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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,1995
Commission file number: 0-25780
PRESIDIO CAPITAL CORP.
(Exact name of registrant as specified in its charter)
British Virgin Islands N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Hemisphere Management (Cayman) Limited
Zephyr House, Mary Street, Grand Cayman,
Cayman Islands, British West Indies N/A
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (809) 295-9166
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value US $.01 per share None
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(Title of each class) (Name of each exchange
on which registered)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the last practicable date:
As of March 1, 1996, there were 8,766,569 Class A Common Shares, U.S.
$.01 par value, outstanding.
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<PAGE>
TABLE OF CONTENTS
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Item
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PART I. 1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II. 5. Market for the Registrant's Common Stock and
Related Stockholder Matters
6. Selected Consolidated Financial Data
7. Management's Discussion and Analysis of Financial Condition
and Liquidation Activities
8. Financial Statements and Supplemental Data
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III. 10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
PART IV. 14. Financial Statements, Exhibits, and Reports on Form 8-K
SIGNATURES
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The statements contained in this Annual Report on Form 10-K which are
not historical or current may contain forward-looking statements that involve
risks and uncertainties, including, but not limited to, business conditions and
growth in the general economy, and the ability of the Company to effectively
manage its operating businesses and to liquidate its assets.
PART I
Item 1. BUSINESS.
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General
Presidio Capital Corp. ("Presidio") and its subsidiaries (collectively,
the "Company") are engaged in the sale, liquidation or other disposition of the
assets (the "Acquired Assets") of Integrated Resources, Inc. ("Integrated"),
title or rights to which were acquired by the Company pursuant to the Sixth
Amended Plan of Reorganization Submitted by the Steinhardt Group and the
Official Committee of Subordinated Bondholders, as amended (the "Plan"),(1)
confirmed August 8, 1994 in Integrated's Chapter 11 reorganization case. The
Acquired Assets include deferred origination fees, installment obligations and
other indebtedness owed by various real estate investment or "net lease"
partnerships to the Company under written agreements ("Contract Rights") and
various operating businesses, real estate and other assets.
The Company is managed by Presidio Management Company, LLC ("Presidio
Management"), a limited liability company and Steinhardt Management Company,
Inc. ("Steinhardt Management"), and is administered by Wexford Management LLC, a
Connecticut limited liability company ("Wexford") as successor to Wexford
Management Corp., formerly Concurrency Management Corp., a Delaware corporation
("Concurrency"). In this Form 10-K, unless the context otherwise requires, all
references to "Wexford" for periods prior to such assignment shall refer to
Concurrency and for periods subsequent to such assignment shall refer to
Wexford. Presidio and its non-U.S. subsidiaries are administered offshore by
Hemisphere Management (Cayman) Limited ("Hemisphere"). See "Material Agreements
and Instruments" and "Certain Relationships and Related Transactions."
Background
Presidio was organized on August 29, 1994, in the British Virgin
Islands under The International Business Companies Act (Cap. 291). In connection
with the Plan, Integrated(2) transferred to the Company title and rights to the
Acquired Assets and the Company assumed certain of Integrated's obligations
effective November 3, 1994 (the "Consummation Date"). Pursuant to the Plan,
Presidio controls and is entitled to the remaining assets of Integrated that
were not transferred to the Company or any other party on the Consummation Date.
Such assets were not transferred due to restrictions on their transferability;
however, the United States Bankruptcy Court, Southern District of New York,
ordered control of such assets to be placed with Presidio pursuant to the order
that confirmed the Plan.
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(1) The Plan includes certain pre-confirmation modifications and amendments
which are filed as exhibits to this Form 10-K.
(2) Pursuant to Article 3 of Regulation S-X, Integrated is considered to be the
predecessor of Presidio.
<PAGE>
The following summarizes the material events relating to the Company
which occurred pursuant to the Plan on the Consummation Date:
(i) an asset purchase agreement, dated as of May 5, 1994 (as
amended, the "Asset Purchase Agreement") was consummated
pursuant to which Presidio acquired, directly or indirectly,
from Integrated the Acquired Assets;
(ii) holders of allowed and disputed Integrated senior general
unsecured and subordinated claims (aggregating approximately
$1.9 billion) received Presidio's 8.8 million Class A Common
Shares, U.S. $.01 par value ("Class A Shares"), and 8.8
million shares of the common stock of XRC Corp., a Delaware
corporation which succeeded to assets of Integrated with a net
value of less than $5 million pursuant to the Plan ("XRC
Corp.");
(iii) IR Partners,(3) contributed approximately $35.8 million to the
Company for the purchase of the Acquired Assets and the
funding of the Plan. In consideration therefor, Presidio
issued to IR Partners 1.2 million of its Class B Common
Shares, U.S.$.01 par value ("Class B Shares"), representing a
12% economic interest in Presidio. See "Security Ownership of
Certain Beneficial Owners and Management";
(iv) a reserve for disputed claims in the Integrated case was
established and funded by Presidio with $46 million in cash
and 162,932 Class A Shares. At December 31, 1995 approximately
$7 million in cash and 47,081 shares remained in reserve. See
"Management's Discussion and Analysis of Financial Condition
and Liquidation Activities";
(v) Presidio made payments of $23.1 million in the aggregate for
the consummation of an agreement of settlement (the "B&S
Settlement Agreement") relating to 47 lawsuits (including six
class action suits) brought by various investors in
partnerships syndicated by Integrated (the "B&S Actions"). See
"Material Agreements and Instruments";
(vi) Presidio's Board of Directors was increased to five members
and classified into two classes by the addition of three
directors appointed by the Integrated creditors' committees
(the "Class A Directors") and Presidio issued 4,550 Class A
Shares to each of its then Class A Directors; and
(vii) Presidio entered into the various agreements described under
"Material Agreements and Instruments" below.
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(3) IR Partners is a general partnership whose general partners are Steinhardt
Management, certain of its affiliates and accounts managed by it and
Roundhill Associates, L.P. ("Roundhill Associates"). Roundhill Associates
is a limited partnership whose general partner is Charles E. Davidson, the
principal of Presidio Management and the Chairman of the Board of Both
Presidio and Wexford. Joseph M. Jacobs, the President and Chief Executive
Officer of Presidio and the President of Wexford, has a limited partner's
interest in Roundhill Associates. Robert Holtz, a Vice-President of
Presidio and a Senior Vice-President of Wexford, also has a limited
partner's interest in Roundhill.
<PAGE>
Description of Assets of the Company
Set forth below is a description of the Company's assets, together with
the principal strategies that the Company currently plans to use to liquidate
such assets. The description of the Company's assets has been divided into four
major categories: Contract Rights, Operating Businesses, Real Estate and Other
Assets.
Contract Rights.(4)
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The Contract Rights evidence deferred origination fees and contract
right obligations owed in connection with Integrated's (or its affiliates')
organization and syndication, from 1978 to 1985, of more than 100 privately
offered net lease partnerships (the "Partnerships"). The Partnerships invested
in commercial real estate leased primarily to investment grade tenants under
long-term, "triple net" leases. The leases generally provide for 25-year primary
terms and tenant renewal options for additional periods aggregating up to 30
years. The leases are generally non-cancelable except in certain limited
circumstances.
These Partnerships were originally organized by Integrated or its
affiliates for the purpose of investing in commercial properties. When these
Partnerships were originally organized and funded, Integrated (or one or more of
its affiliates) became entitled by agreement to receive certain syndication fees
and other compensation from the Partnerships in consideration of the various
financial and other services which Integrated (or its affiliates) had rendered
to the Partnerships, as well as in exchange for providing the Partnerships with
the opportunity to purchase the properties.
The term of the agreements evidencing the Contract Rights is typically
40 years. The Contract Rights generally provide for the accrual of simple
interest during the entire lease term. Most of the existing agreements also
provide for the complete amortization of the principal amount of the Contract
Right obligation over the primary and renewal terms of the underlying leases. In
general, no payments of principal or interest are to be made on account of a
Contract Right during the first 15 years of the primary lease term, although
interest will accrue, on a non-compounded basis, during that time. A portion of
the accrued interest is to be paid during the balance of the primary lease term
and, generally, the remaining Contract Right obligations are to be paid during
the renewal lease terms.
CONTRACT RIGHT MODIFICATION. Pursuant to the Agreement to Modify
Contract Right Agreements (the "Modification Agreement"), dated as of September
29, 1994, and amended on October 20, 1995, among Presidio and substantially all
of the Partnerships, modifications were made in various ways which intended to
make the Contract Rights more readily saleable and/or financeable.
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(4) The discussion contained herein describes a typical Contract Right. Some of
the individual Contract Rights held by the Company differ in certain
respects. The Company, however, believes that such differences, in the
aggregate, are not material.
<PAGE>
Among other things, the Modification Agreement provided for (i) the
restatement of the Contract Rights as negotiable promissory notes in order to
better evidence the existing Contract Right obligations and provide a more
definitive payment schedule, (ii) the delivery of subordinate mortgages or
negative pledges in order to secure the Partnerships' obligations under such
negotiable promissory notes, (iii) the introduction of a paying agent in order
to collect monies payable by tenants under leases in excess of amounts required
to service existing first mortgage indebtedness, thereby protecting against the
diversion of such monies by the Partnerships, (iv) the delivery of certain
estoppels and other certificates by the Partnerships and various tenants,
superior mortgagees and ground lessors in order to provide the Company with more
detailed information regarding the Partnership, the tenant, the property and
existing operating leases and (v) payments made by the Company at closing of
approximately $5.7 million in the aggregate for the purchase of such
modifications from the Partnerships and (vi) payments of all legal expenses
incurred by the Partnerships. In addition, the Contract Right modification
documents restricts the Partnerships' ability to refinance equity out of the
properties by limiting the aggregate amount of mortgage indebtedness which can
be senior to the Contract Right mortgage.
SECURITIZATION AND RELATED TRANSACTIONS. In a private securitization
transaction completed on March 28, 1996 (the "Closing Date"), the Company sold
117 of the 123 Contract Rights owned directly or indirectly by the Company. Such
securitized transaction, which was unanimously approved by Presidio's Board of
Directors, yielded proceeds before expenses and reserves of approximately $233
million, approximately $205 million of which has been distributed to Presidio or
one of its subsidiaries. The following describes the structure of such
securitization.
SECURITIZATION. On the Closing Date, Presidio CR Holdings, L.P. (the
"Seller"), a limited partnership that is indirectly wholly-owned by Presidio,
Presidio and Integrated Resources Life Companies Inc., a wholly-owned subsidiary
of Presidio ("IRL" and, with Presidio, the "Affiliated Sellers"), sold all of
their right, title and interest in 117 Contract Rights to the Contract Right
Grantor Trust (the "Grantor Trust"), formed pursuant to a Grantor Trust
Agreement, dated as of January 1, 1996, as amended and restated by the Amended
and Restated Grantor Trust Agreement (the "Grantor Trust Agreement"), dated as
of January 1, 1996, among the Seller, the Affiliated Sellers, Bankers Trust
Company, as servicer and Union Bank, as trustee (the "Grantor Trust Trustee").
The Grantor Trust issued a certificate (the "Grantor Trust T-1 Certificate") to
a trust (the "Trust") formed pursuant to a Pooling Agreement, dated as of
January 1, 1996, among the Grantor Trust, acting through the Grantor Trust
Trustee, as depositor, Bankers Trust Company, as servicer, and The First
National Bank of Chicago, as trustee in exchange for the Certificates (as
defined below).
The Grantor Trust also issued a second certificate and certain related
assets (the "Grantor Trust T-2 Certificate") to T-Two Partners, L.P., a Delaware
limited partnership (the "T-2 Holder"), in exchange for approximately $20
million in cash and the assumption of certain liabilities. The Grantor Trust T-1
Certificate evidences the interest of the Trust in the Contract Rights
transferred to the Grantor Trust, and are secured by substantially all of the
payment stream from the primary term of such Contract Rights. The Grantor Trust
T-2 Certificate evidences the balance of all payments on such Contract Rights as
well as the six other Contract Rights sold directly to the Grantor Trust.
Payments made in respect of the Grantor Trust T-2 Certificate will be deposited
in a reserve fund as security for the T-2 Holder's obligation to indemnify the
Trust against losses on the Contract Rights.
The Trust consists, among other things, of all the right, title and
interest arising from and in connection with the Grantor Trust T-1 Certificate.
A "real estate mortgage investment conduit" ("REMIC") election has been made in
connection with certain assets of the Trust for U.S. Federal income tax
purposes. The Trust issued five classes of certificates: the Class A-1
Certificates, the Class B-1 Certificates, the Class C-1 Certificates and the
Class D-1 Certificates (collectively, the "Offered Certificates") and the Class
R Certificates (collectively, with the Offered Certificates, the
"Certificates"). The Class R Certificates transferred to a new corporation
affiliated with the T-2 Holder, T-Two Corp.
Upon the transfer of the Certificates to the Grantor Trust in exchange
for the Grantor Trust T-1 Certificate, the Grantor Trust sold the Offered
Certificates to Bear, Stearns & Co. Inc. ("Bear Stearns") in a private
placement, which Bear Stearns, in turn, intended to sell in transactions
pursuant to Rule 144A under the Securities Act. The Grantor Trust applied
substantially all of the proceeds from the sale of the Offered Certificates as
the purchase price for the Contract Rights.
PRESIDIO LOAN. On the Closing Date, Presidio loaned $31.5 million to
Roundhill Associates L.P. and Roundhill Associates II L.P., both Connecticut
limited partnerships (collectively, the "T-2 Organizers"). Charles E. Davidson,
Chairman of the Company, is the managing general partner with a 50 percent
partnership interest in each of the T-2 Organizers, Joseph M. Jacobs, President
of the Company, is the limited partner with a 45 percent partnership interest in
each of the T-2 Organizers and Robert Holtz, Vice President of the Company, has
the remaining 5% limited partnership interest in the T-2 Organizers. Such loan
(i) is obligated to be repaid on the completion of the rights offering discussed
below but no later than March 28, 1999, (ii) bears interest payable on the
payment of principal at the rate of 25% per annum and (iii) is secured by a
pledge of 100% of the membership interests in a newly-formed limited liability
company ("T-2 LLC").
CAPITALIZATION OF T-2 LLC. In order to capitalize T-2 LLC, the T-2
Organizers contributed the entire $31.5 million loan from Presidio to T-2 LLC in
exchange for 100% of the membership interests of T-2 LLC. T-2 LLC contributed
$20.0 million of such amount to the T-2 Holder in exchange for all of the T-2
Holder's limited partnership interest (which constitutes 99% of the T-2 Holder's
partnership interests) and $9.9 million to T-Two Corp. in exchange for 99% of
the Common Stock of T-Two Corp. The capital contribution to (i) the T-2 Holder
was used to fund its purchase of the T-Two Certificate and related assets, as
well as for working capital purposes and (ii) T-Two Corp. will be used to fund
T-Two Corp.'s tax liabilities and working capital. T-2 LLC retained the balance
of such funds for working capital purposes.
RIGHTS OFFERING. Pursuant to the Rights Offering Agreement, dated as of
March 19, 1996, among T-2 LLC, Presidio and the T-2 Organizers, T-2 LLC will
conduct a rights offering as soon as practicable, which Presidio believes may
not occur until early 1997. Until the rights offering is completed, the T-2 LLC
is precluded from making any distributions to its members. The rights offering
will be an offering of transferable rights to purchase the equivalent of 100% of
the membership interests in T-2 LLC. The rights offering will be made to the
holders of Presidio common stock at an exercise price and on such terms as are
approved by a majority of the Class A Directors, except that interests in T-2
LLC may only be held by U.S. persons. Pursuant to the Rights Offering Agreement,
the T-2 Organizers will sell their membership interest to T-2 LLC upon
completion of the rights offering to the extent that the rights issued in the
rights offering are subscribed and will receive out of the proceeds of the
rights offering in exchange for an amount equal to the following: (i) the
purchase price for such interests, (ii) their interest payments on the $31.5
million loan from Presidio, (iii) their net tax liability as a consequence of
owning the interests being sold, computed based upon the marginal effective tax
rates of the individual partners of the T-2 Organizers, minus 12% of the losses,
if any, recognized by them as a consequence of their ownership of such interest
plus (iv) $50,000 representing the anticipated out-of-pocket expenses of the
affiliates of the T-2 Organizers in maintaining their investments through
certain entities in the T-2 Holders (as described below) in a manner that was
designed to facilitate the completion of the Contract Rights securitization.
T-TWO STRUCTURE. The general partner of the T-2 Holder is a limited
partnership, T-Two General, L.P. ("T-2 GP"), the 1% corporate general partner of
which is owned by Messrs. Davidson and Jacobs and the 99% limited partnership
interests of which is owned by Joseph Jacobs. Such limited partnership interests
may later be sold to individual retirement accounts of Messrs. Davidson and
Jacobs. T-2 Holder and another affiliate of Messrs. Davidson and Jacobs, CD/JJ,
LLC, are required to ensure that they make contributions to T-2 LLC and its
related entities in the same aggregate amount that a 1% interest holder in T-2
LLC would have to make to acquire and retain a 1% interest in T-2 LLC. CD/JJ,
LLC acquired a 1% interest in T-Two Corp. which, as noted above, is the holder
of the residual Certificate issued in the Contract Rights securitization. As of
March 31, 1996, T-2 GP and CD/JJ, LLC had made aggregate contributions to the
T-Two Holder and to T-Two Corp. of approximately $303,000.
Operating Businesses.
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The Company holds interests in several partnerships which have invested
in operating businesses. The Company and Presidio Management have been working
closely with existing management in order to maximize value consistent with the
Company's fiduciary obligations to the limited partners of such partnerships.
CABLE INTERESTS. The Company acquired Integrated's interests in six
limited partnerships which solely invested in cable television systems. Of these
six partnerships, five have sold substantially all of their cable system assets
and have distributed the majority of the funds received to their respective
partners. The balance of funds remaining in four of the partnerships are being
held in reserve to cover any additional contingent liabilities of such
partnerships. These liabilities include potential taxes, professional fees,
closing costs and settlement of partnership litigation relating to the sales of
the partnerships' assets. The Company is awaiting final distribution with
respect to one of the partnerships (ACT IV) for which distribution is
anticipated to be approximately $2.4 million.
During the first quarter of 1995, the Company withdrew as co-general
partner in ACT V which represented the Company's only remaining operational
cable interest. It is anticipated that the Company will receive approximately
$500,000 on account of such interest.
A discussion of other material operating business investments of the
Company follows:
INTERGEN COMPANY, L.P. ("Intergen"). Intergen markets biochemical
products from animal, human, synthetic and semi-synthetic sources, primarily
from bovine (cow) plasma and serum. The products are sold primarily to the
pharmaceutical and biotechnology industries for research, development and
manufacturing of products. The Company holds a general partnership interest in
Intergen Investors, L.P. which entitles the Company to 30% of profits
distributed after an 8% per annum priority return to the limited partners.
Intergen Investors, L.P. owns approximately 75% of Intergen. Additionally, the
Company holds a Deferred Origination Note valued at approximately $2 million and
is entitled to an annual management fee of $50,000.
MAJCO BUILDING SPECIALTIES, L.P. ("Majco"). The Company, through an
indirect wholly-owned subsidiary, owned a general partnership interest in the
general partner of Majco. On September 29, 1995, Majco consummated the sale of
substantially all of its assets for a gross sales price of $66.6 million. The
Company's allocable distribution from this sale was approximately $12 million.
In addition, approximately $3 million of the gross sales price is being held in
escrow through December 1997 of which the Company's allocable share is
approximately $2 million.
NORTHEASTERN TELEVISION INVESTORS, L.P. ("NETV"). Part of Integrated's
consideration when its interests in NETV were sold on December 17, 1993 (the
"NETV Closing") was a $400,000, 9%, accreting note which is due April 1, 1999
and a contingent payment of $500,000 in the event that all or substantially all
of the partnership's assets are sold prior to the fifth anniversary of the NETV
Closing.
TOLEDO TV INVESTORS, L.P. ("Toledo"). Part of Integrated's
consideration when its interests in Toledo were sold on June 30, 1994 was a
$700,000, 9% accreting note which is due on December 27, 1999 and a contingent
payment of $1,500,000 in the event that all or substantially all of the
partnership's assets are sold on or prior to July 1, 1996.
Real Estate.
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The Company continues to manage publicly- and privately-offered
investment programs organized by Integrated which have invested in residential,
retail and commercial real estate and mortgages. The Company retains an interest
in the following series of investment programs which have been publicly-offered
and are in existence: High Equity Partners ("HEP"); Resources Pension Shares 5;
Vista Properties, one publicly-offered investment program which made
highly-leveraged commercial real estate investments; and Resources Accrued
Mortgage Investors, two investment programs which made zero coupon loans to
public and private real estate investment programs (including programs in which
the Company retains an interest).
In addition to the foregoing interests, the Company retains various
interests in real property issued by privately-offered investment programs. The
Company believes that the liquidation values of these assets are immaterial
relative to the total assets of the Company. Such interests include wraparound
mortgages secured by subordinated liens on various commercial properties,
investment program interests and other notes and mortgages issued by investment
programs.
The Company plans to liquidate most of its interests in the
subsidiaries which serve as the general partners of and advisers to
publicly-offered real estate investment programs. Management will consider a
variety of liquidation alternatives to maximize the value of such interests,
including, but not limited to, individual sales, bulk sales, securitizations and
converting limited partnerships to publicly traded corporations. The Company's
ability to sell such interests could be affected by actual or potential claims
of limited partners against the interests being conveyed by the Company, the
settlement of pending litigation involving such limited partnerships and
compliance with applicable provisions of Regulation S-K of the federal
securities law. Both the timing of, and the amount that the Company will be able
to realize upon, the sale of these assets depends upon numerous factors,
including market conditions, prevailing interest rates and issues specific to
the individual properties.
Information on specific real estate investments follows:
HEP. The "HEP Partnerships" are a series of three public partnerships
(HEP-85, HEP-86 and HEP-88) which invested in unleveraged commercial real estate
between 1985-1989. The HEP Partnerships' portfolios consist of 21 properties
with an original cost of approximately $285 million. The real estate properties
in which such Partnerships either own or maintain a material interest consist of
eight shopping centers, locations currently leased to five supermarkets, three
office buildings, two office parks, two industrial warehouses and one parcel of
land. Subsidiaries of Presidio ("the HEP Subsidiaries") serve as general
partners and hold a 5.0% interest in each of the HEP partnerships. For managing
the affairs of the HEP Partnerships, the HEP Subsidiaries receive partnership
management fees, property management fees and certain expense reimbursements of
approximately $4,500,000.
HEP is subject to a class action lawsuit as described in Item 3 "Legal
Proceedings".
In connection with such proceedings the parties have entered into a
settlement agreement that is subject to court approval and submission to an
approval by limited partners of the HEP Partnerships.
The settlement provides for the reorganization of HEP Partnerships,
through an exchange (the "Exchange") in which limited partners (the
"Participating Investors") of the partnerships participating in the Exchange
(the "Participating Partnerships") would receive, in exchange for the
partnership units, shares of common stock ("Shares") of a newly-formed
corporation, Millenium Properties Inc. ("Millenium"). Millenium intends to
qualify as a real estate investment trust. Such reorganization would only be
effected with respect to a particular partnership if holders of a majority of
the outstanding units of the partnership consent to such reorganization pursuant
to a Consent Solicitation Statement (the "Consent Solicitation Statement") which
would be sent to all limited partners after the settlement is approved by the
court. 84.65% of the Shares to be issued in the Exchange would be allocated to
Participating Investors in the aggregate (assuming each of the HEP Partnerships
participate on the Exchange) and 15.35% of the Shares to be allocated to the
General Partners in consideration of the Company's existing interest in the
Participating Partnerships and its relinquishment of entitlement to receive fees
and expense reimbursements, and the payment by the Company of certain amounts
for legal fees.
As part of the Exchange, Shares issued to Participating Investors would
be accompanied by options granting such Investors the rights to require the
Company to purchase such Shares at a price of $11.50 per share, exercisable
during the three month period commencing nine months after the effective date of
the Exchange. A maximum of 1.5 million Shares (representing approximately 17.7%
of the total Shares issued to investors if all HEP Partnerships participate)
would be required to be purchased if all partnerships participate in the
Exchange. Also as part of the Exchange, the Company would agree that in the
event that dividends paid with respect to the Shares do not aggregate at least
$1.10 per share for the first four complete fiscal quarters following the
effective date of the Exchange, it would make a supplemental payment to holders
of such Shares in the amount of such a difference. The Company would provide an
amount not to exceed $2,232,500 in the aggregate, for the payment of attorneys'
fees and reimbursable expenses of class counsel, as approved by the court, and
the costs of providing notice to the class (assuming that all three HEP
Partnerships participate in the Exchange). The Company would advance to the HEP
Partnerships the amounts necessary to cover other fees and expenses (but not
their litigation costs and expenses, which the Company would bear in full).
RESOURCES PENSION SHARES 5 ("RPS-5"). RPS-5 is a public partnership
which invested approximately $50 million in first mortgage loans on commercial
real estate. Subsidiaries of Presidio serve as general partner of RPS-5. For
managing the affairs of the partnership, servicing mortgage loans made by RPS-5
and acting as a supervisory manager on the properties, subsidiaries of Presidio
received a partnership management fee, a mortgage servicing fee and a property
management fee of approximately $800,000 for the year ended December 31, 1995.
OTHER REAL ESTATE. The Company also acquired from Integrated interests
in or rights to numerous other real estate-related assets including rights and
claims to an interest in an apartment complex, a receivable in connection with
the refinancing of certain net lease partnerships and approximately 10
subordinated purchase money mortgages on net leased real estate which are
collateralized by second liens on commercial real estate properties owned by
limited partnerships. In March 1996 Presidio received $1.4 million as prepayment
on a note obtained by Integrated in a restructuring of a commercial real estate
partnership. The Company believes that the liquidation values of these other
real estate interests are immaterial relative to the total assets of the
Company.
Other Assets.
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The Company acquired title or rights to various other assets from
Integrated on the Consummation Date. These interests include receivables on
leased equipment, expected proceeds from liquidation of interests in
equipment-related limited partnerships, a receivable from the sale of
Integrated's tax shelter annuity business in 1989 to Metropolitan Life and
common and preferred stock interests in certain private and publicly traded
corporations. The Company intends to pursue value maximizing alternatives to
sell or wind up its interests in these assets. A description of the more
significant other assets follows:
EQUIPMENT LEASING ACTIVITIES. As of March 1, 1996 the Company, through
its subsidiaries, owns interests in 33 publicly- and privately-offered
investment programs (the "Leasing Programs") which have invested in equipment
subject to leases to third parties. These programs are in the form of single
investor transactions, limited partnerships and grantor trusts. In April 1995,
the Company engaged Fieldstone Private Capital Group L.P. ("Fieldstone"), an
entity unaffiliated with the Company or its subsidiaries, for the purpose of
managing such interests. In consideration for such services, Fieldstone will
receive: (i) aggregate fixed fees of approximately $1,015,000 in 1996 and
$527,000 in 1997; (ii) performance fees depending upon their ability to reduce
contingent liabilities and successfully manage any pending litigations; and
(iii) reimbursement of their out-of-pocket expenses. Actual fees, including
performance fees, paid to and accrued for Fieldstone in 1995 aggregated
approximately $1.5 million. The engagement with Fieldstone expires on November
3, 1997, but may be terminated by Presidio upon 60 days notice to Fieldstone or
at any time for cause, as defined in the Fieldstone Agreement.
Fieldstone manages for the Company three series of publicly-offered
investment programs which have invested in various equipment subject to leases
with third parties: five American Leasing Investors limited partnerships; two
National Lease Income Fund limited partnerships and Aircraft Income Partners
L.P., a limited partnership owning commercial aircraft. The Company through
Fieldstone also manages 25, privately offered investment programs which have
invested in equipment, including satellite transponders, commercial and
corporate aircraft, manufacturing equipment, energy management systems,
telephone switches and trailers subject to leases with third parties. In
addition to its involvement in equipment leasing investment programs, the
Company has direct ownership interests in aircraft and aircraft engines subject
to leases with commercial airline end-users. The equipment group also realizes
revenues by managing the assets owned by investment programs after their
expiration. At present, the equipment group is involved in four such
transactions.
The Company anticipates that the investment programs which own aircraft
may encounter severe competition in attempting to re-lease aircraft as they come
off-lease due in part to the substantial costs associated with maintaining and
bringing used aircraft into compliance with FAA noise and maintenance
requirements adopted since 1990. Additionally, such investment programs will
also have to compete with newer, more fuel-efficient aircraft that comply with
the recently-adopted FAA noise requirements. The Company also believes that as a
result of the factors listed above there has been a significant decline in the
re-sale value of narrow-body aircraft of the types owned by the various
investment programs.
TAX SHELTERED ANNUITIES ("TSA"). Integrated sold its TSA business to
Metropolitan Life Insurance Company of America ("Met Life") effective September
30, 1989 in consideration for a deferred payment arrangement. The Company
acquired Integrated's deferred payment rights which provide that through
December 31, 2000, the Company will receive monthly payments based on varying
percentages of (a) the assets under management that were in place on the date of
sale; (b) all new collections relating to annuity contracts that were in place
on the date of sale; and (c) all new business written and collected by the
transferred sales force. In 1995, the Company received approximately $7 million
and anticipates to receive comparable annual payments through December 31, 2000
under such arrangements. The Company is currently reviewing certain options with
a goal to yield the maximum return in exchange for its interests in TSA.
Preliminary discussions have focused on the potential for securitization of cash
flow generated by TSA, or sale of this asset. The amounts ultimately realized
from such a disposition as well as the timing of such a transaction will be
dependent on, among other things, current market conditions, prevailing interest
rates and the ability to settle certain outstanding issues with Met Life.
FIRST BRITANNIA. The Company owns 836,956 common and 154,487 preferred
shares in a private U.K. fund which has invested in mezzanine debt of leveraged
buy out transactions.
NORTH AMERICAN MORTGAGE COMPANY ("NAMCO"). NAMCO is a New York Stock
Exchange listed company primarily engaged in the mortgage banking business. The
Company owned 278,737 shares of NAMCO common stock, all of which were subject to
an Escrow Agreement, dated as of July 15, 1992, by and among NAMCO, certain
shareholders of NAMCO parties thereto and the Bank of New York as Escrow Agent
(the "Escrow Agreement"). Upon expiration of the Escrow Agreement in November
1995, the Company sold its interests in NAMCO for approximately $6 million or
$21.53 per share.
Material Agreements and Instruments
The management and liquidation of the Company is governed by several
arrangements, as well as by the provisions of a letter (the "No Action Letter")
from the Securities and Exchange Commission (the "Commission"). These
arrangements were developed through the negotiations of various constituencies
(including the official creditors' committees) involved in the Integrated
bankruptcy. These arrangements are for the most part contained in the Management
Agreements with Presidio Management and Steinhardt Management, the
Administrative Services Agreement with Wexford, the Indemnification Agreements
(the "Indemnification Agreements") and Indemnification Security Agreement (the
"Indemnification Security Agreement") with certain former officers and directors
of Integrated, the B&S Settlement Agreement and indemnification and
indemnification trust agreements entered into with officers and directors of
Presidio. The material terms of these agreements and instruments and the No
Action Letter are summarized below and elsewhere in this Form 10-K. The
summaries of such agreements and instruments and the No Action Letter included
in this Form 10-K do not purport to be complete and are subject to and qualified
in their entirety by reference to all of the provisions of such agreements and
instruments and the No Action Letter, including the definitions thereof of
certain terms.
The Management Agreements.
--------------------------
Effective as of the Consummation Date, the Company entered into a
management agreement with Presidio Management (the "Presidio Management
Agreement") and a management agreement with Steinhardt Management (the
"Steinhardt Management Agreement" and together with the Presidio Management
Agreement, the "Management Agreements"). Pursuant to the Presidio Management
Agreement, Presidio Management will oversee the management of the Company and
the management and liquidation of the Company's assets. Pursuant to the
Steinhardt Management Agreement, Steinhardt Management will be available to
consult with Presidio Management in connection with certain material
transactions relating to the Company's assets. Each Management Agreement
provides for a fixed fee of $1.25 million per year, payable in equal monthly
installments.
Pursuant to the Presidio Management Agreement, Presidio Management has
full discretion and authority, without the need for any subsequent approval of
the Board of Directors or shareholders of Presidio, or any subsidiary, except as
expressly required by Presidio's Articles of Association or otherwise required
by law, to manage and to liquidate the Company's assets (whether by sale,
hypothecation, securitization or otherwise) in such manner as Presidio
Management considers appropriate, subject to restrictions on affiliate
transactions and except as follows:
1. The Board of Directors of Presidio must approve any
transaction or series of related transactions involving the
sale, pledge or other disposition of Presidio's assets having
a fair market value exceeding $10,000,000 or the resolution or
incurrence of liabilities exceeding $10,000,000; PROVIDED that
Presidio Board of Directors approval is not required in
connection with, among other matters, any of the following
transactions (the "Transactions") because the Transactions
were approved in connection with the consummation and approval
of the Plan: (i) the sale of the rights to deferred payments
from Metropolitan Life Insurance Company to the Company for an
amount not less than $26.5 million; and (ii) the restructuring
of one or more of the HEP partnerships through the HEP Rollup
so that Presidio's subsidiaries receive in exchange for their
right to fees receivable from such partnerships and their
general partner interests therein, and the limited partners of
such partnerships receive in exchange for their partnership
interests, shares of common stock of a newly-formed real
estate investment trust. Additionally, no approval is
anticipated to be required by shareholders of Presidio for any
of the Transactions.
2. Presidio Management may not enter into any contract or
arrangement for the provision of services to Presidio (i)
which is terminable by the other party thereto as a result of
the termination of the Presidio Management Agreement or (ii)
which is not terminable by Presidio without premium or penalty
on not more than 60 days notice, unless in each case such
contract or arrangement is approved by a majority of
Presidio's Class A Directors or, if Presidio's Board is not
then classified, by a majority of Presidio's directors (in
each case excluding any director nominated by Presidio
Management, Steinhardt Management or either of their
affiliates).
3. The Presidio Management Agreement also prohibits Presidio
Management from contractually restricting its employees from
being retained independently by Presidio following termination
of the Presidio Management Agreement.
Pursuant to the Presidio Management Agreement, Presidio Management is
required to provide each of Presidio's directors reasonable prior notice of any
material transaction involving the Company's assets where such transaction, or
series of related transactions, has a fair market value or a cost exceeding $5.0
million and any modifications of Contract Rights having a fair market value
exceeding $2.0 million, which modifications reasonably are expected to be
considered a reissuance of such Contract Rights for tax purposes. The Steinhardt
Management Agreement requires Steinhardt Management to provide notice to each of
Presidio's directors of any such transaction of which it has knowledge (to the
extent such notice is not given by Presidio Management).
Under the Presidio Management Agreement, Presidio Management may direct
Presidio to pay up to 50% of the $1.25 million annual management fee directly to
Joseph M. Jacobs or a corporation controlled by him. Presidio Management has
directed Presidio to pay 50% of such management fee to Mr. Jacobs. In March
1996, the Board of Directors of Presidio approved the assignment of Presidio
Management's Agreement to Wexford, whereby Wexford is now fully responsible for
the day to day operations of the Company. Charles E. Davidson, the Chairman of
Presidio, has a significant interest in both Wexford and Presidio Management.
The term of each of the Management Agreements expires on November 3,
1997. The Management Agreements may be terminated without cause by Presidio upon
not less than 10 days notice. Each Management Agreement is also terminable if
Presidio Management or Steinhardt Management, as the case may be, has been
grossly negligent or has committed willful malfeasance in carrying out its
duties, or is in material breach of its obligations thereunder. In the event of
early termination of either of the Management Agreements, Presidio shall pay on
the date of the termination a lump sum amount equal to the aggregate management
fee that would have been payable had the Management Agreement not been
terminated, unless Presidio has deposited such amount with an escrow agent
satisfactory to Presidio Management or Steinhardt Management, as the case may
be, with a distribution thereof upon entry of a final court order determining
that such termination was not for cause. If either Management Agreement is
terminated by Presidio, the other Management Agreement shall be deemed to have
been similarly terminated.
Pursuant to the terms of each Management Agreement, Presidio
Management, Steinhardt Management and each of their respective affiliates,
whether acting individually or jointly with one another, are prohibited from
purchasing any equity in, or any general or limited partnership interests of,
any obligor under any Contract Rights.
Presidio Management and Steinhardt Management are each required to
render their services at their own expense. Presidio is responsible for all
other expenses relating to its assets, including, without limitation, services
of attorneys, accountants and other third party professionals, employees
provided to Presidio and other operating expenses, and must periodically
reimburse Presidio Management for any such expenses advanced by Presidio
Management.
Pursuant to Section 1295 of the Internal Revenue Code of 1986, as
amended, shareholders of Presidio may elect to pay tax each year on Presidio's
undistributed income for such year as if Presidio had made a distribution of
such income. If on February 15 of any year, the tax liability (calculated at an
assumed effective tax rate of 40%) of Presidio's shareholders on Presidio's
income for all prior years would, assuming that all of Presidio's shareholders
had made such an election, exceed the actual distributions made by Presidio
through such date, Steinhardt Management must cause one or more of its
affiliates to purchase debt securities issued by Presidio (the "Distribution
Securities") on such date to the extent necessary to fund a Tax Distribution by
Presidio, subject to a maximum of $25 million aggregate principal amount of
Distribution Securities at any time outstanding. The "Tax Distribution" would
equal the excess of (i) 40% of the amount shareholders of Presidio would be
required to include in their taxable income in respect of Presidio's income
(including income of any subsidiaries) pursuant to Section 1295 of the Internal
Revenue Code of 1986, as amended, for all years ending prior to the beginning of
such year over (ii) the total distributions made by Presidio through such date.
Distribution Securities must (i) bear interest at the prime rate as determined
by Citibank N.A. on the date issued plus 1%, (ii) have a term of four years with
optional prepayments, (iii) be mandatorily redeemable out of Presidio's
available cash, prior to distributions to shareholders and (iv) have such other
terms as Presidio's Class A Directors may approve. Presidio has waived
Steinhardt Management's obligation to fund a Tax Distribution relating to the
period ended February 15, 1996.
Administrative Services Agreement.
- ----------------------------------
Effective with the Consummation of the Plan, Concurrency entered into
an Administrative Services Agreement (the "Administrative Services Agreement")
with Presidio providing certain administrative and management services to the
Company. Effective January 1, 1996 the Administrative Services Agreement was
assigned to Wexford. Joseph M. Jacobs is a Member and the President of Wexford.
Robert Holtz is a Member and a Senior Vice President of Wexford. Jay L. Maymudes
is the Chief Financial Officer and a Senior Vice President of Wexford. Charles
E. Davidson, the Chairman of the Board of Presidio, is a Member and Chairman of
Wexford. Wexford provides management and other services to third parties that
are not related to the Company.
Pursuant to the Administrative Services Agreement, Wexford oversees the
day-to-day management and administration of the Company. In such capacity,
Wexford has agreed to make available (i) Mr. Jacobs to serve as the Chief
Executive Officer, President and a Class B Director of Presidio, (ii) Robert
Holtz to serve as Vice President and Secretary of Presidio, (iii) Jay L.
Maymudes to serve as Chief Financial Officer, Vice President and Treasurer of
Presidio, (iv) such other persons as may be necessary to fulfill Wexford's
obligations under such agreement and (v) persons to serve as officers and
directors of Presidio's direct or indirect subsidiaries or affiliates. Presidio
retains the right to remove any employee of Wexford serving as an officer or
director of the Company.
The Administrative Services Agreement expires on November 3, 1997, but
may be terminated by (A) Presidio or Presidio Management (so long as it remains
the Manager pursuant to the Presidio Management Agreement) (i) upon 60 days'
prior written notice to Wexford or (ii) at any time for cause (as defined in the
Wexford Administrative Services Agreement) and (B) Wexford at its option upon 60
days' prior notice to Presidio.
Pursuant to the Administrative Services Agreement, Presidio has agreed
to indemnify Wexford and its direct or indirect officers, directors, partners,
employees and agents (including, without limitation, persons serving as officers
of the Company) from losses occurring after the Consummation Date, provided,
among other things, that such losses resulted from (i) a mistake of judgment or
action or inaction taken by such person in connection with Wexford's duties
under the Administrative Services Agreement honestly and in good faith that such
person reasonably believed to be in the best interests of Presidio or (ii) the
negligence, dishonesty or bad faith of any agent selected by such person with
reasonable care on behalf of Presidio.
Presidio is obligated to pay Wexford annual amounts of $350,000 and
$125,000 in respect of the services performed by Messrs. Jacobs and Holtz,
respectively, and for its direct and indirect costs properly allocable to the
performance of its duties under the Administrative Services Agreement and
providing officers and directors of the Company. Such expenses include, without
limitation, payroll, payroll taxes, costs of employee benefit plans approved by
Presidio Management or by Presidio's board of directors, accounting fees, rent
and other overhead expenses of Wexford, and any legally required severance
payments to Wexford's employees (other than Messrs. Jacobs, Holtz and Maymudes).
Any other bonus, severance or similar payments is subject to approval of
Presidio Management or, in the case of such payments to Messrs. Jacobs, Holtz or
Maymudes or if required by Presidio's organizational documents or the Presidio
Management Agreement, the board of directors of Presidio.
Indemnification Agreements and Indemnification Security Agreement.
-----------------------------------------------------------------
Presidio has entered into Indemnification Agreements with certain
former officers and directors of Integrated and its subsidiaries (the "Qualified
Indemnitees"). Pursuant to the Indemnification Agreements, Presidio assumed the
obligations of Integrated to indemnify the Qualified Indemnitees pursuant to the
orders of the Bankruptcy Court, Integrated's charter documents and applicable
Delaware corporate law, for acts or omissions taken by such Qualified
Indemnitees on or after February 13, 1990 (the date on which Integrated filed
for protection under Chapter 11 of the Bankruptcy Code), provided that such
obligations constitute (or would constitute) an administrative claim under
Section 507(a)(1) of the Bankruptcy Code ("Qualified Indemnity Obligations").
Presidio's obligations under the Indemnification Agreements are
unlimited and are secured by certain cash collateral and a pledge of all the
outstanding shares of stock or partnership interests of Presidio's direct or
indirect non-U.S. subsidiaries ("ForeignCo") pursuant to the Indemnification
Security Agreement. ForeignCo is subject to various covenants which require,
among other things, ForeignCo to maintain certain minimum net worth requirements
for the term of the Indemnification Agreements, and which restrict, among other
things, the payment of any dividends or other distributions by Presidio to its
shareholders. Presidio has also agreed to certain covenants restricting, among
other things, sales and other transfers of assets to its affiliates.
Under the Indemnification Agreements and the Indemnification Security
Agreement, ForeignCo must maintain assets in excess of liabilities (other than
Qualified Indemnity Obligations) having a minimum fair market value (as defined
therein) until November 3, 1997, of at least $20 million, and thereafter $5
million until the termination of the Indemnification Agreements.
The Indemnification Agreements and the Indemnification Security
Agreement will terminate upon the later of November 3, 1997 or the end of a
consecutive nine month period (commencing no earlier than February 3, 1997
during which no claims in respect of a Qualified Indemnity Obligation or certain
actions arising from the conduct of Integrated or its subsidiaries or syndicated
partnerships are pending, threatened in writing or asserted).
B&S Settlement Agreement.
-------------------------
Presidio entered into a Second Amended and Restated Settlement
Agreement, dated as of September 29, 1994 (as amended on October 5, 1994, the
"B&S Settlement Agreement") with Steinhardt Management and Beigel Schy Lasky
Rifkind Goldberg & Fertik. The B&S Settlement Agreement provides for the
settlement of 47 lawsuits (six class actions and 41 non-class actions)
(collectively, the "B&S Actions") brought by certain limited partners of
partnerships syndicated by Integrated against the partnerships, their general
partners, and subsidiaries and affiliates of Integrated.
The plaintiffs in the B&S Actions generally alleged claims of common
law fraud, breach of fiduciary duty and negligent misrepresentation in
connection with the syndication of the partnerships. Except as described below,
the settlement of each B&S Action was consummated on or about November 2, 1994.
The consideration paid to the plaintiffs in the B&S Actions primarily consisted
of cash settlement payments in the aggregate amount of approximately $23.1
million on the Consummation Date. For the plaintiffs in the three actions
captioned CLAYTON NEUMAN, ET AL. V. INTEGRATED RESOURCES EQUITY CORPORATION, ET
AL., CLAYTON NEUMAN, ET AL. V. ARTHUR G. GOLDBERG, ET AL., and BIGBIE V.
GOLDBERG, the primary consideration for settlement was Integrated's offer of the
DPOs to the general partners of Partnerships obligated under Contract Rights.
See "Business -- Background." In addition, promissory notes executed by certain
limited partners in favor of the partnerships (and now held by Presidio) in the
aggregate principal amount of approximately $1,372,000 were forgiven.
The B&S Settlement Agreement has been consummated pursuant to its
terms, except that the terms of the B&S Settlement Agreement relating to the HEP
Action currently are being renegotiated. See "Legal Proceedings."
Restrictions Under the No Action Letter.
----------------------------------------
On August 5, 1994, Presidio obtained the No Action Letter from the
Staff of the Division of Investment Management (the "Staff") of the Commission.
The No Action Letter applies to Presidio, as well as Presidio CR Holdings, L.P.
(which holds the Contract Rights) along with the direct and indirect U.S.
subsidiaries of Presidio (the "DomesticCos") set up to acquire assets from
Integrated. The No Action Letter provides Presidio assurances that the Staff
would not recommend enforcement action to the SEC if Presidio did not register
under the Investment Company Act of 1940 (the "Company Act").
Receipt of the No Action Letter was based on and subject to the
continued accuracy of various representations as well as agreements to comply
with certain restrictions set forth in the letter requesting the No Action
Letter, and summarized in the No Action Letter. In order to obtain the No Action
Letter, the proposed managers of Presidio were also bound to comply with the
restrictions. Consequently, both Presidio Management and Steinhardt Management
have agreed to abide by the following restrictions:
A. LIQUIDATION. Presidio's activities must be geared to the liquidation
of its assets and the distribution of the net proceeds therefrom to holders of
its shares. Presidio should (i) not identify in any communications released to
its shareholders, the press and the public, as well as in any regulatory
filings, that its purpose or plans consist of any activity other than
liquidation and distribution of proceeds (see also item D below), and (ii)
refrain from any "investment" activities which are inconsistent with this
restriction (see items B and C below). Of course, orderly liquidation of assets
may require (i) continuing to operate "going concern" businesses pending sale,
(ii) reorganizations and restructuring of assets to facilitate sales, (iii)
securitizations to realize value; and (iv) similar actions related to the
orderly liquidation of assets.
B. NO TRADE OR BUSINESS. Presidio may not conduct a trade or business
other than maintaining as a going concern each business acquired from Integrated
pending sale or liquidation thereof (see items A above and D below).
C. NO INVESTMENTS. Presidio must promptly distribute proceeds from
sales of its assets, and may not make investments with such proceeds. Presidio
may, however, make temporary investments in (a) money market instruments, (b)
short-term government securities or (C) other investment grade short term debt
securities, pending distribution of liquidation proceeds to holders of Presidio
shares.
D. NO "HOLDING OUT" AS INVESTMENT COMPANY. Presidio may not hold itself
out to the public as an investment company, but rather only as a liquidating
entity. Compliance with this condition requires that no communications released
to shareholders, the press, the public or in regulatory filings contain
statements which would characterize holding shares in Presidio as an "investment
opportunity." This restriction is based on the concern that shareholders
themselves, or potential transferees, would view Presidio as an "investment
company" rather than a liquidating entity, which in turn might lead to interest
in trading in Presidio shares.
E. 5-YEAR TERM. Presidio must dissolve on or before November 3, 1999,
unless updated "no-action" assurance is obtained from the Staff permitting a
longer liquidation period.
F. NO ACTIVE TRADING MARKET. In order to obtain the "No Action" Letter,
Presidio represented to the Staff that "it is unlikely that ... trading [in
Presidio shares] will be active or that a significant market will develop of
holders far beyond the initial holders ..." In granting the No Action Letter,
the Staff explicitly relied on this representation, which they restated as "an
active trading market in the common stock of [Presidio] is unlikely to develop."
In support of this representation, Presidio and Presidio Management
agreed to restrictions on their own conduct, as follows. Neither Presidio nor
Presidio Management may:
1. cause Presidio's shares to be listed on any national
securities exchange or NASDAQ;
2. engage the services of any market maker;
3. facilitate the development of an active trading market in
Presidio's securities, nor encourage others to do so;
4. place any advertisements in the media promoting an investment
in Presidio; or
5. except as otherwise required by the Securities Exchange Act of
1934, as amended (the "Exchange Act"), collect or publish
information about prices at which Presidio's shares may be
transferred.
Notwithstanding the foregoing restrictions, Presidio or its offshore
administrator may provide information to shareholders and their representatives
regarding matters legitimately related to their holdings of Presidio shares,
including information about current portfolio assets and cash held by Presidio,
status of transactions and securitizations of portfolio assets, timing of
distributions of assets to shareholders and prospects for liquidation of
portfolio assets. Shareholders may reasonably expect to obtain such information
from time to time, even if the shareholder requests such information in
connection with a proposed transfer of Presidio shares. This is because the
scope of the No Action Letter permits, and even contemplates, a limited amount
of transfers or even trading of stock of Presidio in order to accommodate
liquidity needs of holders.
G. FINANCIAL REPORTING. Presidio voluntarily agreed in the request for
the No Action Letter to issue audited year-end financial statements and
unaudited quarterly financial statements (all on a consolidated basis) to all
shareholders of record, in each case with management's discussion and analysis
thereof, regardless of whether compliance with the Exchange Act is required.
Hemisphere Administration Agreements.
-------------------------------------
Presidio and two of its non-U.S. subsidiaries, Presidio GP Corp. and
Presidio LP Corp. (collectively, the "BVI Group"), have each entered into
Administration Agreements (the "Hemisphere Administration Agreements") with
Hemisphere, pursuant to which Hemisphere will act as the BVI Group's offshore
administrator. Pursuant to the Hemisphere Administration Agreements, Hemisphere
shall, among other things, (i) provide office facilities, personnel and
accommodations required by the BVI Group in the Cayman Islands, (ii) communicate
with shareholders and the general public on the BVI Group's behalf, (iii)
maintain corporate books and records and a shareholder register, (iv) call and
hold all meetings of shareholders and directors, (v) disburse all necessary
payments on behalf of the BVI Group and (vi) accept subscriptions for shares and
make redemptions and repurchases of shares, in each case, subject to the
provisions of the Memorandum and Articles of the respective companies within the
BVI Group and under the supervision of their respective directors and officers.
In consideration for such services, Hemisphere receives an aggregate fee of
$18,000 per annum (subject to annual review and reduction in certain
circumstances) and reimbursement of its out-of-pocket expenditures. The
Hemisphere Administration Agreements are effective for successive one-year terms
unless and until terminated by either party on 30 days' written notice to the
other party, or upon written notice of the occurrence of any breach and a
failure to cure such breach within 10 days thereafter.
Competition
The Company is subject to substantial competition in each of its lines
of business and in each such line competes with others having substantially
greater financial and other resources than those available to the Company.
Inasmuch as the Company is not presently offering new investment
products, the principal competition faced by the Company is from other parties
that may be selling assets similar to those held by the Company. The principal
competitive factors in connection with such sales relate to matters such as the
nature and quality of the assets to be disposed of, their prior performance and
their future anticipated performance.
In addition, to the extent that cash payments to the Company are
dependent upon the performance of assets, the Company's results will be subject
to competition from other businesses which own similar properties and compete
for tenants (in the case of real property) or compete with other businesses
owned by the Company.
Employees
Presidio does not have any employees. Pursuant to the Administrative
Services Agreement, Wexford provides all of the administrative personnel
required by the Company (including the Company's executive officers) and the
Company reimburses the expenses of Wexford.
Item 2. PROPERTIES.
----------
Certain domestic subsidiaries of Presidio currently lease offices at
411 West Putnam Avenue, Greenwich, Connecticut, under a lease expiring in July
1998. The lease of office space in Greenwich is in an office building in which
Charles E. Davidson, the Chairman of the Board of Presidio, and Joseph M.
Jacobs, the Chief Executive Officer and President of Presidio, have an ownership
interest of approximately 67%. See "Certain Relationships and Related
Transactions." The Company believes such office space is adequate for the
continuing operations of such domestic subsidiaries.
Item 3. LEGAL PROCEEDINGS.
-----------------
Presidio and its subsidiaries are parties to various legal proceedings
as successors to Integrated and its subsidiaries. The following is a description
of material litigation in which the Company is involved.
THE HALLWOOD GROUP INCORPORATED V. STEINHARDT MANAGEMENT COMPANY, INC., ET AL.
Presidio and two subsidiaries, Presidio LP Corp. and Presidio GP Corp. (the
"Presidio Defendants"), have been named as defendants in this action which
commenced in May 1995 in the United States District Court for the Southern
District of New York. The complaint alleges that the Presidio Defendants are
affiliates of Steinhardt Management and as such are liable for a $1.5 million
fee allegedly owed the plaintiff under a written agreement between Steinhardt
Management and the plaintiff. The Presidio Defendants have filed an answer,
dated July 7, 1995 denying the material allegations of the complaint. Document
discovery is underway, but there have not yet been any depositions taken in this
case.
WEBBCO V. TELE-COMMUNICATIONS, INC., ET AL.; THE CARTER REVOCABLE TRUST V. TELE
COMMUNICATIONS, INC., ET AL. IR-Daniels II and IR-Daniels III, two partnerships
(the "Daniels General Partners") in which an indirect subsidiary of Presidio is
the co-general partner, and Integrated Cable Corp. have been named as defendants
in two Integrated Cable Corp. class action lawsuits commenced in September 1994
in the United States District Court for the District of Colorado. The complaints
allege that the Daniels General Partners, which serve as managing general
partners of two publicly held partnerships (the "Daniels Partnerships"), and
certain affiliated entities committed violations of Sections 10(b) and 14(a) of
the Exchange Act and breached their fiduciary duties to limited partners of the
Daniels Partnerships in connection with the sale of the Daniels Partnerships'
assets. The complaints assert that the proxy statements issued in connection
with those sales contained material false or misleading information and/or
failed to disclose material information and assert that certain actions taken in
connection with the sales constituted breaches of fiduciary duty. The complaints
seek unspecified monetary damages. The defendants filed motions to dismiss the
complaint, which were denied by the District Court. The defendants intend to
contest vigorously the allegations asserted against them.
MARK ERWIN, TRUSTEE, ET. AL. V. RESOURCES HIGH EQUITY, INC., ET. AL. (THE "HEP
ACTION"). Resources High Equity, Inc., Resources Capital Corp. and Integrated
Resources Equity Corporation, three former indirect subsidiaries of Integrated
(the "HEP Subsidiaries"), together with a number of other defendants, including
certain former officers of Integrated (collectively the "HEP Defendants"), have
been named as defendants in this purported class action which was commenced in
May 1993 in the Superior Court for the State of California for the County of Los
Angeles (the "Court"). One derivative cause of action relating to assertions of
breach of fiduciary duty was dismissed with prejudice in January 1995. As to the
remaining claims in the HEP Action, the B&S Settlement Agreement requires the
Company to relinquish their right to collect and receive future asset management
fees, in exchange for an increase in their general partnership interest from
five percent to twenty-five percent and the dismissal of the remaining claims
with prejudice. The HEP Action was stayed while the parties renegotiated the
terms of the B&S Settlement Agreement as it pertains to this action.
On July 19, 1995, the Court preliminarily approved a settlement of the HEP
Action and approved the form of a notice (the "Notice") concerning such proposed
settlement. In response to the Notice, approximately 4% of the limited
partnership interests in the HEP Partnerships requested exclusion and 15 limited
partners filed written objections to the proposed settlement. The California
Department of Corporations also sent a letter to the Superior Court opposing the
settlement. Five objecting limited partners, represented by two law firms, also
made motions to intervene so they could participate more directly in the action.
The motions to intervene were granted by the Court on September 14, 1995.
In October and November 1995, the attorneys for the plaintiffs-intervenors
conducted extensive discovery. At the same time, there were continuing
negotiations concerning possible revisions to the proposed settlement.
On November 30, 1995, the original plaintiffs and the intervening plaintiffs
filed a Consolidated Class and Derivative Action Complaint (the "Consolidated
Complaint") against the Company and the HEP Partnerships, alleging, among other
things, breach of fiduciary duties, breach of contract and negligence.
On or about January 31, 1996, the parties to the HEP Action agreed upon a
settlement, which would be significantly more favorable to the HEP limited
partners than the previously proposed settlement. (See "Description of Assets of
the Company - Real Estate - HEP"). Upon effectuation of this revised Exchange,
the B&S Litigation would be dismissed with prejudice.
On February 8, 1996, at a hearing on preliminary approval of the revised
settlement, the Court determined that in light of renewed objections to the
settlement by the California Department of Corporations, the Court would appoint
a securities litigation expert to evaluate the settlement, and to advise the
Court as to whether any changes need to be made. If final approval of the
settlement is granted by the Court, The Consent Solicitation Statement
concerning the settlement and the reorganization would be sent to all limited
partnerships. The reorganization of the HEP Partnerships cannot be consummated
unless a majority of the limited partners in the HEP Partnerships affirmatively
approve the settlement.
600 GRANT STREET ASSOCIATES LIMITED PARTNERSHIP V. GENERAL ELECTRIC CAPITAL
CORPORATION, ET AL. Sivram Corp. and Grant Property Corp. (the "Affiliated
Defendants"), two indirect subsidiaries of Presidio, have been named as
defendants in this action which was commenced in December 1994 in the Court of
Common Pleas of Philadelphia County, Pennsylvania. The complaint asserts three
causes of action against the Affiliated Defendants for breach of contract,
declaratory relief that the plaintiff has not breached its contractual
obligations, and an accounting. The claim for breach of contract seeks damages
in excess of $50 million as well as punitive damages. The Affiliated Defendants
have filed an answer denying the material allegations of the complaint and
intend to vigorously contest the allegations against them.
WRIGHT V. INTEGRATED AIRCRAFT FUND MANAGEMENT CORP., ET. AL. Integrated Aircraft
Fund Management Corp., Integrated Resources Marketing, Inc., and Integrated
Resources Equity Corp., three indirect subsidiaries of Presidio, have been named
as defendants in this purported class action which was commenced in February
1994 in the Supreme Court of the State of New York for the County of New York.
The first amended complaint asserts causes of actions for fraud, breach of
fiduciary duty and negligent misrepresentation based upon alleged material
misrepresentations and omissions by the defendants in connection with the
offering for sale of limited partnership units in the Aircraft Income Partners,
L.P. partnership. The plaintiffs seek unspecified monetary damages, rescission
and punitive damages. The defendants have filed a motion seeking to dismiss the
complaint. On October 2, 1995, the Supreme Court of the State of New York for
the County of New York ordered that the motion to dismiss was granted and the
amended complaint was dismissed in its entirety without leave to replead.
Plaintiffs served a Notice of Appeal dated January 26, 1996, however, the
defendant's counsel believe plaintiffs appeal to be untimely and intend to move
to strike the Notice.
INTEGRATED RESOURCES EQUITY CORPORATION LITIGATION. Integrated Resources Equity
Corporation ("IREC"), an indirect subsidiary of Presidio, has been named as a
defendant or respondent in approximately 23 lawsuits and arbitration proceedings
arising out of its conduct as a broker-dealer in securities. Integrated
Resources Marketing Corporation ("IRMI"), another indirect subsidiary of
Presidio, has also been named as a defendant or a respondent in several of these
actions. The majority of these lawsuits seek damages for former customers of
IREC arising out of purchases or sales of securities. IREC and the other
defendants in these actions are vigorously defending each of the lawsuits and
arbitration proceedings.
PRESIDIO CR HOLDINGS, L.P. V. BOFORD ASSOCIATES LIMITED PARTNERSHIP ET. AL. In
November 1994, Integrated filed a complaint in the United States Bankruptcy
Court for the Southern District of New York against 20 partnerships and all
unknown interested parties. The named partnership defendants are parties to
agreements pursuant to which certain Contract Rights (representing approximately
18% of the aggregate Contract Rights, based on scheduled Primary Term Payments)
were granted to former subsidiaries of Integrated (which were subsequently
merged into Integrated). The complaint alleged that documentation underlying the
Contract Rights has been lost or misplaced and sought a declaratory judgment
that the Contract Rights are held and owned by Integrated. As the successor in
interest under the Plan, Presidio CR Holdings, L.P., whose general and limited
partners are wholly-owned subsidiaries of Presidio, filed an amended complaint
to make it clear that the declaratory judgment relates solely to the ownership
of the Contract Rights prior to the Consummation Date. On October 10, 1995
Presidio CR Holdings, L.P. obtained a judgement that such Contract Rights were
property of Integrated's estate as of the Consummation Date.
ISRAEL AIRCRAFT INDUSTRIES V. INTEGRATED AIRCRAFT CORP. On or about December 14,
1995, a complaint was filed by Israel Aircraft Industries LTD (Bedek Aviation
Division) ("IAI"), in the Ontario Court (General Division) in the Province of
Ontario, City of Toronto (the "Ontario Action"). The Ontario Action named as
defendants Integrated Aircraft Corp. ("IAC") (a wholly-owned subsidiary of
Presidio Equipment Leasing), Jetall Airways, Inc ("Jetall"), Jetall Holding
Corp. and Arie Tall. IAC is the lessor of a Boeing 737-200 aircraft (the
"Aircraft") leased to Jetall pursuant to a lease agreement dated August 6, 1993
(the "Lease"). Pursuant to a letter agreement dated August 11, 1993, IAC agreed
with IAI to provide Jetall with up to $850,000 of rental credits owing to IAC
under the Lease in order to induce IAI to perform certain work on the Aircraft.
The complaint alleged, among other things, that IAC and Jetall conspired and
illegally agreed to interfere with the contractual relationships existing with
IAI and that IAC induced Jetall to breach its agreement with IAI. The complaint
seeks US$386,500 for breach of agreement and exemplary damages in the amount of
$1 million, plus interest. IAC's counsel has filed a motion to dismiss the
action based on lack of jurisdiction, inconvenient form and failure to state a
claim.
BENTLEY KING ASSOCIATES V. FILLMORE CENTER PROJECTS CORP. ET. AL. On December
12, 1995, Bentley King Associates ("BKA") filed suit against Fillmore Center
Project Corp. ("FCPC"), Presidio Fillmore Corp., Presidio and Citicorp Real
Estate, Inc. and several of its participant banks ("CREI") alleging various
causes of action relating to a consulting agreement between BKA and FCPC. The
claims asserted are for breach of contract, breach of fiduciary duties, fraud,
interference with contractual and prospectus advantage, breach of the covenant
of good faith dealing, negligence, negligent misrepresentation and fraudulent
conveyance. BKA alleges that the defendants conspired in order to avoid having
to pay BKA (1) a percentage of lawsuit proceeds stemming from defective
construction of its apartment/retail complex, and (2) a percentage of the
proceeds from the sale of that complex. As of March 1, 1996, neither Presidio
Fillmore Corp. nor Presidio had been served. Accordingly, neither has made an
appearance in BKA's lawsuit. If served, both Presidio Fillmore Corp. and
Presidio intend to vigorously defend BKA's lawsuit.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------------------
There is no existing market for Presidio's Class A Shares and an active
trading market is unlikely to develop. In connection with the No-Action Letter,
Presidio represented that neither it nor its managers will (i) cause the Class A
Shares to be listed on any national securities exchange or NASDAQ, (ii) engage
the services of any market maker, facilitate the development of an active
trading market or encourage others to do so, (iii) place any advertisements in
the media promoting investment in the Class A Shares, or (iv) collect or publish
information regarding the price at which Class A Shares may be transferred.
CONVERSION OF CLASS B SHARES. The 1,200,000 Class B Shares held by IR
Partners are convertible in certain circumstances into an equivalent number of
Class A Shares which are reserved for such conversion. The Class B Shares will
automatically convert into a like number of Class A Shares upon the earlier of
(i) the first anniversary of the termination of each of the Management
Agreements, (ii) the 90th day (or, if earlier, the date of the annual meeting)
following the date upon which more than 80% of Presidio's outstanding common
stock is held by three or fewer entities (counting entities under common control
or managed by a common adviser as a single entity) or (iii) if Steinhardt
Management and all of its affiliates (including any funds under their
management) beneficially own in the aggregate less than 5% of the Company's
outstanding shares. In addition, in the event a holder of Class B shares
transfers or disposes of any such shares by operation of law or following
termination of the Management Agreements and the transferee is not an affiliate
of the transferor or of Steinhardt Management, such transferred shares shall
automatically be converted into a like number of Class A Shares.
RESTRICTIONS ON TRANSFERS OF CLASS B SHARES. Until November 3, 1997,
the Class B Shares are nontransferable except (i) transfers by operation of law,
(ii) transfers to an affiliate of the holder thereof, (iii) following the
termination of each of the Management Agreement or (iv) pursuant to liquidating
distributions to such holder's shareholders or partners. The Memorandum and
Articles of Association impose no such restrictions on the transferability of
the Class A Shares. Otherwise no Class A Shares are subject to outstanding
options, warrants or convertible securities.
As of March 1, 1996, there were 307 holders of record of the Class A
Shares.
Presidio has paid dividends with respect to Class A Shares and Class B
Shares, and expects to declare and pay dividends from time to time in the
future, depending on available cash balances generated by the liquidation of the
Acquired Assets. Presidio's Articles of Association provide that Presidio shall
make quarterly distributions of cash to the holders of Class A and Class B
Shares in certain circumstances to the extent it appears to the directors of
Presidio to be justified by available cash and surplus. From November 3, 1994
through December 31, 1995, the Company has paid $85 million or $8.49 per share
in dividends. Subsequent to December 31, 1995, the Company paid additional
dividends of $30 million or $3 per share through March 14, 1996. Additionally,
on March 27, 1996, a dividend of $32.5 million or $3.25 per share was declared
to be paid on April 12, 1996 to all shareholders of record as of April 3, 1996.
The Indemnification Agreements and the Indemnification Security
Agreement contains certain restrictions on Presidio's ability to pay dividends.
See "Business -- Material Agreements and Instruments."
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.
------------------------------------
The following table sets forth selected consolidated financial data at
the end of and for the periods set forth below. The selected consolidated
financial data for Integrated for the fiscal years ended December 31, 1991 and
1992 have been derived from the audited financial statements of Integrated
presented in Integrated's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992. The selected consolidated financial data for Integrated for
the nine months ended September 30, 1993 have been derived from the financial
statements of Integrated audited by Deloitte & Touche LLP, independent auditors
(the report for which expresses an unqualified opinion and includes an emphasis
of a matter paragraph). The selected consolidated financial data of Integrated
for the period ended December 31, 1993 and for the period from January 1, 1994
to November 2, 1994 have been derived from Integrated's statements of net assets
in liquidation audited by Deloitte & Touche LLP (the report for which expresses
an unqualified opinion and includes an emphasis of a matter paragraph).
Presidio's selected consolidated statements of changes of net assets in
liquidation for the period ended December 31, 1994 and the year ended December
31, 1995 and the selected consolidated statements of net assets in liquidation
at November 3, 1994, December 31, 1994, and December 31, 1995 have been derived
from Presidio's consolidated financial statements audited by Deloitte & Touche
(the report for which expresses an unqualified opinion and includes an emphasis
of a matter paragraph).
The financial statements of Integrated and Presidio have been prepared
on the liquidation basis of accounting for all periods subsequent to October 1,
1993. The liquidation basis of accounting is appropriate when liquidation
appears imminent, a company is no longer viewed as a going concern and the net
realizable value of a company's assets is reasonably determinable. Under this
method of accounting, assets are stated at their estimated net realizable value
and liabilities are stated at their anticipated settlement amounts. The
valuations presented in these financial statements are based on current facts
and circumstances and may differ materially from amounts ultimately realized.
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED
----------
For the period ended For the year ended
NOV. 2, DEC. 31, SEP. 30, DEC. 31, DEC. 31,
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except per share amounts)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues N/A N/A $ 93,061 $124,098 $133,546
General and administrative costs N/A N/A 25,659 60,927 66,289
Restructuring costs and expenses N/A N/A 10,683 25,464 14,913
Extraordinary items N/A N/A 1,568 19,562 10,350
Net income N/A N/A 38,763 23,829 15,718
Income per common share N/A N/A 3.39 2.08 1.37
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
IN LIQUIDATION DATA:
Increase (Decrease)
<S> <C> <C>
Adjustment for adoption of
liquidation accounting $ 0 $ [19,207]
Net revaluation of assets and
liabilities 0 38,928
Adjustment of liabilities to
estimated settlement amounts 0 1,032,210
Net change in net assets
in liquidation 0 1,071,138
<CAPTION>
STATEMENT OF NET ASSETS
IN LIQUIDATION DATA:
<S> <C> <C>
Total assets $992,402 $1,052,330
Total liabilities - net of
adjustment to estimated
settlement amounts $992,402 $1,052,330
Net assets in liquidation 0 0
===================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRESIDIO
(in thousands of United States dollars)
__________ For the period ended ___________
DEC. 31, 1995 DEC. 31, 1994 NOV. 3, 1994
------------- ------------- ------------
<S> <C> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
IN LIQUIDATION DATA:
Increase from revaluation of
assets and liabilities $ 73,808 $ 0 $ 0
Interest income 7,038 0 0
Dividends paid/accrued (95,014) 0 0
Net change in net assets
in liquidation (14,168) 0 0
STATEMENT OF NET ASSETS
IN LIQUIDATION DATA:
Total assets $470,775 $533,820 $1,028,173
Total liabilities 85,547 134,424 628,777
Net assets in liquidation 385,228 399,396 399,396
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND LIQUIDATION ACTIVITIES.
------------------------------------
The following section includes (i) a discussion and analysis of the
liquidity and capital resources and liquidation activities of the Company for
the year ended December 31, 1995 and for the period November 3, 1994 to December
31, 1994, and (ii) a discussion and analysis of the historical liquidity and
capital resources and liquidation activities of Integrated for periods
subsequent to Integrated's adoption of liquidation accounting as of October 1,
1993. A discussion and analysis of the historical results of Integrated prior to
October 1, 1993 are set forth in the excerpts from Integrated's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1993, incorporated herein by
reference.
Liquidity and Capital Resources -- The Company
Consummation Date Activities and Organization
The Company was organized in accordance with the Plan, which was
consummated on November 3, 1994. The Plan called for the issuance of Presidio's
Class A Shares to the former creditors of Integrated ("Creditors") and the
issuance of Presidio's Class B Shares to IR Partners, the funder of the Plan.
Creditors received a combination of cash, approximately 8.8 million Class A
Shares and approximately 8.8 million shares of XRC Corp. common stock in lieu of
forgiveness of approximately $1.4 billion of liabilities recorded by Integrated.
IR Partners paid approximately $35.8 million on the Consummation Date and
received 1.2 million Class B Shares in accordance with the provisions of the
Plan. Substantially all assets and remaining liabilities of Integrated were
transferred to and assumed by the Company. Additionally, certain assets and
liabilities were transferred to and assumed by XRC Corp. (which serves as the
nominal successor corporation to Integrated as required under bankruptcy law).
The total net assets transferred to XRC Corp. were approximately $3.6 million.
The Company will act as a liquidating entity and accordingly net cash will be
distributed subject to restrictions imposed by various indemnification
agreements and amounts not retained for working capital requirements. See
"Business -- Background."
<PAGE>
As of the Consummation Date, the Company disbursed approximately $456
million to discharge various claims filed by Creditors. Such disbursements were
made as follows:
Class Amount
----- ------
(in thousands)
Senior Claims $ 394,858
General Unsecured Claims 34,677
Sub Debt Claims 13,427
Other Claims (1) 13,215
---------
$ 456,177 (2)
=========
The Company also reserved $46 million for disputed claims on the
Consummation Date, approximately $7 million of which remained in reserve at
December 31, 1995. Such claims are currently being evaluated. As settlements are
reached on these claims, cash will either be disbursed to the claimant, or
released to the Company. In addition, 162,932 of the 8.8 million Class A Shares
reserved for Creditors were reserved for such disputed claims on the
Consummation Date. These shares will also be released upon settlement of the
disputed claims. Reserved shares for disputed claims that are expunged, will be
made available for sale to Creditors. During 1995, settlements were made on
certain claims and 115,851 of such shares were disbursed. As of December 31,
1995, 47,081 Class A Shares remained in reserve for disputed claims.
On the Consummation Date, the Company deposited amounts in various
escrow accounts as security for indemnification of certain former officers and
directors of Integrated and the Class A Directors of Presidio.
Indemnity for the former officers and directors of Integrated is
secured by $10 million in cash and all of the Company's stock and partnership
interests in certain of its non-U.S. subsidiaries. The Company's non-U.S.
operations must meet certain minimum net worth requirements for certain
specified periods after the Consummation Date. All distributions made by the
Company are limited by a requirement that the Company have sufficient net assets
after distributions to discharge any pending and expected Qualified Indemnity
Obligations. See "Business -- Material Agreements and Instruments --
Indemnification Agreement and Indemnification Security Agreement."
- -------------------
(1) Other claims include pre- and post-bankruptcy Administrative Claims,
Priority Tax Claims and Small Claims as defined in the Plan.
(2) Amounts exclude (a) approximately $40 million disbursed to former
subsidiaries of Integrated (currently subsidiaries of Presidio) in
satisfaction of post-petition Administrative Intercompany Claims (as
defined in the Plan) filed by them and (b) approximately $23.1 million
for the settlement of the B&S Actions.
<PAGE>
The Plan also provided for indemnification of the Class A Directors of
Presidio (the "Class A Indemnification"). This indemnification agreement was
secured by a $1 million escrow deposit made on the Consummation Date. Presidio
is also required to deposit the greater of $750,000, or 1% of distributions made
per quarter to this escrow account for additional indemnification security. As
of December 31, 1995, approximately $3 million has been deposited and will be
held in escrow for a period of six years subsequent to the Consummation Date. At
the end of six years any remaining Class A Indemnification funds will be
returned to Presidio. All such security amounts are classified in the financial
statements as restricted cash.
On the Consummation Date, the Company disbursed approximately $23.1
million as settlement of the B&S Actions pursuant to the B&S Settlement
Agreement. Under the B&S Settlement Agreement, Presidio remains obligated with
respect to certain claims and costs in amounts which are not material in the
aggregate. See "Business -- Material Agreements and Instruments -- B&S
Settlement Agreement."
Current Liquidity
The Company is currently liquidating its assets pursuant to the Plan.
The liquidation basis of accounting has been adopted and, as such, comparisons
of results of operations to prior periods are not meaningful. The Consolidated
Statements of Net Assets in Liquidation of Presidio filed herewith reflect the
net realizable value of assets, estimated costs of liquidation through the end
of the process and estimated costs relating to the settlement of certain
disputed claims.
The Company has accrued a liability of approximately $64 million and
$113 million as of December 31, 1995 and 1994, respectively, in anticipation of
costs needed to liquidate the entire portfolio of assets, including expected
liabilities for the settlement of remaining bankruptcy claims. The actual costs
may be higher or lower depending on a number of factors including but not
limited to the amount of time necessary to dispose of the remaining assets, as
well as current and future market conditions.
Presidio's ability to make distributions to shareholders remains
limited in accordance with the terms of the indemnification obligations of the
former officers and directors of Integrated and its subsidiaries. Presidio has
no basis for believing that any of those indemnification obligations will be
material, however, pursuant to the terms of such agreements, Presidio is
required to notify beneficiaries thereunder of dividends and certain other
transfers of cash made by subsidiaries of Presidio to Presidio and to retain the
value of certain collateral granted as security for such indemnification
obligations. Although such restrictions may impede the timing of distributions
to Presidio shareholders, Presidio does not anticipate that those restrictions
will materially impair its liquidity. Presidio made $85 million of distributions
to shareholders during 1995 for which notice to the beneficiaries of the
Indemnification Agreements was provided. Such distributions were not challenged
by the beneficiaries.
In accordance with restrictions under the No Action Letter, Presidio
has only made temporary investments in money market instruments, short-term
government securities or other investment grade short-term debt securities.
Because of the liquid nature of such investments, compliance with the No Action
Letter would generally be expected to increase liquidity.
<PAGE>
As of December 31, 1995, Presidio had restricted cash of $22 million,
primarily comprised of reserves for disputed bankruptcy claims of $7 million and
deposits for escrow accounts as security for indemnification of certain former
officers and directors of Integrated and the Class A directors of Presidio of
$14 million.
The Company's primary objective is to liquidate its assets in the
shortest time period possible while realizing the maximum values for such
assets. Although the Company considers its assumptions and estimates as to the
values and timing of such liquidations to be reasonable, the period of time to
liquidate the assets and distribute the proceeds of such assets is subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Company's control. Cash and cash equivalents
decreased by $53 million during the year ended December 31, 1995 primarily due
to dividends paid during the year. The components of the change in cash and cash
equivalents, are as follows:
<TABLE>
<CAPTION>
(Millions)
Year Ended
December 31, 1995
-----------------
<S> <C>
Cash Inflows
Operating cash receipts $ 88.6
Interest income 7.0
--------
Total Cash Inflows 95.6
--------
Cash Outflows
Dividends paid 85.0
Bankruptcy claims paid 21.6
Steinhardt Management Co., Inc. expense reimbursement 2.1
Legal, accounting and consulting fees 9.2
Legal and other expenses - Contract Rights 14.5
Miscellaneous general and administrative costs 16.5
--------
Total Cash Outflows 148.9
--------
(Decrease) in cash and cash equivalents (53.3)
--------
Cash and cash equivalents, beginning of period 173.9
--------
Cash and cash equivalents, end of period $ 120.6
========
</TABLE>
Presidio believes that cash on hand, revenues generated from interests
in businesses that continue to operate and the proceeds from sales of businesses
and other assets will be sufficient to support Presidio's operations and to pay
its obligations as they become due.
Dividends of $10 million ($1.00 per share) and $20 million ($2.00 per
share) were paid on January 12, 1996 and February 9, 1996, respectively. On
March 27, 1996, the Company declared a cash dividend of $3.25 per share or $32.5
million, payable on April 12, 1996, to all shareholders of record as of April 3,
1996.
<PAGE>
Liquidation Activities -- The Company
1995
- ----
The Company seeks to balance the goals of liquidating the Acquired
Assets in the quickest time period possible and realizing maximum values for
such assets. Although the Company considers its assumptions and estimates as to
costs and timing of such liquidation to be reasonable, the period of time to
liquidate the Acquired Assets and distribute the proceeds of such assets is
subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the Company's control. The Acquired
Assets are reflected in the financial statements filed herewith at their net
realizable value based on the Company's planned disposition strategies.
Contract Rights
In October 1995, certain of the Company's subsidiaries modified the
contract right obligations pursuant to the Agreement to Modify certain of the
Contract Right Agreements, dated as of September 29, 1994 (collectively the
"Modification"). Among other things, the Modification provided for (i) the
restatement of the Contract Rights as promissory notes in order to better
evidence the existing Contract Right obligations and provide a more definite
payment schedule, (ii) the delivery of subordinate mortgages or negative pledges
in order to secure the Partnerships' obligations under such negotiable
promissory notes, (iii) the creation of a paying agency arrangement (the paying
agent agreement was executed with Bankers Trust Company) in order to collect
monies payable under leases in excess of amounts required to service existing
first mortgage indebtedness, and (iv) the delivery of certain estoppels and
other certificates by the Partnerships and various tenants, superior mortgagees
and ground lessors in order to provide the Company with more detailed
information regarding the Partnership, the tenant, the property and existing
operating leases. The Modification made the Contract Rights a more readily
saleable/financeable instrument.
On March 28, 1996 (the "Closing Date"), the Company and certain of its
subsidiaries sold 117 of its 123 Contract Rights in a private securitization
transaction. Net proceeds realized by the Company after securitization and
related hedge position costs and reserves to be held for more than 90 days
relating to the securitization were approximately $205 million. After completion
of the securitization there are six Contract Rights remaining which the Company
estimates have an approximate net realizable value of $38 million.
The securitization certificates that were sold are secured by
substantially all of the payment stream from the primary term of the related
Contract Rights. The certificates sold in the securitization are not backed by
the Company. Most of the remaining payment stream, which is effectively
subordinated to the certificates sold in the securitization, will be used to
make payment to the holder of another certificate, 99% of which was sold to a
newly formed company, T-Two Holding, LLC (the "LLC"), an entity owned by certain
affiliates of Presidio (the "Affiliates"). These Affiliates are controlled by
Charles Davidson and Joseph Jacobs, respectively, the Chairman of the Board and
the President of Presidio. On the Closing Date Presidio made a $31.5 million
recourse loan to the Affiliates; the proceeds of which were used to purchase the
Affiliates interests in the LLC. The LLC will conduct a rights offering directed
to the Company's shareholders as soon as practicable, which the Company believes
may not occur until early 1997, enabling the Company's shareholders to acquire
all of the LLC.
For the year ended December 31, 1995, 13 tenants purchased their leased
property from the Company as permitted under the terms of their leases for $15.4
million. During the year, the Company received $900,000 as scheduled payments on
Contract Rights and two tenants who had been leasing property from the Company
prepaid $2.1 million as final payments on an existing Contract Right.
In May 1995, Presidio entered into a series of interest rate hedges
(the "Hedges") through the short sales of ten-year U.S. government treasury
notes (the "Notes") maturing in February and March 2005. These Notes had an
aggregate notional value of $225 million, and were designed to reduce the impact
of interest rate fluctuations on the projected proceeds from future Contract
Right transactions. At December 31, 1995, the Company had unrealized losses of
approximately $14.7 million on this position. During the first quarter of 1996,
amid increases in prevailing interest rates, this loss decreased substantially.
In March, 1996 the Company settled its position with regard to the Hedges,
realizing a loss of $2.6 million.
HEP Partnerships
The Company has reached a preliminary settlement in connection with a
class action lawsuit against among others, indirect subsidiaries of Presidio
that served as general partners of, or were otherwise alleged to be involved in
the offering of limited partnership interests in, three public real estate
partnerships. The settlement involves the reorganization of these partnerships
into a real estate investment trust. The facts and circumstances surrounding
existing litigation, as well as the proposed settlement are more fully described
in Item 3 "Legal Proceedings".
Equipment Leasing
During 1995, the Company increased its estimated net realizable value
on its Equipment Leasing interests by $7 million. This increase is primarily due
to (i) the Company's decision to manage its Equipment Leasing programs through
respective dissolution instead of selling them in order to maximize future cash
flow and (ii) the successful elimination and/or reduction of many contingencies
associated with its aircraft portfolio, including the mitigation of certain
return condition obligations under existing leases.
In March 1995, the Company entered into a management and administrative
services agreement with Fieldstone Private Capital Group L.P. ("Fieldstone") for
the purposes of managing Presidio's interests in certain equipment leasing
related subsidiaries, for which $1,045,000 has been paid during the year ended
December 31, 1995.
Operating Businesses
The Company, through an indirect wholly-owned subsidiary, owned a
general partnership interest in the general partner of Majco Building
Specialties, L.P. ("Majco"). On September 29, 1995, Majco consummated the sale
of substantially all of its assets for a gross sale price of $66.6 million
inclusive of $3.3 million which was paid into escrow. The Company's allocable
share from this sale was approximately $12 million (exclusive of any amounts
from escrow) from its interest in Majco. The Company had valued this asset at $8
million at December 31, 1994. In addition, approximately $3 million of the gross
sales price is being held in escrow through December 1997, of which the
Company's allocable share is approximately $2 million.
Presidio owned a deferred fee receivable from Rotor Tool, L.P., the
manufacturer of a comprehensive line of high quality semi-customized portable
pneumatic assembly and other tools. In December 1995, Rotor Tool, L.P.
consummated the sale of 100% of all its common stock interests in Rotor Tool
Company. As a result, Presidio received approximately $3.55 million on the
deferred fee due from the partnership.
Other
In December 1995, a subsidiary of the Company received approximately
$1.1 million as a brokerage commission on a sale of assets of a partnership
owning a health care facility in which the Company served as a general partner
of the general partner. Presidio had not previously recorded a value for this
asset at December 31, 1994.
During the fourth quarter of 1995, Presidio sold approximately 279,000
shares of stock in a publicly traded company engaged in the mortgage banking
business for an average price of $21.53 per share, realizing proceeds of
approximately $6 million on the transactions. Presidio had valued this asset at
$2 million at December 31, 1994.
During the third quarter a third party note receivable relating to a
property sold by Integrated in April 1993 was prepaid. The Company received
proceeds of $3.6 million, equal to the estimated net realizable value.
During the second quarter, the Company sold a first mortgage note and
assigned its interests in a wrap around mortgage, in two separate transactions,
from which the aggregate proceeds were $500,000, and which resulted in the
release of non-recourse indebtedness obligations and notes and other receivables
of approximately $353.9 million.
As part of the Company's ongoing review of the claims against
Integrated, the Company recorded a $6.5 million reduction in its debt during the
second quarter of 1995.
1994
- ----
During the period from November 3, 1994 through December 31, 1994 there
were no material dispositions of assets, except that (a) in November 1994 ACT 4
and ACT 5, partnerships in which indirect subsidiaries of Presidio own
co-general partnership interests, entered into a contract for the sale of
certain assets in cable television partnerships and (b) in December 1994,
Presidio disposed of rights to receive 56% of all payments relating to a
Contract Right in settlement of the claims of certain creditors.
Liquidity and Capital Resources -- Integrated
On February 13, 1990, Integrated filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. Subsequent
to that date, Integrated continued to effect changes in its business, reducing
its overhead and disposing of its assets in an attempt to accumulate a pool of
cash to distribute to its creditors, pursuant to a plan of reorganization. Under
this scenario, Integrated operated under the assumption that it would continue
as a going concern.
Effective October 1, 1993, Integrated adopted the liquidation basis of
accounting. This basis of accounting is to be adopted when liquidation appears
imminent. As a result of this change, Integrated revalued its assets and
liabilities to their net realizable values. The net adjustment to assets and
liabilities was $39 million, which is reflected in Integrated's Consolidated
Statement of Changes in Net Assets in Liquidation for the period ended December
31, 1993.
As of November 2, 1994, Integrated had approximately $620 million in
cash and short-term investments, substantially all of which were distributed to
Integrated's creditors or to the Company in accordance with the Plan.
Liquidation Activities -- Integrated
During the period January 1, 1994 through November 2, 1994, Integrated
sold certain interests in various cable companies for approximately $12.6
million. Additionally, Integrated also disposed of various other investment
program interests for approximately $7.7 million.
Due to the absence of required approvals to assignments, certain assets
and properties remain with Integrated subsequent to the Consummation Date.
Presidio controls such assets and properties and is entitled to the proceeds
from any dispositions thereof. The assets and properties remaining with
Integrated include stock in a corporation which owns an apartment complex and
stock in NAMCO. See "Business -- Description of Assets of the Company."
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Financial Statements - Presidio Capital Corp. and Subsidiaries (Liquidation
Basis)
Independent Auditors' Report
Consolidated Statements of Net Assets in Liquidation at December 31, 1995
and 1994 and November 3, 1994 (Consummation Date)
Consolidated Statements of Changes in Net Assets in Liquidation for the Year
Ended December 31, 1995 and for the period November 3, 1994 (Consummation Date)
through December 31, 1994
Notes to Consolidated Financial Statements
Financial Statements - Integrated Resources, Inc. and Subsidiaries (Liquidation
Basis)
Independent Auditors' Report
Consolidated Statement of Net Assets in Liquidation at December 31, 1993
Consolidated Statements of Changes in Net Assets in Liquidation for the
periods January 1, 1994 through November 2, 1994 and October 1, 1993 through
December 31, 1993
Notes to Consolidated Financial Statements
Financial Statements - Integrated Resources, Inc. and Subsidiaries
(Going Concern Basis)
Independent Auditors' Report
Consolidated Statement of Operations for the Nine-Month Period
Ended September 30, 1993
Consolidated Statement of Cash Flows for the Nine-Month Period Ended
September 30, 1993
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Presidio Capital Corp:
We have audited the accompanying consolidated statements of net assets in
liquidation of Presidio Capital Corp. and subsidiaries (the "Company") at
December 31, 1995 and 1994 and November 3, 1994 (Consummation Date) and the
related consolidated statements of changes in net assets in liquidation for the
year ended December 31, 1995 and for the period November 3, 1994 (Consummation
Date) through December 31, 1994 (all expressed in thousands of United States
dollars). These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and the disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the net assets in liquidation of the Company at December 31,
1995 and 1994 and November 3, 1994 (Consummation Date) and the changes in its
net assets in liquidation for the year ended December 31, 1995 and for the
period November 3, 1994 (Consummation Date) through December 31, 1994 in
conformity with accounting principles generally accepted in the United States of
America on the basis described in the preceding paragraph.
As discussed in Note 1 to the consolidated financial statements, the Company was
formed in accordance with the Sixth Amended Plan of Reorganization confirmed by
the United States Bankruptcy Court for the purpose of purchasing substantially
all of the assets of Integrated Resources, Inc. and liquidating and distributing
capital to the Company's shareholders. The Company adopted the liquidation basis
of accounting effective November 3, 1994 (Consummation Date) and the
consolidated financial statements reflect assets at estimated net realizable
amounts and liabilities at anticipated settlement amounts.
As emphasized in Notes 1 and 12 to the consolidated financial statements, the
Company determined the amounts realizable from the disposition of the remaining
assets, the amounts of certain liabilities, and the outcome of litigation using
various assumptions about future events.
Deloitte & Touche
April 9, 1996
Grand Cayman, Cayman Islands
<PAGE>
<TABLE>
<CAPTION>
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Expressed in thousands of United States dollars)
November 3,
1994
December 31, December 31, (Consummation
1995 1994 Date)
------------ ------------ -------------
<S> <C> <C> <C>
Assets:
Cash and cash equivalents (including
restricted cash of $21,603 and $42,176 at
December 31, 1995 and 1994,
respectively) ............................. $ 120,613 $ 173,944 $ 656,826
Investments ................................. 32,769 50,546 50,546
Contract rights ............................. 235,681 215,000 215,000
Notes and other receivables (net of
non-recourse indebtedness of $17,599 and
$372,204 at December 31, 1995 and 1994,
respectively) ............................. 76,193 89,683 101,154
Other assets ................................ 5,519 4,647 4,647
---------- ---------- ----------
Total assets ................ $ 470,775 $ 533,820 $1,028,173
---------- ---------- ----------
Liabilities:
Debt ........................................ $ 4,895 $ 11,381 $ 11,381
Dividends payable ........................... 10,014 -- --
Estimated costs of liquidation .............. 64,638 113,043 607,396
Estimated tax liability ..................... 6,000 10,000 10,000
---------- ---------- ----------
Total liabilities ........... 85,547 134,424 628,777
---------- ---------- ----------
Net Assets in Liquidation $ 385,228 $ 399,396 $ 399,396
========== ========== ==========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Expressed in thousands of United States dollars)
November 3,
1994
(Consummation Date)
Year Ended through
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Net Assets in Liquidation,
beginning of period ..................... $ 399,396 $ 399,396
Dividends ................................. (95,014) --
Increase from revaluation of
assets and liabilities .................. 73,808 --
Interest income ........................... 7,038 --
--------- ---------
Net change in net assets
in liquidation .......................... (14,168) --
Net Assets in Liquidation,
end of period ........................... $ 385,228 $ 399,396
========= =========
See notes to consolidated financial statements
</TABLE>
<PAGE>
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------
Presidio Capital Corp. ("Presidio" and, collectively with its subsidiaries, the
"Company") was organized on August 29, 1994, in the British Virgin Islands under
the International Business Companies Act (Cap. 291), to purchase, directly or
through its subsidiaries, substantially all of the assets of Integrated
Resources, Inc. ("Integrated") for the purpose of liquidation and distribution
of capital to shareholders. The Company was formed in accordance with the Sixth
Amended Plan of Reorganization Submitted by the Official Committee of
Subordinated Bondholders and the Steinhardt Group, (the "Plan") confirmed by the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") by order dated August 8, 1994. The Plan was officially
consummated on November 3, 1994 (the "Consummation Date").
