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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[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 December 31, 1996
[_] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from __________ to __________
Commission file number 1-6736
STARRETT CORPORATION
--------------------
(Exact name of Registrant as specified in its charter)
NEW YORK 13-5411123
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
909 THIRD AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)751-3100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock - par value $1.00 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of recipient's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of the Common Stock held by non-affiliates of the
Registrant, based on the closing price on the American Stock Exchange on March
20, 1997: $22,910,951 (For this purpose, all outstanding shares of Common Stock
have been considered held by non-affiliates, other than the shares owned by
directors, officers and 5% shareholders of the Registrant; certain of such
persons disclaim that they are affiliates of the Registrant.)
Number of shares of Common Stock outstanding at December 31, 1996: 6,566,402
Documents incorporated by reference: Portions of the definitive proxy statement
of Registrant in connection with its 1996 Meeting of Shareholders incorporated
by reference in Part III.
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PART I
Item 1. Business
This description of business and disclosures elsewhere in this
report contain forward-looking statements concerning the Company's development
and other plans, new business opportunities, future operations and future
sources of housing inventory, revenues and profits. There are a number of
important factors that could cause actual results to differ materially from
those in these forward-looking statements. Those factors, as discussed in this
report, include demand for housing and commercial space, competition,
environmental and zoning regulations and proceedings, availability of financing
on acceptable terms, availability of sites suitable for development, mortgage
rates, government housing regulations, the rate of inflation and, particularly
in Puerto Rico, rates of taxation. Material changes in the current status of any
of these factors, the occurrence of which cannot be predicted with any degree of
certainty, could have material adverse effects on the Company's results of
operations, financial condition and prospects.
Starrett Corporation was organized in New York in 1922. Through its
subsidiary Levitt Corporation ("Levitt"), the Company engages in the
construction and sale of single-family homes and garden apartments in the United
States and Puerto Rico. See "Levitt Corporation." Over the years Starrett and
its subsidiaries have constructed a wide range of office, industrial, public and
institutional buildings, among the most notable being the Empire State Building,
the Rockefeller Research Laboratories at Memorial Sloan Kettering Cancer Center,
Whitney Museum, Citicorp Center and Chase Bank World Headquarters, and many
well-known residential communities and developments, including Starrett at
Spring Creek, Manhattan Park at Roosevelt Island, Trump Tower and the Trump
International Hotel in New York City. The Company today is actively engaged in
all fields of construction, development, management and technical services.
Unless the context otherwise requires, references to the "Company,"
the "Registrant" or "Starrett" include Starrett Corporation and/or one or more
of its subsidiaries.
Levitt Corporation
Levitt's operations include sales of single-family homes and
condominium garden apartments, development and sale of rental apartment
complexes, mortgage banking and electronic home security surveillance.
Housing
Levitt's residential housing operations are concentrated in Florida
and Puerto Rico. Its Florida operations were started in 1978 and are currently
conducted on Florida's southeast and southwest coasts. In Puerto Rico, Levitt is
the largest homebuilder and has been building on the island since 1960.
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During 1994, several new sites were acquired and opened in Florida.
These projects are under full development, and have received favorable responses
from home-buyers. During 1995, Levitt and a joint venture partner acquired a
parcel of land located adjacent to an existing Levitt project, which opened for
sale in December, 1995. The joint venture project has experienced excellent
sales and will begin delivery of homes in 1997.
During 1996, Levitt acquired a site approved for 640 detached
single-family homes. Land development commenced during 1996 and the project will
open for sale in June, 1997. Also during 1996, Levitt and a joint venture
partner acquired a site adjacent to the joint venture properties acquired during
1994 and 1995. This site has been approved for 928 residential units. Land
development commenced during 1996 and the project was opened for sales during
October 1996. The project has received an excellent sales response from home-
buyers.
Levitt has concentrated its significant Puerto Rico homebuilding
activities in the greater San Juan area. In recent years, the Puerto Rico
operations have provided a significant portion of revenue and profits for
Levitt. Levitt has a large scale planned unit development called Encantada,
several other subdivisions under development and two significant sites under
contract in the San Juan metropolitan area which will provide a steady inventory
of houses for the next several years.
Encantada is planned for approximately 2,600 homes of which more
than 1,950 homes have been contracted for sale with over 1,850 deliveries as of
February 28, 1997. Both single-family homes and garden apartments are offered
for sale at various prices in the community. The Company believes that
Encantada's success can be attributed to the excellent quality of the community,
the housing and the family lifestyle it provides. With approximately 650 more
homes to be sold, Encantada, together with the region's other projects, is
expected to continue as an important source of revenues and profits for the
Company.
During 1996 Levitt acquired a site in suburban San Juan. The site has been
approved for approximately 300 residential units. Land development commenced in
1997 immediately after it was opened for sales. During the first week of sales,
135 homes, comprising the entire first section were sold. The remainder of this
site will be offered for sale in the third quarter of 1997.
Levitt's business is affected by several factors such as housing
affordability, increased land costs, legislative growth restrictions, sewer and
water moratoriums, changes in the Internal Revenue Code, including changes in
Section 936 of the Internal Revenue Code relating to the taxability of
corporations doing business in Puerto Rico, and infrastructure requirements.
Levitt's backlog of homes contracted for sale at December 31, 1996
was $80,441,000 compared to $86,104,000 at December 31, 1995. Included in
Levitt's sales backlog at December 31, 1996 and 1995 is $28,521,000 and
$41,040,000, respectively, which constitutes the full backlog from joint
ventures in which Levitt has 50% interests. Backlog consists of units
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which are under sales contract but where title has not yet passed, and is
comprised of completed and uncompleted homes as well as homes on which
construction has not yet begun.
The following table sets forth information concerning homes
contracted for sale (net of cancellations during each period), housing units
delivered (construction completed and title passed) and backlog:
Majority-Owned Projects Year Ended December 31
---------------------------
1996 1995 1994
---- ---- ----
(000's omitted from dollar amounts)
Homes contracted (net of cancellations)
for sale during period:
Units 574 557 729
Dollar amount (estimated) $103,302 $96,166 $113,973
Homes delivered during period:
Units 576 550 714
Revenues $ 96,446 $92,135 $105,260
Backlog at end of period:
Units 252 254 247
Dollar amount (estimated) $ 51,920 $45,064 $ 41,033
Joint Venture Projects Year Ended December 31
(Reported at 100% of ---------------------------
Joint Venture Backlog) 1996 1995 1994
---- ---- ----
Homes contracted (net of cancellations)
for sale during period:
Units 277 302 241
Dollar amount (estimated) $49,262 $53,298 $39,490
Homes delivered during period:
Units 361 303 None
Revenues $61,781 $51,748
Backlog at end of period:
Units 156 240 241
Dollar amount (estimated) $28,521 $41,040 $39,490
After the initial contract has been received, contracts for the sale
of houses may be canceled at or prior to closing for various reasons, including
failure of the buyer to make the remainder of the required contract deposit, or
qualify for mortgage financing, or a default by
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the buyer. Levitt retains the buyer's deposit only if cancellation results from
default by the buyer, except in Puerto Rico where under local law Levitt can
retain only a portion of the deposit. When computing homes contracted for sale
and backlog, Levitt makes no deduction for future cancellations, but nets
cancellations as they occur against sales contracts. Levitt generally estimates
that of the sales contracts entered into by buyers, approximately 70% have
historically resulted in delivered homes. Contracts for sale are not recorded as
revenues until the houses have been completed and title delivered.
Levitt generally builds subdivisions on undeveloped suburban land
having access to water and sewer services, although it does occasionally
purchase fully developed land. Development plans must be approved by local
authorities, which may take up to two years or more after the signing of a
purchase contract. See "Regulation of the Company's Activities," page 9.
Levitt provides home purchasers with warranties against construction
defects for a period of up to two years from the date of purchase. In Puerto
Rico there is a statutory warranty for certain construction defects which appear
generally within ten years after completion.
Rental Apartment Development
During 1991 through 1995, Levitt, in joint venture with an
established apartment developer, constructed, leased and sold three rental
apartment complexes totaling 624 units. The three rental apartment complexes
were sold at a substantial profit. During 1996, Levitt and its joint venture
partner acquired a fourth site. The site is approved for a 200 unit rental
apartment complex. Land development commenced on the site during 1996.
Levitt's current policy is to develop, lease and sell the apartment
projects and not hold them for investment. The apartment development program is
an integral part of Levitt's business and is anticipated to provide it with a
continuous source of income. It is the Company's plan to develop at least one
apartment project every eighteen months.
Mortgage Banking
Levitt Mortgage Corp. ("LMC") is a full service mortgage lender that
processes and originates loans in Puerto Rico and processes mortgage loans
domestically. Fees are earned on mortgage placements and processing. LMC is a
designated approved direct endorser of FHA loans in Puerto Rico but does not
service loans.
In Puerto Rico, LMC also acts as a mortgage banker for third parties
and processes and issues the mortgages it underwrites. These mortgages are sold
to investors in accordance with firm purchase commitments with the investors.
LMC is the fourth largest mortgage banker in Puerto Rico based on mortgage
commitments.
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Electronic Home Security Surveillance
During 1995 a wholly owned subsidiary of Levitt Corporation,
Security Shield, Inc. ("SSI"), began Florida operations in the electronic home
security surveillance business. The Company installs electronic security systems
and then obtains multi-year monitoring contracts. At February 28, 1997 SSI had
approximately 1,500 home security monitoring customers under contract.
Starrett's Development Activities
In its development activities, the Company's services, in addition
to those of a construction manager or general contractor, may include initial
planning and development, acquisition of the property, arranging for financing
and ownership of the project, typically through general or limited partnerships,
and providing management, consulting and related services. The Company
anticipates marketing its development projects to investors or other purchasers,
based principally on cash flow, capital appreciation and other non-tax
considerations, and may in some instances retain ownership of such projects. In
connection with its sale of projects, the Company may provide guarantees of
completion and cash flow for varying periods.
The Company is proceeding with certain development projects. While
the Company has generally been successful in developing such projects, these
projects are in various stages of development, and there can be no assurance
that any particular project will be completed.
Pursuant to a Memorandum of Understanding between the Company and
the City of New York, the Company has been designated as the developer of a
mixed use project known as Gateway Estates in Brooklyn, New York, currently
anticipated to consist of a shopping center, housing and related components. The
project is in the plan/development stage and requires various government agency
approvals. Milstein Properties, in which Paul Milstein (the Company's Chairman
of the Board) and members of his family are the principal owners, is the
Company's 35% joint venture partner in the project.
Ownership of Partnership Interests
The Company reviews from time to time projects in which it acts as a
general partner or in which it has an equity interest (which for the most part
have a low income tenancy subsidized in whole or in part by
government-assistance programs) to determine the possibility of refinancing,
resyndicating, selling, converting to condominiums, or co-oping such projects to
obtain fees and other economic benefits.
On December 14, 1995 a limited partnership, in which the Company is
a general partner, owning a HUD financed housing project on the upper West Side
of Manhattan, refinanced the project under HUD's preservation program, in return
for maintaining the project as affordable housing for its remaining useful life.
At the closing, the Company received
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approximately $3,000,000, most of which represents fees, with the remainder
attributable to repayment of sums owed, return of capital, and partnership
distributive share of refinancing proceeds.
In addition, the Company has two other HUD regulated affordable
housing developments located on the Upper West Side of Manhattan, in which it
has a 50% residual partnership interest, with respect to which the Company has
made application for incentives under the Low Income Housing Preservation and
Resident Homeownership Act ("LIHPRHA"). Although the LIHPRHA Plans of Action for
these properties were approved by HUD, HUD has insufficient funding to implement
the program for these properties as well as most of the other pending LIHPRHA
projects in New York. Whether a LIHPRHA closing of these transactions will occur
will depend on adequate Congressional appropriations for LIHPRHA in future
years, which is impossible to predict. Accordingly, the amount of cash proceeds
and profits, if any, the Company could receive for its 50% residual interests in
the properties as well as the time required to complete the process is
uncertain, and thus, no assurances can be given that these transactions will be
successfully concluded.
Starrett's Construction Activities
Through its HRH Construction Corporation subsidiary ("HRH"), the
Company primarily acts as construction manager in the construction of hospital
and medical research facilities, institutional, office and residential projects,
most of which are located in the New York City metropolitan area. HRH builds
projects either as a construction manager on a cost plus fee basis or a general
contractor in which case it assumes certain construction risks. The construction
management and general contracting fees and other income earned by HRH during
1996, 1995 and 1994 were $32,915,000 $9,422,000 and $4,278,000, respectively.
See "Segment Information," page 9 and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations", page 16.
HRH has focused its activities on institutional construction and
construction funded by City, State and Federal governments. HRH diversified into
new areas of construction, through the conversion of major New York office space
in the Wall Street financial district into luxury apartments.
In the case of projects where HRH acts as general contractor rather
than construction manager (which has included projects in which the Company acts
as a developer or has an ownership interest), the Company is required from time
to time, as is customary in projects of this kind, to furnish payment and
performance bonds assuring payment to subcontractors. The Company believes its
bonding capacity is adequate for both present and projected requirements. The
aggregate amount of bonds or other security the Company can obtain at any one
time is dependent upon its overall financial strength.
HRH's estimated backlog of fees including fees for projects where
development work has begun but contracts have not yet been executed, was
$16,475,000 at December 31, 1996 as compared to $16,304,000 and $8,950,000 at
the end of 1995 and 1994, respectively.
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HRH is actively seeking to increase its backlog of business, particularly in the
hospital and medical research facilities, and assisted living facilities. In
1996, the residential market has improved in the New York metropolitan area
allowing for a more diversified backlog.
In August 1995, HRH expanded its interior work business for office
buildings, retail stores, hotels, etc., through the formation of HRH
Construction Interiors, Inc. ("HRHI").
This type of work is performed under various forms of contract, such
as construction management, lump sum, and guaranteed maximum price. HRHI is
currently performing construction and renovation work for clients such as
Nordstrom Stores, Nasdaq, Scholastic Inc., Plaza Hotel, Instinet and Omnipoint
Communications.
Management Services
In 1996, Grenadier Realty Corp. ("Grenadier") celebrated its 20th
year in business. For the year, Grenadier's management portfolio consisted of 60
developments containing more than 28,000 housing units. Based on the number of
units under management, Grenadier is one of the largest full-service real estate
management firms in the New York metropolitan area and the 25th largest property
management firm in the United States. Grenadier and its subsidiaries provide a
variety of real estate management services for a diverse range of properties,
including government-assisted housing, low income tax credit developments,
high-rise luxury rentals, cooperatives, condominiums and over 1,000,000 square
feet of commercial space. Grenadier's services range from full-service
management to the provision of back-office services, technical consulting and
support in specific areas such as energy conservation.
In the latter half of 1994, Grenadier entered the field of public
housing management when it was retained by the Court appointed Trustee to
oversee repair, rehabilitation and management of the properties of the Chester
Housing Authority's distressed housing authority in Chester, Pennsylvania.
Reconstruction is nearing completion on one of the Chester developments and new
construction is underway at a second site. Recognizing the significance of the
progress made in Chester, in 1996 HUD awarded a HOPE VI Grant to redevelop a
third site in Chester, as well as to implement a new commercial development. In
addition to the physical rehabilitation of the Chester Housing Authority,
Grenadier has overseen a complete reorganization of the Authority's operation
and staff and implemented programs aimed at encouraging financial independence
and social, cultural and intellectual growth among the housing residents.
Grenadier's subsidiary, Security Plus Service, Inc. (SPS), provides
security service primarily for residential properties throughout the New York
metropolitan area. SPS believes that it has established an excellent reputation
in the industry, implementing standards that far exceed requirements for
security guard companies mandated by the New York Security Guard Act of 1992.
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Regulation of the Company's Activities
The development business and homebuilding industry in which the
Company is engaged have, in the last several years, become subject to increased
environmental, building, land use, zoning and sales regulations administered by
various federal, state and local authorities, which affect construction
activities as well as sales activities and other dealings with customers.
Additionally, sewer moratoriums have been imposed from time to time in Puerto
Rico which have caused delays in the delivery of homes to customers. The Company
must obtain for its development and housing activities the approval of numerous
governmental authorities which often have wide discretion in such matters.
Changes in local circumstances or applicable law may necessitate applications
for additional approvals or the modification of existing approvals. Compliance
with these regulations has extended the time required to market projects by
prolonging the time between the initiation of projects and the commencement and
completion of construction. The Company is currently in various stages of
securing governmental approvals for its development and homebuilding projects.
Delay or inability to obtain all required approvals for a project could have a
materially adverse effect on the marketability or profitability of a project.
The development business and homebuilding industry are subject to
various environmental regulations, including those relating to soil condition,
hazardous materials, air quality and traffic. The impact of environmental
regulations is evaluated on a project by project basis and the estimated costs
of remediation or insurance are accounted for in plan/development or job
costing. The Company often places property considered for development under an
option purchase contract pending environmental review and other feasibility
studies.
Segment Information
The Company's operations consist of (i) the development, management
and ownership of real estate properties; (ii) the single-family home and garden
apartment development and electronic home security surveillance business
conducted through its Levitt subsidiary in Florida and Puerto Rico; (iii) the
mortgage credit business conducted through its Levitt Mortgage subsidiary in
Puerto Rico and Florida; and (iv) the supplying of construction services through
its HRH subsidiary. The Company groups its business into these four segments.
The following table sets forth the Company's revenues and operating profit
attributable to the respective segments of its operations for each of the years
1994 through 1996, and the identifiable assets attributable to the respective
segments as at the end of each of those years:
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<TABLE>
<CAPTION>
(Dollars in Thousands)
Development HRH
Management and Levitt Levitt Mortgage Construction
1996 Ownership Corporation Corporation Corporation
- ---- -------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Revenues $26,402 $101,660 $ 6,304 $32,916
Operating Profit 1,255 9,244 1,596 1,415
Identifiable Assets 16,590 114,814 8,851 26,717
1995
- ----
Revenues $26,647 $ 97,365 $ 5,513 $ 9,422
Operating Profit 1,533 9,115 1,708 3,241
Identifiable Assets 17,373 83,751 11,880 13,205
1994
- ----
Revenues $25,635 $107,375 $ 4,047 $ 4,278
Operating Profit 2,575 9,217 868 309
Identifiable Assets 20,539 74,081 11,342 10,305
</TABLE>
Operating profit comprises revenues less operating expenses. In
computing operating profit, general corporate expenses and income taxes have not
been deducted.
There were no individual customers from which the Company derived
10% or more of its revenues in 1994, 1995 or 1996.
Competition
Levitt develops single-family home communities and rental apartment
communities primarily in Florida and Puerto Rico. The competitive conditions
between the Company's two primary markets are distinctly different.
The Florida residential real estate market is very competitive,
requiring Levitt to compete in close proximity against national and local real
estate developers building similar communities. Levitt has been building quality
homes since 1929 and believes it has a well respected and recognized name to
home buyers which provides a positive competitive position for the Company.
In Puerto Rico, Levitt is the largest homebuilder and has been
building on the island since 1960. Levitt's principal competition in Puerto Rico
comes from established local developers. Levitt believes it has a reputation in
Puerto Rico for delivering high value, quality homes. Levitt also believes its
name and reputation on the island provide a competitive advantage among home
buyers. This also provides the Company a competitive advantage when acquiring
property, material and services.
HRH and its principal subsidiary, HRHI, secure construction projects as
construction managers or as general contractors.
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The general contracting sector, especially for interior projects in
the $500,000 to $10,000,000 range, is highly competitive in the New York
metropolitan area. HRH has, however, specialists in estimating and managing
these projects. Generally, in these projects, the lowest responsive bid
determines the award.
For the larger construction managed projects, HRH believes it has an
excellent technical reputation, and has booked, on a negotiated basis, repeat
business from such diverse clients as The Trump Organization, General Electric
Capital/Investment, Memorial Sloan Kettering Hospital and Related Properties.
In certain instances, HRH will respond to general requests for
construction management proposals, generated by both public and private sector
developers. In these instances, HRH will generally be competing against four to
six major construction management firms.
Grenadier manages residential rental property mainly in the New York
metropolitan area. Grenadier also provides property management and technical
assistance consulting to public housing authorities in the eastern and
midwestern part of the country. Grenadier is one of the largest property
management firms in the New York metropolitan area and is ranked as the 25th
largest firm in the nation in terms of number of units managed.
In the New York metropolitan area, Grenadier's major competitors
consist of approximately 20-30 property management firms. In the public housing
arena, the Company's competition includes both large management consulting
firms, as well as small local consultants and local property management firms.
Grenadier believes it is known as a high quality performer which
generally gives it a positive competitive edge. However, property management is
very price sensitive.
Grenadier's subsidiary Security Plus Service, Inc. ("SPS") provides
armed and unarmed security guards primarily to patrol residential properties.
SPS believes it maintains a competitive edge due to its excellent reputation for
quality service, with security guards who are well-trained and well-supervised.
Here, too, price is often a determinant in the competition for business. SPS
operates only in the New York metropolitan area, where there are numerous low
cost security providers.
Raw Materials and Equipment
Substantially all the materials used by the Company in projects now
under construction, including fixtures, appliances and systems, are readily
available from many sources. The Company has from time to time experienced some
shortages, delays and increased costs in connection with material shortages and
increases in material prices, but the Company does not believe the effect to
have been significant.
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Employees-Labor Relations
The Company directly employed, at December 31, 1996, a total of
approximately 1,575 persons. Where the Company has union members working, it
believes that it has satisfactory relations with them.
Item 2. Properties
The Company leases 25,000 square feet of space located at 909 Third
Avenue in New York City for its construction management, interiors business and
its development and corporate offices. The lease for such space, which it has
occupied since 1973, expires in 1997. The Company has signed a new lease
beginning in July 1997, expiring in 2002. The Company also maintains field
offices at each of its construction sites.
Levitt leases approximately 8,800 square feet of office space which
it uses for its executive office and main office for its Florida homebuilding
operation in Boca Raton, Florida, and also leases 10,000 square feet of office
space in San Juan, Puerto Rico.
Item 3. Legal Proceedings
The Company is involved in litigation and claims incident to the
normal conduct of its business. Management believes that such litigation and
claims will not have a materially adverse effect on the Company's financial
statements.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Executive Officers of the Company
The following table sets forth the names and ages of all executive
officers of the Company, the positions and offices with the Company held by each
such person, and the period during which each such person has served as an
executive officer.
