U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the fiscal year ended October 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from .............. to .................
Commission file number 0-18055
SEVEN FIELDS DEVELOPMENT COMPANY
(Name of small business issuer in its charter)
Pennsylvania 25-1561828
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 GARDEN DRIVE, SUITE 200, MARS, PA 16046-7846
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (412) 776-5070
Securities registered under Section 12(b) of the Exchange Act:
Title of each class
Name of each exchange on which registered
Securities registered under Section 12(g) of the Exchange Act:
Beneficial Interest, par value $1.00 per share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No.
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $10,288,781.
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The aggregate market value of the issuer's voting stock held by non-
affiliates as of January 24, 1997, is indeterminable. There is no known
market for the issuer's Beneficial Interests, and the terms of any private
sales of such Beneficial Interests which did occur are not known to the
issuer.
As of January 24, 1997, there were 3,484,560 shares of the issuer's
Beneficial Interests outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format (check one):
Yes ; No X
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PART I
Item 1. Description of Business
Background and Reorganization
Seven Fields Development Company (the "Company") is a Pennsylvania business
trust engaged in the business of managing multi-family residential rental
units and developing and selling real estate in the western Pennsylvania
area. The Company was organized in 1994 and is the surviving company in a
merger (the "Merger") effected on April 30, 1995 with Seven Fields
Development Corporation (the "Corporation").
The Merger was part of a comprehensive plan (the "Reorganization Plan") to
reorganize the Corporation from a Pennsylvania business corporation into a
Pennsylvania business trust (the "1995 Reorganization"). Pursuant to the
Reorganization Plan, the following actions were taken:
(1) The Corporation formed Seven Fields Development (PA), Inc.
("Seven Fields PA"), which made an offer (The "Exchange Offer") to
acquire all of the outstanding shares of common stock of the
Corporation ("Corporation Stock") and all outstanding general
unsecured subordinated debt of the Corporation ("Corporation Debt")
in exchange for shares of common stock of Seven Fields PA, on the
basis of one share of Seven Fields PA common stock for each unit
consisting of a combination of one share of Corporation Stock plus
$19 original principal amount of Corporation Debt.
(2) The Corporation formed Seven Fields (DEL), Inc. ("Seven Fields DEL")
as a wholly owned subsidiary of Seven Fields PA and formed the
Company as a Pennsylvania business trust.
(3) The Corporation formed Seven Fields Management, Inc. as a wholly-
owned subsidiary of Seven Fields PA to be the sole trustee of the
Company.
(4) The Corporation and the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which the Corporation
merged with and into the Company and each shareholder of the
Corporation received one share of beneficial interest in the Company
(a "Company Share") in exchange for each share of Corporation Stock
held of record.
(5) Each of the Company, Seven Fields PA, Seven Fields DEL and Seven
Fields Management adopted plans of liquidation.
In accordance with the Reorganization Plan, shareholders of the Corporation
were asked to approve the proposed Merger and to accept the Exchange Offer.
Holders of approximately 83% of the outstanding Corporation Stock and
Corporation Debt accepted the Exchange Offer and received shares of Seven
Fields PA Stock in exchange thereof. The Merger was approved by the
shareholders of the Corporation at the Corporation's annual meeting held on
March 31, 1995, and on April 30, 1995, the Exchange Offer and the Merger were
consummated. In the Merger, those holders of Corporation Stock and
Corporation Debt who did not accept the Exchange Offer, together with Seven
Fields PA as the holder of all Corporation Stock tendered in the Exchange
Offer, received Company Shares in exchange for their Corporation Stock.
Such persons also continue to hold their Corporation Debt which became an
obligation of the Company as a result of the Merger (hereinafter referred
to as "Company Debt").
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The purpose of the 1995 Reorganization was to consolidate the economic and
voting interests of those Corporation shareholders who accepted the Exchange
Offer into a single equity security, and to eliminate, on a consolidated
entity basis, the large shareholders' deficit which was created as a result
of the Corporation's reorganization under Chapter 11 of the Federal
Bankruptcy Code on November 7, 1987.
Seven Fields Development Corporation (November 7, 1987, through April 30,
1995)
The Corporation was the surviving corporation in the merger of four
predecessor corporations (the "Predecessors") pursuant to an Amended Plan
of Reorganization dated January 15, 1987 (the "Bankruptcy Plan"), which was
approved and confirmed by order of the United States Bankruptcy Court for
the Western District of Pennsylvania (the "Bankruptcy Court") entered
October 21, 1987 (the "Confirmation Date").
The Predecessors had marketed and sold investments in multi-family
residential housing developments in Western Pennsylvania. From 1976 to 1986,
the Predecessors received approximately $57,000,000 of investment funds from
over 2,600 investors (the "Investors"). Investors' investment balances,
including reinvestment of returns, exceeded $69,000,000 when the
Predecessors filed petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in 1986.
Pursuant to the Bankruptcy Plan, the stock and interests of the
Predecessor's shareholders were canceled and the approximately 2,600
Investors received shares of Corporation Stock with a par value equal to 5%
of their claims (approximately $3.5 million). The remaining 95% of the
Investors' claims (approximately $66.6 million) were deemed to be general
unsecured debt of the Corporation, subordinated to existing liens
and priorities and any future secured debt of the Corporation. Furthermore,
the Bankruptcy Plan prohibited the holders of the Corporation Debt from
filing any suit, taking any judgment or undertaking, continuing or
completing any collection activities. Payment on the Corporation Debt would
be determined and made from time to time by the Board of Directors of the
Corporation as and when funds were available.
The Bankruptcy Plan further provided that the Corporation, as may be
authorized by its Board of Directors, would periodically distribute
available funds, without interest, in pro rata repayment of the claims
of the Investors and that all activities of the Corporation would seek to
achieve the goal of full payment of all claims of the Investors (the holders
of Corporation Stock and Corporation Debt). The Company, as survivor to the
Merger, remains subject to the Bankruptcy Plan.
Operating Activities (November 7, 1987 through October 31, 1996)
Since it commenced business on November 7, 1987, the Company ("Company", as
used hereinafter refers to the entity existing since November 7, 1987), has
focused its attention primarily on the following activities:
1. Managing, leasing and selling its rental properties.
2. Developing an organizational structure and recruiting personnel to
manage the diverse business activities of the Company.
3. Providing extensive information to federal agencies for litigation
against certain former shareholders of the Predecessors and others.
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4. Negotiating with the Pennsylvania Department of Environmental
Resources ("DER") and other governmental agencies and with the Seven
Fields Borough to permit development of its Butler County, Pennsylvania
property known as Seven Fields.
5. Developing and implementing a master development plan for the
Seven Fields property.
6. Developing and selling its undeveloped property as individual
residential and commercial lots.
7. Constructing and selling homes.
The ultimate goal of the Company is to enhance the liquidation value of its
assets so as to return to the holders of Company Stock and Company Debt the
maximum amount at the earliest possible time. In all probability, total
repayment of the Company Debt will not be possible and no payment on the
Company Stock will occur because the Company Debt must be paid in full
before any distribution on Company Stock can be made. For this reason, in
the 1995 Reorganization the Company retained the Corporation's prior debt/
equity structure so as to maintain proportionality of all future
distributions. See Item 6. Management's Discussion and Analysis or Plan of
Operations Business Plan and Objectives.
In furtherance of its plan to liquidate, the Company is in the process of
developing the unimproved land at Seven Fields for the purpose of building
and selling residential and commercial units. In March 1991, the Company
completed a Master Plan for development of Seven Fields. Seven Fields
Borough agreed in concept with the Master Plan and on December 9, 1991
adopted a zoning ordinance which effectively implemented the Master Plan.
The Master Plan consists of 18 separately identifiable parcels, of which
seven are designated single family containing 260 acres, five are designated
multifamily containing 59 acres, five are designated commercial containing
86 acres and one is designated high density containing five acres. In
1992, the Company acquired forty adjacent acres located in Cranberry Township
that are designated for single family use.
In August 1990, the Company began construction of its first single family
home at Seven Fields under the trade name "Hawthorne Construction Company".
During fiscal 1995, the Company began construction of nine homes and 21
multi-family units, sold 13 homes and 21 multi-family units and at October
31, 1995 had an inventory of nine homes and 21 multi-family units. And in
fiscal 1996, the Company began construction of 18 additional homes and 23
multi-family units, sold 13 homes and 18 multi-family units and at October
31, 1996, had 14 houses and 26 multi-family units either completed or under
construction.
The Company's home construction activities have proceeded by subdivisions
and phases. In the Brandywine Woods Subdivision, the Company is constructing
single family homes having sales prices between $150,000 and $180,000. The
Colonial Heights Subdivision is divided into three phases with single
family homes ranging in price from $190,000 to $250,000. In the Company's
Brandywine Commons Subdivision, the Company is constructing fourplex units
which are being offered at prices ranging between $115,000 and $160,000.
During 1995, the Company commenced development of the Northridge Manor
Subdivision, a 45 lot single family home subdivision located on 17 acres
north of Rt. 228, and the Georgetowne Manor Subdivision, a 77 unit townhouse
subdivision located on 10 acres near the Company's existing townhouses.
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In 1996 development commenced in the Hawthorne Commons Subdivision of
96 fourplex units and in the Northridge Estates Subdivision of 56 single
family lots. Homes in the Northridge Manor Subdivision are being sold for
prices ranging from $175,000 to $210,000 and townhouse units in the
Georgetowne Manor Subdivision are being sold for $90,000 to $120,000. Homes
in the Hawthorne Commons and Northridge Estates are expected to range in
price between $140,000 and $170,000 and between $200,000 and $230,000
respectively. The Company is also offering its existing townhouses for sale
at prices ranging between $70,500 and $80,900. The Company is doing all of
the construction of the fourplexes and townhouses as well as 100% of the
construction in its Northridge Manor Subdivision, 75% of the construction
in the Brandywine Woods Subdivision and 20% of the construction in the
Colonial Heights Subdivision and 10% in the Northridge Estates Subdivision.
Approximately eight other builders are currently constructing homes at Seven
Fields.
During fiscal 1994, the Company completed construction of a community
swimming pool and bath house which was donated to the Borough of Seven Fields
(the "Borough"). The Company also has developed and donated to Seven Fields
Borough a playground and community center. In 1996 the Company completed
development of baseball and soccer fields and sold them to the borough. The
cost of the town park, the swimming pool and other assets which are
developed for the entire project and donated to the Borough, are treated as
costs of the entire development and a proportionate part of each such cost
is included in the cost of each lot sold.
In fiscal 1995, the Company completed construction of a two-story office
building at Seven Fields (the "Office Building"), began development of areas
north of Rt. 228 for the first time, and developed and sold its first
commercial lot. The Office Building, which consists of 9,434 usable square
feet plus a garage-basement, is used as the Company's offices and maintenance
facility. The Company leases one floor of the Office Building to the Borough
as its municipal offices. The Company has granted the Borough an option
to purchase the Office Building at fair market value at the end of its five
year lease. The Company, so as to facilitate its plans to develop its
property north of Rt. 228, is expending significant amounts to make utility
service available to such property. This cost is being allocated to the
subdivisions north of Rt. 228.
During fiscal 1996, improvements to the Mars-Crider Road, an important
access road in Cranberry Township and Seven Fields Borough to the Company's
subdivisions north of Route 228, were begun at a projected cost of $700,000.
In addition, the Company has commenced negotiations with several interested,
prospective buyers for five separate parcels of its commercial property and
is in discussions with the Pennsylvania Department of Transportation
("PennDot") regarding possible required upgrades to Route 228 so as to
facilitate planned development of the Company's commercial property north
of Route 228. Any cost associated with any required upgrading of Route 228,
will be allocated to the commercial properties north of Route 228.
The Company, under the name "Castle Creek Water Company", provides and
charges the residents of Seven Fields Borough and parts of Cranberry and
Adams Townships for water services under authority granted it by the
Pennsylvania Public Utilities Commission ("PUC") on November 29, 1991.
The area in which Seven Fields is located has seen increasing residential and
commercial development in the past few years due to its proximity to
Pittsburgh, which is enhanced by Interstate 279 which directly connects the
area to downtown Pittsburgh.
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During fiscal 1995, demand for the Company's single family homes declined in
response to the general imbalance of supply and demand of single family homes
in the northern suburbs of Pittsburgh. In fiscal 1996 demand improved
significantly, however, sales were slowed as a result of the severe winter and
wet spring weather in 1996. Demand remained strong for the Company's
townhouses and the Brandywine Commons fourplex units. A general decline in
interest rates has been beneficial to the Company in its development, however
competition also continues to intensify. The Company's stature was enhanced
by winning the 1995 "Top Community" award presented jointly by the Pittsburgh
Builder's Association and the Realtor's Association of Metropolitan Pittsburgh.
The real estate development business has substantial inherent risks, any of
which might have a serious effect on the Company's future development plans.
Most notably, these risks include possible new governmental regulations, or
revised interpretation or application of existing regulations. Changes in
the economy which might tend to reduce the demand for the Company's developed
lots and houses are possible. Increased competition could occur from other
developers or builders. Presently there are numerous other developments
which are under construction and will provide substantial competition to the
Company. A substantial increase in home mortgage interest rates historically
has caused an almost immediate decline in demand for new housing, which could
have a dramatic negative impact on the Company's plans.
The Company's prime property was carved from Cranberry Township, which has
continued to be one of the higher growth areas and better real estate markets
in Pennsylvania. The Company, via rental rate increases and the imposition
of water charges, has been able to raise rental rates at its Seven Fields
property. Future economic stagnation, if it affects the southern Butler
County area, could inhibit the Company's ability to sell its lots and houses
in a timely manner. However, the Company believes it is well positioned to
respond accordingly because of the phased nature of its development activities.
At this time, the business of the Company is not seasonal in nature, nor is
it dependent upon any patents or trademarks. However, the ability of the
Company to carry on the development of its most important property, Seven
Fields, depends upon its success in procuring the necessary governmental
approvals, licenses and permits and in generating internally, or obtaining
from outside sources, sufficient capital to facilitate this development
activity. The Company presently employs 34 full-time and 5 part-time
employees.
Sources of materials required by the Company for its development and
construction activities are ample. The Company purchases its materials
from suppliers which sell primarily to the home construction industry
in western Pennsylvania, and the Company is not dependent on any one
supplier for its materials. The cost of materials in the home construction
industry has historically fluctuated significantly on a national basis
as a result of changes in supply and demand for particular materials.
The Company incurs significant cost so as to comply with various
environmental laws. Such costs are considered a normal cost of operations
and have not historically caused the Company's selling prices for lots and
houses to be uncompetitive.
The Company has again indefinitely deferred construction of its planned
garden apartments and except for approximately $500,000 to be spent in fiscal
1997 for general development purposes, its plans do not include any material
capital expenditures except those planned costs related to the creation of
lots and buildings to be sold in the near term. The estimated costs to
be incurred during the period fiscal 1997-2001 for the development of
residential and commercial lots and construction of residential and
commercial building units is summarized on page 9.
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The following schedules summarize the Company's capitalized development costs
and its development plans for the five years ending October 31, 2001.
Capitalized Development And Construction
Land Development October 31, 1996
<TABLE>
<CAPTION>
Net Unsold Capitalized
Acres Lots Units Costs
<S> <C> <C> <C> <C>
Single Family
Colonial Heights Phases I, II and III 82 158 9 $ 188,156
Brandywine Woods 34 75 8 157,600
Northridge Manor 17 45 38 709,665
Northridge Estates 31 56 46 1,228,115
Multi Family
Brandywine Commons 9 44 2 32,947
Georgetowne Manor 10 77 69 785,994
Hawthorne Commons 24 96 96 1,302,336
Commercial
Phase P 18 6 5 394,705
Phase Q 5 3 1 202,935
Future Phases
(Single, Multi Family & Commercial) 245 N/A N/A 2,150,075
Total Development 475 N/A N/A $ 7,152,528
Other
Moon Township and Capitalized
Townhouse Costs 40 N/A N/A $ 658,894
House Construction
Houses Completed
(Including One Model Home) 5 $ 663,705
Houses Under Construction-
Single Family 9 756,704
Fourplex and Townhouse
Units Completed 4 368,545
Fourplex and Townhouse
Units Under Construction 22 666,196
Additional Housing Starts
(Nominal Costs Incurred) 297,393
Garden Apartment Development Costs 125,699
Total House Construction 2,878,242
Less Valuation Reserve (36,039)
Net Capitalized House
Construction Costs $ 2,842,203
Commercial Office and Multifamily
Construction and Water
Authority Assets
Office 1,263,208
Water Authority 352,240
1,615,448
Total Capitalized Development
and Construction Costs $12,269,073
</TABLE>
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Estimated Additional Costs
To be Incurred Fiscal 1997-2001 (000's)
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
<S> <C> <C> <C> <C> <C>
Total Development
Costs $ 852 $ 2,052 $ 640 $ 336 $ 1,400
Building Costs 5,564 7,948 6,876 5,352 4,552
Total Development
and Building
Costs $ 6,416 $ 10,000 $ 7,516 $ 5,688 $ 5,952
<CAPTION>
Financial Information Relating to Industry Segments
and Classes of Products
Year Ended October 31, (000's)
1996 1995
<S> <C> <C>
Sales to Unaffiliated Customers
Rental and General Operations $ 801 $ 1,080
Land Development, House Construction and
PUC Regulated Services 9,488 9,205
Total Sales $ 10,289 $ 10,285
Operating Income
Rental and General Operations $ (253) $ (224)
Land Development, House Construction and
PUC Regulated Services 1,984 1,510
Total Operating Income $ 1,731 $ 1,286
Identifiable Assets
Rental and General Operations $ 7,861 $ 8,704
Land Development, House Construction and PUC
Regulated Services (Including Land Held
for Future Development) 11,569 10,332
Total Identifiable Assets $ 19,430 $ 19,036
<FN>
See Item 7. Financial Statements.
</TABLE>
Item 2. Description of Property
The Company's principal asset is a real estate development known as Seven
Fields, located mainly in the Borough of Seven Fields and partially in
Adams and Cranberry Townships, Butler County, Pennsylvania. The development
consists of 540.2 acres including required open space, of which 24.5 acres
are in Adams Township, and 40 are in Cranberry Township.
When the Company commenced business in 1987, Seven Fields consisted of a
townhouse development on approximately 27 acres and approximately 513 acres
of mostly undeveloped land. The townhouse complex originally had a total of
237 rental units owned by the Company, 39 units owned by individual
homeowners, a swimming pool, tennis courts, playground and sewage disposal
plant.
In 1989, the Company began offering its townhouse units for sale and as of
October 31, 1996, had sold a total of 146 units. The Company estimates it
will take at least two years to sell the remaining units.
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Rent for the units owned by the Company averages approximately $700 per month,
excluding gas, electric, and water charges. The occupancy rate of the
available rental units exceeds 95%. The Company has been withholding vacant
units from rental so as to facilitate their sale. See Note 3 to Financial
Statements.
The Company's remaining property located in the Borough, Cranberry Township
and Adams Township consists of approximately 20 separate, partially developed
and undeveloped residential and commercial parcels. The areas south of
Rt. 228 have been subdivided and improved with roads, sidewalks and
underground utility lines and are substantially developed. The areas north
of Rt. 228 are currently being improved and substantial development there
will continue in 1997. See Item 1. Description of Business and Note 12 to
the Financial Statements.
The property in Adams Township includes a horse stable and a house trailer
which the Company currently leases to a third party for $1,650 per month.
Subsequent to October 31, 1996, the Company entered into an agreement to sell
this property consisting of 15 acres for $495,000.
The Company constructed a 9,434 square foot office building in 1995, part of
which is used for its operations and the remainder is leased to Seven
Fields Borough.
The Company also owns approximately 40 acres of unimproved commercial and
residential property located in Moon Township, Allegheny County, Pennsylvania
(the "Moon Township Property"). In connection with the settlement of certain
litigation in November 1995, the Company acquired clear title to the 50%
interest in this property which it did not previously hold. See Item 3.
Legal Proceedings.
The Company also holds certain mortgage notes receivable. See Item 6.
Management's Discussion and Analysis or Plan of Operation Financial
Condition and Note 4 to Financial Statements.
The mortgages and other outstanding liens on the Company's Seven Fields
property are discussed in Item 6. Management's Discussion and Analysis or
Plan of Operation Financial Condition.
In management's opinion, the Company's properties are adequately covered
by insurance.
Item 3. Legal Proceedings
The Company is not a party to any currently pending legal proceedings. On
November 15, 1995, the Company settled all outstanding litigation with Thomas
and Barbara Reilly (The "Reillys"), East Pointe Construction Company, TWBJT
Realty Enterprises, Inc. and certain members of the Reilly family.
The significant terms of such settlement are as follows:
1. All outstanding litigation, including a shareholders derivative action
against the Board of Directors and management of the Corporation was
discontinued and withdrawn.
2. The Moon Township Property was transferred to the Company free and clear
of all claims of the Reilly's, their family and related corporations. Prior
to this settlement, the Company had been granted a 50% interest in the Moon
Township Property as a result of a settlement reached in 1988 with Edward
Krall, a former shareholder of the Predecessors.
3. The Company paid $175,000 to the Reillys out of certain escrowed
proceeds of the Company's sale, at auction in 1988, of 69 Arabian horses.
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4. The parties agreed to submit to the United States District Court for the
Western District of Pennsylvania (the "Court") the question of ownership of
45 acres of land adjacent to Seven Fields in Adams Township, Butler County,
Pennsylvania, including the Reilly residence. In November 1996, the Court
determined that the Reilly's should retain ownership of this property. No
amounts had been reflected in the Company's balance sheets for this claim.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to security holders for a vote during the
fourth quarter of the Company's fiscal year ended October 31, 1996.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information. There is no established public trading market
for the Company Shares and the Company is not aware of the terms of any
transactions in Company Shares.
(b) Holders. As of October 31, 1996, there were 753 holders of Company
Shares, which is the only outstanding class of equity of the Company.
(c) Dividends. No cash dividends on the Company Shares were declared by
the Company during its last two fiscal years and there can be no
assurance that any cash dividends will ever be declared.
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Item 6. Management's Discussion and Analysis or Plan of Operation
The following discussion is an analysis of the Company's financial condition
and results of operations for the fiscal years ended October 31, 1996 and
1995. This discussion should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere herein. All
references herein to a fiscal year refer to the Company's fiscal year ended
on October 31 of such year.
Business Plan and Objectives
The Company's primary business objective is to repay, to the fullest extent
possible as soon as possible, the claims of the Investors. Based upon the
combined total of appraised market values of the Company's properties, the
Company does not believe it will be able to repay the entire amount of the
Company Debt. Nevertheless, as required by the Bankruptcy Plan, the Company
plans to pursue this objective by continuing to develop and sell its existing
properties. See Item 1. Description of Business. The Company has no present
plans to acquire and develop any other properties except minor acquisitions
which might enhance the development of existing properties.
The Company, since the bankruptcy reorganization, has expended substantial
effort and resources in resolving many of the hurdles necessary to carry out
its plans. A master plan for development of its existing properties has been
prepared, zoning approval for the plan has been obtained, municipal sewerage
service has become available, and all known necessary governmental
requirements can be met in order to facilitate the continued timely and
economic development of its property. See Item 1. Description of Business.
Financial Condition
The Company's liabilities exceed its assets because of the $66.6 million of
Company Debt which was not discharged by the Bankruptcy Plan. Upon
commencement of its operations in 1987, the Company had $6.4 million of
additional liabilities, $5.3 million of which was indebtedness secured by
mortgages on the Company's real estate holdings and $694,000 of which were
administrative costs incurred in the Bankruptcy Court proceedings. The
Company's assets upon commencement of operations totaled $18.1 million, and
its opening shareholders' deficit was $54.8 million. As of October 31, 1996,
such deficit had decreased to $43.1 million, principally because of profits
generated from operations and the Company's recognition of a $4.1 million
deferred tax asset in fiscal 1994 as a result of the Company's adoption of
FAS 109.
The Company, in 1987, recorded its principal assets land, buildings,
equipment and furnishings at their appraised value as determined by
appraisals performed in 1986 in connection with the Bankruptcy Court
proceedings.
Because of the many unresolved questions regarding the operation of the
Predecessors and the resulting legal complexities involved in the
reorganization of the Predecessors into the Company pursuant to the
Bankruptcy Plan, the Company has calculated its income (loss) for purposes
of preparing its post-bankruptcy reorganization federal and state tax returns
by adjusting the basis of its assets for tax purposes to an amount estimated
to approximate the Investors' original investment, including reinvestments,
less deductions for depreciation allowed or allowable.
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The Company also filed lawsuits, against the shareholders of and companies
affiliated with the Predecessors to recover certain assets. To the extent
that the Company has been successful in recovering any of such assets, the
shareholders' deficit has decreased by the amount of any such recovery. On
November 15, 1995, the Company settled all existing litigation. See Item 3.
Legal Proceedings.
As part of such settlement, the Company received clear title to a 50%
interest in the Moon Township Property. The Company preliminarily believes
that the value of the entire property may not be greater than the amount
currently included as a Company asset for its 50% interest. The Company has
not recorded an additional amount for this second 50% interest pending
determination of the property's value. In December 1995, the Company also
settled a dispute with another Investor who had transferred some of his
investment to the Reillys. As a result of these settlements and settlement
of an outstanding proof of claim, the Company recorded a net increase to its
shareholders' deficit at reorganization in the amount of $68,555 during 1995.
The Company's financial condition improved during fiscal 1995 and 1996 as a
result of the generation of net income of $1,327,000, and $1,705,000
respectively.
The Company's investment in residential and commercial development phases
from which lots are currently being sold and phases from which lots can be
sold in the first half of 1997 increased by $2,087,000 during fiscal 1996 to
$5,020,000 at October 31, 1996. The Company's inventory of completed, unsold
lots increased from 177 to 274 in fiscal 1996. During fiscal 1996 the
Company completed construction in its 45 lot Northridge Manor Subdivision,
has begun construction of townhouses in the 77 lot Georgetowne Manor
Subdivision, begun construction in the 96 unit Hawthorne Commons Subdivision,
and the 56 lot Northridge Estates Subdivision. The Office Building was
completed in fiscal 1995 at a cost of $1,263,000, and is partially occupied
by the Company for its offices and maintenance facilities with the remainder
leased to the Borough. During 1995 the Company completed preliminary site
preparation on 18 and five acre commercial phases and sold one lot from the
five acre phase for $240,000. Since October 31, 1995, the status of the
Company's remaining commercial parcels from which it intends to sell lots
during 1997 is 1)one additional .8 acre lot from the five acre parcel was
sold for $123,900, 2)the Company has entered into an agreement to sell a 3.5
acre lot for $370,000 from its 5 acre parcel, 3) an option has been granted
for the sale of the 18 acre parcel at $87,500 per usable acre if closed
before September 30, 1997 and at higher prices if closed later than
September 30, 1997. On October 31, 1996, the optionee closed on the first
2.91 acres for a total price of $254,800. 4) The 15 acre site of the barn
and horse arena is under agreement of sale for $495,000, 5) and the adjacent
7 acre parcel is under agreement of sale for a price of $450,000. The
Company does not plan to invest significant additional amounts in these
phases, except to meet specific requirements of buyers. However, when the
Company develops the town center commercial area, it intends to lease the
land and buildings developed and constructed, and will spend significant
resources in developing this property, however, this project is not expected
to begin until 1998.
During fiscal 1995, the Company commenced development activities north of
Route 228, which required extending utilities to this area, and creating a
second intersection on Route 228. These activities cost in excess of
$500,000 during 1995. During 1996, the Company spent $300,000 of the total
estimated $700,000 needed to upgrade Mars-Crider Road. These activities
were needed to facilitate the developmentof the Company's property north of
13
<PAGE>
Route 228 and its commercial properties at the new intersection with Route
228. The Company may also be required to upgrade Rt. 228 in order to develop
its commercial property north of Rt. 228. Such improvements are expected to
cost in excess of $1 million. In November 1995, the Company secured a
$750,000 loan from PNC Bank, N.A. secured by a mortgage on its Office
Building and also negotiated a $1,000,000 line of credit from National City
Bank to be used in its home building activities. In 1996, the Company
secured additional lines of credit of $1,000,000 and $750,000 with First
Western Bank Corp, the proceeds of which will be used for the construction
of homes in the Company's Hawthorne Commons and Georgetown Manor Subdivisions.
The Company had $2,732,000 invested in completed and partially completed
residential units at October 31, 1996 compared to $1,961,000 at October 31,
1995. Such investment increased during fiscal 1996 since the Company had
40 completed and partially completed units at October 31, 1996 as compared
with 30 at October 31, 1995. At fiscal year end 1996, 15 units were actually
complete compared to six in 1995 and the construction on the remaining 25
was more advanced than in the prior year.
During fiscal 1994, the Company began providing financing for the townhouses
it was selling, by holding the mortgages under assignment. This activity
was undertaken so as to facilitate financing until the FNMA requirement of
50% owner occupancy was met. During fiscal 1995, the Company significantly
reduced its investment in these mortgages, and at October 31, 1995 had
$186,000 invested in three mortgage assignments, and at October 31, 1996 had
$62,000 invested in one mortgage. The need for the Company to invest in
these mortgages in the future should be minimal since the FNMA 50% owner
occupancy for the entire project requirement was met at October 31, 1996.
All new performance and maintenance bonding requirements were met through
the Company's commercial bonding line. At October 31, 1996, the Company had
bonds outstanding of approximately $2,400,000.
The Company's cash position declined by $806,358 during fiscal 1996 primarily
as a result of an increase of $2,752,000 in its net investment in lots and
houses, $1,996,000 repaid on its outstanding Company Debt, offset by cash
from net income of $1,705,000, and recovery of basis on the sale of
townhouse units of $857,000.
On December 12, 1996, subsequent to the balance sheet date the Company
repaid an additional $997,932 on its outstanding Company Debt. It is the
Company's plan to make annual distributions in partial repayment of the
Company Debt.
Results of Operations Fiscal 1996 and 1995
The Company's income before taxes for fiscal 1996 was $1,705,000, an
increase of $330,000 from fiscal 1995's net income before taxes of
$1,375,000. Operating income for fiscal 1996 increased from fiscal 1995
by $445,000 or 34%.
The improvement in operating income was the result of a $212,000 increase
in gross profit on the sale of houses and lots, primarily because of slightly
higher volumes, a decrease in general and administrative costs of $375,000
primarily as a result of higher 1995 legal costs associated with
pre-reorganization legal matters and the 1995 Reorganization, and a decline
14
<PAGE>
in rental revenues of $258,000 as a result of the sale of townhouses,
leaving fewer available for rent, and a decrease in operating costs because
of fewer townhouses rented, and more costs capitalized to development
activities.
Interest income declined from $163,000 to $53,000 as a result of the Company
having lower excess cash available to invest during 1996 than 1995.
During fiscal 1996, the Company generated gross revenues of $10,289,000, an
amount almost identical to 1995. Gross revenues from sales of houses and
developed lots increased by $306,000 in fiscal 1996 over 1995, townhouse
sales decreased by $33,000 and rental revenues declined by $258,000 in fiscal
1996.
The Company's cost of lots and houses sold, expressed as a percentage of
sales, decreased slightly from 84.8% in fiscal 1995 to 82.2% in fiscal 1996.
The cost of townhouses sold in fiscal 1996 expressed as a percentage of sales
increased slightly from 49.3% in 1995 to 50.1% in fiscal 1996. The average
sales price of townhouses sold in fiscal 1996 was $74,200 compared to $71,500
in fiscal 1995, however, the Company also expended funds to improve the
townhouses so as to facilitate their sale.
The Company's activity levels for house construction, lot sales, and
townhouse sales during fiscal 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1996
<S> <C> <C>
Lot Sales - Commercial 1 2
Lot Sales - Single & Multi-Family 45 55
Townhouse Sales - New Construction 8
Single Family House Sales 13 13
Fourplex House Sales 21 10
Townhouse Sales -
Original Construction 43 41
</TABLE>
The two commercial lots sold in fiscal 1996 generated $378,700 in gross
revenues compared to the one sold in fiscal 1995 for $240,000; the 55 single
and multifamily lots sold in fiscal 1996 generated gross revenues of
$1,774,000, or an average of $32,200, compared to gross revenues of
$1,388,000 for 45 lots sold in fiscal 1995 or an average of $30,800. The
change in average lot price is a result of a change in the mix of lots sold
in 1996; 18 of the lower priced Brandywine Commons fourplex lots and
Georgetowne Manor Townhouses were sold compared to 21 in 1995. Brandywine
Commons lots are priced at approximately $22,000 and Georgetowne Manor lots
are priced at $18,000 compared to single family lots which are priced in the
$35,000 to $40,000 range, so the average lot price can vary significantly
based on the mix between single family and multi family lots sold. During
fiscal 1996 gross profit increased by $122,000 from the sale of single family
and multi family lots and by $66,000 from the sale of commercial lots.
The Company's revenue from the sale of single family houses was $2.1 million
in fiscal 1996 compared to $1.8 million in fiscal 1995. This increase is a
15
<PAGE>
result of the change in the mix of houses sold, since 13 single family
houses were sold in 1996 and 1995, but the average price of the houses was
$23,000 higher than in 1995. In fiscal 1996, 3 of the 13 houses sold were
from the lower priced Brandywine Woods Subdivision compared to 11 of the 13
sold in fiscal 1995. The Company generated revenues of $1.3 million from
the sale of 10 fourplex units during fiscal 1996 compared to $2.6 million
in 1995 from the sale of 21 fourplex units. The gross profit generated from
the sale of fourplex units declined from $351,000 in fiscal 1995 to
$162,000 in fiscal 1996. During 1996, the Company also generated gross
revenue of $743,000 and gross profits of $58,000 from the sale of 8 newly
constructed townhouse units from its 77 unit Georgetowne Manor Subdivision.
Liquidity and Capital Resources
The Company has pursued the development of its property in phases. It has
used cash generated from the sale of its properties to reduce pre-
reorganization debt, to develop its property and to fund the litigation
efforts to recover assets from former shareholders of the Predecessors.
Future development and building activities will require significantly larger
amounts of capital. While the Company believes, as it has stated in its
prior filings with the Securities and Exchange Commission, that these
development activities can be financed internally, through the sale of lots
and dwelling units, the Company has come to realize that it will not be able
to optimize the development of its assets and therefore maximize the total
amount of distributions to Investors, unless it is able to more readily
obtain financing for its development activities. The Company believes that
internally financed development would proceed at a much slower pace than the
Company now believes is necessary to achieve its primary goals of liquidating
its holdings as quickly as possible and maximizing the total amount of
distributions to Investors. The Company has found that it can optimize the
value which it receives for its assets by simultaneously developing multiple
parcels, which enables the Company to offer a variety of housing products
priced at different levels. However, in order to simultaneously develop
multiple parcels, the Company requires more cash than it is able to generate
internally.
The Company's primary objective is to repay to the fullest extent possible,
and at the earliest possible time, the Company Debt. To this end it
distributed $2.0 million of the net proceeds from the sale of its Virginia
Manor property in January, 1993, made additional distributions of $1.3
million in December 1993, $2.0 million in December 1994, and $2.0 million
in December 1995, $1.0 million in December 1996 and intends to make
additional future distributions in repayment of the Company Debt which will
further deplete the Company's capital resources. Because the Company has
the dual objective of maximizing the cumulative return to its Investors,
which is best accomplished through expanded development and construction
activities, and to repay the Company Debt as soon as possible, which
management believes is best accomplished by annual distributions, it is
important that the Company procure external sources of capital to
facilitate accomplishing both of these objectives. Management also believes
that since a market for the Company Stock and Company Debt has not developed,
it is important to provide the Investors with some return of their investment.
Until 1994, the Company was unable to obtain capital via commercial lending
channels because of outstanding litigation and its capital structure. At the
end of fiscal 1994, the Company obtained a five year, $1.7 million mortgage
loan to replace an existing mortgage loan. The Company also has established
a bonding line in the amount of $2.0 million collateralized by a first
mortgage on 30 of its rental townhouses. During 1996, the Company also
borrowed an additional $750,000 secured by a mortgage on its Office Building
and negotiated a $1,000,000 line of credit to be used for the construction of
houses in its Northridge Manor Subdivision, a $1 million line of credit to
be used for the construction of fourplexes in its Hawthorne Commons
16
<PAGE>
Subdivision and on November 25, 1996 the Company obtained a $750,000 line
of credit to be used for the construction of townhouses in its Georgetowne
Manor Subdivision.
