Financial Statements and related notes as set forth elsewhere herein as well as
"Recent Developments."
OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEARS ENDED DECEMBER 31,
---------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
------------- ------------- ------------- ------------- -------------
Interest earned...................... $ 2,529,979 $ 1,672,747 $ 9,641,121 $ 6,783,312 $ 3,725,904
Fee-based services, including gain on
sale of loans and real estate...... 4,373,022 2,340,814 12,686,908 8,794,147 2,627,716
Servicing revenue, net............... 539,241 305,253 1,957,983 1,082,699 394,461
Income from investment in real estate
held for sale, net of operating
expenses........................... 540,334 -- -- -- --
Total revenues....................... 7,982,576 4,318,814 24,286,012 16,660,158 6,748,081
Net income........................... 3,432,110 1,175,870 8,632,262 4,302,596 714,807
Provision for pro forma income
taxes(1)........................... 1,383,244 479,548 3,468,648 1,753,788 299,523
Pro forma net income................. 2,048,866 696,322 5,163,614 2,548,808 415,284
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
---------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1998
PRO FORMA(3) ACTUAL 1997 1996 1995
------------- ------------- -------------- ------------- -------------
Loans held for sale, net............ $ 11,826,971 $ 11,826,971 $ 46,482,348 $ 45,729,204 $ 35,349,890
Loans held for investment, net...... 54,821,182 56,273,289 68,609,906 38,685,564 36,030,439
Total assets........................ 93,491,402 94,308,355 140,181,758 94,761,612 79,926,724
Notes payable....................... 58,565,230 58,565,230 110,227,947 75,909,788 68,394,767
Total liabilities................... 76,788,049 67,853,049 117,148,176 81,298,478 72,243,186
Total equity........................ 16,703,353 26,455,306 23,033,582 13,463,134 7,683,538
</TABLE>
10
<PAGE>
OTHER DATA:
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
Return on average equity (2) 8.3% 5.2% 28.3% 24.1% 5.7%
Return on average assets (2) 1.8% 0.8% 4.4% 2.9% 0.9%
Debt to equity ratio............. 2.2x 4.6x 4.8x 5.6x 8.9x
Total originations:
Permanent Loans................ $ 23,779,000 $ 34,013,000 $ 215,545,000 $ 244,287,000 $ 104,374,000
Customized Financing........... $ 11,649,000 $ 18,080,000 $ 174,377,000 $ 74,103,000 $ 81,729,000
Commercial servicing portfolio
(4)............................ $ 535,765,000 $ 418,541,000 $ 529,956,000 $ 385,518,000 $ 211,633,000
Number of loans in commercial
servicing portfolio............ 136 117 133 110 111
Selling and administrative
expenses as a percentage of
total revenue.................. 14.3% 19.2% 14.4% 21.0% 23.1%
</TABLE>
- ------------------------
(1) The pro forma provision for income taxes represents the difference between
historical income taxes and the income taxes that would have been reported
had the Company filed income tax returns as a taxable C corporation for each
of the periods presented using a pro forma income tax rate of 40%.
(2) Return on average equity and assets are based on pro forma net income and
historical average equity and assets, respectively. Return on average equity
and assets are not annualized for interim periods.
(3) The pro forma balance sheet gives effect to (i) the distribution by ASF of
$1,462,000 of ASF assets to Ivan Kaufman, its sole stockholder, on April 1,
1998, (ii) the contribution of capital by members on April 1, 1998 of
$717,062, net of a distribution of capital to a former employee of $152,938,
and (iii) a distribution of previously undistributed earnings of $6,800,000.
See "Acquisition by ANCM of ASF" and "Reorganization Transactions."
(4) The Company's commercial servicing portfolio represents commercial loans
serviced for third parties for a fee and does not include loans held for
investment.
11
<PAGE>
GLOSSARY
The following describes the meaning of certain terms used in this
Prospectus:
B or C Properties: Properties which are unable to command the highest range
of rental charges in a particular geographic area because of one or more
factors, such as age, physical condition, location or amenities.
Balloon Payment: The final payment under a promissory note calling for
periodic payments which are insufficient to fully amortize the face amount of
the note prior to maturity.
Bridge Financing: A form of interim loan, generally made to acquire or
rehabilitate a property before long term (Permanent Loan) financing can be
arranged.
Commercial Real Estate: Real property which produces rental income, such as
multifamily housing, retail and office properties.
Commitment Fee: A sum of money, usually based on a percentage of a loan
amount, paid to a lender for the lender's written agreement to make a loan to a
borrower under certain terms and conditions. The fee is usually non-refundable
and is retained by the lender whether or not the loan transaction is actually
closed.
Conduit Loan: A commercial real estate loan made by a lender with the
intention of selling that loan to an institution.
Exit Fee: A sum of money paid by a borrower to a lender in excess of
scheduled interest and principal payments when a loan is repaid, either at its
scheduled maturity or earlier.
Federal Funds Rate: For any day, (i) the fluctuating rate equal to the
weighted average of the rates on overnight Federal Funds transactions with
members of the Federal Reserve System arranged by Federal Funds brokers, as
published on that day (based on such transactions during the prior Business Day)
by the Federal Reserve Bank of New York; or if such rate is not so published for
any day which is a Business Day the average of the quotations for such prior
Business Day on such transactions received by the Agent Bank from three Federal
Funds brokers of recognized standing selected by the Agent Bank in its sole
discretion, plus (ii) the relevant margin. Any change of the Federal Funds Rate
shall be effective as of the effective date of any such change.
Forward Commitment: An agreement to purchase loans from a lender at a future
point in time.
Hedging Transaction: A financial transaction utilized to negate or minimize
interest rate risk.
Investor: A purchaser of permanent loans, usually an institution. The
institution generally combines that loan with other loans and sells interests in
this pool of loans to various purchasers.
LIBOR: The London Interbank Offered Rate, an interest rate at which deposits
in U.S. dollars are offered to prime banks in the London interbank market.
Loan-to-Value Ratio: The ratio expressed as a percentage determined by
dividing the aggregate amount of outstanding indebtedness related to a property
by the appraised value or selling price of that property.
Mezzanine Financing: Loans which are junior to existing first mortgage loans
and which are secured by collateral consisting of a junior lien on the real
property or the equity interest of the entity that owns the property. The
principal balance of the mezzanine financing together with the first mortgage
loan will generally not exceed a loan-to-value ratio of 65% to 90%.
Multifamily Residential Property: An improved parcel of real estate designed
to include more than four residential units.
12
<PAGE>
Origination: The process of creating or acquiring assets consisting of loan
receivables or real property.
Permanent Loan: Loans originated for sale pursuant to government-sponsored
and conduit loan programs for multi-family and other types of commercial
properties. These loans are typically for a period of seven years or longer.
Repurchase Agreement: Agreement between the Company and a funding source
whereby the Company sells loans to the funding source and agrees to repurchase
the loans at an agreed upon price and usually at a stated time. The Company
utilizes this vehicle to borrow funds to originate loans which are intended for
sale.
Secondary Market: The buying and selling of loans secured by real property
in an organized marketplace on terms which are readily available to buyers and
sellers in that market.
Securitization: The process of pooling loans and selling to various
purchasers interests in the principal or interest or any portion thereof
scheduled to be repaid on the loans.
Servicing: The process of administering the duties of the borrower on a
loan, such as collecting payments, releasing the lien upon payment in full,
foreclosing if in default, and making sure that real estate taxes are paid.
Subordinated (lien or interest): Made subject to or junior to.
Traditional Lender: The lending institution generally associated with making
commercial real estate loans, such as banks, insurance companies or large
national lending institutions.
Transitional financing: A short-term loan (generally for a term of six to 36
months) provided to a borrower that owns underperforming or undervalued
commercial real estate. The purpose of the loan is typically to finance
improvements to the property which are intended to increase its value or
increase the income it will produce.
Underwriting: The process of gathering information about a property and a
borrower and evaluating the creditworthiness of the borrower and the value and
financial performance of the property using standards established by the real
estate industry or an individual lender.
Warehouse or Warehousing: A financing vehicle used by the Company to borrow
funds to originate loans. These loans are pledged as collateral for the funds.
13
<PAGE>
RISK FACTORS
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK IN ADDITION TO THE OTHER INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THE NEGATIVE EFFECT OF ANY OF
THESE RISKS COULD REDUCE REVENUES, AND EARNINGS OF THE COMPANY WHICH COULD
RESULT IN A REDUCTION TO THE VALUE OF INVESTMENT IN THE COMMON STOCK OF THE
COMPANY.
DEPENDENCE ON KEY PERSONNEL. The Company believes that its success depends
to a significant extent upon the experience of Ivan Kaufman and other senior
management executives of the Company. The Company believes that Mr. Kaufman in
particular has an established reputation in the real estate investment industry
which is expected to aid the Company in obtaining investment opportunities. The
employment agreements of these key executives require them to devote
substantially all of their business time to rendering services for the Company
subsequent to December 31, 1998. See "Management-- Employment Agreements."
However, no assurance can be given that such executives will honor their
commitments under these agreements or that the employees would be required by a
court to specifically perform their duties for the Company. While the Company
believes that it could replace these key executives, the loss of their services
could have a material adverse effect on the operations of the Company through a
diminished capacity to obtain investment opportunities and to structure and
execute potential investments. The Company may not successfully recruit
additional personnel and any additional personnel that are recruited may not
have the requisite skills, knowledge or experience necessary or desirable to
enhance the incumbent management.
CONFLICTS OF INTERESTS. While directing the growth of the Company's
business, Mr. Kaufman and several of these executives have simultaneously
engaged, on a part-time basis, in other business activities of Mr. Kaufman which
are not competitive with the business of the Company. The Company has received
certain financial management, marketing and human resource services, as well as
office space from Arbor Management, for which the Company has paid a management
fee. Effective upon the closing of this Offering, the Company will restructure
this relationship so that all dealings will be at arms length. Additionally, the
active involvement of certain executives in all business activities (including
activities of Mr. Kaufman) other than the business of the Company will cease in
all material respects after December 31, 1998. From the closing of this Offering
through December 31, 1998, Mr. Kaufman will reimburse the Company for the
services of these executives in his other business ventures at a rate of $25,000
per month, an amount which is equal to the estimated maximum portion of their
time spent on such ventures, multiplied by their per annum salary for 1998.
Although, historically, these executives have been able to perform all of their
obligations to the Company in a responsible and professional manner while
simultaneously involved in these other business activities no assurance can be
given for the period through December 31, 1998, that such activities will not
interfere in a material manner in such executives' performance on behalf of the
Company.
BROAD DISCRETION ON INVESTMENTS. The Company's business plan is general in
nature and subject to change based upon changing conditions and opportunities.
The Company invests in real estate-related assets, which may be subject to
varying degrees of risk generally incident to the ownership of real property.
Management has broad discretion and authority to invest in whatever loans or
other real estate-related assets the Company deems appropriate. The Company has
entered into, and may continue to enter into, joint venture arrangements with
third parties. The Company in certain instances will not have control over the
day-to-day operations of businesses and assets in which it invests in the form
of a joint venture, and will therefore be dependent on third-party partners for
the success of any such joint venture. Further, the Company may engage in
construction financing for development stage projects which is inherently
riskier than the Company's Permanent Loan and other Customized Financing
activities. Also, there are no limits as to the size of a particular
transaction, which can result in significant concentration of capital in a
single investment. No assurance can be given that management's decisions on
funding any particular investment or any type of investment structure in this
regard will result in a profit for the Company.
14
<PAGE>
GEOGRAPHIC CONCENTRATION OF LOANS HELD FOR INVESTMENT. As of March 31,
1998, approximately 37.1%, 27.8%, 19.5% and 14.6% of the Company's portfolio of
loans held for investment related to properties located in New York, Florida,
Texas and Arizona, respectively. Concentration of collateral in any geographic
area may increase the risk of loss to the Company should conditions in that
geographic area deteriorate. A worsening of economic conditions in these states
could have an adverse effect on the Company's business, including reducing the
demand for new financings, limiting the ability of customers to pay financed
amounts and impairing the value of the Company's collateral.
CREDIT CONCENTRATION OF LOANS HELD FOR INVESTMENT. As of March 31, 1998,
46.9% of the Company's portfolio of loans held for investment consisted of three
loans of $11.1 million, $5.5 million and $10.4 million. Two of these loans
aggregating $16,600,000 are held by one borrower while the third loan of
$10,400,000 is held by an unrelated borrower. All of these loans are secured by
the individual properties or interests in the investment partnerships
controlling these properties. A default by either borrower on any of these loans
would significantly reduce the value of such portfolio. In such event, the
business, prospects, financial condition and results of operations of the
Company could be materially adversely affected.
POSSIBLE VOLATILITY IN QUARTERLY RESULTS. Primarily due to the nature of
Customized Financing transactions, trends in origination volume, revenues and
earnings may fluctuate, causing the Company's quarterly results from these
activities to fluctuate and limiting the value of comparing operating results
from quarter to quarter. These limitations may result in uncertainty in the
market for the Common Stock and may therefore affect the stock price.
Historically, the Company has experienced increased transactions and higher
revenues and earnings in the fourth quarter primarily due to borrowers' desire
to consummate transactions by year end.
VALUE OF COMPANY ASSETS DEPENDENT ON CONDITIONS BEYOND COMPANY'S
CONTROL. Customized Financing transactions are relatively illiquid. The ability
of the Company to change the mix of its investments in response to changes in
economic and other conditions will be limited. No assurances can be given that
the fair market value of any assets acquired by the Company will not decrease in
the future. The underlying value of the assets is dependent upon a number of
factors which are beyond the control of the Company. Among these factors may be
the ability of the Company's borrowers to operate their properties in a manner
that generates revenue sufficient to cover debt service due to the Company;
changes in interest rates and in the availability, cost and terms of financing;
adverse changes in national or local economic conditions; competition from other
properties offering the same or similar services and adverse changes in
governmental rules and fiscal policies.
ACCESS TO FUNDING SOURCES. The Company requires access to short-term
warehouse credit facilities in order to fund loan originations and purchases
pending the sale of such loans. The Company currently has a $90 million
warehouse line of credit funded by four financial institutions, a repurchase
agreement with Fannie Mae and a $10 million repurchase agreement with an
institutional investor. The Company has also borrowed funds from Mr. Kaufman.
Under the warehouse line the lender advances funds to the Company and the
Company pledges the loan made, with such funds as security for the advance
pending sale of the loan to an investor. Under the repurchase agreements, funds
are advanced by the funding source in purchasing the loan, subject to the
obligation of the Company to reacquire the loan simultaneously with its
placement with an investor. Although the Company expects to be able to maintain
and expand its existing warehouse credit facilities and to obtain replacement or
additional financing as the current arrangements expire or become fully
utilized, there can be no assurance that such financing will be available on
reasonable terms. Should the Company default on its repayment or repurchase
obligations to its funding sources, the Company's relationships with the lender
could be impaired. The lenders would be forced to dispose of the Company's
loans, and if the value of these loans were to decline during the 30 to 90 days
they are held by the lenders, the disposition of the loans might not yield
sufficient funds to satisfy the Company's obligations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions."
15
<PAGE>
RISK OF LOSS FROM CUSTOMIZED FINANCING ACTIVITIES. Through its Customized
Financing activities, the Company provides real estate owners and developers
with interim financing until permanent financing can be obtained. These loans
generally are of a relatively short-term duration and generally require a
balloon payment of principal at maturity. Loans with balloon payments involve a
greater risk to a lender than self-amortizing loans, because the ability of a
borrower to pay such amount will normally depend on its ability to fully
refinance the loan or sell the related property at a price sufficient to permit
the borrower to make the balloon payment. Should a borrower be unable to find an
alternative financing source or a buyer prior to maturity of the loan, the loan
could go into default and the Company could be forced to assume these risks.
Should there be a more general decline in the real estate market or adverse
changes in financial markets affecting the availability and cost of funds, the
Company could suffer defaults by multiple borrowers and possible losses on the
properties acquired as a result of such defaults. Such defaults and losses could
have a material adverse effect on the Company's business and financial
condition.
RISK OF LOSS ON LOANS SOLD UNDER THE FNMA DUS PROGRAM. The Company is
approved by the Federal National Mortgage Association ("Fannie Mae" or "FNMA")
to participate in its Delegated Underwriting and Servicing Program ("FNMA DUS
Program"). Under this program, the Company originates, sells and services
multifamily loans for Fannie Mae without having to obtain Fannie Mae's prior
approval for each loan. In return for the delegated authority to make loans and
the commitment to purchase loans by Fannie Mae, the Company must maintain a
minimum capital base ($7.5 million at December 31, 1997) and retain a certain
level of credit risk on the loans it makes. The Company takes first loss risk up
to 5% of the loan amount, and above 5%, Fannie Mae and the Company share the
loss with the Company's maximum loss capped at 20% of the original loan amount.
See "Business--Permanent Loans--FNMA DUS." Additionally, changes in the
Company's estimates of defaults under the FNMA DUS Program could materially
impact the value of rights to service. The Company is required to maintain a
letter of credit or restricted cash balances based on the size of its servicing
portfolio of FNMA DUS loans which totaled $2.4 million at March 31, 1998. As of
March 31, 1998, the unpaid principal balance of loans placed in the FNMA DUS
Program by the Company totaled $327 million (out of a total of $536 million
principal balance of Permanent Loans serviced by the Company). As of March 31,
1998, the Company had a reserve of $1.7 million to provide for future loan
losses under the FNMA DUS Program. While the Company believes that this reserve
is sufficient, actual loan losses under the FNMA DUS Program could exceed this
reserve and could have a materially adverse effect on the Company's performance,
which in turn may adversely affect the price of the Common Stock.
RETAINED RISKS OF LOANS SOLD. In connection with the Company's origination
and sale of certain loans, the Company must make certain representations and
warranties concerning loans originated by the Company and sold to investors that
relate to its practices in the origination and servicing of the loans and the
accuracy of the information being provided by the Company to the purchaser.
Because the accuracy of such representations and warranties is based on the
actions of the Company or upon third party reports, such as title reports and
environmental reports, the Company does not receive similar representations and
warranties from borrowers or others, and the Company is not entitled to
indemnity with respect to violations of such representations and warranties. The
Company would have a claim against the borrower or another party in the event of
a breach of any representations or warranties that are made by the borrower or
others; however, the Company's ability to recover on any such claim would be
dependent upon the financial condition of the party against which such claim is
asserted. There can be no assurance that the Company will not experience a
material loss as a result of representations and warranties it makes, which loss
may in turn adversely affect the Company's operations.
RISK OF LOSS FROM CHANGES IN GENERAL ECONOMIC CONDITIONS. Periods of
economic slowdown or recession, rising interest rates or declining demand for
real estate could adversely affect the Company's business. In addition, periods
of economic slowdown or recession, whether general, regional or
industry-related, may increase the risk of default on multifamily and commercial
loans, which may also have an adverse effect on the Company's business,
financial condition and results of operations. The Company may experience losses
16
<PAGE>
as a result of reduced servicing fees from loans that are foreclosed and may
experience losses from mortgages in the FNMA DUS Program if the value of the
underlying asset declines.
Such periods also may be accompanied by decreased demand for multifamily or
commercial properties, resulting in declining values of properties securing
outstanding loans, thereby weakening collateral coverage and increasing the
possibility of losses in the event of default. Significant increases in the
number of properties available for sale during recessionary economic periods may
depress the prices at which foreclosed properties may be sold or delay the
timing of such sales. There can be no assurance that the multifamily or
commercial markets will be adequate for the sale of foreclosed properties and
any material deterioration of such markets could reduce recoveries from the sale
of repossession inventory.
RISKS OF OWNERSHIP OF REAL ESTATE. The Company has made, and may in the
future make, investments in the direct ownership of real property. In addition,
loans by the Company held for investment are generally directly or indirectly
secured by a lien on real property which, upon the occurrence of a default on
the loan could result in the Company's acquiring ownership of the property.
Investments in real property or real property related assets are subject to
varying degrees of risk. The value of properties is affected significantly by
its ability to generate cash flow and net income which in turn will depend on
the amount of rental income which can be generated net of expenses required to
be incurred with respect to the property. The rental income, from these
properties may be adversely effected by a number of factors, including general
economic climate and local real estate conditions, an oversupply of (or a
reduction in demand for) space in properties in the areas where particular
properties are located and the attractiveness of particular properties to
prospective tenants. Net income from properties also is affected by such factors
as the cost of compliance with government regulations, including zoning and tax
laws and the potential for liability under applicable laws. Many expenditures
associated with properties (such as operating expenses and capital expenditures)
cannot be reduced when there is a reduction in income from the properties.
Adverse changes in these factors may have a material adverse effect on the
ability of the Company's borrowers to pay their loans, as well as on the value
which the Company can realize from properties it owns or acquires.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state and local
laws, ordinances and regulations, a current or previous owner or operator of a
property may be required to clean up hazardous substances released at the
property. These persons, and under some circumstances the holder of a loan
secured by a mortgage on the property may be held liable to a governmental
entity or to the other parties for property damage and for investigation and
cleanup costs incurred by those parties in connection with the contamination. In
addition, some environmental laws create a lien on a contaminated site in favor
of the government for damages and costs it incurs in connection with the
contamination. The presence of contamination or the failure to remediate
contamination may adversely effect the owner's ability to sell or lease real
estate or to borrow using real estate as collateral. The owner or operator of a
site may be liable under common law to third parties for damages or injuries
resulting from environmental contamination emanating from the site. Therefore,
there is a possibility that the Company will incur significant costs or
liabilities under environmental laws either as an owner or as a lender. In
addition, the Company could be adversely affected as a holder of mortgage loans
if costs of complying with environmental laws, or liability for failure to do
so, make property owners unable to meet their debt service obligations, if
existence of contamination or other violations of environmental laws make it
difficult to dispose of properties or reduce the price for which properties
could be sold upon foreclosure.
FAILURE TO SUCCESSFULLY MANAGE INTEREST RATE VOLATILITY MAY ADVERSELY AFFECT
RESULTS OF OPERATIONS. In general, when the Company commits to an interest rate
on a FNMA DUS loan held for sale, it contemporaneously locks in an interest
yield to the institutional investor purchasing that loan. However, for conduit
loans, the Company will accumulate some loans for bulk sale and in these
circumstances the Company hedges its interest rate risk with forward commitments
and put options. At March 31, 1998, loans held for sale included $4 million of
conduit loans without a firm purchase commitment from an investor. There can be
no assurance that the intent of the Company's hedging activities will be
successful or that
17
<PAGE>
benefits derived from hedging transactions will exceed the costs of hedging. The
Company is dependent on its counterparties to perform their commitments to
purchase either loans or securities. However, the Company only enters into
commitments with large institutional firms who are primary dealers and who are
consistently active in the marketplace. The Company does not hedge its loans
held for investment because these loans are generally variable rate loans that
are based on short term LIBOR. However, the operations and profitability of the
Company are likely to be adversely affected during any period of unexpected or
rapid changes in interest rates. For example, a substantial or sustained
increase in interest rates could adversely affect the ability of the Company to
originate loans. In such event, the business, prospects, financial condition and
results of operations of the Company could be materially adversely affected.
POSSIBLE CHANGES IN THE MARKET FOR WHOLE LOAN SALES. The Company sells all
of its loan originations to a limited number of institutional purchasers. There
can be no assurance that such purchasers will continue to purchase the Company's
loans and to the extent that the Company could not successfully replace such
loan purchasers, the Company's cash flow, results of operations, financial
condition and business prospects could be materially adversely affected. Also,
the inability of the Company to sell its loan originations limits revenue
generated from servicing such originations and may slow growth in its Customized
Financing activities. Further, adverse conditions in the commercial
mortgage-backed securitization market could negatively impact the ability of the
Company to complete whole loan sales, as many of the Company's whole loan
purchasers securitize the loans they purchase from the Company. Therefore the
Company might choose to retain, as opposed to selling, such loans, thereby
increasing the potential risk with respect to both funding the costs of such
loans, and the possible deterioration in the value of such loans.
RISKS ASSOCIATED WITH REPURCHASE AGREEMENTS AND CREDIT FACILITIES. Credit
facilities (including repurchase agreements) involve the risk that the market
value of the loans pledged or sold to the funding source by the Company may
decline in value, in which case the lending institution may require the Company
to provide additional collateral to pay down a portion of the funds advanced. In
addition, in the event that the funding source files for bankruptcy or becomes
insolvent the Company's loans may become subject to the bankruptcy or insolvency
proceedings, thus depriving the Company at least temporarily of the benefit of
these assets. Such an event could materially adversely affect the Company's
business.
UNCERTAINTIES RESULTING FROM GOVERNMENT REGULATION AND CHANGES IN
GOVERNMENTAL PROGRAMS. The operations of the Company are subject to regulation
by federal, state and local government authorities (such as the Federal Housing
Administration, a division of the United States Department of Housing and Urban
Development ("FHA/HUD")), various laws and judicial and administrative
decisions, and regulations of government sponsored entities (such as Fannie Mae)
that purchase mortgages originated and serviced by the Company. These laws,
regulations and decisions require the Company, among other things, to maintain a
minimum net worth ($7.5 million at December 31, 1997), to submit financial
reports, and to maintain a quality control plan for the underwriting,
origination and servicing of loans. These laws and regulations also impose
requirements and restrictions affecting, among other things, the Company's loan
originations, credit activities, maximum interest rates, finance and other
charges, disclosures to customers, the terms of secured transactions,
collection, repossession and claims handling procedures, personnel
qualifications, and other trade practices. Although the Company believes that it
is in compliance in all material respects with applicable local, state and
federal laws, rules and regulations and with the requirements of entities
purchasing mortgages, there can be no assurance that more restrictive laws,
rules, regulations or requirements will not be adopted in the future that could
make compliance more difficult or expensive, restrict the Company's ability to
originate, purchase, sell or service loans or further limit or restrict the
amount of interest and other charges earned on loans.
LIMITATION ON LIABILITY OF OFFICERS AND DIRECTORS OF THE COMPANY. The
Company's Certificate of Incorporation (the "Certificate of Incorporation")
contains a provision which limits the liability of a director or officer to the
Company and its shareholders for money damages except for liability resulting
from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) deliberate
18
<PAGE>
dishonesty established by a final judgment as being material to the cause of
action. The Company will indemnify its officers and directors from any action or
claim brought or asserted by any party by reason of any allegation that such
persons are otherwise accountable or liable for the debts or obligations of the
Company or its affiliates.
ANTI-TAKEOVER PROVISIONS. The Certificate of Incorporation and the
Company's Bylaws (the "Bylaws") include provisions that could delay, defer or
prevent a takeover attempt that may be in the best interest of shareholders.
These provisions include the ability of the Board of Directors to issue up to
10,000,000 shares of preferred stock (the "Preferred Stock") without any further
shareholder approval, and requirements that shareholders give advance notice
with respect to certain proposals (including nomination of directors) that they
may wish to present for a shareholder vote. Issuance of Preferred Stock could
also discourage bids for Common Stock at a premium as well as create a
depressive effect on the market price of the Common Stock. In addition, under
certain conditions, Section 912 of the New York Business Corporation Law (the
"NYBCL") would prohibit the Company from engaging in a "business combination"
with an "interested shareholder" (in general, a shareholder owning directly or
indirectly 20% or more of the Company's outstanding voting stock) for a period
of five years unless the business combination is approved in a prescribed manner
or meets prescribed conditions.
CONTROL OF FOUNDING STOCKHOLDER. After giving effect to the Offering, Mr.
Kaufman, the Trust, and the Ivan Kaufman Grantor Retained Annuity Trust (the
"Kaufman Grantor Trust"), two trusts for the benefit of his family, will, in the
aggregate, directly or indirectly, beneficially own or control 58.80% of the
outstanding Common Stock. As a result, these stockholders, acting togther, are
able to effectively control all matters requiring approval by the stockholders
of the Company, including amendment of the Certificate of Incorporation, the
approval of mergers or similar transactions and the election of all directors.
Mr. Kaufman and Mr. Lippe are the co-trustees of the Kaufman Grantor Trust. In
addition, Mr. Kaufman and Richard A. Lippe are two of the five current directors
of the Company. See "Management" and "Security Ownership of Certain Beneficial
Owners and Management."
POSSIBLE VOLATILITY OF STOCK PRICE; EFFECT ON FUTURE OFFERINGS ON MARKET
PRICE OF COMMON STOCK. The market price of the Common Stock may experience
fluctuations that are unrelated to the operating performance of the Company. In
particular, the price of the Common Stock may be affected by general market
price movements as well as developments specifically related to the real estate
finance industry and the financial services sector such as, among other things,
interest rate movements, quarterly variations or changes in financial estimates
by securities analysts and a significant reduction in the price of the stock of
another participant in the real estate finance industry.
The Company may increase its capital by making additional private or public
offerings of its Common Stock, securities convertible into its Common Stock,
Preferred Stock or debt securities. There can be no assurance that the Company
will be successful in raising sufficient additional equity or debt capital on
acceptable terms. In addition, the actual or perceived effect of such offerings
may be the dilution of the book value or earnings per share of the Common Stock
outstanding, which may result in the reduction of the market price of the Common
Stock.
NO ANTICIPATED DIVIDENDS. The Company does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. The decision whether to
apply legally available funds to the payment of dividends on the Common Stock
will be made by the Board of Directors of the Company from time to time in the
exercise of its business judgment, taking into account, among other things, the
Company's results of operations and financial condition, any then existing or
proposed commitments by the Company for the use of available funds and the
Company's obligations with respect to the holders of any then outstanding
indebtedness or Preferred Stock. The Company's ability to pay dividends may be
restricted from time to time by financial covenants in its credit agreements or
in arrangements with or regulations of government sponsored entities pertaining
to minimum cash reserve requirements.
19
<PAGE>
POSSIBLE NEGATIVE EFFECT ON STOCK PRICE FROM ABSENCE OF PRIOR MARKET FOR
COMMON STOCK. There has been no public market for the Common Stock prior to the
Offering and there can be no assurance that a public market will develop or, if
it develops, that it will be sustained following the Offering. Certain factors,
such as changes in market conditions generally, could cause the market price of
the Common Stock to vary substantially. See "Shares Eligible for Future Sale"
and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION. The initial public offering price per
share of Common Stock is substantially higher than the net tangible book value
per share of the Common Stock. Purchasers of shares of Common Stock in this
Offering will experience immediate and substantial dilution of $9.27 in the pro
forma net tangible book value per share of Common Stock. See "Dilution."
SHARES AVAILABLE FOR FUTURE SALE. Upon completion of this Offering, the
Company will have 10,800,000 shares of Common Stock outstanding (11,295,000
shares if the Underwriters' over-allotment option is exercised in full). The
3,300,000 shares offered hereby (3,795,000 shares if the Underwriters' over-
allotment option is exercised in full) will be freely tradeable without
restrictions or further registration under the Securities Act, except for any
shares purchased by "affiliates" of the Company, as such term is defined in Rule
144 promulgated under the Securities Act. The remaining shares of Common Stock
are "restricted securities" within the meaning of Rule 144. Restricted
securities may only be sold in private transactions or pursuant to Rule 144. The
Company has agreed to register for resale twelve months after the closing of the
Offering the shares owned by certain stockholders of the Company prior to the
Offering (approximately 1,125,000 shares). Until that time, all shares owned by
stockholders of the Company prior to the Offering may not be sold in the public
market due to the restrictions of Rule 144. See "Shares Eligible for Future
Sale." In addition, 770,000 shares are issuable upon the exercise of outstanding
stock options, 22,050 shares of restricted stock have been granted and 827,950
shares of Common Stock are reserved for issuance under the 1998 Stock Plan (as
defined below). The Company and each of the stockholders of the Company have
agreed that they will not, without the prior written consent of Lehman Brothers
on behalf of the Underwriters, directly or indirectly, offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase, or otherwise sell
or dispose of (or announce any offer, sale, contract of sale, pledge, grant or
any option to purchase or other sale or disposition of) any shares of Common
Stock or any other securities convertible into, or exercisable for shares of
Common Stock or other similar securities of the Company, currently beneficially
owned, for a period of 180 days after the date of this Prospectus. Lehman
Brothers may, in its sole discretion, at any time and without prior notice,
release all or any portion of the shares of Common Stock subject to such
agreements. In any event, the shares owned by the stockholders of the Company
prior to the Offering may not be sold for twelve months from the date of the
Offering due to the restrictions of Rule 144. Sales of substantial amounts of
Common Stock (including shares issued upon the exercise of outstanding options)
in the public market after this Offering or the prospect of such sales could
adversely affect the market price of the Common Stock and may have a material
adverse effect on the Company's ability to raise any necessary capital to fund
its future operations. See "Shares Eligible for Future Sale," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from this Offering (after deducting
underwriting discounts and commissions and estimated expenses of the Offering)
are estimated to be approximately $45 million (approximately $52 million if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use the net proceeds it receives from the Offering (i) to retire its
outstanding borrowings from Mr. Kaufman ($18,411,000 including accrued and
unpaid interest as of July 21, 1998); (ii) to reduce the current outstanding
balance on its warehouse line; and (iii) as working capital for general
corporate purposes related to the funding of its anticipated future growth. The
amount payable to Mr. Kaufman may fluctuate dependent upon the cash needs of the
Company and the availability of its funding sources.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
March 31, 1998, (ii) at March 31, 1998, as adjusted to give effect to the ASF
Transactions and the Exchange Transaction, and (iii) at March 31, 1998, as
adjusted to give effect to the application of the estimated net proceeds of this
Offering after underwriting discounts and commissions. See "Use of Proceeds."
The data set forth below should be read in conjunction with the other financial
information appearing elsewhere in this Prospectus, including the Combined
Financial Statements and the related notes thereto.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------------- ------------- --------------
Notes payable and repurchase agreements............................ $ 44,879,927 $ 44,879,927 $ 13,430,230
Note payable--Ivan Kaufman......................................... 13,685,303 13,685,303 --
------------- ------------- --------------
Total notes payable and repurchase agreements...................... 58,565,230 58,565,230 13,430,230
------------- ------------- --------------
Stockholders' Equity
Equity(1)........................................................ 26,455,306
Preferred Stock, $.01 par value; 10,000,000 shares authorized; no
shares issued and outstanding..................................
Common Stock $.01 par value; 30,000,000 shares authorized; no
shares issued and outstanding, actual; 7,500,000 pro forma, as
adjusted to give effect to the Reorganization Transactions;
10,800,000 shares issued and outstanding, as adjusted following
the Offering................................................... -- 75,000 108,000
Additional paid-in capital....................................... -- 16,628,353 61,730,353
------------- ------------- --------------
Total stockholders' equity......................................... 26,455,306 16,703,353 61,838,353
------------- ------------- --------------
Total capitalization............................................... $ 85,020,536 $ 75,268,583 $ 75,268,583
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
- ------------------------
(1) Equity consists of (a) 100 shares of no par value common stock with a value
of $1,000 and retained earnings of $5,141,820 of ASF; and (b) members'
capital of $21,312,486 of ANCM.
(2) As adjusted to give effect to the following:
(a) the distribution by ASF of $1,462,000 of ASF assets to Ivan Kaufman, its
sole stockholder, on April 1, 1998;
(b) an additional $717,062 comprised of contributions of capital by members
on April 1, 1998, net of a distribution of capital to a former employee
of $152,938;
(c) Reorganization transactions comprised of the following:
(i) the deferred tax liability of $2,207,000 as a result of the
Company's election to terminate its LLC and S corporation
status;
(ii) the payment of $6,800,000 of previously undistributed earnings
which the Company intends to pay, prior to the closing of this Offering
from working capital; and
(iii) the exchange of members' interests for shares of Common Stock.
(3) As adjusted to reflect the receipt of the net proceeds of this Offering
(after deducting underwriting discounts and estimated Offering expenses).
21
<PAGE>
DIVIDEND POLICY
The Company does not anticipate paying cash dividends on the Common Stock in
the foreseeable future. The decision whether to apply legally available funds to
the payment of dividends on the Common Stock will be made by the Board of
Directors of the Company from time to time in the exercise of its business
judgment, taking into account, among other things, the Company's results of
operations and financial condition, any then existing or proposed commitments by
the Company for the use of available funds, and the Company's obligations with
respect to the holders of any then outstanding indebtedness or Preferred Stock.
The Company's ability to pay dividends may be restricted from time to time by
financial covenants in its credit agreements or in arrangements with or
regulations of government sponsored entities pertaining to minimum cash reserve
requirements.
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the net tangible book value of their Common Stock
from the public offering price. The pro forma net tangible book value of the
Company as of March 31, 1998 was $16,703,353, or $2.23 per share of Common
Stock. Net tangible book value represents the amount of the Company's tangible
net worth divided by the pro forma total number of shares of Common Stock
outstanding as of March 31, 1998 pro forma to give effect to the ASF
Transactions and the transactions described in "Prospectus Summary--
Reorganization Transactions." After adjusting for, and giving effect to, the
sale of 3,300,000 shares of Common Stock by the Company in the Offering and the
application of the estimated net proceeds therefrom at an assumed public
offering price of $15.00 per share (the midpoint of the filing range set forth
on the cover of this Prospectus), and after the deduction of underwriting
discounts and commissions and estimated Offering expenses payable by the
Company, the adjusted pro forma net tangible book value of the Company as of
March 31, 1998 would have been $61,838,353 million or $5.73 per share of Common
Stock. This represents an immediate increase in net tangible book value of $3.50
per share to existing shareholders and an immediate dilution of $9.27 per share
to purchasers of shares in the Offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share of Common Stock offered hereby.......... 15.00
Pro forma net tangible book value per share before offering............. 2.23
Increase per share attributable to new investors........................ 3.50
Adjusted pro forma net tangible book value per share after offering..... 5.73
---------
Dilution per share to new investors..................................... 9.27
---------
---------
</TABLE>
The following table summarizes on a pro forma basis the relative investments
of investors pursuant to this Offering and the current stockholders of the
Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 7,500,000 69% $ 16,703,353 25% $ 2.23
New investors............................. 3,300,000 31% 49,500,000 75% 15.00
------------ --- ------------- ---
Total(1).................................. 10,800,000 100% 66,203,353 100%
------------ --- ------------- ---
------------ --- ------------- ---
</TABLE>
- ------------------------
(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to 495,000 shares of Common Stock. See "Underwriting."
If the over-allotment option is exercised in full, the new investors will
have paid $56,925,000 and will hold 3,795,000 shares of Common Stock,
representing 77% of the total consideration and 34% of the total number of
outstanding shares of Common Stock. See "Description of Securities" and
"Underwriting."
22
<PAGE>
SELECTED FINANCIAL DATA
The following tables present historical combined financial information for
the Company at the dates and for the periods indicated. The historical
operations data for the years ended December 31, 1997, 1996 and 1995 and balance
sheet data as of December 31, 1997 and 1996 have been derived from the audited
combined financial statements of the Company included elsewhere in this
Prospectus. The historical operations data for the years ended February 28, 1995
and 1994 and balance sheet data as of December 31, 1995, February 28, 1995 and
1994 have been derived from unaudited combined financial statements. The
historical operations data presented for the three month periods ended March 31,
1998 and 1997 and balance sheet data presented as of March 31, 1998 have been
derived from unaudited interim combined financial statements and include all
adjustments, consisting only of normal recurring accruals, which the Company
considers necessary for a fair presentation of the Company's results of
operations for these periods. Operating results for the three month period ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for any other interim period or the entire year ending December 31,
1998. The historical combined financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the Combined
Financial Statements and related notes as set forth elsewhere herein.
OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH YEARS ENDED FEBRUARY
31, YEARS ENDED DECEMBER 31, 28,
------------------------- ----------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1995 1994
------------- ---------- ----------- ---------- ---------- ---------- ----------
Interest earned......... $ 2,529,979 $1,672,747 $ 9,641,121 $6,783,312 $3,725,904 $2,470,793 $1,556,136
Fee-based services,
including gain on sale
of loans and real
estate................ 4,373,022 2,340,814 12,686,908 8,794,147 2,627,716 891,520 680,845
Servicing revenue,
net................... 539,241 305,253 1,957,983 1,082,699 394,461 397,029 188,919
Income from investment
in real estate held
for sale, net of
operating expenses.... 540,334 -- -- -- -- -- --
Total revenues.......... 7,982,576 4,318,814 24,286,012 16,660,158 6,748,081 3,759,342 2,425,900
Net income(loss)........ 3,432,110 1,175,870 8,632,262 4,302,596 714,807 (899,891) 264,141
Provision(benefit) for
pro forma income
taxes(1).............. 1,383,244 479,548 3,468,648 1,753,788 299,523 (350,430) 107,558
Pro forma net income.... 2,048,866 696,322 5,163,614 2,548,808 415,284 (549,461) 156,583
<CAPTION>
BALANCE SHEET DATA:
AT MARCH 31, AT DECEMBER 31, AT FEBRUARY 28,
------------------------- ----------------------------------- ----------------------
1998 1998
PRO FORMA(3) ACTUAL 1997 1996 1995 1995 1994
------------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans held for sale,
net................... $11,826,971 $11,826,971 $46,482,348 $45,729,204 $35,349,890 $6,671,548 $46,899,797
Loans held for
investment, net....... 54,821,182 56,273,289 68,609,906 38,685,564 36,030,439 4,806,727 4,199,140
Total assets............ 93,491,402 94,308,355 140,181,758 94,761,612 79,926,724 15,094,285 54,044,192
Notes payable........... 58,565,230 58,565,230 110,227,947 75,909,788 68,394,767 7,375,168 52,303,481
Total liabilities....... 76,788,049 67,853,049 117,148,176 81,298,478 72,243,186 8,126,554 52,832,040
Total equity............ 16,703,353 26,455,306 23,033,582 13,463,134 7,683,538 6,967,731 1,212,152
</TABLE>
23
<PAGE>
OTHER DATA:
<TABLE>
<CAPTION>
AT OR FOR
AT OR FOR THE THE
THREE MONTHS ENDED AT OR FOR THE YEARS ENDED
MARCH 31, YEARS ENDED DECEMBER 31, FEBRUARY 28,
--------------------------- ---------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1995
------------- ------------ ------------ ------------ ------------ ------------
Return on average equity (2)............... 8.3% 5.2% 28.3% 24.1% 5.7% (13.2%)
Return on average assets (2)............... 1.8% 0.8% 4.4% 2.9% 0.9% (1.6%)
Debt to equity ratio....................... 2.2x 4.6x 4.8x 5.6x 8.9x 1.1x
Total originations:
Permanent Loans.......................... $23,779,000 $ 34,013,000 $215,545,000 $244,287,000 $104,374,000 $141,319,000
Customized Financing..................... $11,649,000 $ 18,080,000 $174,377,000 $ 74,103,000 $ 81,729,000 $ 9,162,000
Commercial servicing portfolio (4)......... $535,765,000 $418,541,000 $529,956,000 $385,518,000 $211,633,000 $222,000,000
Number of loans in commercial servicing
portfolio................................ 136 117 133 110 111 94
Selling and administrative expenses as a
percentage of total revenue.............. 14.3% 19.2% 14.4% 21.0% 23.1% 30.9%
<CAPTION>
<S> <C>
1994
------------
Return on average equity (2)............... 20.7(5)
Return on average assets (2)............... 0.6(5)
Debt to equity ratio....................... 43.2x
Total originations:
Permanent Loans.......................... $174,997,000
Customized Financing..................... $ 0
Commercial servicing portfolio (4)......... $166,000,000
Number of loans in commercial servicing
portfolio................................ 67
Selling and administrative expenses as a
percentage of total revenue.............. 23.4%
</TABLE>
- ------------------------
(1) The pro forma provision (benefit) for income taxes represents the difference
between historical income taxes and the income taxes that would have been
reported had the Company filed income tax returns as a taxable C corporation
for each of the periods presented using a pro forma income tax rate of 40%.
(2) Return on average equity and assets are based on pro forma net income and
historical average equity and assets, respectively. Return on average equity
and assets are not annualized for interim periods.
(3) The pro forma balance sheet gives effect to (i) the distribution by ASF of
$1,462,000 of ASF assets to Ivan Kaufman, its sole stockholder, on April 1,
1998, (ii) the contribution of capital by members on April 1, 1998 of
$717,062, net of a distribution of capital to a former employee of $152,938,
and (iii) a distribution of previously undistributed earnings of $6,800,000.
See "Prospectus Summary--Acquisition by ANCM of ASF" and "Prospectus
Summary--Reorganization Transactions."
(4) The Company's commercial servicing portfolio represents commercial loans
serviced for third parties for a fee and does not include loans held for
investment.
(5) Return on average equity and assets are based on the ending balances at
February 28, 1994 and the Company's initial capitalization in 1993.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER PORTIONS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING
INFORMATION THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY SUCH FORWARD LOOKING
STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED UNDER THE HEADING "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S COMBINED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Arbor National Holdings, Inc. is a real estate financial services company
that funds, on a negotiated basis, high-yielding lending and investment
opportunities in commercial real estate through Customized Financing structures.
It also derives substantial revenue from the origination for sale and servicing
of Permanent Loans for multifamily and other types of commercial properties.
Although the Company's Customized Financing activities involve higher risk loans
than typical first mortgage loans made by traditional lending institutions, the
Company seeks to structure these transactions to compensate for the additional
risks.
ACQUISITION BY ANCM OF ASF
In contemplation of this Offering, ANCM, which became a wholly-owned
subsidiary of ANHI on the date of this Prospectus (see "Prospectus
Summary--Reorganization Transactions"), acquired 100% of the outstanding stock
of ASF as of April 1, 1998 through the ASF Transactions.
Prior to its acquisition by ANCM, ASF distributed a dividend of certain
loans receivable which did not involve commercial real estate to Ivan Kaufman,
its sole stockholder. Immediately thereafter, Mr. Kaufman sold the outstanding
common stock of ASF to the Trust. Immediately thereafter, simultaneously with
the purchase of Class B membership interests by certain officers and employees
of ANCM, the Trust, which was already a Class A member of ANCM, purchased an
additional Class A membership interest in ANCM by transferring the ASF shares to
ANCM.
ORIGINATION VOLUME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31, % CHANGE
-------------------- ---------------------------------- --------------------------------
1998 1997 1997 1996 1995 Q1 1997-1998 1996-1997
--------- --------- ---------- ---------- ---------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Permanent Loans.............. $ 23,779 $ 34,013 $ 215,545 $ 244,287 $ 104,374 (30)% (12 )%
Customized Financing......... 11,649 18,080 174,377 74,103 81,729 (36 ) 135
--
--------- --------- ---------- ---------- ---------- ---
Total.................... $ 35,428 $ 52,093 $ 389,922 $ 318,390 $ 186,103 (32 )% 22%
--
--
--------- --------- ---------- ---------- ---------- ---
--------- --------- ---------- ---------- ---------- ---
<CAPTION>
1995-1996
-------------
<S> <C>
Permanent Loans.............. 134%
Customized Financing......... (9 )
---
Total.................... 71%
---
---
</TABLE>
The increase in the Company's Permanent Loan origination volume from 1995 to
1996 was primarily attributable to increased originations from the Company's
FNMA DUS product line, which commenced in December 1995. The decrease in the
Company's Permanent Loan origination volume from 1996 to 1997 and for the first
quarter ended March 31, 1997 as compared to the first quarter ended March 31,
1998 was primarily attributable to increased competition in the permanent
lending market and management's decision not to compete solely on price. In
1996, the Company decided to concentrate its efforts on high yielding lending
and investment opportunities in commercial real estate through Customized
Financing
25
<PAGE>
activities, a market that management believes to be underserved, especially on
transactions under $20 million. This strategic decision had a significant impact
on the Company's revenues as discussed below. The Company also believes that
there is significant growth opportunity in the Customized Financing market
especially in bridge and mezzanine loans. Due to the nature of these activities,
origination volume and the timing of recognizing the related revenue will
fluctuate. See "Risk Factors--Possible Volatility in Quarterly Results."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
REVENUES. The following table sets forth the components of the Company's
revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------- %
1998 1997 CHANGE
------------ ------------ -----------
<S> <C> <C> <C>
Interest earned.......................................................... $ 2,529,979 $ 1,672,747 51%
Gain on sale of loans and real estate.................................... 2,193,245 615,833 256
Originated mortgage servicing rights..................................... 588,225 1,056,170 (44)
Fee income............................................................... 1,591,552 668,811 138
------------ ------------ ---
Fee-based services, including gain on sale of loans and real estate...... 4,373,022 2,340,814 87
------------ ------------ ---
Servicing revenue, net................................................... 539,241 305,253 77
Income from investment in real estate held for sale, net of operating
expenses............................................................... 540,334 -- --
------------ ------------ ---
Total revenues........................................................... $ 7,982,576 $ 4,318,814 85%
------------ ------------ ---
------------ ------------ ---
</TABLE>
Interest earned increased $857,000 or 51% to $2.5 million for the three
months ended March 31, 1998 from $1.7 million for the three months ended March
31, 1997. This increase was primarily due to a 61% increase in the weighted
average balance of loans held for investment (primarily bridge and mezzanine
loans) which, due to their customized characteristics and risk profiles, yield
higher interest rates and are held for substantially longer periods of time as
compared to loans held for sale. The weighted average loan balance of loans held
for sale decreased 21%.
Gain on sale of loans and real estate, which primarily represented all cash
gains, increased $1.6 million or 256% to $2.2 million for the three months ended
March 31, 1998 from $616,000 for the three months ended March 31, 1997. This
increase was primarily attributable to increased revenues from Customized
Financing activities. Past experience has shown that the nature of these
Customized Financing activities vary greatly and are highly negotiated, and as a
result the amount and timing of revenue recognition will fluctuate. The Company
expects this trend to continue in the future.
Originated mortgage servicing rights, which are the allocated cost of the
unsold portion of the loans and are recognized when loans are sold, decreased
$468,000 or 44% to $588,000 for the three months ended March 31, 1998 from $1.1
million for the three months ended March 31, 1997. This decrease was primarily
attributable to a 37% decrease in the volume of FNMA DUS loans sold for the
quarter ended March 31, 1998 compared to the quarter ended March 31, 1997 which
was a direct result of a decrease in the average loan size of originations from
the fourth quarter of 1996 to the fourth quarter of 1997.
Fee income comprised of origination, exit and commitment fees increased
$923,000 or 138% to $1.6 million for the three months ended March 31, 1998 from
$669,000 for the three months ended March 31, 1997. This increase was primarily
attributable to (a) fees earned on backup commitments to lend and purchase real
estate and (b) the increase in the Company's Customized Financing activities.
26
<PAGE>
Servicing revenue, net increased $234,000 or 77% to $539,000 for the three
months ended March 31, 1998 from $305,000 for the three months ended March 31,
1997. This increase was primarily attributable to a 28% increase in the
Company's commercial servicing portfolio combined with an overall increase in
the weighted average servicing fee from March 31, 1997 to March 31, 1998 due to
the increase in the FNMA DUS portfolio, which yield higher weighted average
servicing fees than other loans serviced.
Income from investment in real estate held for sale consisted of rental
income earned, less operating expenses incurred during the three months ended
March 31, 1998. The asset generating this rental income, net was acquired in
September 1997.
EXPENSES. The following table sets forth the components of the Company's
expenses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------- %
1998 1997 CHANGE
------------ ------------ -----------
<S> <C> <C> <C>
Interest expense......................................................... $ 1,944,208 $ 925,038 110%
Employee compensation and benefits....................................... 1,231,366 1,053,338 17
Selling and administrative............................................... 1,137,522 827,068 38
Provision for loan losses................................................ 237,370 337,500 (30)
------------ ------------ ---
Total expenses........................................................... $ 4,550,466 $ 3,142,944 45%
------------ ------------ ---
------------ ------------ ---
</TABLE>
Interest expense increased $1.0 million or 110% to $1.9 million for the
three months ended March 31, 1998 from $925,000 for the three months ended March
31, 1997. This increase was primarily attributable to (a) increased borrowings
to finance loans held for investment, which due to their customized
characteristics and risk profiles carry a higher borrowing rate than loans held
for sale; and (b) the interest cost associated with the increase in debt to
finance growth in investments in real estate held for sale, other real estate
joint ventures and other investments.
Employee compensation and benefits increased $178,000 or 17% to $1.2 million
for the three months ended March 31, 1998 from $1.1 million for the three months
ended March 31, 1997. This increase reflected increased staffing levels
associated with Customized Financing activities and the geographic and product
expansion of the Company's lending activities.
Selling and administrative expenses increased $310,000 or 38% to $1.1
million for the three months ended March 31, 1998 from $827,000 for the three
months ended March 31, 1997. This increase was primarily attributable to the
geographic and product expansion of the lending activities and a one time
increase in depreciation expense of $104,000 related to a change in the
estimated useful life of certain capitalized equipment.
Provision for loan losses decreased $100,000 or 30% to $237,000 for the
three months ended March 31, 1998 from $338,000 for the three months ended March
31, 1997. This decrease was directly attributable to a 37% decrease in the
volume of FNMA DUS loans sold for the quarter ended March 31, 1998 compared to
the quarter ended March 31, 1997. Under the FNMA DUS Program, the Company
assumes responsibility for a portion of any loss that may result from borrower
defaults based on FNMA loss sharing formulas. The Company's portion of the loss
sharing is limited to a maximum of 20% of the original principal balance.
27
<PAGE>
YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES. The following table sets forth the components of the Company's
revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
<S> <C> <C> <C>
1997 1996 % CHANGE
------------- ------------- ---------------
Interest earned......................................................... $ 9,641,121 $ 6,783,312 42%
Gain on sale of loans and real estate................................... 6,195,440 3,220,366 92
Originated mortgage servicing rights.................................... 3,148,981 2,958,029 6
Fee income.............................................................. 3,342,487 2,615,752 28
--
------------- -------------
Fee-based services, including gain on sale of loans and real estate..... 12,686,908 8,794,147 44
--
------------- -------------
Servicing revenue, net.................................................. 1,957,983 1,082,699 81
--
------------- -------------
Total revenues.......................................................... $ 24,286,012 $ 16,660,158 46%
--
--
------------- -------------
------------- -------------
</TABLE>
Interest earned increased $2.9 million or 42% to $9.6 million for 1997 from
$6.8 million for 1996. This increase was primarily due to a 38% increase in the
weighted average outstanding balance of loans held for investment (primarily
bridge and mezzanine loans) which, due to their customized characteristics and
risk profiles, yield higher interest rates and are held for substantially longer
periods of time as compared to loans held for sale. The weighted average loan
balance of loans held for sale increased 53% from 1996 to 1997.
Gain on sale of loans and real estate, which primarily represented all cash
gains, increased $3.0 million or 92% to $6.2 million for 1997 from $3.2 million
for 1996. This increase was primarily attributable to (a) increased revenues
from Customized Financing activities and (b) increased margins from Permanent
Loans originated for sale offset by a 17% decrease in volume of Permanent Loans
sold.
Originated mortgage servicing rights, which are the allocated cost of the
unsold portion of the loans and are recognized when loans are sold, increased
$191,000 or 6% to $3.1 million for 1997 from $3.0 million for 1996. This
increase was primarily attributable to the increase in the volume of FNMA DUS
loans sold, as a percentage of total sold loan volume, from 1997 to 1996. The
FNMA DUS loans yield higher servicing fees than other loans serviced and
therefore generate greater servicing values.
Fee income increased $727,000 or 28% to $3.3 million for 1997 from $2.6
million for 1996. This increase was primarily attributable to the increase in
the Company's Customized Financing activities.
Servicing revenue, net increased $875,000 or 81% to $2.0 million for 1997
from $1.1 million for 1996. This increase was directly attributable to a 37%
increase in the Company's commercial servicing portfolio combined with an
overall increase in the weighted average servicing fee from 1997 to 1996 due to
the increase in the FNMA DUS portfolio, which yield higher weighted average
servicing fees than other loans serviced.
EXPENSES. The following table sets forth the components of the Company's
expenses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
<S> <C> <C> <C>
1997 1996 % CHANGE
------------- ------------- -------------
Interest expense........................................................ $ 6,242,616 $ 4,048,947 54%
Employee compensation and benefits...................................... 4,920,495 3,893,873 26
Selling and administrative.............................................. 3,493,022 3,499,691 --
Provision for loan losses............................................... 997,617 915,051 9
------------- ------------- ---
Total expenses.......................................................... $ 15,653,750 $ 12,357,562 27%
------------- ------------- ---
------------- ------------- ---
</TABLE>
28
<PAGE>
Interest expense increased $2.2 million or 54% to $6.2 million for 1997 from
$4.0 million for 1996. This increase was primarily attributable to (a) increased
borrowings to finance loans held for investment (primarily bridge and mezzanine
loans), which due to their customized characteristics and risk profiles, carry a
higher borrowing rate than loans held for sale; and (b) the interest costs
associated with the increase in debt to finance growth in investments in real
estate held for sale and other real estate joint ventures, the bulk of which
occurred in the fourth quarter of 1997.
Employee compensation and benefits increased $1.0 million or 26% to $4.9
million for 1997 from $3.9 million for 1996. This increase reflected increased
commissions and incentives associated with the Customized Financing activities,
and the geographic and product expansion of the Company's lending activities.
Selling and administrative expenses remained stable from 1996 to 1997, yet
as a percentage of revenue, the selling and administrative expenses decreased to
14% in 1997 from 21% in 1996, which was primarily attributable to the Company's
decision to build the appropriate infrastructure in 1996 to expand the Company's
Customized Financing activities, and the geographic and product expansion of the
Company's lending activities.
YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES. The following table sets forth the components of the Company's
revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
<S> <C> <C> <C>
1996 1995 % CHANGE
------------- ------------ -------------
Interest earned.......................................................... $ 6,783,312 $ 3,725,904 82%
Gain on sale of loans and real estate.................................... 3,220,366 1,806,063 78
Originated mortgage servicing rights..................................... 2,958,029 -- --
Fee income............................................................... 2,615,752 821,653 218
------------- ------------ ---
Fee-based services, including gain on sale of loans and real estate...... 8,794,147 2,627,716 235
------------- ------------ ---
Servicing revenue, net................................................... 1,082,699 394,461 174
------------- ------------ ---
Total revenues........................................................... $ 16,660,158 $ 6,748,081 147%
------------- ------------ ---
------------- ------------ ---
</TABLE>
Interest earned increased $3.1 million or 82% to $6.8 million for 1996 from
$3.7 million for 1995. This increase was primarily due to an increase in the
average balance of loans outstanding resulting from increased FNMA DUS
originations in 1996. The Company's FNMA DUS loan origination business commenced
in December of 1995.
Gain on sale of loans and real estate, which primarily represented all cash
gains, increased $1.4 million or 78% to $3.2 million for 1996 from $1.8 million
for 1995. This increase was primarily attributable to increased revenues from
Customized Financing activities.
The increase in originated mortgage servicing rights, which are the
allocated cost of the unsold portion of the loans and are recognized when loans
are sold, was a direct result of the adoption on January 1, 1996 of SFAS # 122
(Accounting for Mortgage Servicing Rights, superseded by SFAS # 125). The
Company did not capitalize originated mortgage servicing rights in 1995.
29
<PAGE>
Fee income increased $1.8 million or 218% to $2.6 million for 1996 from
$822,000 for 1995. This increase was primarily attributable to (a) increased
volume of loans sold from the Company's FNMA DUS product line, which commenced
in December 1995 and (b) the increase in the Company's Customized Financing
activities.
Servicing revenue, net increased $688,000 or 174% to $1.1 million for 1996
from $394,000 for 1995. This increase is directly attributable to a 82% increase
in the Company's commercial servicing portfolio combined with an overall
increase in the weighted average servicing fee from 1996 to 1995 due to the
increase in the FNMA DUS portfolio, which yield higher weighted average
servicing fees than other loans serviced.
EXPENSES. The following table sets forth the components of the Company's
expenses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
<S> <C> <C> <C>
1996 1995 % CHANGE
------------- ------------ -------------
Interest expense......................................................... $ 4,048,947 $ 2,188,687 85%
Employee compensation and benefits....................................... 3,893,873 1,876,897 107
Selling and administrative............................................... 3,499,691 1,560,834 124
Provision for loan losses................................................ 915,051 406,856 125
------------- ------------ ---
Total expenses........................................................... $ 12,357,562 $ 6,033,274 105%
------------- ------------ ---
------------- ------------ ---
</TABLE>
Interest expense increased $1.9 million or 85% to $4.1 million for 1996 from
$2.2 million for 1995. This increase was primarily due to an increase in the
average balance of loans outstanding resulting from increased FNMA DUS
originations in 1996. The Company's FNMA DUS loan origination business commenced
in December of 1995.
Employee compensation and benefits increased $2.0 million or 107% to $3.9
million for 1996 from $1.9 million for 1995. This increase was primarily
attributable to increased sales' salaries and commissions, which are based
substantially on loan production, the geographic and product expansion of the
Company's lending activities and the increase in the servicing portfolio.
Selling and administrative expenses increased $1.9 million or 124% to $3.5
million for 1996 from $1.6 million for 1995. This increase was primarily
attributable to the Company's decision to build the appropriate infrastructure
in 1996 to support the Customized Financing activities, and the geographic and
product expansion of the Company's lending activities.
Provision for loan losses increased $508,000 or 125% to $915,000 for 1996
from $407,000 for 1995. This increase was primarily attributable to increased
loan origination volume from the Company's FNMA DUS product line, which
commenced in December of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financing needs consist of funding its Customized
Financing activities, and its Permanent Loan activities. To meet these needs,
the Company currently relies on borrowings under its warehouse facility,
repurchase agreements and borrowings from Ivan Kaufman. The maximum permitted
borrowings under the warehouse facility were $90 million at March 31, 1998 and
December 31, 1997 and $70 million at December 31, 1996. At March 31, 1998,
December 31, 1997 and December 31, 1996, outstanding borrowings under the
warehouse facility were $26.9 million, $36.3 million and $26.8 million,
respectively, leaving available funds of $63.1 million, $53.7 million and $43.2
million, respectively. Borrowings under the warehouse facility are secured by a
pledge of the loans funded.
Under the warehouse facility, the interest rate charged for borrowings is
based on the Company's option to use either Federal Funds or LIBOR plus 1% to
1.5% for Permanent Loans, (6.98% at March 31, 1998) and 2.25% to 3% for
specified Customized Financing activities, (8.38% at March 31, 1998). The
30
<PAGE>
warehouse facility is committed on a one-year annual term currently expiring on
November 26, 1998 and is funded by four financial institutions. The Company
expects to be able to renew or replace the warehouse facility when its current
term expires.
The Company also funds loan originations through repurchase agreements with
FNMA and a Wall Street firm which, for financial reporting purposes, are
characterized by the Company as borrowing transactions. Both of these repurchase
agreements are uncommitted and therefore have no stated expiration date. The
FNMA repurchase agreement allows the Company to fund FNMA DUS loan originations,
that the Company has committed to sell to institutional investors, at an
interest rate of LIBOR plus 0.4% to 0.55%. Under this agreement, the Company is
required to arrange for institutional investors to take delivery of the loans
within 60 days of the date of such borrowings; otherwise the Company is required
to repurchase the loans. As of March 31, 1998, December 31, 1997 and December
31, 1996, total outstanding borrowings under this agreement were $7.5 million,
$27.4 million and $6.0 million, respectively.
The repurchase agreement with the Wall Street firm provides the Company with
up to $10 million (with temporary increases above the $10 million allowed at the
Wall Street firm's discretion) of additional funds for loan originations at an
interest rate of LIBOR plus 1.75%. As of March 31, 1998, December 31, 1997 and
December 31, 1996, total outstanding borrowings under this agreement were $8.9
million, $16.7 million and $5.0 million, respectively.
In the event these agreements were to be terminated, the Company believes
that other financial institutions would provide it with similar repurchase
agreements, but no assurances can be made that the Company will obtain such
financing on reasonable terms or at all.
The borrowing agreements contain certain covenants, including, among others,
limitations on indebtedness, liens, mergers, changes in control and sales of
assets, and requirements for the Company to maintain a minimum servicing
portfolio, minimum net worth and other financial ratios. The Company was in
compliance with these covenants as of March 31, 1998. The warehouse facility
restricts the Company from incurring a debt ratio greater than 12:1. This debt
ratio is calculated by dividing total liabilities (less subordinated debt and
repurchase obligations) by the Company's net worth. As of March 31, 1998, the
Company's debt ratio was 3.6:1. Therefore, negative covenants under the
borrowing arrangements did not limit the amount of Company indebtedness.
Historically, the Company has borrowed funds from Ivan Kaufman and he has
informally indicated that he is willing to extend additional credit to the
Company following this Offering. The Company however, does not presently intend
to utilize such credit. Borrowings outstanding from Mr. Kaufman (and/ or the
Trust and the Kaufman Grantor Trust) totaled $13.7 million at March 31, 1998,
$28.8 million at December 31, 1997 and $25.4 million at December 31, 1996.
Interest on virtually all of the Company's borrowings from Mr. Kaufman is at the
prime interest rate plus 1%, or 9.5% at March 31, 1998. The borrowings from Mr.
Kaufman are subordinate to the warehouse facility. The Company plans to repay
the total balance of outstanding borrowings from Mr. Kaufman with the proceeds
from this Offering. See "Use of Proceeds."
In June 1998, the Company entered into a 50/50 joint venture with a Wall
Street investment banking firm pursuant to which each of the joint venture
partners agreed to contribute up to $25 million in equity to the joint venture.
Equity will be funded by the joint venture partners on a pro rata basis as
transactions within the joint venture close. In addition, the Wall Street firm
agreed to provide $200 million of financing to fund Customized Financing
activities, including $75 million for mezzanine loans to the joint venture in
the form of a repurchase agreement. The interest rate charge for the financing
is LIBOR plus 2%. The repurchase agreement expires in June 2000. The Company
intends to fund its share of equity to the joint venture with cash from working
capital. The Company believes that this joint venture will greatly enhance the
Company's ability to increase its Customized Financing activities in the future.
31
<PAGE>
The Company sells its loans to various institutional investors. The terms of
these purchase arrangements vary according to each investors purchase
requirements; however, the Company believes that the loss of any one or group of
such investors would not have a material adverse effect on the Company.
As of a result of the Offering, the Company believes that the increase in
equity will allow the Company to reduce its borrowing rate on its Customized
Financing and Permanent Loan activities.
The anticipated increase in business is expected to be funded by additional
borrowings under the warehouse facility, repurchase agreements, increased
capital resulting from this Offering and funds provided from operations, all of
which are expected to enable the Company to fund its operations for a period of
twelve to twenty-four months following completion of this Offering. Although the
Company anticipates that it will be able to renew or replace its funding sources
after this period, there can be no assurance that the Company will be able to
obtain renewed or additional financing on acceptable terms.
INFLATION AND SEASONALITY
In general, when the Company commits to an interest rate on a loan held for
sale, it contemporaneously locks in an interest yield to the institutional
investor purchasing that loan. By selling these loans shortly following
origination the Company limits its exposure to interest rate fluctuations.
However, for conduit loans, the Company will accumulate some loans for bulk sale
and in these circumstances the Company hedges its interest rate risk with
forward commitments and put options. At March 31, 1998, loans held for sale
included $4 million of conduit loans without a firm purchase commitment from an
investor. There can be no assurance that the intent of the Company's hedging
activities will be successful or that benefits derived from hedging transactions
will exceed the costs of hedging. The Company is dependent on its counterparties
to perform their commitments to purchase either loans or securities. However,
the Company only enters into commitments with large institutional firms who are
primary dealers and who are consistently active in the marketplace. The Company
does not hedge its loans held for investment because these loans are generally
variable rate loans based on short term LIBOR. However, the operations and
profitability of the Company are likely to be adversely affected during any
period of unexpected or rapid changes in interest rates. For example, a
substantial or sustained increase in interest rates could adversely affect the
ability of the Company to originate loans. In such event, the business
prospects, financial condition and results of operations of the Company could be
materially adversely affected.
The Company is generally not subject to seasonal trends. However,
historically the Company has experienced increased transactions and higher
revenues and earnings in the fourth quarter primarily due to borrowers' desire
to consummate transactions by year end.
YEAR 2000 RISK
The Company has implemented a Year 2000 program to ensure that the Company's
and the Company's vendors' and business partners' computer systems and
applications will function properly beyond 1999. The Company has identified
vendor and business partner software with which it electronically interacts, and
has requested Year 2000 compliance certifications. The Company has received
assurances from those vendors and business partners whose systems are not
currently Year 2000 compliant that the necessary modifications, or new versions
of software, will be made available by 2000. Although the Company expects all of
its systems to be Year 2000 compliant by January 1, 1999, there can be no
assurances that all of the Company's and vendor and business partner systems
will be Year 2000 compliant. The Company's cost to comply with the Year 2000
initiative is not expected to be material.
RECENT ACCOUNTING PRONOUNCEMENT--SFAS 133
In June, 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. This statement establishes
32
<PAGE>
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
This statement requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. The Company has not yet determined the effects of implementing SFAS
133 will have on the Company's financial statements.
INCOME TAXES
Effective April 1, 1998, ASF distributed a dividend of certain assets which
were not consistent with the intended business of the Company to Ivan Kaufman,
its sole stockholder, and immediately thereafter the outstanding common stock of
ASF was sold to the Trust. Immediately thereafter, the Trust contributed the
common stock of ASF with a book value of $3.7 million, which approximated fair
value, to ANCM in exchange for ownership interests in ANCM. Simultaneous with
the contribution, ASF ceased to be treated as an S corporation. Upon the
effective date of the Offering, all members of ANCM, pursuant to the terms of
the Exchange Agreement, will contribute their ownership interest in ANCM to the
Company in exchange for 7,500,000 shares of Common Stock (the "Exchange"), which
will constitute all of the shares of Common Stock outstanding prior to the
Offering. Simultaneous with the Exchange, ANCM will no longer be recognized as a
limited liability company for tax purposes.
As a limited liability company and S corporation, the Company's income,
whether or not distributed, was taxed at the member or shareholder level for
federal and most state tax purposes. As a result of the Exchange, the Company
and ANCM, which will become a wholly-owned subsidiary of the Company, will be
fully subject to federal and state income taxes at the corporate level, and will
result in the Company recording a deferred tax liability on its balance sheet.
The amount of deferred tax liability to be recorded as of the date of the
Exchange will depend upon timing differences between financial reporting and tax
reporting. The pro forma provision for income taxes in the accompanying
statements of operations shows results as if the Company had always been fully
subject to federal and state taxes at an assumed combined rate of 40%.
33
<PAGE>
BUSINESS
THE COMPANY
Arbor National Holdings, Inc. is a real estate financial services company
that funds, on a negotiated basis, high-yielding lending and investment
opportunities in commercial real estate through Customized Financing structures.
It also derives substantial revenue from the origination for sale and servicing
of Permanent Loans for multifamily and other types of commercial properties.
Although the Company's Customized Financing activities involve higher risk loans
than typical long-term first mortgage loans made by traditional lending
institutions, the Company structures these transactions to compensate for the
additional risks, generally by charging higher fees.
In recent years the Company has experienced significant growth. Total
revenues increased from $16.7 million to $24.3 million for the years ended
December 31, 1996 and 1997, respectively, and from $4.3 million to $8.0 million
for the quarters ended March 31, 1997 and 1998, respectively. Pro forma net
income increased from $2.5 million to $5.2 million for the years ended December
31, 1996 and 1997, respectively, and from $0.7 million to $2.0 million for the
quarters ended March 31, 1997 and 1998, respectively. At March 31, 1998, the
Company's commercial servicing portfolio consisted of 136 loans aggregating
approximately $536 million and its portfolio of loans held for investment
consisted of 38 loans aggregating approximately $56 million.
The Company targets the market for transactions under $20 million,
particularly in the $1 million to $5 million range, which in the Company's
experience is an underserved market. The Company generates a continuing pipeline
of real estate finance and investment opportunities through its six full-service
offices in Atlanta, Boston, Chicago, Dallas, San Francisco and Uniondale, New
York, its three satellite offices in Miami, Los Angeles and Florence, Kentucky
(greater Cincinnati, Ohio) as well as on-going business relationships with
investment banking firms, brokers, developers, real estate owners and operators,
and other financial institutions. None of these relationships are contractual.
The Company's Customized Financing activities highlight its strengths.
First, the Company's presence and established relationships in the marketplace
facilitate its ability to source and identify many lending opportunities. These
opportunities arise because the borrower's financing needs or the condition of
the property present specific characteristics or additional risks which prevent
the loan from being structured as a long-term, first mortgage financing. Second,
the specialized lending expertise and entrepreneurial abilities of its staff
enable the Company to provide creative, flexible financing structures, thus
enhancing value for the Company and its borrowers. Third, the Company, as a
provider of both transitional financing under its Customized Financing
activities and permanent mortgage financing under its Permanent Loan activities,
is positioned in its targeted market as a single source of financing solutions.
The Company's Permanent Loan activities consist of originating commercial
mortgage loans pursuant to government-sponsored and conduit loan programs, and
selling those loans, typically on a whole loan basis, to government-sponsored
entities or other secondary market investors, while retaining the servicing of
those loans for a fee. As compared to Customized Financing activities, the
Company's Permanent Loan activities generate a more stable and predictable flow
of revenue through servicing and other fee income. In addition, the Permanent
Loan activities keep the Company closely apprised of trends in the commercial
real estate market and provide an additional source for Customized Financing
opportunities. The Company primarily originates permanent loans pursuant to the
FNMA DUS Program, under which it is one of 28 approved lenders. To date, the
Company has had no credit losses on its commercial servicing portfolio.
The Chief Executive Officer and founding stockholder of the Company is Ivan
Kaufman, who was the co-founder, chairman and controlling stockholder of Old
Arbor, a publicly held, NASDAQ traded company that went public on August 7, 1992
and was subsequently sold in January 1995 to BankAmerica
34
<PAGE>
Corporation. From 1983 through 1994, under Mr. Kaufman's management, Old Arbor's
residential mortgage lending activities grew to 25 branches in eleven states,
with approximately 1,000 employees.
Old Arbor experienced substantial growth during the early 1990's, a period
of historically low interest rates. Old Arbor mortgage originations were $2.5
billion and $4.2 billion for the fiscal years ended February 1993 and 1994,
respectively. Old Arbor became a publicly held company in August 1992 when its
stock was offered to the public at $9.00 per share and was sold to BankAmerica
Corporation in January 1995 in a stock for stock exchange that was valued at
approximately $17.50 per share. Old Arbor's net income was $7.8 million and
$12.0 million for the fiscal years ended February 1993 and 1994, respectively.