Has Served as
Offices and an Executive
Name Age Positions Held Officer Since
- ---- --- -------------- -------------
Paul Milstein 74 Chairman of the Board 1994
Irving R. Fischer 64 President and Chief 1977
Operating Officer
Lewis A. Weinfeld 54 Executive Vice President, 1974
Chief Financial Officer
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Elliott M. Wiener 62 Chairman of the Board and 1982
Chief Executive Officer of
Levitt Corporation, a
subsidiary of the Company
Robert C. Rosenberg 62 Chairman of the Board and 1976
Chief Executive Officer of
Grenadier Realty Corp.,
a subsidiary of the Company
Frank Ross, Sr. 63 Chairman of the Board and 1990
Chief Executive Officer
of HRH Construction
Corporation, a subsidiary
of the Company
Felice Michetti 48 President and Chief 1994
Executive Officer
of Starrett Development
Corporation, a subsidiary
of the Company
The term of office of each executive officer continues until the
first meeting of the Board of Directors of the Company following the next annual
meeting of shareholders, and until the election and qualification of such
officer's successor. There is no family relationship between the executive
officers listed above, or between such executive officers and directors. All of
the executive officers except Paul Milstein and Felice Michetti have been
principally engaged in their present employment for more than five years. Mr.
Milstein became Chairman on January 1, 1994, and for more than five years has
been active as a real estate developer and investor. Ms. Michetti devoted more
than twenty years to public service as a housing and planning professional. She
was Commissioner of the New York City Department of Housing Preservation and
Development and also served as President and Chief Executive Officer of the New
York City Housing Development Corporation.
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PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
On March 20, 1997, there were 690 record holders of the Company's
common stock and approximately 1,909 additional persons whose shares of Common
Stock were held in street name. Such common stock is listed on the American
Stock Exchange, which is the principal market on which such stock is traded.
High and low sales prices on the American Stock Exchange for the Company's
common stock during the last two years have been as follows:
1997 High Low
---- ---- ---
First Quarter 11 1/4 9 3/4
1996 High Low
---- ---- ---
First Quarter 15 8
Second Quarter 12 3/8 10
Third Quarter 14 10
Fourth Quarter 13 1/8 10
1995 High Low
---- ---- ---
First Quarter 8 6 5/8
Second Quarter 10 5/8 7 7/8
Third Quarter 10 1/2 8 3/8
Fourth Quarter 8 7/8 7
On August 10, 1994, the Company established a program of regular
annual cash dividends of $.25 per share of common stock, payable $.0625 per
quarter.
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Item 6. Selected Financial Data
Starrett Corporation and Subsidiaries
(Dollars in Thousands Except Per Share Data)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenues $167,282 $138,947 $141,335 $122,182 $111,855
Income before income
taxes 10,201 12,377 10,306 4,588 1,045
Income before
extraordinary item and
cumulative effect of
accounting change 4,355 7,365 6,159 2,140 284
Extraordinary item 824
Cumulative effect of
accounting change 1,287
Net income 4,355 7,365 6,159 2,140 2,395
Earnings per share:
Income before
extraordinary item
and cumulative effect
of accounting change .70 1.18 .98 .34 .04
Extraordinary item .13
Cumulative effect of
accounting change .20
Net income .70 1.18 .98 .34 .37
Total assets 166,972 126,209 116,267 120,284 136,738
Long-term obligations 53,030 34,459 36,066 41,033 32,603
Common
Stockholders' Equity 55,194 52,138 47,117 41,819 41,139
Cash dividends
(per share) .25 .25 .125 None .25
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1996 Compared to 1995
During the year ended December 31, 1996 the Company had income
before income taxes of $10,201,000 compared to $12,377,000 for the year ended
December 31, 1995. Net income was $4,355,000 ($.70 per share) as compared to
$7,365,000 ($1.18 per share). Earnings per share were based on average shares
outstanding of 6,261,000 in both 1996 and 1995.
The $2,176,000 decrease in pre-tax income was principally due to the
$3,000,000 of fee income recognized in the fourth quarter of 1995 from the
refinancing by HRH of a HUD- financed housing project. No similar refinancings
occurred in 1996. In addition, Grenadier showed a decrease in profitability
commencing in the fourth quarter of 1996 attributable to the assumption on an
ongoing basis by Grenadier of certain administrative expenses previously
reimbursed under a significant management contract, write-offs of uncollectible
commissions and the loss of a major Security Plus Service contract.
These decreases in earnings were partially offset by the increased
profitability of HRH Construction (including HRHI) resulting directly from the
Company's expansion of its interior construction business. 1995 results also
included certain non-recurring losses due to write-downs of investments in
certain partnerships and the loss on sale of a self-storage mini- warehouse.
Revenues increased significantly in 1996 as compared to 1995, up
$28,335,000 or 20%, reflecting the increased volume of construction performed by
HRHI as general contractors. While in prior years the Company provided services
primarily as a construction manager, whereby for accounting purposes only the
net fees earned are reported on the Statement of Operations, in 1996 the Company
increased the volume of work it performs as a general contractor. In its role as
general contractor, the Company assumes additional risk and, in accordance with
accounting guidelines, reflects construction volume on a gross basis in the
Statement of Operations.
Levitt Corporation, the Company's single-family home subsidiary
continued to be a source of steady profitability reporting similar income from
operations as in 1995. Levitt's revenues increased $4,295,000 during the year
ended December 31, 1996 as compared to 1995 primarily attributable to increased
house sales in the Puerto Rico region. LMC revenue also increased by $791,000
due to the continued expansion of the mortgage banking operations.
Levitt's backlog of homes contracted for sale at December 31, 1996
was $80,441,000 compared to $86,104,000 at December 31, 1995. Included in
Levitt's sales backlog at December 31, 1996 and 1995 is $28,521,000 and
$41,040,000, respectively, which constitutes the full backlog from joint
ventures in which Levitt has 50% interests.
Levitt's gross profit from house sales (revenues from house sales
less cost of house sales), was unchanged during 1996 as compared to the same
period in 1995, however, the gross profit percentage (gross profit as a
percentage of house sales revenue) decreased slightly during
16
<PAGE> 17
1996 as compared to the same period in 1995. This decrease is due to a change in
product mix in the Company's Florida region.
Equity in earnings of joint ventures decreased $918,000 during the
year ended December 31, 1996 as compared to 1995. In 1995 a substantial profit
was realized by one joint venture from the sale of a rental apartment complex.
Interest, real estate taxes, and sales costs incurred in connection
with certain properties are capitalized in order to achieve better matching of
costs with revenues. Capitalized interest costs are expensed upon the sale of
the related asset as part of construction costs. Interest incurred on loans was
$4,544,000 in 1996 and $3,778,000 in 1995, of which $4,129,000 in 1996 and
$3,327,000 in 1995 was capitalized. Capitalized interest expensed of $3,128,000
in 1996 and $3,726,000 in 1995 was charged to construction costs.
HRH continued to increase profitability and maintained its backlog
of fees. HRH's estimated backlog of fees for development work and uncompleted
construction in connection with construction projects, including fees for
projects where development work has begun but contracts have not yet been
executed increased to $16,475,000 at December 31, 1996 as compared to
$16,304,000 at December 31, 1995. HRH is actively seeking to increase its
backlog of business, particularly in the hospital and medical research
facilities, residential apartment buildings and both commercial and residential
interior renovations.
General and administrative expenses increased $5,968,000 in 1996
principally due to the expansion of HRHI, but also to the expansion of
operations in all other segments of the Company's business. Additionally,
Grenadier assumed certain administrative expenses which were reimbursable in
1995. Security service labor and other costs decreased $1,944,000 in 1996 mainly
as a result of a reduction in work force due to the loss of a major contract.
The Company had an unusually high effective tax rate of 57.3% for
the year ended December 31, 1996. The increased tax rate resulted mainly from
the repatriation of profits from a Puerto Rico subsidiary, which resulted in the
utilization of the Company's remaining net tax operating loss carryforward. This
was a one time occurrence which had no significant cash impact on the Company
and will not affect future earnings.
1995 Compared to 1994
During the year ended December 31, 1995 the Company had income
before income taxes of $12,377,000 compared to $10,306,000 for the year ended
December 31, 1994 and net income of $7,365,000 ($1.18 per share) as compared to
$6,159,000 ($.98 per share). Earnings per share were based on average shares
outstanding of 6,261,000 in 1995 and 1994, respectively.
The Company's revenues decreased $2,388,000 compared with the
similar period in 1994. This decrease was primarily attributable to Levitt.
Revenues from house sales in the Company's Puerto Rico region decreased
significantly as production was disrupted by heavy rain storms and several
hurricane warnings. Despite this decrease in revenues, Levitt's operating income
increased to $10,823,000 from $10,085,000 in 1994. This increase was the result
of significantly higher average net sales prices on homes delivered in the
Company's
17
<PAGE> 18
domestic region, the increase in equity earnings from joint ventures, and the
expansion of the mortgage banking business in Puerto Rico.
Levitt's backlog of homes contracted for sale at December 31, 1995
was $86,104,000 compared to $80,523,000 at December 31, 1994. Included in
Levitt's sales backlog at December 31, 1995 and 1994 is $41,040,000 and
$39,490,000, respectively, which constitutes the full backlog from joint
ventures in which Levitt has 50% interests.
Levitt's gross profit from house sales remained steady in 1995, with
increases in domestic gross profit margins offset by a modest decrease in Puerto
Rico's margins .
LMC operation costs increased due to the continued expansion of the
mortgage operation business both domestically and in Puerto Rico.
Interest, real estate taxes, and sales costs incurred in connection
with certain properties are capitalized in order to achieve better matching of
costs with revenues. Capitalized interest costs are expensed upon the sale of
the related asset as part of construction costs. Interest incurred on loans was
$3,778,000 in 1995 and $3,435,000 in 1994, of which $3,327,000 in 1995 and
$2,775,000 in 1994 was capitalized. Capitalized interest expensed of $3,726,000
in 1995 and $4,941,000 in 1994 was charged to construction costs.
HRH continued to operate at a profit while significantly increasing
its backlog of fees. HRH's estimated backlog of fees for development work and
uncompleted construction in connection with construction projects, including
fees for projects where development work has begun but contracts have not yet
been executed increased to $16,304,000 at December 31, 1995 as compared to
$8,950,000 at December 31, 1994. The increase in backlog of fees is primarily
attributable to HRH's expansion of business into interiors work for office
buildings, retail stores, hotels, etc., through its subsidiary HRHI. HRH is
actively seeking to increase its backlog of business, particularly in the
hospital and medical research facilities, residential apartment buildings and
both commercial and residential interior renovations.
Grenadier continued its steady profitability in 1995 and has
expanded its management services to private owners and institutional property
owners as well as the public housing sectors.
General and administrative expenses increased $2,883,000 in 1995
principally due to the expansion of operations in all segments of the Company's
business. The significant increases were attributable to personnel and general
office overhead.
Security service labor and other costs increased $1,323,000 in 1995
as a result of an increase in the Company's security protection operation.
On December 14, 1995, a limited partnership in which the Company is
a general partner owning a HUD financed housing project on the Upper West Side
of Manhattan refinanced the project. At the closing, the Company received
approximately $3,000,000 most of which represents fees, with the remainder
attributable to repayment of sums owed, return of capital, and partnership
distributive share of refinancing proceeds. The fees earned on this transaction
are included in the Company's 1995 earnings.
18
<PAGE> 19
During 1995 the Company wrote down certain investments in
partnerships which were previously recorded at cost. The Company contracted for
sale, and recorded the loss on sale, of a self-storage mini-warehouse. Inclusive
of these losses, the Company recorded approximately $2,200,000 of non-recurring
losses during 1995. The Company does not anticipate any additional writedowns of
this nature in 1996.
Financial Condition and Capital Resources
The Company meets its short-term financing needs with cash generated
from operations and funds available under unsecured credit agreements. On
January 31, 1996, Levitt satisfied a $14,400,000 unsecured credit facility
through a $4,400,000 payment from working capital and a $10,000,000 payment from
a new unsecured term loan. The new loan requires semi-annual principal payments
of $1,000,000 and $1,500,000 in July and January, respectively, through January
2000.
Homebuilding Operations
The Company generally meets its land acquisition, development and
construction needs through secured loans and unsecured revolving credit
facilities. During March 1996, the Company renewed and extended its $15,000,000
revolving unsecured credit agreement used to finance its Puerto Rico
homebuilding operation for an additional three years. In August 1996, the
$15,000,000 credit agreement was modified to increase the line of credit to
$21,000,000, with the additional $6,000,000 being secured with land mortgages.
Since 1994, the Company has entered into several loan agreements
with domestic local banks to provide financing for the acquisition and site
improvement of property and financing for construction of residential units in
Florida.
Mortgage Operations
During 1995 the Company entered into a credit agreement with a
Puerto Rico bank to provide an unsecured revolving line of credit of $3,000,000
to finance the working capital needs of the expanding Puerto Rico mortgage
banking operation.
Development/Construction Management
During 1995 the Company entered into a credit agreement with a New
York bank to provide a $3,000,000 line of credit to finance development,
construction and other operating activities. In March 1997 the credit agreement
was further modified to increase the line of credit to $8,000,000.
1996 Cash Flows
Net cash used in operating activities of $25,102,000 comprised an
increase in inventories of $30,248,000, an increase in receivables of
$5,188,000, an increase in other assets of $6,070,000 and a net change in other
operating assets and liabilities of $1,426,000, offset by net income of
$4,355,000, an increase in accounts payable of $11,520,000 and net adjustments
for non-cash items of $1,955,000.
19
<PAGE> 20
The increase in inventories is due primarily to Levitt's investment
in two new development projects in the Florida region. The increase in other
assets is directly attributable to the expansion of development projects and
pre-acquisition land costs. The increase in receivables and accounts payable
reflects the increase in construction volume where the Company acts as a general
contractor.
Net cash provided by investing activities of $2,169,000 comprised
net proceeds from joint ventures of $3,486,000, offset by other net investing
activities of $1,317,000.
Net cash provided by financing activities of $20,833,000 comprised
net proceeds from notes and mortgages payable of $20,310,000 and other net
investing activities of $523,000.
The increase in notes and mortgages payable is mainly due to new
acquisition, development and construction loans relating to the additional
Florida inventory.
1995 Cash Flows
Net cash used in operating activities of $10,118,000 comprised an
increase in receivables of $6,672,000, an increase in inventories of $6,457,000
and an increase in other assets of $5,842,000, offset by net income of
$7,365,000, net adjustments for non-cash items of $257,000 and a net change in
other operating assets and liabilities of $1,231,000.
The increase in receivables reflects the continued growth in
construction activity. Inventories increased due to the timing of titling homes
in Puerto Rico and domestically. The increase in other assets is directly
attributable to the expansion of development projects and pre-acquisition land
costs.
Net cash provided by investing activities of $4,376,000 comprised
net proceeds from joint ventures of $4,206,000 and other net investing
activities of $170,000.
Net cash used in financing activities of $312,000 comprised net
proceeds from notes and mortgages payable of $1,253,000 offset by dividends paid
to stockholders of $1,565,000.
Seasonality
The timing of introducing Levitt's new projects to the market,
weather conditions in certain of Levitt's regions, and traditional periods of
greater customer activity have tended to create seasonal trends in Levitt's
residential homebuilding activities. Historically, the number of homes delivered
has been greater in the second half of the calendar year.
Except as discussed above, management is not aware of any trends or
events, commitments or uncertainties that will impact liquidity in a material
way.
Inflation
The Company believes that inflation has not had a material adverse
effect upon its construction, development and management business. Levitt has
from time to time been
20
<PAGE> 21
adversely affected by high interest costs and increases in material and labor
costs which it has not been able to pass through entirely to home purchasers.
Item 8. Consolidated Financial Statements and Supplementary Data
See "Table of Contents to Consolidated Financial Statements and
Financial Statement Schedules," page 22.
Item 9. Disagreements on Accounting and Financial Disclosure
None
PART III
The information called for by Items 10, 11, 12 and 13 is
incorporated herein by reference from the following portions of the definitive
proxy statement to be filed by the Company in connection with its 1996 Meeting
of Shareholders.
Item Incorporated from
---- -----------------
Item 10. Directors and Executive "Election of Directors"
Officers of the Company
Item 11. Executive Compensation "Compensation and
Certain Transactions"
Item 12. Security Ownership of "Information as to
Certain Beneficial Stock Ownership"
Owners and Management
Item 13. Certain Relationships "Compensation and
and Related Transactions Certain Transactions"
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) See the accompanying Table of Contents to Consolidated Financial
Statements and Schedules and the accompanying Exhibit Index.
(b) Reports on Form 8-K: The Registrant did not file any report on
Form 8-K during the quarter ended December 31, 1996.
21
<PAGE> 22
TABLE OF CONTENTS
TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
PAGE
----
Independent Auditors' Report................................................. 23
Statements of Consolidated Financial Position at December 31, 1996 and 1995.. 24
Statements of Consolidated Operations for the Years Ended December 31, 1996,
1995 and 1994............................................................... 25
Statements of Consolidated Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994............................................. 26
Statements of Consolidated Cash Flows for the Years Ended December 31, 1996,
1995 and 1994............................................................... 27
Notes to Consolidated Financial Statements................................... 28
Condensed Statements of Financial Information of Registrant at
December 31, 1996 and 1995 and for the Years Ended December 31, 1996,
1995 and 1994................................................................44
Financial Statement Schedules, other than that listed above, are omitted because
of the absence of the conditions under which they are required, or because the
information required therein is set forth in the financial statements or the
notes thereto.
22
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Starrett Corporation
New York, New York
We have audited the consolidated financial statements and the related financial
statement schedule of Starrett Corporation and consolidated subsidiaries, listed
in the foregoing table of contents. These consolidated financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements and financial statement schedule 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its consolidated
subsidiaries at December 31, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
March 28, 1997
New York, New York
23
<PAGE> 24
STARRETT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
December 31, 1996 and 1995
(In Thousands)
1996 1995
--------- --------
ASSETS:
Cash and Cash Equivalents ......................... $ 8,662 $ 10,762
Cash Restricted.................................... 4,487 1,571
Receivables ....................................... 37,642 32,454
Inventory of Real Estate........................... 91,034 60,786
Investments in Joint Ventures...................... 6,155 6,527
Property and Equipment-Net......................... 3,925 3,622
Other Assets ...................................... 15,067 10,487
--------- --------
Total......................................... $166,972 $126,209
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable Within One Year:
Accounts payable................................. $ 22,716 $ 11,196
Current portion of long-term obligations ........ 9,126 7,387
Accrued liabilities.............................. 14,565 13,326
--------- --------
Total Liabilities Payable Within One Year..... 46,407 31,909
Deferred Income Taxes ............................. 8,942 6,377
Other Liabilities.................................. 1,311 1,326
Long-Term Obligations ............................. 53,030 34,459
--------- --------
Total......................................... 109,690 74,071
--------- --------
Commitments and Contingencies
Minority Interest.................................. 2,088
----------
Stockholders' Equity:
Common stock-par value, $1.00; authorized,
18,000 shares................................... 6,566 6,566
Capital in excess of par value................... 23,933 23,933
Retained earnings................................ 27,612 24,822
Pension liability adjustment..................... (1,327) (1,593)
Shares held in treasury-at cost.................. (1,590) (1,590)
---------- ---------
Stockholders' Equity............................... 55,194 52,138
--------- --------
Total......................................... $166,972 $126,209
======== ========
See Notes to Consolidated Financial Statements
24
<PAGE> 25
STARRETT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
(In Thousands Except Per Share Data)
1996 1995 1994
-------- -------- --------
Revenues .................................. $164,168 $134,915 $139,599
Equity in Earnings of Joint Ventures....... 3,114 4,032 1,736
-------- -------- --------
Total Revenues........................ 167,282 138,947 141,335
-------- -------- --------
Construction Costs......................... 100,285 73,595 82,859
-------- -------- --------
Income from Construction Contracts and
Related Revenues.......................... 66,997 65,352 58,476
-------- -------- --------
Expenses:
General and Administrative................ 34,180 28,322 25,329
Security Service Labor and Other Costs.... 10,288 12,232 10,909
Selling................................... 5,694 6,050 5,853
Mortgage and Closing Costs................ 6,219 5,920 5,419
Interest.................................. 415 451 660
-------- -------- --------
Total................................. 56,796 52,975 48,170
-------- -------- --------
Income before Income Taxes................. 10,201 12,377 10,306
Income Taxes .............................. 5,846 5,012 4,147
-------- -------- --------
Net Income................................. $ 4,355 $ 7,365 $ 6,159
======== ======== ========
Earnings per Common Share.................. $.70 $1.18 $.98
==== ===== ====
Weighted Average Number of Shares.......... 6,261 6,261 6,261
===== ===== =====
Cash Dividends per Share................... $.25 $.25 $.125
==== ==== =====
See Notes to Consolidated Financial Statements
25
<PAGE> 26
STARRETT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
CAPITAL IN PENSION SHARES STOCK-
COMMON EXCESS OF RETAINED LIABILITY HELD IN HOLDERS'
STOCK PAR VALUE EARNINGS ADJUSTMENT TREASURY EQUITY
----- --------- -------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993
(6,566,402 common shares
issued and 305,427 shares
in Treasury)................. $6,566 $23,933 $13,646 $(736) $(1,590) $41,819
Net Income.................... 6,159 6,159
Dividends to common
stockholders ($.125 per share) (783) (783)
Pension Liability
Adjustment................... (78) (78)
------ ------- ------- ------- ------- -------
Balance, December 31, 1994
(6,566,402 common shares
issued and 305,427 shares
in Treasury)................. 6,566 23,933 19,022 (814) (1,590) 47,117
Net Income.................... 7,365 7,365
Dividends to common...........
stockholders ($.25 per share) (1,565) (1,565)
Pension Liability
Adjustment................... (779) (779)
------ ------- ------- ------- ------- -------
Balance, December 31, 1995
(6,566,402 common shares
issued and 305,442 shares
in Treasury)................. 6,566 23,933 24,822 (1,593) (1,590) 52,138
Net Income.................... 4,355 4,355
Dividends to common...........
stockholders ($.25 per share) (1,565) (1,565)
Pension Liability
Adjustment................... 266 266
------ ------- ------- ------- ------- -------
Balance, December 31, 1996
(6,566,402 common shares
issued and 305,442 shares
in Treasury)................. $6,566 $23,933 $27,612 $(1,327) $(1,590) $55,194
====== ======= ======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
26
<PAGE> 27
STARRETT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income.................................................. $ 4,355 $ 7,365 $ 6,159
Adjustments to Reconcile Net Income to Net Cash (Used In)
Provided by Operating Activities:
Depreciation and Amortization............................ 2,504 3,086 2,978
Deferred Income Taxes.................................... 2,565 1,812 519
Equity in Earnings of Joint Ventures..................... (3,114) (4,032) (1,736)
Changes in Operating Assets and Liabilities:
Cash Restricted........................................ (2,916) (609) (47)
Receivables............................................ (5,188) (6,672) (3,194)
Inventories............................................ (30,248) (6,457) 8,536
Accounts Payable....................................... 11,520 458 (1,979)
Other Assets........................................... (6,070) (5,842) (1,655)
Accrued Liabilities.................................... 1,505 1,279 (299)
Deferred Revenue....................................... (15) (506) (409)
--------- -------- --------
Net Cash (Used in) Provided by Operating Activities......... (25,102) (10,118) 8,873
--------- -------- --------
INVESTING ACTIVITIES:
Investments in Joint Ventures............................... (2,697) (2,740) (6,466)
Distributions from Joint Ventures........................... 6,183 6,946 3,517
Purchase of Property and Equipment, Net..................... (1,391) (1,389) (853)
Proceeds Relating to Sale of Rental Property................ 74 1,559 6
--------- -------- --------
Net Cash Provided by (Used in) Investing Activities......... 2,169 4,376 (3,796)
--------- -------- --------
FINANCING ACTIVITIES:
Repayment of Long-Term Obligations.......................... (34,579) (18,310) (16,460)
Proceeds from Long-Term Obligations......................... 54,889 19,563 9,523
Payment of Cash Dividend to Common Stockholders............. (1,565) (1,565) (391)
Increase in Minority Interest............................... 2,088
--------- -------- --------
Net Cash Provided By (Used In) Financing Activities......... 20,833 (312) (7,328)
--------- -------- --------
Net Decrease in Cash and Cash Equivalents................... (2,100) (6,054) (2,251)
Cash and Cash Equivalents Beginning of Year................. 10,762 16,816 19,067
--------- -------- --------
Cash and Cash Equivalents End of Year....................... $ 8,662 $10,762 $16,816
======== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
27
<PAGE> 28
STARRETT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company:
The Company's operations consist of (i) the development, management
and ownership of real estate properties principally in the New York City
metropolitan area; (ii) the single-family home and garden apartment
development and electronic home security surveillance business conducted
through its Levitt subsidiary in Florida and Puerto Rico; (iii) the
mortgage credit business conducted through its Levitt subsidiary in Puerto
Rico and Florida; and (iv) the supplying of construction services through
its HRH subsidiary principally in the New York City metropolitan area.
