<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
----------------
COMMISSION FILE NUMBER 0-20612
----------------
JUST TOYS, INC.
(Exact Name of Registrant as specified in its Charter)
----------------
DELAWARE 13-3677074
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
50 WEST 23RD STREET, NEW YORK, NEW YORK 10010
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(212) 645-6335
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
The aggregate number of the Registrant's shares outstanding on August 11, 1997
was 4,152,219 shares of Common Stock, par value $.01 per share
- --------------------------------------------------------------------------------
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets - June 30, 1997
and 1996 (unaudited) and December 31, 1996............... 1
Consolidated Statements of Operations (unaudited)
for the Three Months and Six Months Ended
June 30, 1997 and 1996................................... 2
Consolidated Statements of Cash Flows (unaudited)
for the Six Months Ended June 30, 1997 and 1996.......... 3
Notes to Consolidated Financial Statements (unaudited)... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................ 11
Item 4. Submission of Matters to a Vote of Security Holders...... 11
Item 6. Exhibits and Reports on Form 8-K......................... 11
SIGNATURES........................................................... 13
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------------- ------------
1997 1996 1996
------------- ------------- ------------
ASSETS (Unaudited)
Current Assets:
<S> <C> <C> <C><C>
Cash.................................................................... $ 189,817 $ 320,471 $ 153,707
Accounts receivable, net of allowances of $396,000,
$468,000 and $603,000 (Note 2)........................................ 520,369 409,172 287,578
Inventories (Note 3).................................................... 4,591,470 4,361,309 4,113,300
Prepaid and refundable income taxes..................................... 38,188 32,596 28,914
Prepaid expenses and other current assets............................... 1,307,097 600,330 1,118,128
------------ ------------ ----------
Total current assets.................................................. 6,646,941 5,723,878 5,701,627
Property and equipment, at cost, net of accumulated
depreciation and amortization........................................... 3,345,018 3,530,075 3,504,468
Goodwill, net of accumulated amortization................................ 637,606 - 660,376
Other assets............................................................. 127,909 118,555 119,650
------------ ------------ ----------
TOTAL.............................................................. $ 10,757,474 $ 9,372,508 $9,986,121
============ ============ ==========
LIABILITIES
Current liabilities:
Due to factor........................................................... $ 1,780,440 $ 205,885 -
Accounts payable........................................................ 1,705,130 1,463,585 $ 1,622,532
Due RGA Accessories, Inc................................................ - - 15,417
Accrued liabilities..................................................... 935,376 1,083,444 1,305,604
------------ ------------ --------------
Total current liabilities............................................. 4,420,946 2,752,914 2,943,553
Deferred income taxes.................................................... 15,971 15,971 15,971
Series B Convertible Redeemable Preferred
Stock, 650,000 shares authorized, 536,834, 538,243
and 538,243 shares issued and outstanding
(liquidation value $1,946,023, $1,951,131 and $1,951,131)............... 1,008,482 941,932 972,778
------------ ------------ --------------
Total liabilities and Series B Stock.................................. 5,445,399 3,710,817 3,932,302
------------ ------------ --------------
STOCKHOLDERS' EQUITY
Stockholders' equity (Note 4):
Preferred stock, $1.00 par value, 1,000,000 shares
authorized:
Series A Convertible Redeemable Preferred
Stock, 150,000 shares authorized, 120,000
shares issued and outstanding (liquidation value
$120,000)....................................................... $ 120,000 $ 120,000 $ 120,000
Common stock, par value $.01 per share, 15,000,000
shares authorized, 4,151,409, 4,150,000 and 4,150,000
issued and outstanding............................................... 41,514 41,500 41,500
Additional paid-in capital.............................................. 29,798,383 29,795,768 29,795,768
Accumulated deficit..................................................... (24,647,822) (24,295,577) (23,903,449)
------------ ------------ --------------
Total stockholders' equity............................................ 5,312,075 5,661,691 6,053,819
------------ ------------ --------------
TOTAL.............................................................. $ 10,757,474 $ 9,372,508 $ 9,986,121
============ ============ ==============
</TABLE>
The accompanying notes are an integral part of the financial statements
-1-
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
-------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales............................ $4,843,277 $4,334,153 $9,301,103 $8,508,027
Cost of goods sold................... 3,117,626 2,480,970 5,861,395 5,245,113
---------- ---------- ---------- ----------
Gross profit......................... 1,725,651 1,853,183 3,439,708 3,262,914
---------- ---------- ---------- ----------
Expenses:
Merchandising, selling, warehousing
and distribution.................. 858,186 914,882 1,762,227 1,792,914
Royalties............................ 166,294 120,041 327,798 276,038
General and administrative........... 851,665 797,762 1,806,260 1,622,860
---------- ---------- ---------- ----------
Total........................... 1,876,145 1,832,685 3,896,285 3,691,812
---------- ---------- ---------- ----------
Operating (loss) income.............. (150,494) 20,498 (456,577) (428,898)
---------- ---------- ---------- ----------
Other income (expenses):
Interest expense.................. (87,548) (50,981) (181,154) (172,433)
Interest and dividend income...... - - - 3,242
Other income...................... 1,765 179,468 2,439 251,863
---------- ---------- ---------- ----------
Net (loss) income.................... (236,277) 148,985 (635,292) (346,226)
Preferred stock dividends and
accretion (Note 4)................ (52,291) - (109,081) -
---------- ---------- ---------- ----------
Net (loss) income attributable to
common stockholders............... $ (288,568) $ 148,985 $ (744,373) $ (346,226)
========== ========== ========== ==========
Weighted average common shares
outstanding....................... 4,150,325 4,150,000 4,150,163 4,150,000
========== ========== ========== ==========
Per share data:
Net (loss) income attributable to
common stockholders............... $(0.07) $0.04 $(0.18) $(0.08)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1997 1996
------------- ------------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities:
Net loss............................................... (635,292) $ (346,226)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization..................... 479,425 171,672
Gain on sale of property.......................... - (118,707)
Changes in operating assets and
liabilities (net of the effects of acquisitions
in 1996):
(Increase) decrease in:
Accounts receivable............................. (232,791) 1,370,426
Inventories..................................... (478,170) (291,103)
Prepaid and refundable income taxes.............. (9,274) 215,863
Prepaid expenses and other current assets....... (188,969) (123,124)
Other assets.................................... (8,259) (42,367)
Increase (decrease) in:
Accounts payable................................ 82,598 (461,882)
Due RGA Accessories, Inc........................ (15,417) (45,242)
Accrued liabilities............................. (370,228) (674,317)
----------- -----------
Net cash used in operating activities............. (1,376,377) (345,007)
----------- -----------
Cash flows from investing activities:
Cash received from sale of property.................. - 3,026,047
Purchase of assets of Table Toys..................... - (391,291)
Acquisition of property and equipment................ (297,205) (170,606)
----------- -----------
Net cash (used in) provided by investing (297,205) 2,464,150
activities........................................ ----------- -----------
Cash flows from financing activities:
Borrowings from factor............................... 1,780,440 205,885
Payment of long-term debt............................ - (2,246,000)
Dividends paid....................................... (70,748) -
----------- -----------
Net cash provided by (used in) financing 1,709,692 (2,040,115)
activities....................................... ----------- -----------
Net increase in cash.................................... 36,110 79,028
Cash - beginning of period.............................. 153,707 241,443
----------- -----------
Cash - end of period.................................... $ 189,817 $ 320,471
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes 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 fair presentation have been included. The results of
operations for the interim periods are not necessarily indicative of the results
for a full year. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
(1) Loss per share attributable to common stockholders:
Loss per share attributable to common stockholders is based on the weighted
average number of shares and common share equivalents, if dilutive, outstanding
during each period. The preferred stock is not considered to be common stock
equivalents and assumed conversion would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. Statement 128 will not have a material
impact on net (loss) income per share for the three and six months ended June
30, 1997 and 1996.
(2) Reclassifications
Certain previously reported amounts have been reclassified to conform to
the 1997 presentation and that of the Form 10-K for the year ended December 31,
1996.
-4-
<PAGE>
Note 2 - Accounts Receivable
Accounts receivable and amounts due from factor consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------------------- -------------
1997 1996 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Accounts Receivable - factor..................... $ 5,702,560 $ 2,803,682 $ 3,897,563
Borrowings from factor........................... (5,702,560) (2,803,682) (3,649,628)
-------------- ------------ -----------
Net due from factor.............................. -0- -0- 247,935
Accounts receivable - trade...................... 916,369 877,172 642,643
-------------- ------------ -----------
Total accounts receivable........................ 916,369 877,172 890,578
Less: Accounts receivable allowances............. (396,000) (468,000) (603,000)
-------------- ------------ -----------
Total accounts receivable, net of
allowances................................... $ 520,369 $ 409,172 $ 287,578
============== ============= ============
</TABLE>
Note 3 - Inventories
The inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------------------- -------------
1997 1996 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Finished goods................................... $ 3,076,285 $ 3,013,189 $ 2,758,085
Material components and supplies................. 1,515,185 1,348,120 1,355,215
-------------- ------------ -----------
Total............................................ $ 4,591,470 $ 4,361,309 $ 4,113,300
============== ============= ============
</TABLE>
Note 4 - Stockholders' Equity
Stockholders' equity consists of the following:
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
--------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996........................ $120,000 $41,500 $29,795,768 $(23,903,449) $ 6,053,819
Conversion of Preferred Stock B - 14 2,615 2,629
to Common Stock.................................
Net loss (unaudited)............................. (635,292) (635,292)
Preferred Stock dividends and ______ ______ _________ (109,081) (109,081)
accretion....................................... ------------- ------------
Balance June 30, 1997 $120,000 $41,514 $29,798,383 $(24,647,822) $ 5,312,075
(unaudited)..................................... ======== ======= =========== ============= ============
</TABLE>
-5-
<PAGE>
Note 5 - Subsequent Event - Litigation
On August 8, 1997, the United States Court of Appeals for the Federal Circuit
affirmed the decision of the United States District Court for the Northern
District of California granting summary judgment in favor of the Company in the
design patent and trade dress lawsuit filed by OddzOn Products, Inc. in April
1995. In granting the Company summary judgment, the District Court dismissed
OddzOn's claims that the Company's Micro Ultra Pass(R) and Ultra Pass(R) toy
footballs infringed on OddzOn's design patent and constituted trade dress
infringement and unfair competition.
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Net sales for the three months ended June 30, 1997 increased 11.7% to
$4,843,000 from $4,334,000 in the comparable period in 1996. Net sales of the
Company's Sports toys decreased 9.7% to $1,980,000 during the second quarter of
1997 from $2,193,000 in the comparable period in 1996. This decrease was offset
by an increase in the Toys category of 35.6% to $2,863,000 in the second quarter
of 1997 from $2,111,000 in the same period of 1996. The increase in sales in
the Toys category was primarily attributable to product acceptance and increased
sales from the doll carriage and stroller line.
Gross profit decreased 6.9% to $1,726,000 in the second quarter of 1997
from $1,853,000 in the comparable period in 1996. Gross profit as a percentage
of net sales was 35.6% for the three months ended June 30, 1997 compared to
42.8% for the three months ended June 30, 1996. As part of the Company's
business plan to improve its operations, the Company has analyzed its product
lines to selectively discontinue those products it believes will not achieve an
acceptable return on investment in the future. During the three months ended
June 30, 1997, the Company sold, at approximately its carrying cost, the
existing inventory in a selected number of product lines that will no longer be
carried in the future. The reduction in the gross profit margin in 1997 from
the comparable period in 1996 is partially attributable to these transactions.
The Company's net sales and gross margin, as a percentage of sales, is
dependent on its mix of business during a given time period. Variables include
such factors as whether merchandise is shipped from a domestic warehouse or
directly from the Orient, whether the merchandise is purchased from overseas
sources or is produced domestically and the specific blend of products shipped
to the Company's customers.
Royalty expense increased 38.3% to $166,000 for the second quarter of 1997
compared to $120,000 in the comparable 1996 period primarily due to adjustments
in the second quarter of 1996 for royalties owed on certain licenses.
General and administrative expenses increased 6.8% to $852,000 for the
second quarter of 1997 from $798,000 in the comparable period in 1996 due to an
increase in noncash charges such as depreciation and amortization associated
with the acquisition by the Company of certain assets of Table Toys, Inc. in
June 1996.
Operating loss was $150,000 in the three months ended June 30, 1997
compared to operating income of $20,000 in the comparable period in 1996. This
difference is primarily attributable to the change in gross profit margin and
the noncash general and administrative expenses described above.
-7-
<PAGE>
Interest expense increased to $88,000 in the three months ended June 30,
1997 as compared to $51,000 in the comparable period in 1996. This increase was
due primarily to increased advances under the Company's factoring arrangement in
1997 as the Company used the net proceeds from the sale of the property in Hong
Kong in 1996 to reduce its borrowings during the quarter.
Net loss was $236,000 in the second quarter of 1997 as compared to net
income of $149,000 in the comparable period in 1996. During the second quarter
of 1996, the Company recorded a gain of $119,000 from the sale of the Hong Kong
property. During the second quarter of 1997, the Company recorded the dividends
paid on its preferred stock outstanding and the accretion of the Series B Stock
issued in 1996 to its redemption value as a change in stockholder's equity and
deducted these expenses in computing net loss attributable to common
stockholders. In the second quarter of 1996, no material amounts of dividends
were recorded. Net loss per share attributable to common stockholders of $0.07
per share compares to net income per share attributable to common shareholders
of $0.04 per share on 4,150,325 and 4,150,000 weighted average shares
outstanding in the three months ended June 30, 1997 and 1996, respectively. The
Company had 1,409 shares of preferred stock converted into an equivalent number
of shares of Common Stock of the Company as of June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net sales for the six months ended June 30, 1997 increased 9.3% to
$9,301,000 from $8,508,000 in the comparable period in 1996. Net sales of the
Company's Sports toys decreased 12.5% to $4,405,000 during the first six months
of 1997 from $5,037,000 in the comparable period in 1996. This decrease was
offset by an increase in the Toys category of 42.3% to $4,896,000 in the first
six months of 1997 from $3,441,000 in the same period of 1996. The increase in
sales in the Toys category was primarily attributable to product acceptance and
increased sales from the doll carriage and stroller line.
Gross profit increased 5.4% to $3,440,000 in the first six months of 1997
from $3,263,000 in the comparable period in 1996. Gross profit as a percentage
of net sales was 37.0% for the six months ended June 30, 1997 compared to 38.4%
for the six months ended June 30, 1996. As part of the Company's business plan
to improve its operations, the Company has analyzed its product lines to
selectively discontinue those products it believes will not achieve an
acceptable return on investment in the future. During the six months ended June
30, 1997, the Company sold, at approximately its carrying costs, the existing
inventory in a selected number of product lines that will no longer be carried
in the future. The reduction in the gross profit margin in 1997 from the
comparable period in 1996 is partially attributable to these transactions.
The Company's net sales and gross margin, as a percentage of sales, is
dependent on its mix of business during a given time period. Variables include
such factors as whether merchandise is shipped from a domestic warehouse or
directly from the Orient, whether the merchandise is purchased from overseas
sources or is produced domestically and the specific blend of products shipped
to the Company's customers.
Royalty expense increased 18.8% to $328,000 for the first six months of
1997 compared to $276,000 in the comparable 1996 period primarily due to
adjustments in 1996 for royalties owed on certain licenses.
-8-
<PAGE>
General and administrative expenses increased 11.3% to $1,806,000 for the
first six months of 1997 from $1,623,000 in the comparable period in 1996 due to
an increase in noncash charges such as depreciation and amortization associated
with the acquisition by the Company of certain assets of Table Toys, Inc. in
June 1996.
Operating loss increased to $457,000 in the six months ended June 30, 1997
from $429,000 in the comparable period in 1996. This difference is primarily
attributable to the change in gross profit margin and the noncash general and
administrative expenses described above.
Interest expense increased to $181,000 in the six months ended June 30,
1997 as compared to $172,000 in the comparable period in 1996.
Net loss was $635,000 in the first six months of 1997 as compared to
$346,000 in the comparable period in 1996. During the second quarter of 1996,
the Company recorded a gain of $119,000 from the sale of the Hong Kong property.
During the first six months of 1997, the Company recorded the dividends paid on
its preferred stock outstanding and the accretion of the Series B Stock issued
in 1996 to its redemption value as a change in stockholder's equity and deducted
these expenses in computing net loss attributable to common stockholders. In
the six months of 1996, no material amounts of dividends were recorded. Net
loss per share attributable to common stockholders increased to $0.18 per share
from $0.08 per share on 4,150,163 and 4,150,000 weighted average shares
outstanding in the six months ended June 30, 1997 and 1996, respectively. The
Company had 1,409 shares of preferred stock converted into an equivalent number
of shares of Common Stock of the Company as of June 30, 1997.
OTHER INFORMATION
During the past several years, the Company has experienced a shift in its
revenue pattern wherein the second half of the year has grown in significance to
its overall business and within that half the fourth quarter has become more
prominent. The Company expects that this trend will continue due to industry
changes and due to changes to its product mix related to the doll carriage and
stroller product lines and the Table Toy product lines which were acquired in
1996. This concentration increases the risk of (a) underproduction of popular
items, (b) overproduction of less popular items and (c) failure to achieve tight
and compressed shipping schedules. The business of the Company is characterized
by customer order patterns which vary from one year to the next largely because
of the different levels of consumer acceptance of a product line, product
availability, marketing strategies and inventory levels of retailers. The use
of just-in-time/quick response inventory techniques and replenishment programs
by larger retailers has resulted in fewer orders being placed in advance of
shipment and more orders, when placed, for immediate delivery. This distorts
the comparisons of unshipped orders at any given date. The Company expects
these trends to continue. Additionally, it is a general industry practice that
orders are subject to amendment or cancellation by customers prior to shipment.
Therefore, comparisons of unshipped orders in any specific period in any given
year with those same periods in preceding years are not necessarily indicative
of sales for an entire year. The Company's unshipped orders were approximately
$3,811,000 at June 30, 1997 compared to approximately $3,911,000 at June 30,
1996.