The Company will continue to incur significant development costs related to
development activities north of Rt 228. These development costs, which
exceeded $500,000 in fiscal 1996, are also expected to exceed $500,000 in
1997, and are not related to any specific phase of development but the entire
undeveloped area north of Rt. 228. Therefore, the payback on these
expenditures is longer term than expenditures for the development of
specific phases. In addition, the Company may be required to improve
Rt. 228 before developing its commercial properties north of Rt. 228. The
cost of these improvements are expected to exceed $1 million. During fiscal
1997, the Company expects to generate significant cash flows from the sale of
lots and houses in its Brandywine Woods, Colonial Heights, Brandywine Commons,
Northridge Manor, Georgetowne Manor, Hawthorne Commons and Northridge
Estates Subdivisions and from the sale of commercial lots. See Item 1.
Description of Business and Note 12 to the Financial Statements. However, it
also expects to have significant cash outflows related to site development
both north and south of Rt. 228. In addition, the Company expects to
continue to generate significant cash flows from the sale of its townhouse
units.
During fiscal 1995, cash flows from operating activities were reduced to
$990,000 primarily as a result of the Company having increased its investment
in its inventory of completed and under construction lots and houses by
$1,281,000. Nearly $500,000 of this increase related to general development
north of Rt. 228. This net investment offsets the cash generated by the
Company's reduction in the townhouse mortgages in which it had invested
during fiscal 1994. The Company incurred a net cash outflow of $190,000
from investing activities which was the result of its $1.1 million investment
in the construction of its Office Building and additional site work, sewer
tap in fees, and architectural services related to its planned garden
apartments. As a result of the sale of 43 of its townhouses, the Company
also recovered $972,000 of the remaining cost basis of these townhouses.
Cash flows from financing activities resulted in a net cash outflow of
$2,081,000 because of the repayment in December 1994 of $2,027,000 of
Company Debt and a $54,000 repayment on its mortgage. In fiscal 1996 cash
flows from operating activities were reduced as a result of the Company
increasing its investment in its inventory of completed and under
construction lots and houses by $2,752,000. Of this increase approximately
$500,000 related to the Company's project to improve Mars-Crider Road,
utilities necessary to facilitate the development of the property north of
Route 228 and construction of the intersection necessary to cross Route 228.
In November 1995, the Company received proceeds from a $750,000 loan secured
by a mortgage on its Office Building. These proceeds were intended to
replenish the Company's cash which had been significantly reduced as a result
of its investment in the Office Building. These loan proceeds also helped to
facilitate the Company's $1,996,000 partial repayment of Company Debt on
December 15, 1995. Subsequent to the date of the balance sheet on December
12, 1996, the Company distributed $997,932 in partial repayment of its debt
to the Investors.
Recent Accounting Developments
The Company adopted FAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities" on November 1, 1994. The effect of adopting this new
standard had no impact on the Company's financial condition or results of
operations.
The Company will be required to adopt FAS No 121 "Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of."
FAS No 121 establishes standards for determining when an asset impairment
17
<PAGE>
should be recognized based primarily on an undiscounted cash flow model. The
Company has deferred adoption of this new standard, which must be adopted not
later than November 1, 1996, pending review of its impact. Initially the
Company does not believe that there will be a material impact when this
standard is adopted.
Item 7. Financial Statements
The financial statements of the Company are set forth following Item 13 of
this Form 10-KSB.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Director's, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
The Company, as a Pennsylvania business trust, is managed by its sole trustee,
Seven Fields Management, a wholly owned subsidiary of Seven Fields PA.
Pursuant to the Company's Deed of Trust and Bylaws, the number of trustees
of the Company has been set at one. The term of office of Seven Fields
Management as trustee is one year and expires at the next annual meeting of
the Company's shareholders.
Certain information about the Directors of Seven Fields Management, the sole
trustee of the Company, is set forth below. Each of the Directors serves for
a three year term expiring in the year indicated, and are elected by Seven
Fields PA, the sole shareholder of Seven Fields Management. Each such person
is also a director of Seven Fields PA and Seven Fields DEL and except for
directors first elected subsequent to April 30, 1995, each was a director of
the Corporation prior to the Merger.
<TABLE>
<CAPTION>
Name Age Director Director of the Term
Since Corporation Expires
Since
<S> <C> <C> <C> <C>
Guy E. Bubb 75 1995 1988 1998
Michael Burkhart 53 1996 N/A 1999
Samuel A. Goldberg 72 1995 1988 1999
William J. Janusey 73 1995 1989 1998
Alexander Lindsay, Jr. 50 1995 1990 1997
Paul Voytik 72 1995 1988 1997
George K. Wright 70 1995 1988 1997
</TABLE>
<TABLE>
<S> <C> <C>> <C>
Darell L. Craig 46 Chief Operating Employed Since
Officer 1991
Roman Polnyj 46 Chief Financial Employed Since
Officer 1992
</TABLE>
18
<PAGE>
Guy E. Bubb was employed by Allegheny Ludlum Steel Corporation, Pittsburgh,
Pennsylvania, a manufacturer of specialty steel, for 31 years until January
1985 when he retired. For the 10 years prior to his retirement, he held the
position of Director of Personnel with responsibility for 6,000 employees.
From 1978 to April, 1994, Mr. Bubb served as a director of Southwest National
Corp. and its subsidiary, Southwest National Bank in Greensburg,
Pennsylvania. He currently serves as a director of Allegheny Valley Hospital
in Natrona Heights, Pennsylvania, and as President of Allegheny Valley Health
Systems, a non-profit hospital organization, in Natrona Heights, Pennsylvania.
Michael H. Burkhart has been a Certified Public Accountant since 1972 and is
a member of the American Institute of Certified Public Accountants, the
Pennsylvania Institute of Certified Public Accountants and the National
Association of Certified Valuation Analysts. Mr. Burkhart has practiced in
public accounting since 1968, has been a partner with Hinds, Lind, Miller &
Co., Certified Public Accountants, until 1995 when he founded his present firm.
Much of Mr. Burkhart's professional background involves working with
construction and land development companies in the tax, accounting and
management services areas.
Samuel A. Goldberg was employed by the Mine, Safety and Health Administration
of the United States Department of Labor, as Manager of an Analytical
Laboratory for Industrial Hygiene from 1970 to December 1985 when he retired.
As manager, his responsibilities included preparing a budget, determining
personnel and equipment requirements and preparing bid submission on chemical
analysis instruments. He currently serves as a member of the Board of
Directors of East Boro's J.W.V. Housing Corporation and East Boro's J.W.V.
Homeless Veterans Corporation.
William J. Janusey is an architect who has been in private practice for over
30 years. His experience consists of the design of schools, residences,
motels, historical restorations, churches, public institutions, hospitals,
commercial establishments, interior decorating, and light industrial plants.
In 1960 he opened an office for the practice of architecture in Pittsburgh,
Pennsylvania and functioned under the name of William J. Janusey &
Associates. His experience involved the complete design and supervision of
entire projects up to $14,000,000 in cost, and included all phases of
building design and construction, such as management, contract preparation,
administration, negotiations with banking authorities, control of all
construction documents, writing of specifications, submitting cost estimates,
bidding procedures and field supervision of construction work. Over 1,200
buildings have been constructed to date from the firm's design and
construction drawings and specifications during the past 30 years.
Alexander H. Lindsay, Jr. is the President of the law firm of Lindsay,
Jackson & Martin, P.C. in Butler, Pennsylvania, and specializes in
litigation. He is a former Butler County and Cranberry Township solicitor.
From 1975 until 1980, he was an Assistant United States Attorney for the
Western District of Pennsylvania, and from 1977 until 1980 he was Chief of
the Public Corruption Section of the United States Attorney's Office in
Pittsburgh. From 1972 to 1973 he was an Assistant District Attorney for
Butler County. He is a 1968 graduate of Washington and Jefferson College
and a 1971 graduate of the University of Pittsburgh School of Law. Mr.
Lindsay is a director of Southwest National Corp. and its subsidiary,
Southwest National Bank.
Paul Voytik has been Chairman and Chief Executive Officer of the Corporation
since January 1989 and President of the Corporation since February 1988. He
was employed at Westinghouse Electric Corporation for 29 years, 24 of which
he served as an Engineering Manager, until his retirement in November 1985.
Thereafter, he served as a consultant to Westinghouse until 1986. In 1986
he became Vice President and a director of Piedmont Atlantic Corporation,
19
<PAGE>
which engaged in land development in Chapel Hill, North Carolina. He has
over 35 years of experience in building, contracting, and land development.
George Wright has been Vice President of the Corporation since February 1988.
He was employed by Gulf Research & Development for 42 years until his
retirement in February 1985. At the time of his retirement, he held the
position of Director of Safety, Security & Fire Prevention for a 95-acre
research complex of Gulf Oil Corporation.
Darell Craig has been employed by the Registrant as Chief Operating Officer
since September 1991. A graduate of the University of Pittsburgh, Mr. Craig
has been manager of land development and single/multifamily home
construction for over twenty years.
Roman Polnyj has been employed by the Registrant as Chief Financial Officer
since May 1992. Mr. Polnyj holds Masters and Bachelors degrees from Duquesne
University in business administration and was previously employed by Mellon
Bank from 1980 to 1991 holding positions as an Assistant Vice President and
Manager in the real estate division, departmental controller and financial
analyst.
The Company is not aware of any trustee, officer or beneficial owner of
more than ten percent of the Company Shares who failed to file on a timely
basis forms required by Section 16(a) of the Exchange Act during the fiscal
year ended October 31, 1996.
Item 10. Executive Compensation
The following table is a summary of certain information concerning the
compensation awarded or paid to, or earned by, the Company's chief executive
officer during each of the last three fiscal years. No officer or director
of the Company had total annual salary and bonus in excess of $100,000 during
any of the last three fiscal years.
<TABLE>
Summary Compensation Table
<CAPTION>
Long-term compensation
Annual compensation Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
All
Restricted Payouts Other
Name and Other Stock Options/ LTIP Compen-
principal Fiscal Salary Bonus Annual Awards SARs payouts sation
position Year ($) ($) Comp.($) ($) ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Paul Voytik 1996 37,354 0 0 N/A 0 N/A 0
(President 1995 38,746 0 0 N/A 0 N/A 0
and Chief 1994 32,118 0 0 N/A 0 N/A 0
Executive
Officer)
</TABLE>
Pursuant to the terms of a Management and Administrative Services Agreement,
the Company reimburses Seven Fields Management for all of its expenses
related to the Company, including the costs incurred by Seven Fields PA and
Seven Fields DEL, including director's fees, salaries, and costs related to
shareholder services. Such reimbursement is in lieu of a trustee fee.
20
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of January 24, 1997 regarding
the amount and nature of ownership of Company Shares by each person known by
the Company to be the beneficial owner of more than 5% of the outstanding
Company Shares, by Seven Fields Management, the sole trustee of the Company,
by each of the directors of Seven Fields Management, and by all of such
directors and the executive officers of the Company as a group. Each such
individual has sole voting and investment power with respect to the shares
listed except as otherwise indicated in the footnotes to the table.
<TABLE>
<CAPTION> Percentage of
Name and Address of Amount and Nature of Outstanding
Beneficial Owner (1) Beneficial Ownership Company Shares
<S> <C> <C>
Seven Fields (DEL), Inc. 2,905,682 83
Seven Fields Management, Inc. 0 0
Paul Voytik 2,905,682 83
Michael H. Burkhart 2,905,682 83
George K. Wright 2,905,682 83
Samuel A. Goldberg 2,905,682 83
Guy E. Bubb 2,905,682 83
William J. Janusey 2,905,682 83
Alexander Lindsay, Jr. 2,905,682 83
All directors of the sole trustee and
executive officers of the Company
as a group (9 persons) 2,905,682 83
<FN>
(1) The address of each person is 2200 Garden Drive, Suite 200, Mars,
Pennsylvania 16046-7846.
(2) Represents shares held by Seven Fields (DEL), Inc., of which the
named person is a director and with respect to which such person
shares voting and investment power.
</TABLE>
21
<PAGE>
The following table sets forth information as of January 24, 1997 regarding
the amount and interest ownership of shares of common stock of Seven Fields
PA by each of the directors of Seven Fields Management, the sole Trustee of
the Company and by all of such directors and executive officers of the
Company as a group. Seven Fields PA is the sole shareholder of Seven Fields
DEL, which owns approximately 83% of the outstanding Company shares. Each
person has sole voting and investment power with respect to the shares listed
except as otherwise indicated.
<TABLE>
<CAPTION>
Percentage of
Name and Address of Amount and Nature of Outstanding
Beneficial Owner (1) Beneficial Ownership Company Shares
<S> <C> <C>
Paul Voytik 13,599.89 (2) *
George K. Wright 14,173.63 (2) *
Samuel A. Goldberg 745.97 *
Guy E. Bubb 9,384.71 *
William J. Janusey 2,451.40 (2) *
Alexander Lindsay, Jr. 0
Michael Burkhart 0
All directors of the sole trustee and
executive officers of the Company
as a group (9 persons) 40,355.60 1.16
<FN>
* Indicates ownership of less than 1% of the common stock of Seven Fields
(PA).
(1) The address of each person is 2200 Garden Drive, Suite 200, Mars,
Pennsylvania 16046-7846.
(2) All shares held jointly with spouse.
</TABLE>
Item 12. Certain Relationships and Related Transactions
None.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Deed of Trust of the Registrant (5)
3.2 By-Laws of the Registrant (5)
4.1 Excerpt of Amended Plan of Reorganization (1)
22
<PAGE>
<S> <C>
4.2 Specimen Certificate for shares of beneficial interest in
Registrant (5)
4.3 Specimen Note representing general unsecured subordinated
debt of Registrant after separation of stock and debt (2)
4.4 Shareholder Protection Rights Agreement (3)
4.5 Amendment dated October 11, 1994 to Shareholder Protection
Rights Agreement (5)
10.1 Rates, rules and regulations governing the distribution of
water service - PA Public Utility Commission (3)
10.2 Plan and Agreement of Merger between the Registrant and
Seven Fields Development Corporation (5)
10.3 Mortgage Note dated October 28, 1994 of the Registrant to PNC
Bank, National Association (6)
10.4 Open End Mortgage and Security Agreement dated October 28,
1994 between the Registrant and PNC Bank, National
Association (6)
10.5 Assignment of Rents, Leases and Profits dated October 28,
1994 between the Registrant and PNC Bank, National
Association (6)
10.6 Amendment to Loan Documents of October 28, 1994 and release
from mortgage between registrant and PNC Bank National
Association dated May 1, 1996.
10.7 Amendment to Loan Documents of October 28, 1994 related to
financial covenant for the maintenance of minimum tangible
net worth, between the Registrant and PNC Bank National
Association.
10.8 Surety Agreement dated October 28, 1994 between the
Registrant and Allegheny Surety Company (6)
10.9 Mortgage dated October 28, 1994 between the Registrant and
Allegheny Surety Company (6)
10.10 Settlement Agreement with former majority shareholder (7)
10.11 Promissory Note dated November 29, 1995 to PNC Bank (7)
10.12 Open End Mortgage and Security Agreement dated November
29, 1995 to PNC Bank (7)
10.13 Assignment of Rents dated November 29, 1995 to PNC Bank (7)
10.14 Revolving Line of Credit Loan Agreement dated November 13,
1995 between the Registrant and Integra Bank (7)
23
<PAGE>
<S> <C>
10.15 Open End Mortgage and Security Agreement dated November 13,
1995 between the Registrant and Integra Bank (7)
10.16 Agreement for Assignment of Sales Agreements and Contract
Deposits dated November 13, 1995 between the Registrant and
Integra Bank (7)
10.17 Office Lease dated August 1, 1995 between the Registrant and
The Borough of Sevev Fields (7)
10.18 Management and Administrative Services Agreement dated
April 30, 1995 (7)
10.19 Revolving line of credit loan agreement, open-end mortgage
and security agreement, and revolving line of credit note
dated August 13, 1996 between the Registrant and First
Western Bank, National Association.
10.20 Revolving line of credit loan agreement, open-end mortgage
and security agreement, cross-default agreement, and
revolving line of credit note dated November 25, 1996 between
the Registrant and First Western Bank, National Association.
27 Financial Data Schedule - 1996
________________________________
(1) Filed as exhibit to the Registrant's Registration Statement
on Form 10 filed October 23, 1989 and incorporated herein
by reference.
(2) Filed as exhibit to the Registrant's Annual Report on Form
10-K filed February 13, 1991 and incorporated herein by
reference.
(3) Filed as exhibit to the Registrant's Annual Report on Form
10-K filed January 29,1992 and incorporated herein by
reference.
(4) Filed as exhibit to the Registrant's Annual Report on
Form 10-K filed on February 10, 1993 and incorporated
herein by reference.
(5) Filed as exhibit to Registration Statement on Form S-4,
File No. 33-85102, and incorporated herein by reference.
(6) Filed as exhibit to Registrant's Annual Report on Form
10-KSB filed January 27, 1995 and incorporated herein
by reference.
(7) Filed as exhibit to Registrant's Annual Report on Form
10-KSB filed January 26, 1996 and incorporated herein by
reference.
</TABLE>
(b) Reports on Form 8-K.
None
24
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SEVEN FIELDS DEVELOPMENT
COMPANY
By PAUL VOYTIK
Paul Voytik
President
Date: January 24, 1997
In accordance with the Exchange Act, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated as directors.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/PAUL VOYTIK President (Principal Executive February 20, 1997
- -----------
Paul Voytik Officer) and Director *
/s/ROMAN POLNYJ Chief Financial Officer (Principal February 20, 1997
- ------------
Roman Polnyj Financial and Accounting Officer)
/s/GEORGE K. WRIGHT Director * February 20, 1997
- ----------------
George K. Wright
/s/SAMUEL A. GOLDBERG Director * February 20, 1997
- ------------------
Samuel A. Goldberg
/s/MICHAEL BURKHART Director * February 20, 1997
- ----------------
Michael Burkhart
<FN>
* Directors of Seven Fields Management, Inc., the sole Trustee of the
Registrant
</TABLE>
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
ITEM 13 (A) INDEX TO FINANCIAL STATEMENTS
Page Reference
Independent Auditors' Report............................... F-1
Balance Sheets
at October 31, 1996 and October 31, 1995.............. F-2
Statements of Operations for the years ended October 31,1996
and October 31, 1995.................................. F-4
Statements of Shareholders' Deficiency for the years ended
October 31, 1996 and October 31, 1995................. F-6
Statements of Cash Flows for the years ended October 31,
1996 and October 31, 1995............................ F-7
Notes to Financial Statements.............................. F-8
F
<PAGE>
Independent Auditors' Report
The Trustee and Shareholders
Seven Fields Development Company
Mars, PA
We have audited the accompanying balance sheets of Seven Fields Development
Company (the "Company") as of October 31, 1996 and October 31, 1995, and the
related statements of operations, shareholders' deficiency and cash flows for
each of the two years in the period ended October 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of
October 31, 1996 and October 31, 1995 and the results of its operations and
its cash flows for each of the two years in the period ended October 31,
1996 in conformity with generally accepted accounting principles.
O'Connor, Greenblatt & Company
December 18, 1996
Sewickley, PA
F-1
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
BALANCE SHEETS
AS OF OCTOBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash $ 252,045 $ 2,309
Temporary investments, Note 10 149,825 1,205,919
Total Cash And Temporary Investments 401,870 1,208,228
Certificate of deposit 53,755 23,885
Cash escrow - horses 184,550
Accounts and notes receivable, net
of allowances of $57,552 and $58,308 168,614 241,601
Mortgage notes receivable, Note 4 61,807 186,681
Capitalized development costs, Notes 2,12 5,020,059 2,944,303
Capitalized house construction costs,
net of allowances, Notes 2, 12 2,842,203 1,961,255
Prepaid expenses and deposits 481,518 282,492
Property not currently under development,
Notes 2, 12 2,791,363 2,995,685
Tenant security deposits 51,485 79,220
Deferred income tax assets, Note 9 3,992,000 3,992,000
Property, Buildings And Equipment,
Notes 2, 3, 6, 7
Land 386,789 452,061
Buildings 3,914,327 5,217,808
Equipment and furnishings 1,347,903 1,397,097
Construction in progress 317,124
Total Property, Buildings And Equipment 5,649,019 7,384,090
Accumulated Depreciation (2,083,587) (2,447,881)
Total Property , Buildings And Equipment,
Net Of Accumulated Depreciation 3,565,432 4,936,209
Total Assets $ 19,430,106 $ 19,036,109
<FN>
See Notes to Financial Statements.
</TABLE>
F-2
<PAGE>
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
LIABILITIES
<TABLE>
1996 1995
<S> <C> <C>
Accounts payable and accrued expenses $ 507,566 $ 419,324
Accrued estimated costs related to developed
lots and townhouses sold, Note 2 590,920 267,973
Notes payable - credit lines, Note 6 130,000
Mortgages payable, Note 7 1,958,581 1,645,985
Customer deposits and advances 95,137 61,714
Tenant security deposits 51,485 79,220
Legal settlement payable, Note 5 175,000
General unsecured debt - minority investors,
Notes 1, 8, 11 10,067,744 10,406,981
General unsecured debt - Seven Fields
(DEL) Inc., Notes 1, 8, 11 49,135,104 50,796,205
Total Liabilities 62,536,537 63,852,402
<CAPTION>
SHAREHOLDERS' DEFICIENCY
<S> <C> <C>
Shares of beneficial interest, $1 par value,
5,000,000 shares authorized, 3,484,560
shares issued and outstanding,
Notes 1,2,11 3,484,560 $ 3,484,838
Shareholders' deficit - excess of
non-discharged debt over assets
on November 7, 1987 (Date of
reorganization) Notes 1, 2 (52,235,399) (52,240,537)
Retained earnings, since November 7, 1987
(Date of reorganization) 5,644,408 3,939,406
Total Shareholders' Deficiency (43,106,431) (44,816,293)
Total Liabilities And
Shareholders' Deficiency $ 19,430,106 $ 19,036,109
</TABLE>
F-3
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Gross Revenue
Rental income $ 726,762 $ 984,378
Fees & other operating income 74,622 95,959
Water revenue 136,434 126,386
Developed lot & house sales 6,308,330 6,002,613
Townhouse unit sales 3,042,633 3,075,848
10,288,781 10,285,184
Costs And Expenses
Cost of Developed Lots And Houses Sold 5,185,294 5,091,927
Cost Of Townhouses Sold 1,523,056 1,517,937
Other Operating Expenses* 753,477 874,210
General & Administrative Expenses* 764,889 1,140,023
Depreciation Expense 331,269 375,127
8,557,985 8,999,224
Operating Income 1,730,796 1,285,960
Interest Expense* (78,517) (74,106)
Interest Income 52,723 163,419
Income Before Provision for Income Taxes 1,705,002 1,375,273
Provision For Income Taxes, Note 9 48,000
Net Income $ 1,705,002 $ 1,327,273
Net Income Per Share $ .49 $ .38
Weighted Average Number Of Shares 3,484,606 3,484,838
<FN>
* See details on the following page.
See Notes To Financial Statements.
</TABLE>
F-4
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
STATEMENT OF OPERATIONS - CONTINUED
DETAILS OF OTHER OPERATING EXPENSES,
GENERAL AND ADMINISTRATIVE EXPENSES AND INTEREST EXPENSE
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Other Operating Expenses
Payroll, payroll taxes and benefits $ 697,813 $ 666,067
Repairs and maintenance 205,623 216,735
Utilities 135,792 109,339
Insurance 118,257 154,819
Property taxes 152,822 184,499
Other operating supplies and services 77,792 92,264
Total Other Operating Expenses 1,388,099 1,423,723
Less Expenses Capitalized To Development
And Construction (634,622) (549,513)
Net Other Operating Expenses $ 753,477 $ 874,210
General And Administrative Expenses
Payroll, payroll taxes and benefits $ 391,402 $ 406,084
Professional fees 129,515 105,763
Professional fees related to litigation and
pre-reorganization issues 43,735 396,912
Other general and administrative expenses 238,349 282,510
Total General And Administrative Expenses 803,001 1,191,269
Less Expenses Capitalized To Development
And Construction (38,112) (51,246)
Net General And Administrative Expenses $ 764,889 $ 1,140,023
Interest Expense
Total interest expense $ 184,075 $ 154,051
Less interest capitalized to development
and house construction (105,558) (79,945)
Net Interest Expense $ 78,517 $ 74,106
<FN>
See Notes To Financial Statements.
</TABLE>
F-5
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
STATEMENT OF SHAREHOLDERS' DEFICIENCY
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Share-
holders' Retained
Deficit Earnings Total
As Of Since Share-
Beneficial Interest Nov. 7, Nov. 7, holders
Shares Amount 1987 1987 Deficiency
<S> <C> <C> <C> <C> <C>
Balance
Oct. 31, 1994 3,505,591 $3,505,591 $(52,171,982) $2,612,133 $(46,054,258)
Pre-November 7,
1987 Shareholder
Adjustments** 1,500 1,500 (30,004) (28,504)
Net Settlement-
Former Majority
Shareholder
And Related
Share-
holders*** (22,253) (22,253) (38,551) (60,804)
Net Income-
Year Ended
October 31,
1995 1,327,273 1,327,273
Balance October
31, 1995 3,484,838 $3,484,838 $(52,240,537) $3,939,406 $(44,816,293)
Other
Shareholder
Adjustments (278) (278) 5,138 4,860
Net Income-
Year Ended
October 31,
1996 $1,705,002 $ 1,705,002
Balance
October 31,
1996 3,484,560 $3,484,560 $(52,235,399) $5,644,408 $(43,106,431)
<FN>
** Settlement was reached with an investor during 1995 wherein 1,500
shares and the associated debt were issued to the investor.
*** Final settlement was reached with former majority shareholder,
his family, related companies and shareholders in 1995, whereby
the shares and debt of the shareholder were canceled, including
the shares acquired from another shareholder. See Note 5.
See Notes To Financial Statements.
</TABLE>
F-6
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,705,002 $ 1,327,273
Provision for income taxes 48,000
Depreciation 331,269 375,127
Capitalized development costs incurred (3,304,530) (2,036,064)
Capitalized house construction costs incurred (4,575,589) (4,633,020)
Cost of lots and houses sold 5,127,737 5,388,355
Changes in other assets and liabilities:
Restricted cash 184,550 (2,085)
Mortgage notes receivable 124,874 618,539
Other assets (128,174) 40,278
Other liabilities 242,419 (136,089)
Net Cash Flows Provided By
(Used In) Operating Activities (292,442) 990,314
Cash Flows From Investing Activities:
Additions to property, building & equipment (134,788) (1,162,419)
Sale of property, buildings, & equipment 1,174,296 972,214
Total Cash Flows Provided By (Used In)
Investing Activities 1,039,508 (190,205)
Cash Flows From Financing Activities:
Repayment of general unsecured debt (1,996,020) (2,026,757)
Proceeds from borrowings 880,000
Repayment of loans payable (437,404) (54,015)
Total Cash Flows Used In Financing Activities (1,553,424) (2,080,772)
Net Decrease In Cash And Temporary Investments (806,358) (1,280,663)
Cash And Temporary Investments, Beginning of Period 1,208,228 2,488,891
Cash And Temporary Investments, End of Period $ 401,870 $ 1,208,228
Interest Expense Included In Net Income Above $ 78,517 $ 74,106
Interest Paid And Included In Capitalized
Development And House Construction Costs 105,558 79,945
Accrued Interest Expense 1,607
Total Interest Paid $ 184,075 $ 155,658
Income Taxes Paid None None
Supplemental Schedule Of Noncash Investing And
Financing Activities:
Settlement of Lawsuits With Former
Majority Shareholder $ 60,804
Pre-November 7, 1987 Shareholder Adjustments $ 28,504
Other Investor Adjustments $ (4,860)
<FN>
See Notes To Financial Statements.
</TABLE>
F-7
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
Note 1 Organization And Business
Merger And Restructuring
Seven Fields Development Company, a Pennsylvania Business Trust (the
"Company") is the successor by merger to Seven Fields Development Corporation
(the "Corporation"), effective April 30, 1995. Use of the term Company
hereinafter refers to Seven Fields Development Corporation from November 7,
1987 through April 30, 1995 and Seven Fields Development Company thereafter.
In the merger agreement, the Company succeeded to all of the assets,
liabilities and historical operations of the Corporation, and the Company is
to continue the business of the Corporation, which ceased to exist as a
separate corporate entity upon consummation of the merger.
The above described merger was a component of a comprehensive restructuring
of the Corporation pursuant to which approximately 83% of its investors
(shareholders and debtholders) exchanged their stock and debt ("Company
Debt") for the common stock of a newly formed holding company - Seven Fields
Development (PA), Inc. ("Seven Fields PA"). As a result of this
restructuring, Seven Fields PA holds 83% of the stock and debt of the Company
through a wholly owned subsidiary, Seven Fields (DEL), Inc.
Organization Structure, Management And Objectives
The Company was formed for the purpose of merging with the Corporation and
thereafter carrying on the business of the Corporation with the objective
of maximizing the value of its assets and effecting a dissolution and
complete liquidation of its business assets and affairs as soon as
practicable. Such liquidation is expected to occur over an extended period
of time, as its assets are sold and developed in a manner designed to
maximize distributions to the Investors as defined below.
The sole trustee of the Company is Seven Fields Management, Inc. which is
also a wholly-owned subsidiary of Seven Fields PA. The directors and officers
of Seven Fields Management, Inc. are the same persons who were the directors
and officers of the Corporation. The executive officers of the Company are
the same persons who were the executive officers of the Corporation.
The Company as survivor of the merger, remains subject to the Bankruptcy Plan
under which the Corporation commenced operations on November 7, 1987, as more
fully described below.
Business And Operations
The Company's current major activities are the development of its undeveloped
property located in Seven Fields Borough, Butler County, PA; rental of the
more than 90 townhouse units located in Seven Fields Borough; sale of these
existing townhouse units as individual residences; and operation of the
municipal water service for Seven Fields Borough. All of these activities
focus on the single goal of maximizing the assets of the Company and
ultimately distributing such assets to its Investors in complete liquidation
at the earliest appropriate time.
Since the bankruptcy Reorganization in 1987, the Company has sold three
rental properties, repaid four million dollars of debt other than Company
Debt, and returned approximately $7.3 million to its Investors through debt
repayments.
F-8
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 1 Continued
The Company is not actively acquiring additional property for development,
however it expects that it will not be until at least the year 2000 - 2005
before development of its remaining undeveloped property at Seven Fields is
completed.
The Company - Before November 7, 1987 (Date of Reorganization)
Seven Fields Development Corporation was formed pursuant to an amended plan
of reorganization effective November 7, 1987 (the "Plan"). The Corporation,
formerly known as Earned Capital Corporation, was the surviving company of
the reorganization proceedings of Earned Capital Corporation, Managed
Properties, Inc., Canterbury Village, Inc. and Eastern Arabian, Inc. (the
"Debtors") all of which merged, pursuant to the Plan, to form the Company.
The Debtors were formed in 1976 primarily for the purpose of marketing and
managing investments in multi-family residential housing developments. From
1976 until May 1986, when the Debtors filed for reorganization under Chapter
11 of the Federal Bankruptcy Code, they acquired four significant real estate
projects. The Debtors obtained funding to acquire and/or develop these
projects by selling to investors what was purported to be percentage
interests in a particular real estate development which would be managed by
the Debtors. From 1976 to 1986 the Debtors received approximately
$57,000,000 from over 2,600 investors (the "Investors"). These Investors
had no management control over the Debtors' affairs. Management of the
Debtors was vested exclusively with four stockholders who owned 100% of the
stock of the Debtors. Investors' investment balances, including
reinvestments, exceeded $69,000,000 when the Debtors filed petitions for
reorganization with the Bankruptcy Court.
The Plan Of Reorganization And The Company Subsequent To November 7, 1987
The Plan transferred 100% ownership of the Debtors from the four former
stockholders to the more than 2,600 Investors, merged the Debtors into the
Company, removed the former shareholders from having involvement in the
management or ownership of the reorganized company, and required the
repayment in full all debt, secured and unsecured, to creditors on the same
terms of agreements then in existence. The Plan also, despite assets with
a market value far less than the obligation of the Company to the Investors,
did not reduce the face amount of the Company's obligation to those
Investors. The liability to the Investors, representing 95% of the
Investors' claims, remained a general unsecured debt of the Company and the
Company waived discharge of such debt. These non-discharged debts are
subordinated to any existing liens and priorities and any future secured
debt, and the claimant-creditor, his heirs, assigns or successors may not
file suit or take any judgment, or undertake any collection activities.
The Company's Deed of Trust states that the Company's Trustees may declare
and pay to the holders of the Company's shares of beneficial interest
("Company Shares"), such liquidating distributions as they deem proper and
advisable. However, there is no assurance that any liquidating distribution
will ever be declared or paid. Holders of Company shares could only
receive a liquidating distribution after all debt had been repaid.
Presently, and for the foreseeable future, it is unlikely that there would
be any residual assets available for distribution on Company shares.
The general, unsecured debt issued to the Investors bears no interest and is
subordinate to existing and future secured debt of the Company. As indicated
F-9
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 1 Continued
above, the Plan specified that this debt would be paid as soon as possible.
Presently, and for the foreseeable future, the assets of the Company are
inadequate to pay a substantial part of this debt. Upon liquidation, payment
of this general, unsecured debt ranks behind payment of existing and future
secured debt of the Company but before payment to holders of Company Shares.
The restructuring effected in 1995, on a consolidated basis and at the parent
company level, eliminated 83% of the debt outstanding to Investors through
their exchange of their debt for common stock of Seven Fields (PA), Inc.
Because of the requirement of retaining proportionality and the priority of
the debt over Company shares, the debt has remained unchanged at the Company
level, although 83% of such debt is held by the Company's parent.
Note 2 Summary Of Significant Accounting Policies
Reorganization
Merger And Basis Of Presentation
The merger qualifies as a tax-free reorganization and was accounted for in
a manner similar to a pooling of interests. Accordingly, the Company's
financial statements have been restated to include the results of Seven
Fields Development Corporation for all periods prior to May 1, 1995. For
comparative purposes, certain 1995 amounts have been reclassified to conform
to the presentation adopted in 1996.
Reorganization On November 7, 1987
Although the Corporation is the successor in the merger of the four Debtors
pursuant to the Plan, the Company was being treated for accounting purposes
as if it were a newly created corporation in 1987. Most significantly, the
assets upon reorganization have been stated at their appraised value instead
of historical cost. Total assets of the Corporation at November 7, 1987 were
$18,145,669, including fair market value of all real estate and horses in
the amount of $16,792,582 and historical cost for all other assets of
$1,353,087. Since total Investor balances exceeded $69,000,000 and other
liabilities exceeded $5,000,000, the Company emerged from bankruptcy
reorganization proceedings with a shareholders' deficiency of $54,812,544.
Assets received from the shareholders and related parties of the debtors and
pre-reorganization claims against the Company have been treated as an
adjustment of Pre-Reorganization Deficit at November 7, 1987. In addition,
as more fully explained in Note 9, $4,080,000 of deferred tax assets was
recognized on November 1, 1993.
The Company also filed several lawsuits to recover certain assets from the
former shareholders of the Debtors. Recoveries of any such assets serve to
reduce the beginning shareholders' deficit which was created as a part of
the Plan.
Since there was no adequate historical cost records on the part of the
Debtors, the assets of the Company were recorded at appraised value
determined by independent appraisals prepared under authority of the Court.
F-10
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 2 Continued
Use Of Estimates
The preparation of the Company's financial statements requires management to
make estimates and assumptions that affect the amounts reported at the date
of the financial statements for assets, liabilities, revenues and expenses
and disclosure of contingencies. Actual results could differ from those
estimates. The Company makes significant estimates related to common area
development costs which it expects to incur in the future, and costs to
complete specific subdivisions of lots from which lots are being sold.
Fixed Assets And Depreciation
Fixed assets are recorded at cost except for assets transferred to the
Corporation pursuant to the Plan, which are recorded at appraised value as
determined in the bankruptcy reorganization proceedings.