Principles of Consolidation:
The consolidated financial statements include the accounts of
Starrett Corporation and subsidiaries and a majority owned joint venture
(the "Company"). Intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
Recognition of Income:
The Company recognizes income from construction contracts where the
Company acts as general contractor on the percentage-of-completion method.
The income recognized is that percentage of estimated total income that
incurred costs to date bear to estimated total costs after giving effect
to estimates of costs to complete based upon most recent information
("cost-to-cost" method). The Company provides currently for estimated
losses on uncompleted contracts. Fees earned from contracts where the
Company acts as construction manager are recognized as earned, measured
using the same percentage of completion method.
Revenues from house sales and all related costs and expenses are
recognized upon passage of title to the buyer and receipt of an adequate
down payment.
Mortgage operations include loan origination and other fees received
for the processing and closing of mortgage loans. Revenues from mortgage
operations are primarily for houses constructed and sold by the Company
and are recorded when the transfer of the corresponding mortgages to third
parties has been consummated.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
28
<PAGE> 29
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosure about Fair Value of Financial Instruments," requires
disclosure of the fair value of financial instruments, both assets and
liabilities, recognized and not recognized in the consolidated statement
of financial position of the Company, for which it is practicable to
estimate fair value. The estimated fair values of financial instruments
which are presented herein have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of amounts the Company could realize
in a current market exchange.
The following methods and assumptions were used to estimate fair
value:
o The carrying amounts of cash and cash equivalents, receivables,
accounts payable and accrued liabilities approximate fair value due
to their short term nature.
o The carrying amounts of notes and mortgages payable approximate fair
value as the terms of the credit facilities generally require
periodic market adjustment of interest rates.
Inventory of Real Estate:
Inventory of real estate is stated at the lower of cost or fair
value less costs to sell. Cost includes direct acquisition, development
and construction costs, interest and other indirect construction costs.
Fair value less costs is defined as an estimate of sales proceeds less all
estimated costs of carrying, completing and disposing of the property.
Interest is capitalized at the effective interest rates paid on borrowings
for interest costs incurred on real estate inventory components during the
preconstruction and planning stage and the periods that projects are under
development. Capitalization of interest is discontinued if development
ceases at a project.
Land and land development costs are accumulated by specific area and
allocated proportionately to homes within the respective area.
Construction costs are charged to individual homesites based on specific
identification.
Property and Equipment:
Property and equipment are carried at cost less accumulated
depreciation and are depreciated using the straight-line method over the
estimated useful lives of the assets. Expenditures for maintenance and
repairs are charged to expense as incurred. Costs of major renewals and
betterments which extend useful lives are capitalized.
29
<PAGE> 30
Capitalized Costs:
Interest incurred, real estate taxes, and sales costs incurred in
connection with certain properties are capitalized in order to achieve
better matching of costs with revenues. Capitalized interest costs are
expensed upon the sale of the related asset as part of construction costs.
Interest incurred on loans was $4,544,000 in 1996, $3,778,000 in 1995 and
$3,435,000 in 1994, of which $4,129,000 in 1996, $3,327,000 in 1995 and
$2,775,000 in 1994 was capitalized. Capitalized interest expensed of
$3,128,000 in 1996, $3,726,000 in 1995 and $4,941,000 in 1994 was charged
to construction costs.
Costs related to predevelopment activities associated with the
Company's various development projects, such as architect and engineering
fees, legal costs, etc., are capitalized to the extent that management
believes such costs are recoverable from the estimated earnings of the
project.
Certain costs incurred that are used directly throughout the selling
period to aid in the sale of units, such as model furnishings and
decorations, sales office furnishings and facilities, exhibits, displays
and signage, are capitalized as deferred selling costs and amortized over
the number of units to be delivered. Costs incurred during the initial and
due diligence phases of a project, such as land deposits and studies, are
capitalized as preacquisition costs. The unrecovered preacquisition costs
are written off in the period the Company ceases development of the
project, or at such time management believes such costs will not be
recoverable.
Investments in Partnerships and Joint Ventures:
Investments in partnerships and joint ventures in which the Company
does not have a controlling interest are accounted for at cost and
investments in partnerships in which the Company does have a controlling
interest are accounted for on the equity method. The Company evaluates
control based on factors such as the Company's percentage of equity
ownership and whether or not the Company controls major operating and
financial policies of the investee. Under the equity method, the Company's
initial investment is recorded at cost and is subsequently adjusted to
recognize its share of the earnings or losses. Distributions received
reduce the carrying amount of the investment.
Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
Cash Restricted:
Cash restricted represents customer deposits on house sales under
contract held in escrow accounts and advances on construction management
jobs held on behalf of the owner.
30
<PAGE> 31
Income Taxes:
As required by Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes", deferred taxes are provided for the
temporary differences between the tax bases of the assets and liabilities
and the amounts reported in the financial statements.
Adoption of SFAS No. 121:
In March 1995, The Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", (SFAS 121). This standard specifies when assets such as the
Company's real estate inventories and other real estate investments should
be reviewed for impairment, how to determine if an asset is impaired, how
to measure an impairment loss, and what disclosures are necessary in the
financial statements. The Company adopted SFAS No. 121 during 1996 and
there was no material effect upon adoption.
Reclassifications:
Certain prior year amounts have been reclassified in the financial
statements and segment information to conform with the 1996 presentation.
2. RECEIVABLES
Receivables are summarized as follows:
1996 1995
------- -------
(Dollars in Thousands)
Accounts............................. $25,702 $ 17,875
Mortgage notes....................... 8,765 11,392
Notes................................ 3,651 3,663
------- -------
Total........................... 38,118 32,930
Less allowance for doubtful
accounts............................ 476 476
------- -------
Net............................. $37,642 $32,454
======= =======
It is expected that the receivables at December 31, 1996 as set
forth above will be realized as follows: $29,976,000 in 1997, $3,117,000
in 1998, $41,000 in 1999, $45,000 in 2000, $50,000 in 2001 and $4,413,000
thereafter. At December 31, 1996, approximately $1,400,000 ($1,600,000 at
December 31, 1995) of the mortgage notes receivable have been pooled into
GNMA certificates, and have been guaranteed by the United States
Government. The Company has pledged these mortgage notes as collateral to
borrow funds from institutions at interest rates lower than those earned
on the mortgage notes receivable and as collateral for GNMA matched
payment serial notes (Note 8). The remaining mortgage notes receivable
have been originated by the
31
<PAGE> 32
Company under firm commitments for sale to various third parties. The
Company receives certain fees for the origination and processing of these
mortgages.
3. INVENTORY OF REAL ESTATE
Inventory of real estate is summarized as follows:
1996 1995
------- -------
(Dollars in Thousands)
Land and land development costs...... $77,568 $45,549
Construction costs - houses.......... 13,466 15,237
------- -------
Total............................. $91,034 $60,786
======= =======
4. INVESTMENTS IN JOINT VENTURES
The Company owns investments in joint ventures that are engaged in
homebuilding and development of residential rental apartments. Condensed
financial information is as follows:
Combined Balance Sheets
1996 1995
------- -------
(Dollars in Thousands)
Combined Assets
Current Assets...................... $ 2,098 $ 4,104
Inventory of real estate............ 28,468 32,815
Other assets........................ 2,032 1,590
------- -------
Total............................. $32,598 $38,509
======= =======
Combined Liabilities and Partner's Capital
Current liabilities................. $ 2,912 $ 2,709
Customer deposits on house sales.... 3,522 4,794
Mortgage notes payable.............. 15,117 20,593
Partners' capital accounts.......... 11,047 10,413
------- -------
Total............................. $32,598 $38,509
======= =======
During 1996 and 1995, in accordance with the partnership agreements,
the Company made capital contributions to the joint ventures in excess of
its proportionate ownership interests. The Partnership agreements provide
for the Company to receive preferential income and cash distributions
until the Company's invested capital is proportionate to its ownership
interests.
32
<PAGE> 33
Combined Statements of Operations
1996 1995
-------- -------
(Dollars in Thousands)
Revenues
House sales......................... $ 61,781 $ 51,748
Land sale........................... 3,173
Sale of rental apartment property... 15,205
Other Income........................ 222 1,153
-------- -------
Total........................... 65,176 68,106
-------- -------
Cost and Expenses
Cost of house sales................. 50,621 42,871
Cost of land sold................... 3,150
Cost of sale of rental apartment
property............................ 12,570
Other expenses...................... 5,231 5,048
-------- -------
Total........................... 59,002 60,489
-------- -------
Net Income.......................... $ 6,174 $ 7,617
======== =======
In addition, the Company had an ownership interest in a joint venture that
owned a self-storage mini-warehouse in New York. The joint venture had
$8,943,000 in assets with $8,183,000 in liabilities at December 31, 1995. The
joint venture sold the warehouse on March 15, 1996. The loss on sale of the
warehouse is included in the Statement of Operations for the year ended December
31, 1995.
5. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
1996 1995
------- -------
(Dollars in Thousands)
Machinery and equipment............. $ 2,218 $ 2,103
Furniture, fixtures and leasehold
improvements........................ 10,431 9,347
------- -------
Total........................... 12,649 11,450
Less accumulated depreciation........ 8,724 7,828
------- -------
Net............................. $ 3,925 $ 3,622
======= =======
33
<PAGE> 34
6. OTHER ASSETS
Other assets are summarized as follows:
1996 1995
------- -------
(Dollars in Thousands)
Investments in real estate........... $ 2,999 $ 1,102
Prepaid development costs............ 3,992 3,187
Deferred selling costs............... 2,711 1,738
Preacquisition costs................. 2,595 1,751
Other................................ 2,770 2,709
------- -------
Total............................. $15,067 $10,487
======= =======
Pursuant to a Memorandum of Understanding between the Company and
the City of New York, the Company has been designated as the developer of
a mixed use project known as Gateway Estates in Brooklyn, New York,
currently anticipated to consist of a shopping center, housing and related
components. The project is in the plan/development stage and requires
various government agency approvals. Milstein Properties, in which Paul
Milstein (the Company's Chairman of the Board) and members of his family
are the principal owners, is the Company's 35% joint venture partner in
the project. Costs incurred by the Company for this project are included
in prepaid development costs above.
On December 14, 1995, a limited partnership in which the Company is
a general partner owning a HUD financed housing project on the upper West
Side of Manhattan refinanced the project, under HUD's preservation
program, in return for maintaining the project as affordable housing for
its remaining useful life. At the closing, the Company received
approximately $3,000,000 most of which represents fees, with the remainder
attributable to repayment of sums owed, return of capital, and partnership
distributive share of refinancing proceeds. Fee income attributable to
this transaction are included in 1995 revenues.
7. INCOME TAXES
The Company and its domestic subsidiaries file a consolidated
federal income tax return. The provision for income taxes consists of the
following:
1996 1995 1994
------ ------ -------
(Dollars in Thousands)
Federal taxes:
Current............................. $ 303 $ 108
Deferred............................ 2,109 2,272 $ 161
State and foreign taxes:
Current............................. 3,158 2,568 3,628
Deferred............................ 276 64 358
------ ------ -------
Total............................. $5,846 $5,012 $ 4,147
====== ====== =======
At December 31, 1996 the Company had fully utilized its net tax
operating loss carryforward.
34
<PAGE> 35
Cash payments for income taxes during the years ended December 31,
1996, 1995 and 1994 were $3,979,000, $2,630,000 and $5,195,000,
respectively.
The effective tax rate was different from the statutory Federal tax
rate for the following reasons:
1996 1995 1994
---- ---- ----
Statutory Federal tax rate........... 34.0% 34.0% 34.0%
Increase resulting from:
Repatriation of Puerto Rico earnings 8.2
State and foreign taxes, net of
Federal tax benefit................ 15.1 6.5 6.2
---- ----- -----
Effective tax rate................... 57.3% 40.5% 40.2%
==== ==== ====
The Company had an unusually high effective tax rate of 57.3% for
the year ended December 31, 1996. The increased tax rate, which had no
significant cash impact on the Company, resulted mainly from the
repatriation of profits from a Puerto Rico subsidiary, which resulted in
the utilization of the Company's remaining net tax operating loss
carryforward.
Deferred income taxes result from temporary differences in the
recognition of revenue and expense for tax and financial reporting
purposes. The tax effect of each type of temporary difference that gave
rise to the Company's net deferred tax liability is as follows:
December 31 December 31
1996 1995
-------- --------
Asset (Liability)
(In Thousands)
Investments in and sales of limited
partnership interests................ $(13,167) $(11,576)
Net tax operating loss carryforward... 3,107
Capitalized interest and overhead..... 1,616 (838)
Alternative minimum tax and other
miscellaneous Federal tax credits.... 3,073 2,712
Deferred selling costs................ (227) (831)
Pension liability adjustment.......... 894 1,073
Other................................. (1,131) (24)
-------- --------
Net deferred income tax liability..... $ (8,942) $ (6,377)
======== ========
Total deferred tax assets and liabilities were $10,352,000 and
$17,479,000, respectively, at December 31, 1996 and $10,288,000 and
$16,665,000, respectively, at December 31, 1995. Included in deferred tax
assets are foreign tax credits of $1,815,000 at December 31, 1996 which
are fully offset by a valuation allowance of equal amount. No valuation
allowance was required for deferred tax assets at December 31, 1995.
35
<PAGE> 36
8. DEBT
Notes, mortgages payable and long-term obligations are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(Dollars in Thousands)
<S> <C> <C>
Subordinated promissory notes, at a rate of 15% per
annum, payable 1997 (A) ............................. $ 1,467 $ 2,934
Note payable under credit facility agreement, 2%
over LIBOR (interest rate of 7.50% at December 31,
1996) (B) ........................................... 2,125
Note payable under a term loan, 2% over LIBOR
(interest rate of 7.50% at December 31,
1996) (C) ........................................... 1,500
Notes payable under credit facility agreements, 1%
over prime (interest rate of 9.25% at December 31,
1996) (D) ........................................... 9,000 14,400
Notes payable under credit facility agreement,
interest rate that approximates 1% under prime,
(interest rate of 7.56% at December 31, 1996)(E) .... 15,800 10,000
Mortgage notes payable, interest of 1% over prime
(interest rate of 9.25% at December 31, 1996) (F) ... 13,456
Mortgage notes payable, interest of 1% over prime
(interest rate of 9.25% at December 31, 1996) (G) ... 8,412
GNMA matched payments serial notes at interest
rates between 9% and 10% with remaining
maturities up to 20 years (H) ....................... 1,400 1,571
Mortgage notes payable, interest rate of 1% over
prime (interest rate of 9.25%
at December 31, 1996) (I) ........................... 4,798 6,000
Mortgage notes payable, interest rate of 1% over
prime (interest rate of 9.25%
at December 31, 1996) (J) ........................... 1,198 3,516
Note payable under credit facility agreement,
interest rate that approximates 1% under
prime (interest rate of 7.56% at
December 31, 1996) (K) ............................... 3,000 2,500
Other mortgage notes payable at interest rates
between 6.75% and 9.5% due in installments
through April, 1997 ................................. 925
------- -------
Total ............................................. $62,156 $41,846
======= =======
Classified in statements of consolidated financial
position as:
Current portion of long-term obligations ............ $ 9,126 $ 7,387
Long-term obligations ............................... 53,030 34,459
------- -------
Total ............................................. $62,156 $41,846
======= =======
</TABLE>
36
<PAGE> 37
(A) On December 31, 1990, the Company redeemed all of its $5.81 cumulative
convertible preferred stock and issued to the preferred shareholders six
equal subordinated promissory notes in the aggregate principal amount of
$8,800,000, maturing 1992 through 1997. The notes bear simple interest at
the rate of 15% per annum. In March 1997 the Company paid the final
promissory note in the amount of $1,466,667.
(B) In November 1995 the Company entered into a credit agreement to
provide working capital in the amount of $3,000,000. In March 1997 the
$3,000,000 credit agreement was modified to increase the line of credit to
$8,000,000. In connection with the credit agreement, the Company pledged
as security the stock of one of its subsidiaries and, in addition, is
required to maintain certain covenants during the term of the loan. The
loan matures in July 1997.
(C) In July 1996 the Company entered into a term loan to provide
additional working capital in the amount of $1,500,000. The Company
pledged as security the stock of one of its subsidiaries and, in addition,
is required to maintain certain covenants during the term of the loan. The
loan matures in February 1998.
(D) In January 1996 the Company repaid the $14,400,000 note from proceeds
of a $10,000,000 unsecured term note and from working capital. The
unsecured term note requires semi-annual principal payments of $1,000,000
and $1,500,000 in July and January, respectively, through January 2000.
The term note credit agreement requires the Company to maintain certain
financial covenants during the term of the loan.
(E) In March 1996 the Company renewed its unsecured revolving credit
agreement to finance its Puerto Rico homebuilding operations for an
additional three years. The credit agreement provides for available loans
up to $15,000,000. During August, 1996, the $15,000,000 credit agreement
was modified to increase the line of credit to $21,000,000. The additional
$6,000,000 line of credit is secured by mortgage notes on real property
located in Puerto Rico. The credit agreement requires the Company's Puerto
Rico subsidiary to maintain certain financial covenants during the term of
the agreement.
(F) During 1996 a majority owned Partnership of the Company entered into a
loan agreement to provide financing for the acquisition and site
improvement of property and financing for construction of residential
units. The loan agreement provides for advances on a revolving loan basis
up to a maximum outstanding balance of $19,500,000 and is secured by a
mortgage on the property including improvements. Principal payments are
required as homes are delivered. The loan matures in June 2002.
(G) During 1996 the Company entered into a loan agreement to provide
financing for the acquisition and site improvement of property and
financing for construction of residential units. The loan agreement
provides for advances on a revolving loan basis up to a maximum
outstanding balance of $28,700,000 and is secured by a mortgage on the
property including all improvements. The loan matures in April 2000.
37
<PAGE> 38
(H) On December 31, 1996 and 1995, respectively, the Company had loans
totaling $1,400,000 and $1,571,000 (secured by a pledge of GNMA
certificates in the same amount) through the issuance of long-term
debentures by a subsidiary of a non-profit community development
corporation in Puerto Rico. Both the short-term loans and debentures,
which are secured by mortgage notes receivable pooled into GNMA
certificates, bear interest at rates lower than the interest rates on such
mortgage receivables.
(I) During 1995 the Company entered into a loan agreement to provide
financing for the acquisition and site improvement of property and
financing for construction of residential units. The loan agreement
provides for advances on a revolving loan basis up to a maximum
outstanding balance of $11,250,000 and is secured by a mortgage on the
property including all improvements. Principal payments are required as
homes are delivered. The loan matures in September 1998.
(J) During 1994 the Company entered into a loan agreement to provide
financing for the acquisition and site improvement of property and
financing for construction of residential units. The loan agreement
provides for advances on a revolving loan basis up to a maximum
outstanding balance of $6,300,000 and is secured by a mortgage on the
property including all improvements. Principal payments are required as
homes are delivered. The loan matures in April 1998.
(K) During 1995 the Company entered into a credit agreement to provide an
unsecured revolving line of credit of $3,000,000 to finance its Puerto
Rico mortgage operations. The credit agreement requires the Company's
Puerto Rico subsidiary to maintain certain financial covenants during the
term of the agreement.
The loan matures in October 1997.