During the period of high interest rates and low loan originations affecting the
mortgage banking industry generally, for the first nine months of the fiscal
year ended February 1995, Old Arbor experienced a loss of $6.8 million. This
loss was caused predominently by industry overcapacity and significant price
competition among lenders which resulted in reduced profit margins.
In connection with the sale of Old Arbor to BankAmerica Corporation, the
commercial mortgage lending operations were acquired by Mr. Kaufman. Since this
acquisition, the Company has evolved to become a multi-service provider of real
estate financial services to owners and developers of commercial and multifamily
real estate properties. In anticipation of the Offering, ANHI was formed in 1998
as a holding company for ANCM and ASF which were reorganized into a single
entity and then acquired by ANHI through an exchange of equity. See "Prospectus
Summary--Acquisition by ANCM of ASF" and "Prospectus Summary--Reorganization
Transactions."
INDUSTRY OVERVIEW
The Company believes that the financing of commercial and multifamily real
estate offers significant growth opportunities. Commercial and multifamily real
estate encompass a wide spectrum of assets including multifamily, office,
industrial, retail and hospitality. These assets are financed by an estimated
$1.0 trillion of outstanding commercial real estate debt, and the Company
estimates that $125 billion to $150 billion in commercial real estate mortgages
are refinanced each year in addition to the mortgage financing of new
construction.
Commercial mortgage banks have arranged a significant portion of the debt
financing for commercial real estate. However, since the early 1990s, the
commercial mortgage banking industry has experienced significant change, in part
due to expensive technological demands, increasingly standardized underwriting
requirements, more demanding borrowers and lenders and the growth of a market
for securitized commercial real estate mortgage pools. Many of the existing
firms lack the capital and financial sophistication to compete effectively in
today's rapidly changing market, and as a result the commercial mortgage banking
industry is moving toward greater consolidation. Moreover, lenders such as banks
and life insurance companies which have traditionally been the primary source
for commercial real estate financing, are increasingly constraining borrowers
due to their relatively inflexible underwriting standards, including lower
loan-to-value ratios, thereby creating significant demand for mezzanine and
other forms of gap financing. Accordingly, the Company believes that the
emerging market leaders in the real estate finance sector will be fully
integrated finance companies capable of originating, underwriting, structuring,
managing and retaining real estate risk.
COMPETITIVE ADVANTAGES
- BREADTH OF PRODUCT OFFERINGS--Since the Company offers both short-term and
long-term funding capabilities, as well as the skills and expertise to
develop creative, flexible financing structures, the Company can present
itself as a single-source financing alternative, attracting individual
clients with diverse and complex needs.
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<PAGE>
- TARGET MARKET--The Company specializes in Customized Financing
transactions under $20 million, particularly the $1 million to $5 million
range which in the Company's experience is an underserved market.
- ORIGINATION SYNERGIES--The Company's participation in Permanent Loan
programs provides significant synergies with the Customized Financing
business by creating what the Company believes is a greater volume of
transactions than there otherwise would be if the Company did not offer
both of these financing alternatives. The Permanent Loan programs create a
stream of opportunities that require transitional financing to position
the underlying property for a Permanent Loan while providing an effective
exit strategy for Customized Financing transactions generated from other
sources.
- RAPID EXECUTION CAPABILITY--The Company's in-house expertise enables it to
act on proposals quickly and decisively and analyze opportunities, provide
commitments and close transactions within a few weeks and sometimes days,
if required. The Company believes its reputation for rapid execution
attracts, from both borrowers and other lenders, opportunities that would
not otherwise be available.
- CONTINUITY AND EXPERIENCE OF MANAGEMENT--The four senior executive
officers of the Company (including Mr. Kaufman) have an average of more
than twelve years of experience in real estate finance and investing,
while the 21 vice presidents and regional directors average almost sixteen
years of relevant industry experience. Eleven members of the Company's
management team worked with Mr. Kaufman at Old Arbor. The remainder have
been recruited because of their particular product specialization and
expertise in analyzing and structuring complex financial transactions in
commercial real estate.
- FINANCIAL COMMITMENT OF SENIOR MANAGEMENT AND KEY EMPLOYEES--In addition
to the substantial ownership of the Company by Mr. Kaufman, all senior
executives and eighteen key employees have invested more than $2 million
of their own funds to acquire equity in the Company. These investments,
which will experience an immediate and substantial increase in value as a
result of this Offering, will be subject to the 180-day lock-up agreements
to be entered into at closing.
- ESTABLISHED RELATIONSHIPS--In addition to the market presence represented
by its full-service and satellite offices, the Company generates
significant opportunities through referrals from its on-going business
relationships with investment banking firms, brokers, developers, real
estate owners and operators and other financial institutions.
BUSINESS STRATEGIES
- INCREASE CUSTOMIZED FINANCING OPPORTUNITIES by using the additional
capital from this Offering to offer an expanded range of maturities and
other terms suitable for various borrowers and projects.
- GROW THE COMPANY'S STREAM OF INTEREST INCOME by using the additional
capital from this Offering to permit longer retention of bridge and
mezzanine loans on the Company's balance sheet.
- DIVERSIFY THE COMPANY'S ORIGINATIONS AND INVESTMENTS beyond loans on
multifamily properties to include financings of assisted-living
facilities, hotels and other types of commercial property developments.
- CONTINUE THE COMPANY'S GEOGRAPHIC EXPANSION into selected major real
estate markets throughout the United States to expand its origination
capabilities by increasing local awareness of the Company's capabilities
and improving the Company's ability to monitor local activity for suitable
opportunities.
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<PAGE>
- INCREASE THE AVERAGE OUTSTANDING LOAN BALANCE of Customized Financing
activities through the utilization of the additional capital from this
Offering to fund larger transactions in the under $20 million market.
- LEVERAGE THE COMPANY'S CORE COMPETENCIES TO EXPAND ITS SERVICES and
develop related products, such as the FHA-insured multifamily and
healthcare financing program, as well as acquiring or developing in-house
property management capabilities.
CUSTOMIZED FINANCING ACTIVITIES
Through its Customized Financing activities, the Company actively pursues
lending and investment opportunities with real estate owners and property
developers who need interim financing until permanent financing can be obtained.
The Company targets transactions under $20 million, particularly in the $1
million to $5 million range, where the Company believes it has competitive
advantages, particularly its lower cost structure and its in-house capabilities.
These loans generally are not intended to be "permanent" in nature, but rather
are intended to be of a relatively short-term duration, with extension options
as deemed appropriate, and generally require a balloon payment of principal at
maturity. The Company's customized loans generally yield higher interest rates
and fee income than Permanent Loans. Borrowers in the market for these types of
loans include, but are not limited to, owners or developers seeking either to
acquire or refurbish real estate or to pay down debt and reposition a property
for permanent financing.
The Company targets borrowers with reputations for enhancing value, but who
may lack the financial capacity to qualify for bank financing beyond a certain
level. Loan structures vary as they are customized to fit the characteristics
and purpose of the financing. The bridge and mezzanine loans are underwritten in
accordance with guidelines designed to evaluate the borrowers' ability to
satisfy the repayment conditions of the loan. See "Underwriting." The Company
evaluates the various exit strategies for converting the short term financing
into a Permanent Loan, thereby increasing the volume of loans generated for the
Company's Permanent Loan program. As part of the determination to proceed with
the short term financing, the Company will include terms such as exit and other
fees that give the borrower strong incentives to obtain permanent financing
through the Company.
For the years ended December 31, 1997, and 1996, the Company originated $174
million and $74 million of Customized Financing transactions, respectively. In
addition to the interest and fee income earned on these originations, additional
Customized Financing transactions have provided the Company with the opportunity
to earn significant fee income without having to close on such transactions.
Some of these situations have involved providing, for a fee, commitments or
back-up commitments to borrowers, often with a strong likelihood that such
commitments would not be utilized, to enable such borrowers to consummate
commercial real estate transactions. Other situations have involved acquiring,
and selling at a profit prior to closing, contracts to purchase loans and
commercial properties. The Company expects that it will continue to generate
significant revenue from activities that do not involve the actual funding of a
loan (and a corresponding increase in origination volume), although no assurance
can be given that any such activities will occur. During 1997, the Company
earned $418,500 in fee income without closing any loans held as a result of such
transactions.
The Customized Financing team is comprised of ten employees with an average
of fifteen years of experience in structuring these types of transactions. This
group reports directly to Mr. Kaufman, who is actively involved in many of these
transactions.
MEZZANINE LOANS. The Company believes that there is a growing need for
mezzanine capital (i.e. capital representing the level between 65% and 90% of
property value) as a result of current commercial mortgage lending practices
setting loan-to-value targets as low as 65%. The Company's mezzanine financing
may take the form of preferred equity, subordinated loans secured by second
mortgages, or, in cases where the terms of the first mortgage prohibit
additional liens on the property, loans secured by equity in the entity that
owns the property. Mezzanine financing may have terms of up to 60 months. For
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<PAGE>
example, on a commercial property subject to a first lien mortgage loan with a
principal balance equal to 70% of the value of the property, the Company could
lend the borrower (typically a partnership) an additional 15% to 20% of the
value of the property. In some instances, the Company may provide mezzanine
financing for construction projects where a third party lender has provided only
85% to 90% of the total project costs. The Company believes that as a result of
(i) the significant changes in the lending practices of traditional commercial
real estate lenders, primarily relating to more conservative loan-to-value
ratios, and (ii) the significant increase in securitized lending with strict
loan-to-value ratios imposed by the rating agencies, there will be an increasing
demand for mezzanine capital by borrowers.
Typically, the borrower will pledge to the Company either the property
subject to the first lien (giving the Company a second lien position typically
subject to an inter-creditor agreement) or an equity interest in the borrower.
If the borrower's equity interest is pledged, then the Company would be in a
position to take over the operation of the property in the event of a default by
the borrower. The Company may also require additional collateral such as
personal guarantees, letters of credit or other collateral unrelated to the
subject property. By borrowing against the additional value in their properties,
borrowers obtain an additional level of liquidity to apply to property
improvements or alternative uses.
Mezzanine loans generally provide the Company with the right to receive a
stated interest rate on the loan balance plus various commitment and exit fees.
In certain instances, the Company will negotiate to receive a percentage of net
operating income or gross revenues from the property, payable to the Company on
an ongoing basis, and a percentage of any increase in value of the property,
payable upon maturity or refinancing of the loan, or the Company will otherwise
seek terms to allow the Company to charge an interest rate that would provide an
attractive risk-adjusted return. Alternatively, mezzanine loans can take the
form of a non-voting preferred equity investment in a single purpose entity
borrower with substantially similar terms.
BRIDGE LOANS. The Company provides short-term financing to fund
opportunistic property acquisitions by a borrower or to fund the rehabilitation
of an owned property to enable the borrower to perform upgrades and other
property management enhancements, thereby increasing the property's value prior
to qualifying for a Permanent Loan. The Company is typically approached by a
borrower who has identified an undervalued property (i.e. an under-managed
property or a property located in a recovering market) and who is in need of
immediate financing to capitalize on the opportunity. The bridge facility allows
the borrower to focus on the purchase of the property without the concern of
negotiating long-term financing at the same time. Moreover, traditional lenders
will often constrain the amounts available for long-term financing to the
"as-is" value of the property, while the Company, through the bridge loan, is
able to give consideration to the potential stabilized value of the asset.
The Company's bridge loans are secured by first lien mortgages on the
property with terms generally up to 36 months and are subject to its customary
underwriting analysis. See "--Underwriting." As with mezzanine loans, bridge
loans generally provide the Company with commitment, exit and other fees and
interest at a rate that would provide an attractive risk-adjusted return.
NOTE ACQUISITIONS. The Company acquires real estate notes from borrowers
interested in restructuring and repositioning their short term debt and from
traditional lenders, who for a variety of reasons, (such as risk mitigation or
other strategic reasons) wish to divest certain assets from their portfolio. In
most circumstances the Company is able to acquire these notes at a discount. In
certain instances, the Company may seek joint venture partners with larger
balance sheet capability to purchase such notes. The Company's strategy upon
acquisition of notes from either a borrower or a traditional lender is to use
its management resources to resolve any dispute concerning the note or the
property securing it, and to identify and resolve any existing operational or
any other problems at the property. The Company will then either restructure the
debt obligation for immediate resale or sale at a later date or reposition it
for permanent financing. In some instances, the Company may take fee title to
the property underlying the real estate note. See "--Investment in Real Estate
and Other Investments."
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<PAGE>
LOANS HELD FOR INVESTMENT. At March 31, 1998, the Company's portfolio of
loans held for investment amounted to $56 million, or 60% of the Company's total
assets. Loans held for investment, net, principally bridge, mezzanine and note
acquisitions, are carried at amortized cost less unearned income and allowance
for loan losses. The net book value of loans held for investments, net,
represents fair value at each date.
As of March 31, 1998, 46.9% of the Company's portfolio loans held for
investment consisted of three loans of $11.1 million, $5.5 million and $10.4
million. Two of these loans aggregating $16,600,000 are held by one borrower
while the third loan of $10,400,000 is held by an unrelated borrower. All of
these loans are secured by individual properties or interests in investment
partnerships controlling these properties. To date, the Company has not
experienced any losses on its portfolio of loans held for investment. As of
March 31, 1998 there was one delinquent loan in this portfolio with an
outstanding principal balance of approximately $300,000. The Company anticipates
repayment of this loan in full. See "Risk Factors-- Credit Concentration of
Loans Held for Investment."
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<PAGE>
LOANS HELD FOR INVESTMENT, NET
BY TYPE OF LOAN
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, 1998 DECEMBER 31, 1997
------------------------------------------ -------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
STATED TERM TO STATED
# INTEREST MATURITY # INTEREST
-- AMOUNT RATE(1)(2) IN MONTHS -- AMOUNT RATE(1)(2)
---------- ------------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bridge Loans....................... 10 $37,167,868 11.2% 9 10 $32,049,330 10.7%
Mezzanine.......................... 4 6,275,416 11.6 16 3 6,177,891 11.7
Note Acquisitions & Mortgages...... 22 12,773,453 9.7 30 26 32,031,121 9.8
Other.............................. 2 1,300,000 15.0 13 2 1,300,000 15.0
-- -- --
---------- --- ---------- ---
Total............................ 38 57,516,737 11.0% 14 41 71,558,342 10.4%
-- -- --
-- -- --
--- ---
--- ---
Less: Unearned Income.............. (505,416) (2,270,403)
Allowance for loan losses.......... (738,032) (678,033)
---------- ----------
LOANS HELD FOR INVESTMENT, NET..... $56,273,289 $68,609,906
---------- ----------
---------- ----------
<CAPTION>
AS OF
DECEMBER 31, 1996
------------------------------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE
REMAINING AVERAGE REMAINING
TERM TO STATED TERM TO
MATURITY # INTEREST MATURITY
IN MONTHS -- AMOUNT RATE(1)(2) IN MONTHS
--------------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Bridge Loans....................... 9 4 $1,015,947 10.8% 11
Mezzanine.......................... 18 4 3,410,000 11.1 24
Note Acquisitions & Mortgages...... 15 24 35,801,781 10.0 24
Other.............................. 16 2 728,137 15.0 28
-- -- --
---------- ---
Total............................ 13 34 40,955,865 10.2% 24
-- -- --
-- -- --
---
---
Less: Unearned Income.............. (1,801,750)
Allowance for loan losses.......... (468,551)
----------
LOANS HELD FOR INVESTMENT, NET..... $38,685,564
----------
----------
</TABLE>
- ------------------------
(1) The weighted average stated interest rate does not include commitment, exit
and other fees.
(2) The weighted average stated interest rates are primarily six-month LIBOR
based.
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<PAGE>
PERMANENT LOANS
Through its Permanent Loan activities, the Company originates, underwrites,
warehouses and sells into the secondary markets commercial real estate loans,
principally multifamily loans. The Company generally sells its mortgage loans on
a servicing retained basis, which generates a stable and predictable source of
fee revenue, and on a non-recourse basis, except for standard FNMA DUS
requirements described below. The average size of these loans is $4.5 million.
The Company funds these loans using its warehouse lines of credit and repurchase
agreements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
For the years ended December 31, 1997 and 1996, the Company originated $216
million and $244 million of Permanent Loans, respectively. The Permanent Loan
team is comprised of seven loan originators and twenty underwriters having an
average of eleven and six years of experience, respectively, in FNMA DUS and
conduit loan programs. Underwriting standards are established by the Company's
Chief Underwriter, who has over seventeen years of underwriting, sales and
product experience. Additionally, in the last two years the Company has expanded
its FHA/HUD lending activities by adding a dedicated team of four loan
originators and two underwriters with between six and twenty years of
experience. The FHA group is led by a former Vice President and Manager of
Insured Loans for GMAC Commercial Mortgage Corp.
Below is a description of the types of Permanent Loan programs in which the
Company participates:
FNMA DUS. In October, 1995, the Company became an approved FNMA DUS
originator. An approved FNMA DUS lender is delegated the authority to approve,
commit and close loans for multifamily mortgages on a national basis with a
standby commitment from Fannie Mae that it will purchase the loans. All loans
made by the Company pursuant to this program must be secured by a first mortgage
on the related property. In contrast to a "prior approval" lender, FNMA DUS
lenders do not need to obtain the approval of Fannie Mae prior to making the
loan. In return for the delegated authority to make loans and the commitment to
purchase such loans by Fannie Mae, FNMA DUS lenders must maintain a minimum
capital base and retain a certain level of credit risk on the loans they make.
The FNMA DUS lender takes first loss risk up to 5% of the loan amount, and above
5%, Fannie Mae and the FNMA DUS lender share the loss, with the FNMA DUS
lender's maximum loss capped at 20% of the original loan amount. In return for
sharing the risk of loss, the participants receive a servicing fee that is
significantly higher than what is typically found in the industry. See
"--Servicing."
The Company is one of only 28 currently approved FNMA DUS lenders. The
Company believes that as one of these few FNMA DUS lenders, it has certain
competitive advantages in the multifamily mortgage origination business. These
advantages include the competitive-tiered pricing afforded by Fannie Mae's
position as the largest purchaser of housing related mortgages in the nation,
the ability to commit and close mortgages without the delay and the accompanying
market risks of such delay for an approval process by the mortgage purchaser.
The Company expects Fannie Mae loan originations will continue to be a
significant part of its commercial mortgage banking activities. The Company
originated $149 million and $168 million of FNMA DUS mortgages for the years
ended December 31, 1997 and 1996, respectively. The Company, as a FNMA DUS
lender, has experienced no losses or delinquencies on its portfolio of FNMA DUS
loans as of March 31, 1998.
CONDUIT. The Company's conduit program involves the origination for sale
(on a non-recourse basis) and servicing of commercial mortgage loans. The
Company typically finances entities which own or operate commercial properties
considered to be B or C properties in their respective markets, primarily
multifamily properties, but also office buildings, retail centers, hotels,
warehouses and assisted living facilities. All loans made by the Company
pursuant to this program must be secured by a first mortgage on the related
property. Mortgage loans are sold to institutional investors, including Fannie
Mae. Since the Company maintains a number of Wall Street relationships,
borrowers are assured of competitive rates. Mortgages originated under this
program are underwritten in accordance with investor guidelines designed
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<PAGE>
to evaluate the borrower's ability to satisfy the repayment conditions of the
loan. See "--Underwriting." The Company originated $40 million and $67 million
of conduit mortgages for the years ended December 31, 1997 and 1996,
respectively.
FHA MULTIFAMILY AND HEALTHCARE. The Company is an approved lender in the
FHA/HUD mortgage insurance program. The FHA group of professionals implement the
origination, underwriting and processing of FHA/HUD insured financing
nationwide. The uses for financing provided through the FHA/HUD mortgage
insurance programs consist of the acquisition, refinancing, new construction and
substantial rehabilitation of multifamily housing, assisted living and nursing
home facilities nationwide. Upon receiving HUD's firm commitment to insure the
mortgage, the Company issues Government National Mortgage Association backed
securities that are sold primarily to investment banking institutions and
pension funds. The Company will usually retain the right to service the loans on
behalf of the purchasers for a continuing servicing fee. See "--Servicing." The
Company has recently begun actively seeking transactions under the FHA/HUD
mortgage insurance program. The Company currently has a pipeline of
approximately $100 million of FHA/HUD products at various stages of processing.
The Company considers an FHA/HUD loan to be in its pipeline when it has received
a completed application as well as the required application fee from a borrower
and such application has passed the Company's pre-submission screening process.
There can be no assurance that any such application will be approved by FHA/HUD
or result in a mortgage origination.
SALE PROCEDURES. Permanent Loans are often committed to be sold prior to
the time the loan is funded. The Company typically completes the sale of a
Permanent Loan to an investor within ten to 60 days following the closing of a
loan. The actual length of time a loan is held prior to sale into the secondary
market is determined by the Company's capital markets group. The objective of
the capital markets group is to maximize the Company's gain on sale of the loan
while also earning a favorable yield during the holding period.
In connection with such sales, the Company makes certain representations and
warranties to investors covering matters such as title to mortgaged property,
lien priority, environmental reviews and certain other matters. See "Risk
Factors -- Retained Risks of Loans Sold." The Company bases these
representations and warranties on representations and warranties from borrowers
and its own due diligence. The Company may also retain certain other liabilities
with respect to loans it sells to investors, as it does under the FNMA DUS
Program as described above. See also "Risk Factors -- Risk of Loss on Mortgage
Loans Sold Under the FNMA DUS Program." After selling a mortgage loan, the
Company typically retains the right to service the loan. See "--Servicing."
INVESTMENT IN REAL ESTATE AND OTHER INVESTMENTS
From time to time the Company is presented with or otherwise identifies real
estate investment opportunities. In these situations, the Company may act solely
on its own behalf, through a wholly owned subsidiary or in partnership with
other investors. Typically these transactions are analyzed with the expectation
that the Company will have the ability to sell the property within a six to
twenty-four month time horizon, with a significant return on invested capital.
The Company currently retains the services of third-party management companies,
but may in the future decide to manage such real property interests itself.
The Company may also pursue investments in, among other assets, construction
loans, distressed loans, property development and finance-related assets,
operating companies in real estate-related businesses (such as loan origination,
loan servicing and property management companies) and fee interests in real
property.
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MARKETING AND SOURCING
The Company serves its markets directly through its network of six full
services offices located in Atlanta, Boston, Chicago, Dallas, San Francisco and
Uniondale, New York, as well as through three satellite offices located in
Miami, Los Angeles and Florence, Kentucky (greater Cincinnati, Ohio). These
offices are staffed by approximately fifteen loan originators who solicit
property owners, developers and mortgage loan brokers. In some instances, the
originators will accept loan applications meeting the Company's underwriting
criteria from a select group of mortgage loan brokers. Mortgage loan brokers act
as intermediaries between property owners and the Company in arranging real
estate loans and earn a fee, generally paid by the borrower, based upon the
principal amount of each loan funded. Since a large portion of the Company's
marketing effort in its branches is through the development of relationships
with borrowers and brokers, the Company does not incur significant expenses in
the form of advertising its lending services to the general public.
Once potential borrowers have been identified, the Company determines which
of its financing products best meets the borrowers needs. Loan originators in
every branch office have access to and are able to offer borrowers the full
array of both Customized Financing and Permanent Loan products. After
identifying a suitable product, the Company works with the borrower to prepare a
loan application. Upon completion by the borrower, the application is forwarded
to the Company's underwriters for due diligence or, in the case of FHA insured
loans, to the FHA, which conducts the due diligence and makes decisions on
commitments. See "--Underwriting."
UNDERWRITING
The Company's loan originators work in conjunction with underwriters whose
responsibility is to perform due diligence on all Customized Financing and
Permanent Loans prior to approval and commitment. The Company's underwriters
complete a comprehensive assessment of the proposed loan including a review of
(1) borrower financial position and credit history, (2) past operating
performance of the underlying collateral, (3) potential changes in project
economics and (4) third party appraisal, environmental, and engineering studies.
Additionally, underwriters complete an independent market assessment which
includes a property inspection, review of tenant and lease files, survey of
market comparables and an analysis of area economic and demographic trends.
Key factors considered in credit decisions include, but are not limited to,
debt service coverage, loan-to-value ratios, property financial and operating
performance, quality of property management, borrower credit history and tenant
profile. With respect to Permanent Loans, specific underwriting guidelines are
set by Fannie Mae and other investors. These standards vary from investor to
investor and may include a subjective element based on the totality of
circumstances relating to the credit risk and generally do not involve
mechanical application of a set formula. With respect to Customized Financing,
additional consideration is given to other factors, such as alternative forms of
collateral and identifying a potential exit strategy. The Company refines its
underwriting criteria based on actual loan portfolio experience and as market
conditions and investor requirements evolve.
The Company utilizes the underwriting criteria established by the FHA to
recommend loans for FHA insurance. The Company provides the FHA with the
requisite information necessary for its credit review. These loans are then
examined by the FHA, which makes the decision as to whether to approve the loan.
LOAN APPROVAL PROCESS
PERMANENT LOANS. A comprehensive written report is prepared on every loan
application submitted to the Company's Permanent Loan committee for approval.
The four members of the committee have an average of over seventeen years of
industry experience. All loans require approval by a majority of the committee.
This presentation includes a description of the prospective borrower and any
guarantors, the collateral, and the proposed use of loan proceeds, as well as
borrower and property financial statements
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<PAGE>
and analysis. Each application is evaluated from a number of underwriting
perspectives. Since Permanent Loans are limited or non-recourse to the borrower,
primary emphasis is placed on the property's economic performance, physical
condition and local housing market, along with prudent application of debt
service coverage and loan-to-value ratios. Even so, the Company also examines,
when circumstances warrant, borrower liquidity, net worth, cash investment,
income, credit history and operating experience.
The Company's loan originators, in conjunction with regional office
underwriters, the Company's Chief Underwriter and its Vice President-Capital
Markets, are primarily responsible for initial reviews of borrowers, properties
and loan terms. Upon the borrower's execution of the loan application, the
Company's underwriting group conducts due diligence under the direct supervision
of the Chief Underwriter. The underwriter assigned to the case presents the
transaction to the Permanent Loan committee with the advice, consent and support
of the Chief Underwriter. Following loan approval and prior to funding, the
Company's underwriting and servicing departments assure that all loan approval
terms have been satisfied, that they conform with lending policies (including
authorized exceptions) and that all required documentation is present and in
proper form.
CUSTOMIZED FINANCING. As with Permanent Loans, a written report is
generated for every customized loan transaction the Company is considering
financing. The guidelines utilized to prepare these reports do not depart
substantially from those used for Permanent Loans. Each loan is reviewed and
approved by executives in the Customized Financing group and, if approved,
presented for final approval by Mr. Kaufman. Following the approval of any such
loan, the Company's underwriting and servicing departments assure that all loan
approval terms have been satisfied and that they conform with lending
requirements established for that particular transaction.
SERVICING
The Company services an expanding loan portfolio which contributes a
relatively predictable and stable source of cash flow. The Company's loan
servicing operations are designed to provide prompt customer service and
accurate and timely information for account follow-up, financial reporting and
management review. The Company's loans are serviced through the loan
administration department located in the Company's Boston office. Following the
funding of an approved loan, all pertinent loan data is entered into the
Company's data processing system, which provides monthly billing statements,
tracks payment performance and processes contractual interest rate adjustments
on variable rate loans. Regular loan service efforts include payment processing
and collection follow-up, as well as tracking the performance of additional
borrower obligations with respect to the maintenance of casualty insurance
coverage, payment of property taxes and senior liens, if applicable. On a
quarterly basis, the Company obtains and analyzes operating statements and
detailed rent rolls on the properties securitizing the commercial loans
serviced. In addition, inspections of the property are performed annually or
more frequently if necessary, e.g. properties undergoing major improvements. The
Company has in-house asset management expertise to assist in the inspection
process. With these procedures already in place, if loans become delinquent or
non-performing the Company has current information about the underlying
collateral and can react quickly by changing management companies, commencing
foreclosure proceedings and negotiating workouts with the borrowers on behalf of
the investors.
COMMERCIAL SERVICING PORTFOLIO. The Company's commercial servicing
portfolio represents commercial loans serviced for third parties for a fee and
does not include loans held for investment. Yield maintenance and lockout
provisions tend to discourage and, in the case of a lockout provision, prevent
early loan payoffs by the borrower. These provisions enable the Company to
better determine future cash flow from its existing portfolio and to calculate
the potential to refinance maturing loans. In addition, the Company receives its
pro rata share of the servicing fee (calculated on a present value basis) for
loans that are prepaid under the FNMA DUS Program. To date, the Company's
commercial servicing portfolio has not experienced any losses. As of March 31,
1998, there was one delinquent loan with an outstanding principal balance of
less than $100,000.
44
<PAGE>
COMMERCIAL SERVICING PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FNMA WAREHOUSE
DECEMBER 31, 1997 DUS CONDUIT & OTHER TOTAL
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Unpaid principal balance.................................. $ 291.9 $ 180.4 $ 57.7 $ 530.0
Weighted average interest rate............................ 8.07% 9.12% 7.81% 8.40%
Weighted average servicing fee............................ 0.45% 0.27% 0.42% 0.38%
Remaining months to maturity.............................. 129 74 140 111
Number of loans serviced.................................. 51 66 16 133
DECEMBER 31, 1996
Unpaid principal balance.................................. $ 136.3 $ 193.6 $ 55.6 $ 385.5
Weighted average interest rate............................ 8.12% 9.28% 9.71% 8.93%
Weighted average servicing fee............................ 0.45% 0.21% 0.45% 0.33%
Remaining months to maturity.............................. 126 83 143 107
Number of loans serviced.................................. 26 72 12 110
</TABLE>
On March 31, 1998, the Company had a portfolio of $536 million of commercial
loans serviced for a fee. The characteristics of the portfolio on that date were
substantially similar to those of the December 31, 1997 portfolio.
INTEREST RATE MANAGEMENT TECHNIQUES
In general, when the Company establishes an interest rate on a FNMA DUS loan
held for sale, it contemporaneously locks in an interest yield to the
institutional investor purchasing that loan. However, for conduit loans, the
Company will accumulate some loans for bulk sale and in these circumstances the
Company hedges its interest rate risk with forward commitments and put options.
At March 31, 1998, loans held for sale included $4 million of conduit loans
without a firm purchase commitment from an investor. There can be no assurance
that the intent of the Company's hedging activities will be successful or that
benefits derived from hedging transactions will exceed the costs of hedging. The
Company is dependent on its counterparties to perform their commitments to
purchase either loans or securities. However, the Company only enters into
commitments to purchase either loans or securities. The Company does not hedge
its loans held for investment because these loans are generally variable rate
loans that are based on short term LIBOR. However, the operations and
profitability of the Company are likely to be adversely affected during any
period of unexpected or rapid changes in interest rates. For example, a
substantial or sustained increase in interest rates could adversely affect the
ability of the Company to originate loans.
45
<PAGE>
COMPETITORS
The Permanent Loan and Customized Financing industries are highly
competitive and the Company competes with a variety of financial institutions,
including companies which may have greater financial resources and lower costs
of capital available to them. Although management believes that the Company is
well positioned to continue to compete effectively in each facet of its
business, there can be no assurance that it will do so or that the Company will
not encounter further increased competition in the future which could limit its
ability to compete in its Permanent Loan and Customized Financing activities.
See "--Competitive Advantages."
EMPLOYEES
As of May 31, 1998, the Company had 83 employees, including four senior
executives, 46 employees directly involved in the production of loan
transactions and 33 administrative, servicing and corporate personnel. None of
the employees are represented by collective bargaining agreements, and
management believes that it has good relations with its employees.
PROPERTIES
The Company believes that its current facilities are adequate for its
present needs and that it would not have any difficulty in obtaining additional
or alternate space at prevailing rates if necessary. The Company's current
facilities are as follows:
<TABLE>
<CAPTION>
SQUARE LEASE
LOCATION FEET EXPIRATION CHARACTER OF USE
- -------------------------------------------- --------- ------------------ --------------------------------------
<S> <C> <C> <C>
Uniondale, NY............................... 18,200 May, 2004 Executive, production and
administrative offices
Boston, MA.................................. 6,800 June, 2003 Production, servicing and
administrative offices
San Francisco, CA........................... 2,500 January, 2001 Production office
Los Angeles, CA............................. 300 November, 1998 Production office
Miami Beach, FL............................. 1,200 May, 2001 Production office
Atlanta, GA................................. 2,600 March, 2001 Production office
Burr Ridge (Chicago), IL.................... 1,800 March, 1999 Production office
Florence, KY (greater Cincinnati, Ohio)..... 1,200 December, 1999 Production office
Dallas, TX.................................. 3,500 November, 2001 Production office
</TABLE>
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is from time to time
subject to litigation. The Company does not believe that any litigation to which
the Company is currently subject is likely, individually or in the aggregate, to
have a material adverse effect on the financial condition of the Company.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND DIRECTOR NOMINEES
The following table sets forth certain information with respect to the
director, director nominees and executive officers of the Company. It is
anticipated that all such persons will continue to serve in such capacities
following the completion of this Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ivan Kaufman......................................... 37 Chairman of the Board, President, Chief Executive
Officer and Director
Joseph Martello...................................... 42 Senior Vice President, Chief Financial Officer and
Director Nominee
Walter K. Horn....................................... 55 Senior Vice President, General Counsel and Secretary
Elliot Silverman..................................... 47 Senior Vice President--Human Resources, Organization
Development, Marketing and Management Information
Systems
Richard A. Lippe, Esq................................ 59 Director Nominee
Larry Swedroe........................................ 46 Director Nominee
Scott Rudolph........................................ 40 Director Nominee
</TABLE>
IVAN KAUFMAN is the founding stockholder, Chairman of the Board, President,
Chief Executive Officer and Director of the Company. From 1983 until its sale in
1995, Mr. Kaufman was the co-founder, President and Chief Executive Officer of
Old Arbor. Mr. Kaufman served on the National Advisory Board of Fannie Mae in
1994. He has also served on Fannie Mae's regional advisory and technology
boards, as well as the Board of Directors of the Empire State Mortgage Bankers
Association. Mr. Kaufman is a director of Star Multicare Services, Inc., a
publicly traded placement service for registered and licensed nurses and home
health care aides. From 1990 to 1995, Mr. Kaufman was the Tri-State regional
spokesperson for Global Relief, a nationwide environmental effort spearheaded by
the American Forestry Association. Mr. Kaufman currently serves on the Executive
Board of the North Shore Hebrew Academy and is a Board Trustee of the Great Neck
Synagogue. He also serves as Treasurer of the Israeli Tribute Committee and is a
Trustee of Dowling College and the Walt Frazier Foundation. Mr. Kaufman earned a
Juris Doctor degree from Hofstra University School of Law and a Bachelor of Arts
in Business Administration from Boston University.
JOSEPH MARTELLO has been Senior Vice President and Chief Financial Officer
of the Company since 1995 and is a director nominee for the Company. From 1990
until its sale in 1995, Mr. Martello was Vice President and Chief Financial
Officer of Old Arbor. Mr. Martello is a cum laude graduate from Hofstra
University and became a certified public accountant in New York in 1980.
WALTER K. HORN, Esq. has been Senior Vice President, Secretary and General
Counsel of the Company since 1995. Previously, Mr. Horn was General Counsel and
Secretary of Old Arbor from 1991 until its sale in 1995, and was Vice President
of Old Arbor from 1992 until its sale in 1995. Mr. Horn has a Juris Doctor
degree from St. John's University School of Law and was admitted to the New York
State Bar in 1968.
ELLIOT SILVERMAN has been Senior Vice President--Human Resources,
Organization Development, Marketing and Management Information Systems of the
Company since February 1998. Prior to joining the Company, Mr. Silverman was
Vice President of Human Resources of Barnes Jewish Hospital from 1996-1998; and
the Executive Vice President, Human Resources and Communications for Prudential
Home Mortgage from 1993 to 1996; and the Vice President--Human Resources for
Bankers Trust Company from 1981 to 1992. Mr. Silverman received a Master degree
in Education from Columbia University and a Bachelor of Arts degree in
Psychology from Queens College.
47
<PAGE>
NON-EMPLOYEE DIRECTOR NOMINEES
LARRY SWEDROE is a director nominee of the Company. Since 1996, Mr. Swedroe
has been a principal of Buckingham Asset Management, a privately held financial
advisory firm. From 1986 to 1996, Mr. Swedroe was Vice Chairman of Prudential
Home Mortgage and prior to that he was a Senior Vice President of Citicorp
Homeowners, Inc. Mr. Swedroe is a director of Amerin Corp., a mortgage insurance
company, and a director of Mobile Application Servers, a software company. Mr.
Swedroe received a Masters of Business Administration in Finance from New York
University and a Bachelor of Arts degree in Finance from Bernard Baruch College.
RICHARD A. LIPPE, Esq. is a director nominee of the Company. For more than
the past five years, Mr. Lippe has been a practicing attorney in the State of
New York and is a stockholder and officer of Meltzer, Lippe, Goldstein, Wolf and
Schlissel, P.C., a law firm. Mr. Lippe is Chairman of the Board of Silicon
Island Equities, LLC, a privately held investment banking firm, and is a
director of OmniCorder Technologies, Inc., a privately held company which
develops breast cancer detection equipment and Collaborative Laboratories, Inc.,
a privately held contract research and manufacturing biotechnology company. Mr.
Lippe was a director of Old Arbor from 1993 until its sale in 1995. Mr. Lippe is
the Managing Trustee of the Keene Asbestos Liquidating Trust. Mr. Lippe has a
Juris Doctor degree from the University of Pennsylvania Law School and was
admitted to the New York State Bar in 1964.
SCOTT RUDOLPH is a director nominee of the Company. Mr. Rudolph has been the
Chairman of the Board and Chief Executive Officer since 1993 and President since
1986 of NBTY, Inc., a publicly traded vitamin, mineral and food supplement mail
order business. Mr. Rudolph is the Chairman of the Dowling College Board of
Trustees. He received a Bachelor of Arts degree in Marketing from Dowling
College.
COMPENSATION OF DIRECTORS
Each of the non-employee director nominees will receive a retainer for 1998
of 1,000 shares of Common Stock for their services. Subsequent to 1998, each
non-employee director will receive an annual retainer of $15,000 which shall be
payable, at the election of such director, either 50% in shares of Common Stock
and 50% in cash or 100% in shares of Common Stock. In addition, non-employee
directors receive a fee of $750 for each committee meeting attended in person,
unless the committee meeting is held on the same day as the meeting of the Board
of Directors, and a fee of $250 for each telephonic meeting attended.
Non-employee directors are also reimbursed for reasonable expenses incurred to
attend meetings. The non-employee director nominees will receive, upon initial
election to the Board of Directors, an option to purchase 3,000 shares of Common
Stock, and thereafter will receive annually an option to purchase 1,000 shares
of Common Stock. All such options are priced at 100% of the market price at
grant and become exercisable over the two year period following the date of
grant expiring ten years from the date of grant.
The Board of Directors intends to have both a standing Audit Committee and a
standing Compensation Committee. The Audit Committee, which is anticipated to be
comprised of Messrs. Lippe (Chair), Swedroe and Rudolph, assists the Board of
Directors in exercising its fiduciary responsibilities for oversight of audit
and related matters, including corporate accounting, reporting and control
practices. It is responsible for recommending to the Board of Directors the
independent auditors for the following year. The Audit Committee intends to meet
periodically with management, financial personnel and the independent auditors
to review internal accounting controls and auditing and financial reporting
matters.
The Compensation Committee, which is anticipated to be comprised of Larry
Swedroe (Chair) and Richard Lippe, is responsible for overseeing the Company's
executive compensation programs. It shall administer certain compensation and
benefit plans and approves annual compensation and recommends to the Board of
Directors long-term incentive compensation to be granted pursuant to the
Company's 1998 Stock Plan for executive officers, directors, employees and
consultants of the Company.
It is the Company's present intention to acquire directors' and officers'
liability insurance.
48
<PAGE>
REMUNERATION OF EXECUTIVE OFFICERS--SUMMARY COMPENSATION TABLE
The following table discloses compensation paid by the Company for the
services of the chief executive officer and the four other most highly paid
executive officers of the Company for the years ended December 31, 1997, 1996
and 1995.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION(1)
--------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AWARDS
ANNUAL COMPENSATION --------------------------------------
---------------------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK UNDERLYING
POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS
- ------------------------- --------- --------- --------- ------------------- --------------------- ---------------
Ivan Kaufman (2)......... 1997 $ 120,000 -- -- -- --
Chairman of the 1996 120,000 -- -- -- --
Board, President and 1995 -- $ 140,000 -- -- --
Chief Executive Officer
Joseph Martello (2)(3)... 1997 $ 50,000 -- -- -- --
Senior Vice President and 1996 31,250 -- -- -- --
Chief Financial 1995 -- -- -- -- --
Officer
Walter K. Horn (2)(3).... 1997 $ 50,000 -- -- -- --
Senior Vice President, 1996 31,250 -- -- -- --
General 1995 -- -- -- -- --
Counsel and Secretary
Dana Eng................. 1997 $ 110,000(4) -- -- -- --
Former Senior Vice 1996 54,000 -- -- -- --
President, Marketing 1995 -- -- -- -- --
Scott Brown.............. 1997 $ 63,301(5) -- -- -- --
Former Senior Vice 1996 125,000 -- -- -- --
President, Capital 1995 20,832 $ 120,833 -- -- --
Markets
<CAPTION>
<S> <C> <C>
PAYOUTS
-------------
NAME AND PRINCIPAL LTIP ALL OTHER
POSITION PAYOUTS COMPENSATION
- ------------------------- ------------- -------------
Ivan Kaufman (2)......... -- --
Chairman of the -- --
Board, President and -- --
Chief Executive Officer
Joseph Martello (2)(3)... -- --
Senior Vice President and -- --
Chief Financial --
Officer
Walter K. Horn (2)(3).... -- --
Senior Vice President, -- --
General -- --
Counsel and Secretary
Dana Eng................. -- --
Former Senior Vice -- --
President, Marketing -- --
Scott Brown.............. -- $ 100,000(6)
Former Senior Vice -- --
President, Capital -- --
Markets
</TABLE>
- ------------------------
(1) During the fiscal years ended December 31, 1997, 1996 and 1995, the Company
paid no long-term compensation to any of the named executive officers.
However, in June 1998, the Company's Board of Directors adopted the 1998
Stock Plan, an omnibus long-term incentive plan under which the Compensation
Committee of the Board of Directors recommends for approval by the Board of
Directors, grants of stock options, restricted stock or stock appreciation
rights for officers, directors, employees or consultants of the Company. The
Company anticipates that long-term compensation may be issued to certain
officers, directors, employees and consultants of the Company in the future
as and when approved by the Board of Directors. See "--Compensation of
Directors" and "--Employee Benefit Plans."
(2) Beginning January 1, 1999, the employment agreements of Messrs. Kaufman,
Martello and Horn will require them to devote substantially all of their
business time to rendering services to the Company. Accordingly, pursuant to
such employment agreements, the salaries expensed to the Company of Messrs.
Kaufman, Martello and Horn will increase in the future as a result of them
devoting more time to the Company. See "--Employment Agreements."
(3) Compensation reported for Messrs. Martello and Horn represents compensation
paid to them for services rendered to or for the Company during the periods
indicated. During 1996 and 1997, Messrs. Martello and Horn (and during 1996,
Ms. Eng) also devoted a substantial portion of their business time to
rendering services for an affiliate of the Company, for which time they
received additional compensation from the affiliate consisting of a salary,
bonus and certain perquisites, including 401(k) contributions.
(4) Ms. Eng resigned in March 1998.
(5) Represents compensation paid to Mr. Brown until his resignation in June
1997.
(6) Represents severance payment to Mr. Brown.
EMPLOYMENT AGREEMENTS
IVAN KAUFMAN. Mr. Kaufman entered into an employment agreement with the
Company, dated as of June 30, 1998. The term of employment is through December
31, 2003. The salary for 1998 is $175,000 per annum and increases to $250,000
per annum beginning January 1, 1999, with a 10% yearly increase
49
<PAGE>
thereafter. Commencing January 1, 1999, Mr. Kaufman is required to devote
substantially all his full business time and attention to the affairs of the
Company. Prior thereto he is required to devote no less than 75% of his business
time and attention to the affairs of the Company. Mr. Kaufman will receive an
initial grant of 450,000 stock options at an exercise price equal to the
proposed Offering price of the Company's Common Stock. These options shall be
non-qualified options and shall remain exercisable for ten years from the date
of grant. Such options will become fully vested seven years from the date of
grant, subject to acceleration if within three years of the date of grant, the
Company's Common Stock sustains a target price which is two times the Offering
price for a period of twenty consecutive trading days or in the event of a
change in control of the Company or the death or disability of Mr. Kaufman. Mr.
Kaufman's employment under the agreement may be terminated by the Company at any
time for cause or upon Mr. Kaufman's death or disability. Mr. Kaufman is
restricted from competing with the Company for three years after the termination
of his employment in the event that he resigns or is terminated for cause.
Should Mr. Kaufman's employment be wrongfully terminated, he is entitled to
receive severance equal to three times his base salary plus three times the
highest annual bonus paid to him, if any. The Agreement also provides for
disability and insurance benefits.
JOSEPH MARTELLO. Mr. Martello entered into an employment agreement with the
Company, dated as of June 30, 1998. The term of employment is through December
31, 2001. Commencing January 1, 1999, Mr. Martello is required to devote
substantially all of his full business time and attention to the affairs of the
Company. Prior thereto, he may engage in activities not related to the Company,
provided that these activities do not interfere with his responsibilities to the
Company as determined by the Chief Executive Officer. The per annum salary is
$175,000 for the term of the contract. Mr. Martello will receive an initial
grant of 25,000 stock options at an exercise price equal to the proposed
Offering price of the Company's Common Stock. These options shall be incentive
stock options, shall remain exercisable for ten years from the date of grant and
will vest 20% each year over a period of five years beginning the third year
from the date of grant. Mr. Martello's employment under the agreement may be
terminated by the Company at any time for cause or upon Mr. Martello's death or
disability. Mr. Martello is restricted from competing with the Company for one
year after the termination of his employment in the event that he resigns or is
terminated for cause provided that the Company pays Mr. Martello a sum equal to
his per annum base salary during the non-competition period.
WALTER K. HORN, ESQ. Mr. Horn entered into an employment agreement with the
Company, dated as of June 30, 1998. The term of employment is through December
31, 2001. Commencing January 1, 1999, Mr. Horn is required to devote
substantially all of his full business time and attention to the affairs of the
Company. Prior thereto, he may engage in activities not related to the Company,
provided that these activities do not interfere with his responsibilities to the
Company as determined by the Chief Executive Officer. The per annum salary is
$175,000 for the term of the contract. Mr. Horn will receive an initial grant of
25,000 stock options at an exercise price equal to the proposed Offering price
of the Company's Common Stock. These options shall be incentive stock options,
shall remain exercisable for ten years from the date of grant and will vest 20%
each year over a period of five years beginning the third year from the date of
grant. Mr. Horn's employment under the agreement may be terminated by the
Company at any time for cause or upon Mr. Horn's death or disability. Mr. Horn
is restricted from competing with the Company for one year after the termination
of his employment in the event that he resigns or is terminated for cause,
provided that the Company pays Mr. Horn a sum equal to his per annum base salary
during the non-competition period.
ELLIOT SILVERMAN. Mr. Silverman entered into an employment agreement with
the Company, dated as of June 30, 1998. The term of employment is through
December 31, 2001. Commencing January 1, 1999, Mr. Silverman is required to
devote substantially all of his full business time and attention to the affairs
of the Company. Prior thereto, he may engage in activities not related to the
Company, provided that these activities do not interfere with his
responsibilities to the Company as determined by the Chief Executive Officer.
The per annum salary is $175,000 for the term of the contract. Mr. Silverman
will receive an initial
50
<PAGE>
grant of 25,000 stock options at an exercise price equal to the proposed
Offering price of the Company's Common Stock. These options shall be incentive
stock options, shall remain exercisable for ten years from the date of grant and
will vest 20% each year over a period of five years beginning the third year
from the date of grant. Mr. Silverman's employment under the agreement may be
terminated by the Company at any time with or without cause or upon Mr.
Silverman's death or disability. Mr. Silverman is restricted from competing with
the Company for one year after the termination of his employment in the event
that he resigns or is terminated for cause provided that the Company pays Mr.
Silverman a sum equal to his per annum base salary during the non-competition
period. Mr. Silverman is also entitled to certain relocation and severance
benefits.
EMPLOYEE BENEFIT PLANS
1998 STOCK PLAN. In July 1998, the Company adopted the 1998 Stock Plan which
will be presented for stockholder approval at the Company's annual meeting of
stockholders to be held on or about May 1999. The purpose of the 1998 Stock Plan
is to enable the Company to attract, retain and motivate key employees,
directors, and, on occasion, consultants, by providing them with stock options,
restricted or deferred stock and/or certain other equity based incentives.
Options granted under the 1998 Stock Plan may be either incentive stock options,
as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
non-qualified stock options. The Company has reserved 1,620,000 shares of Common
Stock for issuance under the 1998 Stock Plan. It is intended that, as of the
effective date, options to purchase an aggregate of 770,000 shares will be
granted to Mr. Kaufman and an aggregate of 22,050 shares will be granted to
other employees at an exercise price equal to the Offering Price.
The 1998 Stock Plan will be administered by the Compensation Committee of
the Board. The Compensation Committee has the power to determine the terms of
any options granted thereunder, including the exercise price, the number of
shares subject to the option, and the exercisability thereof. Options granted
under the 1998 Stock Plan are generally not transferable, and each option is
generally exercisable during the lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the 1998 Stock Plan must
be at least equal to the fair market value of the shares of Common Stock on the
date of grant. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of stock of the Company, the
exercise price of any incentive stock option granted must be equal at least 110%
of the fair market value on the grant date. The term of all options under the
1998 Stock Plan may not exceed ten years. The specific terms of each option
grant will be reflected in a written stock option agreement.
51
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock, as of the date of this Prospectus, after giving effect to the
Exchange Transaction, of (i) each person known by the Company to beneficially
own 5% or more of the shares of outstanding Common Stock, (ii) each of the
Company's executive officers, directors and director nominees, and (iii) all of
the Company's executive officers, directors and director nominees as a group.
Except as otherwise indicated, all shares are beneficially owned, and sole
investment and sole voting power is held by the persons named as owners.
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OWNERSHIP
NATURE OF SHARES --------------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING(1)
- ------------------------------------------------------------------------ ----------------- ----------- -------------
<S> <C> <C> <C>
The Ivan and Lisa Kaufman Family Trust(2)(3)(5)......................... 4,163,049 55.51% 38.55%
Ivan Kaufman(3)(4)(5)................................................... 2,187,472 29.17 20.25
Richard A. Lippe, Esq.(6)(9)(10)........................................ 453,116 6.04 4.20
Walter K. Horn, Esq.(3)................................................. 131,236 1.75 1.22
Elliot Silverman(3)..................................................... 102,099 1.36 0.94
Joseph Martello(3)(8)(11)............................................... 96,380 1.29 0.90
Larry Swedroe(7)(9)(12)................................................. 14,586 0.19 0.13
Scott Rudolph(8)(9)..................................................... -- -- --
All officers and directors as a group (7 persons)(13)................... 7,147,938 95.31% 66.19%
</TABLE>
- ------------------------
(1) Assumes no exercise of the Underwriter's over-allotment option. See
"Underwriting."
(2) This is a trust created by Mr. Kaufman for the benefit of his family.
Richard A. Lippe is the sole trustee of this trust.
(3) The address for each of these persons is 333 Earle Ovington Boulevard,
Uniondale, New York 11553.
(4) Includes 276,810 shares held by the Ivan Kaufman Grantor Retained Annuity
Trust, a trust for which Mr. Kaufman is co-trustee and he shares beneficial
ownership with Richard A. Lippe. Does not include 4,163,049 held by the Ivan
and Lisa Kaufman Family Trust. Includes 43,609 shares held by Arbor
Management, which is wholly-owned by Ivan Kaufman and his spouse.
(5) The Shares owned by the Ivan and Lisa Kaufman Family Trust, the Ivan Kaufman
Grantor Retained Annuity Trust and Mr. Kaufman have been included as part of
the collateral pledged as security for a personal loan to Mr. Kaufman from a
bank maturing November 30, 1998.
(6) The address for this person is 190 Willis Avenue, Mineola, New York 11501.
(7) The address for this person is 403 Conway Village Drive, St. Louis, Missouri
63141.
(8) The address for this person is 90 Orville Drive, Bohemia, New York 11716.
(9) Director nominee.
(10) Does not include 4,163,049 shares held by the Ivan and Lisa Kaufman Family
Trust. Includes 276,810 shares held by the Ivan Kaufman Grantor Retained
Annuity Trust, a trust for which Mr. Lippe is co-trustee and he shares
beneficial ownership with Ivan Kaufman. Includes 176,306 shares held by
Camila Bellick, the spouse of Richard A. Lippe, for which shares Mr. Lippe
has disclaimed beneficial ownership.
(11) The Shares owned by Mr. Martello have been pledged as security for a
personal loan from a bank maturing November 30, 1998.
(12) Represents 14,586 shares held by Mona Swedroe, the spouse of Larry Swedroe.
(13) Prior to its acquisition by ANCM (See "Prospectus Summary--Recent
Developments"), ASF, an indirect wholly owned subsidiary of ANCM, provided
certain members of ANCM financing to acquire their membership interests. As
a result of the ASF Transactions and the Exchange Transaction, ASF, as
pledgee, shares beneficial ownership of a total of 892,251 shares (or
11.9%). The total listed for all officers and directors as a group includes
374,785 shares owned by certain officers listed above and does not include
517,466 shares owned by other employees of the Company.
52
<PAGE>
DESCRIPTION OF SECURITIES
CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $.01 par value per share, and 10,000,000 shares of Preferred
Stock, $.01 par value per share. The following summary description relating to
the capital stock does not purport to be complete. Reference is made to the
Certificate of Incorporation and the By-laws of the Company, which are filed as
exhibits to the Registration Statement of which this Prospectus forms a part,
for a detailed description of the provisions thereof summarized below.
COMMON STOCK
GENERAL. The Company has 30,000,000 authorized shares of Common Stock,
7,500,000 of which were issued and outstanding prior to the Offering. All shares
of Common Stock currently outstanding are validly issued, fully paid and
non-assessable, and all shares which are the subject of this Prospectus, when
issued and paid for pursuant to this offering, will be validly issued, fully
paid and non-assessable.
VOTING RIGHTS. Each share of Common Stock entitles the holder thereof to
one vote, either in person or by proxy, at meetings of shareholders. The holders
are not permitted to vote their shares cumulatively. Accordingly, the holders of
more than fifty percent (50%) of the issued and outstanding shares of Common
Stock can elect all of the Directors of the Company. See "Security Ownership of
Certain Beneficial Owners and Management."
DIVIDEND POLICY. All shares of Common Stock are entitled to participate
ratably in dividends when and as declared by the Company's Board of Directors
out of the funds legally available therefor. Any such dividends may be paid in
cash, property or additional shares of Common Stock. The Company has not paid
any dividends since its inception and presently anticipates that all earnings,
if any, will be retained for development of the Company's business and that no
dividends on the shares of Common Stock will be declared in the foreseeable
future. Any future dividends will be subject to the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
the operating and financial condition of the Company, its capital requirements,
general business conditions and other pertinent facts. Therefore there can be no
assurance that any dividends on the Common Stock will be paid in the future. See
"Dividend Policy."
MISCELLANEOUS RIGHTS AND PROVISIONS. Holders of Common Stock have no
preemptive or other subscription right, conversion rights, redemption or sinking
fund provisions. In the event of the liquidation or dissolution, whether
voluntary or involuntary, of the Company, each share of Common Stock is entitled
to share ratably in any assets available for distribution to holders of the
equity of the Company after satisfaction of all liabilities, subject to the
rights of holders of Preferred Stock.
PREFERRED STOCK
The Board of Directors is authorized by the Company's Certificate of
Incorporation to authorize and issue up to 10,000,000 shares of Preferred Stock,
$.01 par value, in one or more series. No shares of Preferred Stock have been
authorized for issuance by the Board of Directors and the Company has no present
plans to issue any such shares. In the event that the Board of Directors does
issue Preferred Stock, it may exercise its discretion in establishing the terms
of the Preferred Stock. In the exercise of such discretion, the Board of
Directors may determine the voting rights, if any, of the series of Preferred
Stock being issued, which could include the right to vote separately or as a
single class with the Common Stock and/or other series of Preferred Stock; to
have more or less voting power per share than that possessed by the Common Stock
or other series of Preferred Stock; and to vote on certain specified matters
presented to the shareholders or on all of such matters or upon the occurrence
of any specified event or condition.
53
<PAGE>
Upon liquidation, dissolution or winding up of the Company, the holders of
Preferred Stock may be entitled to receive preferential cash distributions fixed
by the Board of Directors when creating the particular series thereof before the
holders of the Common Stock are entitled to receive anything. Preferred Stock
authorized by the Board of Directors could be redeemable or convertible into
shares of any other class or series of stock of the Company.
The issuance of Preferred Stock by the Board of Directors could adversely
affect the rights of holders of shares of Common Stock by, among other things,
establishing preferential dividends, liquidation rights or voting power. The
issuance of Preferred Stock could be used to discourage or prevent efforts to
acquire control of the Company through the acquisition of shares of Common
Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer and Trust Company, 6201 15th Avenue, Brooklyn, New York 11219.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Elliot Silverman, Senior Vice President-Human Resources and Organization
Development of the Company, is indebted to the Company in an amount equal to
$200,000. This indebtedness arose on April 1, 1998 in connection with Mr.
Silverman's purchase of a membership interest in ANCM and is evidenced by a
seven year promissory note payable to the Company, which bears interest at
prime, (8.5% at April 1, 1998) and will be secured by the shares of Common Stock
issued to Mr. Silverman pursuant to the Exchange Agreement. See "Prospectus
Summary--Reorganization Transactions."
Joseph Martello, the Company's Senior Vice President, Chief Financial
Officer and a director nominee, is indebted to the Company in an amount equal to
$100,000. This indebtedness arose on April 1, 1998, in connection with Mr.
Martello's purchase of a membership interest in ANCM and is evidenced by a seven
year promissory note payable to the Company, which bears interest at prime,
(8.5% at April 1, 1998) and will be secured by the shares of Common Stock issued
to Mr. Martello pursuant to the Exchange Agreement. See "Prospectus
Summary--Reorganization Transactions."
Camila Bellick, the wife of Richard A. Lippe, Esq., a director nominee of
the Company, is indebted to the Company in an amount equal to $275,000.
Indebtedness of $75,000 arose on April 1, 1998, in connection with Ms. Bellick's
purchase of a membership interest in ANCM and is evidenced by a seven year
promissory note payable to the Company, which bears interest at prime, (8.5% at
April 1, 1998). Indebtedness of $200,000 for purposes unrelated to the Company
and which was not added to Ms. Bellick's capital account with ANCM arose in June
of 1998 and is evidenced by a promisory note payable to the Company on October
1, 1998, which bears interest at prime, (8.5% at April 1, 1998). The aggregate
indebtedness of $275,000 will be secured by the shares of Common Stock issued to
Ms. Bellick pursuant to the Exchange Agreement. See "Prospectus
Summary--Reorganization Transactions."
Arbor Management, which is entirely owned by Ivan Kaufman and his wife,
provides office space and various services to the Company, including management
services, bookkeeping, human resources and information system support. For the
three months ended March 31, 1998 and the year ended December 31, 1997, the
Company paid Arbor Management an aggregate of $255,000 and $504,000 for these
services.
Anivan, Inc. ("Anivan"), which is owned by a relative of Mr. Kaufman,
identifies loan portfolios owned by third parties for possible acquisition by
the Company. Anivan pays its own expenses and assumes all risks in connection
with identification, preliminary review and the underwriting of these loan
portfolios. The gains and losses generated from the subsequent sales of the
loans and servicing income are shared by the Company with Anivan on an equal
basis. In connection with the purchase of a $26 million loan portfolio in 1997,
the Company paid Anivan fees and compensation of approximately $200,000.
54
<PAGE>
Historically, the Company has borrowed funds from Mr. Kaufman. Borrowings
outstanding from Mr. Kaufman (and/or the Trust and the Kaufman Grantor Trust
effective March 31, 1998) totaled $13.7 million at March 31, 1998, $28.8 million
at December 31, 1997 and $25.4 million at December 31, 1996. Interest on
virtually all of the Company's borrowings from Mr. Kaufman is at the prime
interest rate plus 1%, or 9.5% at March 31, 1998. The borrowings from Mr.
Kaufman are subordinate to the warehouse facility. The Company plans to repay
the total balance of outstanding borrowings from Mr. Kaufman with the proceeds
from this Offering. See "Use of Proceeds."
ASF has entered into a loan agreement dated January 5, 1998 with President
R.C.--St. Regis Management Company ("Regis") (the "Loan Agreement") pursuant to
which the Company agreed to provide a line of credit in the amount of
$14,800,000 to Regis. The general partner of Regis is Massena Management, LLC,
of which Mr. Kaufman is President and sole member. Borrowings under the line of
credit bear interest at 13.5% per annum, are secured by the accounts, equipment,
inventory and intangibles of Regis, and are repayable on the earlier of (i) 60
months following the Opening Date of the Project (each is defined in the
"Management Agreement," as defined in the Loan Agreement or (ii) upon an Event
of Default (as defined in the Loan Agreement). As of May 31, 1998, no amount was
outstanding under the Loan Agreement. This commitment is covered by Mr.
Kaufman's indemnification. See "Prospectus Summary--Recent Developments."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 10,800,000 shares of
Common Stock outstanding (11,295,000 shares if the Underwriters' over-allotment
option is exercised in full). The 3,300,000 shares offered hereby (3,795,000
shares if the Underwriter's over-allotment option is exercised in full) will be
freely tradeable without restrictions or further registration under the
Securities Act. An aggregate of 7,500,000 are held by "affiliates" of the
Company within the meaning of the Securities Act and other former members of
ANCM and are not covered by an effective registration statement, which shares
will be subject to the resale limitations of Rule 144.
In general, under Rule 144, a person who has beneficially owned shares for
at least one year, including an "affiliate," as that term is defined in the
Securities Act, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the then-outstanding
shares of Common Stock (approximately 33,000 shares after the completion of the
Offering assuming the shares of the Underwriter's over-allotment option is not
exercised), or the average weekly trading volume during the four calendar weeks
preceding filing of notice of such sale, subject to certain requirements
concerning availability of public information, manner of notice of sale.
In addition, affiliates must comply with the restrictions and requirements
of Rule 144, other than the one-year holding period requirement, in order to
sell shares of Common Stock which are not restricted securities. Under Rule
144(k), a person who is not an affiliate and has not been an affiliate for at
least three months prior to the sale and who has beneficially owned restricted
shares for at least a two-year holding period may resell such shares without
compliance with the foregoing requirements.
The Company, its executive officers and directors have agreed that they will
not, directly or indirectly, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose of (or
announce any offer, sale, offer of sale, pledge, grant of any option to purchase
or other sale or disposition of) any shares of Common Stock or other capital
stock of the company or any other securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock, or other capital stock of the
Company, for a period of 180 days from the date of this Prospectus, without the
prior written consent of Lehman Brothers, on behalf of the Underwriters. Lehman
Brothers may, in its sole discretion, at any time and without notice, release
all or any portion of the securities subject to such lock-up agreements. See
"Underwriting."
55
<PAGE>
Under Rule 144, the stockholders of the Company prior to the Offering will
not be able to sell any of their shares in the public market until one year
after the closing of the Offering. The Company has agreed to register shares
held by certain stockholders of the Company (approximately 1,125,000 shares) for
resale twelve months after the Offering.
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of such shares for future sale will
have on the market price of the Common Stock prevailing from time to time. Sale
of substantial amounts of Common Stock (including shares issued upon the
exercise of outstanding options), or the perception that such sales could occur,
could adversely affect prevailing market prices for the Common Stock.
UNDERWRITING
Under the terms of, and subject to the conditions contained in, the
underwriting agreement relating to the offering of shares of Common Stock in the
United States and Canada (the "Underwriting Agreement"), the form of which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part, between the Company and each of the underwriters named below (the
"Underwriters"), for whom Lehman Brothers Inc. and Friedman, Billings, Ramsey &
Co., Inc. are acting as representatives (the "Representatives"), the
Underwriters have severally agreed to purchase from the Company, and the Company
has agreed to sell to each Underwriter, the aggregate number of shares of Common
Stock set forth opposite the name of each such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc..................................................................................
Friedman, Billings, Ramsey & Co., Inc................................................................
----------
Total................................................................................................ 3,300,000
----------
----------
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares to the public at the initial public offering price
on the cover page of this Prospectus, and to certain dealers at such price less
a selling concession not in excess of $. per share to certain other
Underwriters or to certain other brokers or dealers. After the initial offering
to the public, the offering price and other selling terms may be changed by the
Representatives.
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to certain conditions and that if any of the above
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement all the shares of Common Stock agreed to be purchased by
either the Underwriters as the case may be, pursuant to the Underwriting
Agreement must be so purchased.
The Company has agreed in the Underwriting Agreement to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payment that the Underwriters may be
required to make in respect thereof.
The Company has granted to the Underwriters a 30-day option to purchase up
to an additional shares of Common Stock on the same terms and conditions
as set forth above to cover over allotments, if any. To the extent that such
option is exercised, each Underwriter will be committed, subject to certain
conditions, to purchase a number of the additional shares of Common Stock
proportionate to such Underwriter's initial commitment as indicated in the
preceding tables.
Pursuant to the terms of lock-up agreements, the holders of 7,500,000 shares
of the Company's Common Stock have agreed, for a period of up to 180 days after
the date of this Prospectus, that, subject to certain exceptions, they will not
contract to sell or otherwise dispose of any shares of Common Stock, any
56
<PAGE>
options or warrants to purchase shares of Common Stock or any securities
convertible into, or exchangeable for, shares of Common Stock, owned directly by
such holders or with respect to which they have the power of disposition,
without the prior written consent of Lehman Brothers Inc., on behalf of the
Representatives. Lehman Brothers Inc. may, in its sole discretion, and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. Under Rule 144, the shares of Common Stock subject to
lock-up agreements will not, in any event, be eligible for sale in the public
market, until twelve months after the Offering.
In addition, the Company and the directors and executive officers of the
Company have agreed that until 180 days after the date of this Prospectus
subject to certain exceptions, the Company will not, without prior written
consent of Lehman Brothers Inc., on behalf of the Representatives, offer, sell
contract to sell or otherwise dispose of any shares of Common Stock, any options
or warrants to purchase any shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock other than the
Company's sale of shares in this Offering, the issuance of shares of Common
Stock upon the exercise of outstanding options and warrants and the grant of
options to purchase shares of Common Stock under existing employee stock option
or stock purchase plans. Furthermore, the Company has agreed not to file any
registration statements on Form S-8 to register the 1,620,000 shares of Common
Stock reserved for issuance pursuant to its Stock Option Plans until at least 90
days after the date of this Prospectus. See "Management--Stock Options Plans"
and "Shares Eligible for Future Sale."
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby will be determined through negotiations between the Company
and the Representatives. Among the factors to be considered in such negotiations
are prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives also may elect to reduce any short position by exercising
all or part of the over-allotment options described herein. The Underwriters do
not intend to confirm sales to discretionary accounts.
In general, purchase of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
this Offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
57
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other matters
will be passed on for the Company by Pryor Cashman Sherman & Flynn LLP, New
York, New York as special counsel to the Company. Certain legal matters will
also be passed on for the Company by Meltzer, Lippe, Goldstein, Wolf &
Schlissel, P.C., Mineola, New York. Richard A. Lippe, a member of such firm, is
a director nominee of the Company and may be deemed to beneficially own certain
shares of Common Stock. See "Security Ownership of Certain Beneficial Owners and
Management." Certain legal matters will be passed on for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP.
EXPERTS
The financial statements of the Company as of December 31, 1997 and 1996 and
for each of the years in the three-year period ended December 31, 1997, except
Arbor National Commercial Mortgage, LLC and subsidiary as of December 31, 1996
and for the year ended December 31, 1996 and ten months ended December 31, 1995,
appearing in this Prospectus and Registration Statement, have been audited by
Grant Thornton LLP, independent certified public accountants, whose report which
expresses reliance upon the work of another auditor appears elsewhere herein.
The financial statements of Arbor National Commercial Mortgage, LLC and
subsidiary (combined with those of the Company and not presented separately
herein) as of December 31, 1996 and for the year ended December 31, 1996 and ten
months ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as stated in their report as appears elsewhere herein.
Such financial statements of the Company are included herein in reliance upon
the respective reports of such firms given upon the authority as such experts in
accounting and auditing.
58
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Certified Public Accountants.................................................. F-2
Report of Independent Auditors...................................................................... F-3
Financial Statements:
Combined Balance Sheets at December 31, 1997 and 1996, and at
March 31, 1998 (Unaudited)...................................................................... F-4
Combined Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 and for the
Three Months Ended (Unaudited)
March 31, 1998 and 1997......................................................................... F-5
Combined Statements of Equity for the Years Ended December 31, 1997, 1996 and 1995 and for the
Three Months Ended March 31, 1998 (Unaudited)................................................... F-6
Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 and for the
Three Months Ended (Unaudited)
March 31, 1998 and March 31, 1997............................................................... F-7
Notes to Combined Financial Statements.............................................................. F-8
</TABLE>
The financial statements of Arbor National Holdings, Inc., the Registrant,
have been omitted because the Registrant has not yet issued any stock, has no
assets or liabilities and has not yet conducted any business other than of an
organizational nature.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Members of
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC AND SUBSIDIARIES AND AFFILIATE
We have audited the accompanying combined balance sheet of Arbor National
Commercial Mortgage, LLC and Subsidiaries and Affiliate as of December 31, 1997,
and the related combined statements of operations, equity, and cash flows for
the year then ended. These combined financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these combined financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Arbor National
Commercial Mortgage, LLC and Subsidiaries and Affiliate as of December 31, 1997,
the combined results of their operations and their combined cash flows for the
year ended December 31, 1997, in conformity with generally accepted accounting
principles.
We have audited the balance sheet of Arbor Secured Funding, Inc., a member of
the combined group, as of December 31, 1996, and the related statements of
operations, equity, and cash flows for the years ended December 31, 1996 and
1995. The contribution of Arbor Secured Funding, Inc. to combined total assets
and net income represented 34 percent of combined total assets at December 31,
1996, and 35 percent and 44 percent of combined net income for the years ended
December 31, 1996 and 1995, respectively. We have also audited the statements of
operations, equity, and cash flows of Arbor National Commercial Mortgage
Corporation, the other member of the combined group, for the two months ended
February 28, 1995. The contribution of Arbor National Commercial Mortgage
Corporation to net income represented 0 percent of combined net income for the
year ended December 31, 1995. Separate financial statements of Arbor National
Commercial Mortgage, LLC and Subsidiary, the other member of the combined group,
as of December 31, 1996 and for the year ended December 31, 1996 and the ten
months ended December 31, 1995, included in the December 31, 1996 combined
balance sheet and combined statements of operations, equity, and cash flows for
the years ended December 31, 1996 and 1995, were audited and reported on
separately by other auditors.
We also have audited the combination of the accompanying combined balance sheet
as of December 31, 1996 and the related combined statements of operations,
equity, and cash flows for the years ended December 31, 1996 and 1995. In our
opinion, such combined statements have been properly combined on the basis
described in Note 1 of the notes to the combined financial statements.
/s/ Grant Thornton LLP
Grant Thornton LLP
New York, New York
May 28, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Members
Arbor National Commercial Mortgage, LLC
We have audited the consolidated balance sheets of Arbor National Commercial
Mortgage, LLC and subsidiary (the "Company") as of December 31, 1996 and the
related consolidated statements of income, equity and cash flows for the year
ended December 31, 1996 and the ten months ended December 31, 1995 (not
presented separately herein). 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 consolidated financial position of Arbor National
Commercial Mortgage, LLC at December 31, 1996 and the consolidated results of
their operations and their cash flows for the year ended December 31, 1996 and
the ten months ended December 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Notes 1 and 3 to the consolidated financial statements, in 1996
the Company changed its method of accounting for mortgage servicing rights.