The carrying value of such assets is estimated to be not in excess of net
realizable value. No accumulated depreciation was recorded as of the
Corporation's reorganization on November 7, 1987, and the Company has used
straight line and double declining balance methods utilizing the half year
convention in the year of acquisition since bankruptcy reorganization. The
Company has selected estimated useful lives for the assets received pursuant
to the Plan which approximates the original estimated lives of personal
property and the residual lives of the real property.
Development Costs And Other Capitalized Costs
It is the Company's policy to capitalize all material costs related to the
development of its property. Costs, including but not limited to legal,
engineering, planning and construction, which are specifically identifiable
to each phase, are capitalized to the individual phase, and costs which are
incurred which benefit all phases being developed or to be developed in the
future are allocated to those phases. Costs which are included in the
general and administrative cost center and directly related to development
activities are capitalized to the development phases under construction
during the period. Material interest costs, are capitalized during the
construction period of each phase based on the average interest rate of the
Company's outstanding debt. The full cost of construction, including
overhead, and construction period interest of completed and partially
completed houses, has been capitalized.
Estimated costs for amenities and common areas related to phases from which
lots are being sold are accrued and a proportionate part of such costs are
included in the cost of lots sold.
Revenue Recognition
The Company recognizes revenue on the sale of lots when settlement occurs,
or the collectibility of any related receivable is reasonably assured and
the Company has completed substantially all obligated development related to
the lots sold.
Revenue is recognized upon settlement for houses which the Company
constructs provided construction is substantially completed.
The Company recognizes revenue on the sale of its townhouse units at
settlement. Sales of lots, or housing units from phases or multi unit
buildings where development or construction is not substantially complete
F-11
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 2 Continued
is accounted for in accordance with the percentage of completion method,
based on estimated cost to be incurred. Rental revenue from the Company's
townhouses is recognized on a monthly basis. The Company's leases with its
residential tenants are of a six month or one year duration and are typically
renewed by the tenant.
PUC Regulated Activities
The Company was granted permission by the Pennsylvania Utility Commission
(PUC) to charge for the water services that the Company provides the
residents of Seven Fields Borough effective November 29, 1991.
In accordance with regulations promulgated by the PUC, the Company is
required to apply for permission from the PUC to establish, or change the
rates it charges its customers, follow PUC accounting policies and
procedures, and adhere to all other rules established by the PUC.
Capitalized Development And House Construction Costs
The cost of the inventory of unsold lots is determined based on the lower of
the average lot cost for each phase or market. The cost of unsold
constructed houses is based on the lower of cost or market for each house.
Provision For Losses
Provisions for losses on notes and accounts receivable and lots and houses
are charged to operations when its is determined that the investment in such
assets is impaired.
Cash And Cash Equivalents (Cash And Temporary Investments)
For purposes of the statement of cash flows, the Company considers all highly
liquid investments, not otherwise restricted, with a maturity of three months
or less at the time of purchase to be cash equivalents.
Change Of Accounting Principle And Recent Accounting Developments
The Company adopted FAS No. 115 "Accounting For Certain Investments In Debt
And Equity Securities"' issued by the Financial Accounting Standards Board
effective November 1, 1994. FAS 115 requires companies to recognize gains
and losses due to the fluctuation of market value of such securities. There
was no financial impact to the Company as a result of adopting this new
standard.
In March 1995 the Financial Accounting Standards Board issued FAS No. 121
"Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets
To Be Disposed Of". FAS No. 121 establishes standards for determining when
an asset impairment should be recognized based primarily on an undiscounted
cash flow model. The Company, pending review of its impact, has deferred
adoption of this new standard which must be adopted not later than November
1, 1996. Initially it does not seem that there will be a material impact
when this standard is adopted.
Note 3 Real Estate Rental Activities
A summary of the historical cost of properties held for rent located at
Seven Fields consisting of 91 and 132 residential townhouse units at October
31, 1996 and 1995 respectively, a commercial office building and two
F-12
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 3 Continued
commercial units, all of which are included in property, buildings and
equipment on the Company's balance sheets, follows:
<TABLE>
<CAPTION>
October 31,
1996 1995
<S> <C> <C>
Land $ 386,789 $ 452,061
Buildings 3,914,327 5,217,808
Equipment And Improvements 359,349 647,211
4,660,465 6,317,080
Accumulated Depreciation 1,564,229 2,137,115
$ 3,096,236 $ 4,179,965
</TABLE>
Tenant leases are typically of 6 to 12 month duration. Individual tenants
usually renew their leases upon expiration, however the Company is in the
process of liquidating its rental townhouses. During 1995 the Company
completed construction of a two story office building having 9,434 square
feet. The Company occupies 4,717 square feet and rents 4,717 square feet to
the Borough of Seven Fields under terms of a five year lease which expires
July 31, 2000. The Borough is required to pay all utilities and 50% of the
operating costs of the building. The Company has granted the Borough an
option to purchase the building at the end of the lease at a then fair
market value to be determined on the basis of the average of two appraisals.
Minimum lease payments to be received under non-cancelable operating leases
at October 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 321,677
1998 31,545
1999 35,083
2000 28,302
Thereafter
Total $ 416,607
</TABLE>
Note 4 Mortgage Notes Receivable (Mortgage Assignments)
Commencing in 1993, the Company began financing the purchase of certain of
the townhouse units which it sells to individuals. Such financing is
facilitated by the Company receiving an assignment of the mortgage note
granted by the buyer of the individual townhouse to the mortgagee - Howard
Hanna Financial Services. The Company has not perfected its security
interest in the underlying collateral in that it is the Company's policy to
not record these assignments with the Butler County Recorder of Deeds. The
Company intends to sell these mortgages in the open market when market
conditions are favorable.
The Company charges operations with any credit loss it incurs on an
individual loan basis, and losses because of market changes on an aggregate
basis. Market value is determined based on the current discount rates for
mortgages of identical terms and interest rates. The Company held the
following mortgage note assegnments at October 31, 1996 and 1995:
F-13
(PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 4 Continued
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Number of Mortgage Notes 1 3
Approximate Average Interest Rate 8.125% 7.875%
Final Maturity Date (Predominate) 2024 2024
Face Amount of Mortgage Notes $ 62,910 $ 188,125
Carrying Amount of Mortgage Notes
(Market Value) $ 61,807 $ 186,682
Reconciliation Of The Carrying
Amounts of Notes
1996 1995
Beginning Balances $ 186,682 $ 805,220
Principal Collected (1,160) (5,476)
Notes Sold (124,055) (637,225)
Market Valuation Change and
Realized Gains or (Losses) 340 24,163
Ending Balance $ 61,807 $ 186,682
Delinquent Loans 0 1
Principal Amount of Delinquent Loans 0 $ 63,627
</TABLE>
Note 5 Litigation
The Company has concluded all litigation with the former majority
shareholder of the Debtors as a result of a settlement which was finalized
in November 1995. The significant terms of this settlement are:
1. The second 50% of the land held by the Company in co-tenancy has been
transferred to the Company. The value of this 50% interest has not yet
been finally determined, and no additional amount has been included as an
asset in the Company's balance sheet.
2. The shareholders' derivative action filed against the Company's current
management has been discontinued and withdrawn.
3. All counterclaims assessed by the former majority shareholder against
the Company have been discontinued and withdrawn.
F-14
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 5 Continued
4. The Company has disbursed $175,000 of the horse escrow account to the
former majority shareholder.
5. Both parties agreed to let the court decide the question of ownership of
the 45 acres and former majority shareholder's (The "Reillys") residence,
and agreed that the Court's decision on this property would be non-
appealable. On November 16, 1996, the Court decided to allow the Reilly's
to retain title to this property. No amount had been included in the
Company's balance sheets for this claim.
6. The Corporation shares and debt owned by the former majority shareholder
have been canceled.
Note 6 Notes Payable - Credit Lines
The Company entered into a revolving credit line in the amount of $1,000,000
with National City Bank in November 1995. Interest is payable monthly at
the bank's prime rate plus 1%. The credit line is to be used for individual
house construction in the Northridge Manor Subdivision and is secured by
a mortgage on the Company's property in that subdivision. The credit line
matures December 1, 1998 and advances outstanding more than 12 months are to
be repaid over a 48 month term. National City may call the notes outstanding
on May 15 of each year, however, the Company is allowed 180 days to repay
the balance in full. The total amount outstanding as of October 31, 1996
was $130,000, and bears interest of 9 1/4 % per annum.
In August 1996, the Company also entered into a revolving credit line
of $1,000,000 with First Western Bank, with interest payable monthly at the
bank's prime rate plus 3/4%. The credit line is to be used for constructing
up to 12 homes in the Hawthorne Commons Subdivision, and is secured by
the Company's property in that subdivision. Borrowings are limited to
$80,000 for each house, and any outstanding principal is required to be
repaid upon the sale of each house. At October 31, 1996, the Company has no
amount outstanding under this line of credit.
Subsequent to the balance sheet date on November 25, 1996, the Company also
arranged a third revolving line of credit in the amount of $750,000. The
proceeds under this credit line are restricted to the construction of
townhouses in the Company's Georgetowne Manor Subdivision. Advances under
this credit line will bear interest at First Western Bank's prime rate plus
1/2%, and must be repaid by November 30, 1997.
Note 7 Mortgages Payable
The Company is obligated under a floating rate mortgage note in the amount
of $1,231,025 at October 31, 1996. Interest is based on the bank's prime
rate plus 5/8%, or fixed annually at the bank's fully absorbed cost of
funds, plus 2 1/2%. The rate of interest has been fixed at 8% through April
30, 1997. Repayments are in equal monthly principal and interest installments
of $17,391 with a final balloon payment due November 1, 1999. The mortgage
note is collateralized by 36 rental townhouse units having a net book value
of approximately $737,000 and an approximate fair market value of $2,600,000
based on the recent sales prices of townhouses.
F-15
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31 1996 AND 1995
(CONTINUED)
Note 7 Continued
On November 29, 1995, the Company granted PNC Bank a mortgage on its office
building to secure a term loan in the amount of $750,000. The proceeds of
this loan were used to replenish its working capital, and to carry on its
development and construction activities. This office building was completed
in August 1995 at a cost of $1,263,207. Interest is based on PNC's prime
rate plus 1/2% or is fixed at 2 1/4% above PNC's fully absorbed cost of
funds and is being amortized over a 15 year term, but matures on December 10,
2000. At October 31, 1996, monthly principal and interest payments are
$7,265 based on the current interest rate of 8.12%, which has been fixed
through December 10, 1999.
The Company must also comply with certain financial covenants including at
all times having a tangible net worth (defined as net worth plus general
unsecured debt less deferred tax assets) of $10,000,000, a current ratio
of 2 to 1; debt to net worth (adjusted for general unsecured debt and
deferred tax assets) of .5 to 1; and debt service coverage of 1.1 to 1.
Prior to December 5, 1996, the Company was required to maintain tangible net
worth of $12,425,000 at the end of its fiscal year and $11 million during
the year. During 1996 the Company's net worth did not meet these
requirements, and PNC Bank has waived such non compliance, and on December
5, 1996 reset the net worth covenant at $10 million. It is anticipated that
this net worth covenant will periodically be reduced in future years to
facilitate the Company's planned liquidation of its assets and distribution
of the proceeds of such liquidation to its Debtholders. There are also
certain penalties if prepayments exceed specified amounts. Aggregate
maturities of long term debt at October 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 125,204
1998 145,756
1999 158,163
2000 897,688
2001 631,770
</TABLE>
Surety And Mortgage
The Company is contingently liable under terms of a $2,000,000 mortgage it
granted a commercial surety company on five of its buildings containing 30
townhouse units at its Seven Fields complex. These townhouses, having an
approximate book value of $610,000 at October 31, 1996 and an estimated fair
market value based on recent sales of individual townhouses of $2,200,000,
serve as collateral for performance and maintenance bonds issued by the
surety company totaling $2,400,000, related to the Company's land
development. To date, the Company has successfully completed, to the extent
possible, and to the satisfaction of the Borough, each of its previous
subdivisions and each of its prior bonds have been duly released.
Note 8 Fair Value Of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of financial instruments at October 31, 1996:
Cash and temporary investments: The carrying amount reported in the balance
sheet for cash and temporary investments approximates fair value.
F-16
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31 1996 AND 1995
(CONTINUED)
Note 8 Continued
Certificates of deposit, accounts and notes receivable, deposits, and
accounts payable: The carrying amounts of these assets and liabilities in
the balance sheet approximates fair value.
General unsecured debt - minority investors and general unsecured debt -
Seven Fields (DEL) Inc.: The carrying amount of general unsecured debt -
minority investors of $10,067,744 and general unsecured debt - Seven Fields
(DEL) Inc. of $49,135,104 is materially in excess of the fair value of these
financial instruments. As more fully described in Notes 1 and 11, the
general unsecured debt is non-interest bearing, has no maturity date, and
legal action by the debt holder to collect is precluded. Furthermore,
since the Company emerged from bankruptcy proceedings in 1987, there have
been no known sales of the debt in the open market. The amount of this debt,
which is ultimately repaid, and the timing of such repayment, is totally
dependent upon the Company's success in developing its property and
liquidating and distributing its assets to the debtholders. Consequently,
this debt is more characteristic of an equity instrument having a preference
upon liquidation, bears no interest or dividend rate, has no fixed cash
stream, or maturity date. It is not practicable to determine the fair value
of the general unsecured debt.
Notes Payable - Credit lines and mortgages payable: The carrying amounts of
notes payable - credit lines and mortgages payable approximates fair value
since interest rates of the mortgages and credit line notes approximates
interest rates currently available to the Company on other debt instruments
and the credit line interest rates are of a variable nature.
Note 9 Income Taxes
The Company recognized deferred tax assets of $4,080,000 on November 1, 1993,
as a result of adopting statement of financial accounting standard No. 109
"Accounting For Income Taxes". The net deferred tax asset of $4,080,000 is
a result of higher tax basis of the Company's assets than the basis
recognized for financial reporting purposes at the time of reorganization.
Recognition of this deferred tax asset reduced the Shareholders' Deficit
created at reorganization.
F-17
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENT
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 9 Continued
As of October 31, 1996, the Company has federal and state net operating loss
carryforwards for tax purposes which, if not utilized, expire as follows:
<TABLE>
<CAPTION>
October 31, Federal State
<S> <C> <C>
1997 $ 1,000,000
1998 1,000,000
2003 $ 2,501,469
2004 3,911,434
2005 4,605,975
2006 626,911
2007 870,453
2008 3,892,382
2009 1,202,522
2010 1,125,160
2011 454,698
Total $19,191,004 $ 2,000,000
</TABLE>
For Pennsylvania income tax purposes, losses of not more than $500,000 per
year from fiscal years ending October 31, 1989 through October 31, 1994
are available to offset taxable income generated in fiscal 1997 and 1998.
Losses generated in fiscal 1996 may be used to offset income generated in
fiscal years 1997 and 1998. The maximum net operating loss that may be used
in any fiscal year is $1,000,000.
Adoption of FAS 109 permitted the Company to recognize deferred tax assets
substantially equivalent to the estimated tax benefits to be derived from
the excess of the tax basis of the Company's assets at reorganization over
the asset amounts used for financial reporting purposes. The Company has
also estimated the extent to which the deferred tax asset should be reduced
by a valuation allowance so that the asset will not be carried in excess of
its estimated realizable value.
The net realizability of the deferred income tax assets is re-evaluated
annually. The deferred tax asset which the Company estimated will be
realizable is calculated annually to be an amount not to exceed 7
times the average pre-tax income for the latest two fiscal years at the
tax rates in effect at that time. The Company's ability to utilize its
deferred tax assets is based solely on its ability to generate sufficient
pre-tax income in the future prior to its complete liquidation, which is
limited by the total property which the Company has available to develop in
the future. As more fully explained in Note 1, the Company does not intend
to acquire additional property to develop, but intends only to develop
its existing property, liquidate its remaining assets, and distribute its
assets to its Investors. It is estimated that this process will not be
completed until the years 2000 to 2005.
F-18
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 9 Continued
At October 31, 1996, the significant components of the Company's deferred
tax assets are as follows:
<TABLE>
<CAPTION>
Federal State Total
<S> <C> <C> <C>
Tax over financial reporting basis
of assets originating at
reorganization $ 2,573,293 $ 840,011 $ 3,413,304
Net operating loss carryforwards
resulting from the utilization of
the higher tax basis of assets
since reorganization 6,457,009 199,800 6,656,809
Potential tax benefit at
October 31, 1996 9,030,302 1,039,811 10,070,113
Valuation allowance -
Reduction for estimated
unutilized deferred tax assets 5,863,302 214,811 6,078,113
Net Deferred Tax Assets $ 3,167,000 $ 825,000 $ 3,992,000
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
1996 1995
<S> <C> <C>
Deferred:
Federal $ (157,000) $ (10,000)
State 157,000 58,000
Provision For Income Taxes $ $ 48,000
</TABLE>
A reconciliation of income taxes with the amounts which would result from
applying the U.S. statutory rate follows:
<TABLE>
<CAPTION>
Year Ended October 31,
1996 1995
<S> <C> <C>
Tax at U.S. Statutory Rate $ 579,701 $ 467,593
State Income Taxes Net of Federal Benefit 112,418 90,677
State Deferred Tax Adjustment For Rate
Change 18,000
Utilization of Deferred Income Tax Asset (692,119) (528,270)
Provision For Income Taxes $ $ 48,000
</TABLE>
Note 10 Temporary Investments
Temporary investments at October 31, 1996 and 1995 consist of $149,825 and
$1,205,919 respectively invested in PNC Bank's PNC Investment Short Term
Common Trust Fund. The underlying securities which consist of U.S. Treasury
F-19
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 10 Continued
and U.S. Government Agency obligations and repurchase agreements relating to
such obligations have average maturities of 20 to 60 days. The proceeds are
deposited automatically to the Company's operating account as needed. Cost
and market value of temporary investments are identical to each other at
October 31, 1995 and 1996.
Note 11 Capital Stock And Subordinated Debt
The Company, at the time of its bankruptcy reorganization on November 7,
1987, as prescribed by the Plan, issued to the Investors certificates
intended to represent shares of common stock and general, unsecured debt of
the Company. The certificates representing the shares state (a) the number
of shares issued, (b) total amount of the Investor's claim and (c) the amount
of such claim as represented by the shares and the undischarged indebtedness
owed to Investors by the Company. The certificates also have the following
statement printed thereon: "The equity and debt interests represented hereby
are not severable." The Board of Directors of the Company, on August 25,
1989, passed a resolution which provided that the shares and the debt held
by each Investor shall be severable and separately transferable.
The two separate instruments have the following characteristics.
General Unsecured Debt (Subordinated Debt)
: Subordinate to all existing debt at Reorganization (November 7, 1987)
: Subordinate to all future secured debt incurred
: Non-interest bearing
: Legal action to collect is precluded
: No voting rights
: Issued at 95% of face value of Investors' account balance regardless of
the value of the underlying assets available to pay this debt
Trust Shares
: Voting stock
: Issued at 5% of face value of Investors' account balance
: Presently and for the foreseeable future has no liquidation value
because of the excess of debt over assets
: Presently and for the foreseeable future will not have dividends
declared and it is anticipated that no dividends will ever be paid
because of the excess of the Company's debt over its assets
F-20
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 11 Continued
Subsequent to the merger and restructuring described in Note 1, 83% of the
Company's stock and debt is held by Seven Fields DEL, a wholly-owned
subsidiary of Seven Fields PA. Seven Fields PA acquired 83% of the
Company's debt and stock in exchange for its common stock from those
Investors (83%) who accepted the Seven Fields PA's exchange offer.
Note 12 Capitalized Development Costs, House Construction Costs, PUC
Regulated Water Costs And Property Held For Investment And Future Development
The Company has incurred substantial costs in continuing the development of
certain of its property located at Seven Fields, Butler County, PA. The
Company's development and house construction activities for the years ended
October 31, 1996 and October 31, 1995 are summarized below for each of the
areas of significant activity.
F-21
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 12 Continued
The following information summarizes development activities for 1996.
<TABLE>
<CAPTION>
Com-
Colon- mercial Com-
ial North mercial
Heights Pointe Retail& Brandy- Brandy- North George-
I, II, Center Service wine wine Ridge town
& III Phase P Phase Q Woods Commons Manor Manor
<S> <C> <C> <C> <C> <C> <C> <C>
Acres 82 18 5 34 9 17 10
Total Lots 158 6 3 75 44 45 77
Unsold Lots 9 5 1 8 2 38 69
Balance
October
31, 1995 $399,963 $471,484 $202,348 $387,800 $195,036 $685,185 $573,645
1996 Costs
Capitalized:
Reclassify
Land Costs
Engineering &
Supervision 3,937 6,150 17,603 15,093 18,979 25,462 27,359
Excavation &
Construction 65,528 1,647 44,934 14,649 11,382 142,597 287,338
Overhead
Allocated 1,584 3,972 1,584 1,584 2,388 3,972 3,972
Interest 5,400
Total
Accumulated
Costs 471,012 483,253 266,469 419,126 227,785 857,216 897,714
Less Cost of
Houses And
Lots Sold 282,856 88,548 63,534 261,526 194,838 147,551 111,720
Balance
October 31,
1996 $188,156 $394,705 $202,935 $157,600 $ 32,947 $709,665 $785,994
Classification
of Costs:
House
Construction &
Development 188,156 394,705 202,935 157,600 32,947 709,665 785,994
Unutilized Land
Property, Plant
& Equipment $188,156 $394,705 $202,935 $157,600 $ 32,947 $709,665 $785,994
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
Single
Moon, And
North Un- Townhouse, Multi-
Ridge Hawthorne utilized Water & Office Family
Estates Commons Parcels Other Building Houses Total
<S> <C> <C> <C> <C> <C> <C>
31 24 245 40 3
56 96
46 96
$2,356,397 $1,015,303 $1,580,331 $1,961,257 $ 9,828,749
$ 265,302 $ 317,481 (431,358) (317,123) 165,698
55,426 88,050 106,222 2,000 521,858 888,139
1,144,554 858,861 111,674 5,065 3,848,023 6,536,252
3,972 7,944 7,140 38,112
30,150 30,000 40,008 105,558
1,499,404 1,302,336 2,150,075 1,022,368 1,263,208 6,536,844 17,396,810
271,289 11,234 3,694,641 5,127,737
$1,228,115 $1,302,336 $2,150,075 $1,011,134 $1,263,208 $2,842,203 $12,269,073
1,228,115 1,302,336 17,606 2,842,203 7,862,262
2,150,075 641,288 2,791,363
352,240 1,263,208 1,615,448
$1,228,115 $1,302,336 $2,150,075 $1,011,134 $1,263,208 $2,842,203 $12,269,073
</TABLE>
<TABLE>
<CAPTION>
Residential & Residential &
Estimated Additional Costs To Be Commercial Commercial
Incurred In Next 5 Years Land Building
Development Construction Total
<S> <C> <C> <C>
1997 $ 852,000 $ 5,564,000 $ 6,416,000
1998 2,052,000 7,948,000 10,000,000
1999 640,000 6,876,000 7,516,000
2000* 336,000 5,352,000 5,688,000
2001* 1,400,000 4,552,000 5,952,000
<FN>
* Incomplete Data
</TABLE>
F-23
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 12 Continued
The following information summarizes development activities for 1995.
<TABLE>
<CAPTION>
Colonial
Heights Commer- Commer- Brandy- Brandy- North
I, II cial cial wine wine Ridge
& III Phase P Phase Q Woods Commons Manor
<S> <C> <C> <C> <C> <C> <C>
Acres 82 18 5 34 9 17
Total Lots 158 6 3 75 44 45
Unsold Lots 17 6 2 20 12 45
Balance
October 31,
1994 $ 633,270 $ 242,569 $ 117,406 $ 646,340 $ 521,400
1995 Costs
Capitalized:
Reclassify Land
Costs 125,003
Engineering &
Supervision 5,991 22,293 14,990 5,431 2,576 67,076
Excavation &
Construction 67,256 198,878 124,323 18,896 14,313 477,062
Overhead
Allocated 4,044 4,044 4,044 4,044 4,044 4,044
Interest 3,700 1,900 12,000
Total Accum-
ulated Costs 710,561 471,484 262,663 674,711 542,333 685,185
Less Cost of
Houses And
Lots Sold 310,598 60,315 286,911 347,297
Balance
October 31,
1995 399,963 471,484 202,348 387,800 195,036 685,185
Classification
of Costs:
House
Construction
& Development 399,963 471,484 202,348 387,800 195,036 685,185
Unutilized Land
Property,
Plant
& Equipment
$ 399,963 $ 471,484 $ 202,348 $ 387,800 $ 195,036 $ 685,185
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
Office
Moon Twp., And
George- Ununtil- Water Garden Single Multi-
town ized And Apart- Family Family
Manor Parcels Other ments Houses Houses Total
<S> <C> <C> <C> <C> <C> <C>
10 300 40 3
77
77
$2,170,643 $ 977,540 $ 550,553 $ 743,029 $ 879,663 $ 7,482,413
$197,145 (322,148)
15,512 123,507 11,155 33,056 75,394 125,424 502,405
343,888 369,105 38,390 968,602 1,668,095 2,177,676 6,466,484
900 15,290 10,120 50,574
16,200 18,000 12,230 13,016 77,046
573,645 2,356,397 1,027,085 1,580,331 2,498,748 3,195,779 14,578,922
11,782 1,593,904 2,139,366 4,750,173
573,645 2,356,397 1,015,303 1,580,331 904,844 1,056,413 9,828,749
573,645 28,840 904,844 1,056,413 4,905,558
2,356,397 639,288 2,995,685
347,175 1,580,331 1,927,506
$573,645 $2,356,397 $1,015,303 $1,580,331 $ 904,844 $1,056,413 $ 9,828,749
</TABLE>
<TABLE>
<CAPTION>
Residential
& Commercial Residential
Land & Commercial
Estimated Additional Costs To Be Development Construction Total
Incurred In Next 5 Years
<S> <C> <C> <C>
1996 $2,974,000 $7,016,000 $ 9,990,000
1997 2,244,000 9,534,000 11,778,000
1998 614,000 7,422,000 8,036,000
1999* 174,000 6,102,000 6,276,000
2000* 1,791,000 4,782,000 6,573,000
<FN>
* Incomplete Data
</TABLE>
F-25
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 13 Business Segment Information
<TABLE>
<CAPTION>
For The Year Ended October 31, (000's)
1996 1995
Develop- Develop-
ment, ment,
Con- Rental Con-
Rental & struction & struction
General & PUC General & PUC
Operations Activities Total Operations Activities Total
<S> <C> <C> <C> <C> <C> <C>
Gross
Operating
Revenue $ 801 $ 9,488 $10,289 $1,080 $ 9,205 $10,285
Costs &
Operating
Expenses 785 7,442 8,227 975 7,649 8,624
Depreciation
Expense 269 62 331 329 46 375
Operating
Income (Loss)
(253) 1,984 1,731 (224) 1,510 1,286
Total
Identifiable
Assets 7,861 11,569 19,430 8,704 10,332 19,036
Capital
Expendi-
tures $ 16 $ 119 $ 135 $ 98 $ 1,064 $ 1,162
</TABLE>
F-26
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 14 Concentration Of Credit Risks
The Company's customers are the general public for the rental of apartments
in its rental project and customers, mostly its tenants, to which water
utility services are provided. The Company has historically incurred
minimal credit losses.
From time to time the Company maintains cash deposits with its principal
bank in excess of the FDIC insured limits.
The Company began financing certain of the sales of its townhouses during
1993. The mortgage originator, in whose name the mortgage is recorded as a
first mortgage on the townhouse sold, assigns the mortgage note to the
Company, which assumes all of the market and credit risks related to the note.
As of October 31, 1995 and 1996, the Company held $186,682 and $61,807
respectively of these mortgage note assignments. The Company's interest in
the underlying collateral is not perfected in that it is the Company's policy
to not record the mortgage note assignments with the Butler County Recorder
of Deeds. The Company recognized gains of $340 in 1996 and $24,163 in 1995
on these mortgage notes as a result of changes in market interest rates.
The Company will continue to be susceptible to possible future losses as
long term interest rates continue to fluctuate. The risk of such losses can
be somewhat mitigated by the higher yield earned on the mortgage note
assignments held by the Company, than it earns on other funds it invests
short term.
Note 15 Environmental Matters
The Company knows of no environmental risks associated with its properties
and operations.
Note 16 Related Party Transactions
A shareholder and director of Seven Fields PA provided the Company with
certain design and architectural services and was paid $210 for such
services. In addition, the law firm in which a director of Seven Fields PA
is a principal was paid $8,445 for legal services provided to the Company.
The Company's management believes that the Company received services of
economic value equivalent to the amounts paid.
The Company made available a $135,000 construction loan to a homeowners
association of property owners which have purchased the Company's townhouses.
The loan bears interest at 10.25% with principal and interest payments of
$1,803 beginning December 1, 1996. The loan is to be used for certain
improvements to townhouses in the Castle Creek development, and is secured
by all present and future homeowner's fees. The loan matures November 1,
2001. The total amount outstanding at October 31, 1996 was $8,240.
F-27
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 17 Subsequent Events
Additional Distribution on General Unsecured Debt
The Company made its fifth distribution in partial repayment of its
General Unsecured Debt on December 12, 1996, in the amount of $997,932 or
approximately 1 1/2% of the original amount of this debt.
F-28
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3.1 Deed of Trust of the Registrant (5)
3.2 By-Laws of the Registrant (5)
4.1 Excerpt of Amended Plan of Reorganization (1)
4.2 Specimen Certificate for shares of beneficial interest
in Registrant (5)
4.3 Specimen Note representing general unsecured subordinated
debt of Registrant after separation of stock and debt (2)
4.4 Shareholder Protection Rights Agreement (3)
4.5 Amendment dated October 11, 1994 to Shareholder Protection
Rights Agreement (5)
10.1 Rates, rules and regulations governing the distribution of
water service - PA Public Utility Commission (3)
10.2 Plan and Agreement of Merger between the Registrant and
Seven Fields Development Corporation (5)
10.3 Mortgage Note dated October 28, 1994 of the Registrant to
PNC Bank, National Association (6)
10.4 Open End Mortgage and Security Agreement dated October 28,
1994 between the Registrant and PNC Bank, National
Association (6)
10.5 Assignment of Rents, Leases and Profits dated October 28,
1994 between the Registrant and PNC Bank, National
Association (6)
10.6 Amendment to Loan Documents of October 28, 1994 and release
from mortgage between registrant and PNC Bank, National
Association dated May 1, 1996.
10.7 Amendment to Loan Documents of October 28, 1994 related to
financial covenant for the maintenance of minimum tangible
net worth, between the Registrant and PNC Bank, National
Association.
10.8 Surety Agreement dated October 28, 1994 between the
Registrant and Allegheny Surety Company (6)
10.9 Mortgage dated October 28, 1994 between the Registrant and
Allegheny Surety Company (6)
10.10 Settlement Agreement with former majority shareholder (7)
<PAGE>
10.11 Promissory Note dated November 29, 1995 to PNC Bank (7)
10.12 Open End Mortgage and Security Agreement dated
November 29, 1995 to PNC Bank (7)
10.13 Assignment of Rents dated November 29, 1995 to PNC Bank (7)
10.14 Revolving Line of Credit Loan Agreement dated November 13,
1995 between the Registrant and Integra Bank (7)
10.15 Open End Mortgage and Security Agreement dated November 13,
1995 between the Registrant and Integra Bank (7)
10.16 Agreement for Assignment of Sales Agreements and Contract
Deposits dated November 13, 1995 between the Registrant
and Integra Bank (7)
10.17 Office Lease dated August 1, 1995 between the Registrant
and The Borough of Seven Fields (7)
10.18 Management and Administrative Services Agreement dated
April 30, 1995 (7)
10.19 Revolving line of credit loan agreement, open-end mortgage
and security agreement, and revolving line of credit note
dated August 13, 1996 between the Registrant and First
Western Bank National Association.
10.20 Revolving line of credit loan agreement, open-end mortgage
and security agreement, cross-default agreement, and
revolving line of credit note dated November 25, 1996 between
the Registrant and First Western Bank National Association.
27 Financial Data Schedule - 1996
<PAGE>
(1) Filed as exhibit to the Registrant's Registration Statement
on Form 10 filed October 23, 1989 and incorporated herein by
reference.
(2) Filed as exhibit to the Registrant's Annual Report on Form
10-K filed February 13, 1991 and incorporated herein by
reference.
(3) Filed as exhibit to the Registrant's Annual Report on
Form 10-K filed January 29, 1992 and incorporated herein by
reference.
(4) Filed as exhibit to the Registrant's Annual Report on
Form 10-K filed on February 10, 1993 and incorporated
herein by reference.
(5) Filed as exhibit to Registration Statement on Form S-4,
File No. 33-85102, and incorporated herein by reference.
(6) Filed as exhibit to Registrant's Annual Report on
Form 10-KSB filed January 27, 1995 and incorporated herein
by reference.
(7) Filed as exhibit to Registrant's Annual Report on
Form 10-KSB filed January 26, 1996 and incorporated herein
by reference.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<CASH> 401,870
<SECURITIES> 53,755
<RECEIVABLES> 287,973
<ALLOWANCES> 57,552
<INVENTORY> 10,653,625
<CURRENT-ASSETS> 0
<PP&E> 5,649,019
<DEPRECIATION> (2,083,587)
<TOTAL-ASSETS> 19,430,106
<CURRENT-LIABILITIES> 0
<BONDS> 61,161,429
<COMMON> 3,484,560
0
0
<OTHER-SE> (46,590,991)
<TOTAL-LIABILITY-AND-EQUITY> 19,430,106
<SALES> 9,487,397
<TOTAL-REVENUES> 10,288,781
<CGS> 6,708,350
<TOTAL-COSTS> 8,557,985
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,517
<INCOME-PRETAX> 1,705,002
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,705,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,705,002
<EPS-PRIMARY> .49
<EPS-DILUTED> 0
</TABLE>
AMENDMENT TO LOAN DOCUMENTS
THIS AMENDMENT TO LOAN DOCUMENTS (this "Amendment") is made as of [May 1],
1996, by and between SEVEN FIELDS DEVELOPMENT COMPANY successor by merger
to SEVEN FIELDS DEVELOPMENT CORPORATION (the "Borrower") and PNC BANK,
NATIONAL ASSOCIATION (the "Bank").
WITNESSETH:
WHEREAS, the Borrower has executed and delivered to the Bank a note dated
October 28, 1994 in the original principal amount of One Million Seven
Hundred Thousand Dollars ($1,700,000) (the "Note"), pursuant to a loan
agreement dated October 98, 1994 (the "Agreement"), to evidence the
Borrower'sindebtedness to the Bank for a certain loan (the "Loan");
WHEREAS, the Borrower has executed and delivered to the Bank (a) a
mortgage instrument securing, among other things, the Note, dated October
28, 1994, and recorded on [October 28], 1994, in the Office of the Recorder
of Deeds of Butler County, Pennsylvania (the "Butler Recorder's Office''),
in Mortgage Book Volume [2479], Page [538-556] covering certain property
situate in said County and State, as more fully described in said mortgage
(the "Mortgage"); and (b) an Assignment of Rents, Leases and Profits, dated
October 28, 1994, and recorded on [October 28], 1994, in the Butler
Recorder's Office in, [Mortgage] Book Volume [2479] [Page 557-563] (the
"Assignment") (the Agreement, the Note, the Mortgage, the Assignment and
any and all other documents, instruments and certificates now or hereafter
given to evidence, secure, or otherwise support the Loan, as the same may
be amended from time to time, collectively, the "Loan Documents");
WHEREAS, the Borrower and the Bank desire to amend the Loan Documents as
provided for below;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and intending to be legally bound hereby, the parties hereto agree as
follows:
1. The Loan Documents are amended as set forth in Exhibit A attached hereto
and made a part hereof. Any and all references to any of the Loan Documents,
in any other Loan Document, shall be deemed to refer to the Loan Documents
as amended hereby. Any initially capitalized terms used in this Amendment
without definition shall have the meanings assigned to those terms in the
Loan Documents.
2. This Amendment is deemed incorporated into the Loan Documents. To the
extent that any term or provision of this Amendment is or may be deemed
expressly inconsistent with any term or provision in the Loan Documents,
the terms and provisions hereof shall control.