Notes and mortgages payable were collateralized by inventory
of real estate and mortgage notes receivable with net carrying values
aggregating $61,207,000 and $33,851,000 at December 31, 1996 and 1995,
respectively.
Certain of the debt instruments associated with joint ventures
require guarantees of the related indebtedness by the Company. At December
31, 1996 and 1995, the Company's guarantees on outstanding joint venture
indebtedness were $9,425,000 and $2,405,000, respectively.
Debt obligations are scheduled to mature as follows:
$9,126,000 in 1997, $10,033,000 in 1998, $19,341,000 in 1999, $9,957,000
in 2000, $50,000 in 2001 and $13,649,000 thereafter. Certain mortgage
notes contain provisions for reducing the principal as individual homes
are sold by the Company.
Interest paid for the years ended December 31, 1996, 1995 and
1994 was $5,018,000, $3,722,000 and $3,402,000, respectively. The weighted
average interest rate on the Company's debt was 9.01% and 9.22% for the
years ended December 31, 1996 and 1995, respectively.
As of December 31, 1996, the Company had outstanding letters
of credit totalling approximately $890,000 on which there are service
charges ranging from 0.5% to 1.5% on the outstanding balances. The Company
in the normal course of business obtains payment and performance bonds and
financial security bonds in connection with its construction and
development activities.
38
<PAGE> 39
9. PENSION PLAN
The Company and certain of its subsidiaries have a
noncontributory defined benefit pension plan (the "Plan") covering
employees not represented by a union. The benefits are based on years of
service and the employees' compensation over the last five years.
Effective July 31, 1992, the Board of Directors amended the
Plan to freeze accrued benefits for all participants. The Company will
continue to fund the Plan as required, including any interest at the
assumed average rate of return on Plan assets.
As of December 31, 1996, the Plan held equity securities,
fixed income securities, life insurance policies and short-term
investments. Assumed average future rate of return on Plan assets was
8.00% and 8.75% for the years ended December 31, 1996 and 1995,
respectively, and the projected benefit obligation was based on 7.50% and
7.25% assumed discount rates at December 31, 1996 and 1995, respectively.
The net periodic pension cost was $141,000 for the year ended
December 31, 1994. The components of net periodic pension cost for the
years ended December 31, 1996 and 1995 are as follows:
Cost component: 1996 1995
-------- --------
Interest cost.......................... $569,000 $548,000
Actual return on plan assets........... (678,000) (714,000)
Net amortization and deferral.......... 292,000 270,000
-------- --------
Net periodic pension cost.............. $183,000 $104,000
======== ========
The following table sets forth the Plan's funded status as of
December 31, 1996 and 1995:
Cost component: 1996 1995
-------- --------
Actuarial present value of accumulated
benefit obligation:
Vested.................................$7,895,000 $8,204,000
Nonvested.............................. 8,000 16,000
------------ -----------
Total...............................$7,903,000 $8,220,000
========== ==========
Projected benefit obligation for service
rendered to date............................$7,903,000 $8,220,000
Plan assets at fair value.................... 6,809,000 6,197,000
---------- ----------
Projected benefit obligation in excess
of plan assets.............................. 1,094,000 2,023,000
Unrecognized net loss........................(2,344,000) (2,833,000)
Unrecognized net asset at date of transition. 123,000 167,000
Additional minimum liability................. 2,221,000 2,666,000
---------- ----------
Accrued pension cost.........................$1,094,000 $2,023,000
========== ==========
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<PAGE> 40
In accordance with Statement of Financial Accounting Standards
No. 87, "Employers' Accounting for Pensions," an additional minimum
pension liability, representing the excess of accumulated benefits over
plan assets and accrued pension costs, was recognized at December 31, 1996
and 1995. A corresponding amount, net of income tax benefit of $894,000
and $1,073,000 was recorded as a separate reduction to stockholders'
equity in 1996 and 1995, respectively.
The significant decrease in accrued pension cost is primarily
attributable to employer contributions during 1996.
The Plan made significant lump sum distributions during 1994
resulting in a settlement of the Plan as defined by Statement of Financial
Accounting Standards No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination of
Benefits". As a result, the Company recorded an additional expense of
$451,000 for the year ended December 31, 1994.
The Company does not provide postretirement or postemployment
benefits other than pensions to employees. Therefore, SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
and SFAS No. 112, "Employers' Accounting for Postemployment Benefits" have
no impact on the Company's financial statements.
10. SEGMENT INFORMATION
The Company's operations consist of (i) the development,
management and ownership of real estate properties; (ii) the single-family
home and garden apartment development and electronic security surveillance
business conducted through its Levitt subsidiary in Florida and Puerto
Rico; (iii) the mortgage credit business conducted through its Levitt
Mortgage subsidiary in Puerto Rico and Florida; and (iv) the supplying of
construction services through its HRH subsidiary. The Company groups its
business into these four segments. The following table sets forth the
Company's revenues and operating profit attributable to the respective
segments of its operations for each of the years 1994 through 1996, and
the identifiable assets attributable to the respective segments as at the
end of each of those years:
40
<PAGE> 41
<TABLE>
<CAPTION>
DEVELOPMENT HRH
MANAGEMENT AND LEVITT LEVITT CONSTRUCTION
OWNERSHIP CORPORATION MORTGAGE CORP. CORPORATION CONSOLIDATED
------- -------- ------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
1996
- ----
Revenues ................... $26,402 $101,660 $ 6,304 $32,916 $167,282
======= ======== ======= ======= ========
Operating profit (1) ....... $ 1,255 $ 9,244 $ 1,596 $ 1,415 $ 13,510
======= ======== ======= =======
General corporate expenses . 3,309
--------
Income before income taxes . $ 10,201
========
Identifiable assets ........ $16,590 $114,814 $ 8,851 $26,717 $166,972
======= ======== ======= ======= ========
1995
- ----
Revenues ................... $26,647 $ 97,365 $ 5,513 $ 9,422 $138,947
======= ======== ======= ======= ========
Operating profit (1) ....... $ 1,533 $ 9,115 $ 1,708 $ 3,241 $ 15,597
======= ======== ======= =======
General corporate expenses . 3,220
--------
Income before income taxes . $ 12,377
========
Identifiable assets ........ $17,373 $ 83,751 $11,880 $13,205 $126,209
======= ======== ======= ======= ========
1994
- ----
Revenues ................... $25,635 $107,375 $ 4,047 $ 4,278 $141,335
======= ======== ======= ======= ========
Operating profit (1) ....... $ 2,575 $ 9,217 $ 868 $ 309 $ 12,696
======= ======== ======= =======
General corporate expenses . 2,663
--------
Income before income taxes . $ 10,306
========
Identifiable assets ........ $20,539 $ 74,081 $11,342 $10,305 $116,267
======= ======== ======= ======= ========
</TABLE>
(1) Operating profit is comprised of revenues less operating expenses. In
computing operating profit, general corporate expenses and income taxes
have not been deducted.
(2) There were no customers from which the Company derived more than 10% of its
revenues in 1996, 1995 or 1994.
41
<PAGE> 42
11. COMMITMENTS AND CONTINGENCIES
Roosevelt Island Associates ("RIA"), a partnership in which a
Company subsidiary is one of several partners, has provided guaranteed
payments to the investor partner. The Company's share of such guarantees
is approximately $100,000 each year until 2005, which will be paid by the
Company if project cash flow is insufficient to cover these amounts. In
connection with this project, the Company also provided cash flow
guarantees from which it will be released if the project achieves a
certain cash flow level over a specified period of time. The Company
believes it has adequately provided for any future obligations under this
guarantee.
The Company's Levitt subsidiary provides for estimated
warranty costs when homes are sold and continuously monitors its warranty
exposure and service program.
The Company's HRH subsidiary in the ordinary course of
business is required to furnish payment and performance bonds assuring
payment to subcontractors.
Rent expense for the years ended December 31, 1996, 1995 and
1994 was $1,290,000, $1,336,000 and $1,133,000, respectively. At December
31, 1996 the Company and its subsidiaries are committed under long-term
operating leases expiring at various dates through 2002. The minimum
rentals are $1,489,000 in 1997, $1,639,000 in 1998, $1,486,000 in 1999,
$1,294,000 in 2000, $1,072,000 in 2001 and $1,072,000 thereafter or an
aggregate of $8,052,000.
The Company is involved in litigation and claims incident to
the normal conduct of its business. Management believes that such
litigation and claims will not have a materially adverse effect on the
Company's financial statements.
42
<PAGE> 43
12. QUARTERLY FINANCIAL DATA (Unaudited)
The quarterly financial data are set forth below (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1996 1996 1996 Annual
March 31 June 30 Sept. 30 Dec. 31 Amount
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues ...................... $35,508 $37,523 $35,699 $58,552 $167,282
Income from construction
contracts and related revenues 15,837 16,291 14,761 20,108 66,997
Income before income
taxes ........................ 2,050 2,480 2,800 2,871 10,201
Net income .................... 1,168 1,366 1,512 309 4,355
Earnings per common share ..... $ .19 $ .22 $ .25 $ .04 $ .70
<CAPTION>
1995 1995 1995 1995 Annual
March 31 June 30 Sept. 30 Dec. 31 Amount
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues ...................... $30,281 $23,401 $32,805 $52,460 $138,947
Income from construction
contracts and related revenues 13,379 13,356 15,751 22,756 65,352
Income before income
taxes ........................ 1,735 1,955 3,017 5,670 12,377
Net income .................... 989 1,114 1,796 3,466 7,365
Earnings per common share ..... $ .16 $ .18 $ .28 $ .56 $ 1.18
</TABLE>
Certain quarterly amounts have been reclassified to conform
with the annual presentation.
43
<PAGE> 44
Schedule III
STARRETT CORPORATION
(Parent Company Only)
CONDENSED STATEMENTS OF FINANCIAL POSITION
December 31, 1996 and 1995
(In Thousands)
1996 1995
-------- -------
Assets:
Cash and cash equivalents .................... $ 484 $ 2,162
Investments in subsidiaries, at
equity in underlying net assets.............. 90,695 84,800
Other assets.................................. 10,022 8,689
-------- -------
TOTAL................................. $101,201 $95,651
======== =======
Liabilities and Stockholders' Equity:
Liabilities payable within one year........... $ 6,624 $ 5,149
Advances from subsidiaries.................... 30,696 31,539
Deferred income taxes......................... 7,376 5,499
Other liabilities............................. 1,311 1,326
Stockholders' equity.......................... 55,194 52,138
-------- -------
TOTAL................................. $101,201 $95,651
======== =======
STARRETT CORPORATION
(Parent Company Only)
CONDENSED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
(In Thousands)
1996 1995 1994
------- ------- -------
Revenues................................... $ 666 $ 1,053 $ 1,046
General and administrative expenses........ (3,309) (3,220) (2,663)
Other costs................................ (11) (899) (33)
Interest................................... (415) (451) (660)
Income taxes............................... (110) 1,455 1,111
------- ------- -------
Loss before equity in earnings
of subsidiaries........................... (3,179) (2,062) (1,199)
Equity in earnings of subsidiaries......... 7,534 9,427 7,358
------- ------- -------
Net Income....................... $ 4,355 $ 7,365 $ 6,159
======= ======= =======
44
1
<PAGE> 45
Schedule III
STARRETT CORPORATION
(Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
1996 1995 1994
-------- ------- -------
OPERATING ACTIVITIES:
Net Income................................. $ 4,355 $ 7,365 $ 6,159
Adjustments to Reconcile Net Income to
Net Cash Used In Operating Activities:
Changes not affecting cash................ (5,657) (8,340) (7,488)
Changes in Operating Assets and Liabilities:
Liabilities payable within one year....... 2,942 (2,333) 228
Advances from subsidiaries................ (843) 1,263 (1,242)
Other assets.............................. (1,333) (592) 106
Other liabilities......................... 251 (525) (1,089)
-------- ------- -------
Net Cash Used In Operating Activities...... (285) (3,162) (3.326)
-------- ------- -------
FINANCING ACTIVITIES:
Payment of Promissory Notes................ (1,467) (1,466) (1,467)
Payment of Cash Dividend to Common
Stockholders.............................. (1,565) (1,565) (391)
Distributions from subsidiaries............ 1,639 2,218
-------- ------- -------
Net Cash used in Financing Activities...... (1,393) ( 813) (1,858)
-------- ------- -------
Net Decrease in Cash and
Cash Equivalents.......................... (1,678) (3,975) (5,184)
Cash and Cash Equivalents Beginning of Year 2,162 6,137 11,321
-------- ------- -------
Cash and Cash Equivalents End of Year...... $ 484 $ 2,162 $ 6,137
======== ======= =======
45
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
STARRETT CORPORATION
Date: March 28, 1997 BY s/ Paul Milstein
-------------------------------
Paul Milstein
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By s/ Paul Milstein
-------------------------------
Paul Milstein, Principal
Director
Date: March 28, 1997 By s/ Lewis A. Weinfeld
-------------------------------
Lewis A. Weinfeld, Principal
Financial and Accounting
Officer
Date: March 28, 1997 By s/ Henry Benach
-------------------------------
Henry Benach, Director
Date: March 28, 1997 By s/ John Zuccotti
-------------------------------
John Zuccotti, Director
Date: March 28, 1997 By s/ Robert Berne
-------------------------------
Robert Berne, Director
Date: March 28, 1997 By s/ Irving R. Fischer
-------------------------------
Irving R. Fischer, Director
Date: March 28, 1997 By s/ Robert C. Rosenberg
-------------------------------
Robert C. Rosenberg, Director
Date: March 28, 1997 By s/ Elliott M. Wiener
-------------------------------
Elliott M. Wiener, Director
46
<PAGE> 47
STARRETT CORPORATION
EXHIBITS
DECEMBER 31, 1996
COMMISSION FILE NUMBER 1-6736
47
<PAGE> 48
STARRETT CORPORATION
EXHIBIT INDEX
Exhibit Page
- ------- ----
3(a)(1) Restated Certificate of Incorporation of the
Registrant (filed as Exhibit 3(a)(1) to
Registrant's Registration Statement on Form S-4
dated September 16, 1988 and incorporated
herein by reference).
3(a)(2) Certificate of Amendment of the Restated
Certificate of Incorporation of the Registrant
relating to $5.08 Cumulative Preferred Shares
and $5.00 Cumulative Preferred Shares (filed as
Exhibit 10 to the Registrant's Form 8-K dated
June 5, 1981 and incorporated herein by
reference).
3(b) By-laws of the Registrant, as amended to
January 1, 1987 (filed as Exhibit 3(b) to
Registrant's Registration Statement on Form S-4
dated September 16, 1988 and incorporated
herein by reference).
10(a)(1) Amended and Restated Agreement, dated as of
January 5, 1992, between Henry Benach and the
Registrant (filed as Exhibit 10(c)(1) to the
Registrant's Form 10-K for 1991 and
incorporated herein by reference).
10(b)(2) Incentive Compensation Agreement, dated as of
January 5, 1989, between Henry Benach and the
Registrant (filed as Exhibit 10(c)(2) to
Registrant's Form 10-K for 1989 and
incorporated herein by reference).
10(c)(1) Employment Agreement, dated as of June 1, 1981,
between Irving R. Fischer and the Registrant
(filed as Exhibit 10(f)(2) to the Registrant's
Form 10-K for 1981 and incorporated herein by
reference).
10(c)(2) Amendment, dated as of January 3, 1986, to the
Employment Agreement between Irving R. Fischer
and the Registrant (filed as Exhibit 10(d)(5)
to Registrant's Registration Statement on Form
S-4 dated September 16, 1988 and incorporated
herein by reference).
10(c)(3) Incentive Compensation Agreement, dated as of
January 3, 1986, between Irving R. Fischer and
the Registrant (filed as Exhibit 10(d)(6) to
Registrant's Registration Statement on Form S-4
dated September 16, 1988 and incorporated
herein by reference).
10(c)(4) Restricted Stock Agreement, dated as of October
27, 1987, between Irving R. Fischer and the
Registrant (filed as Exhibit 10(d)(4) to
Registrant's Form 10-K for 1987 and
incorporated herein by reference).
48
<PAGE> 49
Exhibit Page
- ------- ----
10(c)(5) Extension dated December 30, 1991 to Employment
and Incentive Compensation Agreements of Irving
R. Fischer (filed as Exhibit 10(e)(5) to the
Registrant's Form 10-K for 1991 and
incorporated herein by reference).
10(c)(6) Employment Agreement, dated April 10, 1996, 52
between Irving R. Fischer and the Registrant.*
10(h)(i) Employment Agreement, dated January 1, 1997 53
between Elliot M. Wiener and Levitt.*
10(i)(i) Letter Agreement, dated December 2, 1988,
between American Financial Corporation and
Starrett Housing Corporation, with Form of Note
attached thereto (filed as Exhibit 10(j)(i) to
Amendment No. 1 to the Registrants'
Registration Statement on Form S-4 dated
December 13, 1988 and incorporated herein by
reference).
10(i)(ii) Letter Agreement, dated December 2, 1988,
between American Financial Corporation and
Henry Benach (filed as Exhibit 10(j)(ii) to
Amendment No. 1 to the Registrant's
Registration Statement on Form S-4 dated
December 13, 1988 and incorporated herein by
reference).
10(i)(iii) Letter Agreement, dated December 2, 1988,
between American Financial Corporation and
Builtland Partners (filed as Exhibit 10(j)(iii)
to Amendment No. 1 to the Registrant's
Registration Statement on Form S-4 dated
December 13, 1988 and incorporated herein by
reference).
10(i)(iv) Letter Agreement, dated December 2, 1988,
between American Financial Corporation and Oded
Aboodi (filed as Exhibit 10(j)(iv) to Amendment
No. 1 to the Registrant's Registration
Statement on Form S-4 dated December 13, 1988
and incorporated herein by reference).
10(i)(v) Letter, dated December 2, 1988, from Starrett
Housing Corporation to Henry Benach (filed as
Exhibit 10(j)(v) to Amendment No. 1 to the
Registrant's Registration Statement on Form S-4
dated December 13, 1988 and incorporated herein
by reference).
10(i)(vi) Letter, dated December 2, 1988, from Starrett
Housing Corporation to Builtland Partners
(filed as Exhibit 10(j)(vi) to Amendment No. 1
to the Registrant's Registration Statement on
Form S-4 dated December 13, 1988 and
incorporated herein by reference).
10(i)(vii) Letter, dated December 2, 1988, from Starrett
Housing Corporation to Oded Aboodi (filed as
Exhibit 10(j)(vii) to Amendment No. 1 to the
Registrant's Registration Statement on Form S-4
dated December 13, 1988 and incorporated herein
by reference).
49
<PAGE> 50
Exhibit Page
- ------- ----
10(j)(i) Second Amended and Restated Partnership
Agreement of Roosevelt Island Associates dated
February 28, 1989 (filed as Exhibit 10(j)(i) to
Registrant's Current Report on Form 8-K dated
March 3, 1989 and incorporated herein by
reference).
10(j)(ii) Participation Agreement dated February 28, 1989
by and among Roosevelt Island Associates,
Manhattan Park Leasing Corporation, HRH
Construction Corporation, RIA Construction
Company, Starrett Housing Corporation,
Grenadier Realty Corporation, Manhattan Park,
Inc., Cohen Roosevelt Associates and NCC RIA
Company (Schedules are omitted, and are
available from the Registrant upon request
(filed as Exhibit 10(j)(ii) to Registrant's
Current Report on Form 8-K dated March 3, 1989
and incorporated herein by reference).
10(j)(iii) Capital Adjustment Agreement dated February 28,
1989 between Starrett Housing Corporation,
Manhattan Park, Inc., Cohen Roosevelt
Associates and NCC RIA Company (filed as
Exhibit 10(j)(iii) to Registrant's Current
Report on Form 8-K dated March 3, 1989 and
incorporated herein by reference).
10(j)(iv) No-Negative Guaranty Agreement dated February
28, 1989 by and among Starrett Housing
Corporation, Cohen Roosevelt Associates,
Grenadier Realty Corporation, Manhattan Park
Leasing Corporation and Roosevelt Island
Associates (filed as Exhibit 10(j)(iv) to
Registrant's Current Report on Form 8-K dated
March 3, 1989 and incorporated herein by
reference).
10(j)(v) First Amendment to No-Negative Guaranty
Agreement dated as of January 15, 1993 by and
among Starrett Housing Corporation, Cohen
Roosevelt Associates, Grenadier Realty
Corporation, Manhattan Park Leasing Corporation
and Roosevelt Island Associates.
10(j)(vi) Construction Completion Guaranty Agreement
dated February 28, 1989 by and among Roosevelt
Island Associates, Starrett Housing
Corporation, and Cohen Roosevelt Associates
(filed as Exhibit 10(j)(v) to Registrant's
Current Report on Form 8-K dated March 3, 1989
and incorporated herein by reference).
10(j)(vii) Payment Allocation, Contribution and
Indemnification Agreement made as of February
28, 1989 by and among Starrett Housing
Corporation, Manhattan Park, Inc., HRH
Construction Corporation, Grenadier Realty
Corp.; and Roosevelt Associates, RIA
Construction Company, Charles Steven Cohen and
Sherman Cohen (filed as Exhibit 10(k)(vi) to
Registrant's Form 10-K for 1988 and
incorporated herein by reference).
10(j)(viii) Amendment to Payment Allocation, Contribution
and Indemnification Agreement, dated as of
February 28, 1989, a Second Amendment thereto
50
<PAGE> 51
Exhibit Page
- ------- ----
dated October 30, 1992 and a Third Amendment
thereto made as of February 28, 1989.
10(j)(ix) Master Refunding Agreement dated January 13,
1993 by and among Manhattan Park, Inc., Cohen
Roosevelt Associates, NCC RIA Company, Starrett
Housing Corporation, Charles Steven Cohen,
Sherman Cohen and Roosevelt Island Associates.
10(l)(i) Credit Agreement and Guarantee - Levitt Homes
Incorporated, Levitt Corporation, Et Al., and
Ohio Savings Bank, F.S.B. (filed as Exhibit
10(l)(vii) to Registrant's Form 10-K for 1995
and incorporated herein by reference).