Ernst & Young LLP
New York, New York
January 17, 1997
F-3
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, December 31,
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
PRO FORMA
1998 1998 1997 1996
------------- ------------- -------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.......................... $ 2,380,899 $ 2,261,337 $ 1,903,405 $ 782,252
Restricted cash.................................... 2,417,863 2,417,863 2,362,822 1,639,930
Loans held for sale, net........................... 11,826,971 11,826,971 46,482,348 45,729,204
Loans held for investment, net..................... 54,821,182 56,273,289 68,609,906 38,685,564
Other investments.................................. 1,250,000 1,250,000 500,000 3,032,046
Investment in real estate held for sale............ 11,248,703 11,248,703 10,790,930 --
Investment in real estate joint ventures........... 1,375,305 1,375,305 1,307,652 --
Capitalized mortgage servicing rights, net......... 5,457,721 5,457,721 5,031,854 2,534,529
Other receivables and deferred costs............... 2,228,789 1,713,197 2,675,081 1,989,803
Property and equipment, net........................ 483,969 483,969 517,760 368,284
------------- ------------- -------------- -------------
Total assets....................................... $ 93,491,402 $ 94,308,355 $ 140,181,758 $ 94,761,612
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
LIABILITIES AND EQUITY
Notes payable and repurchase agreements............ $ 44,879,927 $ 44,879,927 $ 81,392,653 $ 50,484,303
Note payable--Class A member....................... 13,685,303 13,685,303 28,835,294 25,425,485
Accounts payable and accrued expenses.............. 5,731,526 5,803,526 5,293,116 3,957,180
Allowance for possible losses under the DUS product
line............................................. 1,652,005 1,652,005 1,474,635 686,500
Unearned revenue................................... 1,832,288 1,832,288 152,478 745,010
Distribution payable............................... 6,800,000 -- -- --
Deferred tax liability, net........................ 2,207,000 -- -- --
------------- ------------- -------------- -------------
Total liabilities.................................. 76,788,049 67,853,049 117,148,176 81,298,478
------------- ------------- -------------- -------------
Commitments and contingencies
Equity............................................. 16,703,353 26,455,306 23,033,582 13,463,134
------------- ------------- -------------- -------------
Total liabilities and equity....................... $ 93,491,402 $ 94,308,355 $ 140,181,758 $ 94,761,612
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31, For the years ended December 31,
-------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
------------ ------------ ------------- ------------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Interest earned.................................... $ 2,529,979 $ 1,672,747 $ 9,641,121 $ 6,783,312 $ 3,725,904
Fee-based services, including gain on sale of loans
and real estate.................................. 4,373,022 2,340,814 12,686,908 8,794,147 2,627,716
Servicing revenue, net............................. 539,241 305,253 1,957,983 1,082,699 394,461
Income from investment in real estate held for
sale, net of operating expenses.................. 540,334 -- -- -- --
------------ ------------ ------------- ------------- ------------
Total revenues....................................... 7,982,576 4,318,814 24,286,012 16,660,158 6,748,081
------------ ------------ ------------- ------------- ------------
Expenses:
Interest expense................................... 1,944,208 925,038 6,242,616 4,048,947 2,188,687
Employee compensation and benefits................. 1,231,366 1,053,338 4,920,495 3,893,873 1,876,897
Selling and administrative......................... 1,137,522 827,068 3,493,022 3,499,691 1,560,834
Provision for loan losses.......................... 237,370 337,500 997,617 915,051 406,856
------------ ------------ ------------- ------------- ------------
Total expenses....................................... 4,550,466 3,142,944 15,653,750 12,357,562 6,033,274
------------ ------------ ------------- ------------- ------------
Net income..................................... $ 3,432,110 $ 1,175,870 $ 8,632,262 $ 4,302,596 $ 714,807
------------ ------------ ------------- ------------- ------------
------------ ------------ ------------- ------------- ------------
Unaudited pro forma information:
Pro forma income before income taxes................. $ 3,432,110 $ 1,175,870 $ 8,632,262 $ 4,302,596 $ 714,807
Pro forma provision for income taxes................. 1,383,244 479,548 3,468,648 1,753,788 299,523
------------ ------------ ------------- ------------- ------------
Pro forma net income................................. $ 2,048,866 $ 696,322 $ 5,163,614 $ 2,548,808 $ 415,284
------------ ------------ ------------- ------------- ------------
------------ ------------ ------------- ------------- ------------
Pro forma net income per share....................... $ .27 $ .69
------------ -------------
------------ -------------
Pro forma weighted average number of shares
outstanding........................................ 7,500,000 7,500,000
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------------- PAID-IN EARNINGS
SHARES PAR VALUE CAPITAL (DEFICIT)
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance--December 31, 1994........................................... 92,500 $ 925 $ 7,606,418 $ (639,612)
Net income........................................................... 714,807
Issuance of common stock............................................. 100 1,000
--------- ----------- ------------ ------------
Balance--December 31, 1995........................................... 92,600 1,925 7,606,418 75,195
Change in legal structure............................................ (92,500) (925) (7,606,418) 192,085
--------- ----------- ------------ ------------
Balance--January 1, 1996............................................. 100 1,000 -- 267,280
Capital contributions................................................
Net income........................................................... 1,499,502
--------- ----------- ------------ ------------
Balance--December 31, 1996........................................... 100 1,000 -- 1,766,782
Capital contributions................................................
Withdrawals and distributions........................................
Net income........................................................... 1,510,454
--------- ----------- ------------ ------------
Balance--December 31, 1997........................................... 100 1,000 -- 3,277,236
CAPITAL CONTRIBUTIONS................................................
WITHDRAWALS AND DISTRIBUTIONS........................................
NET INCOME........................................................... 1,864,584
--------- ----------- ------------ ------------
BALANCE--MARCH 31, 1998.............................................. 100 $ 1,000 $ -- $ 5,141,820
--------- ----------- ------------ ------------
--------- ----------- ------------ ------------
<CAPTION>
MEMBERS' CAPITAL
---------------------------
CLASS A CLASS B TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Balance--December 31, 1994........................................... $ 6,967,731
Net income........................................................... 714,807
Issuance of common stock............................................. 1,000
------------- ------------ -------------
Balance--December 31, 1995........................................... -- -- 7,683,538
Change in legal structure............................................ $ 7,415,258 --
------------- ------------ -------------
Balance--January 1, 1996............................................. 7,415,258 7,683,538
Capital contributions................................................ $ 1,477,000 1,477,000
Net income........................................................... 2,332,029 471,065 4,302,596
------------- ------------ -------------
Balance--December 31, 1996........................................... 9,747,287 1,948,065 13,463,134
Capital contributions................................................ 2,000,000 636,000 2,636,000
Withdrawals and distributions........................................ (963,499) (734,315) (1,697,814)
Net income........................................................... 5,974,848 1,146,960 8,632,262
------------- ------------ -------------
Balance--December 31, 1997........................................... 16,758,636 2,996,710 23,033,582
CAPITAL CONTRIBUTIONS................................................ -- --
WITHDRAWALS AND DISTRIBUTIONS........................................ (10,386) (10,386)
NET INCOME........................................................... 1,567,526 3,432,110
------------- ------------ -------------
BALANCE--MARCH 31, 1998.............................................. $ 16,758,636 $ 4,553,850 $ 26,455,306
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31, For the years ended December 31,
------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................. $ 3,432,110 $ 1,175,870 $ 8,632,262 $ 4,302,596 $ 714,807
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization......................... 156,809 19,500 93,230 63,256 41,550
Amortization of capitalized mortgage servicing
rights.............................................. 162,358 95,741 584,420 237,273 43,893
Capitalization of mortgage servicing rights........... (588,225) (1,056,170) (3,148,981) (2,958,029) --
Write-off of capitalized mortgage servicing rights
from servicing sales................................ -- -- 67,236 312,454 --
Provision for loan losses............................. 237,370 337,500 997,617 915,051 406,856
Deferred income taxes................................. -- -- -- -- (24,000)
Changes in operating assets and liabilities:
Loans held for sale, net............................ 34,655,377 17,294,239 (753,144) (10,379,314) (28,678,342)
Loans held for investment, net...................... 12,276,617 (447,008) (30,133,824) (2,883,676) (31,630,568)
Other receivables and deferred costs................ 961,884 (86,754) (685,278) 411,908 126,105
Accounts payable and accrued expenses............... 510,410 (257,323) 1,335,936 629,581 2,600,213
Unearned revenue.................................... 1,679,810 78,150 (592,532) 224,190 520,820
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities..... 53,484,520 17,153,745 (23,603,058) (9,124,710) (55,878,666)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Other investments....................................... (750,000) (181,954) 2,532,046 (911,458) (2,120,588)
Investment in real estate held for sale, net............ (457,773) -- (10,790,930) -- --
Investment in real estate joint ventures, net........... (67,653) -- (1,307,652) -- --
Additions to property and equipment..................... (123,018) (35,134) (242,706) (158,618) (69,362)
Increase in restricted cash............................. (55,041) (313,941) (722,892) (1,639,930) --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities............... (1,453,485) (531,029) (10,532,134) (2,710,006) (2,189,950)
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Increase (decrease) in notes payable and repurchase
agreements, net....................................... (36,512,726) (18,600,457) 30,908,350 15,064,634 28,848,570
Increase (decrease) in note payable --Class A member.... (15,149,991) 2,800,584 3,409,809 (7,549,613) 32,171,029
Capital contributions by members........................ -- 240,000 2,636,000 1,477,000 --
Withdrawals and distributions of members' capital....... (10,386) (1,697,814) (1,697,814) -- --
Issuance of common stock................................ -- -- -- -- 1,000
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by financing activities... (51,673,103) (17,257,687) 35,256,345 8,992,021 61,020,599
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash........................... 357,932 (634,971) 1,121,153 (2,842,695) 2,951,983
Cash at beginning of period............................... 1,903,405 782,252 782,252 3,624,947 672,964
----------- ----------- ----------- ----------- -----------
Cash at end of period..................................... $ 2,261,337 $ 147,281 $ 1,903,405 $ 782,252 $ 3,624,947
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................ $ 1,450,623 $ 545,411 $ 4,323,327 $ 2,333,418 $ 1,263,465
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income taxes........................................ $ 57,666 $ 56,794 $ 72,415 $ 69,834 $ 3,854
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REORGANIZATION
Arbor National Holdings, Inc. ("ANHI"), a New York corporation, was organized in
June 1998 to own 100% of Arbor National Commercial Mortgage, LLC ("Arbor").
Arbor is a real estate financial services company that funds, on a negotiated
basis, high-yielding lending and investment opportunities in commercial real
estate through mezzanine loans, bridge loans, note acquisitions and other
customized financing structures. It also derives substantial revenue from the
origination for sale and servicing of government-sponsored and conduit mortgage
loans for multifamily and other types of commercial properties.
Upon the effective date of the offering, all members of Arbor, pursuant to the
terms of the Exchange Agreement, as amended, will contribute their ownership
interest in the Company to ANHI in exchange for 7,500,000 shares of Common Stock
(the "Exchange") of ANHI, which will constitute all of the shares of Common
Stock outstanding prior to this Offering. The financial statements of Arbor
National Holdings, Inc., the Registrant, have been omitted because the
Registrant has not yet issued any stock, has no assets or liabilities and has
not yet conducted any business other than of an organizational nature.
ORGANIZATION
Effective April 1, 1998, Arbor Secured Funding Inc. ("ASF") distributed a
dividend of certain loans receivable which did not involve commercial real
estate to Ivan Kaufman, its sole stockholder, and immediately thereafter, the
outstanding common stock of ASF was sold to the Ivan and Lisa Kaufman Family
Trust. Immediately thereafter, the Ivan and Lisa Kaufman Family Trust
contributed the stock of ASF, with a book value of approximately $3.7 million,
which approximates fair value, to Arbor in exchange for ownership interest in
Arbor. Arbor and ASF are collectively referred to as the "Company" or
"Companies" prior to the reorganization.
Arbor, a New York limited liability company, is the successor to Arbor National
Commercial Mortgage Corporation (the "Corporation"). Effective January 1, 1996,
the Corporation liquidated and distributed its assets to its stockholder.
Immediately thereafter, the stockholder contributed these assets and liabilities
to Arbor. This change in legal structure resulted in no change to the carrying
value of assets and liabilities.
In October 1995, the Company was approved by the Federal National Mortgage
Association ("FNMA") as a Delegated Underwriting and Servicing ("DUS") lender.
Under the FNMA DUS program, the Company originates, underwrites, sells and
services mortgage loans on multifamily properties. The Company assumes
responsibility for a portion of any loss that may result from borrower defaults,
based on FNMA loss sharing formulas. Generally, the Company is responsible for
the first 5% of the unpaid principal balance and a portion of any additional
losses to an overall maximum of 20% of the original principal balance. FNMA
bears any remaining loss.
Under the terms of the Master Loss Sharing Agreement between FNMA and the
Company, the Company is responsible for funding 100% of mortgagor delinquency
(principal and interest) and servicing advances (taxes, insurance and
foreclosure costs) until the amounts advanced exceed 5% of the unpaid principal
F-8
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
balance at the date of default. Thereafter, the Company may request interim loss
sharing adjustments which allow the Company to fund 25% of such advances until
final settlement under the Master Loss Sharing Agreement.
The Company's loan origination business also includes originating mortgages for
sale into conduit programs and originating mezzanine, bridge loans, and note
acquisitions for its own investment. Mortgages originated under conduit programs
are sold to nationally recognized broker/dealers and are subsequently
securitized. The Company usually retains the right to service these mortgages
for a fee.
The Company also buys or enters into joint ventures to buy real estate
properties which it holds for sale or for its own investment.
PRINCIPLES OF CONSOLIDATION AND COMBINATION
Arbor consolidates all significant subsidiaries of which Arbor holds a greater
than 50% ownership interest or where control has been established. Arbor
prepares combined financial statements where voting control is vested in the
same shareholder and the companies are under common management. Voting control
of Arbor and ASF is vested principally in the same shareholder and the Companies
are under common management. Because of these relationships, the financial
statements of the Companies have been prepared as if they were a single entity.
Arbor includes certain subsidiaries. All significant transactions either between
Arbor, its subsidiaries or the combined Companies have been eliminated in
combination.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
RECLASSIFICATION
Certain reclassifications have been made to prior period amounts to conform to
the current period presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in banks and short-term
investments with maturities of three months or less at purchase.
RESTRICTED CASH
Restricted cash is composed of cash and cash equivalents which are being
maintained as collateral for possible losses resulting from loans originated
under the FNMA DUS program in accordance with the
F-9
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
terms of the Master Loss Sharing Agreement between FNMA and the Company. For
cash flow purposes, restricted cash is not considered a cash equivalent.
LOANS HELD FOR SALE
Loans held for sale are collateralized multifamily real estate loans and are
reported at the lower of cost or market, on an aggregate basis.
LOANS HELD FOR INVESTMENT
Loans held for investment are typically collateralized by multifamily and
residential real estate which the Company intends to hold to maturity. These
loans are carried at cost. The Company measures the impairment of its loans held
for investment based upon the fair value of the underlying collateral which is
determined on an individual loan basis. In arriving at the fair value of the
collateral, numerous factors are considered, including an evaluation of
operating cash flow from the property during the projected holding period, and
estimated sales value computed by applying an expected capitalization rate to
the stabilized net operating income of the specific property, less selling
costs, discounted at market discount rates. If upon completion of the
valuations, the fair value of the underlying collateral securing the impaired
loan is less than the recorded loan, an allowance is created with a
corresponding charge to expense.
INVESTMENT IN REAL ESTATE HELD FOR SALE
Investment in real estate held for sale represents multifamily real estate
properties which the Company intends to sell. The loans are carried at the lower
of cost or fair value. The Company reviews each real estate asset owned for
which indicators of impairment are present to determine whether the carrying
amount of the asset will be recovered. Recognition of impairment is required if
the undiscounted cash flows estimated to be generated by the assets are less
than the assets' carrying amount. Measurement is based upon the fair value of
the asset.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets ranging from three to seven years.
Leasehold improvements are amortized over the lesser of the useful life of the
asset or the remaining lease period.
REVENUE RECOGNITION
Fee-based services include commitment fees, broker fees, loan origination fees
and gain on sale of loans and real estate. Revenue recognition occurs when the
related services are performed, unless significant contingencies exist, and for
the sale of loans, when all the incidence of ownership passes to the buyer.
F-10
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company also buys and sells notes and real estate properties. Revenue
recognition from the sale, which is included in fee-based services, occurs when
all the incidence of ownership passes to the buyer. In some circumstances, the
Company elects to retain an interest in the property. When this occurs, the
investment in real estate is recorded at the Company's original cost and revenue
is recognized on the percentage of the property sold.
INTEREST EARNED
Included in interest earned is income generated from an investment in a limited
partnership. The underlying assets invested in this limited partnership were
mortgage derivatives and principally generate interest income. For the years
ended December 31, 1997, 1996 and 1995, income earned from the investment in
this limited partnership was approximately $700,000, $900,000 and $120,000,
respectively. Income from this limited partnership for the three months ended
March 31, 1998 and March 31, 1997, was $0 and $182,000, respectively. The
Company sold its limited partnership interest in December 1997.
CAPITALIZED MORTGAGE SERVICING RIGHTS
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL
ASSETS AND EXTINGUISHMENTS OF LIABILITIES. SFAS No. 125 supersedes but generally
retains the requirements of SFAS No. 122, ACCOUNTING FOR MORTGAGE SERVICING
RIGHTS, which the Company adopted on January 1, 1996. Both statements require
that an entity recognize, as separate assets, rights to service mortgage loans
for others irrespective of how those servicing rights are acquired, whether
purchased or originated, by allocating the total cost of the loans between the
loans and the servicing rights thereto based on their relative fair values. In
addition, SFAS No. 125 eliminates the distinction between normal and excess
servicing to the extent the servicing fee does not exceed that specified in the
contract. The adoption of SFAS No. 125 did not have a material impact on the
Company's financial position or results of operations for the three months ended
March 31, 1998 and for the year ended December 31, 1997.
SFAS No. 125 requires that Capitalized Mortgage Servicing Rights ("MSRs") be
assessed for impairment based on the fair value of those rights. Fair values are
estimated considering market prices for similar MSRs, when available, and by the
estimated discounted future net cash flows of the capitalized MSRs. For purposes
of impairment evaluation and measurement, the MSRs are stratified based on
predominant risk characteristics of the underlying loans, which the Company has
identified as loan type, geographic location and note rate. To the extent that
the carrying value of the MSRs exceeds fair value by individual stratum, a
valuation allowance is established. The allowance may be adjusted in the future
as the values of MSRs increase or decrease. The cost of MSRs is amortized over
the period of estimated net servicing income.
F-11
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The Company uses financial instruments having off-balance sheet risk in the
normal course of business in order to reduce the Company's exposure to
fluctuations in interest rates and market prices. Included in Note 9 are
disclosures relating to financial instruments having off-balance sheet risk.
These disclosures indicate the magnitude of the Company's involvement in such
activities and reflect the instruments at their face, contract or notional
amounts which do not necessarily represent the credit risk of such instruments.
In connection with the Company's hedging and loan sale programs, the Company has
credit risk exposure to the extent purchasers are unable to meet the terms of
their forward purchase contracts. None of the forward payment obligations of any
of the Company's counterparties is secured or subject to margin requirements.
The Company enters into options on forward delivery contracts and
mortgage-backed securities (collectively referred to as hedging contracts) for
the purpose of minimizing its exposure to movements of interest rates on
rate-locked loan commitments and loans held for sale. Option premiums are
deferred when paid and recognized as an adjustment to gains or losses on sales
of loans over the lives of the options on a straight-line basis.
INCOME TAXES
Arbor is a limited liability company ("LLC") as of January 1, 1996 (which is
taxed as a partnership), and accordingly, the taxable income or loss of Arbor is
includable in the Federal and state income tax returns of Arbor's individual
members. Arbor will incur state income taxes in those states where it is not
recognized as an LLC. Prior to becoming an LLC, Arbor was an S corporation from
March 1, 1995 to December 31, 1995. Prior to March 1, 1995, Arbor was a C
corporation.
ASF was an S corporation as of October 1, 1995. As a result, ASF income is taxed
directly to its shareholder. Prior to October 1, 1995, ASF was a C corporation.
Simultaneous with the Exchange, Arbor will no longer be recognized as an LLC for
tax purposes and simultaneous with the ASF contribution, ASF will cease to be
treated as an S corporation.
INTERIM PERIOD INFORMATION
The unaudited combined financial statements as of March 31, 1998 and for the
three-month periods ended March 31, 1998 and 1997 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instruction to Form 10-Q and do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
consisting of normal recurring accruals considered necessary for a fair
presentation of the results for the interim period have been included.
F-12
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
2. LOANS HELD FOR SALE
Loans held for sale consist of:
<TABLE>
<CAPTION>
December 31,
MARCH 31, ----------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Principal....................................... $ 12,004,566 $ 46,834,819 $ 46,171,004
Unearned discount, net.......................... (177,595) (352,471) (441,800)
------------- ------------- -------------
Loans held for sale, net........................ $ 11,826,971 $ 46,482,348 $ 45,729,204
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
3. CAPITALIZED MORTGAGE SERVICING RIGHTS
SFAS No. 125 requires that Capitalized MSRs be assessed for impairment based on
the fair value of those rights. Fair values are estimated considering market
prices for similar MSRs, when available, and by estimating the discounted future
net cash flows of the capitalized MSRs.
The estimated fair value of the Capitalized MSRs as of March 31, 1998, December
31, 1997 and December 31, 1996 was approximately $6.2 million, $5.8 million and
$3.0 million, respectively, which was in excess of book value and did not
require a valuation allowance to be established.
Capitalized MSRs and the related valuation allowance activity as of March 31,
1998 and December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
December 31,
MARCH 31, --------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period.......................................... $ 5,031,854 $ 2,534,529 $ 126,227
Additions............................................................... 588,225 3,148,981 2,958,029
Amortization............................................................ (162,358) (584,420) (237,273)
Servicing sale.......................................................... -- (67,236) (312,454)
------------ ------------ ------------
Balance at end of period................................................ 5,457,721 5,031,854 2,534,529
Valuation allowance
Balance at beginning of period.......................................... -- -- --
Additions............................................................... -- -- --
Reductions.............................................................. -- -- --
------------ ------------ ------------
Balance at end of period................................................ -- -- --
------------ ------------ ------------
Capitalized mortgage servicing rights, net.............................. $ 5,457,721 $ 5,031,854 $ 2,534,529
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-13
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
4. PROPERTY AND EQUIPMENT
Property and equipment consist of :
<TABLE>
<CAPTION>
December 31,
MARCH 31, --------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Furniture and equipment................................................. $ 885,961 $ 762,943 $ 520,598
Leasehold improvements.................................................. 13,280 13,280 13,280
------------ ------------ ------------
899,241 776,223 533,878
Accumulated depreciation and amortization............................... (415,272) (258,463) (165,594)
------------ ------------ ------------
Property and equipment, net............................................. $ 483,969 $ 517,760 $ 368,284
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
5. MORTGAGE SERVICING
At March 31, 1998, December 31, 1997 and 1996, the Company was servicing, for a
fee, commercial loans of approximately $536 million, $530 million and $386
million, respectively. Cash held in escrow by the Company for certain of these
loans at March 31, 1998, December 31, 1997 and 1996, was approximately $14.9
million, $15.3 million and $11.7 million, respectively. These cash balances and
related escrow liabilities are not reflected in the accompanying balance sheets.
These escrows are maintained in separate accounts at two federally insured
depository institutions. At March 31, 1998, December 31, 1997 and 1996, the
Company's servicing portfolio included FNMA DUS loans of approximately $327
million, $292 million and $136 million, respectively. Properties securing the
loans in the Company's servicing portfolio at March 31, 1998 are located
throughout the United States with approximately 22% in Texas and 18% in
Colorado.
F-14
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
6. NOTES PAYABLE AND REPURCHASE AGREEMENTS
The Company utilizes a warehouse line of credit and repurchase agreements in
conjunction with the origination and sale of loans. Borrowings underlying these
arrangements are secured by the Company's loans held for sale and held for
investment.
<TABLE>
<CAPTION>
December 31,
MARCH 31, ----------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Warehouse line of credit, commercial banks, $90 million committed
line, expiration November 1998, interest is variable based on
the Federal funds rate, the weighted average note rate was
7.18%, 7.51% and 7.33%, respectively. $ 26,926,482 $ 36,306,212 $ 26,760,000
Repurchase agreement, financial institution, $40 million
committed line, expiration March 1997, interest is variable
based on LIBOR, the weighted average note rate was 6.31%. 12,600,000
Repurchase agreement, financial institution, uncommitted line,
interest is variable based on LIBOR, the weighted average note
rate was 6.13%, 5.56% and 5.42%, respectively. 7,500,544 27,375,420 6,042,733
Repurchase agreement, financial institution, uncommitted line,
interest is variable based on the Federal funds rate, the
weighted average note rate was 7.43%, 7.63% and 7.40%,
respectively. 8,900,000 16,650,000 5,000,000
Other borrowings, interest is variable based on LIBOR, the
weighted average note rate was 5.59%, 5.18% and 5.95%,
respectively. 1,552,901 1,061,021 81,570
------------- ------------- -------------
Notes payable and repurchase agreements $ 44,879,927 $ 81,392,653 $ 50,484,303
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The warehouse facility contains various financial covenants and restrictions,
including minimum net worth, debt-to-equity ratio and a minimum servicing
portfolio.
7. NOTE PAYABLE--CLASS A MEMBER
Note payable--Class A member is an unsecured demand note with interest
predominantly at 9.5% and is subordinated to the warehouse facility. The Company
periodically borrows from the Class A member for working capital and investment
purposes. Total interest expense incurred by the Company and paid to the Class A
member was approximately $531,000 and $423,000 for the three months ended March
31, 1998 and 1997, respectively, and $2,379,000, $334,000 and $994,000,
respectively, for the years ended December 31, 1997, 1996 and 1995.
F-15
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
8. MEMBERS' CAPITAL
The Class A member has full voting rights and effective control of the Company
and has the power to direct the Company's management and policies. The Class B
members consist primarily of employees of the Company who do not have voting
rights except in certain limited instances.
9. COMMITMENTS AND CONTINGENCIES
Minimum annual operating lease payments under leases with a term in excess of
one year in effect as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998...................................... $ 334,947
1999...................................... 207,474
2000...................................... 162,180
2001...................................... 80,753
---------
$ 785,354
---------
---------
</TABLE>
Total rent expense for the three months ended March 31, 1998 and 1997 was
$75,000 and $51,000, respectively, and for the years ended December 31, 1997,
1996 and 1995 was $243,000, $224,000 and $103,000, respectively.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company enters into financial instruments with off-balance sheet risk in the
normal course of business through the origination and sale of mortgage loans and
the management of potential loss exposure caused by fluctuations of interest
rates. Financial instruments with off-balance sheet risk include commitments to
extend credit, forward commitments, firm takeouts, and put options. These
instruments involve, to varying degrees, elements of credit and interest rate
risk. Credit risk is managed by the Company by entering into agreements only
with Wall Street investment bankers having primary dealer status and with
permanent investors meeting the standards of the Company. At any time, the risk
to the Company, in the event of default by the purchaser, is the difference
between the contract price and current market prices.
At March 31, 1998, December 31, 1997 and 1996, the Company had $19.3 million,
$38.9 million and $42.9 million, respectively, in notional amounts of mandatory
forward commitments, and firm takeouts outstanding. Unrealized gains and losses
on these instruments are included in the lower of cost or market valuation of
loans held for sale.
Until a locked interest rate commitment is extended by the Company to a
borrower, there is no market risk to the Company. Total commitments outstanding
to borrowers totaled approximately $98.5 million as of March 31, 1998, $5.4
million of which had locked interest rates. As of March 31, 1998, the Company
also had outstanding a backup commitment to purchase real estate of $87.5
million and a commitment to lend up to $14.8 million to an entity owned by the
Class A member.
F-16
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
In the normal course of business, the Company is subject to various legal
proceedings and claims, the resolution of which, in management's opinion, will
not have a material adverse effect on the financial position or the results of
operations of the Company.
CONCENTRATION OF BORROWER RISK
The Company is subject to concentration risk in that, as of March 31, 1998,
December 31, 1997 and 1996, the unpaid principal balance relating to 3, 8, and
10 loans represented approximately 46.9%, 41.9%, and 63.1% of total loans held
for investment, respectively. As of March 31, 1998, December 31, 1997 and 1996
the above amounts are with two unrelated borrowers. The total number of loans
held for investment by the Company were 38, 41, and 34 as of March 31, 1998,
December 31, 1997 and 1996, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes the carrying values and the estimated fair values
of financial instruments, as of March 31, 1998, December 31, 1997 and 1996, in
accordance with the requirements of SFAS No. 107, Disclosures About Fair Value
of Financial Instruments. Fair value estimates are dependent upon subjective
assumptions and involve significant uncertainties resulting in variability in
estimates with changes in assumptions.
<TABLE>
<CAPTION>
MARCH 31, 1998 December 31, 1997 December 31, 1996
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
CARRYING ESTIMATED Carrying Estimated Carrying Estimated
VALUE FAIR VALUE value fair value value fair value
---------- ---------- ---------- ---------- ---------- ----------
Financial assets:
Cash and cash equivalents............ $2,261,337 $2,261,337 $1,903,405 $1,903,405 $ 782,252 $ 782,252
Restricted cash...................... 2,417,863 2,417,863 2,362,822 2,362,822 1,639,930 1,639,930
Loans held for sale, net............. 11,826,971 12,118,514 46,482,348 47,356,788 45,729,204 46,426,406
Loans held for investment, net....... 56,273,289 56,273,289 68,609,906 68,609,906 38,685,564 38,685,564
Other investments.................... 1,250,000 1,250,000 500,000 500,000 3,032,046 3,032,046
Capitalized mortgage servicing
rights, net........................ 5,457,721 6,176,160 5,031,854 5,769,562 2,534,529 2,971,986
Off-balance sheet instruments used
for hedging purposes............... (91,726) (74,364) -- (120,000) -- (10,163)
Financial liabilities:
Notes payable and repurchase
agreements......................... 44,879,927 44,879,927 81,392,653 81,392,653 50,484,303 50,484,303
Note payable -- Class A member....... 13,685,303 13,685,303 28,835,294 28,835,294 25,425,485 25,425,485
</TABLE>
The following methods and assumptions were used by the Company in estimating the
fair value of each class of financial instruments:
CASH AND CASH EQUIVALENTS: Fair value approximates the carrying value
reported in the balance sheets.
RESTRICTED CASH: Fair value approximates the carrying value reported in
the balance sheets.
F-17
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LOANS HELD FOR SALE, NET: Fair values of loans held for sale are based on
a pricing model using current market assumptions.
LOANS HELD FOR INVESTMENT, NET: Fair values of variable-rate loans with
no significant change in credit risk are based on carrying values. Fair
values of other loans are estimated using discounted cash flow
methodology, using discount rates, which, in the opinion of management,
best reflect current market interest rates that would be offered for
loans with similar characteristics and credit quality.
OTHER INVESTMENTS: Fair value approximates the carrying value reported in
the balance sheets.
CAPITALIZED MORTGAGE SERVICING RIGHTS, NET: Fair values of capitalized
mortgage servicing rights are estimated using a discounted future net
cash flow methodology.
OFF-BALANCE SHEET INSTRUMENTS USED FOR HEDGING PURPOSES: Fair values of
the off-balance sheet instruments (put options, and forward commitments)
are based on pricing models using current market assumptions.
NOTES PAYABLE AND REPURCHASE AGREEMENTS: Fair value of variable-rate
notes payable and repurchase agreements approximates the carrying values
reported in the balance sheets.
NOTE PAYABLE--CLASS A MEMBER: Fair value approximates the carrying value
reported in the balance sheets.
11. RELATED-PARTY TRANSACTIONS
At March 31, 1998, December 31, 1997 and 1996, the Company serviced loans owned
by the Class A member and certain family members totaling approximately $1.4
million, $1.4 million and $1.6 million, respectively.
For the three months ended March 31, 1998 and the years ended December 31, 1997,
1996 and 1995, the Company participated in several shared functions, including
office space, financial management, marketing, information systems and human
resources with other companies owned by the Class A member. The Company paid
management fees of $255,000 and $126,000 for the three months ended March 31,
1998 and 1997, respectively, and $504,000, $300,000, and $0, respectively, for
the years ended December 31, 1997, 1996 and 1995.
Anivan, Inc. ("Anivan"), which is owned by a party related to the Class A
member, identifies loan portfolios owned by third parties for possible
acquisition by the Company. Anivan pays its own expenses and assumes all risks
in connection with identification, preliminary review and the underwriting of
these loan portfolios. The gains and losses generated from the subsequent sales
of these loans and servicing income are shared with Anivan on an equal basis.
During the three months ended March 31, 1998 and 1997, the Company purchased
loan portfolios of $0 and $22,680, respectively, and for the years ended
December 31, 1997, 1996 and 1995, loan portfolios of $26 million, $10 million
and $17 million, respectively. The Company had loan portfolios outstanding from
Anivan of $383,000 and $391,000 as of March 31, 1998
F-18
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
11. RELATED-PARTY TRANSACTIONS (CONTINUED)
and December 31, 1997, respectively. The Company paid Anivan fees and
compensation of $14,000 and $17,000 for the three months ended March 31, 1998
and 1997, and $200,000, $220,000 and $240,000, respectively, for the years ended
December 31, 1997, 1996 and 1995.
12. EMPLOYEE BENEFITS
The Company maintains a 401(k) profit sharing plan (the "401(k) Plan") which was
created effective January 1, 1995 for all employees who have completed six
months of continuous service. The Company matches 25% of the first 6% of each
employee's contribution. The Company has the option to increase the employer
match based on Company operating results. The Company's 401(k) Plan expense was
approximately $9,000 and $9,000, respectively, for the three months ended March
31, 1998 and 1997, and $59,000, $45,000 and $12,000, respectively, for the years
ended December 31, 1997, 1996 and 1995.
13. NET WORTH
Due to the nature of the Company's mortgage banking activities, the Company is
subject to supervision by certain regulatory agencies. Among other things, these
agencies require the Company to meet certain minimum net worth requirements as
defined. The Company's adjusted net worth at March 31, 1998, December 31, 1997
and 1996 exceeded these requirements.
14. SUBSEQUENT EVENTS
In June 1998, the Company entered into a 50/50 joint venture with a Wall Street
investment banking firm pursuant to which each of the joint venture partners
agreed to contribute up to $25 million in equity to the joint venture. Equity
will be funded by the joint venture partners on a pro rata basis as transactions
within the joint venture close. In addition, the Wall Street firm agreed to
provide $200 million of financing to fund customized financing activities,
including $75 million for mezzanine loans to the joint venture in the form of a
repurchase agreement. The interest rate charge for the financing is LIBOR plus
2%. The repurchase agreement expires in June 2000. The Company intends to fund
its share of equity to the joint venture from working capital. The Company
believes that this joint venture will greatly enhance the Company's ability to
increase its customized financing activities in the future.
15. UNAUDITED PRO FORMA INFORMATION
INCOME TAXES
Pro forma adjustments for income taxes represent the difference between
historical income taxes and the income taxes that would have been reported had
the Company filed income tax returns as a taxable C corporation for each of the
periods presented using a pro forma income tax rate of 40%. As a result of the
Company's election to terminate its LLC and S corporation status, the Company is
required to record a
F-19
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED (UNAUDITED)
MARCH 31, 1998 AND 1997
15. UNAUDITED PRO FORMA INFORMATION (CONTINUED)
deferred tax liability for the tax effect of temporary differences between
financial reporting and tax reporting. The net deferred tax liability recorded
at March 31, 1998 was $2,207,000. The principal components of the Company's net
deferred tax liability consists of capitalized mortgage servicing rights,
deferred gain on sale of an investment and the allowance for loan losses.
PRO FORMA COMBINED BALANCE SHEET
The accompanying unaudited pro forma combined balance sheet at March 31, 1998
gives effect to (i) the distribution of $1,462,000 of ASF assets to Ivan
Kaufman, the sole stockholder on April 1, 1998, (ii) the net contribution of
$717,062 in capital by members on April 1, 1998, which includes a distribution
of capital to a former employee of $152,938, and (iii) the establishment of a
$6,800,000 distribution payable for previously undistributed earnings which is
intended to be distributed. The pro forma balance sheet at March 31, 1998 does
not reflect the sale of shares in the initial public offering.
PRO FORMA EARNINGS PER SHARE
Pro forma net income per share has been computed by dividing pro forma net
income by the 7,500,000 shares of common stock of ANHI to be received in
exchange for the Company's ownership interest.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITY TO ANY PERSON IN ANY JURISDICTION WHERE AN OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 14
Use of Proceeds........................................................... 20
Capitalization............................................................ 21
Dividend Policy........................................................... 22
Dilution.................................................................. 22
Selected Financial Data................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 25
Business.................................................................. 34
Management................................................................ 47
Security Ownership of Certain Beneficial/ Owners and Management........... 52
Description of Securities................................................. 53
Certain Relationships and Related Transactions............................ 54
Shares Eligible for Future Sale........................................... 55
Underwriting.............................................................. 56
Legal Matters............................................................. 57
Experts................................................................... 58
Index to Financial Statements............................................. F-1
</TABLE>
3,300,000 SHARES
[LOGO]
NATIONAL HOLDINGS, INC.
COMMON STOCK
----------------------
PROSPECTUS
JULY , 1998
----------------------
LEHMAN BROTHERS
FRIEDMAN, BILLINGS,
RAMSEY & CO., INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated amount of various expenses in
connection with the issuance and distribution of the securities being
registered, other than underwriting commissions and discounts:
<TABLE>
<S> <C>
SEC registration fee.............................................................. $ 16,927
NASD filing fee................................................................... 5,750
Nasdaq Listing Application Fee.................................................... 52,500
Transfer agent's fee and expenses *............................................... 15,000
Accounting/Tax fees and expenses *................................................ 175,000
Legal/Consulting fees and expenses *.............................................. 375,000
"Blue Sky" fees and expenses (including legal fees) *............................. 75,000
Costs of printing and engraving *................................................. 75,000
Miscellaneous *................................................................... 109,823
---------
Total *....................................................................... $ 900,000
---------
---------
</TABLE>
- ------------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under provisions of the Certificate of Incorporation and the By-Laws of the
Company, each person who is or was a director or officer of the Company may be
indemnified by the Company to the full extent permitted or authorized by the
Business Corporation Law of New York.
Under such law, to the extent that such person is successful on the merits
of defense of a suit or proceeding brought against him by reason of the fact
that he is a director or officer of the Company, he shall be indemnified against
expenses (including attorneys' fees) reasonably incurred in connection with such
action.
If unsuccessful in defense of a third-party civil suit or if a criminal suit
is settled, such a person may be indemnified under such law against both (1)
expenses (including attorneys' fees) and (2) judgments, fines and amounts paid
in settlement if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the Company, and with respect
to any criminal action, had no reasonable cause to believe his conduct was
unlawful.
If unsuccessful in defense of a suit brought by or in the right of the
Company, or if such suit is settled, such a person may be indemnified under such
law against costs of settlement and expenses (including attorneys' fees)
incurred in the defense or settlement of such suit if he acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Company except that if such a person is adjudged to be liable
in such suit for negligence or misconduct in the performance of his duty to the
Company, he cannot be made whole even for expenses unless the court determines
that he is fairly and reasonably entitled to indemnity for such costs of
settlement and expenses.
It is the Company's intention to acquire directors' and officers' liability
insurance.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
ANCM issued membership interests on three occasions--January 1996, April
1997 and April 1998. On those dates, respectively, Ivan Kaufman and related
entities purchased Class A Membership Interests for $7,415,258, $2,000,000 and
$3,680,805. In January 1996, Class B Membership Interests were sold to one
accredited investor (Camila Bellick, the spouse of Richard A. Lippe) and 11
non-accredited investors (executives and employees of ANCM) for an aggregate
purchase price of $1,477,000. In April 1997, Class B Membership Interests were
sold to 9 non-accredited investors (executives and employees of ANCM) for an
aggregate purchase price of $636,000. In April 1998, Class B Membership
Interests were sold to two accredited investors (Camila Bellick, the spouse of
Richard A. Lippe and Mona Swedroe, the spouse of Larry Swedroe) and 11
non-accredited investors (executives and employees of ANCM) for an aggregate
purchase price of $870,000. Certain amounts paid by the investors were financed
by ASF. See "Security Ownership of Certain Beneficial Owners and
Management--Footnote 12." These securities were issued in reliance on Section
4(2) of the Securities Act.
All of the members of ANCM have entered into the Exchange Agreement dated
June 4, 1998, pursuant to which, effective on the closing of the Offering, all
outstanding membership interests in ANCM will be exchanged for 7,500,000 shares
of Common Stock. The Common Stock will be issued in reliance upon the exemption
from the registration requirements of the Securities Act provided by Section
4(2).
ANCM may have failed to comply with certain requirements of Section 4(2) of
the Securities Act in connection with its sales of membership interests. In
connection with the execution of the Exchange Agreement, each member of ANCM was
given the opportunity to rescind the purchase of such member's membership
interest and have such member's capital contribution returned.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company.**
3.2 By-laws of the Company.**
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Pryor Cashman Sherman & Flynn LLP.
10.1 Form of 1998 Stock Incentive Plan.**
10.2 Form of 1998 Stock Incentive Plan for Non-Employee Directors.**
10.3 Exchange Agreement.**
10.4 Amendment No. 1 to Exchange Agreement dated as of July 15, 1998.
10.5 Employment Agreement between the Company and Ivan Kaufman, dated as of June 30, 1998.**
10.6 Employment Agreement between the Company and Joseph Martello, dated as of June 30, 1998.**
10.7 Employment Agreement between the Company and Walter K. Horn, dated as of June 30, 1998.**
10.8 Employment Agreement between the Company and Elliot Silverman, dated as of June 30, 1998.**
10.9 Office Lease Agreement dated August 31, 1993 between Arbor National Mortgage, Inc. and HMCC Associates.
10.10 Sublease Agreement dated August 1, 1995 between Bank of America Mortgage and ANCM as amended by the
First Sublease Amendment dated as of July 15, 1996.
10.11 Lease dated June 30, 1998 by and between Wellsford/Whitehall Properties, L.L.C. and ANCM.
10.12 Ivan Kaufman Indemnification.**
21 Subsidiaries of the Company.**
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Pryor Cashman Sherman & Flynn LLP (included in Exhibit 5.1).
23.4 Consents of Director Nominees.
27.1 Financial Data Schedule.**
</TABLE>
- ------------------------
** Previously filed.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of
Uniondale, state of New York on July 23, 1998.
<TABLE>
<S> <C> <C>
ARBOR NATIONAL HOLDINGS, INC.
By: /s/ IVAN KAUFMAN
-----------------------------------------
Ivan Kaufman
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-1 to be signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman, President, Chief
/s/ IVAN KAUFMAN Executive Officer and
- ------------------------------ Director (Principal July 23, 1998
Ivan Kaufman Executive Officer)
Senior Vice President and
Chief Financial Officer
/s/ JOSEPH MARTELLO and Director Nominee
- ------------------------------ (Principal Financial and July 23, 1998
Joseph Martello Principal Accounting
Officer)
II-4
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Members of
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC AND SUBSIDIARIES AND AFFILIATE
In connection with our audit of the combined financial statements of Arbor
National Commercial Mortgage, LLC and Subsidiaries and Affiliate referred to in
our report dated May 28, 1998, which is included in the Prospectus constituting
Part I of this Registration Statement, we have also audited Schedule II for each
of the three years in the period ended December 31, 1997. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
/s/ Grant Thornton LLP
Grant Thornton LLP
New York, New York
May 28, 1998
S-1
<PAGE>
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
AND SUBSIDIARIES AND AFFILIATE
SCHEDULE II--VALUATION ALLOWANCE ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN E
------------ ----------- COLUMN D ------------
COLUMN A BALANCE AT CHARGED TO ------------ BALANCE AT
- ----------------------------------------------------------- BEGINNING COSTS AND DEDUCTIONS-- END OF
DESCRIPTION OF YEAR EXPENSES WRITE-OFFS YEAR
- ----------------------------------------------------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
1997
Loans held for investment................................ $ 468,551 $ 209,482 $ -- $ 678,033
Allowance for possible losses under the DUS product
line................................................... 686,500 788,135 -- 1,474,635
------------ ----------- ------------ ------------
$ 1,155,051 $ 997,617 $ -- $ 2,152,668
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
1996
Loans held for investment................................ $ 240,000 $ 228,551 $ -- $ 468,551
Allowance for possible losses under the DUS product
line................................................... -- 686,500 -- 686,500
------------ ----------- ------------ ------------
$ 240,000 $ 915,051 $ -- $ 1,155,051
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
1995
Loans held for investment................................ $ 50,000 $ 406,856 $ (216,856) $ 240,000
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
S-2
<PAGE>
Exhibit 1.1
FORM OF UNDERWRITING AGREEMENT
------------------------------
[Shares]
Arbor National Holdings, Inc.
[ ] Shares of Common Stock
July __, 1998
LEHMAN BROTHERS INC.,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
As Representative of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Arbor National Holdings, Inc., a New York corporation (the "Company"),
proposes to sell _________ shares (the "Firm Stock") of the Company's Common
Stock, par value $0.01 per share (the "Common Stock"). In addition, the Company
proposes to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional [ ] shares of
the Common Stock on the terms and for the purposes set forth in Section 2 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the agreement
concerning the purchase of the Stock from the Company by the Underwriters named
in Schedule 1 hereto.
At or prior to the First Delivery Date (as hereinafter defined), the
Company will complete certain transactions, described in the Prospectus (as
hereinafter defined) under the heading "Reorganization Transactions"
(collectively, the "Reorganization"). As part of the Reorganization, all of the
members of Arbor National Commercial Mortgage, L.L.C. ("ANCM") will (i) enter
into an agreement (the "Exchange Agreement") pursuant to which they will
exchange their membership interests in ANCM for an aggregate of 7,500,000 shares
of Common Stock, and (ii) enter into lock-up agreements (the "ANCM Lock-Up
Agreements") pursuant to which each member of ANCM will agree not to sell or
otherwise dispose of the Common Stock they receive through the Exchange
Agreement for a period of 180 days from the date of the Prospectus without the
prior written consent of Lehman Brothers Inc., on behalf of the Representatives.
<PAGE>
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND
ANCM. The Company and ANCM represent, warrant and agree that:
(a) A registration statement on Form S-1, and amendments thereto,
with respect to the Stock has (i) been prepared by the Company in
conformity with the requirements of the United States Securities Act of
1933 (the "Securities Act") and the rules and regulations (the "Rules and
Regulations") of the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities Act. Copies
of such registration statement and the amendments thereto have been
delivered by the Company to you as the representatives (the
"Representatives") of the Underwriters. As used in this Agreement,
"Effective Time" means (i) with respect to the first such registration
statement, the date and the time as of which such registration statement,
or the most recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the
Effective Time; "Preliminary Prospectus" means each prospectus included in
such registration statement, or amendments thereof, before it became
effective under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the Representatives pursuant
to Rule 424(a) of the Rules and Regulations; "Registration Statement" means
such registration statement referred to in this Section 1(a), as amended,
at the Effective Time including all information contained in the final
prospectus filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations in accordance with Section 5(a) hereof and deemed to be a
part of the registration statement as of the Effective Time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations; and "Prospectus"
means such final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations. The
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to the
requirements of the Securities Act and the Rules and Regulations and do not
and will not, as of the applicable Effective Date (as to the Registration
Statement and any amendment thereto) and as of the applicable filing date
(as to the Prospectus and any amendment or supplement thereto) contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading; PROVIDED that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
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(c) The Company and ANCM and its Significant Subsidiaries (as
defined below) have each been duly formed and are validly existing and in
good standing under the laws of their respective jurisdictions of
organization, duly qualified to do business and in good standing as a
foreign corporation or a foreign limited liability company, as the case may
be, in each jurisdiction in which their respective ownership or lease of
property or the conduct of their respective businesses requires such
qualification and have all power and authority necessary to own or hold
their respective properties and to conduct the businesses in which they are
engaged; the Company has no subsidiaries and none of the subsidiaries of
ANCM (other than Arbor Secured Funding, Inc. and [ ], (together, the
"Significant Subsidiaries")) is a "significant subsidiary", as such term is
defined in Rule 405 of the Rules and Regulations.
(d) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus; and all of the membership interests or issued shares of
capital stock, as the case may be, of ANCM and its Significant Subsidiaries
have been duly and validly authorized and issued and are fully paid and
non-assessable and, except for directors' qualifying shares and except as
set forth in the Registration Statement and the Prospectus, are owned
directly or indirectly by ANCM, free and clear of all liens, encumbrances,
equities or claims.
(e) The shares of the Stock have been duly and validly authorized
and, when issued and delivered against payment therefor as provided herein
will be duly and validly issued, fully paid and non-assessable; and the
Stock will conform to the description thereof contained in the Prospectus.
(f) (i) This Agreement has been duly authorized, executed and
delivered by the Company and ANCM, and assuming due authorization,
execution and delivery by the Representatives, is a valid and binding
agreement of each of the Company and ANCM, enforceable against such parties
in accordance with its terms, (ii) the Exchange Agreement has been duly
authorized, executed and delivered by the Company, ANCM and the members of
ANCM, and is a valid and binding agreement of the Company, ANCM and the
members of ANCM, enforceable against such parties in accordance with its
terms and (iii) the ANCM Lock-Up Agreements have all been duly authorized,
executed and delivered by each of the members of ANCM, and each ANCM
Lock-Up Agreement is a valid and binding agreement of the respective member
of ANCM, enforceable against such party in accordance with its terms.
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(g) The execution, delivery and performance of this Agreement by the
Company and ANCM and the consummation of the transactions contemplated
hereby and by the Reorganization, including without limitation, the
execution, delivery and performance of the Exchange Agreement and the ANCM
Lock-Up Agreements, will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or ANCM or its Significant
Subsidiaries is a party or by which the Company or ANCM or its Significant
Subsidiaries is bound or to which any of the properties or assets of the
Company or ANCM or its Significant Subsidiaries is subject, nor will such
actions result in any violation of the provisions of the charter or by-laws
(or other organizational document) of the Company or ANCM or its
Significant Subsidiaries or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or ANCM or its Significant Subsidiaries or any of their properties
or assets; and except for (i) the registration of the Common Stock under
the Securities Act, (ii) such consents, approvals, authorizations,
registrations or qualifications as may be required under the United States
Securities Exchange Act of 1934 ("Exchange Act") and applicable state
securities laws in connection with the purchase and distribution of the
Common Stock by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and performance of
this Agreement by the Company and ANCM, and the consummation of the
transactions contemplated hereby and by the Reorganization.
(h) There are no contracts, agreements or understandings between the
Company or ANCM and any person granting such person the right, other than
rights which have been waived or satisfied, to require the Company to file
a registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act.
(i) Except as described in the Prospectus, the Company has not sold
or issued any shares of Common Stock during the six-month period preceding
the date of the Prospectus, including any sales pursuant to Rule 144A or
Regulations D or S under the Securities Act other than shares issued
pursuant to director or employee benefit plans, qualified stock options
plans or other employee compensation plans or pursuant to outstanding
options, rights or warrants.
(j) The Company and ANCM and its Significant Subsidiaries have not
sustained, since the date of the latest audited financial statements
included in the
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Prospectus, any material loss or interference with their business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus;
and, since such date, there has not been any change in the capital stock or
membership interests, as the case may be, or long-term debt of the Company
or ANCM, or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, equity interests or results of operations
of the Company or ANCM, otherwise than as set forth or contemplated in the
Registration Statement.
(k) The financial statements and pro forma financial information
(including all necessary pro forma adjustments, related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at the
dates and for the periods indicated, and have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved, and all adjustments necessary for a fair
presentation of results for such periods have been made. The pro forma
financial statements and other pro forma financial information filed as
part of the Registration Statement or included in the Prospectus have been
prepared (i) based on assumptions that are reasonable and adjustments that
are appropriate to give effect to the transactions or circumstances
referred to therein and (ii) in accordance with the applicable requirements
of Rules 11-01 and 11-02 of the Regulation S-X under the Securities Act.
(l) Grant Thornton, LLP, who have certified certain financial
statements of the Company and ANCM, whose reports appear in the Prospectus
and who have delivered the initial letter referred to in Section 9(f)
hereof, are independent public accountants as required by the Securities
Act and the Rules and Regulations; and Ernst & Young, LLP, whose report
appears in the Prospectus and who have delivered the initial letter
referred to in Section 9(g) hereof, were independent accountants as
required by the Securities Act and Rules and regulations during the periods
covered by the financial statements on which they reported contained in the
Prospectus.
(m) The Company and ANCM and its Significant Subsidiaries carry, or
are covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value of
their respective properties and as is customary for companies engaged in
similar businesses in similar industries.
(n) The Company and ANCM and its Significant Subsidiaries own or
possess adequate rights to use all material patents, patent applications,
trademarks,
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service marks, trade names, trademark registrations, service mark
registration, copyrights and licenses necessary for the conduct of their
respective businesses and have no reason to believe that the conduct of
their respective businesses will conflict with, and have not received any
notice of any claim of conflict with, any such rights of others.
(o) The Company and ANCM and its Significant Subsidiaries have good
and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each case free
and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company or ANCM or its
Significant Subsidiaries; and all real property and buildings held under
lease by the Company or ANCM or its Significant Subsidiaries are held by
them under valid, subsisting and enforceable leases, with such exceptions
as are not material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company or ANCM or its
Significant Subsidiaries.
(p) There are no legal or governmental proceedings pending to which
the Company or ANCM or its Significant Subsidiaries is a party or of which
any property or assets of the Company or ANCM or its Significant
Subsidiaries is the subject which, if determined adversely to the Company
or ANCM or its Significant Subsidiaries, are reasonably likely to have a
material adverse effect on the consolidated financial position, equity
interests, results of operations, business or prospects of the Company and
ANCM and its Significant Subsidiaries; and to the best of the Company's
knowledge and ANCM's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or by others.
(q) There are no contracts or other documents which are required to
be described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(r) No relationship, direct or indirect, exists between or among the
Company or ANCM on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company or ANCM on the other hand, which is
required to be described in the Prospectus which is not so described.
(s) The Company and ANCM have filed all federal, state and local
income and franchise tax returns required to be filed through the date
hereof and has paid all taxes due thereon, and no tax deficiency has been
determined adversely to the Company or ANCM or its Significant Subsidiaries
which has had, nor does the
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<PAGE>
Company or ANCM or its Significant Subsidiaries have any knowledge of any
tax deficiency which, if determined adversely to such parties, might have a
material adverse effect on the consolidated financial position,
stockholders' equity interests, results of operations, business or
prospects of the Company or ANCM or its Significant Subsidiaries as the
case may be.
(t) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Registration Statement, the Company and ANCM have not (i) issued or granted
any securities, (ii) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred in
the ordinary course of business, (iii) entered into any transaction not in
the ordinary course of business or (iv) declared or paid any dividend on
its capital stock.
(u) The Company and ANCM (i) make and keep accurate books and records
and (ii) maintain internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of their financial statements and to maintain
accountability for their assets, (C) access to their assets is permitted
only in accordance with management's authorization and (D) the reported
accountability for their assets is compared with existing assets at
reasonable intervals.
(v) The Company and ANCM and its Significant Subsidiaries are not
(i) in violation of their charter (or other organizational document) or
by-laws, (ii) in default in any material respect, and no event has occurred
which, with notice or lapse of time or both, would constitute such a
default, in the due performance or observance of any term, covenant or
condition contained in any material indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which they are a party
or by which they are bound or to which any of their properties or assets
are subject (iii) in violation in any material respect of any federal or
state law or regulation relating to their lending or other mortgage
financing activities (including, without limitation, rules and regulations
of the Federal National Mortgage Association ("FNMA"), the Government
National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage
Association ("FHLMC") or the Federal Housing Administration ("FHA")), or
(iv) in violation in any material respect of any other statute, law,
ordinance, governmental rule, regulation or court decree to which they or
their property or assets may be subject or has failed to obtain any
material license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of their property or to
the conduct of their business.
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(w) None of the Company or ANCM or its Significant Subsidiaries is
an "investment company" within the meaning of such term under the
Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
(x) No labor disturbance by the employees of the Company or ANCM
exists or, to the knowledge of the Company or ANCM, is imminent which might
be expected to have a material adverse effect on the consolidated financial
position, stockholders' equity, results of operations, business or
prospects of the Company or ANCM or its Significant Subsidiaries.
(y) The Company and ANCM are in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company or ANCM would have any liability; the Company
and ANCM have not incurred and do not expect to incur liability under (i)
Title IV of ERISA with respect to termination of, or withdrawal from, any
"pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of
1986, as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company or
ANCM would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would
cause the loss of such qualification.
(z) Neither the Company nor ANCM, nor any director, officer, agent,
employee or other person associated with or acting on behalf of the Company
or ANCM, has used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977; or
made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
(aa) [There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or ANCM or
its Significant Subsidiaries (or, to the knowledge of such parties, any of
their predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company or ANCM or its Significant
Subsidiaries in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would require
remedial action under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any
8
<PAGE>
violation or remedial action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all such
violations and remedial actions, a material adverse effect on the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and ANCM and its Significant Subsidiaries; there
has been no material spill, discharge, leak, emission, injection, escape,
dumping or release of any kind onto such property or into the environment
surrounding such property of any toxic wastes, medical wastes, solid
wastes, hazardous wastes or hazardous substances due to or caused by the
Company or ANCM or its Significant Subsidiaries or with respect to which
the Company or ANCM or its Significant Subsidiaries have knowledge, except
for any such spill, discharge, leak, emission, injection, escape, dumping
or release which would not have or would not be reasonably likely to have,
singularly or in the aggregate with all such spills, discharges, leaks,
emissions, injections, escapes, dumpings and releases, a material adverse
effect on the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; and the terms "hazardous wastes", "toxic wastes", "hazardous
substances" and "medical wastes" shall have the meanings specified in any
applicable local, state, federal and foreign laws or regulations with
respect to environmental protection.]
2. PURCHASE OF THE STOCK BY THE UNDERWRITERS. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell [ ] shares of the
Firm Stock to the several Underwriters and each of the Underwriters, severally
and not jointly, agrees to purchase the number of shares of the Firm Stock set
opposite that Underwriter's name in Schedule 1 hereto. The respective purchase
obligations of the Underwriters with respect to the Firm Stock shall be rounded
among the Underwriters to avoid fractional shares, as the Representatives may
determine.
In addition, the Company grants to the Underwriters an option to purchase
up to [ ] shares of Option Stock. Such option is granted solely for the
purpose of covering over-allotments in the sale of Firm Stock and is exercisable
as provided in Section 4 hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Stock shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase Option Stock other than in 100 share amounts.
The price of both the Firm Stock and any Option Stock shall be $[ ] per share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on any Delivery Date (as hereinafter defined), as the case may be,
except upon payment for all the Stock to be purchased on such Delivery Date as
provided herein.
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3. OFFERING OF STOCK BY THE UNDERWRITERS. Upon authorization by the
Representatives of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set forth
in the Prospectus.
4. DELIVERY OF AND PAYMENT FOR THE STOCK. Delivery of and payment for
the Firm Stock shall be made at the office of Skadden, Arps, Slate Meagher &
Flom LLP at 10:00 A.M., New York City time, on the third (fourth, if pricing
occurs after 4:30 p.m. New York City time) full business day following the date
of this Agreement or at such other date or place as shall be determined by
agreement between the Representatives and the Company. This date and time are
sometimes referred to as the "First Delivery Date." On the First Delivery Date,
the Company shall deliver or cause to be delivered certificates representing the
Firm Stock to the Representatives for the account of each Underwriter against
payment to or upon the order of the Company of the purchase price by wire
transfer. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Firm Stock shall be registered
in such names and in such denominations as the Representatives shall request in
writing not less than two full business days prior to the First Delivery Date.
For the purpose of expediting the checking and packaging of the certificates for
the Firm Stock, the Company shall make the certificates representing the Firm
Stock available for inspection by the Representatives in New York, New York, not
later than 2:00 P.M., New York City time, on the business day prior to the First
Delivery Date.
The option granted in Section 2 will expire 30 days after the date of this
Agreement and may be exercised in whole or in part from time to time by written
notice being given to the Company by the Representatives. Such notice shall set
forth the aggregate number of shares of Option Stock as to which the option is
being exercised, the names in which the shares of Option Stock are to be
registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Representatives, when the
shares of Option Stock are to be delivered; PROVIDED, HOWEVER, that this date
and time shall not be earlier than the First Delivery Date nor earlier than the
second business day after the date on which the option shall have been exercised
nor later than the fifth business day after the date on which the option shall
have been exercised. The date and time the shares of Option Stock are delivered
are sometimes referred to as the "Second Delivery Date", and the First Delivery
Date and the Second Delivery Date are sometimes each referred to as a "Delivery
Date".
Delivery of and payment for the Option Stock shall be made at the place
specified in the first sentence of the first paragraph of this Section 4 (or at
such other place as shall be determined by agreement between the Representatives
and the Company) at 10:00 A.M., New York City time, on the Second Delivery Date.
On the Second Delivery Date, the Company shall deliver or cause to be delivered
the certificates representing the Option Stock to the Representatives for the
account of each Underwriter against payment to or upon the order of the Company
of the purchase price by wire transfer in immediately available funds. Time
shall be of the essence, and delivery at the time and place specified pursuant
to this Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Option Stock shall be registered in such names
and
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in such denominations as the Representatives shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Company shall make the certificates
representing the Option Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than 10:00 A.M., New York City time on the day
following the execution and delivery of this Agreement or, if applicable,
such earlier time as may be required by Rule 430A(a)(3) under the
Securities Act; to make no further amendment or any supplement to the
Registration Statement or to the Prospectus except as permitted herein; to
advise the Representatives, promptly after it receives notice thereof, of
the time when any amendment to either Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to provide the Representatives with copies
thereof; to advise the Representatives, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Stock for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel
for the Underwriters a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed with
the Commission, including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits
other than this Agreement and the computation of per share earnings), (ii)
each Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus, and (iii) any document incorporated by reference in the
Prospectus (including exhibits thereto); and, if the delivery of a
prospectus is required at any time after the Effective Time in connection
with the offering or sale of the Stock or any other securities relating
thereto and if at
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such time any event shall have occurred as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary to amend or supplement the Prospectus in
order to comply with the Securities Act, to notify the Representatives and,
upon their request, to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or omission or
effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Representatives,
be required by the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish a copy
thereof to the Representatives and counsel for the Underwriters and obtain
the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's security holders and to deliver to the
Representatives an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Securities
Act and the Rules and Regulations (including, at the option of the Company,
Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange or automated quotation system upon which the Common
Stock may be listed pursuant to requirements of or agreements with such
exchange system, and copies of all reports filed by the Company with or to
the Commission pursuant to the Exchange Act or any rule or regulation of
the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such
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jurisdictions for as long as may be necessary to complete the distribution
of the Stock; and
(i) For a period of 180 days from the date of the Prospectus, not to,
directly or indirectly, (i) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition or purchase by any
person at any time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock (other than
the Common Stock issued pursuant to director or employee benefit plans,
qualified stock option plans or other employee compensation plans existing
on the date hereof or pursuant to currently outstanding options, warrants
or rights), or sell or grant options, rights or warrants with respect to
any shares of Common Stock (other than the grant of options pursuant to
option plans existing on the date hereof), or (ii) enter into any swap or
other derivatives transaction that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership of such shares of
Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or other securities, in
cash or otherwise, in each case without the prior written consent of Lehman
Brothers Inc; and to cause each officer and director of the Company to
furnish to the Representatives, prior to the First Delivery Date, a letter
or letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree not to,
directly or indirectly, (i) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or securities convertible
into or exchangeable for Common Stock, or (ii) enter into any swap or other
derivatives transaction that transfers to another, in whole or in part, any
of the economic benefits or risks of ownership of such shares of Common
Stock, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock or other securities, in cash
or otherwise, in each case for a period of 180 days from the date of the
Prospectus, without the prior written consent of Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the quotation of the
Stock on the Nasdaq National Market System, and to use its best efforts to
seek approval of that application, subject only to official notice of
issuance, prior to the First Delivery Date;
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the Underwriters and receive and consider its
comments thereon, and to deliver promptly to the Representatives a signed
copy of each report on Form SR filed by it with the Commission;
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(l) To apply the net proceeds from the sale of the Stock being sold
by the Company as set forth in the Prospectus; and
(m) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
6. EXPENSES. The Company and ANCM agree to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) the costs of producing and distributing
this Agreement and any other related documents in connection with the offering,
purchase, sale and delivery of the stock; (e) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of sale of the Stock; (f) any applicable listing or other
fees; (g) the fees and expenses of qualifying the Stock under the securities
laws of the several jurisdictions as provided in Section 5(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters); and (h) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement; PROVIDED that, except as provided in this Section 6 and in Section
11, the Underwriters shall pay their own costs and expenses, including the costs
and expenses of their counsel, any transfer taxes on the Stock which they may
sell and the expenses of advertising any offering of the Stock made by the
Underwriters.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations
of the Underwriters hereunder are subject to the accuracy, when made and on each
Delivery Date, of the representations and warranties of the Company and ANCM
contained herein, to the performance by the Company and ANCM of their
obligations hereunder, and to each of the following additional terms and
conditions:
(a) The Prospectus shall have been timely filed with the Commission
in accordance with Section 5(a); no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or threatened
by the Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus or
otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company
on or prior to such Delivery Date that either of the Registration Statement
or the Prospectus or any amendment or supplement thereto contains any
untrue statement
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of a fact which, in the opinion of Skadden, Arps, Slate, Meagher & Flom,
LLP counsel for the Underwriters, is material or omits to state any fact
which, in the opinion of such counsel, is material and is required to be
stated therein or is necessary to make the statements therein not
misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Stock, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall
be reasonably satisfactory in all material respects to counsel for the
Underwriters, and the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters.
(d) Pryor, Cashman, Sherman & Flynn, LLP shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed
to the Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that:
(i) The Company and ANCM and its Significant Subsidiaries
have each been duly organized and are validly existing and in good
standing under the laws of their respective jurisdictions of
organization, duly qualified to do business and in good standing as a
foreign corporation or a foreign limited liability company, as the
case may be, in each jurisdiction in which their respective ownership
or lease of property or the conduct of their respective businesses
requires such qualification and have all power and authority necessary
to own or hold their respective properties and conduct the businesses
in which they are engaged;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the shares of Stock being delivered on such
Delivery Date) have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; and all of the membership interests or
issued shares of capital stock, as the case may be, of ANCM and its
Significant Subsidiaries have been duly and validly authorized and
issued and are fully paid, non-assessable and (except for directors'
qualifying shares) are owned directly or indirectly by ANCM, free and
clear of all liens, encumbrances, equities or claims;
(iii) There are no preemptive or other rights to subscribe for
or to purchase, nor any restriction upon the voting or transfer of,
any shares of the Stock pursuant to the Company's charter, articles of
incorporation or by-laws or any agreement or other instrument known to
such counsel;
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(iv) The Company and ANCM and its Significant Subsidiaries
have good and marketable title in fee simple to all real property
owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as
do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company or ANCM or its Significant Subsidiaries, as
the case may be; and all real property and buildings held under lease
by the Company or ANCM or its Significant Subsidiaries, are held by
them under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company
or ANCM or its Significant Subsidiaries, as the case may be;
(v) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or ANCM or its Significant
Subsidiaries is a party, or of which any property or assets of the
Company or ANCM or its Significant Subsidiaries is the subject, which,
if determined adversely to the Company or ANCM or its Significant
Subsidiaries might have a material adverse effect on the consolidated
financial position, equity interests, results of operations, business
or prospects of the Company or ANCM or its Significant Subsidiaries;
and, to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others;
(vi) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such opinion,
the Prospectus was filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and Regulations specified in
such opinion on the date specified therein and no stop order
suspending the effectiveness of the Registration Statement has been
issued and, to the knowledge of such counsel, no proceeding for that
purpose is pending or threatened by the Commission;
(vii) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company prior to
such Delivery Date (other than the financial statements including the
notes thereto and other financial and statistical data contained
therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the requirements of the
Securities Act and the Rules and Regulations;
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(viii) The statements contained in the Prospectus under the
captions "Risk Factors", "Business" and [ ], insofar as they
describe federal statutes, rules and regulations, constitute a fair
summary thereof;
(ix) To the best of such counsel's knowledge, there are no
contracts or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which have not been
described or filed as exhibits to the Registration Statement or
incorporated therein by reference as permitted by the Rules and
Regulations;
(x) (1) This Agreement has been duly authorized, executed and
delivered by the Company and ANCM, and assuming due authorization,
execution and delivery by the Representatives, is a valid and binding
agreement of each of the Company and ANCM, enforceable against such
parties in accordance with its terms; (2) the Exchange Agreement has
been duly authorized, executed and delivered by the Company, ANCM and
the members of ANCM, and is a valid and binding agreement of the
Company, ANCM and the members of ANCM, enforceable against such
parties in accordance with its terms; and (3) the ANCM Lock-Up
Agreements have all been duly authorized, executed and delivered by
each of the members of ANCM, and each ANCM Lock-Up Agreement is a
valid and binding agreement of the respective member of ANCM,
enforceable against such party in accordance with its terms;
(xi) The execution, delivery and performance of this Agreement
by the Company and ANCM and the consummation of the transactions
contemplated hereby and by the Reorganization, including without
limitation, the execution, delivery and performance of the Exchange
Agreement and the ANCM Lock-Up Agreements, will not conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company
or ANCM or its Significant Subsidiaries is a party or by which the
Company or ANCM or its Significant Subsidiaries is bound or to which
any of the properties or assets of the Company or ANCM or its
Significant Subsidiaries is subject, nor will such actions result in
any violation of the provisions of the charter or by-laws (or other
organizational document) of the Company or ANCM or its Significant
Subsidiaries or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Company or ANCM or its Significant Subsidiaries or any of their
properties or assets; and except for (i) the registration of the
Common Stock under the Securities Act, (ii) such consents, approvals,
authorizations, registrations or qualifications as
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may be required under the Exchange Act and applicable state
securities laws in connection with the purchase and distribution of
the Common Stock by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution,
delivery and performance of this Agreement, by the Company and the
consummation of the transactions contemplated hereby and by the
Reorganization; and
(xxi) To the best of such counsel's knowledge, there are no
contracts, agreements or understandings between the Company or ANCM
and any person granting such person the right (other than rights which
have been waived or satisfied) to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Securities Act.
In rendering such opinion, such counsel may (i) state that its opinion
is limited to matters governed by the Federal laws of the United States of
America and the laws of the State of New York and (ii) in giving the
opinion referred to in Section 7(d)(iv), state that no examination of
record titles for the purpose of such opinion has been made, and that it is
relying upon a general review of the titles of the Company and ANCM and its
Significant Subsidiaries, upon opinions of local counsel and abstracts,
reports and policies of title companies rendered or issued at or subsequent
to the time of acquisition of such property by the Company and ANCM and its
Significant Subsidiaries, upon opinions of counsel to the lessors of such
property and, in respect of matters of fact, upon certificates of officers
of the Company and ANCM and its Significant Subsidiaries, PROVIDED that
such counsel shall state that he believes that both he and the Underwriters
are justified in relying upon such opinions, abstracts, reports, policies
and certificates.
Such counsel shall also have furnished to the Representatives a
written statement, addressed to the Underwriters and dated such Delivery
Date, in form and substance satisfactory to the Representatives, to the
effect that (x) such counsel has, in its capacity as special counsel to the
Company in connection with the preparation of the Registration Statement,
participated in conferences with officers and other representatives of the
Company and ANCM and its Significant Subsidiaries, representatives of the
independent accountants and representatives of the Representatives at which
the contents of the Registration Statement and Prospectus have been
discussed, and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead it to believe that the Registration
Statement, as of the Effective Date, contained any untrue statement of any
material fact or omitted
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<PAGE>
to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or that the Prospectus
contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The foregoing opinion and statement may be qualified
by a statement to the effect that such counsel does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except for the
statements made in the Prospectus under the captions "Description of
Capital Stock" and [ ], insofar as such statements relate to the
Stock and concern legal matters.
(e) The Representatives shall have received from Skadden, Arps,
Slate, Meagher & Flom, LLP, counsel for the Underwriters, such opinion or
opinions, dated such Delivery Date, with respect to the issuance and sale
of the Stock, the Registration Statement, the Prospectus and other related
matters as the Representatives may reasonably require, and the Company and
ANCM and its Subsidiaries shall have furnished to such counsel such
documents as they reasonably request for the purpose of enabling them to
pass upon such matters.
(f) At the time of execution of this Agreement, the Representatives
shall have received from Grant Thornton, LLP a letter (an "initial
letter"), in form and substance satisfactory to the Representatives,
addressed to the Underwriters and dated the date hereof (i) confirming that
they are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of Regulation
S-X of the Commission, (ii) stating, as of the date hereof (or, with
respect to matters involving changes or developments since the respective
dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date hereof),
the conclusions and findings of such firm with respect to the financial
information and other matters ordinarily covered by accountants' "comfort
letters" to underwriters in connection with registered public offerings.
(g) At the time of execution of this Agreement, the Representatives
shall have received from Ernst & Young LLP an initial letter, in form and
substance satisfactory to the Representatives, addressed to the
Underwriters and dated the date hereof (i) confirming that they are
independent public accountants within the meaning of the Securities Act and
are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the
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financial information and other matters ordinarily covered by accountants'
"comfort letters" to underwriters in connection with registered public
offerings.
(h) With respect to the initial letters of Grant Thornton, LLP and
Ernst & Young LLP referred to in subsections (f) and (g) above and
delivered to the Representatives concurrently with the execution of this
Agreement, the Company shall have furnished to the Representatives letters
(the "bring-down letters") from each of such accountants, addressed to the
Underwriters and dated such Delivery Date in which each accountant shall
(i) confirm that they are independent public accountants within the meaning
of the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule 2-01
of Regulation S-X of the Commission, (ii) state, as of the date of the
bring-down letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than three
days prior to the date of the bring-down letter), the conclusions and
findings of such firm with respect to the financial information and other
matters covered by the initial letter and (iii) confirm in all material
respects the conclusions and findings set forth in the initial letter.
(i) The Company and ANCM shall have furnished to the Representatives
a certificate, dated such Delivery Date, of their Chief Executive or their
President or a Vice President and a chief financial officer stating that:
(i) the representations, warranties and agreements of the
Company and ANCM in Section 1 are true and correct as of such Delivery
Date; the Company and ANCM have complied in all material respects
with all the agreements contained herein; and the conditions set forth
in Sections 7(a) and 7(j) have been fulfilled; and
(ii) they have carefully examined the Registration Statement
and the Prospectus and, in their opinion (A) as of the Effective Date,
the Registration Statement and the Prospectus did not include any
untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (B) since the Effective Date of
the Registration Statement, no event has occurred which should have
been set forth in a supplement or amendment to the Registration
Statement or the Prospectus.
(j) (i) The Company and ANCM and its Significant Subsidiaries shall
not have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or
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contemplated in the Prospectus or (ii) since such date there shall not have
been any change in the capital stock or membership interests, as the case
may be, or long-term debt of the Company or ANCM or its Significant
Subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, equity interest or results of operations of the Company or ANCM
or its Significant Subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Stock being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(k) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange, or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been
suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(l) The Nasdaq National Market System shall have approved the Stock
for listing, subject only to official notice of issuance.
(m) All of the transactions which are to occur in order to consummate
the Reorganization, including without limitation the execution, delivery
and performance of the Exchange Agreement and the ANCM Lock-Up Agreements,
shall have been consummated on terms satisfactory to the Representatives,
and the Representatives shall have been furnished with all of the ANCM
Lock-Up Agreements.
(n) On the First Delivery Date, counsel for the Underwriters shall
have been furnished with such documents and opinions as they may require
for the purpose of enabling them to pass upon the issuance and sale of the
Stock as herein contemplated and related proceedings, or in order to
evidence the accuracy of any of
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the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Stock as herein contemplated
shall be satisfactory in form and substance to the Representatives and
counsel for the Underwriters.