3. The Borrower hereby represents and warrants that (a) all of its
representations and warranties in the Loan Documents are true and correct,
(b) no default or Event of Default exists under the Loan Documents, and (c)
this Amendment has been duly authorized, executed and delivered and
constitutes the legal. valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
<PAGE>
4. The Borrower hereby confirms that any collateral for the Loan, including
but not limited to liens, security interests, mortgages. and pledges granted
by the Borrower or third parties (if applicable), shall continue unimpaired
and in full force and effect.
5. This Amendment may be signed in any number of counterpart copies and by
the parties hereto on separate counterparts, but all such copies shall
constitute one and the same instrument.
6. This Amendment will be binding upon and inure to the benefit of the
Borrower and the Bank and their respective successors and assigns.
7. Except as amended hereby, the terms and provisions of the Loan Documents
remain unchanged and in full force and effect. Except as expressly provided
herein, this Amendment shall not constitute an amendment, waiver, consent
or release with respect to any provision of the Loan Documents, a waiver of
any default or Event of Default thereunder, or a waiver or release of any
of the Bank's rights and remedies (all of which are hereby reserved). The
Borrower expressly ratifies and confirms the confession of judgment and
waiver of jury trial provisions (if applicable).
WITNESS the due execution hereof as a document under seal, as of the date
first written above.
WITNESS / ATTEST:
Samuel A. Goldberg
______________________________
Print Name: Samuel A. Goldberg
SEVEN FIELDS DEVELOPMENT COMPANY, a Pennsylvania Business Trust by Seven
Fields Management Co., Inc., Trustee
By Roman Polnyj (SEAL)
Print Name: Roman Polnyj
Title: Chief Financial Officer
Name: J. Ronald Geyer
PNC BANK, NATIONAL ASSOCIATION
By: Robert C. Foley
(SEAL)
Print Name: Robert C. Foley
Title: Vice President
<PAGE>
AMENDMENT TO LOAN DOCUMENTS
EXHIBIT A
1. Seven Fields Development Company ("Company"), successor by merger to
Seven Fields Development Corporation ("Corporation") has as of the date of
such merger assumed and hereby expressly ratifies its assumption, of the
obligations and liabilities of the Corporation pursuant to the Loan Documents
in accordance with their respective terms as though the Loan Documents
had originally been made, executed, delivered and recorded. as the case may
be, by the Company. Further, the Company hereby expressly agrees to be
bound by each and every term, condition, representation, warranty and
covenant contained in the Loan Documents executed and delivered by the
Corporation.
2. The name "Seven Fields Development Corporation" is hereby deleted from
the Loan Documents and the name "Seven Fields Development Company" is
hereby inserted in lieu thereof wherever it appears.
3.The Borrower represents and warrants to the Bank that:
(a) It has the full power, authority and legal right to execute and deliver
this Amendment and to perform and observe the terms and conditions hereof.
(b) There is no law, ordinance, decree or regulation and no trust agreement
or similar instrument of the Borrower, and no provision of any existing
mortgage, indenture, contract, license, franchise, concession or agreement
binding on the Borrower which would be contravened by the execution,
delivery or performance of this Amendment.
(c) The Borrower is duly organized, validly existing and in good standing
as a Business Trust under the laws of Pennsylvania.
4.This Amendment shall be effective upon the fulfillment of the following
conditions precedent, including receipt by the Bank of the following
documents, which in all cases shall be in form and substance satisfactory
to the Bank:
(a) This Amendment, duly executed by the Borrower and the Bank.
(b) A Consent of Guarantor, to be executed by Seven Fields, PA, Inc. in
form attached hereto.
(c) UCC-3 Financing Statements, in the form attached hereto, executed by
the Bank and the Borrower.
<PAGE>
5. The Lots described in the Release from Mortgage attached herein shall be
released from the lien of the Mortgage upon recordation of such Release.
Exhibit A "Legal Description", to the Mortgage is hereby deleted in its
entirety and replaced with "Exhibit A, Legal Description" attached hereto.
6. Paragraph 19 of the Mortgage is hereby amended by increasing the
$29 310 "Release Amount" set forth in the ninth line of such paragraph to
a "Release Amount" of $36,184.
COMMONWEALTH OF PENNSYLVANIA )
COUNTY OF
) ss:
On this, the day of March, 1996, before me, a Notary Public, the undersigned
officer, personally appeared, who acknowledged himself/herself to be the of
Seven Fields Management Co., Inc., Trustee of Seven Fields Development
Company, a Pennsylvania Business Trust, and that he/she, in such capacity,
being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing on behalf of said Company.
IN WITNESS WHEREOF. I hereunto set my hand and official seal.
Notary Public My commission expires:
COMMONWEALTH OF PENNSYLVANIA)
COUNTY OF)
ss:
On this, the day of March, 1996, before me, a Notary Public, the
undersigned officer, personally appeared
who acknowledged himself/herself to be the of Seven Fields, Pa.,
Inc., and that he/she, as such officer, being authorized to do so. executed
the foregoing instrument for the purposes therein contained by signing on
behalf of said corporation as such of officer.
IN WITNESS WHEREOF I hereunto set my hand and official seal.
My commission expires:
Notary Public
<PAGE>
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF [Allegheny] ) ss:
On this, the day of March, 1996, before me, a Notary Public, the
undersigned officer, personally appeared [Robert C. Foley], who acknowledged
himself/herself to be the Vice President of PNC BANK, NATIONAL ASSOCIATION
and that he/she, as such officer, being authorized to do so, executed the
foregoing instrument for the purposes therein contained by signing on behalf
of said bank as such officer.
IN WITNESS WHEREOF. I hereunto set my hand and official seal.
My commission expires:
Notary Public
CONSENT OF GUARANTOR
The undersigned guarantor hereby consents to the provisions of the foregoing
Amendment to Loan Documents and confirms and agrees that the undersigned's
obligations under the Commercial Guaranty dated [November 29], 1995 (the
"Guaranty"), shall be unimpaired by the Amendment and that the undersigned
has no defenses or set offs against the Bank, its officers, directors,
employees, agents or attorneys with respect to the Guaranty and that all of
the terms, conditions and covenants in the Guaranty remain unaltered and in
full force and effect and are hereby ratified and confirmed. The undersigned
hereby certifies that the representations and warranties made in the Guaranty
are true and correct. The undersigned hereby ratifies and confirms the
confession of judgment and waiver of jury trial provisions (if applicable)
contained in the Guaranty.
WITNESS the due execution hereof as a document under seal, as of May 1,
1996. intending to be legally bound hereby.
ATTEST WITNESS:
Samuel A. Goldberg
<PAGE>
Seven Fields PA, Inc.
Roman Polnyj
Title: Chief Financial Officer
(SEAL)
RELEASE FROM MORTGAGE
From: Seven Fields Development,
Corporation (predecessor to Seven
Fields Development Company)
Mortgagor
To: PNC Bank, National Association, Mortgagee
Assigned to:
Assignee
Assignment Dated:
Recorded On: _, in
Mortgage Book Vol. , Page
: Mortgage Dated: October 28, 1994
: Mortgage Recorded. October 28, 1994
: in Mortgage Book Volume [2479, Page 538-556],
: in the Recorder's Office of Butler County,
: Pennsylvania
: Debt: $1,700,000
WHEREAS, the Mortgagor identified above, pursuant to the Mortgage
identified above, granted and conveyed unto PNC BANK, NATIONAL ASSOCIATION,
its successors and assigns, or a predecessor now known by that name pursuant
to a merger or change of name (the "Mortgagee"), the premises more
particularly described in said Mortgage (the "Mortgaged Premises"), to
secure the payment of that certain debt or principal sum identified above,
together with interest and the other Obligations set forth in said Mortgage;
WHEREAS, the Mortgagor has requested the Mortgagee to release from the
lien of the Mortgage the premises described in Exhibit "A" attached hereto
and made part hereof, which premises constitute a portion, but not all of,
the Mortgaged Premises;
NOW, THEREFORE, the Mortgagee, in consideration of the premises and
the sum of ONE DOLLAR ($1.00) lawful money to it in hand paid by the
Mortgagor and for other valuable consideration, the receipt of which is
hereby acknowledged, and intending to be legally bound, has remised,
released, quitclaimed, exonerated and discharged, and by these presents
does remise, release, quit-claim, exonerate and discharge unto the Mortgagor,
its heirs, executors, administrators, successors and assigns, all that
certain lot or piece of ground described in Exhibit "A" attached hereto,
together with the buildings and improvements thereon erected.
TO HOLD THE SAME, with the appurtenances, unto the Mortgagor, its heirs,
executors, administrators, successors and assigns, forever freed,
exonerated and discharged of and from the lien of the Mortgage, and every
part thereof.
PROVIDED, always, nevertheless, that nothing herein contained shall in
any way affect, alter or diminish the lien or encumbrance of the Mortgage
on any remaining part of the Mortgaged Premises, or the remedies at law for
recovering against the Mortgagor, and its heirs, executors, administrators,
successors and assigns, for the Obligations secured by the Mortgage.
WITNESS the due execution hereof this 30th day of April, 1996
WITNESS / ATTEST:
J. Ronald Geyer
Print Name: J. Ronald Geyer
STATE OF
COUNTY OF
PNC BANK, NATIONAL ASSOCIATION
By Robert C. Foley
(SEAL)
Robert C. Foley
Title: Vice President
) ss:
On this, the day of ,before me, a Notary
Public, the undersigned officer, personally appeared
who acknowledged himself/herself to be the
of
PNC BANK NATIONAL ASSOCIATION
and that he/she, as such officer, being authorized to do so, executed the
foregoing instrument for the purposes therein contained by signing on
behalf of said bank as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
My commission expires:
Notary Public
<PAGE>
EXHIBIT "A"
DESCRIPTION OF RELEASED PROPERTY
ALL THOSE CERTAIN LOTS OR PIECES OF GROUND situate in the Borough of Seven
Fields, County of Butler and Commonwealth of Pennsylvania, being part of
the CASTLE CREEK PLAN OF LOTS, as recorded in the Butler County Recorder's
Office at Plan Book Volume 163, Pages 4650, being designated as follows:
PHASE 2, LOT NO. 1,
Units 201, 202, 203, 204, 205 and 206
PHASE 2, LOT NO. 2,
Units 207, 208, 209, 210, 211 and 212
PHASE 2, LOT NO. 3,
Units 213, 214, 215, 216, 217 and 218
PHASE 2, LOT NO. 4,
Units 219, 220, 221 and 222
[DESCRIPTION] EXHIBIT
PNC Bank, NA
Fox Chapel Office
1105 Freeport Road
Pittsburgh, PA 15238
January 13, 1997
Mr. Roman Polnyi
Chief Financial Officer
Seven Fields Development Co.
2200 Garden Drive Suite 200
Mars, PA 16046-7846
Dear Mr. Polnyj:
This letter is intended to clarify and amend both the "Minimum Tangible Net
Worth" and "Prohibition Against Additional Indebtedness" loan covenants
contained in the following commercial loans:
Account Number
9127059-00018
9127059-00026
Original Amount
$1,700,000.00 $ 750,000.00
Dated
10/28/94 12/13/95
First the loan covenants established are intended to spread across all
loans and lines of credit.
Second, on December 14, 1994, we amended the minimum Tangible Net Worth
covenant to provide for the amount to decline from $12,425,000 to
$11,000,000.00 during the fiscal year. However at fiscal year end, it would
be required to return to $12,425,000 or greater.
Third, we hereby further amend the Minimum Tangible Net Worth covenant
applicable to all outstanding loans and lines of credit effective
December 5, 1996 as follows:
Both Seven Fields Development Co. (Borrower) and Seven Fields (PA) Inc.
(Guarantor) will maintain at all times a minimum Tangible Net Worth of
$10,000,000.00. Tangible Net Worth means Tangible Net Worth plus general
unsecured subordinated debt less the deferred tax asset.
PNC Bank hereby waives the fact that the covenant may have been below the
established threshold during the company's last fiscal year.
Finally, we hereby amend the covenant for a prohibition against additional
indebtedness to apply only to loans for land development uses only. Again,
this provision will be applicable to all loans and lines of credit.
I believe that this letter should cover all the issues we discussed recently.
If I have omitted anything, or there are any questions, please telephone me
at 7813252.
Sincerely,
Robert C. Foley
Robert C. Foley
Vice President
REVOLVING LINE OF CREDIT LOAN AGREEMENT
MADE as of the 13th day of August,1996, between SEVEN FIELDS DEVELOPMENT
COMPANY, a Pennsylvania business trust (the "Borrower"), and FIRST WESTERN
BANK, NATIONAL ASSOCIATION, a national banking association (hereinafter
referred to as the "Lender").
WITNESSETH:
WHEREAS, Borrower desires to arrange for a revolving line of credit
loan (the "Loan" or "Line of Credit") from Lender to enable it to borrow,
repay and reborrow from Lender from time to time sums not to exceed the
principal amount of ONE MILLION DOLLARS ($ 1,000,000) at any one time
outstanding (the "Maximum Loan Amount") to finance the construction of
certain Buildings and Units (collectively, the "Improvements"), and Lender
is willing to extend such credit to Borrower subject to the terms and
conditions hereinafter set forth; and
WHEREAS, the Loan is evidenced by a Revolving Line of Credit Note (the
"Note") dated the date hereof and is secured, inter alia, by an Open-End
Mortgage and Security Agreement, dated the date hereof, as more fully
described herein (the "Mortgage").
NOW, THEREFORE, in consideration of the premises, the parties hereto,
declaring their intention to be legally bound hereby, covenant and agree as
follows:
1. General Loan Terms.
(a) Loan Purpose. The purpose of the Loan is to provide funding to
Borrower for construction of twenty-four (24) fourplex buildings (the
"Building(s)") each consisting of four (4) single family townhomes (the
"Unit(s)"), each Unit located on a lot (the "Lot"), in the Hawthorne
Commons Plan, which is recorded in the Butler County, Pennsylvania
Recorder's Office at Plan Book Volume 192, Page 31-34, provided that, at
any given time, Borrower shall not be constructing more than three (3)
Buildings or twelve (12) Units.
(b) Loan Advances. Subject to the conditions hereinafter contained,
from time to time after the date hereof, Lender shall advance the proceeds
of the Loan (the "Loan Proceeds") to Borrower. In no event shall Lender be
obligated to advance Loan proceeds in an aggregate amount exceeding (a)
Eighty Thousand Dollars ($80,000) per Unit and (b) an aggregate of ONE
MILLION DOLLARS ($1,000,000) at any one time outstanding. No advances
for interest due under the terms of the Note will be made under the Line
of Credit. Notwithstanding the foregoing, Lender shall not be required to
advance Loan Proceeds at Borrower's request if the required payments from
Borrower under the Line of Credit are not current or if Borrower has
otherwise failed to provide required information or documentation under
the terms of this Revolving Line of Credit Loan Agreement.
(c) Maturity Date. Total advances for Improvements under the Loan,
together with all
<PAGE>
accrued interest thereon, and any other sums or costs advanced by Lender in
connection therewith, shall be due and
payable on August 31, 1997 (the "Maturity Date"), unless the Loan is
extended in accordance with the terms of the Note or earlier due by
acceleration or otherwise. Funding under the Line of Credit shall terminate
at maturity.
(d) Application of Earnest Money. Upon receipt of each earnest money
deposit from each Buyer under an Approved Contract for the sale of a Lot
and its Unit, Borrower shall deliver such amount to Lender, and such
amount shall be held by Lender and then subsequently advanced for the
construction of Improvements subject to Lender's right of inspection and
approval of Improvements and disbursement requests as set forth in
paragraph l(f) below, and further subject to the disbursement procedures
hereinafter set forth. Upon disbursement of the earnest money for
construction of the Improvements, such proceeds shall not be considered
Loan proceeds.
(e) Closing Agenda Documents and Exhibits. Prior to the first
disbursement of Loan proceeds, Borrower must execute or cause to be executed
in form and content acceptable to Lender, and must supply to Lender all
documents and exhibits which are listed on the Closing Agenda attached
hereto as Exhibit "A".
(f) Inspection. Lender's agent and/or another inspector (the "Inspector")
selected and approved by Lender shall have the right to inspect all
Improvements and the progress of the construction thereon, including, but not
limited to the right to inspect any improvements prior to any advance of any
funds under the Loan. All disbursement requests, the design of the
Improvements and work to be performed and the construction of the
Improvements shall be satisfactory to and approved by Lender and, at
Lender's option, the Inspector. Borrower shall reimburse Lender for all
inspection fees, which reimbursement shall occur prior to each advance of
Loan Proceeds for any Improvements .
(I) Definitions.
Approved Contract. A bona fide agreement of sale for the Lot and the
Unit thereon executed by third parties and Borrower, which agreement of
sale and construction contract are acceptable to Lender with respect to terms,
form and content.
Buildings(s) As defined in Section l(a) above.
Commitment. That certain commitment letter with respect to the Loan by
Lender to Borrower, dated April 15, 1996 and accepted by Borrower on May 2,
1996.
Improvements. Collectively, the Buildings and the Units.
Loan Closing. The date of execution of this Agreement, the Note, and
the remaining Loan Documents.
<PAGE>
Loan Documents. All documents and items considered by Lender to be
related to the Loan, including but not limited to (a) the Note; (b) the
Mortgage; (c) this Revolving Line of Credit Loan Agreement; and (d) all
other miscellaneous loan documents. All Loan Documents be in form and
substance satisfactory to Lender.
Lab A lot on which Improvements are being constructed.
Mortgaged Premises. Any Lot and/or Improvements encumbered by the
Mortgage.
Mortgage. The Open-End Mortgage and Security Agreement executed by
Borrower in favor of Lender on the date hereof encumbering, inter alia, the
Lots and Improvements.
Tangible Net Worth. The excess of Borrower's total assets over
Borrower's total liabilities. Total assets and total liabilities shall be
determined in accordance with generally accepted accounting principles
consistently applied excluding, however, from the determination of total
assets all assets which would be classified as intangible assets under
generally accepted accounting principles including, without limitation,
goodwill, patents, trademarks, trade names, copyrights and franchises.
Units The single family townhouse units in Seven Fields Borough,
Butler County, Pennsylvania, being constructed by Borrower, which homes are
being financed under the Loan.
(j) Loan Fees. The following Loan Fees shall be payable by Borrower in
such amounts and at such times and installments as follows:
(I) Commitment Fee. For each Unit, Borrower shall pay to Lender a
Commitment Fee equal to one-half of one percent (.50%) of the portion of
the Loan Proceeds allocated (as determined by Lender) for that specific Unit.
Each Commitment Fee for each Unit shall be payable at the time of the first
requisition of funds by Borrower under the Loan Agreement for each such Unit.
(k) Maximum Amount of Advance for Lot and Improvements.
(I) Maximum Amount of Improvements Which May Be Financed Under the
Line of Credit. Borrower shall be limited to financing no more than twelve
(12) Units in three (3) Buildings at any one time under this Line of Credit.
(ii) Construction of a Unit on any Lot shall not be commenced until
all requirements for the commencement of construction under this Loan
Agreement have been met. In no event shall construction of a Unit begin
later than sixty (60) days following the first disbursement with respect to
the Building in which such Unit is located. Advances for the construction
of Improvements will be limited to Eighty Thousand Dollars ($80,000)
per Unit.
<PAGE>
(iii) At no time will the outstanding principal balance of the Loan
exceed the sum of One Million Dollars ($1,000.000).
Representations and Warranties. Borrower hereby represents and
warrants to Lender (all such representations and warranties being deemed to
be continuously made until the Loan shall have been paid in full) as
follows:
(a) That Borrower is a corporation duly organized, existing and in
good standing under the laws of the Commonwealth of Pennsylvania, and has
full power and authority to own and operate its properties, to conduct its
affairs as now being conducted, to execute and deliver this
Agreement, the Note, and the Loan Documents, and to perform the obligations
hereunder and thereunder;
(b) That all Loan Documents are enforceable and binding against
Borrower in accordance with their respective terms;
(c) That the execution and delivery of the Loan Documents have been duly
authorized by all necessary action on the part of Borrower, and all borrows
contemplated or permitted by the provisions hereof have been, or at the
time of each such borrowing, shall have been, duly authorized by all
necessary action on the part of Borrower, and the Loan Documents constitute
valid and legally binding agreements of the parties thereto, enforceable
in accordance with their respective terms;
(d) That the financial information provided to Lender with respect to
Borrower is accurate and complete and has been prepared in accordance with
generally accepted accounting principles consistently applied and further
that there has been no adverse change in the financial condition or
business of Borrower since the date of such information;
(e) That there are no current, pending or threatened suits or
administrative proceedings, judgments entered of record against or involving
Borrower, or any directly related affiliates.
(f) That Borrower has made a full and true disclosure of pertinent
financial and other information to Lender in connection with Borrower's
application for this Loan;
(g) That Borrower has not made any representation or warranty to
Lender that contains a misrepresentation or untrue statement or omits any
material fact, and Borrower knows of no fact which now or will hereafter
adversely affect the financial condition of Borrower;
(h) That Borrower has disclosed to Lender the existence of all
subsidiaries and affiliates of Borrower;
(I) That Borrower has fee simple title to all Lots, unencumbered with
the exception of the lien of the Mortgage, and subject only to title
exceptions as Lender may approve, and, with
<PAGE>
regard to any and all collateral provided, that there are and will not be
any liens thereon except those permitted by Lender;
(j) That Borrower has met any and all tax obligations or the reserves
against such tax obligations;
(k) That Borrower has all necessary licenses and permits to conduct its
business;
(I ) That, if applicable, Borrower is in compliance with ERISA, is not
materially liable thereunder, and there exists no reportable events;
(m) That there does not exist, nor will Borrower permit to exist, any
hazardous substance (as such term is defined by any federal, state or local
law or regulation) in or on any property owned, leased, controlled or
operated by Borrower which is not stored, contained or used in compliance
with all applicable laws and regulations and there has not been any
seepage, spill, release or discharge of any hazardous substance on or from
any such property;
(n) That no Event of Default has occurred nor is there any event
that has occurred which, with the passage of time or notice, would
constitute an Event of Default.
3. Conditions for Advances of Loan Proceeds.
(a) Prior to any advance by Lender, Lender shall have received
(without cost or expense to Lender) the following with respect thereto,
all in such form and content as the Lender may require:
(I) a written request from Borrower specifying and including the
following information: (aa) the amount of the advance requested; (bb) the
purpose of the advance; and (cc) the Request for Disbursement form attached
hereto as Exhibit C with all attachments;
(ii) an ALTA policy of title insurance insuring that Lender's
Mortgage is a first lien against the fee simple title, free and clear of
all liens and encumbrances and other types of policy exceptions, except
those approved by Lender, and containing such endorsements as to survey,
access and other matters as Lender may require;
(iii) a survey or plot plan which shall certify the location and
dimensions of the Lots, including all easements and rights-of-way as
acceptable to the title company issuing the ALTA policy of title insurance
referenced in subparagraph (a)(iii) above;
(iv) effective lien waivers and releases from Borrowers' contractor,
all other contractors, subcontractors, suppliers and other persons having
a right to file a mechanic's or materialmen's lien with respect to all work,
materials and services for which the loan proceeds are being requested and
all future work, materials and services, including, without limitation, the
execution, delivery and filing with the Prothonotary of Butler County,
Pennsylvania a No-Lien
<PAGE>
Agreement between Borrower and its contractor in advance of the commencement
of construction of any work on the Mortgaged Premises.
Further, no Event of Default as herein defined shall have occurred.
(b) Advances for Improvements. Prior to any advance by Lender with
respect to the initial construction of the Building or Unit on any Lot,
Lender shall have received (without cost or expense to Lender) the following
with respect thereto all in such form and content as Lender may require:
(I) a written request from Borrower specifying and including the
amount of total advances requested for the specific Improvement;
(ii) detailed final plans and specifications (the "Plans") and cost
breakdown and/or Approved Contract (if one has been entered into by such
point), all being acceptable to Lender, and all being certified by Borrower
and containing such information and in such form as Lender may require for
the construction and equipping of the Improvements;
(iii) prior to the commencement of construction and any advance with
respect to any Building, an appraisal of the Lots and the proposed Building
and the Units therein satisfactory to Lender (the "Appraisal"). Borrower
shall reimburse Lender for all fees of the Appraiser;
(iv) evidence satisfactory to Lender that no work has begun on the Lot
and no materials or supplies had been delivered thereto prior to the
recording of the Mortgage, and that no municipal improvements are
contemplated that could result in a lien against the Lot, except as
otherwise approved by the Lender;
(v) Builder's risk, workmen's compensation and hazard and public
liability and property damage insurance satisfactory to Lender with respect
to the Improvements to be constructed on such Lot with standard mortgagee
clauses naming Lender as first mortgagee and flood insurance, if required,
or such proof as Lender may require as to the location of such Lot with
respect to areas
within the applicable 100 year flood plain as determined by the United States
Army Corp of Engineers; furthermore, all insurance policies shall contain a
clause giving the Lender thirty (30) days' prior written notice before
cancellation by the insuring company and shall indicate Lender's address
as "First Western Bank, National Association, 250 Insurance Street, Suite
100, Beaver,
Pennsylvania 15009." Borrower shall be required to provide Lender, at
closing, with an original policy of insurance or a certified copy of same,
signed by the agent, naming Lender as the Mortgagee and/or Loss Payee under
said policy of insurance.
(vi) a survey of the Lot, including the foundation of the Improvements
constructed thereon, which survey shall certify the location and dimensions
of the Lot, including all
<PAGE>
easements and rights-of-way as acceptable to the title company issuing the
ALTA policy of title insurance referenced in subparagraph (a)(iii) above;
(vii) evidence of all governmental approvals required for the construction
of the Improvements, except those approvals which cannot be obtained until
the construction of the Improvements has been completed, as applicable.
Further, no Event of Default shall have occurred hereunder, nor shall there
exist any event or condition which, with the passage of time or the giving
of notice, or both, would constitute such an Event of Default.
(c) Upon compliance with the foregoing conditions as to each Lot and the
Improvements to be constructed thereon, Lender shall advance Loan proceeds
to pay approved costs due and payable by Borrower not more frequently than
once monthly in accordance with Lender's seven stage draw schedule and in
accordance with Lender's standard policy set forth on Exhibit "B" attached
hereto; provided, however, that all advances hereunder are expressly limited
as set forth in this Loan Agreement.
4. Sales of Lots: Release Fees. Upon the conveyance of any Lot(s), Lender
will require, in order to release such Lot(s) from the lien of the Mortgage,
the payment of a release fee ("Release Fee") equal the amount of funds
advanced by Lender under the Loan for such Lot and Improvements thereon.
Notwithstanding the foregoing, Lender shall not be required to release any
Lot from the lien of the Mortgage encumbering that Lot if Borrower is in
default under the Loan. Upon receipt, if Borrower is not in default, the
Release Fee shall be applied to the reduction of the unpaid outstanding
principal balance of the Loan. Otherwise, the Release Fee shall be applied
to accrued interest, principal or other costs of the Mortgaged Premises in
such priority as Lender shall determine. Notwithstanding the foregoing, all
outstanding interest in connection with the Lot being released must be
brought current in order to release such Lot from the lien of the Mortgage.
Expenses incurred by Lender with respect to the preparation and recordation
of the release documents contemplated hereunder shall be calculated by
Lender at the time of issuance of the release information, and payment of
such expenses shall be the responsibility of Borrower.
5. Affirmative Covenants. Borrower covenants that, until the Loan and all
interest accrued thereon shall have been paid in full, unless the prior
written consent of Lender shall have been first obtained, it shall:
(a) Deliver or cause to be delivered to Lender the following financial
statements of Borrower for every twelve (12) month calendar period during
the Loan Term hereof:
(I) A complete set of audited financial statements, including balance
sheets and profit and loss statements, prepared by Borrower's certified
public accountant within ninety (90) days
<PAGE>
following the close of each fiscal year of Borrower, all data being applied
according to generally accepted accounting principles consistently applied,
with all data being prepared according to generally accepted accounting
principles consistently applied;
(ii) Such additional information as Lender may reasonably request of
Borrower.
(b) Keep all insurance required hereby and by the Mortgage in full force
and effect;
(c) Comply with all existing and future laws, ordinances, regulations,
orders and requirements of all governmental, judicial and legal authorities
having jurisdiction over the Lots or Improvements, and with all restrictions
and agreement affecting the Lots or Improvements or Borrower's use or
development thereof;
(d) Use the Loan proceeds solely for the purpose of paying the costs of
constructing the Improvements;
(e) Promptly pay and discharge all claims and liens for labor done and
materials and services furnished in connection with the construction of the
Improvements and not permit any lien or encumbrance to be placed against
any Lot, except the Mortgage to Lender, whether or not such lien or
encumbrance is prior to the lien of such Mortgage;
(f) Upon the request of Lender, provide an endorsement to Lender's ALTA
policy to title insurance for any Lot, which endorsement shall (I) increase
the coverage of the title policy to the amount advanced for acquisition of
such Lot and construction of Improvements thereon, (ii) insure the
continuing first lien priority of the Mortgage on such Lot, and (iii)
confirm continuing coverage against mechanics' liens. After such request,
Lender shall be under no obligation to disburse further Loan proceeds until
Borrower shall have provided such endorsement;
(g) Borrower agrees during the term of the Loan to perform such acts and
provide such additional documentation to Lender as Lender may reasonably
require;
(h) Provide to Lender within seven (7) days of the execution thereof a copy
of any agreement of sale between Borrower and any third party covering any
Lot, which agreement shall specifically set forth a subordination of such
agreement of sale to Lender's Mortgage then on or to be placed on such Lot;
(i) Borrower agrees that all materials delivered to any Lot by materialmen
or suppliers for the purpose of being used in connection with the
construction of the Improvements or to be incorporated in the Improvements
shall be subject to the lien of the Mortgage, as against Borrower and all
parties acting or claiming under or through Borrower;
(j) Borrower will give prompt notice to Lender of any breach or Event of
Default under the Loan Documents, of any material casualty to any of
Borrower's properties or the commencement of any adverse suit or proceeding
involving Borrower, or of any material change in any litigation involving
Borrower;
(k) Borrower will promptly pay all taxes, government charges and liens,
if valid, otherwise, Borrower shall diligently defend and reserve against
same;
(l) Borrower will keep proper and true books of account and records;
(m) Borrower will conform to all laws and regulations applicable to
Borrower;
(n) Borrower will comply with all applicable requirements of EISA and
notify Lender upon the happening of any "reportable event";
(o) Borrower will promptly notify Lender of any change (I) in the senior
management of Borrower, (ii) of Borrower's name, (iii) of any shareholder
holding greater than ten percent (10%) of the shares in Borrower, (iv) or
in Borrower's principal place of business, records, offices, registered
office, location of collateral, Articles of Incorporation, By-laws,
Certificate of Limited Partnership or Partnership Agreement, or
depreciation methods of fiscal year;
(p) Borrower will maintain all of Borrower's property in good repair;
(q) Borrower agrees to indemnify Lender and to hold Lender harmless of an
from any and all liability, loss or damage, including attorney's fees and
costs, which Lender may or might occur by reason of the presence, removal
or disposal of any hazardous wastes or materials (as defined in any
applicable federal, state or local law, regulation or ordinance) present on
or about the Mortgaged Premises;
(r) Borrower agrees at all times during the term of the Loan to maintain a
ratio of Borrower's entire debt obligations (whether or not related to this
Loan, the Lots and the Improvements) ; to - Tangible Net Worth of not less
than .5: 1.
6. Negative Covenants. Borrower agrees that it will not, without prior
written consent of Lender:
(a) Directly or indirectly, create, incur, assume or permit to exist any
indebtedness for borrowed money, except in the normal course of business
(it being understood that Borrower's normal course of business shall include
receiving loans for speculative housing or for the acquisition of equipment)
without the prior written consent of Lender, which consent shall not be
unreasonably withheld;
(b) Directly or indirectly, create, incur, assume, suffer or permit to
exist any mortgage, pledge, lien, security interest or other charge or
<PAGE>
encumbrance upon or with respect to any of its assets, or assign, or
otherwise convey any right to receive income, except in favor of Lender,
except those encumbrances that have already been disclosed to Lender in
writing or which Lender has approved in writing with respect to this Loan
except in the normal course of business (it being understood that
Borrower's normal course of business shall include receiving loans for
speculative housing or for the acquisition of equipment);
(c) Directly or indirectly guarantee, assume, endorse, become a surety or
accommodation party for, or otherwise in any way extend credit or become
responsible for or remain liable or contingently liable in connection
with any indebtedness or other indebtedness of any other person or entity
except guaranties and endorsements made in connection with the deposit of
negotiable instruments and other items for collection or credit in the
ordinary course of business;
(d) Enter into any transaction of merger or consolidation;
(e) Transfer, sell, assign, discount, lease or otherwise dispose of any of
its notes, or other instruments, accounts receivable or contract rights
with or without recourse, except for collection in the ordinary course of
business, or any assets or properties necessary or desirable for the proper
conduct of its business;
(f) Dispose or sell any substantial part of Borrower's property or assets
other than the sales of Lots and Improvements in the ordinary course of
Borrower's business;
(g) Change the nature of its business:
(h) Wind-up, liquidate or dissolve itself or any subsidiary thereof, with
the exception that a subsidiary of Borrower may be dissolved into Borrower
or into another wholly owned subsidiary;
(i) Invest in, transfer any assets to, or do any business through any
subsidiary not previously disclosed in writing to Lender;
(j) Use the Loan Proceeds for any use other than investment into projects
approved by Lender, including without limitation, Borrower shall not use
the Loan Proceeds for the direct or indirect purchase or carrying of
"margin stock";
(k) Insure itself or its property through captive insurance companies or
self insurance; or
(l) Permit to exist any hazardous substance (as such term is defined in any
federal, state or local law or regulation) in or on any property owned,
leased, controlled or operated by Borrower which is not stored, contained
or used in compliance with all applicable laws and regulations or permit
<PAGE>
any seepage, spill, release or discharge of hazardous substance on or from
any such property at any time.
7. Events of Default. If one or more of the following events of default
("Event of Default") shall occur, that is to say:
(a) Borrower shall default in the payment under the Note when due or within
the applicable grace period, if any, set forth therein,
(b) Any representation or warranty herein or in the other Loan Documents or
in any certificate or other document delivered in connection herewith made
shall prove to have been false or misleading in any material respect as of
the time made or deemed to have been made;
(c) Borrower shall default in the performance of any other covenant,
condition or provision hereof and such default shall not be remedied for a
period of thirty (30) days after written notice thereof by Lender;
(d) Any other default shall have occurred in the performance of any
covenant, condition or provision of the Mortgage or the other Loan
Documents that is not cured within the applicable grace period, if any,
set forth therein;
(e) Borrower shall become insolvent or unable to pay their respective debts
as the same shall mature, or there shall be filed by or against Borrower a
petition in bankruptcy or a petition seeking the appointment of a receiver,
trustee or conservator for the Borrower or any portion of their respective
properties, or seeking reorganization or to effect a plan or other
arrangement with or for the benefit of creditors, or if Borrower shall
consent to the appointment of a receiver, trustee or conservator.
(f) If there occurs a default under any note, document, instrument or other
agreement between Lender and Borrower and/or any affiliate of Borrower, any
such default continues after the expiration of any applicable grace
period as provided in said Note, document, instrument or other agreement.
Then, and in any such event, Lender shall not be under any further obligation
to make advances hereunder, and shall have the right to declare the
aggregate unpaid balance of the principal of the Loan, together with all
interest accrued thereon, to be forthwith due and payable, and the same
shall thereupon become due and payable, without any presentment, demand,
protest or notice of any kind, of which or hereby expressly waived, provided
that such sums shall automatically and without notice forthwith become due
and payable upon the occurrence of an Event of Default as set forth in
subparagraph (e) above.
Notice. All notices, demands and requests which may be or are required to
be given hereunder or under the other Loan Security Documents shall be given
in writing and shall be deemed to have been duly given if sent by telefax
<PAGE>
(with a confirming telephone call to confirm receipt), FedEx or other
overnight receipted delivery system, or United States Registered or
Certified Mail, Return Receipt Requested, postage prepaid, addressed to
Lender at 250 Insurance Street, Suite 100, Beaver, Pennsylvania 15009,
Attention: Patrick J. Sentner, and to Borrower at 2200 Garden Drive,
Suite 200, Mars, Pennsylvania 16046-7846, Attention: Roman Polnyj, or to
such other place or places as the parties hereto may for themselves
designate in writing from time to time for the purpose of receiving
notices hereunder.