The Plan gave creditors of Integrated the right to receive 88% of Presidio's
Class A shares in lieu of all or part of their cash distribution as defined in
the Plan. The remaining 12% of stock was issued to and purchased by IR Partners,
a general partnership among Steinhardt Management Company Inc., ("Steinhardt")
certain of its affiliates and an affiliate of Charles E. Davidson, the principal
of Presidio Management Company, LLC ("Presidio Management") and Chairman of the
Board of the Company and Joseph M. Jacobs, the Chief Executive Officer and
President of the Company, for approximately $36 million, under the terms of the
Asset Purchase Agreement. In addition to the issuance of Class A shares,
subsequent to the Consummation Date, Presidio disbursed approximately $456
million to the former creditors in satisfaction of bankruptcy claims against
Integrated.
The Company is co-managed by Presidio Management and Steinhardt, who direct on a
discretionary basis, the disposition, liquidation and sale of the Company's
assets. The administration of these liquidating responsibilities is performed by
Wexford Management LLC ("Wexford"). Upon consummation of the Plan, Presidio
entered into an Administration Services Agreement with Concurrency Management
Corp. ("Concurrency"). Effective January 1, 1996, Wexford Management Corp.
previously Concurrency assigned this agreement to Wexford. Wexford is
principally responsible for the implementation of the day to day operations as
well as the liquidation of the Company. A fixed annual fee is paid to each of
the co-managers.
Liquidation Basis
As a result of the consummation of the Plan, the Company has adopted the
liquidation basis of accounting. The liquidation basis of accounting is
appropriate when liquidation appears imminent and the Company is no longer
viewed as a going concern. Under this method of accounting, assets are stated at
their estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuations presented in these financial
statements are presented in U.S. dollars under U.S. Generally Accepted
Accounting Principles.
<PAGE>
The valuation of assets and liabilities requires many estimates and assumptions,
and there are substantial uncertainties in implementing the Plan. The actual
value of any liquidating distributions will depend upon a variety of factors
including, among others, the actual market prices of any assets distributed in
kind, the proceeds from the sale of any of the Company's assets and the actual
timing of distributions.
The valuations presented in the accompanying Statements of Net Assets in
Liquidation represent estimates, based on current facts and circumstances, of
the estimated net realizable value of assets and estimated costs of
implementation of the Plan. The net values ultimately realized could be higher
or lower than the amounts recorded.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits, certificates of deposit and all
instruments (including commercial paper, treasury bills and repurchase
agreements) with original maturities of three months or less. Restricted cash
represents cash held in escrow as security under various officer and director
indemnification agreements, and cash reserved for the payment of certain
bankruptcy related claims.
Investments
Investments in corporate equity securities and interests in limited partnerships
are valued at their estimated net realizable value.
Non-Recourse Indebtedness
Non-recourse indebtedness represents obligations on wraparound mortgages of
certain real estate subsidiaries. These obligations are collateralized by first
liens on commercial real estate properties owned by limited partnerships and are
recorded net of related receivables.
Estimated Costs of Liquidation
The estimated costs of liquidation represent the estimated costs of operating
the Company through its expected termination. These costs include management
fees, estimated reimbursable expenses, the fees of outside professionals,
estimated liabilities for the settlement of remaining bankruptcy claims and
other costs, and are based on various assumptions. The estimated costs of
liquidation assume liquidation within three to five years from the Consummation
Date, in accordance with the provisions of the Plan. Actual total costs of
liquidation are likely to differ from estimated costs and these differences may
be material.
Income Taxes
Income taxes include taxes that will be payable on account of and upon sale or
disposition of interests in operating businesses, real estate or other assets.
<PAGE>
Net Realizable Value
In determining the net realizable values of the assets, the Company considered
each asset's ability to generate future cash flow, offers received from third
parties, if any, and other general market information. Such information was
considered in conjunction with the Company's plan for its disposition of assets.
Computations of net realizable value necessitate the use of assumptions and
estimates. Future events, including economic conditions that relate to real
estate markets in general, may differ from those assumed or estimated in the
computations. As a result, the amounts ultimately realized may materially differ
from those currently reflected in these financial statements.
Consolidation
The consolidated financial statements include the accounts of Presidio and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
NOTE 2 - INVESTMENTS
- --------------------
Investments held by the Company consist of:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Equity securities .............................. $ 1,630 $ 3,709
Interests in limited partnerships .............. 31,139 46,837
------- -------
$32,769 $50,546
======= =======
</TABLE>
Investments in equity securities at December 31, 1995 include equity interests
in a privately held company which was valued at its estimated net realizable
value. The December 31, 1994 amount includes both equity investments in a
privately held company and a publicly traded corporation. During 1995 the
publicly traded stock was sold on the open market for approximately $6 million.
These securities were valued at approximately $2 million at December 31, 1994.
Interests in limited partnerships include general and limited partnership
interests in both public and privately held partnerships which invested in
leveraged and unleveraged real estate and various operating businesses. (See
Note 12 - Litigation). The net realizable value of these interests was based on
recent offers received from third parties, expected management fees and
distributions through estimated dates of disposal and/or expected net
liquidation proceeds to be realized upon dissolution of these partnership
interests.
<PAGE>
The Company, through an indirect wholly-owned subsidiary, held a general
partnership interest in the general partner of Majco Building Specialities, L.P.
("Majco"). On September 29, 1995, Majco consummated the sale of substantially
all of its assets for a gross sale price of $66.6 million inclusive of $3.3
million which was paid into escrow. The Company's allocable distribution from
this sale was approximately $12 million (exclusive of any amounts from escrow)
for which the Company realized after tax proceeds of approximately $10 million
from its interest in Majco. In addition approximately $3 million of the gross
sales price is being held in escrow through December 1997, of which the
Company's allocable share is approximately $2 million.
NOTE 3 - CONTRACT RIGHTS
- ------------------------
Presidio, through two wholly-owned non-U.S. subsidiaries, is entitled to (i)
certain compensation representing deferred acquisition fees plus interest in
connection with Integrated's organization, from 1978 to 1985, of privately
offered net lease partnerships (the "Partnerships") and (ii) payment for
providing the Partnerships with the opportunity to purchase certain properties.
Such Partnerships invested in commercial real estate leased primarily to
investment grade tenants under non-cancelable, long term, triple net leases that
generally provided for 25 year primary terms, with options to renew granted to
the tenant for additional terms of up to 30 years.
In May 1995, Presidio entered into a series of interest rate hedges (the
"Hedges") through the short sales of ten-year U.S. government treasury notes
(the "Notes") maturing in February and March 2005. These Notes had an aggregate
notional value of $225 million, and are designed to reduce the impact of
interest rate fluctuations on the projected proceeds from future Contract Right
transactions. At December 31, 1995, based on the current market value of the
position, the Company had deferred unrealized losses of $14.7 million.
RECENT DEVELOPMENT - During the first quarter of 1996, amid increases in
prevailing interest rates, this loss decreased substantially. In March 1996 the
Company settled its position with regards to the Hedge realizing a loss of $2.6
million.
On March 28, 1996 (the "Closing Date"), the Company and certain of its
subsidiaries sold 117 of its 123 Contract Rights in a private securitization
transaction. After completion of the securitization there are six Contract
Rights remaining, which the Company estimates have an approximate net realizable
value of $38 million.
The securitization certificates that were sold are secured by substantially all
of the payment stream from the primary term of the related Contract Rights. The
certificates sold in the securitization are not backed by the Company. Most of
the remaining payment stream, which is effectively subordinated to the
certificates sold in the securitization, will be used to make payment to the
holder of another certificate, (the "T-Two Holder") 99% of which was sold to a
newly formed company, T-Two Holding, LLC (the "LLC"), an entity owned by certain
affiliates of Presdio (the "Affiliates"). These Affiliates are controlled by the
Chairman of the Board and the President of Presidio. On the Closing Date
Presidio made a $31.5 million recourse loan to the Affiliates; the proceeds of
which were used to purchase the Affiliates interests in the LLC. The LLC will
conduct a rights offering directed to the Company's shareholders as soon as
practicable, which the Company believes may not occur until early 1997, enabling
the Company's shareholders to acquire all of the LLC.
<PAGE>
The following reconciles securitization proceeds, and related costs and
commissions to the recorded value at December 31, 1995:
<TABLE>
<S> <C>
Gross proceeds from securitization $233,030
Reserves transferred to the T-Two Holder (23,043)
Net commissions paid at closing (3,487)
Contract Rights not sold 38,000
Reserves to be returned to Company within 90 days 9,415
Legal, professional and other closing costs * (15,621)
Loss on Hedges (2,613)
--------
Estimated net realizable value - December 31, 1995 $235,681
========
</TABLE>
* Includes all costs incurred subsequent to December 31, 1995 through the
Closing Date.
NOTE 4 - NOTES AND OTHER RECEIVABLES
- ------------------------------------
Notes and other receivables primarily consist of deferred payment arrangements
on assets previously liquidated by Integrated and economic interests of
equipment leasing subsidiaries (including management fees receivable). The
Company has recorded liquidation values on deferred payment arrangements based
on estimated recoverable cash flows based on the specific liquidation strategy
for each asset. The receivables relating to the equipment leasing subsidiaries
are based primarily on scheduled lease payments as well as recurring quarterly
distributions and fees received from partnerships originally sponsored by
Integrated.
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Receivable from TSA Note (a) ................... $ 29,030 $ 26,469
Notes and other receivables (b) ................ 38,764 54,276
Receivable from sale of life insurance
operations ................................... 7,499 8,235
Other (c) ...................................... 18,499 372,907
--------- ---------
93,792 461,887
Less non-recourse indebtedness (c) ............. (17,599) (372,204)
--------- ---------
$ 76,193 $ 89,683
========= =========
</TABLE>
<PAGE>
(a) Represents the value of a receivable relating to deferred cash proceeds
from the sale of Integrated's tax shelter annuity business through
December 31, 2000. The components of the change in the net realizable
value from December 31, 1994 to December 31, 1995 are as follows:
<TABLE>
<S> <C>
December 31, 1994 $26,469
Cash proceeds received (7,709)
Asset revaluation 10,270
-------
December 31, 1995 $29,030
=======
</TABLE>
The net realizable value of these deferred cash proceeds have been increased by
$10.3 million, based on recent independent third party appraisals received by
the Company.
(b) Includes receivables of the Company's equipment leasing subsidiaries of
approximately $23 and $29 million at December 31, 1995 and 1994,
respectively.
(c) Includes wraparound mortgages due from certain limited partnerships
with interest at 7% to 14.55% and due in installments through 2014,
which are collateralized principally by second liens on commercial real
estate properties owned by limited partnerships. The unamortized
principal amount of such mortgages receivable, including accrued
interest, exceeds the corresponding unamortized amount of the
underlying mortgages payable (non-recourse indebtedness of $17.6
million).
During the second quarter, the Company sold a first mortgage note and
assigned its interest in a wrap around mortgage in two separate
transactions aggregating $500 thousand. As a result of these
transactions, the Company was released of non-recourse indebtedness
obligations of approximately $353.9 million.
NOTE 5 - ESTIMATED COSTS OF LIQUIDATION
- ---------------------------------------
The estimated costs of liquidation include current accounts payable, obligations
under disputed bankruptcy claims, obligations of the Company and the estimated
future costs to liquidate the Company pursuant to the Plan.
Estimated costs of liquidation include the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Reserve for disputed claims ...................... $ 7,000 $ 31,026
Estimated general and administrative
costs ....................................... 46,323 74,266
Other ............................................ 11,315 7,751
-------- --------
$ 64,638 $113,043
======== ========
</TABLE>
<PAGE>
Pursuant to the consummation of the Plan, certain amounts were reserved for
claims filed by creditors of Integrated, which, due to either the nature of the
claim or the amount requested, had not yet been resolved. Reserves for the
maximum amounts under the provisions of the Plan were recorded. As settlements
are reached on these claims, cash is either disbursed to the claimant, or
released to the Company. As of December 31, 1995, approximately $7 million
remained in reserve for disputed claims.
Estimated general and administrative costs are based upon current facts and
circumstances, and has decreased from the prior year primarily due to payments
made in 1995.
A summary of the changes in estimated costs of liquidation are as follows:
<TABLE>
<S> <C>
Balance - November 3, 1994 $ 607,396
Amounts paid for bankruptcy claims,
settlements, administration and operations (A) (494,353)
---------
Balance - December 31, 1994 (B) 113,043
---------
Amounts paid for bankruptcy claims,
settlements, administration and operations (C) (45,826)
Adjustments to estimated costs of liquidation (2,579)
---------
Balance - December 31, 1995 (B) $ 64,638
=========
</TABLE>
(A) Includes payments on allowed and disputed bankruptcy claims filed
against Integrated of approximately $447 million and $9 million,
respectively.
(B) The estimated costs of liquidation may be adjusted in future periods
primarily due to the timing and type of asset sales and the resolution
of disputed claims. Actual costs of liquidation are likely to differ
from estimated costs and these differences may be material.
(C) Includes payments of approximately $21.6 million on disputed bankruptcy
claims that were settled during 1995.
NOTE 6 - ESTIMATED INCOME TAX LIABILITY
- ---------------------------------------
As a result of the inability of Presidio to use Integrated's net operating loss
carry forwards, the Company has recorded an estimated tax liability.
<PAGE>
Estimated tax liabilities consist of:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Contract rights ............................ $ 3,000 $ 8,000
Other ...................................... 3,000 2,000
------- -------
Estimated income tax liability ............. $ 6,000 $10,000
======= =======
</TABLE>
Actual tax obligations may differ from estimated amounts, primarily due to the
timing of future liquidation activities and these differences may be material.
During 1995, the Company paid taxes of $2.2 million primarily from the
liquidation of its general partnership interests in Majco (See Note 2).
NOTE 7 - COMMON STOCK
- ---------------------
The Company has 11.25 million shares of common stock authorized, with a par
value of U.S. $.01 per share. Creditors of Integrated were issued 8.8 million
Class A shares (including 162,932 shares reserved in respect of disputed claims
of which 47,081 shares remained in reserve at December 31, 1995) and IR Partners
received 1,200,000 Class B shares.
The rights and privileges of the Class A and Class B shares are identical except
with respect to elections of directors and certain restrictions on transfer of
Class B shares. Additionally, 13,650 shares were issued to the Class A directors
on the Consummation Date (4,550 of which were forfeited to the Company in
February 1995 and later reissued to a new director). The 1,200,000 Class B
shares held by IR Partners are convertible in certain circumstances into an
equivalent number of Class A shares.
NOTE 8 - RELATED PARTY TRANSACTIONS
- -----------------------------------
On November 3, 1994, Presidio entered into an administrative services agreement
with Concurrency, whereby Concurrency will be responsible for the day to day
administration of the Company. Effective January 1, 1996, this agreement was
assigned to Wexford. Concurrency was 100% owned by Joseph M. Jacobs, the
President and a director of Presidio. Charles E. Davidson, the Chairman and a
director of Presidio, and the beneficial owner of Presidio Management LLC, and
Joseph M. Jacobs are members of Wexford.
The Company has also entered into management agreements with Presidio Management
and Steinhardt pursuant to which Presidio Management will manage the Company and
its liquidation and Steinhardt will render certain consulting services to the
Company.
These agreements require the Company to pay both Presidio Management and
Steinhardt management fees of $1.25 million per year for a three year period
expiring November 3, 1997. Presidio Management has directed that 50% of its
annual management fee be paid to Mr. Jacobs. In March 1996, the Board of
Directors of Presidio approved the assignment of Presidio Management's Agreement
to Wexford. During 1995, Presidio reimbursed Concurrency $4.3 million in
connection with the operation and administration of the Company.
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Company established a reserve on the Consummation Date of $46 million in
cash ($7 million of which remained in reserve at December 31, 1995) and 162,932
Class A shares in respect of disputed claims against Integrated (47,081 of which
remained in reserve at December 31, 1995). These claims represent claims
unresolved as of the Consummation Date. Additionally, certain creditors have
disputed the amounts of cash and common shares received upon completion of the
distribution process. As such claims are resolved, cash and or shares will be
disbursed to the prevailing claimant. If claims are resolved in favor of the
Company, reserved cash will revert back to the Company, while reserved shares
will be made available for purchase to the current Class A shareholders.
Presidio has reserved $10 million to provide for indemnification of Qualified
Indemnities (former officers and directors of Integrated and its subsidiaries)
against claims relating to certain pre- bankruptcy conduct. The indemnity is
secured by $10 million in cash collateral as well as the stock of the Company's
non-U.S. subsidiaries. Under this agreement, the Company must also maintain
certain minimum net worth requirements throughout the liquidation process which
may restrict Presidio's ability to pay future dividends.
Additionally, Presidio has deposited into an escrow account $1 million as
security for the indemnification of the Company's Class A Directors. Presidio is
obligated to increase such security by the greater of $750 thousand or 1% of
distributions made in each quarter up to a maximum of $10 million. During 1995,
the Company deposited $2.25 million as additional security into this account.
All security holders are reflected as restricted cash.
NOTE 10 - REVALUATION OF ASSETS AND LIABILITIES
- -----------------------------------------------
The increase in Net Assets in Liquidation resulting from revaluation, for the
year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
-----------------
<S> <C>
Increase in estimated net
realizable value of assets (a) .......................... $ 66,988
Decrease in estimated costs
of liquidation .......................................... 2,579
Return of overpayments and
bankruptcy settlements .................................. 3,619
Other ...................................................... (1,173)
Decrease in estimated tax liability ........................ 1,795
--------
$ 73,808
========
</TABLE>
(a) Such increases relate principally to Contract Rights, $30 million (Note
3), TSA, $10 million (Note 4) and Investments, $10 million (Note 2).
<PAGE>
NOTE 11 - DIVIDENDS PAID/ACCRUED
- --------------------------------
During 1995, Presidio paid dividends of $8.49 per share ($85 million) to all
shareholders of record. On December 27, 1995, Presidio declared a dividend of
$1.00 per share ($10 million) to all shareholders of record as of January 12,
1996. This dividend is reflected as a liability at December 31, 1995. On January
23, 1996 Presidio declared dividends of $2.00 per share ($20 million) to all
shareholders of record as of January 29, 1996. These dividends were paid in the
first quarter of 1996. Additionally, on March 27, 1996, Presidio announced the
approval for payment of a $3.25 per share ($32.5 million) dividend payable on
April 12, 1996 to all shareholders of record as of April 3, 1996.
NOTE 12 - LITIGATION
- --------------------
Presidio and its subsidiaries are parties to various legal proceedings as
successors to Integrated and its subsidiaries. The following is a description of
material litigation in which the Company is involved.
THE HALLWOOD GROUP INCORPORATED V. STEINHARDT MANAGEMENT COMPANY, INC., ET AL.
Presidio and two subsidiaries, Presidio LP Corp. and Presidio GP Corp. (the
"Presidio Defendants"), have been named as defendants in this action which
commenced in May 1995 in the United States District Court for the Southern
District of New York. The complaint alleges that the Presidio Defendants are
affiliates of Steinhardt Management and as such are liable for a $1.5 million
fee allegedly owed the plaintiff under a written agreement between Steinhardt
Management and the plaintiff. The Presidio Defendants have filed an answer,
dated July 7, 1995 denying the material allegations of the complaint. Document
discovery is underway, but there have not yet been any depositions taken in this
case.
WEBBCO V. TELE-COMMUNICATIONS, INC., ET AL.; THE CARTER REVOCABLE TRUST V. TELE
COMMUNICATIONS, INC., ET AL. IR-Daniels II and IR-Daniels III, two partnerships
(the "Daniels General Partners") in which an indirect subsidiary of Presidio is
the co-general partner, and Integrated Cable Corp. have been named as defendants
in two Integrated Cable Corp. class action lawsuits commenced in September 1994
in the United States District Court for the District of Colorado. The complaints
allege that the Daniels General Partners, which serve as managing general
partners of two publicly held partnerships (the "Daniels Partnerships"), and
certain affiliated entities committed violations of Sections 10(b) and 14(a) of
the Exchange Act and breached their fiduciary duties to limited partners of the
Daniels Partnerships in connection with the sale of the Daniels Partnerships'
assets. The complaints assert that the proxy statements issued in connection
with those sales contained material false or misleading information and/or
failed to disclose material information and assert that certain actions taken in
connection with the sales constituted breaches of fiduciary duty. The complaints
seek unspecified monetary damages. The defendants filed motions to dismiss the
complaint, which were denied by the District Court. The defendants intend to
contest vigorously the allegations asserted against them.
<PAGE>
MARK ERWIN, TRUSTEE, ET. AL. V. RESOURCES HIGH EQUITY, INC., ET. AL. (the "HEP
Action"). Resources High Equity, Inc., Resources Capital Corp. and Integrated
Resources Equity Corporation, three former indirect subsidiaries of Integrated
(the "HEP Subsidiaries), together with a number of other defendants, including
certain former officers of Integrated (collectively the "HEP Defendants"), have
been named as defendants in this purported class action which was commenced in
May 1993 in the Superior Court for the State of California for the County of Los
Angeles (the "Court"). One derivative cause of action relating to assertions of
breach of fiduciary duty was dismissed with prejudice in January 1995. As to the
remaining claims in the HEP Action, the B&S Settlement Agreement requires the
Company to relinquish their right to collect and receive future asset management
fees, in exchange for an increase in their general partnership interest from
five percent to twenty-five percent and the dismissal of the remaining claims
with prejudice. The HEP Action was stayed while the parties renegotiated the
terms of the B&S Settlement Agreement as it pertains to this action.
On July 19, 1995, the Court preliminarily approved a settlement of the HEP
Action and approved the form of a notice (the "Notice") concerning such proposed
settlement. In response to the Notice, approximately 4% of the limited
partnership interests in of the HEP Partnerships requested exclusion and 15
limited partners filed written objections to the proposed settlement. The
California Department of Corporations also sent a letter to the Court opposing
the settlement. Five objecting limited partners, represented by two law firms,
also made motions to intervene so they could participate more directly in the
action. The motions to intervene were granted by the Superior Court on September
14, 1995.
In October and November 1995, the attorneys for the plaintiffs-intervenors
conducted extensive discovery. At the same time, there were continuing
negotiations concerning possible revisions to the proposed settlement.
On November 30, 1995, the original plaintiffs and the intervening plaintiffs
filed a Consolidated Class and Derivative Action Complaint ("Consolidated
Complaint") against the Company and the HEP Partnerships, alleging, among other
things, breach of fiduciary duties, breach of contract and negligence.
On or about January 31, 1996, the parties to the B&S Litigation agreed upon a
revised settlement, which would be significantly more favorable to the HEP
limited partners than the previously proposed settlement. The settlement
provides for the reorganization of the HEP Partnerships, through an exchange
(the "Exchange") in which limited partners (the "Participating Investors") of
the partnerships participating in the Exchange (the "Participating
Partnerships") would receive, in exchange for the partnership units, shares of
common stock ("Shares") of a newly-formed corporation, Millennium Properties
Inc. ("Millennium"). Millennium intends to qualify as a real estate investment
trust. Such reorganization would only be effected with respect to a particular
partnership if holders of a majority of the outstanding units of the partnership
consent to such reorganization pursuant to a Consent Solicitation Statement (the
"Consent Solicitation Statement") which would be sent to all limited partners
after the settlement is approved by the Court. 84.65% of the Shares to be issued
in the Exchange would be allocated to Participating Investors in the aggregate
(assuming each of the Partnerships participate in the Exchange) and 15.35% of
the Shares to be allocated to the Company in consideration of the Company's
existing interest in the Participating Partnerships and its relinquishment of
entitlement to receive fees and expense reimbursements, and the payment by the
Company of certain amounts for legal fees.
<PAGE>
As part of the Exchange, shares issued to Participating Investors would be
accompanied by options granting such Investors the rights to require the Company
to purchase such shares at a price of $11.50 per share, exercisable during the
three month period commencing nine months after the effective date of the
Exchange. A maximum of 1.5 million Shares (representing approximately 17.7% of
the total Shares issued to investors if all partnerships participate) would be
required to be purchased if all partnerships participate in the Exchange. Also
as part of the Exchange, the Company would agree that in the event that
dividends paid with respect to the shares do not aggregate at least $1.10 per
share for the first four complete fiscal quarters following the Effective Date,
it would make a supplemental payment to holders of such shares in the amount of
such a difference. The Company would provide an amount not to exceed
approximately $2.2 million in the aggregate, for the payment of attorneys' fees
and reimbursable expenses of class counsel, as approved by the Court, and the
costs of providing notice to the class (assuming that all three HEP Partnerships
participate in the Exchange). The Company would advance to the HEP Partnerships
the amounts necessary to cover other fees and expenses (but not their litigation
costs and expenses, which the Company would bear in full). Upon the effectuation
of this revised Exchange, the B&S Litigation would be dismissed with prejudice.
On February 8, 1996, at a hearing on preliminary approval of the settlement, the
Court determined that in light of renewed objections to the settlement by the
California Department of Corporations, the Court would appoint a securities
litigation expert to evaluate the settlement, and to advise the Court as to
whether any changes need to be made. If final approval of the settlement is
granted by the Court, the Consent Solicitation Statement concerning the
settlement and the reorganization would be sent to all limited partnerships. The
reorganization of the HEP Partnerships cannot be consummated unless a majority
of the limited partners in the HEP Partnerships affirmatively approve the
settlement.
600 GRANT STREET ASSOCIATES LIMITED PARTNERSHIP V. GENERAL ELECTRIC CAPITAL
CORPORATION, ET AL. Sivram Corp. and Grant Property Corp. (the "Affiliated
Defendants"), two indirect subsidiaries of Presidio, have been named as
defendants in this action which was commenced in December 1994 in the Court of
Common Pleas of Philadelphia County, Pennsylvania. The complaint asserts three
causes of action against the Affiliated Defendants for breach of contract,
declaratory relief that the plaintiff has not breached its contractual
obligations, and an accounting. The claim for breach of contract seeks damages
in excess of $50 million as well as punitive damages. The Affiliated Defendants
have filed an answer denying the material allegations of the complaint and
intend to vigorously contest the allegations against them.
<PAGE>
WRIGHT V. INTEGRATED AIRCRAFT FUND MANAGEMENT CORP., ET. AL. Integrated Aircraft
Fund Management Corp., Integrated Resources Marketing, Inc., and Integrated
Resources Equity Corp., three indirect subsidiaries of Presidio, have been named
as defendants in this purported class action which was commenced in February
1994 in the Supreme Court of the State of New York for the County of New York.
The first amended complaint asserts causes of actions for fraud, breach of
fiduciary duty and negligent misrepresentation based upon alleged material
misrepresentations and omissions by the defendants in connection with the
offering for sale of limited partnership units in the Aircraft Income Partners,
L.P. partnership. The plaintiffs seek unspecified monetary damages, rescission
and punitive damages. On October 2, 1995, the Supreme Court of the State of New
York for the County of New York ordered that the motion to dismiss was granted
and the amended complaint was dismissed in its entirety without leave to
replead. Plaintiffs have served a Notice of Appeal dated January 26, 1996,
however, defendant's counsel believe plaintiffs appeal to be untimely and intend
to move to strike the Notice.
INTEGRATED RESOURCES EQUITY CORPORATION LITIGATION. Integrated Resources Equity
Corporation ("IREC"), an indirect subsidiary of Presidio, has been named as a
defendant or respondent in approximately 23 lawsuits and arbitration proceedings
arising out of its conduct as a broker-dealer in securities. Integrated
Resources Marketing Corporation ("IRMI"), another indirect subsidiary of
Presidio, has also been named as a defendant or a respondent in several of these
actions. The majority of these lawsuits seek damages for former customers of
IREC arising out of purchases or sales of securities. IREC and the other
defendants in these actions are vigorously defending each of the lawsuits and
arbitration proceedings.
PRESIDIO CR HOLDINGS, L.P. V. BOFORD ASSOCIATES LIMITED PARTNERSHIP ET. AL. In
November 1994, Integrated filed a complaint in the United States Bankruptcy
Court for the Southern District of New York against 20 partnerships and all
unknown interested parties. The named partnership defendants are parties to
agreements pursuant to which certain Contract Rights (representing approximately
18% of the aggregate Contract Rights, based on scheduled Primary Term Payments)
were granted to former subsidiaries of Integrated (which were subsequently
merged into Integrated). The complaint alleged that documentation underlying the
Contract Rights has been lost or misplaced and sought a declaratory judgment
that the Contract Rights are held and owned by Integrated. As the successor in
interest under the Plan, Presidio CR Holdings, L.P., whose general and limited
partners are wholly-owned subsidiaries of Presidio, filed an amended complaint
to make it clear that the declaratory judgment relates solely to the ownership
of the Contract Rights prior to the Consummation Date. On October 10, 1995
Presidio CR Holdings, L.P. obtained a judgement that such Contract Rights were
property of Integrated's estate as of the Consummation Date.
<PAGE>
ISRAEL AIRCRAFT INDUSTRIES V. INTEGRATED AIRCRAFT CORP. On or about December 14,
1995, a complaint was filed by Israel Aircraft Industries LTD (Bedek Aviation
Division) ("IAI"), in the Ontario Court (General Division) in the Province of
Ontario, City of Toronto (the "Ontario Action"). The Ontario Action named as
defendants Integrated Aircraft Corp.("IAC") (a wholly-owned subsidiary of
Presidio Equipment Leasing), Jetall Airways, Inc ("Jetall"), Jetall Holding Corp
and Arie Tall. IAC is the lessor of a Boeing 737-200 aircraft (the "Aircraft")
leased to Jetall pursuant to a lease agreement dated August 6, 1993 (the
"Lease"). Pursuant to a letter agreement dated August 11, 1993, IAC agreed with
IAI to provide Jetall with up to $850 thousand of rental credits owing to IAC
under the Lease in order to induce IAI to perform certain work on the Aircraft.
The complaint alleged, among other things, that IAC and Jetall conspired and
illegally agreed to interfere with the contractual relationships existing with
IAI and that IAC induced Jetall to breach its agreement with IAI. The complaint
seeks US$386 thousand for breach of agreement and exemplary damages in the
amount of $1 million, plus interest. IAC's counsel has filed a motion to dismiss
the action based on lack of jurisdiction, inconvenient form and failure to state
a claim.
BENTLEY KING ASSOCIATES V. FILLMORE CENTER PROJECTS CORP. ET. AL. On December
12, 1995, Bentley King Associates ("BKA") filed suit against Fillmore Center
Project Corp. ("FCPC"), Presidio Fillmore Corp., Presidio and Citicorp Real
Estate, Inc. and several of its participant banks ("CREI") alleging various
causes of action relating to a consulting agreement between BKA and FCPC. The
claims asserted are for breach of contract, breach of fiduciary duties, fraud,
interference with contractual and prospectus advantage, breach of the covenant
of good faith dealing, negligence, negligent misrepresentation and fraudulent
conveyance. BKA alleges that the defendants conspired in order to avoid having
to pay BKA (1) a percentage of lawsuit proceeds stemming from defective
construction of its apartment/retail complex, and (2) a percentage of the
proceeds from the sale of that complex. As of March 1, 1996, neither Presidio
Fillmore Corp. nor Presidio have been served. Accordingly, neither has made an
appearance in BKA's lawsuit. If served, both Presidio Fillmore Corp. and
Presidio intend to vigorously defend BKA's lawsuit.
The Company is involved in certain other legal proceedings arising in
the ordinary course of the Company's business. The Company does not believe that
such claims or lawsuits, individually or in the aggregate, will have a material
adverse effect on its financial condition or operations.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Integrated Resources, Inc.
We have audited the accompanying consolidated statements of net assets in
liquidation of Integrated Resources, Inc. (the "Company") and subsidiaries at
December 31, 1993 and the related consolidated statements of changes in net
assets in liquidation for the periods January 1, 1994 through November 2, 1994
and October 1, 1993 through December 31, 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The Company filed for voluntary reorganization under Chapter 11 of the United
States Bankruptcy Code and operated as a debtor-in-possession through the
consummation of the Sixth Amended Plan of Reorganization confirmed by the United
States Bankruptcy Court. As a result of the approval of the plan of
reorganization, the Company adopted the liquidation basis of accounting for all
periods subsequent to September 30, 1993; as such the consolidated financial
statements reflect assets at estimated net realizable amounts and liabilities at
anticipated settlement amounts.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the net assets in liquidation of the Company and subsidiaries
at December 31, 1993 and the changes in their net assets in liquidation for the
periods January 1, 1994 through November 2, 1994 and October 1, 1993 through
December 31, 1993, in conformity with generally accepted accounting principles
on the basis described in the preceding paragraph.
As emphasized in Notes 1 and 6 to the consolidated financial statements, the
Company determined the amounts realizable from the disposition of the remaining
assets, the amounts of certain liabilities and the outcome of litigation using
various assumptions about future events.
Deloitte & Touche LLP
New York, New York
August 4, 1995
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
(Expressed in thousands of United States dollars)
December 31,
1993
-----------
<S> <C>
Assets:
Cash and cash equivalents ................................. $ 582,273
Investments ............................................... 77,179
Contract rights ........................................... 220,755
Notes and other receivables (net of non-
recourse indebtedness of $378,222) ...................... 149,158
Other assets .............................................. 22,965
-----------
Total assets ..................................... $ 1,052,330
-----------
Liabilities:
Short-term loans .......................................... $ 765,058
Estimated costs of liquidation ............................ 460,804
Senior indebtedness ....................................... 252,167
Subordinated indebtedness ................................. 606,511
Adjustment of liabilities to
estimated settlement amounts ............................ (1,032,210)
-----------
Total liabilities ................................ 1,052,330
-----------
Net Assets in Liquidation .................... $ --
===========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Expressed in thousands of United States dollars)
January 1, October 1,
1994 through 1993 through
November 2, December 31,
1994 1993
----------- -----------
<S> <C> <C>
Net Liabilities in Liquidation,
beginning of period ...................... $ -- --
Shareholders' deficit, October 1,
1993 (going concern basis) ............... -- $(1,051,931)
Adjustments to reflect change to
liquidation basis ........................ -- (19,207)
----------- -----------
Net liabilities in liquidation
October 1, 1993 ......................... -- (1,071,138)
Increase to estimated net
realizable value of assets ............ -- 38,928
Adjustment of liabilities to
estimated settlement amounts .......... -- 1,032,210
----------- -----------
Net change in net assets in
liquidation ........................ -- 1,071,138
----------- -----------
Net Assets in Liquidation, end of
period ................................... $ -- $ --
=========== ===========
See notes to consolidated financial statements
</TABLE>
<PAGE>
INTEGRATED RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------
During June 1989, Integrated experienced liquidity and financial problems. On
February 13, 1990, Integrated filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code. Subsidiaries of
Integrated did not file Chapter 11 petitions. Under the provisions of the
Bankruptcy Code, Integrated operated its business as a debtor-in-possession
subject to the jurisdiction of the Bankruptcy Court. Integrated operated in this
manner through the Consummation Date, when all assets were either sold or
distributed to creditors in accordance with the Plan.
Liquidation Basis
Integrated adopted the liquidation basis of accounting effective October 1,
1993. The liquidation basis of accounting is appropriate when liquidation
appears imminent and a company is no longer viewed as a going concern. Under
this method of accounting, assets are stated at their estimated net realizable
values and liabilities are stated at their estimated settlement amounts.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits, certificates of deposit and all
liquid debt instruments (including commercial paper and treasury bills) with
original maturities of three months or less.
Net Assets Held For Sale
Net assets held for sale includes assets or businesses held for sale which
management intends to liquidate. Such assets have been recorded at estimated net
realizable value.
Non-recourse Indebtedness
Non-recourse indebtedness represents obligations on wraparound mortgages of
certain real estate subsidiaries. These obligations are collateralized by first
liens on commercial real estate properties owned by limited partnerships and are
recorded net of related receivables.
Estimated Costs of Liquidation
The estimated costs of liquidation represent the estimated costs of operations
through expected termination. These costs include management fees, estimated
reimbursable expenses, the fees of outside professionals and other costs, and
are based on various assumptions. The estimated costs of liquidation assume
liquidation within three to five years, in accordance with the provisions of the
Plan. Actual total costs of liquidation are likely to differ from estimated
costs and these differences may be material.
<PAGE>
Net Realizable Value
In determining the net realizable values of the assets, each asset's ability to
generate future cash flow, offers received from third parties, if any, and other
general market information was considered. Such information was considered in
conjunction with the plan for disposition of assets. Computations of net
realizable value necessitate the use of assumptions and estimates. Future
events, including economic conditions that relate to real estate markets in
general, may differ from those assumed or estimated in the computations. As a
result, the amounts ultimately realized may differ from those currently
reflected in these financial statements.
Consolidation
The consolidated financial statements include the accounts of Integrated and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
NOTE 2 - INVESTMENTS
- --------------------
Investments held by Integrated consist of:
<TABLE>
<CAPTION>
December 31,
1993
-------
(000's)
<S> <C>
Equity securities ........................................... $ 4,160
Interests in limited partnerships ........................... 73,019
-------
$77,179
=======
</TABLE>
Interests in limited partnerships include general and limited partnership
interests in both public and privately held partnerships which invested in
leveraged and unleveraged real estate and various operating businesses. The net
realizable value of these interests was based on recent offers received from
third parties, expected management fees and distributions through estimated
dates of disposal and/or expected net liquidation proceeds to be realized upon
dissolution of these partnership interests.
Interests in limited partnerships also include interests in certain programs
which were liquidated in 1994. Total proceeds from these sales aggregated $20.3
million.
NOTE 3 - CONTRACT RIGHTS
- ------------------------
Integrated is entitled to deferred acquisition fees plus interest in connection
with its organization, from 1978 to 1985, of privately offered net lease
Partnerships (the "Partnerships"). Such Partnerships invested in commercial real
estate leased primarily to investment grade tenants under non-cancelable, long
term, triple net leases that generally provided for 25 year primary terms, with
options to renew granted to the tenant for additional terms of up to 30 years.
<PAGE>
Contract rights ("Contract Rights") are agreements that were entered into
between a Partnership and Integrated or an Integrated subsidiary pursuant to
which the Partnership agreed to pay certain amounts over the primary and renewal
terms of the underlying lease. The Contract Rights provide for the accrual of
simple interest for the term of contract right, which is generally 40 years.
During the first 15 years of the leased term, interest accrues and no payments
on the contract right are made by the Partnership. A portion of the current
interest is paid during the remainder of the initial lease term. Generally,
payments over the renewal periods of the lease, would be sufficient to retire
the Contract Rights assuming the tenants renew their leases and make all
payments thereunder. At present, however, it is impossible to predict which
tenants, if any, will choose to renew their leases. The Contract Rights are due
upon certain events including disposition of the property by the Partnership.
Payment of the contract right is subordinate to any outstanding mortgage
indebtedness which is expected to be fully amortized during the primary term of
the lease (assuming such mortgages have not been refinanced with new mortgages
whose debt service extends into the renewal term of the lease). While the
Contract Rights are financial obligations of the Partnerships that own real
estate, the substantial majority of their value is not related to the value of
the underlying real estate. Rather the key determinate of value of a Contract
Right is the credit worthiness of the tenant on the underlying net lease, not
the value of the property itself without such tenancy.
As the Contract Right portfolio is considered the equivalent of a financial
instrument, the valuation of the portfolio is contingent on current or future
economic events. The net realizable value of the Contract Right portfolio
considered numerous factors including tenant credit rating, expected future cash
flows under their terms of the Contract Rights (as amended) and market
conditions. Such events may cause future changes to the value of the Contract
Right portfolio. The foregoing discussions related to the Contract Rights,
generally. The terms and provisions of individual Contract Rights may differ in
certain respects.
NOTE 4 - NOTES AND OTHER RECEIVABLES
- ------------------------------------
Notes and other receivables primarily consist of deferred payment arrangements
on liquidated assets and receivables from interests of equipment leasing
subsidiaries (including management fees receivable.)
<TABLE>
<CAPTION>
December 31,
1993
---------
(000's)
<S> <C>
Receivable from TSA Note (a) ............................... $ 33,464
Notes and other receivables (b) ............................ 82,299
Interest receivable ........................................ 24,457
Receivable from sale of life insurance
operations ............................................... 8,235
Other (c) .................................................. 378,925
---------
527,380
Less non-recourse indebtedness (c) ......................... (378,222)
---------
$ 149,158
=========
</TABLE>
<PAGE>
(a) Represents the value of a receivable relating to deferred cash proceeds
from the sale of Integrated's tax shelter annuity business, through
December 31, 2000.
(b) Includes receivables of the Company's equipment leasing subsidiaries of
approximately $37 million.
(c) Includes wraparound mortgages due from certain limited partnerships
with interest at 7% to 14.55% and due in installments through 2014,
which are collateralized principally by second liens on commercial real
estate properties owned by limited partnerships. The unamortized
principal amount of such mortgages receivable, including accrued
interest, exceeds the corresponding unamortized amount of the
underlying mortgages payable (non-recourse indebtedness of $378,000),
substantially all of which is not reflected here in accordance with
Company's policy to record all such assets at their realizable value.
NOTE 5 - ADJUSTMENT OF LIABILITIES TO ESTIMATED SETTLEMENT AMOUNTS
- ------------------------------------------------------------------
The adoption of the liquidation basis of accounting required the revaluation of
assets to their estimated net realizable value. The adjustment of liabilities to
estimated settlement amounts assumes that all assets will be disbursed as
settlement of Integrated's obligations, and the ultimate obligations of
Integrated are not to exceed the expected net realizable value of its assets.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Integrated had more than 50 lawsuits brought by certain limited partners of
various partnerships against its subsidiaries and former affiliates. These
actions claimed among other things, violations of state and federal securities
laws, common law fraud, negligence, breach of fiduciary duty and violation of
the federal RICO laws and certain state fraud statutes.
A subsidiary of Integrated that was engaged in the sale of Integrated's
investment products is a party to a number of actions that arose in the conduct
of its former securities business. Integrated's successor is vigorously
defending all such actions and is unable to predict the eventual outcome and
impact of such litigation, on the consolidated financial statements.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Integrated Resources, Inc.:
We have audited the accompanying consolidated statements of operations and cash
flows of Integrated Resources, Inc. (the "Company") and subsidiaries for the
nine-month period ended September 30, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, on November 3,
1994, a plan of reorganization was consummated; as such, the Company commenced
liquidation in accordance with the plan and as a result, changed its basis of
accounting from the going-concern basis to the liquidation basis of accounting
for all periods subsequent to September 30, 1993.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of their operations and their cash flows for the
nine-month period ended September 30, 1993 in conformity with generally accepted
accounting principles.
As emphasized in Note 9 to the consolidated financial statements, the Company
is party to several class actions and shareholder derivative suits resulting
from the Company's liquidity and financial problems.
New York, New York
August 4, 1995
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
- ------------------------------------------------------------------------------------
Nine-Month
Period
Ended
September 30,
1993
-------------
<S> <C>
REVENUES:
Interest and net investment income ................................ $66,022
Income from investment programs ................................... 3,690
Commissions, fees and miscellaneous income ........................ 23,349
-------
93,061
-------
COSTS AND EXPENSES:
Selling, general and administrative ............................... 25,659
Interest .......................................................... 25,184
Restructuring costs and expenses .................................. 10,683
-------
61,526
-------
Income from continuing operations before income taxes ... 31,535
INCOME TAX PROVISION ................................................ 0
-------
Income from continuing operations ........................ 31,535
INCOME FROM DISCONTINUED OPERATIONS -
Net of tax ........................................................ 5,660
-------
Income before extraordinary items ........................ 37,195
EXTRAORDINARY ITEMS - Net of tax ................................... 1,568
-------
NET INCOME .......................................................... $38,763
=======
<PAGE>
<CAPTION>
INTEGRATED RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS -- Continued
(In Thousands, Except Per Share Amounts)
- ------------------------------------------------------------------------------------
Nine-Month
Period
Ended
September 30,
1993
-------------
<S> <C>
INCOME PER COMMON SHARE
Primary:
From continuing operations ...................................... 3.53
From discontinued operations .................................... 0.63
Income before extraordinary items ........................ 4.16
From extraordinary items ........................................ 0.18
-------
Income per common share - primary ........................ $ 4.34
=======
Fully diluted:
From continuing operations ...................................... $ 2.76
From discontinued operations .................................... 0.49
-------
Income before extraordinary items ........................ 3.25
From extraordinary items ........................................ 0.14
-------
Income per common share - fully diluted .................. $ 3.39
=======
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
- -----------------------------------------------------------------------------------------
Nine-Month
Period
Ended
September 30,
1993
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary items ................................. $ 37,195
Adjustments to arrive at net cash provided by operating activities:
Depreciation and amortization ................................... 1,184
Amortization of prepaid acquisition costs ....................... 4
Realized gains from investments ................................. (2,051)
Gain on sale of other assets .................................... (11,767)
Charge for uncollectible amounts due from limited partnerships
and unaffiliated corporations ................................. 1,283
Recovery of net assets of businesses sold, to be
disposed of or discontinued ................................... (4,223)
Other writedowns of assets, net ................................. 10
Changes in assets and liabilities:
Investments ................................................... 1,508
Notes and receivables ......................................... (12,892)
Net assets held for sale ...................................... (19)
Accounts payable and other liabilities ........................ 1,735
Other, net .................................................... 1,670
---------
Net cash provided by operating activities ................ 13,637
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net ................... (53)
Change in short-term investments .................................. (35,589)
Sale of investments ............................................... 5,835
Sales of net assets held for sale or syndication .................. 98,623
Change in notes and receivables, net .............................. 20,752
Other ............................................................. 262
---------
Net cash provided by investing activities ................ 89,830
---------
<PAGE>
<CAPTION>
INTEGRATED RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- Continued
(In Thousands)
- -----------------------------------------------------------------------------------------
Nine-Month
Period
Ended
September 30,
1993
-------------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of scheduled long-term debt .............................. (1,334)
Payments of short-term borrowings ................................. (530)
---------
Net cash provided by/(used in) financing activities ...... (1,864)
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................... 101,603
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ........................ 399,577
---------
CASH AND CASH EQUIVALENTS, END OF YEAR .............................. $ 501,180
=========
SUPPLEMENTAL INFORMATION:
Cash payments for the following were:
Interest ........................................................ $ 1,855
=========
Income taxes .................................................... $ 1,230
=========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
INTEGRATED RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE-MONTH PERIOD
ENDED SEPTEMBER 30, 1993
(In Thousands, Except Shares and Per Share Amounts)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Integrated
Resources, Inc. ("Integrated") and its subsidiaries (Integrated and its
subsidiaries are referred to collectively as the "Company"). All
significant intercompany accounts and transactions have been eliminated
in consolidation.
During June 1989, Integrated experienced liquidity and financial
problems. On February 13, 1990, Integrated filed a voluntary petition
for reorganization under Chapter 11 of the United States Bankruptcy Code
(the "Bankruptcy Code"). Subsidiaries of Integrated have not filed
Chapter 11 petitions. Under the provisions of the Bankruptcy code,
Integrated is operating its business as a debtor-in-possession subject
to the jurisdiction of the Bankruptcy Court (the "Court"). During May
1994, the Company filed the Eighth Amended Plan of Liquidation ("the
Company-sponsored Plan") with the Court. Such plan is designed to effect
a settlement of claims of Integrated's creditors and interests of its
equity security holders and to result in the liquidation of Integrated
after the disposition of the remainder of the estate. At that time, the
Sixth Amended Plan of Reorganization submitted by the Official Committee
of Subordinated Bondholders and the Steinhardt Group (the "Steinhardt
Plan") was also submitted. The two plans were voted on together and, on
August 8, 1994, the Court confirmed the Steinhardt Plan. The Steinhardt
Plan is expected to be consummated on or about November 2, 1994 and,
accordingly, the Company-sponsored Plan will function only as a backup
to the Steinhardt Plan.
All the financial statements included herein were originally issued
prior to the conclusion of the voting period for the plans and,
accordingly, were prepared on the assumption that the Company would
continue as a going concern. That assumption no longer is valid. As a
result, all financial statements issued hereinafter will be prepared
using the liquidation basis of accounting. Nevertheless, the financial
statements have not been restated using the liquidation basis.
As a result of filing a Chapter 11 petition, unless otherwise permitted
by the Court, Integrated may not pay any of its liabilities which were
incurred prior to February 13, 1990 or any liabilities of subsidiaries
which were guaranteed by Integrated.
No interest expense or amortization of debt issuance costs of Integrated
has been recorded subsequent to February 12, 1990. Interest expense of
all consolidated subsidiaries is included for all periods shown.
<PAGE>
The Court entered an order which set September 12, 1990 as the date
("Bar Date") by which claims in existence at the date of filing of the
Chapter 11 petition had to be filed with the Court. With respect to
certain classes of creditors, later bar dates have been established.
Holders of claims subject to the order which were not filed by that date
are barred from voting upon or receiving distributions pursuant to such
claims under the plan of reorganization of Integrated. Thousands of
claims were asserted prior to the Bar Date and amounts claimed are
substantially in excess of the liabilities recorded on Integrated's
balance sheet. Since the Bar Date, the Company has continued to analyze
the claims filed against Integrated and has allowed or expunged a
substantial number of the claims. Based on its analysis to date,
Integrated does not expect the remaining claims reflected in such
filings to result in a significant increase in Integrated's liabilities.
However, because the analysis has not yet been completed, there can be
no assurance that additional liabilities will not result from the
pre-petition claims filed.
In response to the liquidity and financial problems that led to the
Chapter 11 filing, Integrated adopted a business plan pursuant to which
the Company (i) has sold or intends to sell, dispose of or discontinue a
substantial portion of its businesses and operations; (ii) has
terminated sponsoring and offering publicly- and privately-offered
limited partnerships and real estate investment trusts ("Investment
Programs"); (iii) has made and intends to continue to make substantial
reductions in selling, general and administrative expenses and (iv) is
seeking to maximize its available invested cash balances. The
consolidated financial statements give effect to certain decisions made
pursuant to this business plan, as amended. As a result of this plan and
other effects of the Chapter 11 filing, the historical results for the
nine-month period ended September 30, 1993 are not necessarily
comparable to those of prior periods, nor are they indicative of the
results to be expected in the future.
Significant Accounting Policies
Cash and Cash Equivalents - Cash equivalents include time deposits,
certificates of deposit and all liquid debt instruments (including
commercial paper and treasury bills) with original maturities of three
months or less.
Investment Programs - Income is recognized, subject to the closing of a
transaction, when services have been performed. Income recognition of
residual value interests, which are subordinated to investors receiving
a minimum return on their investments, is deferred until realization is
assured.
Deferred fees and deferred contract rights obtained upon the sale of
Investment Programs are initially recorded at present values based
primarily on the interest rates (10% to 18%) of long-term debt incurred
by limited partnerships in connection with the original purchase of
properties. Deferred contract rights obtained by purchase are initially
recorded at cost. All deferred fees and deferred contract rights are
then accreted using the interest method.
<PAGE>
Investments in limited partnerships whereby the Company exercises
significant influence and has ownership interests of five percent or
more are accounted for by the equity method. Generally, other
investments in limited partnerships are accounted for by the cost
method.
Cost directly relating to publicly-offered investment products are
deferred and are charged to operations over the estimated revenue
producing lives of the products.
Property, Plant and Equipment - Depreciation and amortization of
property, plant and equipment are computed using the straight-line
method over the estimated useful lives of the respective asset or, with
respect to leasehold improvements, over the term of the lease, if
shorter.
Income Taxes - Effective January 1, 1993, the Company changed its method
of accounting for income taxes to conform with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), which requires a change from the deferred method to the asset and
liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing
assets and liabilities. Under SFAS No. 109, the effect on deferred taxes
of a change in tax rates is recognized in income in the period that
includes the enactment date. The principal effect of the change in the
Company's financial statements is that, beginning January 1, 1993, the
benefit for utilization of loss carryforwards is netted against the
corresponding components of pretax income rather than being shown as an
extraordinary item.
Income Per Common Share - Income per common share has been computed by
dividing income for each period by the weighted average number of shares
of common stock outstanding. All common stock equivalents were
antidilutive for each of the periods shown.
Fully diluted income per common share also assumes conversion of
preferred stock at the beginning of each period.
<PAGE>
2. INTEREST AND NET INVESTMENT INCOME
Interest and net investment income were earned as follows:
<TABLE>
<CAPTION>
Nine-Month
Period
Ended
September 30,
1993
-------------
<S> <C>
Investments:
Cash equivalents and other investments ...................... $12,150
Equity securities ........................................... --
-------
12,150
Notes and receivables (1) ..................................... 51,822
-------
63,972
Realized gains (2) ............................................ 2,050
-------
$66,022
=======
</TABLE>
(1) Includes interest on mortgage notes of $22,793 for the nine months
ended September 30, 1993.
(2) During January 1993, the Company sold certain marketable securities for
approximately $5,800. The resulting pretax gain of $2,050 was recorded
in "interest and net investment income."
3. COMMISSIONS, FEES AND MISCELLANEOUS INCOME
During April 1993, the Company sold certain assets, including a certain
deferred real estate contract right, for $42,000. The transactions
resulted in a pretax gain of approximately $1,500. During June 1993, the
Company sold a certain deferred real estate contract right and related
assets for approximately $9,000. The transaction resulted in a pretax
gain of approximately $5,750.
In June 1993, the Company sold the majority of its interests in
government assisted housing projects for approximately $4,150. The
Company realized a pretax gain of approximately $3,700 on the
transaction.
<PAGE>
4. INTEREST EXPENSE AND DEBT ISSUANCE COSTS
Interest expense for the nine-month period ended September 30, 1993:
<TABLE>
<CAPTION>
Nine-Month
Period
Ended
September 30,
1993
-------------
<S> <C>
Integrated:
Amount of contractual interest, including
amortization of debt discount .............................. $ 101,051
Less interest for period subsequent to February 12,
1990 (includes amortization of debt discount) .............. (100,729)
---------
322
Interest of subsidiaries for entire period ..................... 24,862
---------
$ 25,184
=========
</TABLE>
No amortization has been recorded subsequent to February 12, 1990 for
the unamortized balance of Integrated's debt issuance costs.
<PAGE>
5. RESTRUCTURING COSTS AND EXPENSES
Restructuring costs and expenses for the nine-month period ended
September 30, 1993 includes the following:
<TABLE>
<CAPTION>
Nine-Month
Period
Ended
September 30,
1993
-------------
<S> <C>
(Recoveries on) writedowns and reserves of
properties and businesses held for syndication
and interests in publicly and privately sponsored
investment programs, net ....................................... $ (296)
Increase (decrease) in provision for guarantees of
indebtedness of various limited partnerships and
unaffiliated corporations, in excess of expected
recoveries ..................................................... 95
Other adjustments to prepetition claims against Integrated (2,160)
Professional fees and other costs and expenses in
connection with restructuring the Company's operations ......... 13,044
--------
$ 10,683
========
</TABLE>
Such losses and charges to operations are based, in part, on the
Company's estimates of realizable values. Further refinements may be
required in the future as more information becomes available or
unanticipated events occur.
Integrated executed guarantees of approximately $68,700 of secured
obligations of a certain limited partnership. The obligations were
collateralized principally by second through fifth liens on a real
estate property under development. As a result of the decline in the
value of the real estate property, Integrated previously recorded a
liability of $68,700.
6. DISCONTINUED OPERATIONS
During August 1993, the Company sold its musical instruments business.
It received approximately $25,850 in cash, net of expenses.
In addition, discontinued operations also include revisions made to the
estimated loss on the disposal of certain businesses which were
discontinued effective 1989. Such businesses include the Company's
former life insurance segment (including its life insurance agency
subsidiaries), securities-clearing subsidiary, bank subsidiary, fast
food restaurant and jet aircraft manufacturing subsidiary.
<PAGE>
<TABLE>
<CAPTION>
Nine-Month
Period Ended
September 30,
1993
-------------
<S> <C>
Gain on disposal of musical instruments segment ................... $5,591
Revision to loss on disposal of business discontinued
in 1989 (net of income taxes of $- and $209) .................... 69
------
Income from discontinued operations .................... $5,660
======
</TABLE>
7. EXTRAORDINARY ITEMS
The consolidated statement of operations for the nine-month period ended
September 30, 1993 includes the following extraordinary items:
<TABLE>
<CAPTION>
Nine-Month
Period
Ended
September 30,
1993
--------------
<S> <C>
Gain on extinguishment of debt(1) .................................... $1,568
======
Effect on income per common share:
Primary:
Gain on extinguishment of debt ................................... $ 0.18
======
Fully diluted:
Gain on extinguishment of debt ................................... $ 0.14
======
</TABLE>
(1) The Company has settled certain claims of senior indebtedness
during 1993 and 1994. Such claims resulted from borrowings by
subsidiaries of Integrated, which borrowings were guaranteed
by Integrated prior to filing its Chapter 11 petition. As a
result of settlements which have been signed to date, the
Company has recorded pretax extraordinary gain of $1,568
during the nine-month period ended September 30, 1993.
<PAGE>
During 1992, the Court approved a settlement between the
Company and its former investment banker. The Company had
previously filed claims against the former investment banker
(in its bankruptcy proceedings) alleging liability for various
matters. The former investment banker had filed claims against
the Company for various liabilities recorded by the Company
and certain amounts which were disputed by the Company. As a
result of the settlement, all claims of each of the parties
were disallowed, except that a single claim against the
Company was reduced and allowed by the Court in the aggregate
amount of $27,500. Prior thereto, the Company had recorded net
liabilities to the former investment banker of approximately
$43,100. Accordingly, the Company has recorded a pretax
extraordinary gain during 1992.
8. INCOME PER COMMON SHARE
Primary income per common share has been computed based on the weighted
average number of shares of common stock outstanding during each period.
No preferred stock dividends have been deducted since February 12, 1990.
All common stock equivalents were antidilutive for the period shown.
Fully diluted income per share also assumes conversion of preferred
stock at the beginning of the period.
If Integrated's interest and preferred stock dividends for the period
subsequent to February 12, 1990 were also deducted and if Integrated's
debt issuance costs continued to be amortized subsequent to February 12,
1990, (loss)/income per common share for the nine-month period ended
September 30, 1993 would be as follows:
<TABLE>
<CAPTION>
Nine-Month
Period
Ended
September 30,
1993
-------------
<S> <C>
From continuing operations .................................... $ (9.81)
From discontinued operations .................................. 0.63
--------
Before extraordinary items ......................... (9.18)
From extraordinary items ...................................... 0.18
--------
Loss per common share ......................................... $ (9.00)
========
</TABLE>
During August 1994, the Court confirmed a plan of reorganization which
will eliminate the interests of current equity security holders.
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
Investment Programs
Integrated executed guarantees of certain obligations of certain limited
partnerships and unaffiliated corporations (collectively, the "Direct
Obligors"). The unaffiliated corporations were organized for the purpose
of providing financing to the limited partnerships which were formed in
connection with the Company's investment-program activities. The
obligations of the Direct Obligors are for the most part unsecured and
are to be repaid from capital contributions to the limited partnerships.
In response to the Company's liquidity problems, certain creditors of
the Direct Obligors demanded payment of the obligations and sought
payment from Integrated under the guarantees. Events which may impact
these obligations may affect the Company's operations.
In addition, Integrated executed guarantees of approximately $20,400 of
obligations of limited partnerships and unaffiliated corporations which
are collateralized by promissory notes issued by investors pursuant to
investor note-financing agreements. Such obligations are payable from
the interest and principal collections on investors' promissory notes
which secure the indebtedness.
Integrated's guarantee is generally in the form of an obligation to
repurchase promissory notes in the event that investors default on their
obligation to the limited partnerships. The Company has previously
recorded liabilities based on these guarantees. The above amounts do not
include approximately $3,000 for claims heretofore allowed by Integrated
by stipulation in its Chapter 11 case.
Certain of Integrated's subsidiaries are sublessors of real estate
properties owned by limited partnerships to tenants under noncancelable
net leases having fixed rentals which exceed the rental obligations of
sublessors to the limited partnerships. The Company has guaranteed to
limited partnerships the rental obligations of certain subsidiaries, up
to a maximum of $26,400. As a result of demands for payment and the
Company's determination that rentals from certain underlying tenants are
uncollectible, $20,000 has been recorded.
The current market for aircraft leasing has been adversely affected by
(i) general softness in worldwide commercial aviation and (ii) mandatory
federal regulations covering maintenance and upgrading of aging
aircraft. Certain wholly owned equipment leasing subsidiaries that
participate in privately-offered aircraft master lease transactions are
obligated under the master leases to, among other things, maintain the
aircraft and return the aircraft to investors in certain specified
condition. Because of market conditions, these subsidiaries may be
required to bear some of the costs of compliance with such regulations
in order to remain in compliance with their master lease obligations.
The amount of costs, if any, associated with such compliance cannot be
determined at this time.
Certain present and former officers and directors of the Company who
serve as general partners of certain real estate limited partnerships
have assumed control of the management and administrative functions
relating to such limited partnerships. The Company is unable to
determine the impact, that this may have on the Company's realization of
amounts due from such partnerships.
<PAGE>
Litigation
In connection with the Company's liquidity and financial problems,
several class actions and shareholder derivative suits have been
commenced against the Company, certain of its present and former
officers and directors and the Company's independent auditors and former
investment banking firm.
The Company is a party to a number of actions instituted by creditors
seeking payment of amounts due under various demand notes and guarantees
issued by the Company. The Company is subject to other legal proceedings
and claims arising in the ordinary course of business.
A subsidiary of Integrated that was engaged in the sale of the Company's
investment program products is a party to a number of actions that arose
in the course of the conduct of its securities business.
A number of Integrated's subsidiaries are parties to lawsuits arising
out of the syndication and sale of certain limited partnership
interests. In the event that all of the claims made in these cases are
sustained, the combined damages would exceed the combined net worth of
all such subsidiaries.
Certain subsidiaries and affiliates of Integrated are parties to a
lawsuit which seeks to affect the Company's interest in certain fees and
payments due from limited partnerships organized or syndicated by
affiliates of the Company.
The Company is unable to predict the eventual outcome and impact on the
consolidated financial statements of the above actions, suits, legal
proceedings and claims.
10. SEGMENT INFORMATION
Prior to the changes in the business outlined in Note 1 in response to
the Company's liquidity crisis, the Company was engaged in the following
lines of business: the ownership and operation of life insurance
companies and independent general insurance agencies, and the
organization, management and sale of direct participation Investment
Programs and provision of investment counseling and money management
services for private accounts, Company-sponsored mutual funds and the
mutual fund underlying certain separate accounts of its life insurance
subsidiaries.
The tables below set forth the approximate amount of operating revenues,
income/(loss) from operations before income taxes and depreciation and
amortization contributed by each of the Company's principal business
segments for the nine-month period ended September 30, 1993.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Revenues
Nine-Month
Period
Ended
September 30,
1993
-------------
<S> <C>
Continuing operations:
Investment programs ..................................... $ 28,347
Financial and miscellaneous ............................. 64,714
--------
Total revenues ................................. $ 93,061
========
<CAPTION>
Income (loss) before Income Taxes
Nine-Month
Period
Ended
September 30,
1993
-------------
<S> <C>
Continuing operations:
Investment programs ..................................... $ 18,550
Financial and miscellaneous (1) ......................... 39,357
--------
57,907
Unallocated corporate overhead ............................ (26,372)
--------
31,535
Discontinued operations ................................... 5,660
--------
37,195
Extraordinary item ........................................ 1,568
--------
Income (loss) before income taxes .............. $ 38,763
========
<PAGE>
<CAPTION>
Depreciation and Amortization
Nine-Month
Period
Ended
September 30,
1993
-------------
<S> <C>
Continuing operations:
Investment programs ..................................... $ 474
Financial and miscellaneous ............................. --
--------
474
Discontinued operations ................................... --
--------
474
Corporate ................................................. 710
--------
$ 1,184
========
</TABLE>
(1) Financial and miscellaneous revenues consist substantially of
interest income on receivables arising from Investment
Programs, primarily deferred fees and deferred contract
rights, and income on investments held by non-life insurance
companies.
11. SUBSEQUENT EVENTS
During December 1993, the Company sold its interest in a certain
mortgage loan. The Company realized a gain on the transaction of
approximately $1,725.
The Company has settled certain claims of senior indebtedness subsequent
to September 30, 1993. Such claims resulted from borrowings by
subsidiaries of Integrated, which borrowings were guaranteed by
Integrated prior to filing its Chapter 11 petition. As a result of
settlements which have been signed to date, the Company will record
pretax extraordinary gains aggregating approximately $3,550 subsequent
to September 30, 1993.
******
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
The names, ages and positions of the directors and executive officers
of Presidio are set forth below. Pursuant to the Plan, the Class A Directors
serve an initial term which expires November 1997 and the Class B Directors
serve an initial term of one year. Thereafter, all directors will be elected
annually and hold office until their successors are elected and qualified, or
until the earlier of their removal or resignation. All officers serve at the
discretion of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Positions
- -------------------- --- --------------------------------------------------------
<S> <C> <C>
Charles E. Davidson 42 Chairman of the Board and Class B Director
Joseph M. Jacobs 43 Chief Executive Officer, President, and Class B Director
Martin L. Edelman 55 Class A Director
Dean J. Takahashi 38 Class A Director
Paul T. Walker 60 Class A Director
Robert Holtz 28 Vice President and Secretary
Jay L. Maymudes 35 Vice President, Treasurer and Chief Financial Officer
</TABLE>
Charles E. Davidson has been a director of Presidio and the Chairman of
the Board of Directors of Presidio since its formation in August 1994. Mr.
Davidson is also Chairman of DLB Oil and Gas, Inc., an oil exploration company
and has served as Chairman of the Board and director of Resurgence Properties
Inc. ("Resurgence") since its formation in March 1994. He is also a director of
Technology Service Group, Inc., a company engaged in the design, development,
manufacturing and sale of public communications products and services. From
December 1985 to May 1994, Mr. Davidson was a general partner of Steinhardt
Partners, L.P. and Institutional Partners, L.P., private investment funds. He is
currently the Chairman of the Board and a Member of Wexford and is the managing
partner of a number of private investment partnerships.
<PAGE>
Joseph M. Jacobs has been a director of Presidio and the Chief
Executive Officer and President of Presidio since its formation in August 1994.
Since January 1996, Mr. Jacobs has been the President and a Member of Wexford.
From April 1994 through December 31, 1995, Mr. Jacobs was the President and sole
shareholder of Concurrency. Mr. Jacobs has been a director of Resurgence and the
Chief Executive Officer, President and Treasurer of Resurgence since its
formation in March 1994. From 1982 through May 1994, Mr. Jacobs was employed by,
and since 1988 was the President of, Bear Stearns Real Estate Group Inc., a firm
engaged in all aspects of real estate, where he was responsible for the
management of all activities, including maintaining worldwide relationships with
institutional and individual real estate investors, lenders, owners and
developers.
Martin L. Edelman has been a director of Presidio since February 1995.
Mr. Edelman has been of Counsel to Battle Fowler LLP, a New York law firm, since
January 1994. From prior to 1989 to December 1994, he was a partner in such
firm. He is a director of Hospitality Franchise Systems, Inc., National Gaming
Corporation and numerous private companies.
Dean J. Takahashi has been a director of Presidio since November 1994.
Mr. Takahashi has been Director of Investments - Endowment Management of Yale
University since 1986, where he is responsible for analysis and recommendations
regarding asset allocation and investment policy for Yale's $4.0 billion
Endowment, $150 million Staff Pension Plan, and various Life Income Funds. Mr.
Takahashi currently is a director of Smith Offshore Exploration, and an Advisory
Board Member of Highland Capital Partners, APAX European Ventures, Summit
Ventures, and Bain Capital.
Paul T. Walker has been a director of Presidio since November 1994. Mr.
Walker has been an independent financial consultant since January 1991, and a
Trustee of The DBL Liquidating Trust since March 1992, where he serves as one of
three Trustees in liquidating Drexel Burnham Lambert, Inc. for the benefit of
creditors. Activities include claims settlement, asset sales and disposition of
proceeds. From 1957 to 1990, Mr. Walker was employed by, and since 1985 was the
Executive Vice President and Senior Credit Policy Officer of, The Chase
Manhattan Bank.
Robert Holtz has been a Vice President and Secretary of Presidio since
its formation in August 1994. Since January 1996, Mr. Holtz has been a Senior
Vice President and a Member of Wexford. From April 1994 through December 31,
1994, Mr. Holtz was a Vice President of Concurrency. Mr. Holtz has been a Vice
President and Assistant Secretary of Resurgence since its formation in March
1994. From 1989 through May 1994, Mr. Holtz was employed by, and since 1993 was
a Vice President of, Bear Stearns Real Estate Group Inc. where he was
responsible for analysis, acquisitions and management of the assets owned by
Bear Stearns Real Estate Group Inc. and its clients.
Jay L. Maymudes has been a Vice President, Treasurer and Chief
Financial Officer of Presidio since its formation in August 1994. Mr. Maymudes
has been the Chief Financial Officer and a Vice President of Resurgence since
July 1994, Secretary of Resurgence since January 1995 and Assistant Secretary
from July 1994 to January 1995. Since January 1996, Mr. Maymudes has been the
Chief Financial Officer, Treasurer and a Senior Vice President of Wexford. From
July 1994 through December 31, 1995, Mr. Maymudes was the Chief Financial
Officer and a Vice President of Concurrency. From December 1988 through June
1994, Mr. Maymudes was the Secretary and Treasurer, and since February 1990 was
the Senior Vice President, of Dusco, Inc., a real estate investment advisor.
<PAGE>
Item 11. EXECUTIVE COMPENSATION.
----------------------
General
Presidio has no employment agreements and maintains no employee benefit
plans. Information regarding compensation payable to Presidio Management,
Steinhardt Management and Wexford for services provided under the Management
Agreements and the Administrative Services Agreement, including the provision of
persons to serve as officers and directors of Presidio, is discussed in
"Business -- Material Agreements and Instruments." During 1995, Presidio
reimbursed Concurrency for compensation and employee benefit costs allocable to
the management of the Company, of which $301,849 was reimbursed for the services
of Joseph M. Jacobs, Presidio's Chief Executive Officer and President, $110,590
was reimbursed for the services of Robert Holtz, Presidio's Vice President and
Secretary and $108,056 was reimbursed for the services of Jay L. Maymudes,
Presidio's Vice President, Treasurer and Chief Financial Officer.
Compensation of Directors
Pursuant to a Memorandum of Understanding Regarding Compensation of
Class A Directors of Presidio (the "Memorandum of Understanding"), each Class A
Director receives an annual stipend of $25,000 for his service on the Board of
Directors, payable in quarterly installments. Furthermore, pursuant to the
Memorandum of Understanding, each Class A Director was issued as additional
consideration, 4,550 Class A Shares ("Director Shares") which are held by
Presidio for the benefit of such directors. The Director Shares are non-voting
and non-transferable until the third anniversary of the Consummation Date, but
carry the right to dividends and other distributions on Class A Shares, and the
right to participate in any offerings or to assert preemptive rights along with
other Class A Shares, subject to the following limitations: (i) each Class A
Director shall receive on the first anniversary of the Consummation Date 20% of
the distributions held on account of the Director Shares and (ii) each Class A
Director shall receive on the second anniversary of the Consummation Date 30% of
the distributions held on account of the Director Shares. On the third
anniversary of the Consummation Date, the foregoing restrictions on Directors
will lapse and the Director Shares will be turned over to the Class A Directors
by Presidio along with any accumulated distributions. Notwithstanding the
foregoing, the Director Shares and accumulated distributions shall be turned
over to a Class A Director immediately upon his termination as a director other
than for Cause (as defined) and shall be forfeited by such director immediately
upon his resignation or termination for Cause during the three years following
the Consummation Date. In addition, Presidio reimburses each Class A Director
for all reasonable, out of pocket expenses, including, without limitation,
travel expenses incurred in connection with Presidio's business or the
director's service or duty as a director.
The Class B Directors are not compensated by Presidio for their service
on the Board of Directors; however, as Joseph M. Jacobs is an employee of
Wexford, expenses he incurs are reimbursed by Presidio to Wexford.
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Board of Directors of Presidio does not have a compensation
committee. The full Board of Directors considered and adopted the Administrative
Services Agreement, the Presidio Management and the Steinhardt Management
Agreement. Charles E. Davidson, Chairman of the Board of Presidio and Joseph M.
Jacobs, Presidio's Chief Executive Officer and President, participated in such
deliberations as Presidio Class B Directors. Mr. Davidson is the principal of
Presidio Management and Chairman of the Board and a Member of Wexford as well as
an executive officer and director of Resurgence (but not a member of
Resurgence's compensation committee). Mr. Jacobs is the President and a Member
of Wexford as well as an executive officer and director of Resurgence (but not a
member of Resurgence's compensation committee). See "Certain Relationships and
Related Transactions."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The following table sets forth certain information known to Presidio
with respect to beneficial ownership of the Class A Shares as of March 1, 1996
(based on 8,766,569 Class A Shares outstanding on such date) by: (i) each person
who beneficially owns 5% or more of the Class A Shares, (ii) the executive
officers of Presidio, (iii) each of Presidio's directors, and (iv) all directors
and executive officers as a group:
<TABLE>
<CAPTION>
Beneficial Ownership
--------------------------------
Number of Percentage
Name of Beneficial Owner Shares Outstanding
- ------------------------ --------- -----------
<S> <C> <C>
Thomas F. Steyer 3,169,083 (1) 36.1%
Fleur A. Fairman
John M. Angelo
Michael L. Gordon 1,223,294 (2) 14.0%
The TCW Group, Inc. and Affiliates 1,151,769 (3) 13.1%
Intermarket Corp. 1,000,918 (4) 11.4%
Michael Steinhardt -- (5) --
Joseph M. Jacobs -- (5) --
Robert Holtz -- --
Jay L. Maymudes -- --
Charles E. Davidson -- (5) --
Martin L. Edelman 4,550 (6) *
Dean J. Takahashi 4,550 (6) *
Paul T. Walker 4,550 (6) *
Directors and executive officers as a group (7 persons) 13,650 *
</TABLE>
<PAGE>
- -----------------------
* Less than 1% of the outstanding Common Stock.
(1) As the managing partners of each of Farallon Capital Partners, L.P.,
Farallon Capital Institutional Partners, L.P., Farallon Capital
Institutional Partners II, L.P. and Tinicum Partners, L.P.
(collectively, the "Farallon Partnerships"), Thomas F. Steyer and Fleur
A. Fairman may each be deemed to own beneficially for purposes of Rule
13d-3 of the Exchange Act the 985,135, 1,104,240, 484,180 and 159,271
shares held, respectively, by each of such Farallon Partnerships. These
shares are included in the listed ownership. By virtue of investment
management agreements between Farallon Capital Management, Inc.
("FCMI") and various managed accounts, FCMI has the authority to
purchase, sell and trade in securities on behalf of such accounts and,
therefore, may be deemed the beneficial owner of the 436,257 shares
held in such accounts. Mr. Steyer and Ms. Fairman are the sole
stockholders of FCMI and its Chairman and President, respectively. The
shares beneficially owned by FCMI are included in the listed ownership.
The other general partners of the Farallon Partnerships are David
Cohen, Joseph Downes, Jason Fish, William Mellin, Meridee Moore and
Eric Ruttenberg and such persons may also be deemed to own beneficially
the shares held by the Farallon Partnerships. Each of such persons also
serves as a managing director of FCMI.
(2) John M. Angelo and Michael L. Gordon, the general partners and
controlling persons of AG Partners, L.P., which is the general partner
of Angelo, Gordon & Co., L.P., may be deemed to have beneficial
ownership under Section 13(d) of the Exchange Act of the securities
beneficially owned by Angelo, Gordon & Co., L.P. and its affiliates.
Angelo, Gordon & Co., L.P., a registered investment advisor, serves as
general partner of various limited partnerships and as investment
advisor of third party accounts with power to vote and direct the
disposition of Class A Shares owned by such limited partnerships and
third party accounts.
(3) TCW Special Credits, an affiliate of The TCW Group, Inc. serves as
general partner of various limited partnerships and investment advisor
of various trusts and third party accounts with power to vote and
direct the disposition of Class A Shares owned by such limited
partnerships, trusts and third party accounts. TCW Asset Management
Company, a subsidiary of The TCW Group, Inc., is the managing general
partner of TCW Special Credits. The TCW Group, Inc. may be deemed to be
a beneficial owner of such shares for purposes of the reporting
requirements of the Exchange Act; however, The TCW Group, Inc. and its
affiliates disclaim beneficial ownership of these shares.
(4) Intermarket Corp. serves as General Partner for certain limited
partnerships and as investment advisor to certain corporations and
foundations. As a result of such relationships, Intermarket Corp. may
be deemed to have the power to vote and the power to dispose of Class A
shares held by such partnerships, corporations and foundations.
<PAGE>
(5) Excludes 1,200,000 Class B Shares owned by IR Partners. Such Class B
Shares are convertible in certain circumstances into 1,200,000 Class A
Shares, however, such shares are not convertible at present. IR
Partners is a general partnership whose general partners are Steinhardt
Management, certain of its affiliates and accounts managed by it and
Roundhill Associates. Roundhill Associates is a limited partnership
whose general partner is Charles E. Davidson, the principal of Presidio
Management, the Chairman of the Board of Presidio and a Member of
Wexford. Joseph M. Jacobs, the Chief Executive Officer and President of
Presidio and a Member and the President of Wexford, has a limited
partner's interest in Roundhill Associates. Pursuant to Rule 13d-3
under the Exchange Act, each of Michael H. Steinhardt, the controlling
person of Steinhardt Management and its affiliates and Charles E.
Davidson may be deemed to be beneficial owners of such 1,200,000
shares.
(6) Shares issued to each Class A Director of Presidio pursuant to a
Memorandum of Understanding Regarding Compensation of Class A Directors
of Presidio. See "Executive Compensation -- Compensation of Directors."
The address of Thomas F. Steyer and the other individuals mentioned in
footnote 1 above (other than Fleur A. Fairman) is c/o Farallon Capital Partners,
L.P., One Maritime Plaza, San Francisco, California 94111 and the address of
Fleur A. Fairman is c/o Farallon Capital Management, Inc., 800 Third Avenue,
40th Floor, New York, New York 10022. The address of The TCW Group, Inc. and its
affiliates is 865 South Figueroa Street, 18th Floor, Los Angeles, California
90017. The address of Angelo, Gordon & Co., L.P. and its affiliates is 245 Park
Avenue, 26th Floor, New York, New York 10167. The address for Intermarket Corp.
is 667 Madison Avenue, New York, New York 10021.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
Presidio Management Agreement
Pursuant to the Presidio Management Agreement, Presidio Management was
engaged to serve as manager of the Company. See "Business -- Material Agreements
and Instruments." Charles E. Davidson, a director of Presidio, is the principal
and controlling Member of Presidio Management. Mr. Davidson is the controlling
person of one of the general partners IR Partners, the owner of 1.2 million
Class B Shares. Mr. Davidson and his affiliates also provide management and
other services to third parties that are not related to the Company. Presidio
Management has directed that 50% of its annual management fee be paid to Joseph
M. Jacobs, the Chief Executive Officer and President of Presidio and beginning
January 1, 1996, 50% of its annual management fee be paid to Wexford. During
1995 Presidio Management and Mr. Jacobs each received approximately $600
thousand under the terms of this agreement.
<PAGE>
Administrative Services Agreement
Pursuant to the Administrative Services Agreement, Wexford is engaged
to provide certain administrative and management services to the Company. See
"Business -- Material Agreements and Instruments." Under the Administrative
Services Agreement, Presidio reimburses Wexford for Wexford's compensation and
employee benefit costs allocable to the management of the Company. See
"Executive Compensation." Joseph M. Jacobs, the Chief Executive Officer and
President of Presidio, is the President and a Member of Wexford. Mr. Jacobs is
also a limited partner of Roundhill Associates, which serves as a general
partner of IR Partners, the owner of 1.2 million Class B Shares. Robert Holtz, a
Vice President and Secretary of Presidio, is a Senior Vice President and a
Member of Wexford. Jay L. Maymudes, the Chief Financial Officer, Vice President
and Treasurer of Presidio, is the Chief Financial Officer and a Senior Vice
President of Wexford. Charles E. Davidson, a director and the Chairman of the
Board of Directors of Presidio, is a Member and the Chairman of Wexford. Wexford
also provides management and other services to third parties that are not
related to Wexford.
Steinhardt Management Agreement and Steinhardt Expense Reimbursement
Pursuant to the Steinhardt Management Agreement, Steinhardt Management
was engaged to render certain consulting services to Presidio. See "Business --
Material Agreements and Instruments". Steinhardt Management and certain of its
affiliates are partners of IR Partners which owns 1.2 million Class B Shares.
Steinhardt Management and its affiliates also provide management and other
services to third parties that are not related to the Company.
Pursuant to the Plan, Steinhardt Management was entitled to
reimbursement of its out-of-pocket expenses in connection with the Plan and
related matters in an amount not to exceed $7.5 million. Steinhardt Management
was paid such amount on the Consummation Date. Steinhardt Management, with the
support of the various Integrated Creditors' Committees, sought reimbursement
from Presidio for additional expenses incurred by Steinhardt Management in
connection with the Plan of approximately $1.96 million. The Class A Directors
of Presidio unanimously approved the payment of such amount on January 18, 1995.
Subsequently, Steinhardt Management sought an additional reimbursement of
approximately $161,000, which was unanimously approved by the Class A Directors
of Presidio on March 28, 1995 and paid on April 27, 1995.
Greenwich, Connecticut Office Space
Certain domestic subsidiaries of Presidio currently lease offices at
411 West Putnam Avenue, Greenwich, Connecticut, under a lease expiring in July
1998. The owner of the premises located in Greenwich, Connecticut is a
partnership in which Charles E. Davidson, Presidio's Chairman of the Board, and
Joseph M. Jacobs, Presidio's Chief Executive Officer and President, have an
ownership interest of approximately 67%.
<PAGE>
PART IV
Item 14. FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------------------
(a) Financial Statements filed as part of this report, set forth in
Item 8 of this annual report on Form 10-K:
Financial Statements - Presidio Capital Corp. and Subsidiaries
(Liquidation Basis)
Independent Auditors' Report
Consolidated Statements of Net Assets in Liquidation at
December 31, 1995, 1994 and November 3, 1994 (Consummation
Date)
Consolidated Statements of Changes in Net Assets in
Liquidation for the Year Ended December 31, 1995 and for the
period November 3, 1994 (Consummation Date) through December
31, 1994
Notes to Consolidated Financial Statements
Financial Statements - Integrated Resources, Inc. and Subsidiaries
(Liquidation Basis)
Independent Auditors' Report
Consolidated Statement of Net Assets in Liquidation at
December 31, 1993
Consolidated Statements of Changes in Net Assets in
Liquidation for the periods January 1, 1994 through November
2, 1994 and October 1, 1993 through December 31, 1993
Notes to Consolidated Financial Statements
Financial Statements - Integrated Resources, Inc. and Subsidiaries
(Going Concern Basis)
Independent Auditors' Report
Consolidated Statements of Operations for the Nine-Month
Period Ended September 30, 1993
Consolidated Statements of Cash Flows for the Nine-Month
Period Ended September 30, 1993
Notes to Consolidated Financial Statements
<PAGE>
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit Description
- ------- -----------
<S> <C> <C>
2.1 Disclosure Statement for Sixth Amended Plan of Reorganization submitted by the *
Steinhardt Group and the Official Committee of Subordinated Bondholders, dated May 5,
1994 (Volumes I and II only).
2.2 Sixth Amended Plan of Reorganization Submitted by the Steinhardt Group and the *
Official Committee of Subordinated Bondholders, dated May 5, 1994.
2.3 Confirmation Order, dated August 8, 1994. *
3.1 Memorandum of Association of the Registrant and Amendment dated October 31, 1994. *
3.2 Articles of Association of the Registrant. *
10.1 Asset Purchase Agreement between Steinhardt Management Company, Inc. and Integrated *
Resources, Inc., dated as of May 5, 1994.
10.2 First Amendment to Asset Purchase Agreement, dated as of August 8, 1994. *
10.3 Management Agreement between the Registrant and Presidio Management Company, LLC, *
dated as of November 3, 1994.
10.4 Management Agreement between the Registrant and Steinhardt Management Company, Inc., *
dated as of November 3, 1994.
10.5 Administrative Services Agreement between the Registrant and Concurrency Management *
Corp, dated as of November 3, 1994.
10.6 Form of Class A Director Indemnification Agreement, dated November 3, 1994. *
10.7 Class A Director Indemnification Trust Agreement, dated as of November 3, 1994. *
10.8 Form of Indemnification Agreement with Qualified Indemnitees, dated as of August 29, *
1994.
10.9 Indemnification Security Agreement, dated as of November 3, 1994. *
10.10 Note Payable to Presidio TSA Corp., dated November 3, 1994. *
10.11 Security Agreement between the Registrant and Presidio TSA Corp., dated as of November *
3, 1994.
10.12 Agreement to Modify Contract Right Agreements, dated as of September 29, 1994. *
10.13 Discount Purchase Option Agreement, dated as of November 2, 1994. *
10.14 Second Amended and Restated Settlement Agreement, dated as of September 29, 1994 (as *
amended on October 5, 1994) by and among Steinhardt Management, Presidio and Beigel
Schy Lasky Rifkind Goldberg and Fertik (the B&S Settlement Agreement).
<PAGE>
<CAPTION>
EXHIBIT INDEX -- Continued
-------------
Exhibit Description
- ------- -----------
<S> <C> <C>
10.15 Asset Purchase Agreement by and between Newport News Cablevision, Ltd. and Cox Cable *
Hampton Roads, Inc., dated as of November 8, 1994.
10.16 Asset Purchase Agreement by and between American Cable TV Investors 4, Ltd. and Time *
Warner Cable Ventures, a division of Time Warner Entertainment, L.P., dated as of
February 8, 1995.
10.17 Office Lease, dated as of March 31, 1995, between Concurrency, Inc., as Landlord, and *
Presidio FF&E Corp., as Tenant, for the premises located at 411
West Putnam Avenue, Greenwich, Connecticut 06830.
10.18 Management and Administrative Services Agreement, dated March 31, 1995, among *
Fieldstone Private Capital Group, L.P., Presidio Capital Corp., Presidio ALI Corp.,
ALI Capital Corp., ALI Equipment Management Corp., Integrated Resources Equipment
Group, Inc., Presidio Equipment Leasing Corp., IAC Leasing Corp. III, Walker Leasing
Corp., Investors Credit Corp., IR Birch Corp., Integrated Equipment Leasing Corp.,
Integrated Aircraft Corp., Integrated Equipment Holding Corp., Regional Airlines
Leasing, Presidio Aircraft Fund Management Corp., Integrated Lease Plans, Inc.,
Presidio Rail Corp., Integrated Rail Corp., Presidio High Equity Corp., Integrated
Container Corp., Integrated Resources Aircraft Corp., Resources Satellite Corp.,
Integrated Aircraft Fund Management Corp.
10.19 Assignment of Administrative Services Agreement between Concurrency Management Corp.
And Wexford Management LLC, effective January 1, 1996.
10.20 Asset Sale Agreement dated as of September 7, 1995, between Majco Building Specialties
L.P. ("Seller") and CFM International.
10.21 Amendment No. 1 to Asset Sale Agreement, dated as of September 7, 1995, by and between
Majco Building Specialties, L.P. ("Seller") and CFM International Inc. ("Purchaser").
10.22 Stock Purchase Agreement, dated December 21, 1995 between the Rotor Tool L.P.
("Seller") and INTOOL, Inc. ("Buyer").
10.23 Resignation as Co-General Partner of ACT V dated January 17, 1996.
10.24 Amended and Restated Grantor Trust Agreement, dated January 1, 1996.
10.25 Secured Promissory Note, dated March 28, 1996, between Roundhill Associates L.P. and
Roundhill Associates II L.P. and Presidio Capital Corp.
<PAGE>
<CAPTION>
EXHIBIT INDEX -- Continued
-------------
Exhibit Description
- ------- -----------
<S> <C> <C>
21 Subsidiaries of the Registrant *
99 No Action Letter Response of the Office of Chief Counsel, Division of Investment *
Management, dated August 5, 1994, and No Action Request Letter of Schulte Roth & Zabel,
dated August 4, 1994.
</TABLE>
(c) Reports on Form 8-K
None.
*Incorporated herein by reference to the Company's Form 10 Registration
Statement
<PAGE>
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.
PRESIDIO CAPITAL CORP.
By: /s/ Jay L. Maymudes
----------------------------------------
Jay L. Maymudes
Vice President,
Treasurer and Chief Financial Officer
Date: April 15, 1996
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 in the capacities and on the 15th day of April, 1996.
Signature Title
--------- -----
By: /s/ Charles E. Davidson
---------------------------
Charles E. Davidson Chairman of the Board and Director
By: /s/ Joseph M. Jacobs
---------------------------
Joseph M. Jacobs Chief Executive Officer, President,
and Class B Director
By: /s/ Martin L. Edelman
---------------------------
Martin L. Edelman Class A Director
By: /s/ Dean J. Takahashi
---------------------------
Dean J. Takahashi Class A Director
By: /s/ Paul T. Walker
---------------------------
Paul T. Walker Class A Director
By: /s/ Jay L. Maymudes
---------------------------
Jay L. Maymudes Chief Financial Officer,
Vice President and Secretary
(Principal Financial and Accounting
Officer)
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of December 26,
1995, among Concurrency Management Corp., a Delaware corporation ("Assignor"),
Wexford Management, LLC, a Connecticut limited liability company ("Assignee"),
and Presidio Capital Corp., a Brittish Virgin Islands corporation (the
"Company").
WHEREAS, Assignor and the Company are parties to an
Administrative Services Agreement, dated as of November 3, 1994 (the
"Administrative Agreement");
WHEREAS, Assignor wishes to assign to Assignee all of its
rights and obligations under the Administrative Agreement; and
WHEREAS, pursuant to the terms of the Administrative
Agreement, the consent of the Company is required to effect such assignment;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Assignment. Assignor hereby assigns, transfers,
grants and conveys to Assignee, effective as of January 1, 1996 (the "Effective
Date"), all of Assignor's rights, title and interest in and to the
Administrative Agreement.
2. Assumption. Assignee hereby accepts the foregoing
assignment of the Administrative Agreement, and from and after the Effective
Date, accepts, assumes and agrees to perform all of the covenants, agreements
and obligations of Assignor under the Administrative Agreement.
3. Consent. In accordance with Paragraph 9(b) of the
Administrative Agreement, the Company hereby agrees to the foregoing assignment
of the Administrative Agreement by Assignor to Assignee.
4. Miscellaneous.
a) Definitions. Capitalized terms not
defined herein shall have the meaning ascribed to them in the Administrative
Agreement.
b) Counterpart Execution. This Agreement may
be executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which, when so executed and delivered, shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.
c) Governing Law. This Agreement shall be
construed, interpreted and applied in accordance with, and shall be governed by,
the laws of the State of New York without reference to principles of conflicts
of laws.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
CONCURRENCY MANAGEMENT CORP.
By: /s/ Jay Maymudes
-------------------------------------
Name: Jay Maymudes
Title: Vice President
WEXFORD MANAGEMENT, LLC
By: /s/ Jay Maymudes
-------------------------------------
Name: Jay Maymudes
Title: Vice President
PRESIDIO CAPITAL CORP.
By: /s/ Robert Holtz
-------------------------------------
Name: Robert Holtz
Title: Vice President
Exhibit 10.20
<PAGE>
ASSET SALE AGREEMENT
DATED AS OF SEPTEMBER 7, 1995
BY AND BETWEEN
MAJCO BUILDING SPECIALTIES, L.P.
AND
CFM INTERNATIONAL INC.
<PAGE>
TABLE OF CONTENTS
Purchase and Sale of Assets.....................................................
Sale of Assets.........................................................
Retained Assets........................................................
Assumption of Liabilities..............................................
Limitations on Assumption..............................................
Purchase Price.........................................................
Discharge of Indebtedness..............................................
Personnel, Labor and ERISA Matters.....................................
Completion of Closing Audited Financial Statements.....................
Pre-Closing Purchase Price Adjustment; Additional
Closing Condition......................................................
Taxes on Sale..........................................................
Closing.........................................................................
Time and Place.........................................................
Obligations of Purchaser at Closing....................................
Obligations of Seller at Closing.......................................
Representations and Warranties of Seller........................................
Organization and Existence.............................................
No Subsidiaries........................................................
Financial Statements...................................................
Real Property..........................................................
Absence of Changes or Events...........................................
Absence of Undisclosed Liabilities: No Transactions with
Affiliates.............................................................
Tax Matters............................................................
Personal Property; Machinery and Equipment.............................
Contracts and Commitments..............................................
Patents and Trademarks.................................................
Insurance Policies.....................................................
Consents...............................................................
Litigation.............................................................
Compliance with Laws...................................................
Employee Benefit Plans.................................................
Labor Matters..........................................................
Finders and Investment Bankers.........................................