In August 1997, the lawsuit described below in Part II--Item 1 Legal
Proceedings was resolved in favor of the Company. Accordingly, the Company
should no longer incur legal fees and expenses to defend this action.
-9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at June 30, 1997 was $2,226,000 as compared
to $2,758,000 at December 31, 1996. The decrease is primarily due to the
operating losses incurred in the first six months of 1997.
Inventory levels were $230,000 higher at June 30, 1997 compared with June
30, 1996 due to the additional product lines acquired in 1996 and to meet the
needs of its anticipated sales levels in the third and fourth quarters of 1997.
Cash used in investing activities was $297,000 in the period ended June
30, 1997 which was primarily attributable to capital expenditures for fixed
assets, including molds and tooling for new products. Cash provided by
investing activities was $2,464,000 in the period ending June 30, 1996, which
was attributable to the proceeds for the sale of the Company's Hong Kong
property, partially offset by an investment in equipment, molds and tooling for
new products and the purchase of certain assets of Table Toys.
Cash provided by financing activities was $1,710,000 in the first six
months of 1997, primarily from borrowings from the Company's factor. Cash used
in financing activities was $2,040,000 in the first six months of 1996 which
primarily represents the repayment of the principal portion of the mortgage on
the Company's facility in Hong Kong.
The Company's factoring agreement with Milberg Factors, Inc. ("Milberg")
provides for advances equal to the lesser of 85% of total accounts receivable or
$5,000,000. The factoring charge is .65% of receivables. Advances bear
interest at the rate of prime plus one percent. Milberg has also agreed to
advance to the Company, at the Company's request, the lesser of $2,000,000 or
50% of the Company's inventory located in the United States. Such advances will
also bear interest at the rate of prime plus one percent. Additionally, the
factoring arrangement with Milberg is secured by a mortgage on the real property
owned by the Company's manufacturing subsidiary.
The Company believes that its cash flow from operations and available
borrowings will be adequate to meet its obligations for the ensuing year.
SEASONALITY
The toy industry is typically seasonal in nature due to the heavy demand
for toy products during the Christmas season, with the majority of orders being
placed during the first two-thirds of the year for shipment during the third and
fourth quarters, and with the majority of collections from such sales being
received in the fourth quarter.
-10-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 8, 1997, the United States Court of Appeals for the Federal Circuit
affirmed the decision of the United States District Court for the Northern
District of California granting summary judgment in favor of the Company in the
design patent and trade dress lawsuit filed by OddzOn Products, Inc. in April
1995. In granting the Company summary judgment, the District Court dismissed
OddzOn's claims that the Company's Micro Ultra Pass(R) and Ultra Pass(R) toy
footballs infringed on OddzOn's design patent and constituted trade dress
infringement and unfair competition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company held its annual meeting of stockholders on June 3, 1997. The
matters submitted to a vote of the Company's stockholders were (i) the election
of seven directors, (ii) the approval of the issuance of two options, each for
the purchase of up to 50,000 shares of the Company's common stock, to Morton J.
Levy, the Company's Chairman of the Board and, as of July 1, 1997, the Company's
former Chief Executive Officer, and (iii) ratification of the appointment of
Ernst & Young LLP as independent auditors for the 1997 fiscal year.
The Company's stockholders re-elected the entire Board of Directors
consisting of Roger Gimbel, Charmaine Jefferson, Howard Kaufman, Morton J. Levy,
Irwin Naitove, Donald D. Shack and Barry Shapiro.
The Company's stockholders approved the issuance of the options to Mr.
Levy, the terms of which are described in the Company's definitive Proxy
Statement which was filed with Securities and Exchange Commission on May 12,
1997, by a vote of 3,184,417 for, 461,293 against and 15,026 abstaining. There
were 301,656 broker non-votes with respect to this matter.
The Company's stockholders ratified the Board of Director's appointment of
Ernst & Young LLP as the Company's independent auditors for the 1997 fiscal year
by a vote of 3,931,543 for, 1,985 against and 9,019 abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Certificate of Incorporation, incorporated by reference to Exhibit 3.1
to the Registration Statement on Form S-1 (File No. 33-50878).
3.2 Certificate of Amendment of Certificate of Incorporation incorporated
by reference to Exhibit 3.5 of the Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on November 8, 1996 (the
"1996 3rd Quarter 10-Q").
-11-
<PAGE>
3.3 Certificate of Designations, Preferences and Rights of the Series A
Convertible Redeemable Preferred Stock (included in Exhibit 4.1
hereof).
3.4 Certificate of Designations, Preferences and Rights of the Series B
Convertible Redeemable Preferred Stock (included in Exhibit 4.2
hereof).
3.5 Amended and Restated By-laws incorporated by reference to Exhibit 3.4
to the 1996 3rd Quarter 10-Q.
4.1 Certificate of Designations, Preferences and Rights of the Series A
Convertible Redeemable Preferred Stock, incorporated by reference to
Exhibit 4 of the Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 7, 1995.
4.2 Certificate of Designations, Preferences and Rights of the Series B
Convertible Redeemable Preferred Stock, incorporated by reference to
Exhibit 3.2 of the Current Report on From 8-K filed with the
Securities and Exchange Commission on July 10, 1996 (the "July 1996
Form 8-K").
4.3 Form of Warrant, dated June 26, 1995, issued to various parties in
respect of the aggregate of 60,000 shares of the Company's Common
Stock, incorporated by reference to Exhibit 4.2 of the July 1996 Form
8-K.
/*/4.4 Stock Option granted to Morton J. Levy dated June 30, 1997.
/*/10.1 Security Agreement--Goods and Chattels, dated May 9, 1997
between Milberg Factors, Inc. ("Milberg") and Celt Specialty Partners,
Inc. ("Celt").
/*/10.2 Guaranty, dated May 9, 1997, between Milberg and Celt.
/*/10.3 Mortgage and Security Agreement, dated May 9, 1997, made by Celt
in favor of Milberg.
/+/27 Financial Data Schedule
__________________________
/*/ Filed herewith
/+/ Filed with the Securities and Exchange Commission only pursuant to
Article 5 of Regulation S-X.
(b) Reports on Form 8-K -- None
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1997
JUST TOYS, INC.,
a Delaware corporation
By: /s/ Barry Shapiro
---------------------------------------
Barry Shapiro
Chief Executive Officer
By: /s/ David Schwartz
------------------------------------
David Schwartz
Chief Financial Officer and
Principal Accounting Officer
-13-
<PAGE>
EXHIBIT 4.4
JUST TOYS, INC.
STOCK OPTION
OPTION dated this 30th day of June 1997 (the "Effective Date"), granted by
Just Toys, Inc., a Delaware corporation (hereinafter the "Company"), to Morton
J. Levy (the "Holder").
WHEREAS, the Company desires to afford the Holder the opportunity to
purchase shares of its Common Stock, par value $.01 per share (the "Common
Stock"), as hereinafter provided; and
WHEREAS, on December 5, 1996, the Board of Directors authorized the grant
of the option conferred hereby to the Holder.
NOW, THEREFORE, in consideration of the foregoing premises, the Company
hereby agrees as follows:
1. Grant of Option. The Company hereby grants to the Holder an option
---------------
(the "Option") to purchase up to an aggregate of 50,000 shares of Common Stock
(such number of shares being subject to adjustment as provided in paragraph 5
hereof) on the terms and subject to the conditions hereinafter set forth. The
Holder shall not have any of the rights of a shareholder of the Company with
respect to the shares of Common Stock covered by the Option except to the extent
that one or more certificates for such shares shall be delivered to him upon the
due exercise of the Option.
2. Purchase Price. The purchase price per share of the shares of Common
--------------
Stock to be issued upon exercise of the Option shall be the closing price of a
share of the Common Stock on the Nasdaq National Market on the Effective Date.
3. Expiration Date; Vesting of Option. (a) Subject to the provisions of
----------------------------------
paragraph 5 hereof, the Option shall expire at 5:00 P.M. New York time on June
29, 2007 (the "Expiration Date"), and any portion of the Option remaining
unexercised after such time shall be cancelled without further notice or action.
(b) The Option may be exercised in full or in installments at any time
after the Effective Date and prior to the Expiration Date.
4. Non-Transferability. The Option, and the rights and privileges
-------------------
conferred hereby, are not transferable by the Holder other than by will or under
the laws of descent and distribution. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of
<PAGE>
the Option contrary to the provisions hereof, and the levy of any execution,
attachment or similar process upon the Option, shall render the Option null and
void.
5. Adjustments. (a) New option rights may be substituted for the Option,
-----------
or the Company's duties as to the Option may be assumed, by a corporation other
than the Company, or by a parent or subsidiary of the Company or such
corporation, in connection with any merger, consolidation, acquisition,
separation, reorganization, liquidation or like occurrence in which the Company
is involved. Notwithstanding the foregoing or the provisions of Sections 5.1(b)
and (c) hereof, in the event such corporation, or parent or subsidiary of the
Company or such corporation, does not substitute new option rights for and
substantially equivalent to, the Option, or assume the Option, the Option shall
terminate and thereupon become null and void (i) upon dissolution or liquidation
of the Company, or similar occurrence, (ii) upon any merger, consolidation,
acquisition, separation, reorganization, or similar occurrence, where the
Company will not be a surviving entity or (iii) upon a transfer of substantially
all of the assets of the Company or more than 80% of the outstanding shares of
Common Stock in a single transaction; provided, however, that the Holder shall
have the right immediately prior to or concurrently with such dissolution,
liquidation, merger, consolidation, acquisition, separation, reorganization or
similar occurrence, to exercise any unexpired portion of the Option whether or
not then exercisable.
(b) The existence the Option shall not affect in any way the right or power
of the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issuance of Common Stock or subscription rights thereto, or any merger or
consolidation of the Company, or any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
(c) In the event that the Stock Option Committee (the "Committee") of the
Company's Board of Directors determines that any dividend or other distribution
(whether in the form of cash, Common Stock, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Common Stock or other securities of the Company, issuance of warrants or
other rights to purchase Common Stock or other securities of the Company, or
other corporate transaction or event affects the Common Stock such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Option, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number of shares of Common
Stock subject to the Option and (ii) the exercise price with respect to the
Option or, if deemed appropriate, make provision for a cash payment to the
Holder. Without limiting the generality of the foregoing, any such adjustment
shall be deemed to have prevented any dilution and enlargement of the Holder's
rights if the Holder receives in any such adjustment rights
<PAGE>
which are substantially similar (after taking into account the fact that the
Holder has not paid the applicable exercise price) to the rights the Holder
would have received had he exercised the Option and become a shareholder of the
Company immediately prior to the event giving rise to such adjustment.
(d) Adjustments and elections under this Section 5 shall be made by the
Committee whose determination as to what adjustments, if any, shall be made and
the extent thereof shall be final, binding and conclusive.
6. Securities Regulations. (a) If at any time the Company's Board of
----------------------
Directors shall in its discretion determine that the listing, registration or
qualification of the shares of Common Stock subject to the Option upon any
securities exchange or under any federal or state law, or the approval or
consent of any governmental regulatory body, is necessary or desirable in
connection with the issuance or purchase of such shares hereunder, the Option
shall not be exercisable in whole or in part unless such listing, registration,
qualification, approval or consent shall have been effected or obtained free
from any conditions not reasonably acceptable to the Company's Board of
Directors.
(b) Unless at the time of the exercise of the Option and the issuance of
the shares of Common Stock purchased by the Holder pursuant thereto there shall
be in effect as to such shares a Registration Statement under the Securities Act
of 1933, as amended (the "Act"), and the rules and regulations of the Securities
and Exchange Commission (the "Commission"), the Holder shall deliver to the
Company at the time of exercise, a certificate in a form reasonably satisfactory
to the Company and/or counsel to the Company (i) acknowledging that the shares
of Common Stock so acquired may be "restricted securities" within the meaning of
Rule 144 promulgated under the Act; (ii) certifying that he is acquiring the
shares of Common Stock issuable to him upon such exercise for the purpose of
investment and not with a view to their sale or distribution; and (iii)
containing the Holder's agreement that such shares of Common Stock may not be
sold or otherwise disposed of except in accordance with applicable provisions of
the Act. The Company shall not be required to issue or deliver certificates for
shares of Common Stock until there shall have been compliance with all
applicable laws, rules and regulations, including rules and regulations of the
Commission.
7. Loans and Financial Accommodations to Holder. (a) In order to assist
--------------------------------------------
the Holder with the acquisition of shares of Common Stock pursuant to the
exercise of the Option, including the payment of any taxes resulting from such
exercise, the Committee may, in its discretion authorize (i) the extension of a
loan to the Holder by the Company, (ii) the payment by the Holder of the
purchase price of such shares in installments, (iii) the guarantee by the
Company of a loan obtained by the Holder from a third party or (iv) such other
reasonable arrangements to facilitate the exercise of the Option in accordance
with applicable law.
(b) The Committee or the Board of Directors shall determine the terms of
any loan or guarantee made pursuant hereto, including the interest rate and
other terms of repayment thereof, and whether such loan or guarantee shall be
secured or unsecured. Each loan shall be
3
<PAGE>
evidenced by a promissory note having a maximum term to maturity of not more
than sixty (60) months. The maximum amount of any loan or guarantee shall be
the option price for shares purchased upon exercise of the Option plus (i)
related interest payments and (ii) the amount of tax liability incurred by the
Holder as a result of the exercise of the Option. No amount loaned to the
Holder and no amount the repayment of which is guaranteed by the Company shall
be used for any purpose other than payment of (i) the purchase price of shares
acquired upon the exercise of the Option, (ii) taxes attributable to such
exercise and (iii) interest.
8. Method of Exercising Option. (a) The Option (or installments thereof)
---------------------------
may be exercised by executing and delivering an Option Exercise Notice in the
form attached hereto as Exhibit A. Such notice shall be accompanied by payment
---------
of the full purchase price as follows: (i) in cash (including check, bank draft
or money order) payable to the order of the Company or (ii) at the discretion of
the Committee, by delivering to the Company shares of Common Stock already owned
by the Holder, and having a fair market value (as defined in paragraph 8(b)) on
the date of exercise equal to the option price or a combination of such shares
and cash, or (iii) by any other proper method specifically approved by the
Committee.
(b) For the purpose of any computation under paragraph 8(a) of the fair
market value per share of Common Stock, such value shall be deemed to mean (i)
if the of Common Stock is quoted on the Nasdaq National Market System or listed
on a national securities exchange, the closing price on such market or such
exchange, (ii) if the of Common Stock is not quoted on the Nasdaq National
Market System or listed on a national securities exchange, the mean between the
closing bid and asked prices of publicly-traded shares of Common Stock in the
over-the-counter market as reported on the Nasdaq system or by any nationally
recognized quotation service selected by the Company, or (iii) if the Common
Stock is not then publicly-traded, as determined, in good faith, by the
Committee, on the date of exercise of the Option, or if such date shall not be a
day during which shares of Common Stock were traded, then on the next date
immediately preceding such date during which such trades were effected.
(c) If the Option should be exercised in part only, the Company shall, upon
surrender of the Option for cancellation, execute and deliver a new option
evidencing the rights of the Holder to purchase the balance of the shares of
Common Stock purchasable hereunder. All shares purchased hereunder shall be
deemed to be fully paid and non-assessable.
9. Conditions to Issuance of Shares. The Company shall not be required to
--------------------------------
issue any certificate for shares of Common Stock purchased upon the exercise of
the Option unless such shares are at the time of such exercise listed on the
Nasdaq National Market or any national securities exchange on which the Common
Stock may then be listed.
10. General. (a) The Option shall be construed in accordance with the
-------
laws of the State of New York and shall be binding upon the Company and inure to
the benefit of the Holder and any successors of the business of the Company,
but, except as provided for herein, neither the Option nor any rights or
privileges conferred hereunder shall be assignable by the Holder.
4
<PAGE>
(b) The Company may establish from time to time, appropriate procedures to
provide for payment or withholding of such income or other taxes as may be
required by law to be paid or withheld in connection with the exercise of the
Option. The Holder shall pay the Company all such amounts requested by the
Company to permit the Company to take any deduction available to it resulting
from the exercise of the Option. The Company may also establish, from time to
time, appropriate procedures to ensure that the Company receives prompt advice
concerning the occurrence of any event which may create, or affect the timing or
amount of, any obligation to pay or withhold any such taxes or which may make
available to the Company any tax deduction resulting from the occurrence of such
event, and the Holder will comply with all such procedures so established.
IN WITNESS WHEREOF, the Company has caused the Option to be duly executed
by its duly authorized officer, on the day and year first above written.
JUST TOYS, INC.
By: /s/ BARRY SHAPIRO
-------------------------
Barry Shapiro
President
Agreed to and Accepted:
/s/ Morton J. Levy
- -----------------------------
Morton J. Levy
5
<PAGE>
EXHIBIT A
---------
FORM OF OPTION EXERCISE NOTICE
------------------------------
____________ __, ____
Just Toys, Inc.
50 West 23rd Street
New York, New York 10010
Attention: President
Ladies and Gentlemen:
The undersigned hereby irrevocably elects to exercise the within
Option to the extent of purchasing ________ shares of Common Stock at
$__________ per share for an aggregate purchase price of $__________________.
Enclosed is payment of the purchase price as follows (check applicable box):
[_] 1. Payment in Cash.
Check, bank draft or money order in the aggregate amount of the
exercise price, payable to Just Toys, Inc.
[_] 2. Payment with Common Stock or Common Stock and Cash.
(a) Delivery of Certificate No.(s)__________ representing ________
shares of Common Stock, duly endorsed to Just Toys, Inc. The
shares of Common Stock evidenced by such certificate have been
valued at $_______ per share, in accordance with Section 8(b) of
the Option. I understand that if the enclosed certificate
represents more full shares of Common Stock than are necessary to
cover the exercise price, the Company will deliver to the
undersigned a certificate covering the excess number of full
shares.
(b) Check, bank draft or money order for the remaining exercise price
of $__________, payable to Just Toys, Inc. (required if a
fractional share is involved or if payment is being made only
partly with Common Stock).
Please have the certificate representing said shares forwarded to me
as indicated below.