9. Right of Set-Off. In addition to any other rights it may have under
this agreement or pursuant to law, upon the occurrence of an Event of
Default, any and all moneys now or hereafter in the hands of Lender on
deposit or otherwise, whether in a general or special account, belonging to
Borrower shall immediately become the subject of set-off by Lender against
any indebtedness that shall be in existence hereunder, and any other
liability or liabilities of Borrower to Lender then in existence, whether
said indebtedness and liability or liabilities are due or to become due,
and any such monies may immediately be appropriated by Lender to the payment
of such indebtedness and liability or liabilities in such manner as it shall
see fit. Borrower hereby grants to Lender a security interest in any and
all such monies to secure payment of all sums due hereunder or owing to
Lender pursuant hereto.
10. Cooperation. Borrower will cooperate at all times with Lender in
bringing about the timely completion of the Improvements, and Borrower will
resolve all disputes arising during the work of construction in a manner
that will allow work to proceed expeditiously in order to complete the
Improvements in a diligent and workmanlike manner.
ll. Payment of Expenses. Borrower will pay Lender's out-of-pocket costs and
expenses incurred in connection with the making, disbursement and
administration of the Loan and the construction of the Improvements, the
exercise of any of its rights or remedies under the Loan Documents, and all
other matters related to the transactions contemplated hereby, including
but not limited to title insurance, settlement and escrow charges,
recording charges, transfer, documentary, ad valorem and mortgage taxes,
legal fees and disbursements, and all other reasonable fees and costs for
services. The provisions of this paragraph shall survive the termination of
this Agreement and the repayment of the Loan.
12. Indemnification. With respect to any requisition of Loan proceeds
requested by Borrower, Borrower hereby releases and agrees to indemnify and
defend Lender and hold Lender harmless from and against all liability
whatsoever arising in connection with the payment or nonpayment by Lender
to Borrower and/or any person, firm or corporation whatsoever of all or any
part of the monies advanced by Lender to fund any such requisition, whether
or not such liability is caused by or results from, directly or indirectly,
the negligence of Lender or any other person, firm or corporation and from
any and all suits, claims or damages arising out of disputes between
Borrower and any subcontractor, materialman or supplier, or any municipal
or public authority.
<PAGE>
13. Cross-Collateralization. The Mortgage shall extend to and cover any
additional loans made by Lender to Borrower at any time or times heretofore
or hereafter.
l4. Miscellaneous.
(a) No delay or failure on the part of Lender to exercise any right, power
or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege.
(b) Any waiver by Lender must be in writing and will not be construed as a
continuing waiver. No waiver will be implied from any delay or failure by
Lender to take action on account of any default of Borrower. Consent by
Lender to any act or omission by Borrower will not be construed to be a
consent to any other or subsequent act or omission or a waiver of the
requirement for Lender's consent to be obtained in any future or other
instance.
(c) This Agreement is made and entered into for the sole protection and
benefit Of Lender and Borrower. No trust fund is created by this Agreement
and no other persons or entities will have any right of action under this
Agreement or any right against Lender to obtain any Loan proceeds.
(d) Borrower irrevocably appoints Lender as its attorney-in-fact, with full
power of substitution, to file for record, at Borrower's cost and expense
and in Borrower's name, any notices that Lender considers necessary or
desirable to protect its security.
(e) Lender will have the right, but not the obligation, to commence, appear
in, and defend any action or proceeding that might affect its security or
its rights, duties or liabilities relating to the Loan, the Lots,
Improvements or this Agreement. Borrower will pay promptly on demand all of
Lender's reasonable out-of-pocket costs, expenses and legal fees and
disbursements incurred in those actions or proceedings.
(f) The Note is secured by a Mortgage on real estate situate in the
Commonwealth of Pennsylvania and shall be deemed made under and governed by
the laws of the Commonwealth of Pennsylvania in all respects, including
matters of construction, performance and enforcement. Borrower agrees that
the Courts of Common Pleas of Allegheny County, Butler County, Beaver County
and Lawrence County, Pennsylvania and the United States District Court for
the Western District of Pennsylvania shall have exclusive jurisdiction and
venue with respect to all actions by or against Borrower under or pursuant
to the Note, this Loan Agreement or any other Loan Document, and Borrower
hereby consents to the jurisdiction of such courts and to service of process,
effective upon receipt by personal service, overnight express delivery or
registered or certified mail to Borrower at the address given above. Borrower
shall promptly notify Lender of any change in Borrower's address.
<PAGE>
(g) The terms of this Agreement will bind and benefit the heirs, legal
representatives, successors and assigns of the parties; provided, however,
that Borrower may not assign this Agreement or any Loan proceeds, or assign
or delegate any of its rights or obligations, without the prior written
consent of the Lender.
(h) The invalidity or unenforceability of any one or more provisions of
this Agreement will in no way affect any other provisions.
(i) Whenever the context requires, all words used in the singular will be
construed to have been used in the plural, and vice versa, and each gender
will include any other gender. The captions of the paragraphs of this
Agreement are for convenience only and do not define or limit any terms or
provisions. Time is of the essence in the performance of this Agreement by
Borrower.
(j) This Agreement may not be modified or amended except by a written
agreement signed by the parties.
(k) The terms and conditions of the Commitment are incorporated herein by
reference. All obligations and requirements of the Commitment and Borrower's
obligation to perform thereunder shall survive the execution of this
Agreement and shall continue in full force and effect until all obligations
of both parties hereunder shall terminate and the unpaid principal balance
of the Loan. all accrued interest and all other sums or costs advanced by
Lender have been paid in full. The provisions of the Commitment shall be
deemed supplemental to and not in derogation of the Loan Documents,
however, to the extent of any irreconcilable conflict between the terms of
any of the Loan Documents and the Commitment, the terms, covenants and
conditions of the Loan Documents shall control.
WITNESS the due execution hereof as of the day and year first above written.
LENDER: FIRST WESTERN BANK, NATIONAL ASSOCIATION, a national banking
association By: Patrick Sentner
Title: Commercial Loan Officer
ATTEST: Nathaniel C. Hunter
WITNESS: Patrick J. Sentner
<PAGE>
BORROWER:
SEVEN FIELDS DEVELOPMENT COMPANY, a Pennsylvania business trust
By: Seven Fields Management, Inc., a
Pennsylvania corporation
By: Roman Polnyj
Title: Chief Financial Officer
This execution page is part of the Revolving Line of Credit Loan Agreement
dated as of the 13th day of August, 1996 between Seven Fields Development
Company, and First Western Bank, National Association.
EXHIBIT B
CONSTRUCTION LOAN PAYOUT SCHEDULE
DOCUMENTATION REQUIRED PRIOR TO FIRST ADVANCE:
a. Excavator's Affidavit
b. Building Permit displayed on construction site
c. Final Survey locating all improvements
d. Paid Fire Insurance Policy
e. Lot chart for flow and capacity of well (if applicable)
f. Permit for installation of septic system (if applicable)
1. On completion and/or installation of the FOUNDATION SYSTEM 15%
$
a. Footing and basement wall or slab
b. Structural steel; beams and lintels
c. Steel columns (threaded columns not acceptable)
d. Well (if applicable)
2. On completion and/or installation of the FRAMING SYSTEM 15%
$
a. Exterior walls and sheathing
b. Roof framing and sheathing
c. Partition walls
d. Rough flooring
3. On completion and/or installation of EXTERIOR FINISH 15%
$
a. Exterior wall finish (brick, aluminum, stone, etc.)
b. Windows (excluding basement windows)
c. Exterior doors (including garage doors)
4. On completion and/or installation of MECHANICAL ROUGH-IN to the basement
area and structure prepared for application of interior wall surfaces 15%
$
a. Plumbing (water and drainage pipes)
b. Electrical (wiring)
c. Heating (duct work)
d. Tub and/or shower enclosures
5. On completion and/or installation of ROOF AND INTERIOR WALLS 10%
$
a. Exterior: roof, (shingles, shakes, etc.)
soffit, fascia, gutters and downspouts
b. Interior walls (lath, plaster, drywall, paneling, etc.)
c. Basement windows
d. Finished concrete interior flooring (basement and garage)
6. On completion and/or installation of INTERIOR DOORS, TRIM
AND KITCHEN EQUIPMENT 15%
$
a. Interior doors and trim
b. Shelving
c. Kitchen base and wall cabinets
d. Kitchen equipment on site (sink, disposal, dishwasher, range, hood,
fan, etc.)
e. Tile work completed (if applicable)
f. Primer coat of exterior paint
7. On completion of the ENTIRE STRUCTURE - READY FOR OCCUPANCY 15%
$
a. Furnace installed, connected and operable
b. Hot water tank installed, connected and operable
c. All electrical fixtures installed, connected and operable
d. All plumbing Fixtures installed, connected and operable
e. All floor covering installed (carpet, tile, hardwood, etc.)
F. All lot improvement completed (grading, walks, driveway, landscaping, etc.)
EXHIBIT C
REQUEST FOR DISBURSEMENT
Date , 199_
TO:
REQUEST FOR DISBURSEMENT
<PAGE>
Re: Revolving Line of Credit Loan Agreement (the "Agreement"), dated 1996,
between FIRST WESTERN BANK, NATIONAL ASSOCIATION and SEVEN FIELDS
DEVELOPMENT COMPANY
In accordance with the terms of the Agreement, you are hereby authorized
and requested to make disbursement of funds held by you in the amount shown
by the attached Cost Certificate [the form to be designated by Lender],
which is incorporated herein by this reference and made a part hereof, and
which indicates the state from the Construction Loan Payout Schedule
(Exhibit B of the Agreement) for which funds are requested. Attached
hereto are invoices and lien releases and waivers supporting the disbursement
hereby requested. All capitalized terms herein have the meanings ascribed to
them in this Agreement.
Borrower and Contractor hereby each certify that:
(a) the labor, services and/or materials covered hereby have been performed
upon or furnished in connection with the Improvements;
(b) all construction of the Improvements to date has been performed in
accordance with the Plans and there have been no changes in the plans,
except as have been approved by you
(c) to its knowledge, no default and no event or condition which, with the
passage of time or the giving of notice, or both, would constitute a
default under the Construction Contract has occurred or exists as of the date
hereof;
(d) there have been no changes in the scope or time of performance of the
work of construction, nor any extra work, labor or materials ordered or
contracted for, except as have been approved by you in writing;
(e) the Loan proceeds hereby requested for construction costs will pay all
sums payable to date for any labor, materials and services furnished in
connection with construction of the Improvements;
(f) all amounts previously disbursed by you for labor, services and/or
materials pursuant to previous Requests for Disbursement have been paid to
the parties entitled thereto with the proper designation of contract and
account for which payment was made. Borrower hereby certifies that:
(a) no change is required in its budget for the construction of any of the
Buildings or Units or any category thereof;
(b) all conditions of the Agreement to the disbursement of the Loan proceeds
<PAGE>
hereby requested have been fulfilled, and no Event of Default and no event
or condition which, with the passage of time or the giving of notice, or
both, would constitute an Event of Default under the Agreement has occurred
or exists as of the date hereof.
BORROWER
SEVEN FIELDS DEVELOPMENT COMPANY
CONTRACTOR
OPEN-END
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE SECURES FUTURE ADVANCES
(All notices to be given to Mortgagee pursuant to
42 PA. C.S.A. 8143 shall be given as set forth in
Section 9.01 of this Mortgage.)
THIS OPEN-END MORTGAGE AND SECURITY AGREEMENT ("Mortgage") IS MADE as
of the 13th day of August, 1996, by SEVEN FIELDS DEVELOPMENT COMPANY, a
Pennsylvania business trust, with an address at 2200 Garden Drive, Suite 200,
Mars, Pennsylvania 16046-7846 ("Mortgagor"), in favor of FIRST WESTERN BANK,
NATIONAL ASSOCIATION, a national banking association, with an address at 250
Insurance Street, Suite 100, Beaver, Pennsylvania 15009 ("Mortgagee").
This Mortgage is an "Open-End Mortgage" as set forth in 42 PA.
C.S.A. 8143 and secures obligations up to a maximum amount of indebtedness
outstanding at any time of One Million Dollars ($1,000,000), plus accrued
and unpaid interest, including, but not limited to, advances for the payment
of taxes and municipal assessments, maintenance charges, insurance premiums,
costs incurred for the protection of the Mortgaged Property or the lien of
this Mortgage, expenses incurred by Mortgagee by reason of default by
Mortgagor under this Mortgage and advances for construction, alteration or
renovation on the Mortgaged Property, together with all other sums due
hereunder or secured hereby.
WITNESSETH:
WHEREAS, Mortgagor is the owner of a certain tract or parcel of land
situate in the Hawthorne Commons Plan of Lots, Seven Fields Boro Township,
Butler County, Pennsylvania described in Exhibit A attached hereto and
made a part hereof, together with the improvements now or hereafter erected
thereon;
WHEREAS, Mortgagee is making a revolving line of credit loan to
Mortgagor in an amount not to exceed One Million Dollars ($1,000,000) (the
"Loan"), the proceeds of which will be advanced to Mortgagor from time to
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time pursuant to the terms and conditions of a certain Revolving Line of
Credit Loan Agreement, dated as of the date hereof (the "Loan Agreement")
between Mortgagor and Mortgagee for the purposes set forth in the Loan
Agreement.
NOW, THEREFORE, for the purpose of securing the payment and performance
of the following obligations (collectively called the "Secured Obligations"):
(A) all indebtedness, together with all interest thereon, evidenced by that
certain Revolving Line of Credit Note (the "Note") from Mortgagor to
Mortgagee dated as of the date hereof in the principal amount of One Million
Dollars ($1,000,000), as the same may be amended, supplemented, replaced or
renewed from time to time, the provisions of the foregoing document being
incorporated herein by this reference;
(B) any sums advanced by Mortgagee or which may otherwise become due pursuant
to the provisions of this Mortgage or pursuant to any other document or
instrument delivered to Mortgagee with respect to the Secured Obligations
(all such documents and instruments, including that identified in subpart A
above, are collectively referred to herein as the "Loan Documents").
Mortgagor, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound hereby, does hereby
give, grant, bargain, sell, convey, mortgage, pledge and confirm unto
Mortgagee and does agree that Mortgagee shall have a security interest in
the following described property (collectively, the "Mortgaged Property"),
now owned or held or hereafter acquired, to wit:
(i) all of Mortgagor's estate in the premises described in Exhibit A,
together with all of the easements, rights of way, privileges, liberties,
hereditaments, rights and appurtenances thereunto belonging and all of the
estate, right, title, interest, claim and demand whatsoever of Mortgagor
therein and in the public streets and ways adjacent thereto, either in law
or in equity, in possession or expectancy (collectively, the "Realty");
(ii) the structures and buildings, and all additions and improvements
thereto, now or hereafter erected upon the Realty (including all Equipment,
as hereinafter defined, constituting fixtures) (collectively, the
"Improvements");
(iii) all leases and other agreements now or hereafter in existence
relating to the use, occupancy or possession of the Realty, Improvements or
Equipment, or any part thereof, and all right, title and interest of
Mortgagor thereunder, including cash and securities deposited thereunder to
secure performance by the tenants of their obligations thereunder, and
including further, the right to receive and collect the rents ("Rents")
thereunder and all guaranties thereof (collectively, the "Leases");
(iv) all machinery, apparatus, equipment, fittings, appliances and
fixtures of every kind and nature whatsoever, and regardless of whether
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the same may now or hereafter be attached or affixed to the Realty or
Improvements (collectively, the "Equipment");
(v) all Mortgagor's rights and interests in and to the Sale Agreements
(as defined in Section 8.5 hereof);
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, its
successors and assigns, to its own use forever in accordance with the
provisions hereof.
ARTICLE 1
REPRESENTATION AND WARRANTIES
Mortgagor represents and warrants to Mortgagee as follows:
1.1 Warranty of Title. Mortgagor has good and marketable title to an
estate in fee simple absolute in the Realty and Improvements and has all
right, title and interest in all other property constituting a part of the
Mortgaged Property, in each case free and clear of all liens and
encumbrances, except as set forth on Mortgagee's title insurance policy
with respect to the Mortgaged Property or as otherwise approved in writing
by Mortgagee. This Mortgage is a valid and enforceable first lien on the
Mortgaged Property (except as set forth in Mortgagee's policy of title
insurance or as otherwise approved in writing by Mortgagee), and Mortgagee
shall, subject to Mortgagor's right of possession prior to an Event of
Default, quietly enjoy and possess the Mortgaged Property. Mortgagor shall
preserve such title as it warrants herein and the validity and priority of
the lien hereof and shall forever warrant and defend the same to Mortgagee
against the claims of all persons and parties whomsoever.
ARTICLE 2
AFFIRMATIVE COVENANTS
Until all of the Secured Obligations shall have been fully paid,
satisfied and discharged Mortgagor shall:
2.1 Payment and Performance of Secured Obligations. Pay and perform all
Secured Obligations when due as provided in the Loan Documents.
2.2 Legal Requirements. Promptly comply with and conform to all present
and future laws, statutes, codes, ordinances, orders and regulations and all
covenants, restrictions and conditions which may be applicable to Mortgagor
or to any of the Mortgaged Property (collectively, the "Legal Requirements").
2.3 Impositions.
(a) Before interest or penalties are due thereon and otherwise when due,
Mortgagor shall
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pay all taxes of every kind and nature, all charges for any easement or
agreement maintained for the benefit of any of the Mortgaged Property, all
general and special assessments (including, without limitation, any
condominium or planned unit development assessments, if any) levies, permits,
inspection and license fees, all water and sewer rents and charges, and all
other charges and liens, whether of a like or different nature, imposed
upon or assessed against Mortgagor or any of the Mortgaged Property. The
obligations referred to in this Section are hereinafter collectively referred
to as the "Impositions". Within thirty (30) days after the payment of any
Imposition, Mortgagor shall deliver to Mortgagee evidence acceptable to
Mortgagee of such payments.
(b) Subject to the right of Mortgagor to contest the payment of any
Imposition as hereinafter provided, Mortgagee may pay or perform any
Imposition and add the amount so paid or the cost incurred to the Secured
Obligations, and all such amounts shall on demand be due and payable.
(c) Mortgagor may in good faith contest, by proper legal proceedings, the
validity of any Legal Requirement or the validity or amount of any
Imposition, provided (I) an Event of Default does not exits, and (ii) such
contest is maintained and prosecuted with diligence.
2.4 Maintenance and Impairment of Security. Mortgagor shall keep the
Mortgaged Property in good condition and order and in a rentable and
tenantable state of repair and will make or cause to be made, as and when
necessary, all repairs, renewals, and replacements, structural and
nonstructural, exterior and interior, foreseen and unforeseen, ordinary and
extraordinary, provided, however, that no structural repairs, renewals or
replacements shall be made without Mortgagee's prior written consent.
Mortgagor shall not remove, demolish or alter the Mortgaged Property nor
commit or suffer waste with respect thereto, nor permit the Mortgaged
Property to become deserted or abandoned. Mortgagor shall permit Mortgagee
and its agents at any time, and from time to time, to enter upon and visit
the Mortgaged Property for the purpose of inspecting and appraising the same.
Mortgagor covenants and agrees not to take or permit any action with respect
to the Mortgaged Property which will in any manner impair the security of
this Mortgage.
2.5 Use of Mortgaged Property. Mortgagor shall use, and permit others to use,
the Mortgaged Property only for uses permitted under applicable Legal
Requirements.
2.6 Books and Records. Mortgagor shall maintain and Mortgagee shall have
access to complete and adequate books of account and other records relating
to the operation and use of the Mortgaged Property as Mortgagee may require.
Mortgagor shall permit Mortgagee to photocopy such books and records.
ARTICLE 3
NEGATIVE COVENANTS
Until all of the Secured Obligations shall have been fully paid, satisfied
and
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3.1 Leases. Mortgagor shall not (I) execute an assignment or pledge of
the Rents and/or the Leases other than in favor of Mortgagee; or (ii) accept
any prepayment of an installment of any Rents prior to the due date of
such installment.
3.2 No Other Financing or Liens. Mortgagor shall not enter into any
lease for any personal property, as lessee, which is to be used in c
onnection with the operation of Mortgagor's business at the Mortgaged
Property or create or cause or permit to exist any lien on or security
interest in, whether voluntary or involuntary, any part of the Mortgaged
Property, other than in favor of Mortgagee.
3.3 Sale of Mortgaged Property: Etc. Mortgagor shall not sell, assign,
give, mortgage, pledge, hypothecate, encumber, lease or otherwise transfer
the Mortgaged Property, or any part thereof or interest therein, voluntarily
or involuntarily, without Mortgagee's prior written consent, except in
accordance with the terms and conditions of the Revolving Line of Credit
Loan Agreement and the Revolving Line of Credit Note executed
contemporaneously herewith.
ARTICLE 4
INSURANCE, CONDEMNATION AND RESTORATION
4.1 Insurance.
(a) Mortgagor shall maintain comprehensive public liability insurance,
fire insurance with extended coverage, builder's risk insurance with respect
to any construction, renovation or reconstruction, contractual liability
insurance for all indemnification obligations of Mortgagor under all Leases
and such other insurance as may be required from time to time by Mortgagee.
The amounts, Overages and other terms and conditions of the insurance
policies shall at all times be satisfactory to Mortgagee and shall satisfy
any coinsurance requirements of Mortgagee. Mortgagor shall pay as they
become due all premiums for such insurance, shall keep each policy in full
force and effect, shall deliver to Mortgagee evidence of the payment of the
full premium therefor at least twenty (20) days prior to the expiration date
of each policy and shall deliver to Mortgagee original policies of insurance,
with noncontributory mortgagee clauses in favor of and acceptable to
Mortgagee. Mortgagor's liability insurance policy shall specifically name
Mortgagee as an additional insured. Each policy shall provide for written
notice to Mortgagee at least thirty (30) days prior to any cancellation,
nonrenewal or amendment of such Insurance.
(b) If the Mortgaged Property is located in an area which has been
identified by any governmental agency, authority or body as a flood hazard
area or the like, then Mortgagor shall maintain a flood insurance policy
covering the Mortgaged Property in an amount not less than the full
replacement value of the Mortgaged Property or the maximum limit of
coverage available under the federal program, whichever amount is less.
4.2 Rights of Mortgagee to Proceeds. In the event of loss, Mortgagor
shall not adjust, collect or compromise any insurance claims under said
policies without the prior written consent
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of Mortgagee. Each insurer is hereby authorized and directed to make payment
under said policies, including return of unearned premiums, to Mortgagor and
Mortgagee jointly. All insurance proceeds shall be payable to Mortgagee
and such proceeds may, at Mortgagee's sole option, be applied to all or any
part of the Secured Obligations and in any order (notwithstanding that such
Secured Obligations may not then otherwise be due and payable) or to the
repair and restoration of any of the Mortgaged Property under such terms and
conditions as Mortgagee may impose. Mortgagee shall not be deemed to have
elected such option until such option is elected specifically in writing.
Until so elected, Mortgagee shall not in any circumstances be deemed to have
waived its right to make such election.
4.3 Condemnation. Mortgagor, immediately upon obtaining knowledge of
the institution of any proceedings for the condemnation or taking by eminent
domain of any of the Mortgaged Property, shall notify Mortgagee of the
pendency of such proceedings. Mortgagee may participate in any such
proceedings and Mortgagor shall deliver to Mortgagee all instruments
requested by it to permit such participation. Any award or compensation for
property taken or for damage to property not taken, whether as a result of
such proceedings or in lieu thereof, is hereby assigned to and shall be
received and collected directly by Mortgagee, and any award or compensation
shall be applied, at Mortgagee's option, to any part of the Secured
Obligations and in any order (notwithstanding that any of such Secured
Obligations may not then be due and payable) or to the repair and
restoration of any of the Mortgaged Property under such terms and conditions
as are set forth in Section 4.4 or otherwise as Mortgagee may impose.
Mortgagee shall not be deemed to have elected such option until such option
is elected specifically in writing. Until so elected, Mortgagee shall not
in any circumstances be deemed to have waived its right to make such election.
ARTICLE 5
DEFAULT
5.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" hereunder:
(a) a failure to pay any Secured Obligations when due in accordance with the
terms thereof;
(b) Mortgagor shall fail to perform or observe any of the obligations in
Article 3 or 4 of this Mortgage;
(c) a failure by Mortgagor to duly perform and observe any other provision
in this Mortgage, and such failure shall continue for a period of thirty
(30) days after notice from Mortgagee;
(d) any representation or warranty made by Mortgagor herein or in any of
the Loan Documents or in any other instrument or document which pertains to
or is delivered in connection with any of the Secured Obligations proves
to be incorrect, now or hereafter, in any material respect;
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(e) Mortgagor, or any obligor or guarantor of any of the Secured Obligations,
shall become insolvent or unable to pay its or his debts as the same mature,
or a petition shall be filed by or against Mortgagor or any such party in
bankruptcy or seeking the appointment of a receiver, trustee or conservator
for Mortgagor or any such party or for any portion of its or his or her
property, or for reorganization or to effect a plan or other arrangement
with or for the benefit of creditors or Mortgagor or any such party shall
consent to the appointment of a receiver, trustee or conservator for
Mortgagor or any such party or for any portion of its or his or her property;
(f) foreclosure proceedings are instituted against the Mortgaged Property
upon any other lien or claim, whether alleged to be superior or junior to
the lien of this Mortgage;
(g) Mortgagor shall fail to comply with any duty or obligation imposed
pursuant to Article 7 hereof or any warranty or representation contained
therein shall be incorrect or misleading; or
(h) Mortgagor shall at any time deliver or cause to be delivered to
Mortgagee a notice pursuant to 42 PA. C.S.A. 8143 electing to limit the
indebtedness secured by this Mortgage.
5.2 Demand Obligation. Nothing in this Mortgage or any of the other Loan
Documents shall be construed to limit the applicability of any term of the
Loan Documents providing for the payment of any Secured Obligations on
demand.
ARTICLE 6
REMEDIES
6.1 Rights and Remedies of Mortgage. If an Event of Default occurs, and is
not cured within the applicable grace period, if any, Mortgagee may, at its
option and notwithstanding any contrary provisions in the Local Documents,
without demand, notice or delay, do one or more of the following:
(a) Mortgagee may declare the entire unpaid principal balance of the
Secured Obligations, together with all interest thereon, to be due and
payable immediately (and in the case of an Event of Default under subsection
5.1(e), all such indebtedness shall automatically and immediately become
due and payable without notice or any other act).
(b) Mortgagee may (i) institute and maintain an action of mortgage
foreclosure against the Mortgaged Property and the interests of Mortgagor
therein, (ii) institute and maintain an action on any instruments evidencing
the Secured Obligations or any portion thereof, and (iii) take such other
action at law or in equity for the enforcement of any of the Loan Documents
as the law may allow, and in each such action Mortgagee shall be entitled
to all costs of suit and attorneys fees.
(c) Mortgagee may, in its sole and absolute discretion, and without
releasing Mortgagor or any other obligor or guarantor from any obligation
under any of the Loan Documents and
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without waiving any Event of Default: (i) collect any or all of the Rents,
including any Rents past due and unpaid, (ii) perform any obligation or
exercise any right or remedy of Mortgagor under any Lease, or (iii) enforce
any obligation of any tenant of any of the Mortgaged Property. Mortgagee
may exercise any right under this subsection (c), whether or not Mortgagee
shall have entered into possession of any of the Mortgaged Property, and
nothing herein contained shall be construed as constituting Mortgagee a
"mortgagee in possession", unless Mortgagee shall have entered into and
shall continue to be in actual possession of the Mortgaged Property.
Mortgagor hereby authorizes and directs each and every present and future
tenant of any of the Mortgaged Property to pay all Rents directly to
Mortgagee and to perform all other obligations of that tenant for the direct
benefit of Mortgagee, as if Mortgagee were the landlord under the Lease with
that tenant, immediately upon receipt of a demand by Mortgagee to make such
payment or perform such obligations. Mortgagor hereby waives any right,
claim or demand it may now or hereafter have against any such tenant by
reason of such payment of Rents or performance of obligations to Mortgagee,
and any such payment or performance to Mortgagee shall discharge the
obligations of the tenant to make such payment or performance to Mortgagor.
6.2 Sale in Parcels or Units. In case any sale under this Mortgage
occurs by virtue of judicial proceedings, the Mortgaged Property may be sold
in one parcel or unit and as an entity, or in such parcels or units, and in
such manner or order, as Mortgagee in its sole discretion may elect.
6.3 Confession of Judgment in Ejectment. At any time after the
occurrence of an Event of Default, without further notice, regardless of
whether Mortgagee has asserted any other right or exercised any other remedy
under this Mortgage or any of the other Loan Documents, it shall be lawful
for any attorney licensed in the Commonwealth of Pennsylvania as attorney
for Mortgagor to confess judgment in ejectment against Mortgagor and all
persons claiming under Mortgagor for the recovery by Mortgagee of possession
of all or any part of the Mortgaged Property, for which this Mortgage shall
be sufficient warrant. If for any reason after such action shall have
commenced the same shall be determined and the possession of the Mortgaged
Property remain in or be restored to Mortgagor, Mortgagee shall have the
right upon any subsequent default or defaults to bring one or more amicable
action or actions as hereinbefore set forth to recover possession of all or
any part of the Mortgaged Property.
6.4 Remedies Cumulative. All remedies contained in this Mortgage are
cumulative and Mortgagee also has all other remedies provided by law or in
equity or in any of the other Loan Documents. No delay or failure by
Mortgagee to exercise any right or remedy under this Mortgage will be
construed to be a waiver of that right or remedy or a waiver of any Event of
Default. Mortgagee may exercise any one or more of its rights and remedies
without regard to the adequacy of its security.
ARTICLE 7
ENVIRONMENTAL MATTERS
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7.1 Environmental Protection.
(a) The Mortgagor represents and covenants that, except as disclosed by
the Mortgagor to the Mortgagee in writing on or prior to the date of this
act, (I) the Mortgagor has not caused or suffered to occur and the Mortgagor
will not hereafter cause or suffer to occur, a discharge, spillage,
uncontrolled loss, seepage or filtration of oil or petroleum or chemical
liquids or solids, liquid or gaseous products or hazardous waste (a "spill"),
or release of a hazardous substance at, upon, under or within the Mortgaged
Property or any contiguous real estate; (ii) neither the Mortgagor nor any
other party has been, is or will be involved in operations at or near the
Mortgaged Property which could lead to the imposition on the Mortgagor or
any other owner of the Mortgaged Property of liability or the creation of a
lien on the Mortgaged Property, under any applicable federal, state or local
statute, rule or regulation (collectively, the "Law") or under any similar
applicable laws or regulations; and (iii) the Mortgagor has not permitted
and will not permit any tenant or occupant of the Mortgaged Property to
engage in any activity that could lead to the imposition of liability on
such tenant or occupant, the Mortgagor or any other owner of any of the
Mortgaged Property, or the creation of a lien on the Mortgaged Property,
under the Law or any similar applicable laws or regulations.
(b) The Mortgagor shall comply strictly and in all respects with the
requirements of the Law and related regulations and with all similar
applicable laws and regulations and shall notify Mortgagee promptly in the
event of any spill or release of a hazardous substance upon the Mortgaged
Property, and shall promptly forward to Mortgagee copies of all orders,
notices permits, applications or other communications and reports in
connection with any such spill or release or any other matters relating to
the Law or related regulations or any similar applicable laws or
regulations, as they may affect the Mortgaged Property.
(c) The Mortgagor shall indemnify Mortgagee and hold Mortgagee harmless
from and against all loss, liability, damage and expense, including
attorneys' fees, suffered or incurred by Mortgagee, whether as holder of
this Mortgage, as mortgagee in possession or as successor in interest to the
Mortgagor as owner of the Mortgaged Property by virtue of foreclosure or
acceptance of a deed in lieu of foreclosure (I) under or on account of the
Law or related regulations or any similar applicable laws or regulations,
including the assertion of any lien thereunder; (ii) with respect to any
spill or release or threatened release of a hazardous substance affecting
the Mortgaged Property whether or not the same originates or emanates from
the Mortgaged Property or any such contiguous real estate, including any
loss or value of the Mortgaged Property as a result of a spill or release
or threatened release of a hazardous substance; and (iii) with respect to
any other matter affecting the Mortgaged Property within the jurisdiction of
the U. S. Environmental Protection Agency or any similar state or local
agency; and
(d) In the event of any spill or release or threatened release of a
hazardous substance affecting the Mortgaged Property, whether or not the
same originates or emanates from the Mortgaged Property or any such
contiguous real estate, and/or if the Mortgagor shall fail to
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comply with any of the requirements of the Law or related regulations or
any other environmental law or regulation, Mortgagee may at its election,
but without the obligation so to do, give such notices and/or cause such
work to be performed at the Mortgaged Property and/or take any and all other
actions as Mortgagee shall deem necessary or advisable in order to remedy
said spill or release or threatened release of a hazardous substance or cure
said failure of compliance and any amounts paid as a result thereof,
together with interest thereon at the Default Rate from the date of payment
by the Mortgagee shall be due and payable by the Mortgagor to Mortgagee
within fifteen (15) business days of demand therefor, and until paid shall
be added to and become a part of the indebtedness and shall have the benefit
of the lien hereby created as a part thereof.
7.2 Environmental Indemnification. Mortgagor covenants and agrees, at
its sole cost and expense, to indemnify, protect and hold Mortgagee
harmless against and from all claims, damages, losses, liabilities,
penalties, fines or judgments, including any attorney's fees, expert fees
or costs incurred, arising in any manner out of any of the matters set forth
in Section 7.1 above or otherwise arising under any Environmental Law,
whether such matters arise before or after the exercise of any remedies by
Mortgagee under this Mortgage or the taking of title by Mortgagee to all or
any portion of the Mortgaged Property. Indemnified matters shall include,
without limitation, all of the following: (I) the costs of removal of any
and all Commission from all or any portion of the Mortgaged Property or any
surrounding areas, (ii) additional costs required to take necessary
precautions to protect against the release of Contamination on, in, under
or affecting the Mortgaged Property onto the land and into the air, any body
of water, any other public domain or any surrounding areas and (iii) costs
incurred to comply, in connection with all or any portion of the Mortgaged
Property or any surrounding areas, with all Environmental Laws. The
indemnification obligations of this Section 7.2 shall survive repayment of
the Secured Obligations and satisfaction of this Mortgage.
ARTICLE 8
ADDITIONAL RIGHTS AND OBLIGATIONS
8.1 Installments for Insurance. Taxes and Other Charges. Without
limiting the effect of any other provision of this Mortgage, Mortgagor
shall, if requested by Mortgagee, pay to Mortgagee monthly with its payment
on the Note, an amount equal to one-twelfth (1/12) of the annual premiums
for the insurance policies referred to hereinabove and the annual
Impositions and any other item which at any time may be or become a lien
upon the Mortgaged Property (the "Escrow Charges"); and on demand, from time
to time, Mortgagor shall pay to Mortgagee any additional sums necessary to
pay when due all Escrow Charges. The amounts so paid shall be security for
the Secured Obligations and shall be used in payment of the Escrow Charges
so long as no Event of Default shall have occurred. No amount so paid to
Mortgagee shall be deemed to be trust funds but may be commingled with
general funds of Mortgagee, nor shall any sums paid bear interest. Upon the
occurrence of an Event of Default, Mortgagee shall have the right, at its
election, to apply any amount so held against the Secured Obligations due and
payable in such
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order as Mortgagee may deem fit, and Mortgagor hereby grants to Mortgagee a
lien upon and security interest in such amounts for such purpose.
8.2 Mortgagee's Right to Protect Security. Mortgagee is hereby
authorized to do any one or more of the following, irrespective of whether
an Event of Default has occurred: (a) appear in and defend any action or
proceeding purporting to affect the security hereof or the rights or powers
of Mortgagee hereunder; (b) take such action as Mortgagee may determine to
pay, perform or comply with any Impositions or Legal Requirements, to cure
any Events of Default and to protect its security in the Mortgaged Property.