10(m)(i) Promissory Note and Guarantee - Starrett 66
Corporation, HRH Construction Corporation,
Grenadier Realty Corp and Chemical Bank, dated
November 28, 1995.*
10(m)(ii) Note Modification Agreement - Starrett 81
Corporation, HRH Construction Corporation,
Grenadier Realty Corp and the Chase Manhattan
Bank, Chemical Bank of Promissory Note and
Guarantee dated November 28, 1995, on July 23,
1996.*
10(m)(iii) Term Loan - Starrett Corporation, HRH 85
Construction Corporation, Grenadier Realty Corp
and Chase Bank (Formally Chemical Bank), dated
July 23, 1996.*
11(a) Exhibit Setting Forth the Computation of 99
Primary Earnings Per Share Information.*
22 List of Subsidiaries of the Registrant (filed
as Exhibit 22 to Registrant's Form 10-K for
1987 and incorporated herein by reference).
27 Financial Data Schedule.* 100
Note: The Exhibits which have not previously been
filed are marked with an asterisk (*).
51
<PAGE> 1
April __, 1996
Mr. Irving R. Fischer
909 Third Avenue
New York, New York 10022
Dear Irving:
We are pleased to confirm our agreement that you shall serve as
President and Chief Operating Officer of Starrett Corporation ("Starrett" or
the "Company") with a base salary at the rate of $500,000 per annum, all
effective August 1, 1995.
You shall also be entitled to Incentive Compensation for 1996, as
calculated and paid (subject to the following) in your prior Incentive
Compensation Agreement. In the event your employment with the Company terminates
for any reason during 1996, your Incentive Compensation shall be prorated on the
basis of the number of days elapsed during 1996 prior to such termination;
provided, however, that you shall be entitled to Incentive Compensation for all
of 1996 if your termination of employment results from or follows a failure by
Starrett to continue you in your present positions with the Company, a Change
in Control (as defined below), your termination by the Company not for cause
(as defined in your prior Employment Agreement) or your death or permanent
incapacity (as defined in your prior Employment Agreement); with any payment of
Incentive Compensation under this sentence being based solely on the actual
Adjusted Pre-tax Income of Starrett for 1996. A Change in Control shall mean the
acquisition by any individual, entity or group (as such term is defined in the
Securities Exchange Act of 1934 ("Exchange Act")) (a "Person"), other than any
Person who is currently the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) of 5% or more of the Company's outstanding Common Stock, as a
result of which such acquiring Person is the beneficial owner of 25% or more of
the Company's outstanding Common Stock; a change in the Company's Board of
Directors such that the existing directors cease to constitute a majority of
the members of such Board; or a sale of all or substantially all of the assets,
a merger or consolidation, or a similar transaction of or involving the
Company.
Very truly yours,
STARRETT CORPORATION
By: ______________________________
Paul Milstein
Chairman of the Board
AGREED:
_______________________
Irving R. Fischer
52
<PAGE> 1
AGREEMENT made as of January 1, 1997, by and between Levitt Corporation,
a Maryland corporation having its principal office at 7777 Glades Road, Boca
Raton, Florida 33434 (the "Employer"), and Elliott M. Wiener, having an address
at 7103 Encina Lane, Boca Raton, Florida 33433 (the "Employee").
W I T N E S S E T H:
--------------------
WHEREAS, the Employer is desirous of the services of the Employee as
herein provided, and
WHEREAS, the Employee is willing to perform such services hereunder;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, it is mutually covenanted and agreed as follows:
1. Employment. The Employer hereby employs the Employee and the
Employee hereby accepts employment, and agrees to devote his best efforts and
substantially all of his business time and attention, except during vacation
periods (which shall not be less than 20 days in each calendar year) and period
of illness or other disability, to the business of the Employer.
2. Term. The term of this Agreement shall commence as of the date
hereof and shall continue to and including December 31, 2001 except as
otherwise herein provided. From and after December 31, 2001, the term shall
automatically be extended from year to year for one year unless either party
provides notice not to so extend this Agreement, which notice, if given, must
first be given at least six months prior to December 31, 2001 and thereafter
53
<PAGE> 2
must be given at least six months prior to the end of the term as same may have
been extended hereby.
3. Compensation. The Employer agrees to pay the Employee and the
Employee agrees to accept the following compensation and benefits during his
term of employment:
(a) Base salary shall be paid at the annual rate of $350,000
commencing January 1, 1997. Such salary shall be payable
in accordance with the normal payroll practices of the
Employer.
(b) Incentive Compensation shall be paid in an amount equal
to 3% of Pre-Tax Net Income of Employer, as defined and
set forth in Exhibit A.
(c) The Employer may cause Starrett Corporation ("Starrett")
to grant to the Employee, in Starrett's discretion,
stock options or other stock rights.
In addition, the Employee shall be entitled to such group life
insurance, retirement, medical insurance, hospitalization, vacation, disability,
and similar employee benefit plans as may exist for the benefit of Employer's
executive officers generally ("perquisites").
4. Expenses. The Employee shall be reimbursed for reasonable
out-of-pocket expenses incurred by him attributable to and in furtherance of the
Employer's business, upon submission of reasonable itemized vouchers therefor.
54
<PAGE> 3
5. Duties and Covenants. The Employee is engaged as Chairman of
the Board, President, and Chief Executive Officer of the Employer and is to
perform such duties and services as may be assigned to him from time to time by
the Board of Directors or principal executive officers of the Employer and
Starrett and shall observe the by-laws and policies of the Employer and
Starrett from time to time promulgated by the Board of Directors and principal
executive officers thereof. Notwithstanding the foregoing, in no event shall
the Employee be required to perform services not commensurate with his office.
The Employee agrees that he will devote his entire business time, attention and
best efforts and will not engage in any conduct detrimental in any material
respect to the business and affairs of the Employer and its affiliates, and
will not engage or be interested in any capacity, directly or indirectly, in
any other business activity during the term of the Agreement. Nothing contained
in this paragraph 5 shall prevent the Employee from investing in passive equity
interests in real estate provided such investments are not inconsistent with
Employee's responsibilities hereunder, or holding stock (less than 3% of the
outstanding) in any public corporation. In no event (including removal from
office under paragraph 7 below) shall the Employer directly or indirectly
require the Employee to relocate his principal residence outside of South
Florida.
The Employee agrees that during the term of this Agreement and at all
times thereafter, he will not, without the Employer's prior written consent,
divulge, furnish or make accessible to any third party (other than in the
regular course of business of the Employer or its subsidiaries or as required
by law or valid legal process) any non-public, confidential information of or
concerning the Employer or its affiliates.
55
<PAGE> 4
Inasmuch as the Employee's breach or attempted breach of any provision
of this paragraph 5 would cause grave damage to the Employer or its affiliates
not measurable in money damages, the Employer shall, in addition to all other
remedies, be entitled to a temporary and permanent injunction and/or a decree
for specific performance of the terms of this paragraph 5, without being
required to furnish any bond or other security or to show any actual damages.
If any provision of this paragraph 5 shall be held to be invalid or
unenforceable, such provision shall be construed so as to be narrowed to the
least extent necessary to make such provision valid and enforceable.
6. Termination. This Agreement shall be terminable by the
Employer only upon the Employee's death, in the event of such physical or
mental disability or illness of the Employee as prevents his performance of the
duties incident to this employment for a period of no less than three (3)
consecutive months or an aggregate of 120 days in any period of twelve (12)
months ("disability"), for cause (as hereafter defined) or as provided in
paragraph 7 below. For purposes of this Agreement "cause" shall mean:
(i) gross or willful misconduct, gross negligence or material
failure to perform Employee's duties under this Agreement (which
gross negligence or material failure shall have an adverse
effect on the Employer's business and shall either not be
curable or, if curable, shall continue uncured for more than 15
days after the Employee's receipt of written notice setting
forth with particularity such misconduct); or
(ii) conviction of a felony or act of fraud or dishonesty.
In connection with any termination hereunder, all amounts owing and accrued to
the Employee on the date of termination shall be paid promptly to the Employee
upon termination.
56
<PAGE> 5
(b) Upon the death of the Employee during the term, the Employee's
beneficiar(ies) shall receive (i) base salary in the amount provided under
paragraph 3(a) above for the 12-month period following such death payable in
accordance with the normal payroll practices of the Employer, and (ii)
Incentive Compensation in accordance with paragraph (e)(i) of Exhibit A hereto
for the fiscal year in which such death occurs.
7. Sale Of The Company. Notwithstanding anything to the contrary
contained in this Agreement, the Employer may, at any time following a Sale of
the Company (as such term is defined below), remove the Employee as Chairman of
the Board, President and Chief Executive Officer of the Employer, provided that
in the event of such removal (i) the Employee shall remain in the Employer's
employ in accordance with this agreement as a senior executive of the Company
with duties and responsibilities commensurate with those of a senior executive
position and compensation and perquisites continuing in accordance with this
agreement during the remaining period of the Employee's employment hereunder
and (ii) effective at any time on or following January 1 of the calendar year
second succeeding the calendar year in which such removal occurs (for example,
effective on or after January 1, 1999 if such removal occurs during 1997),
either the Employer or the Employee may, at its or his option, terminate this
Agreement upon no less than 90 days' prior written notice to the other, in
either of which events the Employer shall (A) pay the Employee, in full
satisfaction of its obligations to Employee under paragraph 3(a) above, a lump
sum payment simultaneously with the effective date of such termination equal to
$350,000 times a fraction the numerator of which is the number of days
remaining in the term of this Agreement from the effective date of such
termination through December 31, 2001 and the denominator of which is 365, and
(B) pay the
57
<PAGE> 6
Employee Incentive Compensation in accordance with Exhibit A hereto for the
period prior to the effective date of such termination. For example, if a
removal from office occurred during 1997, the Employee remained as a senior
executive of the Employer, and a termination notice were given in accordance
with this paragraph 7 effective January 1, 1999, the Employee would receive
base salary and Incentive Compensation in accordance with this Agreement
including Exhibit A hereto for 1997 and 1998, would receive a lump sum payment
equal to $1,050,000, and would receive no further Incentive Compensation or
base salary. The Employer agrees that if the Employees' employment with the
Employer is terminated pursuant to this paragraph 7 or is otherwise terminated
by the Employer other than by reason of cause, the Employee shall not be
required to seek other employment or attempt in any way to reduce any amount
payable to the Employee by the Employer pursuant to this Agreement including
Exhibit A hereto. Further, the amount of any payment or benefit provided for in
this Agreement shall not be reduced by any compensation earned by the Employee
or benefit provided to the Employee as a result of employment by another
employer or otherwise, except that any compensation actually earned by the
Employee in a senior executive or similar capacity from another party for the
period beginning 18 months after the effective date of such termination and
ending December 31, 2001 shall reduce and be an offset against any amount paid
or payable by the Employer to the Employee as a result of such termination (and
the Employee shall to the extent necessary promptly return the amount of such
reduction to the Employer). For purposes of this Agreement, including Exhibit A
hereto, a "Sale of the Company" shall mean a sale or other disposition of all
or substantially all of the assets of the Employer, the sale or other
disposition of a majority of the voting stock of the Employer, or the merger or
consolidation of the Employer, with or to any person or entity or group of
persons or entities
58
<PAGE> 7
other than Starrett or Starrett's or the Employer's direct or indirect
subsidiaries; provided, however, that the merger or consolidation of Starrett, a
sale or other disposition of stock of Starrett, or the sale or other disposition
of all or substantially all of the assets of Starrett, with or to one or a group
of persons or entities shall not be deemed a Sale of the Company.
8. Notices. Any notice in connection with this Agreement shall be in
writing and personally delivered, sent by overnight delivery service or sent by
registered or certified mail to the addressee at its or his address set forth
above, or to such other address(es) as either party may designate by like
written notice to each other.
9. Binding Effect. This Agreement shall be binding upon the parties
hereto, their respective heirs, administrators, successors and assigns, and
shall inure to benefit of and be binding upon the Employer, its affiliates, and
their successors and assigns.
10. Entire Agreement. This Agreement contains the entire agreement of
the parties and supersedes any prior employment agreements or understandings
between them. It may not be changed, waived, extended or terminated orally, but
only by a writing signed by the party against whom enforcement of any change,
waive, extension or termination is sought. The headings herein have been
inserted for convenience only, and are not to be part of this Agreement.
Nothing contained herein shall be deemed to impact that certain Levitt
Corporation Deferred Compensation Plan and Split Dollar Agreement for Employee,
dated December 23, 1993, which shall remain in full force and effect.
11. Governing Law, Venue. This Agreement shall be governed by the
laws of the State of Florida. Any and all suits, legal actions or proceedings
missing out of this
59
<PAGE> 8
Agreement shall be brought in the court of competent jurisdiction in Palm
Beach, Florida, and the parties irrevocably waive any objection to such choice
of venue.
LEVITT CORPORATION
By:
---------------------------
Name:
Title:
---------------------------
Elliott M. Wiener
60
<PAGE> 9
EXHIBIT A
To Employment Agreement (the "Agreement")
between Levitt Corporation (the "Employer")
and Elliott M. Wiener (the "Employee")
(a) Incentive Compensation. Subject to the provisions of paragraph
(e) below, with respect to each fiscal year of the Employer or portion thereof
(as described below) during the term of the Agreement, commencing with the
fiscal year beginning January 1, 1997 and ending with the fiscal year ending
December 31, 2001, the Employer shall pay to the Employee incentive
compensation equal to 3% of the Pre-Tax Net Income (as defined below) of the
Employer and its subsidiaries.
(b) Statements. The determination of Pre-Tax Net Income shall be made
by the then independent certified public accountants of the Employer in
accordance with this Exhibit A, and a written statement by such accountants
containing such determination (the "Statement") shall be delivered to the
Employee no later than 120 days after the end of each fiscal year. The Employer
shall deliver a check, in the amount of the incentive compensation payable to
the Employee for such fiscal year based upon the Pre-Tax Net Income as
reflected in the Statement, payable to the Employee, simultaneously with its
delivery of the Statement. The Statement shall be deemed correct and accepted
by the Employee unless the Employee shall deliver to the Employer, within 10
days after the receipt by the Employee of the Statement, a written statement of
the Employee's objections to such Statement (the "Objecting Statement"). If the
Employer gives written notice to the Employee within 10 days of its receipt of
the Objecting Statement that it does not agree with the Employee's objections,
then the Statement
61
<PAGE> 10
shall be deemed correct and accepted by the Employee unless the Employee,
within 10 days after the Employee's receipt of the Employer's notice, notifies
the Employer in writing that the Employee requests arbitration. If the Employer
does not object to the Objecting Statement as provided herein, the Statement,
with such changes as are necessary to reflect the objections contained in the
Objecting Statement, shall be deemed correct and accepted by the Employer.
The arbitration provided for herein shall be in Florida by a panel of
three arbitrators, all of whom shall be independent certified public
accountants (who do not perform services for the Employer, the Employee or any
of their respective affiliates), one selected by the Employee, one selected by
the Employer and a third selected by the two so chosen. The arbitrators shall
be guided by the rules then obtaining of the American Arbitration Association.
If the two arbitrators so chosen cannot select a third arbitrator, the third
arbitrator shall be selected by the American Arbitration Association. Judgment
upon the award may be entered in any court having jurisdiction thereof. The
sole matters to be submitted to arbitration shall be (i) the determination of
Pre-Tax Net Income (including the calculations furnished by the Employer to the
Employee of the incentive compensation payable under paragraph (a) above) in
accordance with this Exhibit A and (ii) any dispute referred to in the second
sentence of paragraph (f) below. The arbitrators shall not have jurisdiction to
determine any other matter, claim or dispute whatsoever.
(c) Pre-Tax Net Income. For purposes of this Exhibit A, "Pre-Tax Net
Income" shall mean the consolidated net income of the Employer and its
subsidiaries, before deduction of, or provision or reserve for, any Federal and
Puerto Rico taxes based on net income (but not state,
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<PAGE> 11
local or other taxes all of which shall be deducted or provided or reserved
for), as determined in accordance with generally accepted accounting
principles, consistently applied, provided that:
(1) There shall not be included as an expense in determining Pre-Tax
Net Income any incentive compensation paid to or accrued with respect to the
Employee and similar incentive compensation paid to or accrued with respect to
any other employee of the Employer having similar incentive compensation
arrangements.
(2) Pre-Tax Net Income shall not include any management fees, charges
or allocation of overhead from any affiliate of the Employer or non-recurring
items or items of an extraordinary nature as determined in accordance with
generally accepted accounting principles, consistently applied, including
without limitation the proceeds of any key-man life insurance or the proceeds
of the sale of all or substantially all of the Employer's or any of its
subsidiaries' assets. Any transaction between the Employer and any of its
affiliates shall be treated for purposes of determining Pre-Tax Net Income at
prices and terms no less favorable than would be available on an arms-length
basis from independent third parties.
(d) Payment. The balance of any unpaid incentive compensation shall be
paid within 10 days after the date the Statement is deemed correct and accepted
as provided in paragraph (b) above or upon the effective date of the award of
the arbitration proceeding referred to therein.
(e) Continuation of Employment. Except as provided in clause (i) or
(ii) of this paragraph (e) below, the Employee shall not be entitled to receive
Incentive Compensation for any fiscal year of the Employer (or portion thereof)
if he does not continue in the employ of the
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<PAGE> 12
Employer through the last day of such fiscal year, provided, however, that (i)
in the event of the termination of the Employee's employment as a result of the
death or disability (as such term is defined in paragraph 6(a) of the
Agreement) of the Employee, the Employee shall be entitled to Incentive
Compensation for the fiscal year in which such termination of employment occurs
but for no subsequent years, and (ii) in the event of the termination of the
Employee's employment as a result of the termination by the Employer of the
Employee's employment other than for death, disability or cause (as such term
is defined in paragraph 6(a) of the Agreement) and other than as provided in
paragraph 7 of the Agreement, the Employee shall be entitled to Incentive
Compensation for the fiscal year in which such termination of employment occurs
and the next succeeding fiscal year but for no subsequent years, it being
agreed by the parties that (A) continued employment by the Employee as
contemplated by paragraph 7 of the Agreement shall be deemed continued
employment for all purposes of this Exhibit A and (B) neither removal of the
Employee from the offices of Chairman of the Board, President and Chief
Executive Officer as contemplated by paragraph 7 of the Agreement nor
termination of the Employee by the Employer in accordance with paragraph 7 of
the Agreement shall be deemed termination of the Employee by the Employer
without cause.
(f) Inability to Calculate Incentive Compensation. In the event that as
a result of a Sale of the Company (as such term is defined in paragraph 7 of
the Agreement) the business and operations of the Employer are significantly
changed or it otherwise becomes impracticable to separately determine the
Employer's Pre-Tax Net Income on a basis consistent with such determination
prior to the sale of the Company (the fiscal year in which such change or
impracticability results from a Sale of the Company being herein referred to as
the "Sale
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<PAGE> 13
Year"), the Employer's Incentive Compensation for the Sale Year and each
subsequent fiscal year during the term of the Agreement shall be conclusively
deemed to be the average of the Employee's Incentive Compensation for the five
fiscal years of the Employer immediately preceding the Sale Year; provided,
however, that the Employer and Employee acknowledge that nothing in this
paragraph (f) shall be deemed to entitle Employee to Incentive Compensation
following his termination of employment except as expressly provided in
paragraph (e) above. A dispute concerning whether a Sale Year has occurred
shall be determined by arbitration in accordance with paragraph (b) above.
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<PAGE> 1
PROMISSORY NOTE
$3,000,000 New York, New York
November 28, 1995
ON DEMAND, but not later than the Final Maturity Date, for value
received, STARRETT CORPORATION ("STARRETT"), HRH CONSTRUCTION CORPORATION
("HRH") AND GRENADIER REALTY CORP. ("GRENADIER") (collectively, the "Borrower"),
hereby promise to pay to the order of CHEMICAL BANK, (the "Bank") at the office
of the Bank at 380 Madison Avenue, New York, New York, immediately available
funds, the principal amount of THREE MILLION DOLLARS ($3,000,000), or such
lesser amount as may constitute the aggregate unpaid principal amount of all
Loans made hereunder. The Borrower further promises to pay interest (computed
on the basis of actual number of days elapsed over a year of 360 days) on each
Interest Payment Date at a rate of interest equal to either the Adjusted LIBOR
Rate plus 2.00% or the Prime Rate plus .5% (as recorded on the grid attached
hereto) on the unpaid principal amount of each Loan until such principal amount
is paid in full.
The Bank may lend, in its sole discretion in each instance, such
amounts (each a "Loan" and collectively, the "Loans") as may be requested by
Starrett hereunder, which Loans shall in no event exceed $3,000,000 in
aggregate principal amount outstanding at any time. Each LIBOR Loan shall be in
a minimum principal amount of $500,000 and each Prime Rate Loan shall be in a
minimum principal amount of $25,000. Starrett shall request each LIBOR Loan
upon at least three (3) Business Days' prior written notice to the Bank and may
request a Prime Rate Loan upon same day written notice to the Bank, and, in
each case of a request for a LIBOR Loan, such request shall be made by 11:00
a.m. on the required day; provided, however there shall be no more than two
LIBOR Loans outstanding at any one time. If the Borrower shall not timely
notify the Bank that it has selected the Adjusted LIBOR Rate plus 2% for a Loan
prior to the expiration of the then-current Interest Period relating to such
Loan, then such Loan shall be a Prime Rate Loan.
The Bank is authorized to enter on the attached grid schedule all the
information specified therein relating to each Loan, all of which entries, in
the absence of manifest error, shall be conclusive and binding on the Borrower;
provided that the failure of the Bank to make any such entries shall not
relieve the Borrower from its obligation to pay any amount due hereunder.
Alternatively, any of Starrett, HRH or Grenadier may request Bank (in
Bank's sole discretion in each case) to issue its irrevocable letter of credit
for the benefit of a stated beneficiary (a "Letter of Credit"), provided that no
such Letter of Credit shall have an expiration later than the Letter of Credit
Maturity Date. Borrower shall pay a fee of 1.5% per annum on each such Letter of
Credit. Any drawing made under such Letter of Credit shall automatically become
a Prime Rate Loan hereunder and, if such drawing is made after the Final
Maturity Date, such Prime Rate Loan shall be due and payable on demand.
Anything in this Note to the contrary notwithstanding, no Loan shall be
made hereunder and no Letters of Credit shall be issued hereunder if, as a
result thereof, the aggregate unpaid principal balance of all Loans made by the
Bank to the undersigned hereunder plus the aggregate undrawn face amount of all
Letters of Credit issued hereunder and the aggregate unreimbursed amount of all
drafts drawn under Letters of Credit issued hereunder would exceed $3,000,000.