6
<PAGE>
Instructions: PLEASE PRINT YOUR NAME BELOW (FIRST, MIDDLE INITIAL,
-------------
LAST). If joint tenancy is requested, please mark the box below and list both
names in full.
Mr. _______________ Soc. Sec. # _______________
Mrs. _______________ Soc. Sec. # _______________
Miss _______________ Soc. Sec. # _______________
Ms. _______________ Soc. Sec. # _______________
Joint Tenancy [_]
Street Address _______________________________________
City ________________ State ___________ Zip Code _____
Very truly yours,
________________________
(Signature)
________________________
(Signature)
7
<PAGE>
EXHIBIT 10.1
To: Milberg Factors, Inc.
99 Park Avenue
New York, NY 10016
Gentlemen:
1. To secure the payment of all debts, liabilities, obligations,
covenants and duties owing by us to you under that certain Guaranty bearing the
effective date of May, 1997, as well as to secure the payment in full of the
other Obligations referred to herein, we hereby grant to you a continuing
security interest in all goods and general intangibles (as defined in Article 9
of the Uniform Commercial Code) whether now owned or hereafter acquired by us
and wherever located, all replacements and substitutions therefor or accessions
thereto and all proceeds thereof, (all herein referred to collectively as
"Collateral"). Inventory is specifically excluded from the Collateral.
2. The term "Obligations" as used herein shall mean and include the
indebtedness owing by us to you as hereinabove specifically set forth and also
any and all other loans, advances, extensions of credit, endorsements,
guaranties, benefits or financial accommodations heretofore or hereafter made,
granted or extended by you to us or which you have or will become obligated to
make, grant or extend to or for our account and any and all interest,
commissions, obligations, liabilities, indebtedness, charges or expenses
heretofore or hereafter chargeable against us or owing by us to you or upon
which we may be or have become liable as endorser and guarantor and any and all
renewals or extensions of any of the foregoing, no matter how or when arising,
direct or indirect, absolute or contingent, liquidated or unliquidated, and
whether under any present or future agreement or instrument between us or
otherwise and the amount due upon any notes or other obligations given to or
received by you for or on account of any of the foregoing and the performance
and fulfillment by us of all of the terms, conditions, promises, covenants,
provisions and warranties contained in this Security Agreement and any note or
notes secured hereby or in any present or future agreement or instrument between
us.
3. Unless expressly limited by the provisions of paragraph "1", your
security interest granted and created in the Collateral shall extend and attach
to the entire Collateral whether the same constitutes personal property or
fixtures, including, without limitation, to all dies, jiggs, tools, benches,
tables, substitutions, accretions, component parts, replacements thereof and
additions thereto, as well as to all accessories, motors, engines, auxiliary
parts used in connection with or attached to the Collateral and any packing
material in which the Collateral may be contained. We shall furnish you from
time to time upon request with written statements and schedules identifying and
describing the Collateral and any additions thereto and substitutions thereof in
such detail as you may require.
<PAGE>
4. We hereby warrant and covenant to you that:
(a) the Collateral is presently located at:
100 Owens Road
Brockport, NY 14420
and we will notify you promptly of any new location where Collateral may be
located;
(b) we are the lawful owner of the Collateral free from any adverse
lien, security or encumbrance whatsoever and have the sole right to grant a
security interest therein and will defend the Collateral against all claims
and demands of all persons;
(c) we will keep the Collateral free and clear of all attachments,
levies, taxes, liens, security interests and encumbrances of every kind and
nature;
(d) we will at our own cost and expense keep the Collateral in good
state of repair and will not waste or destroy the same or any part thereof;
(e) we will not without your prior written consent, sell, exchange,
lease or otherwise dispose of the Collateral or any of our rights therein
or permit any lien or security interest to attach to same, except that
created by this Agreement;
(f) we will insure the Collateral in your name against loss or damage
by fire, theft, burglary, pilferage, loss in transit and such other hazards
as you shall specify in amounts and under policies by insurers acceptable
to you and all premiums thereon shall be paid by us and the policies
delivered to you. If we fail to do so, you may procure such insurance and
charge the cost to our account;
(g) we will not permit any Collateral to be removed from its present
location without your prior written consent, and we will at all times allow
you or your representatives free access to and the right of inspection of
the Collateral;
(h) we shall comply with the terms and conditions of any leases
covering the premises wherein the Collateral is located and any orders,
ordinances, laws or statutes of any city, state, or governmental department
having jurisdiction with respect to such premises or the conduct of
business thereon, and, when requested by you, we will execute any written
instruments and do any other acts necessary to effectuate more fully the
purposes and provisions of this Agreement;
(i) if any of the Collateral is or in your opinion may become part of
any real estate, we will obtain and deliver to you a written waiver by the
record owner and any mortgagees of said real estate of all interest in the
Collateral and a written subordination
<PAGE>
by any person who has a lien on said real estate which is or may be
superior to the security interest granted hereby;
(j) we will not permit anything to be done that may impair or lessen
the value of any Collateral or the security intended to be afforded by this
Agreement;
(k) we will indemnify and save you harmless from all loss, costs,
damage, liability or expense, including reasonable attorneys' fees, that
you may sustain or incur to enforce payment, performance, or fulfillment of
any of the debts or obligations secured hereby or in the enforcement of
this Agreement and the priority thereof or in the prosecution or defense of
any action or proceeding either against you or us concerning any matter
growing out of or in connection with this Agreement and/or any of the
Obligations secured hereby and/or any of the Collateral;
(l) the execution of this Agreement has been duly approved by the
undersigned in any manner required by law.
5. We shall be in default under this Agreement upon the happening of any
of the following events or conditions:
(a) we shall fail to pay when due or punctually perform any of the
Obligations;
(b) any covenant, warranty, representation or statement made or
furnished to you by us or on our behalf was false in any material respect
when made or furnished;
(c) the loss, theft, substantial damage, destruction, sale or
encumbrance to or of any of the Collateral or the making of any levy,
seizure or attachment thereof or thereon;
(d) we shall become insolvent, cease operations, dissolve, terminate
our business existence, make an assignment for the benefit of creditors,
suffer the appointment of a receiver, trustee, liquidator or custodian of
all or any part of our property;
(e) any proceedings under any bankruptcy or insolvency law shall be
commenced by or against us or any guarantor or endorser of the Obligations;
or
(f) any guarantor or endorser of the Obligations shall die, make an
assignment for the benefit of creditors, or suffer the appointment of a
receiver of any part of such guarantor's or endorser's property.
6. Upon any such default and at any time thereafter, you may declare all
Obligations secured hereby immediately due and payable and you shall have the
remedies of the secured
<PAGE>
party provided in the Uniform Commercial Code, and in addition, those provided
by other provisions of law and in this Agreement. You will at all times have
the right to take possession of the Collateral and to maintain such possession
on our premises or to remove the Collateral or any part thereof to such other
premises as you may desire. Upon your request, we shall assemble the Collateral
and make it available to you at a place designated by you. If any notification
of intended disposition of any Collateral is required by law, such notification,
if mailed, shall be deemed properly and reasonably given if mailed at least five
days before such disposition, postage prepaid, addressed to us either at our
address shown herein or at any address appearing on your records for us. Any
proceeds of any disposition of any of the Collateral shall be applied by you to
the payment of all expenses in connection with the sale of the Collateral,
including reasonable attorneys' fees and other legal expenses and disbursements
and the reasonable expense of retaking, holding, preparing for sale, sale, and
the like, and any balance of such proceeds may be applied by you toward the
payment of the Obligations secured hereby in such order of application as you
may elect, and we shall be liable for any deficiency.
7. If we default in the performance or fulfillment of any of the terms,
conditions, promises, covenants, provisions or warranties on our part to be
performed or fulfilled under or pursuant to this Agreement, you may at your
option without waiving your right to enforce this Agreement according to its
terms, immediately or at any time thereafter and without notice to us, perform
or fulfill the same or cause the performance or fulfillment of the same for our
account and at our sole cost and expense, and the cost and expense thereof
(including reasonable attorneys' fees) shall be added to the Obligations secured
hereby and shall be payable on demand with interest thereon at the rate charged
upon the Obligations secured hereby, but not in excess of that permitted by law.
8. No delay or failure on your part in exercising any right, privilege or
option hereunder shall operate as a waiver of such or of any other right,
privilege, remedy or option, and no waiver whatever shall be valid unless in
writing, signed by you and then only to the extent therein set forth, and no
waiver by you of any default shall operate as a waiver of any other default or
of the same default on a future occasion. Your books and records containing
entries with respect to the Obligations secured hereby shall be admissible in
evidence in any action or proceeding, shall be binding upon us for the purpose
of establishing the items therein set forth and shall constitute prima facie
proof thereof. You shall have the right to enforce any one or more of the
remedies available to you, successively, alternately or concurrently. We agree
to join with you in executing financing statements or other instruments pursuant
to the Uniform Commercial Code in form satisfactory to you and in executing such
other documents or instruments as may be required or deemed necessary by you for
purposes of affecting or continuing your security interest in the collateral.
9. This Agreement cannot be terminated orally. All of the rights,
remedies, options, privileges and elections given to you hereunder shall enure
to the benefit of your successors and assigns. The term "you" as herein used
shall include your company, any parent of your
<PAGE>
company, any of your subsidiaries and any co-subsidiaries of your parent,
whether now existing or hereafter created or acquired, and all of the terms,
conditions, promises, covenants, provisions and warranties of this Agreement
shall enure to the benefit of and shall bind the representatives, successors and
assigns of each of us and them.
Very truly yours,
(Seal)
CELT SPECIALTY PARTNERS, INC.
-----------------------------
Attest:
/s/ By: /s/ 5/9/97
- ------------------------------------- ------------------------------------
Its (Title) (Date)
Vice President - Finance
Accepted at New York, New York
On May , 1997
----------------------------------------
MILBERG FACTORS, INC
----------------------------------------
Attest:
/s/ By: /s/
- ------------------------------------- -----------------------------------
<PAGE>
EXHIBIT 10.2
GUARANTY
MILBERG FACTORS, INC.
99 Park Avenue
New York, NY 10016
Gentlemen:
In order to induce you to enter into a certain Factoring Agreement bearing
the effective date of July 26, 1995 with Just Toys, Inc., 50 West 23rd Street,
New York, New York 10010 (hereinafter referred to as the "Client") and/or to
induce you to refrain at this time from terminating said agreement and/or in
consideration of any loans, advances, payment, extensions of credit, benefits or
financial accommodations heretofore or hereafter made, granted or extended by
you or which you have or will become obligated to make, grant or extend to or
for the account for the Client, the undersigned (and each of them if more than
one) guarantees without deduction by reason of set-off, defense, or counterclaim
of any party, or loss of contribution from any co-guarantor hereunder, the due
performance of all of the Client's contracts and agreements with you, both
present and future and any and all subsequent renewals, extensions,
continuations, modifications, supplements and amendments thereof, and the prompt
payment to you with interest of any and all sums which may be presently due and
owing or which shall in the future become due and owing to you from the Client.
This joint and several primary liability shall include but not be limited to any
and all amounts charged or chargeable to the account of the Client and any and
all existing and future obligations and indebtedness of the Client, whether
acquired by you by assignment, transfer, or otherwise, and whether or not such
obligations and indebtedness shall arise under the aforesaid Factoring Agreement
or under any other contract or agreement or any renewal, modification,
supplement or amendment thereof, or shall be represented by or payable under
instruments of indebtedness or otherwise, and whether or not such obligations
and indebtedness shall be acquired by you from any concern which is your parent
or subsidiary or the co-subsidiary of your parent or for which you may now or in
the future act as a factor and/or lender, and in addition, the undersigned shall
be liable to you for attorney's fees equal to fifteen (15%) percent of the
unpaid indebtedness and obligations of the Client to you, if any claim hereunder
is referred to an attorney for collection.
The undersigned hereby waives notice of acceptance hereof and of all
notices and demands of any kind to which the undersigned may be entitled,
including without limitation, notice of adverse change in Client's financial
condition or of any other fact which might materially increase the risk of the
undersigned; all demands of payment on, and notice of nonpayment, protest and
dishonor to the undersigned, or the Client, or the makers, or endorsers of any
notes or other instruments for which the undersigned is or may be liable
hereunder. The undersigned hereby further waives the right to renounce any
disposition or transfer of assets whether created under a will, trust agreement
or intestacy statute, with respect to any devise, bequest, distributive share,
trust account, life insurance or annuity contract, employee benefit
<PAGE>
plan (including, without limitation, any pension, retirement, death benefits,
stock bonus or profit sharing plan, system or trust), or any other disposition
or transfer created by any testamentary or nontestamentary instrument or by
operation of law, and any of the foregoing created or increased by reason of a
renunciation made by another person. All sums at any time to the credit of the
undersigned and any property of the undersigned in your possession shall be
deemed held by you as security for any and all of the undersigned's obligations
to you and to any company or companies which may now or at any time be your
parent or subsidiary, or the co-subsidiary of your parent, no matter how or when
arising and whether under this or any other instrument, agreement or otherwise.
The undersigned further waives notice of and hereby consents to any agreement or
arrangements whatever with the Client or any one else including, without
limitation, agreements and arrangements for payment extension, subordination,
composition, arrangement, discharge or release of the whole or any part of said
obligations or of said indebtedness, contracts or agreements or other
guarantors, or of the making of any election of rights or remedies you may deem
desirable under any Bankruptcy Code, or for the change or surrender of any and
all security, or for compromise, whether by way of acceptance of part payment or
of dividends or in any other way whatsoever, and the same shall in no way impair
the undersigned's liability hereunder. Nothing shall discharge or satisfy the
liability of the undersigned hereunder except the full performance and payment
of the said obligations and indebtedness with interest. The undersigned
expressly waives any and all rights of subrogation, reimbursement, indemnity,
exoneration, contribution or any other claim which the undersigned may now or
hereafter have against the Client or any other person directly or contingently
liable for the obligations guarantied hereunder, or against or with respect to
the Client's property (including, without limitation, properly collateralizing
the undersigned's obligations to you), arising from the existence or performance
of this guaranty. In furtherance, and not in limitation, of the preceding
waiver, the undersigned agrees that any payment to you by the undersigned
pursuant to this guaranty shall be deemed a contribution to the capital of the
Client or other obligated party and any such payment shall not constitute the
undersigned a creditor of any such party. Any and all present and future debts
and obligations of the Client to any of the undersigned are hereby waived and
postponed in favor of, and subordinated to the full payment and performance of,
all present and future debts and obligations of the Client to you. The
undersigned agrees that if the Client or any of the undersigned should at any
time become insolvent, or make a general assignment, or if a proceeding in
bankruptcy or any insolvency or reorganization proceeding shall be filed or
commenced by, or in respect of the Client or any of the undersigned, any and all
obligations of the undersigned shall, at your option, forthwith become due and
payable without notice. If you receive any payment or payments on account of
the liabilities guaranteed hereby, which payment or payments or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside and/or required to be repaid to a trustee, receiver, or any other party
under any bankruptcy act or code, state or federal law, common law or equitable
doctrine, then to the extent of any sum not finally retained by you, our
obligations to you shall be reinstated and this Agreement shall remain in full
force and effect (or be reinstated) until we shall have made payment to you,
which payment shall be due on demand.
Your books and records showing the account between you and the Client shall
be
2
<PAGE>
admissible in evidence in any action or proceeding, shall be binding upon the
undersigned for the purposes of establishing the items therein set forth and
shall constitute prima facie proof thereof. This instrument is and shall be
construed to be an absolute, continuing, unconditional and unlimited guaranty of
payment, and shall continue in full force and effect, notwithstanding the death
of any of the undersigned, until terminated by the actual receipt by you from
the undersigned by registered mail of written notice of termination; such
termination shall be applicable only to transactions having their inception
thereafter, and rights and obligations arising out of transactions having their
inception prior to such termination shall not be affected. Termination by one or
more of the undersigned shall not affect the liability of such of the
undersigned who do not give such notice of termination.
This guaranty shall be enforceable before or after proceeding against the
Client or simultaneously therewith, and without recourse to any security, and
shall be effective regardless of the subsequent incorporation, merger or
consolidation of the Client, or any change in the composition, nature, personnel
or location of the Client. This guaranty shall inure to and shall be
enforceable by you, any concern which is or may at any time be your parent or
subsidiary or the co-subsidiary of your parent and your and their successors and
assigns and shall be binding upon the heirs, executors, administrators,
successors and assigns of the undersigned. The undersigned does hereby waive
any and all right to a trial by jury in any action or proceeding based hereon.
This instrument cannot be changed or terminated orally, and shall be governed,
construed and interpreted as to validity, enforcement and in all other respects
in accordance with the laws of the State of New York, the jurisdiction of such
state's courts being hereby consented to for all purposes in connection
herewith.
Dated: May ____, 1997
Witness:_____________________________ _________________________________
(Guarantor)
Home Address
Witness:_____________________________ _________________________________
(Guarantor)
Home Address
Witness:____________________________ _________________________________
(Guarantor)
Home Address
3
<PAGE>
Attest: /s/ CELT SPECIALTY PARTNERS,INC.
- --------------------------------- --------------------------------
(Corporate Guarantor)
By: /s/ David Schwartz
-----------------------------
Title: V.P. Finance
-----------------------------
Attest --------------------------------
--------------------------- (Corporate Guarantor)
By:
------------------------------
Title:
------------------------------
(Corporate Guarantor should also furnish appropriate Certified Resolution of the
Board of Directors and Notarized Consent of Stockholders.)
4
<PAGE>
EXHIBIT 10.3
MORTGAGE AND SECURITY AGREEMENT
Dated: May 9, 1997
in the amount of
$1,000,000
from
CELT SPECIALTY PARTNERS, INC.
having an office at:
100 Owens Road
Brockport, New York 14420
the Mortgagor,
to
MILBERG FACTORS, INC.
having an office at:
99 Park Avenue
New York, New York 10016
the Mortgagee
LOCATION OF PREMISES:
Street Address: 100 Owens Road
Brockport, New York
14420
County of: Monroe
State of: New York
Section: 69.18
Block: 1
Lot: 13
After recording, please return by mail to:
HAHN & HESSEN LLP
350 Fifth Avenue
New York, New York 10118
Attention: Ralph Miles, Esq.