(o) The Representatives shall have been furnished with the written
letter agreements executed by each officer and director of the Company
referred to in Section 5(i) hereof.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and ANCM jointly and severally, shall indemnify and
hold harmless each Underwriter (including any Underwriter in its role as
qualified independent underwriter pursuant to the rules of the National
Association of Securities Dealers, Inc.), its officers and employees and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, but not
limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Stock), to which that Underwriter, officer, employee
or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any
material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any act or failure to act, or
any alleged act or failure to act, by any Underwriter in connection with,
or relating in any manner to, the Stock or the offering contemplated
hereby, and which is included as part of or referred in any loss, claim,
damage, liability or action arising out of or based upon matters covered by
clause (i) or (ii) above (PROVIDED that the Company and ANCM shall not be
liable under this clause (iii) to the extent that it is determined in a
final judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter
through its gross negligence or willful misconduct), and shall reimburse
each Underwriter and each such officer, employee or controlling person
promptly upon demand for any legal or other expenses reasonably incurred by
that Underwriter, officer, employee or controlling person in connection
with investigating
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or defending or preparing to defend against any such loss, claim, damage,
liability or action as such expenses are incurred; PROVIDED, HOWEVER, that
the Company and ANCM shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of, or is
based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any such amendment or supplement in
reliance upon and in conformity with written information concerning such
Underwriter furnished to the Company through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein which
information consists solely of the information specified in Section 7(e).
The foregoing indemnity agreement is in addition to any liability which the
Company or ANCM may otherwise have to any Underwriter or to any officer,
employee or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, its officers and employees, each of its
directors (including any person who, with his or her consent, is named in
the Registration Statement as about to become a director of the Company),
and each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the Company or
any such director, officer or controlling person may become subject, under
the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in
any Preliminary Prospectus, the Registration Statement or the Prospectus,
or in any amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in
any amendment or supplement thereto, or in any Blue Sky Application any
material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with the written
information concerning such Underwriter furnished to the Company through
the Representatives by or on behalf of that Underwriter specifically for
inclusion therein, and shall reimburse the Company and any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person
in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses
are incurred. The foregoing indemnity agreement is in addition to any
liability which any Underwriter may otherwise have to the Company or any
such director, officer or controlling person.
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(c) Promptly after receipt by an indemnified party under this Section
8 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; PROVIDED, HOWEVER,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have under this Section 8 except to the extent
it has been materially prejudiced by such failure and, PROVIDED FURTHER,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have to an indemnified party otherwise than
under this Section 8. If any such claim or action shall be brought against
an indemnified party, and it shall notify the indemnifying party thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying
party to the indemnified party of its election to assume the defense of
such claim or action, the indemnifying party shall not be liable to the
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; PROVIDED,
HOWEVER, that the Representatives shall have the right to employ counsel to
represent jointly the Representatives and those other Underwriters and
their respective officers, employees and controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity
may be sought by the Underwriters against the Company or ANCM under this
Section 8 if, in the reasonable judgment of the Representatives, it is
advisable for the Representatives and those Underwriters, officers,
employees and controlling persons to be jointly represented by separate
counsel, and in that event the fees and expenses of such separate counsel
shall be paid by the Company or ANCM. No indemnifying party shall
(i) without the prior written consent of the indemnified parties (which
consent shall not be unreasonably withheld), settle or compromise or
consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the
consent of the indemnifying party or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to indemnify
and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an
indemnified party under
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Section 8(a) or 8(b) in respect of any loss, claim, damage or liability, or
any action in respect thereof, referred to therein, then each indemnifying
party shall, in lieu of indemnifying such indemnified party, contribute to
the amount paid or payable by such indemnified party as a result of such
loss, claim, damage or liability, or action in respect thereof, (i) in such
proportion as shall be appropriate to reflect the relative benefits
received by the Company and ANCM on the one hand and the Underwriters on
the other from the offering of the Stock or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company and ANCM on the
one hand and the Underwriters on the other with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or
action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company and ANCM on
the one hand and the Underwriters on the other with respect to such
offering shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Stock purchased under this Agreement
(before deducting expenses) received by the Company and ANCM on the one
hand, and the total underwriting discounts and commissions received by the
Underwriters with respect to the shares of the Stock purchased under this
Agreement, on the other hand, bear to the total gross proceeds from the
offering of the shares of the Stock under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company, ANCM
or the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. For purposes of the preceding two sentences, the
net proceeds deemed to be received by the Company shall be deemed to be
also for the benefit of ANCM and information supplied by the Company shall
also be deemed to have been supplied by ANCM. The Company, ANCM, and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section were to be determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section shall be
deemed to include, for purposes of this Section 8(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Stock underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of
25
<PAGE>
fraudulent misrepresentation (within the meaning of Section 11 (f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute as provided in this Section 8(d) are several in
proportion to their respective underwriting obligations and not joint.
(e) The Underwriters severally confirm and the Company acknowledges
that the statements with respect to the public offering of the Stock by the
Underwriters set forth on the cover page of, the legend concerning
over-allotments on the inside front cover page of and the concession and
reallowance figures appearing under the caption "Underwriting" in, the
Prospectus are correct and constitute the only information furnished in
writing to the Company by or on behalf of the Underwriters specifically for
inclusion in the Registration Statement and the Prospectus.
9. DEFAULTING UNDERWRITERS.
If, on either Delivery Date, any Underwriter defaults in the performance of
its obligations under this Agreement, the remaining non-defaulting Underwriters
shall be obligated to purchase the Stock which the defaulting Underwriter agreed
but failed to purchase on such Delivery Date in the respective proportions which
the number of shares of the Firm Stock set opposite the name of each remaining
non-defaulting Underwriter in Schedule 1 hereto bears to the total number of
shares of the Firm Stock set opposite the names of all the remaining
non-defaulting Underwriters in Schedule 1 hereto; PROVIDED, HOWEVER, that the
remaining non-defaulting Underwriters shall not be obligated to purchase any of
the Stock on such Delivery Date if the total number of shares of the Stock which
the defaulting. Underwriter or Underwriters agreed but failed to purchase on
such date exceeds 9.09% of the total number of shares of the Stock to be
purchased on such Delivery Date, and any remaining non-defaulting. Underwriter
shall not be obligated to purchase more than 110% of the number of shares of the
Stock which it agreed to purchase on such Delivery Date pursuant to the terms of
Section 2. If the foregoing maximums are exceeded, the remaining non-defaulting
Underwriters, or those other underwriters satisfactory to the Representatives
who so agree, shall have the right, but shall not be obligated, to purchase, in
such proportion as may be agreed upon among them, all the Stock to be purchased
on such Delivery Date. If the remaining Underwriters or other underwriters
satisfactory to the Representatives do not elect to purchase the shares which
the defaulting Underwriter or Underwriters agreed but failed to purchase on such
Delivery Date, this Agreement (or, with respect to the Second Delivery Date, the
obligation of the Underwriters to purchase, and of the Company to sell, the
Option Stock) shall terminate without liability on the part of any
non-defaulting Underwriter or the Company, except that the Company and ANCM will
continue to be liable for the payment of expenses to the extent set forth in
Sections 6 and 11. As used in this Agreement, the term "Underwriter" includes,
for all purposes of this Agreement unless the context requires otherwise, any
party not listed in Schedule 1 hereto who, pursuant to this Section 9, purchases
Firm Stock which a defaulting Underwriter agreed but failed to purchase.
26
<PAGE>
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If
other underwriters are obligated or agree to purchase the Stock of a defaulting
or withdrawing Underwriter, either the Representatives or the Company may
postpone the Delivery Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statement, the Prospectus or
in any other document or arrangement.
10. TERMINATION. The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the Company
prior to delivery of and payment for the Firm Stock if, prior to that time, any
of the events described in Sections 7(j), or 7(k)], shall have occurred or if
the Underwriters shall decline to purchase the Stock for any reason permitted
under this Agreement.
11. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If (a) the Company shall
fail to tender the Stock for delivery to the Underwriters by any reason of any
failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed or because any other condition of the
Underwriter's obligations hereunder required to be fulfilled by the Company or
ANCM is not fulfilled, or (b) the Underwriters shall decline to purchase the
Stock for any reason permitted under this Agreement (including the termination
of this Agreement pursuant to Section 10), the Company or ANCM will reimburse
the Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the Underwriters in connection with this
Agreement and the proposed purchase of the Stock, and upon demand the Company or
ANCM shall pay the full amount thereof to the Representatives. If this
Agreement is terminated pursuant to Section 9 by reason of the default of one or
more Underwriters, the Company and ANCM shall not be obligated to reimburse any
defaulting Underwriter on account of those expenses.
12. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department (Fax:
212-528-8822) with a copy, in the case of any notice pursuant to Section
8(c), to the Director of Litigation, Office of the General Counsel, Lehman
Brothers Inc., Three World Financial Center, 10th Floor, New York, New York
10285;
(b) if to the Company or to ANCM, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set forth in
the Registration Statement, Attention: [Joe Martello, Senior Vice
President (Fax: );]
PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its
27
<PAGE>
acceptance telex to the Representatives, which address will be supplied to any
other party hereto by the Representatives upon request. Any such statements,
requests, notices or agreements shall take effect at the time of receipt
thereof. The Company shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. on behalf of the Representatives.
13. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of and be binding upon the Underwriters, the Company, ANCM and
their respective successors. This Agreement and the terms and provisions hereof
are for the sole benefit of only those persons, except that (a) the
representations, warranties, indemnities and agreements of the Company and ANCM
contained in this Agreement shall also be deemed to be for the benefit of the
officers and employees of each Underwriter and the person or persons, if any,
who control each Underwriter within the meaning of Section 15 of the Securities
Act and (b) the indemnity agreement of the Underwriters contained in
Section 8(b) of this Agreement shall be deemed to be for the benefit of
directors, officers and employees of the Company, and any person controlling the
Company within the meaning of Section 15 of the Securities Act. Nothing in this
Agreement is intended or shall be construed to give any person, other than the
persons referred to in this Section 13, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
14. SURVIVAL. The respective indemnities, representations, warranties and
agreements of the Company, ANCM and the Underwriters contained in this
Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
15. DEFINITION OF THE TERMS "BUSINESS DAY" AND "SUBSIDIARY". For purposes
of this Agreement, (a) "business day" means any day on which the Nasdaq National
Market is open for trading and (b) "subsidiary" has the meaning set forth in
Rule 405 of the Rules and Regulations.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF NEW YORK.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
28
<PAGE>
If the foregoing correctly sets forth the agreement among the Company,
ANCM and the Underwriters, please indicate your acceptance in the space provided
for that purpose below.
Very truly yours,
ARBOR NATIONAL HOLDINGS, INC.
By
----------------------------------
Name:
Title:
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
By
----------------------------------
Name:
Title:
Accepted:
LEHMAN BROTHERS INC.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
-----------------------------
Authorized Representative
29
<PAGE>
SCHEDULE 1
Underwriter Number of Shares
- ----------- ----------------
Lehman Brothers, Inc.
Friedman, Billings, Ramsey & Co., Inc.
Total
30
<PAGE>
ARBH
ARBH SHARE
ARBOR NATIONAL HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
COMMON STOCK SEE REVERSE FOR
PAR VALUE $.01 EACH CERTAIN DEFINITIONS
CUSIP 038761 10 2
This
certifies
that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
ARBOR NATIONAL HOLDINGS, INC.
(hereinafter called the "Corporation"), transferable upon the books of
the Corporation by the holder hereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[SEAL]
SECRETARY CHAIRMAN
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
THE CORPORATION IS AUTHORIZED TO ISSUE STOCK OF MORE THAN ONE CLASS,
CONSISTING OF SHARES OF COMMON STOCK AND ONE OR MORE CLASSES OF SHARES OF
PREFERRED STOCK OR ANY CLASS OR SERIES OF STOCK OTHER THAN COMMON STOCK. THE
BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS OF SHARES OF PREFERRED STOCK BEFORE THE ISSUANCE OF ANY SHARES
OF PREFERRED STOCK. THE CORPORATION WILL FURNISH, WITHOUT CHARGE, TO ANY
STOCKHOLDER MAKING A WRITTEN REQUEST THEREFORE, A COPY OF THE CHARTER OF THE
CORPORATION AND A WRITTEN STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS,
PREFERENCES AND LIMITATIONS APPLICABLE TO EACH SUCH CLASS OF STOCK. REQUESTS FOR
SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE CORPORATE SECRETARY AT THE
CORPORATION?S PRINCIPAL OFFICE.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common
TEN ENT- as tenants by the entireties
JT TEN- as joint tenants with right
of survivorship and not as tenants
in common
UNIF GIFT MIN ACT Custodian
------------------- ----------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
--------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
---------------------------------
-----------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED
------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN,
MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF
INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
[LETTERHEAD OF PRYOR CASHMAN SHERMAN & FLYNN LLP]
EXHIBIT 5.1
-----------
July 22, 1998
Arbor National Holdings, Inc.
333 Earle Ovington Boulevard
Uniondale, New York 11553
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-1. File No. 333-56889
(the "Registration Statement"), as filed by you with the Securities and
Exchange Commission with respect to the registration under the Securities Act
of 1933, as amended (the "Act"), of ____________ shares (the "Shares"), $.01
par value per Share, of the common stock of Arbor National Holdings, Inc.
(the "Company") for issuance and sale by the Company.
We are qualified to practice law in the State of New York. We express no
opinion as to, and, for the purposes of the opinion set forth herein, we have
conducted no investigation of, and do not purport to be experts on, any laws
other than the laws of the State of New York and the federal laws of the
United States of America.
We have examined such documents as we considered necessary for the
purposes of this opinion. Based on such examination, it is our opinion that
the Shares have been duly authorized, and, upon issuance, will be legally
issued, fully-paid and non-assessable under the laws of the State of New York
(the state of incorporation of the Company).
We consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
<PAGE>
Exhibit 10.4
AMENDMENT NO. 1
TO
SALE AND EXCHANGE AGREEMENT
AMENDMENT NO. 1, dated as of the 15th day of July (the "Amendment") to a
certain SALE AND EXCHANGE AGREEMENT, dated as of the 4th day of June, 1998
(the "Agreement"), by and among ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
("ANCM"), a New York limited liability company organized on January 25, 1995
and operating under a Restated and Amended Operating Agreement (the
"Operating Agreement") dated as of January 1, 1996; the individuals and
entities as set forth in APPENDIX A to the Agreement (the "Members"), who
hold membership interests in ANCM; ARBOR MANAGEMENT LLC, a New York limited
liability company and the Manager of ANCM ("Management"); ARBOR SECURED
FUNDING, INC., a New York corporation which is a subsidiary of ANCM
("ASF"); and ARBOR NATIONAL HOLDINGS, INC., a New York Corporation, formed on
June 12, 1998 ("ANHI"). All terms used in this Amendment, unless defined,
shall have the meanings set forth in the Agreement.
WITNESSETH:
WHEREAS, the parties hereto previously executed and delivered the
Agreement;
WHEREAS, the Agreement currently provides for allocation of the Total
Consideration on the basis of the Members' respective capital accounts as of
the date the Exchange Transaction;
WHEREAS, the Members wish to avoid distortions in the allocation of the
Total Consideration which would result from the proposed distribution of cash
by ANCM representing previously taxed earnings of ANCM prior to completion of
the Exchange Transaction (the "Tax Distribution:);
<PAGE>
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. The second sentence of Section 2, Consideration, of the
Agreement hereby amended to read in its entirety as follows:
ANCM and all Members agree that the Total Consideration shall be
allocated the Members in the same proportion which such Member's
capital account in ANCM as of April 1, 1998, bears to the aggregate
capital accounts of all Members in ANCM as of April 1, 1998.
2. All other terms and conditions of the Exchange Agreement
shall remain in full force and effect.
[Remainder of this page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ARBOR NATIONAL HOLDINGS, INC. ARBOR NATIONAL COMMERCIAL
MORTGAGE, LLC
By: Arbor Management, LLC
By: /s/Ivan Kaufman
-----------------------
Ivan Kaufman, President
By: /s/Ivan Kaufman
-----------------------
Ivan Kaufman, President
ARBOR SECURED FUNDING, INC.
By: /s/Ivan Kaufman
-----------------------
Ivan Kaufman, President
CLASS A MEMBERS:
/s/Ivan Kaufman
- ---------------
Ivan Kaufman
Trust pursuant to the TRUST AGREEMENT dated as of the 22nd day of MARCH,
1994, made by IVAN KAUFMAN and LISA KAUFMAN, as Grantors and RICHARD A. LIPPE
as Trustee.
By: /s/Richard A. Lippe
-------------------------
Richard A. Lippe, Trustee
IVAN KAUFMAN GRANTOR RETAINED ANNUITY TRUST
By: /s/Ivan Kaufman /s/Richard A. Lippe
----------------------- -------------------------
Ivan Kaufman, President Richard A. Lippe, Trustee
ARBOR MANAGEMENT, LLC
By: /s/Ivan Kaufman
-----------------------
Ivan Kaufman, President
<PAGE>
CLASS B MEMBERS:
/s/Walter K. Horn /s/Camilla Bellick
- ----------------- ------------------
Walter K. Horn Camilla Bellick
/s/Joseph Martello /s/Robert Schooley
- ------------------ ------------------
Joseph Martello Robert Schooley
/s/Dennis Cullen /s/Paul Elenio
- ------------------ -------------------
Dennis Cullen Paul Elenio
/s/Douglas M. Kramer /s/Mona Swedroe
- -------------------- -------------------
Douglas M. Kramer Mona Swedroe
/s/John Caulfield /s/Elliot Silverman
- ------------------ -------------------
John Caulfield Elliot Silverman
/s/John Natalone /s/James Boris
- ------------------ -------------------
John Natalone James Boris
/s/Ellen Segal /s/Daniel Palmier
- ------------------ -------------------
Ellen Segal Daniel Palmier
/s/Thomas Gurney /s/Terence Baydala
- ------------------ -------------------
Thomas Gurney Terence Baydala
/s/Paul F. Morehouse, Jr. /s/Angela Mirizzi
- ------------------------- -------------------
Paul F. Morehouse, Jr. Angela Mirizzi
/s/Staci Mankoff /s/Victor P. Bove
- ------------------ -------------------
Staci Mankoff Victor P. Bove
/s/Ralph Daruns /s/David Queen
- ------------------ -------------------
Ralph Daruns David Queen
/s/J. Van Provosty
-------------------
J. Van Provosty
<PAGE>
Exhibit 10.9
AGREEMENT OF LEASE, made as of this [31] day of August, 1993, between HMCC
ASSOCIATES, a limited partnership, having its principal office at 225
Broadhollow Road, Suite 212 W, CS 5341, Melville, New York 11746-0983
("hereinafter referred to as "Landlord") and ARBOR NATIONAL MORTGAGE, INC., a
corporation, having its principal place of business at 615 Merrick Avenue,
Westbury, New York 11590 (hereinafter referred to as "Tenant").
WITNESSETH: Landlord and Tenant hereby covenant and agree as follows:
SPACE
1. Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
the space substantially as shown on the Rental Plan initialed by the parties and
made part hereof as Exhibit "1" ("Demised Premises or "Premises") consisting of
39,324 square feet of general offices on the ninth floor (Phase 1), 8,860 square
feet of executive offices on the ninth floor (Phase 2) and 11,360 square feet of
branch office on the first floor (Phase 3) in the building known as Nassau West
Omni, located at 333 Earle Ovington Boulevard, Mitchel Field, New York
(hereinafter referred to as the "Building") which the parties agree contains
59,544 square feet in a Building containing 555,816 square feet which
constitutes 10.7 per cent of the rentable area of the Building.
TERMS
2. The term "Term", "term" or "Demised Term" of this lease shall commence
on November 1, 1993, hereinafter referred to as the "Term Commencement Date" and
shall terminate on May 31, 2004, hereinafter referred to as the "Expiration
Date", unless the Term shall sooner terminate pursuant to any of the terms,
covenants or conditions of this lease or pursuant to law. Possession of Phase 1
shall be delivered to Tenant on November 1, 1993, and Phase 2 on December 15,
1993 and, Phase 3 on May 1, 1994.
If on the foregoing date specified for the Possession of any Phase of
the Premises, said phase shall not be "substantially completed" in accordance
with Schedule A annexed hereto, then the Term Commencement Date and Possession
dates shall be postponed until the date on which that part of the Premises shall
be "substantially completed" and the Term of this lease shall be extended so
that the Expiration Date shall be ten (10) years seven (7) months after the last
day of the month in which the Term Commencement Date occurs. For the purposes
of this Agreement, the term "substantially complete," or words of like import,
shall mean that Landlord's Initial Construction shall have been materially
completed other than for work that, if not completed, would not materially
interfere with Tenant's completion of its work or normal use and occupancy of
the Demised Premises, such as, by way of example and not intended to be all
encompassing, (a) minor or insubstantial details, (b) mechanical adjustments
(such as, by way of example and not intended to be all encompassing, balancing
of the HVAC system), (c) "punch list" items that are not of a material nature,
(d) items of a decorative or aesthetic nature and (e) work not included as part
of Landlord's work. Notwithstanding the foregoing, Demised Premises shall not be
deemed substantially complete, until (a) (i) the ceiling and (ii) all overhead
lighting has been installed and is operable (other than special order lighting);
(b) all demising walls and
<PAGE>
dry wall partitions shown on the plans have been erected with all doors and
hardware therefor installed (other than special order doors or hardware) and
have received final (other than touch-up) painting or wall covering (other than
special order); (c) all carpeting and tile work has been completed; (d) all
mechanical systems (other than Tenant's computer data and telephone wiring and
equipment) required by its Plans have been installed and are in good working
order (other than for balancing and other mechanical adjustments); and (e)
Landlord has removed its construction debris and appropriately cleaned the
Demised Premises. The Demised Premises shall not be deemed substantially
complete until ten (10) days after Landlord serves written notice upon Tenant
that Demised Premises shall be substantially complete on a given date. If
Landlord shall be delayed in such "substantial completion" as a result of (i)
Tenant's failure to furnish final approved plans and specifications by August 6,
1993 as to Phase I and September 6, 1993 as to Phase 2, and October 1, 1993 as
to Phase 3; (ii) Tenants request for materials, finishes or installations other
than as shown on the plans annexed hereto; (iii) Tenant's changes in said plans;
(iv) the performance or completion of any work, labor or services by a party
employed by Tenant; (v) Tenant's failure to approve final construction drawings
within four (4) days of submission, (collectively, "Tenant Delays") the
commencement of the term of said lease and the payment of rent thereunder shall
be accelerated by the number of days of such delay. Tenant waives any right to
rescind this lease under Section 223-a of the New York Real Property Law or any
successor statute of similar import then in force and further waives the right
to recover any damages which may result from Landlord's failure to deliver
possession of the Premises on the Term Commencement Date.
In the event any Phase of the Premises is not "substantially
completed" five (5) months after the date when possession of that portion of the
Premises was scheduled to be delivered to Tenant, in accordance with this
Article, plus additional time caused by any of the events or occurrences
specified in Article 35(A) of this lease and Tenant Delays, then and in that
event, Tenant shall be entitled to two (2) days of rent concession for each day
of delay beyond said period.
RENT
3. The annual rental rate ("Rent") from the Term Commencement Date is as
follows:
PHASE I
During the first year of the term of this lease, the basic annual rental
shall be $77,828.75, payable $77,828.75 for the first month and $0 for the
second through twelfth months.
During the second year of the term of this lease, the basic annual rental
shall be $971,302.80, payable $80,941.90, in equal monthly installments.
During the third year of the term of this lease, the basic annual rental
shall be $1,010,154.91, payable $84,179.58, in equal monthly installments.
2
<PAGE>
During the fourth year of the term of this lease, the basic annual rental
shall be $1,050,561.11, payable $87,546.76, in equal monthly installments.
During the fifth year of the term of this lease, the basic annual rental
shall be $1,092,583.56, payable $91,048.63, in equal monthly installments.
During the sixth year of the term of this lease, the basic annual rental
shall be $1,136,286.89, payable $94,690.57, in equal monthly installments.
During the seventh year of the term of this lease, the basic annual rental
shall be $1,181,738.37, payable $98,478.20, in equal monthly installments.
During the eighth year of the term of this lease, the basic annual rental
shall be $1,229,007.91, payable $102,417.33, in equal monthly installments.
During the ninth year of the term of this lease, the basic annual rental
shall be $1,278,168.22, payable $106,514.02, in equal monthly installments.
During the tenth year of the term of this lease, the basic annual rental
shall be $1,329,294.95, payable $110,774.58, in equal monthly installments.
During the remaining seven months of the term of this lease, the basic
rental shall be $806,438.94, payable $115,205.56, in equal monthly installments.
PHASE 2
During the first year of the term of this lease, there shall be no basic
annual rental.
During the second year of the term of this lease, the basic annual rental
shall be $190,785.27, payable $0 for the first month, $8,767.71 for the second
month, $17,886.12 for the third month, and $18,236.83 for each of the fourth
through twelfth months.
During the third year of the term of this lease, the basic annual rental
shall be $225,771.91, payable $18,236.83 for each of the first and second
months, $18,601.56 for the third month, and $18,966.30 for each of the fourth
through twelfth months.
During the fourth year of the term of this lease, the basic annual rental
shall be $234,802.77, payable $18,966.30 for each of the first and second
months, $19,345.63 for the third month, and $19,724.96 for each of the fourth
through twelfth months.
During the fifth year of the term of this lease, the basic annual rental
shall be $244,194.90, payable $19,724.95 for each of the first and second
months, $20,119.45 for the third month, and $20,513.95 for each of the fourth
through twelfth months.
3
<PAGE>
During the sixth year of the term of this lease, the basic annual rental
shall be $253,962.69, payable $20,513.95 for each of the first and second
months, $20,924.23 for the third month and $21,334.57 for each of the fourth
through twelfth months.
During the seventh year of the term of this lease, the basic annual rental
shall be $264,121.20, payable $21,334.51 for each of the first and second
months, $21,761.20 for the third month and $22,187.89 for each of the fourth
through twelfth months.
During the eighth year of the term of this lease the basic annual rental
shall be $274,686.05, payable $22,187.89 for each of the first and second
months, $22,631.65 for the third month, and $23,075.40 for each of the fourth
through twelfth months.
During the ninth year of the term of this lease, the basic annual rental
shall be $285,673.49, payable $23,075.40 for each of the first and second
months, $23,536.91 for the third month, and $23,998.42 for each of the fourth
through twelfth months.
During the tenth year of the term of this lease, the basic annual rental
shall be $297,100.43, payable $23,998.42 for each of the first and second
months, $24,478.39 for the third month, and $24,958.36 for each of the fourth
through twelfth months.
During the remaining seven months of the term of this lease, the basic
rental shall be $179,201.00, payable $24,958.36 for each of the first and second
months $25,457.52 for the third month, and $25,956.69 for each of the fourth
through seventh months.
PHASE 3
During the first year of the term of this lease, there shall be no basic
annual rental.
During the second year of the term of this lease, the basic annual rental
shall be $134,994.67, payable $0 for each of the first through sixth months,
$21,773.33 for the seventh month, and $22,644.27 for each of the eighth through
twelfth months.
During the third year of the term of this lease, the basic annual rental
shall be $276,260.05, payable $22,644.27 for each of the first through seventh
months, and $23,550.04 for each of the eighth through twelfth months.
During the fourth year of the term of this lease, the basic annual rental
shall be $287,310.46, payable $23,550.04 for the first through seventh months,
and $24,492.04 for each of the eighth through twelfth months.
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During the fifth year of the term of this lease, the basic annual rental
shall be $298,802.88, payable $24,492.04 for each of the first through seventh
months, and $25,471.72 for each of the eighth through twelfth months.
During the sixth year of the term of this lease, the basic annual rental
shall be $310,754.99, payable $25,471.72 for each of the first through seventh
months, and $26,490.59 for each of the eighth through twelfth months.
During the seventh year of the term of this lease, the basic annual rental
shall be $323,185.18, payable $26,490.59 for each of the first through seventh
months, and $27,550.21 for each of the eighth through twelfth months.
During the eighth year of the term of this lease, the basic annual rental
shall be $336,112.60, payable $27,550.21 for the first through seventh months
and $28,652.22 for the eighth through twelfth months.
During the ninth year of the term of this lease, the basic annual rental
shall be $349,557.10, payable $28,652.22 for each of the first through seventh
months, and $29,798.31 for each of the eighth through twelfth months.
During the tenth year of the term of this lease, the basic annual rental
shall be $363,539.38, payable $29,798.31 for each of the first through seventh
months, and $30,990.24 for each of the eighth through twelfth months.
During the remaining seven months of the term of this lease, the rental
shall be $216,931.70, payable $30,990.24, in equal monthly installments.
which Tenant agrees to pay to Landlord, without notice or demand, in lawful
money of the United States which shall be legal tender in payment of the debts
and dues, public and private, at the time of payment in advance on the first day
of each calendar month during the Demised Term at the office of the Landlord, or
at such other place as Landlord shall designate, except that Tenant shall pay
the first monthly installment on the execution hereof. Tenant shall pay the
rent as above and as hereinafter provided, without any set off or deduction
whatsoever. Should the Term Commencement Date be a date other than the first
day of a calendar month, the Tenant shall pay a pro rata portion of the rent on
a per diem basis, based upon the first month's Rent for that phase of the
Premises from such date to the first day of the following month, and Landlord
shall credit the excess amount paid toward the payment of rent for the next
succeeding calendar month.
USE
4. (A) The Tenant shall use and occupy the Demised Premises only for
executive, administrative and general office purposes and back office functions
(including but not limited to the Tenant's retail and wholesale mortgage
origination and servicing business) and for no other purpose.
(B) Tenant shall not use or occupy, suffer or permit the Premises, or
any part thereof, to be used in any manner which would in any way, in the
reasonable judgment of
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Landlord, (i) violate any laws or regulations of public authorities; (ii) make
void or voidable any insurance policy then in force with respect to the
Building; (iii) impair the appearance, character or reputation of the Building;
(iv) discharge objectionable fumes, vapors or odors into the Building,
air-conditioning systems or Building flues or vents in such a manner as to
offend other occupants; (v) violate any Fire Underwriters Certificate. The
provisions of this Section shall not be deemed to be limited in any way to or by
the provisions of any other Section or any Rule or Regulation.
(C) The emplacement of any equipment which will impose an evenly
distributed floor load in excess of 100 pounds per square foot shall be done
only after written permission is received from the Landlord which permission
shall not be unreasonably withheld or delayed. Such permission will be granted
only after adequate proof is furnished by a professional engineer that such
floor loading will not endanger the structure. Business machines and mechanical
equipment in the Premises shall be placed and maintained by Tenant, at Tenant's
expense, in such manner as shall be sufficient in Landlord's reasonable judgment
to absorb vibration and noise and prevent annoyance or inconvenience to Landlord
or any other tenants or occupants of the Building.
(D) Tenant agrees that it will not primarily engage in the sale or
marketing of health care insurance or benefits or managed health care services
within the Premises. As used in the preceding sentence, the term "managed
health care services" means cost containment measures, such as utilization
review and pre-certification, employed in connection with the furnishing of
health care insurance or benefits.
LANDLORD ALTERATION
5. Landlord, at its expense, will perform the work and make the
installations, as set forth in Schedule A annexed hereto, which is sometimes
hereinafter referred to as the "Landlord's Initial Construction", in compliance
with all applicable federal, state and local laws, rules and regulations.
SERVICES
6. (A) As long as Tenant is not in default under any covenants of this
lease, Landlord, during the hours of 8:00 A.M. to 6:00 P.M. on weekdays and on
Saturdays from 8:00 A.M. to 1:00 P.M., excluding legal holidays, shall provide
Normal Services to the "Common Area" of the Building.
(B) Landlord, in accordance with Schedule "C", shall provide to the
Demised Premises, heat and air conditioning in the respective seasons and
provide the Demised Premises with electricity for lighting and usual office
equipment for a total of fifty-five (55) hours per week, as selected by the
Tenant (WORKING HOURS). For the purposes of computing the hours, all times
selected by the Tenant shall be rounded to the nearest half hour.
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(C) At any hours other than the aforementioned, such services will be
provided at Tenant's expense in accordance with Schedule C.
LANDLORD'S REPAIRS
7. Landlord, at its expense, will make all the repairs to and provide the
maintenance for the Demised Premises (excluding painting and decorating other
than as set forth in Schedule A) and for all public areas and facilities as set
forth in Schedule B, except such repairs and maintenance as may be necessitated
by the negligence, improper care or use of such premises and facilities by
Tenant, its agents, employees, licensees or invitees, which will be made by
Landlord at Tenant's expense.
WATER SUPPLY
8. Landlord, at its expense, shall furnish hot and cold or tempered water
for lavatory and limited kitchen purposes including sinks and dishwashers.
PARKING FIELD
9. Tenant shall have the right to use two hundred thirty-eight (238)
parking spaces for the parking of automobiles of the Tenant, its employees and
invitees, in the parking area reserved for tenants of the building (hereinafter
sometimes referred to as "Building Parking Area") subject to the Rules and
Regulations now or hereafter adopted by Landlord. Forty-two (42) of said spaces
shall be marked "Reserved for Arbor, " twelve (12) of said reserved spaces shall
be located on the north side of the Building. Landlord shall have no obligation
to police said spaces. Tenant shall not use nor permit any of its officers,
agents or employees to use any parking spaces in excess of Tenant's allotted
number of spaces therein.
DIRECTORY
10. Landlord will furnish in the lobby of the building a directory which
will contain listings requested by Tenant, not to exceed six (6) listings. The
initial listings will be made at Landlord's expense and any subsequent changes
by Tenant shall be made at Tenant's expense. Landlord's acceptance of any name
for listing on the directory, will not be deemed, nor will it substitute for
Landlord's consent, as required by this lease, to any sublease, assignment or
other occupancy of the Premises.
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TAXES AND OTHER CHARGES
11. (A) As used in and for the purposes of this Article 11, the following
definitions shall apply:
(i) "Taxes" shall be any amount of real estate taxes,
assessments, special or otherwise, sewer rents, rates and charges, State, Town,
County taxes, School taxes, or any other governmental charges, general,
specific, ordinary or extraordinary, foreseen or unforeseen levied on a calendar
or fiscal basis against the Real Property. If at any time during the Term the
method of taxation prevailing at the date hereof shall be altered so that in
lieu of, or as in addition to, or as a substitute for, the whole or any part of
the taxes, levies, impositions or charges now levied, assessed or imposed on all
or any part of the Real Property (a) a tax, assessment, levy, imposition or
charge based upon the rents received thereon, whether or not wholly or partially
as a capital levy or otherwise, or (b) a tax, assessment, levy, imposition or
charge measured by or based in whole or in part upon all or any part of the Real
Property and imposed on Landlord, or (c) a license fee measured by the rent
payable by Tenant to Landlord, or (d) any other tax levy, imposition, charge or
license fee however described or imposed, then all such taxes, levies,
impositions, charges or license fee or any part thereof, so measured or based,
shall be deemed to be Taxes.
(ii) "Base Year Taxes" shall be the Taxes actually paid by
Landlord in 1994 for taxes on a calendar basis and the combination of the second
half of 1993/94 and the first half of 1994/95 for Taxes on a fiscal basis, when
the Building reaches full assessment.
(iii) "Escalation Year" shall mean each calendar year commencing
calendar year 1995 which shall include any part of the Demised Term.
(iv) "Real Property" shall be the land upon which the Building
stands and any part or parts thereof utilized for parking and the Building and
other facilities utilized for the purposes required in the operation of the
Building.
(B) The Tenant shall pay the Landlord increases in Taxes levied
against the Real Property as follows: If the Taxes actually paid by Landlord in
any Escalation Year shall be increased above the Base Year Taxes, then the
Tenant shall pay to the Landlord, as additional rent for such Escalation Year, a
sum equal to Tenant's percentage of the rentable area of the Building, as set
forth in Paragraph 1 of this Lease multiplied by the amount of said increase.
(C) Landlord shall render to Tenant a statement containing a
computation of additional rent due under this Article ("Landlord's Statement")
for the preceding year. Within thirty (30) days after the rendition of the
Landlord's Statement which shows additional rent to be payable, Tenant shall pay
to Landlord the amount of such additional rent. On the first day of each month
following the rendition of each Landlord's Statement, Tenant shall pay to
Landlord, on account of the potential additional rent, a sum equal to
one-twelfth (1/12th) of the additional rent last paid by Tenant, which sum shall
be subject to increase in Taxes effective prior thereto.
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(D) Landlord's failure to render a Landlord's Statement with respect
to any Escalation Year shall not prejudice Landlord's right to render a
Landlord's Statement with respect to any Escalation Year. The obligation of
Landlord and Tenant under the provisions of this Article with respect to any
additional rent for any Escalation Year shall survive the expiration or any
sooner termination of the Demised Term.
(E) In the event Landlord receives a tax refund for any Escalation
Year after the Base Year in which Tenant has made a tax payment to Landlord,
Landlord shall repay to Tenant, Tenant's proportionate share of such refund
after deducting therefrom Landlord's expenditure for legal and other similar
expenses directly necessary to obtain the tax refund.
TENANT'S REPAIRS
12. Tenant shall take good care of the Demised Premises and, subject to
the provisions of Article 7 hereof, Landlord at the expense of Tenant shall make
as and when needed as a result of misuse or neglect by Tenant or Tenant's
servants, employees, agents or licensees, all repairs in and about Demised
Premises necessary to preserve them in good order and condition. Except as
provided in Article 24 hereof, there shall be no allowance to Tenant for a
diminution of rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant, or
others making any repairs, alterations, additions or improvements in or to any
portion of the Building or of Demised Premises, or in or to the fixtures,
appurtenances or equipment thereof. Landlord agrees to give Tenant reasonable
notice where practical as to repairs to be made in the Premises. Landlord
agrees to use reasonable efforts to make repair at time convenient to Tenant,
but not at premium hours.
FIXTURES & INSTALLATIONS
13. All appurtenances, fixtures, improvements, additions and other
property attached to or built into the Demised Premises, whether by Landlord or
Tenant or others, and whether at Landlord's expense, or Tenant's expense, or the
joint expense of Landlord and Tenant, shall be and remain the property of
Landlord, except that any such fixtures, improvements, additions and other
property installed at the sole expense of Tenant with respect to which Tenant
has not been granted any credit or allowance by Landlord, whether pursuant to
Schedule A or otherwise, and which are removable without material damage to the
said premises may be removed by Tenant on condition that Tenant shall repair at
its expense any damage to the Demised Premises or the Building resulting from
such removal. All the outside walls of the Demised Premises including corridor
walls and the outside entrance doors to the Demised Premises, any balconies,
terraces or roofs adjacent to the Demised Premises, and any space in the Demised
Premises used for shafts, stacks, pipes, conduits, ducts or other building
facilities, and the use thereof, as well as access thereto in and through the
Demised Premises for the purpose of operation, maintenance, decoration and
repair, are expressly reserved to Landlord, and Landlord does not convey any
rights to Tenant therein. Notwithstanding the foregoing, Tenant shall enjoy full
right of access to
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the Demised Premises through the public entrances, public corridors and public
areas within the Building.
ALTERATIONS
14. (A) After completion of the Demised Premises, Tenant shall make no
alterations, installations (other than movable partitions, work stations and
similar equipment), additions or improvements (hereinafter collectively referred
to as "Improvements") in or to the Demised Premises without Landlord's prior
written consent, which consent shall not be unreasonably withheld or delayed,
and then only by contractors or mechanics approved by Landlord and at such times
and in such manner as Landlord may from time to time designate.
(B) All Improvements done by Tenant shall at all times comply with
(i) laws, rules, orders and regulations of governmental authorities having
jurisdiction thereof, and (ii) rules and regulations of the Landlord attached as
Schedule D.
(C) Plans and specifications prepared by and at the expense of Tenant
shall be submitted to landlord for its prior written approval; no Improvements
shall be undertaken, started, or begun by Tenant, its agents, servants or
employees, until Landlord has approved such plans and specifications; and no
amendments or additions to such plans and specifications shall be made without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed and shall be subject to Landlord's supervisory fee charge of
5 % of the cost thereof for work necessitating filing of plans with governmental
agencies or any work involving the mechanical and electrical systems of the
Building. Tenant agrees that it will not, either directly or indirectly, use any
contractors and/or labor and/or materials if the use of such contractors and/or
labor and/or materials would or will create any difficulty with other
contractors and/or labor engaged by Tenant or Landlord or others in the
construction, maintenance and/or operation of the Building or any part thereof.
(D) Tenant's right to make improvements shall be subject to the
following additional conditions: (i) the improvements will not result in a
violation of, or require a change in, any Certificate of Occupancy applicable to
the Premises in the Building; (ii) the outside appearance, character or use of
the Building shall not be affected; (iii) no part of the Building outside of the
Premises shall be physically affected; (iv) the proper functioning of any
airconditioning, elevator, plumbing, electrical, sanitary, mechanical and other
service or utility system of the Building shall not be affected.
(E) Tenant shall defend, indemnify and save harmless Landlord against
any and all mechanics' and other liens filed in connection with its
improvements, repairs or installations, including the liens of any conditional
sales of, or chattel mortgages upon, any materials, fixture or articles so
installed in and constituting part of the Premises and against any loss, cost,
liability, claim, damage and expense, including reasonable counsel fees,
penalties and fines incurred in connection with any such lien, conditional sale
or chattel mortgage or any action or proceeding brought thereon. As a condition
precedent to Landlord's consent to the making by
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Tenant of Improvements, Tenant agrees to obtain and deliver to Landlord, written
and unconditional waivers of mechanics' liens for all work, labor and services
to be performed and materials to be furnished, signed by all contractors,
subcontractors, materialmen and laborers to become involved in such work.
Tenant, at its expense, shall procure the satisfaction or
discharge of all such liens within ten (10) days of the filing of such lien
against the Premises or the Building. If Tenant shall fail to cause such lien
to be discharged within period aforesaid, then, in addition to any other right
or remedy, Landlord may, but shall not be obligated to, discharge the same
either by paying the amount claimed to be due or by procuring the discharge of
such lien by deposit or by bonding proceedings, and in any such event Landlord
shall be entitled, if Landlord so elects, to compel the prosecution of an action
for the foreclosure of such lien by the lienor and to pay the amount of the
judgment in favor of the lienor with interest, costs and allowances. Any amount
so paid by Landlord, and all costs and expenses incurred by Landlord in
connection therewith, together with interest thereon at the maximum legal rate
then prevailing from the respective dates of Landlord's making of the payments
or incurring of the cost and expense, shall constitute Additional Rent and shall
be paid on demand.
REQUIREMENTS OF LAW
15. (A) Tenant, at Tenant's sole cost and expense shall comply with all
statutes, laws, ordinances, orders regulations and notices of Federal, State,
County and Municipal authorities, and with all directions, pursuant to law, of
all public officers, which shall impose any duty upon Landlord or Tenant with
respect to the Demised Premises or the use or occupation thereof, except that
Tenant shall not be required to make any structural alterations in order to so
comply unless such alterations shall be necessitated or occasioned, in whole or
in part by the acts, omissions, or negligence of Tenant or any person claiming
through or under Tenant or any of their servants, employees, contractors,
agents, visitors or licensees, or by the use or occupancy or manner of use or
occupancy of Demised Premises by Tenant, or any such person.
(B) The parties acknowledge that there are certain Federal, state and
local laws, regulations and guidelines now in effect and that additional laws,
regulations and guidelines may hereafter be enacted, relating to or affecting
the Premises, the Building, and the land of which the Premises and the Building
may be a part, concerning the impact on the environment of construction, land
use, the maintenance and operation of structures and the conduct of business.
Tenant will not cause, or permit to be caused, any act or practice, by
negligence, omission, or otherwise, that would adversely affect the environment
or do anything or permit anything to be done that would violate any of said
laws, regulations, or guidelines. Any violation of this covenant shall be an
Event of Default under this lease.
(C) If a notice or order shall be received by Landlord or Tenant
relating to requirements to conform to the American's with Disabilities Act
(A.D.A.) from any governmental body or agency having jurisdiction thereof: (a)
Tenant, at its own expense, shall be obligated to comply and cure any violation
thereof caused or occasioned by work in the Demised
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Premises completed by Tenant; (b) Landlord shall be obligated to comply and cure
any violation in, or within the Premises caused or occasioned by work in the
Premises completed by Landlord, portions of the Building beyond the Demised
Premises. In any such instance, the affected party need not commence compliance
until a court of final jurisdiction (or a court whose decision is not appealed)
shall determine that such compliance is mandatory; provided however, that the
expense of any such contest shall be borne by the party to be charged as above
provided and further provided that such contest shall not cause or result in the
party not so contesting (or its employees and agents) being subject to fine or
other criminal penalties.
(D) Landlord represents that to the best of its knowledge, the
Premises contain no asbestos.
END OF TERM
16. (A) Upon the expiration or other termination of the Term of this
lease, Tenant shall, at its own expense, quit and surrender to Landlord the
Demised Premises, broom clean, in good order and condition, ordinary wear, tear
and damage by fire or other insured casualty excepted, and Tenant shall remove
all of its property and shall pay the cost to repair all damage to the Demised
premises or the Building occasioned by such removal. Other than initial Tenant
installations, all fixtures, and all panelling, permanent partitions, railings,
staircases and like installations, installed in the Premises at any time, either
by Tenant or by Landlord on Tenant's behalf, shall become the property of
Landlord and shall remain upon and be surrendered with the premises unless
Landlord, by notice to Tenant no later than twenty (20) days prior to the date
fixed as the Expiration Date, elects to have them removed by Tenant, in which
event, the same shall be removed from the Premises by Tenant forthwith at
Tenant's expense and the Premises shall be returned to its original condition.
Any property not removed from the Premises shall be deemed abandoned by Tenant
and may be retained by Landlord, as its property, or disposed of in any manner
deemed appropriate by the Landlord. Any expense incurred by Landlord in
removing or disposing of such Tenant's property shall be reimbursed to Landlord
by Tenant on demand. If the last day of the term of this lease or any renewal
hereof falls on Sunday or a legal holiday, this lease shall expire on the
business day immediately preceding. Tenant's obligations under this Article 16
shall survive the Expiration Date or sooner termination of this lease.
(B) If Tenant shall hold over after the end of the Term, such holding
over shall be unlawful and in no manner constitute a renewal or an extension of
the lease and no notice of any kind shall be required prior to any commencement
of summary proceeding and Tenant hereby waives any such right. However, during
such hold over time Tenant shall have all of the obligations of this lease,
including payment of rent at a monthly rate equal to double the amount due
during the first month of the last year of occupancy before the end of the
expired term, plus any escalations or additional rent provided for in this
lease.
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QUIET ENJOYMENT
17. Landlord covenants and agrees with Tenant that upon Tenant paying the
Rent and additional rent and observing and performing all the terms, covenants
and conditions on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the Demised Premises during the term of this lease
without hindrance or molestation by anyone claiming by or through Landlord,
subject, nevertheless, to the terms, covenants and conditions of this lease
including, but not limited to Article 22.
SIGNS
18. No signs or lettering of any nature may be put on or in any window nor
on the exterior of the Building or elsewhere within the Demised Premises such as
will be visible from the street. No sign or lettering in the public corridors or
on the doors are permitted except Landlords standard name plaque and an
identification stanchion to be placed in a mutually agreeable location. Landlord
shall provide Tenant with an appropriate identification sign on the column
adjacent to the outside entrance to the retail branch on the north side parking
area.
RULES AND REGULATIONS
19. Tenant and Tenant's agents, employees, visitors, and licensees shall
faithfully observe and strictly comply with, and shall not permit violation of
the Rules and Regulations set forth on Schedule D annexed hereto and made part
hereof, and with such further reasonable Rules and Regulations as Landlord at
any time may make and communicate in writing to Tenant which, in Landlord's
judgment shall be necessary for the reputation, safety, care of appearance of
the Building and the land allocated to it or the preservation of good order
therein, or the operation or maintenance of the Building, and such land, its
equipment, or the more useful occupancy or the comfort of the tenants or others
in the Building. Landlord shall not be liable to Tenant for the violation of any
of said Rules and Regulations, or the breach of any covenant or condition in any
lease by any other tenant in the Building. Landlord agrees to enforce the Rules
and Regulations as to all Tenants in a uniform manner.
RIGHT TO SUBLET OR ASSIGN
20. (A) The Tenant covenants that it shall not assign this lease nor
sublet the Demised Premises or any part thereof. The Tenant may assign this
Lease or sublet the Demised Premises or any part thereof with Landlord's written
consent, which will not be unreasonably withheld or delayed providing:
(i) That such assignment or sublease is for a use which is in
compliance with the then existing zoning regulations and the Certificate of
Occupancy;
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(ii) That at the time of such assignment or subletting, there
is no default under the terms of this lease on the Tenant's part;
(iii) That in the event of an assignment, the assignee assume in
writing the performance of all of the terms and obligations of the within lease;
(iv) That a duplicate original of said assignment or sublease
be delivered by registered mail to the Landlord at the address herein set forth
within ten (10) days from the said assignment or sublease and within ninety (90)
days of the date that Tenant first advises Landlord of the name and address of
the proposed subtenant or assignee as required, pursuant to subparagraph (B)
hereof;
(v) Such assignment or subletting shall not, however, release
the within Tenant from its liability for the full and faithful performance of
all of the terms and conditions of this lease;
(vi) If this lease be assigned, or if the Demised Premises or
any part thereof be under let or occupied by anybody other than Tenant, Landlord
may after default by Tenant collect rent from the assignee, undertenant or
occupant, and apply the net amount collected to the rent herein reserved;
(B) Notwithstanding anything contained in this Article 20 to the
contrary, no assignment or underletting shall be made by Tenant in any event
until Tenant has offered to terminate this lease as of the last day of any
calendar month during the term hereof and to vacate and surrender the Demised
Premises to Landlord on the date fixed in the notice served by Tenant upon
Landlord (which date shall be prior to the date of such proposed assignment or
the commencement date of such proposed lease). Simultaneously with said offer to
terminate this lease, Tenant shall advise the Landlord, in writing, of the name
and address of the proposed assignee or subtenant, a reasonably detailed
statement of the proposed subtenant/assignee's business which must be of a
character and use consistent with other Tenants in the Building, detailed
financial statements, and all the terms, covenants, and conditions of the
proposed sublease or assignment, which must be reasonably acceptable to
Landlord. Landlord agrees to accept or reject Tenant's offer within ten (10)
business days of receipt of Tenant's offer.
(C) Tenant may, without the consent of Landlord, assign this lease to
an affiliated entity (i.e. a corporation or other entity 20% or more of whose
capital stock or equity is owned by the same stockholders owning 20% or more of
Tenant's capital stock), a parent or subsidiary corporation of Tenant or to a
corporation or other entity to which it sells or assigns all or substantially
all of its assets or with which it may be consolidated or merged, provided such
purchasing, consolidated, merged or affiliated or subsidiary corporation shall,
in writing assume and agree to perform all of the obligations of Tenant under
this lease and it shall deliver such assumption with a copy of such assignment
to Landlord within ten (10) days thereafter, and provided further that Tenant
shall not be released or discharged from any liability under this lease by
reason of such assignment.
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(D) Whenever Tenant shall claim under this Article or any other part
of this lease that Landlord has unreasonably withheld or delayed its consent to
some request of Tenant, Tenant shall have no claim for damages by reason of such
alleged withholding or delay, and Tenant's sole remedy thereof shall be a right
to obtain specific performance or injunction but in no event with recovery of
damages.
(E) Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not mortgage nor encumber this agreement.
(F) A sublease or subleases aggregating less than one third of the
area of the Premises shall not require Tenant to offer to terminate this lease
pursuant to Section (B) of this Article 20; however, Tenant shall be required to
comply with all of the other provisions of this Article 20.
LANDLORD'S ACCESS TO PREMISES
21. (A) Landlord or Landlord's agents shall have the right to enter
and/or pass through the Demised Premises at all reasonable times on reasonable
notice, except in an emergency, to examine the same, and to show them to ground
lessors, prospective purchasers or lessees or mortgagees of the Building, and to
make such repairs, improvements or additions as Landlord may deem necessary or
desirable and Landlord shall be allowed to take all material into and upon
and/or through said Demised Premises that may be required therefor. During the
year prior to the expiration of the Term of this lease, or any renewal term,
Landlord may exhibit the Demised Premises to prospective tenants or purchasers
at all reasonable hours and without unreasonably interfering with Tenant's
business. If Tenant shall not be personally present to open and permit an entry
into said premises at any time, when for any reason an entry therein shall be
necessary or permissible, Landlord or Landlord's agents may enter the same by a
master key or forcibly, without rendering Landlord or such agent liable therefor
(if during such entry Landlord or 'Landlord's agents shall accord reasonable
care to Tenant's property).
(B) Landlord shall also have the right at any time, to change the
arrangement and/or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets, or other public parts of the Building,
provided, however, that Landlord shall make no change in the arrangement and/or
location of entrances or passageways or other public parts of the Building which
will adversely affect in any material manner Tenant's use and enjoyment of the
Demised Premises. Landlord shall also have the right, at any time, to name the
Building, including, but not limited to, appropriate signs and/or lettering on
any or all entrances to the Building, and to change the name, number or
designation by which the Building is commonly known. So long as the Landlord
named herein or an affiliate of the Landlord, is the landlord of the Building,
in the event Landlord permits another Tenant to place its name on the facade of
the Building, Tenant shall be entitled to have its name displayed of equal size.
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(C) Neither this lease nor any use by Tenant shall give Tenant any
right or easement to the use of any door or passage or concourse connecting with
any other building or to any public conveniences, and the use of such doors and
passages and concourse and of such conveniences may be regulated and/or
discontinued at any time and from time to time by Landlord without notice to
Tenant;
(D) The exercise by Landlord or its agents of any right reserved to
Landlord in this Article shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of rent, or relieve Tenant from any of its obligations under this lease, or
impose any liability upon Landlord, or its agents, or upon any lessor under any
ground or underlying lease, by reason of inconvenience or annoyance to Tenant,
or injury to or interruption of Tenant's business, or otherwise.
SUBORDINATION
22. (A) This lease and all rights of Tenant hereunder are, and shall be,
subject and subordinate in all respects to all ground leases and/or underlying
leases and to all mortgages and building loan agreements which may now or
hereafter be placed on or affect such leases and/or the Real Property of which
the Demised Premises form a part, or any part or parts of such Real Property,
and/or Landlord's interest or estate therein, and to each advance made and/or
hereafter to be made under any such mortgages, and to all renewals,
modifications, consolidations, replacements and extensions thereof and all
substitutions therefor. This Section A shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall execute and deliver promptly any certificate that
Landlord and/or any mortgagee and/or the lessor under any ground or underlying
lease and/or their respective successors in interest may request.
(B) Without limitation of any of the provisions of this lease, in the
event that any mortgagee or its assigns shall succeed to the interest of
Landlord or of any successor-Landlord and/or shall have become lessee under a
new ground or underlying lease, then, at the option of such mortgagee, this
lease shall nevertheless continue in full force and effect and Tenant shall and
does hereby agree to attorn to such mortgagee or its assigns and to recognize
such mortgagee or its respective assigns as its Landlord.
(C) Tenant and Landlord shall, at any time and from time to time upon
not less than five days' prior notice by the other party, execute, acknowledge
and deliver to the other party a statement in writing certifying that this lease
is unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modification) and the dates to which the Rent, additional rent and other charges
have been paid in advance, if any, and stating whether or not to the best
knowledge of the signer of such certificate the other party is in default in
performance of any covenant, agreement, term, provision or condition contained
in this lease, and if so, specifying each such default of which the signer may
have knowledge, it being intended that any such statement delivered pursuant
hereto may be relied upon by any prospective purchaser or lessee of said real
property or any interest or
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estate therein, any mortgagee or prospective mortgagee thereof or any
prospective assignee of any mortgage thereof. If, in connection with obtaining
financing for the Building and the land allocated to it, a banking, insurance or
other recognized institutional lender shall request reasonable modifications in
this lease as a condition to such financing, Tenant will not unreasonably
withhold, delay or defer its consent thereof, provided that such modifications
do not increase the obligations of Tenant (monetary or otherwise) hereunder or
materially adversely affect the leasehold interest hereby created.
(D) The Tenant covenants and agrees that if by reason of a default
under any underlying lease (including an underlying lease through which the
Landlord derives its leasehold estate in the premises), such underlying lease
and the leasehold estate of the Landlord in the premises demised hereby is
terminated, providing notice has been given to the Tenant and leasehold
mortgagee, the Tenant will attorn to the then holder of the reversionary
interest in the premises demised by this Lease or to anyone who shall succeed to
the interest of the Landlord or to the lessee of a new underlying lease entered
into pursuant to the provisions of such underlying lease, and will recognize
such holder and/or such lessee as the Tenant's landlord of this Lease. The
Tenant agrees to execute and deliver, at any time and from time to time, upon
the request of the Landlord or of the lessor under any such underlying lease,
any instrument which may be necessary or appropriate to evidence such
attornment. The Tenant further waives the provision of any statute or rule of
law now or hereafter in effect which may give or purport to give the Tenant any
right of election to terminate this Lease or to surrender possession of the
premises hereby in the event any proceeding is brought by the lessor under any
underlying lease to terminate the same, and agrees that unless and until any
such lessor, in connection with any such proceeding, shall elect to terminate
this Lease and the rights of the Tenant hereunder, this Lease shall not be
affected in any way whatsoever by any such proceeding. Nothing herein contained
shall diminish any rights derived by reason of Non-disturbance Agreements
granted to Tenant by lessor under the terms of their underlying lease.
(E) Landlord agrees to provide to Tenant a non-disturbance,
subordination and attornment agreement from its present mortgagees and future
mortgagees. Tenant agrees to execute said agreement on the form annexed hereto
as Exhibit 2 as to the existing mortgagee. As to future mortgagees, Tenant
agrees to execute said agreement on the form of the mortgagee, provided the same
is reasonably similar to Exhibit 2. Tenant further agrees to acknowledge notice
of an assignment of lease to the first mortgagee pursuant to Section 291-f of
the Real Property Law of the State of New York, prior to receipt of the
agreement referred to in this subsection, in the form annexed hereto as Exhibit
3 as to the existing mortgagee.
(F) Tenant covenants and warrants that throughout the term of this
lease it will maintain a net worth in accordance with generally accepted
accounting principles of not less than $18,000,000. Tenant agrees to furnish
Landlord with certified financial statements annually within ninety (90) days of
the close of its fiscal year.
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PROPERTY LOSS, DAMAGE REIMBURSEMENT
23. (A) Landlord or its agents shall not be liable for any damage to
property of Tenant or of others entrusted to employees of the Building, nor for
the loss of or damage to any property of Tenant by theft or otherwise. Landlord
or its agents shall not be liable for any injury or damage to persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, electrical disturbance, water, rain or snow or leaks from any part
of the Building or from the pipes, appliances or plumbing works or from the
roof, street or subsurface or from any other place or by dampness or by any
other cause of whatsoever nature, unless caused by or due to the negligence of
Landlord, its agents, servants or employees; nor shall Landlord or its agents be
liable for any such damage caused by other tenants or persons in the Building or
caused by operations in construction of any private, public or quasi-public
work. If at any time any windows of the Demised Premises are temporarily closed
or darkened incident to or for the purpose of repairs, replacements, maintenance
and/or cleaning in, on, to or about the Building or any part or parts thereof,
Landlord shall not be liable for any damage Tenant may sustain thereby and
Tenant shall not be entitled to any compensation therefor nor abatement of rent
nor shall the same release Tenant from its obligations hereunder nor constitute
an eviction. Tenant shall reimburse and compensate Landlord as additional rent
for all expenditures made by, or damages or fines sustained or incurred by
Landlord due to non-performance or non-compliance with or breach or failure to
observe any term, covenants or condition of this lease upon Tenant's part to be
kept, observed, performed or complied with. Tenant shall give immediate notice
to Landlord in case of fire or accidents in the Demised Premises or in the
Building or of defects therein or in any fixtures or equipment.
TENANT'S INDEMNITY
(B) Tenant shall indemnify and save harmless Landlord against and
from any and all claims by or on behalf of any person or persons, firm or firms,
corporation or corporations arising from the conduct or management of or from
any work or thing whatsoever done (other than by Landlord or its contractors or
the agents or employees of either) in and on the Demised Premises during the
term of this lease and during the period of time, if any prior to the specified
Term Commencement Date that Tenant may have been given access to the Demised
Premises for the purpose of making installations and as to that period Tenant
shall be responsible for its conduct or the conduct of its agents or employees
or either, and will further indemnify and save harmless Landlord against and
from any and all claims arising from any condition of the Demised Premises due
to or arising from any act or omissions or negligence of Tenant or any of its
agents, contractors, servants, employees, licensees or invitees and against and
from all costs, expenses, and liabilities incurred in connection with any such
claim or claims or action or proceeding brought thereon; and in case any action
or proceeding be brought against Landlord by reason of any such claim, Tenant,
upon notice from Landlord, agrees that Tenant, at Tenant's expense, will resist
or defend such action or proceeding and will employ counsel therefor reasonably
satisfactory to Landlord.
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DESTRUCTION - FIRE OR OTHER CASUALTY
24. (A) If the Premises or any part thereof shall be damaged by fire or
other casualty and Tenant gives prompt notice thereof Landlord, Landlord shall
proceed with reasonable diligence to repair or cause to be repaired such damage.
The Rent and additional rent shall be abated to the extent that the Premises
shall have been rendered untenantable, such abatement to be from the date of
such damage or destruction to the date the Premises shall be substantially
repaired or rebuilt, in proportion which the area of the part of the Premises so
rendered untenantable bears to the total area of the Premises.
(B) If the Premises shall be totally damaged or rendered wholly
untenantable by fire or other casualty, and Landlord has not terminated this
lease pursuant to Subsection (C) and Landlord has not completed the making of
the required repairs and restored and rebuilt the Premises and/or access thereto
within six (6) months from the date of such damage or destruction, and such
additional time after such date (but in no event to exceed six (6) months), as
shall equal the aggregate period Landlord may have been delayed in doing so by
unavoidable delays or adjustment of insurance, Tenant may serve notice on
Landlord of its intention to terminate this lease, and if within thirty (30)
days thereafter Landlord shall not have completed the making of the required
repairs and restored and rebuilt the Premises, this lease shall terminate on the
expiration of such thirty (30) day period as if such termination date were the
Expiration Date, and the Rent and additional rent shall be apportioned as of the
date of the fire or other casualty and any prepaid portion of Rent and
additional rent for any period after such date shall be refunded by Landlord to
Tenant.
(C) If the Premises shall be totally damaged or rendered wholly
untenantable by fire or other casualty or if the Building shall be so damaged by
fire or other casualty that substantial alteration or reconstruction of the
Building shall, in Landlord's opinion, be required (whether or not the Premises
shall been damaged by such fire or other casualty), then in any of such events
Landlord may, at its option, terminate this lease and the Term and estate hereby
granted, by giving Tenant thirty (30) days notice of such termination within
ninety (90) days after the date of such damage. In the event that such notice of
termination shall be given, this lease and the Term and estate hereby granted,
shall terminate as of the date provided in such notice of termination (whether
or not the Term shall have commenced) with the same effect as if that were the
Expiration Date, and the Rent and additional rent shall be apportioned as of
such date or sooner termination, and any prepaid portion of Rent and additional
rent for any period after such date shall be refunded by Landlord to Tenant.
(D) Landlord shall not be liable for any inconvenience or annoyance
to Tenant or injury to the business of Tenant resulting in any way from such
damage by fire or other casualty or the repair thereof. Landlord will not carry
insurance of any kind on Tenant's property, and Landlord shall not be obligated
to repair any damage thereto or replace the same.
(E) This lease shall be considered an express agreement governing any
case of damage to or destruction of the Building or any part thereof by fire or
other casualty, and Section 227 of the Real Property Law of the State of New
York providing for such a contingency in the
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absence of such express agreement, and any other law of like import now or
hereafter enacted, shall have no application in such case.
(F) In the event the damage or destruction occurs during the last two
(2) years of the term of the Lease and the Lease has not been extended prior
thereto, Tenant shall have the option to terminate this Lease on thirty (30)
days' notice, given within ninety (90) days of the fire or other casualty.
INSURANCE
25. (A) Tenant shall not do anything, or suffer or permit anything to do
done in or about the Premises which shall (a) subject Landlord to any liability
or responsibility for injury to any person or property by reason of any activity
being conducted in the Premises or (b) cause any increase in the fire insurance
rates applicable to the Building or equipment or other property located therein
at the beginning of the Term or at any time thereafter. Tenant, at Tenant's
expense, shall comply with all rules, orders, regulations or requirements of the
New York Board of Fire Underwriters and the New York Fire Insurance Rating
Organization or any similar body.
(B) If, by reason of any act or omission on the part of Tenant, the
rate of fire insurance with extended coverage on the Building or equipment or
other property of Landlord or any other tenant or occupant of the Building shall
be higher than it otherwise would be, Tenant shall reimburse Landlord and all
such other tenants or occupants, on demand, for that part of the premiums for
fire insurance and extended coverage paid by Landlord and such other tenants or
occupants because of such act or omission on the part of Tenant.
(C) In the event that any dispute should arise between Landlord and
Tenant concerning insurance rates, a schedule or make up of insurance rates for
the Building or the Premises, as the case may be, issued by the New York Fire
Insurance Rating Organization or other similar body making rates for fire
insurance and extended coverage for the Premises concerned, shall be conclusive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rates with extended coverage then applicable to such Premises.
(D) Tenant shall obtain and keep in full force and effect during the
Term, at its own cost and expense, (a) Public Liability Insurance, such
insurance to afford protection in an amount of not less than Two Million
($2,000,000) Dollars for injury or death or property damage arising out of any
one occurrence, protecting Landlord and Tenant as insured against any and all
claims for personal injury, death or property damage occurring in, upon,
adjacent to, or connected with the Premises or any part thereof; and (b)
insurance against loss or damage by fire, and such other risks and hazards as
are insurable under present and future standard forms of fire and extended
coverage insurance policies, to Tenant's property for the full insurable value
thereof, protecting Landlord and Tenant as named insured.
(E) Said insurance is to be written in form and substance
satisfactory to Landlord by a good and solvent insurance company of recognized
standing, admitted to do
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business in the State of New York, which shall be reasonably satisfactory to
Landlord. Tenant shall procure, maintain and place such insurance and pay all
premiums and charges therefor and upon failure to do so Landlord may, but shall
not be obligated to, procure, maintain and place such insurance or make such
payments, and in such event the Tenant agrees to pay the amount thereof, plus
interest at the legal rate then prevailing, to Landlord on demand and said sum
shall be in each instance collectible as Additional Rent on the first day of the
month following the date of payment by Landlord. Tenant shall use its best
efforts to cause to be included in all such insurance policies a provision to
the effect that the same will be non-cancelable except upon twenty (20) days
written notice to Landlord. On the Term Commencement Date the original
insurance policies or appropriate certificates shall be deposited with Landlord.
Any renewals, replacements or endorsements thereto shall also be deposited with
Landlord to the end that said insurance shall be in full force and effect during
the Term.
(F) Each party agrees to use its best efforts to include in each of
its insurance policies (insuring the Building and Landlord's property therein,
in the case of Landlord, and insuring Tenant's property, in the case of Tenant,
against loss, damage or destruction by fire or other casualty) a waiver of the
insurer's right of subrogation against the other party, or if such waiver should
be unobtainable or unenforceable (a) an express agreement that such policy shall
not be invalidated if the assured waives or has waived before the casualty the
right of recovery against any party responsible for a casualty covered by the
policy, or (b) any other form of permission for the release of the other party,
or (c) the inclusion of the other party as an additional insured, but not a
party to whom any loss shall be payable. If such waiver, agreement or
permission shall not be, or shall cease to be, obtainable without additional
charge or at all, the insured party shall so notify the other party promptly
after learning thereof. In such case, if the other party shall agree in writing
to pay the insurer's additional charge therefor, such waiver, agreement or
permission shall be included in the policy, or the other party shall be named as
an additional assured in the policy, but not a party to whom any loss shall be
payable. Each such policy which shall so name a party hereto as an additional
assured shall contain, if obtainable, agreements by the insurer that the policy
will not be canceled without at least twenty (20) days prior notice to both
assureds and that the act or omission of one assured will not invalidate the
policy as to the other assured.
(G) As long as Landlord's fire insurance policies then in force
include the waiver of subrogation or agreement or permission to release
liability referred to in Subsection (F) or name the Tenant as an additional
assured, Landlord hereby waives (a) any obligation on the part of Tenant to make
repairs to the Premises necessitated or occasioned by fire or other casualty
that is an insured risk under such policies, and (b) any right of recovery
against Tenant, any other permitted occupant of the Premises, and any of their
servants, employees, agents or contractors, for any loss occasioned by fire or
other casualty that is an insured risk under such policies. In the event that at
any time Landlord's fire insurance carriers shall not include such or similar
provisions in Landlord's fire insurance policies, the waivers set forth in the
foregoing sentence shall be deemed of no further force or effect.
(H) As long as Tenant's fire insurance policies then in force include
the waiver of subrogation or agreement or permission to release liability
referred to in Subsection (F), or
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name the Landlord as an additional assured Tenant hereby waives (and agrees to
cause any other permitted occupants of the Premises to execute and deliver to
Landlord written instruments waiving) any right of recovery against Landlord,
any other tenants or occupants of the Building, and any servants, employees,
agents or contractors of Landlord or of any such other tenants or occupants, for
any loss occasioned by fire or other casualty which is an insured risk under
such policies. In the event that at any time Tenant's fire insurance carriers
shall not include such or similar provisions in Tenant's fire insurance
policies, the waiver set forth in the foregoing sentence shall, upon notice
given by Tenant to Landlord, be deemed of no further force or effect with
respect to any insured risks under such policy from and after the giving of such
notice. During any period while the foregoing waiver of right of recovery is in
effect, Tenant, or any other permitted occupant of the Premises, as the case may
be, shall look solely to the proceeds of such policies to compensate Tenant or
such other permitted occupant for any loss occasioned by fire or other casualty
which is an insured risk under such policies.
EMINENT DOMAIN
26. (A) In the event that the whole of the Demised Premises shall be
lawfully condemned or taken in any manner for any public or quasi-public use,
this lease and the Term and estate hereby granted shall forthwith cease and
terminate as of the date of vesting of title. In the event that only a part of
the Demised Premises shall be so condemned or taken, then effective as of the
date of vesting of title, the Rent hereunder shall be abated in an amount
thereof apportioned according to the area of the Demised Premises so condemned
or taken. In the event that only a part of the Building shall be so condemned or
taken, then (a) Landlord (whether or not the Demised Premises be affected) may,
at its option, terminate this lease and the Term and estate hereby granted as of
the date of such vesting of title by notifying Tenant in writing of such
termination within sixty (60) days following the date on which Landlord shall
have received notice of vesting of title, and (b) if such condemnation or taking
shall be of a substantial part of the Demised Premises or a substantial part of
the means of access thereof, Tenant shall have the right, by delivery of notice
in writing to Landlord within sixty (60) days following the date on which Tenant
shall have received notice of vesting of title, to terminate this lease and the
Term and estate hereby granted as of the date of vesting of title or (c) if
neither Landlord nor Tenant elects to terminate this lease, as aforesaid, this
lease shall be and remain unaffected by such condemnation or taking, except that
the Rent shall be abated to the extent, if any, hereinabove provided in this
Article 26. In the event that only a part of the Demised Premises shall be so
condemned or taken and this lease and the Term and estate hereby granted are not
terminated as hereinbefore provided, Landlord will, at its expense, restore the
remaining portion of the Demised Premises as nearly as practicable to the same
condition as it was in prior to such condemnation or taking.
(B) In the event of a termination in any of the cases hereinabove
provided, this lease and the Term and estate granted shall expire as of the date
of such termination with the same effect as if that were the date hereinbefore
set for the expiration of the Term of this lease, and the rent hereunder shall
be apportioned as of such date.
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(C) In the event of any condemnation or taking hereinabove mentioned
of all or a part of the Building, Landlord shall be entitled to receive the
entire award in the condemnation proceeding, including any award made for the
value of the estate vested by this lease in Tenant, and Tenant hereby expressly
assigns to Landlord any and all right, title and interest of Tenant now or
hereafter arising in or to any such award or any part thereof, and Tenant shall
be entitled to receive no part of such award, except that the Tenant may file a
claim for any taking of nonmovable fixtures owned by Tenant and for moving
expenses incurred by Tenant. It is expressly understood and agreed that the
provisions of this Article 26 shall not be applicable to any condemnation or
taking for governmental occupancy for a limited period.
NONLIABILITY OF LANDLORD
27. (A) If Landlord or a successor in interest is an individual (which
term as used herein includes aggregates of individual, such as joint ventures,
general or limited partnerships or associations) such individual shall be under
no personal liability with respect to any of the provisions of this Lease, and
if such individual hereto is in breach or default with respect to its
obligations under this lease, Tenant shall look solely to the equity of such
individual in the land and building of which the Demised Premises form a part
for the satisfaction of Tenant's remedies and in no event shall Tenant attempt
to secure any personal judgment against any partner, employee or agent of
Landlord by reason of such default by Landlord.
(B) The word "Landlord" as used herein means only the owner of a
leasehold interest for the time being of the land and Building (or the owners of
a lease of the Building or of the land and Building) of which the Premises form
a part, and in the event of any sale of the Building and land of which the
Demised Premises form a part, Landlord shall be and hereby is entirely freed and
relieved of all covenants and obligations of Landlord hereunder and it shall be
deemed and construed without further agreement between the parties or between
the parties and the purchaser of the Premises, that such purchaser has assumed
and agreed to carry out any and all covenants and obligations of Landlord
hereunder.