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<PAGE> 2
INTEREST
(a) Each LIBOR Loan shall bear interest, for each Interest Period,
at a rate per annum equal to 2.00% above the Adjusted LIBOR Rate.
(b) Each Prime Rate Loan shall bear interest, at the rate per annum
for each day equal to .5% above the Prime Rate.
(c) If the principal indebtedness evidenced hereby is declared
immediately due and payable by the Bank pursuant to the provisions of this
Note, or if the Loans are not paid in full on the Maturity Date, the Borrower
shall thereafter, unless and until such date, if any, as the Bank may elect, in
its sole and absolute discretion, to waive in writing, all or any portion of
such interest, pay interest on the principal sum then remaining unpaid from the
date of such declaration or the Maturity Date, as the case may be, until the
date on which the principal sum then outstanding is paid in full (whether before
or after judgment), at a rate per annum (calculated for the actual number of
days elapsed on the basis of a 360-day year) equal to the greater of 20% or 5%
in excess of the Prime Rate, provided, however, that such interest rate shall
in no event exceed the maximum interest rate which the Borrower may by law pay.
In addition, if all or any portion of the indebtedness, whether of principal,
interest, additional interest or other sum (if any) payable under this Note is
not paid within ten (10) days after the date on which it is due, the Borrower
shall pay to the Bank on demand an amount equal to 3% of such unpaid portion as
a late payment charge. It is hereby expressly agreed that such late charge is
to compensate the Bank for costs incurred in connection with the administration
of such default, and does not constitute a penalty.
INCREASED COST
If at any time after the date hereof, the Board of Governors of the Federal
Reserve System or any political subdivision of the United States of America or
any other government, governmental agency or central bank shall impose or
modify any reserve or capital requirement on or in respect of loans made by or
deposits with the Bank or shall impose on the Bank or the Eurocurrency market
any other conditions affecting Loans, and the result of the foregoing is to
increase the cost to (or, in the case of Regulation D, to impose a cost on) the
Bank of making or maintaining any Loan or to reduce the amount of any sum
receivable by such Bank in respect thereof, by an amount deemed by the Bank to
be material, then, within 30 days after notice and demand by the Bank, the
Borrower shall pay to the Bank such additional amounts as will compensate the
Bank for such increased cost or reduction. A certificate of the Bank claiming
compensation hereunder and setting forth the additional amounts to be paid to
it hereunder and the method by which such amounts were calculated shall be
conclusive in the absence of manifest error.
CAPITAL ADEQUACY
If the Bank shall have determined that the applicability of any law, rule,
regulation or guideline adopted pursuant to or arising out of the July 1988
report of the Basle Committee on Banking Regulations and Supervisory Practices
entitled "International Convergence of Capital Measurement and Capital
Standards", or the adoption after the date hereof of any other law, rule,
regulation or guideline regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of any of the foregoing by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank (or any
lending office of the Bank) or the Bank's holding company with any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or
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<PAGE> 3
would have the effect of reducing the rate of return on the Bank's capital or
on the capital of the Bank's holding company, if any, as a consequence of its
obligations hereunder to a level below that which the Bank or the Bank's
holding company could have achieved but for such adoption, change or compliance
(taking into consideration the Bank's policies and the policies of such Bank's
holding company with respect to capital adequacy) by an amount deemed by the
Bank to be material, then from time to time the Borrower shall pay to the Bank
such additional amount or amounts as will compensate the Bank or the Bank's
holding company for any such reduction suffered.
INDEMNITY
---------
The Borrower shall indemnify the Bank against (I) any loss or expense which the
Bank may sustain or incur as a consequence of the occurrence of any Event of
Default and (ii) any loss or expense sustained or incurred including without
limitation, in connection with obtaining, liquidating or employing deposits
from third parties as a consequence of the payment of any principal of any Loan
by the Borrower (pursuant to demand, a default, change in legality or
otherwise) on any day other than the last day of an Interest Period, or the
failure by the Borrower to prepay any Loan or part thereof once notice has been
given. The Bank shall provide the Borrower a statement, supported where
applicable by documentary evidence, explaining the amount of any such loss or
expense, which statement shall be conclusive absent manifest error.
CHANGE IN LEGALITY
------------------
(a) Notwithstanding anything to the contrary contained elsewhere in
this Note, if any change after the date hereof in any law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration thereof shall make it unlawful (based on the opinion of any
counsel, whether in-house, special or general, for the Bank) for the Bank to
make or maintain any Loan or to give effect to its obligations as contemplated
hereby with respect to any Loan, then, by written notice to the Borrower by the
Bank, the Bank may require that all outstanding Loans made by it be converted
to Prime Rate Loans, whereupon all such Loans shall be automatically converted
to Prime Rate Loans as of the effective date of such notice as provided in
paragraph (b) below. In addition, upon receipt of such notice by the Bank, the
Borrower shall be prohibited from requesting LIBOR Loans from the Bank unless
such declaration is subsequently withdrawn and the Bank agrees to withdraw any
such declaration if and to the extent that the making and maintenance by the
Bank of its LIBOR Loans shall cease to be unlawful.
(b) For purposes of this Section, a notice to the Borrower by the Bank
pursuant to paragraph (a) above shall be effective, if lawful and if any Loans
shall then be outstanding, on the last day of the then current Interest Period;
otherwise, such notice shall be effective on the date of receipt by the
Borrower.
REPRESENTATIONS AND WARRANTIES
------------------------------
Each entity constituting the Borrower represents and warrants to the
Bank that:
(a) The execution, delivery and performance by it of this Note and the
borrowings hereunder will not violate any indenture, agreement or other
instrument to which it is a party, or by which it or any of its property is
bound, and will not be in conflict with, result in a breach of or constitute
(with due notice and/or lapse of time) a default under, any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of its property
or assets other than as contemplated by this Note.
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<PAGE> 4
This Note constitutes the valid and binding obligations of each such
entity enforceable against such entity Borrower in accordance with its terms.
This Note has been duly authorized by all necessary corporate action of each of
the entities constituting the Borrower.
(b) Each of the entities constituting Borrower has heretofore
furnished to the Bank complete financial statements prepared as of December 31,
1994 together with a schedule of contingent liabilities and guaranties. Each
such entity has also furnished to the Bank balance sheets, cash flow statements
(actual and pro forma), projections and other financial documents with respect
to assets and liabilities. Such financial statements and other financial
information and documents are correct and complete and fairly present the
financial condition of such entity as of such date and there has been no
material adverse change in the financial condition of such entity since
December 31, 1994.
(c) Each of the entities constituting Borrower has filed or caused to
be filed all Federal, state and local tax returns which are required to be
filed, and has paid or has caused to be paid all taxes as shown on said returns
or on any assessment received by such entity to the extent that such taxes have
become due.
(d) Each of the entities constituting Borrower has good and marketable
title solely in its name to its material properties and assets reflected on the
financial statements referred to above, and all such properties and assets are
free and clear of mortgages, pledges, liens, charges and other encumbrances,
except any such encumbrances that do not materially interfere with the use or
operation of such property or assets and except as required or permitted by the
provisions hereof or in writing by the Bank.
(e) (i) There are no actions, suits or proceedings (whether or not
purportedly on its behalf) pending or, to its knowledge, threatened against or
affecting any entity constituting Borrower at law or in equity or before or by
any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which involve
any of the transactions contemplated herein or which, if adversely determined
against it would result in any materially adverse change in its properties or
assets or in its condition, financial or otherwise; and (ii) such entity is not
in default with respect to any judgment, writ, injunction, decree, rule or
regulation of any court or Federal, state, municipal or other governmental
department, omission, board, bureau, agency or instrumentality, domestic or
foreign, which would have a materially adverse effect on its condition
(financial or otherwise).
(f) Each entity constituting Borrower is not a party to any agreement
or instrument or subject to any judgment, order, writ, injunction, decree or
regulation materially and adversely affecting its properties or assets,
operations or condition (financial or otherwise). Such entity is not in default
in any manner which would materially and adversely affect its properties or
assets, or condition (financial or otherwise) in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument to which it is a party.
(g) No part of any proceeds of any Loan will be used, whether directly
or indirectly, and whether immediately, incidentally or ultimately, (I) to
purchase or to carry margin stock (as defined in Regulation U specified below)
or to extend credit to others for the purpose of purchasing or carrying margin
stock, or to refund indebtedness originally incurred for such purpose, or (ii)
for any purpose which violates or is inconsistent with the provisions of
Regulations G, T, U, or X of the Board of Governors of the Federal Reserve
System.
(h) All of the information which is required to be delivered to the
Bank is correct and accurate.
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<PAGE> 5
CONDITIONS OF LENDING
-----------------------
The Bank shall not consider lending hereunder unless the following
conditions precedent have been met:
(a) The Bank shall have received this Note duly executed by the
Borrower.
(b) The representations and warranties contained herein shall be true
and correct on and as of the date of any request for a Loan as though made on
and as of such date and no Event of Default or event which, with the giving of
notice or lapse of time or both would constitute an Event of Default, shall
have occurred and be continuing after giving effect to any requested Loan. Each
request for a Loan hereunder shall be deemed to be a representation by the
Borrower that the conditions set forth in this paragraph (c) have been fully
complied with as of the date of such request.
(c) The Bank shall have received a certificate executed by the Chief
Financial Officer of Starrett, HRH or Grenadier, as the case may be, that no
material adverse change has occurred in their respective financial conditions,
that there is no material pending litigation against Starrett, HRH, Grenadier
or any other subsidiary of any of them, that Starrett, HRH and Grenadier are in
compliance with all of their covenants hereunder and that no events of default
have occurred hereunder or under any document evidencing or relating to any
other indebtedness of any of them.
(d) The Bank shall have received such other and further information and
documentation as it may require.
(e) All documentation and all matters relating to this Note shall be
satisfactory to the Bank and its counsel.
AFFIRMATIVE COVENANT
--------------------
Each entity constituting the Borrower covenants and agrees with the
Bank that it will:
(a) Give the Bank prompt written notice of (i) any action, event or
condition which is, or with notice or lapse of time or both, would constitute,
any Event of Default, (ii) any material adverse change in the condition,
financial or otherwise, of the Borrower and (iii) any action, suit or
proceeding at law or in equity which, if adversely determined against the
Borrower on the basis of the allegations and information set forth in the
complaint or other notice of such action, suit or proceeding, or in the
amendments thereof, if any, would materially and adversely affect the
Borrower's properties, assets or condition, financial or otherwise.
(b) As soon as available, but in no event later than 60 days from the
end of each quarter (or, in the case of annual statements, within 110 days from
the end of each fiscal year) deliver to Bank accrual basis financial
statements, including an income statement, balance sheet, statement of cash
flow and schedule of accounts receivable to be collected within the succeeding
12 months (all of the foregoing including not only all entities constituting
Borrower but also Levitt Corporation), certified by the chief financial officer
of Starrett.
(c) Deliver to Bank copies of all registration statements and any
amendments filed with the Securities and Exchange Commission and all quarterly
and annual reports, registrations statements and all other material filings
with the Securities and Exchange Commission or any national securities exchange
within 15 days after delivery to
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<PAGE> 6
the Securities and Exchange Commission. Starrett shall also cause all reports
or written information sent to the shareholders of Starrett to be promptly
delivered to Bank.
NEGATIVE COVENANTS
------------------
Each entity constituting the Borrower covenants and agrees with the
Bank that it will not, and it will not permit any subsidiary to, directly or
indirectly:
(a) Incur, create, assume or suffer to exist any mortgage, pledge,
lien, charge or other encumbrance of any nature whatsoever (including
conditional sales or other title retention agreements except relating to
purchases of equipment or supplies made in the ordinary course of business) on
any of its assets now or hereafter owned, without the prior written consent of
the Bank; provided, however, that Levitt Corporation shall not be subject to
these prohibitions; and provided, further, that Starrett may place non-recourse
mortgages on its real property in connection with any permitted non-recourse
financing.
(b) Assume or suffer to exist or otherwise become liable in respect of
any other indebtedness or liability, contingent or otherwise, evidenced by
notes, guarantees, bonds, debentures, or similar obligations, or accept any
deposits or make any loans or advances of any kind, without the prior written
consent of the Bank, other than indebtedness incurred by HRH in connection with
the obtaining of performance and/or surety bonds necessary in the ordinary
course of HRH's business or indebtedness incurred by HRH or Grenadier to enable
it to carry on its day-to-day operations, but in no event shall indebtedness or
liability, contingent or otherwise, for borrowed money be permitted; provided,
however, that Levite Corporation shall not be subject to these prohibitions;
and provided, further, that Starrett shall be permitted to obtain non-recourse
mortgage loans so long as such loan does not exceed the value of the collateral
for such loan; and provided, further, that Starrett may issue guarantees of any
permitted indebtedness of HRH; and provided further, that Starrett may
guarantee loans of project/development related debt of any wholly owned
subsidiary engaged in the development of real property so long as such
guaranteed loan does not exceed the lesser of (i) 75% of the cost of such
development project or (ii) 75% of the appraised value of such development
project; but Starrett may not issue any guarantees of permitted indebtedness of
Levitt Corporation.
(c) Purchase or hold beneficially any stock, other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make any investment to acquire any interest whatsoever in, any other person,
without the prior written consent of the Bank, other than any such investments
existing on the date hereof or any such transaction with any existing or new
wholly owned subsidiary.
(d) Sell, lease, transfer or otherwise dispose of all or a substantial
portion of its properties and assets.
(e) Sell, transfer or otherwise dispose of any ownership interest in
any existing subsidiary.
(f) Declare dividends in excess (on an annual basis) of the net income
after taxes of the entity declaring such dividends other than dividends payable
to any of the entities constituting Borrower.
EVENTS OF DEFAULT
-----------------
In the case of the happening of any of the following events (herein
called "Events of Default"):
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<PAGE> 7
(a) any representation or warranty made herein shall prove to be
false or misleading in any material respect when made or given or when deemed
made or given;
(b) any report, certificate, financial statement or other instrument
furnished in connection with this Note or any borrowing hereunder, shall prove
to be false or misleading in any material respect when deemed made or given;
(c) default shall occur in the payment of the principal of or
interest on or any fees under this Note as and when due and payable;
(d) default shall be made in respect of any other indebtedness of
any entity constituting the Borrower, or any subsidiary of any entity
constituting Borrower, of any kind, to any person, or in the performance of any
other obligation incurred in connection with any such indebtedness, if the
effect of such default is to accelerate the maturity of such indebtedness or to
permit (or, with the giving of notice or lapse of time or both, to permit) the
holder or obligee thereof (or a trustee on behalf of such holder or obligee) to
cause any such indebtedness to become due prior to the stated maturity thereof,
or any such indebtedness shall not be paid when due; provided, however, that
default under any non-recourse indebtedness permitted hereunder shall not be a
default hereunder provided such default is, in Bank's determination, not a
material adverse change for subsidiary;
(e) default shall be made under any contractual obligation of any
entity constituting Borrower, or any subsidiary of any entity constituting
Borrower if such default is, in Bank's determination, a material adverse change
for such entity;
(f) default shall be made in the due observance or performance of
any covenant, condition or agreement of any entity constituting the Borrower to
be observed or performed pursuant to the terms of this Note or any related
document;
(g) any of the entities constituting the Borrower (or any
subsidiary of such entity) shall become insolvent (however such insolvency may
be evidenced) or proceedings are instituted by or against such entity under the
United States Bankruptcy Code or under any bankruptcy, reorganization or
insolvency law or other law for the relief of debtors;
(h) there shall be a material adverse change, in the Bank's
determination, in the financial condition of any of the entities constituting
the Borrower;
then, the Note, and all amounts accrued hereunder shall automatically become
due and payable, both as to principal and interest, without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, anything contained herein to the contrary notwithstanding. In addition
to and not in limitation of any or all rights of offset that the Bank may have
under applicable law, the Bank shall, upon the occurrence of any Event of
Default and whether or not the Bank has made any demand or the Borrower's
obligations are matured, have the right to appropriate and apply to the payment
of the Borrower's obligations hereunder, all deposits (general or special, time
or demand, provisional or final) then or thereafter held by and other
indebtedness or property then or thereafter owing by the Bank, whether or not
related to this Note or any transaction hereunder.
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<PAGE> 8
PREPAYMENT
----------
(a) The Borrower shall have the right (i) at any time and from time
to time to prepay any Prime Rate Loan in full, or in part, without penalty and
(ii) to prepay any LIBOR Loan in full, or in part, on the last day of the
Interest Period relating to such Loan, without penalty. If any LIBOR Loan is
not prepaid, it shall be automatically be converted to a Prime Rate Loan. Any
prepayment of a LIBOR Loan on a day other than the last day of the Interest
Period elating to such Loan shall be in full, and upon at least three (3)
business Days' prior written notice to the Bank, and shall be subject to the
penalty provisions of paragraph (b) of this Section. A notice of prepayment
shall specify the prepayment date (which shall be a Business Day) and the
principal amount to be prepaid, shall be irrevocable and shall commit the
Borrower to prepay the Loan in full on the date and in the amount stated
therein. Each prepayment hereunder shall be accompanied by accrued interest on
the principal amount of the Loan to the date of prepayment.
(b) The Borrower shall reimburse the Bank on demand for any loss
incurred or to be incurred by it in the reemployment of the funds released by
any prepayment of any Loan permitted under this Section. Such loss shall be the
difference as reasonably determined by the Bank between the cost of obtaining
the funds for such Loan and any lesser amount which may be realized by the Bank
in reemploying the funds received in prepayment during the period from the date
of prepayment to the maturity date of the Loan.
DEFINITIONS
-----------
A. ADJUSTED LIBOR RATE
-------------------
"Adjusted LIBOR Rate" shall mean, with respect to any Loan for
an Interest Period, an interest rate per annum equal to the
product of (i) the LIBOR Rate in effect for such Interest Period
and (ii) Statutory Reserves.
"LIBOR Rate" shall mean, with respect to any Loan for any
Interest Period, the rate (rounded upwards, if necessary, to the
next 1.16 of 1%) at which dollar deposits approximately equal in
principal amount to such Loan and for the maturity equal to the
applicable Interest Period are offered by the Bank in
immediately available funds in the London interbank market at
approximately 11:00 a.m., New York City time, three Business
Days prior to the commencement of such Interest Period.
For so long as any Loan hereunder shall bear interest at the
Adjusted LIBOR Rate such Loan shall be deemed a LIBOR Loan.
B. BUSINESS DAY
------------
A "Business Day" shall mean any day other than a Saturday, Sunday or
other day on which the Bank is authorized or required by law or regulation to
close, and which is a day on which transactions in dollar deposits are being
carried out in London.
C. FINAL MATURITY DATE
-------------------
"Final Maturity Date" shall mean November 13, 1996.
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<PAGE> 9
D. INTEREST PAYMENT DATE
"Interest Payment Date" shall mean as to all Loans the first day
of each calendar month.
E. INTEREST PERIOD
"Interest Period" shall mean for each LIBOR Loan, the period
commencing on the date of such Loan or, as appropriate,
commencing on the last day of the immediately preceding Interest
Period for such Loan, and ending on the numerically
corresponding day (or if there is no numerically corresponding
day, the last day) in the calendar month that is 1, 2 or 3
months thereafter, as the Borrower, provided, however, that (i)
if any Interest Period would end on a day which shall not be a
Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, with respect to LIBOR Loans,
such next succeeding Business Day would fall in the next
calendar month, in which case (x) such Interest Period shall end
on the first preceding Business Day and (y) the Interest Period
for any continuation of such LIBOR Loan shall end on the last
Business Day of a calendar month; and (ii) no Interest Period
may be selected that expires later than the Final Maturity
Date.
F. LETTER OF CREDIT MATURITY DATE
May 12, 1997.
G. LOAN
"Loan" shall mean each borrowing by the Borrower pursuant to the
terms hereof.
H. PRIME RATE
"Prime Rate" shall mean the interest rate announced to be in
effect by the Bank from time to time as its prime rate.
I. STATUTORY RESERVES
Statutory Reserves shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the
denominator of which is the number one minus the aggregate of
the maximum reserve percentages, expressed as a decimal
(including, without limitation, any marginal, special,
emergency supplemental reserves) from time to time in effect
under Regulation D or as otherwise established by the board of
Governors of the Federal Reserve System and any other banking
authority to which the Bank is subject for Eurocurrency
Liabilities (as deemed in Regulation D). LIBOR Loans shall be
deemed to constitute Eurocurrency Liabilities and as such shall
be deemed to be subject to such reserve requirements without
benefit of or credit for proration, exceptions or offsets which
may be available from time to time to the Bank under such
Regulation D. Statutory reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve
percentage.
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<PAGE> 10
EXPENSES OF THE BANK
The Borrower will pay all reasonable out-of-pocket expenses incurred by
the Bank in connection with the preparation, amendment or waiver of
this Note (whether or not the transactions hereby contemplated shall be
consummated), the making of the Loans hereunder, the enforcement of the rights
of the Bank in connection with this Note, or with the Loans made hereunder,
and with respect to any action which may be instituted by any person against
the Bank in respect of the foregoing or as a result of any transaction, action
or nonaction arising from the foregoing, including, but not limited to the fees
and disbursements of counsel to the Bank.
WAIVER OF RIGHTS
Neither any failure nor any delay on the part of the Bank in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise of any other right, power or privilege. The Borrower waives any right
it may have to claim or recover in any litigation with respect to this Note any
special, exemplary, punitive or consequential damages or any damages other
than, or in addition to, actual damages. The Borrower (I) certifies that no
representative, agent or attorney of the Bank has represented, expressly or
otherwise, that the Bank would not, in the event of litigation, seek to enforce
the foregoing waivers or the other waivers contained in this Note and (ii)
acknowledges that the Bank has been induced to enter into this Note by, among
other things, the waivers and certifications herein.
JOIN AND SEVERAL LIABILITY
The obligations and liabilities hereunder of the entities constituting.
Borrower are joint and several.