<PAGE>
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT, made the 9th day of May, 1997
by CELT SPECIALTY PARTNERS, INC., a New York corporation having an office at 100
Owens Road, Brockport, New York 14420 ("the Mortgagor"), to MILBERG FACTORS,
INC. having an office at 99 Park Avenue, New York, New York 10016 (the
"Mortgagee").
WITNESSETH, pursuant to a certain Factoring Agreement, as supplemented
and amended, dated as of July 26, 1995 by and between JUST TOYS, INC. (the
"Debtor"), as borrower, and the Mortgagee, as lender (as supplemented and
amended, and as may be further amended, modified or supplemented, the "
Factoring Agreement") and all agreements related thereto as amended, modified
and supplemented from time to time (the Factoring Agreement and all related
agreements, collectively the "Loan Agreement"), the Mortgagee has agreed to make
and the Debtor has agreed to accept certain financial accommodations in the
maximum aggregate principal amount of up to FIVE MILLION AND 00/100 ($5,000,000)
DOLLARS, advanced pursuant to and evidenced by the Loan Agreement; and
WITNESSETH, Mortgagor has requested that Mortgagee extend such
financial accommodations to Debtor pursuant to the Loan Agreement and Mortgagee
has agreed to extend such financial accommodations to Debtor provided that
Mortgagor deliver to Mortgagee the Mortgagor's absolute and unconditional
guaranty of all indebtedness which Debtor may at anytime or times owe to
Mortgagee and Mortgagor as an affiliate through common stock ownership of Debtor
in view of the inter-corporate relationship and interest in the success of
Debtor has executed and delivered a Guaranty, dated May 9, 1997, in favor of
Mortgagee (the "Guaranty Obligation");
NOW THEREFORE, to secure the payment of an indebtedness in the
aggregate principal sum of up to FIVE MILLION AND 00/100 ($5,000,000) DOLLARS
lawful money of the United States of America to be paid according to the Loan
Agreement and the Guaranty Obligation as said Loan Agreement and the Guaranty
Obligation may be hereinafter modified, amended, extended, renewed or
substituted for, and any and all sums, amounts and expenses paid hereunder or
thereunder by the Mortgagee according to the terms hereof and all other
obligations and liabilities of the Mortgagor under this Mortgage and the
Guaranty Obligation together with all interest on the said indebtedness,
obligations, liabilities, sums, amounts and expenses and any and all other
obligations and liabilities now due and owing or which may hereafter be or
become due and owing by the Mortgagor to the Mortgagee, provided, however, that
-------- -------
the maximum principal sum secured by this Mortgage at execution or which under
any contingency may be secured hereby at any time in the future shall not exceed
the principal sum of
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<PAGE>
ONE MILLION AND 00/100 ($1,000,000) DOLLARS (of the aforesaid are hereinafter
collectively, the "Indebtedness"), the Mortgagor, as hereinafter provided,
hereby mortgages, grants, bargains, sells, warrants, conveys, alienates,
remises, releases, assigns, sets over and confirms to the Mortgagee and grants
to the Mortgagee a security interest in:
I. All of the right, title and interest of the Mortgagor in and
to that certain lot, piece or parcel of land (the "Real Property") more
particularly described as on Schedule "A" annexed hereto and made a part hereof;
and
II. All of the right, title and interest of the Mortgagor in and
to the buildings and improvements (hereinafter, collectively, together with all
building equipment, the "Improvements") now or hereafter located on the Real
Property and all of its right, title and interest, if any, in and to the streets
and roads abutting the Real Property to the center lines thereof, and strips and
gores within or adjoining the Real Property, the air space and right to use said
air space above the Real Property, all rights of ingress and egress by motor
vehicles to parking facilities on or within the Real Property, all easements now
or hereafter affecting the Real Property or the Improvements, all royalties and
all rights appertaining to the use and enjoyment of the Real Property or the
Improvements, including, without limitation, alley, drainage, crops, timber,
agricultural, horticultural, mineral, water, oil and gas rights; and
III. All of the right, title and interest of the Mortgagor in and
to all fixtures and articles of personal property and all appurtenances and
additions thereto and substitutions or replacements thereof, now or hereafter
attached to, or contained in, the Real Property and/or the Improvements or
placed on any part thereof, though not attached thereto, including, but not
limited to, all screens, awnings, shades, blinds, curtains, draperies, carpets,
rugs, furniture and furnishings, heating, lighting, plumbing, ventilating, air
conditioning, refrigerating, incinerator and/or compacting and elevator plants,
stoves, ranges, vacuum cleaning systems, call systems, sprinkler systems and
other fire prevention and extinguishing apparatus and materials, motors,
machinery, pipes, appliances, equipment, fittings and fixtures, and the trade
name, good will and books and records relating to the business operated on the
Real Property and/or the Improvements. Without limiting the foregoing, the
Mortgagor hereby grants to the Mortgagee a security interest in all of its
present and future "equipment" and "general intangibles" (as said quoted terms
are defined in the Uniform Commercial Code of the State of New York) and the
Mortgagee shall have, in addition to all rights and remedies provided herein,
and in any other agreements, commitments and undertakings made by the Mortgagor
to the Mortgagee, all of the rights and remedies of a "secured party" under the
said Uniform Commercial Code. To the extent permitted under applicable law,
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<PAGE>
this Mortgage shall be deemed to be a "security agreement" (as defined in the
aforesaid Uniform Commercial Code). If the lien of this Mortgage is subject to
a security interest covering any such personal property, then all of the right,
title and interest of the Mortgagor in and to any and all such property is
hereby assigned to the Mortgagee, together with the benefits of all deposits and
payments now or hereafter made thereon by the Mortgagor; and
IV. All of the right, title and interest of the Mortgagor in and
to all leases, lettings and licenses of the Real Property, the Improvements
and/or any other property or rights encumbered or conveyed hereby, or any part
thereof, now or hereafter entered into and all right, title and interest of the
Mortgagor thereunder, including, without limitation, cash and securities
deposited thereunder, the right to receive and collect the rents, issues and
profits payable thereunder and the right to enforce, whether by action at law or
in equity or by other means, all provisions, covenants and agreements thereof;
and
V. All right, title and interest of the Mortgagor in and to all
unearned premiums, accrued, accruing or to accrue under insurance policies now
or hereafter obtained by the Mortgagor and all proceeds of the conversion,
voluntary or involuntary, of the Real Property, the Improvements and/or any
other property or rights encumbered or conveyed hereby, or any part thereof,
into cash or liquidated claims, including, without limitation, proceeds of
hazard and title insurance and all awards and compensation heretofore and
hereafter made to the present and all subsequent owners of the Real Property,
the Improvements and/or any other property or rights encumbered or conveyed
hereby by any governmental or other lawful authority for the taking by eminent
domain, condemnation or otherwise, of all or any part of the Real Property, the
Improvements and/or any other property or rights encumbered or conveyed hereby
or any easement therein, including, but not limited to, awards for any change of
grade of streets; and
VI. All right, title and interest of the Mortgagor in and to all
extensions, improvements, betterments, renewals, substitutions and replacements
of and all additions and appurtenances to the Real Property, the Improvements
and/or any other property or rights encumbered or conveyed hereby, hereafter
acquired by or released to the Mortgagor or constructed, assembled or placed by
the Mortgagor on the Real Property, the Improvements and/or any other property
or rights encumbered or conveyed hereby, and all conversions of the security
constituted thereby which, immediately upon such acquisition, release,
construction, assembling, placement or conversion as the case may be, and in
each such case without any further mortgage, conveyance, assignment or other act
by the Mortgagor, shall become subject to the lien of this Mortgage as fully and
completely, and with the same effect, as though now owned by the Mortgagor and
specifically described herein (the Real Property
-4-
<PAGE>
and the Improvements, together with the fixtures and other property, rights,
privileges and interests encumbered or conveyed hereby hereinafter,
collectively, the "Premises").
TO HAVE AND TO HOLD the Premises unto the Mortgagee and its successors
and assigns until the Indebtedness is paid in full.
AND the Mortgagor covenants and agrees with the Mortgagee as follows:
ARTICLE I
Representations and Warranties of the Mortgagor
-----------------------------------------------
The Mortgagor represents and warrants to the Mortgagee as
follows:
Section 1.01. Title to the Premises. (i) The right, title and
------------ ---------------------
interest of the Mortgagor constitutes good, marketable and insurable title to
the Premises, subject only to those exceptions to title in respect of the Real
Property and the Improvements set forth in the marked title insurance binder
redated as of the date hereof and insuring the interest of the Mortgagee in, to
and under this Mortgage (the "Title Binder"); (ii) the Mortgagor has full power
and lawful authority to encumber the Premises in the manner and form set forth
hereunder; (iii) the Mortgagor owns all fixtures and articles of personal
property now or hereafter comprising part of the Premises, subject to the rights
of space tenants in and to any such fixtures, personal property or
installations, including any substitutions or replacements thereof free and
clear of all liens and claims other than the matters set forth in this Section;
(iv) this Mortgage is and will remain a valid and enforceable first lien on the
Premises; and (v) the Mortgagor will preserve such title, and will forever
warrant and defend the validity and priority of the lien hereof against the
claims of all persons and parties whatsoever.
Section 1.02. Mortgage Authorized. The execution and delivery of
------------ -------------------
this Mortgage and the Guaranty Obligation have been duly authorized by the
directors of the Mortgagor and there is no provision in the certificate of
incorporation or by-laws of the Mortgagor, requiring further consent for such
action by any other entity or person. The Mortgagor is duly organized, validly
existing and is in good standing under the laws of the state of its formation,
and has (i) all necessary licenses, authorizations, registrations, permits
and/or approvals and (ii) full power and authority to own its properties and
carry on its business as presently conducted and the execution and delivery by
it of, and performance of its obligations under, this Mortgage and the Guaranty
Obligation will not result in the Mortgagor being in default under any provision
of its certificate of
-5-
<PAGE>
incorporation or by-laws or of any mortgage, lease, credit or other agreement to
which it is a party or which affects it or the Premises, or any part thereof.
Section 1.03. Flood Insurance Status. The Premises are not located
------------ ----------------------
in an area identified by the Secretary of Housing and Urban Development as an
area having special flood hazards pursuant to the terms of the National Flood
Insurance Act of 1968, or the Flood Disaster Protection Act of 1973, as same may
have been amended to date.
Section 1.04. Operation of the Premises. (i) The Mortgagor has all
------------ -------------------------
necessary certificates, licenses, authorizations, registrations, permits and/or
approvals necessary for the operation of the Premises or any part thereof, and
all required environmental permits, all of which as of the date of the signing
hereof are in full force and effect and not, to the knowledge of the Mortgagor,
subject to any revocation, amendment, release, suspension, forfeiture or the
like, (ii) the present use and/or occupancy of the Premises and/or Improvements
does not conflict with or violate any such certificate, license, authorization,
registration, permit and/or approval, or any applicable law, ordinance, statute,
rule, order, requirement or regulation and (iii) the Mortgagor has delivered to
the Mortgagee, prior to the signing hereof, duplicate originals or appropriately
certified copies of all such certificates, licenses, authorizations,
registrations, permits and/or approvals.
ARTICLE II
Covenants of the Mortgagor
--------------------------
Section 2.01. Payment of the Indebtedness. The Mortgagor will
------------ ---------------------------
punctually pay the Indebtedness in same day funds as provided herein, and the
Guaranty Obligation all in the coin and currency of the United States of America
which is legal tender for the payment of public and private debts.
Section 2.02. Maintenance of the Improvements. (i) The Mortgagor
------------ -------------------------------
shall maintain the Improvements in good repair, shall comply with the
requirements of any governmental authority claiming jurisdiction over the
Premises within the lesser of thirty (30) days after an order (an "Order")
containing such requirement has been issued by any such authority (unless such
requirement cannot be complied with within such thirty (30) day period, in which
event the Mortgagor shall have such longer period as necessary to cause
compliance provided, however, that the Mortgagor shall promptly commence and
diligently prosecute to completion such compliance and provided, further, that
such period shall not exceed the time required pursuant to the terms of such
Order) or the time required pursuant to the terms of such
-6-
<PAGE>
Order and shall permit the Mortgagee to enter upon the Improvements and inspect
the Improvements at all reasonable hours and without prior notice. The Mortgagor
shall not, without the prior written consent of the Mortgagee, threaten, commit,
permit or suffer to occur any waste, material alteration, demolition or removal
of the Improvements or any part thereof; provided, however, that fixtures and
-------- -------
articles of personal property owned by the Mortgagor may be removed from the
Improvements if the Mortgagor concurrently therewith replaces same with
equivalent items which do not reduce the value of the Premises or the
Improvements, free of any lien, charge or claim superior to the lien and/or
security interest created hereby.
(ii) Nothing in this Section 2.02 shall require the compliance by the
Mortgagor with any Order so long as (a) the failure so to do shall not be a
default or event of default under any mortgage or security agreement affecting
the Premises, any part thereof or interest therein, (b) the failure so to do
shall not result in the voiding, rescission or invalidation of the certificate
of occupancy or any other license, certificate, permit or registration in
respect of the Premises, (c) the failure so to do shall not prevent, hinder or
interfere with the lawful use and occupancy of the entirety of the Improvements
for their present use and occupancy, (d) the failure so to do shall not void or
invalidate any insurance maintained by the Mortgagor in respect of the Premises,
or result in an increase of any premium therefor or a decrease in any coverage
provided thereby, and (e) the Mortgagor in good faith and at its own expense
shall contest the Order or the validity thereof by appropriate legal
proceedings, which proceedings must operate to prevent (1) the occurrence of any
of the events described in the preceding clauses (a) through (d) of this
paragraph (ii) and (2) the collection or other realization on any sums due or
payable as a consequence of the Order, the sale of any lien arising in respect
of the Order, and/or the sale or forfeiture of the Premises, any part thereof or
interest therein, or the sale of any lien connected therewith; provided that
during such contest the Mortgagor shall, at the option of the Mortgagee, provide
security satisfactory to the Mortgagee assuring the discharge of the Mortgagor's
obligations hereunder and of any interest, charge, fine, penalty, fee or expense
arising from or incurred as a result of such contest; and provided further if at
any time compliance with any obligation imposed upon the Mortgagor by the Order
shall become necessary to prevent (1) the occurrence of any of the events
described in clauses (a) through (d) of this paragraph (ii) or (2) the delivery
of a deed conveying the Premises or any portion thereof or interest therein
because of noncompliance, or the sale of a lien in connection therewith, or (3)
the imposition of any penalty, fine, charge, fee, cost or expense on the
Mortgagee, then the Mortgagor shall comply with the Order in sufficient time to
prevent the occurrence of any such events, the delivery of such deed or the sale
of such lien, or the imposition of such penalty, fine, charge, fee, cost or
expense on the Mortgagee.
-7-
<PAGE>
Section 2.03. Insurance; Coverage. The Mortgagor shall keep the
------------ -------------------
Improvements insured against (i) damage by fire and the other hazards covered by
the standard extended coverage all risk insurance policy, and (ii) damage by
vandalism, malicious mischief, and such other hazards against which the
Mortgagee shall require insurance, and each policy of insurance required
pursuant to this Section 2.03 shall be endorsed to name the Mortgagee as a
mortgagee-loss payee thereunder, as its interest may appear, with loss payable
to the Mortgagee without contribution or assessment, under a New York Standard
Mortgagee Clause. All insurance policies and endorsements required pursuant to
this Section 2.03 shall be fully paid for, nonassessable and contain such
provisions (including, without limitation, inflation guard and replacement cost
endorsements) and expiration dates and shall be in such form and amounts and
issued by such insurance companies with a rating of "A" or better as established
by Best's Rating Guide, or an equivalent rating with such other publication of a
similar nature as shall be in current use, or such other companies, as shall be
approved by the Mortgagee. In addition to the insurance policies above
described, the Mortgagor shall keep and maintain in effect insurance policies in
respect of rental loss, Workmen's Compensation, employees' liability coverage,
comprehensive public liability insurance (including contractual coverage),
boiler and machinery, and such other insurance as the Mortgagee may require; all
in such form with such coverage, in such amounts and issued by such insurance
companies with a rating of "A" or better as established by Best's Rating Guide
or equivalent rating of such other publications of similar nature as shall be in
current use, as shall be approved by the Mortgagee. Without limiting the
foregoing, each policy of insurance required hereunder shall provide that such
policy may not be canceled, expire, or be terminated (whether due to nonpayment
of premiums, surrendered by the insured, or other reason) except upon thirty
(30) days' prior written notice to the Mortgagee and that no act or thing done
by the Mortgagor shall invalidate the policy as against the Mortgagee. In
addition, the Mortgagee may require the Mortgagor to carry such other insurance
on the Improvements in such amounts as may from time to time be reasonably
required by institutional lenders, against insurable casualties (including,
without limitation, risks of war and nuclear explosion) which at the time are
commonly insured against in the case of premises similarly situated, due regard
being given to the site and the type of the building, the type of construction,
the stage of construction, location, utilities and occupancy or any replacements
or substitutions therefor. The Mortgagor shall additionally keep the
Improvements insured against loss by flood if the Premises are located in an
area identified by the Secretary of Housing and Urban Development as an area
having special flood hazards and in which the Flood Insurance Act of 1968 and
the Flood Disaster Protection Act of 1973, as the same may have been or may
hereafter be amended or modified (and any successor acts thereto) in an amount
at least equal to the outstanding Indebtedness or the maximum limit of coverage
available with respect to the
-8-
<PAGE>
Improvements under said Act, whichever is less, and in a company or companies to
be approved by the Mortgagee. In all events and without a modification of or
limitation on the foregoing the Mortgagor will assign and deliver the policy or
policies (or true copies thereof) of all such insurance to the Mortgagee, which
policy or policies shall have endorsed thereon the New York Standard Mortgagee
Clause (provided, however, the Mortgagee shall have thirty (30) days' notice
from the insurer prior to the expiration, cancellation or termination (for any
reason whatsoever) of any policy) in the name of the Mortgagee, so and in such
manner and form that the Mortgagee and its successors and assigns shall at all
times have and hold said policy or policies as collateral and further security
for the payment of the Indebtedness until the full payment of the Indebtedness.