DEFAULT
28. (A) Upon the occurrence, at any time prior to or during the Demised
Term, of any one or more of the following events (referred to as "Events of
Default"):
(i) If Tenant shall default in the payment when due of any
installment of Rent or in the payment when due of any additional rent, and such
default shall continue for a period of five (5) business days after notice by
Landlord to Tenant of such default; or
(ii) If Tenant shall default in the observance or performance
of any term, covenant or condition of this lease on Tenant's part to be observed
or performed (other than the covenants for the payment of Rent and additional
rent) and Tenant shall fail to remedy such default within ten (10) days after
notice by Landlord to Tenant of such default, or if such default
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is of such a nature that it cannot be completely remedied within said period of
ten (10) business days and Tenant shall not commence within said period of ten
(10) business days, or shall not thereafter diligently prosecute to completion,
all steps necessary to remedy such default; or
(iii) If Tenant shall file a voluntary petition in bankruptcy or
insolvency, or shall be adjudicated a bankrupt or become insolvent, or shall
file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under the
present or any future federal bankruptcy act or any other present or future
applicable federal, state or other statute of law, or shall make an assignment
for the benefit of creditors or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of Tenant or of all or any
part of Tenant's property; or
(iv) If, within ninety (90) days after the commencement of any
proceeding against Tenant, whether by the filing of a petition or otherwise
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act or any other present or future applicable federal, state or other statute or
law, such proceedings shall not have been dismissed, or if, within ninety (90)
days after the appointment or any trustee, receiver or liquidator of Tenant, or
of all or any part of Tenant's property, without the consent or acquiescence of
Tenant, such appointment shall not have been vacated or otherwise discharged, or
if any execution or attachment shall be issued against Tenant or any of Tenant's
property pursuant to which the Demised Premises shall be taken or occupied or
attempted to be taken or occupied; or
(v) If the Demised Premises shall become deserted or abandoned
for a period of ten (10) consecutive days; or
(vi) If Tenant's interest in this lease shall devolve upon or
pass to any person, whether by operation of law or otherwise, except as
expressly permitted under Article 20.
(vii) If Tenant's net worth, as of the end of any fiscal year,
in accordance with generally accepted accounting principles falls below
$18,000,000.00, provided, however, that if (a) the Guarantee of Lease of even
date herewith given by Arbor National Holdings, Inc. (the "Guarantor") to the
Landlord becomes effective pursuant to its terms or (b) the Guarantor declares
the Guarantee of Lease to be effective notwithstanding any conditions therein,
then and in such event any Event of Default occurring by virtue of this clause
(vii) or by virtue of the failure of the Tenant to comply with the provisions of
22 (F) shall be deemed cured and waived by the Landlord. From the effective
date of the Guarantee of Lease, the Lease shall be deemed amended, without
further action on the part of the Tenant or the Landlord, to delete the
provisions of Section 22 (F) and 28 (A) (vii).
Then, upon the occurrence, at any time prior to or during
the Demised Term, of any one or more of such Events of Default, Landlord, at any
time thereafter, at Landlord's option, may give to Tenant a five (5) business
days' notice of termination of this lease and, in the event such notice is
given, this lease and the Term shall come to an end and expire (whether or not
said term shall have commenced) upon the expiration of said five (5) business
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days with the same effect as if the date of expiration of said five (5) business
days were the Expiration Date, but Tenant shall remain liable for damages as
provided in Article 30.
(B) If, at any time (i) Tenant shall be comprised of two (2) or more
persons, or (ii) Tenant's obligations under this lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
lease shall have been assigned, the word "Tenant", as used in subsection (iii)
and (iv) of Section 28A, shall be deemed to mean any one or more of the persons
primarily or secondarily liable for Tenant's obligations under this lease. Any
monies received by Landlord from or on behalf of Tenant during the pendency of
any proceeding of the types referred to in said subsections (iii) and (iv) shall
be deemed paid as compensation for the use and occupation of the Demised
Premises and the acceptance of any such compensation by Landlord shall not be
deemed an acceptance of Rent or a waiver on the part of Landlord of any rights
under Section 28(A).
TERMINATION ON DEFAULT
29. (A) If Tenant shall default in the payment when due of any
installment of rent or in the payment when due if any additional rent and such
default shall continue for a period of five (5) business days after notice by
Landlord to Tenant of such default, or if this lease and the Demised Term shall
expire and come to an end as provided in Article 28:
(i) Landlord and its agents and servants may immediately, or
at any time after such default or after the date upon which this lease and the
Demised Term shall expire and come to an end, re-enter the Demised Premises or
any part thereof, without notice, either by summary proceedings or by any other
applicable action or proceeding, or by force or otherwise (without being liable
to indictment, prosecution or damages therefor), and may repossess the Demised
Premises and dispossess Tenant and any other persons from the Demised Premises
and remove any and all of their property and effects from the Demised Premises;
and
(ii) Landlord, at Landlord's option, may relet the whole or any
part or parts of the Demised Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and upon such
other conditions, which may include concessions and free rent periods, as
Landlord, in its sole discretion, may determine. Landlord shall have no
obligation to relet the Demised Premises or any part thereof and shall in no
event be liable for refusal or failure to relet the Demised Premises or any part
thereof, or, in the event of any such reletting, for refusal or failure to
collect any rent due upon any such reletting, and no such refusal or failure
shall operate to relieve Tenant of any liability under this lease or otherwise
to affect any such liability. Landlord, at Landlord's option, may make such
repairs, replacements, alterations, additions, improvements, decoration and
other physical changes in and to the Demised Premises as Landlord, in its sole
discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Tenant of any liability under
this lease or otherwise affecting such liability. Notwithstanding the foregoing,
Landlord agrees to mitigate Tenant's damages.
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(B) Tenant, on its own behalf and on behalf of all persons claiming
through or under Tenant, including all creditors, does hereby waive any and all
rights which Tenant and all such persons might otherwise have under any present
or future law to redeem the Demised Premises, or to reenter or repossess the
Demised Premises, or to restore the operation of this lease, after (i) Tenant
shall have been dispossessed by a judgment or by warrant of any court or judge,
or (ii) any re-entry by Landlord, or (iii) any expiration or termination of this
lease and the Demised Term, whether such dispossess, re-entry, expiration or
termination shall be by operation of law or pursuant to the provisions of this
lease. In the event of a breach or threatened breach by Tenant or any persons
claiming through or under Tenant, of any term, covenants or condition of this
lease on Tenant's part to be observed or performed, Landlord shall have the
right to enjoin such breach and the right to invoke any other remedy allowed by
law or in equity as if re-entry, summary proceedings and other special remedies
were not provided in this lease for such breach. The rights to invoke the
remedies hereinbefore set forth are cumulative and shall not preclude Landlord
from invoking any other remedy allowed at law or in equity.
DAMAGES
30. (A) If this lease and the Demised Term shall expire and come to an
end as provided in Article 28 or by or under any summary proceeding, or any
other action or proceeding or if Landlord shall re-enter the Demised Premises as
provided in Article 29 or by or under any summary proceedings or any other
action or proceeding, then, in any of said events:
(i) Tenant shall pay to Landlord all Rent, additional rent and
other charges payable under this lease by Tenant to Landlord to the date upon
which this lease and the Demised Term shall have expired and come to an end or
to the date of re-entry upon the Demised Premises by Landlord, as the case may
be; and
(ii) Tenant shall also be liable for and shall pay to Landlord,
as damages, any deficiency (referred to as "Deficiency") between the Rent and
additional rent reserved in this lease for the period which otherwise would have
constituted the unexpired portion of the Demised Term and the net amount, if
any, of rents collected under any reletting effected pursuant to the provisions
of Section 29(A) for any part of such period (first deducting from the rents
collected under any such reletting all of Landlord's expenses in connection with
the termination of this lease or Landlord's re-entry upon the Demised Premises
and with such reletting including, but not limited to, all repossession costs,
brokerage commissions, legal expenses, attorneys' fees, alteration costs and
other expenses of preparing the Demised Premises for such reletting). Any such
Deficiency shall be paid in monthly installments by Tenant on the days specified
in this lease for payment of installments of Rent. Landlord shall be entitled to
recover from Tenant each monthly Deficiency as the same shall arise, and no suit
to collect the amount of the Deficiency for any month shall prejudice Landlord's
rights to collect the Deficiency for any subsequent month by a similar
proceeding; and
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(iii) At any time after the Demised Term shall have expired and
come to an end or Landlord shall have re-entered upon the Demised Premises, as
the case may be, whether or not Landlord shall have collected any monthly
Deficiencies as aforesaid, Landlord shall be entitled to recover from Tenant,
and Tenant shall pay to Landlord, on demand, as and for liquidated and agreed
final damages, a sum equal to the amount by which the Rent and additional rent
reserved in this lease for the period which otherwise would have constituted the
unexpired portion of the Demised Term exceeds the then fair and reasonable
rental value of the Demised Premises for the same period, both discounted to
present worth at the rate of eight (8%) per cent per annum. If, before
presentation of proof of such liquidated damages to any court, commission, or
tribunal, the Demised Premises, or any part thereof, shall have been relet by
Landlord for the period which otherwise would have constituted the unexpired
portion of the Demised Term, or any part thereof, the amount of Rent reserved
upon such reletting in an arms length transaction shall be deemed, prima facie,
to be the fair and reasonable rental value for the part or the whole of the
Demised Premises so relet during the term of the reletting.
(B) If the Demised Premises, or any part thereof, shall be relet
together with other space in the Building, the rents collected or reserved under
any such reletting and the expenses of any such reletting shall be equitably
apportioned for the purposes of this Article 30. Tenant shall in no event be
entitled to any rents collected or payable under any reletting, whether or not
such rents shall exceed the rent reserved in this lease. Solely for the purposes
of this Article, the term "Rent" as used in Section 30(A) shall mean the rent in
effect immediately prior to the date upon which this lease and the Demised Term
shall have expired and come to an end, or the date of re-entry upon the Demised
Premises by Landlord, as the case may be, plus any additional rent payable
pursuant to the provisions of Article 11 of the Escalation Year (as defined in
Article 11) immediately preceding such event. Nothing contained in Article 28
and 29 of this Lease shall be deemed to limit or preclude the recovery by
Landlord from Tenant of the maximum amount allowed to be obtained as damages by
any statute or rule of law, or of any sums or damages to which Landlord may be
entitled in addition to the damages set forth in Section 30(A).
SUMS DUE LANDLORD
31. (A) In any case in excess of once per calendar year, in which the
Rent or additional rent is not paid within ten (10) days of the day when same is
due, Tenant shall pay a late charge equal to (5) cents for each dollar so due,
for the purpose of defraying expenses incident to the handling of such
delinquent account. Tenant further agrees that the late charge imposed is fair
and reasonable, complies with all laws, regulations and statutes, and
constitutes an agreement between Landlord and Tenant as to the estimated
compensation for costs and administrative expenses incurred by Landlord due to
the late payment of rent to Landlord by Tenant. Tenant further agrees that the
late charge assessed pursuant to this lease is not interest, and the late charge
assessed does not constitute a lender or borrower/creditor relationship between
Landlord and Tenant.
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(B) If Tenant shall default in the performance of any covenants on
Tenant's part to be performed in this lease contained, Landlord may immediately,
or at any time thereafter, without notice, without thereby waiving such default,
perform the same for the account of Tenant and at the expense of Tenant. If
Landlord at any time is compelled to pay or elects to pay any sun of money, or
do any act which will require the payment of any sum of money, by reason of the
failure of Tenant to comply with any provision hereof, or, if Landlord is
compelled to or does incur any expense including reasonable attorneys' fees,
instituting, prosecuting and/or defending any action or proceeding instituted by
reason of any default of Tenant hereunder, the sum or sums so paid by Landlord
with all interest, costs and damages, shall be deemed to be additional rent
hereunder and shall be due from Tenant to Landlord on the first day of the month
following the incurring of such respective expenses, or at Landlord's option on
the first day of any subsequent month. Any sum of money (other than rent)
accruing from Tenant to Landlord pursuant to any provision of this lease
including but not limited to, the provisions of Schedule C, whether prior to or
after the Term Commencement Date, may, at Landlord's option, be deemed
additional rent, and Landlord shall have the same remedies for Tenant's failure
to pay any item of additional rent when due as for Tenant's failure to pay any
installment of rent when due. Tenant's obligations under this Article shall
survive the expiration or sooner termination of the Demised Term.
NO WAIVER
32. (A) No act or thing done by Landlord or Landlord's agents during the
term hereby demised shall be deemed an acceptance of a surrender of said Demised
Premises, and no agreement to accept such surrender shall be valid unless in
writing signed by Landlord. No employee of Landlord or of Landlord's agents
shall have any power to accept the keys of said Demised Premises prior to the
termination of this lease. The delivery of keys to any employee of Landlord or
of Landlord's agents shall not operate as a termination of this lease or a
surrender of the Demised Premises. In the event of Tenant at any time desiring
to have Landlord underlet the Demised Premises for Tenant's account, Landlord or
Landlord's agents are authorized to receive said keys for such purposes without
releasing Tenant from any of the obligations under this lease, and Tenant hereby
relieves Landlord of any liability for loss of or damage to any of Tenant's
effects in connections with such underletting. The failure of Landlord to seek
redress for violation of, or to insist upon the strict performance of, any
covenants or conditions of this lease, or any of the Rules and Regulations
annexed hereto and made a part hereof or hereafter adopted by Landlord, shall
not prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation. The
receipt by Landlord of rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver of such breach. The failure of Landlord to
enforce any of the Rules and Regulations annexed hereto and made a part hereof,
or hereafter adopted, against Tenant and/or any other tenant in the Building
shall not be deemed a waiver of any such Rules and Regulations. No provision of
this lease shall be deemed to have been waived by Landlord, unless such waiver
be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of
a lesser amount then the monthly Rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated Rent nor shall any endorsement
or statement on any check or any letter accompanying any check or
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payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlords' right to recover the
balance of such Rent or pursue any other remedy in this lease provided.
WAIVER OF TRIAL BY JURY
33. To the extent such waiver is permitted by law, Landlord and Tenant
hereby waive trial by jury in any action, proceeding or counterclaim brought by
Landlord or Tenant against the other on any matter whatsoever arising out of or
in any way connected with this lease, the relationship of landlord and tenant,
the use or occupancy of the Demised Premises by Tenant or any person claiming
through or under Tenant, any claim of injury or damage, and any emergency or
other statutory remedy. The provisions of the foregoing sentence shall survive
the expiration or any sooner termination of the Demised Term. If Landlord
commences any summary proceeding for nonpayment of Rent, Tenant agrees not to
interpose any counterclaim of whatever nature or description in any such
proceeding.
Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Tenant being
evicted or dispossessed for any cause, or in the event of Landlord's obtaining
possession of the Demised Premises, by reason of the violation by Tenant of any
of the covenants and conditions of this Lease or otherwise.
BILLS AND NOTICES
34. Except as otherwise expressly provided in this lease, any bills,
statements, notices, demands, requests or other communications given or required
to be given under this lease shall be effective only if rendered or given in
writing, sent by registered or certified mail (return receipt requested),
addressed (A) to Tenant (i) at Tenant's address set forth in this lease if
mailed prior to Tenant's taking possession of the Demised Premises, or (ii) at
the Building if mailed subsequent to Tenant's taking possession of the Demised
Premises, or (iii) at any place where Tenant or any agent or employee of Tenant
may be found if mailed subsequent to Tenant's vacating, deserting, abandoning or
surrendering the Demised Premises, or (B) to Landlord at Landlord's address set
forth in this lease, or (C) addressed to such other address as either Landlord
or Tenant may designate as its new address for such purpose by notice given to
the other in accordance with the provisions of this Article. Any such bills,
statements, notices, demands, requests or other communications shall be deemed
to have been rendered or given on the date when it shall have been mailed as
provided in this Article. Default notices shall be deemed to have been rendered
or given on the earlier of a) five (5) days after it has been mailed or b)
receipt by Tenant.
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INABILITY TO PERFORM
35. (A) If, by reason of strikes or other labor disputes, fire or other
casualty (or reasonable delays in adjustment of insurance), accidents, orders or
regulations of any Federal, State, County or Municipal authority, or any other
cause beyond Landlord's reasonable control, whether or not such other cause
shall be similar in nature to those hereinbefore enumerated, Landlord is unable
to furnish or is delayed in furnishing any utility or service required to be
furnished by Landlord under the provisions of this lease or any collateral
instrument, or is unable to perform or make or is delayed in performing or
making any installations, decorations, repairs, alterations, additions or
improvements, whether or not required to be performed or made under this lease,
or under any collateral instrument, or is unable to fulfill or is delayed in
fulfilling any of Landlord's other obligations under this lease, or any
collateral instrument, no such inability or delay shall constitute an actual or
constructive eviction, in whole or in part or entitle Tenant to any abatement or
diminution of rent, or relieve Tenant from any of its obligations under this
lease, or impose any liability upon Landlord or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise.
INTERRUPTION OF SERVICE
(B) Landlord reserves the right to stop the services of the air
conditioning, elevator, escalator, plumbing, electrical or other mechanical
systems or facilities in the Building when necessary by reason of accident or
emergency, or for repairs, alterations, replacements or improvements, which, in
the reasonable judgment of Landlord are desirable or necessary, until said
repairs, alterations, replacements or improvements shall have been completed.
The exercise of such rights by Landlord shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under this
lease, or impose any liability upon Landlord or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business or otherwise.
CONDITIONS OF LANDLORD'S LIABILITY
(C) (i) Tenant shall not be entitled to claim a constructive
eviction from the Demised Premises unless Tenant shall have first notified
Landlord of the condition or conditions giving rise thereto, and if the
complaints be justified, unless Landlord shall have failed to remedy such
conditions within a reasonable time after receipt of such notice.
(ii) Except as provided in Article 2 of this Lease, if Landlord
shall be unable to give possession of the Demised Premises on any date specified
for the commencement of the term by reason of the fact that the premises have
not been sufficiently completed to make the premises ready for occupancy, or for
any other reason, Landlord shall not be subject to any liability for the failure
to give possession on said date, nor shall such failure in any way affect the
validity of this lease or the obligations of Tenant hereunder.
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TENANT'S TAKING POSSESSION
(D) (i) Tenant by entering into occupancy of the premises shall be
conclusively deemed to have agreed that Landlord up to the time of such
occupancy had performed all of its obligations hereunder and that the premises
were in satisfactory condition as of the date of such occupancy, unless within
ten (10) business days after such date Tenant shall have given written notice to
Landlord specifying the respects in which the same were not in such condition.
(ii) If Tenant shall use or occupy all or any part of the
Demised Premises for the conduct of business prior to the Term Commencement
Date, such use or occupancy shall be deemed to be under all of the terms,
covenants and conditions of this lease, including the covenant to pay rent for
the period from the commencement of said use or occupancy to the Term
Commencement Date.
ENTIRE AGREEMENT
36. This lease (including the Schedules and Exhibits annexed hereto)
contains the entire agreement between the parties and all prior negotiations and
agreements are merged herein. Neither Landlord nor Landlord's agent or
representative has made any representations or statements, or promises, upon
which Tenant has relied regarding any matter or thing relating to the Building,
the land allocated to it (including the parking area) or the Demised Premises,
or any other matter whatsoever, except as is expressly set forth in this lease,
including but without limiting the generality of the foregoing, any statement,
representation or promise as to the fitness of the Demised Premises for any
particular use, the services to be rendered to the Demised Premises or the
prospective amount of any item of additional rent. No oral or written
statement, representation or promise whatsoever with respect to the foregoing or
any other matter made by Landlord, its agents or any broker, whether contained
in an affidavit, information circular, or otherwise shall be binding upon the
Landlord unless expressly set forth in this lease. No rights, easements or
licenses are or shall be acquired by Tenant by implication or otherwise unless
expressly set forth in this lease. This lease may not be changed, modified or
discharged, in whole or in part, orally and no executory agreement shall be
effective to change, modify or discharge, in whole or in part, this lease or any
obligations under this lease, unless such agreement is set forth in a written
instrument executed by the party against whom enforcement of the change,
modification or discharge is sought. All references in this lease to the
consent or approval of Landlord shall be deemed to mean the written consent of
Landlord, or the written approval of Landlord, as the case may be, and no
consent or approval of Landlord shall be effective for any purpose unless such
consent or approval is set forth in a written instrument executed by Landlord.
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DEFINITIONS
37. The words "re-enter", "re-entry", and "re-entered" as used in this
lease are not restricted to their technical legal meanings. The term "business
days" as used in this lease shall exclude Saturdays (except such portion thereof
as is covered by specific hours in Article 6 hereof), Sundays and all days
observed by the State or Federal Government as legal holidays. The terms
"person" and "persons" as used in this lease shall be deemed to include natural
persons, firms, corporations, associations and any other private or public
entities, whether any of the foregoing are acting on their behalf or in a
representative capacity. The various terms which are defined in other Articles
of this lease or are defined in Schedules or Exhibits annexed hereto, shall have
the meanings specified in such other Articles, Exhibits and Schedules for all
purposes of this lease and all agreements supplemental thereto, unless the
context clearly indicates the contrary.
PARTNERSHIP TENANT
38. If Tenant is a partnership (or is comprised of two (2) or more
persons, individually and as co-partners of a partnership) or if Tenant's
interest in this lease shall be assigned to a partnership (or to two (2) or more
persons, individually and as co-partners of a partnership) pursuant to Article
20 (any such partnership and such persons are referred to in this Section as
"Partnership Tenant"), the following provisions of this Section shall apply to
such Partnership Tenant: (a) the liability of each of the parties comprising
Partnership Tenant shall be joint and several, and (b) each of the parties
comprising Partnership Tenant (or individual shareholder if the partnership is a
Professional Corporation) hereby consents in advance to, and agrees to be bound
by, any modifications of this lease which may hereafter be made and by any
notices, demands, requests or other communications which may hereafter be given
by Partnership Tenant or by any of the parties comprising Partnership Tenant,
and (c) any bills, statements, notices, demands, requests and other
communications given or rendered to Partnership Tenant or to any of the parties
comprising Partnership Tenant shall be deemed given or rendered to Partnership
Tenant and to all such parties and shall be binding upon Partnership Tenant and
all such parties, and (d) if Partnership Tenant shall admit new partners, all of
such new partners shall, by their admission to Partnership Tenant, be deemed to
have assumed performance of all of the terms, covenants and conditions of this
lease on Tenant's part to be observed and performed, and (e) Partnership Tenant
shall give prompt notice to Landlord of the admission of any such new partners,
and upon demand of Landlord shall cause each such new partner to execute and
deliver to Landlord an agreement in form satisfactory to Landlord, wherein each
such new partner shall assume performance of all of the terms, covenants and
conditions of this lease on Tenant's part to be observed and performed (but
neither Landlord's failure to request any such agreement nor the failure of any
such new partner to execute or deliver any such agreement to Landlord shall
vitiate the provisions of subdivision (d) of this Section).
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SUCCESSORS, ASSIGNS, ETC.
39. The terms, covenants, conditions and agreements contained in this
lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors, and,
except as otherwise provided in this lease, their respective assigns.
BROKER
40. Tenant represents that this lease was brought about by no one as
broker and all negotiations with respect to this Lease were conducted without
any broker. Tenant agrees that if any claim is made for commissions by any
broker through or on account of any acts of Tenant, Tenant will hold Landlord
free and harmless from any and all liabilities and expenses in connection
therewith, including Landlord's reasonable attorney's fees.
CAPTIONS
41. The captions are included only as a matter of convenience and for
reference, and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
CONFERENCE CENTER AND HEALTH CLUB
42. (A) There shall be available to all tenants in the Building, an
equipped conference center with teleconferencing satellite communication
capabilities. The use of this facility shall be subject to reasonable Rules and
Regulations of Landlord hereafter imposed, as to manner of usage, frequency of
usage, fees and expenses thereof and such other similar Rules and Regulations as
Landlord shall, from time to time, impose on a uniform basis. Tenant shall have
the right to use 1) the board room twelve (12) times per year 2) the
teleconference room three (3) times per year and (3) the art gallery three (3)
times per year, all without payment of a fee.
(B) There shall be available to all tenants in the Building, an
equipped health club.- The use of this facility shall be subject to reasonable
Rules and Regulations of Landlord, hereafter imposed, as to manner of usage,
frequency of usage, fees and expenses thereof and such other similar Rules and
Regulations as Landlord shall, from time to time, impose on a uniform basis.
Initially, the charge for the use of the health club shall be $100.00 per
person, per annum subject to a ten (10%) per cent per year increase, if
applicable.
EARLY TERMINATION
43. Provided Tenant is not in default under any of the terms, covenants
and conditions of this Lease on the part of the Tenant to be performed, Tenant
shall have the right to terminate
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this Lease on May 31, 2001, provided Tenant gives Landlord written notice of its
election to terminate not later than May 31, 2000, time being of the essence. At
the time Tenant gives Landlord such notice of termination, Tenant shall pay to
Landlord the sum equal to eighteen (18) months rent as of May 31, 2001, as lease
termination consideration.
ADDITIONAL SPACE
44. (A) Provided the Lease shall be in full force and effect and Tenant
shall not be in default beyond the applicable cure period in the payment of Rent
or additional rent, or any other sums or charges provided to be paid by Tenant
under this Lease, Tenant shall have the right to lease 4,880 square feet on the
ninth floor and/or 3,435 square feet on the first floor (Additional Space) as
shown on Exhibit 1 under this Lease for a term to commence nine (9) months after
Tenant's Notice but in no event later than November 1, 1995 and to terminate in
accordance with Article 2. Such right to lease the Additional Space shall be
exercised, if at all, by Tenant's notice to Landlord ("Tenant's Notice"), not
later than January 31, 1995, time being of the essence, and Tenant's failure
duly to give the Tenant's Notice shall be deemed a waiver of such right to lease
the Additional Space. Tenant's Notice shall specify which one or both of the
Additional Spaces that Tenant elects to lease.
(B) If Tenant shall effectively exercise its right to lease either or
both of the Additional Spaces as set forth in Section A hereof, then, this Lease
shall be amended as follows:
(i) The Additional Space or part thereof as the case may be,
shall be deemed to be added to and form a part of the Premises demised under the
Lease with the same force and effect as if originally demised under the Lease,
and the terms "Premises," "premises," and "demised premises" as used in the
Lease shall include the Additional Space, or part thereof, as the case may be;
(ii) The Rent shall be increased as follows:
The Rent for the Additional Space shall be at a rate equal to $23.00
per square foot for the Additional Space on the first floor and $23.75 per
square foot for the Additional Space on the ninth floor for the first lease year
of the term of this lease. During the second lease year, said rental rate shall
be 104% of the rental rate of the prior year. Each lease year subsequent to
Tenant's exercise of the option for Additional Space, the rental rate shall be
104% of the rental rate for the prior year.
(iii) Article (lA) shall be amended to reflect the new total
square footage leased to Tenant and the Tenant's proportionate share shall be
adjusted to the new proportion.
(iv) Article 9 shall be amended to reflect that new parking
spaces shall be added at the rate of four (4) parking spaces per 1,000 square
feet of rentable area of Additional Space.
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(C) If Landlord is unable to give possession of the Additional Space,
for any reason whatsoever, Landlord shall not be subject to any liability for
failure to give possession on said date and the validity of the Lease shall not
be impaired under such circumstances, or shall the same be construed in any way
to extend the term of the Lease, but the rent payable hereunder for the
Additional Space shall be abated (provided Tenant is not responsible for the
inability to obtain possession) until after Landlord shall have given Tenant
written notice that the Additional Space is ready for Tenant's occupancy. In the
event the Additional Space is not "substantially completed" five (5) months
after the date when possession of the Additional Space was scheduled to be
delivered to Tenant, in accordance with this Article, plus additional time
caused by any of the events or occurrences specified in Article 35 (A) of this
lease and Tenant Delays, then and in that event, Tenant shall be entitled to two
(2) days of rent concession for each day of delay beyond said period.
(D) The provisions of this Article are intended to constitute "an
express provision to the contrary" within the meaning of Section 223-a of the
New York Real Property Law.
(E) If Tenant effectively exercises its right to lease the Additional
Space, as set forth in Section (A) of this Article, Landlord shall follow
Tenant's plans and specifications at a cost to Landlord, not to exceed $25.00
per square foot. Any cost of construction in excess of $25.00 per square foot
shall be paid by Tenant to Landlord within ten (10) days of Landlord's billing
to Tenant.
RENEWAL OPTIONS
45. The Tenant shall have the right to be exercised as hereinafter
provided, to extend the term of this lease for one (1) period of five (5) years
upon the following terms and conditions:
(A) That at the time of the exercise of such right the Tenant shall
not be in default in the performance of any of the terms, covenants or
conditions herein contained with respect to a matter as to which written notice
of default has been given hereunder and which has not been remedied within the
time period provided for in this Lease for the cure of such default.
(B) That said extension shall be upon the same terms, covenants and
conditions as in this lease provided, except that (a) there shall be no further
privilege or extension for the term of this Lease beyond the one period referred
to above; (b) the rents during the five (5) year renewal term shall be at a rate
equal to eighty (80%) percent of the Fair Market Rental Value (as defined below)
of the Demised Premises at the time of commencement of said renewal period, as
determined by agreement between Landlord and Tenant or by arbitration in
accordance with the provisions of this lease and this subsection 45(B). In the
event Tenant exercises its options contained in this Article, Tenant shall
specify in said notice Tenant's evaluation of 80% of the Fair Market Rental
Value of the Demised Premises ("Tenant's Rent") for the period covered by the
exercise of said option. Within three (3) months thereafter, Landlord shall
send to
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Tenant a notice stating either (i) Landlord's agreement with Tenant's Rent, in
which event Tenant's Rent shall be fixed as the rent payable by Tenant for the
renewal period in issue, or (ii) Landlord's evaluation of 80% of Fair Market
Rental Value ("Landlord's Rent"). If Landlord and Tenant are unable to agree
upon said 80% of Fair Market Rental Value within three (3) months from the date
of sending the notice described in (ii) above, the matter shall be determined by
arbitration pursuant to Subsection 45(E) of this lease. Landlord and Tenant
agree that the arbitrators' determination of 80% of the Fair Market Rental Value
of the Demised Premises for the renewal period in issue may not, in any event,
a) be less than Tenant's Rent; b) less than the rate of Rent plus additional
rent under paragraph 11(B) in the last lease year of the Demised Term, or c)
more than Landlord's Rent.
If for any reason, the renewal term shall commence prior to the
determination of the Rent for such term, Tenant, in the meantime, shall pay the
monthly installments of Rent (the "Prior Rent") in effect under this lease on
the last day of the term being renewed. If the Rent for such renewal term shall
be determined to be greater than the Prior Rent, then the Tenant immediately
following such determination, shall promptly pay to the Landlord the difference
between the Prior Rent actually paid and that which should have been paid on the
basis of such determination; thereafter Tenant shall pay the Rent as so
determined.
C. Tenant agrees to accept the Demised Premises in the condition
then existing as of the commencement of the renewal term of this Lease, and
Landlord shall not be responsible for performing any work or furnishing any
materials to the Demised Premises.
D. The failure or omission by Tenant to give notice required under
the provisions of Sections of this Article exercising Tenant's option to renew
within the time and manner provided, shall be deemed without further notice and
without further agreement between the parties, that Tenant elected not to
exercise said option.
E. In the event of a dispute between the Landlord and the Tenant,
with respect to any issue specifically mentioned elsewhere in this lease as a
matter to be decided by arbitration, such dispute shall be determined by
arbitration as provided in this paragraph. The Landlord and the Tenant shall
each appoint a person as arbitrator who shall have had at least ten (10) years
of experience in the County of Nassau County, New York, as either a licensed
real estate broker specializing in commercial leasing or an appraiser
specializing in appraising office building rentals in Nassau County, New York.
Such appointment shall be signified in writing by each party to the other, and
the arbitrators so appointed in the event of their failure to agree upon the
matter so submitted, within twenty (20) days after their appointment, shall
promptly appoint a third arbitrator. In the case of the failure of said
arbitrators to agree upon a third arbitrator, within twenty (20) days after
their appointment, same shall be appointed by the American Arbitration
Association from its qualified panel of arbitrators, and shall be a person
having the same qualifications authorized above in this subparagraph 45(E). If
the Landlord or the Tenant shall fail to so appoint an arbitrator for a period
of twenty (20) days after written notice from the other party to make such
appointment, then the arbitrator appointed by the party not in default hereunder
shall appoint a second arbitrator and the two so appointed shall, in the event
of their failure to agree upon any decision within ten (10) days thereafter,
promptly appoint a third
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<PAGE>
arbitrator. The three arbitrators, after being duly sworn to perform their
duties with impartiality and fidelity, shall proceed to determine the question
submitted. The decision of the arbitrators shall be rendered within thirty (30)
days after their appointment and such decision shall be in writing and in
duplicate, one counterpart thereof to be delivered to each of the parties
hereto. The award of the arbitrators shall be binding, final, and conclusive on
the parties. The fees of the arbitrators and the expenses incident to the
proceedings shall be borne equally between the Landlord and the Tenant. The
fees of respective counsel engaged by the parties and the fees of expert
witnesses and the witnesses called for by the parties, shall be paid by the
respective party engaging such counsel or calling or engaging such witnesses.
(F) Notwithstanding anything in this paragraph "45" contained to the
contrary, the Tenant shall not be entitled to any particular extension if at the
time of the commencement of the extended period the Tenant shall be in default
under any of the terms, covenants or conditions of this Lease with respect to a
matter as to which notice of default has been given hereunder and which has not
been remedied within the time limited in this Lease, or if this Lease shall have
terminated prior to the commencement of said period.
(G) The Tenant shall exercise its right to said extension of the term
of this Lease by notifying the Landlord of the Tenant's election to exercise
such right at least nine (9) months prior to the expiration of the term of this
Lease. Upon the giving of such notice, this Lease shall be deemed extended for
the specified period, subject to the provisions of this paragraph "45" without
execution of any further instrument.
(H) This option is personal to the Tenant named herein only. In the
event of an assignment of the lease to the Premises by the Tenant named herein,
this option shall be null and void and have no force and effect.
(I) As used in this Lease, the term "Fair Market Rental Value" at any
point in time shall mean the rate of Rent per square foot being quoted by owners
or holders of interests similar to Landlord's, to prospective tenants or, to the
extent applicable, to existing tenants (and being accepted by such prospective
tenants or existing tenants, as the case may be) at such point in time (i) for
space in buildings in Nassau County, New York, that are comparable to the
Building and are of substantially the same vintage, which space is comparable in
size, location, configuration, view and degree of leasehold improvements to the
space in the Building to be leased or released, as the case may be, by Tenant
with respect to which such rate applies, and (ii) for a lease term of
substantially the same duration as the term for which such space in the Building
will be leased to Tenant. In determining such Fair Market Rental Value, there
shall be taken into account, among other things, quoted rental rates, rental
abatement concessions being granted, construction and other allowances or
contributions (to the extent relevant or otherwise factored into such quoted
rental rates) and concessions being granted, financing of leasehold improvements
being incorporated into such rates, brokerage commissions and all other
concessions being granted to such prospective or existing tenants, as the case
may be, and escalation "STOPS" for base years or Porter's Wage Scales or other
escalation bench marks being utilized to determine such rates.
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<PAGE>
RIGHT OF FIRST REFUSAL
46. After the second year of the lease term, Tenant shall have the right
of first refusal with respect to leasing the Additional Space, or that portion
thereof, not previously leased by Tenant as such space becomes available for
leasing by the Landlord, provided that (1) this Lease is then in full force and
effect, and (2) at least five (5) years of its term then remain (or if less than
five (5) years remain, Tenant has given notice of its option to renew this Lease
pursuant to Article 45). The exercise of Tenant's right of first refusal shall
be further subject to the following conditions:
(a) As soon as Landlord receives an acceptable bona fide offer from a
third party for the leasing of all or any part of such space, Landlord shall
notify Tenant of the material terms and conditions of such offer and furnish it
with a true copy thereof. Tenant shall then have five (5) business days to
notify Landlord that it agrees to lease the same space on the same terms and
conditions as are contained in such offer.
(b) Landlord may accept the third party's offer if Tenant declines to
meet the offer or fails to reply to Landlord's notice thereof within the five
(5) business day period specified in (a) above.
(c) If Tenant agrees by reply notice to meet such offer, it shall
promptly enter into a modification of this Lease with Landlord to incorporate
the subject space into this Lease, but otherwise upon the terms and conditions
set forth in such offer.
ELECTRIC OPTION
47. One time during the first lease year, at no additional charge to
Tenant, at Tenant's option to be exercised by written notice from Tenant to
Landlord, Tenant shall have the right to increase the number of Working Hours to
be included as Normal Service. The hours of increase shall be as stated in
Tenant's notice to Landlord. In such event, the energy rates and zone hours as
set forth in this lease shall be increased proportionately. In the event Tenant
exercises said option, then effective as of the first day of the month next
succeeding Tenant's notice to Landlord and for the balance of the term of the
lease, the lease shall be amended to reflect the new energy rates and zone
hours. The parties shall execute a lease amendment reflecting the changes in
hours, the new energy rates and the new zone hours.
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
Witness for Landlord: HMCC ASSOCIATES
by RECKSON ASSOCIATES, general partner
[Loretta Regento]
By: [Donald Relhler]
------------------------------------------
Partner
Witness for Tenant: ARBOR NATIONAL MORTGAGE, INC.
[Walter K. Horn]
By: [ ]
------------------------------------------
39
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF SUFFOLK )
On this [31] day of August, 1993, before me personally came [Donald
Relhler] to me known, who being by me duly sworn, did depose and say that he is
a general partner of RECKSON ASSOCIATES, a general partner of HMCC ASSOCIATES,
the partnership described in, and which executed the foregoing instrument; that
he signed his name thereto and executed said instrument for and on behalf of and
with the authority of said limited partnership, as "Landlord".
[Kathleen Giaimo]
---------------------------------------------
Notary Public
[Notary Public State of New York]
[#4695144]
[Qualified in Nassau County]
[Commission expires 3/30/95]
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF [NASSAU] )
On this [25] day of August, 1993, before me personally came [IVAN KAUFMAN],
to me known, who being by me duly sworn did depose and say that he resides at
[17 Steven Lane, Kings Point, NY], that he is the [PRES.] of ARBOR
NATIONAL MORTGAGE, INC., the corporation described in and which executed the
foregoing instrument as "Tenant"; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation, and that he
signed his name thereto by like order.
[LINDA A. FELORA]
----------------------------------------
Notary Public
[Linda A. Felora]
[Notary Public, State of New York]
[No. 30-4910945]
[Qualified in Nassau County]
[Commission Expires Nov. 2, 1993]
<PAGE>
SCHEDULE "A"
LANDLORD'S INITIAL CONSTRUCTION
1. Initial Office Finishing Schedule
Landlord will follow exhibit plans and specifications annexed hereto in
preparing Tenant's office area at Landlord's cost as to Phase I and 2. As to
Phase 3, Landlord shall follow the specifications annexed hereto.
2. Lavatory Area - Public Spaces
a) Separate male and female toilet facilities.
3. Landscaping
The Landlord will maintain the landscaping in a manner consistent with a Class A
office building.
4. Electrical Specifications
All electrical work shall be installed in accordance with the national
Electrical Code, and the local building code. A "Certificate of Compliance"
shall be obtained from the New York Board of Fire Underwriters at the completion
of the project.
Exit light lighting for all paths of egress shall be provided in accordance with
local building department regulations, if required.
All branch circuit wiring shall be above hung ceiling or within dry-wall
construction in finished areas and shall be type BX. All exposed conduits in
non-finished areas shall be thin-walled
"EMT" .
5. Heating, Ventilation and Air Conditioning Specifications
General
The intent of this specification is to define a design concept for the subject
area.
Design Criteria
Central air conditioning with modular systems with individual zone control shall
be capable of the following performance when the criteria noted are not
exceeded:
<PAGE>
A) Between September 1 and June 1, the "heating system" shall be operative and
maintain a minimum of 70* FDB when the outdoor temperature is 0* FDB and the
prevailing wind velocity does not exceed 15 mph.
B) Between April 15 and October 14, the "cooling system" shall be operative
and maintain a maximum of 80* FDB and 55% relative humidity when the outdoor
temperature is 95* FDB and 75* FDB with the prevailing wind velocity not
exceeding 13 mph.
C) During the overlapping seasons (April 15 - June 1 and September 1 - October
15) both systems shall be operative (cooling and heating).
D) Zoning temperature and balancing controls shall be operated solely by the
Landlord to assure the conditions above.
E) Maintenance of the foregoing temperature conditions is conditioned upon the
following criteria, which shall not be exceeded by the Tenant in any room, or
area, within the demised premises:
a) Population Density......................1 person per 150
........................................ square foot
b) Lighting and Electrical Load Density....4 watts per square foot
c) Exhaust and Ventilation Load............5 cfm per person
6. Ventilation
Bathrooms and similar areas to be ventilated per code using rooftop fans.
7. System Design
Exterior Perimeter Zones
Heating/cooling of exterior offices and areas provided by variable air volume
terminals with integrated thermostats to meet Tenant's requirements for
individual control .
Interior Zones
Heating/cooling provided by variable air volume system terminals with integrated
thermostats for areas of 2,000 square feet.
2
<PAGE>
SCHEDULE "B"
LANDLORD'S CLEANING SERVICES AND MAINTENANCE OF PREMISES
(to be performed on all business days except those which are union holidays of
the employees performing cleaning services and maintenance in the Building and
grounds or on days on which the building is closed)
I. CLEANING SERVICES - PUBLIC SPACES:
A. Floor of entrance lobby and public corridors will be vacuumed or swept and
washed nightly and waxed, as necessary.
B. Entranceway glass and metal work will be washed and rubbed down daily.
C. Wall surfaces and elevator cabs will be kept in polished condition.
D. Lighting fixtures will be cleaned and polished annually. Bulbs will be
replaced as needed.
E. Elevators and restrooms will be washed and disinfected once a day. The
floors will be mopped as many times as required. All brightwork and mirrors
will be kept in polished condition. Dispensers will be continuously checked and
receptacles continuously emptied.
F. Exterior surfaces and all windows of the Building will be cleaned
quarterly.
II. CLEANING SERVICES - TENANT SPACES:
A. Floors will be swept and spot cleaned nightly. Carpets will be vacuumed
daily.
B. Office equipment, telephones, etc. will be dusted nightly.
C . Normal office waste in receptacles and ashtrays will be emptied nightly .
D. Interior surface of windows and sills will be washed and blinds dusted
quarterly.
E. There shall be regularly scheduled visits by a qualified exterminator.
III. EXTERIOR SERVICES:
A. Parking fields will be regularly swept, cleared of snow in excess of two
inches and generally maintained so as to be well drained, properly surfaced and
striped.
B. All landscaping, gardening, exterior lighting and irrigation systems will
have regular care and servicing.
<PAGE>
IV. EQUIPMENT SERVICE:
A. All air-conditioning and heating equipment and elevators will be regularly
serviced and maintained.
B. Plumbing and electrical facilities, doors, hinges and locks will be
repaired as necessary.
C. All appurtenances, such as rails, stairs, etc. will be maintained in a safe
condition.
V. - EXTRA CLEANING SERVICES
Tenant shall pay to Landlord, on demand, Landlord's charges for (a) cleaning
work in the Premises required because of (i) misuse or neglect on the part of
Tenant or its employees or visitors, (ii) use of portions of the Premises for
preparation, serving or consumption of food or beverages, or other special
purposes requiring greater or more difficult cleaning work than office areas;
(iii) unusual quantity of interior glass surfaces beyond that shown on the Plan;
or (iv) nonbuilding standard materials or finishes installed by Tenant or at its
request; (v) increases in frequency or scope in any item set forth in Schedule B
as shall have been requested by Tenant; and, (b) removal from the Premises and
Building of (i) so much of any refuse and rubbish of Tenant as shall exceed that
normally accumulated daily in the routine of ordinary business office activity
and (ii) all of the refuse and rubbish of any eating facility requiring special
handling (wet garbage).
SCHEDULE "C"
1. Landlord shall provide at the rates hereinafter set forth and Tenant
shall purchase from Landlord "energy service" for Tenant's requirements. There
shall be the following categories of energy service:
A) NORMAL SERVICE: NORMAL SERVICE is energy consumed during Working Hours as
defined in Article 6 whose power demands do not exceed 4 watts per rentable
square foot of the Demised Premises, or part thereof, per Working Hour. Of this
amount, 2.1 watts are allocated to Landlord supplied lighting (80 foot candles).
1.9 watts are allocated for Tenant's usual office equipment ("TENANT'S ALLOWABLE
USE"). Based upon the plans numbered E-1 prepared by DBA Associates, entitled
electric, telephone and data for the electric usage, Landlord represents that
Tenant's initial electrical installation is within the permitted allocated
wattage and will not entail EXCESS SERVICE.
B) EXCESS SERVICE: EXCESS SERVICE is energy demanded, regardless of hours, in
excess of ALLOWABLE USE.
C) OVERTIME SERVICE: OVERTIME SERVICE is energy consumed and metered by the
energy management system at all other hours than WORKING HOURS when activated by
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<PAGE>
Tenant ("OVERTIME HOURS"). For the purpose of OVERTIME SERVICE, the Demised
Premises may be separated into zones of use. The minimum practical size of these
zones is 2500 square feet. Zones less than 2500 square feet will be billed at
the rate applicable to 2500 square feet.
2. Charges for NORMAL SERVICE: The charge for NORMAL SERVICE is payable
at the rate of $2.25 per annum per rentable square foot of the Demised Premises
(less 2623 square feet, being the data center) area during the Term of this
lease and is subject to escalation as hereinafter provided. The charge for
NORMAL SERVICE is not included in the monthly rent set forth in Articles 3 and
44, but is in addition thereto. Said sum shall be payable as additional rent.
The charge to change "WORKING HOURS" shall be $25.00 per zone. Tenant shall be
entitled to one change in Working Hours in the first lease year, without charge.
3. Charges for OVERTIME SERVICE: Subject to escalation as hereinafter
provided the landlord's monthly charge for Tenant's OVERTIME SERVICE, payable in
addition to any additional charges for NORMAL SERVICE and EXCESS SERVICE if
applicable, shall be derived as follows:
A) Full Energy OVERTIME SERVICE: An amount equal to the number of
OVERTIME HOURS in the month, multiplied by the number of zone hours in excess of
5428 zone hours, multiplied by $5.50.
B) OVERTIME charges shall be increased by the same percentage the EXCESS
SERVICE (if applicable) exceeds the ALLOWABLE USE for NORMAL SERVICE.
C) Equipment Energy: Any energy use in the Tenant's space, outside of
NORMAL SERVICE and OVERTIME SERVICE, shall be charged an amount equal to $1.28
per year, multiplied by the metered watts except as listed below (or part
thereof, computed and adjusted to the nearest 100th).
D) Data Center: NORMAL SERVICE, OVERTIME SERVICE and Equipment Energy for
the Tenant's data center usage shall be metered by the building energy
management system and Tenant shall pay Landlord for energy consumption based
upon rates promulgated by the utility supplying energy.
E) Equipment Energy OVERTIME SERVICE: Low wattage accessory equipment,
such as refrigerator, water cooler, answering machine, and electric key
telephone system (up to 2 amps or 240 watts) shall be provided within 24 hour
energy services, without charge, provided Tenant limits his request to four (4)
such outlets within the Demised Premises and the information, as to location, is
provided prior to construction of the space.
These amounts shall be billed at least once every three months and shall be
payable during the month in which billed as additional rent.
3
<PAGE>
4. Charges for EXCESS SERVICE: The Landlord's monthly charges for
Tenant's EXCESS SERVICE payable in addition to any charges for NORMAL SERVICE
and OVERTIME SERVICE, if applicable, shall be an amount derived as follows: The
excess above the TENANT'S ALLOWABLE USE shall be charged to tenant at the rate
of $0.5625 per square foot per year, for each excess watt (or part thereof,
computed and adjusted to the nearest l00th.)
5. Escalation of Charges for NORMAL SERVICE, EXCESS SERVICE AND OVERTIME
SERVICE AND TWENTY-FOUR HOUR SERVICE: The rates referred to in this Schedule "C"
are based upon rates promulgated by the utility company during the month prior
to the "Term Commencement Date." All of the rates, fuel and adjustment costs,
state and local government taxes, and all other component parts of the utility
company charges referred to in this Schedule "C" are subject to increase to
reflect changes in rate or classification or other component parts of the bill
employed by the utility company providing services to the Building. Tenant
agrees to pay such increase in utility company charges. Landlord shall give due
notice to Tenant of any such increase or change in charge. Tenant shall not be
or become entitled to a reduction in rent, additional rent or to other
reimbursement in the event it uses less energy than is contemplated by this
Schedule "C".
6. Landlord's energy management system will be conclusive evidence of the
computation of Normal Service, Excess Service, Overtime Service and Twenty-Four
Hour Service. However, Landlord hereby reserves to itself the right, from time
to time, to cause a reputable electric engineering company (the "Engineer") to
make a survey of Tenant's energy usage requirements to determine whether the
Tenant's Allowable Use limitation has been exceeded and, if so, to what extent.
If these surveys indicate at the time that the cost to Landlord by reason
thereof, computed on an annual basis at rates which would be charged by a public
utility company servicing the Building for such purposes, is in excess of the
initial cost similarly computed, then the additional rent provided for in this
Schedule shall be increased as provided for herein, commencing with the first
day of the month immediately following the computation of such survey and the
submission of a copy thereof to Tenant.
7. Landlord shall have full and unrestricted access to all
air-conditioning and heating equipment, and to all other utility installations
servicing the Building and the Demised Premises. Landlord reserves the right
temporarily to interrupt, curtail, stop or suspend air-conditioning and heating
service, and all other utility, or other services, because of Landlord's
inability to obtain, or difficulty or delay in obtaining, labor or materials
necessary therefor, or in order to comply with governmental restrictions in
connection therewith, or for any other cause beyond Landlord's reasonable
control. No diminution or abatement of Basic Rent, Additional Rent, or other
compensation shall or will be claimed by Tenant, nor shall this Lease or any of
the obligations of Tenant hereunder be affected or reduced by reason of such
interruptions, stoppages or curtailments, the causes of which are hereinabove
enumerated, nor shall the same give rise to a claim in Tenant's favor that such
failure constitutes actual or constructive, total or partial eviction from the
Demised Premises, unless such interruptions, stoppages cc curtailments have been
due to the arbitrary, willful or negligent act, or failure to act, of Landlord.
4
<PAGE>
8. Telephone and service shall be the responsibility of Tenant. Tenant
shall make all arrangements for telephone service with the company supplying
said service, including the deposit requirement for the furnishing of service.
Landlord shall not be responsible for any delays occasioned by failure of the
telephone company to furnish service.
SCHEDULE "D"
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress to and egress from
the Demised Premises and for delivery of merchandise and equipment in a prompt
and efficient manner using elevators and passageways designated for such
delivery by Landlord. There shall not be used in any space, or in the public
hall of the building, either by any Tenant or by jobbers or others in the
delivery or receipt of merchandise, any hand trucks, except those equipped with
rubber tires and sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No Tenant shall sweep or throw or permit to be swept or thrown from
the Premises any dirt or other substances into any of the corridors or halls,
elevators, or out of the doors or windows or stairways of the building, and
Tenant shall not use, keep or permit to be used or keep any vending machine,
burner, microwave oven, oven, food or noxious gas or substance in the Demised
Premises, or permit or suffer the Demised Premises to be occupied or used in a
manner, offensive or objectionable to Landlord or other occupants of the
Building by reason of noise, odors and/or vibrations, or interfere in any way
with other tenants or those having business therein, nor shall any animals or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of the Landlord.
5. No sign, advertisement, notice or other lettering and/or window
treatment shall be exhibited, inscribed, painted or affixed by any Tenant on any
part of the outside of the Demised Premises or the Building or on the inside of
the Demised Premises if the same is visible from the outside of the Demised
Premises without the prior written consent of Landlord. In the event of the
violation of the foregoing by any Tenant, Landlord may remove same without any
liability, and may charge the expense incurred by such removal to Tenant or
Tenants violating this rule. Interior signs on doors and directory tables shall
be inscribed, painted or affixed for each Tenant by Landlord at the expense of
such Tenant, and shall be of a size, color and style acceptable to Landlord.
5
<PAGE>
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the Demised Premises or the Building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Landlord, and as Landlord may direct. No Tenant shall lay linoleum,
or other similar floor covering so that the same shall come in direct contact
with the floor of the Demised Premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
tenancy, restore to Landlord all keys of stores, offices and toilet rooms,
either furnished to, or otherwise procured by, such Tenant, and in the event of
the loss of any keys, so furnished, such Tenant shall pay to Landlord the cost
thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the premises only
through the service entrances and corridors, and only during hours and in a
manner approved by Landlord. Landlord reserves the right to inspect all freight
to be brought into the Building and to exclude from the Building all freight
which violates any of these Rules and Regulations or the lease of which these
Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the Building is prohibited and
each Tenant shall cooperate to prevent the same.
10. Landlord reserves the right to exclude from the Building between the
hours of 6:00 P.M. and 8:00 A.M. and at all hours on Sundays, and legal holidays
all persons who do not present a pass to the Building signed by Landlord.
Landlord will furnish passes to persons for whom any Tenant requires same in
writing. Each Tenant shall be responsible for all persons for whom he requests
such a pass and shall be liable to Landlord for all acts of such persons.
11. Landlord shall have the right to prohibit any advertising by any
Tenant which, in Landlord's opinion, tends to impair the reputation of the
Building or its desirability as an office building, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
Premises, any inflammable, combustible or explosive fluid, material, chemical or
substance, or cause or permit any odors of cooking or other processes, or any
unusual or other objectionable odors to permeate in or emanate from the
Premises.
13. Tenant agrees to keep all entry doors closed at all times and to abide
by all rules and regulations issued by the Landlord with respect to such
services.
6
<PAGE>
SPECIFICATIONS FOR PHASE 3 (FIRST FLOOR BRANCH)
ATTACHMENT TO SCHEDULE "A"
Tenant's Reception Area (approximately 300 sq. ft.) shall receive: 1-4
1. Marble/building lobby carpet including rear entrance.
2. Sheetrock ceiling with light cove.
3. Narrow line glass doors from reception area to inner office.
4. Mill work, Reception Desk and wall (up to an allowance of
$4,500.00).
5. (12) Drywall Rooms - (9) of which shall have a glass side lite.
Balance of space shall be open plan design with pre-wire furniture systems
supplied and installed by the Tenant.
6. Building Standard (30 oz.) cut pile carpet over padding in (9)
offices. Building standard (28 oz.) loop pile carpet glued down throughout
balance of space. (5) drywall rooms shall receive building standard wall
covering.
<PAGE>
GUARANTY OF LEASE
Dated as of August [31], 1993
ARBOR NATIONAL HOLDINGS, INC., a corporation having its principal place of
business at 615 Merrick Avenue, Westbury, New York 11590, in consideration of,
and as an inducement for the granting, execution and delivery of the Lease of
even date (the "Lease") herewith between HMCC Associates ("Landlord") and ARBOR
NATIONAL MORTGAGE, INC. ("Tenant"), the undersigned (the "Guarantor") hereby
guarantees to Landlord, the full and prompt payment of all sums payable pursuant
to the terms of the Lease, and any and all other sums and charges payable by
Tenant under the Lease (hereinafter collectively referred to as "Rent") and
hereby further guarantees the full and timely performance and observance of all
the covenants, terms, conditions and agreements therein provided to be performed
and observed by Tenant; and the Guarantor hereby covenants and agrees to and
with Landlord that if default shall at any time be made by Tenant in the payment
of any Rent, or if Tenant should default in the performance and observance of
any of the terms, covenants, provisions or conditions contained in the Lease,
and if Tenant has not cured such default within the time period provided for in
this Lease, then after written notice from Landlord to Guarantor, the Guarantor
shall and will forthwith faithfully perform and fulfill all of such terms,
covenants, conditions and provisions, and will forthwith pay to Landlord all
amounts due Landlord as a result of any default by Tenant under the Lease,
including without limitation, all reasonable attorneys fees, and disbursements
incurred by Landlord or caused by any such default and/or by the enforcement of
this Guaranty.
This Guaranty is an absolute and unconditional Guaranty of payment and of
performance. It shall be enforceable against the Guarantor without the necessity
for any suit or proceedings on Landlord's part of any kind or nature whatsoever
against Tenant, and without the necessity of any notice of non-payment,
non-performance or non-observance or of any notice of acceptance of this
Guaranty or of any other notice or demand to which the Guarantor might otherwise
be entitled, except for the notice of default described above, all of which the
Guarantor hereby expressly waives; and the Guarantor hereby expressly agrees
that the validity of this Guaranty and the obligations of the Guarantor
hereunder, shall in no wise be terminated, affected, diminished or impaired by
reason of the assertion or the failure to assert by Landlord against Tenant of
any of the rights or remedies reserved to Landlord, pursuant to the provisions
of the Lease.
This Guaranty shall be a continuing Guaranty, and the liability of the
Guarantor hereunder shall in no way be affected, modified, or diminished by
reason of any assignment, renewal, modification or extension of the Lease or by
reason of any modification or waiver of or change in any of the terms,
covenants, conditions or provisions of the Lease by Landlord and Tenant or by
reason of any extension of time that may be granted by Landlord to Tenant, or by
reason of any dealings or transactions or matter or thing occurring between
Landlord and Tenant, or by reason of any extension of time that may be granted
by Landlord to Tenant or by reason of any dealings or transactions or matter or
thing occurring between Landlord and Tenant or by reason of any bankruptcy,
insolvency, reorganization, arrangement, assignment for the benefit of
creditors,
<PAGE>
receivership or trusteeship affecting Tenant, whether or not notice thereof or
of foregoing, Landlord agrees not to materially amend the Lease without the
prior written consent of the Guarantor where the same materially increases the
obligation of the Guarantor.
All of Landlord's rights and remedies under the Lease or under this
Guaranty are intended to be distinct, separate and cumulative and no such right
or remedy therein or herein mentioned is intended to be in exclusion of or a
waiver of any of the others.
Whenever used in this Guaranty, the terms Guarantor, Landlord and Tenant
shall include their respective successors and assigns of the party named as
such.
As a further inducement to Landlord to make and enter into the Lease and in
consideration thereof, Landlord and the Guarantor covenant and agree that in any
action or proceeding brought on, under or by virtue of this Guaranty, Landlord
and the Guarantor shall and do hereby waive trial by jury. This Guaranty shall
be governed by and construed in accordance with the laws of the State of New
York.
The undersigned officers of the Guarantor hereby certify that the Guarantor
is authorized to execute this Guaranty and that this Guaranty is a valid and
subsisting obligation of the Guarantor enforceable in accordance with its terms.
Neither the Guarantor's obligation to make payment in accordance with the
terms of this agreement nor any remedy for the enforcement thereof shall be
impaired, modified, changed, released or limited in any manner whatsoever by any
impairment, modification, change, release or limitation of the liability of the
Tenant or its estate in bankruptcy or of any remedy for the enforcement thereof,
resulting from the operation of any present or future provision of the National
Bankruptcy Act, or from the decision of any Court.
This Guaranty shall not be effective unless and until both of the following
events shall occur: (a) the net worth, as determined in accordance with
generally acceptable accounting principles, of the Tenant shall fall below
$18,000,000.00 as of the end of any fiscal year of Tenant; and (b) at any time
subsequent to the occurrence of the event described in (a) above, the Guarantor
or the Tenant shall take action to transfer assets from the Tenant to the
Guarantor or any affiliate of the Guarantor, without adequate consideration
therefor.
ARBOR NATIONAL HOLDINGS, INC.
By:
------------------------------------------
ATTEST:
[Walter K. Horn]
- ------------------------------
2
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF )
On this ___ day of August, 1993, before me personally came _________________ to
me personally known who, being by me duly sworn, did depose and say that he
resides at _____________________________ that he is the _________________ of
ARBOR NATIONAL HOLDINGS, INC., the corporation described in and which executed
the foregoing instrument; that he knew the corporate seal of the said
corporation; that the seal affixed to the foregoing instrument was such
corporate seal; that it was so affixed by order of the Board of Directors of the
said corporation, and that he signed his name thereto by the like order.
[Linda A. Felora]
----------------------------------------
Notary Public
[Linda A. Felora]
[Notary Public, State of New York]
[No. 30-4910945]
[Qualified in Nassau County]
[Commission Expires Nov. 2, 1993]
<PAGE>
THIS LICENSE AGREEMENT (this "License") is made on the [31] day of August,
1993, between HMCC ASSOCIATES, a limited partnership, having its office at 225
Broadhollow Road, Suite 212 W, CS 5341, Melville, New York 11747-0983
(hereinafter called "Licensor") and ARBOR NATIONAL MORTGAGE, INC., a corporation
having its principal place of business at 615 Merrick Avenue, Westbury, New York
11590.
The parties hereto, for themselves, their heirs, legal representatives,
successors and assigns, hereby agree as follows:
1. Licensor hereby grants to Licensee, the privilege to use 10,000 square
feet on the lower level (the "Licensed Premises") in premises ("Licensor's
Premises") owned by Licensor at Charles Lindbergh Boulevard, Mitchel Field, New
York (the "Building"), all in accordance with the terms and conditions of this
License between the hours of 8:00 a.m. through 6:00 p.m., Monday through Friday
and on Saturdays from 8:00 a.m. to 4:00 p.m., as shown on Exhibit "A" attached
hereto and made a part hereof. Licensor, shall have the right to change, upon at
least thirty (30) days' prior written notice, and designate another comparable
space in the Licensor's Premises of substantially the same size, which will be
located in the lower level of the Building, and reasonably acceptable to
Licensee, for use by the Licensee from time to time, at Licensor's sole
discretion, and at Licensor's sole expense.
2. (a) The Licensed Premises shall be used by Licensee for storage
purposes only and for no other purpose. Said Licensed Premises shall not be air
conditioned and heated. Lighting shall be by forty foot candles only, sufficient
for the use as set forth herein. Licensee agrees that no employees of Licensee
shall use the Licensed Premises as a work station. Notwithstanding the
foregoing, employees of Licensee shall be permitted to enter the Licensed
Premises for purposes of retrieval and placing material in storage.
(b) Licensee will not make or permit or suffer to be made, any use of
the Licensed Premises or any part thereof (i) which would violate any of the
covenants, agreements, terms, provisions and conditions of this License; (ii)
which is directly or indirectly forbidden by public law, ordinance or government
regulation; (iii) which may be dangerous to life, limb, or property; (iv) which
may invalidate or increase the premium of any policy of insurance carried on the
Licensed Premises or the Building or covering its operations, provided Licensee
has notice and an opportunity to cure such problem; (v) which will suffer or
permit the Licensed Premises or any part thereof to be used in any manner or
anything to be brought into or kept therein which shall in any way impair or
tend to impair the character, reputation or appearance of the Building as an
office building.
3. The term of this license shall commence on the commencement date of
Phase 3, as set forth in the Lease (the "Commencement Date") and shall be
co-terminus with the expiration date of the term of the Lease dated August __,
1993 between HMCC Associates, as Landlord and ARBOR NATIONAL MORTGAGE, INC., as
Tenant (the "Expiration Date"), covering the other premises in the Building (the
"Lease").
<PAGE>
4. For and during the first year of the term of this License, Licensee
shall pay to Licensor, as a licensing fee for the use of the Licensed Premises,
One Hundred Thousand ($100,000.00) Dollars per annum (the Licensing Fee),
payable in equal monthly installments of Eight Thousand Three Hundred
Thirty-three and 33/100 ($8,333.33) Dollars on the first day of each calendar
month from and after the Term Commencement Date (the "Monthly License Payment").
Notwithstanding the foregoing, there shall be no Monthly License Payment for the
first eleven months of the term of this License. The licensing fee for the
second year and each succeeding year of the term of this License shall be 104%
of the Licensing Fee for the preceding year, payable monthly.
5. If Licensor for any reason cannot deliver the use of the Licensed
Premises to Licensee on the Term Commencement Date, this License shall not be
void or voidable, nor shall Licensor be liable to Licensee for any damage or
loss resulting therefrom, but there shall be an abatement in the Monthly License
Payment for the period between the Term Commencement Date and the date when the
Licensor does deliver the use.
6. Licensee agrees to and shall, on the Expiration Date, or the date of
sooner termination of the License, promptly surrender and deliver the Licensed
Premises to Licensor, without demand therefor, in good condition, broom clean,
ordinary wear and tear excepted.
7. Licensor shall have the right to show the Licensed Premises to any
person, entity or firm, at any time at all reasonable hours on reasonable notice
to Licensee.
8. Licensee shall not allow the Monthly License Payment, and other
amounts payable under this License, to be in arrears more than five (5) calendar
days after written notice. In the event of any such breach, provided Licensor
serves Licensee with a three (3) day notice of default, Licensor may on the
sixth (6th) calendar day following the date upon which any money became due, in
the case of a monetary breach, and on the tenth (10th) calendar day following
the delivery of notice to Licensee, in the case of a non-monetary breach,
re-enter and withdraw permission to Licensee to use the Licensed Premises and
remove all persons and property therefrom, without being deemed to have
committed any manner of trespass, and may, but shall not be obligated to,
provided Licensor uses reasonable efforts to mitigate the damage, re-license the
Licensed Premises or any part thereof for all or any part of the remainder of
the term hereof, at such fee, and on such other terms and conditions as
Landlord, in its reasonable discretion, sees fit. Should Licensor fail to
re-license the Licensed Premises, or should the net fee on any such re-licensing
(after deducting any expenses incurred in connection therewith) be less than the
Monthly License Payment, Licensee was obligated to pay under this License,
Licensee shall pay, on demand, the amount of such deficiency to Licensor.
Landlord acknowledges that certain confidential material may be contained in the
Licensed Premises. Landlord agrees to reasonably safeguard confidential
material.
(b) In the event Licensor exercises its option to terminate this
License, to re-enter and/or re-license the Licensed Premises as provided in this
Paragraph "8", any property belonging to Licensee which shall remain in the
Licensed Premises after such termination of this License, re-entry, or
re-licensing of the Licensed Premises after one week, shall be deemed to
2
<PAGE>
have been abandoned, and either may be retained by Licensor as its property or
may be disposed of in such manner as Licensor may see fit. Licensor may take
possession of all such property on the Licensed Premises and sell the same at
public or private sale after giving Licensee written notice of the time and
place of such sale, for such prices and on such terms as Licensor deems
satisfactory. The proceeds of such sale(s) shall be applied first to necessary
and property expenses of removing, storing, and selling such property and then
to the payment of any Monthly License Payment, charges for services and other
amounts due or to become due under this License, with the balance, if any, to be
paid to Licensee. All rights and remedies of Licensor under this License shall
be cumulative and none shall exclude any other right or remedy at law or in
equity. Licensor is expressly given the right to assign any or all its interests
under the terms of this License to a Licensor that is an owner or Licensor of
the Building where the Licensed Premises are located.
9. No assignment of this License or sublicensing of the Licensed Premises
or any part thereof shall be made by Licensee without Licensor's prior written
consent. Neither all nor any part of Licensee's interest in the Licensed
Premises granted hereunder may be encumbered, assigned, or transferred in whole
or in part either by the act of Licensee or by operation of law, except to an
entity referred to in Article 20(C) of the Lease, and except as set forth
herein. Licensee shall not permit or suffer the Licensed Premises to be used by
anyone other than the employees of Licensee.
10. Licensor's and Licensee's rights and obligations with respect to
injury and damage, shall be the same as set forth in the Lease. Licensee agrees
that loss to anything placed in the Licensed Premises, shall be at the sole risk
of Licensee and Licensee shall hold the Licensor harmless with respect thereto.
11. Licensor's and Licensee's rights and obligations, with respect to
indemnification of the other, shall be as set forth in the Lease. This License
shall be subject to and subordinate to any and all mortgages, extensions and
consolidations thereof.
12. No failure by Licensor to insist upon the strict performance of any
term or condition of this License or to exercise any right or remedy available
on a breach thereof, and no acceptance of full or partial payment during the
continuance of any such breach, shall constitute a waiver of any such breach or
any such term or condition. No term or condition of this License required to be
performed or observed by Licensee, and no such breach thereof, shall be waived,
altered, or modified, except by a written instrument executed by either party.
No waiver of any breach shall affect or alter any term or condition of this
License and each such term and condition shall continue in full force and effect
with respect to any other then existing or subsequent breach thereof.
13. This instrument embodies the entire agreement between the parties
relative to the subject matter hereof, and shall not be modified, changed, or
altered in any respect, except in writing.
3
<PAGE>
14. Any notice under this License must be in writing and must be sent
postage prepaid by certified or registered mail, return receipt requested, or by
reputable overnight delivery such as Federal Express, or by personal delivery to
the last address of the party to whom notice is being given, as designated by
such party in writing, effective upon receipt or rejection.
To Licensor at: HMCC ASSOCIATES
225 Broadhollow Road, Suite 212 W
CS 5341
Melville, New York 11747-0983
To Licensee at: ARBOR NATIONAL MORTGAGE, INC.
615 Merrick Avenue
Westbury, New York 11590
15. Licensee shall, at all times during the term of this License and at
Licensee's sole cost and expense, promptly comply with all present and future
laws, orders and regulations of all state, federal, municipal and local
governments, departments, commissions and boards and any direction of any public
officer which shall impose any violation, order or duty upon Licensor or
Licensee with respect to the Licensed Premises, arising out of Licensee's unique
use or manner of use of the Licensed Premises or the Building. In the event by
municipal law, order or regulation, the use of the Licensed Premises, for
storage purposes, is not permitted, this License Agreement shall end on the date
that the government agency requires the use to cease and Licensee shall remove
its property therefrom, the Monthly License Payment to be adjusted as of the day
of termination. In such case, neither party shall have any further obligation to
the other under this License Agreement. The termination of this License
Agreement by governmental order, shall not effect the enforceability or validity
of the Lease.
16. If any term or provision of this License shall be capable of two
constructions, one of which would render the term or provision valid and the
other of which would render the term or provision invalid, then the construction
which renders the term or provision valid shall be deemed to be binding upon the
parties and any partial invalidity shall not be deemed otherwise to modify or
affect any other term or provision of this License.
4
<PAGE>
IN WITNESS WHEREOF, Licensor and Licensee have caused these presents to be
duly executed as of the date first written above.
HMCC ASSOCIATES
by Reckson Associates
By: [Donald Relhler]
-------------------------------------
Partner
ARBOR NATIONAL MORTGAGE, INC.
By: [ ]
-------------------------------------
5
<PAGE>
EXHIBIT 10.10
FIRST SUBLEASE AMENDMENT
THIS FIRST SUBLEASE AMENDMENT (this "Amendment") dated as of July 15,
1996, by and between BANK OF AMERICA MORTGAGE, a division of Bank of America
FSB, as landlord ("SUBLESSOR"), and ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC, a
New York limited liability company, as tenant ("SUBLESSEE").
W I T N E S S E T H:
WHEREAS, by Agreement of Lease dated as of August 31, 1993 (the
"LEASE"), Sublessor (successor in interest to Arbor National Mortgage, Inc.) has
leased from HMCC Associates ("OWNER") certain portions of the office building
known as Nassau West Omni (the "BUILDING"), including certain portions of the
9th floor thereof (the "9TH FLOOR"), upon such terms, conditions, covenants and
agreements as are set forth in the Lease;
WHEREAS, by Sublease dated as of August 1, 1995 (the "SUBLEASE"),
Sublessee (successor in interest to Arbor National Commercial Mortgage
Corporation) has leased from Sublessor a certain portion of the 9th floor in the
Building, as more particularly described therein;
WHEREAS, effective January 1, 1996, Sublessee acquired all of the
assets and assumed all of the liabilities of Arbor National Commercial Mortgage
Corporation, including the interest of Arbor National Commercial Mortgage
Corporation as sublessee under the Sublease, all in accordance with paragraph 7
of the Sublease;
WHEREAS, Sublessee now desires to sublease certain additional space
from Sublessor, and Sublessor desires to lease such space to Sublessee, upon the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Sublessor and Sublessee hereby agree as follows:
1. DEFINED TERMS. All capitalized terms used herein without
definition are used as defined in the Sublease.
2. SUBLEASE AMENDMENTS. The Sublease is hereby amended as follows:
(a) Paragraph 1(A) of the Sublease shall be amended by inserting the
words "; and, from and after the Additional Subleased Premises Commencement
Date (defined below), the term "Subleased Premises" shall also include the
Additional Subleased Premises (defined below)" after the words "(the
"Subleased Premises" in the fifth and sixth lines thereof;
<PAGE>
(b) Paragraph 2(A) of the Sublease shall be amended in its entirety
to read as follows:
2. RENT. (A) Sublessee shall pay to Sublessor a fixed annual rent
("Fixed Rent") in the amount of (i) Two Hundred Fifty-One Thousand Seven
Hundred Twenty and 00/100 Dollars ($251,720.00) per annum, which shall be
paid to Sublessor in equal monthly installments of Twenty Thousand Nine
Hundred Seventy-Six and 67/100 Dollars ($20,976.67) for the period
commencing on the Commencement Date to and including the day immediately
preceding the Additional Subleased Premises Commencement Date; (ii) Three
Hundred Sixty-Two Thousand Four Hundred Eighty and 00/100 Dollars
($362,480.00) per annum, which shall be paid to Sublessor in equal monthly
installments of Thirty Thousand Two Hundred Six and 67/100 Dollars
($30,206.67) for the period commencing on the Additional Subleased Premises
Commencement Date to and including the day immediately preceding the fourth
(4th) anniversary of the Commencement Date; (iii) Three Hundred Eighty
Thousand Six Hundred Four and 00/100 Dollars ($380,604.00) per annum, which
shall be paid to Sublessor in equal monthly installments of Thirty-One
Thousand Seven Hundred Seventeen and 00/100 Dollars ($31,717.00) for the
period commencing on the fourth (4th) anniversary of the Commencement Date
to and including the day immediately preceding the seventh (7th)
anniversary of the Commencement Date; and (iv) Three Hundred Ninety-Eight
Thousand Seven Hundred Twenty-Eight and 00/100 Dollars ($398,728.00) per
annum, which shall be paid to Sublessor in equal monthly installments of
Thirty-Three Thousand Two Hundred Twenty-Seven and 33/100 Dollars
($33,227.33) for the period commencing on the seventh (7th) anniversary of
the Commencement Date to and including the Expiration Date. Fixed Rent
shall be paid in advance to Sublessor on or before the first day of each
and every month during the Term, for such month, at its office, or such
other place, or to such agent at such place, as Sublessor may designate by
notice to Sublessee, in lawful money of the United States of America, by
check, subject to collection; provided, however, Sublessee shall have a
five (5) business days' grace period after the due date of any such payment
of Fixed Rent but only so long as Sublessee shall not be in default of its
obligations under this Sublease.