Licenses, Permits and Authorizations...................................
Bank Accounts..........................................................
Customers and Suppliers................................................
Officers' Salaries.....................................................
Books and Records......................................................
Inventory..............................................................
Absence of Certain Payments............................................
Accounts Receivable....................................................
Warranty Policies......................................................
Representations and Warranties of the Purchaser.................................
Organization and Existence.............................................
Finders and Investment Bankers.........................................
Financial Resources....................................................
Covenants.......................................................................
Conduct of Business....................................................
Other Transactions.....................................................
Consents and Approvals.................................................
Endorsements; Bank Accounts............................................
Additional Instruments.................................................
Compliance With Hart-Scott.............................................
Possession and Control of Assets; Access to
Information............................................................
Taxes..................................................................
Insurance..............................................................
Purchase Price Allocation..............................................
Use of Name............................................................
Certain Notices........................................................
Reimbursements and Apportionments of Certain Charges
with respect to Real Property..........................................
Accounts Receivable....................................................
Notes Receivable.......................................................
Inventory..............................................................
Continuing Due Diligence...............................................
Lien Searches..........................................................
Limitation of Use of Cash by Seller Pending Closing....................
Payment of Employee Discretionary Bonuses and 401K Plan
Contributions..........................................................
Conditions to Obligations of Purchaser..........................................
Conditions to Obligations of Seller.............................................
Survival of Representations and Warranties; Indemnification.....................
Survival of Representations and Warranties.............................
Survival of Covenants and Agreements...................................
Indemnification by Seller..............................................
Indemnification by Purchaser...........................................
Defense by Indemnifying Parties........................................
Remedies Exclusive.....................................................
Warranties.............................................................
Termination.....................................................................
Best Efforts to Satisfy Conditions.....................................
Termination............................................................
Miscellaneous...................................................................
Expenses...............................................................
Publicity..............................................................
Bulk Sales Laws; Tax Certificate.......................................
Notices................................................................
Mail...................................................................
Assignment.............................................................
Third Party Beneficiaries..............................................
Knowledge of Seller....................................................
Successors Bound.......................................................
Section Headings; Captions; Pronouns...................................
Amendment..............................................................
Entire Agreement.......................................................
Closing................................................................
Counterparts...........................................................
Governing Law..........................................................
List of Schedules
List of Exhibits
<PAGE>
ASSET SALE AGREEMENT
Asset Sale Agreement ("Agreement"), dated as of September 7, 1995, by
and between Majco Building Specialties, L.P., a limited partnership organized
under the laws of the State of Delaware ("Seller"), and CFM INTERNATIONAL INC.,
a corporation organized pursuant to the Ontario Business Corporations Act
("Purchaser").
Seller, through its division, The Majestic(R) Company (sometimes
hereinafter referred to as the "Division"), is engaged in the manufacture,
marketing and sale of fireplace systems, and related accessories and decorative
items and other specialty building products (the "Business"). Seller desires to
sell and, to the extent applicable, assign to Purchaser the Business and the
assets, properties and associated liabilities of the Division, and Purchaser
desires to acquire the same from Seller.
NOW, THEREFORE, on the terms and provisions set forth in this
Agreement, for certain good and valuable consideration, the receipt and adequacy
of which hereby are acknowledged, and intending to be bound hereby, Seller and
Purchaser hereby agree as follows:
1. Purchase and Sale of Assets.
1.1 Sale of Assets. On the terms and conditions of this Agreement, at
the Closing (as defined in Section 2.1 hereof), Seller shall sell, convey,
transfer, deliver, assign and set over to Purchaser and Purchaser shall purchase
and accept from Seller, the Business and all of the properties, assets, rights
and interests of the Division owned by Seller of every kind and description
whatsoever and wherever located, tangible and intangible, real, personal and
mixed, as they shall exist at the time of the Closing including, without
limitation, the following, free and clear of any lien or encumbrance except
Permitted Exceptions (as defined in Section 3.4(a)) and liens described on
Schedule 3.8 or in Sections 3.8(ii) and (iii) (other than liens related to the
Debt as hereinafter defined), but excluding all "Retained Assets" (as such term
is defined in Section 1.2 hereof) (the "Assets"):
(a) the parcels of land owned by Seller and all buildings,
improvements, fixtures, fixed assets and personalty owned by Seller
annexed, affixed or attached to such land, constituting the Division's
Huntington, Indiana and Austin, Texas plants and the other real
property owned by Seller as more particularly described in Schedule 3.4
(the "Real Property");
(b) all machinery and other equipment, tools and dies, furniture,
fixtures, vehicles and other transportation equipment, office supplies
and all other fixed assets which are not included within the Real
Property but are carried on the books and records of the Division or
are primarily utilized in the conduct of the Business;
(c) all packaging and shipping materials, all raw materials (whether in
transit or otherwise), in process and finished goods and products
inventory, and consigned goods of the Division and its Business;
(d) the full benefit subject to burden (so far as same are capable of
assignment) of all leases and other agreements and contracts to which
the Division is a party or a third party beneficiary or Seller is a
party primarily on behalf of the Division or the Business, including
all purchase orders, purchase contracts, sales orders and sales
contracts (other than this Agreement);
(e) all rights to the extent the Division (or Seller on behalf of the
Division) has prepaid expenses;
(f) all permits and authorizations (so far as same are capable of
assignment) owned by the Division or by Seller primarily in respect of
the Division or the Business;
(g) certain insurance policies owned by the Division or by Seller
primarily in respect of the Division or the Business set forth on
Schedule 3.11 hereto;
(h) all patents and patent applications owned by the Division or by
Seller primarily in respect of the Division or the Business;
(i) subject to Section 5.11 hereof and Section 1.2(e) hereof, all
trademarks, trademark applications, service marks, trade names and
trade name applications owned or (if any) licensed by the Division or
by Seller primarily in respect of the Division or the Business,
including all rights to use the name "Majestic" and all other names,
logos and slogans used by the Division or by Seller primarily in
respect of the Division;
(j) all intellectual property rights not otherwise covered by Sections
l.l(h) and l.l(i) hereof, including, without limitation, all know-how,
copyrights, copyright registrations, copyright applications for
registration, trade secrets, techniques, formulas, inventions,
drawings, processes, engineering data, directions, software, computer
programs, databases and other technical information and specifications
owned by the Division or by Seller primarily for use in the operation
of the Business (the assets described in Sections 1.1(h), (i) and (j)
are sometimes hereinafter referred to as "Proprietary Rights");
(k) all notes receivable and accounts receivable owned by the Division
or by Seller primarily in respect of the Division or the Business;
(l) all claims, refunds, causes of action, causes in action, rights of
recovery and rights of set-off of every kind and nature, except those
relating to liabilities which (i) are not included within the "Assumed
Liabilities" (as such term is defined in Section 1.3 hereof) or (ii)
are related to the Retained Assets;
(m) all surety bonds, performance bonds, guarantees and letters of
credit;
(n) all goodwill and going concern value; and
(o) subject to Section 1.2(d) and to the obligations of Seller pursuant
to Section 5.7 hereof, all books and records of the Division or
pertaining to the Assets or the Business.
1.2 Retained Assets. Any provision of this Agreement to the contrary
notwithstanding, the following properties, assets, rights and interests (the
"Retained Assets") are expressly excluded from the purchase and sale
contemplated hereby and, as such, are not included in the Assets:
(a) all monies to be received by Seller under this Agreement and all
other rights of Seller hereunder;
(b) all tax refunds and other rights (including, without limitation,
rights to indemnification) and claims of the Division, of the Seller in
respect of the Division or of the Seller, in respect of or relating to
(i) tax liabilities not assumed by Purchaser and any other liabilities
not assumed by Purchaser or (ii) any other Retained Assets;
(c) the cash and cash equivalents of the Division and of Seller on
hand, in banks or wherever located, certificates of deposit, commercial
paper and securities that Seller is not prohibited from distributing or
applying pursuant to Section 5.19 of this Agreement;
(d) subject to the obligations of Seller pursuant to Section 5.7
hereof, all books, records and other documents of Seller, including,
without limitation, limited partner lists, partnership tax returns and
limited partner Schedule K-1s, relating to the partners of and their
investment in Seller;
(e) the non-transferable right for Seller to use the names "Majco" and
"Majco Building Specialties, L.P.";
(f) all other assets, properties and rights, if any, identified on
Schedule 1.2 hereto;
(g) the employment agreements between the Seller and each of Raymond E.
Deasy, Larry R. McMichael, Rick Thompson and Donely Zulager;
(h) the financial consulting and sales and use tax consulting service
agreements set forth as items 30 and 31 under subsection (ii) of
Schedule 3.9 hereto; and
(i) the rights and benefits of Seller in respect of the Agreement of
Sale and Purchase dated April 24, 1986, among American Standard Inc.,
Equus Capital Corporation and Equus Building Products, L.P. as assignee
of EBP Holdings, Inc., provided that Seller shall request the consent
of American Standard to the assignment of such rights and benefits to
Purchaser, and in the event such consent is obtained at any time,
Seller shall assign such rights and benefits to Purchaser.
1.3 Assumption of Liabilities. Purchaser, upon the sale and purchase of
the Assets, shall assume, and shall pay and discharge when due all of the
liabilities and obligations of the Division and all of the liabilities and
obligations of Seller in respect of the Division, the Business or the Assets, of
whatever type or nature, absolute, contingent or otherwise, other than the
Retained Liabilities (the "Assumed Liabilities").
1.4 Limitations on Assumption. Any provision of this Agreement to the
contrary notwithstanding, Purchaser will not and does not assume the following
liabilities and obligations (the "Retained Liabilities") of Seller even if, to
any extent, they arose in connection with, were incurred by or were related to,
the operation of the Business or the transfer of the Business to Purchaser
pursuant to this Agreement:
(a) all indebtedness (the "Debt") of Seller for borrowed money under
the agreements and instruments set forth on Schedule 3.9(xv) hereto;
(b) any obligation or liability of Seller to Purchaser created by this
Agreement;
(c) any obligation or liability of Seller arising out of or incurred in
respect of any transaction occurring on or after the Closing Date (as
defined in Section 2.1 hereof) unrelated to the Assets, the Division or
Purchaser's operation of the Business;
(d) any obligation or liability of Seller to any of Seller's general or
limited or special partners (in their respective capacities as general
or limited or special partners) or any officer, director or stockholder
or limited or general partner thereof (in their respective capacities
as officer, director, stockholder or general or limited partner
thereof) and any officer, director or stockholder of any such
stockholder or limited or general partner (in their respective
capacities as officer, director or stockholder);
(e) unpaid fees and expenses of Seller's investment bankers, counsel,
accountants or other experts incurred in connection with the
negotiation of this Agreement and related documentation and the
execution and delivery of the same and the closing of the transactions
contemplated hereby;
(f) any obligation or liability of Seller or its general or limited or
special partners for any of the following: (i) federal, state, local or
foreign income Taxes incurred for periods through the date of Closing
("pre-Closing Periods"); (ii) federal, state, local or foreign Taxes
payable with regard to the sale, conveyance, assignment, transfer or
delivery of the Division, the Assets and the Business by Seller to
Purchaser at the Closing pursuant to this Agreement, except for any
liability which Seller may incur with respect to the Multi-Employer
Plan (as such term is hereinafter defined); (iii) any other Taxes
incurred in respect of the Division for pre-Closing Periods and not
properly accrued on the "Closing Balance Sheet" (as such term is
defined in Section 1.8 hereof) and back-up schedules with respect
thereto, which schedules shall provide additional details regarding
each tax accrual item; and (iv) interest, additions and penalties
incurred in respect of any of the Taxes referred to in clauses (i),
(ii) or (iii) of this paragraph (f); and
(g) the liabilities associated with the agreements referred to in
Section 1.2(g) and (h).
For purposes of this Agreement, "Tax" shall mean any federal, state,
local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated, or other tax of
any kind whatsoever.
1.5 Purchase Price.
(a) In consideration of the sale and transfer of the Assets by Seller
to Purchaser, at Closing Purchaser shall assume the Assumed Liabilities
and pay the following (the "Purchase Price"): (i) to Seller, the
"Initial Purchase Price" (as such term is defined in Section 1.5(c)(i)
below); and (ii) into the "Escrow Account" the sum of the "Contingent
Escrow Funds" (as such terms are defined in Section 1.5(c)(ii) below).
(b) The sum of Sixty Six Million Six Hundred Ten Thousand United States
Dollars (U.S. $66,610,000) in cash constitutes the "Gross Amount"
within the meaning of this Agreement.
(c) At Closing, the Purchase Price shall be transferred by Purchaser by
wire transfer of immediately available funds, as follows:
(i) the sum (such sum, the "Initial Purchase Price") of (a)
Sixty Three Million Two Hundred Seventy Nine Thousand Five
Hundred Dollars (U.S. $63,279,500) shall be paid at the
Closing to such account or accounts as may have been
designated by Seller to Purchaser in writing at least two (2)
business days prior to the Closing.
(ii) the sum (such sum, the "Contingent Escrow Funds") of
Three Million Three Hundred Thirty Thousand Five Hundred
Dollars (U.S. $3,330,500) shall be paid at Closing into the
escrow account (the "Escrow Account") established pursuant to
an escrow agreement substantially in the form of Exhibit A
hereto (the "Escrow Agreement").
(d) As more fully provided in the Escrow Agreement, for the scheduled
term of the Escrow Agreement following the Closing Date, Purchaser
shall be entitled to collect from the Escrow Account any amount that
Purchaser is entitled to receive, in accordance with the terms and
conditions of the Escrow Agreement, as an indemnification payment
pursuant to the provisions of Section 8 hereof. Upon the termination of
the Escrow Agreement, the balance of the Escrow Account, if any, shall
be paid over to Seller pursuant to the Escrow Agreement as a payment of
additional contingent purchase price for the Assets (said payment, the
"Contingent Purchase Price Payment").
1.6 Discharge of Indebtedness. At the Closing, upon payment by
Purchaser of the Initial Purchase Price to Seller and the Contingent Escrow
Funds to the Escrow Account, Seller shall cause all documents and instruments,
in recordable form as appropriate, necessary to fully release and discharge the
Debt owed on the Closing Date together with all liens, mortgages, deeds of
trust, security interests, pledges and other encumbrances securing the same, to
be executed, delivered and/or filed, as the case may be. To facilitate the
foregoing, Seller may direct Purchaser to pay a portion of the cash
consideration included in the Initial Purchase Price directly to the holder of
the Debt in such amount as is indicated by Seller. Seller shall cause the holder
of the Debt to execute a pay-off letter substantially in the form of Exhibit C
hereto evidencing the release and discharge of such indebtedness.
1.7 Personnel, Labor and ERISA Matters
(a) Continued Employment. Upon the Closing, Purchaser shall continue to
employ all of the employees covered by the collective bargaining
agreement dated as of May 9, 1994 (the "Union Contract") with Local
Union No. 204 of the Sheet Metal Worker's International Union, AFL-CIO
(the "Sheet Metal Worker's Union") pursuant to the terms thereof, and
all other employees of the Business and the Division or of Seller in
respect of the same at their same salaries and wages and with the same
benefits and terms and conditions of employment as are in effect
immediately prior to the Closing. The foregoing shall not prohibit
Purchaser from terminating the employment of any such employee
following the Closing to the extent permitted by law and contract
although Purchaser has not expressed any present intention to do so.
(b) Union Contract. Purchaser shall assume all of the duties and
obligations of the Business, the Division and Seller under or in
respect of the terms of the Union Contract.
(c) Employee Benefit Plans. Seller and Purchaser shall, before and
after the Closing, take all such action as may be necessary or
appropriate so that Purchaser shall be substituted for all purposes as
the sponsoring or contributing employer under the Plans (as defined in
Section 3.15 hereof) referred to on Schedule 3.15(a) hereto, and so
that, with respect to the "Multi-Employer Plan" (as such term is
hereinafter defined), under the requirements of such Plan, ERISA (as
defined in Section 3.15(a) hereof), and the Pension Benefit Guaranty
Corporation, such substitution shall not constitute a complete
withdrawal or partial withdrawal (as such terms are defined in ERISA)
by Seller from such Plan. Without limiting the foregoing, Purchaser
expressly agrees that it shall assume and observe the obligations of
the Business, the Division and Seller to the Sheet Metal Worker's plan,
a multi-employer defined benefit employee pension benefit plan
previously assumed by Seller, which plan (the "Multi-Employer Plan") is
identified on Schedule 3.15(a) hereto and Purchaser shall be liable for
any withdrawal liability which Seller may incur with respect to the
Multi-Employer Plan. Without limiting Purchaser's obligations under
this Agreement (including, without limitation, in respect of the
Assumed Liabilities) or Seller's rights under this Agreement
(including, without limitation, Seller's rights to indemnification by
Purchaser), Seller acknowledges that if Purchaser withdraws from the
aforesaid multiemployer plan in a complete withdrawal, or a partial
withdrawal with respect to operations during the five plan years
specified in Section 4204(a)(1)(C) of ERISA, the Seller shall be
secondarily liable for any withdrawal liability it would have had to
such multiemployer plan with respect to the operations (but for Section
4204 of ERISA) if the liability of Purchaser with respect to the plan
is not paid.
(d) Welfare Plans. All personnel to be employed by Purchaser following
the Closing as provided in subsection (a) above shall be given credit
for all years of service in respect of the Business with Seller and its
predecessors, including, without limitation, American Standard Inc. and
Equus Building Products, L.P. for purposes of determining eligibility
for, and duration and amount of, all benefits to be assumed by
Purchaser (including, without limitation, life insurance, medical,
dental and disability benefits and paid vacation and severance
arrangements); provided that in respect of employees covered by the
Union Contract credit in respect of years of service shall be given
only if and as provided in such Union Contract. Purchaser shall assume
the obligations of the Business, the Division and the Seller as of the
Closing Date for accrued vacation pay and sick pay and other accrued
but unpaid benefits as accrued in the ordinary course of business in
accordance with the policies identified in Schedule 3.15(a) hereto.
1.8 Completion of Closing Audited Financial Statements.
(a) As soon as practicable after the Closing and, in any event, within
forty-five (45) days thereof, Seller shall prepare and deliver to
Purchaser audited financial statements, including, but not limited to,
an audited balance sheet of Seller as at September 30, 1995 (the
"Closing Balance Sheet"), and the related audited statement of income
(the "Closing Income Statement"), for the period commencing on January
1, 1995 and ending on the Closing Date (the "Closing Audited Financial
Statements"), prepared in accordance with United States generally
accepted accounting principles consistently applied in accordance with
Seller's past practices. The Seller will inform its independent
certified public accountants of, and will use its best efforts to have
such accountants acknowledge, Purchaser's intended use of the Closing
Audited Financial Statements in connection with the purchase of Assets
under this Agreement.
(b) In connection with the preparation of the Closing Audited Financial
Statements, a physical inventory shall be conducted at the Division's
plants on the Closing Date. The inventory will be taken by Seller's
independent certified public accountants, and shall be observed by
Purchaser's independent certified public accountants.
(c) Purchaser shall give Seller and its independent certified public
accountants such access to the Division, the Assets and the Business
and the officers and employees and books and records thereof (which are
then within the possession of Purchaser or its affiliates,
representatives, employees or professional advisors) as Seller or its
accountants may reasonably request in order to enable them to prepare
said Closing Audited Financial Statements.
(d) Seller's independent certified public accountants and Purchaser's
independent certified public accountants may discuss with each other
the preparation and contents of the Closing Audited Financial
Statements during the period from the Closing through the delivery of
the same by Seller to Purchaser.
(e) Purchaser shall have fifteen (15) days after receipt of the Closing
Audited Financial Statements (during which period Purchaser shall have
complete access to the work papers of Seller's independent certified
public accountants), during which to advise Seller by a written notice
that Purchaser disputes that such Closing Audited Financial Statements
are prepared in accordance with United States generally accepted
accounting principles consistently applied in accordance with Seller's
past practices. If Purchaser does not give such notice of dispute with
regard to either the Closing Balance Sheet or the Closing Income
Statement, then the Statement which is undisputed shall be deemed to be
the "Closing Balance Sheet" or the "Closing Income Statement", as the
case may be, and shall be conclusive and binding upon the parties
hereto for the purposes expressly set forth in Sections 1.4(f)(iii),
5.14, 5.16 and 5.19 of this Agreement.
(f) If Purchaser gives such notice of dispute, then Seller and
Purchaser shall use their best efforts and good faith to resolve such
dispute by negotiation. If the parties succeed in resolving any such
disputes by negotiation, then the statement which becomes undisputed,
with whatever changes thereto the parties may have mutually agreed to
make, shall be deemed to be the "Closing Balance Sheet" or the "Closing
Income Statement", as the case may be, and shall be conclusive and
binding upon the parties hereto for the purposes expressly set forth in
Sections 1.4(f)(iii), 5.14, 5.16 and 5.19 of this Agreement.
(g) If any dispute is not resolved by negotiation within ten (10) days
after the receipt by Seller of Purchaser's notice of dispute, and such
dispute involves an individual item on the Closing Balance Sheet or
Closing Income Statement in excess of $50,000, or items on the Closing
Balance Sheet or Closing Income Statement aggregating in excess of
$200,000, then the dispute shall be submitted immediately to one of the
following "Big Six" firms, which are listed in the order in which they
shall be approached to accept the assignment: Price Waterhouse, Coopers
& Lybrand and Arthur Anderson. The independent certified public
accountant who actually resolves the dispute shall be a member of such
firm in the Chicago office who is individually knowledgeable and
experienced in the accounting issues in the fireplace industry or a
closely- identified industry or, if no such member can be identified,
then a member of the firm knowledgeable and experienced with
manufacturing companies. If no such accountant at one of the Big Six
firms listed above accepts the assignment within five (5) days after
the lapse of the aforesaid ten (10) day negotiating period, and the
parties have not mutually agreed upon another accountant to resolve the
dispute, then either party may seek to have an accountant appointed in
an arbitration proceeding substantially similar to the one provided for
under the Escrow Agreement. The accountant chosen to resolve the
dispute, whether at one of the Big Six firms or otherwise, shall
determine within fifteen (15) days whether the Closing Balance Sheet or
the Closing Income Statement, whichever is applicable, was prepared in
accordance with United States generally accepted accounting principles
consistently applied in accordance with Seller's past practices. Each
of the Seller and the Purchaser may make a written submission to the
accountant arbitrating the dispute provided that a copy of the same is
received by the other party hereto on the same day, and each party may
make a response in writing to the submission by the other party
provided that a copy of the response also is received by the other
party hereto on the same day as the response is received by the
accountant arbitrating the dispute. The accountant arbitrating the
dispute pursuant to this Paragraph shall consider any such submission.
When the accountant arbitrating the dispute pursuant to this Paragraph
renders his decision, the relevant statement, as revised in accordance
with the decision of the accountant who arbitrated the dispute, shall
be deemed to be the "Closing Balance Sheet" or the "Closing Income
Statement", as the case may be, and shall be conclusive and binding
upon the parties hereto for the purposes expressly set forth in
Sections 1.4(f)(iii), 5.14, 5.16 and 5.19 of this Agreement.
(h) Each party hereto shall pay the fees and expenses of its own
accountants in connection with the performance of this Section. The
fees and expenses of the independent certified public accountant, if
any, who arbitrates a dispute between the parties hereto pursuant to
Section 1.8(g) hereof shall be shared equally by the parties hereto.
1.9 Pre-Closing Purchase Price Adjustment; Additional Closing
Condition. The parties hereto expressly acknowledge and agree that
notwithstanding any other provision of this Agreement to the contrary, on the
terms and conditions set forth in this Section 1.9 the Purchase Price may be
adjusted by the parties prior to the Closing and a special Closing condition may
arise, as follows:
(a) In the event that from the date hereof through the Closing date, an
event or condition, should occur which results in a breach of Seller's
representations or warranties hereunder, Purchaser shall promptly give
Seller notice of the same in substantially the same manner as notice
would be given for indemnification claims pursuant to Article 8 hereof.
In addition to whatever other information is included in such notice to
Seller, Purchaser, to the best of its ability, shall advise Seller of
the dollar value of Purchaser's claim with respect to such breach.
(b) Within two (2) days of receipt of such notice (assuming, for this
purpose, that the same is received prior to the Closing date), Seller
shall respond to Purchaser's notice. Such response may include an
acceptance or a rejection of the validity of Purchaser's claim or the
valuation thereof or a request for additional information.
(c) To the extent that the parties agree on the value and validity of
any such claim on or prior to the Closing date, if the aggregate agreed
value of any such claims between the date hereof and the Closing date
is greater than Two Hundred Fifty Thousand Dollars ($250,000) but less
than One Million Dollars ($1,000,000), Seller agrees that with respect
to each such claim Seller shall either (i) pay the amount of such claim
to Purchaser or (ii) assume liability therefor, to the extent that the
matter underlying the claim constitutes an assumable obligation. In the
event that the aggregate agreed value of such claims exceeds One
Million Dollars ($1,000,000), Seller shall also have the option to
perform in accordance with the preceding clauses (i) and (ii) but
Seller may limit its payment or assumption to One Million Dollars
($1,000,000). In the event that the aggregate agreed value of such
claims does not exceed Two Hundred Fifty Thousand Dollars ($250,000),
this Section shall not apply. Any payments by Seller pursuant to this
Section shall be made by wire transfer of immediately available funds.
1.10 Taxes on Sale. Seller shall bear the burden and be responsible for
the payment of all Taxes payable with respect to the sale, conveyance,
assignment, transfer or delivery of the Division, the Assets and the Business to
Purchaser at Closing pursuant to this Agreement, except for any liability which
Seller may incur with respect to the Multi Employer Plan (as such term is
hereinafter defined).
2. Closing.
2.1 Time and Place. The consummation of the purchase and sale
of the Assets and the other transactions contemplated hereby (the "Closing")
shall take place at 10:00 A.M. on September 29, 1995 (the "Closing Date") at the
offices of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, 153 East 53rd
Street, New York, New York, or at such other time and place as the parties
hereto may agree in writing.
2.2 Obligations of Purchaser at Closing. At the Closing, if
the conditions to Purchaser's obligations set forth in Section 6 hereof have
been satisfied or waived by Purchaser, then, against tender by Seller of the
documents set forth in Section 2.3 hereof, Purchaser shall perform its
obligations to be performed under this Agreement on or prior to Closing and
shall: (i) pay and deliver by irrevocable wire transfer of immediately available
funds (a) the Initial Purchase Price to an account or accounts designated by
Seller in writing to Purchaser at least two (2) business days prior to the
Closing and (b) the Contingent Escrow Funds to the Escrow Account; and (ii)
execute and deliver to Seller an assumption agreement in the form of Exhibit D
hereto and such other acceptances of the Assumed Liabilities as Seller may
reasonably require to consummate the transactions contemplated hereunder, in
form and substance reasonably satisfactory to Seller.
2.3 Obligations of Seller at Closing. At the Closing, if the
conditions to Seller's obligations set forth in Section 7 hereof have been
satisfied or waived by Seller, then, against tender by Purchaser of the Initial
Purchase Price and the Contingent Escrow Funds and the other items set forth in
Section 2.2 hereof, Seller shall execute and deliver or cause to be executed and
delivered to Purchaser all of the following and such other documentation as is
necessary to consummate the transactions contemplated hereunder:
(i) with respect to the Real Property, special warranty deeds
conveying title to Purchaser in the forms of Exhibits E and F hereto;
(ii) with respect to the lease listed in Schedule 3.4(a)
hereto (the "Lease"), an assignment and assumption agreement
substantially in the form of Exhibit G hereto;
(iii) assignments of all of Seller's rights and obligations
under all contracts and agreements (exclusive of the Leases) which are
included in the Assets (other than those covering Retained Assets),
substantially in the form of Exhibit H hereto;
(iv) assignments to Purchaser of that portion of the Assets
which consist of Proprietary Rights and any other intangible property
of an intellectual property nature, substantially in the form of
Exhibit I hereto;
(v) a bill of sale in the form of Exhibit K from Seller and
such other assignments, endorsements, and instruments of conveyance and
transfer as shall be necessary in order to sell, assign and transfer
the Assets not covered by clauses (i) through (iv) and (x) of this
Section 2.3 to Purchaser;
(vi) all documents and instruments necessary to release of
record or otherwise evidence the satisfaction of the mortgages, liens,
security interests and encumbrances listed in Schedule 2.3(vi) hereto,
if any;
(vii) all documents necessary to effectuate the assignment of
the Union Contract and Plans as contemplated in Section 1.8 hereof
substantially in the form of Exhibits K and L attached hereto;
(viii) the letters of instruction described in Section 5.4
hereof;
(ix) the pay-off letter described in Section 1.6 hereof, if
applicable;
(x) the instrument described in Section 5.4 hereof authorizing
Purchaser and its representatives to endorse Seller's name on checks,
drafts, notes and other documents received in payment of any accounts
receivable or other property included in the Assets sold to Purchaser
under this Agreement; and
(xi) all documents necessary to effectuate the assignment of
the insurance policies covered by Section 1.1(g) hereof, if any.
3. Representations and Warranties of Seller.
Seller represents and warrants to Purchaser that:
3.1 Organization and Existence.
(a) Seller is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of Delaware, has all
requisite partnership power and authority to own, lease and operate its
properties and to carry on the Business as now being conducted and is
qualified to do business as a foreign limited partnership in any
jurisdiction whose laws require such qualification except where the
failure to be so qualified, as of the date hereof, would not have a
materially adverse effect on the Business, the Division or the Assets,
taken as a whole. The Documents (as hereinafter defined) executed and
delivered by Seller constitute, or when executed and delivered will
constitute, the legal, valid and binding agreements of Seller, and are,
or when executed and delivered will be, enforceable in accordance with
their respective terms. The execution, delivery and performance by
Seller of this Agreement and the other Documents to be executed,
delivered and performed by Seller are within its partnership powers,
and, to the extent required, subject to the receipt of the limited
partner consent contemplated by Section 7(h), have been duly authorized
by all necessary partnership action. Seller has delivered to Purchaser
complete and correct copies of: (i) the Certificate of Limited
Partnership of Seller and of the general partner of Seller
(collectively, the "L.P. Certificate"), as in effect on the date
hereof, certified by the Secretary of State of Delaware; and (ii) the
Amended and Restated Agreement of Limited Partnership of Seller and the
Agreement of Limited Partnership of the general partner of Seller
(collectively, the "Partnership Agreement"), as in effect on the date
hereof, certified, as to Seller, by the Secretary or an Assistant
Secretary of the general partner of the general partner of Seller and,
as to the general partner of Seller, by the general partner of the
general partner of Seller.
(b) Except as set forth in the documents creating the Debt and except
as set forth in Schedule 3.1(b) hereto, if at all, neither the
execution and delivery of any of the Documents, the performance by
Seller of its obligations thereunder, nor the consummation of the
transactions contemplated thereby will: (i) violate any provisions of
the L.P. Certificate or the Partnership Agreement; (ii) with or without
the giving of notice or the passage of time, or both, violate, or be in
conflict with, or constitute a default under, or cause or permit the
termination, cancellation or the acceleration of the maturity of, any
debt, contract, agreement, lease or obligation of the Division or the
Seller or, to Seller's knowledge, by which they are bound, or require
the payment of any prepayment or other premium or penalty with respect
thereto; (iii) except as set forth in Schedule 3.12 hereto, require
notice to or the consent of any party to any debt, contract, agreement,
lease or obligation of the Division or the Seller or, to Seller's
knowledge, by which they are bound, or permit any such party to
re-negotiate, receive a refund with respect to, modify or otherwise
change any agreement or commitment; (iv) result in the creation or
imposition of any security interest, lien or other encumbrance upon any
property or assets of the Division or Seller under any debt, contract,
agreement, lease or obligation of the Division or the Seller or, to
Seller's knowledge, by which they are bound; or (v) violate any
statute, law, judgment, decree, order, writ, injunction, regulation or
rule of any court or governmental authority applicable to the Division
or to the Seller; except, in the case of clauses (ii), (iii) and (v),
for any such violation, conflict, default, termination, acceleration,
security interest, lien, encumbrance or other act or omission which
would not materially adversely affect the Assets or the Business.
As used herein, the term "Documents" means this Agreement and all other
instruments, agreements and documents executed and delivered or to be executed
and delivered by either party or both parties hereto in connection with the
transactions contemplated hereby.
3.2 No Subsidiaries. Except as set forth on Schedule 3.2 hereto, Seller
does not have any subsidiaries or any equity investment or ownership interest,
directly or indirectly, in any corporation, partnership, joint venture or other
business enterprise.
3.3 Financial Statements.
(a) Schedule 3.3(a) sets forth a true, accurate and complete copies of
the balance sheets of Seller as at December 31, 1994 (the "1994 Balance
Sheet") and December 31, 1993 and the related statements of income,
changes in partners' equity and cash flows for the fiscal years then
ended, accompanied by the audit report thereon of Deloitte & Touche
LLP, independent accountants (collectively, the "Audited Financial
Statements"). The Audited Financial Statements have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis, are consistent with the books and
records of Seller, taken as a whole, and present fairly and accurately
the financial position of Seller in each case as at the dates thereof,
and the results of operations and changes in cash flows for the periods
then ended in accordance with United States generally accepted
accounting principles applied on a consistent basis.
(b) Schedule 3.3(b) sets forth true, accurate and complete copies of
the unaudited balance sheet of Seller as at June 30, 1995 (the "June
Balance Sheet") and the related unaudited income statement, and cash
flows for the six-month period ended on such date (the "Unaudited
Financial Statements"). Except for the absence of notes thereto and
other customary differences and exceptions pertaining to the
preparation of unaudited interim financial statements, to the knowledge
of Seller the Unaudited Financial Statements have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis, are consistent with the books and
records of Seller, taken as a whole, and present fairly and accurately
the financial position of Seller as at the date thereof, and the
results of operations and changes in cash flows for the period then
ended in accordance with United States generally accepted accounting
principles applied on a consistent basis.
3.4 Real Property.
(a) Schedule 3.4(a) contains (i) the legal descriptions of the Real
Property and (ii) a list of the real property leased by the Business or
the Division or by Seller primarily for the Business or the Division.
(b) The Real Property is all of the real property owned by Seller.
Seller is in actual possession of the Real Property and has, and at
Closing shall have, fee simple title to the Real Property, free and
clear of all liens and encumbrances, leases and rights of occupancy,
except for the following (all of which except for subprovision (i)
below are referred to hereinafter collectively as the "Permitted
Exceptions"): (i) those items listed on Schedule 2.3(vi) hereto, if
any; (ii) real property taxes, assessments and other impositions either
not yet due and payable at the time of Closing or the payment of which
is being contested by Seller in appropriate proceedings; (iii) the
exceptions set forth in Schedule 3.4(b)(iii) hereto; (iv) the states of
facts and (y) any existing additional states of facts which an accurate
survey (or update of the surveys described above) or a physical
inspection of the real property would reveal provided, that the
additional states of facts do not violate any existing law, rule, order
or regulation or interfere with the current use of the property shown
on the surveys listed in Schedule 3.4(b)(iv) hereto (v) all of the
standard or "boilerplate" printed exceptions contained in any title
policy issued to Purchaser; (vi) existing rights of any utility company
to maintain or operate wires, lines, cables, poles and equipment in, to
and under the Real Property, provided they do not interfere with the
operation of the business as it is presently conducted; (vii)
insubstantial variations between record lines and fences, retaining
walls or walks and insubstantial variations between record lines and
tax maps or other filed maps or plats; (viii) zoning, subdivision,
landmark, historic or wetlands laws or designations, provided they are
not violated by the existing buildings and improvements; and (ix)
encroachments of non-structural portions of buildings or improvements;
and consents for the erection of any structure on, under or above any
streets on which the Real Property abuts. If at Closing there are liens
or encumbrances, other than Permitted Exceptions, that Seller is
obligated to pay or discharge, Seller may use a portion of the purchase
price to pay or discharge them or deposit sufficient monies with
Purchaser's title insurance company sufficient to assure their
discharge if the title insurance company will insure Purchaser's title
clear of such matters. Purchaser shall provide separate certified or
bank checks or wire transfers as requested by Seller to assist in
clearing up these matters. The parties further acknowledge that item
A.8 of Schedule 3.4(b)(iii) sets forth their agreement with respect to
the clarification of the legal description of that portion of the Real
Property located in Huntington, Indiana.
(c) The Lease is the only leasehold estate held by the Business or the
Division or the Seller as lessee in respect of real property or any
interest therein. A true, correct and complete copy of the Lease as in
effect on the date hereof have been delivered to Purchaser. The
Division or Seller on behalf of the Division is in actual possession of
the properties demised under the Lease and has good and marketable
title to the leasehold estates conveyed under the Lease, free and clear
of any mortgage, deed of trust, pledge, vendors' or other lien,
security interest, sublease or right of occupancy, except as set forth
on Schedule 3.4(c) hereto, if at all.
(d) Seller has the right of ingress and egress through a public road or
street, to and from each parcel of Real Property and to and from the
properties demised under the Leases.
(e) The Real Property and the properties demised under the Leases and
the improvements thereon (including, without limitation, (i) the walls,
ceilings and other structural elements of any improvements erected on
any part of the Real Property and (ii) the building systems, such as
heating, plumbing, ventilation, air conditioning and electric (which
building systems referred to in this clause (ii) are hereinafter
defined as the "Building Systems")) constitute all of the real property
and leases currently used exclusively or materially for the Business
and, in the aggregate, are adequate and sufficient for the current
operations of the Division and the Business, taken as a whole, and the
aforesaid Building Systems on such properties, whether leased or owned,
are in good working order, repair and operating condition (ordinary
wear or tear excepted which term, for purposes of this Agreement,
includes without limitation any present repair of items and scheduled
maintenance of items which is not overdue) and, further, that no
representation is given with regard to working order, repair or
operating condition of any of the same which are not regularly required
for or used in the current operations of the Division and the Business
or are only used for storage.
(f) There is no pending proceeding for the taking or condem- nation of
all or any portion of the Real Property or the properties demised under
the Leases or pending taking or condemnation proceeding which would
result in a termination of any Lease of real property and, to the
knowledge of Seller, none of the same is threatened.
(g) There are no items of maintenance scheduled by Seller for
completion during the past six months that have been materially
deferred with respect to any of the Building Systems or with respect to
the structural soundness of the improvements comprising part of the
Real Property in excess of $50,000 in the aggregate except that no
representation is given with regard to any Real Property or
improvements comprising part of any of the same which are not regularly
required for or used in the current operations of the Division and the
Business or are only used for storage.
(h) Seller has received no uncured notice from applicable governmental
authorities of any outstanding violations of any building or zoning
laws, codes or regulations, or governmental or judicial orders issued
pursuant thereto, with respect to the Real Property and, except for
violations that would not be material to the Business, the Division or
the Assets, taken as a whole, there are no such violations; provided,
that the foregoing representation shall not apply to any Real Property
or improvements comprising part of any of the same which are not
regularly required for or used in the current operations of the
Division and the Business or are only used for storage.
(i) As of the Closing, no labor will have been performed, or material
furnished, by or at the request of Seller in connection with the Real
Property which shall not have been paid for in full and for which a
mechanic's lien or materialman's lien can validly be claimed except for
amounts for which adequate reserves have been established by Seller and
amounts not yet due and payable under existing service and maintenance
contracts.
(j) Seller is not a "foreign person" as such term is defined in the
Internal Revenue Code of 1986, as amended (the "IRC").
(k) Schedule 3.4(k) hereto lists all material assignable service and
maintenance contracts pertaining to the Real Property.
(l) There are no management contracts, leasing or leasing commission
agreements or similar agreements relating to the operation and
management of the Real Property which are not terminable at Seller's
option without penalty on notice of 60 days or less other than as set
forth on Schedule 3.4(l).
3.5 Absence of Changes or Events. Except as set forth in Schedule 3.5
hereto or otherwise disclosed to Purchaser by Seller in writing, since December
31, 1994, the Business has been conducted only in the ordinary course in a
manner consistent with past practice (except for the following facts, which are
sometimes hereinafter referred to as the "Special Exceptions": (i) the Assets,
the Business and the Division have been offered for sale and, consequently, have
been involved in the process of such offering and the negotiation and
performance of a sale transaction and the Division and the Seller have taken
certain customary actions and incurred certain customary expenses in connection
therewith, including, without limitation, incurring fees and expenses of
investment bankers, attorneys, accountants, environmental and other consultants,
arranging and paying for environmental remediation disclosed elsewhere in or
pursuant to this Agreement and arranging and paying for title and survey work
and discussing the potential sale of the Business and the Assets with
prospective purchasers and with management and key employees of the Division and
the Seller and with customers and suppliers; (ii) in connection with the Closing
Seller may pay special closing bonuses to certain key executives of the
Division, such bonuses to be paid post-closing from Seller's funds; (iii) the
Purchaser and Seller have agreed that the Seller will be responsible for causing
payment of discretionary bonuses and the Division's contributions to the
Division's 401K Plan for the period from January 1, 1995 through the Closing
date with respect to employees other than Raymond E. Deasy, Larry R. McMichael,
Donely H. Zulager and Glenn Thomson, in the amount accrued on the books and
records of the Division as of the Closing date, notwithstanding that bonuses
under the Management Discretionary Bonus Plan and contributions to the 401K Plan
are ordinarily not paid until year-end and that customarily all members of the
Division's Management are eligible for payment of any such bonus and receive the
benefit of a Division contribution to the 401K Plan, and Seller shall have no
further obligation with regard to payment of Management Discretionary bonuses or
401K contributions to or on behalf of the aforesaid four (4) individuals nor any
liability from any failure by Purchaser to make any necessary contributions or
otherwise comply with the laws, rules and regulations with respect to the 401K
plan following the Closing date; (iv) in connection with the Closing, various
adjustments and accounting and bookkeeping entries ordinarily not made until
year-end may be made by Seller at or about the time of Closing provided that
such accounting and bookkeeping entries, if any, shall be subject to audit
pursuant to Section 1.8; (v) the Division will take a physical inventory late in
September and, as a result, its plants will be shut down for two (2) days which
would otherwise be production days, with a consequent effect on sales and
earnings; (vi) the Division is in the process of selling its safe business for
approximately $45,000; (vii) the Purchaser and the Seller have agreed to a
purchase price adjustment of $390,000, already reflected in the Initial Purchase
Price, in respect of certain notes receivables of Seller, and Seller may, but is
not required to, adjust reserves or write-offs with regard to notes receivable
accordingly whether or not it would otherwise have done so, but, notwithstanding
any other provision of this Agreement, no such increase in reserves for notes
receivable or write-off of same in connection with or relating to the $390,000
purchase price adjustment shall be deemed to constitute a breach of any
representation or warranty pursuant to this Agreement nor shall it be taken into
account in calculating the amount of cash which Seller may distribute or utilize
to pay off Debt in accordance with Section 5.19 of this Agreement, except for
such reserves as are recorded in the course of preparation of the Closing
Balance Sheet; and (viii) during the period from December 31, 1994 through the
Closing, Seller has caused payments of Debt and distributions of cash to the
general or limited partners of Seller whether or not in the ordinary course,
provided that any such payments and distributions are permitted by and do not
violate Section 5.19 of this Agreement, and provided further, that Purchaser's
sole remedy for breach of the covenant referred to in the foregoing proviso
shall be as set forth in said Section 5.19; and neither the Business nor the
Division nor the Assets nor the Seller primarily on behalf of the Division have
otherwise:
(i) experienced or suffered any material adverse change in its
condition (financial or otherwise), results of operation, business or
properties, taken as a whole; provided, that no material adverse change
shall be deemed to have occurred, within the meaning of this clause
(i), to the extent that the same is either (x) consistent with the most
current written projections furnished to Purchaser by Seller prior to
the execution and delivery of this Agreement or (y) consistent with,
but not materially more adverse than, economic conditions and results
experienced generally by businesses comparable to the Business which
are principally engaged in manufacturing fireplace systems and related
products for the housing and remodeling industries in the U.S.;
(ii) borrowed or agreed to borrow any funds except in
connection with the revolving credit facility portion of the Debt, or
incurred, or become subject to, any other absolute or contingent
obligation or liability, or guaranteed any liabilities or obligations
of any other person, except obligations and liabilities incurred or
guaranteed in the ordinary course of business;
(iii) created any mortgage, assignment, pledge, lien, security
interest, encumbrance, restriction or charge of any kind with respect
to its properties, business or assets except (i) the equitable lien
created by this Agreement or (ii) as set forth on Schedule 3.4(b)(iii),
if at all, or (iii) in the ordinary course of business, if at all;
(iv) conveyed or agreed to convey any real property or
tangible personal property included in the Assets to the Seller's
general or limited partners or any affiliated person or any officer,
director or shareholder thereof or entered into any non-arm's length
transaction with any such person provided, that it is understood and
agreed that at any time and from time to time up to and including the
Closing Date the Seller may make any non-ordinary course payment or
distribution in cash or in cash equivalents to the Seller's general or
limited partners or any affiliated person or otherwise dispose of the
cash and cash equivalents of the Business or the Division but Seller
shall not cause the Division or the Business to incur indebtedness for
borrowed money for such purpose;
(v) sold, transferred or otherwise disposed of, or agreed to
sell, transfer or otherwise dispose of any of material portion of its
assets, properties or rights, except as permitted pursuant to clause
(iv) above or this Agreement or in the ordinary course of business, it
being acknowledged that in the ordinary course of its business (i) the
Division disposes of immaterial amounts of prototype, obsolete, odd lot
or off quality products to its employees and others for free or at
nominal prices from time to time and (ii) in the ordinary course of its
business the Division disposes of certain system components (primarily
builder boxes) at a loss as part of overall orders for fireplace
systems which are sold at an aggregate profit;
(vi) experienced any general work stoppage or labor strike or
any other material labor dispute, or executed or modified in any
material or non-ministerial fashion any collective bargaining agreement
or arrangement;
(vii) incurred or become subject to any claim or liability for
any damages, material to the Business, the Division and the Assets,
taken as a whole, for negligence or other tort or breach of contract;
(viii) (a) made or granted any increase in the benefits of or
compensation payable or to become payable to officers or employees
(including any such increase pursuant to any welfare bonus, pension,
profit-sharing or other plan or commitment) or granted any severance or
termination pay to any officer, or employee of Seller except for
individual merit increases granted in the ordinary course of business
and increases scheduled under contracts entered into prior to January
1, 1995 and increases pursuant to promotions of employees in accordance
with Seller's normal employment practices and Seller's customary
incentive programs disclosed to Purchaser pursuant to this Agreement,
or (b) entered into any additional employment agreements other than
with Rick Thompson, which contract has been disclosed to Purchaser
pursuant to this Agreement;
(ix) written down the value of any material amount of
inventory included in the Assets other than in the ordinary course of
business and in amounts consistent with the Division's practice in its
three (3) most recent fiscal years or, in any event, in excess of the
greater of (a) the amount of such writedowns during the Seller's most
recent fiscal year or (b) the average amount of such writedowns during
Seller's three (3) most recent fiscal years; or
(x) written off as uncollectible any notes or accounts
receivable included in the Assets other than in the ordinary course of
business and in amounts consistent with the Division's practice in its
three (3) most recent fiscal years or, in any event, in excess of the
greater of (a) the amount of such writeoffs during the Seller's most
recent fiscal year or (b) the average amount of such writeoffs during
Seller's three (3) most recent fiscal years; or
(xi) suffered any condemnation, damage, destruction or loss
(by theft or otherwise), not covered by insurance, to the real property
or tangible personal property included in the Assets in excess of
$250,000 in the aggregate, or to any of the Assets of a nature that
would have a material adverse effect on the Business, the Division and
the Assets, taken as a whole, and continues to do so on and as of the
Closing Date; or
(xii) made any change in any method of accounting or
accounting practice employed by the Division or by Seller in respect of
the Division; or
(xiii) forgiven or cancelled debts or claims, or waived or
permitted to lapse any rights, other than in the ordinary course of
business or as otherwise permitted by this Agreement or as would
otherwise not be materially adverse to the Business, the Division or
the Assets, taken as a whole; or
(xiv) entered into any contract or agreement other than in the
ordinary course of business or as otherwise permitted by this
Agreement; or
(xv) accepted any purchase order or entered into any contract
for the sale of any product with the intention to sell the same at a
loss provided, that this representation does not apply to the
Division's ordinary course practice of (i) disposing of immaterial
amounts of prototype, obsolete, odd lot or off quality products to its
employees and others for free or at nominal prices from time to time
and (ii) disposing of certain system components (primarily builder
boxes) at a loss as part of overall orders for fireplace systems which
are sold at an aggregate profit; or
(xvi) sold, otherwise disposed of, or acquired inventory
except in the ordinary course of business or as permitted by this
Agreement provided, that it is acknowledged that (i) in the ordinary
course of its business the Division disposes of immaterial amounts of
prototype, obsolete, odd lot or off quality products to its employees
and others for free or at nominal prices from time to time and (ii) in
the ordinary course of its business the Division disposes of certain
system components (primarily builder boxes) at a loss as part of
overall orders for fireplace systems which are sold at an aggregate
profit; or
(xvii) committed any act or omitted to do any act which would
cause a breach of any contract to which Seller is a party or by which
it is bound on the date hereof, which breach would be materially
adverse to the Business, the Division or the Assets, taken as a whole.
3.6 Absence of Undisclosed Liabilities: No Transactions with
Affiliates. Except as set forth in the 1994 Balance Sheet or as disclosed in
this Agreement or in the Schedules hereto, neither the Business nor the Assets
are subject to any liabilities or obligations, whether absolute, accrued,
contingent or otherwise and whether due or to become due, material to the
Business, the Division or the Assets, taken as a whole, that were not reflected
in the 1994 Balance Sheet or notes thereto, other than those either (x)
reflected in the June Balance Sheet if arising by the date thereof or (y)
arising in the ordinary course of business. Seller (by assumption, operation of
law or otherwise) does not currently, directly or indirectly, have any
contractual arrangement with or commitment to or from any of its limited
partners or its general partner, or any officer, director, stockholder or
employee thereof, or other party related thereto or affiliated therewith except
as listed in Schedule 3.6 hereto. Without limiting the generality of the
foregoing, except as listed in Schedule 3.6 hereto, no limited partner or the
general partner of Seller, or any officer, director, stockholder or employee
thereof, or any other related or affiliated party thereof was or is, directly or
indirectly, a joint investor or co-venturer with Seller in respect of the
Business or the Division, or owner, lessor, lessee, licensor or licensee of any
real or personal property, tangible or intangible, owned or used by the Division
or in the Business or by Seller primarily in respect of the Division and no such
person is, directly or indirectly, a lender to or debtor of, or a supplier or
customer of the Division or the Business or Seller primarily in respect of the
Division.
3.7 Tax Matters. Seller is classified as a partnership for federal and
state income tax purposes. All material Taxes due and payable or accruable by
Seller on or before the date of this Agreement have been paid or adequately
reserved in the books and records of the Division except that the Seller is
contesting in good faith by appropriate proceedings the amount or validity of
certain taxes pursuant to proceedings identified on Schedule 3.7 hereto. Seller
has filed all material tax returns and reports required to be filed by it with
all taxing authorities and such returns are true, correct and complete in all
material respects except with respect to the subject matters of the proceedings
identified on Schedule 3.7 hereto. The liabilities for taxes reflected in the
1994 Balance Sheet have been, and those reflected in the Closing Balance Sheet
will be, computed in accordance with United States generally accepted accounting
principles consistently applied and represent adequate provision for the payment
of all accrued or unpaid or deferred federal, state, local and other taxes of
Seller, for all periods ended on and prior to the date of the 1994 Balance
Sheet. No Tax liens have been filed on Seller's assets and Seller has received
no notice that Tax audits are pending with respect to Seller or its income,
receipts or net worth, except as set forth on the aforesaid Schedule 3.7. No
presently pending assessments of Tax deficiencies have been made against Seller
or with respect to its income, receipts or net worth except as set forth on the
aforesaid Schedule 3.7, and no extensions of time are in effect for the
assessment of deficiencies against Seller. Except as set forth on Schedule 3.7,
Seller has not received notice of any claim by any authority in a jurisdiction
in which Seller does business and does not file tax returns that Seller or its
income, receipts or net worth may be subject to tax in that jurisdiction.
3.8 Personal Property; Machinery and Equipment. Seller has good and
marketable title to all of the personal property included in the Assets, free
and clear of any mortgages, deeds of trust, pledges, vendors' or other liens,
claims, leases, subleases, assignments, security interests or encumbrances of
any kind other than (i) liens set forth on Schedule 3.8 hereto and liens
pursuant to the Debt which will be released at Closing, (ii) liens securing
liabilities or obligations for purchase money financing (other than the Debt)
shown or reflected on the 1994 Balance Sheet or incurred in the ordinary course
of business after the date thereof, and (iii) materialmen's, workmen's and other
similar statutory liens arising in the ordinary course of business. For purposes
of this Agreement, the term "Machinery and Equipment" means all of the office
equipment and furniture and all the factory machinery and equipment of the
Division. Except as is not material to the Business, Division or the Assets,
taken as a whole, the Machinery and Equipment included in the aforesaid personal
property are in good working order, ordinary wear and tear excepted, and have
been maintained substantially in accordance with generally accepted industry
practices. The Assets constitute all of the assets required, under existing
conditions, to conduct the Business on the date hereof as conducted by Seller
without which the Business of the Seller would be materially adversely affected
provided, that it is understood and agreed that as materials are used up or
machinery, equipment, plant and property suffer wear and tear, additional
materials and services are required for the conduct of the Business from time to
time.
3.9 Contracts and Commitments. Schedule 3.9 hereto identifies the
"Scheduled Contracts" (as such term is hereinafter defined) of the Division or
to which Seller is a party primarily in respect of the Division, the Business or
the Assets on the date hereof. True, correct and accurate copies of the
Scheduled Contracts identified on Schedule 3.9 have been delivered to the
Purchaser. As used herein, the term "Scheduled Contract" means each of the
following written contracts or agreements of the Division or of the Seller in
respect of the Division in effect as of the date hereof: (i) contracts for the
employment of any employee of the Division or of Seller primarily in respect of
the Division which is not terminable without penalty on notice of not more than
90 days; (ii) license, royalty, franchise, distributorship, dealer,
manufacturer's representative, agency and advertising agreements; (iii) each
sales contract (other than purchase orders entered into in the ordinary course
of business) which contract covers the sale by the Business of products having
an aggregate value in excess of $30,000 under which delivery of goods and
payment therefor has not been completed; (iv) each contract for the purchase of
supplies, equipment and materials (other than purchase orders for supplies
entered into in the ordinary course of business) which contract covers the
purchase by the Business of products having an aggregate value in excess of
$25,000 under which delivery of goods and payment therefor has not been
completed; (v) each contract listed on Schedules 3.4(k) and 3.4(l); (vi) any
contract with any collective bargaining unit; (vii) any mortgage of real
property; (viii) any factoring agreement with respect to the accounts receivable
of the Business; (ix) any pledge or other security agreement by the Division or
by the Seller in respect of the Division, as debtor, covering the Assets other
than guaranties entered into in the ordinary course of business which are not
material to the Business or the Division, taken as a whole; (x) any contract by
the Division or the Seller in respect of the Division (other than this
Agreement) for the sale or lease of the Assets to third parties (other than (a)
the disposition of inventory in the ordinary course of business, (b) the
disposition of immaterial amounts of prototype, obsolete, odd lot or off quality
products to its employees and others for free or at nominal prices from time to
time and (c) the disposition by the Division in the ordinary course of its
business of certain system components (primarily builder boxes) at a loss as
part of overall orders for fireplace systems which are sold at an aggregate
profit; (xi) each contract for capital expenditures, not yet incurred, which
contract is for an amount in excess of $30,000; (xii) each joint venture; (xiii)
each letter of credit issued to or for the benefit of the Division or the Seller
in respect of the Division; (xiv) each lease whereby the Division or the Seller
in respect of the Division, as lessee, leases personal property for annual
rental payments in excess of $10,000; (xv) each indebtedness, obligation or
liability of the Division or of the Seller in respect of the Division for
borrowed money, or liability of the Division or of the Seller in respect of the
Division for the deferred purchase price of property, in excess of $50,000
(excluding normal trade payables) and any instrument by which the Division or of
the Seller in respect of the Division currently guarantees any indebtedness,
obligation or liability for borrowed money or deferred purchase price of
property (other than any such guarantees entered into in the ordinary course of
the Business); and (xvi) any of the aforesaid Scheduled Contracts which can not
be assigned by the Division or by the Seller without the consent of another
party thereto. Except as set forth in Schedule 3.9 hereto, (x) all of the
aforesaid Scheduled Contracts are in full force and effect; and (y) there is no
default, or event or fact which, with or without the passage of time or the
giving of notice, or both, would result in a default, on the part of the
Division or Seller or, to Seller's knowledge, on the part of any other party
thereto except, in the case of clauses (x) and (y), to the extent that the
failure of the same to be in full force and effect or defaults under which would
not materially adversely affect the Business, the Division, or the Assets, taken
as a whole.
3.10 Patents and Trademarks. Schedule 3.10 hereto lists all patents,
copyrights, trademarks, trade names and service marks, and applications for the
same and licenses of the same, owned or applied for by the Division or by Seller
primarily in respect of the Division (other than licenses for commercially
available software, database and other products). Except as set forth on
Schedule 3.10 hereto, and except as would not materially adversely affect the
Business, the Division or the Assets, taken as a whole, (i) the use of the
Proprietary Rights owned or leased by the Division or by Seller in respect of
the Division does not infringe on or misappropriate the rights of others; (ii)
Seller has not received any written notice by or from any other person of any
infringement or misappropriation of, or contesting the validity, enforceability,
use or ownership of any of the Intellectual Property, and to the knowledge of
Seller there is no basis for any such claim or contest and no misappropriation
of the same by any third party; (iii) the loss or expiration of any Intellectual
Property, other than Intellectual Property whose continued use is not required
for the conduct of the Business as presently conducted, is not pending or, to
the knowledge of Seller, threatened; and (iv) the Division or Seller in respect
of the Division owns all right, title and interest in and to, or has a valid and
enforceable license to use, all the Intellectual Property necessary for the
operation of the Business as currently conducted, free and clear of security
interests except for security interests granted to the holder of the Debt which
Seller shall cause to be discharged pursuant to Section 1.6 hereof, if any.
3.11 Insurance Policies. The Division or Seller primarily on behalf of
the Division maintains the policies of insurance listed on Schedule 3.11 hereto.
All such policies are in full force and effect and neither Seller nor the
Division is in default thereunder except for any such default as would not
materially adversely effect the coverage under said policies. In the judgment of
the management of the Division, such policies provide adequate insurance
coverage for the Business and the Assets and are sufficient for compliance with
all requirements of law.
3.12 Consents. Schedule 3.12 hereto lists all of the approvals,
consents, filings, registrations and releases of third parties (including,
without limitation, any government or governmental or regulatory agency) which
are required for the execution or delivery by Seller of the Documents or the
consummation of the transactions contemplated therein, including, without
limitation, the sale, transfer or assignment of the Assets to Purchaser
(including the Scheduled Contracts) and the transfer and assignment to Purchaser
of the licenses, permits and authorizations specified on Schedule 3.18 hereto,
except for those approvals, consents, filings, registrations and releases as to
which failure to make or obtain the same would not materially adversely affect
the Business, the Division or the Assets.
3.13 Litigation. Except as set forth in Schedule 3.13 hereto, there are
no private or governmental orders, claims, actions, suits, proceedings or
investigations (as to which investigations Seller has received written notice)
pending or, to Seller's knowledge, threatened, against the Division or against
Seller relating to the Business or affecting the Assets, at law or in equity or
before or by any court or federal, state, municipal or other governmental
department, commission, board, agency or instrumentality which, if determined
adversely to the Division's interests, would materially adversely affect the
Business or the Assets. Neither the Division, any of the Division's employees in
their capacities as such employees nor the Seller in respect of the Division is
a named party subject to any continuing court or administrative order, writ,
injunction or decree applicable to any of them or to the Business or the Assets
which (i) is not similar in effect to restrictions applicable to other
participants in the industry or other businesses similarly situated, or (ii) has
or would have a material adverse effect on the Business or the Assets, taken as
a whole. Neither the Division, any of the Division's employees in their
capacities as such employees nor the Seller in respect of the Division is a
named party with respect to any order, writ, injunction or decree of any court
or foreign, federal, state, municipal or other governmental department,
commission, board, agency or instrumentality as to which it is in default,
except for any default which would not itself materially adversely affect the
Business or the Assets. A list of workmen's compensation claims made by
employees of the Business from January 1, 1992 through June 30, 1995, prepared
on behalf of Seller by Argonaut Insurance Company, is set forth in Schedule
3.13. Schedule 3.13 lists all product liability claims made in writing received
by Seller for amounts in excess of $5,000 from January 1, 1992 through June 30,
1995 and all lawsuits filed during the period from January 1, 1992 through the
date hereof (as to which Seller has received service not later than five
business days prior to the date hereof) against the Division or Seller for
product liability claims with respect to products manufactured or sold by Seller
or the Division. On or prior to Closing, Schedule 3.13 shall be amended by
Seller to list all such product liability claims since that date with respect to
which Seller shall have received service not later than five business days prior
to the Closing.
3.14 Compliance with Laws.
(a) Except as set forth in the Environmental Assessments furnished to
Purchaser or in Schedule 3.14(a) hereto, as to the operation of the
Business, the Division and Seller in respect of the Division have
materially complied and are in material compliance with all laws,
rules, regulations, ordinances, orders, judgments and decrees
(including, without limitation, applicable insurance, occupational
safety and health, pension, fair employment and equal opportunity laws,
rules, regulations and ordinances, and environmental control or toxic
waste laws, rules, regulations or ordinances) applicable to the
Business, and to the acquisition, storage, transportation or disposal
of any goods or materials, whether as raw materials, work-in-process or
finished goods except, in any such case, for non-compliance with laws,
rules, regulations, ordinances, orders, judgments and decrees which
have not had and would not have a material adverse effect on the
Business or the Assets. Except as set forth in the Environmental
Assessments furnished to Purchaser or in Schedule 3.14(a) hereto, as to
the Business, to the knowledge of Seller no notice has been received by
the Division or by Seller with respect to any violation of any such
legal requirements where such notice could result in a material adverse
effect on the Business or the Assets, taken as a whole.
(b) Except as set forth in the Environmental Assessments furnished to
Purchaser or in Schedule 3.14(b) hereto, if at all, the Real Property
has not been used at any time: (i) as a site for the storage or
disposal of hazardous waste as such terms are used in the Resource
Conservation Recovery Act (the "RCRA") (42 U.S.C. 6901 et seq.); or
(ii) so as to give rise to a removal or restoration obligation or
liability for the costs of removal or restoration by others under any
statute, ordinance, order, decree, or under the common law of any
state, federal, municipal or other governmental entity, body or agency
having jurisdiction over any of the Real Property, including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA") (42 U.S.C. 9601 et seq.), the RCRA
or any similar law, rule, regulation, order, judgment or decree, nor
has any such violation, obligation or liability been created by the
removal by or at the request of Seller with respect to the Business of
any waste from any of the Real Property, the disposition of such
removed waste or by reason of the discontinuance of operations of any
business conducted at any of the Real Property.
3.15 Employee Benefit Plans.
(a) Schedule 3.15(a) hereto lists all plans, contracts, commitments,
programs and policies (including, but not limited to, any bonus,
commission, deferred compensation, excess benefits, profit sharing,
pension, thrift, savings, employee ownership, salary continuation,
severance, retirement, supplemental retirement, short- or long-term
disability, hospitalization, major medical, life, dental and accident
insurance vacation and sick leave policies, union contract,
non-competition agreement, death benefits or other employee benefit
plans, contracts, commitments, programs and policies) maintained or
assumed as of the date hereof by the Division or by Seller primarily on
behalf of the Division providing benefits to any employee, or former
employee or agent of the Division or Seller primarily in respect of the
Division, whether or not any of the foregoing is funded, or with
respect to which as of the date hereof the Division or Seller in
respect of the Division has made any payments or contributions or may
otherwise have any liability, contingent or absolute, including any
such plan formerly maintained by the Division or by Seller primarily in
respect of the Division at any time and under or with respect to which
as of the date hereof the Division or Seller in respect of the Division
has any continuing liability, contingent or absolute (collectively, the
"Plans" and individually, a "Plan").
(b) Except as set forth on Schedule 3.15(a) hereto, all obligations of
any kind of the Division or by Seller in respect of the Division,
whether arising by operation of law, by contract, or by past custom or
practice, through June 30, 1995 for (i) payments to any trust or other
fund or to any governmental or administrative authority, with respect
to pension benefits, unemployment compensation benefits, social
security or other benefits, or (ii) salaries, vacation, holiday, and
sick pay, bonuses and other forms of compensation (including but not
limited to medical, life, dental and accident insurance and other
welfare benefits) for employees or former employees have been paid (if
due and payable), fully funded or accruals therefor adequate for
obligations through such date in accordance with U.S. generally
accepted accounting principles have been reflected in or appropriate
footnote references have been made in the June Balance Sheet.
(c) Seller has delivered to Purchaser or, to the extent not yet
delivered, will have delivered to Purchaser prior to the Closing, true,
complete and correct copies of all material documents embodying all
Plans and all rulings or determination letters, if any, received by the
Division or by the Seller in respect of the Division from the IRS and
other governmental agencies relating to such Plans (and material
correspondence and any applications relating to any such pending ruling
or determination letter), as well as Summary Plan Descriptions, annual
reports (Form 5500) for the last five (5) years ended December 31,
1994, trust agreements, insurance contracts, annuity policies, material
participant communications and amendments and modifications thereto
pertaining to such Plans. Seller has also provided to Purchaser a
schedule of contributions by the Division or by Seller in respect of
the Division with respect to the Multi-Employer Plan for each of the
past five (5) years ended December 31, 1994 and the calculations, which
the Seller has received from the Sheet Metal Workers' National Pension
Fund, of withdrawal liability of the Division or of Seller in respect
of the Division with respect to the Multi-Employer Plan if the Division
or Seller had withdrawn from the same in either 1992 or 1993, the
Seller having received no other information concerning the calculations
of withdrawal liability from the Sheet Metal Workers' National Pension
Fund for more recent years.
(d) Except as set forth on Schedule 3.15(a), all of the Plans that are
intended to be qualified under Section 401(a) of the IRC comply in all
material respects in form and in operation with all applicable
requirements of Sections 401(a), 401(k) and 501(a) of the IRC; there
have been no amendments to such Plans which are not the subject of a
determination letter issued with respect thereto by the Internal
Revenue Service; and no event has occurred that will or could give rise
to disqualification of any such Plan under such sections or to any tax
under Section 511 of the IRC; except that no representation is made as
to the satisfaction of any formal plan document requirement with
respect to which the remedial amendment period set forth in Section
401(b) of the IRC, and any regulations, writings or other IRS releases
thereunder, has not expired. The Division, or Seller primarily in
respect of the Division, has performed all material obligations
required to be performed by it under, and is not in material default
under or in material violation of, and has no knowledge of any such
material default or material violation by any other party to, any and
all of the Plans. Except as set forth in Schedule 3.15(a) hereto,
neither the Division nor Seller primarily in respect of the Division
nor any other "disqualified person" or "party in interest" (as defined
in Section 4975 of the IRC and Section 3 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), respectively) has
engaged in any "prohibited transactions," as such term is defined in
Section 4975 of the IRC and Section 406 of ERISA, which could,
following the Closing, subject either Seller, Purchaser or their
affiliates or any officer, director, or employee of any of them to any
tax or penalty imposed under Section 4975 of the IRC or Section 502(i)
of ERISA or subject any Plan (or its related trust) to
disqualification. Except as provided in Schedule 3.15(a), none of the
Seller, the Division or any Affiliate (as such term is hereinafter
defined) of the Seller or the Division has or (within the past five (5)
years) had any obligation to contribute to or maintains or (within the
past five (5) years) has maintained any employee pension benefit plan
(within the meaning of Section 3(2) of ERISA) that is subject to the
minimum funding requirements of Section 412 of the IRC or any of
Sections 301 through 307 of ERISA including, but not limited to, a
multi-employer plan as defined in Section 3(37) of ERISA. For purposes
of this Section, an "Affiliate" means a trade or business (whether or
not incorporated) that is under common control, as described in Section
414(c) of the IRC, with the Seller or the Division; or is a member of a
controlled group, as defined in Section 414(b) of the IRC, that
includes the Seller or the Division; or is a member of an affiliated
service group, as defined in Section 414(m) of the IRC, that includes
the Seller or the Division; or is otherwise required to be aggregated
with the Seller or the Division by regulations under Section 414(o) of
the IRC. Except as provided in Schedule 3.15(a) hereto, there are no
actions or suits, administrative or other legal proceedings or
governmental investigations or audits, pending or, to the knowledge of
Seller, threatened, and Seller has received no written notice of any
unresolved claims or complaints to or by any governmental authority,
against any Plan or against the assets of any Plan (other than routine
claims for benefits). Each "fiduciary" and every "plan official" (as
defined in Section 412 of ERISA) of each Plan is bonded to the extent
required by said Section 412. Both the Division and Seller in respect
of the Division are in material compliance with, and each Plan has been
operated materially in accordance with its provisions and in material
compliance with the laws, rules and regulations applicable to each such
employee benefit plan, including, but not limited to, the IRC and
ERISA. Except as set forth in Schedule 3.15(a) hereto, there are no
severance payments which are or could become payable by the Division or
by Seller primarily in respect of the Division to any officer, or any
other employee of the Division or Seller primarily in respect of the
Division under the terms of any oral or written agreement or commitment
or any custom, trade or practice, and there are no loans outstanding to
any Participant of any Plan under any such Plans. Except as identified
in Schedule 3.15(a) hereto, neither the Division nor the Seller in
respect of the Division has any written or, to the knowledge of Seller,
oral consulting or employment agreements or contracts with current or
former employees. Except as set forth on Schedule 3.15(a), the
consummation of the transactions contemplated by this Agreement will
not directly or indirectly result in an increase in the amount of
compensation or benefits or accelerate the vesting or timing of payment
of any benefits or compensation payable to or in respect of any current
or former employee of the Business, the Division or of the Seller in
respect of the same.
(e) Except for the Multi-Employer Plan, neither the Division nor Seller
has any obligation to contribute to any multi-employer plan as defined
in Section 3(37) of ERISA. Neither the Division nor Seller has
completely or partially withdrawn from any multi-employer plan within
the meaning of the Multi-employer Pension Plan Amendments Act of 1980,
as amended from time to time ("MPPAA"), nor has there been any event or
condition nor, to Seller's knowledge, is any event or condition
existing, that presents a substantial risk of such withdrawal liability
(assuming, for purposes of this representation, that Purchaser complies
with its obligations pursuant to this Agreement to assume the
Multi-Employer Plan and satisfy the applicable conditions under law so
that withdrawal liability will not be triggered with respect to the
Multi- Employer Plan upon consummation of this Agreement, and that
Purchaser does not thereafter take or omit to take any action with
respect to the Multi-Employer Plan which would cause any such
withdrawal or withdrawal liability to exist). No multi-employer plan
(as defined in Section 3(37) of ERISA) of the Seller is in
reorganization or is being or has been terminated within the meaning of
Title IV of ERISA and, to Seller's knowledge, no reorganization or
termination of any such multi-employer plan or event or condition
presenting a substantial risk of the same occurring exists (assuming,
for purposes of this representation, that Purchaser complies with its
obligations pursuant to this Agreement to assume said Multi-Employer
Plan and satisfy the applicable conditions under law so that no such
reorganization or termination occurs upon consummation of this
Agreement with respect to the Multi-Employer Plan, and that Purchaser
does not thereafter take or omit to take any action with respect to the
Multi-Employer Plan which would cause any such reorganization or
termination). Neither the Division nor Seller in respect of the
Division has suffered a "70% contribution decline" (within the meaning
of Section 4205(b) ll) (A) of ERISA) in any plan year beginning after
1988.
(f) With respect to any Plan that is a group health plan within the
meaning of Section 4980B of the IRC each such Plan has been operated in
material compliance with the requirements of Section 4980B(f) of the
IRC and Section 601 et seq. of ERISA.
(g) Except as required by Section 4980B(f) of the IRC or as set forth,
if at all, in Schedule 3.15(g) hereto, Seller has no obligation to any
retired or former employee under any disability (long or short term),
hospitalization, medical, dental or life insurance plans (whether
insured or self-insured) or other employee welfare plan as defined in
Section 3(1) of ERISA maintained by Seller.
3.16 Labor Matters. The Division is a party to the Union Contract
described in Section 1.7(a) hereof. Neither the Seller nor the Division is a
party to any other collective bargaining agreement not disclosed pursuant to
this Agreement. A true, correct and accurate copy of the Union Contract has been
furnished to Purchaser by Seller. Since June 30, 1992, no general work stoppage
by employees of the Division or by Seller in respect of the Division or
concerted work stoppage by a group of employees engaged in the Business has
occurred and, to the knowledge of Seller, none is threatened. Except as set
forth in Schedule 3.16 hereto, there are no material charges or grievances
against or assumed by the Division or by Seller in respect of the Division of
unfair labor practices or employment discrimination with respect to employees of
the Division or the Seller in respect of the Division pending, and, to the
knowledge of Seller, none is threatened before any governmental or regulatory
agency or authority. There are no pending labor negotiations with or to the
knowledge of Seller, union organization efforts by any employees of the Business
or with any union representing or attempting to represent any employees of the
Business.
3.17 Finders and Investment Bankers. Seller has not dealt with or
employed any broker, finder, investment banker or financial advisor as to whom
Purchaser may have an obligation to pay any broker's or finder's fee in
connection with the origin, negotiation, execution or performance of this
Agreement.
3.18 Licenses, Permits and Authorizations. Seller has obtained all
approvals, authorizations, consents, licenses, franchises, orders or other
permits of all governmental or regulatory agencies, whether federal, state,
local or foreign (collectively, the "Approvals") necessary for the operation of
the present Business, except for any such Approvals as to which failure to
obtain the same has not and would not materially adversely affected the
Business, the Division or the Assets, taken as a whole. Schedule 3.18 hereto
lists all such Approvals. Such Approvals are in full force and effect and good
standing and Seller has not received written notice that revocation is being
considered with respect to any such Approvals, except for any such Approvals, if
any, as to which failure to maintain the same has not and would not materially
adversely effect the Business, the Division or the Assets, taken as a whole.
3.19 Bank Accounts. Schedule 3.19 sets forth all bank accounts of the
Division or of Seller maintained primarily for the Business of the Division,
including the name of each bank, savings and loan or other financial institution
in which the Division or Seller has any account or safe deposit box, the type
and number of each such account or safe deposit box and the names of all persons
authorized to draw thereon or have access thereto.
3.20 Customers and Suppliers. Schedule 3.20 hereto sets forth a list of
the ten (10) customers and ten (10) material suppliers with whom the Division
has had the greatest dollar volume of business during the year ended December
31, 1994. Since December 31, 1994, there has not been any change in the business
relationship of the Division or Seller with any such customers or suppliers
which change would be materially adverse to the Business, the Division or the
Assets, taken as a whole.
3.21 Officers' Salaries. Set forth in Schedule 3.21 is a list of the
salaries paid from January 1, 1994 through December 31, 1994, and all bonuses
and other compensation paid in respect of such period, and all current salaries
and aggregate commissions of all executive officers, key employees and salesmen
of the Division or of Seller in respect of the Division whose current salaries,
bonuses and aggregate commissions exceed $75,000 per year.
3.22 Books and Records. All files, records and incidental documentation
of Seller relating to the Business (including, but not limited to, all
contracts, computer records, general ledgers, books and records, customer lists,
contract information, credit records and other information maintained by Seller)
are kept in the ordinary course of business practice in accordance with Seller's
customary business practice with respect thereto.
3.23 Inventory. Except as indicated in Schedule 3.23 hereto, if at all,
(i) the raw materials, work-in-process, merchantable finished goods and
packaging materials suitable for filling orders in the ordinary course of
business included in the Assets are substantially at the Division's normal
working levels of the same in the current conduct of its business in the
ordinary course; (ii) the raw materials, work-in-process, finished goods and
packaging materials for filling orders which are included in the Assets are
valued using the FIFO method of valuation, based upon records maintained by the
Division in the ordinary course of business, with appropriate and adequate
allowances customarily made for obsolete, slow-moving and other irregular items
after the conclusion of each fiscal year of the Seller (as at the end of said
fiscal year) in connection with the annual audit of the Business; (iii) the
goods identified on the 1994 Balance Sheet as "Inventory" were owned by Seller
as of such date and, since December 31, 1994, Seller has not sold or otherwise
disposed of, or shipped any Inventory except in bona fide arm's length
transactions, or acquired the same, except: (i) in the ordinary course of
business consistent with past practice; (ii) the disposition of immaterial
amounts of prototype, obsolete, odd lot or off quality products to its employees
and others for free or at nominal prices from time to time; and (iii) the
disposition by the Division in the ordinary course of its business of certain
system components (primarily builder boxes) at a loss as part of overall orders
for fireplace systems which are sold at an aggregate profit.
3.24 Absence of Certain Payments. Neither Seller, nor any person acting
with Seller's knowledge, has made any payment to or conferred any benefit,
directly or indirectly, on suppliers, customers, employees or agents of
suppliers or customers, or officials or employees of any government or agency or
instrumentality of any government (domestic or foreign) or any political parties
or candidates for office, which is or was unlawful.
3.25 Accounts Receivable. The trade and other accounts receivable
reflected on the 1994 Balance Sheet or arising in connection with the Business
after December 31, 1994, represent bona fide receivables due to the Seller or
the Division and are recorded correctly on the applicable books and records of
Seller.
3.26 Warranty Policies. The existing written warranties of
the Division and of Seller in respect of the Division are attached
to Schedule 3.26 hereto.
4. Representations and Warranties of the Purchaser.
Purchaser represents and warrants to Seller that:
4.1 Organization and Existence.
(a) Purchaser is a corporation duly organized, validly
existing and in good standing under the Ontario Business Corporations
Act, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted, and is qualified to do business as a foreign corporation in
any jurisdiction whose laws require such qualification, except where
the failure to be so qualified would not have a materially adverse
effect on the Purchaser, its business or its assets, taken as a whole.
The Documents executed and delivered by Purchaser constitute, or when
executed and delivered will constitute, the legal, valid and binding
agreements of Purchaser, and are, or when executed and delivered will
be, enforceable in accordance with their respective terms. The
execution, delivery and performance by Purchaser of the Documents to be
executed and delivered by Purchaser are within its corporate powers,
and have been duly authorized by all necessary corporate action. At
Closing, Purchaser will have delivered to Seller complete and correct
copies of: (i) its certificate of incorporation, as in effect on the
Closing date, certified by the Ministry of Consumer and Corporate
Affairs of the Province of Ontario; and (ii) its Bylaws, as in effect
on the Closing date, certified by the Purchaser's Secretary.
(b) Neither the execution and delivery of the Documents, the
performance by Purchaser of its obligations thereunder, nor the
consummation of the transactions contemplated thereby will: (i) violate
any provisions of Purchaser's certificate of incorporation or bylaws;
(ii) with or without the giving of notice or the passage of time or
both, violate, or be in conflict with, or constitute a default under,
or cause or permit the termination, cancellation or the acceleration of
the maturity of, any debt, contract, agreement, lease or obligation of
Purchaser or, to Purchaser's knowledge, by which it may be bound, or
require the payment of any prepayment or other premium or penalty with
respect thereto; (iii) require notice to or the consent of any party to
any debt, contract, agreement, lease or obligation of the Purchaser or,
to the Purchaser's knowledge, by which it may be bound, or permit any
such party to re-negotiate, receive a refund with respect to, modify or
otherwise change any agreement or commitment; (iv) result in the
creation or imposition of any security interest, lien or other
encumbrance upon any property or assets of Purchaser under any debt,
contract, agreement, lease or obligation of Purchaser or, to
Purchaser's knowledge, by which it may be bound, or (v) violate any
statute, law, judgment, decree, order, writ, injunction, regulation or
rule of any court or governmental authority applicable to the
Purchaser; except, in the case of clauses (ii), (iii) and (v), for any
such violation, conflict, default, termination, acceleration, security
interest, lien, encumbrance or other act or omission which does not
materially adversely affect the Purchaser, its business or its assets.
4.2 Finders and Investment Bankers. Purchaser has not dealt with or
employed any broker, finder, investment banker or financial adviser as to whom
Seller may have an obligation to pay any broker's or finder's fee in connection
with the origin, negotiation, execution or performance of this Agreement.
4.3 Financial Resources. Purchaser has, and at all times through the
consummation of the Closing shall have, cash or cash equivalents and committed
credit facilities available for this purpose (including, in the aggregate, funds
not less than the Gross Amount at any time) sufficient, in the aggregate, to pay
the entire Initial Purchase Price to Seller and the Contingent Escrow Funds to
the Escrow Account, in immediately available funds in cash, on the Closing Date
and to pay on such date any and all related fees and expenses and any and all
transaction-related costs to be borne by Purchaser. Purchaser has furnished to
Seller written evidence of the accuracy and completeness of this representation,
including, without limitation, the status of the committed credit facilities.
5. Covenants.
5.1 Conduct of Business. Except as set forth in Schedule 5.1 hereto or
as otherwise required or permitted by this agreement and subject to the Special
Exceptions, from the date hereof through the Closing. Seller, in respect of the
Division, the Business or the Assets, will:
(i) not cancel or permit any insurance carried primarily in
respect of the Division or the Business to lapse or terminate, unless
renewed or replaced by like coverage;
(ii) not amend or otherwise modify the Partnership Agreement
in any manner which would preclude the consummation of the sale
contemplated hereby;
(iii) not commit any act or permit the occurrence of any event
or the existence of any condition of the type described in clauses (ii)
through (v), (vi) (with respect to not executing or modifying in any
material or non-ministerial fashion any collective bargaining agreement
or arrangement, (viii) through (x), and (xii) through (xvii) of Section
3.5 hereof;
(iv) not enter into any contract, agreement or other
commitment involving obligations for expenditures on its part in excess
of $50,000 for any individual contract (exclusive of purchase orders
for materials used in the Business);
(v) not sell, transfer, convey, lease, encumber or otherwise
grant an interest in any of the Real Property to any third party;
(vi) not acquire any additional real property or interest
therein or enter into any lease for additional real property;
(vii) not merge or consolidate with or into any other
business, person or entity;
(viii) conduct the Business only in the usual and ordinary
course of business in accordance with past custom and practice (except
for the Special Exceptions);
(ix) keep in full force and effect all material rights,
franchises and intellectual property relating or pertaining to the
Business, except those which expire by their terms, and, if any
material right, franchise or intellectual property expires by its
terms, renew the same if such renewal is in the ordinary course of
business and consistent with past custom and practice;
(x) maintain the Assets in customary repair, order and
condition;
(xi) administer each Plan in accordance with the provisions of
each such Plan and the IRC and ERISA in all material respects; and
(xii) maintain its books, accounts and records in accordance
with past custom and practice.
5.2 Other Transactions. Except for the sale of the safe business which
is one of the Special Exceptions, prior to the Closing, without the prior
written consent of Purchaser, Seller will not, nor will it authorize or permit
any of its officers or employees or any attorney or other representative
retained by Seller to, solicit any inquiries from or the making of any proposal
by a third person which constitutes, or may reasonably be expected to lead to an
offer ("Offer") concerning the sale, directly or indirectly, to such third
person of all or any part of the Business or the Assets. Notwithstanding any
other provision of this Agreement, nothing contained in this Agreement shall
prohibit Seller from (A) making such disclosures to its partners as may be
required under the Partnership Agreement or applicable law or (B) taking,
authorizing or permitting any action or actions in response to or in connection
with any Offer, or any action contemplated by the first sentence of this Section
5.2, if, the failure to do so may violate its fiduciary duties to its partners
under applicable case law.
5.3 Consents and Approvals.
(a) Seller will use its best efforts (but shall be under no obligation
to make any payments to any third party or to incur any expenses, which
payments and expenses together in the aggregate, are material) to
obtain the necessary approvals, consents and releases of other persons
set forth in Schedule 3.12 hereto. To the extent that the assignment of
any agreement, lease, license, permit, approval, contract, commitment
or right (collectively, "Rights") requires the consent of another party
which is not obtained by the Closing Date, this Agreement shall not
constitute an assignment thereof; provided, however, Purchaser and
Seller shall be mutually obligated to cooperate before and after the
Closing to obtain any necessary approvals, consents and releases to
assure Purchaser of the benefits of such Rights. If any such approval,
consent or release is not obtained and an attempted assignment would be
ineffective, Seller shall cooperate in any arrangement Purchaser may
reasonably request to provide for Purchaser the benefits of any such
Right, subject to the Seller's need to liquidate and terminate the
existence of Seller reasonably promptly following Closing.
(b) Seller has sent to all of its limited partners such disclosure
material as Seller deems necessary to satisfy clause (h) of Section 7
hereof (the "Disclosure Material"), subject to such additional
requirements as may hereafter arise if the limited partners or any of
them exercise rights and, as a result, procedures are required in
addition to the giving of notice to the limited partners which has
already been accomplished. Seller shall use its best efforts to obtain
any approval from its limited partners as may be required (but shall be
under no obligation to make any payment to any third party or to incur
any material expenses in connection therewith).
5.4 Endorsements; Bank Accounts. Set forth in Schedule 3.19 hereto is a
list of all bank accounts and escrow arrangements relating to the Business.
After the Closing, Purchaser shall have the right and authority to endorse,
without recourse, the name of Seller on any check or any other evidence of
indebtedness received by Purchaser on account of any Asset sold by Seller to
Purchaser pursuant hereto, provided that Purchaser shall give Seller notice of
its receipt of any such check or other evidence of indebtedness prior to
endorsement of the same. Seller will deliver to Purchaser at the Closing letters
of instruction sufficient to permit Purchaser to deposit such checks or other
evidences of indebtedness in bank accounts in the name of Purchaser. Any moneys
received by Seller after the Closing Date on account of any Assets sold by
Seller to Purchaser pursuant hereto, including on account of accounts
receivable, will be promptly paid over to Purchaser.
5.5 Additional Instruments. Seller and Purchaser, as the case may be,
at the request of the other, at or after the Closing, will execute and deliver,
or cause to be executed and delivered, to the other such documents and
instruments, in addition to those specifically required by the provisions of
this Agreement, in form and substance reasonably satisfactory to the other, as
may reasonably be necessary to carry out or implement any provision of this
Agreement, including the transfer of the Assets to, and the assumption of the
Assumed Liabilities by, Purchaser. With respect to any Assets sold hereunder
which can not be physically delivered to Purchaser because they are in
possession of third parties, in connection with the Closing Seller shall give
irrevocable instructions to the parties in possession thereof that all right,
title and interest in and to the same have been vested in Purchaser and that the
same are to be held for Purchaser's exclusive use and benefit from and after the
Closing. The form of the irrevocable instructions, and the procedures for
obtaining acknowledgment of the same from the parties in possession in
connection with the Closing, shall be as mutually agreed by Seller and
Purchaser.
5.6 Compliance With Hart-Scott. Upon execution and delivery of this
Agreement, Seller and Purchaser shall prepare and file all materials necessary
to comply with the provisions of the Hart- Scott-Rodino Antitrust Improvements
Act of 1976, as amended ("Hart-Scott"), if any. Thereafter, the parties shall
respond promptly to any inquiry made by the Federal Trade Commission or the
Antitrust Division of the Department of Justice regarding such notification, if
any.
5.7 Possession and Control of Assets; Access to Information. Promptly
following the Closing, Seller shall take all requisite steps to put Purchaser in
actual possession and operating control of the Assets and all of the Division's
business records, books and other data relating to its assets, properties and
business, provided that Seller may retain copies of the same and, in the case of
records, if any, which the Seller is required by law to maintain or which are
not readily separable from the Seller's own records, Seller shall maintain the
originals thereof and furnish copies of the same to Purchaser. If Purchaser
shall determine to dispose of any such original records during the ten (10)
years from and after the Closing Date, Purchaser shall first offer in writing to
deliver the same to Seller and shall give Seller reasonable opportunity to
obtain possession of the same. During the period of ten (10) years following the
Closing Date, Purchaser shall grant to Seller and its general partner and its
general partner's general partner and their respective successors and assigns,
at their request and at Seller's expense, access to the Division and the Assets
and appropriate officers during normal business hours and without unreasonable
disruption of the Business as may be reasonably necessary for Seller, any such
general partner or their respective successors and assigns for addressing tax
matters, potential liabilities, claims, accounting matters or for any other
purpose incident to this Agreement,
5.8 Taxes. After the Closing Date, Purchaser will cooperate with
Seller, at Seller's expense, in connection with the preparation of all tax
returns to be filed by Seller, to facilitate the filing of such returns by
Seller in a timely manner, and will cooperate with Seller, at Seller's expense,
in connection with any audit by the IRS or any other tax authority of any tax
return relating to the operations of the Division or of Seller during any
pre-Closing Period. Purchaser shall so cooperate for so long as Seller may be
required to file any such returns or may be subject to any such audit. Seller
will have the sole right, at its expense, to prepare and file any amended tax
return, claim for refund or tax court petition, to prosecute any such claim and
to select counsel, to engage in litigation and to consent to any settlement in
connection therewith with respect to any taxes for any such pre-Closing Period
which Seller has paid or for which Seller may be liable. Notwithstanding the
foregoing, to the extent that Purchaser may be liable for taxes for any such
period Purchaser shall be entitled to participate in any of the litigation with
respect to any such claim or may employ its own separate counsel, in either
event at its own expense, and in such circumstances, the Seller and Purchaser
shall only be entitled to settle that portion of the claim for which it may be
liable provided Seller or Purchaser is entitled to take any of the foregoing
actions, each will deliver, or cause to be delivered, to the other or its
designee all information reasonably requested by the other in order to implement
the provisions of this Section 5.8. Neither Seller nor Purchaser will dispose of
any financial records or other records relating to the Business which may be
necessary to resolve any tax dispute for five (5) years after the Closing date
unless each has first offered possession of such records to the other or its
designee and the other party or its designee has refused possession.
5.9 Insurance. For a period of five (5) years following the Closing,
Purchaser will include Seller, the General Partner of Seller, the General
Partner of such General Partner, and their respective affiliates as a named
insured on all policies of liability insurance maintained by Purchaser during
that period. Such insurance policies maintained by Purchaser shall provide, at a
minimum, coverage substantially similar to that provided under the liability
insurance policies listed on Schedule 3.11 hereto.
5.10 Purchase Price Allocation. Purchaser and Seller agree that the
portion of the total consideration paid by Purchaser to Seller (including the
Assumed Liabilities) (the "Total Consideration") allocated to cash, accounts
receivables, inventories, prepaid expenses and other items shall be allocated as
the parties shall agree on or prior to the Closing Date. If the Purchaser and
Seller have not reached agreement prior to the Closing Date, each will allocate
the purchase price in its own discretion.
5.11 Use of Name. Notwithstanding any other provision of this
Agreement, from and after the Closing, Seller shall continue to have the right
to use the names "Majco" and "Majco Building Specialties, L.P." with respect to
all matters relating to Seller's partners and their investment in Seller.
5.12 Certain Notices. Prior to the Closing, each of Seller and
Purchaser, as the case may be, shall promptly notify the other in the event it
discovers any fact or matter constituting a breach of any representation or
warranty contained herein, or any change relating to any fact or matter which,
pursuant to the terms of this Agreement, should either appear in any Schedule
hereto or be an exception to a representation or warranty contained herein in
order that the representations and warranties contained herein are true and
complete on the Closing Date, and, prior to the Closing, Seller shall have the
right to amend and update any Schedule hereto or add appropriate Schedules to
this Agreement in order to disclose such fact or matter, provided that the
exercise by Seller of the foregoing right shall not be taken into account in
considering whether the closing condition set forth in Section 6(a) has been
satisfied. Each party to this Agreement shall notify the other party promptly if
it should become aware of any fact or condition which may represent a material
impediment to consummation of the Closing hereunder.
5.13 Reimbursements and Apportionments of Certain Charges with respect
to Real Property.
At the Closing, the following are to reimbursed or apportioned as of
11:59 p.m. on the day preceding the Closing based upon the parties' respective
period of ownership for the period being apportioned. All reimbursements and
apportionments shall be calculated based upon a 365 day year for the actual
number of days elapsed:
(a) Rent and additional rent under the lease for the Real Property
located at 118 Alpine Road, Austin, Texas for the month when the
Closing occurs;
(b) License and permit fees with respect to any assignable permit or
license;
(c) Fixed Rent and additional rent paid or payable under any the Real
Property lease described on Schedule 3.4(a)(iii); and
(d) Premiums on insurance policies assigned under this Agreement.