In addition, from time to time, upon the occurrence of any change in the use,
operation or value of the Premises or any part thereof, or in the availability
of insurance in the area in which the Premises are located, the Mortgagor shall
promptly notify the Mortgagee of such change and shall, within five (5) days
after demand by the Mortgagee, take out such additional amounts and/or such
other kinds of insurance as the Mortgagee may reasonably require. Otherwise,
the Mortgagor shall not take out or permit any separate or additional insurance
which is contributing in the event of loss unless it is endorsed in favor of the
Mortgagee in accordance with the requirements hereof and otherwise satisfactory
to the Mortgagee in all respects. Insurance required hereunder may be carried
by the Mortgagor pursuant to blanket policies, provided that all other
requirements herein set forth are satisfied and that the underlying policy in
respect of the Premises is assigned and delivered to the Mortgagee as herein
required. In the event that the Mortgagor fails to keep the Premises insured in
compliance with this Section 2.03, the Mortgagee may, but shall not be obligated
to, obtain insurance and pay the premiums therefor and the Mortgagor shall, on
demand, reimburse the Mortgagee for all sums, advances and expenses incurred in
connection therewith and such sums, advances and expenses shall bear interest at
the Default Rate (as defined in Section 2.13 of this Mortgage) until reimbursed.
The Mortgagor shall deliver copies of all original policies to the Mortgagee
together with the endorsements thereto required hereunder. The proceeds of
insurance paid on account of any damage or destruction to the Premises or any
part thereof shall be paid over to the Mortgagee to be applied as hereinafter
provided. Notwithstanding anything to the contrary contained herein or in any
provision of applicable law, the proceeds of insurance policies coming into the
possession of the Mortgagee shall not be deemed trust funds and the Mortgagee
shall be entitled to dispose of such proceeds as hereinafter provided in Section
2.04.
Section 2.04. Insurance; Proceeds. The Mortgagor shall give the
------------ -------------------
Mortgagee prompt notice of any loss covered by insurance and the Mortgagee shall
have the right to join the Mortgagor in adjusting any loss in excess of Ten
Thousand and No/100 ($10,000) Dollars. Notwithstanding the provisions of
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<PAGE>
Subdivision 4 of Section 254 of the Real Property Law of the State of New York,
the Mortgagee shall have the option, in its sole discretion, to apply any
insurance proceeds it may receive pursuant to Section 2.03, or otherwise, to the
payment of the Indebtedness or to allow all or a portion of such proceeds to be
used for the restoration of the Improvements, subject, however, to the
provisions of Section 2.06 hereof. In the event any such insurance proceeds
shall be used to reduce the Indebtedness, the same shall be applied by the
Mortgagee, after the deduction therefrom and repayment to the Mortgagee of any
and all costs incurred by the Mortgagee in the recovery thereof, in any manner
it shall designate, including but not limited to, the application of such
proceeds to then unpaid installments of the principal balance of the
Indebtedness in the inverse order of their maturity, such that the regular
payments, if any, under the Note and the Loan Agreement shall not be reduced or
altered in any manner. In the event that the Mortgagee elects to allow the use
of such proceeds for the restoration of the Improvements, then such use of the
proceeds shall be governed as hereinafter provided in Section 2.06.
Section 2.05. Restoration of the Improvements. In the event of
------------ -------------------------------
damage or destruction of the Improvements, or any part thereof, as a result of
casualty, condemnation, taking or other cause, the Mortgagor shall give prompt
written notice thereof to the Mortgagee and (except in the event of
impossibility of restoration or repair in the event of condemnation or other
taking), provided that the Mortgagee shall make available to the Mortgagor the
insurance proceeds (if any) (or in the event of condemnation or taking, the
award (if any) arising out of such condemnation or taking) recovered by the
Mortgagee as herein provided, the Mortgagor shall promptly commence and
diligently continue to perform the repair, restoration and rebuilding of that
portion of the Improvements so damaged or destroyed (hereinafter, the "Work") so
as to restore the Improvements in full compliance with all legal requirements
and so that the Improvements shall be at least equal in value and general
utility as they were prior to the damage or destruction, and if the Work to be
done is structural or if the cost of the Work, as estimated by the Mortgagee,
shall exceed Twenty Thousand and No/100 ($20,000) Dollars (hereinafter,
collectively, "Major Work"), the Mortgagor shall, prior to the commencement of
the Major Work, furnish to the Mortgagee for its approval: (i) complete plans
and specifications for the Major Work, with satisfactory evidence of the
approval thereof (a) by all governmental authorities whose approval is required,
(b) by all parties to or having an interest in the leases, if any, of any
portion of the Premises whose approval is required, and (c) by an architect
reasonably satisfactory to the Mortgagee (hereinafter, the "Architect") and
which shall be accompanied by the Architect's signed estimate, bearing the
Architect's seal, of the entire cost of completing the Major Work; and (ii)
certified or photostatic copies of all permits and approvals required by law
-10-
<PAGE>
in connection with the commencement of the Work and as and when obtainable, the
conduct of the Work.
The Mortgagor shall not commence any of the Major Work until the
Mortgagor shall have complied with the applicable requirements referred to in
this Section, and after commencing the Major Work the Mortgagor shall perform
the Major Work diligently and in good faith in accordance with the plans and
specifications referred to in this Section 2.05, if applicable.
Section 2.06. Restoration; Advances. In the event that the
------------ ---------------------
Mortgagee, in its sole discretion, elects to apply insurance proceeds to the
restoration of the Improvements, the insurance proceeds (or, in the case of
condemnation or taking, the award therefor in the event that the Mortgagee, in
its sole discretion, shall elect to apply such award to repair and restoration)
recovered by the Mortgagee on account of damage or destruction to the
Improvements (if any) less the cost, if any, to the Mortgagee of such recovery
and of paying out such proceeds (including reasonable attorneys' fees and costs
allocable to inspecting the Work and the plans and specifications therefor),
shall be applied by the Mortgagee to the payment of the cost of the Work and
shall be paid out from time to time to the Mortgagor and/or, at the Mortgagee's
option exercised from time to time, directly to the contractor, subcontractors,
materialmen, laborers, engineers, architects and other persons rendering
services or materials for the Work, as said Work progresses except as otherwise
hereinafter provided, but subject to the following conditions, any of which the
Mortgagee may waive:
(i) if the Work to be done is Major Work, as determined by the
Mortgagee, the Architect shall be in charge of the Work;
(ii) each request for payment shall be made on seven (7) days' prior
notice to the Mortgagee and shall be accompanied by (a) a certificate of the
chief financial officer of the Mortgagor, as applicable, specifying the party to
whom (and for the account of which) such payment is to be made and (b) a
certificate of the Architect if one be required under Section 2.05 above,
otherwise by a certificate of the chief financial officer of the Mortgagor, as
applicable, stating (a) that all of the Work completed has been done in
compliance with the approved plans and specifications, if any be required under
said Section 2.05, and in accordance with all provisions of law; (b) the sum
requested is justly required to reimburse the Mortgagor for payments by the
Mortgagor to, or is justly due to, the contractor, subcontractors, materialmen,
laborers, engineers, architects or other persons rendering services or materials
for the Work (giving a brief description of such services and materials), and
that when added to all sums, if any, previously paid out by the Mortgagee does
not exceed the value of the Work done to the date of such certificate, and (c)
that the amount of such proceeds remaining in the hands of the Mortgagee,
together
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<PAGE>
with any sums deposited with the Mortgagee pursuant to clause (vii) of this
Section 2.06, will be sufficient on completion of the Work to pay for the same
in full (giving in such reasonable detail as the Mortgagee may require an
estimate of the cost of such completion);
(iii) each request shall be accompanied by waivers of liens, or if
unavailable, lien bonds, satisfactory to the Mortgagee covering that part of the
Work previously paid for, if any, and by a search prepared by the title
insurance company insuring the lien of this Mortgage or by such other title
company or licensed abstractor satisfactory to the Mortgagee or by other
evidence satisfactory to the Mortgagee, that there has not been filed with
respect to the Premises any mechanic's lien or other lien or instrument for the
retention of title in respect of any part of the Work not discharged of record
and that there exist no encumbrances on or affecting the Premises (or any part
thereof) other than encumbrances, if any, existing as of the date hereof and
which have been approved by the Mortgagee;
(iv) no event shall have occurred and be continuing which with the
passage of time or the giving of notice, or both, would constitute an Event of
Default;
(v) the request for any payment after the Work has been completed
shall be accompanied by certified copies of all certificates, permits, licenses,
waivers and/or other documents required by law (or pursuant to any agreement
binding upon the Mortgagor or affecting the Premises or any part thereof) to
render occupancy of the Premises legal;
(vi) the Work can be completed not later than one (1) month prior to
the expiration of the term of the Loan Agreement; and
(vii) the Mortgagor, prior to the commencement of the Work, shall
have deposited with the Mortgagee an amount equal to the difference between the
cost of the Work, as estimated by the Architect, and the net insurance proceeds
(or condemnation award, as the case may be) after the deduction therefrom of the
cost, if any, to the Mortgagee of the recovery and paying out of such proceeds
(including reasonable attorneys' fees and costs allocable to inspecting the Work
and the plans and specifications therefor).
Upon completion of the Work and payment in full therefor, or upon
failure on the part of the Mortgagor promptly to commence or diligently to
continue the Work, or at any time upon request by the Mortgagor, the Mortgagee
may, at its option, apply the amount of any such proceeds then or thereafter in
the hands of the Mortgagee to the payment of the Indebtedness, provided,
--------
however, that nothing herein contained shall prevent the Mortgagee from applying
- -------
at any time the whole or any part of such proceeds to the curing of any Event of
Default.
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<PAGE>
In the event the Work to be done is not Major Work, as determined by
the Mortgagee, then the net insurance proceeds held by the Mortgagee for
application thereto shall be paid to the Mortgagor by the Mortgagee from time to
time upon submission to the Mortgagee of bills and/or invoices showing costs
incurred in connection with the Work, subject, however, to the foregoing
provisions of this Section 2.06, except those which are applicable only if the
Work to be done is Major Work, as determined by the Mortgagee.
Section 2.07. Restoration by the Mortgagee. Provided that the
------------ ----------------------------
Mortgagee shall make available to the Mortgagor the insurance proceeds (if any)
recovered by the Mortgagee as herein provided, if within one hundred twenty
(120) days after the occurrence of any damage or destruction to the Improvements
requiring Major Work in order to restore the Improvements, the Mortgagor shall
not have submitted to the Mortgagee and received the Mortgagee's approval of
plans and specifications for the repair, restoration and rebuilding of the
Improvements so damaged or destroyed (approved by the Architect and by all
governmental authorities and other persons or entities, if any, whose approval
is required), or if, after such plans and specifications are approved by all
such governmental authorities and other persons or entities, if any, and the
Mortgagee, the Mortgagor shall fail to commence promptly such repair,
restoration and rebuilding, or if thereafter the Mortgagor fails diligently to
continue such repair, restoration and rebuilding or is delinquent in the payment
to mechanics, materialmen or others of the costs incurred in connection with
such Major Work, or, in the case of any damage or destruction not requiring
Major Work, as determined by the Mortgagee, in order to restore the
Improvements, if the Mortgagor shall fail to repair, restore and rebuild
promptly the Improvements so damaged or destroyed, then, in addition to all
other rights herein set forth, and after giving the Mortgagor ten (10) days'
written notice of the nonfulfillment of one or more of the foregoing conditions,
the Mortgagee, or any lawfully appointed receiver of the Premises, may at their
respective options, perform or cause to be performed such repair, restoration
and rebuilding, and may take such other steps as they deem advisable to perform
such repair, restoration and rebuilding, and upon twenty-four (24) hours' prior
written notice to the Mortgagor, the Mortgagee may enter upon the Improvements
to the extent reasonably necessary or appropriate for any of the foregoing
purposes, and the Mortgagor hereby waives, for the Mortgagor and all others
holding under the Mortgagor, any claim against the Mortgagee and such receiver
arising out of anything done by the Mortgagee or such receiver pursuant hereto,
and the Mortgagee may, at its option, apply insurance proceeds (without the need
by the Mortgagee to fulfill any other requirements of this Mortgage) to
reimburse the Mortgagee, and/or such receiver for all amounts expended or
incurred by them, respectively, in connection with the performance of such
Work, and any excess costs shall be paid by the Mortgagor to the Mortgagee upon
demand, and such payment of excess costs shall be deemed part of
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<PAGE>
the Indebtedness and shall be secured by the lien of this Mortgage.
Section 2.08. Maintenance of Existence. The Mortgagor will, so long
------------ ------------------------
as it is owner of the Premises (or any part thereof or interest therein), do all
things necessary to preserve and keep in full force and effect its existence,
franchises, rights and privileges under the laws of the state of its formation
and, subject to the provisions of paragraph (ii) of Section 2.02, will comply
with all regulations, rules, ordinances, statutes, orders and decrees of any
governmental authority or court applicable to the Mortgagor, or to the Premises
or any part thereof.
Section 2.09. Taxes and Other Charges.
------------ -----------------------
(i) The Mortgagor shall pay and discharge by the last day payable
without penalty or premium all taxes of every kind and nature, water rates,
sewer rents and assessments, levies, permits, inspection and license fees and
all other charges imposed upon or assessed against the Premises or any part
thereof or upon the revenues, rents, issues, income and profits of the Premises
or arising in respect of the occupancy, use or possession thereof. The
Mortgagor shall exhibit to the Mortgagee within ten (10) days after request and
after the same are required to be paid pursuant to the foregoing sentence,
validated receipts or other evidence satisfactory to the Mortgagee showing the
payment of such taxes, assessments, water rates, sewer rents, levies, fees and
other charges which may be or become a lien on the Premises. Should the
Mortgagor default in the payment of any of the foregoing taxes, assessments,
water rates, sewer rents, levies, fees or other charges, the Mortgagee may, but
shall not be obligated to, pay the same or any part thereof and the Mortgagor
shall, on demand, reimburse the Mortgagee for all amounts so paid and such
amounts shall bear interest at the Default Rate until reimbursed.
(ii) Nothing in this Section 2.09 shall require the payment or
discharge of any obligation imposed upon the Mortgagor by subsection (i) of this
Section 2.09 so long as the Mortgagor shall in good faith and at its own expense
contest the same or the validity thereof by appropriate legal proceedings which
proceedings must operate to prevent the collection thereof or other realization
thereon, the sale of the lien thereof and the sale or forfeiture of the Premises
or any part thereof, to satisfy the same; provided that during such contest the
--------
Mortgagor shall, at the option of the Mortgagee, provide security satisfactory
to the Mortgagee, assuring the discharge of the Mortgagor's obligation hereunder
and of any additional interest charge, penalty or expense arising from or
incurred as a result of such contest; and provided, further, that if at any time
-------- -------
payment of any obligation imposed upon the Mortgagor by subsection (i) of this
Section 2.09 shall become necessary to prevent the delivery of a tax deed
conveying the Premises or any
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<PAGE>
portion thereof or the sale of the tax lien therefor because of non-payment, or
the imposition of any penalty or cost on the Mortgagee, then the Mortgagor shall
pay the same in sufficient time to prevent the delivery of such tax deed or the
sale of such lien, or the imposition of such penalty or cost on the Mortgagee.
(iii) The Mortgagor shall pay when due all (a) premiums for fire,
hazard and other insurance required to be maintained by the Mortgagor on the
Premises pursuant to the terms of Section 2.03 hereof, (b) title insurance
premiums relating to the insurance to be maintained on the Premises in
connection with the Mortgage, and (c) any and all other costs, expenses and
charges expressly required to be paid hereunder, and subject to the provisions
hereof, to be paid for the maintenance and/or protection of, or on account of,
any other collateral delivered, assigned, pledged, mortgaged, transferred or
hypothecated to the Mortgagee as security for the Indebtedness or in connection
with the execution and delivery of this Mortgage.
Section 2.10. Mechanics' and Other Liens.
------------ --------------------------
(i) The Mortgagor shall pay, bond or discharge of record, from time to
time, forthwith, all liens (and all claims and demands of mechanics,
materialmen, laborers or others, which, if unpaid, might result in or permit the
creation of a lien) on or affecting the Premises or any part thereof, or on or
affecting the revenues, rents, issues, income or profits arising therefrom and,
in general, the Mortgagor forthwith shall do, at the cost of the Mortgagor and
without expense to the Mortgagee, everything necessary to fully preserve the
lien of this Mortgage. In the event that the Mortgagor fails in a timely manner
to make payment in full of, bond or discharge, such liens the Mortgagee may, but
shall not be obligated to, make payment, bond or discharge such liens, and the
Mortgagor shall, on demand, reimburse the Mortgagee for all sums so expended and
such sums shall bear interest at the Default Rate until reimbursed.
(ii) Nothing in this Section 2.10 shall require the payment or
discharge of any obligation imposed upon the Mortgagor by subsection (i) of
this Section 2.10 so long as the Mortgagor shall bond or discharge any lien on
the Premises arising from such obligation or in good faith and at its own
expense contest the same or the validity thereof by appropriate legal
proceedings which proceedings must operate to prevent the collection thereof or
other realization thereon, the sale of the lien thereof and the sale or
forfeiture of the Premises or any part thereof, to satisfy the same; provided
--------
that during such contest the Mortgagor shall, at the option of the Mortgagee,
provide security satisfactory to the Mortgagee, assuring the discharge of the
Mortgagor's obligation hereunder and of any additional interest charge, penalty
or expense arising from or incurred as a result of such contest; and provided,
--------
further, that if at any time payment of any obligation imposed upon the
- -------
Mortgagor by subsection (i) of this Section 2.10 shall become
-15-
<PAGE>
necessary (a) to prevent the sale or forfeiture of the Premises or any portion
thereof because of non-payment, or (b) to protect the lien of this Mortgage,
then the Mortgagor shall pay the same in sufficient time to prevent the sale or
forfeiture of the Premises or to protect the lien of this Mortgage, as the case
may be.