(c) Paragraph 2(C) of the Sublease shall be amended by inserting the
words "Notwithstanding anything to the contrary contained herein, Sublessee
shall pay that portion of the Fixed Rent that represents the first month of
Fixed Rent for the Additional Subleased Premises, in the amount of Nine
Thousand Two Hundred Thirty and 00/100 Dollars ($9,230.00), prior to or
upon the date of execution and delivery of that certain First Sublease
Amendment dated as of July 15, 1996 between Sublessor and Sublessee." after
the words "upon the execution of this Sublease." in the second line
thereof;
(d) Paragraph 5 the Sublease shall be amended by deleting the words
"as set forth in paragraph 28 herein, Sublessor shall be entitled to the
furniture specified in Exhibit B attached hereto and made a part hereof" in
the second sentence thereof and inserting the words "as set forth in
paragraph 28 herein, on and after the Commencement Date, Sublessor shall be
entitled to the furniture specified in Exhibit B attached hereto
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<PAGE>
and made a part hereof, and, on and after the Additional Subleased Premises
Commencement Date, Sublessor shall also be entitled to the furniture
specified in Exhibit E attached hereto and made a part hereof" in their
place;
(e) Paragraph 13 of the Sublease shall be amended by deleting the
words "Arnold & Porter, 399 Park Avenue, New York, New York 10022, Attn:
Keith M. Pattiz, Esq." in the last sentence thereof and inserting the words
"O'Melveny & Myers, 153 East 53rd Street, New York, New York 10022-4611,
Attn: Theresa A. Cerezola, Esq." in their place;
(f) Paragraph 18(A) of the Sublease shall be amended by deleting the
words "that the Subleased Premises are comprised of four zones designated
as Zones 16, 17, 18 and 19" in the last sentence thereof and inserting the
words "that, for the period commencing on the Commencement Date to and
including the day immediately preceding the Additional Subleased Premises
Commencement Date, the Subleased Premises are comprised of four zones
designated as Zones 16, 17, 18 and 19; and for the period commencing on the
Additional Subleased Premises Commencement Date until the end of the Term,
the Subleased Premises are comprised of six zones designated as Zones 14,
15, 16, 17, 18 and 19" in their place;
(g) Each reference in the Sublease to the "Subtenant" (including,
without limitation, in paragraph 26 thereof) shall be deleted and replaced
with a reference to the "Sublessee";
(h) Paragraph 28 of the Sublease shall be amended by deleting the
words "Sublessee shall be permitted to use the furniture and other personal
property listed on Exhibit B attached hereto and made a part hereof during
the Term" in the first sentence thereof and inserting the words "On and
after the Commencement Date, Sublessee shall be permitted to use the
furniture and other personal property listed on Exhibit B attached hereto
and made a part hereof during the Term, and on and after the Additional
Subleased Premises Commencement Date, Sublessee shall also be permitted to
use the furniture and other personal property listed on Exhibit E attached
hereto and made a part hereof during the Term";
(i) Paragraph 30(B) of the Sublease shall be amended by deleting the
words "Two Hundred Sixty-Four Thousand Three Hundred Six and 00/100
($264,306.00) Dollars" in the fourth, fifth and sixth lines thereof and
inserting the words "Three Hundred Eighty Thousand Six Hundred Four and
00/100 Dollars ($380,604.00)" in their place;
(j) The following shall be inserted into the Sublease immediately
following paragraph 31 thereof:
32. ADDITIONAL SUBLEASED PREMISES. (A) Sublessor shall sublease to
Sublessee, and Sublessee shall hire from Sublessor, a portion of the rentable
space on the 9th Floor of the
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<PAGE>
Building as more fully shown on Exhibit D attached hereto and made a part hereof
(the "Additional Subleased Premises"), subject to and in accordance with the
provisions of this paragraph 32, commencing on July 15, 1996 (the "Additional
Subleased Premises Commencement Date"), and ending on the Expiration Date, or on
such earlier date upon which this Sublease may expire or be cancelled or
terminated pursuant to any of the conditions or covenants of the Lease or this
Sublease or pursuant to law. From and after the Additional Subleased Premises
Commencement Date, the Additional Subleased Premises shall be added to and
included in the Subleased Premises, and except as otherwise provided in this
paragraph 32, all of the terms and conditions of this Sublease shall be
applicable to the subleasing of the Additional Subleased Premises.
(B) Sublessee waives (i) any right to rescind this Sublease under
Section 223-a of the Real Property Law of the State of New York (or any other
law of like import, now or hereafter in force) and (ii) the right to recover any
damages resulting from Sublessor's failure to deliver possession of the
Additional Subleased Premises by the Additional Subleased Premises Commencement
Date, for any reason whatsoever. No such failure shall (y) affect the validity
of this Sublease or the obligations of Sublessee hereunder or (z) give rise to
any claim by Sublessee for damages or for rescission of this Sublease.
(C) The termination of this Sublease shall also terminate and render
void all rights of Sublessee under this paragraph 32. Sublessee's rights under
this paragraph 32 may not be severed from this Sublease or separately sold,
separately assigned or separately transferred.
(k) Exhibits D and E hereto shall be deemed to be annexed to the
Sublease as Exhibit D and E thereto, respectively, and made a part thereof.
3. REPRESENTATIONS.
(a) Sublessor represents to Sublessee as of the date of this
Amendment the following:
(i) that Sublessor is the sole holder of the leasehold
interest of tenant under the Lease with respect to the Additional
Subleased Premises;
(ii) that the Lease has not been assigned by Sublessor;
(iii) that the Additional Subleased Premises have not been
subleased by Sublessor; and
(iv) that Sublessor has full right and authority to enter into
this Amendment, subject to obtaining the consent of Owner.
(b) Sublessee represents and warrants to Sublessor that it has the
full right and authority to enter into this Amendment and that this
Amendment is the legal, valid and binding obligation of Sublessee,
enforceable against Sublessee in accordance with its
4
<PAGE>
terms.
4. BROKER.
(a) Sublessee represents and warrants that no broker was instrumental
in bringing about or consummating this Amendment and that neither Sublessee
nor anyone acting on behalf of Sublessee has had any conversations or
negotiations with any broker. Sublessee shall indemnify, defend and hold
Sublessor harmless from and against any claims for any brokerage commission
or finder's fee with respect to this Amendment made against Sublessor and
resulting from or arising out of any conversations, negotiations or actions
had by Sublessee or anyone acting on behalf of Sublessee with any person.
Such indemnity shall include attorneys' fees and disbursements.
(b) Sublessor shall indemnify, defend and hold Sublessee harmless
from and against any claims for any brokerage commission or finder's fee
with respect to this Amendment made against Sublessee and resulting from or
arising out of any conversations, negotiations or actions had by Sublessor
or anyone acting on behalf of Sublessor with any person, other than any
person with whom Sublessee or anyone acting on behalf of Sublessee has had
any conversations, negotiations or actions. Such indemnity shall include
reasonable attorneys' fees and disbursements.
(c) The provisions of this SECTION 4 shall survive the expiration or
earlier termination of this Agreement and/or the Sublease.
5. CONSENT OF OWNER. This Amendment and the rights and obligations
herein provided shall be conditioned upon the receipt of written consent to this
Amendment from Owner. In the event Owner's consent to this Amendment, in Owner's
form and reasonably satisfactory to Sublessor and Sublessee, is not delivered
within a period of thirty (30) days from the date of execution hereof, or if
such consent is refused by Owner in writing, this Amendment shall be deemed null
and void and of no force and effect and the parties hereto shall be released in
all respects from any obligations created hereby or directly or indirectly
related hereto, and Sublessor shall return to Sublessee the advance rental, if
any, paid hereunder. Sublessee agrees to cooperate with Sublessor and to provide
Sublessor with such information as is necessary to obtain Owner's consent.
6. RATIFICATION. Sublessor and Sublessee hereby ratify and confirm
all of the terms and provisions of the Sublease, as amended hereby.
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
5
<PAGE>
IN WITNESS WHEREOF, Sublessor and Sublessee have hereunto executed
this Amendment by their respective duly authorized representatives as of the day
and year first above written..
SUBLESSOR: BANK OF AMERICA MORTGAGE,
a division of Bank of America FSB
By:
-------------------------------
Name:
Title:
Recommended by:_______________________
SUBLESSEE: ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC,
a New York limited liability company
By:
-------------------------------
Name: WALTER K. HORN
Title: Sr. VP/Secretary
6
<PAGE>
EXHIBIT D
ADDITIONAL SUBLEASED PREMISES
[Exhibit Begins on Next Page]
<PAGE>
EXHIBIT E
FURNITURE FOR THE ADDITIONAL SUBLEASED PREMISES
[Exhibit Begins on Next Page]
<PAGE>
FURNITURE / WORK STATION INVENTORY
----------------------------------
(WORK STATIONS ARE KNOLL-MORRISON)
*AREA#1
WORK STATIONS - 2 - 66 X 66 AND 105 X 66 - L SHAPED
PEDESTAL CABINETS 2 LETTER SIZE AT EACH WORK STATION
CHAIRS - 2 ARM CHAIRS W/WHEELS
OVERHEAD CABINETS - 2 (WALL MOUNTED) 48" EACH
TABLE - 50 X 28 GRAY
*AREA#2
TABLE - MARBLE WITH 2 BLACK TUBULAR BASES - 84 X 42 CHAIRS -
CHAIRS - 7 ROSE FABRIC W/ARMS AND WHEELS
*AREA#3
WORK STATIONS - 5 72 X 66 X 42 HIGH - EACH WITH 2 - 2 DR PEDESTALS
WORK STATION - 8'4" SQUARE X 64" HIGH
*AREA#4
WORK STATION - 4 72 X 66 EACH STATION HAS 2 - 2 DR PEDESTALS
WORK STATION - 8'4" X 66 X 64 HIGH W/2 - 2 DR PEDESTALS
CHAIRS- 5 GREY&BLACK ARM CHAIRS W/WHEELS
LATERAL FILE 5 DRAWER - 2 42" GREY
LATERAL FILE3 DRAWER - 5 36" GREY
*AREA#5
REFRIGERATOR - WELBILT 14 CUBIC PT - WHITE
WORK COUNTER (BUILT IN) - 2 12' X 30" AND 12' X 24"
WORK COUNTER (BUILT IN) - COFFEE STATION
WITH 2 WALL MOUNTED CABINETS
WORK STATIONS (STARTING FROM OFFICE "A")
2 96X96X64H1GH - EACH WITH 2 - 2 DR PEDESTALS
EACH WITH 36" OVERHEAD CABINETS
EACH WITH 2 SlDE CHAIRS
1 - 2 DRAWER PEDESTAL - LEGAL SIZE - GREY
10 84 X 72 X 57 H1GH EACH WITH 2 - 2 DRAWER PEDESTALS
EACH WITH ARM CHAIR W/WHEELS
1 52X21
1 70X21
<PAGE>
(W.T.C.) 4 OFFICE SETUPS CONSISTING OF:
----------------------------------------
FILE CABINETS 4 60" DESKS W/MATCHING CREDENZAS
LATERAL 3 DRAWER -1 BEIGE 8 SIDE CHAIRS
LATERAL 2 DRAWER -2 36" LT GREY 4 HIGHBACK CHAIRS
LATERAL 2 DRAWER -1 42" LT GREY 4 FIVE DR FILE CABINETS
VERTICAL 2 DRAWER LEGAL - 1 LT GREY
VERTICAL 2 DRAWER LEGAL - 1 BEIGE
STORAGE ROOM
SIZE- 17'X11'
WOOD SHELVES AND COUNTER TOP MOUNTED ON TWO WALLS
* Refer to attached floor plan
<PAGE>
SUBLEASE
--------
This Sublease made as of August 1, 1995 between BANK OF AMERICA MORTGAGE, a
Division of Bank of America, FSB, having an office at 500 California Street, San
Francisco, California 94111 ("Sublessor"), and ARBOR NATIONAL COMMERCIAL
MORTGAGE CORPORATION, a New York corporation having an office at 333 Earle
Ovington Boulevard, 9th Floor, Uniondale, New York 11553 ("Sublessee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, by (A) lease dated August 31, 1993 (the "Lease"), Sublessor
(successor-in-interest to Arbor National Mortgage, Inc.) leased from HMCC
Associates ("Owner"), certain portions (the "Demised Premises") of the office
building known as Nassau West Omni, located at 333 Earle Ovington Boulevard,
Mitchel Field, New York (the "Building"), including, but not limited to, certain
portions of the ninth (9th) floor thereof ("9th Floor"), upon such terms,
conditions, covenants and agreements as are set forth in the Lease; and
WHEREAS, Sublessee desires to sublease from Sublessor a portion of the
rentable space on the 9th Floor of the Building;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto for themselves, their successors and assigns
hereby covenant and agree as follows:
1. PREMISES AND TERM. (A) Sublessor hereby subleases to Sublessee and
Sublessee hereby hires from Sublessor a portion of the rentable space on the 9th
Floor of the Building as more fully shown on Exhibit A attached hereto and made
a part hereof (the "Subleased Premises") for a term (the "Term") to commence on
August 1, 1995 (the "Commencement Date"), and to end on May 31, 2004 (the
"Expiration Date"), or on such earlier date upon which the Term may expire or be
cancelled or terminated pursuant to any of the conditions or covenants of the
Lease or this Sublease or pursuant to law.
(B) If the Commencement Date shall occur on other than the first day
of a calendar month, the Fixed Rent (as hereinafter defined) payable by
Sublessee from and including the Commencement Date to and including the last day
of the calendar month in which the Commencement Date occurs shall be a prorated
portion of a regular monthly installment of Fixed Rent which shall be paid by
Sublessee on the first day of the first full calendar month occurring
<PAGE>
subsequent to the Commencement Date and Sublessor shall apply the monthly
installment of rent paid by Sublessee on execution hereof towards payment of
Fixed Rent for such first full calendar month subsequent to the Commencement
Date.
2. RENT. (A) Sublessee shall pay to Sublessor a fixed annual rent
("Fixed Rent") in the amount of (i) Two Hundred Fifty-One Thousand Seven
Hundred Twenty and 00/100 ($251,720.00) Dollars per annum, which shall be paid
to Sublessor in equal monthly installments of Twenty Thousand Nine Hundred
Seventy-Six and 67/100 ($20,976.67) Dollars for the period commencing on the
Commencement Date to and including the day immediately preceding the fourth
(4th) anniversary of the Commencement Date; (ii) the amount of Two Hundred
Sixty-Four Thousand Three Hundred Six and 00/100 ($264,306.00) Dollars per
annum, which shall be paid to Sublessor in equal monthly installments of
Twenty-Two Thousand Twenty-Five and 50/100 ($22,025.50) Dollars for the period
commencing on the fourth (4th) anniversary of the Commencement Date to and
including the day immediately preceding the seventh (7th) anniversary of the
Commencement Date; and (iii) the amount of Two Hundred Seventy-Six Thousand
Eight Hundred Ninety-Two and 00/100 ($276,892.00) Dollars per annum, which shall
be paid to Sublessor in equal monthly installments of Twenty-Three Thousand
Seventy-Four and 33/100 ($23,074.33) Dollars for the period commencing on the
seventh (7th) anniversary of the Commencement Date to and including the
Expiration Date. Fixed Rent shall be paid in advance to Sublessor on or before
the first day of each and every month during the Term, for such month, at its
office, or such other place, or to such agent at such place, as Sublessor may
designate by notice to Sublessee, in lawful money of the United States of
America, by check, subject to collection; provided, however, Sublessee shall
have a five (5) business days' grace period after the due date of any such
payment of Fixed Rent but only so long as Sublessee shall not be in default of
its obligations under this Sublease.
(B) Sublessee shall pay to Sublessor the full amount of all sums
payable to Owner under the Lease as a result of Sublessee's actions, inactions
and/or use and occupancy of the Subleased Premises (all such amounts, together
with all sums or charges payable under this Sublease, hereinafter "Additional
Rent"); the time periods for such payments to be modified by the provisions of
Paragraph 12 hereof.
2
<PAGE>
(C) Sublessee shall pay the first month of Fixed Rent upon the
execution of this Sublease. Sublessee shall pay all Fixed Rent and Additional
Rent herein reserved promptly, as and when the same shall become due and
payable, without demand therefor and without any abatement, deduction or set-off
whatsoever, except as expressly permitted by this Sublease. No payment by
Sublessee or receipt by Sublessor of any lesser amount than the amount
stipulated to be paid hereunder shall be deemed other than on account of the
earliest stipulated Fixed Rent or Additional Rent; nor shall any endorsement or
statement on any check or letter be deemed an accord and satisfaction, and
Sublessor may accept any check or payment without prejudice to Sublessor's right
to recover the balance due or to pursue any other remedy available to Sublessor.
In the event Sublessee shall fail to pay any Additional Rent when same are due
and payable, Sublessor shall have (in addition to all other rights and remedies)
the same rights as provided in this Sublease (including the provisions
incorporated by reference) for nonpayment of Fixed Rent. Any provision in the
Lease referring to Fixed Rent or Additional Rent incorporated herein by
reference shall be deemed to refer to the Fixed Rent and Additional Rent due
under this Sublease.
(D) If payment of any Fixed Rent or Additional Rent shall not have
been paid on or before the expiration of the five (5) business days' grace
period set forth herein, a late charge equal to five cents for each dollar so
due shall, at Sublessor's option, be payable as damages for Sublessee's failure
to make prompt payment, and such late charge shall be Additional Rent hereunder.
The late charges for any month shall be payable on the first day of the
following month. If Sublessee shall default in the payment of any late charges,
Sublessor shall have (in addition to all other remedies) the same rights as
provided in this Sublease (including the provisions incorporated by reference)
for nonpayment of Fixed Rent. Nothing contained in this Section (D) and no
acceptance of late charges by Sublessor shall be deemed to extend or change the
time for payment of Fixed Rent or Additional Rent. Sublessee further agrees that
the late charges
3
<PAGE>
imposed are fair and reasonable, comply with all laws, regulations and statutes,
and constitute an agreement between Sublessor and Sublessee as to the estimated
compensation for costs and administrative expenses incurred by Sublessor due to
the late payment of rent to Sublessor by Sublessee. Sublessee further agrees
that the late charges assessed pursuant to this Sublease do not constitute
interest, and the late charges do not create a lender or borrower/creditor
relationship between Sublessor and Sublessee.
3. INCORPORATION OF TERMS. (A) Sublessee accepts this Sublease upon,
and subject and subordinate to, all of the terms, covenants, conditions and
obligations of Sublessor contained in the Lease to the extent that the same are
not expressly modified by this Sublease, and all of the terms, covenants,
conditions and obligations of the Lease (or portions thereof), except as
expressly set forth herein, are hereby made a part hereof with the same force
and effect as if fully set forth herein. A true copy of the Lease has been
delivered to and examined by Sublessee. All of the rights and obligations
contained in the Lease conferred or imposed upon Sublessor are hereby conferred,
imposed upon and assumed by Sublessee, except as expressly modified by this
Sublease, and all of the rights and obligations thereby conferred and imposed
upon Owner are hereby conferred, imposed upon and assumed by Sublessor, except
as expressly modified by this Sublease. Sublessee shall be entitled to all
services and repairs, including but not limited to, such cleaning services as
presently are provided, which Owner is or may be obligated to furnish or make to
or in the Subleased Premises pursuant to the terms of the Lease, but Sublessor
shall in no event be liable to Sublessee, nor shall the obligations of Sublessee
under this Sublease be impaired, or the performance thereof excused, because
of any failure or delay on the part of Owner in furnishing such services and
making such repairs, it being understood that all such services and repairs are
to be furnished and supplied by Owner as set forth in the Lease and not by
Sublessor.
(B) If Owner shall default in any of its material obligations to
Sublessor with respect to the Subleased Premises, Sublessor shall, at no cost or
expense to Sublessor, use its good faith efforts to enforce its rights against
Owner, but Sublessor shall not be required to take any action which necessitates
the expenditure of money and shall have no obligation to bring any action or
proceeding or to take any steps to enforce Sublessor's rights against Owner.
If, despite such good faith efforts, Owner shall fail to expeditiously remedy
any such material default, Sublessee shall have the right to take appropriate
action, in Sublessor's name, to cause Owner to remedy such default; provided,
however, that in any such event, (i) Sublessee shall furnish to Sublessor before
the commencement of any such legal action (a) if such legal action relates to a
payment obligation, a cash deposit, which may be paid under protest, or other
security
4
<PAGE>
reasonably satisfactory to Sublessor sufficient to cover the amount of the
contested item or items, together with interest, penalties and other charges
thereon (including, without limitation, reasonable attorneys' fees and
disbursements), as reasonably required by Sublessor, and any and all costs, fees
and expenses in connection with such legal action, and (b) an indemnification
agreement satisfactory to Sublessor pursuant to which, INTER ALIA, Sublessee
shall indemnify, defend and hold Sublessor harmless from and against any and all
costs, liabilities, damages, claims and expenses (including, without limitation,
reasonable attorneys' fees and disbursements) of any nature or kind arising by
reason of or in connection with such legal action against Owner; (ii) Sublessor
makes no representations, warranties or guarantees whatsoever relating to the
ability to cause such observance or performance by Owner; and (iii) Sublessor
shall suffer no liability, damage, cost or expense in the event it is unable to
cause such observance or performance on the part of Owner. Sublessor agrees to
cooperate with Sublessee, at Sublessee's sole expense, in connection with the
enforcement by Sublessee of such rights; provided, however, that the Sublessor
shall be under no obligation to act on behalf of or cooperate with Sublessee so
long as Sublessee is in default of its obligations hereunder beyond any
applicable notice and grace period. To the extent the Lease confers "self-help"
rights upon Sublessor and there is a reasonable basis for Sublessee to request
Sublessor's exercise of such rights, Sublessor shall, at no cost, expense or
liability to Sublessor, exercise those rights for the benefit of Sublessee.
(C) Sublessor shall not be responsible for any failure or
interruption, for any reason whatsoever, of the services, utilities or
facilities that may be appurtenant to or supplied at the Building of which the
Subleased Premises are a part by Owner or otherwise, including, without
limitation, heat, air conditioning, ventilating, water, electricity, elevator
service, security service and cleaning service, if any; and no failure to
furnish, or interruption of, any such services, utilities or facilities shall
give rise to any (i) abatement, diminution or reduction of Sublessee's
obligations under this Sublease, except to the extent Sublessor is afforded such
rights under the Lease and actually receives an abatement, diminution or
reduction of Fixed Rent or Additional Rent by Owner, but only to the extent such
abatement, diminution or reduction relates to the Subleased Premises (after
deducting the costs and expenses suffered or incurred by Sublessor in obtaining
any such abatement, diminution or reduction); (ii) constructive eviction,
5
<PAGE>
whether in whole or in part, except as otherwise expressly provided herein; or
(iii) liability on the part of Sublessor.
4. USE. The Subleased Premises may be used solely for executive,
administrative and general office purposes and for no other purpose.
5. PREPARATION FOR OCCUPANCY. Sublessor shall have no obligation to
perform any work or supply any materials for the preparation of the Subleased
Premises for Sublessee's occupancy. Sublessee represents that it has examined
the Subleased Premises, is familiar and fully satisfied with the condition
thereof and covenants and agrees to take possession of the Subleased Premises in
their "as is" condition as of the Commencement Date without any representations
or warranties by Sublessor or any other person whatsoever; provided, however,
that as set forth in paragraph 28 herein, Sublessor shall be entitled to the
furniture specified in Exhibit B attached hereto and made a part hereof.
Sublessor shall have no obligation to make any repairs or improvements to the
Subleased Premises at the time this Sublease is entered into or at any time
prior to or during the Term.
6. NO PRIVITY. Nothing contained in this Sublease shall be construed to
create privity of estate or of contract between Sublessee and Owner. Sublessee
shall not do or permit to be done any act or thing which will constitute a
breach or violation of any of the terms, covenants, conditions or provisions of
the Lease. Sublessee shall in no case have any rights in respect of the
Subleased Premises greater than Sublessor's rights under the Lease and, except
as specifically provided in this Sublease, Sublessor shall have no liability to
Sublessee for any matter whatsoever in respect of the Subleased Premises for
which Sublessor does not have at least co-extensive rights against Owner under
the Lease which shall have been realized.
7. ASSIGNMENT, SUBLETTING.
Sublessee, for itself, its legal representatives, successors and
assigns, expressly covenants that it shall not assign, mortgage or encumber this
Sublease, nor further sublet, or suffer or permit the Subleased Premises or any
part thereof to be used by others, without the prior written consent of
Sublessor and Owner in each instance; provided, however, that the consent of
Sublessor shall not be necessary if any such assignment or further sublet is to
an Affiliate (as hereinafter defined) of Sublessee. If this Sublease be
assigned, or if the Subleased Premises or any part thereof be sublet or occupied
by anybody other than Sublessee and other than as
6
<PAGE>
expressly permitted hereunder, Sublessor may, after default by Sublessee,
collect rent from the assignee, subtenant or occupant, and apply the net amount
collected to the Fixed Rent and Additional Rent herein reserved, but no such
assignment, subletting, occupancy or collection shall be deemed a release of
Sublessee, a waiver of this covenant, or the acceptance of the assignee,
subtenant or occupant. For purposes of this Sublease, (x) a transfer of fifty
(50%) percent or more of all the legal and beneficial interest in Sublessee,
other than a transfer to an Affiliate, whether such transfer occurs at one time,
or in a series of related transactions, and whether of stock, partnership or
limited liability company interest or otherwise, by any party in interest shall
be deemed an assignment of this Sublease; (y) the term "Affiliate" shall mean
any person or entity which controls Sublessee, is controlled by Sublessee or is
under common control with Sublessee; and (z) the term "control" means the
ownership, beneficially and of record, of fifty (50%) percent or more of all the
voting stock of a corporation or fifty (50%) percent or more of all the legal
and beneficial interest in any partnership, limited liability company or any
other entity.
(A) If Sublessee wishes to assign this Sublease, sub-sublet all or
any part of the Subleased Premises or permit the Subleased Premises to be
occupied by any party other than an Affiliate, Sublessee shall first notify
Sublessor ("Sublessee's Notice") specifying the name of the proposed assignee,
sub-subtenant or occupant, the name of and character of its business, the
material business terms of the proposed assignment, sub-sublease or occupancy
(including, without limitation, the commencement and expiration dates thereof)
and shall provide Sublessor with such other information as Owner requests or as
Sublessor reasonably requests, including, without limitation, financial
information relating to the proposed assignee, sub-subtenant or occupant. If
only a portion of the Subleased Premises is to be so sub-sublet or occupied,
Sublessee's Notice shall be accompanied by a reasonably accurate floor plan,
indicating such portion. The portion of the Subleased Premises to which such
proposed assignment sub-sublease or occupancy is to be applicable is
hereinafter referred to as the "Space."
(B) Sublessor shall not unreasonably withhold its consent to the
proposed assignment, sub-sublease or occupancy; provided, however, that such
consent shall be deemed of no effect if such assignment, sub-sublease or
occupancy is not consummated upon the terms set forth in Sublessee's Notice and
within sixty (60) days after such consent is given and further
7
<PAGE>
provided that Sublessor may withhold consent thereto if in the exercise of its
sole judgment it determines that:
(i) The financial condition and general reputation of the
proposed assignee or sub-subtenant is not consistent with the extent
of the obligations undertaken by the proposed assignment or
sub-sublease;
(ii) The proposed use of the Space is not appropriate for the
Building or in keeping with the character of the existing tenancies or
permitted by the Lease or this Sublease (but the foregoing shall not
be deemed to enlarge the purposes for which the Subleased Premises are
permitted to be used as set forth in the Lease or this Sublease);
(iii) Sublessee proposes to assign or sub-sublet to one who at
the time is a tenant, subtenant or occupant of the Building or a
corporation, partnership, limited liability company or other entity
which controls or is controlled by such tenant, subtenant or occupant,
or to one with whom Owner or its agents are actively negotiating for
space in the Building; or
(iv) The proposed assignee or sub-subtenant is: an entity
primarily engaged in the sale or marketing of health care insurance or
benefits or managed health care services (as defined in Section D of
Article 4 of the Lease) within the Subleased Premises; a government or
any subdivision or agency thereof; a school, college, university or
educational institution of any type, whether for profit or non-profit;
an employment or recruitment agency; a travel agency; or a messenger
service.
Further, and as a condition of Sublessor's consent to any assignment or
sub-subletting:
(1) Sublessee, at the time of requesting Sublessor's consent
and at the time of the effectiveness of such proposed assignment or
sub-sublease, shall not then be in default in the payment of any Fixed
Rent or Additional Rent to be paid by Sublessee under this Sublease
and Sublessee shall not otherwise then be in material default
otherwise under this Sublease;
(2) Each assignee of this Sublease shall assume, and each
sub-subtenant of this Sublease shall take subject to, in writing, all
of the terms,
8
<PAGE>
covenants and conditions of this Sublease on the part of Sublessee
hereunder to be performed and observed;
(3) Any instrument of sub-sublease shall specifically state
that each sub-sublease is subject and subordinate to all of the terms,
covenants and conditions of the Lease and this Sublease; and
(4) Sublessor's consent may be withheld if Owner fails to
consent to such assignment or sub-sublease for any or no reason
whatsoever.
(C) No assignment of this Sublease shall be effective unless and
until Sublessee delivers to Sublessor duplicate originals of the instrument of
assignment (wherein the assignee assumes the performance of Sublessee's
obligations under this Sublease) from and after the date of the assignment and
any other relevant documents .
(D) In the event of any such assignment, Sublessor and the assignee
may modify this Sublease in any manner, without notice to Sublessee or
Sublessee's prior consent, without thereby terminating Sublessee's liability for
the performance of its obligations under this Sublease, except that any such
modification which, in any way, increases Fixed Rent hereunder shall not, to the
extent of such increase only, be binding upon Sublessee .
(E) No sub-sublease of all or any part of the Subleased Premises
shall be effective unless and until Sublessee delivers to Sublessor duplicate
originals of the instrument of sub-sublease (containing the provisions required
by Section (H)) and any accompanying documents relating to the Space. Any such
sub-sublease shall be subject and subordinate to this Sublease.
(F) Any such sub-sublease shall contain substantially the following
provisions:
(i) In the event of a default under any underlying lease or sublease
of all or any portion of the premises demised hereby which results in the
termination of such lease or sublease, the sub-subtenant hereunder shall,
at the option of the lessor and/or sublessor under any such lease and/or
sublease ("Underlying Lessor"), attorn to and recognize the Underlying
Lessor as landlord hereunder and shall, promptly upon the Underlying
Lessor's request, execute and deliver all instruments necessary or
appropriate to confirm such attornment and recognition. Notwithstanding
such attornment and recognition, the Underlying Lessor shall not (a) be
liable for any previous act or omission of the landlord under this
sub-sublease, (b) be subject to any offset which shall have accrued to the
sub-subtenant hereunder against said landlord, (c) be bound by any
modification of this sub-sublease or by any prepayment of more than one
month's rent, unless such modification or prepayment shall have been
previously approved in writing by the Underlying Lessor, or (d) be
obligated to make any payment to sub-subtenant or to perform any work to
the premises demised hereby.
9
<PAGE>
The sub-subtenant hereunder hereby waives all rights under any present or
future law to elect, by reason of the termination of such underlying lease,
to terminate this sub-sublease or surrender possession of the premises
demised hereby."; and
(ii) "This sub-sublease may not be assigned or the premises demised
hereunder further sublet, in whole or in part, without the prior written
consent of the Underlying Lessor and the landlord of the Building (except
to the extent that the requirements for such consent have been expressly
waived in writing by the sublease between the Underlying Lessor and the
sublessor under this sub-sublease and by the landlord of the Building)."
(G) Sublessor's consent to any assignment or sub-sublease shall
neither release Sublessee from its liability for the performance of Sublessee's
obligations hereunder during the balance of the Term nor constitute its consent
to any (1) further assignment of this Sublease or of any permitted sub-sublease
or (2) further sublease of all or any portion of the premises demised hereunder
or under any permitted sub-sublease. If a sub-sublease to which Sublessor has
consented is assigned or all or any portion of the premises demised thereunder
is sublet without the consent of Sublessor in each instance obtained, if
required, Sublessee shall, at its sole cost, immediately terminate such
sub-sublease, or arrange for the termination thereof, and proceed expeditiously
to have the occupant thereunder dispossessed .
(H) Sublessee shall pay to Sublessor, promptly upon demand therefor,
any and all costs and expenses (including, without limitation, reasonable
attorneys' fees and disbursements) incurred by Sublessor in connection with any
assignment of this Sublease or any sub-sublease of all or any part of the
Subleased Premises, other than an assignment or sub-sublease to an Affiliate in
accordance with Paragraph 7(A) hereof. In addition to the foregoing, if
Sublessor shall give its consent to any assignment of this Sublease or to any
sub-sublease, Sublessee shall in consideration therefor, pay to Sublessor
promptly upon demand therefor, as Additional Rent:
(i) in the case of an assignment, any and all sums and
other consideration paid to Sublessee by the assignee for or by reason of
such assignment or in connection therewith; and
(ii) in the case of a sub-sublease, any and all rents,
additional charges or other consideration payable under the sub-sublease to
Sublessee by the sub-subtenant which is in excess of the Fixed Rent and
Additional Rent accruing during the term of the sub-sublease in respect of
the Space (at the rate per square foot payable by Sublessee hereunder)
pursuant to the terms hereof .
8. NO BROKER. Sublessor and Sublessee each represent to the other that
no broker was instrumental in consummating this Sublease and that all
negotiations with respect to this Sublease were conducted without any broker.
Each of Sublessor and Sublessee agrees that it will indemnify, defend and hold
the other harmless from and against any and all costs, liabilities,
10
<PAGE>
damages and expenses, including, without limitation, any and all reasonable
attorneys' fees and court costs, incurred by the other party as a result of any
claim by any broker based upon prior contact, negotiations or conversations of
such party against which such right of indemnification is sought to be enforced
or arising out of a breach of the foregoing representation. The provisions of
this Paragraph shall survive the expiration or earlier termination of this
Sublease.
9. QUIET ENJOYMENT. So long as Sublessee pays all of the Fixed Rent and
Additional Rent due and payable under this Sublease and keeps and performs all
of the other terms, covenants, conditions, provisions and agreements to be kept
and performed by Sublessee under this Sublease, Sublessee shall quietly enjoy
the Subleased Premises during the Term without hindrance or molestation by
Sublessor or anyone claiming by or through Sublessor, subject nevertheless to
the terms of the Lease and this Sublease.
10. END OF TERM. Sublessor and Sublessee recognize and agree that the
damage to Sublessor resulting from any failure by Sublessee to timely surrender
possession of the Subleased Premises upon the Expiration Date will be
substantial, and will exceed the amount of the monthly installments of Fixed
Rent payable hereunder, and will be impossible to accurately measure. Sublessee
therefore agrees that if possession of the Subleased Premises is not surrendered
to Sublessor on or before the Expiration Date, then in addition to any other
rights and remedies Sublessor may have hereunder or at law, Sublessee shall pay
to Sublessor for each month and for any portion of each month during which
Sublessee holds over in the Subleased Premises after the Expiration Date, a sum
equal to two hundred (200%) percent of the Fixed Rent and Additional Rent
payable immediately prior to the Expiration Date. Nothing herein contained
shall be deemed to permit Sublessee to retain possession of the Subleased
Premises after the Expiration Date and no acceptance by Sublessor of payments
from Sublessee shall be deemed to be other than on account of the amount to be
paid by Sublessee in accordance with the provisions of this paragraph which
provisions shall survive the Expiration Date.
11. CONSENT OF OWNER. This Sublease and the rights and obligations herein
provided shall be conditioned upon the receipt of written consent to this
Sublease from Owner. In the event Owner's consent to this Sublease, in Owner's
form and reasonably satisfactory to Sublessor and Sublessee, is not delivered
within a period of thirty (30) days from the date of execution hereof, or if
such consent is refused by Owner in writing, this Sublease shall be deemed null
and void and of no force and effect and the parties hereto shall be released in
all respects from any obligations created thereby or directly or indirectly
related thereto, and Sublessor shall return to Sublessee the advance rental, if
any, paid hereunder. Sublessee agrees to cooperate with Sublessor and to
provide Sublessor with such information as is necessary to obtain Owner's
consent.
11
<PAGE>
12. TIME LIMITS. Notwithstanding anything to the contrary in this
Sublease, the time limits provided in the Lease for the giving of notices, the
payment of money, making demands, performance of any act, condition or covenant,
or the exercise of any right, remedy or option, are changed for the purposes of
this Sublease, by shortening the time limits for any non-monetary obligation in
each instance by five (5) business days, so that notices may be given, demands
made, or any act, condition or covenant performed or any right, remedy or option
hereunder exercised, by Sublessor or Sublessee, as the case may be (and such
party covenants that it will do so), within the time limit relating thereto
contained in the Lease. With respect to obligations of a monetary nature,
payment by Sublessee to Sublessor shall be due not later than five (5) business
days after delivery of a bill therefor to Sublessee. Sublessor shall deliver to
Sublessee a copy of each notice and demand received from Owner with respect to
the Subleased Premises. Sublessee shall immediately deliver to Sublessor any
notices, demands, statements, documentation or other correspondence received
from Owner .
13. NOTICE. All notices and other communications hereunder shall be in
writing and shall be given or made by certified mail, return receipt requested
or by personal delivery or overnight courier providing proof of delivery,
addressed to Sublessor at the address set forth above, and to Sublessee at the
Subleased Premises, or any other address which either party may designate
pursuant to the provisions hereof. Notices shall be deemed given three (3)
business days following the date of mailing, if mailed, one (1) business day
following delivery to an overnight courier or on the date of delivery, if
personally delivered. Copies of all notices to Sublessee (other than bills
delivered in the ordinary course of this Sublease) shall be simultaneously sent
to Arbor National Commercial Mortgage Corporation, 333 Earle Ovington Boulevard,
9th Floor, Uniondale, New York 11553, Attn: Walter K. Horn, Esq., General
Counsel, and copies of all notices to Sublessor shall be simultaneously sent to
Arnold & Porter, 399 Park Avenue, New York, New York 10022, Attn: Keith M.
Pattiz, Esq.
14. INDEMNITY. Sublessee agrees to indemnify, defend and save Sublessor
harmless from and against all claims, damages, losses and liabilities (including
reasonable attorneys' fees and disbursements) arising out of or in connection
with (A) a default by Sublessee in keeping, observing or performing its
obligations under the terms of this Sublease and/or any breach or default under
the Lease caused by the acts or omissions of Sublessee, (B) any act, omission,
negligence or other fault on the part of the Sublessee or its agents, servants
and employees, (C) any accident, injury or damage whatsoever to any person,
firm, company or corporation occurring during the Term in or about the Subleased
Premises that was not caused by the act or omission of Sublessor or its agents,
servants or employees, (D) Sublessee's use and occupancy of the Subleased
Premises and/or (E) any construction, alteration or improvement done in or to
the Subleased Premises .
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<PAGE>
15. SUBLESSOR'S CONSENT. In any case where Sublessor has agreed not to
unreasonably withhold its consent, failure or refusal of Sublessor to consent to
or approve any matter or thing requested by Sublessee shall be deemed reasonable
if the consent or approval of Owner shall also be required and Owner shall
refuse or fail to give its consent or approval thereto.
16. BINDING ON SUCCESSORS. This Sublease shall apply to and bind the
respective successors and permitted assigns of the parties hereto but this
paragraph shall not be construed as a consent to any assignment or subletting by
the Sublessee.
17. REPRESENTATIONS. (A) Sublessor represents to Sublessee as of the
date hereof the following:
(1) that Sublessor is the sole holder of the leasehold interest of
tenant under the Lease with respect to the Subleased Premises;
(2) that the Lease has not been assigned by Sublessor;
(3) that the Subleased Premises have not been subleased by Sublessor;
and
(4) that Sublessor has full right and authority to enter into this
Sublease, subject to obtaining the consent of Owner.
(B) Sublessee represents and warrants to Sublessor that it has the
full right and authority to enter into this Sublease and that this Sublease is
the legal, valid and binding obligation of Sublessee enforceable against
Sublessee in accordance with its terms.
18. ELECTRICITY.
(A) Upon and subject to the terms and conditions set forth in this
Paragraph 18, Sublessee acknowledges that electrical consumption in Subleased
Premises shall be payable to Sublessor as follows: (i) for NORMAL SERVICE (as
defined in Schedule C to the Lease), at the rate of $2.25 per annum per rentable
square foot, subject to escalation as provided in Schedule C to the Lease; (ii)
for OVERTIME SERVICE (as defined in Schedule C to the Lease), at such rates as
set forth in Schedule C to the Lease and subject to escalation as provided in
Schedule C to the Lease; and (iii) for EXCESS SERVICE (as defined in Schedule C
to the Lease), at the rate of $0.5625 per annum per rentable square foot for
each excess watt or part thereof, computed and adjusted to the nearest two
decimal points. Sublessor and Sublessee agree that the Subleased Premises are
comprised of four zones designated as Zones 16, 17, 18 and 19.
(B) Sublessor shall not in any way be liable or responsible to
Sublessee for any loss, damage or expense which Sublessee may sustain or incur
if either the quantity or character or electric service is changed or is no
longer available or suitable for Sublessee's requirements unless such loss,
damage or expense results from the wrongful act of Sublessor. Sublessee's use
of electric current shall never exceed the capacity of feeders or risers to, or
wiring installations in, the Building and the Subleased Premises.
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<PAGE>
19. LEASE DELETIONS AND AMENDMENTS. The Lease, as herein incorporated,
shall be deemed amended as follows:
(A) Articles 1 and 2 and Schedule A to the Lease (and all references
thereto in the Lease) shall be deleted in their respective entireties and
replaced with paragraph 1 hereof;
(B) Article 3 shall be deleted in its entirety and replaced with
paragraph 2 hereof;
(C) Article 5 shall be deleted in its entirety;
(D) Articles 6, 7 and 8 shall be amended such that all references to
"Landlord" shall apply to Owner only;
(E) Article 9 shall be deleted in its entirety and replaced with
paragraph 29 hereof;
(F) Intentionally omitted.
(G) Article 11 shall be deleted in its entirety;
(H) Article 15 shall be amended such that all references to
"Landlord" shall apply to Owner only;
(I) Article 16 shall be amended by deleting the last sentence of
Section (B) thereof and substituting paragraph 10 hereof;
(J) Article 20 shall govern Owner's rights in regard to any proposed
sub-subletting of the Subleased Premises or any proposed assignment of
Sublessee's interest in this Sublease but, notwithstanding the foregoing,
Paragraph 7 of this Sublease shall govern Sublessor's rights and obligations
upon such proposed sub-subletting or assignment;
(K) Article 22 shall be amended (i) to delete Sections (E) and (F)
thereof, and (ii) to delete Exhibit 2 to the Lease and all obligations of Owner
(or Sublessor, by way of this Sublease) to deliver any form of "Non-Disturbance"
or "Tenant Recognition" agreements to Sublessee, and this Sublease shall be
subordinate in the same manner as the Lease, unconditionally and without any
limitations whatsoever, and Sublessee agrees to be bound by all of the
obligations of "Tenant" thereunder with respect to the Subleased Premises;
(L) Articles 24 and 26 shall be amended by such that "Tenant" shall
refer to Sublessor only;
(M) Article 28 shall be amended by the provisions of paragraph 12 of
this Sublease, the reference to "Article 20" in Article 28 (A) (vi) shall be
replaced with "paragraph 7 of this Sublease"; and Section (A) (vii) shall be
deleted;
(N) Section A of Article 31 shall be deleted in its entirety and
replaced with Section D of paragraph 2 hereof;
(O) Article 34 shall govern the delivery of any notices or other
communications given or required to be given to Owner under this Sublease, but,
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<PAGE>
notwithstanding the foregoing, paragraph 13 hereof shall govern the delivery of
notices given or required to be given to Sublessor and/or Sublessee;
(P) Section (C) (i) of Article 35 shall be deleted in its entirety
and Section (D) (i) thereof is hereby deleted in its entirety and replaced with
paragraph 5 of this Sublease;
(Q) Article 40 is hereby deleted in its and replaced with paragraph 8
of this Sublease;
(R) Section A of Article 42 shall be amended by adding the language
contained in paragraph 31 hereof;
(S) Article 43 shall be deleted in its entirety and replaced with
paragraph 30 hereof; and
(T) Articles 44, 45, 46 and 47 shall be deleted in their respective
entireties.
20. ATTORNEYS' FEES. Whenever any default by Sublessee or Sublessor
resulting in a judicial proceeding causes the other party to incur attorneys'
fees and/or other costs or expenses, Sublessor and Sublessee agree that the
non-prevailing party shall upon the final unappealable verdict of a court of
competent jurisdiction, pay the prevailing party in such proceeding the
reasonable fees, costs or expenses so such incurred within ten (10) days after
being billed therefor.
21. ENTIRE AGREEMENT/MODIFICATIONS. This Sublease contains the entire
and only agreement between Sublessor and Sublessee with respect to the
Subleased Premises and no prior oral or written statements or
representations, if any, of either party (or its representatives) not
contained herein shall have any force and effect. This Sublease shall not be
amended, modified or changed except by a writing signed by the party to be
charged with such amendment, modification or change.
22. NEW YORK LAW. This Sublease shall be governed by and construed
and enforced in accordance with the laws of the State of New York.
23. INSURANCE. Sublessee shall maintain throughout the term of this
Sublease comprehensive general public liability insurance in respect of the
Subleased Premises and the conduct and operation of business therein and such
other policies of insurance as required under the Lease in accordance with
the provisions thereof; provided, however, that Sublessor and Owner and any
fee mortgagee shall be named in such insurance policies as additional
insureds, and all such policies shall have limits of not less than those
required under the Lease. Sublessee shall deliver to Sublessor and Owner
under the Lease a fully paid-for policy or certificate of insurance issued by
the carrier thereof prior to the Commencement Date, together with reasonably
satisfactory evidence of payment of premiums therefor for a period of not
less than one (1) year from the Commencement Date. Sublessee shall procure
and pay for renewals of such insurance from time to time before the
expiration thereof, and Sublessee shall deliver to
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<PAGE>
Sublessor and the Owner such renewal policy or certificate at least thirty (30)
days before the expiration of any existing policy. All such policies shall be
issued by companies which comply with the applicable provisions of the Lease,
and all such policies shall contain a provision or endorsement whereby the same
cannot be cancelled or modified unless Sublessor, Owner and any fee mortgagee
are given at least thirty (30) days' prior written notice of such cancellation
or modification.
24. EXCULPATION. Sublessee shall look only to the estate and property of
Sublessor, if any, in the Building or the Lease, to offset against the rents
payable under this Sublease where and if expressly so provided in this Sublease,
or for the satisfaction of Sublessee's remedies for the collection of a judgment
(or other judicial process) requiring the payment of money by Sublessor in the
event of any default by Sublessor hereunder, and no other property or assets of
Sublessor or any of the principals, directors, shareholders, officers,
employees, agents, affiliates and/or representatives of Sublessor, disclosed or
undisclosed, shall be subject to levy, execution or other enforcement procedure
for the satisfaction of Sublessee's remedies under or with respect to this
Sublease, the relationship of Sublessor and Sublessee hereunder or Sublessee's
use or occupancy of the Subleased Premises.
25. ESTOPPEL CERTIFICATE. Sublessee shall, within seven (7) days after
each and every request by Sublessor, execute, acknowledge and deliver to
Sublessor a statement in writing (a) certifying the Commencement Date and
Expiration Date, and that this Sublease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full force and
effect as modified, and stating the modifications), (b) specifying the dates to
which the Fixed Rent and Additional Rent have been paid, and the amounts
thereof, (c) stating whether or not, to the best knowledge of Sublessee,
Sublessor or Sublessee, as the case may be, is in default in performance or
observance of its obligations under this Sublease, and, if so, specifying each
such default, (d) stating whether or not, to the best knowledge of Sublessee,
any event has occurred which with the giving of notice or passage of time, or
both, would constitute a default under this Sublease, and, if so, specifying
each such event, and (e) stating such other matters as Owner shall request or
Sublessor shall reasonably request. Any such statement delivered pursuant to
this Section may be relied upon by Sublessor, any prospective assignee or
transferee of the leasehold estate under the Lease and Owner.
26. RIGHT TO CURE SUBTENANT'S DEFAULTS. If Sublessee shall at any time
fail to make any payment or perform any other obligation of Subtenant hereunder,
then Sublessor shall have the right, but not the obligation, after five (5)
days' notice to Sublessee (unless such default is a non-monetary default and is
not reasonably susceptible of cure within said ten (10) day period, and
Sublessee shall have commenced the cure thereof within such ten (10) day period
and continuously and diligently pursues such cure to completion), or without
notice to Sublessee in
16
<PAGE>
the case of any emergency, and without waiving or releasing Sublessee from any
obligations hereunder, to make such payment or perform such other obligation of
Sublessee in such manner and to such extent as Sublessor shall deem necessary or
advisable, and in exercising any such right, to pay any incidental costs and
expenses, employ attorneys, and incur and pay reasonable attorneys' fees and
disbursements. Sublessee shall pay to Sublessor, as Additional Rent, within ten
(10) days after demand all sums so paid by Sublessor and all incidental costs
and expenses of Sublessor in connection therewith, together with interest
thereon at the Prime Rate as of the date Sublessor paid or incurred such costs
or expenses, or the then maximum lawful interest rate, whichever shall be less,
for the period commencing on the date Sublessor paid or incurred such costs or
expenses to and including the date same shall be repaid in full by Subtenant.
27. Intentionally Omitted.
28. FURNITURE. Sublessee shall be permitted to use the furniture and
other personal property listed on Exhibit B attached hereto and made a part
hereof during the Term. Sublessee accepts same "as-is" in their present state
and condition and Sublessor makes no representations or warranties with respect
to same. Sublessee shall take good care of and shall maintain and repair such
furniture and personal property, at Sublessee's sole cost, at all times during
the Term, and shall return same to Sublessor on the Expiration Date or sooner
termination of this Sublease in substantially the same condition as same is on
the date hereof, subject to normal and reasonable wear and tear.
29. PARKING. Sublessor hereby grants to Sublessee the right to use four
(4) reserved parking spaces in the ground-level parking area and four (4)
reserved parking spaces in the second-level parking area, and any other
unreserved parking spaces in either the ground-level parking area or the
second-level parking area, for the parking of automobiles of Sublessee, its
employees and invitees, as same are marked on Exhibit C attached hereto and made
a part hereof. Owner and Sublessor shall have no obligation to police such
spaces. Sublessee shall not use or permit any of its officers, agents,
employees or invitees to use any parking spaces other than Sublessee's allotted
parking spaces shown on Exhibit C. Sublessee, its employees, agents, and
invitees shall comply with all the rules and regulations, including days and
hours of operation, speed limits, parking allocations and any other rules and
regulations which are or may be hereafter promulgated by Owner or its agent with
respect to parking of motor vehicles in said parking area. Sublessee further
agrees that Sublessor shall have no liability on account of any damage or loss
to any vehicle or its contents, regardless of cause, except Sublessor's willful
misconduct or gross negligence, and Sublessee hereby agrees to indemnify, hold
harmless and defend Sublessor from and against any and all causes, claims,
suits, damages, and expenses (including reasonable attorneys' fees) that do not
result from the willful misconduct or gross negligence of Sublessor or its
agents, servants or employees, arising from the use of the parking areas
17
<PAGE>
by Sublessee or by anyone claiming by, through or under Sublessee's privileges
granted hereunder. In addition, Sublessor shall have no liability in connection
with, nor any obligation to take any action or to incur any expense with respect
to, the operation of any parking area or in connection with Sublessor's or
Owner's failure to impose or enforce any rules or regulations relating to
reserved parking at the Building .
30. EARLY TERMINATION. Provided that Sublessee is not in default under
any of the terms, covenants and conditions of this Sublease on the part of
Sublessee to be performed, Sublessee shall have a one-time-only option (the
"Termination Option") to terminate this Sublease effective as of the fifth (5th)
anniversary of the Commencement Date (the "Termination Date"), subject to the
following terms and conditions:
(A) Sublessee must deliver to Sublessor written notice (the
"Termination Notice") of its election to exercise the Termination Option not
later than one hundred eighty (180) days prior to the Termination Date, time
being of the essence;
(B) Sublessee shall deliver to Sublessor, not later than thirty (30)
days prior to the Termination Date, time being of the essence, a certified or
bank check, subject to collection, in the amount of Two Hundred Sixty-Four
Thousand Three Hundred Six and 00/100 ($264,306.00) Dollars, which sum shall be
non-refundable (hereinafter referred to as the "Termination Payment");
(C) If Sublessee timely and properly exercises the Termination
Option, (i) all rent payable under this Sublease shall be paid through and
apportioned as of the Termination Date; (ii) neither party shall have any
rights, estates, liabilities, or obligations under this Sublease for the period
accruing after the Termination Date, except those which, by the provisions of
this Sublease, expressly survive the expiration or termination of the Term of
this Sublease; (iii) Sublessee shall surrender and vacate the Subleased Premises
and deliver possession thereof to Sublessor on or before the Termination Date in
the condition required under this Sublease for surrender of the Subleased
Premises; and (iv) Sublessor and Sublessee shall enter into a written agreement
reflecting the termination of this Sublease upon the terms provided for herein,
which agreement shall be executed within thirty (30) days after Sublessee
exercises the Termination Option; and
18
<PAGE>
(D) the Termination Option shall automatically terminate and become
null and void upon the earlier to occur of (i) the termination of Sublessor's
right to possession of the Demised Premises; (ii) the assignment by Sublessee of
this Sublease, in Subleased Premises under this Sublease, except for
sub-subleases to Affiliates in accordance with Paragraph 7(A) hereof; or (iv)
the failure of Sublessee to timely or properly exercise the Termination Option,
including, but not limited to, the failure to deliver the Termination Payment on
the date hereof.
31. BOARDROOM. Sublessee hereby grants Sublessor the right to use the
boardroom in the Subleased Premises for up to, but not more than, five (5)
separate times per month at no cost or charge whatsoever; provided, however,
that Sublessor shall give reasonable notice to Sublessee of its intent to use
the boardroom, and further provided that the scheduling of such use shall be
subject to Sublessee's prior approval, which approval shall not be unreasonably
withheld or delayed.
IN WITNESS WHEREOF, this Sublease has been duly executed on the day
and year first above written.
SUBLESSOR: BANK OF AMERICA MORTGAGE
a Division of Bank of America, FSB
By: [Arthur D. Ringwald]
-------------------------------
Name:
Title: [EVP]
[Recommended By: MBS]
[Matthew B. Sherry]
[Vice President]
SUBLESSEE: ARBOR NATIONAL COMMERCIAL
MORTGAGE CORPORATION
By: [Walter K. Horn]
-------------------------------
Name: Walter K. Horn
Title: Secretary
19
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EXHIBIT A
Subleased Premises
<PAGE>
EXHIBIT B
List of Furniture
<PAGE>
EXHIBIT B
Secretarial Quantity
- ----------- --------
Work Stations With Credenza & Return (Knoll Reif System) 8
Chairs (Knoll Bulldog) 8
(A) Cumberland Custom Executive Secty. Station w/
(B) Return & Credenza 1
RECEPTION
5 Pc. Cumberland Custom Leather Sofas (Sectional) 2
(B) F. Schill Custom Desk w/Return & Credenza Mahogany 1
OFFICE #1
Desk Stephens 72 X 36
Credenza Ped/Ped
Chair (2) Brayton (1) ICF
Table 36 inch Newcraft Round
OFFICE #2
Desk Stephens 72 X 36
Credenza Ped/Ped
Chair (2) Brayton (1) ICF
Table 36 inch Newcraft Round File (1)
OFFICE #3
Desk Stephens 72 X 36
Credenza Ped/Ped
Chair (2) Brayton (1) ICF
Table 36 inch Newcraft Round
OFFICE #4
Desk Stephens 72 X 36
Credenza Ped/Ped
Chair (2) Brayton (1) ICF
Table 36 inch Newcraft Round File (1)
OFFICE #5
Desk Stephens 72 X 36
Credenza Ped/Ped
Chair (2) Brayton (1) ICF
Table 36 inch Newcraft Round File (1)
OFFICE #6
Desk Stephens 72 X 36
Credenza
Chair (2) Brayton (1) ICF
Table 36 inch Newcraft Round
<PAGE>
OFFICE #7
Desk Stephens 72 X 36
Credenza Ped/Ped
Chair (3) Brayton (1) ICF
Table 36 inch Newcraft Round
OFFICE #8A
Desk Pace 84 X 42 w/Return
Credenza Pace
Chair Brayton (Side) Brayton (Desk)
Table Arnold 36" Glass Custom
Sofa Roche Bubois
CONFERENCE ROOM #8B
Table C&S Granite 60"
Chairs Brayton Black Leather
OFFICE #9
Desk Stephens 72 X 36
Credenza Ped/Ped
Chair (2) Brayton (1) ICF
Table 36 inch Newcraft Round
OFFICE #10
Desk Stephens 72 X 36
Credenza Ped/Ped
Chair (2) Brayton (1) ICF
Table 36 inch Newcraft Round File (1)
OFFICE #11
Desk Stephens 72 X 36
Credenza Ped/Ped
Chair (2) Brayton (1) ICF
Table 36 inch Newcraft Round File (1)
OFFICE #12
Desk w/Light Stephens 72 X 36
Credenza With Hutch
Chair (2) Brayton (1) Chrom Craft
Table 36 inch Newcraft Round File (2)
OFFICE #13
Desk Stephens 72 X 36
Credenza Stephens
Chair (2) Brayton (1) ICF
Table 36 inch Newcraft Round File (2)
BOARDROOM #1
<PAGE>
Conference Table 70 X 205 F. Schill Custom (1)
Mahogany & Marble
Chairs Cumberland Leather (20)
Boardroom #2
Conference Table 40 X 120 C&S Custom Granite (1)
Chairs Cumberland Leather (10)
EQUIPMENT
Pantry GE Frigadare 1
GE Dishwasher 1
Sub Zero Frigadare 1
3
<PAGE>
EXHIBIT C
Parking Spaces
<PAGE>
Exhibit 10.11
LEASE
By and Between
WELLS FORD/WHITEHALL PROPERTIES, L.L.C.
("Landlord")
and
ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC
("Tenant")
<PAGE>
TABLE OF CONTENTS
1. TERMS ................................................................ 1
2. PAYMENT OF RENT & ADDITIONAL RENT .................................... 4
3. SECURITY DEPOSIT; ADVANCE DEPOSIT .................................... 5
4. USES; TENANT COVENANTS ............................................... 7
5. ENVIRONMENTAL PROVISIONS; RECYCLING .................................. 9
6. LATE CHARGES; INTEREST ............................................... 13
7. REPAIRS AND MAINTENANCE .............................................. 14
8. UTILITIES AND SERVICES ............................................... 14
9. COSTS OF ELECTRICITY AND EXPENSE INCREASES ........................... 16
10. INCREASES IN REAL ESTATE TAXES ....................................... 20
11. ADDITIONAL PROVISIONS; OPERATING COSTS AND REAL ESTATE TAXES ......... 22
12. TENANT'S INSURANCE ................................................... 22
13. LANDLORD'S INSURANCE ................................................. 23
14. DAMAGE OR DESTRUCTION ................................................ 24
15. MACHINES AND EQUIPMENT; ALTERATIONS AND ADDITIONS:
REMOVAL OF FIXTURES .................................................. 26
16. ACCEPTANCE OF PREMISES ............................................... 27
17. TENANT IMPROVEMENTS .................................................. 28
18. ACCESS ............................................................... 28
19. MUTUAL WAIVER OF CLAIMS AND SUBROGATION .............................. 28
20. INDEMNIFICATION ...................................................... 29
1
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21. ASSIGNMENT AND SUBLETTING ............................................ 30
22. ADVERTISING .......................................................... 32
23. LIENS ................................................................ 33
24. DEFAULT .............................................................. 33
25. SUBORDINATION ........................................................ 37
26. SURRENDER OF POSSESSION .............................................. 37
27. NON-WAIVER ........................................................... 38
28. HOLDOVER ............................................................. 38
29. CONDEMNATION ......................................................... 38
30. NOTICES .............................................................. 39
31. MORTGAGEE PROTECTION ................................................. 40
32. COSTS AND ATTORNEYS' FEES ............................................ 40
33. BROKERS .............................................................. 40
34. LANDLORD'S LIABILITY AND DEFAULT ..................................... 40
35. ESTOPPEL CERTIFICATES ................................................ 41
36. FINANCIAL STATEMENTS ................................................. 42
37. TRANSFER OF LANDLORD'S INTEREST ...................................... 42
38. RIGHT TO PERFORM ..................................................... 43
39. SUBSTITUTED PREMISES ................................................. 43
40. SALES AND AUCTIONS ................................................... 43
41. NO ACCESS TO ROOF .................................................... 43
2
<PAGE>
42. SECURITY ............................................................. 44
43. AUTHORITY OF TENANT .................................................. 44
44. NO ACCORD OR SATISFACTION ............................................ 44
45. MODIFICATION FOR LENDER .............................................. 44
46. PARKING .............................................................. 44
47. GENERAL PROVISIONS ................................................... 45
48. LANDLORD'S LIEN ...................................................... 47
49. WAIVER OF JURY TRIAL ................................................. 48
50. RENEWAL OPTION ....................................................... 48
51. ADDITIONAL SCHEDULES ................................................. 49
EXHIBIT A-1 Location and Dimensions of Premises
EXHIBIT A-2 Description of Land
EXHIBIT B [Not applicable]
EXHIBIT C [Not applicable]
EXHIBIT D Rules and Regulations
EXHIBIT E Janitorial Specifications
EXHIBIT F Form Estoppel Certificate
3
<PAGE>
LEASE
THIS LEASE is made this 30th day of June, 1998 by and between
WELLSFORD/WHITEHALL PROPERTIES, L.L.C., a Delaware limited liability company -
("Landlord"), c/o Wellsford Real Properties, Inc., 610 Fifth Avenue, New York,
NY 10020, and ARBOR NATIONAL COMMERCIAL MORTGAGE, LLC, a New York limited
liability company ("Tenant") with a mailing address of 333 Earle Ovington Blvd.,
Suite 900, Uniondale, NY 11553.
RECITALS:
Landlord, for and in consideration of the rents and all other charges and
payments hereunder and of the covenants, agreements, terms, provisions and
conditions to be kept and performed hereunder by Tenant, grants and conveys to
Tenant, and Tenant hereby hires and takes from Landlord, a leasehold interest in
the premises described below ("Premises"), subject to all matters hereinafter
set forth and upon and subject to the covenants, agreements, terms, provisions
and conditions of this Lease for the term hereinafter stated.
NOW THEREFORE Landlord and Tenant hereby agree to the following:
1. TERMS.
1.1 Premises. The Premises demised by this Lease are approximately 6,675
rentable square feet on the 10th floor of the building located at 15 Broad
Street, Boston, Suffolk County, Massachusetts (the "Building"), together with a
nonexclusive right to use parking and other common areas. The land upon which
the Building is situated, which is described in Exhibit A-2 attached hereto and
incorporated herein by reference, shall be referred to hereinafter as the
"Land". The location and dimensions of the Premises are shown on Exhibit A-1,
attached hereto and incorporated herein by reference. No easement for light or
air is incorporated in this Premises. The rentable area of the Building is
approximately 60,682 square feet, and Landlord and Tenant hereby stipulate that
the rentable area of the Building and Premises are as set forth herein.
1.2 Tenant's Share. "Tenant's Share" shall mean a fraction, the numerator
of which is the total rentable square footage of the Premises, and the
denominator of which is the total rentable square footage of the Building.
Tenant's Share as of the date of execution of this Lease is eleven percent
(11%). Tenant's Share shall be adjusted for changes in the total rentable square
footage of the Premises and/or Building, including without limitation changes
which may result from any condemnation of a portion of the Building.
1.3 Lease Term. The term of this Lease (the "Term" or "Lease Term") shall
commence on the "Commencement Date", as defined in Section 1.4, below, and shall
expire sixty (60) months thereafter (the "Lease Expiration Date");
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1.4 Commencement Date. The "Commencement Date" shall be July 1, 1998.
Tenant is, prior to the Commencement Date, occupying the Premises
pursuant to a Lease dated June 9, 1993 (the "Prior Lease"). Tenant's use and
occupancy of the Premises will be subject to the terms and conditions of the
Prior Lease until the Commencement Date; and the Prior Lease shall be
superseded in its entirety and of no further force or effect as of the
Commencement Date. Tenant acknowledged that, as the Commencement Date,
Landlord will have no obligations no liabilities arising out of or relating
to the Prior Lease.
1.5 Rent. The base rent payable by Tenant hereunder ("Base Rent") is set
forth in this Section 1.5, below. In addition to the Base Rent, Tenant shall pay
(as additional rent) Tenant's Share of Expense Increases as described in Section
9, Tenant's Share of Tax Increases as described in Section 10, and all of which
shall be deemed additional rent due under this Lease. The combination of Base
Rent and additional rent as described in this Section 1.5 is sometimes
collectively referred to in this Lease as "Rent". Base Rent shall be payable
monthly, in advance, on first day of each calendar month of the Term, without
prior notice, demand, deduction or offset, except as expressly set forth to the
contrary herein.
The monthly payments of Rent for the Premises (which may be referred to
herein as "Monthly Rent") shall be as follows:
Annual Base Rent
Months Per Square Foot Annual Base Rent Monthly Rent
------ --------------- ---------------- ------------
1 - 2 -- -- $4,728.00
3 - 12 $23.50 $156,862.50 $13,071.88
13 - 24 $24.50 $163,537.50 $13,628.13
25 - 36 $25.50 $170,212.50 $14,184.38
37 - 48 $26.50 $176,887.50 $14,740.63
49 - 60 $27.50 $183,562.50 $15,296.88
1.6 Additional Rent. Any sum owed or reimbursable by Tenant to Landlord
under this Lease (excluding monthly Base Rent) shall be considered "additional
rent" hereunder, and, except for items of additional rent for which demand is
required pursuant to the express terms of this Lease, shall be payable without
demand, set-off or deduction, except as expressly set forth to the contrary
herein. The items of additional rent described in Section 1.5, above, shall be
payable monthly, in advance, on first day of each calendar month of the Term,
together with Tenant's monthly Base Rent payment.
1.7 Notice and Payment Addresses. Any notices under this Lease shall be
governed by the terms of Section 30, below. The notice addresses of the parties
are as follows:
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If to Landlord: Wellsford/Whitehall Properties, L.L.C.
c/o Wellsford Real Properties, Inc.
610 Fifth Avenue, 7th Floor
New York, NY 10020
with a copy to: Trammell Crow Company
25 First Street
Cambridge, MA 02141
If to Tenant: 333 Earle Ovington Blvd., Suite 900
Uniondale, NY 11553
Attn: Walter K. Horn, Sr. V.P. Legal
Notwithstanding the foregoing, the notice address of Tenant shall be at the
Premises on and after the Commencement Date. Either party may, upon (10) days'
prior written notice to the other, designate a new address to which all notices
hereunder shall be directed.
1.8 Rent Payment Address. Tenant shall send payments of Rent and
additional rent hereunder to Landlord's at the following address:
Trammell Crow Company
25 First Street
Cambridge, MA 02141
1.9 Lease Year. Each twelve (12) month period within the Lease Term shall
be referred to herein as a "Lease Year." The first Lease Year shall commence on
the Commencement Date and terminate on the last day of the twelfth full calendar
month after such Commencement Date. Each subsequent Lease Year shall commence on
the date immediately following the last day of the preceding Lease Year and
shall continue for a period of twelve (12) full calendar months, except that the
last Lease Year of the Lease Term shall terminate on the date this Lease expires
or is otherwise terminated.
1.10 "As Is". Tenant acknowledges and agrees that it is presently
occupying the Premises under the Prior Lease and will be occupying the Premises
from Landlord as of the Commencement Date strictly "As Is". Except for
Landlord's agreement to make the Landlord Contribution (described in Section
15.2.2, below) and to make the improvements and to perform the repairs set forth
in this Section 1.10, below, Landlord shall have no obligation to make any
alterations or repairs to the Premises in connection with Tenant's occupancy of
the Premises pursuant to this Lease except as expressly provided for herein.
Notwithstanding the foregoing, Landlord has advised Tenant that Landlord has
committed no less than $250,000 to make capital improvements and renovations to
the Building within twelve (12) months after the date hereof. Among the Building
components to which Landlord is considering making improvements are the Building
lobby, elevators and HVAC system. Also, Landlord shall (i) make repairs to the
roof over the Premises and the windows of the Premises
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necessary to prevent leakage and (ii) balance and adjust the HVAC system serving
the Premises in accordance with generally approved and accepted industry
standards.
1.11 Deed of Lease. To the extent required under applicable law to make
this Lease legally effective, this Lease shall constitute a deed of lease.
2. PAYMENT OF RENT & ADDITIONAL RENT.
Tenant shall pay Landlord the Rent due under this Lease in lawful money of
the United States. Rent (including any monthly estimated payments for Tenant's
Share of Expense Increases and Tax Increases payable in accordance with this
Lease) shall be paid in advance on or before the first day of each month, at the
address noted in Section 1.9, or to such other party or at such other place as
Landlord may hereafter from time to time designate in writing. All other
payments due under this Lease shall be paid no later than five (5) business days
after the date Landlord provides Tenant with a written request for payment which
sets forth the amount due. In the event of any dispute concerning the
computation of the amount of any additional rent due, Tenant shall pay the then
present amount specified by Landlord pending the resolution of the dispute,
provided such payment shall be without prejudice to Landlord's right to insist
upon payment in full or Tenant's right to continue to challenge the disputed
computation. If Landlord provides to Tenant supporting information regarding
Landlord's computation and establishes the basis for the disputed computation,
Tenant shall pay to Landlord the amount of any underpayment of such additional
rent within thirty (30) days after the dispute is finally resolved, together
with interest on the unpaid amount from the date of Tenant's receipt of
Landlord's written request with supporting information at an annualized rate of
the Prime Rate (as defined in Section 6.2, below) plus two (2%) percent.
3. SECURITY DEPOSIT; ADVANCE DEPOSIT
3.1 Security Deposit. Simultaneously with the execution of this Lease by
Tenant, Tenant shall provide Landlord with a security deposit in an amount equal
to Thirteen Thousand seventy-one Dollars and 88/100 ($13,071.88) (the "Security
Deposit"). To the extent the Security Deposit is less than the security deposit
held by Landlord in connection with a previous lease with Tenant for the
Premises, Landlord will credit the amount of the excess to Tenant on Landlord's
next invoice. The Security Deposit shall constitute security for payment of Rent
and additional rent and for any and all other obligations of Tenant under this
Lease. If Tenant defaults with respect to any covenant or condition of this
Lease, including but not limited to the payment of Rent, additional rent or any
other payment due under this Lease, and/or the obligation of Tenant to maintain
the Premises and deliver possession thereofback to Landlord at the expiration or
earlier termination of the Lease Term in the condition required herein, then
Landlord may (without any waiver of Tenant's default being deemed to have
occurred) apply all or any part of the Security Deposit to the payment of any
sum in default, or any other sum which Landlord may be required or deem
necessary to spend or incur by reason of Tenant's default, or to satisfy in part
or in whole any damages suffered by Landlord as a result of Tenant's default. In
the event of such application, Tenant shall promptly deposit with Landlord the
amount necessary to restore the Security Deposit to the full amount set forth
above. The parties expressly acknowledge and agree that the Security Deposit is
not an advance payment of Rent or
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additional rent, nor a measure of Landlord's damages in the event of any default
by Tenant. If Tenant shall have fully complied with all of the covenants and
conditions of this Lease, but not otherwise, the amount of the Security Deposit
then held by Landlord shall be repaid to Tenant within thirty (30) days after
the expiration or sooner termination of this Lease. In the event of a sale or
transfer of Landlord's estate or interest in the Building, Landlord shall have
the right to transfer the Security Deposit to the purchaser or transferee, and
Landlord shall be considered released by Tenant from all liability for the
return of the Security Deposit. If the Security Deposit is not transferred in
connection with such a sale or transfer of Landlord's interest, the Security
Deposit shall be refunded to Tenant.
3.2 No Separate Account. Landlord shall not be obligated to hold the
Security Deposit in a separate account from other Building or project funds.
4. USES; TENANT COVENANTS.
4.1 Permitted Uses. The Premises are to be used only for general office
and administrative purposes ("Permitted Uses") and for no other business or
purpose.
4.2 Other General Use Covenants.
4.2.1 Tenant shall not commit or allow to be committed any waste
upon the Premises, nor any public or private nuisance nor any other act which
disturbs the quiet enjoyment of any other tenant in the Building. If any of the
Tenant's office machines or equipment or other activities within the Premises
involve unusual volume or vibration and disturb any other tenant in the
Building, then Tenant shall provide adequate insulation, or take such other
action, as may be necessary to eliminate the noise or disturbance.
4.2.2 Tenant will, at its own cost, promptly comply with and carry
out all orders, requirements or conditions now or hereafter imposed upon it by
the ordinances, laws, rules, orders, and/or regulations of the State in which
the Premises are located and the federal government and any other federal, state
or local governmental authority, or public or quasi-public authority, having
jurisdiction over the Premises to the extent relating to the manner of Tenant's
occupation or use of the Premises, the conduct of Tenant's business therein, or
the construction of any improvements or alterations therein by (or at the
request of) Tenant, including all present and future laws, orders and
regulations regarding recycling of trash and smoking in the workplace, and all
building and life safety codes applicable to Tenant's alterations. The foregoing
notwithstanding, to the extent that any such orders, requirements or conditions
relate to the compliance of the Premises (or any portion thereof) with
applicable building codes, regulations, or laws which were in effect prior to
Tenant's occupancy of the Premises or which pertain to the Building as a whole,
or the land upon which same is located, either of which require Landlord to make
modifications thereto (the "Compliance Laws"), then Landlord shall be
responsible for the compliance of such item(s) with such Compliance Laws,
including but not limited to, costs of compliance of Landlord's Work with the
physical accessibility requirements of the Americans With Disabilities Act
("ADA") in existence on the Commencement
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Date; provided, however, if the Compliance Laws require Landlord to make
modifications to the Building, the Land, or the Premises, because of
improvements made by the Tenant subsequent to the Commencement Date or because
of any particular use made of the Premises by Tenant which is not in the nature
of customary general office use, all such costs shall be paid by Tenant. Tenant,
at Tenant's cost, shall be responsible for ensuring that Tenant's policies and
business operations with respect to the Premises comply with the ADA, and that
Tenant's Work (and that Landlord's Work to the extent designed by Tenant's
architect) complies with the ADA. As provided, above, Landlord will be
responsible for assuring that the Building and access to the Premises are in
compliance with the ADA.