Charges for steam, electricity, gas, water and other utilities shall
not be apportioned, but Seller shall make payment to the appropriate utility for
services received through the day preceding the Closing; all deposits made by
Seller as security under a utility agreement shall, if assignable, be assigned
to Purchaser and credited to Seller; if any utility reading is not obtained by
the Closing then, upon Purchaser making payment of the utility bills covering
the period of Seller's ownership, Seller shall reimburse Purchaser for Seller's
usage of utilities, apportioned on a per diem basis on the basis of the bill
paid by Purchaser.
Real estate taxes and assessments and water or sewer charges not
measured by meters shall not be apportioned, provided however that Purchaser
shall be entitled to reimbursement out of the Escrow Account in an amount equal
to any real estate taxes and assessments payable with respect to the pre-Closing
Period to the extent not accrued on the Closing Balance Sheet.
Any readjustment of reimbursement or apportionment in accordance with
this Section shall be made by a date that is no later than thirty (30) days
following the Closing.
5.14 Accounts Receivable. Within 15 days following the Closing, Seller
shall deliver to Purchaser an aged schedule of the Seller's trade and other
accounts receivable included in the Assets as of the Closing. Purchaser
covenants and agrees to use its best efforts to collect the aforesaid trade and
other accounts receivable promptly, and shall apply any payments received
(including returns) through January 31, 1997 with respect to any trade or other
account debtor or affiliate thereof appearing on such aged schedule to the
satisfaction of the trade and accounts receivable appearing on such aged
schedule, oldest receivables to be satisfied first, prior to applying such
payments to any obligation of such trade or other account debtor arising on or
after the Closing unless the applicable trade or other account debtor designates
in writing that such payment be applied to a particular receivable and such
trade or other account debtor was not advised or induced by Purchaser, directly
or indirectly, to do so. If so designated the payment shall be applied as so
designated in writing by such account debtor. On January 27, 1997, Purchaser
shall give written notice to Seller as to those trade and other accounts
receivable appearing on such aged schedule which have not been collected through
such date, despite Purchaser's best efforts to collect the aforesaid trade and
other accounts receivable promptly. To the extent that the amount of such trade
and other accounts receivable, in the aggregate, which then remain uncollected
in accordance herewith exceeds the sum of (i) the sum of (a) $100,000 less (b)
the sum of up to $100,000 of bona fide indemnification claims theretofore made
against Seller pursuant to Section 5.16 hereof and (ii) the reserves against
trade and other accounts receivable set forth on the final Closing Balance
Sheet, such excess shall be a "Loss", within the meaning of Section 8.3 hereof,
with respect to which Purchaser shall be entitled to claim indemnification from
the Escrow Account pursuant to Article 8 hereof provided, that claims for
indemnification pursuant to this Section 5.14 shall not be counted in
determining whether sufficient claims have been made to exceed the
threshold/basket for making other claims for indemnification pursuant to Article
8. In the event that Purchaser is indemnified for any shortfall in collection of
trade or accounts receivable pursuant to the terms of this Section 5.14, to the
extent thereof, at the written request of Seller or its successor or assign,
Purchaser shall transfer to Seller or its successor or assign title to the
excess of any such trade or account receivable (or collections thereafter on
such trade or account receivable) over the sum calculated pursuant to clause (i)
in this Section. Notwithstanding anything to the contrary contained in this
Agreement, in no event shall Purchaser have any claim against Seller or against
the Escrow Account or for indemnification pursuant to this Agreement with
respect to trade or other accounts receivable pursuant to any other provision of
this Agreement or otherwise other than in accordance with the terms, conditions
and limitations of this Section 5.14. Notwithstanding anything to the contrary
contained in this Agreement, the indemnification obligations of Seller pursuant
to this Section shall be non-recourse to Seller, its general, limited and
special partners, and their respective affiliates, and such indemnification
shall be recourse only to the Contingent Escrow Funds held in the Escrow Account
pursuant to the Escrow Agreement.
5.15 Notes Receivable. [INTENTIONALLY OMITTED.]
5.16 Inventory. With respect to all indemnification claims for breach
of representations or warranties relating to Inventory, Purchaser shall be
indemnified only to the extent such claims by Purchaser exceed the sum of (i)
the sum of (a) $100,000 less (b) the sum of up to $100,000 of bona fide
indemnification claims theretofore made against Seller pursuant to Section 5.14
hereof and (ii) the reserves relating to inventory set forth on the final
Closing Balance Sheet. Claims for indemnification pursuant to this Section 5.16
shall not be counted in determining whether sufficient claims have been made to
exceed the threshold/basket for making other claims for indemnification pursuant
to Article 8.
5.17 Continuing Due Diligence. Subject to the restrictions and
conditions of the confidentiality agreement previously executed and delivered by
Purchaser, from and after the date hereof through the Closing, Seller shall
furnish Purchaser with such additional financial and operating data and other
information as to the operations, business, properties and assets of the
Division, reasonably available to Seller, as Purchaser shall from time to time
reasonably require and, to the extent that such data and information is not
otherwise available, Seller shall give and afford to the Purchaser (and, subject
to said confidentiality agreement, Purchaser's representatives), access at
reasonable times during the Division's normal business hours to the plant,
properties and books and records relating to the Division, the Business and the
Assets, in order that Purchaser may have a continuing opportunity to familiarize
itself with the affairs of the Division and conduct an appraisal of the Division
and its Assets; provided, however, that the foregoing shall be conducted in such
manner and at such times as not to interfere unreasonably with the operations of
the Division or adversely effect the Business, the Division or the Assets.
5.18 Lien Searches. At least three (3) days prior to the Closing,
Seller shall deliver to Purchaser UCC lien searches, dated not more than
twenty-one (21) days prior to the Closing, for Seller at the State level for the
States of Indiana and Texas, and at the County level for Travis, Wise and Hays
counties in the State of Texas and Huntington and Wabash counties in the State
of Indiana. Such searches shall be conducted under the present name of Seller,
the Division and such other names as the Seller and/or the Division has used in
the past five years. All such names are listed in Schedule 3.8 hereto.
5.19 Limitation of Use of Cash by Seller Pending Closing. The parties
hereto acknowledge and agree that, from time to time from January 1, 1995
through the Closing, Seller has and will continue to withdraw "Cash", (which
term shall have the same meaning as is customarily ascribed to the "cash" item
on an audited balance sheet) from the Division or the Business and apply it to
(x) distributions to Seller's general, limited and special limited partners, (y)
repayment of Debt, and (z) the payment of fees and expenses of investment
bankers, attorneys, accountants, and other experts in connection with the
offering of the Division, the Business and the Assets for sale, and the
negotiation, preparation, execution and closing of the same. The parties further
acknowledge and agree that it is the intention of the parties that Seller
withdraw all Cash from the Division and the Business (or apply the same as
provided in clauses (x), (y) and (z) above) provided, that (i) such withdrawals
and applications of funds during the period from January 1, 1995 through the
Closing date not exceed the net income of the Seller for such period as set
forth on the final Closing Income Statement and (ii) such withdrawals and
applications on the Closing date not exceed the lesser of (1) the sum of (a) the
net income of Seller for the period from January 1, 1995 through the Closing
Date as set forth on the final Closing Income Statement less (b) such
withdrawals and applications made prior to the Closing date and (2) the Cash of
the Division on the Closing date, as Cash is reflected on the final Closing
Balance Sheet. The amount of Cash which Seller is entitled to withdraw or apply
(as provided in clauses (x), (y) and (z) of this Section) during the period from
January 1, 1995 through the Closing date and on the Closing date is hereinafter
referred to as the "Cash Entitlement." Notwithstanding the foregoing, Seller
will give Purchaser 2 days prior notice of any withdrawal of Cash for
application under clause (x) above if such withdrawal occurs on or after the
date of this Agreement and prior to the Closing Date. Seller will use all
reasonable efforts not to withdraw or apply Cash in excess of the Cash
Entitlement. Within two (2) business days after both the Closing Balance Sheet
and the Closing Income Statement shall have become final pursuant to Section 1.8
of this Agreement, the parties will meet, either in person or by telephone
conference call, and will refer to the Closing Balance Sheet for the statement
of the Cash of the Division on the Closing date and the parties will refer to
the Closing Income Statement for the statement of the net earnings of the Seller
for the period from January 1, 1995 through the Closing Date, and Seller shall
furnish to Purchaser a list of the withdrawals and applications (in accordance
with clauses (y) and (z) above) of Cash by Seller during the period from January
1, 1995 through and including the Closing date. Utilizing such information, the
parties will calculate whether Purchaser's withdrawals and applications of Cash
during the period from January 1, 1995 through and including the Closing date
were greater than or less than the Cash Entitlement, as defined in this Section.
The amount of any shortfall in such withdrawals and applications as compared
with the Cash Entitlement shall be paid by Purchaser to Seller, and the amount
of any excess of such withdrawals and applications over the Cash Entitlement
shall be paid by Seller to Purchaser, in either case by wire transfer to the
recipient's account of immediately available funds on that day. The post-closing
payment adjustment referred to in this Section shall be the exclusive remedy of
the parties in respect of this adjustments due to withdrawals and applications
of Cash in an aggregate amount greater than or less than the Cash Entitlement;
no claims may be made against the Escrow Account or for indemnification pursuant
to Article 8 of this Agreement with respect to the amount of such shortfall or
excess of Cash withdrawal and application.
5.20 Payment of Employee Discretionary Bonuses and 401K Plan
Contributions. The Purchaser and Seller have agreed that on or prior to the
Closing date the Seller shall arrange the payment of discretionary bonuses and
Division's contributions to the Division's 401K Plan for the period from January
1, 1995 through the Closing date with respect to employees other than Raymond E.
Deasy, Larry R. McMichael, Donely H. Zulager and Glenn Thomson, in the amount
accrued on the books and records of the Division as of the Closing date, and
Seller shall have no further obligation with regard to payment of Management
Discretionary bonuses or 401K contributions to or on behalf of the aforesaid
four (4) individuals nor any liability from any failure by Purchaser to make any
necessary contributions or otherwise comply with the laws, rules and regulations
with respect to the 401K plan following the Closing date.
6. Conditions to Obligations of Purchaser.
The obligation of Purchaser to consummate the transactions contemplated
by this Agreement is subject to the satisfaction of the following conditions on
or before the Closing Date:
(a) the representations and warranties made by Seller in this Agreement
(including all Exhibits and Schedules but subject to Section 5.12
hereof) and in the Documents, taken as a whole, shall be true and
correct in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date
except that any such representations or warranties made as of a
specified date shall have been true on and as of such date; provided,
that this condition shall be deemed satisfied unless the breaches of
representations and warranties of Seller in this Agreement, in the
aggregate, would be materially adverse to the Division, the Business or
the Assets, taken as a whole;
(b) Seller will have performed all of the covenants and agreements
required to be performed by it under this Agreement prior to the
Closing and shall have tendered delivery of the items referred to in
Section 2.3 hereof;
(c) there will have been no material adverse change in the Assets,
operations, condition (financial or otherwise) or operating results of
the Business, taken as a whole, from the date of the 1994 Balance Sheet
through the Closing Date; provided, that no material adverse change
shall be deemed to have occurred, within the meaning of this clause
(c), to the extent that the same is either (x) consistent with the most
current written projections furnished to Purchaser by Seller prior to
the execution and delivery of this Agreement or (y) consistent with,
but not materially more adverse than, economic conditions and results
experienced generally by businesses comparable to the Business which
are principally engaged in manufacturing fireplace systems and related
products for the housing and remodeling industries in the U.S.;
(d) all consents of third parties, all governmental and regulatory
filings, authorizations and approvals set forth in on Schedule 3.12
hereto and on Schedule 3.18, will have been duly made and obtained, and
signed copies thereof shall have been delivered to Purchaser, including
all filings required by Hart-Scott, and the waiting period required by
Hart-Scott will have terminated or expired, if applicable, except to
the extent that any such consents, regulatory filings, authorizations
and approvals, or the failure of the same to have been obtained, made
or be effective, would not be materially adverse to the Division, the
Business or the Assets, taken as a whole, or to Seller or Purchaser,
taken as a whole;
(e) As of the Closing date, Seller shall have received no notice of any
pending proceeding for the taking or condemnation of all or any portion
of the Real Property or the properties demised under the Leases or
pending taking or condemnation proceeding which would result in a
termination of any Lease of real property and, to the knowledge of
Seller, none of the same is threatened, which, in the aggregate, would
materially interfere with the intended use of the Real Property or
materially detract from the value thereof.
(f) no suit, action, claim or proceeding before any court or
governmental body will be pending or threatened wherein an unfavorable
judgment, decree or order would: (i) prevent the carrying out of this
Agreement or any of the material transactions contemplated hereby; (ii)
declare unlawful or enjoin the transactions contemplated by this
Agreement; or (iii) cause such transactions to be rescinded;
(g) Purchaser will have received from Seller's counsel, Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, an opinion, which may rely on
local counsel, with respect to the matters set forth in Exhibit M)
hereto, addressed to Purchaser and dated the Closing Date.
(h) on the Closing Date, Seller will have delivered to Purchaser a
certificate of the general partner of the general partner of Seller in
the form set forth in Exhibit N attached hereto, dated the Closing
Date, stating that the preconditions to be satisfied by Seller
specified in this Section 6 have been satisfied;
(i) Purchaser shall have received, at normal premium rates, from a
title insurance company reasonably acceptable to Purchaser: a form of
Owner's Title Insurance Policy as to the properties listed as items and
in Schedule 3.4(a) hereto, or an irrevocable binder to issue the same,
in either case dated as of Closing, in such amounts as are reasonably
determined by Purchaser but not greater than the amounts which the
applicable title company would be permitted to insure under existing
regulation, insuring Purchaser's fee title to the properties listed as
items and in Schedule 3.4(a) hereto, subject only to those matters set
forth on Schedule 6(i) hereto. Such policies shall contain no
exceptions, including survey exceptions, to title other than those set
forth on Schedule 6(i) hereof; and on or prior to the Closing Date, and
as a condition precedent to Purchaser's obligations hereunder, Seller
shall, in connection with the issuance of the policies of title
insurance described in this clause (h), execute and deliver to the
title company affidavits in the form reasonably required by the title
insurance company but in no event inconsistent with the representations
and warranties undertaken in this Agreement in conjunction with
insurance of Purchaser's title in the Real Property; and
(j) The Escrow Account shall have been established and, in connection
therewith, the Escrow Agreement shall have been executed and delivered
by the parties thereto; and
(k) Purchaser shall have obtained surveys for the properties listed as
items and in Schedule 3.4(a) hereto dated or recertified to within
forty-five (45) days of the Closing, together with an ALTA or other
certification reasonably acceptable to Purchaser, certified to such
parties as Purchaser shall designate, showing a state of facts
consistent with the state of title to be insured and also showing,
among other things: (i) the courses and distances of the exterior
property lines; (ii) the location of the improvements, the dimensions
thereof at ground surface level, and the distance therefrom to the
facing exterior property lines; (iii) the location of the adjoining
streets; (iv) the location of easements, rights of ways or licenses on
or across the subject property; and (v) any encroachments on to any
adjoining property or unto the subject property.
Any condition specified in this Section 6 may be waived by Purchaser,
provided that no such waiver will be effective unless it is set forth in a
writing executed by Purchaser.
7. Conditions to Obligations of Seller.
The obligation of Seller to consummate the transactions contemplated by
this Agreement is subject to the satisfaction of the following conditions on or
before the Closing Date:
(a) the representations and warranties made by Purchaser in this
Agreement (including all Exhibits and Schedules hereto) and in the
Documents, taken as a whole, shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date except that any such
representations or warranties made as of a specified date shall have
been true on and as of such date;
(b) Purchaser will have performed all of the covenants and agreements
required to be performed by it under this Agreement prior to the
Closing and shall have tendered delivery of the items referred to in
Section 2.2 hereof;
(c) all consents of third parties, all governmental and regulatory
filings, authorizations and approvals set forth in Schedule 3.12 hereto
and in Schedule 3.18, will have been duly made and obtained, including
all filings required by Hart- -Scott, and the waiting period required
by Hart-Scott will have terminated or expired, if applicable, except to
the extent that any such consents, regulatory filings, authorizations
and approvals, or the failure of the same to have been obtained, made
or be effective, shall not be materially adverse to the Division, the
Business or the Assets, taken as a whole, or to Seller or Purchaser,
taken as a whole; provided, that Seller shall not be entitled to refuse
to close, except pursuant to subprovision (h) below, on the basis that
a consent of a non-governmental third party is not obtained if
Purchaser first evidence's Purchaser's agreement, in a writing executed
and delivered by Purchaser to Seller and reasonably satisfactory to
Seller, in form and in substance, that Purchaser shall indemnify Seller
against any Loss (as such term is defined in Section 8.3 hereof) Seller
may incur as a consequence of Seller's failure to obtain such a third
party consent;
(d) no action or proceeding before any court or governmental body will
be pending or threatened wherein an unfavorable judgment, decree or
order would: (i) prevent the carrying out of this Agreement or any of
the material transactions contemplated hereby; (ii) declare unlawful
the transactions contemplated by this Agreement; or (iii) cause such
transactions to be rescinded;
(e) Seller will have received from Purchaser's counsel, an opinion,
with respect to the matters set forth in Exhibit O hereto, addressed to
Seller and dated the Closing Date;
(f) Seller will have been furnished with certified copies of all
corporate action and proceedings of Purchaser taken to authorize the
execution, delivery and performance of the Documents to be executed and
delivered by Purchaser;
(g) on the Closing Date, Purchaser will have delivered to Seller a
certificate of Purchaser in the form set forth in Exhibit P attached
hereto, dated the Closing Date, stating that the preconditions to be
satisfied by Purchaser specified in this Section 7 have been satisfied;
(h) either (i) thirty (30) days shall have expired from the date the
Disclosure Material is sent to the limited partners of Seller and such
limited partners shall not have delivered the opinion of counsel
described in subparagraph 13(d) of the Partnership Agreement; or (ii)
if such opinion has been obtained, the consent to the transactions
contemplated hereby of two-thirds in interest of Seller's limited
partners shall have been obtained pursuant to the terms and provisions
of the Partnership Agreement; it being understood and agreed that the
requirements of this clause (h) cannot be waived by Seller; and
(i) The Escrow Account shall have been established and, in connection
therewith, the Escrow Agreement shall have been executed and delivered
by the parties thereto.
Any condition specified in this Section 7, other than that contained in
clause (h), may be waived by Seller, provided that no such waiver will be
effective unless it is set forth in a writing executed by Seller.
8. Survival of Representations and Warranties; Indemnification.
8.1 Survival of Representations and Warranties. Except as expressly
provided in this Agreement, all representations and warranties made hereunder or
pursuant hereto or in connection with the transactions contemplated hereby shall
not terminate, but shall survive the Closing and any investigation made at any
time with respect thereto and continue in effect and be enforceable until
January 31, 1997, at which time they shall expire; provided, however, that any
such representation or warranty as to which a bona fide claim shall have been
asserted in timely fashion in accordance with the terms and conditions of this
Article 8 prior to the expiration of such survival period shall continue in
effect until such time as such claim shall have been resolved or settled in
accordance with the terms of the Escrow Agreement (including the ninety (90) day
arbitration period thereunder) or the Escrow Agreement shall have been
terminated in accordance with its terms, whichever shall occur first.
8.2 Survival of Covenants and Agreements. Except as expressly provided
in this Agreement, all covenants and agreements made hereunder or pursuant
hereto or in connection with the transactions contemplated hereby shall not
terminate but shall survive the Closing and be enforceable until January 31,
1997, at which time they shall expire.
8.3 Indemnification by Seller. Subject to the last sentence of this
Section 8.3, Seller agrees to indemnify and hold harmless Purchaser and its
successors and assigns from and against any claims, liabilities, losses,
damages, deficiencies or expenses, including, but not limited to, interest
penalties, other penalties and reasonable attorneys' fees and expenses (any one
such item being herein called a "Loss" and all such items being herein
collectively called "Losses"), in an amount not to exceed the Contingent
Escrowed Funds in the aggregate, which are caused by or arise out of: (i) any
material breach or material default in the performance by Seller of any covenant
or agreement of Seller contained herein or in any Document; (ii) any material
breach of warranty or representation made by Seller herein or in any Document;
(iii) any claim made against Purchaser in respect of any Retained Liabilities,
whether absolute or contingent (other than the Assumed Liabilities); and (iv)
any and all actions, suits, proceedings, claims, demands, judgments, costs and
expenses (including reasonable legal fees) incident to any of the foregoing.
Notwithstanding the foregoing provisions of this Section 8.3, no claim for
indemnification shall be made by Purchaser under this Section 8.3 in violation
of the provisions of Sections 5.14, or 5.16 or unless and until the aggregate
amount of all Losses of Purchaser in respect thereof with regard to claims other
than those covered by Sections 5.14, or 5.16 shall exceed $150,000 (the
"Required Minimum"), and no indemnification shall be made by Seller to Purchaser
in respect of such Losses except for Losses in excess of the Required Minimum.
The indemnification obligations of Seller hereunder shall apply only to claims
for indemnification made by Purchaser to Seller in writing in reasonably timely
fashion, and with reasonable specificity concerning the details of the
particular claim (and not merely in generic form) and the basis therefor,
including, without limitation, relevant parties, dates, contracts/obligations
and amounts incurred, during the time period specified in Section 8.2 above for
the survival of representations and warranties. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS AGREEMENT, THE INDEMNIFICATION OBLIGATIONS OF SELLER
PURSUANT TO THIS SECTION SHALL BE NON-RECOURSE TO SELLER, ITS GENERAL, LIMITED
AND SPECIAL PARTNERS, AND THEIR RESPECTIVE AFFILIATES, AND SUCH INDEMNIFICATION
SHALL BE RECOURSE ONLY TO THE CONTINGENT ESCROW FUNDS HELD IN THE ESCROW ACCOUNT
PURSUANT TO THE ESCROW AGREEMENT, AND NEITHER SELLER, ITS GENERAL PARTNER, ANY
OF ITS LIMITED PARTNERS, OR THEIR RESPECTIVE AFFILIATES SHALL HAVE ANY LIABILITY
WHATSOEVER FOR SUCH INDEMNIFICATION OBLIGATIONS.
8.4 Indemnification by Purchaser. Purchaser agrees to indemnify and
hold harmless Seller and its successors and assigns from and against any Losses
which are caused by or arise out of: (i) any material breach or material default
in the performance by Purchaser of any covenant or agreement of Purchaser
contained herein or in any Document; (ii) any material breach of warranty or
representation made by Purchaser herein or in any Document; (iii) any claim made
against Seller in respect of the Assumed Liabilities or any other liability or
obligation of Purchaser, whether absolute or contingent (other than the Retained
Liabilities); (iv) any act by Purchaser after the Closing Date arising out of,
or related to, the operation, directly or indirectly, by Purchaser or any
successor or assigns, of the Business; or (v) any and all actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees) incident to any of the foregoing. This indemnification
obligation shall survive the Closing and shall extend and be enforceable through
January 31, 1997. Notwithstanding the foregoing provisions of Section 8.4, no
claim for indemnification shall be made by Seller under this Section 8.4 unless
and until the aggregate amount of Losses shall exceed $150,000 and no
indemnification shall be made by Purchaser to Seller in respect of such Losses
except for Losses in excess of the Required Minimum and up to an aggregate
amount not exceeding Three Million Three Hundred Thirty Thousand Five Hundred
Dollars (U.S. $3,330,500). The indemnification obligations of Purchaser
hereunder shall apply only to claims for indemnification made by Seller to
Purchaser in writing in reasonable timely fashion, and with reasonable
specificity concerning the details of the particular claim (and not merely in
generic form) and the basis therefor, including, without limitation, relevant
parties, dates, contract/obligations and amounts incurred during the time period
specified in Section 8.1 above with respect to representations and warranties.
8.5 Defense by Indemnifying Parties.
(a) An indemnified party shall notify the indemnifying party in writing
of any claim of such indemnified party for indemnification under this
Agreement promptly after the date on which an executive officer or
representative of such indemnified party first becomes aware of the
existence of such claim whether such claim would be subject to the
limitation set forth in Section 8.3 or 8.4 otherwise. Such notice shall
specify the nature of such claim in reasonable detail and, upon written
request, the indemnifying party shall be given reasonable access to any
documents or properties within the control of the indemnified party as
may be useful in the investigation of the basis for such claim. The
failure to so notify the indemnifying party promptly shall not
constitute a waiver of such claim (provided that it does not interfere
with the right of, or materially prejudice the ability of the
indemnifying party to defend such action) but an indemnified party
shall not be entitled to receive any indemnification with respect to
any Loss that occurred as a result of the failure of such person to
give prompt notice.
If any indemnified party is entitled to indemnification hereunder based
upon a claim asserted by a third party the indemnifying party shall be
given prompt notice thereof, in reasonable detail. The failure to so
notify the indemnifying party shall not constitute a waiver of such
claim but an indemnified party shall not be entitled to receive any
indemnification with respect to any Loss that occurred as a result of
the failure of such person to give such notice. The indemnifying party
shall have the right (without prejudice to the right of any indemnified
party to participate at its expense through counsel of its own
choosing) to defend or prosecute such claim at its expense and through
counsel of its own choosing if it gives written notice of its intention
to do so not later than twenty (20) days following notice thereof by
the indemnified party or such shorter time period as required so that
the interests of the indemnified party would not be materially
prejudiced as a result of its failure to have received such notice;
provided, however, that if the defendants in any action shall include
both an indemnifying party and an indemnified party and the indemnified
party shall have reasonably concluded that counsel selected by the
indemnifying party has a conflict of interest because of the
availability of different or additional defenses to the indemnified
party, the indemnified party shall have the right to select separate
counsel to participate in the defense of such action on its behalf, at
the expense of the indemnified party. If the indemnifying party does
not so choose to defend or prosecute any such claim asserted by a third
party for which any indemnified party would be entitled to
indemnification hereunder, then the indemnified party shall be entitled
to recover from the indemnifying party, on a monthly basis, all of its
attorneys' reasonable fees and other reasonable costs and expenses of
litigation of any nature whatsoever incurred in the defense of such
claim. Subject to the provisions of Section 8.3 and 8.4 hereof,
whichever may be applicable, if the indemnifying party assumes the
defense of any such claim, the indemnifying party will hold the
indemnified party harmless from and against any and all damages arising
out of any settlement approved by such indemnifying party or any
judgment in connection with such claim or litigation. Notwithstanding
the assumption of the defense of any claim by the indemnified party
pursuant to this Section 8.5(a) the indemnifying party shall have the
right to approve the terms of any settlement of a claim (which approval
shall not be unreasonably withheld).
(b) The indemnifying party and the indemnified party shall cooperate in
furnishing evidence and testimony and in any other manner which the
other may reasonably request, and shall in all other respects have an
obligation of good faith dealing, one to the other, so as not to
unreasonably expose the other to an undue risk of loss. The indemnified
party shall be entitled to reimbursement for out-of-pocket expenses
reasonably incurred by it in connection with such cooperation. Except
for fees and expenses for which indemnification is provided pursuant to
Section 8.3 or Section 8.4 hereof, as the case may be, and as provided
in the preceding sentence, each party shall bear its own fees and
expenses incurred pursuant to this Section 8.5(b).
8.6 Remedies Exclusive. SUBJECT TO THE LAST SENTENCE OF THIS SECTION
8.6, FROM AND AFTER THE CLOSING DATE, THE RIGHTS AND REMEDIES UNDER SECTIONS 8.3
AND 8.4 HEREOF SHALL BE DEEMED TO BE EXCLUSIVE OF ALL OTHER RIGHTS AND REMEDIES
THAT WOULD OTHERWISE BE AVAILABLE TO THE PARTIES HERETO; THAT IS, EACH PARTY
HERETO EXPRESSLY WAIVES THE RIGHT, WHETHER BY CONTRACT OR UNDER LAW TO THE
EXTENT LEGALLY PERMISSIBLE TO DO SO, TO SEEK DAMAGES FROM OR AGAINST OR
OTHERWISE ASSERT CLAIMS AGAINST THE OTHER PARTY (OR, WITH RESPECT TO CLAIMS BY,
ON BEHALF OF OR THROUGH PURCHASER, AGAINST THE GENERAL, LIMITED OR SPECIAL
PARTNERS OF SELLER OR THEIR RESPECTIVE AFFILIATES) HERETO OR ITS ASSETS OR ITS
SUCCESSORS OR ASSIGNS OTHER THAN PURSUANT TO SECTIONS 8.3 AND 8.4 HEREOF. No
course of dealing by either party, or any delay or omission of either party in
exercising any rights or remedies under this Agreement shall operate as a waiver
of such right or remedy. Notwithstanding the foregoing, each of the parties
hereto, shall have the right to enforce their respective rights hereunder by an
action or actions for specific performance, injunction or other appropriate
equitable remedies.
8.7 Warranties. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT AND THE
DOCUMENTS: (i) THE ASSETS ARE SOLD "AS IS, WHERE IS," AND WITH ALL FAULTS, AND
SELLER MAKES NO REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, WITH
RESPECT TO THE CONDITION OF THE ASSETS; (ii) SELLER DOES NOT WARRANT THE
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE ASSETS; (iii) SELLER
DOES NOT MAKE ANY WARRANTY TO PURCHASER'S AGENTS OR CUSTOMERS; (iv) SELLER MAKES
NO REPRESENTATION OR WARRANTY AS TO ITS TITLE TO OR RIGHTS IN THE ASSETS AND NO
SUCH REPRESENTATION OR WARRANTY SHALL BE IMPLIED BY LAW; AND (v) THERE IS NO
WARRANTY WHICH EXTENDS BEYOND THE DESCRIPTION CONTAINED IN THE DOCUMENTS. SELLER
HAS NOT AUTHORIZED ANYONE TO MAKE ANY REPRESENTATION OR WARRANTY OTHER THAN AS
PROVIDED ABOVE IN THIS SECTION 8.7.
9. Termination.
9.1 Best Efforts to Satisfy Conditions. Seller agrees to use its
reasonable best efforts to bring about the satisfaction of the conditions
specified in Section 6 hereof and Purchaser agrees to use its reasonable best
efforts to bring about the satisfaction of the conditions specified in Section 7
hereof.
9.2 Termination. This Agreement may be terminated prior to Closing by
either party acting in good faith, without either party having any liability to
the other party, as follows:
(i) the mutual written consent of Seller and Purchaser.
(ii) Purchaser, upon written notice to Seller, if (a) a
material default shall be made by Seller in the observance or in the
due and timely performance by Seller of its covenants herein contained,
or (b) there shall have been a material breach or misrepresentation by
Seller of the warranties and representations of Seller herein
contained, or (c) the conditions of this Agreement to be complied with
or performed by Seller at or before the Closing Date shall not have
been complied with or performed in all material respects (except to the
extent that the non-compliance stems from Seller's failure to obtain
all necessary consents from Seller's limited partners for the
consummation of the transactions contemplated hereby so long as Seller
continues to diligently seek to obtain the same) at the time required
for such compliance or performance and such noncompliance or
nonperformance shall not have been waived by Purchaser; and, in the
case of (a), (b) or (c), such material default, material breach or
material noncompliance or nonperformance shall have a material adverse
effect on the Business or the Assets, taken as a whole, or on the
ability of the parties hereto to consummate the transactions
contemplated hereby, taken as a whole; or (d) the Closing contemplated
hereunder shall not have been consummated within forty-five (45) days
from the date of this Agreement other than due to a material breach of
the terms hereof by Purchaser.
(iii) Seller, upon written notice to Purchaser, if (a) a
material default shall be made by Purchaser in the observance or in the
due and timely performance by Purchaser of any of its covenants herein
contained, or (b) there shall have been a material breach or
misrepresentation by Purchaser of any of the warranties and
representations of Purchaser herein contained, or (c) the conditions of
this Agreement to be complied with or performed by Purchaser at or
before the Closing Date shall not have been complied with or performed
at the time required for such compliance or performance and such
noncompliance or nonperformance shall not have been waived by Seller;
and, in the case of (a), (b) or (c), such material default, material
breach or material noncompliance or nonperformance shall have a
material adverse effect on the ability of the parties hereto to
consummate the transactions contemplated hereby, taken as a whole; or
(d) the failure of Seller to terminate this Agreement would violate its
fiduciary duties to its partners under applicable law as contemplated
by Section 5.2 hereof; or (e) the Closing contemplated hereunder shall
not have been consummated within forty-five (45) days from the date of
this Agreement other than due to a material breach of the terms hereof
by Seller.
(iv) Either Seller or Purchaser upon written notice to the
other if any court of competent jurisdiction or any other governmental
body shall have issued an order, judgment or decree (including, but not
limited to a temporary restraining) restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated hereby on
the terms set forth herein and the parties hereto shall have failed to
have such order, judgment ordered vacated within 30 days after the
issuance thereof.
(v) Either Seller or Purchaser upon written notice to the
other if there shall occur the filing of a petition against the other
party under the United States Bankruptcy Code, as amended or recodified
from time to time, or under any similar or any other law relating to
bankruptcy, insolvency, reorganization, creditor compositions,
arrangements or other relief to debtors; the appointment of a receiver,
trustee, custodian or liquidator of or for any portion of the assets or
property of either the other party and such filing or appointment is
not cured within sixty (60) days; the other party shall become
insolvent; the other party shall make a general assignment for the
benefit of its creditors; the other party shall generally not pay its
debts as they become due; or the other party shall admit in writing its
inability to pay its debts as they become due.
(vi) In the event of the termination of this Agreement as
provided in clauses (i), (ii), (iii), (iv) or (v) of this Section 9.2,
this Agreement shall forthwith be terminated.
10. Miscellaneous.
10.1 Expenses. Each of the parties hereto shall pay its own expenses in
connection with the negotiation, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of whether or not the transactions contemplated hereby are
consummated. Title insurance premiums and other costs and fees associated
therewith (including the cost of title reports) which may be payable in
connection with the sale of Assets under this Agreement shall be paid by
Purchaser. Purchaser shall pay all costs and expenses of obtaining surveys of
the Real Property. Seller shall pay transfer taxes incurred in connection with
the transfer of the Division, the Business or the Assets.
10.2 Publicity. The parties agree to cooperate with each other in
releasing information concerning this Agreement and the transactions
contemplated hereby. No such information shall be released publicly without the
prior written agreement of the parties hereto, which agreement shall not be
unreasonably withheld. This Section 10.2 shall not prohibit either party from
furnishing any information to any governmental, regulatory or administrative
agency or authority as may be required by applicable statute or regulation.
10.3 Bulk Sales Laws; Tax Certificate. Seller and Purchaser agree that
the transactions contemplated by this Agreement shall be consummated in
compliance with the bulk sales of Indiana ("Indiana Bulk Sale Laws") and that
each shall take all necessary and appropriate actions and cooperate with the
other to comply with the Indiana Bulk Sales Laws. In addition, Seller agrees
that, promptly upon execution of this Agreement by all the parties hereto,
Seller, by facsimile and by certified mail or overnight courier services, will
apply to the Texas Comptroller of Public Accounts ("Texas Comptroller") for a
certificate that no tax is due or a statement of the amount that must be paid
before such a certificate will be issued. Seller will direct the Comptroller to
issue said certificate or statement to Seller and also directly to Purchaser. If
the Comptroller issues such certificate or statement to Seller and not to
Purchaser, Seller will promptly provide a copy of such certificate or statement
to Purchaser.
10.4 Notices. Any notice or other communication required or permitted
hereunder shall be deemed given if in writing and delivered personally or by
overnight commercial courier, or sent by certified, registered or express mail,
postage prepaid, or if sent by facsimile and confirmed by such mail sent the
same day. Any such notice shall be deemed given when so delivered personally or
by overnight commercial courier or, if mailed, seven (7) business days after the
date of deposit in the United States Mails, First Class (or Air Mail, if mailed
to or, from a destination outside the contiguous forty-eight States of the
United States) postage prepaid, or if sent by facsimile and subsequently
confirmed as set forth above, the same day so sent by facsimile, as follows:
If to Seller, to:
Majco Building Specialties, L.P.
c/o Concurrency Management Corp.
411 West Putnam Avenue
Greenwich, Connecticut 06830
Attention: Ms. Karen M. Ryugo
Arthur Amron, Esq.
Facsimile No.: 203-862-7491
With a copy to:
Judith Fryer, Esq.
Andrew J. Cosentino, Esq.
Greenberg Traurig Hoffman Lipoff
Rosen & Quentel
35th Floor
153 East 53rd Street
Citicorp Center
New York, New York 10022
Facsimile No.: 212-223-7161
If to Purchaser, to:
CFM International Inc.
475 Admiral Boulevard
Mississauga, Ontario
Canada LST 2N1
Attention: Colin Adamson
Facsimile No.: 905-670-7915
With a copy to:
Emily Neuberger, Esq.
Hopkins & Sutter
3 First National Plaza
Chicago, IL 60602
Facsimile No.: 312-558-7761
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices by such party
hereunder, provided that no such change of address for notice shall be effective
until the other parties hereto receive notice thereof in accordance with this
Agreement.
10.5 Mail. Seller hereby authorizes Purchaser from and after the
Closing Date (i) to receive and open all mail and other communications received
by Purchaser with respect to the Assets covered by Section 1.1 and the Assumed
Liabilities, other than those marked personal or confidential to Seller or a
specified individual not employed by Purchaser or sent to Seller by registered
or certified mail, which shall be forwarded unopened to Seller or such
individual and (ii) to act with respect to such communications in such manner as
Purchaser may elect if such communications relate to the Assets covered by
Section 1.1 and the Assumed Liabilities. If such communications do not so
relate, or relate both to such matters and to any right, liability or obligation
of Seller, Purchaser will forward the same or copies thereof promptly to Seller.
Seller shall promptly deliver to Purchaser the original of any mail or other
communication, or copies thereof, received by it after the Closing Date
pertaining to the Assets covered by Section 1.1 and the Assumed Liabilities.
10.6 Assignment. This Agreement may not be assigned by either party
hereto without the prior written consent of the other party. If Purchaser
assigns its rights under this Agreement to acquire the Division, the Assets and
the Business, Purchaser will nonetheless remain liable, jointly and severally
with any such assignee, with respect to Purchaser's agreements, covenants,
obligations and liabilities under this Agreement, including, without limitation,
Purchaser's indemnification obligations hereunder. No assignment of this
Agreement or any of Purchaser's rights hereunder or in respect hereof shall be
effective unless Purchaser and the prospective assignee first execute and
deliver to Seller a written assignment and assumption agreement reasonably
satisfactory to Seller in form and in substance.
10.7 Third Party Beneficiaries. Nothing in this Agreement or the
Documents is intended to, or shall be construed so as to create any third party
beneficiary to this Agreement or otherwise confer any rights in or upon any
persons except Purchaser and Seller.
10.8 Knowledge of Seller. When any provision of any Document refers to
or contemplates the knowledge of Seller, it shall mean the actual knowledge of
Messrs. Raymond E. Deasy, Larry R. McMichael or Donely H. Zulager, Glen
Thompson, David Kelles, Terry Denton, Fred Lesser, Gary Brown and Mary Peikeit,
only.
10.9 Successors Bound. Subject to the provisions of Section 10.6, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
10.10 Section Headings; Captions; Pronouns. CAPTIONS USED HEREIN ARE
FOR THE CONVENIENCE OF THE PARTIES, ONLY, AND SHALL BE GIVEN NO SUBSTANTIVE
SIGNIFICANCE IN ANY CONSTRUCTION OF THIS AGREEMENT. ALL PRONOUNS AND ANY
VARIATIONS THEREOF REFER TO THE MASCULINE, FEMININE OR NEUTER, SINGULAR OR
PLURAL, AS THE CONTEXT MAY REQUIRE. ALL REFERENCES HEREIN TO SECTIONS,
SUBSECTIONS AND CLAUSES SHALL BE DEEMED REFERENCES TO SUCH PARTS OF THIS
AGREEMENT, UNLESS THE CONTEXT SHALL OTHERWISE REQUIRE.
10.11 Amendment and Waiver. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by the parties hereto or, in the case of a waiver, by
the party to be charged with the waiver.
10.12 Entire Agreement. This Agreement and the Exhibits, Schedules,
certificates and documents referred to herein constitute the entire agreement of
the parties hereto and supersede all prior agreements and understandings,
whether written or oral, with respect to the subject matter hereof and thereof,
except for a confidentiality agreement dated May 9, 1995 entered into by the
Purchaser for the benefit of the Seller.
10.13 Closing on Certain Real Property. With respect to the real
property located in Hays County, Texas ("Hays County Property") and in Wise
County, Texas ("Wise County Property") as described in Schedule 3.4,
notwithstanding anything to the contrary contained herein, if Purchaser is not
satisfied with the condition of such property, the condition of title on or has
not been satisfactorily provided with Phase I environmental reports on or prior
to the Closing Date, Purchaser may elect not to purchase the Hays County
Property and/or the Wise County Property and there shall be a purchase price
adjustment equal to $132,000 in the case of the Hays County Property and $45,000
in the case of the Wise County Property, such amounts being the book values of
the respective properties as of the date hereof. If Purchaser elects not to
purchase the Hays County Property or the Wise County Property, then Seller shall
retain such property or properties as Retained Assets and shall retain all
liabilities associated with such property or properties as Retained Liabilities
and any and all representations, warranties and covenants with respect to any
such retained property will be deemed terminated and of no force or effect ab
initio. If Purchaser elects to purchase the Hays County Property or the Wise
County Property at Closing, Purchaser shall accept title to the property or
properties as Assets and shall assume all liabilities in connection therewith;
and Seller shall not be liable for any breach of a representation, warranty or
covenant made with respect to such properties from the date of execution of this
Agreement until Closing.
10.14 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
together shall constitute one and the same instrument when received by Judith
Fryer, Esq. or Andrew J. Cosentino, Esq. at Greenberg Traurig Hoffman Lipoff
Rosen & Quentel, 153 East 53rd Street, New York, New York 10021.
10.15 Governing Law. This Agreement shall be construed and enforced
under and in accordance with and governed by the laws of the State of New York
without regard to principles of conflicts of law thereof.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto by natural persons having the legal capacity and due
authorization to do the same on their behalf as of the date first above written.
MAJCO BUILDING SPECIALTIES, L.P.
By: IBP INVESTING, L.P.
General Partner
By: MATLYN CAPITAL CORP.
General Partner
By /s/Karen Marie Ryugo
Name: Karen Marie Ryugo
Title: President
CFM INTERNATIONAL INC.
By /s/Colin Adamson
Name: Colin Adamson
Title: President
Exhibit 10.21
<PAGE>
Amendment No. 1 to Asset Sale Agreement
Amendment No. 1 to the Asset Sale Agreement dated as of
September 7, 1995 (the "Asset Sale Agreement"), by and between Majco Building
Specialties, L.P., a limited partnership organized under the laws of the State
of Delaware (the "Seller"), and CFM International Inc., a corporation organized
pursuant to the Ontario Business Corporations Act (the "Purchaser").
Reference is made to the Assignment, Assumption and Consent
Agreement, dated September 29, 1995 (the "Assignment Agreement"), by and among
Purchaser, CFM-Majestic, Inc., a Delaware corporation ("Subsidiary"), and
Seller, pursuant to which Purchaser assigned its rights and obligations under
the Asset Sale Agreement to the Subsidiary but remained liable, jointly and
severally with the Subsidiary, with respect to Purchaser's agreements,
covenants, obligations and liabilities under the Asset Sale Agreement.
Purchaser, Seller and the Subsidiary desire to consummate the
transactions contemplated by the Asset Sale Agreement. In connection therewith,
the parties have determined that it is in their respective best interests to
amend and modify the aforesaid Asset Sale Agreement, prior to the consummation
of the transactions contemplated thereunder, on the terms and conditions
hereinafter set forth. Subsidiary, as assignee of Purchaser's rights under the
Asset Sale Agreement pursuant to the Assignment Agreement, desires to facilitate
the aforesaid amendment.
NOW, THEREFORE, on the terms and provisions set forth in this
Agreement, for certain good and valuable consideration, the receipt and adequacy
of which hereby are acknowledged, and intending to be bound hereby, Seller and
Purchaser hereby agree as follows:
1. Certain Definitions. Capitalized terms not otherwise
defined herein shall have the meanings assigned thereto in or by reference in
the Asset Sale Agreement.
2. Closing Time. Reference is made to Section 2.1 of the Asset
Sale Agreement. The parties hereto agree that notwithstanding the completion of
closing procedures and transfer of funds prior thereto, the Closing will be
deemed to have occurred at the close of business for The Majestic Company on
September 29, 1995.
3. Schedule 3.13. Pursuant to Section 5.12 of the Asset Sale
Agreement, Schedule 3.13 to the Asset Sale Agreement is hereby amended by the
addition of the following items:
a. Schedule 3.13 (II)(A) is hereby amended by adding
thereto the following as paragraph 10 thereunder:
"Pennsylvania General Insurance Company v.
Thulman Eastern Corporation, et al., No. 557 Civil 1995 in the
Court of Common Pleas of Somerset County, Pennsylvania
(September 8, 1995). Plaintiff Pennsylvania General paid
$626,845.36 to its insureds, SunRidge Condominium Association,
Inc. and The Village at Seven Springs, Inc., in settlement of
their claims for property damage resulting from a fire on
November 26, 1993. Seller has just received service of this
suit as a defendant, and has forwarded the complaint to
National Union Fire Insurance Company, The Majestic Company's
carrier, for handling. The Seller's insurer, National Union
Fire Insurance Company, has assumed the defense of the Seller.
The limits under such policy are believed to be sufficient to
satisfy any judgment that might arise from this lawsuit."
b. Schedule 3.13 (IV) is hereby amended by adding
thereto the following as paragraphs 10 and 11 thereunder:
"10. Amory Foster is asking, through his
insurance carrier, for $1,462.20 in unspecified damages
allegedly caused by an unspecified product of The Majestic
Company. The loss was reported to have occurred on February
16, 1995. The matter was reported to Seller on September 25,
1995 and has been referred to Majestic's carrier to
investigate the validity of the claim.
11. John and Nancy Hambrick are asking
approximately $3,000.00 for smoke damages to their residence
allegedly caused by an allegedly defective Majestic gas
fireplace. The loss was reported to have occurred on July 6,
1995. The loss was reported to Majestic on September 25, 1995
and has been referred to Majestic's carrier to investigate the
validity of the claims."
c. Schedule 3.13 (V) is hereby amended by adding
thereto the following as paragraphs 3 and 4 thereunder:
"3. The Seller becomes aware from time to
time of fires or other damages allegedly incurred in
connection with the Seller's products or the installation and
operation thereof. The Seller has specifically identified in
this Schedule 3.13 the instances in which any such occurrence
has resulted in pending litigation or claims by a third party,
of which the Seller has received notice, or in which Seller
has received a written threat of such litigation or claim.
4. The Seller has received a facsimile from
Flame & Co., dated September 27, 1995, alleging that a $15,000
payment is due to Flame & Co., Ltd. with regard to the use of
a screen disposed over the burner to provide a glowing ember
effect. The Majestic Company has not used the Flame & Co.
technology due to problems of design and cost of the product,
including a potential conflict with Heat-N-Glo patents. It is
Management's position that the $15,000 payment is not due to
Flame & Co."
4. Schedule 3.9. Pursuant to Section 5.12 of the Asset Sale
Agreement, Schedule 3.9 to the Asset Sale Agreement is hereby amended by the
addition of the following items:
a. Schedule 3.9 (ii) is hereby amended by adding
thereto the following as paragraph 32 thereunder:
"32. Property Tax Service Agreement, dated
June 8, 1995, between DuCharme, McMillen & Associates, Inc.
and the Seller."
b. Schedule 3.9 (xvi) is hereby amended by adding
thereto the following as paragraph 4 thereunder:
"4. Premium Finance Agreement dated 9/15/95
(the "Premium Finance Agreement") by and between the Seller
and AICCO Inc. and A. I. Credit Corp."
c. Schedule 3.9 (xvii) is hereby amended by adding
thereto the following as paragraphs 3 and 4 thereunder:
"3. Premium Finance Agreement dated 9/15/95
by and between the Seller and AICCO Inc. and A. I. Credit
Corp.
4. The insurance policies set forth in or by
reference in Schedule 3.11 are incorporated herein by
reference."
5. American Standard Agreement.
a. Section 1.2(i) is hereby amended by deleting
therefrom the following:
"..., provided that Seller shall request the consent of
American Standard to the assignment of such rights and
benefits to Purchaser, and in the event such consent is
obtained at any time, Seller shall assign such rights and
benefits to Purchaser."
b. Article 5 is amended by adding the following new
Section 5.21:
"American Standard Agreement. Seller has certain rights and
benefits in respect of the Agreement of Sale and Purchase
dated April 24, 1986, among American Standard Inc., Equus
Capital Corporation and Equus Building Products, L.P. as
assignee of EBP Holdings, Inc. Seller shall use its best
efforts (provided, that Seller shall not be obligated to incur
any expense or obligation in the process of doing the same) to
facilitate the granting by American Standard to Purchaser (or
Purchaser's assignee) of indemnifications as similar to the
aforesaid rights and benefits of Seller as is reasonably
obtainable from American Standard, the terms and conditions of
which are being negotiated by Purchaser to its satisfaction."
6. Closing Audited Financial Statements.
a. Section 1.8(a) is hereby amended by deleted the
words "thirty (30)" on the second line thereof and substituting
therefor the words "forty-five (45), and by adding the following after
the words "Seller's past practices": "(it being understood and agreed
by the parties hereto, however, that for purposes of preparation of the
Closing Audited Financial Statements for use in connection with this
Asset Sale Agreement, the Closing Audited Financial Statements will
reflect no changes in assets or liabilities or income received or
debits incurred after the close of business on September 29, 1995)".
b. Section 1.8(b) is hereby amended by deleting the
words "on the Closing Date" from the third line thereof and
substituting therefor the words "as soon as practicable after the
Closing Date."
c. Section 1.8(e) is hereby amended by inserting the
following words after the words "complete access" on the third line
thereof: ", except to the extent that access is restricted under the
access policies adopted by the Big Six accounting firms as customary in
such circumstances, ...".
7. Escrow Agreement.
a. Exhibit A to the Asset Sale Agreement is deleted
in its entirety and Exhibit A hereto is substituted in place thereof.
b. In connection with the execution, delivery and
performance of the Escrow Agreement it was necessary for a party
thereto to agree to be identified as the taxpayer of record in respect
of interest income earned on the Escrow Account. For convenience of the
parties, the Seller was so identified, but the Escrow Agreement
contains certain provisions whereby interest income with regard to the
Escrow Account may be paid to the Subsidiary under certain
circumstances. The parties hereto agree that to the extent that such
interest income is paid to the Subsidiary, promptly upon request by the
Seller the Subsidiary will reimburse the Seller the amount of taxes
that the Seller would have paid thereon assuming that the Seller paid
taxes at the Federal corporate rate of 39% and the Connecticut
corporate rate of 11.5%.
8. Endorsements. Reference is made to Section 5.4 of the Asset
Sale Agreement. The parties hereto agree that the reference to "notice" in the
second sentence thereof does not imply that Seller must give written consent to
any such endorsement.
9. Payment of Employee Discretionary Bonuses and 401K Plan
Contributions. Reference is made to Section 5.20 of the Asset Sale Agreement.
The parties acknowledge that the discretionary bonuses and 401K Plan
contributions referred to therein would not customarily be paid on September 30,
1995 (that is, prior to The Majestic Company's fiscal year end). The parties
agree that, notwithstanding the provisions of Section 5.20 and Section 3.5 of
the Asset Sale Agreement, the Seller will arrange to make such payments on the
Closing date but such payments may not be completed until after the Closing is
consummated; provided, however, that in satisfaction of Section 5.20 of the
Asset Sale Agreement, Seller hereby agrees and covenants as follows:
a. the aforesaid payments shall be made from Cash (as
such term is defined in the Asset Sale Agreement) of the Company on the
Closing date by wire transfer or other payments to the Seller's
appropriate payroll or other administrative agent for such purposes
but, to the extent (if at all) that there is not enough Cash available
on the Closing date for such purpose Seller shall make the balance of
such payment from the Initial Purchase Price received by Seller as soon
as practicable after the Closing has been consummated; and
b. the Seller shall arrange for the aforesaid
payments to be made by the payroll or other administrative agent for
such purposes to the recipients of such payments or to the applicable
401K plan on or about Monday, October 2, 1995.
The parties hereto hereby agree that the aforesaid discretionary bonus payments
to be made to non-senior management (pursuant to (a) and (b) above) shall be as
set forth in Schedule 9 hereto under the heading "Non-Sr Mgmt" (the total of
such payments being $120,762). The parties agree that the sum to be contributed
to the 401(K) plan (pursuant to (a) and (b) above shall be the sum of $187,593;
however, notwithstanding anything in Sections 3.5 or 5.20 to the contrary, the
parties acknowledge and agree that the $187,593 payment shall be made to the
401(K) plan in respect of all participants thereunder (due to non-discrimination
provisions applicable under that plan and under law) and the Seller's
obligations to make payments in respect of the 401(K) plan shall be satisfied by
such payment.
10. Insurance. The parties hereto acknowledge and agree that
as of the Closing date the Seller has not obtained and furnished to the
Purchaser or the Subsidiary consents to assignment of the contracts identified
on Schedule 10 hereto. Notwithstanding anything to the contrary in Section 6(d)
of the Asset Sale Agreement or elsewhere therein, the Subsidiary is closing
notwithstanding that it has not received such consents and the Seller shall not
be deemed to have breached any representation, warranty or covenant of the Asset
Sale Agreement; provided, that the Seller shall continue to cooperate with
Subsidiary (in accordance with Section 5.3 of the Asset Sale Agreement) to
obtain such consents and that Purchaser and Subsidiary shall furnish to the
relevant third parties such information as they may reasonably request in
connection with continuing the effort to obtain such consents. The Closing by
the Subsidiary without obtaining the assignment of coverages under the policies
listed on Schedule 10 hereto shall not constitute a breach by the Subsidiary or
the Purchaser of their obligations pursuant to Section 1.7(a) of the Asset Sale
Agreement.
11. Liens, Letters of Credit.
a. Notwithstanding anything to the contrary contained
in the Asset Sale Agreement or the instruments or documents executed
and delivered in connection therewith, liens and encumbrances related
to the Debt continue to exist as liens and encumbrances upon the Assets
on the Closing date and shall continue to encumber the Assets upon
transfer of the same to the Subsidiary on the Closing date.
Notwithstanding anything to the contrary contained in the Asset Sale
Agreement, the parties hereto agree that the continued existence of the
foregoing liens and encumbrances and the encumbrance of the Assets
thereby upon transfer of the Assets to the Subsidiary on the Closing
date shall not constitute a breach of any representation or warranty of
Seller or permit a claim for indemnification by the Subsidiary or
permit Subsidiary to decline to close on the Closing date provided,
that
(i) Seller represents and warrants that
National City Bank has confirmed in writing that the only Debt
to National City Bank secured by the aforesaid liens and
encumbrances is the contingent liability of Seller with regard
to the Letters of Credit identified in Schedule 3.9(xiii) (the
"Letters of Credit"), and that there is no other outstanding
Debt to National City Bank which is secured by the Assets or
any of them other than the contingent liability of Seller with
regard to the Letters of Credit; and
(ii) Seller will use its best efforts (but
shall be under no obligation to make any payments to any third
party or to incur any expenses, except as hereinafter stated)
to facilitate the release by National City Bank of the
aforesaid liens and encumbrances securing the Debt to National
City Bank, provided, that the Subsidiary shall cause
substitute letters of credit to be issued in place of the
Letters of Credit or to be furnished to National City Bank as
collateral, acceptable to National City Bank, in substitution
for the liens upon the Assets; provided, further, that Seller
shall pay to National City Bank all filing fees, release fees
and legal fees of National City Bank's counsel incurred in
connection with the execution and delivery to Seller and to
the Subsidiary and to Bank of Montreal and the filing of
releases and UCC termination statements evidencing the
termination of the aforesaid liens and encumbrances.
b. Notwithstanding anything to the contrary set forth
in Section 1.1(m) of the Asset Sale Agreement or elsewhere therein or
in the instruments or documents executed and delivered in connection
therewith, the parties hereto agree that the Letters of Credit are not
included in the Assets and are not being sold, transferred or otherwise
disposed of to the Subsidiary.
12. Closing on Certain Real Property. A correction of the
Survey (as defined in Schedule 3.4(b)(iii) 7 of the Asset Sale Agreement) has
indicated that Seller owns real property in addition to the Real Property as
described in the Survey. Accordingly, Article 10 of the Asset Sale Agreement and
Schedule 3.4(b)(iii) 7 are hereby amended by insertion of the following as a new
Section 10.16:
10.16 Certain Huntington Parcels.
A. Real Property (as defined in the Asset Sale Agreement) shall include
the real property located in Huntington, Indiana described on Exhibit Q
hereto (the "Excepted Parcel"). Anything contained in the Asset Sale
Agreement to the contrary notwithstanding, Purchaser shall not be
required to accept at Closing title to the Excepted Parcel. Purchaser,
without any increase in the Purchase Price, shall accept title to the
Excepted Parcel within sixty (60) days after the Closing provided: (i)
First American Title Insurance Company issues a commitment for a title
insurance policy in accordance with Section 6(i) of the Asset Sale
Agreement (except as to the date of such policy) showing Seller as the
record owner of fee title to the Excepted Parcel free and clear of all
liens, encumbrances, leases and rights of occupancy, other than the
Permitted Exceptions and the items on Schedule 6(i); (ii) Purchaser has
received a survey of the Excepted Parcel in accordance with the
provisions of Section 6(k) of the Asset Sale Agreement; and (iii)
Purchaser has received from Seller a Phase I environmental assessment
with respect to the Excepted Parcel reasonably satisfactory to
Purchaser. Seller shall transfer, and Purchaser shall accept, title to
the Excepted Parcel subject to the same conditions applicable to the
other Real Property under the Asset Sale Agreement, except for those
conditions that by their terms do not apply to Real Property and
improvements which are not regularly employed for or used in the
current operations of the Division and the Business or are only used
for storage. Upon closing of the transfer of title of the Excepted
Parcel as aforesaid, the Excepted Parcel wil constitute a part of the
"Assets" acquired by Purchaser for which the Purchaser paid the
Purchase Price and Purchaser shall assume all liabilities in connection
therewith. If Purchaser does not accept title to the Excepted Parcel
because the Phase I is not reasonably satisfactory to Purchaser in all
material respects or because title or the survey to the Excepted Parcel
is not in the condition required herein, then notwithstanding any
provision of the Asset Sale Agreement to the contrary Seller shall
retain such property as one of the Retained Assets and shall retain all
liabilities associated with such property as Retained Liabilities and
any and all representations, warranties and covenants with respect to
any such retained property will be deemed terminated and of no force or
effect ab initio. Within twenty (20) days after the date of Closing,
Seller shall deliver to Purchaser the Phase I with regard to the
Excepted Parcel and Purchaser shall deliver to Seller its title
commitment and survey with regard to the Excepted Parcel. With respect
to the Excepted Parcel, Permitted Exceptions shall mean the Permitted
Exceptions as defined in the Asset Sale Agreement and: (a) all
covenants, restrictions and easements of record provided there are no
material violations thereof and same do not render title unmarketable
and (b) such other matters affecting title to the Excepted Parcel as
are reasonably acceptable to Purchaser. The fact that Seller is not
transferring title to the Excepted Parcel to Purchaser on the Closing
date shall not be deemed a breach of any representation, covenant, or
warranty with respect to Real Property in the Asset Sale Agreement.
B The correction of the Survey has also resulted in the removal from
the Survey of a certain tract of land conveyed by Seller to Our Sunday
Visitor, Inc. by deed recorded in Deed Book 248 page 233 in the
Recorder's of Huntington County, Indiana (the "OSV Parcel").
Purchaser's surveyor may further correct the Survey to accurately
describe the Real Property as it exists without the OSV Parcel. If such
Survey amendment, or an amendment of the Survey reflecting the
exception of the Excepted Parcel from the Huntington Parcel, indicates
any strips or gores or the non-closure of the Real Property in
Huntington, Indiana, Seller, upon request from Purchaser given no later
than ten (10) days after the date hereof, shall execute and deliver to
Purchaser, without any increase in the Purchase Price, a quit-claim
deed conveying to Purchaser any additional real property necessary to
eliminate the strip, gore or non-closure. The real property covered by
such quitclaim deed and such quit-claim deed shall not be subject to
any of the conditions, representations, covenants or warranties of the
Asset Sale Agreement and shall be conveyed and accepted on an "as-is"
basis without recourse to or liability of Seller.
13. Reimbursements and Apportionments. The parties hereto
acknowledge and agree that the sum of $431,215.52 is being paid by Subsidiary to
Seller on the Closing date as a reimbursement/apportionment of the amounts set
forth on Schedule 13 hereto.
14. Consents and Approvals.
a. The parties hereto acknowledge and agree that the
Seller is not obligated to obtain consent to assignment of the
contracts identified in Section 1.2(g) to the Asset Sale Agreement,
notwithstanding anything in Section 5.3(a) of the Asset Sale Agreement
to the contrary.
b. The parties hereto acknowledge and agree that as
of the Closing date the Seller has not obtained and furnished to the
Purchaser or the Subsidiary consents to assignment of the contracts
identified on Schedule 3.9 at (iii) 1, (iii) 2, (iv) 1 or (xiv) 1.
Notwithstanding anything to the contrary in Section 6(d) of the Asset
Sale Agreement or elsewhere therein, the Subsidiary is closing
notwithstanding that it has not received such consents and the Seller
shall not be deemed to have breached any representation, warranty or
covenant of the Asset Sale Agreement; provided, that the Seller shall
continue to cooperate with Subsidiary (in accordance with Section 5.3
of the Asset Sale Agreement) to obtain such consents and that Purchaser
and Subsidiary shall furnish to the relevant third parties such
information as they may reasonably request in connection with
continuing the effort to obtain such consents.
15. Special Exception. The Seller represents and warrants that
the Seller entered into the Premium Finance Agreement in the ordinary course of
business. The parties hereto agree that the execution by Seller on September 5,
1995 of the Premium Finance Agreement, the acceptance of the same by the other
party thereto on September 15, 1995, and the prepayment of insurance premiums by
Seller on September 29, 1995 in order to terminate the Premium Financing
Agreement on such date constitute a "Special Exception" within the meaning of
that term in the Asset Sale Agreement.
16. Miscellaneous.
a. Third Party Beneficiaries. Nothing in this
Amendment is intended to, or shall be construed so as to create any
third party beneficiary to this Amendment or otherwise confer any
rights in or upon any persons except Purchaser, Subsidiary and Seller.
b. Successors Bound. Subject to the provisions of
Section 10.6 of the Asset Sale Agreement, which are incorporated herein
by reference and deemed hereby to be applicable to all of the parties
hereto,this Amendment shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The
parties hereto specifically acknowledge and agree that after the
Closing Seller intends to assign all of its rights, interests and
obligations, including but not limited to those relating to the Asset
Sale Agreement and the other instruments and documents executed and
delivered pursuant thereto (including, without limitation, the Escrow
Agreement), to a successor entity in the form of a liquidating trust,
and the parties expressly consent thereto, and the parties further
agree, upon request by Seller, to execute and deliver to the Escrow
Agent or any other third party any acknowledgment of consent to such
assignment as Seller may reasonably request in the event additional
evidence of such consent is reasonably required.
c. Section Headings; Captions; Pronouns. CAPTIONS
USED HEREIN ARE FOR THE CONVENIENCE OF THE PARTIES, ONLY, AND SHALL BE
GIVEN NO SUBSTANTIVE SIGNIFICANCE IN ANY CONSTRUCTION OF THIS
AMENDMENT. ALL PRONOUNS AND ANY VARIATIONS THEREOF REFER TO THE
MASCULINE, FEMININE OR NEUTER, SINGULAR OR PLURAL, AS THE CONTEXT MAY
REQUIRE. ALL REFERENCES HEREIN TO SECTIONS, SUBSECTIONS AND CLAUSES
SHALL BE DEEMED REFERENCES TO SUCH PARTS OF THIS AMENDMENT OR TO THE
ASSET SALE AGREE- MENT, AS THE CASE MAY BE, UNLESS THE CONTEXT SHALL
OTHERWISE REQUIRE.
d. Amendment and Waiver. This Amendment may be
amended, superseded, canceled, renewed or extended, and the terms
hereof may be waived, only by a written instrument signed by the
parties hereto or, in the case of a waiver, by the party to be charged
with the waiver.
e. Counterparts. This Amendment may be executed in
any number of counterparts and by the different parties hereto on
separate counterparts, each of which when so executed and delivered
shall be an original, but all of which together shall constitute one
and the same instrument when received by Judith Fryer, Esq. or Andrew
J. Cosentino, Esq. at Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
153 East 53rd Street, New York, New York 10022.
f. Governing Law. This Amendment shall be con- strued
and enforced under and in accordance with and governed by the laws of
the State of New York without regard to principles of conflicts of law
thereof.
g. Asset Sale Agreement. The Asset Sale Agree- ment,
together with the Exhibits and Schedules thereto, continues to be in
full force and effect, with no amendment or modification thereto except
as expressly set forth herein.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and delivered by
the parties hereto by natural persons having the legal capacity and due
authorization to do the same on their behalf on this 29th day of September,
1995.
MAJCO BUILDING SPECIALTIES, L.P.
By: IBP INVESTING, L.P.
General Partner
By: MATLYN CAPITAL CORP.
General Partner
By /s/ Karen Marie Ryugo
Name: Karen Marie Ryugo
Title: President
CFM INTERNATIONAL INC.
By /s/ Colin Adamson
Name: Colin Adamson
Title: President
CFM-MAJESTIC, INC.
By /s/ Colin Adamson
Name: Colin Adamson
Title: President
<PAGE>
Exhibit A
[FORM OF REVISED ESCROW AGREEMENT TO BE ATTACHED]
The Exhibit to this Exhibit will be furnished to the Securities and Exchange
Commission upon request.
<PAGE>
Schedule 9
<TABLE>
<CAPTION>
Bonus Schedule - 9/28/95
9 Months Special
Ending Closing Total
9/30/95 Bonus
Non-Sr. Mgmt.
<S> <C> <C> <C>
M. Husted $ 2,775
R. Thomson $ 11,250**
R. Veitch $ 12,690
J. Alford $ 9,450
F. Lesser $ 5,993
J. Symington $ 2,775
M. Peikert $ 2,670
M. Romero $ 4,005
R. McHenry $ 1,335
J. Fekete $ 2,670
T. Denton $ 2,336
D. Bjortobt $ 2,670
J. Pilarski $ 2,670
R. Beasey $ 595
J. Dailey $ 668
G. Brown $ 2,003
B. Johnson $ 630
T. Rathlake $ 10,680
H. Harusak $ 1,335
T. Gilbert $ 1,410
M. Whiteman $ 9,870
L. Wilson $ 750
T. Brumbaugh $ 1,335
M. Catenazzo $ 1,001
R. Howard $ 2,003
L. Jost $ 1,763
J. Hencken $ 1,001
D. Householder $ 1,001
L. Stachwill $ 296
D. Armbruster $ 705
S. Abbott $ 630
L. Venturini $ 10,013
W. Spencer $ 1 ,058
T. Wilson $ 1,056
W. Circle $ 1,335
J. Shields $ 1,335
Contingency $ 5,000
Total Non-Sr. Mgmt. $120,762 $120,762
Amt. allocated to Non-Sr. Management: $187,593
* Recommendations Only
**Mr. Thomson is guaranteed a $15,000 bonus in 1995. This represents 75% of such bonus.
</TABLE>
<PAGE>
Schedule 10
1. Executive Life and Accidental Death and Dismember- ment
Policies issued to Ray Deasy, Larry McMichael, Don Zulager, Glen Thomson and Ron
Veitch by TrustMark (formerly CNA Insurance, the premiums for which are paid by
the Company.
2. Supplemental Medical Reimbursement Plan for the benefit of
Ray Deasy, Larry McMichael, Don Zulager, Glen Thomson, Ron Veitch and Rick
Thompson handled by Insurance and Risk Management in Fort Wayne, Indiana, the
premiums for which are paid by the Company.
3. The Life Choice Series A Cancer and Hospital Intensive Care
Plan with Cash Value issued to 40-50 individual employees of the Company by
Capitol American, the premiums for which are paid by the Company. (Group No.
13421)
<PAGE>
Schedule 13
<TABLE>
<CAPTION>
Description Amount Per Diem Adjustment Period # of Days Credit to Seller
- ----------- ------ -------- ----------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Rent Payable (Indiana) $2,141.76 $71.39 9/29/95 - 10/31/95 33 $2,355.94
Rent Receivable (Austin) $1,200.00 $40.00 9/29/95 - 9/30/95 2 ($80.00)
PREPAID INSURANCE
Worker's Comp (Hunt) - Argonaut $31,447.00 n/a* $31,447.00
Worker's Comp (Austin) - Argonaut $31,552.00 n/a* $31,552.00
Worker's Comp (Austin) - Argonaut $6,598.37 n/a* $6,598.37
Exec. Supp. Life - Continental $15,037.49 $41.09 9/29/95 - 7/31/96 307 $12,613.41
Fiduciary Liab. - Aetna $4,669.00 $12.76 9/29/95 - 8/21/96 328 $4,184.24
Special Risk - Hartford $2,100.00 $5.75 9/29/95 - 1/31/96 125 $719.18
Key Mart Life - Hartford $15,400.00 $42.08 9/29/95 - 6/19/96 234 $9,845.90
Crime - Kemper $4,348.00 $11.88 9/29/95 - 2/27/96 152 $1,805.73
General Liability - NationaL Union $155,000.00 $423.50 9/29/95 - 8/26/96 333 $141,024.59
Umbrella - National Union $76,500.00 $209.02 9/29/95 - 8/26/96 333 $69,602.46
Auto Liability - National Union $33,546.00 $91.66 9/29/95 - 8/26/96 333 $30,521.36
Excess Umbrella - Federal $42,000.00 $114.75 9/29/95 - 8/26/96 333 $38,213.11
Property &Bus. Int. - Hartford $54,378.00 $148.57 9/29/94 - 9/4/96 342 $50,812.23
</TABLE>
<PAGE>
EXHIBIT Q - EXCEPTED PARCEL
LEGAL DESCRIPTION
<PAGE>
That certain tract of land conveyed to Majco Building Specialties, L.P. by the
City of Huntington, Indiana in Deed Record 248, Page 237 in the Office of the
Recorder of Huntington County, Indiana as more particularly described on
Schedule "A - Exception Parcel" attached hereto and incorporated herein.
<PAGE>
SCHEDULE A - EXCEPTION PARCEL
LEGAL DESCRIPTION
A part of Section 14, Township 28 North, Range 9 East, in the City of
Huntington, Huntington County, Indiana, more particularly described as follows:
Commencing at the southeast corner of a property former owned by American
Standard, Inc., containing 15.31 acres of land as recorded in Deed Record 215,
page 816 in the Office of the Recorder of Huntington County, Indiana, said
corner being on the northerly right-of-way line of East Market at a point
situated 88.11 feet South 88 degrees, 34 minutes West from the angle point in
said northerly right-of-way line, to a point situated 12.75 feet (measured at
right angles) Easterly of the centerline of the former Erie-Lackawanna Railroad,
said centerline being defined by a line situated between the east bound and west
bound main tracks of said railroad and equidistant from each track centerline;
thence North 31 degrees, 49 minutes West, and parallel to and 12.75 feet
situated 20.0 feet (measured radially) westerly of the centerline of the most
easterly railroad spur of the Erie-Lackawanna Railroad, said point being the
Point of Beginning; thence continuing North 31 degrees, 49 minutes West, and
parallel to and 12.75 feet (measured at right angles) easterly of said railroad
centerline, a distance of 650.00 feet; thence North 29 degrees, 56 minutes, 58
seconds East, a distance of 272.79 feet; thence South 25 degrees, 30 minutes
East, parallel to and 20.0 feet (measured at right angles) westerly of said
railroad spur centerline, a distance of 130.74 feet; thence southerly, on and
along the arc of a regular curve to the right having a radius of 1096.17 feet
and being concentric to and 20.0 feet (measured radially) westerly of said
railroad spur centerline, an arc distance of 326.78 feet (the chord of which
bears South 13 degrees, 45 minutes, 36 seconds East, for a length of 325.57
feet); thence South 06 degrees, 38 minutes, 54 seconds East, parallel to and
20.0 feet (measured at right angles) westerly of said railroad spur centerline,
a distance of 213.07 feet to the point of curvature of a regular curve to the
left having a radius of 686.12 feet; thence Southerly, on and along the arc of
said curve being concentric to and 20.0 feet (measured radially) westerly of
said railroad spur centerline, an arc distance of 150.98 feet (the chord of
which bears South 18 degrees, 36 minutes, 40 seconds East, for a length of
150.68 feet) to the Point of Beginning; containing 2.05 acres, more-or-less and
subject to rights-of-way and easements of record.
STOCK PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made this ______ day of December, 1995,
by and among The Rotor Tool L.P., a Delaware limited partnership ("Seller"), The
Rotor Tool Company, a Delaware corporation, with its principal place of business
at 26300 Lakeside Avenue, Euclid, Ohio 44132 (the "Company"), and INTOOL, Inc.,
a Delaware corporation, with its principal place of business at 2121 San Jacinto
Street, Dallas, Texas 75201 ("Buyer").
R E C I T A L S
1. Seller owns 416,925 shares of common stock of the Company which
constitute all of the issued and outstanding shares of capital stock of the
Company (the "Shares"). The Company operates the business of designing,
engineering, manufacturing, marketing, distributing and selling high quality,
semi-customized, portable pneumatic and D.C. electric tools, especially adapted
for assembly line or other specialty applications (as currently conducted, the
"Business") at its facility in Euclid, Ohio.
2. Seller desires to sell and Buyer desires to purchase all the Shares
on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual promises herein
contained, Seller and Buyer agree as follows:
ARTICLE I. PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale. Upon the terms and subject to the conditions and
in reliance on the representations, warranties and covenants set forth in this
Agreement, Seller agrees to sell, convey, transfer and assign to Buyer, and
Buyer agrees to purchase on the Closing Date (as defined in Section 3.1 hereof)
all of the Shares. Buyer shall have no obligations to purchase any of the Shares
unless all of the Shares are sold and purchased pursuant to this Agreement.
ARTICLE II. PURCHASE PRICE
2.1 Purchase Price. Buyer shall pay, or cause to be paid, to Seller
Thirty-Five Million Nine Hundred Fifty Thousand and 00/100 Dollars
($35,950,000.00) minus, or plus, the amount by which the Company's shareholders'
equity, as set forth on a balance sheet of the Company prepared as of the
Closing Date (the "Closing Balance Sheet"), is less (the "Negative Equity
Adjustment") or greater (the "Positive Equity Adjustment"), respectively, than
the sum of $1,297,916.
2.2 Method of Payment.
(a) On the Closing Date Buyer shall deliver to Seller an
amount equal to $35,950,000, minus:
(v) $500,000 which Buyer shall deliver to
Chemical Bank (the "Escrow Agent") to be
held in, and disbursed from, the Special
Account (as defined in Section 6.10 hereof)
pursuant to Section 6.10 hereof;
(w) $1,275,000 which Buyer shall deliver to
Chemical Bank (the "Escrow Agent") into
escrow for disbursement in accordance with
the terms of the Escrow Agreement in the
form of Exhibit 2.2(a)(w) hereto (the
"Escrow Agreement");
(x) $21,592,000 which Buyer shall deliver to the
Trustee on behalf of the Company;
(y) $3,442,907 which Buyer shall deliver to
Presidio Capital Corp. on behalf of the
Company; and
(z) $1,432,631, being a preliminary equity
adjustment calculated as set forth in
Exhibit 2.2(a)(z).
All amounts required to be delivered by Buyer pursuant to this
Section 2.2(a) shall be in immediately available funds transferred by wire to
banks and accounts which each of the respective payees shall designate in
writing to Buyer not less than three (3) business days prior to the Closing
Date.
(b) No later than fifty (50) days from Buyer's receipt of the
Closing Balance Sheet or, if Buyer and Seller have a dispute regarding the
Closing Balance Sheet, within three (3) business days from the resolution of
such dispute by Buyer and Seller or by arbitration pursuant to Sections 6.01(c)
and 6.02 of the Escrow Agreement, Buyer shall pay to Seller an amount equal to
the Positive Equity Adjustment (as determined on the basis of the Closing
Balance Sheet), if any, or Seller shall pay to Buyer an amount equal to the
Negative Equity Adjustment (as determined on the basis of the Closing Balance
Sheet), if any, in immediately available funds transferred by wire to a bank and
account which the other party shall designate in writing.
2.3 Preparation of Closing Balance Sheets; Valuation of Inventory.
(a) No later than the Closing Date, Seller shall deliver to
Buyer a balance sheet of the Company prepared as of November 30, 1995 in
accordance with generally accepted accounting principles consistently applied
with those used in the preparation of the 1995 Audited Financial Statements
(attached hereto as Exhibit 2.3(a)), as agreed upon by Buyer and Seller (the
"Interim Closing Balance Sheet"). Buyer shall have reasonable access to the
Company's books and records for the purpose of, and shall be reasonably assisted
by Company's management in, the verification of the Interim Closing Balance
Sheet.
(b) As soon as reasonably possible, but no later than
forty-five (45) days, after the Closing Date, Seller shall deliver to Buyer the
Closing Balance Sheet, prepared in accordance with generally accepted accounting
principles consistently applied with those used in the preparation of the
Interim Closing Balance Sheet. On the Closing Balance Sheet a reserve for "car
stock" inventory in an amount of not less than $175,000 shall have been made.
Seller shall have reasonable access to Company's books and records for the
purpose of, and shall be reasonably assisted by Company's management in, the
preparation of the Closing Balance Sheet. Upon delivery of the Closing Balance
Sheet to Buyer, Seller shall promptly provide Buyer with any information Buyer
shall reasonably request in order to verify the Closing Balance Sheet.
(c) No later than forty-five (45) days after Buyer's receipt
of the Closing Balance Sheet, Buyer shall notify Seller of any objections it has
to the Closing Balance Sheet. In the event any such objections are not resolved
by agreement between Seller and Buyer within ten (10) business days after Buyer
has notified Seller of such objections, such dispute shall be decided by
arbitration pursuant to Sections 6.01(c) and 6.02 of the Escrow Agreement (as
defined in Section 2.2 hereof).
ARTICLE III. CLOSING
3.1 The Closing. The transactions contemplated by this Agreement are to
be closed, and all deliveries to be made at such time in connection therewith
are to be made, at the offices of Squire, Sanders & Dempsey, 4900 Society
Center, 127 Public Square, Cleveland, Ohio 44114-1304, on the date on which all
conditions to each party's obligations hereunder, as set forth in Article VIII
hereof, have been satisfied or waived, but in no event later than December 31,
1995, at 10:00 a.m. local time, or at such other place, date and/or time as may
be mutually agreed upon in writing by Seller, the Company and Buyer (said
closing and the date thereof herein referred to as the "Closing" and the
"Closing Date," respectively).
3.2 Termination. This Agreement may be terminated
(a) by Seller or Buyer at any time after the Closing Date if
the Closing shall not have taken place on or before such date, unless the
failure to close shall have been caused by the party seeking to terminate; or
(b) by mutual written consent of the Seller and the Company,
on the one hand, and Buyer, on the other; or
(c) by the Seller, if, on the Closing Date, Buyer has not paid
the purchase price pursuant to Section 2.2(a) or any of the other conditions set
forth in Section 8.1 shall not have been satisfied in all material respects and
shall not have been waived by Seller; or
(d) by Buyer, if, on the Closing Date, any of the conditions
set forth in Section 8.2 shall not have been satisfied and shall not have been
waived by Buyer.
3.3 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 3.2 by Seller and the Company, on the one hand, or
Buyer, on the other, written notice thereof shall forthwith be given to the
other party specifying the provision hereof pursuant to which such termination
is made, and this Agreement shall become void and have no effect, except that
the agreements contained in this Section and in Sections 6.3(a) and 11.7 shall
survive the termination hereof. To the extent a party has rightfully terminated
this Agreement pursuant to this Section 3.2, such party shall not have any
liability to the other on account of such termination. Nothing contained in this
Section shall relieve any party from liability for damages actually incurred as
a result of any breach of this Agreement.
ARTICLE IV. REPRESENTATIONS OF SELLER AND THE COMPANY
4.1 Representations of Seller and Company. Seller, solely as to
subsections (a), (b), (c), (d), (e), and (g)(i), each as it relates to Seller,
and the Company jointly and severally represent and warrant to Buyer that:
(a) Capitalization of the Company. The authorized capital
stock of the Company consists of 700,000 shares of common stock, $1 par value,
of which 416,925 shares are outstanding (the "Shares"), and 700,000 shares of
preferred stock, $1 par value, of which no shares are outstanding. All Shares
have been validly issued and are fully paid and nonassessable, and no shares of
capital stock of the Company are subject to, nor have any been issued in
violation of, preemptive or similar rights. The Shares constitute (and at the
Closing will constitute) all the outstanding shares of capital stock of the
Company. There are (and as of the Closing Date there will be) outstanding (i) no
securities of the Company convertible into or exchangeable for shares of capital
stock or other voting securities of the Company, (ii) no options or other rights
to acquire from the Company, and no obligation of the Company to issue or sell,
any shares of capital stock or other voting securities of the Company or any
securities of the Company convertible into or exchangeable for such capital
stock or voting securities, and (iii) no equity equivalents, interests in the
ownership or earnings, or other similar rights of or with respect to the
Company. As of the Closing Date there will be (and, except as disclosed on
Schedule 4.1(a), there are) no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any of the foregoing shares, securities,
options, equity equivalents, interests or rights.
(b) Organization and Good Standing. The Company is a
corporation validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its assets (as defined in Section 4.1(e) and to conduct the Business.
The Company is qualified or licensed to do business and is in good standing
under the laws of the State of Ohio and any other jurisdiction in which the
property owned, leased or operated by it or the conduct of the Business requires
qualification or licensing.
No actions or proceedings to dissolve the Company are pending.
(c) Authorization.
(i) The Company has full corporate power and
authority to enter into this Agreement and
to carry out its obligations hereunder. The
execution, delivery and performance of this
Agreement and the transactions contemplated
hereby have been duly authorized by all
necessary corporate action of the Company.
This Agreement and each other agreement,
instrument or document executed or to be
executed by the Company in connection with
the transactions contemplated hereby has
been, or when executed will be, duly
executed and delivered by the Company and
constitutes, or when executed and delivered
will constitute, a valid and legally binding
obligation of the Company, enforceable
against the Company in accordance with their
respective terms.
(ii) Seller has full legal right, power and
authority to execute, deliver and perform
this Agreement and to consummate the
transactions contemplated hereby. This
Agreement, and each other agreement,
instrument or document executed or to be
executed by Seller in connection with the
transactions contemplated hereby has been,
or when executed will be, duly executed and
delivered by Seller and constitutes, or when
executed and delivered will constitute, a
valid and legally binding obligation of
Seller, enforceable against Seller in
accordance with their respective terms.
(d) No Violation. Except as disclosed on Schedule 4.1(d), the
execution, delivery and performance by Seller and the Company of this Agreement
and the consummation by them of the transactions contemplated hereby do not and
will not (i) conflict with or result in a violation of any provision of the
certificate of incorporation or bylaws of the Company or the limited partnership
certificate or partnership agreement of the Seller, (ii) conflict with or result
in a violation of any provision of, or constitute (with or without the giving of
notice or the passage of time or both) a default under, or give rise to (with or
without the giving of notice or the passage of time or both) any right of
termination, cancellation or acceleration under, any bond, debenture, note,
mortgage, indenture, lease, contract, agreement or other instrument or
obligation to which the Company or the Seller is a party or by which the Company
or the Seller or any of their properties may be bound, (iii) result in the
creation or imposition of any Encumbrance upon the properties of the Company or
the Seller, or (iv) violate any Applicable Law binding upon the Company or the
Seller.
(e) Condition of and Title to Assets and Shares.
(i) Except as set forth in Schedule 4.1(e), Part
I, and for (w) liens for current taxes and
assessments not yet payable, (x)
nondelinquent statutory liens arising other
than by reason of default, (y) such other
encumbrances pertaining to the Assets shown
of record, and (z) the Employee Benefit
Plans, the Company has good and marketable
title in and to all of the Assets free and
clear of any Encumbrance. The Company has
not received notice of any pending or
threatened condemnation proceedings relating
to any of the owned or leased properties of
the Company, and, to the Knowledge of the
Company, there are no such pending or
threatened proceedings. Set forth in
Schedule 4.1(e), Part II, is a list of
substantially all of the Company's "fixed"
Assets having a book value in excess of
$25,000. Schedule 4.1(e), Part III, lists
all real property owned by the Company.
Subject to Section 4.3, the plants,
structures, tangible properties and
equipment owned, operated or leased by the
Company are in good operating condition and
repair, ordinary wear and tear excepted. For
purposes of this Agreement, "Assets" means
all assets owned by the Company and used in
its Business, including, without limitation,
all of the assets reflected in the 1995
Audited Financial Statements.
(ii) The Seller is the record and beneficial
owner of, and upon consummation of the
transactions contemplated hereby the Buyer
will acquire good and marketable title to,
the Shares free and clear of all
Encumbrances.
(f) Compliance with Laws. Except as described in Section
4.1(f), the Company has complied in all material respects with all Applicable
Laws. Neither Seller nor the Company has received any written notice, which has
not been dismissed or otherwise disposed of, that the Company has not so
complied. The Company is not charged or, to the Knowledge of Seller and the
Company, threatened with or under investigation with respect to any violation of
any Applicable Law relating to any aspect of the Business, other than violations
which are described in Schedule 4.1(f).
(g) Employees.
(i) Schedule 4.1(g), Part I is a complete list
of all directors and officers of the Company
and RTI;
(ii) Schedule 4.1(g), Part II is a complete list
showing the name, social security number and
dates of employment by the Company and RTI
of each employee of the Company and RTI
together with the total amounts of salary,
bonuses and other compensation paid or
payable by the Company to each such person
for the current calendar year and the
immediately preceding calendar year;
(iii) except as set forth on Schedule 4.1(g) Part
III, the consummation of the transactions
contemplated by this Agreement will not
result in the incurring of any severance pay
liabilities to any person employed by the
Company; and
(iv) the Company has entered into a collective
bargaining agreement with The International
Union, United Automobile, Aerospace and
Agricultural Implement Workers of America,
UAW and Amalgamated Union No. 70, dated June
10, 1994. There is no strike, lockout,
grievance, slow down or stoppage pending or,
to the Company's Knowledge, threatened
against the Company. Except as set forth in
Schedule 4.1(g) Part IV, within the past 24
months the Company has not been involved
with any representational campaign by any
union or other organization or group seeking
to become the collective bargaining
representative of any of its employees.
(h) Financial Statements. The financial statements of the
Company for the fiscal years from 1985 through 1995, each audited in accordance
with generally accepted accounting principles applied on a basis consistent with
preceding years throughout the periods covered (the "Audited Financial
Statements"), copies of which have been provided to Buyer, present fairly in all
material respects the financial condition of the Company as of the effective
dates of and for the periods covered by such Audited Financial Statements.
(i) Absence of Certain Changes. Except as disclosed on
Schedule 4.1(i), since September 30, 1995, (i) there has not been any materially
adverse change in the relationship between the Company and any customer that
accounted for more than five percent (5%) of the Company's annual sales in
fiscal 1995; (ii) the Business has been conducted only in the ordinary course
consistent with past practice; (iii) the Company has not taken any of the
actions set forth in Section 6.2 except as permitted thereunder; (iv) the
Company has not incurred any material liability, engaged in any material
transaction or entered into any material agreement outside the ordinary course
of business consistent with past practice; (v) the Company has not suffered any
loss, damage, destruction or other casualty to any of its assets (whether or not
covered by insurance) having a cost or repair or replacement exceeding $10,000.
(j) Proprietary Rights. Schedule 4.1(j) sets forth a list and
description, including dates of issuance, expiration dates and status of
maintenance fee payments, of all material trade and service marks, trade names
and patents which have been registered by the Company or for which an
application for registration by the Company is pending, and all writings for
which a claim to copyright has been recorded by the Company, in each case held
by the Company exclusively for the use of or in connection with the Business
(collectively, "Proprietary Rights"). The Company is the sole owner of the
Proprietary Rights, free and clear of all Encumbrances, equities or claims and,
to the Company's Knowledge, the Proprietary Rights are not the subject of any
interference, opposition or cancellation proceedings, nor does the use or
exercise of the Proprietary Rights infringe upon the legally protected rights of
any other person, nor are they infringed upon by any other person, nor will the
consummation of the transaction contemplated by this Agreement by the Company or
Seller result in the termination or impairment of any Proprietary Right, which
would in the aggregate have a materially adverse affect on the Business. Except
as disclosed in Schedule 4.1(j), the Company is not a licensor or licensee in
respect of any Proprietary Right nor has it granted any rights thereto or
interest therein to any other person.
(k) Material Agreements. Set forth on Schedule 4.1(k) is a
list of all the following agreements, arrangements and understandings to which
the Company is a party (collectively, "Material Agreements"):
(i) collective bargaining agreements and similar
agreements with employees as a group;
(ii) employee benefit agreements, trusts, plans,
funds or other employee arrangements of any
nature, including those referred to in
Section 4.1(n);
(iii) agreements with any current or former
shareholder, officer, employee, consultant
or advisor or any affiliate or any such
person;
(iv) agreements between or among the Company and
any Subsidiary;
(v) indentures, mortgages, security agreements,
notes, loan or credit agreements, or other
agreements governing the borrowing of money
by the Company or to the direct or indirect
guarantee or assumption by the Company or of
any obligation of others, including any
agreement that has the economic effect
although not the legal form of any of the
foregoing;
(vi) agreements governing the prospective
acquisition or disposition of assets having
a cost of more than $25,000, other than
those governing the acquisition and
disposition of inventory which were entered
into in the ordinary course of business
consistent with past practice;
(vii) agreements governing the prospective
acquisition or disposition of any investment
or interest in any business enterprise,
including, without limitation repurchase
agreements, certificates of deposits,
securities, hedging contracts, derivatives
and partnership units;
(viii) agreements governing the lease of real or
personal property having a term ending after
December 31, 1996;
(ix) agreements governing the management or
operation of any real property;
(x) license, royalty or other agreements
governing intellectual property;
(xi) partnership, joint venture and profit
sharing agreements;
(xii) agreements with any Governmental Entity;
(xiii) agreements governing the release or disposal
of hazardous substances or solid wastes;
(xiv) agreements in the nature of a settlement or
a conciliation agreement arising out of any
claim the value of which exceeds $20,000
asserted by any other person;
(xv) agreements containing any covenant limiting
the freedom of the Company to engage in any
line of business or compete with any other
person in any geographic area or during any
period of time;
(xvi) broker, distributor, dealer, manufacturer's
representative, sales, and agency agreements
having a remaining term of six (6) months or
longer;
(xvii) agreements with any person who provides
services to the Company as an independent
contractor, having a remaining term of 6
months or longer or requiring payments by
the Company exceeding $20,000, other than
agreements relating to this Agreement or any
of the transactions contemplated thereby;
and
(xviii) other agreements, whether or not made in the
ordinary course of business, that require
payment by or to the Company in excess of
$50,000.
The Company has delivered or made available to Buyer accurate
and complete copies of the Material Agreements listed on Schedule 4.1(k). Except
as noted on Schedule 4.1(k), to the Company's Knowledge, no party to any of
those Material Agreements is in breach of or in default under, nor has any event
occurred which (with or without the giving of notice or the passage of time or
both) would constitute a default by any of them.
(l) Litigation. Except as set forth in Schedule 4.1(l), there
are no claims, actions or other Proceedings, excluding any claims, actions or
other Proceedings based on or relating to any Environmental Laws, pending
against the Company, or to the Company's Knowledge, threatened against the
Company before any Governmental Entity. Except as disclosed on Schedule 4.1(l),
any and all reasonably foreseeable liability of the Company under such
Proceedings is adequately covered (except for deductible amounts as stated in
the policies) by the insurance maintained by the Company described in Section
4.1(r). Schedule 4.1(l) also sets forth, to the Company's Knowledge, a list of
all product liability claims involving the Company, whether or not pending,
asserted in writing since January 1, 1991 or verbally within the twelve-month
period preceding the date of this Agreement. No judgment, order, writ,
injunction or decree of any Governmental Entity has been issued or entered
against the Company which continues to be in effect. There are no Proceedings,
excluding any claims, actions or other Proceedings based on or relating to any
Environmental Laws, pending or, to the Knowledge of Seller or the Company,
threatened against the Company or the Seller seeking to restrain, prohibit or
obtain damages or other relief in connection with this Agreement or the
transactions contemplated hereby.