Section 2.11. Condemnation Awards. The Mortgagor, immediately upon
------------ -------------------
obtaining knowledge of the institution of any proceedings for the condemnation
of the Premises or any portion thereof, will notify the Mortgagee of the
pendency of such proceedings. The Mortgagee may participate in any such
proceedings and the Mortgagor from time to time will deliver to the Mortgagee
all instruments requested by it to permit such participation. All awards and
compensation payable to the Mortgagor as a result of any condemnation or other
taking or purchase in lieu thereof, of the Premises or any part thereof, are
hereby assigned to and shall be paid to the Mortgagee. The Mortgagor hereby
authorizes the Mortgagee to collect and receive such awards and compensation, to
give proper receipts and acquittances therefor and, in the Mortgagee's sole
discretion, to apply the same toward the payment of the Indebtedness,
notwithstanding the fact that the Indebtedness may not then be due and payable,
or to the restoration of the Improvements. In the event that any portion of the
condemnation awards or compensation shall be used to reduce the Indebtedness,
same shall be applied by the Mortgagee in any manner it shall designate,
including, but not limited to, the application of such award or compensation to
then unpaid installments of the principal balance of the Indebtedness in the
inverse order of their maturity so that the regular payments under the Loan
Agreement and the Note shall not be reduced or altered in any manner. The
Mortgagor, upon request by the Mortgagee, shall make, execute and deliver any
and all instruments requested for the purpose of confirming the assignment of
the aforesaid awards and compensation to the Mortgagee free and clear of any
liens, charges or encumbrances of any kind or nature whatsoever. The Mortgagee
shall not be limited to the interest paid on the proceeds of any award or
compensation, but shall be entitled to the payment by the Mortgagor of interest
at the applicable rate provided for herein.
Notwithstanding the voiding of the original sale(s) or leasing(s) of
all or any portion of the Premises, the Mortgagor shall pay the Indebtedness at
the time and in the manner provided for its payment in the Guaranty Obligation
and in this Mortgage and the Indebtedness shall not be reduced until any payment
therefor shall have been actually received and applied by the Mortgagee to the
discharge of the Indebtedness. The Mortgagee may apply any such payment to the
discharge of the Indebtedness whether or not then due and payable in such
priority and proportions as the Mortgagee in its discretion shall deem to be
proper. If the Premises are sold, through foreclosure or otherwise, prior to
the receipt by the Mortgagee of such payment, the Mortgagee shall have the
right, whether or not a deficiency
-16-
<PAGE>
judgment on the Note shall have been sought, recovered or denied, to receive
said payment, or a portion thereof sufficient to pay the Indebtedness, whichever
is less. The Mortgagor, after obtaining the prior written consent of the
Mortgagee, shall file and prosecute its claim or claims for any such payment in
good faith and with due diligence and cause the same to be collected and paid
over to the Mortgagee, and hereby irrevocably authorizes and empowers the
Mortgagee, in the name of the Mortgagor or otherwise, to collect and receipt for
any such payment and to file and prosecute such claim or claims, and although it
is hereby expressly agreed that the same shall not be necessary in any event,
the Mortgagor shall, upon demand of the Mortgagee, make, execute and deliver any
and all assignments and other instruments sufficient for the purpose of
assigning any such payment to the Mortgagee, free and clear of any encumbrances
of any kind or nature whatsoever.
Section 2.12. Costs of Defending and Upholding the Lien. If any
------------ -----------------------------------------
action or proceeding is commenced to which action or proceeding the Mortgagee is
made a party or in which it becomes necessary to defend or uphold the lien of
this Mortgage, the Mortgagor shall, on demand, reimburse the Mortgagee for all
expenses (including, without limitation, reasonable attorneys' fees and
disbursements and reasonable appellate attorneys' fees and disbursements)
incurred by the Mortgagee in any such action or proceeding and such expenses
shall bear interest at the Default Rate until reimbursed. In any action or
proceeding to foreclose this Mortgage or to recover or collect the Indebtedness,
the provisions of law relating to the recovering of costs, disbursements and
allowances shall prevail unaffected by this covenant.
Section 2.13. Additional Advances and Disbursements. The Mortgagor
------------ -------------------------------------
shall pay by the last day payable without premium or penalty all payments and
charges on all liens, encumbrances, ground and other leases and security
interests which affect or may affect or attach or may attach to the Premises, or
any part thereof, and in default thereof, the Mortgagee shall have the right,
but shall not be obligated, to pay, without notice to the Mortgagor, such
payments and charges and the Mortgagor shall, on demand, reimburse the Mortgagee
for amounts so paid. In addition, upon default of the Mortgagor in the
performance of any other terms, covenants, conditions or obligations by it to be
performed hereunder or under any such lien, encumbrance, lease or security
interest, the Mortgagee shall have the right, but shall not be obligated, to
cure such default in the name and on behalf of the Mortgagor. All sums advanced
and reasonable expenses incurred at any time by the Mortgagee pursuant to this
Section 2.13 or as otherwise provided under the terms and provisions of this
Mortgage or under applicable law shall bear interest from the date that such sum
is advanced or expenses incurred, to and including the date of reimbursement,
computed at a fluctuating interest rate per annum at all times equal to the then
applicable rate of interest set
-17-
<PAGE>
forth in the Loan Agreement for overdue payments of principal and interest. Any
such amounts advanced or incurred by the Mortgagee, together with the interest
hereon, shall be payable on demand, shall, until paid, be secured by this
Mortgage as a lien on the Premises and shall be part of the Indebtedness.
Section 2.14. Costs of Enforcement. The Mortgagor agrees to bear and
------------ --------------------
pay all expenses (including, without limitation, reasonable attorneys' fees and
disbursements and reasonable appellate attorneys' fees and disbursements for
legal services of every kind) of or incidental to (i) any amendment, renewal,
modification, consolidation, supplement or restructuring of this Mortgage, the
Loan Agreement, the Guaranty Obligation or any document entered into in
connection with the Indebtedness, (ii) the enforcement of any provision hereof,
by litigation or otherwise, or the enforcement, compromise of settlement of this
Mortgage, the Loan Agreement, the Guaranty Obligation or the Indebtedness, and
for the curing thereof, or (iii) for defending or asserting the rights and
claims of the Mortgagee in respect thereof, by litigation or otherwise. All
rights and remedies of the Mortgagee shall be cumulative and may be exercised
singly or concurrently. Notwithstanding anything herein contained to the
contrary, the Mortgagor: (i) hereby waives trial by jury; and (ii) will not (a)
at any time insist upon, or plead, or in any manner whatever claim or take any
benefit or advantage of any stay or extension or moratorium law, any exemption
from execution or sale of the Premises or any part thereof, wherever enacted,
now or at any time hereafter in force, which may affect the covenants and terms
of performance of this Mortgage, nor (b) claim, take or insist upon any benefit
or advantage of any law now or hereafter in force providing for the valuation or
appraisal of the Premises, or any part thereof, prior to any sale or sales
thereof which may be made pursuant to any provision hereof, or pursuant to the
decree, judgment or order of any court of competent jurisdiction; nor (c) after
any such sale or sales, claim or exercise any right under any statute heretofore
or hereafter enacted to redeem the property so sold or any part thereof; (iii)
hereby expressly waives all benefit or advantage of any such law or laws; and
(iv) covenants not to hinder, delay or impede the execution of any power herein
granted or delegated to the Mortgagee, but to suffer and permit the execution of
every power as though no such law or laws had been made or enacted. The
Mortgagor, for itself and all who may claim under it, waives, to the extent that
it lawfully may, all right to have the Premises (or any part thereof) marshalled
upon any foreclosure hereof.
Section 2.15. Filing Charges, Recording Fees, Taxes, etc. The
------------ -------------------------------------------
Mortgagor shall pay any and all taxes, charges, filing, registration and
recording fees, excises and levies imposed upon the Mortgagee by reason of its
ownership of the Guaranty Obligation, this Mortgage, or any mortgage
supplemental hereto, any security instrument with respect to any interest of the
Mortgagor in and to any fixture or personal property at the
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<PAGE>
Premises or any instrument of further assurance, other than income, franchise,
succession, inheritance, business and similar taxes, and shall pay all other
taxes, if any, required to be paid on the debt evidenced by the Guaranty
Obligation and the Loan Agreement. In the event the Mortgagor fails to make
such payment within ten (10) days after written notice thereof to the Mortgagor,
then the Mortgagee shall have the right, but shall not be obligated, to pay the
amount due, and the Mortgagor shall, on demand, reimburse the Mortgagee for said
amount, together with interest thereon computed at the Default Rate.
Section 2.16. Restrictive Covenants and Leasing Requirements.
------------ ----------------------------------------------
Without the prior written consent of the Mortgagee, the Mortgagor shall not: (a)
execute or permit to exist any lease or occupancy of all or substantially all of
the Premises except for the actual use and occupancy of the tenant thereof; (b)
modify, renew or amend any lease or occupancy agreement affecting the Premises;
(c) grant rent concessions, or discount any rents, or collect any rents for a
period of more than one month in advance; (d) execute any conditional bill of
sale, chattel mortgage or other security instruments covering any furniture,
furnishings, fixtures and equipment, intended to be incorporated in the Premises
or the appurtenances thereto, or covering articles of personal property placed
in the Premises or purchase any of such furniture, furnishings, fixtures and
equipment so that ownership of the same will not vest unconditionally in the
Mortgagor, free from encumbrances on delivery to the Premises; (e) further
assign the leases and rents affecting the Premises; (f) sell, transfer,
alienate, grant, convey or assign any interest in the Premises or any part
thereof; (g) further mortgage, encumber, alienate, hypothecate, grant a security
interest in or grant any other interest whatsoever in the Premises or any part
thereof, or interest therein; (h) if the Premises are now or should at any time
in the future be subject to the terms of any rent control or rent stabilization
statute, ordinance, rule or regulation, fail to comply and/or cause the Premises
to comply with the terms and requirements of such statute, ordinance, rule or
regulation, so and in such fashion as to insure that the Premises shall be
subject to the terms and provisions, and receive the benefits, of said statute,
ordinance, rule or regulation.
Section 2.17. Trust Funds.
------------ -----------
(i) If the Premises or any portion thereof is situated in the State of
New York, then the Mortgagor, in compliance with Section 13 of the Lien Law of
the State of New York, will receive the advances secured by this Mortgage and
will hold the right to receive such advances as a trust fund to be applied first
to the purpose of paying the cost of improvement and will apply the same first
to the payment of the cost of improvement before using any part of the total of
the same for any other purpose. Without limiting the foregoing, if no portion
of the Premises is situated in the State of New York, then, to
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<PAGE>
the extent, if any, required by applicable law or to preserve the lien, the
priority of the lien and/or the rights of the Mortgagee hereunder, the
Mortgagor will receive the advances secured hereby, and will hold the right to
receive such advances, as a trust fund to be applied first for the purpose of
paying the cost of the improvement and will apply the same first to the payment
of the cost of the improvement before using any part of the total of such
advances for any other purpose. The covenants of subsection (i) of this Section
2.17 are made subject to, and in compliance with, any trust fund provisions
imposed by applicable law.
(ii) All lease securities of tenants of the Premises shall be treated
as trust funds not to be commingled with any other funds of the Mortgagor and
said lease securities shall be deposited in a segregated tenants' security
account to be maintained by the Mortgagor at the office of the Mortgagee
designated by the Mortgagee. Within ten (10) days after request by the
Mortgagee, the Mortgagor shall furnish to the Mortgagee satisfactory evidence of
compliance with this paragraph (ii) of this Section 2.17, together with a
statement of all lease securities deposited by the tenants and copies of all
leases not theretofore delivered to the Mortgagee, certified by the Mortgagor.
Section 2.18. Assignment of Rents. The Mortgagor hereby assigns to
------------ -------------------
the Mortgagee, as further security for the payment of the Indebtedness, its
interest in the rents, issues and profits of the Premises, together with its
interest in all leases and other documents evidencing such rents, issues and
profits now or hereafter in effect and its interest in any and all deposits held
as security under said leases, and shall, upon demand, deliver to the Mortgagee
an executed counterpart of each lease or other document to which it is a party
and which affects the Premises. Nothing contained in the foregoing sentence
shall be construed to bind the Mortgagee to the performance of any of the
covenants, conditions or provisions contained in any such lease or other
document or otherwise to impose any obligation on the Mortgagee (including,
without limitation, any liability under the covenant of quiet enjoyment
contained in any lease or in any law of the State of New York in the event that
any tenant shall have been joined as a party defendant in any action to
foreclose this Mortgage and shall have been barred and foreclosed thereby of all
right, title and interest and equity of redemption in the Premises), except that
the Mortgagee shall be accountable for any money actually received pursuant to
such assignment. The Mortgagor hereby further grants to the Mortgagee the right
(i) to enter upon and take possession of the Premises for the purpose of
collecting the said rents, issues and profits, (ii) to dispossess by the usual
summary proceedings (or any other proceedings of the Mortgagee's selection) any
tenant defaulting in the payment thereof to the Mortgagee, (iii) to let the
Premises, or any part thereof, and (iv) to apply said rents, issues and profits,
after payment of all necessary charges and expenses on account of said
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<PAGE>
Indebtedness. Such assignment and grant shall continue in effect until the
Indebtedness is paid, the execution of this Mortgage constituting and evidencing
the irrevocable consent of the Mortgagor to the entry upon and taking possession
of the Premises by the Mortgagee pursuant to such grant, whether foreclosure has
been instituted or not and without applying for a receiver. Until the occurrence
of an Event of Default, the Mortgagor shall have a revocable license to receive
said rents, issues and profits. The Mortgagor agrees to hold said rents, issues
and profits in trust and to use the same first, in payment of the cost of the
improvement, second, in payment of the Indebtedness to the extent the same is
then due and owing, and third, in such manner as the Mortgagee may elect. Such
license of the Mortgagor to collect and receive said rents, issues and profits
may be revoked by the Mortgagee upon the occurrence of an Event of Default by
giving not less than five (5) days' written notice of such revocation, served
personally upon or sent by registered mail to the record owner of the Premises.
The Mortgagor hereby appoints the Mortgagee as its attorney-in-fact, coupled
with an interest, to receive and collect all rent, additional rent and other
sums due under the terms of each lease to which the Mortgagor is a party and to
direct any such tenant, by written notice or otherwise, to forward such rent,
additional rent or other sums by mail or in person to the Mortgagee.
Section 2.19. Indemnity. The Mortgagor agrees that it shall
------------ ---------
indemnify, defend and hold harmless the Mortgagee from and against all loss,
liability, obligation, claim, damage, penalty, cause or action, cost and
expense, including without limitation any assessments, levies, impositions,
judgments, reasonable attorneys' fees and disbursements, cost of appeal bonds
and printing costs, imposed upon or incurred by or asserted against the
Mortgagee by reason of (a) ownership of this Mortgage; (b) any accident, injury
to or death of persons or loss of or damage to property occurring on or about
the Premises; (c) any use, non-use or condition of the Premises; (d) any failure
on the part of the Mortgagor to perform or comply with any of the terms of this
Mortgage; (e) performance of any labor or services or the furnishing of any
materials or other property in respect of the Premises or any part for
maintenance or otherwise; (f) the imposition of any mortgage, real estate or
governmental tax incurred as a result of this Mortgage, the Loan Agreement, or
the Guaranty Obligation, other than income tax payable by, or other taxes
personal to, the Mortgagee; or (g) any violation or alleged violation by the
Mortgagor of any law. Any amounts payable under this Section 2.19 shall be due
and payable on demand and until paid shall bear interest at the Default Rate.
If any action is brought against the Mortgagee by reason of any of the foregoing
occurrences, the Mortgagor will, upon the Mortgagee's request, defend and resist
such action, suit or proceeding, at the Mortgagor's sole cost and expense by
counsel approved by the Mortgagee.
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Section 2.20. Environmental Provisions. For the purposes of this
------------ ------------------------
Section 2.20 the following terms shall have the following meanings: (i) the
term "Hazardous Material" shall mean any material or substance that, whether by
its nature or use, is subject to regulation under any Environmental Requirement,
(ii) the term "Environmental Requirements" shall collectively mean the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. (S)9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C.