8.3 Mortgagee's Costs and Expenses. In the event of an Event of
Default or the exercise by Mortgagee of any of its rights hereunder, or if
Mortgagee shall become a party, either as plaintiff or defendant or
otherwise, to any suit or legal proceeding affecting any of the Mortgaged
Property or the Secured Obligations, or if review and approval of any
document, or any other matter related to any of the Secured Obligations, is
required by, or requested of, Mortgagee, Mortgagor shall pay to Mortgagee
on demand its costs, expenses and attorneys fees incurred in connection
therewith. If such amounts are not paid, they shall be added to the principal
secured hereby, shall be included as part of the Secured Obligations and
shall bear interest at the Default Rate from the date of demand.
8.4 Further Assurances. Mortgagor agrees to execute such further
assurances, documents and instruments as may be desirable by Mortgagee for
the purposes of further evidencing, carrying out and/or confirming this
Mortgage and for all other purposes intended by this Mortgage.
8.5 Release of Lots.
(a) The Mortgaged Property consists of separately subdivided lots in
the Hawthorne Commons Plan of Lots, recorded in the office of the Recorder of
Deeds of Butler County at Plan Book Volume 192, pages 31-34 (each such
subdivided lot is hereinafter called a "Lot"). Notwithstanding anything in
any of the Loan Documents to the contrary, upon the conveyance of any Lot,
Mortgagee shall grant a partial release of the lien of this Mortgage with
respect to the Lot conveyed provided that (I) no default, or event or
condition which with the passage of time or the giving of notice, or both,
would constitute a default, under this Mortgage or the Loan Documents shall
have occurred or exist, and (ii) Mortgagor, in addition to all other
payments required with respect to the Loan, shall have paid to Mortgagee
concurrently with such release a fee (the "Release Fee") equal to the amount
of funds advanced by Mortgagee under the Loan for such Lot and Improvements
thereon . Upon receipt, if Mortgagor is not in default, the Release Fee
shall be applied to the reduction of the unpaid outstanding principal
balance of the Loan. Otherwise, the Release Fee shall be applied to accrued
delinquency charges or fees, accrued interest, principal or other costs of
the Mortgaged Property in such priority as Mortgagee shall determine. At
least two (2) business days prior to the closing of the sale of the Lot,
Mortgagee shall provide Mortgagee with a copy of the proposed settlement
statement for such sale. It is also
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agreed and understood that copies of final settlement statements for all
Lots sold will be delivered to Mortgagee at the time a release of Mortgage
is requested.
(b) Mortgagor hereby assigns, transfers, grants and conveys unto
Mortgagee, its successors and assigns, all of Mortgagor's right, title and
interest as Seller, in and to any and all agreements of sale for each Lot
(all such agreements of sale, collectively called the "Sale Agreements") to
have and to hold the same unto Mortgagee, its successors and assigns, until
payment in full of the Secured Obligations. Mortgagor hereby covenants and
agrees with Mortgagee as follows: Mortgagor shall promptly perform all of
the provisions of the Sale Agreements on the part of Seller thereunder to
be performed and appear and defend in any action or proceeding in any manner
connected with the Sale Agreements or the obligations of Mortgagor
thereunder. Within five (5) days after the request by Mortgagee, Mortgagor
shall deliver to Mortgagee a written statement containing the names of all
buyers, the terms of all Sale Agreements and the Lots to be sold and the
prices to be paid thereunder, together with a statement of all Sale
Agreements which are then in default, including the nature of such default.
Within five (5) days after execution of any Sale Agreement, Mortgagor shall
deliver to Mortgagee a duly executed counterpart thereof, certified by all
of the parties thereto to be true and correct.
Notwithstanding the foregoing, or any of the other provisions of this
paragraph 8.5, Mortgagor agrees that the Mortgagee shall have no liability
to the Mortgagor pertaining to or arising out of the Sale Agreements.
Mortgagor does and hereby agrees to indemnify Mortgagee and hold it harmless
from and against any and all liability, loss or damage which it may incur
under the Sale Agreements or under by reason of this assignment, including
costs, expenses and reasonable attorney's fees.
ARTICLE 9
MISCELLANEOUS MATTERS
9.1 Notice.
(a) Except as otherwise provided in this Mortgage, all notices
hereunder shall be in writing and shall be deemed to have been duly given
for all purposes when delivered in person, or when deposited in the United
States mail, by registered or certified mail, return receipt requested,
directed to the party to receive the same at the addresses set forth at the
beginning of this Mortgage or at such other address as may be substituted
by notice given as herein provided. The giving of any notice required
hereunder may be waived.
(b) All notices given by Mortgagor to Mortgagee pursuant to 42 PA.
C.S.A. 8143(c) shall be given to Mortgagee in accordance with this
Section 9.1 and must be signed by all parties necessary to bind Mortgagor in
accordance with the applicable documents of formation of Mortgagor and all
applicable laws.
<PAGE>
9.2 Severability. In the event any one or more of the provisions
contained in this Mortgage shall for any reason be held to be inapplicable,
invalid, illegal, or unenforceable in any respect, such inapplicability,
invalidity, illegality or unenforceability shall not affect any other
provision of this Mortgage, but this Mortgage shall be construed as if such
inapplicable, invalid, illegal or unenforceable provision had never been
contained herein.
9.3 Successors and Assigns. All of the grants, covenants, terms,
provisions and conditions herein shall run with the land and shall apply to,
bind and inure to the benefit of, the successors and assigns of Mortgagor
and Mortgagee.
9.4 No Oral Modification. This Mortgage may be modified, amended,
discharged or waived only by an agreement in writing, signed by all of the
parties hereto.
9.5 Defeasance. If Mortgagor pays to Mortgagee in full the Secured
Obligations, and if Mortgagor is no longer able to borrow money under the
Loan Agreement, then this Mortgage shall become void.
IN WITNESS WHEREOF, Mortgagor has caused this Mortgage to be duly
executed the day and year first above written.
WITNESS: Patrick Sentner
SEVEN FIELDS DEVELOPMENT
COMPANY, a Pennsylvania business trust
By: Seven Fields Management, Inc., a
Pennsylvania Corporation
By: Roman Polnyj
Title: Chief Financial Officer
CERTIFICATE OF RESIDENCE
The undersigned certifies that the residence of Mortgagee is 250
Insurance Street, Suite 100, Beaver, Pennsylvania 15009.
Patrick J. Sentner
<PAGE>
(COMMONWEALTH OF PENNSYLVANIA )
COUNTY OF BUTLER
SS:
On this 13th day of August, 1996, before me, a notary public,
personally appeared Roman Polnyj, who acknowledged himself to be the
Chief Financial Officer of SEVEN FIELDS MANAGEMENT, INC., a Pennsylvania
corporation, Trustee of SEVEN FIELDS DEVELOPMENT COMPANY, a Pennsylvania
business trust, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation as Trustee of such business trust by himself as such officer in
such Trustee.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
| Notarial Seal Robert C. Sherman, Notary Public
My Commission Expires Feb.16,1997
Member, Pennsylvania Association of Notaries
"EXHIBIT A"
ALL those certain pieces, parcels or tracts of land situate in the Borough
of Seven Fields, County of Butler, Commonwealth of Pennsylvania, being
known and designated as Hawthorne Commons Plan of Lots as recorded in
Plan Book Volume 192, pages 31 through 34.
Map S1, J Group and Map S4, C Group
REVOLVING LINE OF CREDIT NOTE
$1,000,000 Beaver, Pennsylvania
August 13, 1996
FOR VALUE RECEIVED, SEVEN FIELDS DEVELOPMENT COMPANY, a Pennsylvania
business trust (the "Borrower"), having its current mailing address at
2200 Garden Drive, Suite 200, Mars, PA 16046-7846, promises to pay to the
order of FIRST WESTERN BANK, NATIONAL ASSOCIATION, a national banking
association, its successors and assigns (the "Lender"), at its office at
250 Insurance Street, Suite 100, Beaver, Pennsylvania 15009, the principal
sum of ONE MILLION DOLLARS ($1,000,000) (the "Loan"), or so much of the
principal sum as shall have been advanced, repaid and re-advanced, borrowed,
repaid and reborrowed to or for the account of the Borrower under the terms
of this Note and the Revolving Line of Credit Loan Agreement of even date
herewith between Borrower and Lender (the "Loan
<PAGE>
Agreement"), together with interest from the date or dates of disbursement
on the outstanding balances thereof, at the rates and in the installments as
hereinafter provided. It is provided, however, that Lender reserves the right to
decline to make any advance at any time if (a) an Event of Default has
occurred either under this Note, any Mortgage or any other Loan Document,
(b) any such advance will cause the principal outstanding balance of this
Note to exceed (i) Eighty Thousand Dollars ($80,000) per individual Unit, or
(ii) One Million Dollars ($1,000,000) at any one time outstanding in the
aggregate, or (c) the credit accommodation evidenced by this Note has
terminated pursuant to any separate line of credit agreement relating hereto.
DEFINITIONS:.
Land - Shall mean that certain parcel or parcels of land subject to the
lien of the Mortgage
Loan - The One Million Dollar ($1,000,000) line of credit Loan from Lender
to Borrower.
Loan Proceeds - As defined in the Loan Agreement.
Loan Closing - The time of delivery and execution of this Note and the
Loan Agreement.
Loan Documents - All documents and items considered by Lender to be related
to the Loan, including but not limited to (a) this Note; (b) the Open-End
Mortgage and Security Agreement (the "Mortgage"), dated the date hereof, by
Borrower to Lender encumbering the Land then only to the extent specifically
set forth in the writing. A waiver as to one event shall not be construed as
continuing or as a bar to or waiver of any right or remedy as to a subsequent
event.
18. Usury. Notwithstanding any provision of this Note to the contrary,
it is the intent of Borrower and Lender that Lender shall not at any time be
entitled to receive, collect or apply, and Borrower and Lender shall not
be deemed to have contracted for, as interest on the principal indebtedness
evidenced hereby, any amount in excess of the maximum rate of interest
permitted to be charged by applicable law, and in the event Lender ever
receives, collects or applies as interest any such excess, such excess shall
be deemed partial payment of the principal indebtedness evidenced hereby,
and if such principal shall be paid in full, any such excess shall forthwith
be paid to Borrower.
19. Subsequent Loans. The Mortgage shall extend to and cover any
additional loans made by Lender to Borrower at any time or times heretofore
or hereafter.
20. No Affiliation. The Lender or any subsequent holder hereof shall
in no event be construed for any purpose to be a partner, joint venturer or
associate of Borrower or any lessee, operator, concessionaire or licensee of
Borrower in the conduct of their respective businesses.
<PAGE>
21. Notices. All Notices shall be given to Borrower at: Seven Fields
Development Company, 2200 Garden Drive, Suite 200, Mars, Pennsylvania
16046-7846 Attention: Roman Polnyj
Telephone No. (412) 776-5070
Telefax No. (412)776-0050
and to Lender at:
First Western Bank, National Association
250 Insurance Street, Suite 100
Beaver, PA 15009
Attention: Patrick J. Sentner
Telephone No. (412) 775-7800
Telefax No. (412) 775-5710
Except as otherwise provided in this Note, all notices hereunder shall
be in writing and shall be deemed to have been duly given for all purposes
when delivered in person or when sent by telefax (with a confirming
telephone call to confirm receipt), by FedEx or other overnight receipted
delivery system, or when deposited in the United States mail, by registered
or certified mail, return receipt requested, postage prepaid, directed to
the party to receive the same at its address stated above or at such other
address as may be substituted by notice given as herein provided.
22. Assignment. Borrower's obligations hereunder shall extend to and
bind Borrower's heirs, executors, administrators, successors and assigns.
This Note is fully assignable by Lender.
23. Governing Law. This Note is secured by the Mortgage on real estate
situate in the Commonwealth of Pennsylvania and shall be deemed made under
and governed by the laws of the Commonwealth of Pennsylvania in all
respects, including matters of construction, performance and enforcement.
Borrower agrees that the Courts of Common Pleas of Allegheny County, Butler
County, Beaver County, and Lawrence County, Pennsylvania and the United
States District Court for the Western District of Pennsylvania shall have
exclusive jurisdiction and venue with respect to all actions by or against
Borrower under or pursuant to this Note and Borrower hereby consents to
the jurisdiction of such courts and to service of process, effective upon
receipt by personal service, overnight express delivery or registered or
certified mail to Borrower at the address given above. Borrower shall
promptly notify Lender of any change in Borrower's address.
24. Severability. Wherever possible, each provision of this Note shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Note
<PAGE>
or any portion thereof shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
25. Incorporation of Other Loan Documents. All of the Loan Documents
are hereby fully incorporated by reference into this Note with the same
force and effect as though fully set out herein.
26. Time of the Essence. Time is of the essence with respect to each
and every provision of this Note.
27. Headings. The headings in sections and titles of this Note are
inserted for convenience only and shall not be deemed to constitute a part
of this Note.
THIS DOCUMENT CONTAINS A PROVISION AUTHORIZING THE ENTRY OF JUDGMENT BY
CONFESSION. THIS MEANS THAT A JUDGMENT COULD BE ENTERED AGAINST
YOU WITHOUT NOTICE OR A TRIAL. THIS COULD RESULT IN YOUR PROPERTY BEING SOLD
BY THE SHERIFF IN ORDER TO SATISFY THIS JUDGMENT. BY SIGNING THIS DOCUMENT
YOU ACKNOWLEDGE THAT YOU HAVE READ AND UNDERSTOOD ALL OF THE TERMS CONTAINED
HEREIN.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
duly executed this Note as of the day and year first above written.
WITNESS: Patrick J. Sentner
SEVEN FIELDS DEVELOPMENT
COMPANY, a Pennsylvania business trust
By: Seven Fields Management, Inc. a
Pennsylvania Corporation
By: Roman Polnyj
Title: Chief Financial Officer
This execution page is part of the Revolving Line of Credit Note dated as of
August 13,1996 between Seven Fields Development Company, and First Western
Bank, National Association.
INDEMNITY LETTER
Commonwealth Land Title Insurance Company
The Frick Building Mezzanine Level
437 Grant Street
Pittsburgh, PA 16046-6060
<PAGE>
In re: Title Insurance Number [K134662BU]
Property: [Hawthorne Commons Plan, PBV 192 Pages 31 through 34
Borough of Seven Fields, Butler, PA]
Insurer: First Western Bank
Gentlemen.
Reference is made to the above captioned transaction in which
Commonwealth Land Title Insurance Company (hereinafter referred to as
COMMONWEALTH) is requested to issue its Policy of Title Insurance to The
above named insured. In connection therewith, COMMONWEALTH has been
requested to furnish insurance against, or without exception for, loss
arising from possible unfiled mechanics' and/or materialmen's liens or
claims which may be filed or made against the above mentioned property. In
consideration of such insurance and in order to induce COMMONWEALTH to so
insure, the undersigned (hereinafter referred to as INDEMNITORS) agree and
Obligate themselves as follows:
(1) The INDEMNITORS hereby indemnify COMMONWEALTH and agree to hold it
harmless against any loss, claim, cost, damage or expense, including
attorneys'' fees and court costs, which it may sustain, suffer or incur by
reason of the filing, recording, assertion or claim Of any and all liens or
by reason of rights, actions, and claims entered, filed or commenced against
the above mentioned premises arising out of work done or alleged to be done
or materials furnished or alleged to be furnished to, or on account of any
construction, erection or improvement made or to be made upon the above
mentioned premises.
(2) In the event that any lien, claim or action, indemnified against
hereinabove, is filed, recorded, made or commenced against the above
mentioned premises, INDEMNITORS shall forthwith, after written demand to do
so, calls such lien, claim or action co be removed, terminated, satisfied,
released or otherwise disposed of in form and manner satisfactory to
COMMONWEALTH,
(3) Notwithstanding the performance of INDEMNITORS under the terms of
this Agreement, INDEMNITORS agree and hereby ratify any action, cost or
expense which COMMONWEALTH may undertake or incur in connection with its
obligations under its Policy of Title Insurance with respect co any and all
liens, claims or actions indemnified against hereunder, and the INDEMNITORS
expressly agree to reimburse and repay COMMONWEALTH promptly the full and
total amounts of any costs and expenses incurred by it in connection
therewith immediately upon demand therefor.
(4) The term, INDEMNITORS, shall include the singular as well as the
plural and, in the latter event, the INDEMNITORS agree than their liability
hereunder will be joint and several, expressly agreeing that COMMONWEALTH
may pursue any right or remedy arising out of this Agreement, and the
undertakings herein spaced against any one or more of the INDEMNITORS
without being required to pursue such right or remedy against the others.
<PAGE>
Indemnity Letter Page Two
(S) Any notice required to be given to INDEMNITORS shall be deemed
given if sent by certified or registered mail to INDEMNITORS at the
following address:
The INDEMNITORS agree to submit to the jurisdiction and service or
Process of any court: having jurisdiction over the subject matter to the
same extent and with the same forms and effect as in the INDEMNITORS
were resident at this address, hereby expressly waiving the benefits of any
diversity of citizenship.
ATTEST: Patrick Sentner
WITNESS:
INDEMINITORS:
BY: Roman Polnyj
REVOLVING LINE OF CREDIT LOAN AGREEMENT
MADE as of the 25th day of November, 1996, between SEVEN FIELDS DEVELOPMENT
COMPANY, a Pennsylvania business trust (formerly known as Canterbury Village,
Inc., a Pennsylvania corporation) (the "Borrower"), and FIRST WESTERN BANK,
NATIONAL ASSOCIATION, a national banking association (hereinafter referred
to as the "Lender").
WITNESSETH:
WHEREAS, Borrower desires to arrange for a revolving line of credit loan
(the "Loan" or "Line of Credit") from Lender to enable it to borrow, repay
and reborrow from Lender from time to time sums not to exceed the principal
amount of SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000) at any one time
outstanding (the "Maximum Loan Amount") to finance the construction of
certain Units (collectively, the "Improvements"), and Lender is willing to
extend such credit to Borrower subject to the terms and conditions
hereinafter set forth; and WHEREAS, the Loan is evidenced by a Revolving
Line of Credit Note (the "Note") dated the date hereof and is secured,
inter alia, by an Open-End Mortgage and Security Agreement, dated the date
hereof, as more fully described herein (the "Mortgage").
NOW, THEREFORE, in consideration of the premises, the parties hereto,
declaring their intention to be legally bound hereby, covenant and agree as
follows:
l. General Loan Terms.
(a) Loan Purpose. The purpose of the Loan is to provide funding to Borrower
for development and installation of infrastructure for sixty three (63) lots
(each, a "Lot") and the construction of single family townhomes (the
"Unit(s)"), each individual Unit located on a single Lot in the Castle Creek
Phase II Plan, which is recorded in the Butler County, Pennsylvania Recorder's
Office at Plan Book Volume 185, Pages 8-10, provided that, at any given time,
Borrower shall not be constructing more than or twelve (12) Units.
<PAGE>
(b) Loan Advances. Subject to the conditions hereinafter contained, from time
to time after the date hereof, Lender shall advance the proceeds of the
Loan (the "Loan Proceeds") to Borrower. In no event shall Lender be
obligated to advance Loan proceeds in an aggregate amount exceeding (a)
Sixty-Two Thousand Five Hundred Dollars ($62,500) per Unit and (b) an
aggregate of SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000) at any one time
outstanding. No advances for interest due under the terms of the Note will
be made under the Line of Credit. Notwithstanding the foregoing, Lender
shall not be required to advance Loan Proceeds at Borrower's request if the
required payments from Borrower under the Line of Credit are not current or
if Borrower has otherwise failed to provide required information or
documentation under the terms of this Revolving Line of Credit Loan
Agreement.
(c) Maturity Date. Total advances for Improvements under the Loan,
together with all accrued interest thereon, and any other sums or costs
advanced by Lender in connection therewith, shall be due and payable on
November 30, 1997 (the "Maturity Date"), unless the Loan is extended in
accordance with the terms of the Note or earlier due by acceleration or
otherwise. Funding under the Line of Credit shall terminate at maturity.
(d) [RESERVED]
(e) Closing Agenda Documents and Exhibits. Prior to the first disbursement
of Loan proceeds, Borrower must execute or cause to be executed in form and
content acceptable to Lender, and must supply to Lender all documents and
exhibits which are listed on the Closing Agenda attached hereto as Exhibit
"A".
<PAGE>
(f) Inspection. Lender's agent and/or another inspector (the "Inspector")
selected and approved by Lender shall have the right to inspect all
Improvements and the progress of the construction thereon. It is intended
that inspections shall take place quarterly, but Lender reserves
the right to have any inspection take place prior to any advance of any
funds under the Loan. All disbursement requests, the design of the
Improvements and work to be performed and the construction of the
Improvements shall be satisfactory to and approved by Lender and, at
Lender's option, the Inspector. Borrower shall reimburse Lender for all
inspection fees, whether inspections are made quarterly or in connection
with any disbursement request, which reimbursement shall occur prior to the
next advance of Loan Proceeds after receipt of the invoice for such
inspection(s).
(i) Definitions.
Approved Contract. A bona fide agreement of sale for the Lot and the Unit
thereon executed by third parties and Borrower, which agreement of sale and
construction contract are acceptable to Lender with respect to terms, form
and content.
Commitment. That certain commitment letter with respect to the Loan, by
Lender to Borrower, dated September 24, 1996 and accepted by Borrower on
September 27, 1996.
Improvements. Collectively, the Lots and the Units.
Loan Closing. The date of execution of this Agreement, the Note, and the
remaining Loan Documents.
Loan Documents. All documents and items considered by Lender to be related
to the Loan, including but not limited to (a) the Note; (b) the Mortgage;
(c) this Revolving Line of Credit Loan Agreement; and (d) all other
miscellaneous loan documents. All Loan Documents be in form and substance
satisfactory to Lender.
<PAGE>
Lot. A lot on which Improvements are being constructed.
Mortgaged Premises. Any Lot and/or Improvements encumbered by the Mortgage.
Mortgage. The Open-End Mortgage and Security Agreement executed by Borrower
in favor of Lender on the date hereof encumbering, inter alia, the Lots and
Improvements.
Tangible Net Worth. The excess of Borrower's total assets over Borrower's
total liabilities. Total assets and total liabilities shall be determined
in accordance with generally accepted accounting principles consistently
applied excluding, however, from the determination of total assets all
assets which would be classified as intangible assets under generally
accepted accounting principles including, without limitation, goodwill,
patents, trademarks, trade names, copyrights and franchises.
Units. The single family townhouse units in Seven Fields Boro, Butler
County, Pennsylvania, being constructed by Borrower, which homes are being
financed under the Loan.
(j) Loan Fees. The $3,750 Loan Fee payable by Borrower on the date hereof.
(k) Maximum Amount of Advance for Lot and Improvements.
(i) Maximum Amount of Improvements Which Mav Be Financed Under the Line of
Credit. Borrower shall be limited to financing no more than twelve (12)
Units at any one time under this Line of Credit.
(ii) Construction of a Unit on any Lot shall not be commenced until all
requirements for the commencement of construction under this Loan Agreement
have been met.
<PAGE>
Advances for the construction of Improvements will be limited to Sixty-Two
Thousand Five Hundred Dollars ($62,500) per Unit.
(iii) At no time will the outstanding principal balance of the Loan exceed
the sum of Seven Hundred Fifty Thousand Five Hundred Dollars ($750,000).
2. Representations and Warranties. Borrower hereby represents and warrants
to Lender (all such representations and warranties being deemed to be
continuously made until the Loan shall have been paid in full) as follows:
(a) That Borrower is a corporation duly organized, existing and in good
standing under the laws of the Commonwealth of Pennsylvania, and has full
power and authority to own and operate its properties, to conduct its
affairs as now being conducted, to execute and deliver this Agreement,
the Note, and the Loan Documents, and to perform the obligations hereunder
and thereunder;
(b) That all Loan Documents are enforceable and binding against Borrower in
accordance with their respective terms;
(c) That the execution and delivery of the Loan Documents have been duly
authorized by all necessary action on the part of Borrower, and all
borrowings contemplated or permitted by the provisions hereof have been, or
at the time of each such borrowing, shall have been, duly authorized by all
necessary action on the part of Borrower, and the Loan Documents constitute
valid and legally binding agreements of the parties thereto, enforceable in
accordance with their respective terms;
(d) That the financial information provided to Lender with respect to
Borrower is accurate and complete and has been prepared in accordance with
generally accepted accounting principles consistently applied and further
that there has been no adverse change in the financial condition or
business of Borrower since the date of such information;
<PAGE>
(e) That there are no current, pending or threatened suits or administrative
proceedings, judgments entered of record against or involving Borrower, or
any directly related affiliates.
(f) That Borrower has made a full and true disclosure of pertinent financial
and other information to Lender in connection with Borrower's application
for this Loan;
(g) That Borrower has not made any representation or warranty to Lender that
contains a misrepresentation or untrue statement or omits any material fact,
and Borrower knows of no fact which now or will hereafter adversely affect
the financial condition of Borrower;
(h) That Borrower has disclosed to Lender the existence of all subsidiaries
and affiliates of Borrower;
(i) That Borrower has fee simple title to all Lots, unencumbered with the
exception of the lien of the Mortgage, and subject only to title exceptions
as Lender may approve, and, with regard to any and all collateral provided,
that there are and will not be any liens thereon except those permitted by
Lender;
(j) That Borrower has met any and all tax obligations or the reserves
against such tax obligations;
(k) That Borrower has all necessary licenses and permits to conduct its
business;
(l) That, if applicable, Borrower is in compliance with ERISA, is not
materially liable thereunder, and there exists no reportable events;
<PAGE>
(m) That there does not exist, nor will Borrower permit to exist, any
hazardous substance (as such term is defined by any federal, state or local
law or regulation) in or on any property owned, leased, controlled or
operated by Borrower which is not stored, contained or used in compliance
with all applicable laws and regulations and there has not been any seepage,
spill, release or discharge of any hazardous substance on or from any such
property;
(n) That no Event of Default has occurred nor is there any event that has
occurred which, with the passage of time or notice, would constitute an
Event of Default.
3. Conditions for Advances of Loan Proceeds.
(a) Prior to any advance by Lender, Lender shall have received (without cost
or expense to Lender) the following with respect thereto, all in such form
and content as the Lender may require:
(i) a written request from Borrower specifying and including the following
information: (aa) the amount of the advance requested; (bb) the purpose of
the advance; and (cc) the Request for Disbursement form attached hereto as
Exhibit C with all attachments;
(ii) an ALTA policy of title insurance insuring that Lender's Mortgage is a
first lien against the fee simple title, free and clear of all liens and
encumbrances and other types of policy exceptions, except those approved by
Lender, and containing such endorsements as to survey, access and other
matters as Lender may require;
(iii) a survey or plot plan which shall certify the location and dimensions
of the Lots, including all easements and rights-of-way as acceptable to the
title company issuing the ALTA policy of title insurance referenced in
subparagraph (a)(iii) above;
<PAGE>
(iv) effective lien waivers and releases from Borrowers' contractor, all
other contractors, subcontractors, suppliers and other persons having a
right to file a mechanic's or materialmen's lien with respect to all work,
materials and services for which the loan proceeds are being requested and
all future work, materials and services, including, without limitation, the
execution, delivery and filing with the Prothonotary of Butler County,
Pennsylvania a No-Lien Agreement between Borrower and its contractor in
advance of the commencement of construction of any work on the Mortgaged
Premises.
Further, no Event of Default as herein defined shall have occurred.
(b) Advances for Improvements. Prior to any advance by Lender with respect
to the initial construction of the Unit on any Lot, Lender shall have
received (without cost or expense to Lender) the following with respect
thereto all in such form and content as Lender may require:
(i) a written request from Borrower specifying and including the amount of
total advances requested for the specific Improvement;
(ii) detailed final plans and specifications (the "Plans") and cost
breakdown and/or Approved Contract (if one has been entered into by such
point), all being acceptable to Lender, and all being certified by Borrower
and containing such information and in such form as Lender may require for
the construction and equipping of the Improvements;
(iii) an appraisal of the Lots and the proposed Unit satisfactory to Lender
(the "Appraisal"). Borrower shall reimburse Lender for all fees of the
Appraiser;
(iv) evidence satisfactory to Lender that Lender's title insurance policy
will not contain any exception for mechanics liens, and that no municipal
improvements are contemplated that could result in a lien against the Lot,
except as otherwise approved by the Lender;
<PAGE>
(v) Builder's risk, workmen's compensation and hazard and public liability
and property damage insurance satisfactory to Lender with respect to the
Improvements to be constructed on such Lot with standard mortgagee clauses
naming Lender as first mortgagee and flood insurance, if required, or such
proof as Lender may require as to the location of such Lot with respect to
areas within the applicable l00 year flood plain as determined by the United
States Army Corp of Engineers; furthermore, all insurance policies shall
contain a clause giving the Lender thirty (30) days' prior written notice
before cancellation by the insuring company and shall indicate Lender's
address as "First Western Bank, National Association, 250 Insurance Street,
Suite l00, Beaver, Pennsylvania l5009." Borrower shall be required to
provide Lender, at closing, with an original policy of insurance or a
certified copy of same, signed by the agent, naming Lender as the Mortgagee
and/or Loss Payee under said policy of insurance.
(vi) a survey of the Lot, including the foundation of the Improvements
constructed thereon, which survey shall certify the location and dimensions
of the Lot, including all easements and rights-of-way as acceptable to the
title company issuing the ALTA policy of title insurance referenced in
subparagraph (a)(iii) above;
(vii) evidence of all governmental approvals required for the construction
of the Improvements, except those approvals which cannot be obtained until
the construction of the Improvements has been completed, as applicable.
Further, no Event of Default shall have occurred hereunder, nor shall there
exist any event or condition which, with the passage of time or the giving
of notice, or both, would constitute such an Event of Default.
<PAGE>
(c) Upon compliance with the foregoing conditions as to each Lot and the
Improvements to be constructed thereon, Lender shall advance Loan proceeds
to pay approved costs due and payable by Borrower not more frequently than
once monthly in accordance with Lender's seven stage draw schedule and in
accordance with Lender's standard policy set forth on Exhibit "B" attached
hereto; provided, however, that all advances hereunder are expressly limited
as set forth in this Loan Agreement.
4. Sales of Lots: Release Fees. Upon the conveyance of any Lot(s), Lender
will require, in order to release such Lot(s) from the lien of the Mortgage,
the payment of a release fee ("Release Fee") equal the greater of (i) the
amount of funds advanced by Lender under the Loan for such Lot and
Improvements thereon or (ii) Sixty Two Thousand Five Hundred Dollars
($62,500). Notwithstanding the foregoing, Lender shall not be required to
release any Lot from the lien of the Mortgage encumbering that Lot if
Borrower is in default under the Loan. Upon receipt, if Borrower is not in
default, the Release Fee shall be applied to the reduction of the unpaid
outstanding principal balance of the Loan. Otherwise, the Release Fee shall
be applied to accrued interest, principal or other costs of the Mortgaged
Premises in such priority as Lender shall determine. Notwithstanding the
foregoing, all outstanding interest in connection with the Lot being released
must be brought current in order to release such Lot from the lien of the
Mortgage.
Expenses incurred by Lender with respect to the preparation and recordation
of the release documents contemplated hereunder shall be calculated by
Lender at the time of issuance of the release information, and payment of
such expenses shall be the responsibility of Borrower.
<PAGE>
5. Affirmative Covenants. Borrower covenants that, until the Loan and all
interest accrued thereon shall have been paid in full, unless the prior
written consent of Lender shall have been first obtained, it shall:
(a) Deliver or cause to be delivered to Lender the following financial
statements of Borrower for every twelve (12) month calendar period during
the Loan Term hereof:
(i) A complete set of audited financial statements, including balance sheets
and profit and loss statements, prepared by Borrower's certified public
accountant within ninety (90) days following the close of each fiscal year
of Borrower, all data being applied according to generally accepted
accounting principles consistently applied, with all data being prepared
according to generally accepted accounting principles consistently applied;
(ii) Such additional information as Lender may reasonably request of Borrower.
(b) Keep all insurance required hereby and by the Mortgage in full force
and effect
(c) Comply with all existing and future laws, ordinances, regulations,
orders and requirements of all governmental, judicial and legal authorities
having jurisdiction over the Lots or Improvements, and with all restrictions
and agreement affecting the Lots or Improvements or Borrower's use or
development thereof;
(d) Use the Loan proceeds solely for the purpose of paying the costs of
constructing the Improvements;
(e) Promptly pay and discharge all claims and liens for labor done and
materials and services furnished in connection with the construction of
the Improvements and not permit any lien or encumbrance to be placed
against any Lot, except the Mortgage to Lender, whether or not such
lien or encumbrance is prior to the lien of such Mortgage;
<PAGE>
(f) Upon the request of Lender, provide an endorsement to Lender's ALTA
policy to title insurance for any Lot, which endorsement shall (i) increase
the coverage of the title policy to the amount advanced for acquisition of
such Lot and construction of Improvements thereon, (ii) insure the
continuing first lien priority of the Mortgage on such Lot, and (iii)
confirm continuing coverage against mechanics' liens. After such request,
Lender shall be under no obligation to disburse further Loan proceeds until
Borrower shall have provided such endorsement;
(g) Borrower agrees during the term of the Loan to perform such acts and
provide such additional documentation to Lender as Lender may reasonably
require;
(h) Provide to Lender within seven (7) days of the execution thereof a copy
of any agreement of sale between Borrower and any third party covering any
Lot, which agreement shall specifically set forth a subordination of such
agreement of sale to Lender's Mortgage then on or to be placed on such Lot;
(i) Borrower agrees that all materials delivered to any Lot by materialmen
or suppliers for the purpose of being used in connection with the
construction of the Improvements or to be incorporated in the Improvements
shall be subject to the lien of the Mortgage, as against Borrower and all
parties acting or claiming under or through Borrower;
(j) Borrower will give prompt notice to Lender of any breach or Event of
Default under the Loan Documents, of any material casualty to any of
Borrower's properties or the commencement of any adverse suit or proceeding
involving Borrower, or of any material change in any litigation involving
Borrower;
<PAGE>
(k) Borrower will promptly pay all taxes, government charges and liens, if
valid, otherwise, Borrower shall diligently defend and reserve against same;
(l) Borrower will keep proper and true books of account and records;
(m) Borrower will conform to all laws and regulations applicable to Borrower;
(n) Borrower will comply with all applicable requirements of EISA and notify
Lender upon the happening of any "reportable event";
(o) Borrower will promptly notify Lender of any change (i) in the senior
management of Borrower, (ii) of Borrower's name, (iii) of any shareholder
holding greater than ten percent (10%) of the shares in Borrower, (iv) or in
Borrower's principal place of business, records, offices, registered office,
location of collateral, Articles of Incorporation, By-laws, Certificate of
Limited Partnership or Partnership Agreement, or depreciation methods of
fiscal year;
(p) Borrower will maintain all of Borrower's property in good repair;
(q) Borrower agrees to indemnify Lender and to hold Lender harmless of an
from any and all liability, loss or damage, including attorney's fees and
costs, which Lender may or might occur by reason of the presence, removal
or disposal of any hazardous wastes or materials (as defined in
any applicable federal, state or local law, regulation or ordinance) present
on or about the Mortgaged Premises;
(r) Borrower agrees at all times during the term of the Loan to maintain a
ratio of Borrower's entire debt obligations (whether or not related to this
Loan, the Lots and the Improvements) - to - Tangible Net Worth of not less
than .5: 1.