(m) Employee Benefits. To the Company's Knowledge and except
as set forth in Schedule 4.1(m) or as would not be material to the Company, (i)
all required Form 5500 Annual Reports and Forms PBGC-1 and such other reports as
required to be filed with governmental agencies have been filed with respect to
each Employee Benefit Plan (as defined below and identified in Schedule 4.1(m)),
(ii) all contributions which are due have been paid to each Employee Benefit
Plan that is an employee pension benefit plan within the meaning of ERISA
Section 3(2) and all contributions for any period ending on or before the
Closing Date which are not yet due have been accrued in accordance with the past
custom and practice of the Company, (iii) all premiums or other payments for all
periods ending on or before the Closing Date have been paid with respect to each
Employee Benefit Plan that is an employee welfare benefit plan within the
meaning of ERISA Section 3(1), (iv) with respect to each Employee Benefit Plan
which is not an employee pension benefit plan within the meaning of Section 3(2)
of ERISA or an employee welfare benefit plan within the meaning of Section 3(1)
of ERISA, all contributions or payments which are due have been paid and for any
periods ending on or before the Closing Date which are not yet due have been
accrued in accordance with past practice and custom of the Company; (v) each
Employee Benefit Plan that is an employee pension benefit plan and is intended
to be qualified under Section 401 of the Internal Revenue Code of 1986, as
amended ("Code"), has been determined by the Internal Revenue Service to be tax
qualified and has received a favorable determination letter from the Internal
Revenue Service pertaining to such tax qualification; (vi) no Employee Benefit
Plan that is an employee pension benefit plan has been completely or partially
terminated or been the subject of a reportable event as to which notices would
be required to be filed with the Pension Benefit Guaranty Corporation, (vii)
there have been no prohibited transactions with respect to any Employee Benefit
Plan; (viii) no action, suit, proceeding, hearing, or investigation with respect
to any Employee Benefit Plan is pending or threatened; (ix) the Company has
provided to Buyer true and complete copies of each Employee Benefit Plan,
related trust agreements, administrative agreements and any funding instruments
and the five most recent annual reports required to be filed with any government
agency; (x) each Employee Benefit Plan has been administered for all relevant
periods in accordance with its terms and in compliance with the requirements of
all applicable laws, including ERISA and the Code; (xi) with respect to each
Employee Benefit Plan, no practice exists which materially modifies any term
therein; (xii) no party to any Employee Benefit Plans related trust,
administrative contracts and funding instruments is in material breach of its
obligations under such trust, contract or instrument; (xiii) the Company
maintains substantially complete and accurate records of employee participation
in, assets and liabilities of, each Employee Benefit Plan; (xiv) for each
Employee Benefit Plan for which a valuation has been prepared, the most recent
valuation is an accurate and complete statement, in all material respects, of
the assets and liabilities of the applicable Plan as of the date stated therein
under the assumptions for valuation stated therein; (xv) since the valuation
date of such report, there have been no material changes in the value of the
assets or liabilities of such in the applicable Employee Benefit Plan; (xvi) the
Company is not and within the six-year period prior to Closing has not been, a
member of a controlled group as described under Section 414(b), (c), (m) or (o)
of the Code; (xvii) the Company is not required to contribute and has not had an
obligation to contribute to a multiemployer plan as defined in Section 414(f) of
the Code; (xviii) nothing done or omitted to be done and no transaction or
holding of any asset under or in connection with any Employee Benefit Plan has
or will make the Company (other than the annual contribution for funding) or any
director or officer of the Company or any subsidiary subject to any liability
under Title I of ERISA or liable for any Tax under the Code; (xix) neither the
Company nor any affiliate of the Company has performed any act or failed to
perform any act, and there is no contract, agreement, plan or arrangement
covering any employee or former employee of the company or any affiliate of the
Company, that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section
162(a)(1) or 280G of the Code, or could give rise to any penalty or excise Tax
pursuant to Section 4980B or 4999 of the Code; (xx) there has been no amendment,
written interpretation or announcement (whether or not written) by the Company
or any affiliate of the Company of or relating to, or change in employee
participation or coverage under, any Employee Benefit Plan which would increase
the benefits or the expense of maintaining such respect thereof for the fiscal
year ended September 30, 1995 or which would establish a new Employee Benefit
Plan; (xxi) neither the Company or any of its affiliates provide employee
post-retirement medical or health coverage or contribute to or maintain any
employee welfare benefit plan that provides for health benefit coverage
following termination of employment except which is fully paid for by employee
contribution or as is required by Section 4980B(f) of the Code and neither the
Company nor any of its affiliates have made any representations, agreements,
covenants or commitments to provide any coverage to be paid in whole or part
through Company contributions. The term "Employee Benefit Plan" is defined as
any (i) compensation or nonqualified deferred compensation or fringe benefit
plan, program or arrangement, including a plan or program established pursuant
to Section 125 of the Code; or (ii) qualified defined contribution retirement
plan or arrangement and any qualified defined benefit retirement plan or
arrangement which is an "employee pension benefit plan" within the meaning of
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or (iii) employee welfare benefit plan within the meaning of ERISA
Section 3(1).
(n) Taxes. Except as shown on Schedule 4.1(n), each of Company
and RTI (as defined in Section 4.1(e)) has (i) duly and timely filed all
returns, reports, elections, declarations, forms, schedules and other documents
relating to taxes required to be filed by or with respect to it pursuant to any
applicable foreign, federal, state or local tax laws ("Tax Returns"), (ii) paid
in full all taxes due, and all taxes claimed to be due by any taxing authority,
except for any such taxes that are being contested in good faith by appropriate
proceedings and (iii) fully accrued on its books in accordance with generally
accepted accounting principles all taxes that relate to operations through the
Closing Date for any period which are not yet due or which are due and are being
contested. The Internal Revenue Service has audited the Company's federal Tax
Returns through the taxable year ended September 30, 1989. To the Company's
Knowledge, no audit of any of Company's federal Tax Returns for periods
subsequent to September 30, 1989 is in progress. Except as shown on Schedule
4.1(n), there are no agreements, waivers or other arrangements providing for an
extension of time with respect to the filing of any Tax Returns by Company or
the payment by, or assessment against, it of any Tax and none have been
requested. Buyer and Seller agree that neither party will make, or cause to be
made, an election under Section 338 of the Internal Revenue Code of 1986, as
amended, with respect to the transactions contemplated by this Agreement without
the consent of the other party. The Company has made all deposits (including
estimated tax payments for taxable years for which the federal income tax return
of the Company is not yet due) required with respect to Taxes. No local, state
or foreign income Tax Return of the Company or RTI has been audited. No waiver
or extension of any statute of limitations as to any federal, state, local or
foreign Tax matter has been given by or requested from the Company. The Company
has not entered into any closing agreement (within the meaning of Section 7121
of the Code or any analogous provision of state or local Tax law) which will
have any continuing effect after the Closing Date. The Company has not filed a
consent under Section 341(f) of the Code. The Company has not filed consolidated
income Tax Returns with any corporation. Seller is not a person other than a
United States person within the meaning of the Code. To Seller's knowledge,
there are no grounds for any material adjustment to the depreciable basis of any
of the Company's assets relevant to determining any Tax payable or to be
payable.
(o) Charter and Bylaws. Except as disclosed on Schedule
4.1(o), the Company has made available to Buyer accurate and complete copies of
(i) the certificate of incorporation and bylaws of the Company and RTI as
currently in effect, (ii) the stock records of the Company and RTI, and (iii)
the minutes of all meetings of the stockholders and Board of Directors of the
Company and RTI (and all consents in lieu of such meetings) as reflected by the
corporate records of Company or RTI, respectively. Such records, minutes and
consents accurately reflect the stock ownership of the Company and RTI and all
actions taken by its Board of Directors, committees and stockholders. Neither
the Company nor RTI is in violation of any provision of its charter or bylaws.
(p) Governmental Approvals. No consent, approval, order or
authorization of, or declaration, filing or registration with, any Governmental
Entity is required to be obtained or made by the Seller or the Company in
connection with the execution, delivery or performance by Seller and the Company
of this Agreement or the consummation by them of the transactions contemplated
hereby, other than (i) filings with Governmental Entities to occur in the
ordinary course following the consummation of the transactions contemplated
hereby, including the Hart- Scott-Rodino antitrust Notification; and (ii) such
consents, approvals, orders or authorizations which, if not obtained, and such
declarations, filings or registrations which, if not made, would not,
individually or in the aggregate, have a Material Adverse Effect or impair the
ability of the Seller or the Company to consummate the transactions contemplated
hereby.
(q) Subsidiaries. The Company does not own, directly or
indirectly, any capital stock or other equity securities of any corporation or
have any direct or indirect equity or ownership interest in any person other
than Rotor Tool International, Inc. ("RTI"). RTI is a corporation duly
organized, validly existing and in good standing under the laws of the United
States Virgin Islands and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. No actions or proceedings to dissolve RTI are pending. RTI is duly
qualified or licensed to do business in each jurisdiction, in which the property
owned, leased or operated by it or the conduct of its business requires such
qualification or licensing, unless such failure to be qualified and licensed
would have a Material Adverse Effect. The authorized capital stock of RTI
consists of 100 shares of common stock, no par value, of which 100 shares,
validly issued, fully paid and nonassessable, have been issued to the Company.
The representations and warranties of the Company made in Sections 4.1(d), (f),
(k), (l), (s), (u) and (v) are deemed also to be made by the Company with
respect to RTI.
(r) Insurance. To Company's Knowledge, Schedule 4.1(r) hereto
sets forth a list and brief description (specifying the insurer, the expiration
dates, amounts of coverage and whether coverage is on a claims made or
occurrences basis; describing each pending claim thereunder of more than $10,000
and the number of claims of $10,000 or less; and setting forth the aggregate
amounts paid out under each such policy through the date hereof) of all policies
or binders of fire, liability, product liability, workmen's compensation,
vehicular and other insurance held by or on behalf of the Company since January
1, 1981. Complete and accurate copies of such policies or binders, which insure
and have insured the properties and business of the Company against such losses
and risks as are adequate in accordance with customary industry practice to
protect the Assets and Business of the Company, have been made available, and as
to policies of product liability insurance have been delivered, to Buyer. The
policies and binders listed on Schedule 4.1(r) dated January 1, 1988 and
thereafter are in full force and effect regarding any coverage as provided
therein. The Company has not received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures will have to
be made in order to continue such insurance and, so far as known to the Company,
no such improvements or expenditures are required. No notice of cancellation of
any insurance policy or binder listed on Schedule 4.1(r), regarding any coverage
as provided therein, has been received by Rotor Tool.
(s) Absence of Undisclosed Liabilities. To Company's
Knowledge, the Company has no liability or obligation (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due),
including, without limitation, claims under warranties, except (i) liabilities
reflected and adequately reserved on the Audited Financial Statements or Interim
Financial Statements, (ii) liabilities which have arisen since the date of
either the Audited Financial Statements or Interim Financial Statements in the
ordinary course of business (none of which is a material liability for breach of
contract, breach of warranty, tort or infringement), (iii) liabilities arising
under executory contracts entered into in the ordinary course of business (none
of which is a material liability for breach of contract), (iv) liabilities
specifically set forth on Schedule 4.1(s), (v) liabilities under or relating to
any Environmental Laws, and (vi) other liabilities the disclosure of which is
not required under generally accepted accounting principles.
(t) Insider Interests. Except as disclosed on Schedule 4.1(t),
no shareholder, director or officer of the Company or any associate of any such
shareholder, director or officer is currently, directly or indirectly, a party
to any transaction with the Company, including, without limitation, any
agreement, arrangement or understanding, written or oral, providing for the
employment of, furnishing of services by, rental of real or personal property
from, or otherwise requiring payments to any such shareholder, director, officer
or associate. For purposes of this Section only, an "associate" of any
shareholder, director or officer means any member of the immediate family of
such shareholder, director or officer of any corporation, partnership, trust or
other entity in which such shareholder, director, officer or employee has a
substantial ownership or beneficial interest or is a director, officer, partner,
or trustee or person holding a similar position.
(u) Financial Requirements. Schedule 4.1(u) sets forth a
complete list and brief description of all bonds, deposits, financial assurance
requirements and insurance coverages required by vendors or customers for the
continued ownership and operation of the Business and Assets of the Company.
(v) Bank Accounts and Powers of Attorney. Set forth on
Schedule 4.1(v) are (i) the name and address of each bank or other financial
institution in which the Company has an account or a safe deposit box, the
account and safe deposit box numbers thereof, and the names of all persons
authorized to draw thereon or to have access thereto, (ii) the names of all
persons authorized to borrow funds on behalf of the Company and the names of all
entities from which they are authorized to borrow funds, and (iii) the names of
all persons, if any, holding powers of attorney from the Company and (iv) the
names of all persons holding credit cards under which the Company may be billed
or otherwise liable for charges.
(w) Books and Records. All the books and records of the
Company, including all personnel files, employee data and other materials
relating to employees, are substantially complete and correct in all material
respects, have been in all material respects maintained in accordance with good
business practice and all Applicable Laws, and, in the case of the books of
account, have been in all material respects prepared and maintained in
accordance with generally accepted accounting principles consistently applied.
Such books and records accurately and fairly reflect, in reasonable detail, all
material transactions, assets and liabilities of the Company.
(x) Brokerage Fees. Except as set forth in Schedule 4.1(x),
neither Seller nor any of its Affiliates has retained any financial advisor,
broker, agent or finder or paid or agreed to pay any financial advisor, broker,
agent or finder on account of this Agreement or any transaction contemplated
hereby. Seller shall indemnify and hold harmless the Company and Buyer from and
against any and all losses, claims, damages and liabilities (including legal and
other expenses reasonably incurred in connection with investigating or defending
any claims or actions) with respect to any finder's fee, brokerage commission or
similar payment in connection with any transaction contemplated hereby asserted
by any person on the basis of any act or statement made or alleged to have been
made by Seller or the Company or any of Seller's Affiliates.
(y) Disclosure. To the Knowledge of Company, no statement of
the Company contained in this Agreement or any other document, schedule or
certificate furnished or to be furnished by the Company pursuant hereto at the
Closing, contains or will contain, at the time of delivery, any untrue
statement, or omission, of a material fact (other than those facts generally
recognized to be industry risks).
(z) Surviving Indebtedness. Set forth as Exhibit 4.1(z) is a
corrrect and complete copy of the provisions contained in all agreements to
which the Company is a party relating to the indebtedness described in Section
2.2(a) which create obligations to third parties that will survive payment of
such indebtedness.
4.2 NO EXPRESS OR IMPLIED WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN
THIS AGREEMENT, (A) NEITHER THE COMPANY NOR THE SELLER MAKES ANY EXPRESS OR
IMPLIED WARRANTIES, AND (B) ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE ARE HEREBY EXPRESSLY DISCLAIMED.
ARTICLE V. REPRESENTATIONS OF BUYER
5.1 Representations of Buyer. Buyer represents and warrants to Seller
as follows:
(a) Corporate Organization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
(b) Authorization. Buyer has the corporate power to enter into
this Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement and the other transactions
contemplated hereby have been duly authorized by Buyer by all necessary
corporate action.
(c) No Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby (i) will violate or conflict with Buyer's certificate of
incorporation or bylaws, (ii) will result in any breach of or default under any
provision of any agreement to which it is a party or by which it is bound, or
(iii) is prohibited by or requires Buyer to obtain any consent, authorization or
approval of, or make any filing with, any governmental agency or authority which
has not been obtained, except for the approval contemplated by Sections 6.4 and
7.1 below; or (iv) will violate any judgment, order, writ, injunction, or decree
of any court having jurisdiction over Buyer; in each case in such a way as would
have a materially adverse effect on Buyer's ability to perform the terms of this
Agreement.
(d) Financial Capability. Buyer has and will have as of the
Closing Date the financial resources to perform its obligations under this
Agreement including all necessary financial resources to perform its obligations
under Article II and any other obligations of Buyer hereunder.
(e) Brokerage or Finder's Fees. Buyer has carried on all
negotiations relating to this Agreement so as not to give rise to a claim
against Seller or the purchase price hereunder for a brokerage commission or
finder's fee.
(f) Resale of Shares. Buyer understands that the Shares will
constitute "restricted securities" under the Securities Act inasmuch as they are
being acquired from Seller in a transaction not involving a public offering and
that under the Securities Act of 1933, as amended (the "Act"), and applicable
regulations thereunder, the Shares may be directly or indirectly offered,
transferred, sold, assigned, pledged, hypothecated or otherwise disposed of
("Transfer") without registration under the Act only in certain limited
circumstances.
ARTICLE VI. COVENANTS OF SELLER AND THE COMPANY
6.1 Conduct and Preservation of Business. Except as contemplated by
this Agreement, during the period from the date hereof to the Closing, the
Company (i) shall conduct its Business according to its ordinary course of
business consistent with past practice and in material compliance with all
Applicable Laws; (ii) shall use its reasonable best efforts to preserve,
maintain and protect the Assets; and (iii) shall use its reasonable best efforts
to preserve intact its business organization, to keep available the services of
its officers and employees, and to maintain existing relationships with
licensors, licensees, suppliers, contractors, distributors, customers and others
having business relationships with it.
6.2 Restrictions on Certain Actions. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement or
as disclosed on Schedule 6.2 hereof, prior to the Closing, without the prior
written consent of Buyer, which shall not be unreasonably withheld, the Company
shall not, and Seller shall not cause the Company to:
(a) amend its charter or bylaws;
(b) (i) issue, sell or deliver (whether through the
issuance or granting of options, warrants,
commitments, subscriptions, rights to
purchase or otherwise) any shares of its
capital stock of any class or any other
securities or equity equivalents; or
(ii) amend in any material respect any of the
terms of any such securities outstanding as
of the date hereof.
(c) (i) split, combine or reclassify any shares of
its capital stock;
(ii) (a) declare, set aside or pay any dividend
or other distribution (whether in cash,
stock, or property or any combination
thereof) in respect of its capital stock;
(iii) repurchase, redeem or otherwise acquire any
of its securities (except as contemplated in
this Agreement); or
(iv) adopt a plan of complete or partial
liquidation or resolutions providing for or
authorizing a liquidation, dissolution,
merger, consolidation, restructuring,
recapitalization or other reorganization of
the Company;
(d) (i) make any loans, advances or capital
contributions to, or investments in, any
other person;
(ii) pledge or otherwise encumber shares of
capital stock of the Company; or
(iii) except in the ordinary course of business,
mortgage or pledge any of its assets,
tangible or intangible, or create or suffer
to exist any lien thereupon; provided,
however, that in no event shall the Company
(A) incur incremental indebtedness in excess
of $5,000 in the aggregate or (B) incur
incremental indebtedness which is not
prepayable at any time without penalty or
premium;
(e) (i) enter into, adopt or (except as may be
required by law) amend or terminate (except
as contemplated in this Agreement) any
bonus, profit sharing, compensation,
severance, termination, stock option, stock
appreciation right, restricted stock,
performance unit, stock equivalent, stock
purchase, pension, retirement, deferred
compensation, employment, severance or other
employee benefit agreement, trust, plan,
fund or other arrangement for the benefit or
welfare of any director, officer or
employee;
(ii) increase in any manner the compensation or
fringe benefits of any director, officer or
employee; or
(iii) pay to any director, officer or employee any
benefit not required by any employee benefit
agreement, trust, plan, fund or other
arrangement as in effect on the date hereof;
(f) acquire sell, lease, transfer or otherwise dispose of,
directly or indirectly, any assets outside the ordinary course of business
consistent with past practice or any assets that in the aggregate are material
to the Company;
(g) acquire (by merger, consolidation, or acquisition of stock
or assets or otherwise) any corporation, partnership or other business
organization or division thereof;
(h) make any capital expenditure or expenditures which,
individually, is in excess of $5,000 or, in the aggregate, are in excess of
$20,000, except in the ordinary course of business;
(i) enter into any lease, bid contract, agreement, commitment,
arrangement or transaction or grant any discount, waiver or other concession
under any of the foregoing outside the ordinary course of business consistent
with past practice;
(j) amend, modify or change any existing lease, contract or
agreement, other than in the ordinary course of business consistent with past
practice;
(k) waive, release, grant or transfer any rights of value,
other than in the ordinary course of business consistent with past practice;
(l) change any of the accounting principles or practices used
by it, except for any change required by reason of a concurrent change in
generally accepted accounting principles and notice of which is given in writing
by the Company to Buyer;
(m) cancel any insurance policy or allow them to expire or be
canceled for failure to pay premiums or any other reason, other than in the
ordinary course of business consistent with past practice; or
(n) authorize or propose, or agree in writing or otherwise to
take, any of the actions described in this Section.
6.3 Access to Information; Confidentiality.
(a) Between the date hereof and the Closing, Seller and the
Company (i) shall give Buyer and its authorized representatives reasonable
access to all employees, all facilities, and all books and records, including
work papers and other materials prepared by the Company's accountants, of the
Company, (ii) shall permit Buyer and its authorized representatives to make such
inspections as they may reasonably require to verify the accuracy of any
representation or warranty contained in Article IV, and (iii) shall cause the
Company's officers to furnish Buyer and its authorized representatives with such
financial and operating data and other information with respect to the Company
as Buyer may from time to time reasonably request; provided, however, that no
investigation pursuant to this Section shall affect any representation or
warranty of Seller or the Company contained in this Agreement; and provided
further that Seller and the Company shall have the right to have a
representative present at all times. Buyer shall hold in confidence all such
information on the terms and subject to the conditions contained in the letter
agreement dated June 29, 1995 between the Company, Seller and INDRESCO Inc., the
sole shareholder of Buyer.
(b) Seller acknowledges and agrees that irreparable damage
would occur in the event any confidential information regarding the Business was
disclosed to or utilized on behalf of any person which is in competition in any
material respect with any line or lines of business of the Company. Accordingly,
Seller covenants and agrees that it will not, directly or indirectly, without
the prior written consent of Buyer, use or disclose any of such confidential
information except to authorized representatives of Buyer; provided, however,
that confidential information shall not be deemed to include information which
(i) was or becomes generally available to the public other than as a result of
disclosure by Seller or its affiliates or (ii) was or becomes available to
Seller on a non-confidential basis from a source other than Buyer or the
Company, provided that such source is not known by Seller to be bound by a
confidentiality agreement with respect to such confidential information.
Notwithstanding the foregoing provisions of this paragraph, Seller and its
affiliates may disclose any confidential information to the extent that, in the
opinion of counsel for Seller, such person is legally compelled to do so,
provided that, prior to making such disclosure, such person advises and consults
with Buyer regarding such disclosure and provided further that such person
discloses only that portion of such confidential information as is legally
required.
6.4 Hart-Scott-Rodino Antitrust Notification. The Company shall
cooperate with Buyer in filing, as promptly as practicable after the execution
of this Agreement, all reports and notifications required to be filed in
connection with this transaction pursuant to Title II of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("HSR Act") and in connection with any
responses thereto, and shall use diligent efforts to cause an early termination
of the waiting period established by the HSR Act.
6.5 Acquisition Proposals. None of Seller, the Company, or any
affiliate, director, officer, employee or representative of any of them shall,
directly or indirectly, (i) solicit, initiate or knowingly encourage any
Acquisition Proposal or (ii) engage in discussions or negotiations with any
person that is considering making or has made an Acquisition Proposal. Sellers
and the Company shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any persons conducted heretofore
with respect to any Acquisition Proposal and shall promptly request each such
person who has heretofore entered into a confidentiality agreement in connection
with an Acquisition Proposal to return to Sellers and the Company all
confidential information heretofore furnished to such person by or on behalf of
any Seller or the Company. In this Section, the term "Acquisition Proposal",
means any offer or proposal for, or any indication of interest in, a merger or
other business combination involving the Company or the acquisition of any
equity interest in, or a substantial portion of the assets of, the Company,
other than the transactions contemplated by this Agreement.
6.6 Environmental Remediation. Seller shall take and complete the
remedial actions and measures set forth on Schedule 6.6 no later than forty-five
(45) days after the Closing Date.
6.7 Best Efforts. Seller shall use their respective reasonable best
efforts to take all actions, and to obtain all consents, approvals, orders,
authorizations and waivers of, and to effect all declarations, filings and
registrations with, all third parties (including Governmental Entities), that
are required to enable Seller to transfer the Shares to Buyer as contemplated by
this Agreement and to otherwise consummate the transactions contemplated hereby.
Nothing in this Agreement shall obligate Seller to enter into any arrangement or
incur any obligation relating to its business or the business of Buyer which
arrangement or obligation may constitute a condition for obtaining the consent
of a Governmental Authority to the transactions contemplated by this Agreement.
6.8 Additional Insured. Within five (5) business days of the execution
of this Agreement, the Company shall cause Buyer to be named an additional
insured under Company's general liability and casualty insurance policies and
shall deliver to Buyer insurance certificates showing that those policies are in
effect and that Buyer has been so named.
6.9 Amendment of Schedules. Seller and Company agree that, with respect
to their respective representations and warranties contained in this Agreement,
each of them shall have the continuing obligation until the Closing to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules. However, for purposes of determining whether the conditions set forth
in Article VIII have been fulfilled, the Schedules hereto shall be deemed to
include only that information contained therein on the date of this Agreement
and shall be deemed to exclude all information contained in any supplement or
amendment thereto.
6.10 Separate Account; Continued Existence.
(a) Separate Account. Seller agrees to establish with Buyer a
joint bank account with the Escrow Agent on or prior to the Closing Date in
which Buyer shall deposit $500,000 as provided in Section 2(a) ("Special
Account"). Subject to the last sentence hereof, only checks payable to or to the
order of Buyer and wire transfers of funds to Buyer may be drawn or made upon
the Special Account. The Escrow Agent shall be given the instructions attached
hereto as Exhibit 6.10(a) to the effect that, with respect to such bank account,
(i) it may only honor checks, drafts, wire transfers and other instructions
signed by one authorized representative of Buyer and one authorized
representative of Seller, and (ii) such instructions may only be changed by
written notice signed by both of such representatives. Upon agreement on, or
resolution of all disputes, if any, relating to, the Closing Balance Sheet and
payment to Buyer out of the Special Account of the amount of any Negative Equity
Adjustment determined to have existed on the Closing Date, the Escrow Agent
shall disburse to Seller the balance then remaining in the Special Account, less
$50,000. Such $50,000 shall be held until October 31, 1996 (i) to reimburse
Buyer for any expenses it may incur as a result of claims made against Buyer
under the agreements which contain the provisions set forth in Exhibit 4.1(z),
and (ii) to reimburse Buyer for up to $15,000 of expenses incurred by Seller in
implementing the measure set forth in item 2 of Schedule 6.6. Any funds
remaining in the account at October 31, 1996 shall be disbursed to Seller.
(b) Continued Existence. Seller shall not commence any
Proceedings or take any other actions which result directly in the dissolution,
liquidation or other wind-up of its affairs prior to making payment to Buyer of
the amount of any Negative Equity Adjustment determined to have existed on the
Closing Date, if any.
ARTICLE VII. COVENANTS OF BUYER
7.1 Hart-Scott-Rodino Antitrust Notification. Buyer shall cooperate
with Seller and the Company in filing, as promptly as practicable after the
execution of this Agreement, all reports and notifications required to be filed
in connection with this transaction pursuant to the HSR Act and in connection
with any responses thereto, and shall use diligent efforts to cause an early
termination of the waiting period established by the HSR Act. Buyer shall pay
the filing fees required to be paid under the HSR Act.
7.2 Environmental Remediation. Buyer shall reasonably cooperate with
Seller and the Company in taking and implementing the remedial actions and
measures set forth on Schedule 6.6.
7.3 Best Efforts. Buyer shall use its reasonable best efforts to take
all actions, and to obtain all consents, approvals, orders, authorizations and
waivers of, and to effect all declarations, filings and registrations with, all
third parties (including Governmental Entities), that are required to enable
Buyer to consummate the transactions contemplated hereby. Nothing in this
Agreement shall obligate Buyer to enter into any arrangement or incur any
obligation relating to its business or the business of Seller which arrangement
or obligation may constitute a condition to obtaining the consent of a
Governmental Entity to the transactions contemplated by this Agreement.
7.4 Resale of Shares. Buyer will not Transfer any Shares unless such
Transfer is pursuant to an effective registration statement under the Act or the
rules and regulations thereunder, or unless no such registration is required
because of the availability of an exemption from registration under the Act.
7.5 Collection of Receivables. Following the Closing, Buyer shall cause
the Company to use its best efforts to collect the accounts receivable listed on
Schedule 7.5 hereto in accordance with the Company's past and present practice
of collecting accounts receivables. To the extent that any monies are paid to
the Company, Buyer or any of Buyer's affiliates by a party owing Company under
an account receivable listed on Schedule 7.5, such payment shall be applied to
the oldest account receivable from such party, unless designated otherwise in
writing by the paying party. Until October 31, 1996, Buyer shall cause the
Company to furnish to Seller a written monthly report on the status of Company's
collection efforts.
ARTICLE VIII. CONDITIONS TO CLOSING
8.1 Conditions to Seller's Obligations. The obligation of Seller to
consummate the transactions contemplated by this Agreement is, at its option,
subject to the following conditions:
(a) Representations and Warranties. Buyer's representations
and warranties shall be true and correct in all material respects as though made
at the Closing.
(b) Performance. Buyer shall have performed and complied with
all agreements, covenants and conditions on its part herein required to be
performed or complied with at or before the Closing.
(c) Delivery of Purchase Price and Closing Documents. Buyer
shall have delivered at the Closing the Purchase Price and all of the documents
described in Section 9.2 below.
(d) Debt Repayment Terms and Lender Approval. Seller, Company
and Company's senior and junior lenders shall have reached agreement on the
terms of the repayment of any outstanding indebtedness of the Company owed to
such senior and junior lenders, and Seller shall have obtained all necessary
consents from such lenders to perform its obligations under this Agreement.
(e) Governmental Consents. Any and all necessary consents
(including without limitation any necessary permits) of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated by this Agreement shall have been obtained or
accomplished, and no action, proceeding, inquiry or investigation by any
governmental agency shall have been brought that questions the validity or
legality of the transactions contemplated by this Agreement.
(f) Limited Partner Consent. Any and all necessary notices
shall have been made to, and any and all necessary consents to the transactions
contemplated by this Agreement shall have been obtained from, or shall be deemed
given by, Seller's limited partners.
(g) Hart-Scott-Rodino Act. The waiting period shall have
expired or early termination shall have been granted pursuant to the HSR Act, as
more particularly described in Sections 6.4 and 7.1.
(h) Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by Buyer and the Escrow Agent.
8.2 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is, at its option,
subject to the following conditions:
(a) Fees for Professional Services. Seller shall pay or have
caused the Company to pay in full all fees and expenses for the performance of
services relating to the transactions contemplated by this Agreement or owed
otherwise to (i) Brown, Gibbons & Company, Inc., (ii) Squire, Sanders & Dempsey,
and (iii) Deloitte & Touche, L.L.P.
(b) [Intentionally omitted]
(c) Performance. Seller and the Company shall each have
performed and complied with all agreements and commitments on its part herein
required to be performed or complied with, and the Company shall be in material
compliance with the covenant made in Section 6.1(i), at or before the Closing.
(d) Releases. The Company shall have obtained releases in form
satisfactory to Buyer of all liability of the Company at the Closing Date for
indebtedness for borrowed money, for management and consulting services, and for
professional services relating to the consummation of the transactions
contemplated hereby, including, but not limited to, claims by the Trustee,
Presidio Capital Corp., Rotor Tool Management Service Corp., Brown, Gibbons &
Company, Inc., Deloitte & Touche, LLP and Squire, Sanders & Dempsey for
principal, interest, penalties, fees and expenses.
(e) Zellner Employment. As of the Closing Date, the employment
agreement between the Company and Robert W. Zellner, dated as of August 10,
1995, shall have been terminated or amended to Buyer's satisfaction.
(f) DMARC Agreement. As of the Closing Date, Buyer and DMARC,
INC. an Ohio Corporation ("DMARC"), shall have agreed on the continuation,
amendment or termination of the Exclusive Business Development Program Agreement
between the Company and DMARC, dated July 17, 1990.
(g) Delivery of Closing Documents. Seller shall have delivered
at the Closing all of the documents described in Section 9.1 below.
(h) Consents. Any and all necessary consents (including
without limitation any necessary permits) of and filings with any governmental
authority or agency relating to the consummation of the transactions
contemplated by this Agreement shall have been obtained or accomplished, no
action, proceeding, inquiry or investigation by any governmental agency shall
have been brought that questions the validity or legality of the transactions
contemplated by this Agreement and no Proceeding shall be pending or threatened
seeking to restrain the transactions contemplated by this Agreement or obtain
damages or other relief in connection therewith.
(i) Hart-Scott-Rodino Act. The waiting period shall have
expired or early termination shall have been granted pursuant to the HSR Act, as
more particularly described in Sections 6.4 and 7.1.
(j) Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by Seller and the Escrow Agent.
ARTICLE IX. DELIVERIES AT CLOSING
9.1 Deliveries of Seller. At the Closing, Seller shall deliver or cause
to be delivered to Buyer, duly executed, as appropriate:
(a) Stock Certificate. A certificate for the Shares, duly
endorsed for transfer or accompanied by duly executed stock transfer powers,
with signatures guaranteed to the satisfaction of Buyer, sufficient to transfer
ownership of the Shares to Buyer.
(b) Other Instruments. Any such other instruments as counsel
for Buyer may reasonably deem necessary, including, but not limited to:
(i) The minute books, stock records and corporate
seal of the Company, certified as complete and
correct as of the Closing Date by the
secretary of the Company.
(ii) All the Company's books and records, including
without limitation, minute books, corporate
charter, bylaws, stock records, tax records,
bank account records, engineering drawings and
documentation, accounting records, computer
records and all contracts with third parties.
(iii) The written resignations of such directors and
officers of the Company and RTI, if any, as
Buyer shall, at least two (2) days prior to
the Closing Date, specify in writing to the
Company, such resignations to be effective
concurrently with the Closing on the Closing
Date.
(iv) A copy of the resolutions of the Board of
Directors of the Company and Rotor Tool
Management Service Corp., the general partner
of Rotor Tool Management L.P., Seller's
general partner, each certified by the
secretary of the Company and Rotor Tool
Management Service Corp., respectively,
satisfactory in form and substance to Buyer,
each of which authorize the execution,
delivery and performance of this Agreement.
(v) Certificates from the Secretaries of State of
Delaware and Ohio, dated not more than ten
(10) business days prior to the Closing Date,
as to the legal existence and good standing,
respectively, of the Company.
(vi) UCC-3 termination statements and mortgage and
lien releases covering all security interests
in any property of the Company and RTI,
satisfactory in form and substance to Buyer;
(vii) Such other certificates, instruments and
documents as may be reasonably requested by
Buyer prior to the Closing Date to carry out
the intent and purposes of this Agreement; and
(viii) the releases referenced in Section 8.2(d).
(c) Opinion of Counsel. The opinion of Squire, Sanders &
Dempsey, counsel for Seller, dated the Closing Date, substantially in the form
of the opinion as attached hereto as Exhibit 9.1(c);
(d) Officer's Certificates. Certificates, in such form as
Buyer may reasonably request, signed by (i) the President of Rotor Tool
Management Service Corp. (the general partner of Rotor Tool Management L.P.,
which in turn is the general partner of Seller), as to the truth and accuracy of
the representations and warranties of Seller as of the Closing Date, that the
conditions set forth in Section 8.2 to be satisfied by it have been fulfilled,
and that it is not in breach of the covenants herein to be performed by it; and
(ii) the President of the Company as to the truth and accuracy of the
representations and warranties of the Company as of the Closing Date, that the
conditions set forth in Section 8.2 to be satisfied by it have been fulfilled,
and that it is not in breach of the covenants herein to be performed by it;
(e) Escrow Agreement. The Escrow Agreement executed by Seller
and Escrow Agent.
(f) [Intentionally omitted]
9.2 Deliveries of Buyer. At the Closing, Buyer shall deliver or cause
to be delivered to Seller:
(a) Purchase Price. The purchase price in the manner described
in Section 2.2 above;
(b) Other Instruments of Assumption. Any such other
instruments as counsel for Seller and the Company may reasonably deem necessary;
(c) Opinion of Counsel. The opinion of Graham L. Adelman,
counsel to Buyer, dated the Closing Date, substantially in the form of the
opinion attached hereto as Exhibit 9.2(c); and
(d) Officer's Certificate. A certificate signed by the
President and a Vice President of Buyer, authenticated to execute this Agreement
on behalf of Buyer, dated the Closing Date, as to the truth and accuracy of
Buyer's representations and warranties as of the Closing Date.
(e) Escrow Agreement. The Escrow Agreement executed by Buyer
and Escrow Agent.
ARTICLE X. INDEMNITY
10.1 By Seller.
(a) Subject to the limitations of this Section 10.1 and
Section 10.3 hereof, Seller agrees to hold harmless, indemnify and defend Buyer
from and against any loss, claim, cause of action, damage, liability and
expense, including court costs and reasonable attorneys' and consultants' fees
(except that in no event shall Seller be liable for Buyer's consequential
damages) which may be reasonably incurred by Buyer arising out of any breach by
Seller or the Company of any representation or warranty (to the extent that such
representation or warranty does not, directly or indirectly, relate to the value
of the Company's finished goods inventory) made by Seller or the Company herein,
or the failure by Seller or the Company to perform any covenant, obligation or
agreement made herein or in the Escrow Agreement or; provided, however, that
Seller shall not be obligated to pay any indemnification under this Agreement
other than by and to the extent of the portion of the purchase price paid into
escrow pursuant to Section 2.2 hereof and pursuant to the terms of the Escrow
Agreement; and provided further that, subject to Section 10.1(b) hereof, Seller
shall be obligated to pay any indemnification under this Agreement only with
respect to (i) claims against Seller which exceed, individually (like claims may
be aggregated), $50,000 and (ii) other claims which, in the aggregate, exceed
$200,000; in which events Seller's obligations shall apply to the entire amount
of such claims.
(b) Any claim relating to any one of the following amounts
shall not be subject to the Dollar-thresholds set forth in Section 10.1(a)(i)
and (ii):
(i) the aggregate amount of any accounts
receivable not collected prior to or on
October 31, 1996 in excess of the reserve made
for receivables on the Closing Balance Sheet;
(ii) the amount of any payments (in cash, through
credits or otherwise) made after the Closing
Date for warranty claims relating to products
sold and shipped prior to the Closing Date;
and
(iii) any amounts paid to the State of Ohio in
relation to or as a consequence of the sales
tax audit disclosed on Schedule 4.1(f) hereto.
10.2 By Buyer. Subject to the limitations of Section 10.3 hereof,
Buyer agrees to hold harmless, indemnify and defend Seller from and against any
loss, claim, cause of action, damage, liability and expense, including court
costs and reasonable attorneys' and consultants' fees (except that in no event
shall Buyer be liable for Seller's consequential damages) which may be
reasonably incurred by Seller arising out of:
(a) any breach by Buyer of any representation or warranty made
by Buyer herein or in the Escrow Agreement or, or the failure by Buyer to
perform any covenant, obligation or agreement made herein or in the Escrow
Agreement; and
(b) any liabilities or obligations of the Company (including
but not limited to any claim based on tort liability, product liability,
warranty, negligence or strict liability, but excluding any claim for which
Seller is obligated to indemnify Buyer under Section 10.1) arising out of or
based upon occurrences or operations subsequent to the Closing Date; provided,
however, that Buyer shall be obligated to pay any indemnification under this
Agreement only with respect to claims against Buyer, other than for the purchase
price, which (i) exceed, individually $50,000, or (ii) exceed, if other claims,
$200,000 in the aggregate, in which event Buyer's obligations shall apply to the
entire amount of such claims.
10.3 Limitations on Indemnity.
(a) Deductible. In case any event shall occur which would
otherwise entitle either party to assert a claim for indemnification under
Sections 10.1 or 10.2 , no loss, claim, damage, liability or expense shall be
deemed to have been sustained by such party to the extent of (i) any tax savings
realized by such party with respect thereto, or (b) any proceeds received by
such party from any insurance policies with respect thereto.
(b) Period of Limitations. Except for Buyer's covenant made in
Section 7.4 which shall survive the Closing until Buyer transfers the Shares in
conformity with Section 7.4, the covenants, representations and warranties of
the parties hereto contained in this Agreement or in any certificate, instrument
or document delivered pursuant hereto shall survive the Closing, regardless of
any investigation made by or on behalf of any party, and terminate on October
31, 1996 (the "Cut Off Date"). Except with respect to Buyer's covenant contained
in Section 7.4, after the Cut Off Date, no party hereto shall be under any
liability whatsoever pursuant to this Article X with respect to any such
covenant, representation or warranty, except with respect to matters as to which
it has received notice in accordance with Section 10.4 on or prior to the Cut
Off Date.
10.4 Notice of Claim. If Buyer or Seller desires to make a claim
("Claim") as Claimant against the other party as Indemnitor under Sections 10.1
or 10.2 hereof, the Claimant shall give prompt notice in writing to the
Indemnitor and, in the event of a Claim by Buyer, to the Escrow Agent, setting
forth the amount, nature and circumstances of the Claim. In the event of the
assertion by any third party of any claim with respect to which Buyer or Seller
seeks indemnification hereunder, the Indemnitor and its legal representatives
shall have the right to compromise, settle or defend any such claim (and the
Claimant shall cooperate with respect to any such compromise, settlement or
defense); provided, however, that if the Indemnitor does not elect to
compromise, settle or defend a claim subject to indemnification under this
Agreement, then the Indemnitor shall indemnify the Claimant against any loss
resulting from the Indemnitor's failure to pay any such liability as may finally
be determined and provided, further, that the Indemnitor shall not have the
right to compromise or settle any claim to the extent such claim would require
the Company or the Buyer to thereafter take or not take any action whatsoever.
Upon payment of indemnification by the Indemnitor or, in the event of a Claim by
Buyer, the Escrow Agent pursuant to the terms of the Escrow Agreement, the
Claimant will assign its rights against any applicable account debtor, insurer
or other responsible party to the extent of the indemnification payment. If, as
to any particular Claim, Claimant fails substantially to comply with the
provisions of this Section, Claimant shall be deemed to have waived and released
its rights of indemnification for such Claim.
10.5 Indemnification as Exclusive Remedy. The indemnification provided
in this Article, subject to the limitations set forth herein, shall be the
exclusive post-closing remedy for damages available to Buyer and Seller with
respect to this Agreement and the transactions contemplated by this Agreement.
Without limitation, Buyer hereby releases Seller and any of Seller's general
partner and limited partners from any claims or causes of action which Buyer
might otherwise have against such party beyond the indemnification provided
herein under any of the Environmental Laws. Any dispute relating to a Claim made
by Buyer or arising under the Escrow Agreement shall be exclusively resolved by
binding arbitration as provided in the Escrow Agreement.
ARTICLE XI. MISCELLANEOUS PROVISIONS
11.1 Notice. All notices, requests, demands and other communications
required or permitted under this Agreement shall be made in writing and shall be
deemed to have been duly given and made when delivered in person, by registered
or certified mail, by reputable overnight courier service, or by confirmed
facsimile transmission; provided, however, that such transmission shall be
followed by the deposit of such confirmation by registered or certified mail or
reputable overnight courier service within two (2) business days following such
facsimile transmission:
If to the Seller:
The Rotor Tool L.P.
c/o Wexford Management Corporation
411 West Putnam Avenue
Greenwich, Connecticut 06830
Attention: Ms. Karen Ryugo, Senior Vice President
Facsimile Number: (203) 862-7463
with a copy to:
Squire, Sanders & Dempsey
4900 Society Center
127 Public Square
Cleveland, Ohio 44114-1304
Attention: Gordon S. Kaiser, Esq.
Facsimile Number: 216-479-8793
If to Buyer:
INTOOL, Inc.
7007 Pinemont
Houston, Texas 77040
Attention: Mr. Thomas R. Hurst, President
Facsimile Number: 713-460-7008
with a copy to:
Global Industrial Technologies, Inc.
2121 San Jacinto Street
Suite 2500
Dallas, Texas 75201
Attention: Graham L. Adelman, General Counsel
Facsimile Number: 214-953-4597
provided, however, that if any party shall have designated a different name or
address by notice to the other pursuant to this Section 11.1, then delivery
shall be made under the last name or to the address so designated.
11.2 Entire Agreement. This Agreement, the Schedules and Exhibits
hereto and the agreements and other documents expressly referred to herein
embody the entire agreement and understanding of the parties hereto with respect
to the subject matter hereof, and supersede all prior letters, agreements and
understandings concerning said subject matter.
11.3 Binding Effect; Assignment. This Agreement and the various rights
and obligations arising hereunder shall inure to the benefit of and be binding
upon Buyer, Seller and their respective legal representatives, successors and
assigns; provided, however, that no party may assign this Agreement or any
rights hereunder without the written consent of the other. Nothing in this
Agreement, express or implied, is intended to or shall confer upon any person
other than the parties hereto any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
11.4 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument.
11.5 Waiver; Consent. Whenever the consent, approval, agreement,
waiver, designation, notice, demand or other written action by Buyer, Seller or
the Company is provided for in this Agreement, the same may only be given on
behalf of such party in a writing signed by a duly authorized officer of such
party. Except to the extent that a party hereto may have otherwise agreed in
writing, no waiver by that party of any condition of this Agreement or breach by
the other party of any of its obligations or representations hereunder shall be
deemed to be a waiver of any other condition or subsequent breach of the same or
any other obligation or representation by the other party, nor shall any
forbearance by the first party to seek a remedy for any noncompliance or breach
by the other party be deemed to be a waiver by the first party of its rights and
remedies with respect to such noncompliance or breach.
11.6 Governing Law. This Agreement shall in all respects be construed
in accordance with and governed by the laws of the State of Ohio applicable to
an agreement entered into and performed entirely within such State.
11.7 Expenses and Prorations. Each of the parties hereto shall bear all
expense incurred by it in connection with the negotiation of this Agreement and
in the consummation of the transactions provided for herein and the preparation
therefor. Notwithstanding the foregoing and except as otherwise expressly
provided herein, all expenses of transfer, including without limitation, any
sales, transfer, use or similar taxes, and recording and filing fees shall be
divided equally between Buyer and Seller.
11.8 Public Announcements. Except as may be required by law, neither
party shall make any public announcement or filing with respect to the
transactions provided for herein without the prior consent of the other parties
hereto.
11.9 Disclaimer. Buyer acknowledges that it has had full and fair
opportunity to inspect the Business and the Assets, the books and records of the
Business, and any other pertinent information and data, including the
environmental phase I report (collectively the "Evaluation Material"), to its
satisfaction, that it has independently investigated, analyzed and appraised the
value and profitability thereof, that it is thoroughly acquainted with all of
the foregoing, and that it has relied and is relying upon its own investigations
as to the conditions and suitability of all of the foregoing in addition to the
representations and warranties of Seller and the Company set forth herein. Buyer
further acknowledges that in connection with any projections or other forecasts
which Buyer has received from Seller or the Company, that (a) there are
uncertainties inherent in attempting to make such projections and other
forecasts, (b) Buyer is familiar with such uncertainties, (c) Buyer is taking
full responsibility for making its own evaluation of the adequacy and accuracy
of all projections and other forecasts so furnished to it, and (d) Buyer will
have no claim against Seller with respect thereto. Buyer acknowledges that,
except as expressly provided herein, Seller has not made, and the Evaluation
Material does not contain, any representations or warranties on which Buyer has
relied or will rely and has held out no inducements to Buyer to execute this
Agreement.
11.10 Further Assurances. From time to time following the Closing, at
the request of any party hereto and without further consideration, the other
party or parties hereto shall execute and deliver to such representing party
such instruments and documents and take such other action (but without incurring
any material financial obligation) as such requesting party may reasonably
request in order to consummate more fully and effectively the transactions
contemplated hereby, including Buyer granting Seller reasonable access to
Company's books and records for the purpose of, and causing Company's employees
to cooperate with Seller in, for Seller's tax matters and other reasonable needs
of Seller for a period of five (5) years following the Closing or until any
audits of Seller's tax returns relating to periods prior to or including the
Closing Date are completed, whichever occurs later.
11.11 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it below:
"Affiliate" (whether or not capitalized) means, with respect
to any person, any other person that, directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under
common control with, such person.
"Applicable Law" means any statute, law, rule or regulation,
excluding any Environmental Law, or any judgment, order, writ,
injunction or decree of any Governmental Entity, excluding any
judgment, order, writ, injunction or decree which is based on, or
relates to, any Environmental Law, to which a specified person or
property is subject.
"Code" means the Internal Revenue Code of 1986, as amended and
in effect on the Closing Date.
"Encumbrances" means liens, charges, pledges, options,
mortgages, deeds of trust, security interests, claims, restrictions
(whether on voting, sale, transfer, disposition or otherwise),
easements and other encumbrances of every type and description, whether
imposed by law, agreement, understanding or otherwise.
"Environmental Laws" means any law or regulation, order or
standard pertaining in any way to the protection of the environment.
"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any public, governmental or
regulatory body, agency, department, commission, board, bureau or other
authority or instrumentality (domestic or foreign).
"Intellectual Property" means patents, trademarks, service
marks, trade names, copyrights, trade secrets, know-how, inventions,
and similar rights, and all registrations, applications, licenses and
rights with respect to any of the foregoing.
"Knowledge" means the actual knowledge of a person and the
knowledge a person, upon reasonable inquiry, should have. Knowledge
relating to Seller shall be the Knowledge of Karen M. Ryugo, and
Knowledge relating to the Company shall be the Knowledge of Robert W.
Zellner and Stanley C. Bernat.
"Permits" means licenses, permits, franchises, consents,
approvals and other authorizations of or from Governmental Entities.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, enterprise,
unincorporated organization or Governmental Entity.
"Proceeding" means all proceedings, actions, claims, suits,
investigations and inquiries by or before any arbitrator or
Governmental Entity.
"Subsidiary" means any corporation more than 50 percent of
whose outstanding voting securities, or any partnership, joint venture,
or other entity any of whose equity interest, is owned, directly or
indirectly, by the Company.
"Taxes" means any income taxes or similar assessments or any
sales, excise, occupation, use, ad valorem, property, production,
severance, transportation, employment, payroll, franchise or other tax
imposed by any United States federal, state or local (or any foreign or
provincial) taxing authority, including any interest, penalties or
additions attributable thereto.
"Tax Return" means any return or report with respect to Taxes.
"Treasury Regulations" means one or more treasury regulations
promulgated under the Code by the Treasury Department of the United
States.
"Trustee" means Shawmut Bank Connecticut, National Association.
<PAGE>
IN WITNESS WHEREOF, Seller, the Company and Buyer have caused this
Agreement to be duly executed in their respective corporate names by their
respective duly authorized officers, all as of the day and year first above
written.
THE ROTOR TOOL L.P.
By: Rotor Tool Management L.P.
Title: General Partner
By: Rotor Tool Management Service Corp.
Title: General Partner
By: /s/Karen M. Ryugo
Name: Karen M. Ryugo
Title: President
THE ROTOR TOOL COMPANY
By: /s/Robert W. Zellner
Name: Robert W. Zellner
Title: President
INTOOL, INC.
By: /s/Thomas R. Hurst
Name: Thomas R. Hurst
Title: President
<PAGE>
EXHIBIT 2.2(a)(w)
ESCROW AGREEMENT
The Exhibit to this Exhibit will be furnished to the Securities and Exchange
Commission upon request.
Exhibit 10.23
<PAGE>
INTEGRATED CABLE CORP. V
c/o Wexford Management LLC
411 West Putnam Avenue
Greenwich, CT 06830
(203) 862-7000
Fax: (203) 862-7463
Writer's Direct Dial:
862-7423
Via Facsimile and Express Mail
January 17, 1996
TCI Ventures Five, Inc.
5619 DTC Parkway
Englewood, CO 80111
Attention: Mr. Gary Howard
Facsimile: 303-488-3219
Cablevision Equities Vl
c/o Mr. Thomas Marinkovich
General Partner
8805 North East 34th Street
Bellevue, WA 98004
Dear Partners:
Pursuant to Section 7-62-602 of the Colorado Uniform Limited
Partnership Act (the "Limited Partnership Act") and Section 19.4 of the
Partnership Agreement of IR-TCI Partners V, L.P. (fommerly IR-Daniels Partners
V, L.P.), a Colorado limited partnership (the "Partnership"), originally entered
into as of the I 5th day of December, 1986 (the "Partnership Agreement"), by and
among Integrated Cable Corp. V, a Delaware corporation ("ICC"), as a general
partner of the Partnership, TCI Ventures Five, Inc. (forrnerly Daniels Ventures
Five, Inc.) ("TCI Ventures"), as a general partner of the Partnership, and
Cablevision Equities VI, as the sole limited partner of the Partnership, ICC
hereby gives notice that, effective immediately, it is withdrawing as a general
partner of the Partnership.
Pursuant to Section 7-62-604 of the Limited Partnership Act, ICC hereby
demands that, within a reasonable time after the date of this notice, the
Partnership pay ICC the fair value, as of the date of this notice, of ICC's
partnership interest in the Partnership.
<PAGE>
TCI Ventures Five, Inc.
Cablevision Equities VI
January 17, 1996
Page 2
ICC further demands that, in accordance with Sections 7-62-202(2)(b)
and 7-62-202(3) of the Limited Partnership Act, promptly, but by no later than
30 days after the date hereof, TCI Ventures, as the sole remaining general
partner of the Partnership, file a Certificate of Amendment of the Certificate
of Limited Partnership of the Partnership reflecting ICC's withdrawal as a
general partner of the Partnership.
Sincerely,
INTEGRATED CABLE CORP. V
By: /s/Karen M. Ryugo
Narne: Karen M. Ryugo
Title: President
cc: J. Jacobs, President, Wexford Management LLC
A. Amron, Esq., Wexford Management LLC
J. Fryer, Esq., Greenberg, Traurig et al
L. Fisher, Esq., Kaye Scholer et al (Facsimile: 212-836-8689)
- --------------------------------------------------------------------------------
Grantor Trust Certificates
-----------------------------------------------------------
AMENDED AND RESTATED GRANTOR TRUST AGREEMENT
-----------------------------------------------------------
among
PRESIDIO CR HOLDINGS, L.P.,
as Seller,
PRESIDIO CAPITAL CORP. and
INTEGRATED RESOURCES LIFE COMPANIES INC.,
as Affiliated Sellers,
BANKERS TRUST COMPANY
as Servicer,
and
UNION BANK,
as Grantor Trust Trustee
dated as of January 1, 1996
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I DEFINITIONS.............................................................................................
SECTION 1.01 General....................................................................................
SECTION 1.02 Specific Terms.............................................................................
ARTICLE II CREATION OF TRUST; CONVEYANCE OF CONTRACT RECEIVABLES; ACCEPTANCE BY TRUSTEE...........................
SECTION 2.01 Creation of Trust..........................................................................
SECTION 2.02 Conveyance of Contract Receivables.........................................................
SECTION 2.03 Acceptance by Grantor Trust Trustee........................................................
SECTION 2.04 Closing Conditions.........................................................................
SECTION 2.05 Consideration for Grantor Trust T-2 Certificate; Conditions to Issuance of
Grantor Trust T-2 Certificate.......................................................
SECTION 2.06 Issuance of the Certificates; Payment to Holder of Class R Certificate.....................
SECTION 2.07 Irrevocable Instructions of T-2 Holder.....................................................
ARTICLE III REPRESENTATIONS AND WARRANTIES; THE CUSTODIAN; THE COLLATERAL AGENT...................................
SECTION 3.01 Representations and Warranties.............................................................
SECTION 3.01A Representations and Warranties of Custodian Regarding the Contract Receivable
Files...............................................................................
SECTION 3.02 Cure or Repurchase of Contract Receivables for Breach of Representations and
Warranties..........................................................................
SECTION 3.03 Custody of Contract Receivable Files.......................................................
SECTION 3.04 Duties of Custodian........................................................................
SECTION 3.05 Instructions; Authority to Act.............................................................
SECTION 3.06 Effective Period and Termination...........................................................
SECTION 3.07 GT Collateral Agent........................................................................
ARTICLE IV ADMINISTRATION AND SERVICING OF CONTRACT RECEIVABLES....................................................
SECTION 4.01 Administration of the Contract Receivables.................................................
SECTION 4.02 Liability of the Servicer..................................................................
SECTION 4.03 Liquidation of the Pool....................................................................
SECTION 4.04 Enforcement of Due-On-Sale Clauses.........................................................
SECTION 4.05 Realization Upon Contract Receivables......................................................
SECTION 4.06 Maintenance of Security Interests..........................................................
SECTION 4.07 Servicer Report............................................................................
SECTION 4.08 Annual Statement as to Compliance..........................................................
SECTION 4.09 Annual Audit Report........................................................................
SECTION 4.10 Directing Holders..........................................................................
SECTION 4.11 Reports to the Rating Agency...............................................................
SECTION 4.12 Maintenance of Fidelity Bond and Errors and Omission Policy................................
SECTION 4.13 Payment in Full of Contract Receivable.....................................................
SECTION 4.14 Collection of Taxes, Assessments and Similar Items; Escrow Accounts........................
SECTION 4.15 Appraisals.................................................................................
SECTION 4.16 Servicer Advances; Liquidation Expenses....................................................
SECTION 4.17 Inspections................................................................................
SECTION 4.18 Modifications, Waivers, Amendments and Consents............................................
SECTION 4.19 Servicer Reimbursable Expenses.............................................................
SECTION 4.20 Derby, Saber and Sentec; Net Sandwich Investments..........................................
ARTICLE V THE GRANTOR TRUST CERTIFICATES..........................................................................
SECTION 5.01 The Grantor Trust T-1 Certificate; The Grantor Trust T-2 Certificates......................
SECTION 5.02 Delivery and Transferability of Grantor Trust Certificates.................................
SECTION 5.03 Registration of Transfer and Exchange of Grantor Trust Certificates........................
SECTION 5.04 Mutilated, Destroyed, Lost, or Stolen Grantor Trust Certificates...........................
SECTION 5.05 Persons Deemed Owners......................................................................
SECTION 5.06 Access to List of Names and Addresses of Holders of the Grantor Trust
Certificates........................................................................
SECTION 5.07 Maintenance of Office or Agency............................................................
SECTION 5.08 Appointment of Grantor Trust Paying Agent..................................................
ARTICLE VI DEPOSITS AND WITHDRAWALS; DISTRIBUTIONS; STATEMENTS TO HOLDERS OF THE GRANTOR TRUST
CERTIFICATES; SERVICING AND GRANTOR TRUST EXPENSES...............................................
SECTION 6.01 Deposit of Funds on Closing Date...........................................................
SECTION 6.02 Withdrawals of Funds from the Recordation Escrow Account...................................
SECTION 6.03 Collections................................................................................
SECTION 6.04 Servicing and Grantor Trust Expenses.......................................................
SECTION 6.05 Withdrawals from the Reserve Fund..........................................................
SECTION 6.06 Determination Date.........................................................................
SECTION 6.07 Distributions after the REMIC Liquidation Date.............................................
SECTION 6.08 Distributions from the Repurchase Reserve Fund.............................................
SECTION 6.09 Application of Net Sandwich Investments....................................................
ARTICLE VII ACCOUNTS..............................................................................................
SECTION 7.01 Grantor Trust Collection Account...........................................................
SECTION 7.02 Reserve Fund...............................................................................
SECTION 7.03 Repurchase Reserve Fund....................................................................
SECTION 7.04 Rejectable Offer Reserve Fund..............................................................
SECTION 7.05 Directing Holders Reserve Fund.............................................................
SECTION 7.06 Recordation Escrow Account.................................................................
SECTION 7.07 Derby and Sentec Reserve Account...........................................................
SECTION 7.08 Sandwich Reserve Fund......................................................................
ARTICLE VIII THE SELLER AND THE AFFILIATED SELLERS................................................................
SECTION 8.01 Merger or Consolidation of the Seller or the Affiliated Sellers............................
SECTION 8.02 Limitation on Liability of the Seller and the Affiliated Sellers...........................
ARTICLE IX THE SERVICER; REPRESENTATIONS AND LIABILITIES..........................................................
SECTION 9.01 Representations of BT......................................................................
SECTION 9.02 Liability of Servicer......................................................................
SECTION 9.03 Merger or Consolidation of Servicer........................................................
SECTION 9.04 Limitation on Liability of Servicer and Others.............................................
SECTION 9.05 Servicer Not To Resign.....................................................................
ARTICLE X EVENTS OF TERMINATION...................................................................................
SECTION 10.01 Events of Termination.....................................................................
SECTION 10.02 Grantor Trust Trustee to Act; Appointment of Successor....................................
SECTION 10.03 Notification to Holders of the Grantor Trust Certificates and the Certificates............
SECTION 10.04 Rights of Holders of the Grantor Trust Certificates to Direct Trustee and to
Waive Events of Termination.........................................................
SECTION 10.05. Effect of Transfer.......................................................................
ARTICLE XI THE GRANTOR TRUST TRUSTEE..............................................................................
SECTION 11.01 Duties of Grantor Trust Trustee...........................................................
SECTION 11.02 [Intentionally Omitted]...................................................................
SECTION 11.03 Certain Matters Affecting the Grantor Trust Trustee.......................................
SECTION 11.04 Grantor Trust Trustee Not Liable for Grantor Trust Certificates or Contract
Receivables.........................................................................
SECTION 11.05 Grantor Trust Trustee May Own Grantor Trust Certificates..................................
SECTION 11.06 Grantor Trust Trustee's Fees and Expenses.................................................
SECTION 11.07 Eligibility Requirements for Grantor Trust Trustee........................................
SECTION 11.08 Resignation or Removal of Grantor Trust Trustee...........................................
SECTION 11.09 Successor Grantor Trust Trustee...........................................................
SECTION 11.10 Merger or Consolidation of Grantor Trust Trustee..........................................
SECTION 11.11 Representations and Warranties of Grantor Trust Trustee...................................
SECTION 11.12 Tax Returns...............................................................................
SECTION 11.13 Obligor Claims............................................................................
SECTION 11.14 Liabilities to Obligors...................................................................
SECTION 11.15 Agents of Grantor Trust Trustee...........................................................
SECTION 11.16 Acts of Holders of the Grantor Trust Certificates.........................................
ARTICLE XII TERMINATION...........................................................................................
SECTION 12.01 Termination of the Grantor Trust..........................................................
ARTICLE XIII MISCELLANEOUS PROVISIONS.............................................................................
SECTION 13.01 Amendment.................................................................................
SECTION 13.02 Protection of Title to Grantor Trust......................................................
SECTION 13.03 Limitation on Rights of Holders of the Grantor Trust Certificates.........................
SECTION 13.04 Governing Law.............................................................................
SECTION 13.05 Notices...................................................................................
SECTION 13.06 Severability of Provisions................................................................
SECTION 13.07 Grantor Trust Certificates Nonassessable and Fully Paid...................................
SECTION 13.08 Submission to Jurisdiction; Venue.........................................................
SECTION 13.09 Counterparts..............................................................................
SECTION 13.10 Tax Treatment.............................................................................
SECTION 13.11 Merger and Integration....................................................................
SECTION 13.12 Headings..................................................................................
SECTION 13.13 Indemnities...............................................................................
SECTION 13.14 Replacement of Bankers Trust..............................................................
SECTION 13.15 Calculations..............................................................................
SECTION 13.16 No Bankruptcy Petition....................................................................
SECTION 13.17 Waiver of Lien on Grantor Trust...........................................................
SECTION 13.18 Presidio Tax Indemnification..............................................................
</TABLE>
<PAGE>
List of Exhibits
Exhibit A Allocation to Grantor Trust T-1 and T-2 Certificates of
Scheduled Payments on Contract Receivables
Exhibit B Contract Receivables Allocable Solely to Grantor Trust T-2
Certificates
Exhibit C Contract Receivable Schedule
Exhibit D Credit Tenant Schedule
Exhibit E Discount Rates For Allocated DPO Amount and Discounted Pay Off
Amount of Unmodified Contract Receivables and Jacway Contract
Receivable
Exhibit F Grantor Trust T-1 Certificate
Exhibit G Grantor Trust T-2 Certificate
Exhibit H List of Contract Receivables with Master Leases and Sandwich
Pledge Agreements
Exhibit I DHRF Indemnity Agreement
Exhibit J DHRF Pledge Agreement
Exhibit K Recordation Escrow Amount Schedule
Exhibit L Multiple Property Obligors
Exhibit M Single Property Obligors
Exhibit N RORF Indemnity Agreement
Exhibit O RORF Pledge Agreement
Exhibit P Assignment of Contract Receivables
Exhibit Q Acknowledgment of Conveyance of Contract Receivables and
Capital Stock of Derby, Sentec and Saber
Exhibit R Opinion of BT
Exhibit S Representation and Warranty #44
Exhibit T Underlying Lease Schedule
Exhibit U Sample of Certificate of Incorporation Containing Bankruptcy
Remote Provisions
Exhibit V Servicer Report
Exhibit W Servicing Certificate attached to Servicer Report
Exhibit X Post REMIC Liquidation Date Instructions for Distributions
Exhibit Y Release Certificate
Exhibit Z Allocation to Grantor Trust Certificates of Existing
Prepayment Deficiency Amounts.
Exhibit AA Payment Schedules of Unmodified Contract Receivables
<PAGE>
Amended and Restated Grantor Trust Agreement, dated as of
January 1, 1996, among Presidio CR Holdings, L.P., a Delaware limited
partnership, as seller (together with its permitted successors and assigns, the
"Seller"), Presidio Capital Corp., a British Virgin Islands company ("Presidio")
and Integrated Resources Life Companies Inc., a Delaware corporation ("IRL," and
together with Presidio, the "Affiliated Sellers"), Bankers Trust Company, a New
York banking corporation, as servicer (in its individual capacity, "BT," or,
together with its permitted successors and assigns, the "Servicer"), and Union
Bank, a banking corporation organized and existing under the laws of the State
of California, as grantor trust trustee (together with its permitted successors
and assigns, the "Grantor Trust Trustee").
NOW, THEREFORE, in consideration of the mutual agreements
hereinafter set forth, the parties hereto agree as provided herein:
ARTICLE I
DEFINITIONS
SECTION 1.01 General. For the purpose of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires,
the terms defined in this Article include the plural as well as the singular,
the words "herein," "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section or
other subdivision, and Section references refer to Sections of this Agreement.
SECTION 1.02 Specific Terms.
"Accreted Value" has the meaning assigned to such term in the
Pooling Agreement.
"Accretion Amounts" has the meaning assigned to such term in
the Pooling Agreement.
"Advancing Fee" means interest at the Prime Rate on each
Servicer Advance from the date it is made to the date of repayment in full,
calculated on the basis of actual days elapsed and a year of 365 or 366 days, as
applicable.
"Affiliate" means, as to any specified Person, any Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" or
"controlled" have meanings correlative to the foregoing.
"Aggregate Debt Service Payments" has the meaning specified in
the applicable Subordinate Mortgage.
"Agreed Upon Procedures Letter" means the Agreed Upon
Procedures Letter prepared by Deloitte & Touche LLP in connection with its
review of the Contract Receivables.
"Agreement" means this Grantor Trust Agreement and all
amendments and supplements hereto.
"Allocable Fraction" means (i) in the case of a Multiple
Property Obligor, a fraction, the numerator of which is the original cost to
such Obligor of the Property or Properties to be released from the lien of a
Subordinate Mortgage and the denominator of which is the original cost to such
Obligor of all of the Properties which are encumbered by such Subordinate
Mortgage immediately prior to such release (provided that the Allocable Fraction
with respect to the Utex Note shall be a fraction, the numerator of which is the
outstanding amount(s) of the First Mortgage Note(s) related to the affected
Property or Properties of Sablemart Associates Limited Partnership ("Sablemart")
immediately prior to such release and the denominator of which is the aggregate
outstanding amount of the First Mortgage Notes related to all of the Properties
then subject to the lien of the First Mortgage encumbering all of the Properties
of Sablemart immediately prior to such release), or (ii) in the case of a Single
Property Obligor, 100%.
"Allocated DPO Amount" means the Discounted Pay Off Amount
multiplied by the applicable Allocable Fraction with respect to the applicable
Property or Properties; except that (i) solely for purposes of calculating
Losses, Repurchase Price and Directing Holders' Deposits, in the case of the
Contract Receivables delivered by Alwood Associates Limited Partnership,
Clamarsh Associates Limited Partnership, Lanmar Associates Limited Partnership,
Rochboro Associates Limited Partnership, Rotale Associates Limited Partnership,
Sablemart Associates Limited Partnership and Vegpow Associates Limited
Partnership, it means the lesser of the Discounted Pay Off Amount or the Whole
Prepayment Amount, in each case multiplied by the applicable Allocable Fraction,
and (ii) solely for calculating Losses, in the case of any Unmodified Contract
Receivables, the Dalcin Contract Receivable and (during the first Renewal Term
of the related Underlying Lease only) the Jacway Contract Receivable, it means
the Whole Prepayment Amount thereof multiplied by the Allocable Fraction with
respect to the applicable Property or Properties.
"Allocated Losses" has the meaning assigned to such term in
the Pooling Agreement.
"Assignee" means a Person to which a Tenant (or any direct or
indirect assignee of such Tenant) has assigned, and which has assumed Tenant's
obligations under, an Underlying Lease in accordance with the terms and
conditions thereof, and which is the Lessee under the Underlying Lease.
"Assignment of Lease and Agreement" means a collateral
assignment of the Underlying Lease(s) affecting an Obligor's Properties from
such Obligor to a First Mortgagee.
"Balance" means the sum of the cash and the principal amount
of the Eligible Investments in the Reserve Fund.
"Bedcar Contract Receivable" means the Contract Receivable for
which Bedcar Associates Limited Partnership is the Obligor.
"Bessomac" means Bessomac Associates Limited Partnership, a
Connecticut limited partnership.
"Business Day" means any day other than (a) a Saturday or a
Sunday or (b) a day that is observed by either the Federal government or the
State of New York as a legal holiday.
"CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended.
"Certificate Account" means the "Certificate Account"
established and maintained under and pursuant to the Pooling Agreement.
"Certificate Accreted Value" has the meaning assigned to such
term in the Pooling Agreement.
"Certificate Purchase Agreement" means the Certificate
Purchase Agreement, dated March 25, 1996, between the Initial Purchaser and the
Grantor Trust.
"Certificates" means the certificates issued under and
pursuant to the Pooling Agreement.
"Certificates Paying Agent" has the meaning assigned to such
term in the Pooling Agreement.
"Closing Date" means March 28, 1996.
"Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time, or any successor statute thereto, and the Treasury
Regulations.
"Collateral Account" means the account established and
maintained by the Paying Agent pursuant to each Paying Agent Agreement.
"Collateral Agent" has the meaning assigned to such term in
the Pooling Agreement.
"Collateral Assignment" means a collateral lease assignment of
the Underlying Leases affecting an Obligor's Properties from a lessee under a
Master Lease to such Obligor.
"Collection Account" means the "Collection Account"
established and maintained under and pursuant to Section 4.01 of the Pooling
Agreement.
"Collection Period" means with respect to a Distribution Date
in March, the six-month period commencing on the tenth day of the immediately
preceding September and ending on the 9th day of March and, with respect to a
Distribution Date in September, the six-month period commencing on the tenth day
of the immediately preceding March and ending on the 9th day of September (or in
the case of the first Distribution Date, the period commencing on the Cut-off
Date and ending on the 9th day of September 1996).
"Contract Receivable" means each of the deferred payment
obligations and origination fees (including the Notes and the Contract Right
Agreements), the Utex Note, the Segair Note, and the Subordinate Mortgages (and
the pledge of an undivided fractional interest in the notes secured by the First
Mortgage in the case of the Utex Note) and all collateral with respect thereto,
transferred and assigned to the Grantor Trust pursuant to this Agreement and
from time to time held by the Grantor Trust and identified on the Contract
Receivable Schedule.
"Contract Receivable Document" means, with respect to each
Obligor, the Note or Contract Right Agreement (and the Utex Note and the Segair
Note), Subordinate Mortgage (or the pledge of an undivided fractional interest
in the notes secured by the First Mortgage with respect to the Utex Note),
Paying Agent Agreement and Sandwich Pledge Agreement, as applicable, and any
amendments and modifications to any thereof.
"Contract Receivable File" means, as to each Contract
Receivable (other than the Unmodified Contract Receivables) (a) the original of
the related Note, (b) each assignment or endorsement of such Note evidencing a
complete chain of title of such Note from the Seller to BT, as agent for the
Grantor Trust; (c) the Paying Agent Agreement, with evidence of filing of UCC
financing statements (except as to the filing of UCC financing statements with
respect to the Dalcin Contract Receivable); (d) the Sandwich Pledge Agreement,
if the Contract Receivable is listed on Exhibit H attached hereto; (e) the
Subordinate Mortgage, with evidence of filing of UCC financing statements and of
recording of the Subordinate Mortgage (except in the case of the Subordinate
Mortgages delivered by Bessomac, Taber and Leyden, which are not in recordable
form and except as to the filing of UCC financing statements with respect to the
Dalcin Contract Receivable); (f) partnership certificate; (g) opinion letters;
(h) copies of Underlying Lease and, if any, Master Lease and First Mortgage
Documents in the possession of the Seller on the Closing Date; (i) copies of the
Guaranty, if applicable, in the possession of the Seller on the Closing Date;
(j) estoppel letters in the possession of the Seller on the Closing Date and (k)
any amendments and modifications to the foregoing in the possession of the
Seller on the Closing Date; and, as to the Hertec Contract Receivable, the Metec
Contract Receivable, the Segair Note and the Utex Note, the Hertec Contract
Receivable File, the Metec Contract Receivable File, the Segair Contract
Receivable File and the Utex Contract Receivable File, respectively.
"Contract Receivable Schedule" means the list attached hereto
as Exhibit C specifically identifying each Contract Receivable constituting part
of the corpus of the Grantor Trust.
"Contract Right Agreements" means those certain letter
agreements executed and delivered by Hertec and Metec evidencing deferred
payment obligations and origination fees originally owing to Integrated or an
Affiliate thereof.
"Credit Tenant" means each party under an Underlying Lease (or
a guarantor thereof) which is identified on Exhibit D as the party whose credit
is primarily relied upon as the source of satisfying rental obligations (whether
constituting the original tenant, assignee, or guarantor).
"CRPSP Payment" means that portion of the final scheduled
payment(s) due under a Note which, pursuant to the terms of a separate
agreement, dated as of November 2, 1994, by and among Integrated and Beigel Schy
Lasky Rifkind Goldberg & Fertik, Ltd., Integrated has directed the related
Obligor to pay to a trustee for third parties.
"Cure Amount" has the meaning assigned in Section 3.02(a).
"Custodian" has the meaning assigned in Section 3.03.
"Cut-off Date" means January 1, 1996.
"Dalcin" means Dalcin Associates Limited Partnership, a
Connecticut limited partnership.
"Dalcin Contract Receivable" means the Contract Receivable for
which Dalcin was the original Obligor.
"DCR" means Duff & Phelps Credit Rating Co. and its successors
in interest.
"Debt Service Draw Amount" has the meaning assigned in Section
6.05(c).
"Defaulted Contract Receivable" means, at any time, a Contract
Receivable as to which an event of default under the related Subordinate
Mortgage has occurred and is continuing at such time.
"Deposit Date" means, with respect to any Distribution Date,
the Business Day immediately preceding such Distribution Date.
"Derby" means Derby Leasing Corp., a Delaware corporation.
"Derby and Sentec Reserve Account" means the trust account
established on behalf of the Grantor Trust as an Eligible Deposit Account
pursuant to Section 7.07.
"Determination Date" means, with respect to any Distribution
Date, the third Business Day prior to such Distribution Date.
"DHRF Indemnity Agreement" means the Indemnity Agreement
(Directing Holders Reserve Fund) in the form of Exhibit I attached hereto.
"DHRF Pledge Agreement" means the Pledge Agreement (Directing
Holders Reserve Fund) in the form of Exhibit J attached hereto.
"Directing Holders" has the meaning assigned in Section
4.10(a).
"Directing Holders' Deposit" has the meaning assigned in
Section 4.10(a).
"Directing Holders Reserve Fund" means an account established
by the Directing Holders with BT, as GT Collateral Agent pursuant to Section
7.05(a).
"Directing Holders' Rejectable Offer Deposit" has the meaning
assigned in Section 4.10(b).
"Directions" has the meaning assigned in Section 4.10(b).
"Discount Period" means the period ending on the scheduled
expiration date of the Primary Term of the applicable Underlying Lease.
"Discount Purchase Option" means the option of an Obligor
(other than the Obligors with respect to the Dalcin Contract Receivable and the
Unmodified Contract Receivables) to prepay its Note at a fixed discount;
provided that, in the case of the Contract Receivables issued by Washtex
Associates Limited Partnership, Scribe Associates Limited Partnership, Sajos
Associates Limited Partnership, Vegrouge Associates Limited Partnership, Johab
Associates Limited Partnership, Jaclane Associates Limited Partnership, Allia
Associates Limited Partnership, Reppoc Associates Limited Partnership and
Denport Associates Limited Partnership, such option will be applicable only if
the Obligor has exercised its right to acquire the Discount Purchase Option.
"Discounted Pay Off Amount" means the present value, as of the
date of any determination of the Discounted Pay Off Amount or the Allocated DPO
Amount, of the remaining payments scheduled to be made on a Contract Receivable
(excluding any Prepayment Deficiency Amount and without taking into account any
possible reduction in the final scheduled payment(s) under a Contract Receivable
as a result of the CRPSP Payment), using one discount rate for the payments
allocable to periods occurring during the balance of the Primary Term of the
related Underlying Lease and another discount rate for the payments allocable to
periods after the Primary Term of the related Underlying Lease, all as more
particularly set forth in the related Contract Receivable; provided, however,
that (i) except as provided in clause (iii) (with respect to the Jacway Contract
Receivable) and clause (iv) of this proviso, the Discounted Pay Off Amount shall
be zero if the Discount Period applicable to the Note has ended, solely for
purposes of calculating Losses, Repurchase Price and Directing Holders'
Deposits, (ii) solely for purposes of calculating Losses, Repurchase Prices and
Directing Holders' Deposits, in the case of the Contract Receivables issued by
Washtex Associates Limited Partnership, Scribe Associates Limited Partnership,
Sajos Associates Limited Partnership, Vegrouge Associates Limited Partnership,
Johab Associates Limited Partnership, Jaclane Associates Limited Partnership,
Allia Associates Limited Partnership, Reppoc Associates Limited Partnership and
Denport Associates Limited Partnership, it shall be assumed that the Obligor has
exercised its right to acquire the Discount Purchase Option, (iii) solely for
purposes of calculating the Repurchase Price and Directing Holders' Deposits, in
the case of the Unmodified Contract Receivables, the Dalcin Contract Receivable
and (during the first Renewal Term of the related Underlying Lease only) the
Jacway Contract Receivable, the applicable discount rates shall be deemed to be
as set forth on Exhibit E attached hereto, (iv) solely for purposes of Section
6.05(c) and (d), in the case of any Unmodified Contract Receivables, the Dalcin
Contract Receivable and (during the first Renewal Term of the related Underlying
Lease only) the Jacway Contract Receivable, the Discounted Pay Off Amount shall
be equal to the Whole Prepayment Amount of the Contract Receivable, and (v)
solely for purposes of calculating Losses, Repurchase Prices and Directing
Holders' Deposits, in the case of the Contract Receivables delivered by Alwood
Associates Limited Partnership, Clamarsh Associates Limited Partnership, Lanmar
Associates Limited Partnership, Rochboro Associates Limited Partnership, Rotale
Associates Limited Partnership, Sablemart Associates Limited Partnership and
Vegpow Associates Limited Partnership, the Discounted Pay Off Amount means the
lesser of the Discounted Pay Off Amount or the Whole Prepayment Amount.
"Distribution Date" means the 15th day of March and the 15th
day of September, or if such day is not a Business Day, the next succeeding
Business Day, commencing on September 16, 1996, and on and after the REMIC
Liquidation Date, the Monthly Distribution Date.
"DPO Fraction" has the meaning assigned in Section 6.05(d).
"Eligible Deposit Account" means a segregated account with an
Eligible Institution.
"Eligible Institution" means (a) the corporate trust
department of the REMIC Trustee, the Grantor Trust Trustee or the Servicer or
(b) a depository institution or trust company organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank) if it (or its parent bank
holding company) has either (A) a long-term unsecured debt rating of "A" or
better from the Rating Agency (or, if it is not rated by the Rating Agency, then
a comparable rating from an NRSRO), or (B) a long-term unsecured debt rating, a
short-term unsecured debt rating or a certificate of deposit rating in each case
acceptable to the Rating Agency.
"Eligible Investments" means any one or more of the following
obligations or securities denominated in U.S. dollars, regardless of whether
issued by the Servicer, the REMIC Trustee, the Grantor Trust Trustee, the
Collateral Agent, the GT Collateral Agent or any of their respective affiliates,
and having the required ratings provided for in this definition:
(i) direct obligations of, or obligations guaranteed
as to timely payment of principal and interest by, the United States or
any agency or instrumentality thereof, provided that such obligations
are backed by the full faith and credit of the United States of
America;
(ii) direct obligations of, or obligations guaranteed
as to timely payment of principal and interest by, the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association or
the Federal Farm Credit System, provided that any such obligation is
qualified by the Rating Agency as an investment of funds backing
securities with a long-term unsecured debt rating of "AAA;"
(iii) demand and time deposits in, or demand notes or
certificates of deposit of, or bankers acceptances issued by, any
domestic bank or trust company, savings and loan association or savings
bank, provided that the commercial paper or long-term unsecured debt
obligations of such depository institution or trust company (or in the
case of the principal depository institution in a holding company
system, the commercial paper or long-term debt obligations of such
holding company) have a rating of "D-1+" or "AAA" by the Rating Agency
(or, if not rated by the Rating Agency, then a comparable rating by an
NRSRO);
(iv) general obligations of, or obligations
guaranteed by, any state of the United States or the District of
Columbia receiving the highest long-term debt ratings available for
such securities by the Rating Agency;
(v) domestic commercial or finance company paper
(including both non-interest bearing discount obligations and
interest-bearing obligations payable on demand or on a specified date
not more than one year after the date of issuance thereof) that is
rated by the Rating Agency (or, if not rated by the Rating Agency, then
a comparable rating by an NRSRO) in its highest short-term unsecured
rating category, and is issued by a domestic corporation the
outstanding senior debt obligations of which are then rated by the
Rating Agency (or, if not rated by the Rating Agency, then a comparable
rating by an NRSRO) in its highest short-term unsecured debt rating
category or its highest long-term unsecured debt rating category, as
applicable;
(vi) guaranteed reinvestment agreements or guaranteed
investment contracts issued by any bank, insurance company or other
corporation rated in the highest rating category available to such
issuers by the Rating Agency (or, if not rated by the Rating Agency,
then a comparable rating by an NRSRO), but in no event less than "AAA,"
provided that any such agreement must by its terms be terminable by the
purchaser without penalty in the event any such rating is at any time
lower than such level;
(vii) repurchase obligations with respect to any
security described in clause (i) or (ii) above entered into with a
depository institution or trust company (acting as principal) meeting
the rating standards described in (iii) above;
(viii) securities (other than stripped bonds or
stripped coupons) bearing interest or sold at a discount that are
issued by any corporation incorporated under the laws of the United
States of America or any state thereof and rated by the Rating Agency
in its highest long-term unsecured debt rating category; provided,
however, that securities issued by any such corporation will not be
Eligible Investments to the extent that investment therein would cause
the outstanding principal amount of securities issued by such
corporation that are held as part of the applicable fund or account to
exceed 20% of the aggregate amount of all Eligible Investments then
held in such fund or account;
(ix) if previously confirmed in writing to the
Servicer by the Rating Agency, any other demand, money market or time
deposit, demand obligation or any other obligation, security or
investment as may be acceptable to the Rating Agency as a permitted
investment of funds backing securities having a rating of "AAA," and
which qualifies as a "cash flow investment" pursuant to the Code;
(x) if previously confirmed in writing by the Rating
Agency to the Servicer, money market mutual funds organized under the
Investment Company Act of 1940, as amended, rated in its highest
long-term or short-term rating category by DCR or, if not rated by DCR,
then a comparable rating from an NRSRO; and
(xi) such other obligations as are acceptable as
Eligible Investments by the Rating Agency, as evidenced in writing, and
which qualifies as a "cash flow investment" pursuant to the Code;
provided, however, that no obligation or security shall be an Eligible
Investment if (i) such obligation or security evidences a right to receive only
interest payments or (ii) the stated interest rate on such obligation or
security is in excess of 120% of the yield to maturity produced by the price at
which such obligation or security was purchased.
"Eligible Servicer" means BT, the Grantor Trust Trustee or any
Person which is an approved servicer of commercial mortgage loans by the Rating
Agency.
"Event of Termination" means an event specified in Section
10.01.
"Excess Cash Flow" has the meaning specified in the applicable
Note.
"Excess Proceeds" has the meaning specified in the applicable
Note.
"Excess Superior Amount" has the meaning specified in the
applicable Note.
"Existing Prepayment Deficiency Amounts" means the Prepayment
Deficiency Amounts with respect to the Jacway Contract Receivable, the Dalcin
Contract Receivable, the Bedcar Contract Receivable and the Pinole Contract
Receivable, in effect as of the Closing Date.
"First Mortgage" means the first mortgage(s), deed(s) of
trust, indenture(s) of mortgage and deed(s) of trust or similar instrument(s)
creating a first lien on an Obligor's Mortgaged Properties superior to the
Subordinate Mortgage encumbering such Mortgaged Properties.
"First Mortgage Documents" means (i) with respect to each
First Mortgage, the First Mortgage(s), First Mortgage Note(s) and Assignment(s)
of Lease and Agreement, and (ii) with respect to each permitted refinancing of a
First Mortgage, the first mortgage(s), the First Mortgage Note(s) and
Assignment(s) of Lease and Agreement.
"First Mortgage Notes" means the note(s) secured by a First
Mortgage or any permitted refinancing thereof.
"First Mortgagee" means a holder of a First Mortgage and any
successor or assignee thereof.
"Foreclosed Property" has the meaning assigned in Section
4.05(f).
"Grantor Trust" means the trust created pursuant to the
Grantor Trust Agreement, the corpus of which will initially consist of all
right, title and interest arising from and in connection with the capital stock
of Derby, Saber and Sentec and each Contract Receivable including, without
limitation, (a) the related Note or the Utex Note or the Segair Note, as the
case may be, or Contract Right Agreement, (b) all rights under the Subordinate
Mortgage securing such Note, the Segair Note, or the Contract Right Agreement,
as the case may be, or pledge of an undivided fractional interest in the notes
secured by the First Mortgage in the case of the Utex Note (or, in the case of
the Subordinate Mortgages which are not in recordable form and do not grant a
lien encumbering, or create a security interest in, any of the Obligor's
property, all right to enforce the covenants made in the Subordinate Mortgage by
the Obligor for the benefit of the Noteholder), (c) all rights to payments due
and received on such Contract Receivable on and after the Cut-off Date, (d) all
rights under the related Paying Agent Agreement, including rights to the
Collateral Account, (e) all rights under the Sandwich Pledge Agreement (if any)
relating to such Contract Receivable, (f) all proceeds in any way derived from
any of the foregoing items, and (g) all documents contained or required to be
contained in the related Contract Receivable File. In addition, the corpus of
the Grantor Trust will include the Recordation Escrow Account, the Sandwich
Reserve Fund, the Derby and Sentec Reserve Account, the rights to indemnity
under the Repurchase Reserve Fund Indemnity Agreement and the collateral
security therefor under the Repurchase Reserve Fund Pledge Agreement, but the
corpus of the Grantor Trust shall not include the Pledged Funds.
"Grantor Trust Certificate" means a Grantor Trust Certificate
executed and delivered on behalf of the Grantor Trust by the Grantor Trust
Trustee substantially in the form of either Exhibit F or G which shall be the
Grantor Trust T-1 Certificate and Grantor Trust T-2 Certificates, respectively.
"Grantor Trust Certificate Register" and "Grantor Trust
Certificate Registrar" mean the register maintained and the registrar (or any
successor registrar) appointed pursuant to Section 5.03.
"Grantor Trust Collection Account" means the trust account
established and maintained in the name of the Grantor Trust in an Eligible
Institution pursuant to Section 7.01.
"Grantor Trust Expenses" means during each Collection Period
(i) Servicer Reimbursable Expenses incurred by the Servicer in the performance
of its duties as Servicer, (ii) certain expenses incurred by the Grantor Trust
Trustee in the performance of its duties and reimbursable pursuant to Section
11.06(b), (iii) any amounts which the Grantor Trust Trustee is entitled to
receive as indemnification pursuant to Section 13.13 hereof, (iv) any amounts
which BT, in all of its capacities hereunder (or its successor in such
capacities), is entitled to receive as indemnification pursuant to Section 13.13
hereof, and (v) all Sandwich Administrative Expenses (unless the Servicer has
determined pursuant to Section 4.20 not to fund the payment thereof) to the
extent that (a) in the case of Derby or Sentec, there are insufficient funds in
the Derby and Sentec Reserve Account and (b) Derby, Saber and Sentec do not have
sufficient funds to make payment thereof when due.
"Grantor Trust Paying Agent" means any Person appointed by the
Grantor Trust Trustee and acting as such pursuant to Section 5.08.
"Ground Lease" means a ground or base lease, together with all
assignments and amendments thereof, pursuant to which an Obligor has acquired a
leasehold interest in all or a portion of its Property.
"GT Collateral Agent" has the meaning assigned in Section
3.07.
"Guarantor" means the guarantor, if any, of a Tenant's
obligations under an Underlying Lease.
"Guaranty" means a guaranty of a Tenant's obligations under an
Underlying Lease provided by a Guarantor.
"Hertec" means Hertec Associates Limited Partnership, a
Connecticut limited partnership.
"Hertec Contract Receivable" means the Contract Receivable for
which Hertec was the original Obligor.
"Hertec Contract Receivable File" means, as to the Hertec
Contract Receivable (a) the original unmodified Contract Right Agreement; (b) a
copy of each assignment of such Contract Right Agreement evidencing a complete
chain of title of such Contract Right Agreement from the Seller to BT, as agent
for the Grantor Trust; (c) a copy of the Subordinate Mortgage granted
contemporaneously with such Contract Right Agreement; (d) copies of Underlying
Lease, Master Lease and First Mortgage Documents in the possession of the Seller
on the Closing Date; (e) the Paying Agent Agreement; and (f) originals or copies
of any amendments and modifications to the foregoing in the possession of the
Seller on the Closing Date.
"Initial Purchaser" means Bear, Stearns & Co. Inc.
"Instructions" has the meaning assigned in Section 4.10(a).
"Integrated" means Integrated Resources, Inc.
"Jacway Contract Receivable" means the Contract Receivable for
which Jacway Associates Limited Partnership is the Obligor.
"LCB" means LCB Limited Partnership, a Delaware limited
partnership.
"Lessee" means a Tenant or Assignee which is the current
lessee of an Obligor's Property pursuant to an Underlying Lease.
"Leyden" means Leyden Associates Limited Partnership, a
Connecticut limited partnership.
"Liquidated" or "Liquidation" means, with respect to a
Contract Receivable, the liquidation of a related Property or other collateral
securing the related Note (or the Utex Note or the Segair Note, as the case may
be) or Contract Right Agreement through a Remedial Proceeding.
"Liquidated Contract Receivable" means a Defaulted Contract
Receivable as to which the Servicer has certified to the Grantor Trust Trustee
and the REMIC Trustee that all Remedial Proceedings have been completed and that
it does not expect to recover additional amounts in respect of such Contract
Receivable or the Properties presently or previously securing such Contract
Receivable or the Foreclosed Property related to such Contract Receivable.
"Liquidation Expenses" means, with respect to a Contract
Receivable, expenses to third parties incurred by the Servicer in connection
with the Liquidation of a Contract Receivable and which, pursuant to Section
4.16 hereof, are reimbursable to the Servicer.