(S)1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. (S)6901
et seq.), the Toxic Substances Control Act (15 U.S.C. (S)2601 et seq.), the
Clean Air Act (42 (U.S.C. (S)7401 et seq.) and the Federal Water Pollution
Control Act (33 U.S.C. (S)1251 et seq.), all as presently in effect and as the
same may hereafter be amended, any regulation pursuant thereto, or any other
present or future law, ordinance, rule, regulation, order or directive
addressing environmental, health or safety issues of or by any Governmental
Authority, (iii) the term "Governmental Authority" shall mean the Federal
government, or any state or other political subdivision thereof, or any agency,
court or body of the Federal government, any state or other political
subdivision thereof, exercising executive, legislative, judicial, regulatory or
administrative functions, and (iv) the term "diligent inquiry" shall mean a
level of inquiry at least equal to any environmental site assessment of the
Premises conducted in accordance with the Mortgagee's environmental policies and
procedures. The Mortgagor hereby represents and warrants to the Mortgagee that
(a) no Hazardous Material is currently located at, on, in, under or about the
Premises, (b) no Hazardous Material is currently or, to the best of the
Mortgagor's knowledge after diligent inquiry, has been located at, in, on, under
or about the Mortgaged Property in a manner which violates any Environmental
Requirement, or which requires cleanup or corrective action of any kind under
any Environmental Requirement, (c) no releasing, emitting, discharging,
leaching, dumping or disposing of any Hazardous Material from the Premises onto
or into any other property or from any other property onto or into the Premises
is occurring or, to the best of the Mortgagor's knowledge after diligent
inquiry, has occurred, in violation of any Environmental Requirement, and (d) no
notice of violation, lien, complaint, suit, order or other notice with respect
to the environmental condition of the Premises is outstanding, nor, to the best
of the Mortgagor's knowledge after diligent inquiry, has any such notice been
issued which has not been fully satisfied and complied with in a timely fashion
so as to bring the Premises into full compliance with all Environmental
Requirements, and the Mortgagor will not generate, store, handle, process,
dispose of or otherwise use, and will not permit any tenant or other occupant of
the Premises to generate, sort, handle, process, dispose of or otherwise use,
Hazardous Materials at, in, on, under or about the Premises in a manner that
could lead or potentially lead to the imposition on the Mortgagor, the Mortgagee
or the Premises of any liability or lien of any nature whatsoever under any
Environmental Requirement. The Mortgagor shall notify the
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Mortgagee promptly in the event of any spill or other release of any Hazardous
Material at, in, on, under or about the Premises which is required to be
reported to a Governmental Authority under any Environmental Requirement, will
promptly forward to the Mortgagee copies of any notices received by the
Mortgagor relating to alleged violations of any Environmental Requirement and
will promptly pay when due any fine or assessment against the Mortgagee, the
Mortgagor or the Premises relating to any Environmental Requirement. If at any
time it is determined that the operation or use of the Premises violates any
applicable Environmental Requirement or that there are Hazardous Materials
located at, in, on, under or about the Premises which, under any Environmental
Requirement, require special handling in collection, storage, treatment or
disposal, or any other form of cleanup or corrective action, the Mortgagor
shall, within thirty (30) days after receipt of notice thereof from any
Governmental Authority or from the Mortgagee, take, at its sole cost and
expense, such actions as may be necessary to fully comply in all respects with
all Environmental Requirements, provided, however, that if such compliance
cannot reasonably be completed within such thirty (30) day period, the Mortgagor
shall commence such necessary action within such thirty (30) day period and
shall thereafter diligently and expeditiously proceed to complete in a timely
fashion with all Environmental Requirements. If the Mortgagor fails to timely
take, or to diligently and expeditiously proceed to complete in a timely
fashion, any such action, the Mortgagee may, in its sole and absolute
discretion, make advances or payments towards the performance or satisfaction of
the same, but shall in no event be under any obligation to do so. All sums so
advanced or paid by the Mortgagee (including, without limitation, counsel and
consultant fees and expenses, investigation and laboratory fees and expenses,
and fines or other penalty payments) and all sums advanced or paid in connection
with any judicial or administrative investigation or proceeding relating
thereto, will immediately, upon demand, become due and payable from the
Mortgagor and shall bear interest at the Default Rate from the date any such
sums are so advanced or paid by the Mortgagee until the date any such sums are
repaid by the Mortgagor to the Mortgagee. The Mortgagor will execute and
deliver, promptly upon request, such instruments as the Mortgagee may deem
useful or necessary to permit the Mortgagee to take any such action, and such
additional notes and mortgages, as the Mortgagee may require to secure all sums
so advanced or paid by the Mortgagee. If a lien is filed against the Premises
by any Governmental Authority resulting from the need to expend or the actual
expending of monies arising from an action or omission, whether intentional or
unintentional, of the Mortgagor or for which the Mortgagor is responsible,
resulting in the releasing, spilling, leaking, leaching, pumping, emitting,
pouring, emptying or dumping of any Hazardous Material into the waters or onto
land located within or without the state where the Premises are located, then
the Mortgagor will, within thirty (30) days from the date that the Mortgagor is
first given notice that such lien has been placed against the Premises (or
within such shorter
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period of time as may be specified by the Mortgagee if such Governmental
Authority has commenced steps to cause the Premises to be sold pursuant to such
lien) either (a) pay the claim and remove the lien, or (b) furnish a cash
deposit, bond, or such other security with respect thereto as is satisfactory in
all respects to the Mortgagee and is sufficient to effect a complete discharge
of such lien on the Premises. The Mortgagee may, at its option, at intervals of
not less than one year, or more frequently if the Mortgagee reasonably believes
that a Hazardous Material or other environmental condition violates or threatens
to violate any Environmental Requirement, cause an environmental audit of the
Premises or portions thereof to be conducted to confirm the Mortgagor's
compliance with the provisions of this Section, and the Mortgagor shall
cooperate in all reasonable ways with the Mortgagee in connection with any such
audit and shall pay all costs and expenses incurred in connection therewith.
The Mortgagor will defend, indemnify, and hold harmless the Mortgagee, its
employees, agents, officers, and directors, from and against any and all claims,
demands, penalties, causes of action, fines, liabilities, settlements, damages,
costs, or expenses of whatever kind or nature, known or unknown, foreseen or
unforeseen, contingent or otherwise (including, without limitation, counsel and
consultant fees and expenses, investigation and laboratory fees and expenses,
court costs, and litigation expenses) arising out of, or in any way related to,
(i) any breach by the Mortgagor of any of the provisions of this Section, (ii)
the presence, disposal, spillage, discharge, emission, leakage, release, or
threatened release of any Hazardous Material which is at, in, on, under, about,
from or affecting the Premises, including, without limitation, any damage or
injury resulting from any such Hazardous Material to or affecting the Premises
or the soil, water, air vegetation, buildings, personal property, persons or
animals located on the Premises or on any other property or otherwise, (iii) any
personal injury (including wrongful death) or property damage (real or personal)
arising out of or related to any such Hazardous Material, (iv) any lawsuit
brought or threatened, settlement reached, or order or directive of or by any
Governmental Authority relating to such Hazardous Material, or (v) any violation
of any Environmental Requirement or any policy or requirement of the Mortgagee
hereunder. This indemnification shall, notwithstanding any exculpatory or the
provision of any nature whatsoever to the contrary set forth in the Guaranty
Obligation, this Mortgage or any other document or instrument now or hereafter
executed and delivered in connection with the loan evidenced by the Loan
Agreement and the Guaranty Obligation and secured by this Mortgage, constitute
the personal recourse undertakings, obligations and liabilities of the
Mortgagor. If this Mortgage is foreclosed or the Mortgagor tenders a deed or
assignment in lieu of foreclosure, the Mortgagor shall deliver the Premises to
the purchaser at foreclosure or to the Mortgagee, its nominee, or wholly owned
subsidiary, as the case may be, in a condition that complies in all respects
with all Environmental Requirements. The obligations and liabilities of the
Mortgagor
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under this Section shall survive and continue in full force and effect and shall
not be terminated, discharged or released, in whole or in part, irrespective of
whether the Indebtedness has been paid in full and irrespective of any
foreclosure of this Mortgage or acceptance by the Mortgagee, its nominee or
wholly owned subsidiary of a deed or assignment in lieu of foreclosure and
irrespective of the discharge, satisfaction, release or assignment of this
Mortgage or of any other fact or circumstance of any nature whatsoever.
Section 2.21. Right of Entry. The Mortgagee and its agents shall
------------ --------------
have the right to enter and inspect the Premises at all reasonable times.
Section 2.22 Waiver of Statutory Rights. Notwithstanding anything
------------ --------------------------
herein contained to the contrary, the Mortgagor: (i) hereby irrevocably and
unconditionally waives any and all rights to trial by jury in any action, suit
or counterclaim arising in connection with, out of or otherwise relating to the
Loan Agreement, the Guaranty Obligation, this Mortgage or any other document or
instrument now or hereafter executed and delivered in connection therewith or
the loan secured by this Mortgage; and (ii) will not (a) at any time insist
upon, or plead, or in any manner whatever claim or take any benefit or advantage
of any stay or extension or moratorium law, any exemption from execution or sale
of the Premises or any part thereof, wherever enacted, now or at any time
hereafter in force, which may affect the covenants and terms of performance of
this Mortgage, nor (b) claim, take or insist upon any benefit or advantage of
any law now or hereafter in force providing for the valuation or appraisal of
the Premises, or any part thereof, prior to any sale or sales thereof which may
be made pursuant to any provision hereof, or pursuant to the decree, judgment or
order of any court of competent jurisdiction; nor (c) after any such sale or
sales, claim or exercise any right under any statute heretofore or hereafter
enacted to redeem the property so sold or any part thereof; (iii) hereby
expressly waives all benefit or advantage of any such law or laws; and (iv)
covenants not to hinder, delay or impede the execution of any power herein
granted or delegated to the Mortgagee, but to suffer and permit the execution of
every power as though no such law or laws had been made or enacted. The
Mortgagor, for itself and all who may claim under it, waives, to the extent that
it lawfully may, all right to have the Premises (or any part thereof) marshalled
upon any foreclosure hereof.
ARTICLE III
Default and Remedies
--------------------
Section 3.01. Events of Default. The following shall constitute
------------ -----------------
"Events of Default" under this Mortgage: (a)
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the occurrence of any Event of Default under the Loan Agreement or any of the
Other Loan Documents (as defined in Section 4.10 hereof); (b) default by the
Mortgagor in the payment of any amounts required to be paid hereunder; or (c)
default by the Mortgagor in the due observance or performance of any of the
terms, covenants or conditions contained herein; or (d) should any
representation or warranty made herein prove to be untrue in any material
respect at the time when made; or (e) the further assignment or encumbrance by
the Mortgagor of the leases or rents of the Premises or any part thereof without
in each instance the prior written consent of the Mortgagee; or (f) if the
Mortgagor leases all or part of the Premises without in each instance the prior
written consent of the Mortgagee; or (g) subject to the provisions of paragraph
(i) of Section 2.09 hereof permitting the Mortgagor to contest the same, the
failure by the Mortgagor to pay (or cause to be paid), before any fine, penalty,
interest or cost may be added thereto all franchise taxes and charges, and other
governmental charges, general and special, ordinary and extraordinary,
unforeseen as well as foreseen, of any kind and nature whatsoever, including,
but not limited to, assessments for public improvements or benefits which are
assessed, levied, confirmed, imposed or become a lien upon the Premises or any
part thereof or become payable during the term of the Note or this Mortgage; or
(h) the further mortgage, pledge or encumbrance by the Mortgagor of the Premises
or any part thereof or any interest therein without in each instance the prior
written consent of the Mortgagee; or if any mortgage, pledge or encumbrance
affecting the Premises or any part thereof or interest therein (whether prior or
subordinate to the lien of this Mortgage) shall be amended, modified,
refinanced, increased in amount, replaced or substituted for, provided, however,
-------- -------
that nothing herein contained shall be deemed to permit the Mortgagor to create,
grant or suffer to exist any such mortgage, pledge, or encumbrance; or (i) if a
default occurs under any mortgage which is prior or subordinate to the lien of
this Mortgage (beyond the applicable notice and grace period, if any) or the
mortgagee under any such prior or subordinate mortgage commences a foreclosure
or other enforcement action in connection with said mortgage; or (j) if the
Premises, or any part thereof or interest therein, is sold, transferred,
assigned, conveyed, granted or alienated without in each instance the prior
written consent of the Mortgagee; or (k) default by the Mortgagor in the payment
of any amounts required to be paid under the Guaranty Obligation or other
default by the Mortgagor in the observance or performance of any of the terms,
covenants, or conditions of the Guaranty Obligation.
Section 3.02. Remedies
------------ --------
(i) Upon the occurrence of any Event of Default, the Mortgagee may, in
addition to any rights or remedies available to it hereunder, take such action
as it deems advisable to protect and enforce its rights against the Mortgagor
and in and to the Premises, including, but not limited to, the following
actions, each of which may be pursued concurrently or otherwise,
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at such time and in such order as the Mortgagee may determine, in its sole
discretion, without impairing or otherwise affecting the other rights and
remedies of the Mortgagee: (1) declare the entire unpaid Indebtedness to be
immediately due and payable; or (2) enter into or upon the Premises, either
personally or by its agents, nominees or attorneys and dispossess the Mortgagor
and its agents and servants therefrom, and thereupon the Mortgagee may (a) use,
operate, manage, control, insure, maintain, repair, restore and otherwise deal
with all and every part of the Premises and conduct the business thereat; (b)
complete any construction on the Premises in such manner and form as the
Mortgagee deems advisable; (c) make alterations, additions, renewals,
replacements and improvements to or on the Improvements and the balance of the
Premises; (d) exercise all rights and powers of the Mortgagor with respect to
the Premises, whether in the name of the Mortgagor or otherwise, including,
without limitation, the right to make, cancel, enforce or modify leases, obtain
and evict tenants, and sue for, collect and receive all earnings, revenues,
rents, issues, profits and other income of the Premises and every part thereof;
and (e) apply the receipts from the Premises to the payment of the Indebtedness,
after deducting therefrom all expenses (including reasonable attorneys' fees and
disbursements) incurred in connection with the aforesaid operations and all
amounts necessary to pay the taxes, assessments, insurance and other charges in
connection with the Premises, as well as just and reasonable compensation for
the services of the Mortgagee, its counsel, agents and employees; or (3)
institute proceedings for the complete foreclosure of this Mortgage in which
case the Premises may be sold for cash or credit in one or more parcels; or (4)
with or without entry and, to the extent permitted, and pursuant to the
procedures provided by applicable law, institute proceedings for the partial
foreclosure of this Mortgage for the portion of the Indebtedness then due and
payable, subject to the lien of this Mortgage continuing unimpaired and without
loss of priority so as to secure the balance of the Indebtedness not then due;
or (5) institute an action, suit or proceeding in equity for the specific
performance of any covenants, condition or agreement contained herein or the
Guaranty Obligation; or (6) recover judgment on the Guaranty Obligation or any
guaranty either before, during or after or in lieu of any proceedings for the
enforcement of this Mortgage; or (7) apply for the appointment of a trustee,
receiver, liquidator or conservator of the Premises, without regard for the
adequacy of the security for the Indebtedness and without regard for the
solvency of the Mortgagor, any guarantor or of any person, firm or other entity
liable for the payment of the Indebtedness to which appointment the Mortgagor
does hereby consent; or (8) pursue such other remedies as the Mortgagee may have
under applicable law.
(ii) The purchase money proceeds or avails of any sale made under or
by virtue of this Article III, together with any other sums which then may be
held by the Mortgagee under
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this Mortgage, whether under the provisions of this Article III or otherwise,
shall be applied as follows:
First: To the payment of the costs and expenses of any such
-----
sale, or the costs and expenses of entering upon, taking
possession of, removal from, holding, operating and managing
the Premises or any part thereof, as the case may be, including
reasonable compensation to the Mortgagee, its agents and
counsel, and of any judicial proceedings wherein the same may
be made, and of all expenses, liabilities and advances made or
incurred by the Mortgagee under this Mortgage, together with
interest as provided herein on all advances made by the
Mortgagee and all taxes or assessments, except any taxes,
assessments or other charges subject to which the Premises
shall have been sold.
Second: To the payment of the whole amount then due, owing
------
or unpaid upon the Guaranty Obligation for principal and
interest with interest on the unpaid principal at the rate
herein specified from and after the happening of any Event of
Default from the due date of any such payment of principal
until the same is paid.
Third: To the payment of any other sums required to be paid
-----
pursuant to any provision of this Mortgage, or the Guaranty
Obligation.
Fourth: To the payment of the surplus, if any, to
------
whomsoever may be lawfully entitled to receive the same.
The Mortgagee and any receiver of the Premises or any part thereof shall be
liable to account for only those rents, issues and profits actually received by
it.
(iii) The Mortgagee may adjourn from time to time any sale by it to be
made under or by virtue of this Mortgage by announcement at the time and place
appointed for such sale or for such adjourned sale or sales; and except as
otherwise provided by any applicable provision of law, the Mortgagee, without
further notice or publication, may make such sale at the time and place to which
the same shall be so adjourned.
(iv) Upon the completion of any sale or sales made by the Mortgagee
under or by virtue of this Article III, the Mortgagee, or an officer of any
court empowered to do so, shall execute and deliver to the accepted purchaser or
purchasers a good and sufficient instrument, or good and sufficient instruments,
granting, conveying, assigning and transferring all
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estate, right, title and interest in and to the property and rights sold. The
Mortgagee is hereby irrevocably appointed the true and lawful attorney of the
Mortgagor (coupled with an interest), in its name and stead, to make all
necessary conveyances, assignments, transfers and deliveries of the Premises
and rights so sold and for that purpose the Mortgagee may execute all necessary
instruments of conveyance, assignment, transfer and delivery, and may substitute
one or more persons with like power, the Mortgagor hereby ratifying and
confirming all that said attorney or such substitute or substitutes shall
lawfully do by virtue hereof. Nevertheless, the Mortgagor, if so requested by
the Mortgagee, shall ratify and confirm any such sale or sales by executing and
delivering to the Mortgagee or to such purchaser or purchasers all such
instruments as may be advisable, in the judgment of the Mortgagee, for the
purpose, and as may be designated in such request. Any such sale or sales made
under or by virtue of this Article III, whether made under the power of sale
herein granted or under or by virtue of judicial proceedings or of a judgment or
decree of foreclosure and sale, shall operate to divest all the estate, right,
title, interest, claim and demand whatsoever, whether at law or in equity, of
the Mortgagor in and to the properties and rights so sold, and shall be a
perpetual bar both at law and in equity against the Mortgagor and against any
and all persons claiming or who may claim the same, or any part thereof from,
through or under the Mortgagor.
(v) In the event of any sale made under or by virtue of this Article
III (whether made by virtue of judicial proceedings or of a judgment or decree
of foreclosure and sale), the entire Indebtedness, if not previously due and
payable, immediately thereupon shall, anything in the Guaranty Obligation or in
this Mortgage to the contrary notwithstanding, become due and payable.
(vi) Upon any sale made under or by virtue of this Article III
(whether made by virtue of judicial proceedings or of a judgment or decree of
foreclosure and sale), the Mortgagee may bid for and acquire the Premises or any
part thereof or interest therein and in lieu of paying cash therefor may make
settlement for the purchase price by crediting upon the Indebtedness of the
Mortgagor secured by this Mortgage the net sales price after deducting therefrom
the expenses of the sale and the costs of the action and any other sums which
the Mortgagee is authorized to deduct under this Mortgage.
(vii) No recovery of any judgment by the Mortgagee and no levy of an
execution under any judgment upon the Premises or upon any other property of the
Mortgagor shall affect in any manner or to any extent, the lien of this Mortgage
upon the Premises or any part thereof, or any liens, rights, powers or remedies
of the Mortgagee hereunder, but such liens, rights, powers and remedies of the
Mortgagee shall continue unimpaired as before.