JURISDICTION AND GOVERNING LAW
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS NOTE OR THE LOANS,
THE BORROWER WAIVES THE RIGHT TO A TRIAL BY JURY AND ALL RIGHTS OF SETOFF AND
RIGHTS TO INTERPOSE COUNTER-CLAIMS AND CROSS-CLAIMS. THE BORROWER HEREBY
IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
LOCATED IN THE CITY OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN SUCH CITY
AND STATE IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS NOTE OR THE LOANS. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED IN SUCH STATE, AND SHALL BE BINDING UPON THE SUCCESSORS AND
ASSIGNS OF THE BORROWER AND TO THE BENEFIT OF THE BANK, ITS SUCCESSORS,
ENDORSEES AND ASSIGNS.
STARRETT
CORPORATION
By_____________________________
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<PAGE> 11
HRH CONSTRUCTION
CORPORATION
By_______________________
GRENADIER REALTY CORP.
By_______________________
GRID SCHEDULE
AMOUNT AMOUNT
DATE: TYPE OF OF PRINCIPAL INTEREST MATURITY
LOAN LOAN PREPAID RATE DATE
---- ---- ------- ---- ----
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<PAGE> 12
GUARANTY OF SPECIFIC OBLIGATIONS
November 28, 1995
New York, New York
WHEREAS, GRENADIER REALTY CORP., a New York corporation (hereinafter the
"Borrower") performs various real property management services from time to
time for numerous entities which own real estate and which engage the
Borrower's services from time to time pursuant to specific property management
agreement respecting the properties so managed (each a "Property Owner" and
collectively the "Property Owners"); and
WHEREAS, in connection with the rendition of said services, Borrower has
occasion from time to time to open and maintain an agency capacity on behalf of
each Property Owner various demand deposit accounts with CHEMICAL BANK, a New
York banking corporation (hereinafter the "Bank"), and to request and obtain
certain financial accommodations from the Bank arising therefrom all as more
specifically set forth below; and
WHEREAS, the Borrower is a wholly owned subsidiary of the undersigned and shall
derive a benefit from the extension of those financial accommodations to the
Borrower; and
WHEREAS, the Bank is unwilling to extend such financial accommodations to the
Borrower unless and until it receives, among other things, this guaranty of the
undersigned;
NOW, THEREFORE, in consideration of the premises and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and in order to induce the Bank from time to time to extend, in its sole
discretion, financial accommodations to the Borrower in the form of honoring
overdrafts or other liabilities created from time to time by the Borrower
arising out of or in connection with the establishment and administration of
various demand deposit accounts created from time to time with the Bank by the
Borrower in its agency capacity in connection with the performance of its
property management services for the Property Owners together with any and all
interest and premiums thereon, any and all costs and expenses related thereto,
including without limitation any renewals, extensions or modifications thereof,
any and all costs of collection associated therewith, as well as any reasonable
attorneys fees and expenses incurred in connection therewith (all of the
foregoing are hereinafter collectively called the "Guaranteed Obligations"),
the undersigned hereby guarantees to the Bank the prompt, absolute and
unconditional payment of the Guaranteed Obligations.
In order to further secure the payment of the Guaranteed Obligations,
the undersigned does hereby give the Bank a continuing lien and right of
set-off for the amount of the Guaranteed Obligations upon any and all moneys,
securities and any and all other property of the undersigned and the proceeds
thereof, now or hereafter actually or constructively held or received by or in
transit in any manner to or from the Bank, Chemical Securities, Inc., or any
other affiliate of the Bank from or for the undersigned, whether for
safekeeping, custody, pledge, transmission, collection or otherwise. The Bank
is also given a continuing lien and right of set-off for the amount of said
Guaranteed Obligations upon any and all deposits (general and special) and
credits of, or for the benefit of the undersigned with, and any and all claims
of the undersigned against the Bank, Chemical Securities, Inc., or any other
affiliate of the Bank at any time existing, and the Bank is hereby authorized
at any time or times, without prior notice, to apply such deposits or credits,
or any part thereof, to such Guaranteed Obligations, although said Guaranteed
Obligations may be contingent or unmatured, and whether the collateral security
therefor is deemed adequate or not.
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<PAGE> 13
The undersigned agrees that, with or without notice or demand, the
undersigned shall reimburse the Bank for all Bank expenses (including
reasonable fees of counsel for the Bank who may be employees thereof) incurred
in connection with any of the Guaranteed Obligations or the collection thereof.
This guaranty is a continuing guaranty and shall remain in full force and
effect irrespective of any interruptions in the business relations of the
Borrower with the Bank; provided, however, that the undersigned may by notice
in writing, delivered personally or received by certified mail, return receipt
requested, addressed to the Bank's office at 380 Madison Avenue, New York, New
York 10017, Attention: Real Estate Finance Group, terminate this guaranty with
respect to all Guaranteed Obligations incurred or contracted by the Borrower or
acquired by the Bank after the date on which such notice is so delivered or
received.
All moneys available to the Bank for application in payment or
reduction of the Guaranteed Obligations may be applied by the Bank in such
manner and in such amounts and at such time or times as it may see fit to the
payment or reduction of such of the Guaranteed Obligations as the Bank may
elect.
The undersigned hereby waives (a) notice of acceptance of this guaranty
and of extensions of credit or other financial accommodations by the Bank to
the Borrower; (b) presentment and demand for payment of any of the Guaranteed
Obligations; (c) protest and notice of dishonor or default to the undersigned
or to any other party with respect to any of the Guaranteed Obligations; (d) all
other notices to which the undersigned may otherwise be entitled; and (e) any
demand for payment hereunder.
The undersigned covenants that (a) this guaranty is a valid and binding
obligation of the undersigned enforceable in accordance with its terms; (b) the
execution, delivery and performance of this guaranty will not violate any
provisions of law, regulation, judgment or any other document or agreement to
which the undersigned is a party or by which its assets are bound and (c) no
consent of any other person or entity is required in connection with the
execution, delivery, performance, validity or enforceability of this guaranty.
All liabilities of the undersigned to the Bank hereunder or otherwise,
whether or not then due or absolute or contingent, shall upon notice and demand
become due and payable immediately upon the occurrence of any default or event
of default with respect to any Guaranteed Obligations (or the occurrence of
any other event which results in acceleration of the maturity of any thereof) or
the occurrence of any default hereunder. This is a guaranty of payment and not
of collection, and the undersigned further waives any right to require that any
action be brought against the Borrower or any other person or to require that
resort be had to any security or to any balance of any deposit account or credit
on the books of the Bank in favor of the Borrower or any other person.
The undersigned hereby consents that from time to time, before or after
any default by the Borrower or any notice of termination hereof, with or
without further notice to or assent from the undersigned, any security at any
time held by or available to the Bank for any obligation of the Borrower, by
any security at anytime held by or available to the Bank for any obligation of
any other person secondarily or otherwise liable for any of Guaranteed
Obligations, may be exchanged, surrendered or released and any obligation of
the Borrower, or of any such other person, may be changed, altered, renewed,
extended, continued, surrendered, compromised, waived, discharged or released
in whole or in part (including without limitation any such event resulting from
any insolvency, bankruptcy, reorganization or other similar proceeding
affecting the Borrower or its assets) or any default with respect thereto
waived, and the Bank may fail to set off and may release, in whole or in part,
any balance of any deposit account or credit on the Bank's books in favor of the
Borrower, or of any such other person, and may extend further credit in any
manner whatsoever to the Borrower, and generally deal or take action or no
action with regard to the Borrower or any such security or other person as the
Bank may see fit; and the undersigned shall remain bound under this
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<PAGE> 14
guaranty notwithstanding any such exchange, surrender, release, change,
alteration, renewal, extension, continuance, compromise, waiver, discharge,
inaction, extension or further credit or other dealing.
The obligations of the undersigned are absolute and unconditional and
are valid irrespective of any other agreement or circumstance which might
otherwise constitute a defense to the obligations hereunder or to the
obligations of others related thereto and the undersigned irrevocably waives the
right to assert defenses, set-offs and counterclaims in any litigation relating
to this guaranty and/or the Guaranteed Obligations. This guaranty sets forth the
entire understanding of the parties, and the undersigned acknowledges that no
oral or other agreements, conditions, promises, understandings, representations
or warranties exit in regard to the obligation hereunder, except those
specifically set forth herein.
The undersigned irrevocably waives and shall not seek to enforce or
collect upon any rights which it now has or may acquire against the Borrower,
either by way of subrogation, indemnity, reimbursement or contribution, or any
other similar right, for any amount paid under this guaranty or by way of any
other obligations whatsoever of the Borrower to the undersigned. In the event
either a petition is filed under the Bankruptcy Code in regard to the Borrower
or an action or proceeding is commenced for the benefit of the creditors of the
Borrower, this agreement shall at all times thereafter remain effective in
regard to any payments or other transfers of assets to the Bank received from or
on behalf of the Borrower prior to notice of termination of this guaranty and
which are or may be held voidable or otherwise subject to recision or return on
the grounds of preference, fraudulent conveyance or otherwise, whether or not
the Guaranteed Obligations have been paid in full.
Each reference herein to the Bank shall be deemed to include its
successors and assigns, in which favor the provisions of this guaranty shall
also inure. Each reference herein to the undersigned shall be deemed to include
the successors and assigns of the undersigned, all of whom shall be bound by
the provisions of this guaranty.
No delay on the part of the Bank in exercising any rights hereunder or
failure to exercise the same shall operate as a waiver of such rights; no
notice to or demand on the undersigned shall be deemed to be a waiver of the
obligation of the undersigned or of the right of the Bank to take further
action without notice or demand as provided herein; nor in any event shall any
modification or waiver of the provisions of this guaranty be effective unless
in writing signed by an authorized officer of the Bank nor shall any such waiver
be applicable except in the specific instance for which given.
This guaranty is, and shall be deemed to be, a contract entered into
under and pursuant to the laws of the State of New York and shall be in all
respects governed, construed, applied and enforced in accordance with the laws
of said State; and no defense given or allowed by the laws of any other State
or Country shall be interposed in any action hereon unless such defense is
also given or allowed by the laws of the State of New York.
The undersigned hereby unconditionally WAIVES ANY RIGHT TO JURY TRIAL
in connection with actions by or against the Bank arising out of or in
connection with the Guaranteed Obligations and/or this guaranty.
STARRETT CORP.
Name of Guarantor (Type or Print)
By
---------------------------------
Title: President
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<PAGE> 15
CORPORATE SEAL
STATE OF )
) SS
COUNTY OF )
On this day of 28 day of November, 1995, before me personally came to me known,
who, being by me duly sworn, did depose and say that he/she is of the
corporation described in and which executed the above instrument; that he/she
knows the seal of said corporation, that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he/she signed his name thereto by like order.
Notary Public
Public, State of New York
Qualified In New York County
Commission Expires June 30, 1997
<PAGE> 1
NOTE MODIFICATION AGREEMENT
THIS AGREEMENT dated July 23, 1996 made among STARRETT CORPORATION
("Starrett"), HRH CONSTRUCTION CORPORATION ("HRH") and GRENADIER REALTY CORP.
("Grenadier"), all having an address at 909 Third Avenue, New York, New York
10022 (collectively, the "Borrower") and THE CHASE MANHATTAN BANK, CHEMICAL
BANK, a New York banking corporation, having an office at 380 Madison Avenue,
New York, New York 10017 (the "Lender").
W I T N E S S E T H
WHEREAS, the Lender extended to the Borrower a loan in the principal
amount of $3,000,000 on November 28, 1995 (the "Loan"); and
WHEREAS, the Loan is evidenced by a certain note dated November 28,
1995, as modified by letter agreement dated December 7, 1995 (collectively, the
"Note"); and
WHEREAS, the Borrower and the Lender have agreed to modify certain
provisions of the Note including the Maturity Date thereof
NOW, THEREFORE, in order to restate the terms of the Note, the parties
hereto agree for themselves, their successors and assigns as follows:
1. The Borrower acknowledges, covenants, warrants, represents and
agrees that:
(i) it is indebted under the Note and that there is
currently outstanding thereunder the principal sum of
$2,625,000.00;
(ii) no material adverse change has occurred in its financial
status since the making of the Loan;
(iii) there are no judgments against the Borrower in any
courts of the United States and there is no litigation, active, pending
or threatened, against the Borrower which might adversely affect the
Borrower's ability to pay when due any amounts which may become payable
in respect of the Loan;
(iv) no default, nor event which with notice and/or passage
of time would constitute a default, has occurred and is continuing under
the Note or any of the other instruments executed and delivered to
evidence and/or secure the Loan (collectively, the "Loan Documents") or
under any other note, loan or security agreement to which the Borrower
is a party;
(v) there are no offsets, defenses or counterclaims to the
Borrower's obligations under the Loan and the Loan Documents; and
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<PAGE> 2
(vi) the Borrower has not entered into any agreements with
creditors that expressly or otherwise prohibit the Borrower from
entering into any extension or modification of the Loan or any Loan
Document in connection therewith.
2. In order to amend the terms of the Note, the parties hereto
agree that the Note is hereby amended as follows:
(a) The definition of "Final Maturity Date" is changed from
November 13, 1996 to July 15, 1997.
(b) The definition of "Letter of Credit Maturity Date" is
changed from May 12, 1997 to January 15, 1998.
(c) Borrower agrees to reduce the principal amount
outstanding under the loan to $-0- for at least one period of thirty(30)
consecutive days during any given twelve month period.
(d) Upon the making of any Loan pursuant to the Note and
along with delivery of the financial statements required to be delivered in
accordance with the terms of the Note, Lender shall receive a certificate
executed by the Chief Financial Officer of Starrett, HRH or Grenadier, as the
case may be, that no material adverse change has occurred in their respective
financial conditions, that there is no material pending litigation against
Starrett, HRH, Grenadier or any other subsidiary of any of them, that Starrett,
HRH and Grenadier are in compliance with all of their covenants hereunder, that
all representations and warranties made by any of them continue to be true and
correct as of the date of such certificate and that no events of default have
occurred hereunder or under any document evidencing or relating to any other
indebtedness of any of them.
3. It shall be an Event of Default under the Note if:
(a) any person or entity shall become the beneficial owner
of more than 30% of the outstanding voting stock of Starrett other than any
such individual or entity that owns such voting stock as of the date hereof;
(b) Starrett shall merge into or with any other entity in
whatever manner;
(c) Any entity constituting Borrower shall declare
dividends in excess (on an annual basis) of the lesser of (a) 50% of the net
income after taxes of the entity declaring such dividends; or (b) an amount
equal to the prior year's dividend amount of such entity increased by the
percentage growth in such entity's ordinary net income, in neither instance
taking into account dividends payable to any of the entities constituting
Borrower.
(d) The consolidated stockholders' equity of Starrett shall
fall below $52,00,000.
(e) Levitt shall enter into any loan covenants with any
lender regarding Levitt's ability to declare and pay cash dividends to Starrett
which would reduce any such permitted dividends below the lesser of 25% of
Levitt's consolidated net income or $1,500,000.
4. The Borrower's obligations under this Agreement and the other
Loan Documents are absolute and unconditional and are valid irrespective of any
other agreement or circumstance which might otherwise constitute a defense to
the obligations under this Agreement or the other Loan Documents or to the
obligations of others related
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<PAGE> 3
to it. This Agreement sets forth the entire understanding of the parties with
respect to all modifications of the Loan which have occurred since December 7,
1995.
5. Except as specifically amended herein, all of the terms,
covenants, conditions and stipulations contained in the Note and all of the
other Loan Documents are hereby ratified and confirmed in all respects, shall
continue to apply with full force and effect.
6. Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be modified, amended, changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
7. This Agreement is and shall be deemed to be a contract entered
into pursuant to the laws of the State of New York and shall in all respects be
governed, construed, applied and enforced in accordance with the laws of the
State of New York.
8. This Agreement is binding upon, and shall inure to the benefit
of, the parties hereto and their respective successors and assigns.
9. Nothing in this Agreement or any other Loan Document is
intended to or shall be deemed to create any rights or obligations of
partnership, joint venture, or similar association among the parties hereto.
10. If any term, covenant, provision or condition of this Agreement
or any of the other Loan Documents shall be held to be invalid, illegal or
unenforceable in any respect, this Agreement shall be construed without such
term, covenant, provision or condition.
11. The parties hereto hereby irrevocably and unconditionally waive
any and all rights to trial by jury in any action, suit or counterclaim arising
in connection with, out of or otherwise related to this Agreement, the Note,
and every other Loan Document heretofore, now or hereafter executed and/or
delivered in connection therewith, the Loan and all other obligations of the
Borrower related thereto or in any way related to this transaction.
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<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
STARRETT CORPORATION
By ____________________________
HRH CONSTRUCTION
CORPORATION
By ____________________________
GRENADIER REALTY CORP.
By ____________________________
THE CHASE MANHATTAN BANK
By _____________________________
Vice President
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<PAGE> 1
PROMISSORY NOTE
$1,500,000 New York, New York
July 23, 1996
ON DEMAND, but no later than the Final Maturity Date, for value
received, STARRETT CORPORATION ("STARRETT"), HRH CONSTRUCTION CORPORATION
("HRH") AND GRENADIER REALTY CORP. ("GRENADIER") (collectively, the
"Borrower"), hereby promise to pay to the order of THE CHASE MANHATTAN BANK
(the "Bank") at the office of the Bank at 380 Madison Avenue, New York, New
York, in immediately available funds, the principal amount of ONE MILLION FIVE
HUNDRED THOUSAND DOLLARS ($1,500,000), or such lesser amount as may constitute
the aggregate unpaid principal amount hereunder. The Borrower further promises
to pay interest (computed on the basis of actual number of days elapsed over a
year of 360 days) on each Interest Payment Date at a rate of interest equal to
either the Adjusted LIBO Rate plus 2.00% or the Prime Rate plus .5% (as
recorded on the grid attached hereto) on the unpaid principal amount of each
Loan until such principal amount is paid in full.
The Loan shall be a Prime Rate Loan unless Starrett shall request the
Loan be convened to a LIBOR Loan upon at least three (3) Business Days' prior
written request to the Bank, such request to be made by 11:00 a.m. on the
required day; provided, however, there shall be no LIBOR Loan outstanding if the
principal amount of the Loan outstanding is less than $500,000. If the Borrower
shall not timely notify the Bank that it has selected the Adjusted LIBO Rate
plus 2% for a LIBOR Loan prior to the expiration of the then-current Interest
Period relating to such Loan, then such Loan shall be convened to a Prime Rate
Loan. The Bank is authorized to enter on the attached grid schedule all the
information specified therein relating to the Loan, all of which entries, in
the absence of manifest error, shall be conclusive and binding on the Borrower,
provided that the failure of the Bank to make any such entries shall not
relieve the Borrower from its obligation to pay any amount due hereunder.
INTEREST
(a) A LIBOR Loan shall bear interest, for each Interest
Period, at a rate per annum equal to 2.00% above the Adjusted LIBO
Rate.
(b) A Prime Rate Loan shall bear interest, at the rate per
annum for each day equal to .5% above the Prime Rate.
(c) If the principal indebtedness evidenced hereby is
declared immediately due and payable by the Bank pursuant to the
provisions of this Note, or if the Loan is not paid in full on the
Maturity Date, the Borrower shall thereafter, unless and until such
date, if any, as the Bank may elect, in its sole and absolute
discretion, to waive, in writing, all or any portion of such interest,
pay interest on the principal sum then
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<PAGE> 2
remaining unpaid from the date of such declaration or the Maturity Date,
as the case may be, until the date on which the principal sum then
outstanding is paid in full (whether before or after judgment), at a
rate per annum (calculated for the actual number of days elapsed on the
basis of a 360-day year) equal to the greater of 20% or 5% in excess of
the Prime Rate, provided, however, that such interest rate shall in no
event exceed the maximum interest rate which the Borrower may by law
pay. In addition, if all or any portion of the indebtedness, whether of
principal, interest, additional interest or other sum (if any) payable
under this Note is not paid within ten (10) days after the date on which
it is due, the Borrower shall pay to the Bank on demand an amount equal
to 3% of such unpaid portion as a late payment charge. It is hereby
expressly agreed that such late charge is to compensate the Bank for
costs incurred in connection with the administration of such default,
and does not constitute a penalty.
INCREASED COST
If at any time after the date hereof, the Board of Governors of the
Federal Reserve System or any political subdivision of the United States of
America or any other government, governmental agency or central bank shall
impose or modify any reserve or capital requirement on or in respect of loans
made by or deposits with the Bank or shall impose on the Bank or the
Eurocurrency market any other conditions affecting the Loan, and the result of
the foregoing is to increase the cost to (or, in the case of Regulation D, to
impose a cost on) the Bank of making or maintaining the Loan or to reduce the
amount of any sum receivable by such Bank in respect thereof, by an amount
deemed by the Bank to be material, then, within 30 days after notice and
demand by the Bank, the Borrower shall pay to the Bank such additional amounts
as will compensate the Bank for such increased cost or reduction. A certificate
of the Bank claiming compensation hereunder and setting forth the additional
amounts to be paid to it hereunder and the method by which such amounts were
calculated shall be conclusive in the absence of manifest error.
CAPITAL ADEQUACY
If the Bank shall have determined that the applicability of any law,
rule, regulation or guideline adopted pursuant to or arising out of the July
1988 report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and
Capital Standards", or the adoption after the date hereof of any other law,
rule, regulation or guideline regarding capital adequacy, or any change in any
of the foregoing or in the interpretation or administration of any of the
foregoing by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by the
Bank (or any lending office of the Bank) or the Bank's holding company with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on the Bank's capital or
on the capital of the Bank's holding company, if any, as a consequence of its
obligations hereunder to a level below that which the Bank or the Bank's holding
company could have achieved but for such adoption, change or compliance (taking
into consideration
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<PAGE> 3
the Bank's policies and the policies of such Bank's holding company with
respect to capital adequacy) by an amount deemed by the Bank to be material,
then from time to time the Borrower shall pay to the Bank such additional
amount or amounts as will compensate the Bank or the Bank's holding company for
any such reduction suffered.
INDEMNITY
The Borrower shall indemnify the Bank against (i) any loss or
expense which the Bank may sustain or incur as a consequence of the occurrence
of any Event of Default and (ii) any loss or expense sustained or incurred
including, without limitation, in connection with obtaining, liquidating or
employing deposits from third parties as a consequence of the payment of any
principal of any Loan by the Borrower (pursuant to demand, a default, change in
legality or otherwise) on any day other than the last day of an Interest
Period, or the failure by the Borrower to prepay any Loan or part thereof once
notice has been given. The Bank shall provide to the Borrower a statement,
supported where applicable by documentary evidence, explaining the amount of
any such loss or expense, which statement shall be conclusive absent manifest
error.