"Liquidation Proceeds" means, with respect to a Contract
Receivable, the amount of cash, including, without limitation, insurance
proceeds and condemnation proceeds (but excluding scheduled payments and
prepayments by the Obligor) received in connection with the Liquidation thereof
and net rental income and proceeds of sale of Foreclosed Property (whether or
not received after the Defaulted Contract Receivable became a Liquidated
Contract Receivable).
"Loss" has the meaning assigned in Section 6.05(c).
"Majority-in-Interest" means the holders of Grantor Trust T-2
Certificates representing greater than 50% of the Percentage Interest of all
Grantor Trust T-2 Certificates.
"Master Lease" means a master lease agreement affecting an
Obligor's Properties between such Obligor, as lessor, and the lessee thereunder,
which lessee is the lessor under the related Underlying Lease.
"Material Breach" has the meaning assigned in Section 3.02(a).
"Metec" means Metec Associates Limited Partnership, a
Connecticut limited partnership.
"Metec Contract Receivable" means the contract Receivable for
which Metec was the original Obligor.
"Metec Contract Receivable File" means, as to the Metec
Contract Receivable (a) the original unmodified Contract Right Agreement; (b) a
copy of each assignment of such Contract Right Agreement evidencing a complete
chain of title of such Contract Right Agreement from the Seller to BT, as agent
for the Grantor Trust; (c) a copy of the Subordinate Mortgage granted
contemporaneously with such Contract Right Agreement; (d) copies of Underlying
Lease, Master Lease and First Mortgage Documents in the possession of the Seller
on the Closing Date; (e) the Paying Agent Agreement; and (f) originals or copies
of any amendments and modifications to the foregoing in the possession of the
Seller on the Closing Date.
"Monthly Distribution Date" means the 15th day of each
calendar month.
"Mortgaged Property" means each Property (and related
interests), as stated in the granting clause of a Subordinate Mortgage.
"Multiple Property Obligor" means each Obligor designated on
Exhibit L attached hereto as owning more than one Property as of the Cut-off
Date.
"Net Liquidation Proceeds" means, with respect to a Contract
Receivable, the excess of the Liquidation Proceeds realized with respect to such
Contract Receivable over the amount of (i) the Liquidation Expenses for such
Contract Receivable not paid from the Directing Holders Reserve Fund or the
Rejectable Offer Reserve Fund, (ii) any Servicer Advances and the Advancing Fee
thereon made in connection with the Liquidation of such Contract Receivable and
(iii) the Special Servicing Fee (if any) payable with respect thereto.
"Net Sandwich Investments" means an amount equal to the
difference, for each of Derby, Saber and Sentec, between (i) the cash and the
principal amount of the Eligible Investments of such corporation then held in
Eligible Deposit Accounts (excluding any investment income thereon and the
amount of any capital contribution by the Grantor Trust), and (ii) the amount of
any reserve established pursuant to Section 4.20(d) for income taxes payable by
such corporation on payments received by it under the applicable Underlying
Lease.
"Note" means a Negotiable Promissory Note in Replacement and
Substitution of Letter Agreement from an Obligor to BT, as agent for the Grantor
Trust (successor-in-interest to the Seller) or its registered assigns, which
evidences a Contract Receivable.
"Noteholder" the registered holder of a Note or the Utex Note
or the holder of a Contract Right Agreement or the Segair Note, which on the
Closing Date shall be BT, as agent for the Grantor Trust.
"Noteholder Expenses" means certain fees, costs and expenses
which a Noteholder has agreed to pay or cause to be paid to the Obligor or other
third parties (other than the Servicer) in connection with the administration
and servicing of a Contract Receivable and the exercise of certain rights by
such Noteholder under the related Subordinate Mortgage.
"NRSRO" means the Rating Agency, Moody's Investors Service,
Inc. and Standard & Poor's Ratings Service, a division of the McGraw Hill
Companies, Inc.
"Obligor" means each Person which is the obligor under a Note,
the Utex Note, the Segair Note or a Contract Right Agreement, as the case may
be.
"Offered Certificates" has the meaning assigned to such term
in the Pooling Agreement.
"Officer's Certificate" means a certificate signed by the
managing director, treasurer, secretary, assistant secretary, president, any
vice president, any assistant vice president or any assistant treasurer of BT or
the Servicer and delivered to the Grantor Trust Trustee.
"Opinion of Counsel" means a written opinion of counsel in
form and substance reasonably satisfactory to the Grantor Trust Trustee which in
the case of an opinion with respect to tax matters shall be an Opinion of
Independent Counsel.
"Opinion of Independent Counsel" means an Opinion of Counsel
independent of the Person required to provide the opinion and its Affiliates,
provided that an outside counsel for a Person shall not, by reason of such
representation, be deemed not to be independent.
"Pass-Through Rate" has the meaning assigned to such term in
the Pooling Agreement.
"Paying Agent" means BT and its successors pursuant to a
Paying Agent Agreement.
"Paying Agent Agreement" means each Paying Agent Agreement
among an Obligor, BT, as Paying Agent, and BT, as agent for the Grantor Trust
(as successor-in-interest to the Seller or an Affiliated Seller), its successors
and/or assigns.
"Payment Schedule" means the respective payment schedule
identified as Schedule A to each Note, stating the scheduled payment dates and
amounts payable on such dates under such Note or, in the case of the Unmodified
Contract Receivables, the respective payment schedule on Exhibit AA attached
hereto.
"Payor" has the meaning assigned in Section 3.01(b)(34).
"Percentage Interest" means, as to any Grantor Trust
Certificate, the percentage specified on the face of such Grantor Trust
Certificate.
"Person" means any individual, corporation, estate,
partnership, joint venture, association, joint stock company, limited liability
company, trust (including any beneficiary thereof), unincorporated organization
or government or any agency or political subdivision thereof.
"Pinole Contract Receivable" means the Contract Receivable for
which Pinole Associates Limited Partnership is the Obligor.
"Pledged Fund" has the meaning assigned to such term in the
Pooling Agreement.
"Pooling Agreement" means the Pooling Agreement dated the date
hereof among the REMIC Trustee, BT, as Servicer, and the Grantor Trust, acting
through the Grantor Trust Trustee, as depositor.
"Post Securitization Servicing Fee" means an amount equal to
$75 per month per Contract Receivable.
"Prepayment Deficiency Amount" has the meaning specified in
the applicable Note.
"Primary Term" means the primary, fixed or basic term of an
Underlying Lease.
"Prime Rate" means, with respect to each day during the period
from the date of an advance to the date of reimbursement, the rate of interest
published in The Wall Street Journal as the "Prime Rate." In the event The Wall
Street Journal is not published or such rate does not appear in The Wall Street
Journal or more than one rate appears in The Wall Street Journal on a particular
date, the "Prime Rate" for such date shall be the Servicer's Prime Rate.
"Property" means each parcel of real property as stated in the
recitals and granting clause of a Subordinate Mortgage.
"Purchase Option" means an option set forth in an Underlying
Lease exercisable at a Lessee's election pursuant to which such Lessee has the
right to purchase one or more Properties leased under such Underlying Lease.
"Purchase Option Prepayment Amount" has the meaning specified
in the applicable Note.
"Purchase Option Proceeds" has the meaning specified in the
applicable Note.
"Rated Final Distribution Date" has the meaning assigned to
such term in the Pooling Agreement.
"Rating Agency" means DCR.
"Rating Agency Condition" means, with respect to any action,
the condition that the Rating Agency shall have been given prior notice thereof
and the Rating Agency shall have notified the Servicer, the Grantor Trust
Trustee and the REMIC Trustee in writing that such action shall not result in a
downgrade, qualification or withdrawal of the then current ratings of the
Offered Certificates.
"Rating Agency Reserve Fund" has the meaning assigned to such
term in the Pooling Agreement.
"Record Date" means, with respect to any Distribution Date,
the close of business, if applicable, on the last day of the calendar month
(whether or not a Business Day) immediately preceding the month in which such
Distribution Date occurs.
"Recordation Escrow Account" means the account established on
behalf of the Grantor Trust as an Eligible Deposit Account pursuant to Section
7.06.
"Rejectable Offer" means an offer to purchase a Property
required to be made by a Lessee in accordance with the terms of an Underlying
Lease and a Master Lease, as applicable.
"Rejectable Offer Reserve Fund" means an account established
by the Directing Holders with BT, as GT Collateral Agent pursuant to Section
7.04.
"Rejection Notice" has the meaning assigned in Section
4.10(b).
"Release Certificate" has the meaning assigned in Section
6.02.
"Release Price" has the meaning specified in the applicable
Note.
"Remedial Proceeding" means, with respect to a Defaulted
Contract Receivable, the exercise of any of the rights and remedies of the
Noteholder under such Contract Receivable.
"REMIC" means a "real estate mortgage investment conduit"
within the meaning of Section 860D of the Code.
"REMIC Liquidation Date" means the date on which the Trust is
liquidated.
"REMIC Regulations" has the meaning assigned to such term in
the Pooling Agreement.
"REMIC Trustee" means The First National Bank of Chicago, as
trustee under the Pooling Agreement.
"Renewal Term" means any renewal term of an Underlying Lease.
"Repurchase Date" has the meaning assigned in Section 3.02.
"Repurchase Price" shall be determined in accordance with
Section 3.02(b) with respect to a Contract Receivable (or interest therein) to
be repurchased under Section 3.02 of this Agreement.
"Repurchase Reserve Fund" means the account established with
BT, as GT Collateral Agent pursuant to Section 7.03.
"Repurchase Reserve Fund Indemnity Agreement" means the
Repurchase Reserve Fund Indemnity Agreement dated as of the Closing Date made by
the T-2 Holder in favor of the Grantor Trust, and BT, as GT Collateral Agent.
"Repurchase Reserve Fund Pledge Agreement" means the
Repurchase Reserve Fund Pledge Agreement dated as of the Closing Date made by
the T-2 Holder in favor of BT, as GT Collateral Agent.
"Reserve Fund" means the account established with BT, as
Collateral Agent pursuant to Section 7.02.
"Reserve Fund Indemnity Agreement" means the Reserve Fund
Indemnity Agreement dated as of the Closing Date made by the T-2 Holder in favor
of the Trust, and BT, as Collateral Agent.
"Reserve Fund Pledge Agreement" means the Reserve Fund Pledge
Agreement dated as of the Closing Date made by the T-2 Holder in favor of BT, as
Collateral Agent.
"Responsible Officer" means, with respect to the Grantor Trust
Trustee, the chairman and any vice chairman of its board of directors, the
president, the chairman and vice chairman of any executive committee of its
board of directors, any officer in the corporate trust department of the Grantor
Trust Trustee as long as it is the Grantor Trust Trustee hereunder, including
every vice president, assistant vice president, the secretary, every assistant
secretary, cashier or any assistant cashier, controller or assistant controller,
the treasurer, every assistant treasurer, every trust officer, assistant trust
officer and every other officer or assistant officer of the Grantor Trust
Trustee customarily performing functions similar to those performed by persons
who at the time shall be such officers, respectively.
"RORF Indemnity Agreement" means the Indemnity Agreement
(Rejectable Offer Reserve Fund) in the form of Exhibit N attached hereto.
"RORF Pledge Agreement" means the Pledge Agreement (Rejectable
Offer Reserve Fund) in the form of Exhibit O attached hereto.
"Saber" means Saber Leasing Corp., a Delaware corporation.
"Saber Sandwich Investment Account" has the meaning assigned
in Section 4.20.
"Sandwich Administrative Expenses" means an amount equal to
all expenses of Derby, Sentec or Saber, as the case may be, including legal and
accounting expenses, the expenses of preparing and filing tax returns and the
expenses of maintaining such corporation in good standing in its jurisdiction of
incorporation and each other jurisdiction in which it is qualified to do
business.
"Sandwich Corporation" means a corporation which is the lessee
under a Master Lease and the lessor under an Underlying Lease with respect to a
Property.
"Sandwich Pledge Agreement" means each pledge agreement
between The Sandwich Services, L.L.C. and BT, as agent.
"Sandwich Reserve Fund" has the meaning assigned in Section
7.08.
"Schedule C Event" means the termination of an Underlying
Lease pursuant to a Rejectable Offer made under such Underlying Lease.
"Schedule C Prepayment Amount" has the meaning specified in
the applicable Note.
"Schedule C Proceeds" has the meaning specified in the
applicable Note.
"Scheduled Rent" has the meaning specified in the applicable
Note.
"Section 2.09 Agreement" means the agreement dated as of
September 28, 1995 between the Seller and certain of the Obligors and
acknowledged and agreed to by certain of the Sandwich Corporations pursuant to
which the parties have agreed that (i) any amounts received by a Sandwich
Corporation as a result of a Schedule C Event or any Purchase Option are
irrevocably and unconditionally assigned by such Sandwich Corporation to the
Obligor constituting the landlord under its Master Lease and (ii) such Obligor
shall apply such amounts to the indebtedness evidenced by the related Note.
"Securities Act" means the Securities Act of 1933, as amended.
"Segair Contract Receivable File" means, as to the Segair Note
(a) the Segair Note; (b) a copy of the assignment of the Segair Note evidencing
a complete chain of title from Presidio to BT, as agent for the Grantor Trust;
(c) a copy of the Segair Mortgage granted contemporaneously with the Segair
Note; (d) copies of Underlying Lease, Master Lease and First Mortgage Documents
in the possession of Presidio on the Closing Date; (e) the Paying Agent
Agreement; (f) the Sandwich Pledge Agreement; and (g) a copy of any amendments
and modifications to the foregoing in the possession of Presidio on the Closing
Date.
"Segair Note" means that certain Promissory Note, dated as of
January 31, 1985, in the original principal amount of $2,031,065, made by Segair
Associates Limited Partnership ("Segair") to Integrated (the current payor of
which is LCB and the current payee of which is BT, as agent for the Grantor
Trust) which is secured by a third priority mortgage (the "Segair Mortgage")
encumbering the real property owned or leased by LCB.
"Sentec" means Sentec Leasing Corp., a Delaware corporation.
"Service Transfer" has the meaning assigned in Section 10.01.
"Servicer" means BT (subject to Section 9.03) until any
Service Transfer hereunder, and thereafter means the new servicer appointed
pursuant to Article X.
"Servicer Advance" means an advance made by the Servicer
pursuant to Section 4.16 hereof.
"Servicer Reimbursable Expenses" has the meaning assigned in
Section 4.19.
"Servicer Report" has the meaning assigned in Section 4.07.
"Servicing and Grantor Trust Expenses" mean (i) the Servicing
Fee, and (ii) the Grantor Trust Expenses.
"Servicing Fee" means, as to any Distribution Date, except as
provided in Section 10.02 hereof, (i) on and prior to the REMIC Liquidation
Date, one-half of the product of 0.0625% and the Certificate Accreted Value as
of the immediately preceding Distribution Date (or, in the case of the first
Distribution Date, the product of (A) the actual number of days elapsed
(assuming twelve 30-day months and a 360-day year) from the Closing Date through
and including September 14, 1996 divided by 360 and (B) the product of 0.0625%
and the Original Certificate Principal Balance (as defined in the Pooling
Agreement)) and (ii) after the REMIC Liquidation Date, the Post Securitization
Servicing Fee.
"Servicing Officer" means any officer of the Servicer involved
in, or responsible for, the administration and servicing of Contract Receivables
whose name appears on a list of servicing officers in an Officer's Certificate
furnished to the Grantor Trust Trustee by the Servicer, as the same may be
amended from time to time.
"Single Property Obligor" means each Obligor designated on
Exhibit M as owning a single Property as of the Cut-off Date.
"Special Servicing Fee" means an amount equal to the sum of
(i) 1.5% of the Net Liquidation Proceeds (calculated before deducting the
Special Servicing Fee) of any Contract Receivable that became a Liquidated
Contract Receivable during the related Collection Period (unless the Servicer
initially received Instructions prior to the Servicer determining the
appropriate actions to be taken or received Directions from the Directing
Holders); and (ii) if there is a workout agreement or a restructuring agreement
modifying the payment terms of a Defaulted Contract Receivable, if such fee is
paid by the related Obligor, 0.5% of the restated principal amount of the
Contract Receivable (the "Workout Fee"), or, if such fee is not paid by the
related Obligor, 0.5% of the principal amount realized in cash by the Grantor
Trust (other than scheduled payments of principal and interest) at the time of
such restructuring (unless the Servicer initially received Instructions prior to
the Servicer determining the appropriate actions to be taken or received
Directions from the Directing Holders).
"Stated Final Distribution Date" has the meaning assigned to
such term in the Pooling Agreement.
"Sub-account" has the meaning assigned to such term in the
Pooling Agreement.
"Subordinate Mortgage" means the mortgage, deed of trust,
indenture of mortgage and deed of trust or similar instrument creating a
subordinate lien on the related Obligor's Mortgaged Property and securing a Note
or Contract Right Agreement, as the case may be; provided, however, that the
subordinate mortgage instruments delivered by Bessomac, Taber and Leyden do not
create a lien upon the related Obligor's Mortgaged Property.
"Supplemental Agreement" means the Supplemental Agreement,
dated as of October 1, 1995, among BT, as agent for the Seller, the Seller, BT,
as Paying Agent, and certain Obligors, as amended by that certain Amendment to
Supplemental Agreement dated as of October 1, 1995.
"Taber" means Taber Associates Limited Partnership, a
Connecticut limited partnership.
"T-1 Allocated DPO Amount" has the meaning assigned in Section
6.05(d).
"T-1 Allocable Payments" consist of the following payments on
each Contract Receivable (other than the Contract Receivables listed on Exhibit
B), (i) the payments of principal and interest on such Contract Receivable
scheduled to be made on or prior to the applicable T-1 Payment End Date set
forth on Exhibit A hereto and received after the Closing Date, (ii) the portion
of each prepayment of such Contract Receivable allocable to such scheduled
payments (other than interest not yet accrued as of the date of prepayment)
pursuant to Section 6.03 hereof, (iii) the portion of the Repurchase Price and
Cure Amounts paid under Section 3.02 and the purchase price paid under Section
4.10 of such Contract Receivable allocable to the Grantor Trust T-1 Certificate
pursuant to Section 6.03(h), (l) or (m) hereof, (iv) the Net Liquidation
Proceeds of such Contract Receivable up to the amount of the unpaid balance of
the payments described in clause (i) and (v) hereof (other than interest which
has not yet accrued as of the date of determination), (v) the portion of each
payment of a Prepayment Deficiency Amount (other than the Existing Prepayment
Deficiency Amounts for the Pinole Contract Receivable and the Jacway Contract
Receivable) on such a Contract Receivable allocable to the Grantor Trust T-1
Certificate pursuant to Section 6.03 hereof and (vi) any other payment on such
Contract Receivable allocated by the specific terms of this Agreement to the
Grantor Trust T-1 Certificate.
"T-1 Payment End Date" means the date set forth as such on
Exhibit A attached hereto.
"T-2 Allocable Payments" consist of the following payments on
each Contract Receivable, (i) the payments of principal and interest on such
Contract Receivable (other than the Contract Receivables on Exhibit B) scheduled
to be made after the applicable T-1 Payment End Date set forth on Exhibit A
hereto (other than the CRPSP Payment) and received after the Closing Date, (ii)
the portion of each prepayment of such Contract Receivable (other than the
Contract Receivables on Exhibit B) allocable to such scheduled payments (other
than interest not yet accrued as of the date of such prepayment but including
the CRPSP Payment) pursuant to Section 6.03 hereof, (iii) the portion of the
Repurchase Price and Cure Amounts paid under Section 3.02 or purchase price paid
under Section 4.10 of such Contract Receivable (other than the Contract
Receivables on Exhibit B) in excess of the amounts allocated to the Grantor
Trust T-1 Certificate pursuant to Section 6.03(h), (l) or (m) hereof, (iv) the
Net Liquidation Proceeds of such Contract Receivable (other than the Contract
Receivables on Exhibit B) in excess of the amount allocated to the Grantor Trust
T-1 Certificate, (v) the portion of each payment of a Prepayment Deficiency
Amount on such Contract Receivable (other than a Contract Receivable on Exhibit
B) not allocable to the Grantor Trust T-1 Certificate pursuant to Section 6.03
hereof, (vi) all payments (including payments on a Prepayment Deficiency
Amount), prepayments, Net Liquidation Proceeds and Cure Amounts of each Contract
Receivable listed on Exhibit B and received after the Closing Date, (vii) all
payments (including payments on a Prepayment Deficiency Amount), prepayments and
Net Liquidation Proceeds of each Contract Receivable (or portions thereof)
following its repurchase as a result of a Material Breach of certain of the
representations and warranties pursuant to Section 3.02, (viii) all
distributions on or proceeds of the capital stock of Derby, Saber and Sentec,
the Sandwich Reserve Fund and the Derby and Sentec Reserve Account, and (ix) any
other payment on such Contract Receivable allocated by the specific terms of
this Agreement to the Grantor Trust T-2 Certificates.
"T-2 Certificate Purchase Agreement" means the T-2 Certificate
Purchase Agreement dated as of the Closing Date between the Grantor Trust and
the T-2 Holder.
"T-2 Holder" means T-Two Partners, L.P., a Delaware limited
partnership.
"T-2 Share" means the ratio of the T-2 Allocable Payments with
respect to a Collection Period to the sum of the T-1 Allocable Payments and the
T-2 Allocable Payments with respect to such Collection Period.
"Tenant" means, with respect to any Property, the original
tenant under an Underlying Lease and/or, if applicable, the Assignee, if any,
designated on Exhibit D attached hereto.
"Transfer Date" means the first Business Day following the end
of the Collection Period.
"Treasury Regulations" means any temporary or final regulation
promulgated under the Code, as in effect from time to time.
"Trust" means the Contract Receivables Pass-Through
Certificate Trust created under and pursuant to the Pooling Agreement.
"Trust Reimbursable Expenses" has the meaning assigned to such
term in the Pooling Agreement.
"Trustee's Fee" means the fees and expenses of the Grantor
Trust Trustee as described in Section 11.06.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the relevant jurisdiction.
"Underlying Lease" means a lease agreement affecting a
Property between the tenant named therein and either a Sandwich Corporation or
an Obligor, and which is identified as such on the Underlying Lease Schedule.
"Underlying Lease Schedule" means the schedule attached hereto
as Exhibit T.
"Unmodified Contract Receivables" means the Hertec Contract
Receivable, the Metec Contract Receivable, the Segair Note and the Utex Note.
"Utex Contract Receivable File" means, as to the Utex Note (a)
the Utex Note; (b) a copy of the assignment of the Utex Note evidencing a
complete chain of title of the Utex Note from IRL to BT, as agent for the
Grantor Trust; (c) the pledge of an undivided fractional interest in each of the
notes issued by Sablemart Associates Limited Partnership ("Sablemart") which in
turn are secured by the First Mortgage encumbering Sablemart's Properties; (d)
copies of Underlying Lease, Master Lease and First Mortgage Documents in the
possession of IRL on the Closing Date; (e) a copy of the direction letter
provided to the paying agent for the mortgagee under the related First Mortgage;
and (f) an original or copy of any amendments and modifications to the foregoing
in the possession of IRL on the Closing Date.
"Utex Note" means that certain Utex Corp. 22.71355% Note Due
February 1, 1998 No. C(R), in the original principal amount of $174,834, as
modified.
"Whole Prepayment Amount" means, as of any date of
determination, an amount equal to the sum of the unpaid principal balance of a
Contract Receivable and the unpaid interest accrued thereon.
ARTICLE II
CREATION OF TRUST; CONVEYANCE OF CONTRACT RECEIVABLES;
ACCEPTANCE BY TRUSTEE
SECTION 2.01 Creation of Trust. There is hereby created, by
the Seller and the Affiliated Sellers, as depositors, a separate trust which
shall be known as the Contract Right Grantor Trust (the "Grantor Trust"). The
Grantor Trust shall be administered pursuant to the provisions of this Agreement
for the benefit of holders of the Grantor Trust Certificates.
SECTION 2.02 Conveyance of Contract Receivables. Subject to
the conditions in Section 2.04, on the Closing Date, the Seller (with respect to
all of the Contract Receivables except the Utex Note and the Segair Note),
Presidio (with respect to the Segair Note) and IRL (with respect to the Utex
Note) shall sell, transfer, assign, set over and otherwise convey to the Grantor
Trust by execution of an assignment, substantially in the form of Exhibit P
hereto, and the Grantor Trust shall purchase, all right, title and interest of
the Seller and the Affiliated Sellers in each Contract Receivable, including,
without limitation, (a) the related Note or the Utex Note or the Segair Note, as
the case may be, or Contract Right Agreement, (b) all rights under the
Subordinate Mortgage or pledge of an undivided fractional interest in the notes
secured by the First Mortgage with respect to the Utex Note, as the case may be,
securing such Note, the Segair Note, the Utex Note or the Contract Right
Agreement, as the case may be (or, in the case of the Subordinate Mortgages
granted by Bessomac, Taber and Leyden, all right to enforce the covenants made
in the Subordinate Mortgage by the Obligor for the benefit of the Noteholder),
(c) all rights to payments due and received on such Contract Receivable on and
after the Cut-off Date, (d) all rights under the related Paying Agent Agreement,
including rights to the Collateral Account, (e) all rights under the Sandwich
Pledge Agreement (if any) relating to such Contract Receivable, (f) all proceeds
in any way derived on and after the Cut-off Date from any of the foregoing
items, and (g) all documents contained or required to be contained in the
Contract Receivable Files. To facilitate the servicing of the related Contract
Receivables and as additional credit enhancement, the Seller shall also sell,
transfer, assign, set over and otherwise convey to the Grantor Trust all of the
capital stock of Derby, Saber and Sentec. The Seller, Presidio and IRL hereby
release absolutely and irrevocably any and all interest which any of them may at
any time have in the Recordation Escrow Account (except as provided in Section
6.02), the Sandwich Reserve Fund, the Derby and Sentec Reserve Account, the
Rating Agency Reserve Fund, the Collection Account (including the Sub-account),
the Certificate Account and the Pledged Funds. In exchange for the Contract
Receivables and the capital stock and release described above, the Grantor Trust
shall pay to the Seller $201,721,283.23 (plus the additional amounts, if any,
payable from time to time pursuant to Section 6.02), pay to Presidio
$1,655,998.22 and pay to IRL $3,622,496.10 in immediately available funds. The
parties intend and agree that the conveyance of the Seller's and the Affiliated
Sellers' right, title and interest in and to each Contract Receivable and the
capital stock of Derby, Saber and Sentec pursuant to this Agreement shall
constitute absolute sales to the Grantor Trust, and not secured loans by the
Seller and the Affiliated Sellers to the Grantor Trust.
SECTION 2.03 Acceptance by Grantor Trust Trustee. On the
Closing Date, BT, on behalf of the Grantor Trust Trustee, shall deliver a
certificate to the Seller and each Affiliated Seller, substantially in the form
of Exhibit Q hereto, acknowledging conveyance of the capital stock of Derby,
Saber and Sentec, each Contract Receivable and the Contract Receivable Files to
the Grantor Trust Trustee and declaring that BT, on behalf of the Grantor Trust
Trustee, will hold all Contract Receivables and the capital stock of Derby,
Saber and Sentec that have been delivered in trust, upon the trusts herein set
forth, for the use and benefit of all holders of the Grantor Trust Certificates,
subject to the terms and provisions of this Agreement. The transfer, assignment,
and conveyance of the Contract Receivables and the capital stock of Derby, Saber
and Sentec, and the Grantor Trust Trustee's acceptance thereof, does not
constitute and is not intended to constitute an assumption by the Grantor Trust,
the Grantor Trust Trustee or any holder of a Grantor Trust Certificate of any
obligation of the Seller or the Affiliated Sellers in connection with the
Contract Receivables or the capital stock of Derby, Saber and Sentec, or under
any agreement or instrument relating thereto, except (with respect to the T-2
Holder) as provided in Section 2.05 and except (with respect to the Grantor
Trust) the obligations under the Contract Receivable Documents of the holder
thereof subject to which the Grantor Trust is acquiring the Contract
Receivables. Upon the order of the Seller (on behalf of itself and the
Affiliated Sellers), the Grantor Trust T-1 Certificate shall be issued to the
Trust in exchange for the Certificates and the Grantor Trust T-2 Certificates
shall be issued to the T-2 Holder in exchange for the consideration described in
Section 2.05.
SECTION 2.04 Closing Conditions.
On or before the Closing Date, BT shall deliver the following
documents to the Grantor Trust Trustee:
(a) Opinion of counsel for BT, substantially in the form of
Exhibit R hereto;
(b) An Officer's Certificate having attached thereto copies of
resolutions of the board of directors of BT approving the execution, delivery
and performance of any contract, document, instrument, certificate or other
writing that it may be necessary, or appropriate to execute for, or on behalf
of, BT in the conduct of its lawful business;
(c) An Officer's Certificate appointing and listing the
Servicing Officers;
(d) A blanket assignment of the Contract Receivables for the
transfer of the Contract Receivables from the Seller and each Affiliated Seller
to the Grantor Trust substantially in the form of Exhibit P hereto;
(e) An Officer's Certificate substantially in the form of
Exhibit Q hereto;
(f) A certificate of BT confirming the deposit in the
Collection Account of $859,565 and in the Reserve Fund of $26,550, constituting
all funds received with respect to the Contract Receivables on and after the
Cut-off Date to the Closing Date and of the deposit of $10,650,000, $150,000,
$9,415,190, $150,000, $915,000, $915,000 and $263,741 in, respectively, the
Repurchase Reserve Fund, the Rating Agency Reserve Fund, the Recordation Escrow
Account, the Derby and Sentec Reserve Account, the Saber Sandwich Investment
Account, the Sandwich Reserve Fund and the Sub-account; and
(g) An Officer's Certificate of BT stating that BT has
accepted its role as GT Collateral Agent, Custodian, Grantor Trust Certificate
Registrar and Servicer hereunder and confirming its appointment as Paying Agent
under the Paying Agent Agreements, agent under the Sandwich Pledge Agreements
and mortgagee or beneficiary under the Subordinate Mortgages.
SECTION 2.05 Consideration for Grantor Trust T-2 Certificates;
Conditions to Issuance of Grantor Trust T-2 Certificates.
As a condition to the issuance and sale by the Grantor Trust
of the Grantor Trust T-2 Certificates, the T-2 Holder shall deliver the
following consideration to the Servicer on behalf of the Grantor Trust Trustee
(and to the REMIC Trustee in the case of clauses (iii) and (iv)) on the Closing
Date:
(i) acknowledgment, by a counterpart to this Agreement, by the
T-2 Holder of its acceptance of the obligations under Sections 2.05, 2.07, 3.02,
4.05(l), 4.20(h), 6.03, 6.05, 7.02, 7.03, 13.10 and 13.16 herein;
(ii) the T-2 Certificate Purchase Agreement, duly executed by
the T-2 Holder;
(iii) the Reserve Fund Indemnity Agreement, duly executed by
the T-2 Holder;
(iv) the Reserve Fund Pledge Agreement, duly executed by the
T-2 Holder;
(v) the Repurchase Reserve Fund Indemnity Agreement, duly
executed by the T-2 Holder;
(vi) the Repurchase Reserve Fund Pledge Agreement, duly
executed by the T-2 Holder; and
(vii) payment by the T-2 Holder, in immediately available
funds of $20,030,000 to the Grantor Trust.
SECTION 2.06 Issuance of the Certificates; Payment to Holder
of Class R Certificate.
On the Closing Date, the Grantor Trust shall issue written
instructions to the REMIC Trustee to cause the authentication and delivery of
the Offered Certificates to the order of the Initial Purchaser and the Class R
Certificate to T-Two Corp., upon receipt of payment of the amount specified for
the Offered Certificates in the Certificate Purchase Agreement in the case of
the Initial Purchaser and the payment to T-Two Corp. in the case of the holder
of the Class R Certificate of $1,500,000.
SECTION 2.07 Irrevocable Instructions of T-2 Holder.
The T-2 Holder hereby irrevocably instructs the Servicer, at
all times prior to the REMIC Liquidation Date, to deposit all T-2 Allocable
Payments (other than the distributions on or proceeds of the stock of Derby,
Saber and Sentec which shall be applied in accordance with this Agreement) in
the Reserve Fund.
ARTICLE III
REPRESENTATIONS AND WARRANTIES; THE CUSTODIAN;
THE COLLATERAL AGENT
SECTION 3.01 Representations and Warranties. (a) Each of the
Seller and the Affiliated Sellers severally represents and warrants as to itself
to the Grantor Trust that, as of the Closing Date:
(1) The Seller is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware; Presidio is a company duly organized, validly existing and in good
standing under the laws of the British Virgin Islands; and IRL is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
(2) It has taken all necessary action to authorize
the execution, delivery and performance of this Agreement by it, it has duly
executed and delivered this Agreement and it has the power and authority to
execute, deliver and perform this Agreement and all the transactions
contemplated hereby, including, but not limited to, the power and authority to
sell, assign and transfer the Contract Receivables and, in the case of the
Seller, the capital stock of Derby, Saber and Sentec, in accordance with this
Agreement;
(3) Assuming the due authorization, execution and
delivery of this Agreement by the other parties hereto, this Agreement and all
of its obligations hereunder are its legal, valid and binding obligations,
enforceable in accordance with the terms of this Agreement, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
liquidation, receivership, moratorium or other laws relating to or affecting
creditors' rights generally, or by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
(4) The execution and delivery of this Agreement and
its performance of its obligations hereunder shall not conflict with any
provision of any law or regulation to which it is subject, or conflict with,
result in a breach of or constitute a default under any of the terms, conditions
or provisions of any agreement or instrument to which it is a party or by which
it is bound, or any order or decree applicable to it, or result in the creation
or imposition of any lien on any of its assets or property, which would
materially and adversely affect its ability to carry out the transactions
contemplated by this Agreement; and it has obtained any consent, approval,
authorization or order of any court or governmental agency or body required for
its execution, delivery and performance of this Agreement;
(5) There is no action, suit or proceeding pending
against it in any court or by or before any other governmental agency or
instrumentality which would materially and adversely affect its ability to carry
out its obligations under this Agreement; and
(6) It has not dealt with any broker, investment
banker, agent or other person (other than the Grantor Trust, the Grantor Trust
Trustee, the Trust, the REMIC Trustee, BT, the Initial Purchaser and attorneys,
accountants and financial advisors to the foregoing and to it) who may be
entitled to any commission or compensation in connection with the sale of the
Contract Receivables or the capital stock of Derby, Saber and Sentec.
(b) Each of the Seller and the Affiliated Sellers severally
represents and warrants with respect to the Contract Receivables sold by it to
the Grantor Trust (except that, unless specifically noted below, no
representation is made with respect to the Unmodified Contract Receivables and
the Dalcin Contract Receivable) that as of the date specified below or, if no
such date is specified, as of the Closing Date:
(1) The information set forth in the Contract
Receivable Schedule with respect to each Contract Receivable (including the
Unmodified Contract Receivables and the Dalcin Contract Receivable) is true and
correct in all material respects at the date or dates respecting which such
information is furnished;
(2) Immediately prior to the assignment of the
Contract Receivables (including the Unmodified Contract Receivables and the
Dalcin Contract Receivable) to the Grantor Trust, it had good title to, and was
the sole owner of, each Contract Receivable and the capital stock of Derby,
Saber and Sentec free and clear of any pledge, lien, encumbrance or security
interest and such assignment validly transfers ownership of the Contract
Receivables and the capital stock of Derby, Saber and Sentec to the Grantor
Trust free and clear of any pledge, lien, encumbrance or security interest;
(3) It has not taken any action that would cause the
representations and warranties made by any Obligor (including the Obligor under
the Dalcin Contract Receivable), or its nominee, in any Contract Receivable
Document not to be true in any material respect;
(4) It has no knowledge that the representations,
warranties or certifications provided by any Obligor (including the Obligor
under the Dalcin Contract Receivable) in any Contract Receivable Document are
not true in any material respect;
(5) It has no knowledge that any information set
forth in the estoppel letters provided by the Tenants, Lessees and First
Mortgagees is not true in any material respect (including with respect to the
Dalcin Contract Receivable);
(6) The interest in each individual Contract
Receivable (including the Unmodified Contract Receivables and the Dalcin
Contract Receivable) to be evidenced by the Grantor Trust T-1 Certificate meets
the definition of a qualified mortgage under Section 860G(a)(3)(A) of the Code
and Treasury Regulations Section 1.860G-2(a)(1);
(7) Each Contract Receivable File (including the
Contract Receivable Files with respect to the Unmodified Contract Receivables
and the Dalcin Contract Receivable) contains each of the documents and
instruments specified in the definition of such term to be included therein duly
executed and in due and proper form;
(8) Each Property (and with respect to the Unmodified
Contract Receivables and the Dalcin Contract Receivable, the property secured by
the related Subordinate Mortgage or the First Mortgage indirectly securing the
Utex Note) consists of one or more parcels of real property in which the related
Obligor has the following interests: (a) fee simple ownership of the related
land and improvements, or (b) fee simple ownership of the related improvements
and a leasehold interest in the related land, which leasehold interest is
provided pursuant to a lease which, to the best of its knowledge, has an
unexpired term which is not less than the unexpired Primary Term of the
Underlying Lease for the related Property, or (c) a leasehold interest in the
related improvements and a leasehold interest in the related land, which
leasehold interest or interests are provided pursuant to a lease which, to the
best of its knowledge, has an unexpired term which is not less than the
unexpired Primary Term of the Underlying Lease for the related Property, or (d)
fee title to the improvements and an estate for years in the land which, to the
best of its knowledge, expires no earlier than the unexpired Primary Term of the
Underlying Lease for the related Property and an option to ground lease the
related Property pursuant to a ground lease which, to the best of its knowledge,
has a term commencing as of the day following the termination of the estate for
years, or (e) a leasehold interest in the improvements and an estate for years
in a leasehold interest in the land which leasehold interest and estate for
years, to the best of its knowledge, expire no earlier than the unexpired
Primary Term of the Underlying Lease for the related Property and an option to
lease the land and improvements from the holder of the remainder interest in the
leasehold estate which, to the best of its knowledge, commences as of the day
following the termination of the estate for years; and all of the aforementioned
leasehold interests are provided pursuant to leases which, to the best of its
knowledge, (i) shall expire (assuming the exercise of applicable renewal
options) at least ten years after the date the last scheduled installment of
principal and interest is due under the related Contract Receivable and (ii) in
the case of leasehold interests described in clause (b) impose no obligations
upon the related Obligor or Sandwich Corporation which are not, in turn,
directly or indirectly assumed by the related Lessee;
(9) Each Contract Receivable (including in respect of
the Unmodified Contract Receivables and the Dalcin Contract Receivable) provides
for monthly, quarterly or semi-annual payments which are, if timely paid,
sufficient to fully amortize the principal balance of such Contract Receivable
on or before its maturity date (including in many cases a balloon payment at
maturity);
(10) Except for Bessomac, Leyden and Taber, each
Subordinate Mortgage (and, with respect to the Dalcin Contract Receivable and
the Unmodified Contract Receivables, the related Subordinate Mortgage or the
First Mortgage indirectly securing the Utex Note) is a valid, enforceable and
duly perfected lien of record on and/or security interest in its related
Mortgaged Property subject only to Permitted Exceptions (as defined in the
Subordinate Mortgage) for the related Mortgaged Property, which Permitted
Exceptions (except for the related First Mortgage) do not, individually or in
the aggregate, materially and adversely affect the benefits of the security
intended to be provided by such Subordinate Mortgage;
(11) To the best of its knowledge, no Contract
Receivable is subject to any right of rescission, set-off, counterclaim or
defense, including the defense of usury, nor shall the operation of any of the
terms of any Contract Receivable Document (including those for the Unmodified
Contract Receivables and the Dalcin Contract Receivable), or the exercise of any
right thereunder, render such Contract Receivable Document unenforceable in
whole or in part (subject to the qualification that certain provisions contained
in the Contract Receivable Documents may not be enforceable, but such
unenforceability shall not render such Contract Receivable Documents invalid as
a whole or substantially interfere with the realization of the benefits thereof
and/or the security intended to be provided thereby), or subject to any right of
rescission, set-off, counterclaim or defense, including the defense of usury,
and no such right of rescission, set-off, counterclaim or defense has been
asserted with respect thereto;
(12) To the best of its knowledge, there is no
proceeding pending or threatened for the total or partial condemnation of any
Property related to any of the Contract Receivables (including the Unmodified
Contract Receivables and the Dalcin Contract Receivable) which would either (i)
give rise to a Schedule C Event or (ii) entitle any Lessee to an abatement of
rent which would cause the Scheduled Rent for such Property to be less than (a)
if the Property is owned by a Single Property Obligor, the sum of the Aggregate
Debt Service Payments and the payments to be made under the Contract Receivable,
or (b) if the Property is owned by a Multiple Property Obligor, the product of
(A) the sum of the Aggregate Debt Service Payments and the payments to be made
under the Contract Receivable and (B) the Allocable Fraction for such Property;
(13) Each Contract Receivable Document (including
those for the Unmodified Contract Receivables and the Dalcin Contract
Receivable) is the legal, valid and binding obligation of each party thereto and
is enforceable in accordance with its terms, except only as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether considered in a proceeding or action in
equity or at law), subject to the qualification that certain provisions
contained in such Contract Receivable Document may not be enforceable, but such
unenforceability shall not render such Contract Receivable Document invalid as a
whole or substantially interfere with the realization of the benefits thereof
and/or the security intended to be provided thereby; all parties to each such
Contract Receivable Document had full legal capacity to execute all such
Contract Receivable Documents and convey any estate therein purported to be
conveyed, and each such Contract Receivable Document has been duly and properly
executed by such parties, and (except with respect to the Dalcin Contract
Receivable and the Unmodified Contract Receivables) it has obtained opinions of
counsel to such effect; none of such Contract Receivable Documents violate any
applicable usury laws or regulations;
(14) None of the Contract Receivable Documents
(including those for the Unmodified Contract Receivables and the Dalcin Contract
Receivable) have been amended or modified in any material respect, except by a
written instrument which is reflected on the Contract Receivable Schedule;
(15) Except for Bessomac, Leyden and Taber, each
Subordinate Mortgage (and with respect to the Unmodified Contract Receivables
and the Dalcin Contract Receivable, the related Subordinate Mortgage or the
First Mortgage indirectly securing the Utex Note) was duly recorded or properly
filed in the appropriate recording or filing office for the purposes of
perfecting the liens and security interests provided for therein against the
property specified therein and except as set forth on Exhibit K at least 91 days
prior to the Closing Date;
(16) No instrument of release or waiver has been
executed in connection with any Contract Receivable (including the Unmodified
Contract Receivables and the Dalcin Contract Receivable) by it or its agents,
and no Obligor, Tenant, Guarantor or (except in cases where a Master Lease has
been terminated and the Lessee has attorned to the related Obligor under the
terms of a related Underlying Lease) Sandwich Corporation has been released, in
whole or in part (other than pursuant to an order of a Bankruptcy Court or by
operation of law), from its obligations under the Contract Receivable Documents,
Underlying Lease, Guaranty or (except as provided above) Master Lease;
(17) There is no obligation on the part of the
holders of any of the Contract Receivables (including the Unmodified Contract
Receivables and the Dalcin Contract Receivable) to make future advances under
any of the Contract Receivables;
(18) All costs, fees and expenses incurred in making,
closing or recording the Contract Receivables (including the Unmodified Contract
Receivables and the Dalcin Contract Receivable) were paid;
(19) Each Contract Receivable (including the Dalcin
Contract Receivable and the Unmodified Contract Receivables) is not secured by
any collateral, pledged account or other security except the liens and security
interests provided for in the Contract Receivable Documents related thereto;
(20) Except pursuant to the Paying Agent Agreements
(including with respect to the Unmodified Contract Receivables and the Dalcin
Contract Receivable) and with respect to Noteholder Expenses, there is no
obligation on the part of it or any other party to make payments in addition to
those made or to be made by any Obligor under the Contract Receivable Documents
(including those for the Unmodified Contract Receivables and the Dalcin Contract
Receivable);
(21) With respect to each Subordinate Mortgage (and,
with respect to the Unmodified Contract Receivables and the Dalcin Contract
Receivable, the related Subordinate Mortgage or the First Mortgage indirectly
securing the Utex Note) constituting a deed of trust, a trustee, duly qualified
under applicable law to serve as such, has been properly designated and
currently so serves and is named in such Subordinate Mortgage;
(22) With respect to the execution, delivery and (if
applicable) recording and filing of each Contract Receivable Document (including
those for the Unmodified Contract Receivables and the Dalcin Contract
Receivable) relating to each Contract Receivable either (i) no consent is
required on the part of the holder of the related First Mortgage or (ii) such
consent has been obtained;
(23) Except for Bessomac, Taber and Leyden, each
Subordinate Mortgage (including, with respect to the Unmodified Contract
Receivables and the Dalcin Contract Receivable, the related Subordinate Mortgage
or the First Mortgage indirectly securing the Utex Note) contains enforceable
provisions which are customary in the State in which the related Property is
located for second mortgages (or, in the case of the First Mortgage indirectly
securing the Utex Note, first mortgages) and which, subject to the superior
rights of the First Mortgagee under the First Mortgage Documents and the
restrictions imposed upon the implementation of such provisions by virtue of the
First Mortgage, render the rights and remedies of the holder of the Subordinate
Mortgage adequate for the realization against the Mortgaged Property of the
benefits of the security granted therein; each such Subordinate Mortgage
provides for the appointment of a receiver for rents in the event of default or
allows the mortgagee to enter into possession to collect the rents of its
related Property or Properties, subject to the superior rights of the First
Mortgagee under the First Mortgage Documents and the restrictions imposed upon
the implementation of such provisions by virtue of the First Mortgage;
(24) There is no statutory exemption available to the
Obligor which would materially interfere with the right of the holder of the
Contract Receivables (including the Unmodified Contract Receivables and the
Dalcin Contract Receivable) to sell the Property at a trustee's sale or the
right to foreclose on the Subordinate Mortgage;
(25) There is no default, breach, violation or event
of acceleration existing under any Contract Receivable Document (including those
for the Unmodified Contract Receivables and the Dalcin Contract Receivable) and
no event which, with the passage of time or with notice and the expiration of
any grace or cure period, would constitute a default, breach, violation or event
of acceleration; and neither it nor any of its agents has waived any default,
breach, violation or event of acceleration; and to the best of its knowledge,
there is no existing circumstance or condition with respect to any such Contract
Receivable, Property or Obligor that in its sole opinion can reasonably be
expected to cause the related Contract Receivable to become subject to imminent
default;
(26) No Obligor (including the Obligors under the
Unmodified Contract Receivables and the Dalcin Contract Receivable) is currently
a debtor in any bankruptcy, reorganization, insolvency or similar proceeding;
(27) With respect to each Contract Receivable
(including the Unmodified Contract Receivables and the Dalcin Contract
Receivable) (a) each Underlying Lease and, if any, Guaranty and Master Lease is
in full force and effect and has not been amended, modified, supplemented or
superseded except as set forth in the Underlying Lease Schedule, (b) no party to
an Underlying Lease or, if any, Guaranty or Master Lease is in default under
such Underlying Lease, Guaranty or Master Lease beyond applicable notice and
cure periods, (c) there is currently no defense, offset, claim or counterclaim
by or in favor of any Lessee, Tenant or Guarantor under any Underlying Lease or,
if any, Guaranty or in favor of any Sandwich Corporation under any Master Lease
or against the obligations of any Lessee, Tenant or, if any, Guarantor under any
Underlying Lease or, if any, Guaranty or any Sandwich Corporation under any
Master Lease, (d) there has not been any prior transfer, assignment,
hypothecation or pledge of any Obligor's or Sandwich Corporation's interest in
any Underlying Lease or, if any, Guaranty or Master Lease, except pursuant to
(i) assignments of leases and rents delivered in connection with the related
First Mortgage and, in the case of the Segair Note, the assignment delivered in
connection with the second priority mortgage encumbering the Segair Property,
(ii) the Subordinate Mortgage(s) and (iii) the Collateral Assignment(s), if any,
for the related Property or Properties and the Section 2.09 Agreement, (e) the
base minimum rent under each Underlying Lease and any Master Lease is in the
amounts, and is payable on the dates, set forth on the Underlying Lease
Schedule, all such base minimum rent is not delinquent under the terms of the
Underlying Leases and, if any, the Master Leases as of the date hereof, and no
Advance Rental Payment (as defined in the Supplemental Agreement) has been made,
(f) each Collateral Assignment, if any, is in full force and effect as of the
date hereof, and has not been amended, modified, supplemented or superseded
except as set forth in the Contract Receivable Schedule, and (g) each Tenant
which is not a Lessee under its related Underlying Lease is liable for the
payment and performance of such Lessee's obligations under such Underlying
Lease, and each Guarantor, if any, is liable for the payment and performance of
its related Tenant's obligations under such Tenant's related Underlying Lease;
(28) It and BT, as its agent (including with respect
to the Unmodified Contract Receivables and the Dalcin Contract Receivable), are
(1) in compliance with any and all applicable licensing requirements of the laws
of the state wherein each Property is located, and (2)(A) organized under the
law of such state, or (B) qualified to do business in such state, or (C) not
doing business in such state so as to require qualification or licensing;
assuming that the Grantor Trust's sole activity in each state in which there is
a Property is to own the related Contract Receivable and to receive and collect
the payments due thereunder (and the Trust's sole activity in each state is to
own the Grantor Trust T-1 Certificate and to exercise the rights under this
Agreement related thereto), the Grantor Trust and the Trust shall not be
required to qualify to do business or to be licensed in such state or be subject
to the imposition of any tax of such state or any subdivision thereof;
(29) To the best of its knowledge, with respect to
those Contract Receivables (including the Unmodified Contract Receivables and
the Dalcin Contract Receivable) that are secured in whole or in part by an
interest of an Obligor as a lessee under a Ground Lease: (A) such Ground Lease
or an estoppel or consent letter or lender protective agreement permits the
interest of the lessee thereunder to be encumbered by the related Subordinate
Mortgage and there has been no amendment or modification to the terms of such
Ground Lease which would materially and adversely affect the Grantor Trust's
ability to realize upon the security provided for under the related Subordinate
Mortgage; (B) subject to the superior rights of the First Mortgagee under the
First Mortgage Documents, it and its successors and assigns have the right to
succeed to the Obligor's interest in each Ground Lease upon notice to, but
without the consent of, the lessor thereunder (or, if any such consent is
required, it has been obtained prior to the Closing Date), provided, in the
event that it, or its successors and assigns, shall have succeeded to the
interest of the Obligor, as lessee under the Ground Lease, by foreclosure of the
related Subordinate Mortgage or acceptance of an assignment in lieu thereof, the
consent of such lessor may be required for any subsequent assignment; and (C) as
of the Closing Date, each Ground Lease is in full force and effect and no
default beyond applicable notice and cure periods has occurred under any such
Ground Lease;
(30) The information set forth on the Underlying
Lease Schedule (including with respect to the Unmodified Contract Receivables
and the Dalcin Contract Receivable) with respect to each Underlying Lease and,
to the best of its knowledge, Guaranty thereof is true, correct and complete in
all material respects as of the date or dates upon which such information is
furnished, and no change has occurred with respect to the facts or circumstances
set forth therein from and after such date or dates;
(31) To the best of its knowledge, no Rejectable
Offer or event which would give rise to a Rejectable Offer has occurred since
October 17, 1995 with respect to any of the Contract Receivables (including the
Unmodified Contract Receivables and the Dalcin Contract Receivable) except for
(A) Autolane Associates Limited Partnership which has received notice from the
Lessee of its Banning, California Property that the Lessee intends to terminate
the Underlying Lease with respect to the Property, together with an irrevocable
offer by the Lessee to purchase the Property for the related Schedule C
Prepayment Amount, (B) Waldrest Associates Limited Partnership which has
received notice from the Lessee of its St. Petersburg, Florida Property that the
Lessee intends to terminate the Underlying Lease with respect to the Property,
together with an irrevocable offer by the Lessee to purchase the Property for
the related Schedule C Prepayment Amount, and (C) Sunway Associates Limited
Partnership which has received notice from the Lessee of its Payson, Arizona
Property that the Lessee intends to terminate the Underlying Lease with respect
to the Property, and intends to make an irrevocable offer to purchase the
Property for the related Schedule C Prepayment Amount (provided, that subsequent
to Sunway's receipt of such notice, Seller received notice that Sunway will
voluntarily prepay the portion of its indebtedness allocable to such Property);
(32) To the best of its knowledge, no Lessee or any
other party which has a right to exercise a Purchase Option has exercised any
Purchase Option with respect to any of the Contract Receivables (including the
Unmodified Contract Receivables and the Dalcin Contract Receivable);
(33) The holder of each Contract Receivable
(including the Hertec Contract Receivable, the Metec Contract Receivable and the
Dalcin Contract Receivable) shall have a valid, enforceable and duly perfected
lien on all amounts held by the Paying Agent in the Collateral Account pursuant
to the terms of its related Paying Agent Agreement;
(34) With respect to each Contract Receivable
(including the Unmodified Contract Receivables (other than the Utex Note) and
the Dalcin Contract Receivable), (a) a direction letter in the form attached to
the related Paying Agent Agreement has been provided to (i) the lessee under the
related Underlying Lease or (ii) the First Mortgagee or the paying agent or
trustee for the related First Mortgagee (the entities described in clauses (i)
and (ii) are referred to herein as the "Payor"), as applicable, (b) there is
currently no dispute with respect to such Payor's obligation to pay rent in
excess of First Mortgage debt service, trustee or paying agent fees (if any),
UCC filing fees and other sums then due and payable under the First Mortgage to
the Paying Agent, and (c) in the case of any Underlying Lease on which rental
payments were due on or after January 1, 1996 and prior to March 1, 1996, the
Paying Agent has received all payments which were due on the related Contract
Receivable prior to March 1, 1996; with respect to the Utex Note, a direction
letter has been provided to the paying agent for the related First Mortgagee
directing such paying agent to remit the portion of First Mortgage debt service
allocable to the Utex Note to the Paying Agent;
(35) Each Underlying Lease (including with respect to
the Unmodified Contract Receivables and the Dalcin Contract Receivable) (i)
imposes on the Lessee all obligations with respect to the operation, maintenance
or use of the leased Properties (including, but not limited to, the obligations
to comply with laws and to pay real estate taxes and assessments), and (ii) is a
"net lease" and provides that the Tenant's obligation to pay fixed rent,
additional rent and all other sums payable by the Tenant pursuant to the
Underlying Lease shall be paid without notice, demand, counterclaim, setoff,
deduction or defense and without abatement, suspension , deferment, diminution
or reduction of any kind whatsoever, except as may be expressly provided
therein;
(36) No sums have been advanced by or on behalf of
any holder of the Contract Receivables (including the Unmodified Contract
Receivables and the Dalcin Contract Receivable) for the purposes of paying any
sums due and payable by the Obligors thereunder;
(37) Each Obligor (including with respect to the Utex
Note) which is a party to a Master Lease has acquired, free and clear of any
liens, claims and encumbrances (except for certain permitted exceptions) the
absolute right to receive all amounts payable to its related Sandwich
Corporation under the related Master Lease (i) as the result of any Schedule C
Event and (ii) as a result of the exercise of any Purchase Option set forth in
the related Underlying Lease and such rights are included within the Mortgaged
Property subject to the lien of the related Subordinate Mortgage;
(38) Each Sandwich Corporation (including with
respect to Hertec, Metec, Dalcin and Segair) is a duly formed and validly
existing United States corporation whose certificate of incorporation contains
"bankruptcy remote" type provisions substantially similar to those in Exhibit U
attached hereto; each Obligor (including LCB) which is a party to a Master Lease
is the equitable and beneficial owner, by virtue of a Nominee Agreement, dated
as of October 1, 1995, with The Sandwich Services, L.L.C., of all of the stock
of the Sandwich Corporation which is a party to such Master Lease; BT, as agent
for the holder of the related Contract Receivable, shall have a valid,
enforceable and duly perfected lien on such stock;
(39) No Contract Receivable (including the Unmodified
Contract Receivables and the Dalcin Contract Receivable) contains any equity
participation by the holder of the Contract Receivable, and each Contract
Receivable is a whole loan and not a participation certificate;
(40) To the best of its knowledge, no default beyond
applicable notice or cure periods is currently existing under any First Mortgage
Documents (including those relating to the Unmodified Contract Receivables and
the Dalcin Contract Receivable);
(41) As of the Cut-off Date, the most recent
scheduled payment on each Contract Receivable (including each Unmodified
Contract Receivable and the Dalcin Contract Receivable) was made or was not
delinquent more than 60 days;
(42) The interest in each individual Contract
Receivable (including each Unmodified Contract Receivable and the Dalcin
Contract Receivable) to be evidenced by the Grantor Trust T-1 Certificate has a
loan-to-value ratio no greater than 125% at the Closing Date. For purposes of
computing such loan-to-value ratio, (i) the amount of the loan at the Closing
Date is equal to the "adjusted issue price" of the interest of the Grantor Trust
T-1 Certificate in the Contract Receivable, as determined for Federal income tax
purposes, and (ii) the fair market value of the Property must be reduced by the
amount of any lien that is senior to the mortgage applicable to the interest of
the Grantor Trust T-1 Certificate in the Contract Receivable, and must be
further reduced by a proportionate amount of any lien that is in parity with
such applicable mortgage;
(43) The information in the "Data Base" and "Presidio
Electronic Files" referred to in the Agreed Upon Procedures Letter (including
with respect to the Unmodified Contract Receivables and the Dalcin Contract
Receivable) is true, correct and complete in all material respects as of the
date or dates upon which such information was obtained and reviewed by Deloitte
& Touche LLP, and no change has occurred with respect to the facts or
circumstances set forth therein from and after such date or dates;
(44) The information contained in Exhibit S, is true,
correct and complete in all material respects; and
(45) No Contract Receivable has any Prepayment
Deficiency Amount outstanding, except for the Dalcin Contract Receivable, the
Jacway Contract Receivable, the Bedcar Contract Receivable and the Pinole
Contract Receivable.
(c) The Seller represents and warrants, that as of the Closing
Date:
(1) Each of Derby, Saber and Sentec is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, and has the requisite corporate power and lawful authority to own,
lease or operate its assets, properties and business and to carry on its
business as it is now being conducted. Each of Derby, Saber and Sentec is duly
qualified as a foreign corporation authorized to transact business, and is in
good standing, in each jurisdiction in which the character of its properties,
owned or leased, or the nature of its activities makes such qualification
necessary;
(2) The capital stock of Derby, Saber and Sentec to
be delivered to the Grantor Trust Trustee on the Closing Date will constitute
all of the issued and outstanding capital stock of each of Derby, Saber and
Sentec. No shares of capital stock of any of them are reserved for issuance
pursuant to any outstanding agreement. There are no other shares of capital
stock of any of them outstanding and no other outstanding options, warrants,
convertible or exchangeable securities, subscriptions, rights (including any
preemptive rights), stock appreciation rights, calls or commitments of any
character whatsoever to which any of them is a party or may be bound requiring
the issuance or sale of shares of any capital stock of any of them, and there
are no contracts or other agreements by which any of them is or may become bound
to issue additional shares of its capital stock or any options, warrants,
convertible or exchangeable securities, subscriptions, rights (including any
preemptive rights), stock appreciation rights, calls or commitments of any
character whatsoever relating to such shares. All of the issued and outstanding
shares of capital stock of each of Derby, Saber and Sentec are validly issued
and outstanding, fully paid and nonassessable;
(3) None of Derby, Saber or Sentec has any direct or
indirect indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, including, without limitation, liabilities on account of taxes,
other governmental, regulatory or administrative charges or lawsuits brought,
whether or not of a kind required by generally accepted accounting principles to
be set forth on a financial statement, except that each of these corporations is
subject to (i) liabilities and obligations under the Master Lease to which it is
a party, each of which liabilities and obligations is also a liability or
obligation of the Lessee under an Underlying Lease and (ii) tax liabilities for
which all estimated tax payments have been made or all returns filed; and
(4) The Seller is the record and beneficial owner of
all outstanding shares of capital stock of Derby, Saber and Sentec, free and
clear of any lien or other encumbrance and has full power and authority to
convey such shares, free and clear of any lien or other encumbrance, and, upon
delivery of and payment for such shares as herein provided, the Grantor Trust
will acquire good and valid title thereto, free and clear of any lien or other
encumbrance.
(d) The representations and warranties described in this
Section 3.01 shall survive the sale of the Contract Receivables to the Grantor
Trust and shall inure to the benefit of the Grantor Trust, notwithstanding any
restrictive or qualified endorsement on any Contract Receivable or assignment
thereof or the examination or lack of examination of any Contract Receivable
File, but the remedies for breach of a representation or warranty shall be
limited to those set forth in Section 3.02 hereof.
SECTION 3.01A Representations and Warranties of Custodian
Regarding the Contract Receivable Files. The Custodian represents and warrants
to the Grantor Trust Trustee and the holders of the Grantor Trust Certificates
that immediately prior to the Closing Date, the Custodian will have possession
of each original Contract Receivable and the related Contract Receivable File.
SECTION 3.02 Cure or Repurchase of Contract Receivables for
Breach of Representations and Warranties.
(a) On the Closing Date, pursuant to the Repurchase Reserve
Fund Indemnity Agreement, the T-2 Holder shall assume the obligations of the
Seller and the Affiliated Sellers to pay the Cure Amount or the Repurchase Price
for (i) any Contract Receivable as to which there is a breach of a
representation or warranty under Section 3.01(b) which materially and adversely
affects the value of such Contract Receivable or the interest of the holders of
the Grantor Trust Certificates therein (and regardless of whether the
representation or warranty was given to the best knowledge of the Seller or an
Affiliated Seller) or (ii) each Unmodified Contract Receivable or the Dalcin
Contract Receivable as to which an event or circumstance exists or has occurred
which, if the representation and warranty contained in Section 3.01(b)(11) were
applicable to such Contract Receivable, there would be a breach of such
representation which materially and adversely affects the value of such Contract
Receivable or the interest of the holders of the Grantor Trust Certificates
therein (regardless of whether such representation or warranty was given to the
best knowledge of the Seller or an Affiliated Seller (each, a "Material
Breach")). In the event of a Material Breach, the Servicer and/or the Grantor
Trust Trustee shall promptly notify the T-2 Holder specifying the breach in
reasonable detail. Subject to Section 3.02(e), the T-2 Holder shall be given the
opportunity to effect a cure of such Material Breach, or, if not cured, to
repurchase a Contract Receivable, at its Repurchase Price, or to pay the Cure
Amount, by not later than the date (the "Repurchase Date") which is the earlier
of (i) the date which is 90 days after the T-2 Holder receives written notice of
such Material Breach from the Grantor Trust Trustee, or the Servicer or (ii) the
date which is 90 days after the T-2 Holder otherwise becomes aware of such
Material Breach. The T-2 Holder may request the Servicer to disburse funds to
pay the costs and expenses of the cure of a Material Breach (including a Cure
Amount) from the Repurchase Reserve Fund (or, to the extent funds are not
available in the Repurchase Reserve Fund, from the Reserve Fund and then from
the Net Sandwich Investments (in accordance with the procedure set forth in
Section 6.09)), in which event the Servicer shall determine whether such funds
should be disbursed to cure a Material Breach. If such a Material Breach relates
to the payment terms of a Contract Receivable, the related Underlying Lease or
the related First Mortgage Note, the T-2 Holder may cure such Material Breach by
paying an amount (a "Cure Amount") equal to the difference between the payments
as represented and the actual payments required to be made on such Contract
Receivable (or, if such Material Breach relates to the payment terms of the
Underlying Lease or the First Mortgage Note, the amount by which rental payments
under such Underlying Lease, after payment of debt service under such First
Mortgage Note, are, as a result of such Material Breach, insufficient to pay the
debt service payable under such Contract Receivable as and when due). If the T-2
Holder fails to cure such Material Breach or pay the Cure Amount by the
Repurchase Date, the T-2 Holder may, at its option, effect such repurchase by
paying the Servicer the Repurchase Price on the Repurchase Date. If the T-2
Holder does not effect such cure of a Material Breach or pay the Cure Amount or
the Repurchase Price for such Contract Receivable by the Repurchase Date, an
amount equal to the lesser of the Repurchase Price for such Contract Receivable
and the Cure Amount (if any) for such Material Breach shall be withdrawn by the
Servicer, first, from the Repurchase Reserve Fund, second, from the Reserve
Fund, and third, from the Net Sandwich Investments (in accordance with the
procedure set forth in Section 6.09) on the Repurchase Date. If, on a Repurchase
Date, there are not sufficient funds available from the foregoing sources, the
available funds shall be applied to pay such Repurchase Price in part on the
Repurchase Date and on each subsequent date on which funds are available in the
Reserve Fund or from Net Sandwich Investments (in accordance with the procedure
set forth in Section 6.09) until the portion of the Repurchase Price which
constitutes a T-1 Allocable Payment has been paid in full.
Notwithstanding the immediately preceding paragraph, no
Repurchase Price shall be payable with respect to a Contract Receivable, and the
Contract Receivable shall not be repurchased, upon a Material Breach of a
representation or warranty under Section 3.01(b), (i) if a claim is made after
the Primary Term of the related Underlying Lease has expired (other than a claim
with respect to the Jacway Contract Receivable made during the first Renewal
Term of its related Underlying Leases), (ii) if all T-1 Allocable Payments have
been made on such Contract Receivable or (iii) if it is a Contract Receivable on
Exhibit B; provided, however, that funds in the Repurchase Reserve Fund shall be
applied on the Repurchase Date pursuant to Section 3.02 in such circumstances to
pay the Cure Amount with respect to a Contract Receivable with respect to which
no Repurchase Price is payable if (i) a Material Breach has occurred and is
continuing, (ii) such Material Breach relates to the payment terms of the
Contract Receivable or of the related Underlying Lease or the related First
Mortgage Note, and (iii) the Servicer determines, in accordance with the
standard of care, after prior consultation with the T-2 Holder (provided that
the T-2 Holder's advice shall not be binding on the Servicer), that it is in the
interest of the holders of the Grantor Trust Certificates to apply funds in the
Repurchase Reserve Fund to pay such Cure Amount. No Repurchase Price or Cure
Amount will be payable by the Seller, an Affiliated Seller or the T-2 Holder,
from the Repurchase Reserve Fund or otherwise, if any of the representations or
warranties in Section 3.01(a) or (c) is incorrect.
(b) If a Material Breach under Section 3.01(b) materially and
adversely affects less than all of the Properties of a Contract Receivable of a
Multiple Property Obligor, the Repurchase Price shall be equal to the Allocated
DPO Amount (determined as of the related Repurchase Date) for the affected
Property or Properties only or, if a Schedule C Event or Purchase Option
occurred with respect to the affected Property or Properties, any Prepayment
Deficiency Amount related to such affected Property or Properties. If a Material
Breach under Section 3.01(b) materially and adversely affects the Contract
Receivable as a whole, then the Repurchase Price shall be equal to the
Discounted Pay Off Amount (determined as of the related Repurchase Date) for
such Contract Receivable (plus the outstanding Prepayment Deficiency Amount, if
any).
(c) The sole remedy of the Grantor Trust, the Grantor Trust
Trustee or the holders of the Grantor Trust Certificates against the Seller, the
Affiliated Sellers or the T-2 Holder with respect to a breach of a
representation or warranty under Section 3.01(b) shall be to require the T-2
Holder to pay the Cure Amount or Repurchase Price for a Contract Receivable or
portion thereof with respect to which a Material Breach has occurred and has not
been cured, but only from (and only to the extent of) the funds on deposit in
the Repurchase Reserve Fund and the Reserve Fund pursuant to this Section 3.02.
(d) The Repurchase Price (or a Cure Amount) shall be allocated
between the Grantor Trust T-1 Certificate and the Grantor Trust T-2 Certificates
pursuant to Section 6.03(h) hereof and the T-1 Allocable Payments deposited in
the Collection Account (or, for the period of time from the Transfer Date to the
Deposit Date, in the Certificate Account) and the T-2 Allocable Payments
deposited in the Reserve Fund. If the Repurchase Price (or a Cure Amount) is
paid, in part or in whole, from the Reserve Fund or from the Net Sandwich
Investments (in accordance with the procedure set forth in Section 6.09), only
the portion of the Repurchase Price (or Cure Amount) which constitutes a T-1
Allocable Payment shall be withdrawn. For purposes of Section 3.02(f) and
Section 6.03(k), if such portion of the Repurchase Price is paid, such Contract
Receivable shall be deemed to have been repurchased and the Repurchase Price
paid in full.
(e) No recourse shall be had to the T-2 Holder (except, in the
case of a Material Breach, to the T-2 Holder's interest in the Repurchase
Reserve Fund and the Reserve Fund), the Seller or the Affiliated Sellers or the
successors or assigns thereof for failure to cure a breach of a representation
or warranty under Section 3.01 or to pay the Repurchase Price or Cure Amount;
provided, however, that Presidio shall be liable for any claim by the Grantor
Trust for a breach of a representation or warranty made by the Seller, Presidio
or IRL in Section 3.01(a) which materially and adversely affects the value of a
Contract Receivable or the interest of the holders of the Grantor Trust
Certificates therein and Presidio also shall be liable for a breach of a
representation or warranty made by the Seller in Section 3.01(c) which
materially and adversely affects the value of the capital stock of Derby, Sentec
or Saber or the interest of the holders of the Grantor Trust Certificates in the
stock of such a corporation. In no event shall recourse be had against any of
the general or limited partners of the T-2 Holder or the Seller (whether
heretofore or hereafter admitted to the T-2 Holder or the Seller) or the
officers, directors or shareholders of the Affiliated Sellers. Except as
provided with respect to Presidio in the proviso to the second preceding
sentence, the T-2 Holder, the Seller, the Affiliated Sellers and the successors
and assigns of any of them shall have no obligation to use funds or assets
(other than with respect to a Material Breach, in the case of the T-2 Holder,
the Repurchase Reserve Fund or the Reserve Fund) to cure a breach of a
representation or warranty under Section 3.01 or to pay the Repurchase Price or
Cure Amount.
(f) Subsequent to the payment in full of the Repurchase Price
of a Contract Receivable (or the portion thereof allocable to a Property) from
the Repurchase Reserve Fund, from the Reserve Fund or from the Net Sandwich
Investments (in accordance with the procedure set forth in Section 6.09), such
Contract Receivable shall continue to be held by the Grantor Trust, but the
beneficial interest therein will be evidenced by the Grantor Trust T-2
Certificates. All future payments collected on or with respect to such Contract
Receivable (or, in the case of a Multiple Property Obligor, all future payments
allocable to the Property or Properties affected by such breach) shall be T-2
Allocable Payments and shall be deposited into the Reserve Fund.
SECTION 3.03 Custody of Contract Receivable Files. To assure
uniform quality in servicing the Contract Receivables and to reduce
administrative costs, the Grantor Trust Trustee, upon the execution and delivery
of this Agreement, appoints BT, and BT accepts such appointment (the
compensation of which shall be payable from the Servicing Fee), to act as the
agent of the Grantor Trust as custodian (the "Custodian") of the Contract
Receivable File with respect to each Contract Receivable. Receipt of a Contract
Receivable File by the Custodian is deemed constructive receipt thereof by the
Grantor Trust Trustee.
SECTION 3.04 Duties of Custodian.
(a) Safekeeping. The Custodian shall hold the Contract
Receivable Files on behalf of the Grantor Trust Trustee for the use and benefit
of all present and future holders of the Grantor Trust Certificates and perform
all of the duties specified herein, including maintaining such accurate and
complete records pertaining to the Contract Receivables as shall enable the
Grantor Trust Trustee and the Servicer to comply with their respective
obligations pursuant to this Agreement.
On or prior to the Closing Date, the Custodian shall review
each Contract Receivable File in order to confirm that it contains all of the
documents required to be included therein as set forth in the definition of such
term.
The Custodian shall have and perform the following powers and
duties:
(i) hold the Contract Receivable Files on behalf of
the holders of the Grantor Trust Certificates and the Grantor Trust
Trustee, maintain accurate records pertaining to each Contract
Receivable to enable it to comply with the terms and conditions of this
Agreement, maintain a current inventory thereof;
(ii) implement policies and procedures in writing and
signed by the Custodian with respect to persons authorized to have
access to the Contract Receivable Files on the Servicer's premises and
the receipting for Contract Receivable Files taken from their storage
area by an employee of the Servicer for purposes of servicing or any
other purposes; and
(iii) attend to all details in connection with
maintaining custody of the Contract Receivable Files on behalf of the
holders of the Grantor Trust Certificates and the Grantor Trust
Trustee.
In performing its duties under this Section 3.04, the
Custodian agrees to act with reasonable care, consistent with the same degree of
skill and care that it exercises with respect to commercial mortgage loan
documents held by it as Custodian for others. The Custodian shall promptly
report to the Grantor Trust Trustee any failure by it to hold the Contract
Receivable Files as herein provided and shall promptly take appropriate action
to remedy any such failure. The Custodian agrees not to assert any beneficial
ownership interests in the Contract Receivables or the Contract Receivable
Files. The Custodian agrees to indemnify the holders of the Grantor Trust
Certificates, and the Grantor Trust Trustee for any and all liabilities,
obligations, losses, damages, payments, costs, or expense of any kind whatsoever
which may be imposed on, incurred or asserted against the holders of the Grantor
Trust Certificates or the holders of the Certificates and the Grantor Trust
Trustee as the result of any breach by the Custodian of its obligations
hereunder relating to the maintenance and custody of the Contract Receivable
Files; provided, however, that the Custodian shall not be liable for any portion
of any such amount resulting from the negligence or willful misconduct of any
holder of a Grantor Trust Certificate or the Grantor Trust Trustee.
(b) Maintenance of and Access to Records. The Custodian agrees
to maintain the related Contract Receivable Files at a BT office in New York,
New York, or at such of its offices in New York, New York as shall from time to
time be identified to the Grantor Trust Trustee by written notice. The Custodian
may permit the Servicer to move temporarily individual Contract Receivable Files
or any portion thereof without notice as necessary to conduct collection and
other servicing activities in accordance with its customary practices and
procedures.
The Custodian shall make available to the Grantor Trust
Trustee and the Servicer or the duly authorized representatives, attorneys or
auditors of either of them, the Contract Receivable Files and the related
records maintained by the Custodian at such times during normal operating hours
as the Grantor Trust Trustee shall reasonably instruct which does not
unreasonably interfere with the Custodian's normal operations or customer or
employee relations.
(c) Release of Documents. Upon instruction from the Grantor
Trust Trustee or the Servicer on behalf of the Grantor Trust Trustee, the
Custodian shall release or cause to be released the Contract Receivables and any
document in the Contract Receivable Files to the Grantor Trust Trustee or the
Servicer, or the agent, attorney or designee of either of them, at such place or
places as the Grantor Trust Trustee or the Servicer may designate, as soon as
practicable. The Custodian shall not be responsible for any loss occasioned by
the failure of the Grantor Trust Trustee or the Servicer or its agent, attorney
or its designee, to return any document or any delay in doing so.
SECTION 3.05 Instructions; Authority to Act. The Custodian
shall be deemed to have received proper instructions from the Grantor Trust
Trustee or the Servicer with respect to the Contract Receivable Files upon its
receipt of written instructions signed by a Responsible Officer or a Servicing
Officer.
SECTION 3.06 Effective Period and Termination. BT's
appointment as Custodian shall become effective as of the Closing Date and shall
continue in full force and effect until terminated pursuant to this Section 3.06
or until this Agreement shall be terminated. The Custodian may perform its
duties through one or more agents, which agents may maintain physical possession
of Contract Receivable Files as agent for the Custodian. If BT shall resign as
Servicer under Section 9.05 or if all of the rights and obligations of BT as
Servicer shall have been terminated under Section 10.01, the appointment of BT
as Custodian shall be terminated. The Grantor Trust Trustee or the REMIC
Trustee, as holder of the Grantor Trust T-1 Certificate, may terminate BT's
appointment as Custodian at any time without cause upon written notification to
the Custodian. The Grantor Trust Trustee shall serve, without additional
compensation, as the Custodian until its appointment of, and acceptance by, an
Eligible Institution (the compensation of which shall be payable from the
Servicing Fee) as successor Custodian. As soon as practicable after any
termination of such appointment, the Custodian shall deliver the Contract
Receivables and the Contract Receivable Files to the Grantor Trust Trustee or
the Grantor Trust Trustee's agent at such place or places as the Grantor Trust
Trustee may reasonably designate. The Custodian shall cooperate with the Grantor
Trust Trustee in making the transfer and shall bear all of the Custodian's costs
and expenses with respect to such transfer, but (unless an Event of Termination
has occurred and is continuing) the Grantor Trust shall bear the actual costs
and expenses of packing and transporting the Contract Receivable Files to the
location designated by the Grantor Trust Trustee. Notwithstanding the
termination of BT as Custodian, the Grantor Trust Trustee agrees that upon any
such termination, the Grantor Trust Trustee shall provide, or cause its agent to
provide, access to the Contract Receivable Files to the Servicer for the purpose
of carrying out its duties and responsibilities with respect to the servicing of
the Contract Receivables hereunder.
SECTION 3.07 GT Collateral Agent. (a) The Grantor Trust
Trustee, upon the execution and delivery of this Agreement, appoints BT, and BT
accepts such appointment (the compensation of which shall be payable from the
Servicing Fee), to act as the collateral agent (the "GT Collateral Agent") of
the Grantor Trust for each Contract Receivable. As GT Collateral Agent, BT shall
act (i) as mortgagee under each of the Subordinate Mortgages or beneficiary
under each Subordinate Mortgage which is a deed of trust, (ii) as the registered
holder of each Note and the Utex Note and the holder of the Segair Note, the
Hertec Contract Receivable and the Metec Contract Receivable, (iii) as the
pledgee of the stock of certain Sandwich Corporations under the Sandwich Pledge
Agreements, (iv) as pledgee of, and the holder of a lien on and security
interest in, the Pledged Funds (except, only on a second priority basis as to
the Reserve Fund) and (v) as the holder of record of the capital stock of Derby,
Saber and Sentec.
(b) The GT Collateral Agent shall hold, for the Grantor Trust,
the Repurchase Reserve Fund, any Directing Holders Reserve Fund and any
Rejectable Offer Reserve Fund, any monies on deposit therein, any investments
thereof and any proceeds thereof. The GT Collateral Agent shall also be the
beneficiary of the Repurchase Reserve Fund Indemnity Agreement, any DHRF
Indemnity Agreement and any RORF Indemnity Agreement and the pledgee of, and the
holder of a lien on and security interest in, the Repurchase Reserve Fund, any
Directing Holders Reserve Fund and any Rejectable Offer Reserve Fund pursuant to
the Repurchase Reserve Fund Pledge Agreement, any DHRF Pledge Agreement and any
RORF Pledge Agreement, respectively. The GT Collateral Agent shall make claims,
on behalf of the Grantor Trust, against the T-2 Holder for each Cure Amount or
Repurchase Price as and when payable pursuant to the Repurchase Reserve Fund
Indemnity Agreement and against the applicable Directing Holders for any amounts
as and when payable pursuant to any DHRF Indemnity Agreement and any RORF
Indemnity Agreement. The GT Collateral Agent is hereby authorized and empowered
to prepare, execute and deliver any and all financing statements, continuation
statements and other documents or instruments necessary to maintain the lien on,
pledge of, and security interest in the Repurchase Reserve Fund, any Directing
Holders Reserve Fund and any Rejectable Offer Reserve Fund , any monies on
deposit therein, any investments thereof and any proceeds thereof. Upon
direction from the Servicer pursuant to Section 3.07 (e), (f) and (g), the GT
Collateral Agent shall transfer the specified funds from the Repurchase Reserve
Fund, any Directing Holders Reserve Fund and any Rejectable Offer Reserve Fund
to the Collection Account (or, for the period of time from the Transfer Date to
the Deposit Date, to the Certificate Account). The GT Collateral Agent hereby is
authorized at the direction of the Servicer to apply funds on deposit (i) in the
Repurchase Reserve Fund, pursuant to Section 3.02(a), to pay the cost of curing
a Material Breach, the Cure Amount or the Repurchase Price for Material Breaches
of representations and warranties under Section 3.01(b), (ii) in any Rejectable
Offer Reserve Fund or any Directing Holders Reserve Fund, to pay expenses and
other amounts payable therefrom pursuant to Section 4.10 and (iii) in the
Repurchase Reserve Fund, any Directing Holders Reserve Fund and any Rejectable
Offer Reserve Fund, to make distributions to the holders of the Grantor Trust
T-2 Certificates in the amounts and at the times provided in this Section 3.07.
(c) The appointment of the GT Collateral Agent may be
terminated without cause by the Grantor Trust Trustee upon written notification
to the GT Collateral Agent, and the Grantor Trust Trustee shall give such notice
upon receipt of written instructions from the REMIC Trustee or the
Majority-in-Interest of the Grantor Trust T-2 Certificates. If such appointment
is terminated, the Grantor Trust Trustee shall serve, without additional
compensation, as the GT Collateral Agent until the appointment of, and
acceptance by, an Eligible Institution (the compensation of which shall be
payable from the Servicing Fee) as successor GT Collateral Agent and the Grantor
Trust Trustee shall have all authority and power of the GT Collateral Agent
under this Agreement until a successor GT Collateral Agent is appointed by the
Grantor Trust Trustee and such successor accepts. The GT Collateral Agent shall
cooperate and execute such documents as may be necessary to transfer its
functions to a successor GT Collateral Agent; however, the Grantor Trust Trustee
is authorized and empowered to execute and deliver any and all documents and
other instruments and to do any and all acts or things necessary or appropriate
to effect such termination and new appointment of a GT Collateral Agent. The GT
Collateral Agent shall join in the execution of any agreement and assignment
pursuant to which the Seller and the Affiliated Sellers shall convey all of its
right, title and interest in the Contract Receivables to the Grantor Trust, as
contemplated in Section 2.02 hereof.
(d) The GT Collateral Agent shall not resign from the
obligations and duties hereunder except upon a determination that the
performance of its duties hereunder is no longer permissible under applicable
law, compliance with which could not be realized without a material adverse
impact on the GT Collateral Agent's financial condition. Notice of any such
determination permitting the resignation of the GT Collateral Agent shall be
communicated to the Grantor Trust Trustee, the REMIC Trustee and the Rating
Agency at the earliest practicable time (and, if such communication is not in
writing, shall be confirmed in writing at the earliest practicable time) and any
such determination permitting the resignation of the GT Collateral Agent shall
be evidenced by an Opinion of Independent Counsel to such effect delivered to
the Grantor Trust Trustee and the REMIC Trustee. No such resignation shall
become effective until a successor GT Collateral Agent which is an Eligible
Institution shall have been appointed by the Grantor Trust Trustee and such
successor shall have accepted such appointment and assumed the responsibilities
and obligations of the GT Collateral Agent.
(e) Funds on deposit in the Repurchase Reserve Fund shall be
invested by the GT Collateral Agent solely in Eligible Investments that mature
not later than the Deposit Date next succeeding the date of investment, in
accordance with instructions provided by a Majority-In-Interest of the holders
of the Grantor Trust T-2 Certificates. All net income and gain earned on the
investment of funds in the Repurchase Reserve Fund shall be retained in the
Repurchase Reserve Fund and shall be available for distribution therefrom.
Notwithstanding the foregoing sentence, on each Distribution Date, the GT
Collateral Agent shall distribute, pro rata, based upon Percentage Interest, to
the holders of the Grantor Trust T-2 Certificates, any amounts on deposit in the
Repurchase Reserve Fund in excess of 5% of the Certificate Accreted Value. For
this purpose, the Certificate Accreted Value shall be calculated without taking
into account any Allocated Losses in reduction of Accreted Value made on such
Distribution Date and all prior Distribution Dates or the interest which would
have accrued on the amount of such Allocated Losses from the date of such
reduction to such Distribution Date at the applicable Pass-Through Rates, but
taking into account all Accretion Amounts for such Distribution Date and all
distributions in respect of Accreted Value made on such Distribution Date.
Except as provided in the second preceding sentence, funds on deposit in the
Repurchase Reserve Fund shall, upon direction from the Servicer, (i) be
transferred by the GT Collateral Agent to the Collection Account (or, for the
period of time from the Transfer Date to the Deposit Date, to the Certificate
Account) and the Reserve Fund in accordance with the allocation of the
Repurchase Price between the Grantor Trust T-1 Certificate and Grantor Trust T-2
Certificates as set forth in Section 6.03(h), (ii) pursuant to Section 3.02, to
pay Cure Amounts or the cost of cure with respect to Material Breaches of
representations and warranties made by the Seller or an Affiliated Seller under
Section 3.01(b) or (iii) on the REMIC Liquidation Date, be distributed to the
holders of the Grantor Trust T-2 Certificates, pro rata, based upon their
Percentage Interests.
(f) Funds on deposit in a Rejectable Offer Reserve Fund shall
be invested by the GT Collateral Agent solely in Eligible Investments that
mature not later than the Deposit Date next succeeding the date of investment,
in accordance with instructions provided by the applicable Directing Holders in
writing. On each Distribution Date, all net income and gain earned on the
investment of funds in a Rejectable Offer Reserve Fund shall be distributed by
the GT Collateral Agent to the applicable Directing Holders. Upon direction from
the Servicer, the GT Collateral Agent shall transfer specified amounts on
deposit in a Rejectable Offer Reserve Fund to the Collection Account (or, for
the period of time from the Transfer Date to the Deposit Date, to the
Certificate Account) and the Reserve Fund and distribute other specified amounts
on deposit in such Rejectable Offer Reserve Fund to the applicable Directing
Holders, in the circumstances described under Section 4.10(b).
(g) Funds on deposit in a Directing Holders Reserve Fund shall
be invested by the GT Collateral Agent solely in Eligible Investments that
mature not later than the Deposit Date next succeeding the date of investment,
in accordance with instructions provided by the applicable Directing Holders in
writing. On each Distribution Date, all net income and gain earned on the
investment of funds in a Directing Holders Reserve Fund shall be distributed by
the GT Collateral Agent to the applicable Directing Holders. Upon direction from
the Servicer, the GT Collateral Agent shall transfer specified amounts on
deposit in a Directing Holders Reserve Fund to the Collection Account (or, for
the period of time from the Transfer Date to the Deposit Date, to the
Certificate Account), distribute other specified amounts on deposit in such
Directing Holders Reserve Fund to the applicable Directing Holders, in the
circumstances described under Section 4.10(a), and shall apply other specified
amounts to pay expenses of any Remedial Proceedings.
ARTICLE IV
ADMINISTRATION AND SERVICING OF CONTRACT RECEIVABLES
SECTION 4.01 Administration of the Contract Receivables.
(a) The Servicer, as agent for the Grantor Trust Trustee,
shall manage, administer, service (to the extent not performed by the Paying
Agent) and make collections on the Contract Receivables and perform or cause to
be performed all contractual and customary undertakings of the holder of the
Contract Receivables to the Obligors. The Grantor Trust Trustee, at the request
of a Servicing Officer, shall furnish (or cause the Collateral Agent or the
Custodian to furnish) the Servicer with any reasonable documents or take any
action reasonably requested, necessary or appropriate to enable the Servicer to
carry out its servicing and administrative duties hereunder.
(b) The Servicer is obligated to service the Contract
Receivables, pursuant to this Agreement, on behalf of the Grantor Trust, solely
in the best interests and for the benefit of the holders of the Grantor Trust
Certificates (as determined by the Servicer in its good faith business
judgment), in accordance with the terms of this Agreement and the Contract
Receivables. In managing, administering, servicing and making collections on the
Contract Receivables pursuant to this Agreement, the Servicer shall exercise the
same degree of skill, care, prudence and diligence which money center banks
engaged in commercial mortgage lending would exercise in the servicing and
administration of commercial mortgage loans in their portfolios and no less
skill, care, prudence and diligence as the Servicer exercises when it services
and administers commercial mortgage loans which it owns, giving due
consideration to the customary and usual standards of practice that prudent
institutional commercial mortgage lenders and loan servicers utilize with
respect to commercial mortgage loans and with the objective of maximization of
the present value of net cash flows generated by the Contract Receivables. This
paragraph is referred to herein as the "standard of care."
(c) The Servicer shall, consistent with the standard of care
and the terms of this Agreement, act with respect to each Defaulted Contract
Receivable, in such manner as will maximize the timely and complete recovery of
principal and interest on such Contract Receivable, including Net Liquidation
Proceeds. Upon notice to the Servicer from the Grantor Trust Trustee, holders of
a Majority-in-Interest of the Grantor Trust T-2 Certificates or the REMIC
Trustee, or upon knowledge of a Contract Receivable becoming a Defaulted
Contract Receivable, the Servicer shall determine what action should be taken
with respect to such Defaulted Contract Receivable, including, but not limited
to, whether to institute any Remedial Proceeding, after consultation with the
T-2 Holder (provided that the T-2 Holder's advice shall not be binding on the
Servicer).
(d) The Servicer's duties shall include collection and posting
of all payments, responding to inquiries by Obligors or by Federal, state or
local governmental authorities with respect to the Contract Receivables,
investigating delinquencies, reporting tax information to Obligors, accounting
for collections and furnishing semi-annual and annual statements to the Grantor
Trust Trustee with respect to distributions.
(e) The Servicer is hereby authorized and empowered by the
Grantor Trust Trustee to perform all of the obligations of the Noteholders under
the Contract Receivable Documents, including, without limitation, to execute and
deliver, on behalf of itself, the Grantor Trust, the Grantor Trust Trustee, the
holders of the Grantor Trust Certificates, or any of them, any and all (i)
instruments of satisfaction or cancellation, or of partial or full release or
discharge, of a Subordinate Mortgage (or consent to such instruments with
respect to the First Mortgage with respect to the Utex Note), in each case, only
in connection with the payment of the applicable Release Price under a Note or
payment in full of an Unmodified Contract Receivable or pursuant to Section 4.05
or 4.10 hereof; (ii) instruments of release or discharge of a Paying Agent
Agreement or Sandwich Pledge Agreement in accordance with the terms thereof,
(iii) instruments subordinating a Contract Receivable and related Subordinate
Mortgage to the related First Mortgage, permitted refinancings thereof and any
additional financings which (pursuant to the terms of such Contract Receivable
and related Subordinate Mortgage) are permitted to be secured by a mortgage
senior to a Subordinate Mortgage, (iv) subordination and nondisturbance
agreements with Lessees of the Properties (which comply with the terms of the
Supplemental Agreement and, with respect to the Dalcin Contract Receivable, the
related Subordinate Mortgage), (v) estoppel certificates, and (vi) subject to
Section 4.18, other comparable instruments with respect to the Contract
Receivables or with respect to the Mortgaged Properties if, in accordance with
the standard of care, such action is in the interests of the holders of the
Grantor Trust Certificates or is required by this Agreement or by the applicable
Subordinate Mortgage.
(f) The Servicer shall replace the trustee under a Subordinate
Mortgage which is a deed of trust if the trustee resigns, and the Servicer shall
remove a trustee if, in the Servicer's sole discretion, consistent with the
standard of care, such removal is advisable. The Servicer shall pay all expenses
of the trustee that are to be reimbursed by the beneficiary of a deed of trust
and shall indemnify the trustee as provided in the Subordinate Mortgage. All
expenses incurred in connection with such replacement, appointment, reimbursable
expenses and indemnification shall be Grantor Trust Expenses.
(g) The Servicer shall be responsible for allocating each
payment or prepayment received in respect of the Contract Receivables or the
other assets of the Grantor Trust to the Grantor Trust T-1 Certificate and the
Grantor Trust T-2 Certificates as provided in Section 6.03 hereof.
(h) Upon receipt of notice from an Obligor of the making of a
Rejectable Offer by a Tenant or the exercise by a Tenant of a Purchase Option or
the proposed prepayment of a Contract Receivable, the Servicer shall determine
the amount of the prepayment (if any) to be made on such Contract Receivable, in
consultation with the T-2 Holder (provided that the T-2 Holder's advice shall
not be binding on the Servicer), and give notice thereof to such Obligor, the
T-2 Holder and the Paying Agent on or before the date specified for such notice
in the Paying Agent Agreement.
(i) In its capacity as Paying Agent under each Paying Agent
Agreement, the Servicer shall monitor the rental and other (i.e., Schedule C
Event and Purchase Option) payments made by the Lessee under an Underlying Lease
from the time such payment is due to be made by such Lessee to the date the
Servicer receives the appropriate portion of such payment from the Paying Agent.