4.2.3 Tenant shall observe such reasonable rules and regulations as
may be adopted and made available to Tenant by Landlord from time to time for
the safety, care and cleanliness of the Premises or the Building and for the
preservation of good order therein. The initial rules and regulations for the
Building are attached as Exhibit D hereto and made a part hereofby this
reference (as the same may be amended in accordance herewith, the "Rules and
Regulations"). Landlord shall have the right from time to time to make
reasonable modifications to the Rules and Regulations, provided (i) such
modifications shall only be applicable to Tenant if communicated to Tenant in
writing at least ten (10) days prior to the effective date of such modification,
(ii) such modified Rules and Regulations shall not materially modify any
economic obligations of Tenant hereunder, and (iii) in the event of any
irreconcilable conflict between the terms of this Lease and the terms of the
Rules and Regulations (as amended), the terms of this Lease shall be
controlling. All rules and regulations will be applied equally to similar
tenants throughout the Building and will be equally enforced. Landlord shall not
be responsible to Tenant for the nonperformance of any of said rules and
regulations by any other tenants or occupants of the Building.
4.2.4 No act shall be done or knowingly permitted by Tenant, or its
agents, employees and/or contractors, in or about the Premises that is unlawful
or that will increase the existing rate of insurance on the Building. To
Landlord's knowledge, general office use is neither unlawful, nor will it result
in any increase in the existing rate of insurance in the Building. Landlord will
not knowingly take any action which would result in Tenant's use of the Premises
becoming unlawful or which would result in an increase in Tenant's existing rate
of insurance. In the event the existing rate of insurance is increased because
of any breach by Tenant of this covenant, Tenant shall pay to Landlord any and
all fines, penalties, and/or increases in insurance premiums resulting from such
breach.
5. ENVIRONMENTAL PROVISIONS; RECYCLING.
5.1 General. Landlord will be responsible for (x) the compliance of the
Building with the Environmental Laws (defined below), other than those matters
which are the responsibility of Tenant, as provided below, and (y) the presence
of Hazardous Materials (defined below) in the Building, other than those which
arise due to a failure on the part of Tenant to comply with the provisions of
this Section 5. Tenant agrees to comply with any and all Environmental Laws in
connection with (1) Tenant's use of the Premises, (2) any assignment, sublease
or license of the Premises or any part thereof, (3) any termination of this
Lease and surrender of possession upon a
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default by Tenant hereunder, (4) any corporate reorganization, consolidation,
recomposition or similar change in Tenant's organization, (5) any acts, failures
to act where actions are required and other activities of Tenant in or on the
Building and Land, and/or (6) any other fact or circumstance the existence and
continuation of which imposes upon Tenant the obligation to so comply therewith.
5.2 Tenant's Warranties and Covenants. During the Term and any Renewal
Term of this Lease, Tenant warrants, represents and covenants to and with
Landlord as follows:
5.2.1 The Premises will not, as the result of any acts or failures
to act where actions are required of Tenant, contain (A) asbestos in any form,
(B) urea formaldehyde foam insulation, (C) transformers or other equipment which
contain dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty (50) parts per million, or (D) any flammable explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous,
controlled or toxic substances, or any pollutant or contaminant, or related
materials defined in or controlled pursuant to the Mass. General Laws c. 21E,
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Sections 9601 et seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801 et seq.), the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Sections 9601 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean
Air Act (42 U.S.C. Section 7401 et seq.), and in the regulations adopted and
publications promulgated pursuant thereto, and any and all other federal, state
and local laws, rules and regulations or orders pertaining to health, the
environment and/or Hazardous Materials (collectively, "Environmental Laws") (the
substances described in (A), (B), (C) or (D) above being hereinafter
collectively referred to as "Hazardous Materials"); (ii) except as specifically
permitted by this Lease, the Premises will never be used by Tenant for any
activities involving, directly or indirectly, the use, generation, treatment,
transportation, storage or disposal of any Hazardous Materials.
5.2.2 Tenant (A) shall comply in the operation of its business, and
in its use and occupancy of the Premises, with all Environmental Laws, (B) shall
not store, utilize, generate, treat, transport or dispose of (or permit or
acquiesce in the storage, utilization, generation, transportation, treatment or
disposal of) any Hazardous Materials on or from the Premises, and (C) shall
cause its employees, agents, contractors, assignees, sublessees, licensees and
(while within the Premises) invitees and business visitors to comply with the
representations, warranties and covenants herein contained. For all purposes of
this Section 5, references to "Tenant" shall be deemed to include acts or
failures to act where actions are required by Tenant and Tenant's agents,
employees, contractors, subcontractors, assignees, sublessees, licensees and,
while within the Premises, invitees and business visitors.
5.2.3 In the event of any storage, presence, utilization,
generation, transportation, treatment or disposal of Hazardous Materials by
Tenant in, on or about the Premises, Building and/or Land, or in the event of
any Hazardous Materials Release (as hereinafter defined) for which Tenant bears
responsibility under the provisions of this Section 5, Tenant shall, at the
direction of Landlord or any federal, state, or local authority or other
governmental authority, remove or cause the removal of any such Hazardous
Materials and rectify any such Hazardous Materials Release, and otherwise
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comply or cause compliance with the laws, rules, regulations or orders of such
authority, all at the expense of Tenant, including without limitation, the
undertaking and completion of all investigations, studies, sampling and testing
and all remedial, removal and other actions necessary to clean up and remove all
such Hazardous Materials, on, from or affecting the Premises. If Tenant shall
fail to proceed with such removal or otherwise comply with such laws, rules,
regulations or orders within the cure period permitted under the applicable law,
regulation or order, the same shall constitute a default under Section 23
hereof, and Landlord may, but shall not be obligated to, do whatever is
necessary to eliminate such Hazardous Materials from the Premises or otherwise
comply with the applicable law, rule, regulation or order, acting either in its
own name or in the name of Tenant pursuant to this Section, and the cost thereof
shall be borne by Tenant and thereupon become due and payable as additional rent
hereunder. Tenant shall give to Landlord and its agents and employees access to
the Premises for such purposes and hereby specifically grants to Landlord a
license to remove the Hazardous Materials and otherwise comply with such
applicable laws, rules, regulations or orders, acting either in its own name or
in the name of the Tenant pursuant to this Section.
5.2.4 Tenant hereby indemnifies and holds Landlord and each of its
shareholders, subsidiaries, affiliates, officers, directors, partners,
employees, agents and trustees, and any receiver, trustee or other fiduciary
appointed for the Building, harmless from, against, for and in respect of, any
and all damages, losses, settlement payments, obligations, liabilities, claims,
actions or causes of actions, encumbrances, fines, penalties, and costs and
expenses suffered, sustained, incurred or required to be paid by any such
indemnified party (including, without limitation, reasonable fees and
disbursements or attorneys, engineers, laboratories, contractors and
consultants) because of, or arising out of or relating to (A) the violation by
Tenant (or any of its agents, employees, contractors and, while within the
Premises, invitees) of any of its representations, warranties and covenants
under this Section 5, and (B) any Environmental Liabilities (as hereinbelow
defined) in connection with the Premises for which Tenant is responsible under
the terms of this Section 5 of the Lease. For purposes of this indemnification
clause, "Environmental Liabilities" shall include all costs and liabilities with
respect to the future presence, removal, utilization, generation, storage,
transportation, disposal or treatment of any Hazardous Materials or any release,
spill, leak, pumping, pouring, emitting, emptying, discharge, injection,
escaping, leaching, dumping or disposing into the environment (air, land or
water) of any Hazardous Materials (each a "Hazardous Materials Release"),
including without limitation, cleanups, remedial and response actions, remedial
investigations and feasibility studies, permits and licenses required by, or
undertaken in order to comply with the requirements of, any federal, state or
local law, regulation, or agency or court, any damages for injury to person,
property or natural resources, claims of governmental agencies or third parties
for cleanup costs and costs of removal, discharge, and satisfaction of all
liens, encumbrances and restrictions on the Premises relating to the foregoing.
The foregoing indemnification and the responsibilities of Tenant under this
Section 5 shall survive the termination or expiration of this Lease.
5.2.5 Tenant shall promptly notify Landlord in writing of the
occurrence of any Hazardous Materials Release or any pending or threatened
regulatory actions known to Tenant, or any claims made by any governmental
authority or third party, relating to any Hazardous Materials
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or Hazardous Materials Release on or from, the Premises and shall promptly
furnish Landlord with copies of any correspondence or legal pleadings or
documents in connection therewith. Landlord shall have the right, but shall not
be obligated, to notify any governmental authority of any state of facts which
may come to its attention with respect to any Hazardous Materials or Hazardous
Materials Release on or from the Premises.
5.2.6 Upon expiration of the Term or any Renewal Term, as
applicable, Tenant shall deliver the Premises to Landlord free of any and all
Hazardous Materials and any liens, encumbrances and restrictions relating to
Environmental Liabilities, to the extent Tenant was otherwise responsible
therefor.
5.3 Permitted Materials. Notwithstanding Section 5.2 to the contrary, but
subject to clauses (i) and (ii) of this Section 5.3, below, Tenant shall be
permitted to temporarily store reasonable amounts of Hazardous Materials that
are used in the ordinary course of Tenant's operation of the Permitted Use (the
"Permitted Materials") provided (i) such Permitted Materials are properly used,
stored and disposed of in a manner and location meeting the requirements of all
Environmental Laws and (ii) all Permitted Materials shall be approved in advance
by Landlord with the exception those materials typically used in the operation
of standard office equipment or for cleaning purposes, such as office cleaners,
printing toners and the like, and which are used stored and disposed of in
accordance with all applicable Environmental Laws (which common materials shall
not require special written approval by Landlord). Any use, storage and disposal
of Permitted Materials shall be subject to all of the terms of this Section 5
(except for the terms prohibiting same), and Tenant shall be responsible for
obtaining any required permits and paying any fees and providing any testing
required by any governmental agency with respect to any Permitted Materials. If
said Permitted Materials are not being stored, used, or disposed of in
compliance with all applicable laws, then Tenant shall immediately take such
corrective action as requested by Landlord. Should Tenant fail to take such
corrective action within forty-eight (48) hours (or such lesser time period as
may be appropriate in the event of Emergency (as defined herein), Landlord shall
have the right to perform such work on Tenant's behalf and at Tenant's sole
expense, and Tenant shall promptly reimburse Landlord for any and all reasonable
costs associated with said work.
5.4 Landlord's Covenants.
5.4.1 If, during the Lease Term, (a) Landlord introduces Hazardous
Materials in, on or under the Building or Land, or otherwise violates the
requirements of any Environmental Laws, or (b) Hazardous Materials contamination
in, on or under the Building or Land which existed prior to Tenant's taking
occupancy of the Premises is discovered, and in either case, such contamination
is not the responsibility of Tenant pursuant to Sections 5.2 and 5.3, above,
then as between Landlord and Tenant, Landlord shall be responsible for making a
prompt assessment of the scope and nature of the problem, and for taking
remedial action, in conjunction (if appropriate) with applicable federal, state
or local authorities; and in the event the presence of such Hazardous Materials
was caused by Landlord, or its authorized agents, employees or contractors,
Landlord shall be responsible for the cost to remediate any such contamination
and/or correct any such violation,
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and for all fines, penalties and other actual damages arising therefrom. The
foregoing is without prejudice to Landlord's right to seek recovery of damages
or losses from the parties at fault in any Hazardous Materials Release.
5.4.2 Landlord represents and warrants to Tenant that Landlord has
received results of tests conducted in the Building within sixty (60) days of
the date hereof regarding the presence or absence of asbestos in the Building
and that the results of such tests are that there is no friable or airborne
asbestos in the Building in violation of any applicable health or safety
standards.
5.5 Recycling Regulations. Tenant shall comply with all orders,
requirements and conditions now or hereafter imposed by any ordinances, laws,
orders and/or regulations (hereinafter collectively called "regulations") of any
governmental body having jurisdiction over the Premises or the Building, whether
required of Landlord or otherwise, regarding the collection, sorting, separation
and recycling of waste products, garbage, refuse and trash (hereinafter
collectively called "waste products") including but not limited to the
separation of such waste products into receptacles reasonably approved by
Landlord and the removal of such receptacles in accordance with any collection
schedules prescribed by such regulations. Landlord reserves the right (a) to
refuse to accept from Tenant any waste products that are not prepared for
collection in accordance with any such regulations, and (b) to require Tenant to
pay all costs, expenses, fines, penalties or damages that may be imposed on
Landlord or Tenant by reason of Tenant's failure to comply with any such
regulations.
6. LATE CHARGES; INTEREST.
6.1 Late Charge. Tenant hereby acknowledges that late payment to Landlord
of Base Rent or additional rent will cause Landlord to incur administrative
costs and loss of investment income not contemplated by this Lease, the exact
amount of which will be extremely difficult to ascertain. If any Rent or
additional rent due from Tenant is not received by Landlord or Landlord's
designated agent within five (5) business days after the date due, then Tenant
shall pay to Landlord a late charge equal to three percent (3%) of such overdue
amount, plus any attorneys' fees and costs incurred by Landlord by reason of
Tenant's failure to pay Rent and other charges when due hereunder; provided,
however, Landlord agrees to waive the first (1st) such late charge arising
during any Lease Year during the Term, up to a maximum of three (3) such waivers
during the Term, provided that Landlord receives such overdue Base Rent,
additional rent, or other sum within five (5) business days after the date
Landlord provides Tenant with a written notice that such payment of Rent,
additional rent or other charges is overdue. The parties hereby agree that such
late charges represent a fair and reasonable estimate of the administrative cost
that Landlord will incur by reason of Tenant's late payment. Landlord's
acceptance of such late charges shall not constitute a waiver of Tenant's
default with respect to such overdue amount or estop Landlord from exercising
any of the other rights and remedies granted hereunder.
6.2 Interest. In addition to the administrative late charge provided for
under Section 6.1, above, if any Rent or additional rent due from Tenant to
Landlord is not paid within five (5) business
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days after the date due (if Tenant was not assessed a late charge by virtue of
such late payment) or thirty (30) days after the date due (if Tenant was
assessed a late charge by virtue of such late payment), such unpaid amount shall
bear interest from the date originally due until the date paid at an annual rate
of interest (the "Default Rate") equal to the Prime Rate plus three percent
(3%). Landlord's acceptance of such interest shall not constitute a waiver of
Tenant's default with respect to such overdue amount or estop Landlord from
exercising any of the other rights and remedies granted hereunder. The term
"Prime Rate" shall mean the "Prime Rate" of interest as published from time to
time in The Wall Street Journal, or if not so published, then the "Prime Rate"
as established from time to time by the bank in which Landlord maintains its
bank accounts with respect to the Building.
7. REPAIRS AND MAINTENANCE.
7.1 Landlord's Responsibilities. Landlord shall maintain or cause to be
maintained, and after receiving notice or actual knowledge of the need for
repair, shall repair all structural and non-structural portions of the Building
Systems (as hereafter defined), Common Areas (as hereafter defined) and
Structural Elements (as hereafter defined), provided that, to the extent any of
such maintenance or repairs is rendered necessary by the negligence or willful
misconduct of Tenant, its agents, customers, employees, independent contractors,
guests or (while within the Premises) invitees, Tenant shall be obligated to
reimburse Landlord for all costs sustained by Landlord in connection therewith
to the extent such costs are not covered by the fire and casualty insurance
maintained, or required to be maintained, by Landlord on the Building, which
reimbursement shall be due no later than ten (10) days after Landlord's written
demand. For the purposes of this Section 7, "Building Systems" shall mean the
mechanical, electrical, plumbing, and HVAC systems serving the Building and
located outside of the confines of the Premises; "Common Areas" shall mean those
areas of the Building which are available for the non-exclusive use of any
tenant of the Building, including without limitation parking areas, lobbies,
elevators, restrooms, stairs, corridors, janitor's closets, and electrical and
telephone closets; and "Structural Elements" shall mean the structural
components of the Building's base building improvements, including structural
components which integrate with the interior tenant improvements within the
Premises, including without limitation the roof, foundations, exterior
structural walls and other load-bearing elements of the Building.
7.2 Tenant's Responsibilities. Except for (i) repairs to Building Systems,
Common Areas and Structural Elements, (ii) warranty repairs related to
Landlord's Work (if any), (iii) janitorial and cleaning services to the extent
provided by or through Landlord under Section 8.2, below, and (iv) repairs to
the interior of the Premises to the extent the same are rendered necessary by
the negligence or willful misconduct of Landlord and its agents, employees and
independent contractors, and are not covered by the fire and casualty insurance
maintained, or required to be maintained, by Tenant under this Lease, Tenant
shall be responsible (at Tenant's sole expense) for repairs and maintenance to
the interior of the Premises.
7.3 Notification Requirements. Landlord shall be under no obligation to
inspect the Premises. Tenant shall promptly report in writing to Landlord any
defective condition in the Premises actually known to Tenant which Landlord is
required to repair, and failure to so report such
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defects shall excuse any delay by Landlord in commencing and completing such
repair to the extent the same would otherwise be Landlord's responsibility under
this Lease. In addition, if Tenant fails to report a physically detectable
condition within the Premises within a reasonable time after Tenant first has
notice thereof, and such failure results in any incremental additional repair
expense, Tenant shall be responsible for such incremental additional expense.
7.4 Expenses. All expenses incurred by Landlord pursuant to this Section
7 (to the extent not payable directly by Tenant as above provided) will be
included within "Operating Costs" as defined in Section 9, below, to the extent
not excluded under Section 9.6.
8. UTILITIES AND SERVICES.
8.1 Hours of Service. From 8:00 a.m. to 6:00 p.m. on weekdays and from
8:00 a.m. to 1:00 p.m. on Saturday (collectively "Normal Business Hours") (but
excluding the following holidays: New Year's Day, Martin Luther King's Birthday,
President's Day, Patriot's Day, Memorial Day, Independence Day, Labor Day,
Columbus day, Veterans Day, Thanksgiving Day, the day after Thanksgiving,
Christmas Day and any holiday designated as such by an Executive Order of the
President of the United States or by Act of Congress, herein collectively
referred to as "Holidays"), Landlord shall furnish (i) electricity to the
Premises for lighting and for the operation of normal and customary office
machines, heating, ventilation and air-conditioning ("HVAC") service, (ii) hot
and cold water to common area restrooms, and (iii) if applicable, elevator
service. Landlord shall also provide for toilet cleaning and supply, common area
and in-suite janitorial services, and window washing (collectively "Janitorial
Services") on weekdays (excluding Holidays) in accordance with the
specifications set forth in Exhibit E. Landlord shall also provide electrical
service (excluding HVAC), hot and cold water and at least one elevator (if
applicable), as above provided, at all times other than Normal Business Hours.
The cost of all of the foregoing services furnished by Landlord shall constitute
Operating Costs or Costs of Electricity, as the case may be, and shall be
payable as provided in Section 9 of this Lease.
8.2 Additional HVAC Service. If requested by Tenant, Landlord shall
furnish HVAC service at times other than Normal Business Hours and the cost of
such services as established from time to time by Landlord shall be paid by
Tenant as additional rent, payable as provided in Section 2. If the quantity or
kind of utilities or services furnished by Landlord to the Premises to meet
Tenant's requirements is excessive or abnormal relative to the utilities and
services consumed by office tenants generally, as determined by engineering
surveys conducted by a licensed third party engineer selected by Landlord at
Landlord's expense, Tenant shall reimburse Landlord upon demand for the
additional cost resulting from Tenant's excessive or abnormal consumption.
8.3 Additional Provisions. Except as specifically provided in Section 8.5,
below, Landlord shall not be liable to Tenant for any loss, injury or damage to
property, or loss of income or other business loss, caused by or resulting from
any variation, interruption, or failure of such services due to any cause
whatsoever, or from failure to make any repairs or perform any maintenance. In
addition, Landlord shall not be liable to Tenant for (a) any damage to the
Premises, (b) any loss, damage or injury to any property therein or thereon, (c)
any claims for the interruption
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of or loss to Tenant's business or (d) for any indirect damages or consequential
losses, to the extent occasioned by bursting, rupture, leakage or overflow of
any plumbing or other pipes, other water leakage or flooding, or other similar
causes in, above, upon or about the Premises or the Building. If any public
utility or governmental body shall require Landlord or Tenant to restrict the
consumption of any utility or reduce any service to the Premises or the
Building, Landlord and Tenant shall comply with such requirements, without any
abatement or reduction of the Rent, additional rent or other sums payable by
Tenant hereunder.
8.4 Measurement of Tenant's Electrical Consumption. Landlord has installed
meters to measure Tenant's electrical consumption. For purposes of determining
Tenant's obligation to pay Costs of Electricity as set forth in Section 9,
below, Tenant's electrical consumption hereunder, shall be that associated with
the electrical lights, outlets, and other electrical connections located within
the Premises and shall not include the electrical consumption of the HVAC unit
which serves the Premises (the cost of which electrical consumption shall be
included within Operating Costs pursuant to Section 9).
8.5 Interruption in Services. Section 8.3, above, to the contrary
notwithstanding, in the event that (i) the supply of hot and cold water, HVAC
Service, electricity and/or (if applicable) elevator service for a minimum of
one (1) elevator (hereinafter, each an "Essential Service" and collectively
"Essential Services") is interrupted as a result of the negligence or willful
misconduct of Landlord, or its agents, employees or contractors (and not as a
result of any cause beyond Landlord's reasonable control, such as a general
electrical outage or blackout), and (ii) such interruption continues for a
period exceeding two (2) consecutive business days after Tenant first notifies
Landlord of such interruption, and (iii) as a result thereof Tenant is unable to
and does not in fact conduct business from the Premises or any portion thereof,
then from and after such third (3rd) consecutive business day, Tenant shall be
entitled to abate its Base Rent and additional rent obligations hereunder as to
the Premises or portion thereof which is not usable (and is in fact not used)
until such time as the applicable Essential Service(s) are restored. The
foregoing shall constitute Tenant's sole and exclusive remedy in the event of an
interruption of services to the Premises. In addition, if Landlord fails
promptly to commence, and to use diligent efforts thereafter, to cure (or to
cause the applicable utility provider to cure) the applicable interruption or
failure (even if not caused by Landlord's negligence or misconduct), then Tenant
shall have the right to exercise its right of self-help as more fully set forth
in Section 34, below (subject to any provisions therein requiring notice and the
opportunity to cure), and all reasonable expenses incurred by Tenant in the
exercise of such right shall be recoverable by Tenant from Landlord.
9. COSTS OF ELECTRICITY AND EXPENSE INCREASES.
9.1 Defined. Tenant shall pay directly to the utility company providing
such service to Tenant in Tenant's name the cost of all electrical service
furnished to the Premises (herein referred to as "Costs of Electricity"). For
each calendar year or portion thereof during the Term, Tenant shall pay as
additional rent to Landlord an amount (hereinafter referred to as "Expense
Increases") equal to the difference between:
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(A) Tenant's Share of Operating Costs (defined in Section 9.5,
below) for such calendar year; and
(B) Tenant's Share of Operating Costs for the "Operating Costs Base
Year" (defined in Section 9.2, below).
9.2 Base Year. For all purposes hereof, the "Operating Costs Base Year"
shall be calendar year 1998.
9.3 Estimated Payments. Tenant shall make monthly installment payments on
an estimated basis toward Tenant's Share of Expense Increases, in an amount
equal to one-twelfth (1/12th) of Landlord's estimate of the Tenant's Share of
Expense Increases for the then-current calendar year, respectively. Tenant's
obligation to make payments of its Costs of Electricity shall commence on first
(1st) day of the first (1st) month of the Term, and Tenant's obligation to make
monthly installment payments toward Tenant's Share of Expense Increases shall
not commence until the first (1st) day of the thirteenth (13th) month of the
Term. The foregoing estimate shall be based on Landlord's reasonable estimate of
Expense Increases for such calendar year (which shall not exceed 105% of the
prior year's Expense Increases in the absence of evidence that a larger estimate
is warranted). Landlord shall endeavor to communicate such estimate to Tenant on
or before the date Landlord provides Tenant with the Expense Statement
referenced in Section 9.4, below, provided that until Landlord provides such
estimate to Tenant, Tenant's estimated payments will be based upon the prior
year's estimate. If at any time or times during such calendar year, it appears
to Landlord that Tenant's Share of Expense Increases for such calendar year will
vary from Landlord's estimate by more than five percent (5%) on an annualized
basis, Landlord may, by written notice to Tenant with reasonable supporting
documentation, revise its estimate for such calendar year and Tenant's estimated
payments hereunder for such calendar year shall thereupon be based on such
revised estimate.
9.4 Annual Reconciliation. Within approximately one hundred twenty (120)
days after the end of each calendar year after the Operating Costs Base Year,
Landlord shall provide to Tenant a statement (the "Expense Statement") setting
forth Operating Costs for such calendar year and Tenant's Share of Expense
Increases for such year, calculated in accordance with Section 9.1, above.
Within fifteen (15) days after Tenant's receipt of such Expense Statement,
Tenant shall pay to Landlord any deficiency between (a) the amount shown as
Tenant's Share of Expense Increases for such calendar year, and (b) any payments
made by Tenant toward such amounts in accordance with Section 9.3, above. If the
payments made by Tenant pursuant to Section 9.3 exceed the amount shown in the
Expense Statement as Tenant's Share of Expense Increases for such calendar year,
the excess amount shall be applied against the next payment(s) of Rent or
additional rent coming due hereunder, unless the Lease shall have expired, in
which event Landlord shall refund such excess at the time of its delivery of the
Expense Statement.
9.5 Operating Costs. The term "Operating Costs" shall mean any and all
expenses incurred by Landlord in connection with the operation, management,
maintenance and repair of the
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Building and the Land, and all easements, rights and appurtenances thereto,
determined in accordance with generally accepted accounting principles for real
estate entities, but excluding the expenses identified in Section 9.6, below.
Operating Costs shall include:
(a) the cost of the personal property used in conjunction therewith;
(b) subject to Section 9.5(l), below, costs to repair and maintain
the Building, Land, Building Systems, Common Areas and Premises (but excluding
repairs to Structural Elements, which shall be Landlord's sole responsibility,
and which are hereinafter referred to as "Structural Repairs");
(c) all expenses paid or incurred by Landlord for electricity,
water, sewer, and other utility services for the Building, including electricity
provided to the HVAC units which serve the Building, and any utility surcharges
imposed, excluding only the electricity provided to the electrical lights,
outlets, and other electrical connections located within those portions of the
Building that are leased or leasable to tenants and excluding the costs of fuel
in connection with the heating of the Building, the cost of which is included in
Base Rent;
(d) any other costs and expenses incurred in connection with the
provision of the utilities and services set forth in Section 8, above, including
without limitation the maintenance and repair of the Building Systems furnishing
such utilities and/or services and the cost of replacements of Building Systems
made in lieu of needed repairs (as reasonably determined by Landlord), amortized
over the useful lives of such replacements;
(e) the cost of Building supplies and materials;
(f) the cost of cleaning and janitorial services in or about the
Premises, the Building (including without limitation common areas) and the Land;
(g) the cost of window glass replacement, repair and cleaning;
(h) the cost of repair and maintenance of the grounds, including
costs of landscaping, gardening and planting, including service or management
contracts with independent contractors, and including security and energy
management services and costs;
(i) costs to achieve compliance with any governmental laws, rules,
orders or regulations in the operation of the Building and the provision of
services hereunder;
(j) utility taxes;
(k) the amount of compensation (including employment taxes, fringe
benefits, salaries, wages, medical, surgical, and general welfare benefits such
as health, accident and group life insurance, pension payments, payroll taxes,
and worker's compensation insurance) paid for all persons who perform duties in
connection with the operation, management, maintenance and repair
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of the Building, including building engineers, custodial staff and similar
operating personnel, and including the property manager, but excluding any
executives or other employees of Landlord or its property management firm who
are above the level of property manager, and excluding any portion of such
compensation which is not reasonably allocable to services performed
for the Building;
(l) any capital expenditures incurred to reduce Costs of Electricity
or Operating Costs, to comply with any governmental law, order, regulation or
other legal requirement enacted after the Commencement Date of this Lease, to
replace existing equipment and machinery necessary to the day to day operation
of the Building, or which are capital replacements (i.e., replacements of common
area or common usage Building components and systems in lieu of capital repairs
otherwise required to be made thereto, but excluding capital replacements made
in lieu of Structural Repairs), provided that (i) each such capital expenditures
shall be amortized on a monthly basis over the useful life thereof (not to
exceed one hundred twenty (120) months) at an interest rate of twelve percent
(12%) per annum, and the amount recoverable by Landlord as an Operating Cost in
each year of the Term thereafter occurring (including the year in which such
expenditure is made) shall equal the sum of all such amortization payments
payable during each such year, and (ii) with respect to any capital expenditure
which is incurred solely to reduce Costs of Electricity and/or other Operating
Costs, the amount otherwise recoverable under clause 9.5(l)(i), above, shall be
further limited by the amount of such reduction which is achieved in each
applicable year.
(m) cost of premiums for casualty, liability, elevator, workman's
compensation, boiler and machinery, sprinkler leakage, rent loss, use and
occupancy and other insurance;
(n) license, permit and inspection fees;
(o) management fees not in excess of prevailing, arms length
management fees customarily charged for similar properties in the real estate
market of which the Building is a part;
(p) vault space rentals and public space rentals, if any;
(q) the cost of ordinary compliance with Environmental Laws;
(r) the cost of trash removal, including all costs incurred in
connection with waste product recycling pursuant to Section 5.5 (except to the
extent any such costs are charged directly to the tenants);
(s) any local and state governmental or quasi-governmental
surcharges or special charges assessed in connection with the operation and
maintenance of the Building;
(t) the cost of uniforms and dry cleaning for on-site Building
personnel;
(u) the cost of snow and ice removal or prevention;
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(v) the cost of telephone, telegraph, postage, stationery supplies
and other materials and expenses required for the routine operation of the
Building;
(w) environmental remediation costs for the common or public areas
of the Building, but only to the extent that the need for such remediation is
not caused by Landlord, its agents or employees;
(x) association assessments or other assessments for project-wide
common area services; and
(y) any other expense or charge whether or not hereinbefore
described which, in accordance with generally accepted accounting and management
practices, would be considered a reasonable and necessary expense of
maintaining, managing, operating or repairing the Building and/or the Land.
9.6 Exclusions. Notwithstanding the foregoing, Operating Costs shall not
include any of the following: (1) capital expenditures, except those set forth
in item 9.5(l), above; (2) costs of any special services rendered to individual
tenants (including Tenant), for which a special, separate charge shall be made;
(3) painting, redecorating or other similar work which Landlord performs for
specific tenants, the expenses of which are paid by such tenants or, if paid by
Landlord, do not arise out of necessary repairs recoverable under Section 9.5;
(4) Real Estate Taxes (as defined in Section 10); (5) depreciation or
amortization of costs required to be capitalized in accordance with generally
accepted accounting practices (except as set forth in Section 9.5(l), above);
(6) ground rent, if Landlord's interest in the land upon which the Building is
located derives solely from a ground lease; (7) interest and amortization of
funds borrowed by Landlord (except as specifically provided above); (8) leasing
commissions, and advertising, legal, space planning and construction expenses,
incurred in procuring, negotiating leases with, and installing leasehold
improvements for, tenants or prospective tenants of the Building; (9) salaries,
wages, or other compensation paid to officers or executives of Landlord (or
Landlord's property management firm) in their capacities as officers and
executives; (10) and any other expenses for which Landlord actually receives
direct reimbursement from insurance, condemnation awards, other tenants or any
other source, excluding general payments of Expense Increases pursuant to this
Section 9 by Tenant and other tenants of the Building.
9.7 Further Adjustment. In the event Landlord shall furnish any utility or
service which is included in the definition of Operating Costs to less than
ninety-five percent (95%) of the rentable area of the Building because (i) the
average occupancy level of the Building for the Base Services Year and/or any
subsequent calendar year was not ninety-five percent (95%) or more of full
occupancy, (ii) any such utility or service is not required by or provided to
one or more of the tenants or occupants of the Building, and such tenant(s)
is(are) not required to contribute its(their) proportionate share thereof, or
(iii) any tenant or occupant is itself obtaining or providing any such utility
or services directly, then the Operating Costs for such year (including the Base
Services Year) shall be adjusted to include all additional costs, expenses and
disbursements that Landlord reasonably determines would have been incurred had
the Building been ninety-five percent (95%) occupied during the year in question
and such utilities and services provided to all tenants. The
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intent of this Section 9.7 is to ensure that the reimbursement of all Operating
Costs is fair and equitably allocated among the tenants receiving such utilities
and services. In the calculation of Operating Costs hereunder, no expense shall
be charged more than once.
9.8 Tenant's Right of Review.
9.8.1 Each Expense Statement which Landlord provides to Tenant
pursuant to this Section 9, above, shall be conclusive and binding upon Tenant
unless, within thirty (30) days after Tenant's receipt of the Expense Statement
for a particular calendar year, Tenant provides Landlord with written notice
(the "Review Notice") stating that Tenant is exercising its right to undertake a
more extensive review of the Operating Costs or Real Estate Taxes (hereinafter
"Total Expenses") for the Building for such calendar year. Such review shall
commence within thirty (30) days after Tenant's Review Notice on a mutually
agreeable time and date, at the offices of Landlord (or such other location as
is reasonably designated by Landlord), and shall be completed within thirty (30)
days after commenced. Tenant's review shall take place during Landlord's normal
business hours, and shall be limited to those books and/or documentation which
contain the data for and the method used by Landlord in calculating the Total
Expenses for the Building for the applicable year. Tenant's right to review
Total Expenses for the Building for a particular calendar year shall be a
one-time right for each calendar year.
9.8.2 Tenant shall notify Landlord in writing of the results of
Tenant's review within ten (10) business days after such review is completed. If
Tenant's review demonstrates that Landlord has overstated Total Expenses, but by
less than five percent (5%), then Landlord shall credit the amount of such
overstatement against Tenant's next due payment of Base Rent and additional
rent, and Tenant shall bear the full cost of Tenants s review. If Tenant's
review demonstrates that Landlord has overstated Total Expenses by five percent
(5%) or more, then Landlord shall credit such amount against Tenant's next due
payment of Base Rent and additional rent, and Landlord shall reimburse Tenant
the reasonable and actual costs of Tenant's review, not to exceed Two Thousand
Five Hundred Dollars ($2,500.00). If Tenant's review demonstrates that Landlord
has not overstated Total Expenses, then (i) Landlord shall have the right to
invoice Tenant for any amount by which Tenant's share of Total Expenses was
understated, which invoice shall be payable by Tenant within fifteen (15) days
after receipt thereof, (ii) Tenant shall bear the full cost of Tenant's review,
and (iii) Tenant shall reimburse Landlord for any reasonable and actual third
party costs which Landlord incurred in connection with such review, not to
exceed Two Thousand Five Hundred Dollars ($2,500.00).
9.8.3 If Landlord disputes the results of Tenant's review, and the
parties are unable to reach agreement with regard thereto despite good faith
efforts to do so, Tenant may submit the matter for resolution by binding
arbitration, in accordance with the commercial arbitration rules of the American
Arbitration Association. In no event will Tenant withhold any Base Rent or
additional rent otherwise due under this Lease during the pendency of any such
review (or during the pendency of any dispute with regard to the results of such
review).
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10. INCREASES IN REAL ESTATE TAXES
10.1 Defined. For each calendar year or portion thereof during the Term,
Tenant shall pay as additional rent to Landlord, without diminution, set-off or
deduction, Tenant's share of an amount (hereinafter referred to as "Tax
Increases") equal to the difference between:
(A) "Tenant's Share" of "Real Estate Taxes" (defined in Section
10.5, below) paid in such calendar year; and
(B) "Tenant's Share" of "Real Estate Taxes" paid in the "Real Estate
Tax Base Year" (defined below.)
10.2 Base Year. For all purposes hereof, the Real Estate Tax Base Year
shall be fiscal year 1998.
10.3 Estimated Payments. Tenant shall make monthly installment payments
toward Tenant's Share of Tax Increases on an estimated basis, based on
Landlord's reasonable estimate of Tax Increases for such calendar year. Tenant
shall pay Landlord commencing on the first day of the month immediately
following the last day of the Real Estate Tax Base Year, and on the first day of
each month thereafter during the Term, one-twelfth (1/12th) of Landlord's
estimate of Tenant's Share of Tax Increases for the then-current calendar year.
If at any time or times during such calendar year, it appears to Landlord that
Tenant's Share of Tax Increases for such calendar year will vary from Landlord's
estimate by more than five percent (5%) on an annualized basis, Landlord may, by
written notice to Tenant, revise its estimate for such calendar year and
Tenant's estimated payments hereunder for such calendar year shall thereupon be
based on such revised estimate.
10.4 Annual Reconciliation. Within one hundred twenty (120) days after the
end of each calendar year after the Real Estate Tax Base Year, Landlord shall
provide to Tenant a statement (the "Expense Statement") setting forth the total
Real Estate Taxes for such calendar year and Tenant's Share of Tax Increases for
the applicable year. Within fifteen (15) days after the delivery of such Expense
Statement, Tenant shall pay to Landlord any deficiency between the amount shown
as Tenant's Share of Tax Increases for such calendar year and the estimated
payments made by Tenant toward such amount in accordance with Section 10.3,
above. In the case of excess estimated payments, the excess shall be applied
against estimated payments of Real Estate Taxes for the subsequent calendar
year, unless the Lease shall have expired, in which event Landlord shall refund
such excess, without interest, with the delivery of the Expense Statement.
10.5 Real Estate Taxes. For purposes of this Lease, "Real Estate Taxes"
shall mean all taxes and assessments, general or special, foreseen or
unforeseen, assessed, levied or imposed upon the Property, or assessed, levied
or imposed upon the fixtures, machinery, equipment or systems in, upon or used
in connection with the operation of the Property under the current or any future
taxation or assessment system or modification of, supplement to, or substitute
for such system. Real Estate Taxes (a) shall include all reasonable expenses
(including, but not limited to, attorneys' fees, disbursements and actual costs)
incurred by Landlord in obtaining or (consistent with reasonable and
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customary management practices) attempting to obtain a reduction of such taxes,
rates or assessments, including any legal fees and costs incurred in connection
with contesting or appealing the amounts or the imposition of any Real Estate
Taxes, and (b) shall exclude any franchise, capital stock, capital, rent,
income, profit or similar tax or charge. Landlord shall pay any special
assessment by installments to the extent it has the right to do so, and in such
event, Real Estate Taxes shall include such installments and interest paid on
the unpaid balance of the assessment. In the event Landlord succeeds in
obtaining a reduction of such taxes, rates or assessments, then, after
reimbursement to Landlord of all expenses (including, but not limited to,
reasonably incurred attorneys' fees, disbursements and actual costs) incurred by
Landlord in obtaining such reduction, Tenant shall be entitled to receive its
proportionate share of the net amount of any refund received or reduction
obtained by Landlord to the extent allocable to the Term of this Lease.
11. ADDITIONAL PROVISIONS: OPERATING COSTS AND REAL ESTATE TAXES.
11.1 Partial Year; End of Term. To the extent Real Estate Taxes, and/or
any items of Operating Costs, cannot more accurately be determined for any
partial calendar year of the Term by a method other than proration, the parties
agree that such determination shall be made by multiplying the amount thereof
for the full calendar year by a fraction, the numerator of which is the number
of days during such partial calendar year falling within the Term and the
denominator of which is 365. If this Lease terminates on a day other than the
last day of a calendar year, the amount of any adjustment to Tenant's Share of
Expense Increases and Tax Increases with respect to the calendar year in which
such termination occurs shall be prorated on the basis which the number of days
from the commencement of such calendar year to and including such termination
date bears to 365; and any amount payable by Landlord to Tenant or Tenant to
Landlord with respect to such adjustment shall be payable within thirty (30)
days after delivery by Landlord to Tenant of the applicable Expense Statement
with respect to such calendar year.
11.2 Other Taxes. In addition to Tenant's Share of both Expense Increases
and Tax Increases: (a) Tenant shall pay to Landlord (in accordance with Section
1.5, above) Tenant's Share of any taxes imposed upon the Premises, the Building,
the Land or the rents payable hereunder in the nature of a sales or use tax or
other levy (but not including any income or franchise tax, net profits tax,
estate tax, inheritance tax or payroll tax); and (b) Tenant shall pay, prior to
delinquency, all personal property taxes payable with respect to all property of
Tenant located in the Premises or the Building and shall provide promptly, upon
request of Landlord, written proof of such payment.
11.3 Timing of Estimates. If Landlord does not determine its estimate for
the then current calendar year of Tenant's Share of Expense Increases and/or Tax
Increases until February 1 or later, Tenant shall continue to make such payments
at the prior calendar year's rate, and in such event, Tenant's first such
estimated payment installment after such estimate is first made or updated shall
include, retroactively, any increases in the monthly estimated payments
applicable since January 1 of the same calendar year.
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12. TENANT'S INSURANCE.
12.1 Coverage Requirements. Tenant shall during the Term of this Lease,
procure at its expense and keep in force the following insurance: (i) Commercial
general liability insurance naming the Landlord and Landlord's managing agent as
additional insureds against any and all claims for bodily injury and property
damage occurring in or about the Premises. Such insurance shall have a combined
single limit of not less than One Million Dollars ($1,000,000) per occurrence
with a Two Million Dollar ($2,000,000) aggregate limit and excess umbrella
liability insurance in the amount of Two Million Dollars ($2,000,000). If Tenant
has other locations that it owns or leases, the policy shall include an
aggregate limit per location endorsement. Such liability insurance shall be
primary and not contributing to any insurance available to Landlord and
Landlord's insurance shall be in excess thereto. In no event shall the limits of
such insurance be considered as limiting the liability of Tenant under this
Lease; (ii) personal property insurance insuring all equipment, trade fixtures,
inventory, fixtures and personal property located within the Premises for perils
covered by the causes of loss -- special form (all risk) and in addition,
coverage for flood, earthquake and boiler and machinery (if applicable), which
insurance shall be written on a replacement cost basis in an amount equal to one
hundred percent (100%) of the full replacement value of the aggregate of the
foregoing; (iii) workers' compensation insurance in accordance with statutory
laws and employers' liability insurance with a limit of not less than One
Hundred Thousand Dollars ($100,000) per employee and Five Hundred Thousand
Dollars ($500,000) per occurrence; (iv) business interruption and/or loss of
rental insurance in an amount equal to at least to twelve (12) Base Rent payable
by Tenant hereunder, and which shall not contain a deductible greater than an
amount equal to seventy-two (72) hours of the Rent in effect at such time (or an
equivalent amount expressed in dollars), and which shall name Landlord as an
additional insured; and (v) such other insurance as may be required by
Landlord's beneficiaries or mortgagees of any deed of trust or mortgage
encumbering the Premises, or as is reasonable and customary for first class
office buildings in the area in which the Building is located.
12.2 Rating; Certificates; Cancellation. The policies required to be
maintained by Tenant shall be with companies reasonably acceptable to Landlord
and licensed to do business in the state in which the Premises are located and
domiciled in the USA. Except as provided in Section 12.1, above, any deductible
amounts under any insurance policies required hereunder shall not exceed Fifteen
Thousand Dollars ($15,000). Evidence of insurance (certificates and copies of
the policies may be required) shall be delivered to Landlord prior to the
Commencement Date. Each policy of insurance shall provide notification to
Landlord at least thirty (30) days prior to any cancellation or modification.
Tenant shall have the right to provide insurance coverage which it is obligated
to carry pursuant to the terms hereof in a blanket policy, provided such blanket
policy expressly affords coverage to the Premises and to Landlord as required by
this Lease.
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13. LANDLORD'S INSURANCE.
At all times during the Lease Term, Landlord will maintain (a) fire and
extended coverage insurance covering the Building, in an amount sufficient to
prevent Landlord from being a co-insurer under its policies of insurance, and
(b) public liability and property damage insurance in an amount customary for
properties which are comparable to the Building, as determined by Landlord in
its sole but reasonable discretion. Landlord shall also have the right to obtain
such other types and amounts of insurance coverage on the Building and
Landlord's liability in connection with the Building as Landlord determines is
customary or advisable for a first class office building in the Boston
metropolitan area. Tenant acknowledges and agrees that all premiums for
insurance obtained by Landlord pursuant to this Section 13 shall be included
within "Operating Costs", as such term is defined in Section 9, above.
14. DAMAGE OR DESTRUCTION.
14.1 Damage Repair.
14.1.1 If the Premises shall be destroyed or rendered untenantable,
either wholly or in part, by fire or other casualty, then, unless this Lease is
terminated for reasons permitted pursuant to Sections 14.2 and/or 14.5, below,
Landlord shall, within thirty (30) days after the date of such casualty, provide
Tenant with Landlord's good faith written estimate (the "Estimate") of how long
it will take to repair or restore the Premises.
14.1.2 If the Estimate indicates that Landlord will require less
than one hundred (180) days after the date governmental permits and approvals
are obtained to perform such repairs or restoration, then this Lease shall
continue in full force and effect, and Landlord shall, promptly after adjusting
the insurance claim, promptly (within, in any event, no more than forty-five
(45) days of the date of the Estimate) apply for and obtain governmental
approvals for reconstruction and promptly commence and diligently prosecute to
completion the restoration of the Premises to their previous condition, subject
to Section 14.4 below and subject to Force Majeure (as defined herein) or delay
caused by Tenant. Pending substantial completion of such restoration, the Rent
shall be abated in the same proportion as the untenantable portion of the
Premises bears to the whole thereof.
14.1.3 If Landlord indicates within the Estimate that it will
require in excess of one hundred eighty (180) days after obtaining governmental
permits and approvals to fully repair or restore the Premises in accordance
herewith, then within thirty (30) days after Landlord delivers Tenant the
Estimate, either Landlord or Tenant shall have the right to terminate this Lease
by written notice to the other, which termination shall be effective as of the
date of such notice of termination, and all liabilities and obligations of
Landlord and Tenant thereafter accruing shall terminate and be of no legal force
and effect.
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14.1.4 If neither party elects to terminate the Lease, as aforesaid,
and Landlord fails or declines to exercise any other termination right pursuant
to this Section 14, Landlord shall, promptly after adjusting the insurance claim
and obtaining governmental approvals for reconstruction, commence and diligently
prosecute to completion such restoration. If such restoration is not
substantially completed within one hundred eighty (180) days after obtaining
permits and approvals as aforesaid (or such longer period as was referenced in
the Estimate, if applicable), then for a period of up to thirty (30) days after
the expiration of such period (but in all events no later than the date Landlord
substantially completes its restoration of the Premises), Tenant shall have the
right to terminate this Lease upon thirty (30) days prior written notice to
Landlord; provided, however, that if Landlord completes such restoration prior
to the end of the thirty (30) day notice period, Tenant's notice of termination
shall be deemed rescinded and ineffective for all purposes, and this Lease shall
continue in full force and effect. The provisions of this Section are in lieu of
any statutory termination provisions allowable in the event of casualty damage.
14.2 Termination for Material or Uninsured Damages. If (i) the Building
shall be materially destroyed or damaged to the extent that the restoration of
such, in Landlord's judgment, is not economical or feasible, or (ii) the
Building shall be materially destroyed or damaged by any other casualty other
than those covered by such insurance policy, notwithstanding that the Premises
may be unaffected directly by such destruction or damage, or (iii) Landlord's
mortgagee (if any) requires that the proceeds of insurance be applied to reduce
any amounts outstanding under such mortgage, then in any such event, Landlord
or, within thirty (30) days of notice by Landlord to Tenant of the foregoing
circumstances, Tenant may, at their respective elections, terminate this Lease
by notice in writing to the other within thirty (30) days after, respectively,
such destruction or damage or the date of Tenant's receipt of Landlord's notice.
Such notice shall be effective thirty (30) days after receipt thereof by the
other party.
14.3 Business Interruption. Other than rental abatement as and to the
extent provided in Section 14.1, no damages, compensation or claim shall be
payable by Landlord for inconvenience or loss of business arising from
interruption of business, repair or restoration of the Building or Premises.
14.4 Repairs. Landlord's repair obligations, should it elect to repair,
shall be limited to restoration of improvements which are covered by Landlord's
insurance. Tenant acknowledges that any such repairs or restorations shall be
subject to applicable laws and governmental requirements, the requirements of
Landlord's mortgagee (if any), and to delay in the process of adjusting any
insurance claim associated therewith; and neither delays resulting from any of
the foregoing, nor modifications to the Building or to the interior of the
Premises occurring by virtue of the application of such requirements, shall not
constitute a breach of this Lease by Landlord as long as Landlord uses
reasonable efforts to commence and complete such repairs and restorations in a
timely fashion consistent with the pre-existing condition of the applicable
improvements.
14.5 End of Term Casualty. Anything herein to the contrary
notwithstanding, if the Premises are destroyed or damaged during the last
eighteen (18) months of the Lease Term, then
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either Landlord or Tenant shall have the right to terminate this Lease upon
thirty (30) days prior written notice to the other, which termination shall be
effective on the thirtieth (30th) day after the other party's receipt of such
notice. Such notice must be delivered within thirty (30) days after such
casualty, or shall be deemed waived.
14.6 Relocation to Interim Space. If all or part of the Premises is
damaged or destroyed by fire or other casualty and neither party elects to
exercise its termination right hereunder (or if no termination rights are
triggered), then Landlord shall have the option, to be exercised by delivering
written notice to Tenant within thirty (30) days after the date of such
casualty, to relocate Tenant to available space in the Building which is
comparable to the Premises (the "Interim Space") for the period during which the
Premises are repaired or restored, provided that (i) Landlord shall pay the
reasonable and actual costs to move Tenant's moveable fixtures, furniture and
equipment into the Interim Space, and out of the Interim Space when the Premises
is repaired, and the other reasonable costs and expenses relating to such
temporary relocation (ii) the square footage of the Interim Space shall not be
less than ninety percent (90%) of the square footage of the Premises unless
Tenant agrees otherwise, (iii) the Interim Space shall be reasonably suitable
for the conduct and operation of Tenant's business, and (iv) upon occupancy of
the Interim Space, Tenant shall pay Landlord Base Rent and additional rent for
the Interim Space as set forth in this Lease, which shall be adjusted to reflect
the square footage of the Interim Space; however, in no event shall the Base
Rent and additional rent for the Interim Space exceed the Base Rent and
additional rent for the Premises. If Landlord exercises the foregoing option,
Tenant shall relocate from the Premises to the Interim Space within thirty (30)
days after receipt of Landlord's notice; and Tenant shall relocate from the
Interim Space to the reconstructed Premises within thirty (30) days after
Landlord notifies Tenant that the repair of the Premises has been substantially
completed.
15. MACHINES AND EQUIPMENT; ALTERATIONS AND ADDITIONS: REMOVAL OF FIXTURES.
15.1 Floor Load, and Excessive Noise. Vibration, and Electrical Usage.
Tenant shall not, without Landlord's prior consent, place a load upon the floor
of the Premises which exceeds the maximum live load per square foot which
Landlord (or Landlord's architect or engineer) determines (in its good faith
professional judgment) is appropriate for the Building. Tenant will notify
Landlord prior to the installation of any high-density filing systems, or any
unusually heavy equipment or machinery, in the Premises, and all such
installations shall be subject to Landlord's consent, not to be unreasonably
withheld or delayed. Business machines, mechanical equipment and materials
belonging to Tenant which cause vibration, noise, cold, heat or fumes that may
be transmitted to the Building or to any other leased space therein to such a
degree as to be objectionable to Landlord or to any other tenant in the Building
shall be placed, maintained, isolated, stored and/or vented by Tenant (at its
expense) so as to absorb and prevent such vibration, noise, cold, heat or fumes.
Landlord shall not be required to supply electrical current for equipment that
requires more than 110 volts, and Tenant will not install or operate in the
Premises any electrical or other equipment whose electrical energy consumption
exceeds that of normal office use, without first obtaining the prior consent in
writing of Landlord, who may condition such consent upon the payment by Tenant
of additional rent to compensate (at cost) for excess consumption of water
and/or electricity, excess
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wiring and other similar requirements. All changes, replacements or additions to
any base building Systems which may be necessitated by the installation and
operation of such electrical equipment and/or machinery by Tenant shall be
subject to Landlord's consent, and shall be performed under Landlord's direction
at Tenant's expense.
15.2 Alterations - Generally.
15.2.1 Tenant may make cosmetic alterations (i.e., repainting,
replacement of carpeting, installation of wall covering, etc.) to the Premises
without Landlord's consent, provided that Landlord is notified in writing prior
to commencement of any such cosmetic alterations and the same do not diminish
the value of the Premises in more than a de minimis amount. All other
alterations, additions and improvements proposed to be made to the Premises by
Tenant (hereinafter, "Alterations") shall be subject to Landlord's prior written
approval, in accordance with the standards hereafter set forth. In the case of
Alterations which are structural or visible from the exterior of the Premises,
such approval may be withheld or conditioned in Landlord's sole, absolute, and
subjective discretion. In the case of all other Alterations, such consent may
not be unreasonably withheld, conditioned, or delayed. Without limitation, it
shall not be unreasonable for Landlord to deny its consent to any Alterations
(a) which would diminish the value of the leasehold improvements to the Premises
in more than a de minimis amount, (b) which would adversely affect any Building
Systems, (c) which would adversely affect the structural elements of the
Building, (d) which would impose on Landlord any special maintenance, repair, or
replacement obligations not within the scope of those expressly provided for
herein, or (e) which would constitute "non-standard office improvements",
meaning improvements which are unusual or extraordinary for standard office
usage, including curved walls, circular rooms, windowless office areas, vault
areas, areas involving special electrical or fire suppression systems, etc. The
foregoing notwithstanding, (i) Landlord will not withhold its consent to a
proposed Alteration solely on the basis described in clause (d) if Tenant
agrees, at the time of its request for approval or notice of such Alterations,
to pay all costs associated with Landlord's meeting the additional obligations
described in clause (d), and (ii) Landlord will not withhold its consent to a
proposed Alteration solely on the basis described in clause (e) if Tenant
agrees, at the time of its request for approval or notice of such Alterations,
to remove such Alteration(s) and restore the Premises to its condition prior to
the installation thereof, at Tenant's sole expense, upon the expiration or
sooner termination of this Lease. All Alterations (including without limitation
cosmetic alterations) shall be made (1) at Tenant's sole expense, (2) according
to plans and specifications approved in writing by Landlord (to the extent
Landlord's consent is required), (3) in compliance with all applicable laws, (4)
by a licensed contractor, and (5) in a good and workmanlike manner conforming in
quality and design with the Premises existing as of the Commencement Date. In
addition, except for any alterations which Landlord requires Tenant to remove as
a pre-condition to the installation thereof, and except for Tenant's movable
office partitions, furniture, and trade fixtures, all Alterations (including
without limitation cosmetic alterations) made by Tenant shall at once become a
part of the realty and shall be surrendered with the Premises.
15.2.2 Landlord shall reimburse to Tenant up to $33,375 toward
Tenant's costs of making cosmetic alterations or other Alterations, as
aforesaid, to the Premises, at any time during the first Lease Year hereof (the
"Landlord's Contribution"). Landlord will make such payments of
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Landlord's Contribution to Tenant within ten (10) business days of presentation
to Landlord of (i) itemized invoices or such other evidence of Tenant's costs
and expenses as Landlord may reasonably require, (ii) or evidence that such work
has been completed and/or any materials delivered to and installed in the
Premises, and (iii) confirmation that the applicable contractors or suppliers
have been or, with receipt of the payment sought, will be paid in full. All work
will be performed in compliance with the requirements of Sections 15.2.1 above,
and 15.4, below.
15.3 Removal of Alterations. Upon the expiration or sooner termination of
the Lease Term, Tenant shall, at Tenant's expense, diligently remove all
Alterations made by Tenant after the Commencement Date and designated by
Landlord or agreed to by Tenant, as the case may be, to be removed at the time
of Landlord's approval or Tenant's request for approval or notice thereof.
Tenant shall repair any damage to the Premises caused by such removal and,
except as otherwise provided herein, restore the applicable portion of the
Premises to its condition prior to such Alteration. Tenant shall remove all of
its movable property and trade fixtures at the expiration or earlier termination
of this Lease, and shall pay to Landlord the cost of repairing any damage to the
Premises or Building resulting from such removal. In no event shall Tenant
remove any portion of Landlord's Work except in connection with a permitted
Alteration hereunder. All items of Tenant's movable property, trade fixtures and
personal property that are not removed from the Premises or the Building by
Tenant at the termination of this Lease (or at any time when Landlord has the
right of reentry due to a Tenant default) shall be deemed abandoned and become
the exclusive property of Landlord, without further notice to or demand upon
Tenant. Tenant's obligations under these Sections 15.2 and 15.3 shall survive
the expiration or termination of this Lease.
15.4 Additional Covenants Regarding Alterations.
15.4.1 Tenant shall be responsible for and shall pay when due all
costs associated with the preparation of plans and the performance of
Alterations, and the same shall be performed in a lien-free, first-class, and
good and workmanlike manner, and in accordance with applicable codes and
requirements, including the requirements of the Americans with Disabilities Act
("ADA") (provided that, to the extent the Premises are not, as of the date
hereof, in compliance with the foregoing requirements of the ADA, Landlord shall
be responsible for correcting such noncompliance in accordance with applicable
law). Failure by Tenant to pay the costs associated with Alterations on a timely
basis so as to avoid the assertion of any statutory and/or common law lien
against the Premises or the Building shall constitute a default by Tenant for
all purposes of this Lease. Unless otherwise approved by Landlord, Tenant shall
only use new, first-class materials in connection with Alterations. All
contractors and subcontractors performing any work on behalf of Tenant within
the Premises shall be subject to Landlord's approval, licensed to do business in
jurisdiction within which the Premises is located, and for work involving a cost
in excess of $10,000, shall be bonded (or at Landlord's sole option, bondable).
15.4.2 Tenant shall ensure that all contractors and subcontractors
performing Alterations are insured in amounts required by law and which are
reasonable and customary in
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accordance with prevailing industry standards and consistent with the nature and
amount of work to be performed. Alterations may not commence, nor may Tenant
permit its contractors and subcontractors to commence or continue any such work,
until all required insurance has been obtained, and, if Landlord requests, until
certificates of such insurance have been delivered to Landlord. Such insurance
policies shall name the Landlord, Landlord's property manager, and Landlord's
mortgagee(s) as additional insureds. Such certificates of insurance shall
provide that no change or cancellation of such insurance coverage shall be
undertaken without thirty (30) days' prior written notice to Landlord. In the
event Tenant employs a contractor or subcontractor to perform all or part of any
Alterations, Tenant shall purchase, or cause its contractor to carry, General
Contractor's and Subcontractor's Required Minimum Coverages and Limits of
Liability as follows, which coverages shall be in amounts required by law and
reasonably acceptable to Landlord and in addition to any and all insurance
required to be procured by Tenant pursuant to the terms of this Lease: Worker's
Compensation, Employer's Liability Insurance, any insurance required by any
Employee Benefit Act (or similar statute), Comprehensive General Liability
Insurance (including Contractor's Protective Liability), Comprehensive
Automotive Liability Insurance, and Builder's Risk insurance.
15.4.3 Tenant agrees that Landlord and its agents and managers will
have the right to inspect any Alterations made by Tenant's contractor(s) and
subcontractor(s), and Tenant agrees to cooperate with Landlord to facilitate
such inspections. In the performance of Alterations in accordance with this
Lease, Tenant shall cause its contractor to use reasonable and diligent efforts
not to interfere with ongoing operations in the Building. Tenant shall cause its
contractor(s) to keep all construction areas clean and free of trash and debris
and shall otherwise comply with any other reasonable rules and regulations
established by Landlord with regard to construction activities within the
Building. Tenant's construction contract shall indemnify Tenant and Landlord
from damages, losses and expenses associated with the acts and omissions of
Tenant's contractor, its agents, employees and subcontractors. To the extent
that any Alterations involve construction work which affects any exterior
portions of the Building or Common Areas, Landlord may impose additional
requirements as a condition of its approval of such Alterations to ensure that
Tenant restores all affected areas of the Building's exterior and/or common
areas to their original condition upon completion and otherwise protects and
restores all affected work areas within the Building (including any portions of
the Common Areas of the Building) utilized or affected in performing such
Alterations.
15.4.4 Tenant shall provide to Landlord copies of all applications
for permits, copies of all governmental inspection reports and/or certificates,
and any and all notices or violations communicated to Tenant or its contractors
by applicable governmental authorities, promptly upon receipt and/or submission
thereof, as the case may be. Tenant agrees to comply (or to cause its
contractors to comply) with all applicable federal, state and local laws,
regulations and ordinances in the performance of Alterations, and to promptly
rectify any violations of such laws caused by the acts or omission of Tenant,
its employees, agents and/or contractors, and Tenant shall be responsible for
any non-compliance by Tenant or its agents, employees and contractors. Tenant
and its contractor performing Alterations shall (a) provide copies of warranties
for Alterations and the materials and equipment which are incorporated into the
Building and Premises in connection
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therewith. (b) provide to Landlord all operating and maintenance manuals for all
equipment and materials incorporated into the Building and/or Premises as part
of any Alterations, and (c) either assign to Landlord, or enforce on Landlord's
behalf, all such warranties to the extent repairs and/or maintenance on
warranted items would be covered by such warranties and are otherwise Landlord's
responsibility under this Lease.
16. ACCEPTANCE OF PREMISES.
Subject to the terms of Section 1.10, above, Landlord shall tender, and
Tenant shall accept possession of the Premises in strictly an "as-is" condition.
Tenant's occupancy of the Premises on the Commencement Date shall constitute
good and sufficient tender of possession, and satisfy all delivery of possession
requirements set forth in this Lease.
17. TENANT IMPROVEMENTS.
Any initial improvements to be performed by Tenant to the Premises shall
be treated as Alterations to the Premises and thus governed by Article 15,
above.
18. ACCESS.
Tenant shall permit Landlord and its agents to enter the Premises at all
reasonable times and (except in cases of Emergency, as defined herein) upon
reasonable prior notice, not to exceed two (2) business days: to inspect the
same; to show the Premises to prospective tenants, or interested parties such as
prospective lenders and purchasers; to exercise its rights under Section 48; to
clean, repair, alter or improve the Premises or the Building; to discharge
Tenant's obligations when Tenant has failed to do so within any applicable grace
period provided for herein; to post notices of non-responsibility and similar
notices and "For Sale" signs and to place "For Lease" signs upon or adjacent to
the Building or the Premises at any time within the twelve (12) month period
prior to the expiration of the Lease Term or at any time after the premises has
been vacated by Tenant; or for any other legitimate business purpose. Tenant
shall permit Landlord and its agents to enter the Premises at any time, and
without notice, in the event of an Emergency. When reasonably necessary and so
long as Tenant shall continue to have reasonable access to the Premises,
Landlord may temporarily close entrances, doors, corridors, elevators or other
facilities without liability to Tenant by reason of such closure. Landlord, in
the exercise of all of its rights under this Section 18, shall use commercially
reasonable efforts to minimize disruption of Tenant's use and occupancy of the
Premises.
19. MUTUAL WAIVER OF CLAIMS AND SUBROGATION.
19.1 Tenant. Notwithstanding anything to the contrary in this Lease,
whether the loss or damage is due to the negligence of Landlord or Landlord's
agents or employees, or any other cause, Tenant hereby releases Landlord and
Landlord's agents and employees from responsibility for and
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waives its entire claim of recovery for (i) any and all loss or damage to the
personal property of Tenant located in the Building, including, without
limitation, the Building itself and such property as may be attached to the
Building itself, arising out of any of the perils which are covered by Tenant's
property insurance policy, with extended coverage endorsements which Tenant is
required to obtain under the applicable provisions of this Lease, whether or not
actually obtained, or (ii) loss resulting from business interruption or loss of
rental income, at the Premises, arising out of any of the perils which may be
covered by the business interruption or by the loss of rental income insurance
policy held by Tenant.
19.2 Landlord. Notwithstanding anything to the contrary in this Lease,
whether the loss or damage is due to the negligence of Tenant or Tenant's agents
or employees, or any other cause, Landlord hereby releases Tenant and Tenant's
agents and employees from responsibility for and waives its entire claim of
recovery for any and all loss or damage to the personal property of Landlord
located in the Building, including, without limitation, the Building itself and
such property as may be attached to the Building itself, arising out of any of
the perils which are covered by Landlord's property insurance policy which
Landlord is required to obtain under the applicable provisions of this Lease,
whether or not actually obtained.
19.3 Carriers. Landlord and Tenant shall each cause its respective
insurance carrier(s) to consent to such waiver of all rights of subrogation
against the other, and to issue an endorsement to all policies of insurance
obtained by such party confirming that the foregoing release and waiver will not
invalidate such policies. To the extent such mutual waiver is prohibited by the
terms of either Landlord's or Tenant's respective insurance policies, the party
so affected such promptly notify the other and shall attempt to assure that each
of the parties' insurance coverage will be consistent with the terms of this
Section 19.
20. INDEMNIFICATION.
20.1 Tenant's Indemnity. Tenant shall indemnify and hold harmless
Landlord, its agents, employees, officers, directors, partners and shareholders
from and against any and all third party liabilities, judgments, demands, causes
of action, claims, losses, damages, costs and expenses, including reasonable
attorneys' fees and costs, asserted against Landlord by third parties or
sustained in connection with any third party claims for injury or death to
persons or damage to property against Landlord, by third parties and arising out
of the use, occupancy, conduct, or operation of the Premises by, or the willful
misconduct or negligence of, Tenant, its officers, contractors, licensees,
agents, servants, employees, or (while within the Premises) its guests or
invitees, or caused by any failure of Tenant to comply with the terms of this
Lease. This indemnification shall survive termination of this Lease. This
provision shall not be construed to make Tenant responsible for loss, damage,
liability or expense resulting from injuries or death to third parties or to the
property of third parties to the extent caused by the negligence of Landlord, or
its officers, contractors, licensees, agents, employees or invitees.
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20.2 Landlord's Indemnity. Landlord shall indemnify and hold harmless
Tenant, its agents, employees, officers, directors, partners and shareholders
from and against any and all third party liabilities, judgments, demands, causes
of action, claims, losses, damages, costs and expenses, including reasonable
attorneys' fees and costs, asserted against Tenant by third parties or sustained
by Tenant in connection with any third party claims for injury or death to
persons or damage to property, and arising out of the use, occupancy, conduct,
operation, or management of the Building by, or the willful misconduct or
negligence of, Landlord, its officers, contractors, licensees, agents, servants,
or employees, or caused by any failure of Landlord to comply with the terms of
this Lease. This indemnification shall survive termination of this Lease. This
provision shall not be construed to make Landlord responsible for loss, damage,
liability or expense resulting from injuries or death to third parties or to the
property of third parties to the extent caused by the negligence of Tenant, or
its officers, contractors, licensees, agents, employees or invitees, or by the
acts or omission of any other tenants or occupants of the Building.
21. ASSIGNMENT AND SUBLETTING.
21.1 Consent Required. Subject to the terms of this Article 21, Tenant
shall not assign, encumber, mortgage, pledge, license, hypothecate or otherwise
transfer the Premises or this Lease, or sublease all or any part of the
Premises, or permit the use or occupancy of the Premises by any party other than
Tenant, without the prior written consent of Landlord, which shall not be
unreasonably withheld, delayed or conditioned, as more fully set forth below.
21.2 Procedure.
21.2.1 Tenant must request Landlord's consent to any such assignment
or sublease in writing at least thirty (30) days prior to the commencement date
of the proposed sublease or assignment, which written request (a "Proposal
Notice") must include (1) the name and address of the proposed assignee or
subtenant, (2) the nature and character of the business of the proposed assignee
or subtenant, (3) financial information (including financial statements) of the
proposed assignee or subtenant, (4) the proposed effective date of the
assignment or sublease, which shall be not less than thirty (30) days
thereafter, and (5) a copy of the proposed sublease or assignment agreement.
Tenant shall also provide any additional information Landlord reasonably
requests regarding such proposed assignment or subletting. Within thirty (30)
days after Landlord receives Tenant's Proposal Notice (with all required
information included), but subject to Section 21.5, below, Landlord shall have
the option (i) to grant its consent to such proposed assignment or subletting,
or (ii) to deny its consent to such proposed assignment or subletting on a
reasonable basis. If Landlord does not exercise one of the above options (or the
termination right set forth in Section 21.5, below) within thirty (30) days
after Landlord receives such Proposal Notice, then Tenant may assign or sublease
the Premises upon the terms stated in the Proposal Notice.
21.2.2 Section 21.2.1 and 21.5, below, to the contrary
notwithstanding, Tenant shall have the right to sublet up to the lesser of 1,000
square feet or twenty-five percent (25%) of the net rentable area of the
Premises (in the aggregate), for periods not in excess of one (1) year, before a
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proposed sublease triggers Landlord's right of termination under clause 21.5,
but any such sublease(s) shall nevertheless be subject to Landlord's approval,
which shall not be unreasonably withheld or delayed as provided herein.
21.2.3 Without limitation, it shall not be unreasonable for Landlord
to deny its consent to any proposed assignment or sublease if the proposed
assignee or subtenant fails to satisfy any one or more of the following
criteria: (1) if the proposed assignee or sublessee has a net worth less than
that of the Tenant as of the date of execution of this Lease, or it otherwise
appears that the proposed assignee or subtenant may be unable to meet its
financial and other obligations under this Lease after such assignment or
sublease; (2) if the proposed assignee or subtenant proposes to use the Premises
for a purpose which is not a general office or administrative use; (3) if the
proposed assignee or subtenant has a history of landlord/tenant, debtor/creditor
or other contractual problems (such as, but not limited to, defaults, evictions,
enforcement litigation or other disputes) with Landlord, other landlords and/or
creditors or other contracting parties; (4) if the proposed assignee or
subtenant is an existing tenant, or the affiliate of an existing tenant, in any
building owned or operated by Landlord or any affiliate of Landlord; and/or (5)
if the space is one as to which Landlord has a right of termination under
Section 21.5, the proposed sublease involves, in Landlord's reasonable judgment,
a portion of the Premises which is not independently leasable space (which shall
be understood to mean that, in order to satisfy this criteria, the proposed
sublease space must have a proportion of windowed offices relative to the
Rentable Area thereof which is comparable to the floor as a whole, and cannot
lack reasonable means of ingress, egress or access to the Common Areas, common
facilities and/or core areas of the Building located on such floor of the
Building, such as access to elevators, bathrooms, telephone and electrical
closets, etc.) (any space meeting such criteria being referred to herein as
"Independently Leasable Space").
21.3 Conditions. Any subleases and/or assignments hereunder are also
subject to all of the following terms and conditions:
21.3.1 If Landlord approves an assignment or sublease as herein
provided, Tenant shall pay to Landlord, as additional rent due under this Lease,
(i) in the case of an assignment, all sums received by Tenant in consideration
of such assignment, calculated after Tenant has recovered in full from such
consideration its "Transaction Expenses" (as hereafter defined), and (ii) in the
case of a sublease, the amount, if any, by which the rent, any additional rent
and any other sums payable by the subtenant to Tenant under such sublease,
exceeds that portion of the Base Rent plus Costs of Electricity, Expense
Increases and Tax Increases payable by Tenant hereunder which is allocable to
the portion of the Premises which is the subject of such sublease, calculated
after Tenant has recovered in full its Transaction Expenses from such net
amount. The term "Transaction Expenses" shall mean all reasonable and actual
out-of-pocket expenses incurred by Tenant in procuring such assignment or
sublease, including broker fees and legal fees (if any) paid by Tenant, any
improvements which Tenant makes to the applicable portion of the Premises at
Tenant's expense in connection with such assignment or sublease, and any buy-out
of the assignee's or sublessee's existing lease paid for by Tenant as a part of
such transaction. The foregoing payments shall be made on not less than a
monthly basis by Tenant (in the case of subleases) and in all cases within
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ten (10) business days after Tenant receives the applicable consideration from
the assignee or subtenant.
21.3.2 No consent to any assignment or sublease shall constitute a
further waiver of the provisions of this section, and all subsequent assignments
or subleases may be made only with the prior written consent of Landlord. In no
event shall any consent by Landlord be construed to permit reassignment or
resubletting by a permitted assignee or sublessee.
21.3.3 The assignee under any assignment of this Lease shall be
fully (and, at landlord's option, directly) liable for all of the obligations of
"Tenant" under this Lease, on a joint and several basis with Tenant. Tenant
shall nevertheless remain fully liable to Landlord for all Lease obligations,
including those accruing after the effective date of such assignment.
21.3.4 Any sublease or assignment shall be subject to the condition
that the sublessee or assignee thereunder shall be bound by all of the terms,
covenants and conditions of this Lease (in the case of a sublease, insofar as
such terms, covenants and conditions relate to the portion of the Premises
subleased and/or the operations and conduct of business by the sublessee).
21.3.5 Without limitation, any and all guaranties of this Lease
shall be unaffected by such sublease and assignment, and shall remain in full
force and effect for all purposes.
21.3.6 Any assignment or sublease without Landlord's prior written
consent shall be void, and shall, at the option of the Landlord, constitute a
default under this Lease.
21.3.7 Tenant shall pay to Landlord Landlord's reasonable attorneys
fees and out-of-pocket expenses incurred in connection with Landlord's review of
such sublease or assignment (if any).