CHANGE IN LEGALITY
(a) Notwithstanding anything to the contrary contained
elsewhere in this Note, if any change after the date hereof in any law or
regulation or in the interpretation thereof by any governmental authority
charged with the administration thereof shall make it unlawful (based on the
opinion of any counsel, whether in-house, special or general, for the Bank) for
the Bank to make or maintain any Loan or to give effect to its obligations as
contemplated hereby with respect to any Loan, then, by written notice to the
Borrower by the Bank, the Bank may require that the Loan made by it be
converted to a Prime Rate Loan, whereupon the Loan shall be automatically
converted to a Prime Rate Loan as of the effective date of such notice as
provided in paragraph (b) below. In addition, upon receipt of such notice by
the Bank, the Borrower shall be prohibited from requesting a LIBOR Loan from
the Bank unless such declaration is subsequently withdrawn and the Bank agrees
to withdraw any such declaration if and to the extent that the making and
maintenance by the Bank of its LIBOR Loans shall cease to be unlawful.
(b) For purposes of this Section, a notice to the Borrower
by the Bank pursuant to paragraph (a) above shall be effective, if lawful and
if any Loan shall then be outstanding, on the last day of the then current
Interest Period; otherwise, such notice shall be effective on the date of
receipt by the Borrower.
REPRESENTATIONS AND WARRANTIES
Each entity constituting the Borrower represents and warrants
to the Bank that:
(a) The execution, delivery and performance by it of this
Note and the borrowings hereunder will not violate any indenture, agreement or
other instrument to
87
<PAGE> 4
which it is a party, or by which it or any of its property is bound, and will
not be in conflict with, result in a breach of or constitute (with due notice
and/or lapse of time) a default under, any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of its property or assets other
than as contemplated by this Note.
This Note constitutes the valid and binding obligations of each
such entity enforceable against such entity Borrower in accordance with its
terms. This Note has been duly authorized by all necessary corporate action of
each of the entities constituting the Borrower.
(b) Each of the entities constituting Borrower has heretofore
furnished to the Bank complete financial statements prepared as of December 31,
1995 together with a schedule of contingent liabilities and guaranties. Each
such entity has also furnished to the Bank balance sheets, cash flow statements
(actual and pro forma), projections and other financial documents with respect
to assets and liabilities. Such financial statements and other financial
information and documents are correct and complete and fairly present the
financial condition of such entity as of such date and there has been no
material adverse change in the financial condition of such entity since
December 31, 1995.
(c) Each of the entities constituting Borrower has filed or
caused to be filed all Federal, state and local tax returns which are required
to be filed, and had paid or has caused to be paid all taxes as shown on said
returns or on any assessment received by such entity to the extent that such
taxes have become due.
(d) Each of the entities constituting Borrower has good and
marketable title solely in its name to its material properties and assets
reflected on the financial statements referred to above, and all such
properties and assets are free and clear of mortgages, pledges, liens, charges
and other encumbrances, except any such encumbrances that do not materially
interfere with the use or operation of such property or assets and except as
required or permitted by the provisions hereof or in writing by the Bank.
(e) (i) There are no actions, suits or proceedings (whether or
not purportedly on its behalf) pending or, to its knowledge, threatened
against or affecting any entity constituting Borrower at law or in equity or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which involve any of the transactions contemplated herein or which, if
adversely determined against it would result in any materially adverse change
in its properties or assets or in its condition, financial or otherwise; and
(ii) such entity is not in default with respect to any judgment, writ,
injunction, decree, rule or regulation of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which would have a materially adverse
effect on its condition (financial or otherwise).
(f) Each entity constituting Borrower is not a party to any
agreement or instrument or subject to any judgment, order, writ, injunction,
decree or
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<PAGE> 5
regulation materially and adversely affecting its properties or assets,
operations or condition (financial or otherwise). Such entity is not in default
in any manner which would materially and adversely affect its properties or
assets, or condition (financial or otherwise) in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument to which it is a party.
(g) No part of any proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, (i)
to purchase or to carry margin stock (as defined in Regulation U specified
below) or to extend credit to others for the purpose of purchasing or carrying
margin stock, or to refund indebtedness originally incurred for such purpose, or
(ii) for any purpose which violates or is inconsistent with the provisions of
Regulations G, T, U, or X of the Board of Governors of the Federal Reserve
System.
(h) All of the information which is required to be delivered to the
Bank is correct and accurate.
CONDITIONS OF LENDING
The Bank shall not consider lending hereunder less the following
conditions precedent have been met:
(a) The Bank shall have received this Note duly executed by the
Borrower.
(b) The representations and warranties contained herein shall be
true and correct on and as of the date hereof and no Event of Default or event
which, with the giving of notice or lapse of time or both would constitute an
Event of Default, shall have occurred and be continuing after giving effect to
any requested Loan. The request for the Loan hereunder shall be deemed to be a
representation by the Borrower that the conditions set forth in this paragraph
(c) have been fully complied with as of the date of such request.
(c) The Bank shall have received a certificate executed by the
Chief Financial Officer of Starrett, HRH or Grenadier, as the case may be, that
no material adverse change has occurred in their respective financial
conditions, that there is no material pending litigation against Starrett, HRH,
Grenadier or any other subsidiary of any of them, that Starrett, HRH and
Grenadier are in compliance with all of their covenants hereunder and that no
events of default have occurred hereunder or under any document evidencing or
relating to any other indebtedness of any of them.
(d) The Bank shall have received such other and further information
and documentation as it may require.
(e) All documentation and all matters relating to this Note shall
be satisfactory to the Bank and its counsel.
89
<PAGE> 6
AFFIRMATIVE COVENANTS
Each entity constituting the Borrower covenants and agrees with the
Bank that it will:
(a) Give the Bank prompt written notice of (i) any action, event or
condition which is, or with notice or lapse of time or both, would constitute,
any Event of Default, (ii) any material adverse change in the condition,
financial or otherwise, of the Borrower and (iii) any action, suit or
proceeding at law or in equity which, if adversely determined against the
Borrower on the basis of the allegations and information set forth in the
complaint or other notice of such action, suit or proceeding, or in the
amendments thereof, if any, would materially and adversely affect the
Borrower's properties, assets or condition, financial or otherwise.
(b) As soon as available, but in no event later than 60 days from
the end of each quarter (or, in the case of annual statements, within 110 days
from the end of each fiscal year) deliver to Bank accrual basis financial
statements, including an income statement, balance sheet, statement of cash
flow and schedule of accounts receivable to be collected within the succeeding
12 months (all of the foregoing including not only all entities constituting
Borrower but also Levitt Corporation), certified by the chief financial officer
of Starrett. The Bank shall, at the same time, have received a certificate
executed by the Chief Financial Officer of Starrett, HRH or Grenadier, as the
case may be, that no material adverse change has occurred in their respective
financial conditions, that all representations and warranties made by any of
them herein continue to be true and correct as of the date of such certificate,
that there is no material pending litigation against Starrett, HRH, Grenadier
or any other subsidiary of any of them, that Starrett, HRH and Grenadier are in
compliance with all of their covenants hereunder and that no events of default
have occurred hereunder or under any document evidencing or relating to any
other indebtedness of any of them.
(c) Deliver to Bank copies of all registration statements and any
amendments filed with the Securities and Exchange Commission and all quarterly
and annual reports, registrations statements and all other material filings
with the Securities and Exchange Commission or any national securities exchange
within 15 days after delivery to the Securities and Exchange Commission.
Starrett shall also cause all reports or written information sent to the
shareholders of Starrett to be promptly delivered to Bank.
(d) In the event of a sale by Starrett of any of its development
rights with respect to the Gateway Estates property in Brooklyn, New York,
Starrett shall pay to the Bank, in reduction of the principal amount of the
Loan then outstanding, 50% of the proceeds of such sale which exceed $3,000,000.
NEGATIVE COVENANTS
Each entity constituting the Borrower covenants and agrees with the
Bank that it will not, and it will not permit any subsidiary to, directly or
indirectly:
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<PAGE> 7
(a) Incur, create, assume or suffer to exist any mortgage, pledge,
lien, charge or other encumbrance of any nature whatsoever (including
conditional sales or other title retention agreements except relating to
purchases of equipment or supplies made in the ordinary course of business) on
any of its assets now or hereafter owned, without the prior written consent of
the Bank; provided, however, that Levitt Corporation shall not be subject to
these prohibitions; and provided, further, that Starrett or any of its
subsidiaries (except Grenadier) may place non-recourse mortgages on its real
property in connection with any permitted non-recourse financing.
(b) Assume or suffer to exist or otherwise become liable in respect of
any other indebtedness or liability, contingent or otherwise, evidenced by
notes, guarantees, bonds, debentures, or similar obligations, or accept any
deposits or make any loans or advances of any kind, without the prior written
consent of the Bank, other than indebtedness incurred by HRH in connection with
the obtaining of performance and/or surety bonds necessary in the ordinary
course of HRH's business or indebtedness incurred by HRH or Grenadier to enable
it to carry on its day-to-day operations, but in no event shall indebtedness or
liability, contingent or otherwise, for borrowed money be permitted; provided,
however, that Levitt Corporation shall not be subject to these prohibitions;
and provided, further, that Starrett or any of its subsidiaries (except
Grenadier) shall be permitted to obtain non-recourse mortgage loans so long as
such loan does not exceed the value of the collateral for such loan; and
provided, further, that Starrett may issue guarantees of any permitted
indebtedness of HRH; and provided further, that Starrett may guarantee loans of
project/development related debt of any wholly owned subsidiary engaged in the
development of real property so long as such guaranteed loan does not exceed
the lesser of (i) 75% of the cost of such development project or (ii) 75% of
the appraised value of such development project; but Starrett may not issue any
guarantees of permitted indebtedness of Levitt Corporation.
(c) Purchase or hold beneficially any stock, other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make any investment to acquire any interest whatsoever in, any other person,
without the prior written consent of the Bank, other than any such investments
existing on the date thereof or any such transaction with any existing or new
wholly owned subsidiary.
(d) Sell, lease, transfer or otherwise dispose of all or a substantial
portion of its properties and assets or merge with or into any other entity in
whatever manner.
(e) Sell, transfer or otherwise dispose of any ownership interest in
any existing subsidiary.
(f) Declare dividends in excess (on an annual basis) of the lesser of
(a) 50% of the net income after taxes of the entity declaring such dividends;
or (b) an amount equal to the prior year's dividend amount of such entity
increased by the percentage growth in such entity's ordinary net income, in
neither instance taking into account dividends payable to any of the entities
constituting Borrower.
91
<PAGE> 8
(g) Allow the consolidated stockholders' equity of Starrett to fall
below $52,000,000.
(h) Allow Levitt to enter into any loan covenants with any lender
regarding Levitt's ability to declare and pay cash dividends to Starrett which
would reduce any such permitted dividends below the lesser of 25% of Levitt's
consolidated net income or $1,500,000.
EVENTS OF DEFAULT
In the case of the happening of any of the following events (herein
called "Events of Default"):
(a) any representation or warranty made herein shall prove to be false
or misleading in any material respect when made or given or when deemed made
or given;
(b) any report, certificate, financial statement or other instrument
furnished in connection with this Note or any borrowing hereunder, shall prove
to be false or misleading in any material respect when deemed made or given;
(c) default shall occur in the payment of the principal of or interest
on or any fees under this Note as and when due and payable;
(d) default shall be made in respect of any other indebtedness of any
entity constituting the Borrower, or any subsidiary of any entity constituting
Borrower, of any kind, to any person, or in the performance of any other
obligation incurred in connection with any such indebtedness, if the effect of
such default is to accelerate the maturity of such indebtedness or to permit
(or, with the giving of notice or lapse of time or both, to permit) the holder
or obligee thereof (or a trustee on behalf of such holder or obligee) to cause
any such indebtedness to become due prior to the stated maturity thereof, or
any such indebtedness shall not be paid when due; provided, however, that
default under any non-recourse indebtedness permitted hereunder shall not be a
default hereunder provided such default is, in Bank's determination, not a
material adverse change for such entity;
(e) default shall be made under any contractual obligation of any
entity constituting Borrower, or any subsidiary of any entity constituting
Borrower if such default is, in Bank's determination, a material adverse change
for such entity;
(f) default shall be made in the due observance or performance of any
covenant, condition or agreement of any entity constituting the Borrower to be
observed or performed pursuant to the terms of this Note or any related
document;
(g) any of the entities constituting the Borrower (or any subsidiary of
such entity) shall become insolvent (however such insolvency may be evidenced)
or proceedings are instituted by or against such entity under the United States
Bankruptcy Code
92
<PAGE> 9
or under any bankruptcy, reorganization or insolvency law or other law for the
relief of debtors;
(h) there shall be a material adverse change, in the Bank's
determination, in the financial condition of any of the entities constituting
the Borrower;
(i) any person or entity shall become the beneficial owner
of more than 30% of the outstanding voting stock of Starrett other than any such
individual or entity that owns such voting stock as of the date hereof;
(j) Starrett shall merge into or with any other entity in
whatever manner;
then, the Note, and all amounts accrued hereunder shall automatically become
due and payable, both as to principal and interest, without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, anything contained herein to the contrary notwithstanding. In addition
to and not in limitation of any or all rights of offset that the Bank may have
under applicable law, the Bank shall, upon the occurrence of any Event of
Default and whether or not the Bank has made any demand or the Borrower's
obligations are matured, have the right to appropriate and apply to the
payment of the Borrower's obligations hereunder, all deposits (general or
special, time or demand, provisional or final) then or thereafter held by and
other indebtedness or property then or thereafter owing by the Bank, whether or
not related to this Note or any transaction hereunder.
PREPAYMENT
(a) The Borrower shall pay, in reduction of the principal
amount of the Loan, the amount of $100,000 commencing on September 15, 1997.
The Borrower shall have the right (i) at any time and from time to time to
prepay any Prime Rate Loan in full, or in part, without penalty and (ii) to
prepay any LIBOR Loan in full, or in part, on the last day of the Interest
Period relating to such Loan, without penalty. If any LIBOR Loan is not
prepaid, it shall be automatically be converted to a Prime Rate Loan. Any
prepayment of a LIBOR Loan on a day other than the last day of the Interest
Period relating to such Loan shall be in full, and upon at least three (3)
Business Days' prior written notice to the Bank, and shall be subject to the
penalty provisions of paragraph (b) of this Section. A notice of prepayment
shall specify the prepayment date (which shall be a Business Day) and the
principal amount to be prepaid, shall be irrevocable and shall commit the
Borrower to prepay the Loan in full on the date and in the amount stated
therein. Each prepayment hereunder shall be accompanied by accrued interest on
the principal amount of the Loan to the date of prepayment. Amounts prepaid may
not be reborrowed.
(b) The Borrower shall reimburse the Bank on demand for any
loss incurred or to be incurred by it in the reemployment of the funds released
by any prepayment of any Loan permitted under this Section. Such loss shall be
the difference as reasonably determined by the Bank between the cost of
obtaining the funds for such Loan and any lesser
93
<PAGE> 10
amount which may be realized by the Bank in reemploying the funds received in
prepayment during the period from the date of prepayment to the maturity date
of the Loan.
DEFINITIONS
A. ADJUSTED LIBO RATE
"Adjusted LIBO Rate" shall mean, with respect to any Loan for
any Interest Period, an interest rate per annum equal to the
product of (i) the LIBO Rate in effect for such Interest Period
and (ii) Statutory Reserves.
"LIBO Rate" shall mean, with respect to any Loan for any
Interest Period, the rate (rounded upwards, if necessary, to the
next 1/16 of 1%) at which dollar deposits approximately equal in
principal amount to such Loan and for the maturity equal to the
applicable Interest Period are offered by the Bank in
immediately available funds in the London interbank market at
approximately 11:00 a.m., New York City time, three Business
Days prior to the commencement of such Interest Period.
For so long as any Loan hereunder shall bear interest at the
Adjusted LIBO Rate such Loan shall be deemed a LIBOR Loan.
B. BUSINESS DAY
A "Business Day" shall mean any day other than a Saturday,
Sunday or other day on which the Bank is authorized or required
by law or regulation to close, and which is a day on which
transactions in dollar deposits are being carried out in London.
C. FINAL MATURITY DATE
"Final Maturity Date" shall mean February 15, 1998.
D. INTEREST PAYMENT DATE
"Interest Payment Date" shall mean the first day of each
calendar month.
E. INTEREST PERIOD
"Interest Period" shall mean for each LIBOR Loan, the period
commencing on the date of such Loan or, as appropriate,
commencing on the last day of the immediately preceding Interest
Period for such Loan, and ending on the numerically
corresponding day (or if there is
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<PAGE> 11
no numerically corresponding day, the last day) in the calendar
month that is 1, 2 or 3 months thereafter, as the Borrower,
provided, however, that (i) if any Interest Period would end on
a day which shall not be a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless,
with respect to a LIBOR Loan, such next succeeding Business Day
would fall in the next calendar month, in which case (x) such
Interest Period shall end on the first preceding Business Day
and (y) the Interest Period for any continuation of such LIBOR
Loan shall end on the last Business Day of a calendar month; and
(ii) no Interest Period may be selected that begins earlier than
August 15, 1996 nor expires later than the Final Maturity Date.
F. LOAN
"Loan" shall mean the borrowing by the Borrower pursuant to the
terms hereof.
G. PRIME RATE
"Prime Rate" shall mean the interest rate announced to be in
effect by the Bank from time to time as its prime rate.
H. STATUTORY RESERVES
Statutory Reserves shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the
denominator of which is the number one minus the aggregate of
the maximum reserve percentages, expressed as a decimal
(including, without limitation, any marginal, special, emergency
or supplemental reserves) from time to time in effect under
Regulation D or as otherwise established by the Board of
Governors of the Federal Reserve System and any other banking
authority to which the Bank is subject for Eurocurrency
Liabilities (as defined in Regulation D). A LIBOR Loan shall be
deemed to constitute Eurocurrency Liabilities and as such shall
be deemed to be subject to such reserve requirements without
benefit of or credit for proration, exceptions or offsets which
may be available from time to time to the Bank under such
Regulation D. Statutory Reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve
percentage.
EXPENSES OF THE BANK
The Borrower will pay all reasonable out-of-pocket expenses incurred by
the Bank in connection with the preparation, amendment or waiver of this Note
(whether or not the transactions hereby contemplated shall be consummated), the
making of the Loan
95
<PAGE> 12
hereunder, the enforcement of the rights of the Bank in connection with this
Note, or with the Loan made hereunder, and with respect to any action which may
be instituted by any person against the Bank in respect of the foregoing or as a
result of any transaction, action or nonaction arising from the foregoing,
including, but not limited to the fees and disbursements of counsel to the Bank.
WAIVER OF RIGHTS
Neither any failure nor any delay on the part of the Bank in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise of any other right, power or privilege. The Borrower waivers any right
it may have to claim or recover in any litigation with respect to this Note any
special, exemplary, punitive or consequential damages or any damages other
than, or in addition to, actual damages. The Borrower (i) certifies that no
representative, agent or attorney of the Bank has represented, expressly or
otherwise, that the Bank would not, in the event of litigation, seek to enforce
the foregoing waivers or the other waivers contained in this Note and (ii)
acknowledges that the Bank has been induced to enter into this Note by, among
other things, the waivers and certifications herein.
JOINT AND SEVERAL LIABILITY
The obligations and liabilities hereunder of the entities constituting
Borrower are joint and several.
JURISDICTION AND GOVERNING LAW
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS NOTE OR THE LOAN, THE
BORROWER WAIVES THE RIGHT TO A TRIAL BY JURY AND ALL RIGHTS OF SETOFF AND RIGHTS
TO INTERPOSE COUNTER-CLAIMS AND CROSS-CLAIMS. THE BORROWER HEREBY IRREVOCABLY
CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN
THE CITY OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN SUCH CITY AND STATE IN
CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE
OR THE LOAN. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
IN SUCH STATE, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF THE
BORROWER AND INURE TO THE BENEFIT OF THE BANK, ITS SUCCESSORS, ENDORSEES AND
ASSIGNS.
STARRETT CORPORATION
By
---------------------------
President
96
<PAGE> 13
HRH CONSTRUCTION
CORPORATION
By
------------------------
Executive Vice President
GRENADIER REALTY CORP.
By
------------------------
Chief Executive Officer
97
<PAGE> 14
GRID SCHEDULE
AMOUNT AMOUNT OF
TYPE OF OF PRINCIPAL INTEREST MATURITY
DATE LOAN LOAN REPAID RATE DATE
- ---- ------- ------ --------- -------- --------
98
<PAGE> 1
EXHIBIT A
STATEMENT CORPORATION AND SUBSIDIARIES
EXHIBIT SETTING FORTH THE COMPUTATION OF PRIMARY
EARNINGS PER SHARE INFORMATION
(Dollars and number of shares in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended Demcember 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Common shares used in computing
per share...................... 6,261 6,261 6,261
------ ------ ------
Net Income...................... $4,355 $7,365 $6,159
====== ====== ======
Earnings per common share....... $.70 $1.18 $.98
====== ====== ======
</TABLE>
99
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
There are no accounting changes for the year ended December 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,662,000
<SECURITIES> 4,487,000
<RECEIVABLES> 38,118,000
<ALLOWANCES> 476,000
<INVENTORY> 91,034,000
<CURRENT-ASSETS> 129,672,000
<PP&E> 12,649,000
<DEPRECIATION> 8,724,000
<TOTAL-ASSETS> 166,972,000
<CURRENT-LIABILITIES> 46,407,000
<BONDS> 53,030,000
0
0
<COMMON> 6,566,000
<OTHER-SE> 48,628,000
<TOTAL-LIABILITY-AND-EQUITY> 166,972,000
<SALES> 164,168,000
<TOTAL-REVENUES> 167,282,000
<CGS> 0
<TOTAL-COSTS> 100,285,000
<OTHER-EXPENSES> 56,381,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 415,000
<INCOME-PRETAX> 10,201,000
<INCOME-TAX> 5,846,000
<INCOME-CONTINUING> 4,355,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,355,000
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