In the event that the Paying Agent fails to receive such portion of any rental
payment payable by a Lessee under the related Underlying Lease in excess of the
debt service (and the trustee or paying agent fees, if any) under the First
Mortgage from the Lessee or the First Mortgagee, its trustee or paying agent (or
after any permitted refinancing thereof, from the holder of any refinanced First
Mortgage or its trustee or paying agent) within five days after the date the
corresponding payment was due from a Lessee under the related Underlying Lease
to the Paying Agent or to the First Mortgagee (or to the holder of any
refinanced First Mortgage permitted under the Subordinate Mortgage), the
corporate trustee or paying agent for a First Mortgagee (or to the holder of any
refinanced First Mortgage permitted under the Subordinate Mortgage), the Paying
Agent shall give prompt written notice to the Obligor of such failure. In its
capacity as the Noteholder, the Servicer shall either join in such notice, which
shall state that an amount payable under the Note has not been paid when due, or
shall promptly deliver a separate written notice to that effect to the Obligor.
In the event that the Servicer is not the Paying Agent for a Contract
Receivable, the Servicer shall oversee the performance by the Paying Agent of
its responsibilities under the Paying Agent Agreement.
(j) If a Paying Agent Agreement is no longer in effect and BT
(in its capacity as Noteholder) does not receive an installment of principal or
interest on a Contract Receivable (or any portion thereof) on the date when it
is due in accordance with the Contract Receivable it shall give prompt written
notice of such failure to the Obligor. For so long as the Paying Agent Agreement
is in effect, the failure to receive payment of an installment of principal or
interest on a Note (or any portion thereof) will not be an event of default if
such failure results from (x) the failure by the Paying Agent to remit to the
Servicer amounts received by the Paying Agent and required to be paid to the
Servicer pursuant to a Paying Agent Agreement then in effect, unless such
failure has been caused by the wrongful interference by the Obligor with the
Paying Agent's obligations under a Paying Agent Agreement, or (y) the failure of
the related First Mortgagee or its designee, or the holder of any other superior
mortgage permitted under the related Subordinate Mortgage, to remit to the
Paying Agent all rents (and all payments with respect to a Schedule C Event)
received in excess of the debt service payable (and payments due as a result of
a Schedule C Event) on all superior mortgages permitted under the related
Subordinate Mortgage, unless the payment default continues for 90 days following
written notice to the Obligor. In the event that the Paying Agent arrangement is
no longer in effect or the default in payment was not caused by either of the
events described in the immediately preceding sentence, the Servicer shall
declare an event of default under the Contract Receivable and the Subordinate
Mortgage if an Obligor fails to pay any installment of principal or interest
under its Contract Receivable for ten days after receipt of written notice from
the Servicer of such failure. If a Paying Agent arrangement is in effect and the
default in payment of an installment of principal or interest on a Note was
caused by (i) the event described in clause (y) in the second preceding
sentence, the Servicer shall declare an event of default under the Contract
Receivable and the Subordinate Mortgage 90 days following written notice to the
Obligor if such payment default is continuing or (ii) the wrongful interference
by the Obligor with the Paying Agent's obligations under a Paying Agent
Agreement, the Servicer shall declare an event of default after the appropriate
notice and grace period under the Contract Receivable and the Subordinate
Mortgage. Promptly after sending a notice of default pursuant to this
subparagraph or a notice pursuant to subparagraph (i), the Servicer shall send a
copy thereof to the Rating Agency and the T-2 Holder.
(k) The Servicer shall monitor periodically the compliance by
each Obligor of its covenants under its Subordinate Mortgage and the
Supplemental Agreement, and give a written notice to the Obligor in the event of
any such noncompliance of which the Servicer has knowledge. Such notice shall be
effective upon receipt by the intended Obligor. In the event an Obligor fails to
perform any of its payment obligations or its non-payment obligations under the
Contract Receivable or the Subordinate Mortgage within the applicable grace and
cure periods provided therein, and subject to the provisions of subparagraph (j)
above with respect to the failure to perform any payment obligation under the
affected Note, the Servicer shall, to the extent consistent with the standard of
care, declare an event of default under the Contract Receivable and the
Subordinate Mortgage.
(l) The Servicer shall maintain individual records for each
Contract Receivable and, in the case of a Multiple Property Obligor, each
Property. The Servicer shall verify the accuracy of all payments received on
each Contract Receivable, and take the appropriate actions when payments are not
received. The Servicer shall monitor and record the amounts due on each Contract
Receivable during the Primary Term and each Renewal Term and, in consultation
with the T-2 Holder (provided that the T-2 Holder's advice shall not be binding
on the Servicer), prepare a revised Payment Schedule for a Contract Receivable
and revise Exhibit A, B and AA hereto, as applicable, upon receipt of any
prepayment. If there is a Prepayment Deficiency Amount, the Servicer, in
consultation with the T-2 Holder (provided that the T-2 Holder's advice shall
not be binding on the Servicer), shall keep records of (i) the portions thereof
consisting of principal and interest, (ii) the respective interest accrued
thereon as of each scheduled payment date under the applicable Note, and (iii)
any Excess Cash Flow or Excess Proceeds or other amounts to be applied and the
allocation thereof between the Grantor Trust T-1 Certificate and the Grantor
Trust T-2 Certificates, pursuant to Section 6.03 hereof.
(m) In the event that an Obligor fails to pay any installment
of principal or interest under its Note within 30 days (or such longer time
period as may be applicable under the terms of the Contract Receivable) after it
was due, the Servicer shall calculate the interest payable at the "Default Rate"
specified in the Note, notify the Obligor and demand payment thereof.
(n) The Servicer shall maintain funds in the proper accounts
and prepare the Servicer Report for the Grantor Trust Trustee and the holders of
the Grantor Trust Certificates, including the REMIC Trustee, regarding
collections on the Contract Receivables and distributions to the holders of the
Grantor Trust Certificates and Certificateholders.
(o) The Servicer shall monitor periodically the credit rating
of each Credit Tenant and shall review the potential impact of a suspension,
downgrade or qualification of such rating. The Servicer shall monitor any
assignments or terminations under an Underlying Lease, of which it receives
notice from an Obligor.
(p) Upon written request of the Servicer and receipt by the
Grantor Trust Trustee of an Officer's Certificate setting forth the facts
underlying such request, the Grantor Trust Trustee shall furnish the Servicer
with any limited powers of attorney and other documents necessary or appropriate
to enable the Servicer to carry out its servicing and administrative duties, and
the Grantor Trust Trustee shall not be liable for such actions of the Servicer
pursuant thereto.
(q) The Servicer shall promptly execute and deliver any
documents (in recordable form) as reasonably requested by an Obligor (and which
are not adverse to the interests of the holders of the Grantor Trust
Certificates) or as required by the related Subordinate Mortgage. The Servicer,
if it has knowledge of the failure of an Obligor to extend the term of an
expiring Ground Lease within the time specified under the related Subordinate
Mortgage, shall, after consultation with the T-2 Holder (provided that the T-2
Holder's advice shall not be binding on the Servicer), to the extent permitted
under the Subordinate Mortgage and the Ground Lease, extend the term of such
Ground Lease, if the Servicer determines that such action is in the best
interests of the holders of the Certificates, would increase the present value
of net cash flow generated by the Contract Receivable and would not expose the
Servicer to liability under CERCLA. Prior to the termination of a Ground Lease,
if an Obligor shall offer the Servicer the right to accept the assignment of and
assume the Obligor's interest under the Ground Lease, the Servicer shall, after
consultation with the T-2 Holder (provided that the T-2 Holder's advice shall
not be binding on the Servicer), elect to assume the Obligor's interest in such
Ground Lease, if the Servicer determines that such action is in the best
interests of the holders of the Certificates, would increase the present value
of net cash flow generated by the Contract Receivable and the Servicer
determines that such action would not expose the Servicer to liability under
CERCLA. The Servicer shall be required to deliver an Officer's Certificate
(copies of which shall be delivered to the Grantor Trust Trustee and the holders
of the Grantor Trust Certificates) if the Servicer determines not to take the
action described in either of the two preceding sentences because it would
expose the Servicer to liability under CERCLA. The Grantor Trust shall be
responsible for, and shall hold the Servicer harmless against, all liabilities
and expenses incurred as a result of such an assumption.
(r) If a First Mortgage is refinanced or the Obligor incurs
additional financing and the holder of the refinanced First Mortgage or
additional financing receives payment directly from a Lessee, the Servicer will
cooperate with each such Obligor to arrange for all sums to be paid under such
refinanced First Mortgage or additional financing to be paid through a trustee
for the holder of the refinanced First Mortgage or additional financing,
provided that the holder of the refinanced First Mortgage or additional
financing agrees to the appointment of such trustee; provided, however, that if
the Servicer determines (in consultation with the T-2 Holder, the advice of
which shall not be binding on the Servicer) that the fees of such a trustee
would be in excess of the fees charged by other trustees for the First
Mortgagees or in excess of a reasonable trustee's fee, the Servicer shall
consult with the T-2 Holder and, unless the T-2 Holder advises the Servicer to
agree to the appointment of the trustee and such appointment would be consistent
with the standard of care, the Servicer shall notify the Obligor that it will
not seek the appointment of such a trustee or pay the fees thereof. The expenses
of such trustee shall be Grantor Trust Expenses. In connection with a
refinancing of a First Mortgage, if the Servicer knows of such refinancing, the
Servicer shall confirm, in consultation with the T-2 Holder (provided that the
T-2 Holder's advice shall not be binding on the Servicer), that the related
Paying Agent has correctly revised Exhibit B to the related Paying Agent
Agreement and that a new direction letter under the Paying Agent Agreement is
sent to the new First Mortgagee (or trustee or paying agent). In connection with
a refinancing of a First Mortgage or the incurrence of additional indebtedness
by an Obligor of which the Servicer has notice, the Servicer shall determine, in
consultation with the T-2 Holder (provided that the T-2 Holder's advice shall
not be binding on the Servicer), whether the refinancing complies with Section 3
and Section 4 of the related Subordinate Mortgage. In the event there are Excess
Superior Amounts in connection with a refinancing or permitted additional
financing by an Obligor (other than an Obligor which has not acquired the
Discount Purchase Option), the Servicer shall confirm, in consultation with the
T-2 Holder (provided that the T-2 Holder's advice shall not be binding on the
Servicer), that such Excess Superior Amounts are applied on account of the
related Contract Receivable in accordance with the related Contract Receivable
Documents or otherwise determine whether there is a default under the related
Contract Receivable or Subordinate Mortgage.
(s) The Servicer shall request an estoppel and other
certificates contemplated by the Subordinate Mortgage from each Obligor once
each calendar year, or as otherwise permitted under the related Subordinate
Mortgage.
(t) The Servicer may enter into subservicing agreements with
one or more subservicers (which shall be Eligible Servicers) for the servicing
and administration of certain of the Contract Receivables. References in this
Agreement to actions taken, to be taken, or permitted to be taken, or
restrictions on actions permitted to be taken, by the Servicer in servicing the
Contract Receivables shall include actions by, or restrictions on, a subservicer
on behalf of the Servicer. Each subservicing agreement will be upon such terms
and conditions as are not inconsistent with this Agreement and the standard of
care and as the Servicer and the subservicer have agreed. All compensation
payable to a subservicer under a subservicing agreement shall be payable by the
Servicer from its servicing compensation or otherwise from its own funds
(without reimbursement from the Grantor Trust therefor), and none of the Grantor
Trust, the Grantor Trust Trustee or the holders of the Grantor Trust
Certificates will have any liability to the subservicer with respect thereto.
Any subservicing agreement that may be entered into and any
other transactions or servicing arrangements relating to the Contract
Receivables involving a subservicer in its capacity as such shall be deemed to
be between the subservicer and the Servicer alone, and the Grantor Trust Trustee
and the holders of the Grantor Trust Certificates shall not be deemed parties
thereto and shall have no claims, rights, obligations, duties or liabilities
with respect to the subservicer except as set forth in the next succeeding
paragraph; provided, however, that the Servicer shall provide copies of any such
subservicing agreement(s) to the T-2 Holder.
In the event the Servicer shall for any reason no longer be
acting as such, the successor Servicer may, in its discretion, thereupon assume
all of the rights and obligations of the outgoing Servicer under a subservicing
agreement. In such event, the successor Servicer shall be deemed to have assumed
all of the Servicer's interest therein and to have replaced the outgoing
Servicer as a party to each such subservicing agreement to the same extent as if
such subservicing agreement had been assigned to the successor Servicer, except
that the outgoing Servicer shall not thereby be relieved of any liability or
obligations on the part of the outgoing Servicer to the subservicer under such
subservicing agreement. The outgoing Servicer shall, upon request of the Grantor
Trust Trustee, but at the expense of the outgoing Servicer, deliver to the
successor Servicer all documents and records relating to each such subservicing
agreement and the Contract Receivables then being serviced thereunder and an
accounting of amounts collected and held by the outgoing Servicer, and shall
otherwise use its best efforts to effect the orderly and efficient transfer of
any subservicing agreement to the successor Servicer. In the event that the
successor Servicer elects not to assume a subservicing agreement, the outgoing
Servicer, at its expense, shall cause the subservicer to deliver to the
successor Servicer all documents and records relating to the Contract
Receivables being serviced thereunder and all amounts held (or thereafter
received) by such subservicer (together with an accounting of such amounts) and
shall otherwise use its best efforts to effect the orderly and efficient
transfer of servicing of the Contract Receivables being serviced by such
subservicer to the successor Servicer.
(u) The Servicer shall review each obligation or indebtedness
which an Obligor incurs or proposes to incur (to the extent that the Servicer
has notice thereof), or which appears on an annual financial statement which may
be delivered by an Obligor, to confirm that it complies with Section 3 and
Section 4 of the applicable Subordinate Mortgage and otherwise constitutes
indebtedness of such Obligor which it is permitted to incur under the
Subordinate Mortgage. In connection therewith, the Servicer shall consult with
the T-2 Holder (provided that the T-2 Holder's advice shall not be binding on
the Servicer).
(v) Consistent with the standard of care, the Servicer may
consult with counsel with respect to matters arising under, or related to, this
Agreement, and any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such Opinion of Counsel.
(w) In the event the Servicer receives payments on a Contract
Receivable while there exists an event of default under the related First
Mortgage or a permitted refinancing thereof or other permitted superior
mortgage, upon learning of such an event of default, the Servicer shall consult
with counsel and comply with the applicable terms and provisions of the related
Subordinate Mortgage, which in most circumstances require the Servicer to pay
such payments to the holder of such permitted superior mortgage (or its
designee), to the extent any debt service payments on the promissory notes
secured by such mortgage are due and not yet paid.
(x) Notwithstanding anything to the contrary contained in this
Agreement, the Servicer shall not, without the consent of holders of a
Majority-In-Interest of the Grantor Trust T-2 Certificates and the holder of the
Grantor Trust T-1 Certificate, take any action or omit to take any action
(including actions taken in accordance with Instructions or Directions of the
Directing Holders), if such action or omission to take such action will (i)
adversely affect either the status of the assets of the Trust as to which a
REMIC election has been made as a REMIC or the status of the Grantor Trust as a
grantor trust under subpart E, part I of subchapter J of the Code, or (ii) cause
a gain on the disposition of a qualified mortgage that would subject the Trust
to the 100% tax on "prohibited transactions" imposed by Section 860F(a) of the
Code, or (iii) cause the Trust to be subject to any tax under the REMIC
Regulations or equivalent provisions of Federal, state or local law or ordinance
(which determination may be made by the Servicer without liability based on an
Opinion of Counsel reasonably satisfactory to the REMIC Trustee).
(y) In the case of any Obligor which has acquired the Discount
Purchase Option, if any of the events described in Section 4(c) of the Note
occurs, the Servicer shall notify the Grantor Trust Trustee and the holders of
the Grantor Trust Certificates and thereafter shall not accept prepayment of the
Contract Receivable at the Discounted Pay Off Amount or the Allocated DPO Amount
(in each case, as defined in the Note).
(z) The provisions of this Section 4.01 which relate to the
occurrence and declaration of an event of default, prescribed notice and cure
periods and specific Section references to the Note and Subordinate Mortgage are
generally not applicable to the Unmodified Contract Receivables. In managing,
administering, servicing and making collections on the Unmodified Contract
Receivables, the Servicer shall review the Contract Receivable Documents related
thereto and shall consult with counsel, as necessary, to determine what actions
should and may be taken, consistent with the standard of care, in order to
perform its obligations and duties as Servicer.
(aa) The Servicer shall promptly deliver to the T-2 Holder
copies of all notices, documents, reports and other information sent, received
or obtained by the Servicer pursuant to or in accordance with this Agreement,
any Contract Receivable Document, any First Mortgage Document or otherwise with
respect to any of the Contract Receivables. The Servicer may consult with the
T-2 Holder regarding any matter relating to the servicing of the Contract
Receivables (provided that the T-2 Holder's advice shall not be binding on the
Servicer).
(bb) The Servicer shall not give its consent to the release by
an Obligor of any Credit Tenant (unless a case under the Bankruptcy Code shall
have been commenced and be continuing with respect to such Credit Tenant) under
its Underlying Lease or Guaranty to the extent that such release requires its
consent under the related Subordinate Mortgage.
SECTION 4.02 Liability of the Servicer. Notwithstanding any
subservicing agreement, any of the provisions of this Agreement relating to
agreements or arrangements between the Servicer and any Person acting as
subservicer (or its agents or subcontractors), the Servicer shall remain
obligated and primarily liable to the Grantor Trust Trustee and holders of the
Grantor Trust Certificates for the servicing and administering of the Contract
Receivables pursuant to and in accordance with this Agreement without diminution
of such obligation or liability by virtue of such subservicing agreements or
arrangements or by virtue of indemnification from any Person acting as
subservicer (or its agents or subcontractors) to the same extent and under the
same terms and conditions as if the Servicer alone were servicing and
administering such Contract Receivables. The Servicer shall be entitled to enter
into an agreement with any subservicer providing for indemnification of the
Servicer by such subservicer, and nothing contained in this Agreement shall be
deemed to limit or modify such indemnification, but no such agreement for
indemnification shall be deemed to limit or modify this Agreement.
SECTION 4.03 Liquidation of the Pool. If on the fifth
anniversary of the Stated Final Distribution Date the Servicer determines
pursuant to Section 10.03 of the Pooling Agreement that the Offered Certificates
will not be paid in full by the Rated Final Distribution Date, the Servicer
shall prepare a program for the liquidation and sale of the Contract Receivables
(and the other assets of the Grantor Trust) on or before the Rated Final
Distribution Date. The Servicer shall, pursuant to the Pooling Agreement,
prepare, and request the REMIC Trustee to adopt, on behalf of the Trust, a plan
of complete liquidation of the Trust, within the meaning of Section 860F of the
Code and the Treasury Regulations thereunder, effective on or after the
ninetieth day prior to the Rated Final Distribution Date. Within ninety days
after the adoption of the plan of complete liquidation adopted by the REMIC
Trustee (but no later than the Rated Final Distribution Date), all of the assets
of the Grantor Trust shall be sold or liquidated by the Servicer in accordance
with such plan, the net proceeds thereof (after the costs of such liquidation
and sale) shall be allocated between the Grantor Trust T-1 Certificate and the
Grantor Trust T-2 Certificates in accordance with Section 6.03(q), and a final
distribution shall be made by the Trust on the Rated Final Distribution Date
(or, if it is not a Business Day, the next succeeding Business Day) to holders
of Certificates pursuant to the Pooling Agreement. The Servicer shall, or shall
retain an independent contractor to, sell or liquidate all of the Contract
Receivables (and other assets of the Grantor Trust) in a commercially reasonable
manner and on commercially reasonable terms, which may include the solicitation
of bids (sealed or otherwise), an auction, a bulk sale, individually negotiated
sales of the assets of the Grantor Trust, or a combination of the foregoing. The
fees and expenses incurred in connection with such liquidation and sale shall
constitute Liquidation Expenses which shall be reimbursed to the Servicer.
SECTION 4.04 Enforcement of Due-On-Sale Clauses. The Servicer
shall promptly enforce any due-on-sale clause in a Contract Receivable, and
thereby accelerate the maturity of such Contract Receivable, (a) if such
enforcement is consistent with its then current servicing policies for
commercial mortgage loans and the policies of the Rating Agency, provided that
such enforcement is permitted by applicable law and the Subordinate Mortgage and
the Servicer shall consult with the T-2 Holder (provided that the T-2 Holder's
advice shall not be binding on the Servicer), (b) if, pursuant to the terms of
the Underlying Lease, the Subordinate Mortgage will be discharged or will be
null and void, or (c) the Obligor is a Single Property Obligor or the last
remaining Property of a Multiple Property Obligor is being sold.
SECTION 4.05 Realization Upon Contract Receivables.
(a) Upon the occurrence of an event of default with respect to
any of the Contract Receivables, the Servicer shall commence such procedures for
the foreclosure of any related Property or take such other steps, as are
consistent with the standard of care, in each event to the extent permitted in
the applicable Subordinate Mortgage and that in the Servicer's reasonable
judgment shall maximize the timely receipt of principal and interest or Net
Liquidation Proceeds with respect to the Contract Receivables, subject to
Section 4.10 hereof and subject to the requirements of the applicable state and
Federal law and subject to whether the related First Mortgage, or any permitted
refinancing thereof, permits such action (or the First Mortgagee or the holders
of any permitted refinancing thereof, consents thereto). In connection with such
foreclosure, the Servicer shall follow such practices and procedures as are
permitted in the applicable Subordinate Mortgage and as it shall deem necessary
or advisable and as shall be consistent with the standard of care. In the event
that title to any Property is acquired by the Servicer in foreclosure or by
conveyance in lieu of foreclosure, the deed or certificate of sale shall be
issued to the Grantor Trust Trustee, in its capacity as Grantor Trust Trustee,
or, at its election, to its nominee or the Servicer on behalf of the Grantor
Trust Trustee, in its capacity as Grantor Trust Trustee.
(b) Prior to commencing a Remedial Proceeding in connection
with a Defaulted Contract Receivable, the Servicer shall consult (i) with
counsel regarding the application of one action rules, the election of remedies
rules and other legal doctrines which affect the order and timing of remedial
actions and (ii) with the T-2 Holder (provided that the T-2 Holder's advice
shall not be binding on the Servicer).
(c) The Servicer shall not obtain title to a Property if a
Majority-in-Interest of the Grantor Trust T-2 Certificates or the REMIC Trustee,
as holder of the Grantor Trust T-1 Certificate, direct the Servicer to refrain
from obtaining title to such Property.
(d) In the event the Servicer receives notice or otherwise
becomes aware of any bankruptcy or insolvency proceeding pending against an
Obligor, the Servicer shall immediately consult with counsel and shall take all
actions and make all filings consistent with the standard of care and otherwise
necessary to (a) preserve and protect the validity and priority of the lien of
the Subordinate Mortgage (or the First Mortgage with respect to the Utex Note,
as the case may be) on, and security interest in, the related Mortgaged
Property, (b) determine the amount of the debt secured thereby and (c) file in
any such bankruptcy or insolvency proceeding all claims that the Noteholder may
have against the applicable Obligor and otherwise in connection with the
applicable Subordinate Mortgage (or the First Mortgage with respect to the Utex
Note, as the case may be). In addition, in the event that a foreclosure action
or proceeding is commenced by or on behalf of a First Mortgagee or the holder of
any other superior mortgage instrument (permitted or otherwise) or a trustee's
sale or similar action is noticed pursuant to power of sale provisions contained
in a First Mortgage or other superior mortgage instrument which is a deed of
trust or similar instrument, the Servicer shall immediately consult with counsel
concerning such proceeding and shall take all actions necessary to preserve and
protect, and to prevent (to the extent permitted or required under applicable
law and the Subordinate Mortgage) a loss or waiver of, the validity and priority
of the Subordinate Mortgage lien on, and security interest in, the related
Mortgaged Property, and the validity and enforceability of the debt secured
thereby, including appearing in such foreclosure action or proceeding and
asserting therein all claims that the Noteholder may have against the applicable
Obligor and otherwise in connection with the applicable Subordinate Mortgage.
The Servicer shall be obligated to take the foregoing actions, notwithstanding
that the Servicer may not have had an opportunity to obtain the reports or
otherwise make the determinations referred to in Section 4.05(e) below by the
time that any such actions must be taken. The provisions of this paragraph shall
not be applicable with respect to the Subordinate Mortgages delivered by
Bessomac, Leyden and Taber (unless such Subordinate Mortgages have been
recorded) and, other than in the first sentence of this paragraph, with respect
to the related First Mortgage which indirectly secures the Utex Note.
(e) The Servicer shall not be permitted to obtain title to a
Property on behalf of the Grantor Trust, or take any other action that would
cause the Grantor Trust Trustee, on behalf of the Grantor Trust, to be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or "operator" of such Property within the meaning of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or any comparable Federal, state or local law, or a "discharger" or
"responsible party" thereunder, unless the Servicer has previously determined,
based on a report or assessment prepared (at the expense of the Grantor Trust)
by a qualified person who regularly conducts environmental assessments (which
report or assessment may have been prepared for the holder of the First Mortgage
or any permitted refinancing thereof), that:
(i) such Property is in compliance with applicable
environmental laws or, if not, that taking such actions as are
necessary to bring such Property in compliance therewith is
reasonably likely to produce a greater recovery on a present
value basis than not taking such actions, and
(ii) there are no circumstances present at such
Property relating to the use, management or disposal of any
hazardous substances, hazardous materials, hazardous wastes,
or petroleum-based materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be
required under any Federal, state or local law or regulation,
or that if any such materials are present for which such
action could be required, taking such actions with respect to
the affected Property is reasonably likely to produce a
greater recovery on a present value basis than not taking such
actions.
If the Servicer has so determined, based on satisfaction of
the criteria in clauses (i) and (ii) above, that it would be consistent with the
standard of care to take any such actions, the Servicer shall notify the Grantor
Trust Trustee, which in turn shall notify the holders of the Grantor Trust
Certificates of such proposed action, and if the Grantor Trust Trustee has not
received and delivered to the Servicer, within five Business Days after such
notification to the holders of the Grantor Trust Certificates, Instructions from
the Directing Holders not to take any such action, the Servicer shall take such
action.
If, on the other hand, the Servicer determines that taking
such actions as are necessary to bring any such Property into compliance with
applicable environmental laws, or taking such actions with respect to the
containment, clean-up, removal or remediation of hazardous substances, hazardous
materials, hazardous wastes or petroleum-based materials affecting any such
Property, is not reasonably likely to produce a greater recovery on a present
value basis than not taking such actions, the Servicer shall notify the Grantor
Trust Trustee of such determination and the Grantor Trust Trustee shall in turn
notify the holders of the Grantor Trust Certificates. If, within five Business
Days after the Grantor Trust Trustee's notification, the Grantor Trust Trustee
has not received, and notified the Servicer of, contrary Instructions from the
Directing Holders, then the Servicer may take such action as it deems to be
consistent with the standard of care, including, without limitation, releasing
the lien of the Subordinate Mortgage with respect to the affected Property. The
Servicer shall not be required to accept Instructions if, in an Officer's
Certificate (copies of which shall be delivered to the Grantor Trust Trustee and
the holders of the Grantor Trust Certificates), they would expose the Servicer
to liability under CERCLA. The cost of any such compliance, containment,
clean-up or remediation is a Grantor Trust Expense and shall be paid to the
Servicer pursuant to Section 6.04; provided that if a Directing Holders Reserve
Fund is established in connection with such Property, such cost shall first be
paid from the Directing Holders Reserve Fund, to the extent available.
(f) If the Servicer acquires a Property on behalf of the
Grantor Trust (a "Foreclosed Property"), the Servicer shall be empowered,
subject to the REMIC Regulations, to do any and all things in connection with
the management and operation thereof as are consistent with the standard of
care. The Servicer shall hire an independent contractor to operate any
Foreclosed Property if required to do so under the REMIC Regulations. The
retention of an independent contractor, however, will not relieve the Servicer
of any of its obligations with respect to the management and operation of such
Foreclosed Property. If proceeds received in respect of such Foreclosed Property
prior to the final liquidation of such Foreclosed Property are not sufficient to
pay the costs and fees incurred by the Servicer (including the fees of the
independent contractor), such costs and fees will be reimbursable to the
Servicer out of Liquidation Proceeds received from the final Liquidation of such
Foreclosed Property.
The Servicer shall sell any Foreclosed Property (other than
Foreclosed Property for a Contract Receivable which is on Exhibit B or which has
been repurchased pursuant to Section 3.02 or as to which all T-1 Allocable
Payments have been made) within two years after such property has been acquired
(within the meaning of the REMIC Regulations) by the Grantor Trust, unless the
Trust has received an extension of such period from the Internal Revenue Service
to the effect that the holding by the Grantor Trust of such Foreclosed Property
for an additional specified period will not result in the imposition of taxes on
"prohibited transactions" of the Trust as defined in Section 860F of the Code,
or adversely affect the status of the assets of the Trust as to which a REMIC
election has been made as a REMIC at any time that any Certificate is
outstanding, in which event such two-year period will be extended by such
additional specified period (and any expense incurred in obtaining such
extension shall be reimbursed to the Servicer as a Trust Reimbursable Expense).
(g) The Servicer shall not acquire for the benefit of the
Grantor Trust any personal property pursuant to this Section 4.05 unless either:
(i) such personal property is incident to real
property (within the meaning of Section 856(e)(1) of the Code)
so acquired by the Servicer for the benefit of the Grantor
Trust (which determination may be made without liability in
reliance upon an Opinion of Counsel); or
(ii) the Servicer shall have requested and received
an Opinion of Counsel (obtained at the expense of the Grantor
Trust) to the effect that the holding of such personal
property by the Grantor Trust will not cause the imposition of
a tax on the Trust under the REMIC Regulations or cause the
assets of the Trust as to which a REMIC election has been made
to fail to qualify as a REMIC at any time that any Certificate
is outstanding.
(h) The Net Liquidation Proceeds with respect to a Contract
Receivable, shall be allocated by the Servicer pursuant to Section 6.03 between
T-1 Allocable Payments which shall be deposited by the Servicer in the
Collection Account and T-2 Allocable Payments which shall be deposited by the
Servicer in the Reserve Fund.
(i) The Servicer may sue to enforce or collect upon Contract
Receivables, in its own name, if possible, or as agent for the Grantor Trust
Trustee, after consultation with the T-2 Holder (provided that the T-2 Holder's
advice shall not be binding on the Servicer). If the Servicer elects to commence
a Remedial Proceeding to enforce a Contract Receivable, the act of commencement
shall be deemed to be an automatic assignment of such Contract Receivable to the
Servicer for purposes of collection only. If, however, in any Remedial
Proceeding it is held that the Servicer may not enforce a Contract Receivable on
the ground that it is not a real party in interest or a holder entitled to
enforce such Contract Receivable, the Grantor Trust Trustee on behalf of the
Grantor Trust shall, at the Servicer's expense, take such steps as the Servicer
deems necessary to enforce such Contract Receivable, including bringing suit in
its name or the names of the holders of the Grantor Trust Certificates.
(j) If the Servicer elects to proceed with a non-judicial
foreclosure in accordance with the laws of the state where the Property is
located and the provisions of the related Contract Receivable Documents, the
Servicer shall not be required to pursue a deficiency judgment against the
related Obligor or any other liable party if (i) the laws of the state do not
permit such a deficiency judgment after a non-judicial foreclosure, (ii) the
related Contract Receivable provides that the recourse of the Noteholder is
limited to the Mortgaged Property, or (iii) the Servicer determines, in its good
faith business judgment, that the likely recovery if a deficiency judgment is
obtained will not be sufficient to warrant the cost, time, expense and/or
liability of pursuing the deficiency judgment and such determination is
evidenced by an Officer's Certificate to that effect delivered to the Grantor
Trust Trustee.
(k) The Servicer shall not be permitted to sell a Contract
Receivable except under the following circumstances: (i) upon the occurrence of
an event described under Section 4.03, or (ii) to maintain the status of the
Trust as a REMIC. The Servicer may sell, however, (i) any Foreclosed Property,
to the extent permitted by applicable law and the related Subordinate Mortgage,
and (ii) other proceeds of a Defaulted Contract Receivable or a Liquidated
Contract Receivable. The Servicer may also cause the transfer of the stock of
Derby, Saber and Sentec in accordance with Section 4.05(1).
(l) With respect to Derby, Saber or Sentec, in the event that,
(i) the Credit Tenant shall have defaulted under the
related Underlying Lease to which such corporation (either Derby, Saber
or Sentec) is a party or shall have commenced a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall have consented to the entry of an order
for relief in an involuntary case under any such law, or shall have
consented to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or sequestrator (or other
similar official) for it or its property, or shall have made any
general assignment for the benefit of its creditors, or shall have
failed to, or admitted in writing its inability to, pay its debts as
they become due, or shall have taken any corporate action in
furtherance of the foregoing;
(ii) Presidio fails to pay its obligations under
Section 13.18 with respect to Saber, Derby or Sentec or the liabilities
against which Presidio is otherwise obligated to indemnify the Grantor
Trust thereunder (together with the reasonably estimated out-of-pocket
expenses which Presidio will incur in defending any claim that would
give rise to an indemnification claim) exceed the maximum amount that
Presidio is required to pay thereunder;
(iii) Derby, Saber or Sentec lacks sufficient funds
(in its Sandwich Investment Account or otherwise) to pay its expenses,
claims or liabilities (and, in the case of Derby or Sentec, no funds
are available in the Derby and Sentec Reserve Account) and, pursuant to
Section 4.20(e) the Servicer has determined in accordance with the
standard of care not to make a capital contribution; or
(iv) Presidio or the T-2 Holder shall have failed to
cure a breach of any representation or warranty under Section 3.01(c)
within 90 days after the Servicer shall have given notice to Presidio
and the T-2 Holder of such breach in reasonable detail, if such breach
materially and adversely affects the value of the stock of such
corporation or the interest of the Grantor Trust in such corporation;
then (unless the Servicer determines, in the case of an event of default under
the Underlying Lease or a breach of representation, that such event of default
or breach of representation is not material or will be cured promptly with
respect to the affected corporation (either Derby, Saber or Sentec)), the
Servicer (x) shall direct the GT Collateral Agent to give written notice to the
T-2 Holder, whereupon the stock of such corporation (any of Sentec, Derby or
Saber, whichever is applicable) shall, without further action, be deemed to have
been transferred to the T-2 Holder subject to a lien thereon pursuant to the
Reserve Fund Pledge Agreement (or, upon notice from the T-2 Holder to the GT
Collateral Agent, the T-2 Holder may designate an affiliated partnership,
limited liability company or nominee of the T-2 Holder to own such stock,
provided that such affiliate or nominee confirms the pledge of such stock and
the distributions thereon and proceeds thereof pursuant to the Reserve Fund
Pledge Agreement), (y) shall cause the stock ledger of such Sandwich Corporation
to be changed to reflect such transfer subject to a lien thereon pursuant to the
Reserve Fund Pledge Agreement, and such transferee shall be deemed to have
pledged such stock and the proceeds thereof and distributions thereon to the
Collateral Agent pursuant to the Reserve Fund Pledge Agreement, and (z) shall
make no further transfers of the Net Sandwich Investments of such corporation to
the Certificate Account (or to reimburse the Servicer). Upon request, the T-2
Holder (or its affiliate or nominee) shall confirm in writing the acceptance of
such transfer and the making of such pledge. Prior to any such transfer of the
stock of Derby or Sentec, the Grantor Trust shall make a capital contribution to
such corporation in the amount of half of the funds in the Derby and Sentec
Reserve Account.
At any time that Derby, Saber or Sentec has no Net Sandwich
Investments in its Sandwich Investment Account, the Servicer hereby is
authorized to transfer to the T-2 Holder, upon 10 days notice to the T-2 Holder,
the stock of such corporation subject to a lien thereon for the benefit of the
Collateral Agent pursuant to the Reserve Fund Pledge Agreement (or upon notice
from the T-p2 Holder to the GT Collateral Agent, the T-2 Holder may designate an
affiliated partnership, limited liability company or nominee of the T-2 Holder
to own such stock), provided that such T-2 Holder (or such affiliate or nominee)
confirms the pledge of such stock and all distributions on and proceeds thereof
pursuant to a supplement to the Reserve Fund Pledge Agreement satisfactory to
the Servicer. Such supplement shall require that any Net Sandwich Investments of
such corporation be maintained and applied in accordance with Section 4.20 and
that the transferee comply with the covenants in Section 4.20 applicable to the
sole stockholder of such corporation. Prior to any such transfer of the stock of
Derby or Sentec, the Grantor Trust shall make a capital contribution to such
corporation in the amount of half of the funds in the Derby and Sentec Reserve
Account. Subsequent to such transfer, the transferee, pursuant to the Reserve
Fund Pledge Agreement, shall cause transfers of the Net Sandwich Investments to
be made to the Servicer, for deposit in the Certificate Account (or to reimburse
the Servicer), in accordance with Section 6.09 of this Agreement, unless and
until such time as an event set forth in clauses (i), (ii), (iii) or (iv) above
shall have occurred and be continuing with respect to such corporation.
SECTION 4.06 Maintenance of Security Interests.
(a) The Servicer, in accordance with the standard of care,
shall take such steps as are necessary to maintain the lien and the security
interest created by each Sandwich Pledge Agreement, each Paying Agent Agreement,
each Subordinate Mortgage (in the related Mortgaged Property) and the Pledged
Funds in favor of BT, as GT Collateral Agent and as Collateral Agent. The
Servicer shall, and is hereby authorized and empowered by the Grantor Trust
Trustee to, prepare, execute and deliver any and all financing statements,
continuation statements and other documents or instruments necessary to maintain
the lien on and security interest in each Mortgaged Property (except, prior to
the recordation thereof, with respect to the Subordinate Mortgages for Leyden,
Bessomac and Taber).
(b) If at any time consent of the holder of the First Mortgage
is received, or if the First Mortgage is refinanced, permitting recordation of
the Subordinate Mortgage delivered by Bessomac, Leyden or Taber, the Servicer,
together with the related Obligor, shall take such steps as are necessary to
obtain a lien encumbering and creating a security interest in the related
Mortgaged Property, including, without limitation, recording Subordinate
Mortgages in each county where an Obligor's property is located, and (with the
consent of the T-2 Holder and the related Obligor) shall consent to such
amendments or modifications to the Subordinate Mortgage as the holder of the
First Mortgage shall reasonably request.
(c) The Servicer shall take such steps as are necessary to
continue the security interest created by the initial filing of UCC financing
statements in connection with the Subordinate Mortgages and Paying Agent
Agreements, including, without limitation, filing requisite UCC continuation
statements.
SECTION 4.07 Servicer Report. On each Distribution Date, the
Servicer shall prepare and forward a report (the "Servicer Report"), in
substantially the form of Exhibit V attached hereto, to the Grantor Trust
Trustee, any Grantor Trust Paying Agent, the REMIC Trustee, the holders of the
Grantor Trust Certificates and the holders of the Certificates. The
determination by the Servicer of the amount of the distributions to be made
pursuant to Section 6.07 hereof and pursuant to the Pooling Agreement shall, in
the absence of obvious error, be presumptively deemed to be correct for all
purposes hereunder.
On the Business Day following each Determination Date, the
Servicer shall inform the T-2 Holder of the amount, if any, to be transferred
from each Pledged Fund to the Certificate Account on the next succeeding Deposit
Date.
Each Servicer Report shall be accompanied by a certificate of
a Servicing Officer substantially in the form of Exhibit W attached hereto,
certifying the accuracy of the Servicer Report and certifying that no Event of
Termination, or event that with notice or lapse of time, or both, would become
an Event of Termination, has occurred, or if such event has occurred and is
continuing, specifying the event and its status.
SECTION 4.08 Annual Statement as to Compliance.
(a) The Servicer shall deliver to the Grantor Trust Trustee,
the REMIC Trustee, the holders of the Grantor Trust Certificates and the Rating
Agency within 90 days after the end of each calendar year, an Officer's
Certificate of an officer of the Servicer with direct responsibility over the
administration of this Agreement and the Pooling Agreement, stating that (i) a
review of the activities of the Servicer during the preceding calendar year of
its performance under this Agreement and the Pooling Agreement has been made
under such officer's supervision and (ii) to the best of such officer's
knowledge, based upon such review, the Servicer has fulfilled all of its
obligations under this Agreement and the Pooling Agreement throughout such
preceding calendar year, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default known to such officer and the
nature and status thereof. The first such Officer's Certificate shall be
delivered by April 1, 1997, for the calendar year 1996.
(b) The Servicer shall deliver to the Grantor Trust Trustee
and the holders of the Grantor Trust Certificates, promptly after having
obtained knowledge thereof, an Officer's Certificate specifying any event which
with the giving of notice or lapse of time, or both, would become an Event of
Termination under clause (a) or (b) of Section 10.01. The Seller shall deliver
to the Grantor Trust Trustee and the holders of the Grantor Trust Certificates,
promptly after having obtained knowledge thereof, an Officer's Certificate
specifying any event which with the giving of notice or lapse of time, or both,
would become an Event of Termination under clause (a) or (b) of Section 10.01.
SECTION 4.09 Annual Audit Report. Within 90 days after the end
of each calendar year, the Servicer, at its expense, shall cause a nationally
recognized firm of independent public accountants, which is a member of the
American Institute of Certified Public Accountants, to furnish a statement to
the Grantor Trust Trustee to the effect that such firm has examined certain
documents and records relating to the Servicer and that, on the basis of such
examination conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers ("Audit Program"), such servicing has
been conducted in compliance with agreements substantially similar to this
Agreement, except for such significant exceptions or errors in records that, in
the opinion of such firm, the Audit Program requires it to report. The first
such statement shall be delivered on April 1, 1997, for the calendar year 1996.
The Servicer shall forward a copy of such annual statement to the Grantor Trust
Trustee, the REMIC Trustee, as holder of the Grantor Trust T-1 Certificate, and
the holders of the Grantor Trust T-2 Certificates. Copies of the annual
statement of accountants shall also be provided by the Servicer to the Rating
Agency.
SECTION 4.10 Directing Holders.
(a) Remedial Proceeding. If a Contract Receivable becomes a
Defaulted Contract Receivable, the Servicer shall immediately, but not later
than the third Business Day following the day the Servicer becomes aware that
such Contract Receivable has become a Defaulted Contract Receivable, give notice
to the holders of the Grantor Trust Certificates and the Grantor Trust Trustee,
specifying the nature and circumstances of the event of default to the extent
known to the Servicer. The Servicer may be given irrevocable instructions as to
the action to be taken with respect to the Defaulted Contract Receivable
("Instructions") by holders of a Majority-In-Interest of the Grantor Trust T-2
Certificates (the "Directing Holders") within five Business Days of receipt of
such notice. In the event that the Servicer does not receive such Instructions
within such five Business Day period, the Servicer shall promptly determine the
appropriate actions to be taken consistent with the standard of care, and, prior
to taking such actions, the Servicer shall provide the Grantor Trust Trustee
with notice of such determination in reasonable detail and the Grantor Trust
Trustee shall deliver any such notice received by it to the holders of the
Grantor Trust T-2 Certificates. Within five Business Days after receipt from the
Grantor Trust Trustee of notice of the Servicer's intended actions, the Servicer
may be given Instructions by the Directing Holders as to the action to be taken
with respect to a Defaulted Contract Receivable, which may include, among other
things, the following: (i) not to commence a Remedial Proceeding, (ii) to agree
or refuse to agree to an amendment, waiver or modification of a Defaulted
Contract Receivable or release of all or a portion of the Property from the lien
of the Subordinate Mortgage, in substitution for other collateral or otherwise;
or (iii) to commence a Remedial Proceeding. Instructions shall be restricted to
the actions that the Servicer could have taken with respect to a Defaulted
Contract Receivable (including modifications, waivers or amendments thereof),
except that the Instructions of the Directing Holders shall not (i) be subject
to the objection of the other holders of the Grantor Trust Certificates, or (ii)
require the Servicer to transfer or lease a Property or a Foreclosed Property to
an Affiliate of the T-2 Holder.
If the Servicer receives Instructions within five Business
Days after notice of an event of default or notice of the Servicer's
determination was delivered to the Directing Holders by the Grantor Trust
Trustee (as described in the immediately preceding paragraph), the Servicer
shall act in accordance with such Instructions, and the procedures described in
the following paragraphs below shall apply to the servicing of such Defaulted
Contract Receivable. In the event that the Servicer does not receive such
Instructions within such five Business Day period, the Servicer may proceed in a
manner consistent with the standard of care and the notice given to the
Directing Holders until the Servicer makes a determination to commence or not to
commence a Remedial Proceeding (or to agree or refuse to agree to an amendment,
waiver or modification of a Defaulted Contract Receivable or release of all or a
portion of the Property from the lien of the Subordinate Mortgage, in
substitution for other collateral or otherwise) or take other action not
described in such notice, in which event the Directing Holders shall again be
given the same opportunity to give Instructions (unless the Directing Holders
shall waive the right to receive such opportunity as to any Contract
Receivable).
Within five Business Days after the Servicer's receipt of
Instructions, the Directing Holders shall
(A) pay to the Servicer for deposit (the "Directing Holders'
Deposit") with the GT Collateral Agent into a Directing Holders Reserve
Fund an amount equal to the sum of (i) 125% of the Discounted Pay Off
Amount determined as of the date of the Directing Holders' Deposit
(provided that if a T-1 Allocable Payment due on or within 25 days
prior to the scheduled expiration date of the Primary Term of the
related Underlying Lease is due and owing as of the date of the
Directing Holders' Deposit, and the Discounted Pay Off Amount is zero,
the amount of the Directing Holders' Deposit pursuant to this clause
(i) shall be 125% of the unpaid balance of the scheduled payments on
such Contract Receivable which are T-1 Allocable Payments) plus (ii)
the outstanding Prepayment Deficiency Amount, if any, with respect to
the affected Contract Receivable,
(B) deliver a DHRF Indemnity Agreement, agreeing to make the
payments described below (but only to the extent of the Directing
Holders' Deposit), and
(C) deliver a DHRF Pledge Agreement pledging the applicable
Directing Holders Reserve Fund to secure the obligations under such
DHRF Indemnity Agreement.
In the event that the Directing Holders do not make the Directing Holders'
Deposit and deliver the DHRF Indemnity Agreement and the DHRF Pledge Agreement
within five Business Days after the Servicer's receipt of Instructions, the
Servicer shall disregard such Instructions. If the Directing Holders' Deposit is
made and the DHRF Indemnity Agreement and the DHRF Pledge Agreement are
delivered within five Business Days, the Directing Holders may continue to give
Instructions from time to time with respect to that Defaulted Contract
Receivable, and the Servicer shall be obligated to follow such Instructions.
No Directing Holders' Deposit, DHRF Indemnity Agreement or
DHRF Pledge Agreement shall be required (i) if the Discounted Pay Off Amount
plus the outstanding Prepayment Deficiency Amount, if any, determined as of the
date of the Directing Holders' Deposit equals zero, (ii) if all T-1 Allocable
Payments on such Contract Receivable have been made or (iii) if it is a Contract
Receivable on Exhibit B. If no Directing Holders' Deposit is required to be made
for a Defaulted Contract Receivable, it will not be subject to purchase by the
Directing Holders pursuant to the third succeeding paragraph.
The Servicer shall apply funds in a Directing Holders Reserve
Fund to pay the fees of third parties incurred in connection with a Remedial
Proceeding conducted in accordance with the Instructions, provided that such
third parties retained by the Servicer shall have been approved by the Directing
Holders, which approval shall not be unreasonably withheld.
If the Defaulted Contract Receivable that is subject to
Instructions becomes a Liquidated Contract Receivable, the Servicer shall
withdraw from the Directing Holders Reserve Fund and deposit into the Collection
Account (or, for the period of time from the Transfer Date to the Deposit Date,
into the Certificate Account), as additional Liquidation Proceeds, the amount by
which the Discounted Pay Off Amount determined as of the date of such
Liquidation plus the outstanding Prepayment Deficiency Amount, if any, allocable
to the Grantor Trust T-1 Certificate exceeds the Net Liquidation Proceeds from
such Liquidation.
If the Defaulted Contract Receivable that is subject to
Instructions has not become a Liquidated Contract Receivable (or been prepaid in
full) on or before the third anniversary of receipt of the Instructions, the
Directing Holders shall purchase such Defaulted Contract Receivable from the
Grantor Trust for a purchase price equal to the Discounted Pay Off Amount plus
the outstanding Prepayment Deficiency Amount, if any, allocable to the Grantor
Trust T-1 Certificate determined as of the third anniversary of receipt of the
Instructions; provided, however, that such purchase shall be conditioned upon
the delivery to the Grantor Trust Trustee of an Opinion of Counsel reasonably
satisfactory to the REMIC Trustee (and, if the Directing Holders shall fail to
deliver such opinion, the Servicer shall request such opinion from counsel), at
the expense of the Directing Holders, to the effect that such purchase (and the
obligation of the Directing Holders to effect such purchase) shall not (i)
adversely affect either the status of the assets of the Trust as to which a
REMIC election has been made as a REMIC or the status of the Grantor Trust as a
grantor trust under Subpart E, part I of Subchapter J of the Code, or (ii) cause
a gain on the disposition of a qualified mortgage that would subject the Trust
to the 100% tax on "prohibited transactions" imposed by Section 860F(a) of the
Code, or (iii) cause the Trust to be subject to any tax under the REMIC
Regulations or equivalent provisions of Federal, state or local law or
ordinance. Upon receipt of such opinion, on such anniversary, the Servicer shall
effect such purchase by withdrawing the purchase price from the amounts on
deposit in the Directing Holders Reserve Fund, and the obligation of the
Directing Holders to pay such purchase price shall be limited to such amounts.
No later than 30 days prior to each Deposit Date, the Servicer shall determine
whether there will be sufficient funds in the Directing Holders Reserve Fund to
pay such purchase price (determined as of the second succeeding Distribution
Date) and if the Servicer determines that there will be a deficiency, the
Servicer shall notify the Directing Holders; in the event the Directing Holders
elect not to deposit such deficiency, upon receipt of the aforesaid Opinion of
Counsel described above in this paragraph, the Servicer shall effect such
purchase on the next succeeding Deposit Date (even though it is prior to the
third anniversary of the receipt of Instructions) by withdrawing the purchase
price (determined as of such Deposit Date) from the funds on deposit in the
Directing Holders Reserve Fund. If, notwithstanding the foregoing, there are
insufficient funds in the Directing Holders Reserve Fund to pay the purchase
price, the Directing Holders shall not purchase such Defaulted Contract
Receivable unless at their option they deposit sufficient funds to effectuate
such purchase.
If the Directing Holders purchase such Defaulted Contract
Receivable, such Defaulted Contract Receivable, the Subordinate Mortgage and the
related Contract Receivable File shall be transferred from the Grantor Trust to
the Directing Holders, the Grantor Trust Trustee and the GT Collateral Agent
shall execute any assignments, financing statements and other documents
reasonably requested by the Directing Holders to effect such transfer, and any
payments made on or with respect to such Defaulted Contract Receivable after the
date of such purchase, including the Net Liquidation Proceeds, shall be the sole
property of (and shall be paid to) the Directing Holders. If the Defaulted
Contract Receivable purchased is the Hertec Contract Receivable, the Metec
Contract Receivable or the Dalcin Contract Receivable, (i) the purchase price
shall be increased by an amount equal to the Net Sandwich Investments of the
Sandwich Corporation (Sentec, Derby or Saber, respectively) which is party to a
Master Lease with the Obligor on such Contract Receivable, and (ii) at the
option of the Directing Holders, either (A) the Servicer and the Grantor Trust
Trustee shall transfer to the Directing Holders (free and clear of any pledge or
lien) all right, title and interest in and to the stock of such Sandwich
Corporation (including all funds or investments of such Sandwich Corporation),
and appoint the designee of the Directing Holders as the sole director of such
Sandwich Corporation, or (B) all proceeds of, and distributions on, the stock of
such Corporation shall be distributed by the Grantor Trust Trustee, as and when
received, to the Directing Holders (notwithstanding any other provision herein
regarding the application of the Net Sandwich Investments).
In determining the amount payable from a Directing Holders
Reserve Fund pursuant to any of the three preceding paragraphs, the Servicer
shall credit against such amount all amounts paid from the applicable Directing
Holders Reserve Fund pursuant to the immediately following paragraph.
If, at any time following the establishment of a Directing
Holders Reserve Fund with respect to a Defaulted Contract Receivable and prior
to the date on which it becomes a Liquidated Contract Receivable, the Obligor
fails to pay any amount which is due and payable under such Defaulted Contract
Receivable within 30 days after the scheduled due date for such payment (other
than by reason of the Noteholder having declared all amounts to be immediately
due and payable thereunder as a result of an event of default thereunder or
under the related Subordinate Mortgage), including amounts due and payable in
connection with a Purchase Option or a Schedule C Event, the Servicer shall
cause the withdrawal from the applicable Directing Holders Reserve Fund and the
deposit into the Collection Account (or, for the period of time from the
Transfer Date to the Deposit Date, into the Certificate Account) of the portion
of such delinquent payment which is a T-1 Allocable Payment.
Promptly after the date on which a Defaulted Contract
Receivable which becomes a Liquidated Contract Receivable (or portion thereof)
is purchased by the Directing Holders or is prepaid in full, the Servicer shall,
after withdrawing any amounts payable from a Directing Holders Reserve Fund (as
described above), pay the remaining balance to the applicable Directing Holders.
From time to time, the Directing Holders may pay additional
amounts to the Servicer, for deposit in the Directing Holders Reserve Fund, in
which case the Directing Holders also may give Instructions to the Servicer to
apply such funds on deposit in the Directing Holders Reserve Fund for any of the
purposes listed in Section 4.16(b).
(b) Rejectable Offer. Upon receipt of notice from an Obligor
of a proposed rejection of a Rejectable Offer (the "Rejection Notice"), the
Servicer shall immediately, but not later than the third Business Day following
receipt of such Rejection Notice, give notice to the holders of the Grantor
Trust Certificates and the Grantor Trust Trustee of such proposed rejection by
sending a copy of the Rejection Notice to each of them, together with the
Servicer's calculation of the Schedule C Prepayment Amount for the affected
Property. Within 14 Business Days after receipt by the Servicer of a Rejection
Notice, the Servicer shall deliver written notice to the Obligor of its
objection to the rejection of the Rejectable Offer in accordance with the
related Subordinate Mortgage (other than with respect to the Hertec Contract
Receivable, the Metec Contract Receivable and the Segair Note) unless the
Directing Holders (i) direct ("Directions") the Servicer to consent to the
Obligor's rejection of the Rejectable Offer (ii) pay to the Servicer for deposit
with the GT Collateral Agent into a Rejectable Offer Reserve Fund, an amount
equal to 125% of the Schedule C Prepayment Amount for the affected Property (the
"Directing Holders' Rejectable Offer Deposit"), and (iii) deliver a RORF
Indemnity Agreement and a RORF Pledge Agreement. If such Direction is given,
such deposit is made and such Agreements are delivered, the Servicer shall
consent in writing to the Obligor's rejection of the Rejectable Offer
immediately (but in any event prior to the fourteenth Business Day after notice
of the proposed rejection was given by the Obligor). The Servicer shall direct
the GT Collateral Agent to return to the Directing Holders the Directing
Holders' Rejectable Offer Deposit (and any investment income thereon) if the
Obligor accepts the Rejectable Offer or if the Rejectable Offer is canceled or
withdrawn by the Lessee (such that the Schedule C Event does not occur).
No Directing Holders' Rejectable Offer Deposit, RORF Indemnity
Agreement or RORF Pledge Agreement shall be required if (i) the Schedule C
Prepayment Amount equals zero, (ii) all T-1 Allocable Payments on a Contract
Receivable have been made, or (iii) it is a Contract Receivable on Exhibit B. If
no Directing Holders' Rejectable Offer Deposit is required to be made for a
Contract Receivable, it shall not be subject to purchase by the Directing
Holders pursuant to the second succeeding paragraph.
If, following the establishment of a Rejectable Offer Reserve
Fund with respect to a Contract Receivable, such Contract Receivable becomes a
Defaulted Contract Receivable:
(A) the Directing Holders shall have the same rights
to direct the Servicer (including with respect to modifications,
waivers or amendments of the terms of a Contract Receivable) as if a
Directing Holders Reserve Fund was established, without depositing the
Directing Holders' Deposit; provided, however, that if the Contract
Receivable relates to a Multiple Property Obligor, the Directing
Holders shall not have such rights unless at their option they make a
Directing Holders' Deposit equal to 125% of the Allocated DPO Amount
(determined as of the date of such deposit) (plus the outstanding
Prepayment Deficiency Amount, if any) for the Properties, if any, other
than those for which the Directing Holders' Rejectable Offer Deposit
was made. If the Directing Holders' Deposit referred to in the
immediately preceding proviso is made, this Section 4.10(b) (including
the immediately following sentence) shall no longer be applicable to
such Contract Receivable and instead Section 4.10(a) shall be
applicable (except that the purchase price payable on the third
anniversary of the receipt of Instructions shall be calculated as the
sum of the Schedule C Prepayment Amount for the Property as to which
the Directing Holders' Rejectable Offer Deposit was made, plus the
Allocated DPO Amount as of the date of such deposit (and any Prepayment
Deficiency Amount) for the other Properties allocable to the Grantor
Trust T-1 Certificate).
(B) In the case of a Single Property Obligor (or a
Multiple Property Obligor if a Directing Holders' Rejectable Offer
Deposit has been made for all of its Properties subject to the
Subordinate Mortgage) or if the Directing Holders elect, in the case of
a Multiple Property Obligor, not to make the Directing Holders' Deposit
referred to in subparagraph (A), and such Contract Receivable has not
become a Liquidated Contract Receivable (or been prepaid in full)
within twelve months after such Contract Receivable became a Defaulted
Contract Receivable, the Directing Holders shall purchase such Contract
Receivable (or, in the case of a Multiple Property Obligor, the
interest in the portion of such Contract Receivable related to the
affected Property) and the Servicer shall effect such purchase by
withdrawing from the Rejectable Offer Reserve Fund an amount equal to
the Schedule C Prepayment Amount for the affected Property (as of the
date on which the Directing Holders' Rejectable Offer Deposit was made)
and depositing the portion thereof allocable (pursuant to Section 6.03
hereof) to the Grantor Trust T-1 Certificate into the Collection
Account (or, for the period of time from the Transfer Date to the
Deposit Date, into the Certificate Account) and any remaining amount
into the Reserve Fund; provided, however, that such purchase shall be
conditioned upon the delivery to the Grantor Trust Trustee of an
Opinion of Counsel satisfactory to the REMIC Trustee (and, if the
Directing Holders shall fail to deliver such opinion, the Servicer
shall request such opinion from counsel), at the expense of the
Directing Holders, to the effect that such purchase (and the obligation
of the Directing Holders to effect such purchase) shall not (i)
adversely affect either the status of the assets of the Trust as to
which a REMIC election has been made as a REMIC or the status of the
Grantor Trust as a grantor trust under Subpart E, part I of Subchapter
J of the Code, or (ii) cause a gain on the disposition of a qualified
mortgage that would subject the Trust to the 100% tax on "prohibited
transactions" imposed by Section 860F(a) of the Code, or (iii) cause
the Trust to be subject to any tax under the REMIC Regulations or
equivalent provisions of Federal, state or local law or ordinance. The
amount so to be withdrawn from the Rejectable Offer Reserve Fund shall
be reduced by the payments made pursuant to subparagraph (D). Following
any such purchase (if the purchase price is paid in full),
(i) in the case of a Multiple Property Obligor
(unless the affected Property or Properties are the only
Property or Properties subject to the Subordinate Mortgage, in
which case clause (ii) below shall be applicable), any
payments made on or with respect to the Contract Receivable
(and attributable to the affected Property) after the date of
purchase, including the Net Liquidation Proceeds, shall be
paid to the applicable Directing Holders, pro rata, based upon
their Percentage Interest, until the aggregate amount of such
payments equals the amount so withdrawn from the applicable
Rejectable Offer Reserve Fund, and thereafter any additional
payments shall be deposited into the Reserve Fund, and
(ii) in all other cases, such Defaulted Contract
Receivable, the Subordinate Mortgage and the related Contract
Receivable File shall be transferred from the Grantor Trust to
the Directing Holders, the Grantor Trust Trustee and the GT
Collateral Agent shall execute any assignments, financing
statements and other documents reasonably requested by the
Directing Holders to effect such transfer and any payments
made on or with respect to such Defaulted Contract Receivable
after the date of purchase, including the Net Liquidation
Proceeds, shall be the sole property of (and shall be paid to)
the Directing Holders. If the Defaulted Contract Receivable
purchased is the Dalcin Contract Receivable, (i) the purchase
price shall be increased by an amount equal to the Net
Sandwich Investments of Saber, and (ii) at the option of the
Directing Holders, either (A) the Servicer and the Grantor
Trust Trustee shall transfer to the Directing Holders (free
and clear of any pledge or lien) all right, title and interest
in and to the stock of Saber (including all funds or
investments of such corporation), and appoint the designee of
the Directing Holders as the sole director of such
corporation, or (B) all proceeds of, and distributions on, the
stock of such corporation shall be distributed by the Servicer
on behalf of the Grantor Trust Trustee, as and when received,
to the Directing Holders (notwithstanding any other provision
herein regarding the application of the Net Sandwich
Investments).
(C) In the case of a Single Property Obligor (or a
Multiple Property Obligor if a Directing Holders' Rejectable Offer
Deposit has been made for all of its Properties subject to the
Subordinate Mortgage) or if the Directing Holders elect, in the case of
a Multiple Property Obligor, not to make the Directing Holders' Deposit
referred to in subparagraph (A), and such Contract Receivable becomes a
Liquidated Contract Receivable within twelve months after such Contract
Receivable became a Defaulted Contract Receivable, the Net Liquidation
Proceeds and the amounts on deposit in the Rejectable Offer Reserve
Fund shall be applied as follows. If the Net Liquidation Proceeds
allocable to the Property (for which the Directing Holders' Rejectable
Offer Deposit was made) exceed the Schedule C Prepayment Amount for
such Property (as of the date on which the Directing Holders'
Rejectable Offer Deposit was made), such excess shall be deposited into
the Reserve Fund, the balance of the Net Liquidation Proceeds shall be
deposited into the Collection Account, and the amounts on deposit in
the Rejectable Offer Reserve Fund shall be distributed to the Directing
Holders, pro rata based upon their Percentage Interest (or as otherwise
directed by the Directing Holders). On the other hand, if such Net
Liquidation Proceeds allocable to the affected Property are less than
the Schedule C Prepayment Amount for the affected Property (as of the
date on which the Directing Holders' Rejectable Offer Deposit was
made), the amount of such deficiency shall be withdrawn from the
applicable Rejectable Offer Reserve Fund, and an amount equal to the
portion of such deficiency allocable to the Grantor Trust T-1
Certificate shall be deposited into the Collection Account (or, for the
period from the Transfer Date to the Deposit Date, into the Certificate
Account), an amount equal to the remainder of such deficiency shall be
deposited in the Reserve Fund, and any amounts remaining in the
applicable Rejectable Offer Reserve Fund shall be distributed to the
applicable Directing Holders, pro rata based upon their Percentage
Interest (or as otherwise directed by the applicable Directing
Holders). The amount withdrawn from a Rejectable Offer Reserve Fund
pursuant to either of the preceding two sentences shall be reduced by
any payments made therefrom pursuant to subparagraph (D) and any
prepayments made on the Contract Receivable after the Rejectable Offer
Reserve Fund was established.
(D) If, at any time following the establishment of a
Rejectable Offer Reserve Fund with respect to a Contract Receivable and
prior to the Liquidation of such Contract Receivable, the Obligor fails
to pay any amount which is due and payable under such Contract
Receivable within 30 days after the scheduled due date for such payment
(other than by reason of the Noteholder having declared all amounts to
be immediately due and payable thereunder as a result of an event of
default thereunder or under the related Subordinate Mortgage), the
Servicer shall cause the withdrawal from the Rejectable Offer Reserve
Fund and the deposit into the Collection Account (or, for the period
from the Transfer Date to the Deposit Date, into the Certificate
Account) of the portion of such delinquent payment which is
attributable to the affected Property and which is a T-1 Allocable
Payment.
Promptly after the date on which the Defaulted Contract
Receivable becomes a Liquidated Contract Receivable or the Contract Receivable
is prepaid pursuant to the Note, the Servicer, after withdrawing any amounts
payable from the applicable Rejectable Offer Reserve Fund, shall pay the
remaining balance to the applicable Directing Holders, pro rata, based upon
their Percentage Interest, or as otherwise directed by the Directing Holders.
SECTION 4.11 Reports to the Rating Agency. The Servicer shall
forward to the Rating Agency each letter of the independent certified public
accountants' described in Section 4.09, each Officer's Certificate described in
Section 4.08(b), each annual statement as to compliance described in Section
4.08(a), each Servicer Report described in Section 4.07 and each notice given
under Section 4.18(e).
SECTION 4.12 Maintenance of Fidelity Bond and Errors and
Omission Policy. The Servicer shall, during the term of its service as Servicer,
maintain in force a policy or policies of insurance covering loss occasioned by
the errors and omissions of its officers, employees and agents in connection
with its obligations to service the Contract Receivables hereunder. The Servicer
shall maintain a fidelity bond in the form and amount that would meet the
servicing requirements of prudent institutional commercial mortgage lenders and
loan servicers. The Servicer shall cause each and every subservicer to maintain
or be covered by a policy of insurance covering errors and omissions and a
fidelity bond that would meet the foregoing requirements. In the event that
there shall not have been maintained an errors and omissions policy and there
shall have been a loss that would have been covered by such policy, the Servicer
shall deposit in the Collection Account the amount that would otherwise have
been payable under the policy.
SECTION 4.13 Payment in Full of Contract Receivable. Upon
payment in full of any Contract Receivable (taking into account the Discount
Purchase Option if the Obligor has acquired the Discount Purchase Option, the
Servicer shall notify the Grantor Trust Trustee and the holders of the Grantor
Trust Certificates by delivery of an Officer's Certificate. Thereupon, after
consultation with the T-2 Holder (provided that the T-2 Holder's advice shall
not be binding on the Servicer), the Servicer is hereby authorized to execute an
instrument in satisfaction of such Contract Receivable and to do such other acts
and execute such other documents as the Servicer deems necessary to discharge
the Obligor thereunder and terminate the security interest in the Mortgaged
Property related thereto. The Servicer shall determine when a Contract
Receivable has been paid in full.
SECTION 4.14 Collection of Taxes, Assessments and Similar
Items; Escrow Accounts. If the Servicer Liquidates a Property through a Remedial
Proceeding, the Servicer shall segregate and hold all funds collected and
received and constituting escrow payments separate and apart from any of its own
funds and general assets and establish and maintain, when and if necessary, one
or more accounts into which all escrow payments shall be deposited and retained.
The Servicer shall notify the Grantor Trust Trustee in writing of the location
and account number of each escrow account and shall notify the Grantor Trust
Trustee in writing prior to any subsequent change thereof. Withdrawals of
amounts from an escrow account may be made only to (i) effect payment of taxes,
insurance premiums, ground rents, assessments and comparable items; (ii) refund
to third parties any sums that are determined to be overages; (iii) remove
amounts deposited therein in error; (iv) restore, repair or otherwise protect
the Properties; (v) pay interest, if required and as described below, to third
parties on balances in the escrow account; (vi) transfer the escrow account to
another financial institution if required hereby; or (vii) clear and terminate
the escrow account at the termination of this Agreement.
The Servicer shall establish appropriate record keeping
procedures to reflect the party entitled to any interest earned on funds in
escrow accounts and shall disburse such interest to such party in a timely
manner.
SECTION 4.15 Appraisals. The Servicer may, but is not required
to, obtain an appraisal of a Property securing a Defaulted Contract Receivable
to determine whether (i) to commence a Remedial Proceeding or (ii) to determine
whether the Grantor Trust T-1 Certificate will incur a Loss in connection with
such Contract Receivable. The expense of such appraisal shall be reimbursable as
a Liquidation Expense out of Liquidation Proceeds if such Contract Receivable is
Liquidated; otherwise it shall be a Grantor Trust Expense.
SECTION 4.16 Servicer Advances; Liquidation Expenses.
(a) The Servicer shall not be required to (but may in its sole
discretion) make advances to pay delinquent debt service on the Contract
Receivables or on the First Mortgages (or any permitted refinancings thereof),
delinquent real estate taxes, ground lease rents or assessments or to cover
other similar costs and to pay expenses necessary to preserve the priority of
any of the Contract Receivables or to maintain or insure the related Property,
except to a limited extent in connection with the Liquidation thereof. The
following expenses to third parties incurred by the Servicer in connection with
the Liquidation of a Contract Receivable shall constitute Liquidation Expenses
(excluding the cost of the Servicer's employees, facilities and overhead),
except any such expense as may be attributable to the Servicer's negligence, bad
faith, willful misconduct or misfeasance: legal fees, title costs, appraisals of
Properties, travel costs, inspections of Properties, sales and brokerage fees,
closing costs and operating costs of the Property. Any Liquidation Expenses
incurred by the Servicer shall be reimbursable to the Servicer only in
accordance with subparagraph (c) hereof. The Servicer shall incur (and be
reimbursed for) Liquidation Expenses (i) only in accordance with Directions or
Instructions, or (ii) if Instructions or Directions have not been given, only if
the incurrence of such Liquidation Expenses is consistent with the standard of
care, and the Servicer determined in good faith that the incurrence thereof
would increase the present value of the net cash flow generated by the Contract
Receivable and was likely to be recoverable out of the Liquidation Proceeds
thereof; provided, however, that the Servicer shall not incur a Liquidation
Expense if it shall have received prior written instructions from the holders of
a Majority-in-Interest of the Grantor Trust T-2 Certificates and the REMIC
Trustee, as holder of the Grantor Trust T-1 Certificate, directing the Servicer
not to incur such Liquidation Expense or to refrain from the prosecution of a
Remedial Proceeding.
(b) In the case of any Defaulted Contract Receivable as to
which the Servicer has requested but has not received Instructions pursuant to
Section 4.10, if the Servicer determines that it is consistent with the standard
of care, would increase the present value of net cash flow generated by the
Contract Receivable and that such advance is recoverable out of the Liquidation
Proceeds thereof (taking into account the proceeds of the First Mortgage to the
extent purchased), (i) the Servicer shall advance the necessary funds to
purchase the related First Mortgage (or any permitted refinancing thereof) or
other superior mortgage, (ii) the Servicer shall advance the necessary funds to
cure any defaults under the related First Mortgage (or any permitted refinancing
thereof) or other superior mortgage, and (iii) the Servicer shall advance the
necessary funds to pay delinquent real estate taxes, ground lease rents or
assessments or to cover other similar costs and to pay expenses necessary to
preserve the priority of any of the Contract Receivable Documents or to maintain
or insure the related Property; provided, however, that the Servicer shall not
make a Servicer Advance if it shall have received prior written instructions
from the holders of a Majority-in-Interest of the Grantor Trust T-2 Certificates
and the REMIC Trustee, as holder of the Grantor Trust T-1 Certificate, directing
the Servicer not to make a Servicer Advance.
In the event the Servicer makes a Servicer Advance in
connection with the Liquidation of a Contract Receivable or to cure a default
under a First Mortgage (or any permitted refinancing thereof) or other superior
mortgage, the Servicer shall be entitled to an Advancing Fee at the Prime Rate.
Such Servicer Advances and Advancing Fee shall be repaid to the Servicer only in
accordance with subparagraph (c) hereof.
(c) If after the date on which a Contract Receivable becomes a
Liquidated Contract Receivable, the Liquidation Proceeds (including any
liquidation proceeds attributable to the First Mortgage (or any permitted
refinancing thereof) or other superior mortgage purchased with a Servicer
Advance) are insufficient to repay to the Servicer the Liquidation Expenses (not
theretofor paid from the Directing Holders Reserve Fund or the Rejectable Offer
Reserve Fund), the Servicer Advance and the related Advancing Fee, the Servicer
will reimburse itself, first, from such Liquidation Proceeds, second, from the
Reserve Fund, third, from the Net Sandwich Investments (in accordance with the
procedure set forth in Section 6.09), and, fourth, from the Collection Account
as a Servicing and Grantor Trust Expense.
SECTION 4.17 Inspections. The Servicer shall, at its own
expense and to the extent permitted under a Subordinate Mortgage, inspect or
cause to be inspected each Property if an event of default has occurred under
such Subordinate Mortgage.
SECTION 4.18 Modifications, Waivers, Amendments and Consents.
(a) Subject to the provisions of this Section 4.18, the
Servicer shall have the right, but not the obligation, to agree to any
modification, waiver or amendment of any term of any Contract Receivable without
the consent of the Grantor Trust Trustee or any holder of a Grantor Trust
Certificate, but only if the circumstances described in subparagraph (b) or (c)
shall exist. In connection with a modification, waiver or amendment, the
Servicer shall have the authority to forgive permanently the payment of
principal or accrued interest or both and to modify the schedule for payments of
principal and interest.
All modifications, waivers or amendments of any Contract
Receivable shall be in writing and, except as set forth in Section 4.10(a),
shall be consistent with the standard of care and otherwise in compliance with
the terms and provisions of the Subordinate Mortgage and the Contract
Receivables secured thereby.
Notwithstanding anything to the contrary contained in this
Agreement, the Servicer shall not agree to any modification, waiver or amendment
of any term of any Obligation, if the proposed modification, waiver or amendment
will (i) adversely affect either the status of the assets of the Trust as to
which a REMIC election has been made as a REMIC or the status of the Grantor
Trusts as a grantor trust under subpart E, part I of subchapter J of the Code,
(ii) cause a gain on the disposition of a qualified mortgage that would subject
the Trust to the 100% tax on "prohibited transactions" imposed by Section
860F(a) of the Code, or (iii) cause the Trust to be subject to any tax under the
REMIC Regulations or equivalent provisions of Federal, state or local law or
ordinance (which determination may be made by the Servicer without liability
based on an Opinion of Counsel).
(b) If a Contract Receivable becomes a Defaulted Contract
Receivable, after giving the notices required by Section 4.10(a) and the lapse
of both notice periods set forth therein, the Servicer is hereby authorized, to
modify, waive or amend any term of the Contract Receivable or related
Subordinate Mortgage or release all or a portion of the Property, in
substitution for other collateral or otherwise, in accordance with the standard
of care, without the consent of the holders of the Grantor Trust Certificates,
except that in the following three instances the Servicer shall be required to
obtain, before agreeing to such modification, waiver or amendment or release of
all or a portion of the Property, in substitution for other collateral or
otherwise, the prior written consent of the holders of a Majority-in-Interest of
the Grantor Trust T-2 Certificates (i) no T-1 Allocable Payments remain unpaid
on the applicable Contract Receivable, (ii) a waiver, modification or amendment
to a Contract Receivable only affects T-2 Allocable Payments or is effective
only after all T-1 Allocable Payments have been paid, or (iii) the Servicer
shall have given notice pursuant to Section 4.10(a) to the holders of the
Grantor Trust T-2 Certificates of the proposed modification, waiver or amendment
or release of all or a portion of the Property, in substitution for other
collateral or otherwise and shall have received Instructions or Directions.
(c) If a Contract Receivable is not a Defaulted Contract
Receivable, the Servicer may not modify, waive or amend any term thereof or of
the related Subordinate Mortgage unless (i) it would be consistent with the
standard of care, (ii) the holders of a Majority-in-Interest of the Grantor
Trust T-2 Certificates consent to such modification, waiver or amendment, and
(iii) either
(A) the Servicer certifies in writing to the Grantor
Trust Trustee and the REMIC Trustee that in its good faith judgment it
has determined that it is reasonably foreseeable that an event of
default will occur under the Subordinate Mortgage; or
(B) the Servicer shall have received an Opinion of
Counsel (which may be applicable to more than one transaction or
generally to a class or classes of transactions described therein) in
form and substance reasonably satisfactory to the REMIC Trustee to the
effect that the proposed modification, waiver or amendment, release or
substitution, or the ability of the Servicer to effect any such
transaction, will not (x) adversely affect either the status of the
assets of the Trust as to which a REMIC election has been made as a
REMIC or the status of the Grantor Trust as a grantor trust under
subpart E, part I of subchapter J of the Code, (y) cause a gain on the
disposition of a qualified mortgage that would subject the Trust to the
100% tax on "prohibited transactions" imposed by Section 860F(a) of the
Code, or (z) cause the Trust to be subject to any tax under the REMIC
Regulations or equivalent provisions of Federal, state or local law or
ordinance.
Holders of a Majority-In-Interest of the Grantor Trust T-2 Certificates may
deliver such Opinion of Counsel to the Servicer and request it to consent to
such modification, waiver or amendment. In the case of a modification, waiver or
amendment pursuant to clause (iii)(B) of the second preceding sentence, provided
that such consent of the holders of a Majority-In-Interest of the Grantor Trust
T-2 Certificates and such Opinion of Counsel are delivered, the Servicer shall
give its consent if
(A) the Rating Agency Condition is satisfied
(provided that the Servicer shall not propose such an amendment,
modification or waiver pursuant to clause (iii)(B) to the Rating Agency
for purposes of satisfying the Rating Agency Condition more frequently
than once in each 12-month period) and the Servicer determines in its
good faith judgment that such amendment, modification or waiver would
not reduce or would result in a greater recovery of cash, on a present
value basis, on the T-1 Allocable Payments. The Servicer may rely on a
calculation by a financial advisor or accounting or investment banking
firm of the effect of such amendment, modification or waiver on the
present value of the T-1 Allocable Payments. The Servicer shall deliver
a copy of any notice provided by the Rating Agency with respect to
satisfying the Rating Agency Condition to the holders of the Grantor
Trust Certificates, and the party requesting the modification, waiver
or amendment shall reimburse the Rating Agency for its reasonable fees
and expenses in connection therewith; or
(B) all holders of the Certificates shall consent in
writing to such modification, waiver or amendment.
(d) The Servicer may, in connection with any request by an
Obligor for any consent, modification, waiver or amendment of a Defaulted
Contract Receivable, require (to the extent permitted by applicable law and any
Instructions or Directions received from the holders of the Grantor Trust T-2
Certificates) that such Obligor pay the Workout Fee, but the Servicer may not
condition its grant of any request for a consent, modification, waiver or
amendment on payment thereof, and no such fee may be charged, to the extent that
such fee is reasonably unaffordable by the Obligor or would reduce the payments
of principal or interest made on the Contract Receivable (or the amounts
available to make such payments) or constitute a Grantor Trust Expense.
Any provision of this Section 4.18(d) to the contrary
notwithstanding, no fee described in this Section 4.18(d) shall be collected by
the Servicer from the Obligor (or on behalf of the Obligor) in conjunction with
any consent or any such modification, waiver or amendment (unless the amount
thereof is specified in the related Contract Receivable) if the collection of
such fee would cause such consent, modification, waiver or amendment to be a
"significant modification" of the Contract Receivable that would be treated as a
taxable exchange under Section 1001 of the Code (which determination may be made
by the Servicer without liability based on an Opinion of Counsel).
(e) The Servicer shall notify the Grantor Trust Trustee and
the T-2 Holder of any modification, waiver or amendment of any term of any
Contract Receivable and the date thereof and shall deliver to the Custodian for
deposit in the related Contract Receivable File an original counterpart of the
agreement relating to such modification, waiver or amendment, promptly following
the execution thereof.
SECTION 4.19 Servicer Reimbursable Expenses. The following
expenses ("Servicer Reimbursable Expenses") to third parties incurred by the
Servicer in the performance of its duties as Servicer (excluding those expenses
which are reimbursable only from Liquidation Proceeds) shall be reimbursable to
the Servicer as Grantor Trust Expenses: (i) the reasonable costs and expenses of
the appearance in, prosecution of, or defense by, the Servicer of any legal
action (other than a Remedial Proceeding) which arises under the Pooling
Agreement or this Agreement, (ii) Noteholder Expenses, (iii) expenses in
connection with an environmental assessment pursuant to Section 4.05(e) hereof,
including any Phase I environmental assessment, (iv) expenses in connection with
the appointment of a trustee under a refinanced First Mortgage or additional
financing pursuant to Section 4.01(r) hereof, (v) expenses in connection with
the trustee under a Subordinate Mortgage which is a deed of trust pursuant to
Section 4.01(f) hereof, (vi) expenses in connection with the assumption of a
Ground Lease pursuant to Section 4.01(q) hereof, and (vii) after the date on
which a Contract Receivable becomes a Liquidated Contract Receivable, the
Servicer Advance, Advancing Fee and Liquidation Expenses relating to such
Contract Receivable, to the extent not otherwise paid in accordance with Section
4.16; provided that, in each case, such expenses shall be reimbursable only as
and to the extent that the Servicer is authorized to incur such expenses under
this Agreement (and excluding the cost of its employees, facilities and overhead
and including the reasonable compensation and the expenses and disbursements of
its agents and counsel which it is authorized to retain pursuant hereto), and
that such expense or disbursement is not attributable to its negligence,
misfeasance, willful misconduct or bad faith.
SECTION 4.20 Derby, Saber and Sentec; Net Sandwich
Investments.
(a) The Servicer shall designate a Servicing Officer (or, if
no Servicing Officer will serve, such other person selected by the Servicer) to
be elected as the sole director of each of Derby, Sentec and Saber, and if the
Servicer fails to designate such a person, the Grantor Trust Trustee shall
designate such person (and, if no other person can be found, shall designate a
person which the T-2 Holder shall nominate). The Grantor Trust Trustee, on
behalf of the Grantor Trust as sole stockholder of each of Derby, Saber and
Sentec, shall elect such person to be the sole director of each of Derby, Saber
and Sentec.
(b) On the Closing Date, an account (the "Saber Sandwich
Investment Account") shall be established on behalf of Saber and, on any date on
which Sentec or Derby receives a payment under its Underlying Lease, an account
(the "Sentec Sandwich Investment Account" or the "Derby Sandwich Investment
Account") shall be established on behalf of Sentec and Derby, respectively, in
each case as an Eligible Deposit Account, which initially shall be maintained at
BT and shall at all times be maintained at an Eligible Institution. The
Servicer, on behalf of Grantor Trust as the sole stockholder of each of Derby,
Sentec and Saber, shall request the sole director thereof to cause all funds
(including capital contributions by the Grantor Trust, investment earnings and
any tax reserve) of Saber, Derby or Sentec to be deposited in its respective
Sandwich Investment Account and be invested in Eligible Investments which mature
on or prior to the next succeeding Deposit Date selected by the holders of a
Majority-in-Interest of the Grantor Trust T-2 Certificates. Each such Sandwich
Investment Account shall be held in the name of the applicable Sandwich
Corporation and be its sole property and shall not be pledged to secure the
Grantor Trust Certificates or the Offered Certificates. The net income and gain
earned from investments (after payment by Derby, Saber or Sentec of income tax
thereon) in a Sandwich Investment Account shall be retained by such corporation
and applied solely to pay Sandwich Administrative Expenses, and such net
investment income and gains shall not constitute a part of the Net Sandwich
Investments.
(c) The Servicer, in consultation with the sole director of
each of Saber, Derby and Sentec, shall determine at least annually, the amount
of Sandwich Administrative Expenses which each of Saber, Derby and Sentec is
expected to incur during the succeeding twelve months for the purpose of
determining whether it has adequate funds (from its own resources, including
anticipated investment earnings) to pay its Sandwich Administrative Expenses;
provided that in the absence of a contrary determination by such Servicing
Officer or such director, the Sandwich Administrative Expenses shall be deemed
to be $5,000 for each of Derby, Sentec and Saber. The Servicer shall cause a
capital contribution to be made annually from the Derby and Sentec Reserve
Account so that the cash and Eligible Investments held by each of Derby and
Sentec is equal to at least $5,000 (or such other amount as the Servicer shall
have determined to be the anticipated Sandwich Administrative Expenses for the
succeeding twelve months).
(d) The Servicing Officer shall, in consultation with an
accountant and the T-2 Holder, determine on each date on which Derby, Saber or
Sentec receives a payment pursuant to its Underlying Lease, the amount of
Federal, State or local taxes payable by such corporation on such payment, and
establish a reserve therefor.
(e) The Servicer shall monitor whether each of Saber, Derby
and Sentec pays as and when due all expenses of such corporation from such
corporation's own funds (including funds in its Sandwich Investment Account). If
Derby or Sentec do not have sufficient funds to pay its expenses when due, the
Servicer, on behalf of the Grantor Trust, shall (in the case of Derby and
Sentec) withdraw funds from the Derby and Sentec Reserve Account and the Grantor
Trust, as sole stockholder, shall make a capital contribution to such
corporation to pay any such expenses. If it would be consistent with the
standard of care, the Servicer may cause funds in the Reserve Fund (but, in the
case of Derby and Sentec, only if the Derby and Sentec Reserve Account has been
exhausted) to be contributed as capital by the Grantor Trust to Derby, Saber and
Sentec to pay expenses for which funds are not otherwise available; provided,
however, that the Servicer shall not make a capital contribution (from the
Reserve Fund or otherwise) to pay the expenses of any of Derby, Saber or Sentec
if in accordance with the standard of care, the Servicer determines that it is
not in the Grantor Trust's interest to pay such expenses. In no event shall the
Grantor Trust pay expenses of Derby, Saber or Sentec directly (as opposed to
making a capital contribution to such corporation to enable it to make such
payment).
(f) If the consent of Derby, Saber or Sentec is required in
connection with its Master Lease or Underlying Lease or the related Property,
the Grantor Trust Trustee and the Servicer, on behalf of the Grantor Trust as
the sole stockholder of each of Derby, Sentec and Saber, shall cause such
corporation to take the appropriate actions as are consistent with the standard
of care and in the interests of the Grantor Trust, as sole stockholder of such
corporation, provided that the Grantor Trust Trustee and the Servicer, on behalf
of the Grantor Trust as the sole stockholder of each of Derby, Sentec and Saber,
shall not consent to the termination of its Master Lease or the Underlying
Lease, the dissolution or sale of the Sandwich Corporation's interest in its
Master Lease and the Underlying Lease, without the consent of the T-2 Holder.
(g) The Grantor Trust Trustee and the Servicer, on behalf of
the Grantor Trust as the sole stockholder of each of Derby, Sentec and Saber,
shall cause each of Derby, Saber and Sentec to (i) file tax returns, (ii)
maintain separate corporate books and records and observe all corporate
formalities (including obtaining consent of the sole stockholder electing the
director and consent of the sole director authorizing all matters for which
action of such director is necessary or advisable, at least annually), (iii)
make filings necessary to remain in good standing in the jurisdiction of its
incorporation and in each jurisdiction in which it is qualified to do business,
(iv) comply in all respects with the provisions of such corporation's
Certificate of Incorporation and By-laws, and (v) take all steps to recover any
amounts payable to such corporation under its Underlying Lease.
(h) In the circumstances described in Section 4.05(l) the GT
Collateral Agent shall transfer ownership of the stock of Derby, Sentec or Saber
to the T-2 Holder or its affiliate or nominee, but the GT Collateral Agent shall
retain physical possession of such stock as pledged stock pursuant to the
Reserve Fund Pledge Agreement and, upon request, the T-2 Holder or its affiliate
or nominee, whichever is applicable, shall deliver a written confirmation of
such pledge to the GT Collateral Agent.
(i) The Servicer, on behalf of the Grantor Trust, as sole
stockholder, shall request that the sole director cause the dissolution of each
of Derby, Sentec and Saber, as applicable, upon termination of the related
Underlying Lease to which such corporation is a party and payment to such
corporation of all amounts due to it thereunder and payment by such corporation
of all of its obligations and liabilities.
ARTICLE V
THE GRANTOR TRUST CERTIFICATES
SECTION 5.01 The Grantor Trust T-1 Certificate; The Grantor
Trust T-2 Certificates.
(a) On the Closing Date, the Grantor Trust shall, upon
satisfaction of the conditions set forth in Section 2.04 hereof, issue to the
REMIC Trustee a single Grantor Trust T-1 Certificate, which evidences a
beneficial ownership interest in each Contract Receivable (other than the
Contract Receivables listed on Exhibit B) consisting of (A) (i) the payments of
principal and interest on such Contract Receivable scheduled to be made on or
prior to the applicable T-1 Payment End Date set forth on Exhibit A hereto, (ii)
the portion of each prepayment of each such Contract Receivable that is
allocable to such scheduled payments (other than interest not yet accrued as of
the date of prepayment) in accordance with Section 6.03 hereof, (iii) the
portion of the Repurchase Price and Cure Amounts paid under Section 3.02 and the
purchase price paid under Section 4.10 of each such Contract Receivable that is
allocable to the Grantor Trust T-1 Certificate in accordance with Section
6.03(h), (l) or (m) hereof, (iv) the Net Liquidation Proceeds of each such
Contract Receivable up to the amount of the unpaid balance of the payments
described in clause (i) and (v) hereof (other than interest which has not yet
accrued as of the date of determination), (v) the portion of each payment of a
Prepayment Deficiency Amount (other than the Existing Prepayment Deficiency
Amounts for the Pinole Contract Receivable and the Jacway Contract Receivable)
on each such Contract Receivable allocable to the Grantor Trust T-1 Certificate
in accordance with Section 6.03 hereof, (B) the rights under the Subordinate
Mortgage (which shall be senior to the rights of the Grantor Trust T-2
Certificates) and Pledge Agreement (if any), and the Paying Agent Agreement (and
Collateral Account) and any other instruments securing such Contract Receivable,
the proceeds thereof and the property acquired pursuant thereto, and (C) any
other payment on such Contract Receivable allocated by the specific terms of
this Agreement to the Grantor Trust T-1 Certificate.
(b) On the Closing Date, the Grantor Trust shall, upon
satisfaction of the conditions set forth in Section 2.05 hereof, issue to the
T-2 Holder one or more Grantor Trust T-2 Certificates, which evidences a
beneficial ownership interest (i) in each Contract Receivable (other than the
Contract Receivables listed on Exhibit B) consisting of (a) the payments of
principal and interest on such Contract Receivable (other than the CRPSP
Payment) scheduled to be made after the applicable T-1 Payment End Date set
forth on Exhibit A hereto, (b) the portion of each prepayment of such Contract
Receivable that is allocable to such scheduled payments (including to the CRPSP
Payment) pursuant to Section 6.03 hereof, (c) the Net Liquidation Proceeds of
such Contract Receivable in excess of the amount allocated to the Grantor Trust
T-1 Certificate, (d) the portion of the Repurchase Price and Cure Amounts paid
under Section 3.02 and the portion of any purchase price paid under Section 4.10
of such Contract Receivable in each case in excess of the amounts allocated to
the Grantor Trust T-1 Certificate pursuant to Section 6.03(h), (l) or (m), (e)
the portion of each payment of a Prepayment Deficiency Amount on such Contract
Receivable not allocable to the Grantor Trust T-1 Certificate in accordance with
Section 6.03 hereof, and (f) subject to the superior rights of the Grantor Trust
T-1 Certificate as described in Section 5.01(a)(iv), the rights under the
Subordinate Mortgage and Pledge Agreement (if any) (or under the pledge of an
undivided fractional interest in the First Mortgage Notes securing the Utex
Note) and the Paying Agent Agreement (and Collateral Account) and any other
instruments securing such Contract Receivable, the proceeds thereof and the
property acquired pursuant thereto, (ii) all payments (including payments of a
Prepayment Deficiency Amount), prepayments, Net Liquidation Proceeds and Cure
Amounts of the Contract Receivables listed on Exhibit B attached hereto, (iii)
all payments (including payments of a Prepayment Deficiency Amount), prepayments
and Net Liquidation Proceeds of Contract Receivables (or portions thereof)
following their repurchase pursuant to Section 3.02, (iv) with respect to the
Contract Receivables described in clause (ii) and (iii) hereof, all rights under
the related Subordinate Mortgage and Pledge Agreement (if any), and the Paying
Agent Agreement (and Collateral Account) and any other instruments securing such
Contract Receivable, the proceeds thereof and the property acquired pursuant
thereto, (v) all distributions on and proceeds of the capital stock of Derby,
Saber and Sentec, the Derby and Sentec Reserve Account and the Sandwich Reserve
Fund, and (vi) any other payment on a Contract Receivable allocated by the
specific terms of this Agreement to the Grantor Trust T-2 Certificates.
(c) The Grantor Trust T-1 Certificate shall be substantially
in the form set forth in Exhibit F and each Grantor Trust T-2 Certificate shall
be substantially in the form set forth in Exhibit G and shall, upon original
issue, be executed by manual or facsimile signature of the Grantor Trust Trustee
by a duly authorized signatory and delivered to or upon the order of the Seller.