6. Negative Covenants. Borrower agrees that it will not, without prior
written consent of Lender:
<PAGE>
(a) Directly or indirectly, create, incur, assume or permit to exist any
indebtedness for borrowed money, except in the normal course of business
(it being understood that Borrower's normal course of business shall
include receiving loans for speculative housing or for the acquisition of
equipment) without the prior written consent of Lender, which consent shall
not be unreasonably withheld;
(b) Directly or indirectly, create, incur, assume, suffer or permit to exist
any mortgage, pledge, lien, security interest or other charge or
encumbrance upon or with respect to any of its assets, or assign, or
otherwise convey any right to receive income, except in favor of Lender,
except those encumbrances that have already been disclosed to Lender in
writing or which Lender has approved in writing with respect to this Loan
except in the normal course of business (it being understood that Borrower's
normal course of business shall include receiving loans for speculative
housing or for the acquisition of equipment);
(c) Directly or indirectly guarantee, assume, endorse, become a surety or
accommodation party for, or otherwise in any way extend credit or become
responsible for or remain liable or contingently liable in connection with
any indebtedness or other indebtedness of any other person or entity except
guaranties and endorsements made in connection with the deposit of
negotiable instruments and other items for collection or credit in the
ordinary course of business;
(d) Enter into any transaction of merger or consolidation;
(e) Transfer, sell, assign, discount, lease or otherwise dispose of any of
its notes, or other instruments, accounts receivable or contract rights
with or without recourse, except for collection in the ordinary course of
business, or any assets or properties necessary or desirable for the
proper conduct of its business;
<PAGE>
(f) Dispose or sell any substantial part of Borrower's property or assets
other than the sales of Lots and Improvements in the ordinary course of
Borrower's business;
(g) Change the nature of its business:
(h) Wind-up, liquidate or dissolve itself or any subsidiary thereof, with
the exception that a subsidiary of Borrower may be dissolved into Borrower
or into another wholly owned subsidiary;
(i) Invest in, transfer any assets to, or do any business through any
subsidiary not previously disclosed in writing to Lender;
(j) Use the Loan Proceeds for any use other than investment into projects
approved by Lender, including without limitation, Borrower shall not use
the Loan Proceeds for the direct or indirect purchase or carrying of
"margin stock";
(k) Insure itself or its property through captive insurance companies or
self-insurance; or
(l) Permit to exist any hazardous substance (as such term is defined in any
federal, state or local law or regulation) in or on any property owned,
leased, controlled or operated by Borrower which is not stored, contained or
used in compliance with all applicable laws and regulations or permit any
seepage, spill, release or discharge of hazardous substance on or from any
such property at any time.
7. Events of Default. If one or more of the following events of default
("Event of Default") shall occur, that is to say:
(a) Borrower shall default in the payment under the Note when due or within
the applicable grace period, if any, set forth therein;
<PAGE>
(b) Any representation or warranty herein or in the other Loan Documents or
in any certificate or other document delivered in connection herewith made
shall prove to have been false or misleading in any material respect as of
the time made or deemed to have been made;
(c) Borrower shall default in the performance of any other covenant,
condition or provision hereof and such default shall not be remedied for a
period of thirty (30) days after written notice there of by Lender;
(d) Any other default shall have occurred in the performance of any
covenant, condition or provision of the Mortgage or the other Loan Documents
that is not cured within the applicable grace period, if any, set forth
therein;
(e) Borrower shall be become insolvent or unable to pay their respective
debts as the same shall mature, or there shall be filed by or against
Borrower a petition in bankruptcy or a petition seeking the appointment of a
receiver, trustee or conservator for the Borrower or any portion of their
respective properties, or seeking reorganization or to effect a plan or
other arrangement with or for the benefit of creditors, or if Borrower
shall consent to the appointment of a receiver, trustee or conservator.
(f) If there occurs a default under any note, document, instrument or other
agreement between Lender and Borrower and/or any affiliate of Borrower
(including, without limitation, the $1,000,000 line of credit loan by Lender
to Borrower as evidenced inter alia, by Borrower's Revolving Line of Credit
Note to Lender, dated August 13, 1996), any such default continues after the
expiration of any applicable grace period as provided in said Note, document,
instrument or other agreement.
<PAGE>
Then, and in any such event, Lender shall not be under any further obligation
to make advances hereunder, and shall have the right to declare the
aggregate unpaid balance of the principal of the Loan, together with all
interest accrued thereon, to be forthwith due and payable, and the same
shall thereupon become due and payable, without any presentment, demand,
protest or notice of any kind, of which or hereby expressly waived, provided
that such sums shall automatically and without notice forthwith become due
and payable upon the occurrence of an Event of Default as set forth in
subparagraph (e) above.
8. Notice. All notices, demands and requests which may be or are required
to be given hereunder or under the other Loan Security Documents shall be
given in writing and shall be deemed to have been duly given if sent by
telefax (with a confirming telephone call to confirm receipt), FedEx or
other overnight receipted delivery system, or United States Registered or
Certified Mail, Return Receipt Requested, postage prepaid, addressed to
Lender at 250 Insurance Street, Suite 100, Beaver, Pennsylvania 15009,
Attention: Patrick J. Sentner, and to Borrower at 2200 Garden Drive,
Suite 200, Mars, Pennsylvania 16046-7846, Attention: Roman Polnyj, or to
such other place or places as the parties hereto may for themselves
designate in writing from time to time for the purpose of receiving notices
hereunder.
9. Right of Set-Off. In addition to any other rights it may have under this
agreement or pursuant to law, upon the occurrence of an Event of Default,
any and all moneys now or hereafter in the hands of Lender on deposit or
otherwise, whether in a general or special account, belonging to Borrower
shall immediately become the subject of set-offby Lender against any
indebtedness that shall be in existence hereunder, and any other liability
or liabilities of Borrower to Lender then in existence, whether said
indebtedness and liability or liabilities are due or to become due, and any
such monies may immediately be appropriated by Lender to the payment of such
indebtedness and liability or liabilities in such manner as it shall see fit.
Borrower hereby grants to Lender a security interest in any and all such
monies to secure payment of all sums due hereunder or owing to Lender
pursuant hereto.
<PAGE>
10. Cooperation. Borrower will cooperate at all times with Lender in
bringing about the timely completion of the Improvements, and Borrower will
resolve all disputes arising during the work of construction in a manner
that will allow work to proceed expeditiously in order to complete the
Improvements in a diligent and workmanlike manner.
11. Payment of Expenses. Borrower will pay Lender's out-of-pocket costs and
expenses incurred in connection with the making, disbursement and
administration of the Loan and the construction of the Improvements, the
exercise of any of its rights or remedies under the Loan Documents, and all
other matters related to the transactions contemplated hereby, including but
not limited to title insurance, settlement and escrow charges, recording
charges, transfer, documentary, ad valorem and mortgage taxes, legal fees
and disbursements, and all other reasonable fees and costs for services.
The provisions of this paragraph shall survive the termination of this
Agreement and the repayment of the Loan.
12. Indemnification. With respect to any requisition of Loan proceeds
requested by Borrower, Borrower hereby releases and agrees to indemnify and
defend Lender and hold Lender harmless from and against all liability
whatsoever arising in connection with the payment or nonpayment by Lender
to Borrower and/or any person, firm or corporation whatsoever of all or
any part of the monies advanced by Lender to fund any such requisition,
whether or not such liability is caused by or results from, directly or
indirectly, the negligence of Lender or any other person, firm or
corporation and from any and all suits, claims or damages arising out of
disputes between Borrower and any subcontractor, materialman or supplier,
or any municipal or public authority.
<PAGE>
13. Miscellaneous.
(a) No delay or failure on the part of Lender to exercise any right, power
or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege.
(b) Any waiver by Lender must be in writing and will not be construed as a
continuing waiver. No waiver will be implied from any delay or failure by
Lender to take action on account of any default of Borrower. Consent by
Lender to any act or omission by Borrower will not be construed to be a
consent to any other or subsequent act or omission or a waiver of the
requirement for Lender's consent to be obtained in any future or other
instance.
(c) This Agreement is made and entered into for the sole protection and
benefit of Lender and Borrower. No trust fund is created by this Agreement
and no other persons or entities will have any right of action under this
Agreement or any right against Lender to obtain any Loan proceeds.
(d) Borrower irrevocably appoints Lender as its attorney-in-fact, with full
power of substitution, to file for record, at Borrower's cost and expense
and in Borrower's name, any notices that Lender considers necessary or
desirable to protect its security.
(e) Lender will have the right, but not the obligation, to commence, appear
in, and defend any action or proceeding that might affect its security or
its rights, duties or liabilities relating to the Loan, the Lots,
Improvements or this Agreement. Borrower will pay promptly on demand all of
Lender's reasonable out-of-pocket costs, expenses and legal fees and
disbursements incurred in those actions or proceedings.
<APGE>
(f) The Note is secured by a Mortgage on real estate situate in the
Commonwealth of Pennsylvania and shall be deemed made under and governed by
the laws of the Commonwealth of Pennsylvania in all respects, including
matters of construction, performance and enforcement. Borrower agrees that
the Courts of Common Pleas of Allegheny County, Butler County, Beaver County
and Lawrence County, Pennsylvania and the United States District Court for
the Western District of Pennsylvania shall have exclusive jurisdiction and
venue with respect to all actions by or against Borrower under or pursuant
to the Note, this Loan Agreement or any other Loan Document, and Borrower
hereby consents to the jurisdiction of such courts and to service of process,
effective upon receipt by personal service, overnight express delivery or
registered or certified mail to Borrower at the address given above. Borrower
shall promptly notify Lender of any change in Borrower's address.
(g) The terms of this Agreement will bind and benefit the heirs, legal
representatives, successors and assigns of the parties; provided, however,
that Borrower may not assign this Agreement or any Loan proceeds, or assign
or delegate any of its rights or obligations, without the prior written
consent of the Lender.
(h) The invalidity or unenforceability of any one or more provisions of this
Agreement will in no way affect any other provisions.
(i) Whenever the context requires, all words used in the singular will be
construed to have been used in the plural, and vice versa, and each gender
will include any other gender. The captions of the paragraphs of this
Agreement are for convenience only and do not define or limit any terms or
provisions. Time is of the essence in the performance of this Agreement by
Borrower.
<APGE>
(j) This Agreement may not be modified or amended except by a written
agreement signed by the parties.
(k) The terms and conditions of the Commitment are incorporated herein by
reference. All obligations and requirements of the Commitment and Borrower's
obligation to perform thereunder shall survive the execution of this
Agreement and shall continue in full force and effect until all obligations
of both parties hereunder shall terminate and the unpaid principal balance of
the Loan, all accrued interest and all other sums or costs advanced by Lender
have been paid in full. The provisions of the Commitment shall be deemed
supplemental to and not in derogation of the Loan Documents, however, to the
extent of any irreconcilable conflict between the terms of any of the Loan
Documents and the Commitment, the terms, covenants and conditions of the
loan Documents shall control.
<PAGE>
WITNESS the due execution hereof as of the day and year first above written.
LENDER:
FIRST WESTERN BANK, NATIONAL
ASSOCIATION, a national banking association
By: Patrick Sentner
Title: Commercial Loan Officer
BORROWER:
SEVEN FIELDS DEVELOPMENT COMPANY, a
Pennsylvania business trust (formerly known as
Canterbury Village, Inc., a Pennsylvania corporation)
By: Seven Fields Management, Inc., a Pennsylvania corporation
By: Roman Polnyj
Title: Chief Financial Officer
<PAGE>
REVOLVING LINE OF CREDIT NOTE
$750,000
Beaver, Pennsylvania November 25, 1996
FOR VALUE RECEIVED, SEVEN FIELDS DEVELOPMENT COMPANY, a Pennsylvania
business trust (formerly known as Canterbury Village, Inc., a Pennsylvania
corporation) (the "Borrower"), having its current mailing address at 2200
Garden Drive, Suite 200, Mars, PA 16046-7846, promises to pay to the order
of FIRST WESTERN BANK, NATIONAL ASSOCIATION, a national banking association,
its successors and assigns (the "Lender"), at its office at 250 Insurance
Street, Suite 100, Beaver, Pennsylvania 15009, the principal sum of SEVEN
HUNDRED FIFTY THOUSAND DOLLARS ($750,000) (the "Loan"), or so much of
the principal sum as shall have been advanced, repaid and re-advanced,
borrowed, repaid and re-borrowed to or for the account of the Borrower
under the terms of this Note and the Revolving Line of Credit Loan Agreement
of even date herewith between Borrower and Lender (the "Loan Agreement"),
together with interest from the date or dates of disbursement on the
outstanding balances thereof, at the rates and in the installments as
hereinafter provided. It is provided, however, that Lender reserves the
right to decline to make any advance at any time if (a) an Event of Default
has occurred either under this Note, any Mortgage or any other Loan Document,
(b) any such advance will cause the principal outstanding balance of tnis
Note to exceed (i) Sixty-Two Thousand Five Hundred Dollars (562,500) per
individual Unit, or (ii) Seven Hundred Fifty Thousand Dollars ($750,000) at
any one time outstanding in the aggregage, or (c) the credit accommodation
evidenced by this Note has terminated pursuant to any separate line of
credit agreement relating hereto.
DEFINITIONS:
Land - Shall mean that certain parcel or parcels of land subject to the
lien of the Mortgage.
Loan - The Seven Hundred Fifty Thousand Dollar ($750,000) line of credit
Loan from Lender to Borrower.
Loan Proceeds - As defined in the Loan Agreement.
Loan Closing - The time of delivery and execution of this Note and the Loan
Agreement.
<PAGE>
Loan Documents - All documents and items considered by Lender to be related
to the Loan, including but not limited to (a) this Note; (b) the Open-End
Mortgage and Security Agreement (the "Mortgage"), dated the date hereof, by
Borrower to Lender encumbering the Land and all Units thereon; (c) the Loan
Agreement; and (d) all other documents executed by Borrower and delivered
to Lender in connection with this Note and the Loan. All Loan Documents
shall be in form and substance satisfactory to Lender.
Loan Term - The term commencing on Loan Closing and continuing until
November 30, 1997, unless extended as set forth herein or unless earlier
due by acceleration or otherwise.
Lots - Each of the developed Lots which are encumbered by the Mortgage and
for which Lots the Loan Proceeds have been advanced hereunder and under the
terms of the Loan Agreement.
Unit(s) - The speculative single family townhomes being constructed by
Borrower in buildings containing from four (4) to six (6) units each on each
of the individual Lots comprising the Mortgaged Premises, which dwellings
are being financed under the Line of Credit.
This Note is secured, inter alia, by the Mortgage encumbering the Land, and
all buildings, fixtures and personal property located or to be located on
the Land (collectively, the "Mortgaged Premises"), and by the Loan Documents
as previously defined herein.
1. Interest Rate. From the date hereof, interest shall be charged on the
outstanding principal balance of the Loan at the "Applicable Interest Rate",
being a rate per annum (based on a year of 360 days and actual days elapsed)
which shall be one half of one percent (.50%) above the rate per annum
announced from time to time by Lender at its principle office in New Castle,
Pennsylvania as its "prime rate" (the "Prime Rate"), such rate to change
automatically from time to time effective as of the effective date of each
change in the Prime Rate. Borrower acknowledges that the Prime Rate is not
necessarily the lowest interest rate charged by Lender on other credit and
that the term does not imply or indicate that the interest rate designated
from time to time by Lender as its "prime rate" is equal to or lower than
that applicable to any other credit extended by Lender.
1.1 Payments.
(a) Interest Payments - Borrower shall pay monthly installments of interest
only on the outstanding principal balance at the Applicable Interest Rate
commencing on the first (1st) day of the first (lst) calendar month
following (i) Loan Closing, or, if later, (ii) the first Loan disbursement
of Loan Proceeds, and on the first (lst) day of each succeeding calendar month
thereafter.
<PAGE>
(b) Release Fees. Upon the sale of any Unit and its related Lot, Lender will
require, in order to release such Lot from the lien of the Mortgage, the
payment of a release fee (the "Release Fee") equal to the greater of (i)
the amount of funds advanced by Lender under the Loan for such Lot and Units
or (ii) Sixty Two Thousand Five Hundred Dollars ($62,500). Notwithstanding
the foregoing, Lender shall not be required to release any Lot and the Unit
constructed thereon from the lien of the Mortgage if Borrower is in default
under the Loan. Upon receipt, if Borrower is not in default, the Release
Fee shall be applied to the reduction of the unpaid outstanding principal
balance of the Loan. Otherwise, the Release Fee shall be applied to accrued
delinquency charges or fees, accrued interest, principal or other costs of
the Mortgaged Premises in such priority as Lender shall determine.
(c) Prepayment. Borrower may prepay this Note in whole or in part at any
time without premium or penalty upon ten (10) days' prior written notice to
Lender. All payments and prepayments shall be applied first to delinquency
charges, if any, accrued and unpaid, then to interest accrued and unpaid,
and then to the principal installments referred to above in the inverse
order of their maturities.
2. Loan Fee. On the date hereof, Borrower shall pay to Lender a Commitment
Fee equal to one-half of one percent (.50%) of the Loan, for a total of
Three Thousand Seven Hundred Fifty Dollars ($3,750).
3. Maturitv Date. If not sooner paid or due by acceleration or otherwise,
the entire unpaid principal balance of this Note, together with all accrued
interest thereon, and all other sums advanced or incurred by Lender in
connection therewith pursuant to this Note or any other Loan Document shall
become due and payable in full on November 30, 1997.
Borrower may request a renewal of the term of this Note for up to three (3)
consecutive twelve (12) month renewal terms, and Lender, in its discretion,
may review such request and make a determination as to whether it shall
permit each such twelve (12) month renewal, provided that for each twelve
(12) month extension (a) Borrower shall have given Lender at least ninety (90)
days prior written notice of its desire to extend the then applicable
maturity date, (b) no Event of Default, and no event or condition which
with the passage of time or the giving of notice, or both, would constitute
an Event of Default, shall be continuing either at the time of such notice
or on the date such extension would otherwise take effect, (c) no material
adverse change, as determined by Lender in its discretion, shall have
occurred with respect to the Borrower, its financial condition, the project
which is the subject of the Loan, or any other undertaking of Borrower,
whether related or unrelated to this Note and the Loan, and (d) with respect
to the second and third twelve (12) month extension periods, Borrower shall
have duly exercised its option to extend the maturity date of this Note for
each of the prior applicable twelve (12) month extension periods. If, near
the end of the first or the second renewal term, Borrower shall request
the extension but Lender shall not grant such extension, then if not sooner
paid or due by acceleration or otherwise, the entire unpaid principal
<PAGE>
balance of this Note, together with all accrued interest thereon, and all
other sums advanced or incurred by Lender in connection therewith pursuant
to this Note or any other Loan Document shall become due and payable in
full 140 days after Lender shall send to Borrower notice of its denial of
such extension request. In any event, if all extension periods shall have
been requested and granted, then if not sooner paid or due by acceleration
or otherwise, the entire unpaid principal balance of this Note, together
with all accrued interest thereon, and all other sums advanced or incurred
by Lender in connection therewith pursuant to this Note or any other Loan
Document shall become due and payable in full on November 30, 2000.
4. Late Charges. If any installment of interest due under the Loan or any
escrow or other payment required to be made hereunder or under the Mortgage
or any other Loan Document is not paid within fifteen (15) days of the date
that it is due, Borrower will pay to the Lender a late charge of five
percent (5 %) of such amount.
5. Tender of Payment. Interest, principal and any other sums payable
hereunder shall be payable in lawful money of the United States of America
to Lender at the address set forth above, or at such other place as Lender,
from time to time, may designate in writing.
Payment of any installment of principal and/or interest or any other sum
due to Lender under any Loan Document shall be deemed to be made only if
and when and on the date Lender receives such installment or other sum, at
Lender's aforementioned address, in cash or other immediately available
funds. If payment is made by check, payment shall be deemed to be made
if and when the check is collected and Lender is credited with immediately
available funds. If any check is returned for insufficient funds in the
account on which it is drawn or if it is not collected for any other reason
that is the fault of Borrower, a late charge (as provided in Paragraph 4
above) shall be due on the amount of the payment represented by the check,
and interest at the Default Rate shall be due on such amount from the due
date of the payment until payment is actually made, unless notwithstanding
the return of the check the payment is completed in accordance with the
terms of the first two sentences of this paragraph on or before the date
it is due, or within the applicable grace period, if any.
6. Payment of Insurance. Taxes and Assessments. At least annually, unless
more frequently requested by Lender, Borrower shall provide proof of payment
of all required insurance, real estate taxes and any municipal assessments
levied on any of the Mortgaged Premises. At any time during the term of the
Loan, at Lender's option, Borrower shall establish an escrow reserve with
the Lender for the payment of premiums for all fire and extended coverage
insurance, real estate taxes and municipal assessments levied on the
Mortgaged Premises, and thereafter the monthly installments due under this
Note shall also include escrow payments equal to one-twelfth (1/12th) of
the armual premiums for such insurance, all required real estate taxes and
any municipal assessments in order to permit payment of these obligations
on or before their respective due dates. No interest shall be payable on
such escrowed funds.
<PAGE>
7. Calculation of Interest on Outstanding Balance. Until the Loan is paid
in full, both before and after any default, interest on the outstanding
balance of the Loarl shall be calculated on a 360-day year, but charged on
the actual number of days elapsed in any calendar year or part thereof.
8. Default Interest Rate. If a default continues beyond its applicable
grace period, if any, or if an Event of Default exists, interest shall
continue to accrue thereafter on the entire unpaid principal balance at a
rate (the "Default Rate") of four percent (4%) per annum in excess of the
Applicable Interest Rate set forth in this Note, but not greater than
permitted by law, until the Loan is paid in full, including the period
following entry of any judgment.
9. Events of Default. At the option of the Lender, each of the following is
an Event of Default under this Note: (a) if Borrower default in the payment
of any installment of principal or interest or other sum payable hereunder
and the default continues for ten (10) days after the day on which the
payment is due; (b) if there occurs any Event of Default in the Mortgage or
any of the other Loan Documents; (c) if any proceeding under the Bankruptcy
Code or any law of the United States or of any State relating to insolvency,
receivership, or debt adjustment is instituted by the Borrower, or if any
such proceeding is instituted against Borrower and is consented to by the
respondent or remains undismissed for sixty (60) days, or if relief in
bankruptcy is oranted to Borrower or if a trustee or receiver is appointed
for any substantial part of the property of any thereof, and such
appointment shall not have been vacated within sixty (60) days thereafter,
or if Borrower make an assignment for the benefit of creditors, admits in
writing an inability to pay debts generally as they become due or becomes
insolvent; or (d) if Borrower shall default under any note, document,
instrument or other agreement between Lender and Borrower or any affiliate of
Borrower (including, without limitation, the $1,000,000 line of credit loan
by Lender to Borrower as evidenced inter alia, by Borrower's Revolving Line
of Credit Note to Lender, dated August 13, 1996), which default continues
after the expiration of any applicable grace period.
10. CONFESSION OF JUDGMENT. BORROWER DOES HEREBY EMPOWER ANY
ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF
PENNSYLVANIA, TO APPEAR FOR BORROWER, AND WITH OR WITHOUT A
COMPLAINT OR DECLARATION FILED, AND AFTER AN EVENT OF DEFAULT,
CONFESS A JUDGMENT OR JUDGMENTS AGAINST BORROWER AND IN FAVOR OF
LENDER OR LENDER'S SUCCESSORS OR ASSIGNS IN ANY COURT OF RECORD
WITHIN THE COMMONWEALTH OF PENNSYLVANIA FOR THE UNPAID PRINCIPAL
BALANCE HEREOF, AND ALL INTEREST HEREON, TOGETHER WITH COSTS OF
SUIT AND AN ATTORNEY'S COMMISSION OF 10% FOR COLLECTION. THE
AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST
BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF,
AND MAY BE EXERCISED FROM TIME TO TIME AND AS OFTEN AS LENDER OR ITS
SUCCESSORS OR ASSIGNS SHALL DEEM NECESSARY OR DESIRABLE. ANY SUCH
<PAGE>
JUDGMENT SHALL BE FULLY ENFORCEABLE UP TO THE AMOUNT DUE FROM
BORROWER AT THE TIME ENFORCEMENT OF THE JUDGMENT IS SOUGHT, PLUS
AN ATTORNEY ' S FEE OF 5 % FOR COLLECTION . BORROWER HEREBY FOREVER
WAIVES AND RELEASES ANY AND ALL ERRORS IN SAID PROCEEDINGS, WAIVES
STAY OF EXECUTION, STAY, CONTINUANCE OR ADJOURNMENT OF SALE ON
EXECUTION, THE RIGHT TO PETITION TO SET ASIDE OR ORDER A RESALE, THE
RIGHT TO EXCEPT TO THE SHERIFF'S SCHEDULE OF PROPOSED DISTRIBUTION,
THE RIGHT TO INQUISITION AND EXTENSION OF TIME OF PAYMENT, AND
AGREES TO CONDEMNATION OF ANY PROPERTY LEVIED UPON BY VIRTUE OF
ANY EXECUTION ISSUED ON ANY SUCH JUDGMENT, AND BORROWER
SPECIFICALLY WAIVES ALL EXEMPTIONS FROM LEVY UNDER ANY EXISTING OR
FUTURE LAWS OF THE UNITED STATES OF AMERICA OR THE COMMONWEALTH
OF PENNSYLVANIA OR OF ANY OTHER JURISDICTION.
THE BORROWER KNOWINGLY, AND AFTER CONSULTATION WITH
INDEPENDENT COUNSEL, WAIVES ITS RIGHT TO BE HEARD PRIOR TO THE ENTRY
OF SUCH JUDGMENT AND UNDERSTANDS THAT UPON ENTRY SUCH JUDGMENT
SHALL BECOME A LEN ON ALL REAL PROPERTY OF BORROWER IN THE COUNTY
IN WHICH SUCH JUDGMENT IS ENTERED.
THE BORROWER ACKNOWLEDGES AND AGREES THAT THE ABOVE
PARAGRAPHS OF THIS SECTION CONTAIN PROVISIONS UNDER WHICH LENDER
MAY ENTER JUDGMENT BY CONFESSION AGAINST THE BORROWER BEING FULLY
AWARE OF ITS RIGHT TO PRIOR NOTICE AND A HEARING ON THE VALIDITY OF
ANY JUDGEMENT OR OTHER CLAIM THAT MAY BE ASSERTED AGAINST IT BY
LENDER HEREUNDER BEFORE JUDGMENT IS ENTERED, THE BORROWER HEREBY
FREELY, KNOWINGLY AND INTELLIGENTLY WAIVES THESE RIGHTS AND
EXPRESSLY AGREES AND CONSENTS TO LENDER'S ENTERING JUDGMENT
AGAINST IT BY CONFESSION PURSUANT TO THE TERMS HEREOF.
11. Acceleration of Loan Upon Default. Upon any Event of Default which
exists after the expiration of any applicable grace period, the entire
unpaid principal balance of the Loan, together with all accrued interest,
and all other surns owing hereunder or under the Mortgage or any other
Loan Document shall, at the option of the holder hereof, become immediately
due and payable, without presentation, demand or further action of any kind.
Upon acceleration of the outstanding principal balance of the Loan,
interest shall continue to accrue thereafter at the Default Rate, but not to
exceed the highest rate permitted by law, until the Loan is paid in full,
including the period following entry of any judgment. The failure of the
holder hereof to accelerate the outstanding principal of the Loan upon the
occurrence of an Event of Default hereunder shall not constitute a waiver of
such Event of Default, or any default, or of the right to accelerate the
Loan at any time thereafter.
<PAGE>
12. Waiver of Notice. The Lender may exercise any right, remedy or option
to which it is entitled upon a default or Event of Default (under any of
the Loan Documents) without giving any prior notice to Borrower or any other
party, except as such notice is clearly set forth and specifically required
by the provisions of this Note or such other Loan Document.
13. Attorney's Fees and Costs of Recovery and Satisfaction. If the Lender or
any subsequent holder hereof retains the services of counsel in order to
address the cure of any default or Event of Default or to enforce a remedy
under this Note or the Mortgage, reasonable attorney's fees and expenses
shall be payable by Borrower to the holder and shall be secured by
the Mortgage. Borrower shall pay the costs, title searches and all other
costs incurred by the holder in connection with proceedings to recover any
sums due hereunder. Borrower shall also pay any reasonable charge of the
holder in connection with the satisfaction of this Note and/or Mortgage of
record.
14. Waiver of Borrower and Endorsers. Borrower and all endorsers of this
Note severally waive to the extent permitted by law presentment, demand,
protest and notice of nonpayment, the benefit of any laws which now or
hereafter might otherwise authorize the stay of any execution to
be issued on any judgment recovered on this Note, or the exemption of any
property from levy and sale thereunder, and all errors, defects and
imperfections whatsoever of a procedural nature in the entering of the said
judgment or any process or proceedings relating thereto. Borrower agree
that the Mortgaged Premises or any portion thereof may be sold on writ of
execution.
15. Renewals and Extensions. Borrower and all endorsers hereof, and all
others who may be liable for all or any part of the indebtedness evidenced
by this Note consent to any number of renewals or extensions of the time
payment of any sum due under this Note or the Mortgage or any other Loan
Document or for the performance of any covenant, condition or agreement
thereof, or the taking or release of other or additional security, all
without notice, and such actions when taken shall not release or discharge
the liability of Borrower or of any such endorsers or such persons liable.
16. Remedies Cumulative and Concurrent. The remedies of the Lender or any
subsequent holder hereof as provided herein, or in the Mortgage or any
other Loan Documents, and all warrants of attorney herein and in said
Mortgage contained, shall be cumulative and concurrent, and may be pursued
singularly, successively, or together against Borrower, and/or the Mortgaged
Premises at the sole discretion of the holder, and such warrants shall not
be exhausted by any exercise thereof but may be exercised as often as
occasion therefor shall occur; and the failure to exercise any such right
or remedy shall not be construed as a waiver or release of the same.
<PAGE>
17. Waiver. The Lender or any subsequent holder hereof shall not be deemed,
by any act of omission or commission, to have waived any of its rights or
remedies hereunder unless such waiver is in writing and signed by the Lender
or any subsequent holder hereof, and then only to the extent specifically
set forth in the writing. A waiver as to one event shall not be construed
as continuing or as a bar to or waiver of any right or remedy as to a
subsequent event.
18. Usury. Notwithstanding any provision of this Note to the contrary, it is
the intent of Borrower and Lender that Lender shall not at any time be
entitled to receive, collect or apply, and Borrower and Lender shall not be
deemed to have contracted for, as interest on the principal indebtedness
evidenced hereby, any amount in excess of the maximum rate of interest
permitted to be charged by applicable law, and in the event Lender ever
receives, collects or applies as interest any such excess, such excess
shall be deemed partial payment of the principal indebtedness evidenced
hereby, and if such principal shall be paid in full, any such excess shall
forthwith be paid to Borrower.
19. Subsequent Loans. The Mortgage shall extend to and cover any additional
loans made by Lender to Borrower at any time or times heretofore or hereafter.
20. No Affiliation. The Lender or any subsequent holder hereof shall in no
event be construed for any purpose to be a partner, joint venturer or
associate of Borrower or any lessee, operator, concessionaire or licensee
of Borrower in the conduct of their respective businesses.
21. Notices. All Notices shall be given to Borrower at:
Seven Fields Development Company
2200 Garden Drive, Suite 200
Mars, Pennsylvania 16046-7846
Attention: Roman Polnyj
Telephone No. (412) 776-5070
Telefax No. (412)776-0050
and to Lender at:
First Western Bank, National Association
250 Insurance Street, Suite 100
Beaver, PA 15009
Attention: Patrick J. Sentner
Telephone No. (412) 775-7800
Telefax No. (412) 775-5710
Except as otherwise provided in this Note, all notices hereunder shall be in
writing and shall be deemed to have been duly given for all purposes when
delivered in person or when sent by telefax (with a confirming telephone
call to confmn receipt), by FedEx or other overnight receipted delivery
system, or when deposited in the United States mail, by registered or
certified mail, return receipt requested, postage prepaid, directed to the
party to receive the same at its address stated above or at such other
address as may be substituted by notice given as herein provided.
<PAGE>
22. Assignment. Borrower's obligations hereunder shall extend to and bind
Borrower's heirs, executors, administrators, successors and assigns. This
Note is fully assignable by Lender.
23. Governing Law. This Note is secured by the Mortgage on real estate
situate in the Commonwealth of Pennsylvania and shall be deemed made under
and governed by the laws of the Commonwealth of Pennsylvania in all respects,
including matters of construction, performance and enforcement. Borrower
agrees that the Courts of Common Pleas of Allegheny County, Butler
County, Beaver County, and Lawrence County, Pennsylvania and the United
States District Court for the Western District of Pennsylvania shall have
exclusive jurisdiction and venue with respect to all actions by or against
Borrower under or pursuant to this Note and Borrower hereby consents to the
jurisdiction of such courts and to service of process, effective upon receipt
by personal service, overnight express delivery or registered or certified
mail to Borrower at the address given above. Borrower shall promptly notify
Lender of any change in Borrower's address.
24. Severability Wherever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Note or any portion thereof shall be
prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Note.
25. Incorporation of Other Loan Documents. All of the Loan Documents are
hereby fully incorporated by reference into this Note with the same force
and effect as thouah fully set out herein.
26. Time of the Essence. Time is of the essence with respect to each and
every provision of this Note.
27. Headings. The headings in sections and titles of this Note are inserted
for convenience only and shall not be deemed to constitute a part of this
Note.
<PAGE>
THIS DOCUMENT CONTAINS A PROVISION AUTHORIZING THE ENTRY OF
JUDGMENT BY CONFESSION. THIS MEANS THAT A JUDGMENT COULD BE
ENTERED AGAINST YOU WITHOUT NOTICE OR A TRLKL. THIS COULD RESULT IN
YOUR PROPERTY BEING SOLD BY THE SHERIFF IN ORDER TO SATISFY THIS
JUDGMENT. BY SIGNING THIS DOCUMENT YOU ACKNOWLEDGE THAT YOU HAVE
READ AND UNDERSTOOD ALL OF THE TERMS CONTAINED HEREIN.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby,
has duly executed this Note as of the day and year first above written.
WITNESS:
SEVEN FIELDS DEVELOPMENT COMPANY, a Pennsylvania business trust (formerly
known as Canterbury Village, Inc., a Pennsylvania corporation)
By: Seven Fields Management, Inc. a Pennsylvania corporation
By: Roman Polnyj
Title: Chief Financial Officer
<PAGE>
OPEN-END MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE SECURES FUTURE ADVANCES
(All notices to be given to Mortgagee pursuant to 42 PA. C.S.A. 8143 shall
be given as set forth in Section 9.01 of this Mortgage.)
THIS OPEN-END MORTGAGE AND SECURITY AGREEMENT ("Mortgage") IS MADE
as of 25th day of November, 1996, by SEVEN FIELDS DEVELOPMENT COMPANY, a
Pennsylvania corporation), with an address at 2200 Garden Drive, Suite 200,
Mars, Pennsylvania 16046-7846 ("Mortgagor"), in favor of FIRST WESTERN BANK,
NATIONAL ASSOCIATION, a national banking association, with an address at
250 Insurance Street, Suite 100, Beaver, Pennsylvania 15009 ("Mortgagee").
This Mortgage is an "Open-End Mortgage" as set forth in 42 PA. C.S.A.
8143 and secures obligations up to a maximum amount of indebtedness
outstanding at nay time of Seven Hundred Fifty Thousand Dollars ($750,000),
plus accrued and unpaid interest, including, but not limited to,
advances for the payment of taxes and municipal assessments, maintenance
charges, insurance premiums, costs incurred for the protection of the
Mortgaged Property or the lien of this Mortgage, expenses incurred by
Mortgagee by reason of default by Mortgagor under this Mortgage and
advances for construction, alteration or renovation on the Mortgaged
Property, together with all other sums due hereunder or secured hereby.
WITNESSETH:
WHEREAS, Mortgagor is the owner of a certain tract or parcel of land
situate in the Castle Creek Phase II Plan of Lots, Seven Fields Boro
Township, Butler County, Pennsylvania described in Exhibit A attached
hereto and made a part hereof, together with the improvements now or
hereafter erected thereon;
WHEREAS, Mortgagee is making a revolving line of credit loan to Mortgagor
in an amount not to exceed Seven Hundred Fifty Thousand Dollars ($750,000)
(the"Loan), the proceeds of which will be advances to Mortgagor from time
to time pursuant to the terms and conditions of a certain Revolving Line of
Credit Loan Agreement, dated as of the date hereof (the "Loan Agreement")
between Mortgagor and Mortgagee for the purposes set forth in the Loan
Agreement
<PAGE>
NOW, THEREFORE, for the purpose of securing the payment and performance of
the following obligations (collectively called the "Secured Obligations)"
(A) all indebtedness, together with all interest thereon, evidenced by that
certain Revolving Line of Credit Note (the "Note") from Mortgagor to
Mortgagee dated as of the date hereof in the principal amount of Seven
Hundred Fifty Thousand Dollars ($750,000), as the same may be amended,
supplemented, replaced or renewed from time to time, the provisions of the
foregoing document being incorporated herein by this reference;
(B) any sums advanced by Mortgagee or which may otherwise become due
pursuant to the provisions of this Mortgage or pursuant to any other
document or instrument delivered to Mortgagee with respect to the Secured
Obligations (all such documents and instruments, including that identified
in subpart A above, are collectively referred to herein as the "Loan
Documents").