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Section 3.03. Payment of Indebtedness After Default. Upon the
------------ -------------------------------------
occurrence of any Event of Default and the acceleration of the maturity hereof,
if, at any time prior to foreclosure sale, the Mortgagor or any other person
tenders payment of the amount necessary to satisfy the Indebtedness, the same
shall constitute an evasion of the payment terms hereof and/or of the Guaranty
Obligation and shall be deemed to be a voluntary prepayment hereunder, in which
case such payment must include the premium and/or fee required under the
prepayment provision, if any, contained herein or in the Loan Agreement.
Section 3.04. Possession of the Premises. Upon the occurrence of any
------------ --------------------------
Event of Default hereunder, it is agreed that the Mortgagor, if it is the
occupant of the Premises or any part thereof, shall immediately surrender
possession of the Premises so occupied to the Mortgagee, and if the Mortgagor is
permitted to remain in possession, the possession shall be as a tenant of the
Mortgagee and, on demand, the Mortgagor shall pay to the Mortgagee monthly, in
advance, a reasonable rental for the space so occupied and in default thereof
the Mortgagor may be dispossessed by the usual summary proceedings. The
covenants herein contained may be enforced by a receiver of the Premises or any
part thereof. Nothing in this Section 3.04 shall be deemed to be a waiver of
the provisions of this Mortgage prohibiting the sale or other disposition of the
Premises without the Mortgagee's prior written consent.
Section 3.05. Interest After Default. If any payment due hereunder
------------ ----------------------
or under the Guaranty Obligation is not paid when due, whether on any stated due
date, any accelerated due date or any other date or at any other time specified
under any of the terms hereof or thereof, then, and in such event, the Mortgagor
shall pay interest on the entire outstanding and unpaid principal balance of
Indebtedness from and after the date on which such payment first becomes due at
the Default Rate and such interest shall be due and payable, on demand, at such
rate until such Event of Default shall have been cured or, if such Event of
Default shall not have been cured, until the entire amount due is paid to the
Mortgagee, whether or not any action shall have been taken or proceeding
commenced to recover the same or to foreclose this Mortgage. All unpaid and
accrued interest shall be secured by this Mortgage as a part of the
Indebtedness. Nothing in this Section 3.05 or in any other provision of this
Mortgage shall constitute an extension of the time of payment of the
Indebtedness.
Section 3.06. Mortgagor's Actions After Default. After the happening
------------ ---------------------------------
of any Event of Default and immediately upon the commencement of any action,
suit or other legal proceedings by the Mortgagee to obtain judgment for the
Indebtedness, or of any other nature in aid of the enforcement of the Loan
Agreement, Guaranty Obligation or of this Mortgage, the Mortgagor will (i) waive
the issuance and service of process and enter its voluntary appearance in such
action, suit or proceeding and (ii) if
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required by the Mortgagee, consent to the appointment of a receiver or receivers
of the Premises and of all the earnings, revenues, rents, issues, profits and
income thereof.
Section 3.07. Control by the Mortgagee After Default. Notwithstanding
------------ --------------------------------------
the appointment of any receiver, liquidator or trustee of the Mortgagor, or of
any of its property, or of the Premises or any part thereof, the Mortgagee shall
be entitled to retain possession and control of all property now and hereafter
covered by this Mortgage.
ARTICLE IV
Miscellaneous
-------------
Section 4.01. Credits Waived. The Mortgagor will not claim nor
------------ --------------
demand nor be entitled to any credit or credits against the Indebtedness for so
much of the taxes assessed against the Premises or any part thereof, as is equal
to the tax rate applied to the amount due on this Mortgage or any part thereof,
and no deductions shall otherwise be made or claimed from the taxable value of
the Premises or any part thereof by reason of this Mortgage or the Indebtedness
secured hereby.
Section 4.02. No Releases. The Mortgagor agrees, that in the event
------------ -----------
the Premises (or any part thereof or interest therein) are sold and the
Mortgagee enters into any agreement with then owner of the Premises extending
the time of payment of the Indebtedness, or otherwise modifying the terms
hereof, the Mortgagor shall continue to be liable to pay the Indebtedness
according to the tenor of any such agreement unless expressly released and
discharged in writing by the Mortgagee.
Section 4.03. Notice. Any notice, request, demand, statement,
------------ ------
authorization, approval or consent made hereunder shall be in writing and shall
be hand delivered or sent by Federal Express, or other reputable courier
service, or by postage pre-paid registered or certified mail, return receipt
requested, and shall be deemed given (i) when received at the following
addresses if courier service and (ii) three (3) business days after being
postmarked and addressed as follows if sent by registered or certified mail,
return receipt requested.
If to Mortgagor:
Celt Specialty Partners, Inc.
c/o Just Toys, Inc.
50 West 23rd Street
New York, New York
Attention: President
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<PAGE>
With a copy to:
Shack & Siegel, P.C.
530 Fifth Avenue
New York, New York 10036
Attention: Pamela E. Flaherty, Esq.
If to Mortgagee:
Milberg Factors, Inc.
99 Park Avenue
New York, New York 10016
Attention: President
With a copy to:
Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118
Attention: Steven J. Seif, Esq.
Each party may designate a change of address by notice to the other party, given
at least fifteen (15) days before such change of address is to become effective.
Section 4.04. Binding Obligations. The provisions and covenants of
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this Mortgage shall run with the land, shall be binding upon the Mortgagor and
shall inure to the benefit of the Mortgagee, subsequent holders of this
Mortgage, and the respective successors and assigns of the foregoing. For the
purpose of this Mortgage, the term "the Mortgagor" shall include and refer to
the Mortgagor named herein, any subsequent owners of the Premises (or any part
thereof or interest therein), and their respective heirs, executors, legal
representatives, successors and assigns. If there is more than one the
Mortgagor, all their undertakings hereunder shall be deemed joint and several.
Section 4.05. Legal Construction. The enforcement of this Mortgage
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shall be governed, construed and interpreted by the laws of the State of New
York. If the Premises, or any portion thereof, are situated in the State of New
York, then those clauses and covenants contained herein which are construed by
Section 254 of the Real Property Law of the State of New York shall be construed
as provided in that Section, except as otherwise provided in Section 2.04
hereof. The additional clauses and covenants contained herein shall afford
rights supplemental to and not exclusive of the rights conferred by the clauses
and covenants construed by such Section 254 and shall not impair, modify, alter
or defeat such rights notwithstanding that such additional clauses and covenants
may relate to the same subject matter or provide for different or additional
rights in the same or similar contingencies as the clauses and covenants
construed by such Section 254. Nothing in this Mortgage, the Loan Agreement,
the Guaranty Obligation or in any other agreement
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between the Mortgagor and the Mortgagee shall require the Mortgagor to pay, or
the Mortgagee to accept, interest in an amount which would subject the Mortgagee
to any penalty or forfeiture under applicable law. In the event that the
payment of any charges, fees or other sums due hereunder or under the Loan
Agreement and the Guaranty Obligation or any such other agreement which are or
could be held to be in the nature of interest and which would subject the
Mortgagee to any penalty or forfeiture under applicable law, then ipso facto the
---- -----
obligations of the Mortgagor to make such payment shall be reduced to the
highest rate authorized under applicable law. Should the Mortgagee receive any
payment which is or would be in excess of the highest rate authorized under law,
such payment shall have been, and shall be deemed to have been, made in error
and shall automatically be held by the Mortgagee as additional cash collateral
for the Indebtedness.
Section 4.06. Captions. The captions of the Sections of this
------------ --------
Mortgage are for the purpose of convenience only and are not intended to be a
part of this Mortgage and shall not be deemed to modify, explain, enlarge or
restrict any of the provisions hereof.
Section 4.07. Further Assurances. The Mortgagor shall do, execute,
------------ ------------------
acknowledge and deliver, at the sole cost and expense of the Mortgagor, all and
ever such further acts, deeds, conveyances, mortgages, assignments, estoppel
certificates, notices of assignment, transfers and assurances as the Mortgagee
may require from time to time in order to better assure, convey, grant, assign,
transfer and confirm unto the Mortgagee, the rights now or hereafter intended to
be granted to the Mortgagee under this Mortgage, any other instrument executed
in connection with this Mortgage or any other instrument under which the
Mortgagor may be or may hereafter become bound to convey, mortgage or assign to
the Mortgagee for carrying out the intention of facilitating the performance of
the terms of this Mortgage. The Mortgagor hereby appoints the Mortgagee its
attorney-in-fact to execute, acknowledge and deliver for and in the name of the
Mortgagor any and all of the instruments mentioned in this Section 4.07 and this
power, being coupled with an interest, shall be, irrevocable as long as any part
of the Indebtedness remains unpaid.
Section 4.08. Severability. Any provision of this Mortgage which is
------------ ------------
prohibited or unenforceable in any jurisdiction or prohibited or unenforceable
as to any person or entity shall, as to such jurisdiction, person or entity be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction or as to any other
person or entity.
Section 4.09. General Conditions.
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<PAGE>
(i) All covenants hereof shall be construed as affording to the
Mortgagee rights additional to and not exclusive of the rights conferred under
the provisions of any other applicable law.
(ii) This Mortgage cannot be altered, amended, modified or discharged
orally and no executory agreement shall be effective to modify or discharge it
in whole or in part, unless it is in writing and signed by the party against
whom enforcement of the modification, alteration, amendment or discharge is
sought.
(iii) No remedy herein conferred upon or reserved to the Mortgagee is
intended to be exclusive of any other remedy or remedies, and each and every
such remedy shall be cumulative, and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute.
No delay or omission of the Mortgagee in exercising any right or power accruing
upon any Event of Default shall impair any such right or power, or shall be
construed to be a waiver of any such Event of Default, or any acquiescence
therein. Acceptance of any payment (other than a monetary payment in cure of a
monetary default) after the occurrence of an Event of Default shall not be
deemed a waiver of or a cure of such Event of Default and every power and remedy
given by this Mortgage to the Mortgagee may be exercised from time to time as
often as may be deemed expedient by the Mortgagee. Nothing in this Mortgage or
in the Loan Agreement or the Note shall limit or diminish the obligation of the
Mortgagor to pay the Indebtedness in the manner and at the time and place
therein respectively expressed.
(iv) No waiver by the Mortgagee will be effective unless it is in
writing and then only to the extent specifically stated. Without limiting the
generality of the foregoing, any payment made by the Mortgagee for insurance
premiums, taxes, assessments, water rates, sewer rentals, levies, fees or any
other charges affecting the Premises, shall not constitute a waiver of the
Mortgagor's default in making such payments and shall not obligate the Mortgagee
to make any further payments.
(v) The Mortgagee shall have the right to appear in and defend any
action or proceeding, in the name and on behalf of the Mortgagor which the
Mortgagee, in its discretion, determines may adversely affect the Premises or
this Mortgage. The Mortgagee shall also have the right to institute any action
or proceeding which the Mortgagee, in its discretion, feels should be brought to
protect its interest in the Premises or its rights hereunder. All costs and
expenses incurred by the Mortgagee in connection with such actions or
proceedings, including, without limitation, reasonable attorneys' fees and
expenses and appellate attorneys' fees and expenses, shall be paid by the
Mortgagor on demand and shall be secured by this Mortgage.
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<PAGE>
(vi) In the event of the passage after the date of this Mortgage of
any law of any governmental authority having jurisdiction hereof or the
Premises, deducting from the value of land for the purpose of taxation,
affecting any lien thereon or changing in any way the laws for the taxation of
mortgages or debts secured by mortgages for federal, state or local purposes, or
the manner of the collection of any such taxes, so as to affect this Mortgage,
the Mortgagor shall promptly pay to the Mortgagee, on demand, all taxes, costs
and charges for which the Mortgagee is or may be liable as a result thereof;
provided that if said payment shall be prohibited by law, render the Note
usurious or subject the Mortgagee to any penalty or forfeiture, then and in such
event the Indebtedness shall, at the option of the Mortgagee, be immediately due
and payable.
(vii) The Mortgagor hereby appoints the Mortgagee as its attorney-in-
fact in connection with the personal property and fixtures covered by this
Mortgage, where permitted by law, to file on its behalf any financing statements
or other statements in connection therewith with the appropriate public office
signed by the Mortgagee, as secured party. This power, being coupled with an
interest, shall be irrevocable so long as any part of the Indebtedness remains
unpaid.
(viii) If the Mortgagee purchases the Premises pursuant to a
foreclosure under this Mortgage, or accepts a deed to the Premises in lieu of a
foreclosure, the Mortgagor hereby authorizes the Mortgagee to withhold the
amount of tax, if any, required to be withheld under Section 1445 of the
Internal Revenue Code of 1986, as amended (or any successor provision thereto),
out of any sums payable to the Mortgagor from such foreclosure sale or
assignment in lieu thereof, as the case may be, after payment of all parties
other than the Mortgagor who are entitled to be paid out of any foreclosure or
assignment proceeds, as if the Mortgagor were a foreign person, unless the
Mortgagor certifies its nonforeign status at the time of such foreclosure sale
or assignment, as the case may be, by executing and delivering to the Mortgagee
a certificate satisfactory to the Mortgagee.
(ix) The information set forth on the cover hereof is hereby
incorporated herein.
(x) The Mortgagor acknowledges that it has received a true copy of
this Mortgage provided without charge.
(xi) For purposes of this Mortgage, whenever the circumstances or the
context of this Mortgage so requires, the singular shall be construed as the
plural, the masculine shall be construed as the feminine and/or the neuter and
vice versa.
- ---- -----
(xii) The Mortgagee is hereby irrevocably authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all
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<PAGE>
deposits (general or special, time or demand, provisional or final) other than
tenant security accounts at any time held or other indebtedness at any time
owing by the Mortgagee to or for the credit or the account of the Mortgagor
against any and all of the obligations of the Mortgagor now or hereafter
existing under this Mortgage and/or the Guaranty Obligation. The Mortgagee
agrees promptly to notify the Mortgagor after any such set-off and application,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of the Mortgagee under this paragraph
are in addition to other rights and remedies (including, without limitation,
other rights of set-off) which the Mortgagee may have.
(xiii) The Mortgagor shall (i) execute and deliver to the appropriate
governmental authority any affidavit, instrument, document and/or filing
required pursuant to any applicable statute, ordinance, rule and/or regulation,
including without limitation, Article 31-B of the Tax Law of the State of New
York, as the same may be amended from time to time, and (ii) deliver to the
Mortgagee, within thirty (30) days after request by the Mortgagee, all
information the Mortgagee deems appropriate in order to comply with the
provisions of Article 31-B of the Tax Law of the State of New York.
(xiv) If at any time the Mortgagor believes that the Mortgagee has not
acted reasonably in granting or withholding any approval or consent under the
Loan Agreement, the Note, the Guaranty Obligation, this Mortgage or any other
document or instrument now or hereafter executed and delivered in connection
therewith or otherwise with respect to the loan secured hereby, as to which
approval or consent either the Mortgagee has expressly agreed to act reasonably,
or absent such agreement, a court of law having jurisdiction over the subject
matter would require the Mortgagee to act reasonably, then the Mortgagor's sole
remedy shall be to seek injunctive relief or specific performance and no action
for monetary damages or punitive damages shall in any event or under any
circumstances be maintained by the Mortgagor against the Mortgagee.
Section 4.10. Transaction Documents. Mortgagor acknowledges that
------------ ---------------------
this Mortgage is one of a number of other security documents (hereinafter
collectively the "Other Loan Documents") which secure the Indebtedness in whole
or in part. Mortgagor agrees that the lien of this Mortgage shall be absolute
and unconditional and shall not in any manner be affected or impaired by any
acts or omissions whatsoever of Mortgagee and, without limiting the generality
of the foregoing, the lien hereof shall not be impaired by any acceptance by
Mortgagee of any security for or guarantors upon any of the Indebtedness or by
any failure, neglect or omission on the part of Mortgagee to realize upon or
protect any of the Indebtedness or any collateral security therefor including
the Other Loan Documents. The lien hereof shall not in any manner be impaired
or affected by any release (except as to the property released), sale, pledge,
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<PAGE>
surrender, compromise, settlement, renewal, extension, indulgence, alteration,
changing, modification or any disposition of any of the Indebtedness or of any
of the collateral security therefor, including the Other Loan Documents or any
guarantee thereof. Mortgagee may, at its discretion, foreclose, exercise any
power of sale or exercise any other remedy available to it under any or all of
the Other Loan Documents without first exercising or enforcing any of its rights
and remedies hereunder, or may foreclose, exercise any power of sale, or
exercise any other right available under this Mortgage without first exercising
or enforcing any of its rights and remedies under any or all of the Other Loan
Document. Such exercise of Mortgagee's rights and remedies under any or all of
the Other Loan Documents shall not in any manner impair the Indebtedness or lien
of the Mortgage, and any exercise of the rights or remedies of Mortgagee
hereunder shall not impair the lien of any of the Other Loan Documents or any of
Mortgagee's rights and remedies thereunder. Mortgagor specifically consents and
agrees that Mortgagee may exercise its rights and remedies hereunder and under
the Other Loan Documents separately or concurrently and in any order that
Mortgagee may deem appropriate.
Section 4.11. Mortgage Does Not Cover Under Six Dwelling Units. This
------------ ------------------------------------------------
Mortgage does NOT cover real property improved or to be improved by one or more
structures containing in the aggregate not more than six (6) residential
dwelling units, each having their own separate cooking facility.
Section 4.12. Governing Law. The creation of this Mortgage, the
------------- --------------
perfection of the lien or security interest in the Premises, and the rights and
remedies of the Mortgagee with respect to the Premises, as provided herein and
by the laws of the State wherein the Real Property is located, shall be governed
by and construed in accordance with the internal laws of the state wherein the
Real Property is located without regard to principles of conflict of law.
Otherwise, to the extent permitted by applicable law, this Mortgage, the
Guaranty Obligation, and all other obligations of Mortgagor (including the
liability of Mortgagor for any deficiency following a foreclosure of all or any
part of the Premises) shall be governed by and construed in accordance with the
internal laws of the State of New York without regard to principles of conflicts
of laws.
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<PAGE>
IN WITNESS WHEREOF, this Mortgage has been duly executed by the
Mortgagor on the date first above written.
Mortgagor:
CELT SPECIALTY PARTNERS, INC.
By: /s/
-----------------------------
Name:
Title:
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