21.4 Affiliated Entity; Sale of Business.
21.4.1 Notwithstanding anything to the contrary in this Lease, so
long as such transfer is not effectuated as part of a transaction or series of
transfers orchestrated in order to effect a transfer of this Lease (or Tenant's
interest herein) in isolation to Tenant's other leasehold interests and assets,
Landlord's shall not unreasonably withhold its consent to any sublease,
assignment or other transfer of this Lease to any other entity which (i)
controls or is controlled by Tenant, or (ii) is controlled by Tenant's parent
company, or (iii) which purchases all or substantially all of the assets of
Tenant, or (iv) which purchases all or substantially all of the stock of Tenant
or (v) which merges with Tenant pursuant to a valid statutory merger; provided,
that (1) the assignee or sublessee is financially able to meet all of its
obligations under the proposed assignment or sublease, and (2) in such event,
(a) except in cases of statutory merger, in which case the surviving entity in
the merger shall be liable as the Tenant under this Lease, Tenant shall continue
to remain fully liable under the Lease, on a joint and several basis with the
assignee or acquiror of such assets or stock, (b) the terms of any guaranty of
this Lease shall remain in full force and effect, unmodified, and (c) following
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such sublease or assignment, Tenant shall continue to comply with all of its
obligations under this Lease, including with respect to its Permitted Use of the
Premises, as set forth in Section 4.1, above.
21.4.2 Tenant shall be required to give Landlord at least thirty
(30) days written notice in advance of any sublease or assignment within the
scope of Section 21.4.1, above. Any other transfer of fifty percent (50%) or
more of the ownership interests (including, without limitation, partnership
interests or stock) in Tenant or of operating control over Tenant (whether by
management agreement, stock sale or other means) shall be deemed to constitute
an assignment of this Lease, and shall be subject to Landlord's consent as
aforesaid.
21.4.3 Notwithstanding the last sentence of Section 21.4.1 to the
contrary, Landlord agrees that the offer and sale by Tenant (or any stockholder
of Tenant) of any stock pursuant to an effective registration statement filed
pursuant to the Securities Act of 1933 (including any initial public offering of
registered stock of the Tenant) or pursuant to and in accordance with the
securities laws of any foreign country governing publicly traded companies and
not in violation of U.S. law, shall not constitute an assignment of this Lease,
and shall not require the consent or approval of Landlord.
21.4.4 Tenant shall not transfer all or substantially all of its
assets to any person or entity unless either (i) this Lease is one of the assets
so transferred to such other person or entity, and the transferee assumes in
writing, for Landlord's benefit, the obligations of Tenant accruing hereunder
from and after the effective date of the transfer, or (ii) the transferee(s)
thereof otherwise delivers to Landlord a written assumption of Tenant's
obligations hereunder.
21.5. Right of Termination. Except for any assignment or sublease
permitted pursuant to Section 21.4, above, in the event of (i) a proposed
assignment of this Lease, (ii) a proposed sublease in excess of one (1) year
involving more than the lesser of (A) 1,000 square feet of rentable area, or (B)
twenty-five percent (25%) of the Premises, Landlord shall have the right, by
notice to Tenant delivered within fifteen (15) days after Landlord's receipt of
Tenant's Proposal Notice (and in lieu of the granting or denial of consent
provided for in Section 21.2, above), to terminate this Lease as to all of the
Premises (in the event of an assignment) or as to the subleased portion of the
Premises only (in the event of a sublease), for the balance of the Term. In the
event Landlord shall elect to terminate this Lease in connection with a proposed
assignment or sublease of this Lease as provided above in whole or in part (as
the case may be): (a) this Lease and the term hereof shall terminate (either as
to the Premises as a whole, or only as to the portion thereof which Tenant is
proposing to sublease, as the case may be) as of the later of (i) the proposed
effective date of such assignment or sublease, as set forth in Tenant's Proposal
Notice, or (ii) fifteen (15) days after the date Landlord received Tenant's
Proposal Notice; (b) Tenant shall be released from all liability under the Lease
(as to the Premises as a whole, in the case of an assignment, or as to the
terminated portion of the Premises only, in the case of a partial termination
due to sublease) with respect to the period after the date of termination (other
than obligations and indemnities of Tenant which accrued with respect to the
applicable portion of the Premises prior to the effective date of such
termination, which
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obligations shall expressly survive such termination or partial termination of
this Lease); (c) all Base Rent, Additional Rent and other charges shall be
prorated to the date of such termination, and appropriately adjusted if there is
only a partial termination; (d) upon such termination date, Tenant shall
surrender the Premises (or the applicable portion thereof) to Landlord in
accordance with Section 26 hereof; and (e) in the case of a partial termination
of this Lease, Landlord shall have the right to separate the portion of the
Premises being terminated from the balance of the Premises, including the
erection of a demising wall and, to the extent necessary under the
circumstances, the separation of any applicable Building Systems.
22. ADVERTISING.
22.1 Generally. Except as provided below, Tenant shall not display any
sign, graphics, notice, picture, or poster, or any advertising matter
whatsoever, anywhere in or about the Premises or the Building at places visible
from anywhere outside or at the entrance to the Premises without first obtaining
Landlord's written consent thereto, which Landlord may grant or withhold in its
sole discretion. All signage, including interior and exterior signage, shall be
at Tenant's sole expense, and subject to compliance with all applicable laws.
Tenant shall be responsible to maintain any permitted signs and remove the same
at Lease termination. In addition, upon the expiration or earlier of this Lease,
all exterior signs identifying Tenant shall be removed by Tenant at Tenant's
sole expense, and the affected portions of the Building shall be restored by
Tenant. If Tenant shall fail to maintain or remove its signs, as aforesaid,
Landlord may do so at Tenant's cost. Tenant shall be responsible to Landlord for
any damage caused by the installation, use, maintenance or removal of any such
signs.
22.2 Signage Program/Permitted Signage. Notwithstanding Section 22.1 to
the contrary, lobby and suite identification signage shall be permitted in
accordance with applicable legal requirements and the Landlord's overall signage
program for the Building, subject to Landlord's approval which shall not be
unreasonably withheld (in light of Landlord's overall signage program for the
Building). Generally, Tenant shall be permitted (at Tenant's expense) to install
a standard suite entry sign, and (if applicable) directory identification panels
on that portion of the Building's lobby directory located in the main lobby of
the Building (if any), commensurate with the relative square footage of the
Premises as compared to the square footage of the Building as a whole.
23. LIENS.
Tenant shall keep the Premises and the Building free from any liens
arising out of any work performed, materials ordered or obligations incurred by
or on behalf of Tenant, and Tenant hereby agrees to indemnify and hold Landlord,
its agents, employees, independent contractors, officers, directors, partners,
and shareholders harmless from any liability, cost or expense for such liens.
Tenant shall cause any such lien imposed to be released of record by payment or
posting of the proper bond acceptable to Landlord within thirty (30) days after
the earlier of notice of intent to impose the lien or written request by
Landlord. If Tenant fails to remove any lien within the
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prescribed thirty (30) day period, then Landlord may do so at Tenant's expense
and Tenant shall reimburse Landlord for such amount, including reasonable
attorneys' fees and costs.
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24. DEFAULT.
24.1 Tenant's Default. A default under this Lease by Tenant shall exist if
any of the following occurs:
24.1.1 If Tenant fails to pay Rent, additional rent or any other sum
required to be paid hereunder within five (5) days after written notice from
Landlord that such payment was due, but was not paid as of the due date
(provided, however, if Landlord has delivered two (2) such notices to Tenant in
any twelve (12) month period, or four (4) such notices over the Term of this
Lease, whichever first occurs, then any subsequent failure to pay Base Rent,
additional rent or any other sum required to be paid to Landlord hereunder on or
before the due date for such payment shall constitute a default by Tenant
without requirement of such five (5) day notice and opportunity to cure); or
24.1.2 If Tenant fails to perform any term, covenant or condition of
this Lease except those requiring the payment of money to Landlord as set forth
in Section 24.1.1 above, and Tenant fails to cure such breach within fifteen
(15) days after written notice from Landlord where such breach could reasonably
be cured within such fifteen (15) day period; provided, however, that where such
failure could not reasonably be cured within the fifteen (15) day period, Tenant
shall not be considered in default if it commences such performance within the
fifteen (15) day period and diligently thereafter prosecutes the same to
completion, such grace period not to exceed a maximum of sixty (60) days in the
aggregate. If any provisions of this Lease calls for a shorter or different
grace period than that set forth above, then such other provision shall control
over this provision. The foregoing notice and cure period notwithstanding,
Landlord may exercise its self-help rights hereunder (i.e., Landlord's right to
perform any obligation of Tenant which Tenant has failed to perform hereunder)
without any prior notice or upon such shorter notice as may be reasonable under
the circumstances in the event of any one or more of the following circumstances
is present: (i) there exists a reasonable risk of prosecution of the Landlord
unless such obligation is performed sooner than the stated cure period, (ii)
there exists an imminent possibility of danger to the health or safety of the
Landlord, the Tenant, Tenant's invitees, or any other occupants of, or visitors
to, the Building, unless such obligation is performed sooner than the stated
cure period, and/or (iii) the Tenant has failed to obtain insurance required by
this Lease, or such insurance has been canceled by the insurer without being
timely replaced by Tenant, as required herein.
24.1.3 If Tenant shall (i) make an assignment for the benefit of
creditors, (ii) acquiesce in a petition in any court in any bankruptcy,
reorganization, composition, extension or insolvency proceedings, (iii) seek,
consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of Tenant and of all or any part of Tenant's property, (iv) file a
petition seeking an order for relief under the Bankruptcy Code, as now or
hereafter amended or supplemented, or by filing any petition under any other
present or future federal, state or other statute or law for the same or similar
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relief, or (v) fail to win the dismissal, discontinuation or vacating of any
involuntary bankruptcy proceeding within sixty (60) days after such proceeding
is initiated.
24.2 Remedies. Upon a default, Landlord shall have the following remedies,
in addition to all other rights and remedies provided by law or otherwise
provided in this Lease, any one or more of which Landlord may resort
cumulatively, consecutively, or in the alternative:
24.2.1 Landlord may continue this Lease in full force and effect,
and this Lease shall continue in full force and effect as long as Landlord does
not terminate this Lease, and Landlord shall have the right to collect Base
Rent, additional rent and other charges when due.
24.2.2 Landlord may terminate this Lease, or may terminate Tenant's
right to possession of the Premises, at any time by giving written notice to
that effect, in which event Landlord may (but shall not be obligated to) relet
the Premises or any part thereof. Upon the giving of a notice of the termination
of this Lease, this Lease (and all of Tenant's rights hereunder) shall
immediately terminate, provided that, without limitation, Tenant's obligation to
pay Base Rent, Expense Increases and Tax Increases (as well as any damages
otherwise payable under this Section 24), shall survive any such termination and
shall not be extinguished thereby. Upon the giving of a notice of the
termination of Tenant's right of possession, all of Tenant's rights in and to
possession of the Premises shall terminate but this Lease shall continue subject
to the effect of this Section 24. Upon either such termination, Tenant shall
surrender and vacate the Premises in the condition required by Section 26, and
Landlord may re-enter and take possession of the Premises and all the remaining
improvements or property and eject Tenant or any of the Tenant's subtenants,
assignees or other person or persons claiming any right under or through Tenant
or eject some and not others or eject none. This Lease may also be terminated by
a judgment specifically providing for termination. Any termination under this
section shall not release Tenant from the payment of any sum then due Landlord
or from any claim for damages or Base Rent, additional rent or other sum
previously accrued or thereafter accruing against Tenant, all of which shall
expressly survive such termination. Upon such termination Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in attempting to relet the
Premises or any part thereof, including, without limitation, broker's
commissions, expenses of cleaning and redecorating the Premises required by the
reletting and like costs. Reletting may be for a period shorter or longer than
the remaining Lease Term. No act by Landlord other than giving written notice to
Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the
Premises or the appointment of a receiver on Landlord's initiative to protect
Landlord's interest under this Lease shall not constitute a constructive or
other termination of Tenant's right to possession or of this Lease, either of
which may be effected solely by an express written notice from Landlord to
Tenant. On termination, Landlord has the right to recover from Tenant as
damages:
(a) The worth at the time of award of unpaid Base Rent,
additional rent and other sums due and payable which had been earned at the time
of termination; plus
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(b) The worth at the time of award of the amount by which the
unpaid Base Rent, additional rent and other sums due and payable which would
have been payable after termination until the time of award exceeds the amount
of such rent loss that Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which the
unpaid Base Rent, additional rent or other sums due and payable for the balance
of the Lease Term after the time of award exceeds the amount of such rent loss
that Tenant proves could be reasonably avoided; plus
(d) Any other amount necessary which is to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which, in the ordinary course of things, would
be likely to result therefrom, including, without limitation, any costs or
expenses incurred by Landlord: (i) in retaking possession of the Premises; (ii)
in maintaining, repairing, preserving, restoring, replacing, cleaning, altering
or rehabilitating the Premises or a portion thereof, including such acts for
reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for
any other costs necessary or appropriate to relet the Premises; plus
(e) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by the laws of
the Commonwealth of Massachusetts.
The "worth at the time of award" of the amounts referred to in
Sections 24.2.2(a) and (b) is computed by allowing interest at the Default Rate
on the unpaid rent and other sums due and payable from the termination date
through the date of award. In lieu of the amounts recoverable in a lump sum by
Landlord pursuant to clauses (b) and (c) of this Section 24.2.2, above, but in
addition to the amounts specified in clauses (a), (d), and (e) (or any other
portion of this Section 24), Landlord may, at its sole election, recover
"Indemnity Payments," as defined hereinbelow, from Tenant. For purposes of this
Lease "Indemnity Payments" means an amount equal to the Base Rent, additional
rent and other payments provided for in this Lease which would have become due
and owing thereunder from time to time during the unexpired Lease Term after the
effective date of the termination, but for such termination, less the Base Rent,
additional rent and other payments, if any, actually collected by Landlord and
allocable to the Premises. If Landlord elects to pursue Indemnity Payments in
lieu of the amount recoverable in a lump sum by Landlord under clauses (b) and
(c), above, Tenant shall, on demand, make Indemnity Payments monthly, and
Landlord may sue for all Indemnity Payments at any time after they accrue,
either monthly, or at less frequent intervals. Tenant further agrees that
Landlord may bring suit for Indemnity Payments at or after the end of the Lease
Term as originally contemplated under this Lease, and Tenant agrees that, in
such event, Landlord's cause of action to recover the Indemnity Payments shall
be deemed to have accrued on the last day of the Lease Term as originally
contemplated. In seeking any new tenant for the Premises, Landlord shall be
entitled to grant any concessions it deems reasonably necessary. In no event
shall Tenant be entitled to any excess of any rental obtained by reletting over
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and above the rental herein reserved. Tenant waives redemption or relief from
forfeiture under any other present or future law, in the event Tenant is evicted
or Landlord takes possession of the Premises by reason of any default of Tenant
hereunder.
24.2.3 Landlord may, with or without terminating this Lease,
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant, or, as otherwise provided in this
Lease, shall be deemed abandoned by Tenant, and may be disposed of by Landlord
at Tenant's expense and free from any claim by Tenant or anyone claiming by,
through or under Tenant. No re-entry or taking possession of the Premises by
Landlord pursuant to this Section shall be construed as an election to terminate
this Lease unless a written notice of such intention is given to Tenant.
24.2.4 Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including all creditors, does hereby
specifically waive and surrender any and all rights and privileges, so far as is
permitted by law, which Tenant and all such persons might otherwise have under
any present or future law (1) to the service of any notice to quit or of
Landlord's intention to re-enter or to institute legal proceedings, which notice
may otherwise be required to be given, except the foregoing shall not waive any
notices required under Section 24.1, above (if any); (2) to redeem re-enter or
repossess the Premises after Tenant's right of possession has been terminated by
Landlord; (3) to restore the operation of this Lease, with respect to any
dispossession of Tenant by judgment or warrant of any court or judge, or any
re-entry by Landlord, or any expiration or termination of this Lease, whether
such dispossession, re-entry, expiration or termination shall be by operation of
law or pursuant to the provisions of this Lease, or (4) to the benefit of any
law which exempts property from liability for debt or for distress for rent.
25. SUBORDINATION.
25.1 Subordination. Subject to Section 25.2, below, this Lease is and
shall at all times be and remain subject and subordinate to the lien of any
mortgage, deed of trust, ground lease or underlying lease now or hereafter in
force against the Premises, and to all advances made or hereafter to be made
upon the security thereof. Although the foregoing subordination shall be self
effectuating, Tenant shall execute and return to Landlord any documentation
requested by Landlord consistent with this Section 25 in order to confirm the
foregoing subordination, within five (5) business days after Landlord's written
request. If Tenant fails to provide Landlord with such subordination documents
within five (5) business days after Landlord's written request, the same shall
constitute a default by Tenant hereunder without requirement of any further
notice or right to cure. In the event any proceedings are brought for
foreclosure, or in the event of the exercise of the power of sale under any
mortgage or deed of trust made by the Landlord covering the Premises, Tenant
shall attorn to the purchaser at any such foreclosure, or to the grantee of a
deed in lieu of foreclosure, and recognize such purchaser or grantee as the
Landlord under this Lease, provided such purchaser assumes, either expressly or
by operation of law, the obligations of "Landlord" arising
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under this Lease after the date title to the Land and Building is transferred to
such purchaser or grantee. Tenant agrees that no mortgagee or successor to such
mortgagee shall be (i) bound by any payment of Rent or additional rent for more
than one (1) month in advance, (ii) bound by any amendment or modification of
this Lease made without the consent of Landlord's mortgagee or such successor in
interest, (iii) liable for damages for any breach, act or omission of any prior
landlord, (iv) bound to effect or pay for any construction for Tenant's
occupancy, (v) subject to any claim of offset or defenses that Tenant may have
against any prior landlord and which have accrued prior to the date that such
mortgagee or successor takes legal title to the Land and Building, or (vi)
liable for the return of any security deposit, unless such security deposit has
been physically received by such mortgagee. Any such mortgagee shall have the
right, at any time, to subordinate to this Lease any instrument to which this
Lease is otherwise subordinated by operation of this Section 25.
25.2 Notwithstanding Section 25.1, above, to the contrary, Landlord agrees
that the subordination of this Lease to any future mortgage (or ground lease)
shall be conditioned upon the delivery to Tenant of a "Subordination,
Non-Disturbance and Attornment Agreement" ("SNDA") from such future mortgagee
(or ground lessor), in such commercially reasonable form of SNDA which may be
required by such mortgagee (or ground lessor), and which shall provide, inter
alia, that so long as Tenant is not in default hereunder (beyond any applicable
notice and cure period) and attorns to such mortgagee (or ground lessor) or any
successor-in-title thereto due to a foreclosure or deed-in-lieu thereof (or a
termination of such ground lease), Tenant's rights under this Lease, including
its right of possession of the Premises, shall not be disturbed in the event of
a foreclosure of such mortgage or deed of trust (or a termination of such ground
lease). Landlord shall also use commercially reasonable efforts to obtain an
SNDA from its current mortgagee of the Property.
26. SURRENDER OF POSSESSION.
Upon expiration of the Lease Term, Tenant shall promptly and peacefully
surrender the Premises to Landlord, broom clean and free of all of its
furniture, movable fixtures and equipment and otherwise in as good condition as
when received by Tenant from Landlord or as thereafter improved, reasonable use
and wear and tear and damage by insured casualty excepted, all to the reasonable
satisfaction of Landlord. If the Premises are not surrendered as and when
aforesaid, and in accordance with the terms of this Lease, Tenant shall
indemnify Landlord against all claims, losses, costs, expenses (including
reasonable attorneys' fees) and liabilities resulting from the delay by Tenant
in so surrendering the same, including any claims made by any succeeding
occupant founded on such delay. This indemnification shall survive termination
of this Lease.
27. NON-WAIVER.
Waiver by Landlord of any breach of any term, covenant or condition herein
contained shall not be deemed to be a waiver of such term, covenant, or
condition(s), or any subsequent breach of the same or any other term, covenant
or condition of this Lease, other than the failure of Tenant to pay the
particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent.
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28. HOLDOVER.
28.1 Holdover - Generally. If Tenant shall, without the written consent of
Landlord, hold over after the expiration of the Lease Term (hereinafter, an
"unauthorized holdover"), Tenant shall be deemed to be a tenant at sufferance,
which tenancy may be terminated immediately by Landlord as provided by
applicable state law. During any such holdover tenancy, unless Landlord has
otherwise agreed in writing, Tenant agrees to pay to Landlord a per diem
occupancy charge equal to (A) five percent (5%) of the stated monthly Base Rent
for the last full month of the Lease Term then ending for each day of the first
month of such holdover (or 150% of such monthly Base Rent for the entire first
month), (B) six percent (6%) of the stated monthly Base Rent for the last full
month of the Lease Term then ending for each day of the second month of such
holdover (or 180% of such monthly Base Rent for the entire second month), (C)
seven percent (7%) of the stated monthly Base Rent for that last full month of
the Lease Term then ending for each day of such holdover after the first two (2)
months thereof (but not to exceed 200% of such monthly Rent for each such full
month), and (D) one hundred percent (100%) of the additional rent which would
have been payable by Tenant for the period of such holdover, calculated on a per
diem basis using the additional rent which had otherwise been payable by Tenant
for the last full month of the Lease Term then ending. Such payments shall be
made within five business (5) days after Landlord's demand, and in no event less
often than once per month (in arrears). In the case of a holdover which has been
consented to by Landlord, Tenant shall be deemed to be a month to month tenant
upon all of the terms and provisions of this Lease, except the monthly Base Rent
shall be as agreed by Landlord and Tenant with respect to such consented
holdover. Upon expiration of the Lease Term as provided herein, Tenant shall not
be entitled to any notice to quit, the usual notice to quit being hereby
expressly waived under such circumstances, and Tenant shall surrender the
Premises on the last day of the Lease Term as provided in Section 26, above. The
foregoing described per diem occupancy charge is in addition to, and not in lieu
of, any other claims for damages which Landlord may have or assert against
Tenant in connection with any unauthorized holdover, including any claims
arising out of Tenant's indemnity under Section 26, above.
29. CONDEMNATION.
29.1 Definitions. The terms "eminent domain", "condemnation", and "taken",
and the like in this Section 29 include takings for public or quasi-public use,
and sales under threat of condemnation and private purchases in place of
condemnation by any authority authorized to exercise the power of eminent
domain. Any temporary taking for a period in excess of twelve (12) consecutive
months shall be deemed to be a permanent taking within the meaning of this
Section 29.
29.2 Taking. "Taking" shall mean and refer to the acquisition or taking of
property (or any right, title or interest therein) by any governmental or
quasi-governmental authority acting under power of condemnation or eminent
domain, and shall encompass contested as well as uncontested takings as long as
initiated by the applicable governmental or quasi-governmental authority. If the
whole of the Premises is temporarily taken for a period in excess of thirty (30)
days, or is
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permanently taken, in either case by virtue of a Taking, this Lease shall
automatically terminate as of the date title vests in the condemning authority,
and Tenant shall pay all Base Rent, additional rent, and other payments up to
that date. If (a) twenty percent (20%) or more of the Premises is permanently
taken by virtue of a Taking, or (b) in the case of a Taking of less than twenty
percent (20%) of the Premises, Tenant is unable to make reasonable use of the
balance of the Premises remaining after the Taking, as determined by Tenant in
its reasonable, good faith discretion, or (c) access to the Building or Premises
by Tenant is, by virtue of a Taking, permanently denied, or (d) if free parking
is provided for under this Lease, the parking ratio for the Building is, by
virtue of a Taking of any parking areas serving the Building, permanently
reduced to a ratio which fails to meet applicable code requirements after taking
into account any portion of the Building taken and any reasonable substitute
parking provided by Landlord in lieu of the parking areas so taken, then
Landlord and Tenant shall each have the right (to be exercised by written notice
to the other within sixty (60) days after receipt of notice of said taking) to
terminate this Lease effective upon the date when possession of the applicable
portion of the Property is taken thereunder pursuant to such Taking. If neither
party elects to terminate this Lease, as aforesaid, then Landlord shall
diligently, and within a reasonable time, after title vests in the condemning
authority, repair and restore, at Landlord's expense, the portion not taken so
as to render same into an architectural whole to the extent reasonably
practicable, and, if any portion of the Premises is taken, thereafter the Base
Rent (and Tenant's Share) shall be reduced (on a per square foot basis) in
proportion to the portion of the Premises taken. If there is a temporary Taking
involving the Premises or Building, or if a Taking of other portions of the
Building or common areas does not deny Tenant access to the Building and
Premises, or if less than twenty percent (20%) of the Premises is permanently
taken by a Taking and Tenant is able to make reasonable use of the balance of
the Premises as determined by Tenant in its reasonable good faith discretion,
then this Lease shall not terminate, and Landlord shall, as soon as reasonably
practicable thereafter, repair and restore, at its own expense, the portion not
taken so as to render same into an architectural whole to the fullest extent
reasonably practicable. If any portion of the Premises was permanently taken,
then the Base Rent (and Tenant's Share) shall be reduced (on a per square foot
basis) in proportion to the portion of the Premises taken, commencing on the
date Tenant is deprived of the use of such portion of the Premises. If any
portion of the Premises was temporarily taken, then the Base Rent (and Tenant's
Share) shall be reduced (on a per square foot basis) in proportion to the
portion of the Premises taken for the period of such temporary taking, that is,
from the date upon which Tenant is deprived of the use of such portion of the
Premises until the date Tenant is restored to the use of such portion of the
Premises.
29.3 Award. Landlord reserves all rights to damages to the Premises or
Building, or arising out of the loss of any leasehold interest in the Building
or Premises created hereby, arising in connection with any partial or entire
taking by eminent domain or condemnation. Tenant hereby assigns to Landlord any
right Tenant may have to such damages or award, and Tenant shall make no claim
against Landlord or the condemning authority for damages for termination of
Tenant's leasehold interest or for interference with Tenant's business as a
result of such taking. The foregoing notwithstanding, Tenant shall have the
right to claim and recover from the condemning authority separate compensation
for any loss which Tenant may incur for Tenant's moving expenses, business
interruption or taking of Tenant's personal property (but specifically excluding
any leasehold interest
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in the Building or Premises) under the then applicable eminent domain code,
provided that Tenant shall not make any claim that will detract from or diminish
any award for which Landlord may make a claim.
29.4 Mortgagee Rights. Tenant acknowledges that Landlord's right to any
condemnation award may be subject to the rights of Landlord's mortgagee (if any)
in and to such award under the mortgage or deed of trust (if any) which
encumbers the Building and Premises. Accordingly, Landlord's obligation to
repair and restore, as set forth in Section 29, above, shall be subject to the
requirements of Landlord's mortgagee with regard thereto, and the time within
which such obligation must be satisfied shall be adjusted as reasonably
necessary to reflect delays occasioned by the exercise by the mortgagee of such
mortgagee's rights.
30. NOTICES.
All notices and demands which may be required or permitted to be given to
either party hereunder shall be in writing, and shall be delivered personally or
sent by United States certified mail, postage prepaid, return receipt requested,
or by Federal Express or other reputable overnight carrier, to the addresses set
out in Section 1.8, and to such other person or place as each party may from
time to time designate in a notice to the other. Notice shall be deemed given
upon the earlier of actual receipt or refusal of delivery.
31. MORTGAGEE PROTECTION.
Tenant agrees to give any mortgagee(s) and/or trust deed holder(s), by
registered mail, a copy of any notice of default served by Tenant upon the
Landlord, provided that prior to such notice Tenant has been notified in writing
(by way of notice of assignment of rents and leases, or otherwise) of the
addresses of such mortgagee(s) and/or trust deed holder(s). Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the mortgagee(s) and/or trust deed holder(s)
shall have an additional thirty (30) days within which to cure such default or
if such default cannot be cured within that time, then such additional time as
may be necessary if within such thirty (30) days any mortgagee and/or trust deed
holder(s) has commenced and is diligently pursuing the remedies necessary to
cure such default (including but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure), in which event Tenant shall not
have the right to pursue any claim against Landlord, such mortgagee and/or such
trust deed holder(s), including but not limited to any claim of actual or
constructive eviction, so long as such remedies are being so diligently pursued.
32. COSTS AND ATTORNEYS' FEES.
In any litigation between the parties arising out of this Lease, and in
connection with any consultations with counsel and other actions taken or
notices delivered, in relation to a default by any party to this Lease, the
prevailing party shall pay to the non-prevailing party all reasonable expenses
and court costs including attorneys' fees incurred by the non-prevailing party,
in
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preparation for and (if applicable) at trial, and on appeal. Such attorneys'
fees and costs shall be payable upon demand.
33. BROKERS.
Tenant represents and warrants to Landlord that neither it nor its
officers or agents nor anyone acting on its behalf has dealt with any real
estate broker other than Trammell Crow Company and Cushman & Wakefield
("Broker") in the negotiating or making of this Lease, and Tenant agrees to
indemnify and hold Landlord, its agents, employees, partners, directors,
shareholders and independent contractors harmless from all liabilities, costs,
demands, judgments, settlements, claims and losses, including reasonable
attorneys fees and costs, incurred by Landlord in conjunction with any such
claim or claims of any broker or brokers other than Broker claiming to have
interested Tenant in the Building or Premises or claiming to have caused Tenant
to enter into this Lease. Landlord shall pay to Broker any leasing commission
due Broker in connection with this Lease in accordance with, and subject to the
terms, covenants and conditions of a separate written commission agreement
between Landlord and Broker.
34. LANDLORD'S LIABILITY AND DEFAULT.
34.1 No Personal Liability. Anything in this Lease to the contrary
notwithstanding, covenants, undertakings and agreements herein made on the part
of the Landlord are made and intended not for the purpose of binding Landlord
personally or the assets of Landlord generally, but are made and intended to
bind only the Landlord's interest in the Premises and Building, as the same may,
from time to time, be encumbered, and no personal liability shall at any time be
asserted or enforceable against Landlord or its stockholders, officers or
partners or their respective heirs, legal representatives, successors and
assigns on account of the Lease or on account of any covenant, undertaking or
agreement of Landlord in this Lease. Accordingly, and notwithstanding any other
provisions of this Lease to the contrary, Tenant shall look solely to Landlord's
interest in the Premises and Building, and not to any other or separate business
or non-business assets of Landlord, or any partner, shareholder, member, officer
or representative of Landlord, for the satisfaction of any claim brought by
Tenant against Landlord, and if Landlord shall fail to perform any covenant,
term or condition of this Lease upon Landlord's part to be performed, and as a
consequence of such default Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only (i) out of the proceeds of sale
received upon levy against the right, title and interest of Landlord in the
Building and/or (ii) to the extent not encumbered by a secured creditor, out of
the rents or other incomes receivable by Landlord from the property of which the
Premises are a part. In addition, in no event shall Landlord be in default of
this Lease unless Tenant notifies Landlord of the precise nature of the alleged
breach by Landlord, and Landlord fails to cure such breach within fifteen (15)
days after the date of Landlord's receipt of such notice (provided that if the
alleged breach is of such a nature that it cannot reasonably be cured within
such fifteen (15) day period, then Landlord shall not be in default if Landlord
commences a cure within such fifteen (15) day period and diligently thereafter
prosecutes such cure to completion).
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34.2 Notice and Cure. In no event shall Landlord be in default of this
Lease unless Tenant notifies Landlord of the precise nature of the alleged
breach by Landlord, and Landlord fails to cure such breach within fifteen (15)
days after the date of Landlord's receipt of such notice (provided (i) that if
the alleged breach is of such a nature that it cannot reasonably be cured within
such fifteen (15) day period, then Landlord shall not be in default if Landlord
commences a cure within such fifteen (15) day period and diligently thereafter
prosecutes such cure to completion, not to exceed ninety (90) days in the
aggregate within which to complete such cure, and (ii) in the event of an
Emergency, such grace or cure period may be shortened as reasonably necessary
given the scope and nature of the Emergency, provided such shortened grace or
cure period shall only apply to permit the exercise of Tenant's self help rights
under Section 34.4, below.
34.3 Rights and Remedies - Generally. In the event of a default by
Landlord after expiration of applicable cure periods, Tenant shall be entitled
to pursue all rights and remedies available at law or in equity except as
limited by this Lease, and in all events excluding consequential damages. In
addition, in no event shall Tenant have any right to terminate this Lease by
virtue of any uncured default by Landlord, except under circumstances which
amount to a constructive eviction under applicable principles of the law of the
state within which the Premises is located (and with respect to which Tenant
satisfies the requirements for a constructive eviction claim under applicable
law). Tenant shall use commercially reasonable efforts to mitigate its damages
in the event of any default by Landlord hereunder.
34.4 Tenant's Right to Perform Landlord's Obligations After a Default by
Landlord. Among other remedies permitted to be exercised by Tenant upon a
default by Landlord of its obligations hereunder after expiration of applicable
cure periods, and without waiving or releasing Landlord from any such obligation
of Landlord, Tenant may, but shall not be obligated to, perform any such
obligation of Landlord, and to recover from Landlord the reasonable and actual
costs incurred by Tenant in performing such obligation, which shall be payable
within thirty (30) days after Tenant's written demand accompanied by reasonable
substantiation of the applicable costs. The foregoing right to perform
Landlord's obligations shall only apply after the requisite notice and
opportunity to cure has been afforded to Landlord (including any shortened cure
period permitted in cases of Emergency, as long as Tenant notifies Landlord of
the needed repair or other default as soon as possible after tenant learns of
its existence).
35. ESTOPPEL CERTIFICATES.
Tenant shall, from time to time, within ten (10) days of Landlord's
written request, execute, acknowledge and deliver to Landlord or its designee a
written statement stating: the date the Lease was executed and the date it
expires; the date the Tenant entered occupancy of the Premises; the amount of
Rent, additional rent and other charges due hereunder and the date to which such
amounts have been paid; that this Lease is in full force and effect and has not
been assigned, modified, supplemented or amended in any way (or specifying the
date and terms of any agreement so affecting this Lease); that this Lease
represents the entire agreement between the parties as to this
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leasing (or identifying any such other agreements); that all conditions under
this Lease to be performed by the Landlord have been satisfied (or specifying
any such conditions that have not been satisfied); that all required
contributions by Landlord to Tenant on account of Tenant's improvements have
been received (or specifying any such contributions that have not been
received); that on the date of such certificate there are no existing defenses
or offset which the Tenant has against the enforcement of this Lease by the
Landlord (or specifying any such defenses or offsets); that no Rent has been
paid more than one (1) month in advance (or, if so, the amount thereof); that no
security has been deposited with Landlord (or, if so, the amount thereof);
and/or any other matters evidencing the status of the Lease as may be required
either by a lender or prospective lender with respect to any loan to Landlord
secured or to be secured by a deed of trust or mortgage against the Building, or
by a purchaser or prospective purchaser of the Building, Landlord's interest
therein or Landlord's ownership interests, which written statement shall be in
substantially the same form as Exhibit F attached hereto and made a part hereof
by this reference. It is intended that any such statement delivered pursuant to
this paragraph may be relied upon by a prospective purchaser of Landlord's
interest or a mortgagee of Landlord's interest or assignee of any mortgage upon
Landlord's interest in the Building. If Tenant fails to respond within ten (10)
days after receipt by Tenant of a written request by Landlord as herein
provided, Tenant shall be deemed to have given such certificate as above
provided without modification and shall be deemed to have admitted the accuracy
of any information supplied by Landlord to a prospective purchaser or mortgagee.
36. FINANCIAL STATEMENTS.
Within ten (10) days after Landlord's written request, which may be made
not more than once per fiscal year, (i) at such time as Tenant is a publicly
traded entity, Tenant shall deliver to Landlord Tenant's unaudited quarterly
financial statement for the most recent fiscal quarter and (to the extent not
previously delivered by Tenant to Landlord) Tenant's audited annual financial
statement for the most recent fiscal years and (ii) prior to the time Tenant is
a publicly traded company, Tenant will share with Landlord, to be capable of
being used and relied upon by Landlord's mortgage lender and any prospective
purchaser of the Building, the current audited annual and quarterly financial
condition of Tenant. In the case of (i), above, such quarterly and annual
financial statements shall include, at a minimum, a balance sheet, a profit and
loss statement and accompanying notes, as of the date prepared and in the case
of (ii), above, shall be in form and substance reasonably acceptable to Landlord
and Tenant. Tenant hereby agrees and Landlord hereby acknowledges that Tenant's
annual financial statements shall be completed within ninety (90) days after
Tenant's fiscal year-end and that Tenant's quarterly financial statements shall
be completed within thirty (30) days after Tenant's fiscal quarter-end. The
certified public accountant preparing such annual financial statements shall
provide an opinion that any such annual financial statements are complete and
materially accurate and that the same have been prepared in accordance with
generally accepted accounting principles consistently applied. To the extent
such financial statements are not publicly disclosed information, Landlord shall
keep all such information strictly confidential except that
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Landlord shall be allowed to share it with potential mortgage lenders or
purchasers on a strictly confidential basis or as may be required by court or
administrative order.
37. TRANSFER OF LANDLORD'S INTEREST.
In the event of any transfer(s) of Landlord's interest in the Premises or
the Building, other than a transfer for security purposes only, the transferor
shall be automatically relieved of any and all obligations and liabilities on
the part of Landlord accruing from and after the date of such transfer, to the
extent such obligations are assumed by the transferee either expressly or by
operation of law, and Tenant agrees to attorn to the transferee.
38. RIGHT TO PERFORM.
If Tenant shall fail to make any payment or perform any other act on its
part to be performed hereunder, and such failure is not cured within fifteen
(15) days after written notice from Landlord (provided that (a) where such
failure cannot reasonably be cured within a fifteen (15) day period, Tenant
shall not be in default if it commences such performance promptly after
receiving Landlord's notice of Tenant's failure to perform and diligently
thereafter prosecutes the same to completion, such grace period not to exceed a
maximum of ninety (90) days in the aggregate, and (b) no such grace or cure
period (or such shorter grace or cure period as is set forth below) shall be
required in the event of Emergency), Landlord may, but shall not be obligated
to, perform any such obligation of Tenant, and to recover from Tenant the
reasonable and actual costs incurred by Landlord in performing such obligation,
which shall be payable within thirty (30) days after Landlord's written demand
accompanied by reasonable substantiation of the applicable costs, as additional
rent hereunder. Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of the nonpayment of sums
due under this section as in the case of default by Tenant in the payment of
Rent. All sums paid by Landlord and all penalties, interest and costs in
connection therewith, shall be due and payable by Tenant together with interest
thereon at the Default Rate, which shall be calculated from the date incurred by
Landlord until the date of payment.
39. [INTENTIONALLY DELETED]
40. SALES AND AUCTIONS.
Tenant may not display or sell merchandise outside the exterior walls and
doorways of the Premises and may not use such areas for storage. Tenant agrees
not to install any exterior lighting, amplifiers or similar devices in or about
the Premises. Tenant shall not conduct or permit to be conducted any sale by
auction in, upon or from the Premises whether said auction be voluntary,
involuntary, pursuant to any assignment for the payment of creditors or pursuant
to any bankruptcy or other insolvency proceedings.
41. NO ACCESS TO ROOF.
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Except as and solely to the extent expressly set forth in this Lease,
Tenant shall have no right of access to the roof of the Premises or the Building
and shall not install, repair or replace any aerial, fan, air conditioner or
other device on the roof of the Premises or the Building without the prior
written consent of Landlord.
42. SECURITY.
Tenant hereby agrees to the exercise by Landlord and its agents and
employees, within their sole discretion, of such security measures as Landlord
deems necessary for the Building. It is understood and agreed, however, that
Landlord is under no obligation to provide any particular form or amount of
security on behalf of Tenant, the Building, or any occupancy or visitor to the
Building. Tenant may install a security system within the Premises, provided
such system and its installation (i) shall be subject to Landlord's prior
written approval, which shall not be unreasonably withheld (provided it shall
not be unreasonable for Landlord to deny consent to any system which is not
compatible with the building's overall security and fire safety and life safety
systems, or which is not reasonably usable by any successor tenants in the
Premises), (ii) shall be in accordance with all applicable legal requirements
(iii) shall be performed at Tenant's sole expense, and shall be otherwise be
installed in accordance with the provisions governing Alterations under this
Lease.
43. AUTHORITY OF TENANT.
If Tenant is a corporation or partnership, each individual executing this
Lease on behalf of said corporation or partnership represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation or partnership, and that this Lease is binding upon said corporation
or partnership.
44. NO ACCORD OR SATISFACTION.
No payment by Tenant or receipt by Landlord of a lesser amount than the
Rent and other sums due hereunder shall be deemed to be other than on account of
the earliest rent or other sums due, nor shall any endorsement or statement on
any check or accompanying any check or payment be deemed an accord and
satisfaction; and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or other sum and to pursue
any other remedy provided in this Lease.
45. MODIFICATION FOR LENDER.
If, prior to the Commencement Date, Landlord's lender shall request
reasonable modifications to this Lease as a condition to such Lender's approval
of this Lease, Tenant shall not unreasonably withhold, delay, or defer its
consent to such modification provided such modifications do not materially
adversely affect Tenant's rights hereunder. If Tenant shall refuse to consent,
Landlord shall have the right to terminate this Lease, in which case all
obligations of the parties hereunder shall cease.
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46. [INTENTIONALLY DELETED]
47. GENERAL PROVISIONS.
47.1 Acceptance. The delivery of any draft of this Lease, including a
so-called "execution draft", shall not constitute an offer of any kind, and this
Lease shall only become effective and binding upon full execution hereof by
Landlord and Tenant, and delivery of a signed copy by Landlord to Tenant.
47.2 Joint Obligation. If there be more than one Tenant, the obligations
hereunder imposed shall be joint and several.
47.3 Marginal Headings, Etc. The marginal headings, Table of Contents,
lease summary sheet and titles to the sections of this Lease are not a part of
the Lease and shall have no effect upon the construction or interpretation of
any part hereof.
47.4 Choice of Law. This Lease shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
47.5 Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, inure to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
47.6 Recordation. Except to the extent otherwise required by law, neither
Landlord nor Tenant shall record this Lease, but a short-form memorandum hereof
may be recorded at the request of Landlord.
47.7 Quiet Possession. Upon Tenant's paying the Rent reserved hereunder
and observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the Lease Term hereof, free from any disturbance
or molestation by Landlord, or anyone claiming by, through or under Landlord,
but in all events subject to all the provisions of this Lease.
47.8 Inability to Perform; Force Majeure. This Lease and the obligations
of the parties hereunder shall not be affected or impaired because the other
party is unable to fulfill any of its obligations hereunder (or is delayed in
doing so) to the extent such inability or delay is caused by reason of war,
civil unrest, strike, labor troubles, unusually inclement weather, unusual
governmental delays, inability to procure services or materials despite
reasonable efforts, third party delays, acts of God, or any other cause(s)
beyond the reasonable control of such party (which causes are referred to
collectively herein as "Force Majeure"), provided (i) in no event shall any
monetary obligations,
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including without limitation the Tenant's obligation to pay Base Rent or
additional rent, be extended due to Force Majeure, (ii) in no event shall
financial inability constitute a cause beyond the reasonable control of a party,
and (iii) in order for any party hereto to claim the benefit of a delay due to
Force Majeure, such party shall be required to use reasonable efforts to
minimize the extent and duration of such delay, and to notify the other party of
the existence and nature of the cause of such delay within a reasonable time
after the such delay first commences. Except as limited by the foregoing clauses
(i), (ii) and (iii), any time specified non-monetary obligation of a party in
this Lease shall be extended one day for each day of delay suffered by such
party as a result of the occurrence of any Force Majeure.
47.9 Partial Invalidity. Any provision of this Lease which shall prove to
be invalid, void, or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provision(s) shall remain in full force
and effect.
47.10 Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies at
law or in equity.
47.11 Entire Agreement. This Lease contains the entire agreement of the
parties hereto and no representations, inducements, promises or agreements, oral
or otherwise, between the parties, not embodied herein, shall be of any force or
effect. The foregoing shall not be deemed to affect Tenant's separate agreement
for the use of storage space in the lower lobby of the Building or any successor
agreement, lease or license for such space.
47.12 Survival. All indemnities set forth in this Lease shall survive the
expiration or earlier termination of this Lease.
47.13 Consents. If any provision of this Lease subjects any action,
inaction, activity or other right or obligation of Tenant to the prior consent
or approval of Landlord, Landlord shall be deemed to have the right to exercise
its sole and unfettered discretion in determining whether to grant or deny such
consent or approval, unless the provision in question states that Landlord's
consent or approval "shall not be unreasonably withheld", in which event
Landlord's consent shall be subject to Landlord's sole, but reasonable,
discretion.
47.14 Saving Clause. In the event (but solely to the extent) the
limitations on Landlord's liability set forth in Section 8.3 of this Lease would
be held to be unenforceable or void in the absence of a modification holding the
Landlord liable to Tenant or to another person for injury, loss, damage or
liability arising from Landlord's omission, fault, negligence or other
misconduct on or about the Premises, or other areas of the Building appurtenant
thereto or used in connection therewith and not under Tenant's exclusive
control, then such provision shall be deemed modified as and to the extent (but
solely to the extent) necessary to render such provision enforceable under
applicable law. The foregoing shall not affect the application of Section 34 of
this Lease to limit the assets available for execution of any claim against
Landlord.
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47.15 Reservation. Nothing herein set forth shall be deemed or construed
to restrict Landlord from making any modifications to any of the parking and/or
common areas serving the Building and/or Premises as of the date of execution
hereof, and Landlord expressly reserves the right to make any modifications to
such areas as Landlord may deem appropriate, including but not limited to, the
addition or deletion of temporary and/or permanent improvements therein, and/or
the conversion of areas now dedicated for the non-exclusive common use of
tenants (including Tenant) to the exclusive use of one (1) or more tenants or
licensees within the Building.
47.16 Keys. Landlord shall initially provide Tenant, without charge,
twenty (20) suite keys and twenty (20) security keys (to the extent the Building
has a remote entry security system). The cost of any additional or replacement
suite keys or security keys shall be reimbursed by Tenant to Landlord upon
demand.
47.17 Rule Against Perpetuities. In order to ensure the compliance of this
Lease with any rule against perpetuities that may be in force in the state in
which the Premises are located, and without limiting or otherwise affecting
Landlord's and Tenant's rights and obligations under this Lease, as stated in
the other sections hereof, Landlord and Tenant agree that, irrespective of the
reasons therefor (other than a default by Tenant), in the event Tenant fails to
take possession of the Premises and commence paying Base Rent hereunder within
twenty (20) years after the date of execution of this Lease, then this Lease,
and the obligations of the parties hereunder, shall be deemed to be null and
void and of no further force and effect. Without affecting the specific timing
requirements otherwise applicable thereto under this Lease, any and all options
granted to Tenant under this Lease (including, without limitation, expansion,
renewal, right of first refusal, right of first offer, and like options) must be
exercised by Tenant, if at all, during the term of this Lease.
47.18 Certain Terminology.
A. The terms "including", "includes" and terms of like import shall
be interpreted to mean "including, but not limited to" and/or "includes, without
limitation."
B. The terms "herein", "here under", "hereinbelow", "above" and/or
"below", and any terms of like import, shall be interpreted to mean this Lease
as a whole, and not merely the Section, paragraph or subparagraph within which
such term is set forth.
C. As used in those provisions of this Lease where Tenant is
agreeing to assume responsibility for certain conduct, actions and/or omissions
of "Tenant", the term "Tenant" shall be construed to mean Tenant, and Tenant's
agents, employees, contractors, subcontractors, assignees, sublessees, licensees
and, while within the Premises, invitees and business visitors.
D. The term "Emergency" shall mean and refer to any situation or
circumstance where there is an immediate or imminent risk of injury or death to
persons or damage to property unless immediate action is taken to address such
situation or circumstances, as determined by the party invoking such term in
good faith.
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48. [INTENTIONALLY DELETED]
49. WAIVER OF JURY TRIAL.
Landlord and Tenant hereby waive trial by jury in any action, proceeding
or counterclaim brought by either of them against the other on all matters
arising out of this Lease, or the use and occupancy of the Premises. If Landlord
commences any summary proceeding for non-payment of Rent, Tenant will not
interpose (and waives the right to interpose) any non-mandatory counterclaim in
any such proceeding.
50. RENEWAL OPTION
A. General. Provided that (i) both at the time of the exercise of the
option hereinafter set forth and at the time of commencement of the Renewal Term
(as hereinafter defined) this Lease is in full force and effect and provided
further that Tenant is not then in default hereunder beyond the expiration of
any applicable notice and cure period provided for in this Lease and (ii) Tenant
is in occupancy of all of the Premises for the purpose of conducting its own
business, Tenant is hereby granted the option to renew the Term for one (1)
additional period of sixty (60) months (the "Renewal Term"), such Renewal Term
to commence at the expiration of the initial Lease Term. Tenant shall exercise
its option to renew by delivering notice of such election (the "Renewal Notice")
to Landlord not less than 12 months nor more than 18 months prior to the
expiration of the initial Lease Term. In the event that Landlord does not
receive the Renewal Notice prior to the expiration of such time period (time
being of the essence with respect thereto), then such option to renew the Lease
Term shall, upon the expiration of such time period, become null and void and be
of no further force or effect and Tenant shall, at the request of Landlord,
execute an instrument in form and substance acceptable to Landlord confirming
such facts.
B. Terms. The Renewal Term shall be upon the same terms and conditions of
this Lease except that (a) the Rent during the Renewal Term shall be at an
annual rate equal to the greater of (i) the Rent payable during the last twelve
(12) months of the initial Lease Term or (ii) the annual fair market rental rate
("FMR") for the Premises for the Renewal Term as determined by the Three Broker
Method set forth in Section 50.C of this Lease, except all references therein to
Tenant's Election Notice shall be deemed to refer to the Renewal Notice; (b)
Tenant shall have no option to renew this Lease beyond the expiration of the
Renewal Term, and (c) the Premises shall be delivered in their existing
condition (on an "as is" basis) at the time the Renewal Term commences.
C. Three Broker Method. The "Three Broker Method" shall operate as
follows: FMR shall be based upon the current fair market rental rate for
comparable space in comparable buildings in the Boston area, which shall be
determined by a board of three (3) licensed real estate brokers, one of whom
shall be named by Landlord, one by Tenant, and the two so appointed shall select
a third broker. Each member of the board of brokers shall be licensed in the
state in which the Premises is located as a real estate broker, specializing in
the field of commercial office leasing in
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the Boston area, having no less than ten (10) years' experience in such field,
and recognized as ethical and reputable within the field. Landlord and Tenant
agree to make their appointments promptly within five (5) business days after
Landlord receives Tenant's Election Notice. The two (2) brokers selected by
Landlord and Tenant shall select the third broker within ten (10) days after
they both have been appointed, and each broker, within fifteen (15) days after
the third broker is elected, shall submit his or her determination of the FMR.
The FMR shall be the average of the two (2) closest determinations made by the
three (3) brokers (except if two brokers reach an identical determination, then
the FMR shall be the determination of such two brokers, and if the middle
determination is equal to the average of the highest and lowest determination,
the middle determination shall constitute the FMR). Landlord and Tenant shall
each pay the fee of the broker selected by it, and they shall equally share the
payment of the fee of the third broker.
D. New Lease After Renewal Term. Except for the renewal option set forth
in this Section 50, above, this Lease may only be extended beyond the Lease
Expiration Date by the parties executing a new lease on Landlord's then current
lease form or by an extension agreement signed by both parties making specific
reference to this Lease. No proposals, offers, correspondence or the like shall
be legally binding upon Landlord until and unless the terms are incorporated in
either a new lease or a formal amendment to this Lease as provided in this
subparagraph.
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ADDITIONAL SCHEDULES.
The following additional schedules are attached hereto and made a part of
this Lease:
EXHIBIT A-1 Location and Dimensions of Premises
EXHIBIT A-2 Description of Land
EXHIBIT B [Not applicable]
EXHIBIT C [Not applicable]
EXHIBIT D Rules and Regulations
EXHIBIT E Janitorial Specifications
EXHIBIT F Form Estoppel Certificate
54
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Deed of Lease,
in triplicate, on the day and year first above written.
LANDLORD:
WELLSFORD/WHITEHALL PROPERTIES,
L.L.C., a Delaware limited liability company
By: (seal)
------------------------------------
Richard R. Previdi
Authorized Signatory
TENANT:
ARBOR NATIONAL COMMERCIAL
MORTGAGE, LLC
By: /s/ Walter K. Horn (seal)
------------------------------------
Name: WALTER K. HORN
Title: Sr. VP/Secretary
Saracen/office lease (form)
55
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TENTH FLOOR PLAN
[GRAPHIC OMITTED]
<PAGE>
SCOPE OF SERVICES
- --------------------------------------------------------------------------------
15 BROAD STREET
JANITORIAL MAINTENANCE
It is the intent of this section of the Janitorial Agreement to establish the
Scope of Services to be provided at 15 Broad Street, Boston, Massachusetts.
The Scope of Services outlined below should be referred to as a guide rather
than a limit of duties or obligations, as the intent of this Agreement is to
provide a comprehensive Janitorial program as herein after described.
I. DEFINITIONS: Wherever these words occur in this specification, the
following meanings shall apply:
A. Specifications: General information, general requirements, specific
requirements, and any supplements, drawings, sketches and data
sheets, attached or referenced, comprise the complete specification.
B. Manager: Trammell Crow NE, Inc.
C. Contractor: The party/parties executing an Agreement with the Owner
for the work specified herein.
D. Work: All janitorial maintenance work specified, implied or
directed.
E. As Directed: Instructions from Manager's representative.
F. By Others: Work by others is not a part of this contract.
G. Indicated: Where the word appears in the Specification, it shall
signify that the term or items referred to are indicated on the
drawing.
H. Approved/Approval: Satisfactory to the Manager's representative.
I. Manager's representative: The person designated as the project
representative for administration of the Janitorial Maintenance
contract.
J. Extra Work: Work above contractor's normal Scope of Services. Such
"extra work" shall require prior written approval from Manager's
representative. Compensation for approved extra work will be made by
Owner.
K. Term: Duration of Janitorial Agreement is subject to partial or
complete cancellation upon sale of building(s). Owner will not be
subject to any cancellation charges and/or a percentage of the
remainder of the Agreement.
II. GENERAL REQUIREMENT
A. Intent: It is the intent of Trammell Crow NE, Inc. hereinafter
referred to as Manager, to execute an agreement between the Owner
and a janitorial contractor capable of maintaining specified
properties in a manner complementing a first class property
management operation. It is therefore, vital that such a service be
Trammell Crow Company Page 1
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performed in a professional manner consistent with the highest
Janitorial Maintenance industry standards.
B. Hours of Service: Janitorial services are to be provided on a daily
basis, five (5) days per week, Monday through Friday; services shall
not interfere with regular business hours. Twenty-four hour
emergency service must be available throughout the year, without
regard to daily schedules.
C. Reporting: The account supervisor will submit a signed and dated
daily report noting corrections, contacts with lessees, special
problems, and other information as requested. The account supervisor
shall also be responsible for all day porter schedules and job
duties.
D. Facilities: A small on-site storage facility will be provided by
Manager. Scheduling shall be so as to optimize utility conservation.
Janitorial closets and storage space will be used for janitorial
supplies and equipment only. Contractor is responsible to maintain
these areas in a clean and orderly state.
E. Protection and Damage: Contractor shall, without additional expense
to the Owner, be responsible for all damages to persons or property
that occur in connection with the contracted work performed.
Breakage, loss or damage of any office equipment or other property
which may occur in or about the building as a result of Contractor's
operations or of the actions of its agents or employees shall be
made good by Contractor at its expense. Contractor shall take all
precautions necessary for the protection against injury of all
persons engaged in the performance of the Agreement. Contractor
shall observe all safety practices and comply with any applicable
safety regulations, including but not limited to all O.S.H.A.
regulations.
F. Space Deletion/Addition: In the event of a tenant vacating
contracted area, Contractor shall reduce the specific project
monthly cost by the vacated square footage at the agreed upon
Vacancy Credit Rate (see Exhibit B). In the event of additions,
Manager's representative may at its option increase the serviced
square footage at the current contract square foot price. Deletions
and additions must be directed by the Manager's representative. New
project additions must be approved by Manager's representative and
authorized in writing by Trammell Crow NE, Inc..
III. GENERAL REQUIRED SCOPE OF SERVICES: The intention of the Manager is to
maintain a first-class quality project. Methods and frequencies may be
suggested and enforced, but in the event of their inadequacy, performance
results shall have precedence.
A. No janitorial employee shall disturb any personal items or papers on
a tenant's desk or work area.
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B. No janitorial employee will be allowed in any area of the building
other than the area of work responsibility or authorized break or
office area, without previous knowledge of his/her supervisor.
C. No janitorial employee shall use tenant's coffee, coffee break area,
equipment or phones (except for emergency).
D. No janitorial employee shall use tenant's radios or other personal
equipment.
E. Suite doors will be left locked at all times. Access to suite by
janitorial employees will be with a pass key.
F. All equipment used by janitorial employees will meet O.S.H.A.
standards for plugs, cords, grounds, etc.
G. Trash containers used to move trash to disposal area shall be
water-tight.
H. Safety equipment will be supplied to janitorial employees by
Contractor to meet O.S.H.A. standards for job being performed
(rubber gloves, safety glasses, etc.).
I. Protective mats shall be used in elevator cabs to protect carpet
during hours of janitorial service. These mats shall be removed
nightly.
J. Material Safety Data Sheets will be provided to Manager for all
products used by Contractor in the course of completing scope of
work defined herein.
IV. SPECIFIC SCOPE OF SERVICES
A. Lobby and Corridors: Daily Service
1. Sweep and clean building entrances.
2. Clean and remove smudges from entry door glass.
3. Polish all entry handles, door plates and metal trim.
4. Wipe clean all glass, wood, or metal doors and door jambs.
5. Empty all ashtrays, wipe clean, and polish.
6. Empty all trash receptacles, clean container with clean, damp
cloth, and replace plastic liner. (Manager supplies liners).
7. Remove all debris from landscaped pots and planters. (report
any thefts, broken pots or missing plants).
8. Dust and clean all horizontal surfaces under seven feet.
9. Dust mop and damp mop entry floors.
10. Clean and remove smudges and marks on walls, wall coverings,
and artwork.
11. Clean, polish and straighten all furniture as needed.
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12. Wipe clean all directory boards (exterior) with clean, soft
cloth using glass cleaner that is considered safe and not
labeled as hazardous waste.
13. Wipe clean all fire extinguisher cabinets and glass. (report
broken glass or missing extinguishers).
14. Clean and polish all elevator doors, jambs, call plates, and
hall lanterns.
15. Clean, polish and straighten all furniture as needed.
16. Dust and clean all lobby and corridor signage.
17. Report any lights burned out.
18. Secure all doors and turn off appropriate lights upon
completion of work assignments.
B. Lobbies and Corridors - Weekly Service
1. Clean and polish all entry metal and sills.
2. Dust and clean or polish all baseboards.
3. Spot clean all carpeted areas.
4. Dust all ledges and exit signs.
5. Dust all walls above seven feet.
6. Clean inside of directory board with clean soft cloth.
C. Lobbies and Corridors - Monthly Service
1. Clean all ceiling vents and grills.
2. Dust high ceiling corners and entry ways.
3. Dust and clean light fixtures and covers (interior and
exterior).
4. Clean and treat all wood paneling and furniture as requested.
5. Strip, reseal or re-wax common area floors as necessary.
6. Shampoo carpet areas as necessary.
7. Dust and clean all fire lobby doors inside and out.
8. Polish door floor plates.
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D. Offices - Daily Service:
1. Remove hand spots or smudges from entry doors.
2. Using a dustless mop, damp mop all non-carpeted areas.
3. Vacuum and spot clean carpets in all traffic areas, removing
staples and other debris.
4. Properly position furniture, books and magazines in reception
areas.
5. Properly position furniture in offices and conference rooms.
6. Blackboards will be erased/chalk boards cleaned upon request
only.
7. Remove fingerprints and smudges from all walls.
8. Spot clean all partition glass and mirrors.
9. Remove all fingerprints and smudges from light switch covers,
electrical outlet cover plates and doorknob handles.
10. Dust windows sills and ledges.
11. Dust all horizontal surfaces under seven feet, furniture, and
equipment. DO NOT dust desks, conference tables or counters
which are cluttered with paperwork.
12. Dust and replace all desk ornaments, phones and machines in
their original position.
13. Clean furniture fabric with a whisk broom to sweep off any
dust, paper bits, and erasures as needed. (remove all staples)
14. Empty all ashtrays and wipe clean.
15. Empty all wastebaskets and carry trash to designated areas for
removal; replace plastic liners as needed.
16. Empty large recycling bins from offices into separate
container to be disposed of into specially designated
recycling dumpsters.
17. Clean and wash all lunchroom table tops, counters, sinks,
cabinets, refrigerator, and stove (exterior only) surfaces.
(report any insect problems)
18. Report all burned-out lights.
19. Perform additional services requested by tenant and bill
tenant directly.
20. Before leaving any suite, shut off lights, electrical
appliances, close drapes and blinds and lock all entrance
doors and only interior doors as requested.
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E. Offices - Weekly Service
1. Damp wipe all interior doors with a treated cloth.
2. Detail vacuum entire carpet areas; remove staples and other
debris.
3. Damp mop all tile and hardwood floor areas.
4. Polish all desk tops that are cleared of paperwork.
5. Dust all ledges, files, baseboards, and sills under seven
feet.
6. Vacuum all furniture or wipe vinyl furniture clean.
7. Dust all lower parts of furniture.
8. Detail and clean all kitchen or wet bar areas.
9. Dust all pictures, charts, and wall hangings
10. Damp wipe all telephones
F. Offices - Monthly Service
1. Completely clean all partitions and doors, door jambs, door
floor plates, glass and mirrors from floor to ceiling.
2. Dust all ledges, wall moldings, pictures, shelves, etc. over
seven feet.
3. Dust clean or vacuum all drapes and blinds.
4. Brush down and clean all vents and grills.
5. Strip, clean and apply floor dressing to all composition,
hardwood and parquet floors.
6. Scrub and wax all tile floors.
7. Detail all desks and office furniture.
8. Dust and clean all light fixtures and covers.
9. Detail and clean all kitchen, wet bars or lunch room areas.
10. Clean all baseboards.
11. Detail and vacuum chairs and upholstered furniture.
12. Dust all pictures, and similar wall hangings in Conference
rooms
G. Restrooms - Daily Service
1. Dust and clean restroom signage and doors.
2. Vacuum all restrooms vestibules and remove spots.
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3. Wet mop and disinfect tile floor, paying particular attention
to areas under urinals and toilet bowls.
4. Clean alkaline deposits and soap spills from floor tile grout.
5. Wash and disinfect all basins, urinals, and toilet bowls.
6. Clean underside rims of urinals and toilet bowls.
7. Wash both sides of toilet seats with soap and water and
disinfect.
8. Empty, clean, sanitize, and polish all paper dispensers,
replacing liners as necessary.
9. Clean and polish all mirrors.
10. Dust ledges and base boards.
11. Damp wipe, polish, and shine all chrome, metal fixtures, hand
plates, kick plates, utility covers, plumbing, clean-out
covers, and door knobs.
12. Spot clean with disinfectant all partitions and tile walls.
(report any graffiti and remove if possible)
13. Fill all toilet latrines, soap, sanitary napkin and towel
dispensers as necessary.
14. Report all burned out lights, leaking faucets, running
plumbing, or other maintenance needs.
15. Janitor carts will not be brought into restroom areas or used
to prop open doors.
16. Restroom doors will be propped open with a rubber stop, and a
sign indicating "restroom closed for cleaning", will be placed
outside.
H. Restrooms - Semi Weekly (twice per week)
1. Pour clean water down floor drains to prevent sewer gas from
escaping.
I. Restrooms - Weekly Service
1. Wash down ceramic tile floors and partitions inside and out,
and disinfect. (report and graffiti and clean if possible)
2. Wash down all enamel walls.
3. Wash all waste containers and disinfect.
4. Clean and polish all doors, door plates, and hardware.
J. Restrooms - Monthly Service
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1. Wipe clean all ceilings, lights, and fixtures.
2. Strip wax and apply new wax to tile floors.
3. Shampoo, as needed, and clean vestibule carpet.
4. Detail all toilet compartments and fixtures.
5. Brush and clean all grills and vents.
K. Elevators - Daily Service
1. Vacuum and clean all spots and stains from carpet.
2. Dust and clean granite baseboards.
3. Dust and polish all metal with approved polish (no abrasives).
4. Damp wipe and remove all spots and fingerprints from doors and
walls (interior and exterior).
5. Dust and clean elevator ceilings and lights.
6. Remove gum, stains or debris from ceilings, handrails and
elevator tracks.
7. Dust and clean emergency phone and security compartments.
8. Clean all call buttons, call plates, and signage.
9. Report any burned-out lights or malfunctions of elevator.
10. Clean and polish elevator tracks.
L. Elevator - Weekly Service
1. Detail all call buttons and call plates
2. Disinfect emergency phones.
M. Stairwells - Daily Service
1. Police entire stairwell, removing all trash, cigarette butts,
etc.
2. Report any exit signs that are burned out.
3. Report any lights burned-out.
N. Stairwells - Weekly Service
1. Sweep down all stairs and landings.
2. Dust all handrails, banisters, and ledges.
3. Clean all walls of fingerprints and smudge marks, etc.
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4. Dust and clean all stairwell signage.
O. Stairwells - Monthly Service
1. Wipe clean all stairwell doors and door jambs.
2. Wet mop all stairs and staff landing. (clean base boards if
necessary)
3. Dust and clean all lights and fixtures.
4. Dust and clean all emergency fire equipment and plumbing.
V. REQUIREMENTS FOR PERSONNEL
A. Friends/Relative/Visitors:
1. Absolutely no friends or relatives will be allowed to help
clean or accompany workers in the building.
2. Workers will not allow anyone into the building or tenant
space at any time.
B. Dress Code: All personnel must dress neatly and be well groomed.
1. Men:
a. Picture I.D. badge will be worn at all times when
working in or about the building.
b. No T-shirts or sandals are to be worn.
c. Shoes are to be worn at all times.
d. Hair must be clean and neat.
e. Pants and shirts are to be without holes.
2. Women:
a. Picture I.D. badge will be worn at all times when
working in or about the building.
b. No T-shirts or cut-off shorts will be worn.
c. Clothes will be neat and clean without holes.
d. Hair will be presentable at all times (no curlers).
e. Shoes are to be worn at all times.
C. Breaks
1. Break areas will be designated by supervisor.
2. Leaving the building is not permitted.
3. Entering secured areas or roof areas is not permitted.
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4. Tenant vending machines are not to be used.
5. Food in kitchen areas or refrigerator will not be taken.
6. All trash will be removed and break areas thoroughly cleaned.
D. Telephone Procedure
1. No outgoing or incoming calls are allowed.
2. Emergency calls are to be coordinated through the supervisor.
3. Tenant phones shall not be used except in the event of an
emergency requiring 911 assistance.
E. Smoking, Alcohol and Drugs
1. Workers shall be prohibited from working under the influence
of alcohol or drugs and shall be subject to immediate
dismissal.
2. Smoking on the job is prohibited.
VI. TRASH REMOVAL
A. Elevators will not be locked off or held on any floors to remove
trash or equipment; only designated elevators will be used.
B. Building entrance doors will not be used to remove trash from the
building.
C. Prior to removal, trash will be properly protected against spillage
or staining of carpet and floors.
D. All trash will be brought down in the elevator; a rubber
bumper-type cart should be used. All trash will be inspected by
security officer prior to emptying into trash compactor.
E. Any spills or debris should be cleaned up prior to leaving this
area.
F. Any defects or improper working conditions must be reported to the
Manager.
VII. JANITOR CLOSETS
A. Janitor closets will be kept orderly and clean at all times.
B. Storage of aluminum cans or newspapers is prohibited.
C. Faucets will be tightly secured.
D. Lights will be turned off after each use.
E. Doors will be kept locked.
VIII. CLEANING
Workers will not:
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1. Perform service beyond their capabilities or training.
2. Use cleaning equipment or electrical outlets in need of
repair.
3. Look in desk drawers, furniture, file cabinets, clothing, or
areas not assigned for cleaning.
4. Take any item from a tenant space no matter how small the item
may be. (examples: stick of gum, one penny) If in question,
ask supervisor.
5. Loiter in the parking area before or after work duties.
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<PAGE>
TENANT ESTOPPEL CERTIFICATE
Gentlemen:
For $10.00 and other good and sufficient consideration, receipt of which is
hereby acknowledged, and for the purpose of providing information to
("Agent") regarding the premises located at____________________
(the "Property") in which the undersigned is a tenant under that certain lease
agreement dated ______________ between ("Lessee") and _____________________(such
lessor and its successors and assigns are hereinafter referred to as "Lessor"),
the undersigned Lessee does hereby certify and agree that:
1. The Lease, a true and correct copy of which is attached hereto as Exhibit
"A", is in full force and effect, is valid and enforceable according to its
terms against Lessee and has not been modified, either orally or in writing,
except as indicated in this certificate. The leased premises contains
approximately _________ rentable square feet.
2. a. Term of Lease:
Date of Commencement:
Date of Expiration:
b. Renewal Options:
Exercised:
Not Exercised:
c. Current Monthly Rent: $
d. Current Share of Basic Operating Costs, Tax and Insurance
Contributions (as applicable):
e. Security Deposit:
f. Guarantor/s (if any):
3. Lessee has accepted possession of the premises leased under the Lease, and
all improvements, alterations and other work and parking facilities to be
performed or constructed by Lessor under the Lease have been completed as of the
date hereof and accepted by Lessee.
4. All rent, charges or other payments due Lessor under the Lease have been
paid as of the date of this certification, and there have been no prepayments of
rent or other obligations.
<PAGE>
5. Neither Lessee nor Lessor under the Lease is in default under any terms of
the Lease nor has any event occurred, which with the passage of time (after
notice, if any required by the Lease), would become an event of default under
the Lease. No event or condition has occurred, which with the passage of time
(after notice, if any, required by the Lease), would give rise to any right or
option of Tenant to terminate the Lease or discontinue the operation of business
from the leased premises.
6. Lessee under the Lease has no claims, counterclaims, defenses or set-offs
against Lessor arising from the Lease, nor is Lessee entitled to any concession,
rebate, allowance or free rent for any period after this certification. As of
the date hereof, Lessee is not entitled to any partial or total abatement of
rent or other amounts due under the Lease.
7. As of the date hereof, there are no actions, whether voluntary or
otherwise, which are pending or have been threatened against Lessee under any
bankruptcy or insolvency laws of any State or the United States.
8. Lessee has not assigned, transferred or sublet all or any part of the
leased premises.
9. Lessee acknowledges that it has been advised by Lessor that Lessor may not
cancel, modify or amend the Lease without the prior written consent of Agent.
10. Lessee shall simultaneously deliver to Agent a copy of all notices of
default or termination now or hereafter served on Lessor by Lessee. Agent shall
have the right (but not the obligation) within thirty (30) days after Agent's
receipt of such notice (or such additional time as is reasonably required to
correct such default) to correct or remedy, or cause to be corrected and
remedied, each such default before Lessee may take any action under the Lease by
reason of such default. Lessee shall send all such notices to Agent at:
BankBoston, N.A., 100 Federal Street, Boston, Massachusetts 02110, Attention:
Real Estate Division, with a copy to BankBoston, N.A., 115 Perimeter Center
Place, Suite 500, Atlanta, Georgia 30346, Attention: Jay Johns.
11. Lessee acknowledges that, to the extent required by the Lease, this
certification constitutes Lessor's and Agent's written request that the Lease
and Lessee's interest thereunder be subordinate to any mortgage or deed of trust
now or hereafter placed against the Property in favor of Agent.
12. This certification may not be changed, waived or discharged orally, but
only by an agreement in writing.
13. This certification shall be binding upon, and shall inure to the benefit
of Agent, Lessor and Lessee, the respective successors and assigns of Agent,
Lessor and Lessee and all parties claiming through or under such persons or any
such successor or assign.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this letter to be executed
and, where applicable, its corporate seal affixed by its duly authorized
officers as of the ___ day of _________, 1998.
____________________________
(Lessee)
By:_________________________
Title:
-3-
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AGREEMENT OF GUARANTOR
The undersigned, being the guarantor or other surety of the obligations of
Lessee under the Lease, does hereby ratify and affirm the obligations of the
undersigned as such guarantor and other surety of such obligations, and does
hereby covenant and agree with, and represent and warrant to BANKBOSTON, N.A.,
as Agent for itself and other lenders, that the obligations of the undersigned
as such guarantor or surety are binding and enforceable against the undersigned
and that the guaranty set forth in or attached to the Lease is in full force and
effect in accordance with its terms as of the date hereof.
_________________________
(Guarantor)
By:______________________
Title:
1) If tenant (or guarantor) is a corporation or partnership, signature must be a
duly authorized officer or partner. Please print title under signature line.
-4-
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated May 28, 1998, accompanying the combined
financial statements and schedule of Arbor National Commercial Mortgage, LLC and
Subsidiaries and Affiliate, contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."
/s/ Grant Thornton LLP
Grant Thornton LLP
New York, New York
July 23, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 17, 1997, with respect to the financial
statements of Arbor National Commercial Mortgage LLC and subsidiary, in the
Registration Statement (Form S-1 No. 333-56889) and related Prospectus of Arbor
National Holdings, Inc. for the registration of 3,300,000 shares of its common
stock.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
July 23, 1998
<PAGE>
Exhibit 23.4
CONSENT OF DIRECTOR NOMINEE
I hereby consent to be named as a director nominee of Arbor National
Holdings, Inc. ("Arbor") under the caption "Management - Non-Employee
Director Nominees" in the Registration Statement (Form S-1 No. 333-56889) and
related Prospectus of Arbor, as may be amended from time to time.
July 23, 1998 /s/Richard A. Lippe
-------------------
Richard A. Lippe
<PAGE>
CONSENT OF DIRECTOR NOMINEE
I hereby consent to be named as a director nominee of Arbor National
Holdings, Inc. ("Arbor") under the caption "Management - Non-Employee
Director Nominees" in the Registration Statement (Form S-1 No. 333-56889) and
related Prospectus of Arbor, as may be amended from time to time.
July 23, 1998 /s/Larry Swedroe
----------------
Larry Swedroe
<PAGE>
CONSENT OF DIRECTOR NOMINEE
I hereby consent to be named as a director nominee of Arbor National
Holdings, Inc. ("Arbor") under the caption "Management - Non-Employee
Director Nominees" in the Registration Statement (Form S-1 No. 333-56889) and
related Prospectus of Arbor, as may be amended from time to time.
July 23, 1998 /s/Scott Rudolph
------------------------
Scott Rudolph