Mortgagor, for good and valuable consideration, receipt of which is hereby
acknowledged, and intending to be legally bound hereby, does hereby give,
grant, bargain, sell, convey, mortgage, pledge and confirm unto Mortgagee
and does agree that Mortgagee shall have a security interest in the
following described property (collectively, the "Mortgaged Property"), now
owned or held or hereafter acquired, to Wit:
(i) all of Mortgagor's estate in the premises described in Exhibit A,
together with all of the easements, rights of way, privileges, liberties,
hereditaments, rights and appurtenances thereunto belonging and all of the
estate, right, title, interest, claim and demand whatsoever of Mortgagor
therein and in the public streets and ways adjacent thereto, either in law
or in equity, in possession or expectancy (collectively, the "Realty");
(ii) the structures and buildings, and all additions and improvements
thereto, now or hereafter erected upon the Realty (including all Equipment,
as hereinafter defined, constituting fixtures) (collectively, the
"Improvements");
(iii) all leases and other agreements now or hereafter in existence
relating to the use, occupancy or possession of the Realty, Improvements or
Equipment, or any part thereof, and all right, title and interest of
Mortgagor thereunder, including cash and securities deposited thereunder
to secure performance by the tenants of their obligations thereunder, and
including further, the right to receive and collect the rents ("Rents")
thereunder and all guaranties thereof (collectively, the "Leases");
(iv) all machinery, apparatus, equipment, fittings, appliances and fixtures
of every kind and nature whatsoever, and regardless of whether the same may
now or hereafter be attached or affixed to the Realty or Improvements
(collectively, the "Equipment");
<PAGE>
(v) all Mortgagor's rights and interests in and to the Sale Agreements (as
defined in Section 8.5 hereof);
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, its successors and
assigns, to its own use forever in accordance with the provisions hereof.
ARTICLE 1
REPRESENTATION AND WARRANTIES
Mortgagor represents and warrants to Mortgagee as follows:
1.1 Warranty of Title. Mortgagor has good and marketable title to an estate
in fee simple absolute in the Realty and Improvements and has all right,
title and interest in all other property constituting a part of the
Mortgaged Property, in each case free and clear of all liens and
encumbrances, except as set forth on Mortgagee's title insurance policy
with respect to the Mortgaged Property or as otherwise approved in writing
by Mortgagee. This Mortgage is a valid and enforceable first lien on the
Mortgaged Property (except as set forth in Mortgagee's policy of title
insurance or as otherwise approved in writing by Mortgagee), and Mortgagee
shall, subject to Mortgagor's right of possession prior to an Event of
Default, quietly enjoy and possess the Mortgaged Property. Mortgagor shall
preserve such title as it warrants herein and the validity and priority of
the lien hereof and shall forever warrant and defend the same to Mortgagee
against the claims of all persons and parties whomsoever.
ARTICLE 2
AFFIRMATIVE COVENANTS
Until all of the Secured Obligations shall have been fully paid, satisfied
and discharged Mortgagor shall:
2.1 Payment and Performance of Secured Obligations. Pay and perform all
Secured Obligations when due as provided in the Loan Documents.
2.2 Legal Requirements. Promptly comply with and conform to all present and
future laws, statutes, codes, ordinances, orders and regulations and all
covenants, restrictions and conditions which may be applicable to Mortgagor
or to any of the Mortgaged Property (collectively, the "Legal Requirements").
2.3 Impositions.
(a) Before interest or penalties are due thereon and otherwise when due,
Mortgagor shall pay all taxes of every kind and nature, all charges for any
easement or agreement maintained for the benefit of any of the Mortgaged
Property, all general and special assessments (including, without
limitation, any condominium or planned unit development assessments, if any),
levies, permits, inspection and license fees, all water and sewer rents and
charges, and all other charges and liens, whether of a like or different
nature, imposed upon or assessed against Mortgagor or any of the Mortgaged
Property. The obligations referred to in this Section are hereinafter
collectively referred to as the "Impositions". Within thirty (30) days after
the payment of any Imposition, Mortgagor shall deliver to Mortgagee
evidence acceptable toMortgagee of such payment.
<PAGE>
(b) Subject to the right of Mortgagor to contest the payment of an
Imposition as hereinafter provided, Mortgagee may pay or perform any
Imposition and add the amount so paid or the cost incurred to the Secured
Obligations, and all such amounts shall on demand be due and payable.
(c) Mortgagor may in good faith contest, by proper legal proceedings, the
validity of any Legal Requirement or the validity or amount of any
Imposition, provided (i) an Event of Default does not exist, and (ii) such
contest is maintained and prosecuted with diligence.
2.4 Maintenance and Impairment of Securitv. Mortgagor shall keep the
Mortgaged Property in good condition and order and in a rentable and
tenantable state of repair and will make or cause to be made, as and when
necessary, all repairs, renewals, and replacements, structural and
nonstructural, exterior and interior, foreseen and unforeseen, ordinary and
extraordinary, provided, however, that no structural repairs, renewals or
replacements shall be made without Mortgagee's prior written consent.
Mortgagor shall not remove, demolish or alter the Mortgaged Property nor
commit or suffer waste with respect thereto, nor permit the Mortgaged
Property to become deserted or abandoned. Mortgagor shall permit Mortgagee
and its agents at any time, and from time to time, to enter upon and visit
the Mortgaged Property for the purpose of inspecting and appraising the same.
Mortgagor covenants and agrees not to take or permit any action with respect
to the Mortgaged Property which will in any manner impair the security of
this Mortgage.
2.5 Use of Mortgaged Propertv. Mortgagor shall use, and permit others to use
the Mortgaged Property only for uses permitted under applicable Legal
Requirements.
2.6 Books and Records. Mortgagor shall maintain and Mortgagee shall have
access to complete and adequate books of account and other records relating
to the operation and use of the Mortgaged Property as Mortgagee may require.
Mortgagor shall permit Mortgagee to photocopy such books and records.
<PAGE>
ARTICLE 3
NEGATIVE COVENANTS
Until all of the Secured Obligations shall have been fully paid, satisfied
and discharged.
3.1 Leases. Mortgagor shall not (i) execute an assignment or pledge of the
Rents and/ or the Leases other than in favor of Mortgagee; or (ii) accept
any prepayment of an installment of any Rents prior to the due date of such
installment.
3.2 No Other Financing or Liens. Mortgagor shall not enter into any lease
for any personal property, as lessee, which is to be used in connection
with the operation of Mortgagor's business at the Mortgaged Property or
create or cause or permit to exist any lien on. or security interest in,
whether voluntary or involuntary, any part of the Mortgaged Property, other
than in favor of Mortgagee.
3.3 Sale of Mortgaged Property: Etc. Mortgagor shall not sell, assign, give,
mortgage, pledge, hypothecate, encumber, lease or otherwise transfer the
Mortgaged Property, or any part thereof or interest therein, voluntarily or
involuntarily, without Mortgagee's prior written consent, except in
accordance with the terms and conditions of the Revolving Line of Credit
Loan Agreement and the Revolving Line of Credit Note executed
contemporaneously herewith.
ARTICLE 4
INSURANCE, CONDEMNATION AND) RESTORATION
4.1 Insurance.
(a) Mortgagor shall maintain comprehensive public liability insurance, fire
insurance with extended coverage, builder's risk insurance with respect to
any construction, renovation or reconstruction, contractual liability
insurance for all indemnification obligations of Mortgagor under all Leases
and such other insurance as may be required from time to time by Mortgagee.
The amounts, coverages and other terms and conditions of the insurance
policies shall at all times be satisfactory to Mortgagee and shall satisfy
any coinsurance requirements of Mortgagee. Mortgagor shall pay as they
become due all premiums for such insurance, shall keep each policy in full
force and effect, shall deliver to Mortgagee evidence of the payment of the
full premium therefor at least twenty (20) days prior to the expiration date
of each policy and shall deliver to Mortgagee original policies of
insurance, with noncontributory mortgagee clauses in favor of and acceptable
to Mortgagee. Mortgagor's liability insurance policy shall specifically name
Mortgagee as an additional insured. Each policy shall provide for written
notice to Mortgagee at least thirty (30) days prior to any cancellation,
nonrenewal or amendment of such msurance.
(b) If the Mortgaged Property is located in an area which has been
identified by any governmental agency, authority or body as a flood hazard
area or the like, then Mortgagor shall maintain a flood insurance policy
covering the Mortgaged Property in an amount not less than the full
replacement value of the Mortgaged Property or the maximum limit of
coverage available under the federal program, whichever amount is less.
<PAGE>
4.2 Rights of Mortgagee to Proceeds. In the event of loss, Mortgagor shall
not adjust, collect or compromise any insurance claims under said policies
without the prior written consent of Mortgagee. Each insurer is hereby
authorized and directed to make payment under said policies, including
return of unearned premiums, to Mortgagor and Mortgagee jointly. All
insurance proceeds shall be payable to Mortgagee and such proceeds may, at
Mortgagee' s sole option, be applied to all or any part of the Secured
Obligations and in any order (notwithstanding that such Secured Obligations
may not then otherwise be due and payable) or to the repair and
restoration of any of the Mortgaged Property under such terms and conditions
as Mortgagee may impose. Mortgagee shall not be deemed to have elected such
option until such option is elected specifically in writing. Until so
elected, Mortgagee shall not in any circumstances be deemed to have waived
its right to make such election.
4.3 Condemnation. Mortgagor, immediately upon obtaining knowledge of the
institution of any proceedings for the condemnation or taking by eminent
domain of any of the Mortgaged Property, shall notify Mortgagee of the
pendency of such proceedings. Mortgagee may participate in any such
proceedings and Mortgagor shall deliver to Mortgagee all instruments
requested by it to permit such participation. Any award or compensation for
property taken or for damage to property not taken, whether as a result of
such proceedings or in lieu thereof, is hereby assigned to and shall be
received and collected directly by Mortgagee, and any award or compensation
shall be applied, at Mortgagee's option, to any part of the Secured
Obligations and in any order (notwithstanding that any of such Secured
Obligations may not then be due and payable) or to the repair and
restoration of any of the Mortgaged Property under such terms and
conditions as are set forth in Section 4.4 or otherwise as Mortgagee may
impose. Mortgagee shall not be deemed to have elected such option until
such option is elected specifically in writing. Until so elected, Mortgagee
shall not in any circumstances be deemed to have waived its right to make
suchelection.
ARTICLE 5
DEFAULT
5.1 Events of Default. The occurrence of any one or more of the following
events shall constitute an "Event of Default" hereunder:
(a) a failure to pay any Secured Obligations when due in accordance with
the terms thereof;
(b) Mortgagor shall fail to perform or observe any of the obligations in
Article 3 or 4 of this Mortgage;
(c) a failure by Mortgagor to duly perform and observe any other provision
in this Mortgage, and such failure shall continue for a period of thirty
(30) days after notice from Mortgagee;
(d) any representation or warranty made by Mortgagor herein or in any of
the Loan Documents or in any other instrument or document which pertains to
or is delivered in connection with any of the Secured Obligations proves to
be incorrect, now or hereafter, in any material respect;
(e) Mortgagor, or any obliger or guarantor of any of the Secured Obligations,
shall become insolvent or unable to pay its or his or her debts as the same
mature, or a petition shall be filed by or against Mortgagor or any such
party in bankruptcy or seeking the appointment of a receiver, trustee or
conservator for Mortgagor or any such party or for any portion of its or his
or her property, or for reorganization or to effect a plan or other
arrangement with or for the benefit of creditors or Mortgagor or any such
party shall consent to the appointment of a receiver, trustee or
conservator for Mortgagor or any such party or for any portion of its or his
or her property;
(f) foreclosure proceedings are instituted against the Mortgaged Property
upon any other lien or claim, whether alleged to be superior or junior to
the lien of this Mortgage;
(g) Mortgagor shall fail to comply with any duty or obligation imposed
pursuant to Article 7 hereof or any warranty or representation contained
therein shall be incorrect or misleading;
(h) Mortgagor shall at any time deliver or cause to be delivered to
Mortgagee a notice pursuant to 42 PA. C.S.A. 8143 electing to limit the
indebtedness secured by this Mortgage; or
(i) Mortgagor shall default under any note, document, instrument or other
agreement between Mortgagee and Mortgagor or any affiliate of Mortgagor
(including, without limitation, the $1,000,000 line of credit loan by
Mortgagee to Mortgagor as evidenced, inter aria, by Mortgagor's Revolving
Line of Credit Note to Mortgagee, dated August 13, 1996), which default
continues after the expiration of any applicable grace period.
5.2 Demand Obligation. Nothing in this Mortgage or any of the other Loan
Documents shall be construed to limit the applicability of any term of the
Loan Documents providing for the payment of any Secured Obligations on demand.
<PAGE>
ARTICLE 6
REMEDIES
6.1 Rights and Remedies of Mortgaee. If an Event of Default occurs, and is
not cured within the applicable grace period, if any, Mortgagee may, at its
option and notwithstanding any contrary provisions in the Loan Documents,
without demand, notice or delay, do one or more of the following:
(a) Mortgagee may declare the entire unpaid principal balance of the
Secured Obligations, together with all interest thereon, to be due and
payable immediately (and in the case of an Event of Default under
subsection 5.1(e), all such indebtedness shall automatically and immediately
become due and payable without notice or any other act).
(b) Mortgagee may (i) institute and maintain an action of mortgage
foreclosure against the Mortgaged Property and the interests of Mortgagor
therein, (ii) institute and maintain an action on any instruments evidencing
the Secured Obligations or any portion thereof, and (iii) take such other
action at law or in equity for the enforcement of any of the Loan Documents
as the law may allow, and in each such action Mortgagee shall be entitled
to all costs of suit and attorneys fees.
(c) Mortgagee may, in its sole and absolute discretion, and without
releasing Mortgagor or any other obligor or guarantor from any obligation
under any of the Loan Documents and without waiving any Event of Default:
(i) collect any or all of the Rents, including any Rents past due and unpaid,
(ii) perform any obligation or exercise any right or remedy of Mortgagor
under any Lease, or (iii) enforce any obligation of any tenant of any of the
Mortgaged Property. Mortgagee may exercise any right under this subsection
(c), whether or not Mortgagee shall have entered into possession of any of
the Mortgaged Property, and nothing herein contained shall be construed as
constituting Mortgagee a "mortgagee in possession", unless Mortgagee shall
have entered into and shall continue to be in actual possession of the
Mortgaged Property. Mortgagor hereby authorizes and directs each and every
present and future tenant of any of the Mortgaged Property to pay all Rents
directly to Mortgagee and to perform all other obligations of that tenant
for the direct benefit of Mortgagee, as if Mortgagee were the landlord
under the Lease with that tenant, immediately upon receipt of a demand by
Mortgagee to make such payment or perform such obligations. Mortgagor hereby
waives any right, claim or demand it may now or hereafter have against any
such tenant by reason of such payment of Rents or performance of obligations
to Mortgagee, and any such payment or performance to Mortgagee shall
discharge the obligations of the tenant to make such payment or performance
to Mortgagor.
6.2 Sale in Parcels or Units. In case any sale under this Mortgage occurs
by virtue of judicial proceedings, the Mortgaged Property may be sold in one
parcel or unit and as an entity, or in such parcels or units, and in such
manner or order, as Mortgagee in its sole discretion may elect.
<PAGE>
6.3 Confession of Judgment in Ejectment. At any time after the occurrence of
an Event of Default, without further notice, regardless of whether Mortgagee
has asserted any other right or exercised any other remedy under this
Mortgage or any of the other Loan Documents, it shall be lawful for any
attorney licensed in the Commonwealth of Pennsylvania as attorney for
Mortgagor to confess judgment in ejectment against Mortgagor and all persons
claiming under Mortgagor for the recovery by Mortgagee of possession of all
or any part of the Mortgaged Property, for which this Mortgage shall be
sufficient warrant. If for any reason after such action shall have
commenced the same shall be determined and the possession of the Mortgaged
Property remain in or be restored to Mortgagor, Mortgagee shall have the
right upon any subsequent default or defaults to bring one or more amicable
action or actions as hereinbefore set forth to recover possession of all or
any part of the Mortgaged Property.
6.4 Remedies Cumulative. All remedies contained in this Mortgage are
cumulative and Mortgagee also has all other remedies provided by law or in
equity or in any of the other Loan Documents. No delay or failure by
Mortgagee to exercise any right or remedy under this Mortgage will be
construed to be a waiver of that right or remedy or a waiver of any Event of
Default. Mortgagee may exercise any one or more of its rights and remedies
without regard to the adequacy of its security.
ARTICLE 7
ENVIRONMENTAL MATTERS
7.1 Environmental Protection.
(a) The Mortgagor represents and covenants that, except as disclosed by the
Mortgagor to the Mortgagee in writing on or prior to the date of this act,
(i) the Mortgagor has not caused or suffered to occur and the Mortgagor
will not hereafter cause or suffer to occur, a discharge, spillage,
uncontrolled loss, seepage or filtration of oil or petroleum or chemical
liquids or solids, liquid or gaseous products or hazardous waste (a "spill"),
or release of a hazardous substance at, upon, under or within the Mortgaged
Property or any contiguous real estate; (ii) neither the Mortgagor nor any
other party has been, is or will be involved in operations at or near the
Mortgaged Property which could lead to the imposition on the Mortgagor or
any other owner of the Mortgaged Property of liability or the creation of
a lien on the Mortgaged Property, under any applicable federal, state or
local statute, rule or regulation (collectively, the "Law") or under any
similar applicable laws or regulations; and (iii) the Mortgagor has not
permitted and will not permit any tenant or occupant of the Mortgaged
Property to engage in any activity that could lead to the imposition of
liability on such tenant or occupant, the Mortgagor or any other owner of any
of the Mortgaged Property, or the creation of a lien on the Mortgaged
Property, under the Law or any similar applicable laws or regulations.
<PAGE>
(b) The Mortgagor shall comply strictly and in all respects with the
requirements of the Law and related regulations and with all similar
applicable laws and
regulations and shall notify Mortgagee promptly in the
event of any spill or release of a hazardous substance upon the Mortgaged
Property, and shall promptly forward to Mortgagee copies of all orders,
notices, permits, applications or other communications and reports in
connection with any such spill or release or any other matter relating to
the Law or related regulations or any similar applicable laws or regulations,
as they may affect the Mortgaged Property.
(c) The Mortgagor shall indemnify Mortgagee and hold Mortgagee harmless
from and against all loss, liability, damage and expense, including
attorneys' fees, suffered or incurred by Mortgagee, whether as holder of
this Mortgage, as mortgagee in possession or as successor in interest to the
Mortgagor as owner of the Mortgaged Property by virtue of foreclosure or
acceptance of a deed in lieu of foreclosure (I) under or on account of the
Law ore related regulations or any similar applicable laws or regulation,
including the assertion of any lien thereunder; (ii) with respect to
any spill or release or threatened release of a hazardous substance; and
(iii) with respect to any other matter affecting the Mortgaged Property
within the jurisdiction of the U.S. Environmental Protection Agency or any
similar state or local agency; and
(d) In the event of any spill or release or threatened release of a
hazardous substance affecting the Mortgaged Property, whether or not the
same originates or emanates from the Mortgaged Property or any such
contiguous real estate, and/or if the Mortgagor shall fail to comply with
any of the requirements of the Law or related regulations or any other
environmental law or regulation, Mortgagee may at its election, but without
the obligation so to do, give such notices and/or cause such work to be
performed at the Mortgaged Property and/or take any and all other actions
as Mortgagee shall deem necessary or advisable in order to remedy said spill
or release or threatened release of a hazardous substance or cure said
failure of compliance and any amounts paid as a result thereof, together
with interest thereon at the Default Rate from the date of payment by the
Mortgagee shall be due and payable by the Mortgagor to Mortgagee within
fifteen (15) business days of demand therefor, and until paid shall be added
to and become a part of the indebtedness and shall have the benefit of the
lien hereby created as a part thereof.
7.2 Environmental Indemnification. Mortgagor covenants and agrees, at its
sole cost and expense, to indemnify, protect and hold Mortgagee harmless
against and from all claims, damages, losses, liabilities, penalties, fines
or judgments, including any attorney's fees, expert fees or costs incurred,
arising in any manner out of any of the matter set forth in Section 7.1
above or otherwise arising under any Environmental Law, whether such
matters arise before or after the exercise of any remedies by Mortgagee
under this Mortgage or the taking of title by Mortgagee to all or any
portion of the Mortgaged Property. Indemnified matters shall include,
without limitation, all of the following: (i) the costs or removal of any
and all Contamination from all or any portion of the Mortgaged Property or
<PAGE>
any surrounding areas, (ii) additional costs required to take necessary
precautions to protect against the release of Contamination on, in under or
affecting the Mortgaged Property onto the land and into the air, any body
of water, any other public domain or any surrounding areas and (iii) costs
incurred to comply, in connection with all or any portion of the Mortgaged
Property or any surrounding areas, with all Environmental Laws. The
indemnification obligations of this Section 7.2 shall survive repayment of
the Secured Obligations and satisfaction of this Mortgage.
ARTICLE 8
ADDITIONAL RIGHT S AND OBLIGATIONS
8.1 Installments for Insurance. Taxes and Other Charges. Without limiting the
effect of any other provision of this Mortgage, Mortgagor shall, if
requested by Mortgagee, pay to Mortgagee monthly with its payment on the
Note, an amount equal to one-twelfth (1/12) of the annual premiums for the
insurance policies referred to hereinabove and the annual Impositions and
any other item which at any time may be or become a lien upon the Mortgaged
Property (the "Escrow Charges"); and on demand, from time to time,
Mortgagor shall pay to Mortgagee any additional sums necessary to pay when
due all Escrow Charges. The amounts so paid shall be security for the
Secured Obligations and shall be used in payment of the Escrow Charges so
long as no Event of Default shall have occurred. No amount so paid to
Mortgagee shall be deemed to be trust funds but may be commingled with
general funds of Mortgagee, nor shall any sums paid bear interest. Upon the
occurrence of an Event of Default, Mortgagee shall have the right, at its
election, to apply any amount so held against the Secured Obligations due
and payable in such order as Mortgagee may deem fit, and Mortgagor hereby
grants to Mortgagee a lien upon and security interest in such amounts for
such purpose.
8.2 Mortgagee's Right to Protect Security. Mortgagee is hereby authorized
to do any one or more of the following, irrespective of whether an Event of
Default has occurred: (a) appear in and defend any action or proceeding
purporting to affect the security hereof or the rights or powers of
Mortgagee hereunder; (b) take such action as Mortgagee may determine to pay,
perform or comply with any Impositions or Legal Requirements, to cure any
Events of Default and to protect its security in the Mortgaged Property.
8.3 Mortgagee's Costs and Expenses. In the event of an Event of Default or
the exercise by Mortgagee of any of its rights hereunder, or if Mortgagee
shall become a party, either as plaintiff or defendant or otherwise, to any
suit or legal proceeding affecting any of the Mortgaged Property or the
Secured Obligations, or if review and approval of any document, or any other
matter related to any of the Secured Obligations, is required by, or
requested of, Mortgagee, Mortgagor shall pay to Mortgagee on demand its
costs, expenses and attorneys fees incurred in connection therewith. If
such amounts are not paid, they shall be added to the principal secured
hereby, shall be included as part of the Secured Obligations and shall bear
interest at the Default Rate from the date of demand.
<PAGE>
8.4 Further Assurances. Mortgagor agrees to execute such further assurances,
documents and instruments as may be desirable by Mortgagee for the purposes
of further evidencing, carrying out and/or confirming this Mortgage and for
all other purposes intended by this Mortgage.
8.5 Release of Lots.
(a) The Mortgaged Property consists of separately subdivided lots in the
Castle Creek Phase II Plan of Lots, recorded in the office of the Recorder
of Deeds of Butler County at Plan Book Volume 185, pages 8-10 (each such
subdivided lot is hereinafter called a "Lot"). Notwithstanding anything in
any of the Loan Documents to the contrary, upon the conveyance of any Lot,
Mortgagee shall grant a partial release of the lien of this Mortgage with
respect to the Lot conveyed provided that (i) no default, or event or
condition which with the passage of time or the giving of notice, or both,
would constitute a default, under this Mortgage or the Loan Documents shall
have occurred or exist, and (ii) Mortgagor, in addition to all other payments
required with respect to the Loan, shall have paid to Mortgagee concurrently
with such release a fee (the "Release Fee") equal to the greater of (i) the
amount of funds advanced by Mortgagee under the Loan for such Lot and
Improvements thereon or (ii) Sixty Two Thousand Five Hundred
Dollars ($62,500). Upon receipt, if Mortgagor is not in default, the
Release Fee shall be applied to the reduction of the unpaid outstanding
principal balance of the Loan. Otherwise, the Release Fee shall be applied
to accrued delinquency charges or fees, accrued interest, principal or other
costs of the Mortgaged Property in such priority as Mortgagee shall
determine. At least two (2) business days prior to the closing of the sale
of the Lot, Mortgagee shall provide Mortgagee with a copy of the proposed
settlement statement for such sale. It is also agreed and understood that
copies of final settlement statements for all Lots sold will be delivered
to Mortgagee at the time a release of Mortgage is requested.
(b) Mortgagor hereby assigns, transfers, grants and conveys unto Mortgagee,
its successors and assigns, all of Mortgagor's right, title and interest as
Seller, in and to any and all agreements of sale for each Lot (all such
agreements of sale, collectively called the "Sale Agreements") to have and
to hold the same unto Mortgagee, its successors and assigns, until payment
in full of the Secured Obligations. Mortgagor hereby covenants and agrees
with Mortgagee as follows: Mortgagor shall promptly perform all of the
provisions of the Sale Agreements on the part of Seller thereunder to be
performed and appear and defend in any action or proceeding in any manner
connected with the Sale Agreements or the obligations of Mortgagor
thereunder. Within five (5) days after the request by Mortgagee, Mortgagor
shall deliver to Mortgagee a written statement containing the names of all
buyers, the terms of all Sale Agreements and the Lots to be sold and the
prices to be paid thereunder, together with a statement of all Sale
Agreements which are then in default, including the nature of such default.
Within five (5) days after execution of any Sale Agreement, Mortgagor shall
deliver to Mortgagee a duly executed counterpart thereof, certified by all
of the parties thereto to be true and correct.
<PAGE>
Notwithstanding the foregoing, or any of the other provisions of this
paragraph 8.5, Mortgagor agrees that the Mortgagee shall have no liability
to the Mortgagor pertaining to or arising out of the Sale Agreements.
Mortgagor does and hereby agrees to indemnify Mortgagee and hold it
harmless from and against any and all liability, loss or damage which it may
incur under the Sale Agreements or under by reason of this assignment,
including costs, expenses and reasonable attorney's fees.
ARTICLE 9
MISCELLANEOUS MATTERS
9.1 Notice.
(a) Except as otherwise provided in this Mortgage, all notices hereunder
shall be in writing and shall be deemed to have been duly given for all
purposes when delivered in person, or when deposited in the United States
mail, by registered or certified mail, return receipt requested, directed to
the party to receive the same at the addresses set forth at the beginning of
this Mortgage or at such other address as may be substituted by notice given
as herein provided. The giving of any notice required hereunder may be
waived.
(b) All notices given by Mortgagor to Mortgagee pursuant to 42 PA. C.S.A.
8143(c) shall be given to Mortgagee in accordance with this Section 9.1 and
must be signed by all parties necessary to bind Mortgagor in accordance with
the applicable documents of formation of Mortgagor and all applicable laws.
9.2 Severabilitv. In the event any one or more of the provisions contained
in this Mortgage shall for any reason be held to be inapplicable, invalid,
illegal, or unenforceable in any respect, such inapplicability, invalidity,
illegality or unenforceability shall not affect any other provision of
this Mortgage, but this Mortgage shall be construed as if such inapplicable,
invalid, illegal or unenforceable provision had never been contained herein.
9.3 Successors and Assigns. All of the grants, covenants, terms, provisions
and conditions herein shall run with the land and shall apply to, bind and
inure to the benefit of, the successors and assigns of Mortgagor and
Mortgagee.
9.4 No Oral Modification. This Mortgage may be modified, amended, discharged
or waived only by an agreement in writing, signed by all of the parties
hereto.
9.5 Defeasance. If Mortgagor pays to Mortgagee in full the Secured
Obligations, and if Mortgagor is no longer able to borrow money under the
Loan Agreement, then this Mortgage shall become void.
<PAGE>
IN WITNESS HEREOF, Mortgagor has caused this Mortgage to be duly executed
the day and year first above written.
SEVEN FIELDS DEVELOPMENT COMPANY,
a Pennsylvania business trust (formerly known as
Canterbury Village, Inc., a Pennsylvania
corporation)
By: Seven Fields Management, Inc., a
Pennsylvania corporation
By: Roman Polnyj
Title: Chief Financial Officer
<PAGE>
CERTIFICATE OF RESIDENCE
The undersigned certifies that the residence of Mortgagee is 250
Insurance Street, Suite 100, Beaver, Pennsylvania 15009.
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
)SS:
COUNTY OF ALLEGHENY)
On this 25th day of November, 1996, before me, a notary public, personally
appeared Roman Polnyj, who acknowledged himself to be the Chief Financial
Officer of SEVEN FIELDS MANAGEMENT, INC., a Pennsylvania corporation,
Trustee of SEVEN FIELDS DEVELOPMENT COMPANY, a Pennsylvania business trust
(formerly known as Canterbury Village, Inc., a Pennsylvania corporation),
being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation as Trustee
of such business trust by himself as such officer in such Trustee.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
Notary Public
My Commission Expires:
Notarial Seal
<PAGE>
EXHIBIT "A"
ALL that certain tract or parcel of land situate in the Borough of Seven
Fields. Butler County, Pennsylvania. known as the Castle Creek Plan Phase
II. as recorded in Butler County Plan Book Volume 185, pages 8 - 10.
EXCEPTING and reserving thereout and therefrom Parcels 1701 through
1704, Parcels 1901 through l 90S and Parcels 2901 through 2905.
BEING identified in Butler County Assessment Records be the following
Parcel nurnbers,all of which are in District 505, Map S1:
Parcels 1301 through 1306
Parcels 1401 through 1404
Parcels 1501 through lSOS
Parcels 1601 through 1604
Parcels 1801 through 1806
Parcels 2001 through 2004
Parcels 2101 through 2104
Parcel HA (Lot A)
HB ( Common Area)
Parcels 2201 through '204
Parcels 2301 through 2,04
Parcels 2401 through 9404
Parcels 2501 through '505
Parcels 9601 through '604
Parcels 2701 through 2702
Parcels 2801 through 2804
CROSS-DEFAULT AGREEMENT
<PAGE>
THIS AGREEMENT, made as of the 25 day of November, 1996, by and between
SEVEN PlE;LDS DEVELOPMENT COMPANY., a Pennsylvania business trust, formerly
known as Canterbury Village, Inc., a Pennsylvania corporation, (the
"Mortgagor") and FIRST WESTERN BANK, NATIONAL ASSOCIATION, a national
banking association, (the "Mortgagee");
WITNESSETH:
WHEREAS, Mortgagor and Mortgagee have entered into a Revolving Line of
Credit Loan Agreement (the "First Loan Agreement"), dated as of August 13,
1996, in connection with a loan made, by Mortgagee to Mortgagor in the
maximum principal amount of $1,000,000.00, which loan is evidenced by a
Revolving Line of Credit Note (the "First Note"), dated as of August 13,
1996, in the principal face amount of $1,000,000.00; and
WHEREAS, the First Note is secured by an Open-End Mortgage and Security
Agreement (the "First Mortgage"), dated as of August 13, 1996 and recorded
in the Recorder's Office of Butler County, Pennsylvania, upon certain
property situate in the Hawthorne Commons Plan of Lots in the Borough of
Seven Fields, Butler County, Pennsylvania (the "Hawthorne Commons Premises"),
and recorded in the Butler County, Pennsylvania, Recorder's Office at
Mortgage Book Volume 2658, page 72 (the First Note, First Mortgage and the
First Loan Agreement hereinafter collectively referred to as the "First
Loan Documents"); and
WHEREAS, Mortgagor and Mortgagee have also entered into a Revolving Line of
Credit Loan Agreement of even date herewith (the "Second Loan Agreement") in
connection with a loan to be made by Mortgagee to Mortgagor in the maximum
principal amount of $750,000, which loan is evidenced by a Revolving Line of
<PAGE>
Credit Note (the "Second Note") in the principal face amount of $750,000,
and is secured by an Open-End Mortgage and Security Agreement (the "Second
Mortgage") upon the Castle Creek Phase II Plan of Lots in the Borough of
Seven Fields, Butler County, Pennsylvania (the "Castle Creek Premises"), of
even date herewith and recorded, or to be recorded, in said Butler County,
Pennsylvania, Recorder's Office (the Second Note, Second Mortgage and
Second Loan Agreement hereinafter collectively referred to as the "Second
Loan Documents ");
NOW, THEREFORE, to induce the Mortgagee to make the loan evidenced and
secured by the Second Loan Documents and for other good and valuable
consideration, the parties hereto, intending to be legally oound, covenant
and.agree as follows:
1. A default under the terms of the Second Loan Documents shall
constitute a default under the First Loan Documents, and all sums due or to
become due thereunder shall become immediately due and payable and all
other rights and remedies thereunder shall become effective, without
further notice to or demand upon Mortgagor.
2. A default under the terms of the First Loan Documents shall
constitute a default under the Second Loan Documents, and all sums due or
to become due thereunder shall become immediately due and payable and all
other rights and remedies thereunder shall become effective, without
further notice to or demand upon Mortgagor.
3. Mortgagee may do any of the following without adversely affecting
the validity or enforceability of the First Loan Documents: (i) release,
surrender, exchange, compromise or settle obligations under the Second Loan
Documents; (ii) change, renew or waive the terms of the Second Loan
Documents, or any instrument, document or agreement relating thereto,
<PAGE>
including without limitation the right to change the rate of interest
thereunder; (iii) grant any extension or indulgence with respect to payment
or performance under the Second Loan Documents; (iv) enter into any agreement
of forbearance with respect to the Second Loan Documents; (v) release,
surrender, exchange or compromise any security held by the Mortgagee in
connection with the Loan evidenced and secured by the Second Loan Documents;
(vi) release any person who is a guarantor or surety of, or who has agreed
to purchase, the Loan evidenced and secured by the Second Loan Documents; and
(vii) release, surrender, exchange or compromise any security or lien held
by Mortgagee for the liabilities of any person or entity who is such
guarantor or surety.
4. Mortgagee may do any of the following without adversely affecting the
validity or enforceability of the Second Loan Documents: (I) release,
surrender, exchange, compromise or settle obligations under the First Loan
Documents; (ii) change, renew, or waive the terms of the First Loan
Documents, or any instrument, document or agreement relating thereto,
including without limitation the right to change the rate of interest
thereunder; (iii) grant any extension or indulgence with respect to payment
or performance under the First Loan Documents; (iv) enter into any agreement
of forbearance with respect to the First Loan Documents; (v) release,
surrender, exchange or compromise any security held by the Mortgagee in
connection with the loan evidenced and secured by the First Loan Documents;
(vi) release any person who is a guarantor or surety of, or who has agreed
to purchase, the loan evidenced and secured by the First Loan Documents;
and (vii) release, surrender, exchange or compromise any security or lien
held by Mortgagee for the liabilities of any person or entity who is such
guarantor or surety.
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement as of
the day and year first above written.
SEVEN FIELDS DEVELOPMENT COMPANY,
a Pennsylvania business trust (formerly known as
Canterbury Village, Inc., a Pennsylvania corporation)
By: Seven Field Management, Inc. A
Pennsylvania corporation
By: Roman Polnyj
Title: Chief Financial Officer
FIRST WESTERN BANK, NATIONAL
ASSOCIATION
By: Patrick J. Sentner
Title: Commercial Loan Officer