The Grantor Trust Certificates shall be authenticated by manual signature on
behalf of the Grantor Trust Trustee by a duly authorized signatory of the
Grantor Trust Trustee. Grantor Trust Certificates bearing the signatures of
individuals who were at any time the proper officers of the Grantor Trust
Trustee shall bind the Grantor Trust, notwithstanding that such individuals or
any of them have ceased to hold such offices prior to the authentication and
delivery of such Grantor Trust Certificates or did not hold such offices at the
date of such Grantor Trust Certificates. No Grantor Trust Certificate shall be
entitled to any benefit under this Agreement, or be valid for any purpose,
unless such Grantor Trust Certificate has been authenticated by manual signature
in accordance with this Section, and such signature upon any Grantor Trust
Certificate shall be conclusive evidence, and the only evidence, that such
Grantor Trust Certificate has been duly authenticated and delivered hereunder.
All Grantor Trust Certificates shall be dated the date of their authentication.
SECTION 5.02 Delivery and Transferability of Grantor Trust
Certificates. The Grantor Trust Trustee shall deliver, simultaneously with the
sale, assignment and transfer to the Grantor Trust of the Contract Receivables,
the constructive delivery to the Grantor Trust Trustee of the Contract
Receivable Files and the constructive delivery to the Grantor Trust Trustee of
the capital stock of Derby, Sentec and Saber, Grantor Trust Certificates duly
executed and authenticated by the Grantor Trust Trustee, on behalf of the
Grantor Trust, and evidencing the entire ownership of the Grantor Trust.
The Seller and the Affiliated Sellers hereby designate the
REMIC Trustee, on behalf of the Trust, to be the recipient of the Grantor Trust
T-1 Certificate and the T-2 Holder to be the recipient of all the Grantor Trust
T-2 Certificates. Pursuant to the terms of the Reserve Fund Pledge Agreement,
the Grantor Trust T-2 Certificates shall be registered in the name of BT, as
Collateral Agent.
No transfer, pledge, exchange, assignment or sale of any
Grantor Trust T-2 Certificates shall be permitted, and the Grantor Trust
Certificate Registrar shall not register any such sale, pledge, transfer,
exchange or assignment, unless (i) the Grantor Trust Trustee receives an Opinion
of Counsel in form and substance acceptable to the Servicer and the Grantor
Trust Trustee that such transfer or sale (a) is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act, (b) will not adversely affect the status of
the assets of the Trust as to which a REMIC election is made as a REMIC and (c)
will not adversely affect the status of the Grantor Trust as a grantor trust
under subpart E, part I of subchapter J of the Code, (ii) the Rating Agency
Condition is satisfied (iii) such transfer is made subject to the Reserve Fund
Indemnity Agreement, the Repurchase Reserve Fund Indemnity Agreement, the
Reserve Fund Pledge Agreement and the Repurchase Reserve Fund Pledge Agreement,
and (iv) the transferee certifies, represents and warrants that it is, and for
so long as it is a holder of a Grantor Trust T-2 Certificate, will be, a "United
States Person" as defined in Section 7701(a)(30) of the Code; provided, however,
that the foregoing restrictions (other than clause (i)(a)) shall be applicable
only during such time as the Offered Certificates are outstanding. No transfer,
pledge, exchange, assignment or sale of the Grantor Trust T-1 Certificate shall
be permitted, and the Grantor Trust Certificate Registrar shall not register any
such sale, pledge, transfer, exchange or assignment, unless (i) the Grantor
Trust Trustee receives an Opinion of Counsel that such transfer or sale is being
made pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, and (ii) prior to the REMIC
Liquidation Date, the transferee is a successor REMIC Trustee or, pursuant to
Section 10.03(b) of the Pooling Agreement, the holder of the Class R
Certificate.
No transfer of a Grantor Trust T-2 Certificate may be made to
an employee benefit plan (as defined in Section 3(3) of ERISA) that is subject
to Title I of ERISA, a plan described in Section 4975(e)(1) of the Code, or any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity (other than an "insurance company general account" as
defined in Prohibited Transaction Exemption 95-60, 60 Fed. Reg. 35925 (July 12,
1995); provided that neither the insurance company nor an affiliate thereof is
an insurer or servicer with respect to the Trust or the Grantor Trust).
The Grantor Trust Certificates shall bear legends to the
effect set forth in the preceding two paragraphs.
SECTION 5.03 Registration of Transfer and Exchange of Grantor
Trust Certificates. The Grantor Trust Trustee shall appoint a "Grantor Trust
Certificate Registrar" which shall maintain a "Grantor Trust Certificate
Register" in which, subject to such reasonable regulations as it may prescribe,
the Grantor Trust Certificate Registrar shall provide for the registration of
Grantor Trust Certificates and of transfers and exchanges of Grantor Trust
Certificates as herein provided. BT is hereby appointed (without additional
compensation) as the Grantor Trust Certificate Registrar for the purpose of
registering the Grantor Trust Certificates and transfers and exchanges of
Grantor Trust Certificates as herein provided. In performing such duties, the
Grantor Trust Certificate Registrar shall have the same benefit of the
provisions of this Agreement as the Grantor Trust Trustee would have if it were
itself performing such duties. The appointment of the Grantor Trust Certificate
Registrar may be terminated without cause by the Grantor Trust Trustee upon
written notification to the Grantor Trust Certificate Registrar, and the Grantor
Trust Trustee shall give such notice upon receipt of written instructions from
the REMIC Trustee and the Majority-in-Interest of the Grantor Trust T-2
Certificates. If such appointment is terminated, the Grantor Trust Trustee shall
serve, without additional compensation, as the Grantor Trust Certificate
Registrar until the appointment of, and acceptance by, an Eligible Institution
(the compensation of which shall be payable from the Servicing Fee) as successor
Grantor Trust Certificate Registrar. The Grantor Trust Trustee shall have all
authority and power of the Grantor Trust Certificate Registrar under this
Agreement until a successor Grantor Trust Certificate Registrar accepts the
appointment by the Grantor Trust Trustee. The Grantor Trust Certificate
Registrar shall give the Servicer prompt written notice of any change in the
holders of the Grantor Trust Certificates. The Grantor Trust Trustee shall give
prompt written notice to the holders of the Grantor Trust Certificates and the
Servicer of any change in the Grantor Trust Certificate Registrar.
Subject to Section 5.02 upon surrender for registration or
transfer of any Grantor Trust Certificate at the office or agency maintained
pursuant to Section 5.07, the Grantor Trust Trustee shall execute, authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Grantor Trust Certificates. Subject to Section 5.02 at the option of a
holder of the Grantor Trust Certificate, Grantor Trust Certificates may be
exchanged for other like Grantor Trust Certificates at such office or agency in
denominations equal to at least a 1% Percentage Interest. Whenever any Grantor
Trust Certificates are so surrendered for exchange, the Grantor Trust Trustee
shall authenticate, execute and deliver the Grantor Trust Certificates which the
holder of the Grantor Trust Certificate making the exchange is entitled to
receive. Every Grantor Trust Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Grantor Trust Trustee and the
Grantor Trust Certificate Registrar duly executed by the holder. Each Grantor
Trust Certificate surrendered for registration of transfer and exchange shall be
canceled and subsequently destroyed by the Grantor Trust Trustee.
No service charge shall be made to a holder of the Grantor
Trust Certificate for any registration of transfers or exchange of Grantor Trust
Certificates, but the Grantor Trust Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Grantor Trust Certificates.
All Grantor Trust Certificates surrendered for transfer and
exchange shall be disposed of in a manner approved by the Grantor Trust Trustee.
SECTION 5.04 Mutilated, Destroyed, Lost, or Stolen Grantor
Trust Certificates. If (a) any mutilated Grantor Trust Certificate shall be
surrendered to the Grantor Trust Trustee, or if the Grantor Trust Trustee and
the Grantor Trust Certificate Registrar shall receive evidence to its
satisfaction of the destruction, loss or theft of any Grantor Trust Certificate
and (b) there shall be delivered to the Grantor Trust Trustee and the Grantor
Trust Certificate Registrar such security or indemnity as may require to save
each of them harmless, then in the absence of notice that such Grantor Trust
Certificate shall have been acquired by a bona fide purchaser, the Grantor Trust
Trustee on behalf of the Grantor Trust shall execute, authenticate and deliver,
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Grantor Trust Certificate, a new Grantor Trust Certificate bearing a number not
contemporaneously outstanding. In connection with the issuance of any new
Grantor Trust Certificate under this Section 5.04, the Grantor Trust Trustee may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
SECTION 5.05 Persons Deemed Owners. Prior to due presentation
of a Grantor Trust Certificate for registration of transfer, the Servicer, the
Seller, the Grantor Trust Trustee, the Grantor Trust Paying Agent and the
Grantor Trust Certificate Registrar may treat the Person in whose name any
Grantor Trust Certificate shall be registered as the owner of such Grantor Trust
Certificate for the purpose of receiving distributions pursuant to Section 6.03,
6.05, 6.07 and 6.08 and for all other purposes whatsoever; none of the Servicer,
the Seller, the Grantor Trust Trustee, the Grantor Trust Certificate Registrar,
the Grantor Trust Paying Agent or any agent of the Servicer, the Seller, the
Grantor Trust Trustee, the Grantor Trust Paying Agent or the Grantor Trust
Certificate Registrar shall be bound by any notice to the contrary.
SECTION 5.06 Access to List of Name and Addresses of Holders
of the Grantor Trust Certificates. The Grantor Trust Certificate Registrar shall
furnish or cause to be furnished to the Servicer, within 15 days after receipt
by the Grantor Trust Certificate Registrar of a request therefor from the
Servicer in writing, in such form as the Servicer may reasonably require, a list
of the names and addresses of the holders of the Grantor Trust Certificates as
of the most recent Record Date. If any holder of a Grantor Trust Certificate
applies in writing to the Grantor Trust Trustee (provided such holder (i) states
that it wishes to communicate with other holders of the Grantor Trust
Certificates with respect to their rights under this Agreement or under the
Grantor Trust Certificates, and (ii) provides the Grantor Trust Trustee and
Servicer with a copy of the proposed communication), then the Grantor Trust
Trustee shall, within fifteen Business Days after the receipt of such
application, obtain from the Grantor Trust Certificate Registrar, and afford
such holder access during normal business hours to, the current list of holders
of the Grantor Trust Certificates. If such list is as of a date more than 90
days prior to the date of receipt of such holder's request, the Grantor Trust
Trustee shall promptly request from the Grantor Trust Certificate Registrar a
current list as provided above, and shall afford such holder access to such list
promptly upon receipt. The Grantor Trust Trustee shall have no obligation to
evaluate the communication that such holder proposes to submit. Each holder of a
Grantor Trust Certificate, by receiving and holding a Grantor Trust Certificate,
shall be deemed to have agreed to hold neither the Servicer, the Grantor Trust
Trustee nor the Grantor Trust Certificate Registrar accountable by reason of the
disclosure of its name and address, regardless of the source from which such
information was derived.
SECTION 5.07 Maintenance of Office or Agency. The Grantor
Trust Certificate Registrar shall maintain an office or offices or agency or
agencies where Grantor Trust Certificates may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Grantor Trust
Trustee in respect of the Grantor Trust Certificates and this Agreement may be
served. The Grantor Trust Certificate Registrar initially designates its office
at Four Albany Street, New York, New York 10006 as its office for such purposes.
The Grantor Trust Certificate Registrar shall give prompt written notice to the
Grantor Trust Trustee of any change in the location of such office or agency.
SECTION 5.08 Appointment of Grantor Trust Paying Agent. The
Grantor Trust Trustee is empowered to appoint a "Grantor Trust Paying Agent" for
the purpose of making distributions to holders of the Grantor Trust
Certificates; provided, that prior to any such appointment (other than the
initial appointment of BT as Grantor Trust Paying Agent) the Grantor Trust
Trustee shall first have received a letter from the Rating Agency to the effect
that the appointment of such Grantor Trust Paying Agent will not, in and of
itself, result in the qualification, reduction or withdrawal of the rating then
assigned to the Certificates by such Rating Agency. BT is hereby initially
appointed as Grantor Trust Paying Agent (without additional compensation). If
such appointment is terminated, the Grantor Trust Trustee shall serve, without
additional compensation, as the Grantor Trust Paying Agent until it appoints a
successor Grantor Trust Paying Agent which is an Eligible Institution (the
compensation of which shall be payable from the Servicing Fee) and shall have
all authority and power of the Grantor Trust Paying Agent under this Agreement
until a successor Grantor Trust Paying Agent is appointed by the Grantor Trust
Trustee. The Grantor Trust Trustee shall require the Grantor Trust Paying Agent
(if other than the Grantor Trust Trustee) to agree in writing that all amounts
held by it for payment hereunder will be held in trust for the benefit of the
holders of the Grantor Trust Certificates and that it will notify the Grantor
Trust Trustee of any failure by the Servicer to make funds available to the
Grantor Trust Paying Agent for the payment of amounts due on the Grantor Trust
Certificates. On and after the REMIC Liquidation Date, in respect of each
Distribution Date, the Servicer on behalf of the Grantor Trust Trustee shall, by
11:00 A.M. (New York City time) on each Distribution Date, transfer to the
Grantor Trust Paying Agent for the purposes of this Section 5.08, funds
sufficient to make the distribution to holders of the Grantor Trust Certificates
pursuant to this Section 5.08.
ARTICLE VI
DEPOSITS AND WITHDRAWALS; DISTRIBUTIONS;
STATEMENTS TO HOLDERS OF THE GRANTOR TRUST CERTIFICATES;
SERVICING AND GRANTOR TRUST EXPENSES
SECTION 6.01 Deposit of Funds on Closing Date.
(a) The Servicer shall deposit into the Collection Account all
payments due and received on the Contract Receivables on Exhibit A on or after
the Cut-off Date to the Closing Date and shall deposit into the Reserve Fund all
payments due and received on the Contract Receivables on Exhibit B on and after
the Cut-Off Date to the Closing Date.
(b) On the Closing Date, the Servicer on behalf of the Grantor
Trust Trustee shall deposit with the GT Collateral Agent into the Repurchase
Reserve Fund, from the proceeds of the sale of the Certificates, an amount equal
to $10,650,000.
(c) On the Closing Date, the Servicer on behalf of the Grantor
Trust Trustee shall deposit into the Recordation Escrow Account out of the
proceeds of the sale of the Certificates, an amount equal to $9,415,190.
(d) On the Closing Date, the Servicer on behalf of the Grantor
Trust Trustee shall deposit into the Rating Agency Reserve Fund out of the
proceeds of the sale of the Certificates, an amount equal to $150,000.
(e) On the Closing Date, the Servicer on behalf of the Grantor
Trust Trustee shall deposit into the Derby and Sentec Reserve Account out of the
proceeds of the sale of the Certificates, an amount equal to $150,000, and shall
make therefrom on the Closing Date on behalf of the Grantor Trust capital
contributions in the amount of $10,000 and $10,000 to Derby and Sentec.
(f) On the Closing Date, the Servicer on behalf of the Grantor
Trust Trustee shall deposit into the Sub-account out of the proceeds of the sale
of the Certificates, an amount equal to $263,741.
(g) On the Closing Date, the Servicer on behalf of the Grantor
Trust Trustee shall deposit into the Sandwich Reserve Fund out of the proceeds
of the sale of the Certificates an amount equal to $915,000.
(h) On the Closing Date, the Servicer on behalf of the Grantor
Trust Trustee shall pay, at the direction of the Seller, $1,500,000 out of the
proceeds of the offering to third parties specified by the Seller, in payment of
expenses related to the offering.
SECTION 6.02 Withdrawals of Funds from the Recordation Escrow
Account. On or after the applicable dates set forth on Exhibit K hereto, the
Servicer shall withdraw from the Recordation Escrow Account and pay to the
Seller the amount set forth on Exhibit K (and, together with the final such
payment to the Seller, the net investment income earned on the Recordation
Escrow Account) for each Contract Receivable listed thereon, upon receipt by the
Servicer of a certificate (the "Release Certificate") from the Seller, in the
form of Exhibit Y, that to its knowledge there has been no petition for relief
under Title 11 of the United States Code filed by or against the Obligor
thereunder within 91 days after the recording of such Subordinate Mortgage. If
the Release Certificate with respect to a Contract Receivable is not received
within 30 days after the applicable date set forth on Exhibit K, (i) the related
amount set forth on Exhibit K shall be transferred by the Servicer from the
Recordation Escrow Account (with the portion thereof allocable in accordance
with Section 6.03(o) to the Grantor Trust T-1 Certificate deposited into the
Collection Account and the portion thereof allocable in accordance with Section
6.03(o) to the Grantor Trust T-2 Certificates deposited in the Reserve Fund)
(ii) the Seller shall be deemed to have repurchased each Contract Receivable
with respect to which it did not deliver the Release Certificate, (iii) the
Servicer and the Grantor Trust Trustee shall execute such documents as are
presented to it by the Seller and are reasonably necessary to convey the
repurchased Contract Receivable to the Seller, including assignments of such
Contract Receivable and the related Subordinate Mortgage, and (iv) all payments
due and received on or after the Cut-off Date on such Contract Receivable shall
be paid to, and be the sole property of, the Seller.
SECTION 6.03 Collections.
(a) Prior to the REMIC Liquidation Date, the Servicer shall
deposit into the Collection Account on the Business Day following the receipt
thereof by the Paying Agent or, if a payment is made directly to the Servicer,
as promptly as practicable (and not later than the next Business Day) following
the receipt thereof by the Servicer, each T-1 Allocable Payment received in
respect of a Contract Receivable.
(b) Prior to the REMIC Liquidation Date, the Servicer shall
deposit into the Reserve Fund on the Business Day following the receipt thereof
by the Paying Agent or, if a payment is made directly to the Servicer, as
promptly as practicable (and not later than the next Business Day) following the
receipt thereof by the Servicer, each T-2 Allocable Payment (except that
distributions by Derby, Sentec and Saber shall be applied pursuant to Section
6.09) received in respect of a Contract Receivable.
(c) On and after the REMIC Liquidation Date, the Servicer
shall deposit into the Grantor Trust Collection Account, as promptly as
practicable (and not later than the next Business Day) following the receipt
thereof by the Servicer, any and all amounts received in respect of the Contract
Receivables or the other assets of the Grantor Trust (including the capital
stock of Derby, Saber and Sentec).
(d) When the Servicer receives a scheduled payment on any of
the Contract Receivables (other than the Contract Receivables identified on
Exhibit B), it shall determine whether the payment was scheduled to be made on
or prior to the applicable T-1 Payment End Date, in which case the payment is a
T-1 Allocable Payment and the Servicer shall deposit the payment in the
Collection Account; alternatively, if the Servicer determines that the payment
was scheduled to be made after the applicable T-1 Payment End Date, the payment
is a T-2 Allocable Payment and the Servicer shall deposit the payment in the
Reserve Fund.
(e) If there is a prepayment, in whole or in part (in such
case, determined on a Property-by-Property basis), of a Contract Receivable
(other than a Contract Receivable listed on Exhibit B attached hereto or a
Contract Receivable or portion thereof which has been repurchased pursuant to
Section 3.02), the Servicer shall allocate the prepayment between the Grantor
Trust T-1 Certificate and the Grantor Trust T-2 Certificates (except that any
portion of such prepayment which, in accordance with the Note, is to be applied
to a Prepayment Deficiency Amount, shall be allocated in accordance with
subparagraph (f) or (p), as applicable), so that there shall be deposited in the
Collection Account the portion of the prepayment which (pursuant to the terms of
the Contract Receivable (as clarified by the Supplemental Agreement)) is applied
to payments which had been scheduled to be made on the Contract Receivable on or
prior to the applicable T-1 Payment End Date (other than interest which has not
yet accrued as of the date of the prepayment) and the remainder of the
prepayment shall be deposited in the Reserve Fund.
(f) If, upon prepayment of a Contract Receivable by a Multiple
Property Obligor as a result of a Schedule C Event or the exercise of a Purchase
Option, a Prepayment Deficiency Amount results, the amount of the Prepayment
Deficiency Amount shall be determined in accordance with the Note and the
Servicer shall allocate the beneficial interest in the Prepayment Deficiency
Amount between the Grantor Trust T-1 Certificate and the Grantor Trust T-2
Certificates as follows: the amount of the beneficial interest in the Prepayment
Deficiency Amount allocable to the Grantor Trust T-1 Certificate shall be equal
to the excess of (A) all payments scheduled to be made on the Contract
Receivable on or prior to the T-1 Payment End Date (which, immediately prior to
the prepayment, have not yet been made) over (B) the sum of (i) the amount of
the proceeds of the prepayment deposited in the Collection Account as the result
of the prepayment and (ii) any Loss allocable to the Grantor Trust T-1
Certificate as a result of the prepayment determined pursuant to Sections
6.05(c) and (d) herein. The amount of the beneficial interest in the Prepayment
Deficiency Amount allocable to the Grantor Trust T-2 Certificates shall equal
the amount not allocated to the Grantor Trust T-1 Certificate. The Servicer
shall allocate any payments to be applied to the Prepayment Deficiency Amount in
accordance with the Note and shall allocate all such payments first to the
Grantor Trust T-1 Certificate until the amount of its beneficial interest is
satisfied and the remainder of such payments shall be allocated to the Grantor
Trust T-2 Certificates. Amounts so allocated shall be deposited in the
Collection Account and the Reserve Fund, respectively.
(g) Except as provided in subparagraphs (i), (j) and (k)
hereof and Section 4.10 hereof, if a Contract Receivable becomes a Defaulted
Contract Receivable, the Net Liquidation Proceeds thereof shall be allocated by
the Servicer to the Grantor Trust T-1 Certificate and deposited into the
Collection Account until the payments scheduled to be made on such Contract
Receivable (other than interest which has not accrued as of the date of
determination) on or prior to the applicable T-1 Payment End Date (and the
portion of any Prepayment Deficiency Amount allocable to the Grantor Trust T-1
Certificate) have been paid in full and any remaining amounts shall be allocated
to the Grantor Trust T-2 Certificates and deposited into the Reserve Fund.
Liquidation Proceeds received after a Contract Receivable becomes a Liquidated
Contract Receivable, including the net rental income and sales proceeds of
Foreclosed Property, also will be allocated in accordance with the preceding
sentence (except as provided in subparagraphs (i), (j) and (k) hereof and
Section 4.10 hereof).
(h) If a Contract Receivable (or portion thereof) is
repurchased pursuant to Section 3.02, the Repurchase Price shall be allocated by
the Servicer to the Grantor Trust T-1 Certificate so that the same amount is
deposited in the Collection Account (or, for the period of time from the
Transfer Date to the Deposit Date, in the, Certificate Account) which would have
been allocated to the Grantor Trust T-1 Certificate if the related Contract
Receivable (or the portion thereof) had been prepaid voluntarily on the
Repurchase Date at the Discounted Pay Off Amount plus any Prepayment Deficiency
Amount (or, if the breach affects less than all of the Properties of a Multiple
Property Obligor, at the Allocated DPO Amount and any Prepayment Deficiency
Amount for the affected Property or Properties only), and any remaining amount
shall be allocated to the Grantor Trust T-2 Certificates and deposited into the
Reserve Fund. Any Cure Amounts paid pursuant to Section 3.02 shall be allocated
by the Servicer (i) to the Grantor Trust T-1 Certificate and deposited in the
Collection Account (or, for the period of time from the Transfer Date to the
Deposit Date, in the Certificate Account) to the extent paid in respect of a
Material Breach affecting T-1 Allocable Payments (or with respect to an
Underlying Lease or First Mortgage Note which materially adversely affects T-1
Allocable Payments) and (ii) to the Grantor Trust T-2 Certificates and deposited
in the Reserve Fund to the extent paid in respect of a Material Breach affecting
T-2 Allocable Payments (or with respect to an Underlying Lease or First Mortgage
Note which materially adversely affects T-2 Allocable Payments), or a Cure
Amount payable pursuant to the second paragraph of Section 3.02(a).
(i) Each Debt Service Draw Amount transferred from the Reserve
Fund or from the Net Sandwich Investments (in accordance with the procedure set
forth in Section 6.09) to the Certificate Account shall be treated as if a
scheduled payment on the Contract Receivable allocated on Exhibit A to the
Grantor Trust T-1 Certificate (or, if the Debt Service Draw Amount was made to
pay a Prepayment Deficiency Amount or to pay a deficiency in Net Liquidation
Proceeds, as if a payment of such Prepayment Deficiency Amount or such
deficiency) was received by the Grantor Trust T-1 Certificate. If such scheduled
payment on the Contract Receivable (or such payment of the Prepayment Deficiency
Amount or a payment of Net Liquidation Proceeds) is subsequently received, it
shall be deposited into the Reserve Fund by the Servicer in reimbursement of the
Debt Service Draw Amount.
(j) As shown on Exhibit B attached hereto, the Grantor Trust
T-1 Certificate does not evidence any interest in the Contract Receivables of
Bessomac, Taber, Cenland Associates Limited Partnership, Leyden and Sharrotts
Associates Limited Partnership and the Utex Note. The Servicer shall deposit all
payments (including payments on a Prepayment Deficiency Amount), prepayments,
Cure Amounts and Net Liquidation Proceeds received on these Contract Receivables
in the Reserve Fund.
(k) The Servicer shall deposit into the Reserve Fund all
payments (including payments on a Prepayment Deficiency Amount), prepayments and
Net Liquidation Proceeds received on any Contract Receivable (or portion
thereof) following its repurchase pursuant to Section 3.02 as a result of a
Material Breach.
(l) If a Contract Receivable is purchased pursuant to Section
4.10(a), the purchase price shall be allocated by the Servicer to the Grantor
Trust T-1 Certificate and deposited in the Collection Account (or, for the
period of time from the Transfer Date to the Deposit Date, in the Certificate
Account); provided that, if a Directing Holders' Rejectable Offer Deposit was
made for any Property, the amount allocated to the Grantor Trust T-1 Certificate
in respect of such Property shall be the amount which would have been allocated
to it if the Contract Receivable had been prepaid at the related Schedule C
Prepayment Amount calculated as of the date on which the Directing Holders'
Rejectable Offer Deposit was made, and any remaining amount shall be allocated
to the Grantor Trust T-2 Certificates and deposited in the Reserve Fund.
(m) If a Contract Receivable is purchased pursuant to Section
4.10(b), the Purchase Price shall be allocated by the Servicer to the Grantor
Trust T-1 Certificate so that the same amount is deposited in the Collection
Account (or, for the period of time from the Transfer Date to the Deposit Date,
in the Certificate Account) which would have been allocated to the Grantor Trust
T-1 Certificate if the Contract Receivable had been prepaid at the Schedule C
Prepayment Amount calculated as of the date on which the Directing Holders'
Rejectable Offer Deposit was made, and any remaining amount shall be allocated
to the Grantor Trust T-2 Certificates and deposited in the Reserve Fund.
(n) In the event of a partial prepayment of a Contract
Receivable (except to the extent that, in accordance with the Note, such partial
prepayment is applied to a Prepayment Deficiency Amount, in which event the
portion of such prepayment applied to the Prepayment Deficiency Amount shall be
allocated between the Grantor Trust Certificates in accordance with Section 6.03
(f) or (p), as applicable),
(i) by payment of Excess Superior Amounts, the
Servicer shall in consultation with the T-2 Holder (provided that the
advice of the T-2 Holder shall not be binding on the Servicer) (i)
apply such prepayment in accordance with the Note (as clarified by the
Supplemental Agreement) and allocate such prepayment to the Grantor
Trust T-1 Certificate and the Grantor Trust T-2 Certificates in
accordance with Section 6.03(a), (ii) change its records to reflect
that the principal balance, accrued interest and each future scheduled
payment on the Note (and the beneficial interest of the Grantor Trust
T-1 Certificate and the Grantor Trust T-2 Certificates therein) have
been reduced in accordance with the applicable provisions of the Note
(as clarified by the Supplemental Agreement), (iii) apply all future
payments and prepayments on such Note, and allocate such payments and
prepayments between the Grantor Trust T-1 Certificate and the Grantor
Trust T-2 Certificates, in accordance with the revised Payment
Schedule, and (iv) revise the T-1 Payment End Date on Exhibit A for
such Contract Receivable to the extent required such that the sum of
the portion of such prepayment allocated to the Grantor Trust T-1
Certificate and the remaining scheduled T-1 Allocable Payments
(immediately following the adjustment to the Payment Schedule to
reflect such prepayment) shall not exceed the scheduled T-1 Allocable
Payments immediately prior to such prepayment.
(ii) by a Multiple Property Obligor (other than by
payment of Excess Superior Amounts), the Servicer shall, in
consultation with the T-2 Holder (provided that the advice of the T-2
Holder shall not be binding on the Servicer), (i) apply such prepayment
in accordance with Section 6.03(e) hereof and the Note (as clarified by
the Supplemental Agreement), (ii) change its records to reflect that
the principal balance, accrued interest and each future scheduled
payment on the Note (and the beneficial interest of the Grantor Trust
T-1 Certificate and the Grantor Trust T-2 Certificates therein) have
been reduced in accordance with the applicable provisions of the Note
(as clarified by the Supplemental Agreement) and this Agreement, and
(iii) apply all future payments and prepayments on such Note, and
allocate such payments and prepayments between the Grantor Trust T-1
Certificate and the Grantor Trust T-2 Certificates, in accordance with
the revised Payment Schedule; provided, however, that if such
prepayment results in a Prepayment Deficiency Amount the provisions of
Section 6.03(f) also shall be applicable.
(o) If any amount is transferred from the Recordation Escrow
Account as a result of the failure of the Seller to deliver a Release
Certificate pursuant to Section 6.02, the amount thereof allocable to the
Grantor Trust T-1 Certificate shall be the same amount which would have been
allocable to it if the Contract Receivable had been prepaid voluntarily at the
Allocated DPO Amount and such amount shall be deposited into the Collection
Account and any remaining amounts shall be allocated to the Grantor Trust T-2
Certificates and deposited into the Reserve Fund.
(p) As of the Closing Date, certain of the Contract
Receivables have Existing Prepayment Deficiency Amounts. Each payment by the
related Obligor of such Existing Prepayment Deficiency Amount (i) in the case of
the Pinole Contract Receivable and the Jacway Contract Receivable, shall be a
T-2 Allocable Payment and be deposited into the Reserve Fund, and (ii) in the
case of the Bedcar Contract Receivable and the Dalcin Contract Receivable, shall
be allocated to the Grantor Trust T-1 Certificate (and deposited into the
Collection Account) until the amount of payments allocated to the Grantor Trust
T-1 Certificate in respect of each such Existing Prepayment Deficiency Amount is
equal to the amount on Exhibit Z hereto, and any subsequent payments shall be
allocated to the Grantor Trust T-2 Certificates (and deposited into the Reserve
Fund).
(q) If the Trust is liquidated and the assets of the Grantor
Trust are sold or liquidated in accordance with Section 4.03, or if a Contract
Receivable is sold pursuant to 4.05(k)(ii), (A) the net proceeds of the sale or
liquidation of the Contract Receivables (or related Foreclosed Property or other
proceeds thereof) in which the Grantor Trust T-1 Certificate has an interest
shall be allocated between the Grantor Trust T-1 Certificate (and deposited into
the Collection Account or, after the Transfer Date, into the Certificate
Account) and the Grantor Trust T-2 Certificates (and deposited into the Reserve
Fund) (i) in the case of any Defaulted Contract Receivable or Liquidated
Contract Receivable, in accordance with Section 6.03(g), and (ii) in the case of
all other Contract Receivables, in accordance with Section 6.03(e) as if a
voluntary prepayment had been received on the Contract Receivable in an amount
equal to the net proceeds of such sale or liquidation, and (B) the proceeds of
the sale of all other assets of the Grantor Trust shall be deposited into the
Reserve Fund.
(r) In the case of a Multiple Property Obligor, (i) the
principal, accrued interest and current interest on the Contract Receivable
allocable to each Property that it owns shall, in accordance with the terms of
the Contract Receivable, be equal to the Allocable Fraction multiplied by the
principal, accrued interest and current interest on the Contract Receivable
(excluding any Prepayment Deficiency Amount), and (ii) the Servicer shall
determine the interest of the Grantor Trust T-1 Certificate in the principal,
accrued interest and current interest allocable to each such Property by
multiplying (x) the Allocable Fraction applicable to such Property, by (y) the
accrued interest, the current interest and the principal on such Contract
Receivable (other than any Prepayment Deficiency Amount) which is allocable to
the Grantor Trust T-1 Certificate. If a Schedule C Event or Purchase Option
occurred with respect to such Property resulting in a Prepayment Deficiency
Amount, the allocation of the Prepayment Deficiency Amount between the Grantor
Trust Certificates shall be determined based on Section 6.03 (f) or (p) hereof.
SECTION 6.04 Servicing and Grantor Trust Expenses. On each
Deposit Date, prior to paying any Debt Service Draw Amount, Repurchase Price or
Cure Amount from the Reserve Fund or the Net Sandwich Investments, the Servicer
shall withdraw funds from the Reserve Fund and (in accordance with the procedure
set forth in Section 6.09) the Net Sandwich Investments, and pay to the Servicer
the T-2 Share of the Servicing and Grantor Trust Expenses, and pay any
Liquidation Expenses, Servicer Advances and Advancing Fees not paid from the
Liquidation Proceeds of a Liquidated Contract Receivable. The Servicer shall,
pursuant to the Pooling Agreement, pay to the Servicer the T-1 Share of the
Servicing and Grantor Trust Expenses from the funds on deposit in the
Certificate Account. Prior to each Distribution Date, and during a Collection
Period, the Servicer may reimburse the Grantor Trust Trustee, the REMIC Trust
Trustee and itself for any Grantor Trust Expense by withdrawing the T-1 Share
thereof from the Collection Account and the T-2 Share thereof from the Reserve
Fund. In such event, the Servicer shall use the calculation of the T-1 Share and
the T-2 Share from the immediately preceding Collection Period; provided,
however, that, at the end of the Collection Period the Servicer shall determine
the T-1 Share and the T-2 Share for such Collection Period and make the
appropriate adjustments to the Reserve Fund and the Collection Account with
respect to the Grantor Trust Expenses withdrawn during such Collection Period
from the Collection Account and the Reserve Fund.
To the extent that funds are not available from the sources
described in the immediately preceding paragraph to pay the Servicer its
Servicing Fee or Special Servicing Fee as and when due, BT hereby acknowledges
and agrees that it shall nevertheless continue to perform its responsibilities
and obligations in all of its capacities hereunder, under the Pooling Agreement
and under the Contract Receivable Documents.
SECTION 6.05 Withdrawals from the Reserve Fund.
(a) On each Determination Date, the Servicer shall determine
whether, on the subsequent Distribution Date, the Balance of the Reserve Fund,
together with the Net Sandwich Investments, exceeds the sum of the Certificate
Accreted Value plus one year's interest on such Certificate Accreted Value at
the weighted average Pass-Through Rate, in which event the Servicer shall direct
the Collateral Agent to distribute such excess (up to the Balance of the Reserve
Fund) on such Distribution Date to the holders of the Grantor Trust T-2
Certificates, pro rata, based upon their Percentage Interest. For this purpose,
the Certificate Accreted Value will be calculated without taking into account
any Allocated Losses in reduction of Accreted Value made on such Distribution
Date and all prior Distribution Dates or the interest which would have accrued
on the amount of such Allocated Losses from the date of such reduction to such
Distribution Date at the applicable Pass-Through Rates, but taking into account
all Accretion Amounts for such Distribution Date and all distributions in
respect of Accreted Value made on such Distribution Date.
(b) On the first Distribution Date on or after the REMIC
Liquidation Date, the Servicer shall direct the Collateral Agent to distribute,
pro rata, based upon Percentage Interest, to the holders of the Grantor Trust
T-2 Certificates all amounts or investments (in kind or in cash, at the election
of a Majority-in-Interest of the holders of the Grantor Trust T-2 Certificates)
then held in the Reserve Fund.
(c) On the Deposit Date preceding each Distribution Date after
payment of the T-2 Share of the Servicing and Grantor Trust expenses and other
expenses which, pursuant to this Agreement, are payable from the Reserve Fund,
the Servicer shall direct the Collateral Agent to transfer funds from the
Reserve Fund (or, if the Reserve Fund is not sufficient, from the Net Sandwich
Investments (in accordance with the procedure set forth in Section 6.09)
pursuant to clause (f) hereof) to the Certificate Account in an amount (the
"Debt Service Draw Amount") equal to the lesser of (A) the sum of the Balance of
the Reserve Fund and the Net Sandwich Investments and (B) the "Losses" incurred
during the preceding Collection Period. The "Losses" are the sum of the
following:
(1) the portion of any scheduled payment of principal
or interest constituting a T-1 Allocable Payment (or portion thereof)
on a Contract Receivable which was due during the immediately preceding
Collection Period but which has not been paid and is delinquent for a
period of at least 30 days;
(2) an amount equal to the loss (as certified by the
Servicer) allocable to the Grantor Trust T-1 Certificate upon a
prepayment of a Contract Receivable in connection with a Schedule C
Event or the exercise of a Purchase Option either by (i) a Single
Property Obligor, (ii) a Multiple Property Obligor upon the disposition
of the final Property encumbered by the related Subordinate Mortgage,
or (iii) a Multiple Property Obligor, if a Prepayment Deficiency Amount
results from such prepayment, but only to the extent that the Servicer
certifies that (x) the aggregate amount which the holder of the Grantor
Trust T-1 Certificate would have received with respect to the affected
Property if there had been a voluntary partial prepayment of the
Contract Receivable at the Allocated DPO Amount with respect to such
affected Property (immediately prior to such Schedule C Event or the
exercise of such Purchase Option) is more than the sum of the
Prepayment Deficiency Amount allocable to the Grantor Trust T-1
Certificate and the prepayment received on such event or exercise and
allocated to the Grantor Trust T-1 Certificate, and/or (y) it does not
reasonably anticipate that the remaining Property or Properties will
produce Excess Cash Flow or Excess Proceeds sufficient to pay the
portion of the Prepayment Deficiency Amount allocable to the Grantor
Trust T-1 Certificate (excluding the amount of any loss on such
Contract Receivable determined under clause (x));
(3) an amount equal to the loss (as certified by the
Servicer) allocable to the Grantor Trust T-1 Certificate if a Defaulted
Contract Receivable is accelerated and a Remedial Proceeding is
commenced by the Servicer, upon a certification by the Servicer that it
does not reasonably anticipate that the amount of such loss will be
satisfied out of Net Liquidation Proceeds, and
(4) the losses calculated pursuant to clauses (1)
through (3) which were not paid (from the Reserve Fund or from the Net
Sandwich Investments (in accordance with the procedure set forth in
Section 6.09)) on any prior Deposit Date (together with simple interest
thereon at the Pass-Through Rate of the Class D-1 Certificates (as
defined in the Pooling Agreement) from the Deposit Date on which each
such loss was to have been paid through the current Deposit Date).
(d) The Servicer shall calculate the Loss described in clause
(c)(2)(i) or (ii) above as the excess, if any, of (i) the T-1 Allocated DPO
Amount, over (ii) the amount of the actual prepayment which was allocated to the
Grantor Trust T-1 Certificate. The Servicer shall calculate the Loss described
in clause (c)(2)(iii)(x) above as the excess, if any, of (i) the T-1 Allocated
DPO Amount, over (ii) the amount of the actual prepayment made; provided,
however, that if there is a Loss in accordance with the immediately preceding
clause of this Section 6.05(d) and if the amount of the actual prepayment made
is less than the product of the T-1 Allocated DPO Amount multiplied by the DPO
Fraction, the Loss will be equal to the excess, if any, of the T-1 Allocated DPO
Amount over the product of the T-1 Allocated DPO Amount multiplied by the DPO
Fraction. The Servicer shall calculate the Loss described in clause
(c)(2)(iii)(y) above as the excess, if any, of (i) the portion of the Prepayment
Deficiency Amount allocable to the Grantor Trust T-1 Certificate, over (ii) the
portion of the payments of Excess Cash Flow or Excess Proceeds theretofore
received or that the Servicer anticipates that it will receive on the Prepayment
Deficiency Amount for such Contract Receivable which are allocable to the
Grantor Trust T-1 Certificate. The Servicer shall calculate the Loss described
in clause (c)(3) above as the excess, if any, of (i) the T-1 Allocated DPO
Amount, over (ii) the amount of Net Liquidation Proceeds received or which the
Servicer reasonably anticipates it will receive.
For purposes of calculating the Loss, the Allocated DPO Amount
shall be determined without regard to the 25% premium required to be paid by a
Multiple Property Obligor if a partial prepayment is made at the option of the
Obligor at the Allocated DPO Amount.
The "T-1 Allocated DPO Amount" is equal to the portion of the
Allocated DPO Amount for the affected Property or Properties (and, in the case
of an event described in clause (c)(2)(ii) and clause (c)(3) above, any
Prepayment Deficiency Amount) which would have been allocable to the Grantor
Trust T-1 Certificate if there had been a voluntary prepayment of the Contract
Receivable immediately prior to the prepayment made in connection with the
Schedule C Event or the Purchase Option (or, in the case of an event described
in clause (c)(3), on the date of the certification by the Servicer pursuant
thereto). The "DPO Fraction" is a fraction, the numerator of which is the
Discounted Pay Off Amount, and the denominator of which is the outstanding
balance of unpaid interest and principal on the Note (excluding any Prepayment
Deficiency Amount).
(e) There shall be no recourse to the T-2 Holder in respect of
its obligation to pay the Loss (except the T-2 Holder's interest in the Reserve
Fund), and no recourse to the Seller and the Affiliated Sellers. In addition, no
recourse shall be had against any of the general or limited partners of the T-2
Holder or the Seller (whether heretofore or hereafter admitted to the T-2 Holder
or the Seller) or the officers, directors or shareholders of the Affiliated
Sellers. The T-2 Holder, the Seller and the Affiliated Sellers shall have no
obligation to use funds or assets other than the Reserve Fund to pay the Loss.
(f) The Servicer shall deliver on the Distribution Date, to
the T-2 Holder, a certificate showing the calculation of the Debt Service Draw
Amount (including each Loss) in reasonable detail, and the Balance of the
Reserve Fund and the Net Sandwich Investments on the Deposit Date after paying
the Debt Service Draw Amount.
SECTION 6.06 Determination Date. On each Determination Date,
the Servicer shall determine (and, on the following Business Day, shall advise
the Collateral Agent, the T-2 Holder, the GT Collateral Agent and the
Certificates Paying Agent) in accordance with the provisions of this Agreement,
the amounts to be withdrawn from each Pledged Fund and the Net Sandwich
Investments and the amounts to be distributed to each Class of Certificates in
respect of the interest thereon and the Accreted Value thereof.
SECTION 6.07 Distributions after the REMIC Liquidation Date.
On and after the REMIC Liquidation Date, the Servicer shall, one Business Day
before each Monthly Distribution Date, direct and instruct the Certificates
Paying Agent to make the following distributions from the Grantor Trust
Collection Account, (which instructions shall be substantially in the form of
Exhibit X), in the following order of priority:
(a) To the Servicer, by wire transfer of immediately available
funds, the Servicing and Grantor Trust Expenses.
(b) To the Grantor Trust T-1 Certificate, all T-1 Allocable
Payments (after deduction of the T-1 Share of the Servicing and Grantor Trust
Expenses) received prior to such Monthly Distribution Date and not theretofore
distributed.
(c) To the Grantor Trust T-2 Certificates, all T-2 Allocable
Payments (after deduction of the T-2 Share of the Servicing and Grantor Trust
Expenses) received prior to such Monthly Distribution Date and not theretofore
distributed.
SECTION 6.08 Distributions from the Repurchase Reserve Fund.
On each Determination Date, the Servicer shall direct the GT Collateral Agent to
distribute on the next Distribution Date, pro rata, based upon Percentage
Interest, to the holders of the Grantor Trust T-2 Certificates, (i) any amounts
on deposit in the Repurchase Reserve Fund in excess of 5% of the Certificate
Accreted Value, and (ii) all amounts in the Repurchase Reserve Fund on the first
Distribution Date on or after the REMIC Liquidation Date. For the purpose of
clause (i), the Certificate Accreted Value shall be calculated without taking
into account any Allocated Losses in reduction of Accreted Value made on such
Distribution Date and all prior Distribution Dates or the interest which would
have accrued on the amount of such Allocated Losses from the date of such
reduction to such Distribution Date at the applicable Pass-Through Rates, but
taking into account all Accretion Amounts for such Distribution Date and all
distributions in respect of Accreted Value made on such Distribution Date.
The Servicer shall direct the GT Collateral Agent to transfer
funds on deposit in the Repurchase Reserve Fund to the Certificate Account and
the Reserve Fund in accordance with the allocation of the Repurchase Price or
Cure Amounts between the Grantor Trust T-1 Certificate and the Grantor Trust T-2
Certificates as set forth in Section 6.03 of this Agreement.
SECTION 6.09 Application of Net Sandwich Investments.
(a) If on any Deposit Date, the Balance of the Reserve Fund is
not sufficient to pay the Debt Service Draw Amount, or (if funds are not
available in the Repurchase Reserve Fund) the Repurchase Price or Cure Amounts
then payable or (if Liquidation Proceeds are not available therefor) the
Liquidation Expenses, Servicer Advances and Advancing Fees then payable with
respect to Liquidated Contract Receivables in accordance with Section 4.16, the
Servicer, on behalf of the Grantor Trust as sole stockholder, shall request the
sole director of any or all of Derby, Saber and Sentec to make distributions to
the Grantor Trust as its sole stockholder (up to the amount of such
corporation's Net Sandwich Investments in its Sandwich Investment Accounts) to
the extent necessary to make each such payment; provided that if an event
described in Section 4.05(l)(i), (ii), (iii) or (iv) shall have occurred and be
continuing with respect to any such corporation, the Net Sandwich Investments in
its Sandwich Investment Account shall not be distributed but shall be retained
in such account. The Servicer shall deposit each such distribution in the
Certificate Account (except to the extent that such distribution is to be used
to reimburse the Servicer for Liquidation Expenses, Servicer Advances or the
Advancing Fee).
(b) The Grantor Trust Trustee and the Servicer, on behalf of
the Grantor Trust as sole stockholder of Saber, shall take all actions to cause
(i) the sole director of Saber to distribute to the Grantor Trust as its sole
stockholder, for deposit in the Reserve Fund, the Net Sandwich Investments in
the Saber Sandwich Investment Account on the Deposit Date immediately preceding
the March 1997 Distribution Date, and (ii) the sole director of Derby, Saber and
Sentec to distribute to the Grantor Trust as its sole stockholder, for deposit
in the Reserve Fund, Net Sandwich Investments in the Saber Sandwich Investment
Account, the Sentec Sandwich Investment Account and the Derby Sandwich
Investment Account on each Deposit Date (on or after the Deposit Date
immediately preceding the March 1997 Distribution Date) on which any Net
Sandwich Investments are on deposit in any such Account; provided, however, that
no such distribution shall be made by such Sandwich Corporation if, pursuant to
Section 4.05(l)(i), (ii), (iii) or (iv), the GT Collateral Agent shall have
given (and not withdrawn) written notice to the T-2 Holder that the stock of
such corporation has been transferred to the T-2 Holder or the T-2 Holder's
affiliate or nominee.
(c) All distributions on or proceeds of the stock of Derby,
Sentec and Saber shall, except as otherwise provided in this Agreement, be
deposited in the Reserve Fund.
ARTICLE VII
ACCOUNTS
SECTION 7.01 Grantor Trust Collection Account.
(a) On the REMIC Liquidation Date, the Grantor Trust Trustee
shall establish and maintain the Grantor Trust Collection Account on behalf of
the Grantor Trust. The Grantor Trust Collection Account shall be entitled "[Name
of Grantor Trust Trustee] as trustee for the sole benefit of Contract Right
Grantor Trust ([Name of Servicer], Servicer) Grantor Trust Collection Account."
(b) Amounts in the Grantor Trust Collection Account shall be
invested by the Grantor Trust Trustee, in the name of the Grantor Trust Trustee,
in any investments in accordance with instructions provided to the Grantor Trust
Trustee by holders of a Majority-in-Interest of the Grantor Trust T-2
Certificates in writing or, if not so provided, in Eligible Investments. All net
income and gain earned on the investment of funds in the Grantor Trust
Collection Account shall be retained in the Grantor Trust Collection Account and
shall be for the benefit of the holders of the Grantor Trust Certificates (and
shall be allocated to the Grantor Trust T-1 Certificate if the investment
related to a T-1 Allocable Payment or investment income thereon, or to the
Grantor Trust T-2 Certificates if the investment related to a T-2 Allocable
Payment or investment income thereon).
SECTION 7.02 Reserve Fund.
(a) On or before the Closing Date, the T-2 Holder shall
establish the Reserve Fund initially with BT, as Collateral Agent. The Reserve
Fund shall be entitled "Bankers Trust Company, as Collateral Agent for the sole
benefit of Contract Receivables Pass-Through Certificate Trust - Reserve Fund."
The Collateral Agent shall maintain such account at all times as an Eligible
Deposit Account. The Reserve Fund shall be the property of the holders of the
Grantor Trust T-2 Certificates and shall not be deemed to constitute a part of
the corpus of the Grantor Trust or of the Trust.
(b) Pursuant to the Reserve Fund Pledge Agreement the T-2
Holder shall grant to the Collateral Agent, a security interest in, and lien on,
all of the T-2 Holder's right, title and interest in and to the Reserve Fund and
the funds on deposit therein as security for the limited indemnity under the
Reserve Fund Indemnity Agreement. The Collateral Agent shall have sole dominion
and control over the Reserve Fund.
(c) Funds on deposit in the Reserve Fund shall be invested in
accordance with instructions provided by holders of a Majority-in-Interest of
the Grantor Trust T-2 Certificates in Eligible Investments that mature not later
than the Deposit Date next succeeding the date of investment. Except as provided
in Section 6.05(a), all net income and gain earned on the investment of funds in
the Reserve Fund shall be retained in the Reserve Fund and will be available for
distribution therefrom.
SECTION 7.03 Repurchase Reserve Fund.
(a) On or before the Closing Date, there shall be established
the Repurchase Reserve Fund initially with BT, as GT Collateral Agent. The
Repurchase Reserve Fund shall be entitled "Bankers Trust Company as Collateral
Agent for the sole benefit of Contract Right Grantor Trust - Repurchase Reserve
Fund." The Collateral Agent shall maintain such account at all times as an
Eligible Deposit Account. The Repurchase Reserve Fund shall be the property of
the holders of the Grantor Trust T-2 Certificates and shall not be deemed to
constitute a part of the corpus of the Grantor Trust or of the Trust.
(b) Funds on deposit in the Repurchase Reserve Fund shall be
invested solely in Eligible Investments that mature not later than the Deposit
Date next succeeding the date of investment in accordance with instructions
provided by holders of a Majority-in-Interest of the Grantor Trust T-2
Certificates. Except as provided in Section 3.07(e), all net income and gain
earned on the investment of funds in the Repurchase Reserve Fund shall be
retained in the Repurchase Reserve Fund and shall be available for distribution
therefrom.
(c) Pursuant to the Repurchase Reserve Fund Pledge Agreement,
the T-2 Holder shall grant to the GT Collateral Agent, a security interest in,
and lien on, all of the T-2 Holder's right, title and interest in and to the
Repurchase Reserve Fund and the funds on deposit therein, as security for the
T-2 Holder's limited recourse obligation under the Repurchase Reserve Fund
Indemnity Agreement to cure or repurchase a Contract Receivable upon a breach of
a representation or warranty under Section 3.01(b) hereof. The GT Collateral
Agent shall have sole dominion and control over the Repurchase Reserve Fund.
SECTION 7.04 Rejectable Offer Reserve Fund.
(a) Upon the occurrence of certain events described under
Section 4.10(b), the Directing Holders shall establish an account (a "Rejectable
Offer Reserve Fund") as an Eligible Deposit Account, with the GT Collateral
Agent. A separate account shall be established for each Property as to which
Directing Holders have delivered Directions. Each such account will be funded by
the applicable Directing Holders in an amount described under Section 4.10(b).
Each Rejectable Offer Reserve Fund shall be entitled "Bankers Trust Company, as
Collateral Agent for the sole benefit of Contract Right Grantor Trust -
Rejectable Offer Reserve Fund [Name of Property and Obligor]." The GT Collateral
Agent shall have sole dominion and control over each Rejectable Offer Reserve
Fund. Each Rejectable Offer Reserve Fund shall not be deemed to constitute a
part of the corpus of the Grantor Trust or of the Trust.
(b) Funds on deposit in each Rejectable Offer Reserve Fund
shall be invested solely in Eligible Investments that mature not later than the
next succeeding Deposit Date, in accordance with instructions provided by the
applicable Directing Holders in writing. On each Distribution Date, all net
income and gain earned on the investment of funds in a Rejectable Offer Reserve
Fund shall be distributed to the applicable Directing Holders (except to the
extent required to make a payment due to be made from such Fund on the
immediately preceding Deposit Date). Amounts on deposit in a Rejectable Offer
Reserve Fund shall be transferred to the Collection Account (or, for the period
of time from the Transfer Date to the Deposit Date, to the Certificate Account)
or the Reserve Fund or distributed to the applicable Directing Holders in the
circumstances described under Section 4.10(b).
SECTION 7.05 Directing Holders Reserve Fund.
(a) Upon the occurrence of certain events described under
Section 4.10(a), the Directing Holders shall establish an account (a "Directing
Holders Reserve Fund") as an Eligible Deposit Account with the GT Collateral
Agent. A separate account shall be established for each Contract Receivable as
to which the Directing Holders have delivered Instructions. Each such account
will be funded by the applicable Directing Holders in an amount more fully
described under Section 4.10(a). Each Directing Holders Reserve Fund shall be
entitled "Bankers Trust Company, as Collateral Agent for the sole benefit of
Contract Right Grantor Trust Directing Holders Reserve Fund [Name of Contract
Receivable and Obligor]." The GT Collateral Agent shall have sole dominion and
control over each Directing Holders Reserve Fund. Each Directing Holders Reserve
Fund shall not be deemed to constitute a part of the corpus of the Grantor Trust
or of the Trust.
(b) Funds on deposit in a Directing Holders Reserve Fund shall
be invested solely in Eligible Investments that mature not later than the next
succeeding Deposit Date, in accordance with instructions provided by the
applicable Directing Holders in writing. On each Distribution Date, all net
income and gain earned on the investment of funds in a Directing Holders Reserve
Fund shall be distributed to the applicable Directing Holders (except to the
extent required to make a payment due to be made from such Fund on the
immediately preceding Deposit Date). Amounts on deposit in a Rejectable Offer
Reserve Fund shall be transferred to the Collection Account (or, for the period
of time from the Transfer Date to the Deposit Date, to the Certificate Account)
or distributed to the applicable Directing Holders in the circumstances
described under Section 4.10(a).
SECTION 7.06 Recordation Escrow Account.
On or before the Closing Date, there shall be established an
account (the "Recordation Escrow Account") on behalf of the Grantor Trust as an
Eligible Deposit Account, which shall be maintained at BT. The Recordation
Escrow Account shall be entitled "Bankers Trust Company, as Servicer for the
sole benefit of Contract Right Grantor Trust - Recordation Escrow Account."
Funds on deposit in the Recordation Escrow Account shall be invested on the
Closing Date in accordance with instructions provided by the Servicer on the
Closing Date, solely in Eligible Investments described in clause (x) of the
definition thereof. Subsequent to the Closing Date, there shall be no
reinvestment or change in the investments in the Recordation Escrow Account, and
any amounts withdrawn from such Account or investment income paid on investments
in such Account shall be held uninvested in such Account until applied in
accordance with this Agreement. All net income and gain earned on the investment
of funds in the Recordation Escrow Account shall be disbursed to the Seller on
the date on which the original balance of the funds in the Recordation Escrow
Account shall have been fully disbursed or transferred to the Collection Account
(or, for the period of time from the Transfer Date to the Deposit Date, to the
Certificate Account). Amounts on deposit in the Recordation Escrow Account shall
not be utilized except to be disbursed to the Seller or transferred to the
Collection Account or the Certificate Account as provided in this Agreement.
SECTION 7.07 Derby and Sentec Reserve Account.
On or before the Closing Date, there shall be established an
account (the "Derby and Sentec Reserve Account") on behalf of the Grantor Trust
as an Eligible Deposit Account, which initially shall be maintained at BT. The
Derby and Sentec Reserve Account shall be entitled "Bankers Trust Company, as
Servicer for the sole benefit of Contract Right Grantor Trust - Derby and Sentec
Reserve Account." Funds on deposit in the Derby and Sentec Reserve Account shall
be invested on the Closing Date in accordance with instructions provided by the
Servicer on the Closing Date, solely in Eligible Investments which mature in
approximately equal annual amounts over the succeeding fifteen years. Subsequent
to the Closing Date, there shall be no reinvestment or change in the investments
in the Derby and Sentec Reserve Account, and any amounts withdrawn from such
Account or investment income paid on investments in such Account shall be held
uninvested in such Account until applied in accordance with this Agreement. All
net income and gain earned on the investment of funds in such Account shall be
retained in such Account and, if not applied to make capital contributions to
Derby or Sentec, shall be disbursed to the T-2 Holder on the first Distribution
Date after the REMIC Liquidation Date.
SECTION 7.08 Sandwich Reserve Fund.
(a) On or before the Closing Date, there shall be established
an account (the "Sandwich Reserve Fund") on behalf of the Grantor Trust as an
Eligible Deposit Account, which initially shall be maintained at BT. The
Sandwich Reserve Fund shall be entitled "Bankers Trust Company, as Servicer for
the sole benefit of Contract Right Grantor Trust - Sandwich Reserve Fund." Funds
on deposit in the Sandwich Reserve Fund shall be invested on the Closing Date
solely in Eligible Investments described in clause (x) of the definition
thereof. Subsequent to the Closing Date, there shall be no reinvestment or
change in the investments in the Sandwich Reserve Fund and any amounts withdrawn
from such Fund or investment income paid on investments in such Fund shall be
held uninvested in such Fund until applied in accordance with this Agreement.
All net income and gain earned on the investment of funds in such Fund shall be
retained in such Fund and, if all or any portion of the corpus of the Fund is
distributed to the T-2 Holder such investment income shall be distributed
concurrently to the T-2 Holder, or if the corpus of the Fund is transferred to
the Reserve Fund such investment income shall be transferred to the Reserve
Fund.
(b) On the second Distribution Date following each date on
which all or a portion of the Net Sandwich Investments in the Saber Sandwich
Investment Account are transferred to the Collection Account or the Certificate
Account (or applied to reimburse the Servicer for Liquidation Expenses, Servicer
Advances or Advancing Fees) in accordance with Section 6.09(a) and/or
transferred to the Reserve Fund in accordance with Section 6.09(b), the Servicer
shall distribute the same amount from the Sandwich Reserve Fund pro rata to the
holders of the Grantor Trust T-2 Certificates, unless an event described in
Section 4.05(l)(i), (ii), (iii) or (iv) shall have occurred and be continuing
with respect to Saber; provided, however, that no distribution from the Sandwich
Reserve Fund shall be made during the continuance of such event with respect to
Saber, except that (i) an amount shall be transferred from the Sandwich Reserve
Fund to the Reserve Fund to the extent that Net Sandwich Investments are applied
to pay the Sandwich Administrative Expenses of Saber, (ii) if, as a result of an
event described in Section 4.05(l)(i), (ii), (iii) or (iv) with respect to Saber
or as a result of the determination (by delivery to the Servicer, the Grantor
Trust Trustee and the T-2 Holder of an Opinion of Independent Counsel) that a
dividend made by Saber to the Grantor Trust is unlawful or ultra vires, any
amounts transferred from the Net Sandwich Investments to the Certificate Account
must be repaid to Saber or its creditors, such repayment shall be made from the
Sandwich Reserve Fund, and (iii) any amount which would pursuant to Section
6.09(a) be transferred from the Net Sandwich Investments of Saber to the
Certificate Account but was not so transferred, as a result of an event
described in Section 4.05(l)(i), (ii), (iii) or (iv) with respect to Saber,
shall instead be transferred from the Sandwich Reserve Fund to the Certificate
Account. A distribution from the Sandwich Reserve Fund to the holders of the
Grantor Trust T-2 Certificates shall be made only upon the delivery by the T-2
Holder of an Opinion of Counsel to the effect that any dividend or distribution
made or to be made in respect of the capital stock of Saber relating to the Net
Sandwich Investments was or will be in compliance with the requirements of
applicable laws of the State of Delaware, which Opinion of Counsel may be based
on (A) a consent of the sole Director of Saber declaring such dividend, (B) the
most recent financial statements of Saber (whether audited or unaudited) and (C)
the absence of notice from the Servicer to the T-2 Holder of the occurrence of
any of the events described in clause (i), (ii), (iii) or (iv) of Section
4.05(l) with respect to Saber as satisfying any financial or solvency
prerequisite to such dividend or distribution. The Servicer, the GT Collateral
Agent and the Grantor Trust Trustee shall cooperate with such counsel in
delivering such certificates and copies of financial statements and consents of
directors of Saber as such counsel shall request.
ARTICLE VIII
THE SELLER AND THE AFFILIATED SELLERS
SECTION 8.01 Merger or Consolidation of the Seller or the
Affiliated Sellers. Any Person into which the Seller or any of the Affiliated
Sellers may be merged or consolidated, or any entity resulting from any merger
or consolidation to which the Seller or any of the Affiliated Sellers shall be a
party, or any Person succeeding to the business of the Seller or any of the
Affiliated Sellers, shall be the successor of the Seller or any of the
Affiliated Sellers hereunder, without the execution or filing of any paper or
any further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
SECTION 8.02 Limitation on Liability of the Seller and the
Affiliated Sellers.
(a) Neither the Seller nor any of the Affiliated Sellers nor
any of the partners, employees or agents of the Seller or any of the Affiliated
Sellers shall be under any liability to the Grantor Trust Trustee or the holders
of the Grantor Trust Certificates for any action taken or for refraining from
the taking of any action in good faith pursuant to this Agreement or for errors
in judgment.
(b) The Seller or any of the Affiliated Sellers and any
partner, employee or agent of the Seller or any of the Affiliated Sellers may
rely in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder.
(c) The Seller or any of the Affiliated Sellers shall not be
under any obligation to appear in, prosecute or defend any legal action which
arises under this Agreement.
ARTICLE IX
THE SERVICER; REPRESENTATIONS AND LIABILITIES
SECTION 9.01 Representations of BT. BT hereby makes the
following representations as to itself. The representations shall speak as of
the execution and delivery of this Agreement:
(i) Organization and Good Standing. BT is a banking
corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and has the corporate
power to own its assets and to transact the business in which it is
currently engaged. BT is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
character of the business transacted by it or properties owned or
leased by it requires such qualification and in which the failure so to
qualify would have a material adverse effect on the business,
properties, assets, or condition (financial or otherwise) of BT or on
the Grantor Trust Certificates or the transactions contemplated by this
Agreement.
(ii) Authorization; Binding Obligations. BT has the power and
authority to make, execute, deliver and perform this Agreement and all
of the transactions contemplated under this Agreement, the Pooling
Agreement and each Contract Receivable Document to which it is a party
and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement, the Pooling
Agreement and each Contract Receivable Document to which it is a party.
When executed and delivered, this Agreement, the Pooling Agreement and
each Contract Receivable Document to which it is a party will
constitute the legal, valid and binding obligation of BT enforceable in
accordance with its terms, except as enforcement of such terms may be
limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and by the availability of
equitable remedies.
(iii) No Consent Required. BT is not required to obtain the
consent of any other party or any consent, license, approval or
authorization from, or registration or declaration with, any
governmental authority, bureau or agency in connection with the
execution, delivery, performance, validity or enforceability of this
Agreement, the Pooling Agreement and each Contract Receivable Document
to which it is a party, the failure of which so to obtain would have a
material adverse effect on the business, properties, assets or
condition (financial or otherwise) of BT or on the Grantor Trust
Certificates or the transactions contemplated by the Agreement, the
Pooling Agreement and each Contract Receivable Document to which it is
a party.
(iv) No Violations. The execution, delivery and performance of
this Agreement, the Pooling Agreement and each Contract Receivable
Document to which it is a party by BT will not violate any provision of
any existing law or regulation or any order or decree of any court or
the Articles of Incorporation or Bylaws of BT, or constitute a material
breach of any mortgage, indenture, contract or other agreement to which
BT is a party or by which BT may be bound.
(v) Litigation. No litigation or administrative proceeding of
or before any court, tribunal or governmental body is currently
pending, or to the knowledge of BT threatened, against BT or any of its
properties or with respect to this Agreement, the Pooling Agreement and
each Contract Receivable Document to which it is a party, or the
Grantor Trust Certificates which, if adversely determined, would in the
opinion of BT have a material adverse effect on the transactions
contemplated by this Agreement, the Pooling Agreement and each Contract
Receivable Document to which it is a party.
(vi) No Event of Termination. No Event of Termination or an
event which would (pursuant to Section 9.05) permit BT to resign in any
capacity hereunder has occurred and is continuing.
(vii) Absence of Adverse Claim. The Collateral Agent has taken
the initial Grantor Trust T-2 Certificate for value, in good faith and
without notice of any adverse claim with respect to such Grantor Trust
T-2 Certificate or the security interest therein created by the Reserve
Fund Pledge Agreement.
SECTION 9.02 Liability of Servicer. The Servicer shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer and shall have no other obligations or liabilities
hereunder.
SECTION 9.03 Merger or Consolidation of Servicer. Any person
into which the Servicer may be merged, converted or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be the successor of the Servicer hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding; provided,
however, that the successor or surviving Person to the Servicer shall satisfy
the criteria set forth in the definition of an Eligible Servicer. The Servicer
shall promptly notify the Rating Agency of any such merger, conversion or
consolidation to which it is a party.
SECTION 9.04 Limitation on Liability of Servicer and Others.
(a) Neither the Servicer nor any of the directors, officers,
employees or agents of the Servicer shall be under any liability to the Grantor
Trust Trustee or the holders of the Grantor Trust Certificates for any action
taken or for refraining from the taking of any action in good faith pursuant to
this Agreement or the Pooling Agreement, or for errors in judgment; provided,
however, that this provision shall not protect the Servicer or any such Person
against any breach by it of warranties or representations made by it herein and
therein, the negligence, willful misconduct or misfeasance of the Servicer or
its agent, or failure to perform its or his obligations in compliance with the
standard of care, or any liability which otherwise would be imposed by reason of
any breach of the terms and conditions of this Agreement or the Pooling
Agreement or the Contract Receivable Documents to which it is a party.
(b) The Servicer and any director, officer, employee or agent
of the Servicer may rely in good faith on any document of any kind prima facie
properly executed and submitted by any authorized Person in respect of any
matters arising hereunder or under the Pooling Agreement.
(c) Except as arises from its duties as Servicer, GT
Collateral Agent or Grantor Trust Certificate Registrar hereunder or its various
capacities under the Pooling Agreement and the Contract Receivable Documents to
which it is a party, the Servicer shall not be under any obligation to appear
in, prosecute or defend any legal action which arises under this Agreement and
which in its opinion may involve it in any expense or liability; provided,
however, that the Servicer may in its discretion undertake any such action which
it may deem necessary or desirable in respect of this Agreement or the Pooling
Agreement and the rights and duties of the parties hereto and thereto. In such
event, unless such action is a Remedial Proceeding (in which event the
Servicer's expenses shall be reimbursed out of the Liquidation Proceeds), the
legal expenses and costs of such action and any liability resulting therefrom
shall be Grantor Trust Expenses.
SECTION 9.05 Servicer Not To Resign. The Servicer shall not
resign from its obligations and duties under this Agreement, the Pooling
Agreement and each Contract Receivable Document to which it is a party except
upon its determination that the performance of its duties shall no longer be
permissible under applicable law, compliance with which could not be realized
without material adverse impact on the Servicer's financial condition. Notice of
any such determination permitting the resignation of the Servicer shall be
communicated by the Servicer to the Grantor Trust Trustee, the REMIC Trustee,
the T-2 Holder and the Rating Agency at the earliest practicable time (and, if
such communication is not in writing, shall be confirmed in writing at the
earliest practicable time) and any such determination permitting the resignation
of the Servicer shall be evidenced by an Opinion of Independent Counsel to such
effect delivered to the Grantor Trust Trustee, the REMIC Trustee and the T-2
Holder. No such resignation shall become effective until the Grantor Trust
Trustee or a successor Servicer shall have assumed the responsibilities and
obligations of the Servicer in accordance with Section 10.02. The Servicer under
this Agreement shall at all times be the Servicer under the Pooling Agreement.
ARTICLE X
EVENTS OF TERMINATION.
SECTION 10.01 Events of Termination. "Event of Termination"
means the occurrence of any of the following:
(a) any failure by the Servicer (in any of its capacities
under this Agreement, the Pooling Agreement or any Paying Agent Agreement) to
make any deposit into an account required to be made under this Agreement, the
Pooling Agreement or any Paying Agent Agreement and the continuance of such
failure for a period of one Business Day after the Servicer has become aware
that such deposit was required;
(b) failure on the Servicer's part (in any of its capacities
under this Agreement, the Pooling Agreement or any Paying Agent Agreement) to
observe or perform in any material respect any covenant or agreement in this
Agreement or the Pooling Agreement or any Paying Agent Agreement (other than a
failure by the Servicer to make any deposit into an account required to be made
hereunder and thereunder), which failure continues unremedied for 30 days after
the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Grantor Trust Trustee,
the Seller, the holders of a Majority-in-Interest of the Grantor Trust T-2
Certificates or the REMIC Trustee, as holder of the Grantor Trust T-1
Certificate;
(c) any assignment or delegation by the Servicer (in any of
its capacities under this Agreement, the Pooling Agreement, or any Paying Agent
Agreement) of its duties or rights under this Agreement, the Pooling Agreement
or any Paying Agent Agreement except as specifically permitted thereunder, or
any attempt to make such an assignment or delegation;
(d) if a representation or warranty by the Servicer (in any of
its capacities under this Agreement, the Pooling Agreement or any Paying Agent
Agreement) under this Agreement, the Pooling Agreement or any Paying Agent
Agreement proves to be incorrect as of the time made in any material respect
that materially and adversely affects the interests of the holders of the
Grantor Trust Certificates or holders of the Certificates, and such
circumstances or conditions in respect of which such representation or warranty
was incorrect shall not have been eliminated or corrected within 60 days after
written notice thereof;
(e) a court or other governmental authority having
jurisdiction in the premises shall have entered a decree or order for relief in
respect of the Servicer in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Servicer, as the case may be, or for any substantial
liquidation of its affairs;
(f) the Servicer shall have commenced a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall have consented to the entry of an order for relief in an
involuntary case under any such law, or shall have consented to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee, custodian
or sequestrator (or other similar official) of the Servicer or for any
substantial part of its property, or shall have made any general assignment for
the benefit of its creditors, or shall have failed to, or admitted in writing
its inability to, pay its debts as they become due, or shall have taken any
corporate action in furtherance of the foregoing; or
(g) the failure of the Servicer to be an Eligible Servicer.
If an Event of Termination has occurred and is continuing, the
Grantor Trust Trustee at the written direction of (i) the holders of a
Majority-in-Interest of the Grantor Trust T-2 Certificates or (ii) the REMIC
Trustee, as holder of the Grantor Trust T-1 Certificate, shall terminate all
(but not less than all) of the Servicer's management, administrative, servicing
and collection functions (such termination being herein called a "Service
Transfer"). On receipt of such notice (or, if later, on a date designated
therein), all authority and power of the Servicer under this Agreement and the
Pooling Agreement whether with respect to the Contract Receivables, the Contract
Receivable Files or otherwise, shall pass to and be vested in the Grantor Trust
Trustee pursuant to and under this Section 10.01, until a successor Servicer
shall have been appointed and accepted such appointment; and, without
limitation, the Grantor Trust Trustee is authorized and empowered to execute and
deliver on behalf of the Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments (including, without limitation, documents
required to make the Grantor Trust Trustee or a successor Servicer the sole
lienholder or legal title holder of record of each Contract Receivable and each
Contract Receivable Document), and to do any and all acts or things necessary or
appropriate to effect the purposes of such notice of termination. Each of BT and
the Servicer agrees to cooperate with the Grantor Trust Trustee in effecting the
termination of the responsibilities and rights of BT (in all of its capacities
hereunder), including, without limitation, the transfer to the Grantor Trust
Trustee (or to the REMIC Trustee in the case of the Reserve Fund, the
Certificate Account, the Collection Account and the Rating Agency Reserve Fund)
or a successor Servicer, for administration by it of all cash amounts and
investments which shall at the time be held by the Servicer for deposit, or have
been deposited by the Servicer, in any account or fund or for its own account in
connection with its services hereunder or thereafter received with respect to
the Contract Receivables, and the execution of any documents required to make
the Grantor Trust Trustee or a successor Servicer the sole lienholder or legal
title holder of record in respect of each Contract Receivable and each Contract
Receivable Document. The Servicer shall be entitled to receive any other amounts
which are payable to the Servicer under this Agreement, at the time of the
termination of its activities as Servicer, to the extent that funds in the
Collection Account and the Reserve Fund are available for the payment thereof
without reducing the amount of distributions that would be made to holders of
the Grantor Trust Certificates or the holders of the Certificates. The Servicer
shall transfer to the new Servicer (i) the Servicer's records relating to the
Contract Receivables in such form as the new Servicer may reasonably request and
(ii) the Contract Receivables, the stock of Derby, Saber and Sentec and all the
Contract Receivable Files in the Servicer's possession (in its capacity as
Servicer, Custodian or otherwise).
SECTION 10.02 Grantor Trust Trustee to Act; Appointment of
Successor. On and after the time the Servicer receives a notice of termination
pursuant to Section 10.01 or a notice of determination pursuant to Section 9.05,
until such time as a successor Servicer is appointed, the Grantor Trust Trustee
shall be the successor in all respects to the Servicer in its capacity as
Servicer under this Agreement and the Pooling Agreement and the transactions set
forth or provided for herein and therein and its successor in all of its other
capacities under this Agreement (and the REMIC Trustee shall be its successor in
all of its other capacities under the Pooling Agreement), and shall be subject
to all the responsibilities, duties and liabilities relating thereto placed on
the Servicer by the terms and provisions hereof and thereof, and the Servicer
shall be relieved of such responsibilities, duties and liabilities arising after
such Service Transfer; provided, however, that the Grantor Trust Trustee shall
not be liable for any acts or omissions of the Servicer occurring prior to such
Service Transfer or for any breach by BT of any of its representations and
warranties contained herein and therein or in any related document or agreement.
The Grantor Trust Trustee and any successor Servicer shall have no
responsibility for failure of BT and any predecessor Servicer to deliver to the
Grantor Trust Trustee or such successor Servicer any property or funds belonging
to the Grantor Trust, including, but not limited to, the funds, records,
Contract Receivables and Contract Receivable Files. As compensation therefor,
the Grantor Trust Trustee shall, except as provided in this Section 10.02, be
entitled to such compensation as the Servicer would have been entitled to
hereunder if no such notice of termination had been given (and, out of such
compensation, shall pay the fees of the Grantor Trust Trustee, the REMIC Trustee
and any Eligible Institutions appointed to replace BT in any of its capacities
under this Agreement, the Pooling Agreement and the Contract Receivable
Documents). The Grantor Trust Trustee may, if it shall be unwilling so to act,
or shall, if it is legally unable so to act or if it receives written
instructions from the holders of either the Majority-in-Interest of the Grantor
Trust T-2 Certificates or the REMIC Trustee, appoint an Eligible Servicer as the
successor to the Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Servicer hereunder (and an
Eligible Institution(s) to succeed BT in its other capacities hereunder, under
the Pooling Agreement and the Contract Receivable Documents); provided, however,
that no such successor shall be appointed if, within 10 days after the Grantor
Trust Trustee gives written notice of such proposed appointment, either the
holders of the Majority-in-Interest of the Grantor Trust T-2 Certificates or the
REMIC Trustee notifies the Grantor Trust Trustee of its objections in writing;
provided, further, that if the REMIC Trustee and the holders of the
Majority-in-Interest of the Grantor Trust T-2 Certificates give written joint
instructions to the Grantor Trustee designating a successor Servicer, the
Grantor Trust Trustee shall appoint the person so designated if it is an
Eligible Servicer. Pending appointment of a successor to the Servicer hereunder,
the Grantor Trust Trustee shall act in such capacity as hereinabove provided
unless the Grantor Trust Trustee is prohibited by law from so acting, in which
event the Grantor Trust Trustee shall petition a court of competent jurisdiction
to appoint an Eligible Servicer as successor to the Servicer. In connection with
such appointment of and assumption by a successor Servicer, the Grantor Trust
Trustee in consultation with the holders of the Grantor Trust Certificates shall
make such arrangements for the compensation of such successor Servicer, to be
paid as part of the Servicing and Grantor Trust Expenses on each Distribution
Date, as it and such successor Servicer shall agree; provided, however, the
Grantor Trust Trustee shall use its best efforts to engage the successor
Servicer (and either the successor Servicer or other Eligible Institution(s) to
succeed BT in its other capacities hereunder, under the Pooling Agreement and
the Contract Receivable Documents) for total compensation (including the fees of
the REMIC Trustee and the Grantor Trust Trustee) which are not in excess of the
Servicing Fee and the Special Servicing Fee, which would have been payable on
each Distribution Date to BT; provided, further, that in no event shall such
total compensation (other than the Special Servicing Fee) exceed on each
Distribution Date one-half of 0.1% of the Certificate Accreted Value as of the
immediately preceding Distribution Date, without the written consent of all
holders of the Grantor Trust Certificates. The Grantor Trust Trustee and such
successor Servicer shall take such action, consistent with this Agreement, as
shall be necessary to effectuate any such succession. No change shall be made in
the Servicing Fee or Special Servicing Fee applicable after the REMIC
Liquidation Date without the consent of 100% of the Certificateholders.
SECTION 10.03 Notification to Holders of the Grantor Trust
Certificates and the Certificates.
(a) Promptly following the occurrence of any Event of
Termination, the Servicer shall give written notice thereof to the Grantor Trust
Trustee, the REMIC Trustee, the holders of the Grantor Trust Certificates and
the holders of the Certificates, at their respective addresses appearing on the
Grantor Trust Certificate Register, the Certificate Register (as described in
the Pooling Agreement), and to the Rating Agency.
(b) Within 10 days following any termination or appointment of
a successor to the Servicer pursuant to this Article X, the Grantor Trust
Trustee shall give written notice thereof to holders of the Grantor Trust
Certificates and the holders of the Certificates, at their respective addresses
appearing on the Grantor Trust Certificate Register and the Certificate Register
(as described in the Pooling Agreement).
(c) The Grantor Trust Trustee shall give written notice to the
Rating Agency at least 30 days prior to the date upon which any Eligible
Servicer (other than the Grantor Trust Trustee) is to assume the
responsibilities of Servicer pursuant to Section 10.02, naming such successor
Servicer.
SECTION 10.04 Rights of Holders of the Grantor Trust
Certificates to Direct Trustee and to Waive Events of Termination. The REMIC
Trustee, as holder of the Grantor Trust T-1 Certificate, shall have the right to
direct the time, method, and place of conducting any proceeding for any remedy
available to the Grantor Trust Trustee, or exercising any trust or power
conferred on the Grantor Trust Trustee; provided, however, that, subject to
Section 11.01, the Grantor Trust Trustee shall have the right to decline to
follow any such direction if the Grantor Trust Trustee (being advised by
counsel) determines that the action so directed may not lawfully be taken, or if
the Grantor Trust Trustee in good faith shall, by a Responsible Officer or
Officers of the Grantor Trust Trustee, determine that the proceedings so
directed would be illegal or involve it in personal liability or be unduly
prejudicial to the rights of the holders of the Grantor Trust T-2 Certificates;
provided, further, that nothing in this Agreement shall impair the right of the
Grantor Trust Trustee to take any action deemed proper by the Grantor Trust
Trustee and which is not inconsistent with such direction by the holders of the
Grantor Trust Certificates.
The Grantor Trust Trustee shall, at the direction of holders
of a Majority-in-Interest of the Grantor Trust T-2 Certificates and the REMIC
Trustee, as holder of the Grantor Trust T-1 Certificate, waive any Event of
Termination hereunder and its consequences (except a failure to make any
required deposits to any account or fund in accordance with this Agreement,
which default cannot be waived without the consent of all holders of the Grantor
Trust Certificates) and, upon any such waiver, such Event of Termination shall
cease to exist and shall be deemed to have been cured for every purpose of this
Agreement; but no such waiver shall extend to any subsequent or other Event of
Termination or impair any right consequent thereon.
SECTION 10.05. Effect of Transfer.
(a) After the Service Transfer, the Grantor Trust Trustee or
successor Servicer shall notify the Paying Agent (or, if there is no Paying
Agent arrangement in effect for a Contract Receivable, the Obligor thereunder)
to make payments directly to the successor Servicer that are due under the
Contract Receivables after the effective date of the Service Transfer.
(b) After the Service Transfer, the terminated Servicer shall
have no further obligations with respect to the management, administration,
servicing or collection of the Contract Receivables and the successor Servicer
shall have all of such obligations, except that the terminated Servicer shall
remain liable for any liability of the terminated Servicer hereunder that was
already accrued at the time of the Service Transfer and except that the
terminated Servicer will transmit or cause to be transmitted directly to the
successor Servicer for its own account, promptly on receipt and in the same form
in which received, any amounts (properly endorsed where required for the
successor Servicer to collect them) received as payments upon or otherwise in
connection with the Contract Receivables.
(c) A Service Transfer shall not affect the rights and duties
of the parties hereunder (including, but not limited to, the indemnities and
other agreements of the Servicer and BT) other than those relating to the
management, administration, servicing or collection of the Contract Receivables.
ARTICLE XI
THE GRANTOR TRUST TRUSTEE
SECTION 11.01 Duties of Grantor Trust Trustee. The Grantor
Trust Trustee, prior to the occurrence of an Event of Termination, and after the
curing of all such Events of Termination that may have occurred, shall undertake
to perform such duties as are specifically set forth in this Agreement. If an
Event of Termination of which a Responsible Officer has knowledge shall have
occurred and shall not have been cured, the Grantor Trust Trustee shall exercise
such of the rights and powers vested in it by this Agreement; provided, however,
that if the Grantor Trust Trustee shall assume the duties of the Servicer
pursuant to Sections 9.05 and 10.02, the Grantor Trust Trustee in performing
such duties shall act in accordance with the standard of care.
The Grantor Trust Trustee, upon receipt of any resolution,
certificate, statement, opinion, report, document, order, or other instrument
furnished to the Grantor Trust Trustee that shall be specifically required to be
furnished to it pursuant to any provision of this Agreement, shall examine it to
determine whether it conforms to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve
the Grantor Trust Trustee from liability for its own negligent action, its own
negligent failure to act, or its own bad faith; provided, however, that:
(i) Prior to the occurrence of an Event of Termination, and
after the curing of all such Events of Termination that may have
occurred, the duties and obligations of the Grantor Trust Trustee shall
be determined solely by the express provisions of this Agreement, the
Grantor Trust Trustee shall not be liable except for the performance of
such duties and obligations as shall be specifically set forth in this
Agreement, no implied covenants or obligations shall be read into this
Agreement against the Grantor Trust Trustee, the permissible right of
the Grantor Trust Trustee to do things enumerated in this Agreement
shall not be construed as a duty and, in the absence of bad faith on
the part of the Grantor Trust Trustee, or manifest error, the Grantor
Trust Trustee may conclusively rely on the truth of the statements and
the correctness of the opinions expressed therein upon any certificates
or opinions furnished to the Grantor Trust Trustee and conforming to
the requirements of this Agreement;
(ii) The Grantor Trust Trustee shall not be personally liable
for an error of judgment made in good faith by a Responsible Officer of
the Grantor Trust Trustee, unless it shall be proved that the Grantor
Trust Trustee shall have been negligent in ascertaining the pertinent
facts;
(iii) The Grantor Trust Trustee shall not be personally liable
with respect to any action taken, suffered, or omitted to be taken in
good faith in accordance with the direction of the REMIC Trustee, as
holder of the Grantor Trust T-1 Certificate, relating to the time,
method, and place of conducting any proceeding or any remedy available
to the Grantor Trust Trustee, or exercising any trust or power
conferred upon the Grantor Trust Trustee, under this Agreement; and
(iv) The Grantor Trust Trustee shall not be charged with
knowledge of any failure by the Servicer to comply with the obligations
of the Servicer referred to in clause (b) of Section 10.01 unless a
Responsible Officer receives actual knowledge or written notice of such
failure.
The Grantor Trust Trustee shall not be required to expend or
risk its own funds or otherwise incur financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers,
if there shall be reasonable ground for believing that the repayment of such
funds or adequate indemnity against such risk or liability shall not be
reasonably assured to it, and none of the provisions contained in this Agreement
shall in any event require the Grantor Trust Trustee to perform, or be
responsible for the manner of performance of, any of the obligations of the
Servicer under this Agreement except during such time, if any, as the Grantor
Trust Trustee shall be the successor to, and be vested with the rights, duties,
powers and privileges of, the Servicer in accordance with the terms of this
Agreement.
The Grantor Trust Trustee shall not be charged with knowledge
of an Event of Termination until such time as a Responsible Officer shall have
actual knowledge or have received written notice thereof from the Servicer or
the holders of a Majority-in-Interest of the Grantor Trust T-2 Certificates or
the REMIC Trustee, as holder of the Grantor Trust T-1 Certificate. Prior to the
occurrence of an Event of Termination of which the Grantor Trust Trustee has
knowledge, except as expressly provided herein, the Grantor Trust Trustee shall
have no duty to monitor the performance of the Servicer.
Except for actions expressly authorized by this Agreement, the
Grantor Trust Trustee shall take no action reasonably likely to impair the
security interests created by or existing under any of the Subordinate Mortgages
or to impair the value of any Contract Receivables.
SECTION 11.02 [Intentionally Omitted].
SECTION 11.03 Certain Matters Affecting the Grantor Trust
Trustee.
(a) Except as otherwise provided in Section 11.01:
(i) The Grantor Trust Trustee may request and rely
upon and shall be protected in acting or refraining from acting upon
any resolution, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent,
order, appraisal, bond, or other paper or document reasonably believed
by it to be genuine and to have been signed or presented by the proper
party or parties.
(ii) The Grantor Trust Trustee may consult with
counsel and any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered
or omitted by it under this Agreement in good faith and in accordance
with such Opinion of Counsel.
(iii) The Grantor Trust Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Agreement, or to institute, conduct or defend any litigation under this
Agreement or in relation to this Agreement, at the request, order or
direction of any of the holders of the Grantor Trust Certificates
pursuant to the provisions of this Agreement, unless such holders of
the Grantor Trust Certificates shall have offered to the Grantor Trust
Trustee reasonable security or indemnity against the costs, expenses
(including the fees and expenses of counsel), and liabilities that may
be incurred therein or thereby; nothing contained in this Agreement,
however, shall relieve the Grantor Trust Trustee of the obligations,
upon the occurrence of an Event of Termination (that shall not have
been cured), to exercise such of the rights and powers vested in it by
this Agreement, and to use the same degree of care and skill in their
exercise as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
(iv) The Grantor Trust Trustee shall not be liable
for any action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Agreement.
(v) Prior to the occurrence of an Event of
Termination and after the curing of all such Events of Termination that
may have occurred, the Grantor Trust Trustee shall not be bound to make
any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval, bond, or other paper or document, unless
requested in writing so to do by the holders of a Majority-in-Interest
of the Grantor Trust T-2 Certificates or the REMIC Trustee, as holder
of the Grantor Trust T-1 Certificate; provided, however, that if the
payment within a reasonable time to the Grantor Trust Trustee of the
costs, expenses (including the fees and expenses of counsel) or
liabilities likely to be incurred by it in the making of such
investigation shall be, in the opinion of the Grantor Trust Trustee,
not reasonably assured to the Grantor Trust Trustee by the security
afforded to it by the terms of this Agreement, the Grantor Trust
Trustee may require reasonable indemnity against such cost, expense or
liability as a condition to so proceed. The reasonable expense of every
such examination shall be paid by the Servicer, or, if paid by the
Grantor Trust Trustee, shall be reimbursed by the Servicer upon demand.
(vi) The Grantor Trust Trustee may execute any of the
trusts or powers hereunder or perform any duties under this Agreement
either directly or by or through agents or attorneys or a custodian and
shall not liable for their acts or omissions if appointed with due
care.
(b) No holder of a Grantor Trust Certificate will have any
right to institute any proceeding with respect to this Agreement, unless such
holder shall have given to the Grantor Trust Trustee written notice of an Event
of Termination and: (i) the Event of Termination arises under Section 10.01(a);
or (ii) the REMIC Trustee, as holder of the Grantor Trust T-1 Certificate, or
holders of a Majority-in-Interest of the Grantor Trust T-2 Certificates has made
written request to the Grantor Trust Trustee to institute such proceeding in its
own name as Grantor Trust Trustee thereunder, and has offered to the Grantor
Trust Trustee reasonable indemnity, and the Grantor Trust Trustee for 30 days
has neglected or refused to institute any such proceedings.
SECTION 11.04 Grantor Trust Trustee Not Liable for Grantor
Trust Certificates or Contract Receivables. The Grantor Trust Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Grantor Trust Certificates or of any Contract Receivable or related document.
The Grantor Trust Trustee shall not be accountable for the use or application of
the proceeds of such Grantor Trust Certificates if disposed of in accordance
with this Agreement, or for the use or application of any funds paid to the
Servicer in respect of the Contract Receivables in accordance with this
Agreement or deposited in or withdrawn from any account or fund by the Servicer
in accordance with this Agreement.
The Grantor Trust Trustee shall have no obligations to perform
any of the duties of the Seller or Servicer unless explicitly set forth in this
Agreement, except in its capacity as successor Servicer. The Grantor Trust
Trustee shall at no time have any responsibility or liability for or with
respect to the legality, validity and enforceability of any security interest in
any Contract Receivable Document, or the perfection and priority of such a
security interest or the maintenance of any such perfection and priority; the
efficacy of the Grantor Trust or its ability to generate the payments to be
distributed to holders of the Grantor Trust Certificates under this Agreement;
the existence and contents of any Contract Receivable or any computer or other
record thereof; the validity of the assignment of any Contract Receivable to the
Grantor Trust or of any intervening assignment; the completeness of any Contract
Receivable; the performance or enforcement of any Contract Receivable; the
compliance by the Seller or the Servicer with any warranty or representation
made under this Agreement or in any related document and the accuracy of any
such warranty or representation prior to the Grantor Trust Trustee's receipt of
notice or other discovery of any noncompliance therewith or any breach thereof;
any investment of monies by the Grantor Trust Trustee or any loss resulting
therefrom (it being understood that the Grantor Trust Trustee shall remain
responsible for any Grantor Trust property that it may hold); the acts or
omissions of the Seller, the Servicer or any Obligor; any action of the Servicer
taken in the name of the Grantor Trust Trustee; or any action by the Grantor
Trust Trustee taken at the instruction of the Servicer; provided, however, that
the foregoing shall not relieve the Grantor Trust Trustee of its obligation to
perform its duties under this Agreement, whether in its capacity as Grantor
Trust Trustee or successor Servicer and in the latter case, in accordance with
the standard of care. Except with respect to a claim based on the failure of the
Grantor Trust Trustee to perform its duties under this Agreement or based on the
Grantor Trust Trustee's willful misconduct, bad faith or negligence, no recourse
shall be had for any claim based on any provision of this Agreement, the Grantor
Trust Certificates or any Contract Receivable or assignment thereof against the
Grantor Trust Trustee in its individual capacity. Except as provided in the
preceding sentence, the Grantor Trust Trustee shall not have any personal
obligation, liability or duty whatsoever to any holder of a Grantor Trust
Certificate or any other Person with respect to any such claim, and any such
claim shall be asserted solely against the Grantor Trust or any indemnitor who
shall furnish indemnity as provided in this Agreement.
SECTION 11.05 Grantor Trust Trustee May Own Grantor Trust
Certificates. The Grantor Trust Trustee in its individual or any other capacity
may become the owner or pledgee of Grantor Trust Certificates and may deal with
the Seller, the Servicer and their Affiliates in banking transaction and
fiduciary matters with the same rights as it would have if it were not Grantor
Trust Trustee.
SECTION 11.06 Grantor Trust Trustee's Fees and Expenses. The
Servicer agrees:
(a) that the Servicer shall pay, from its own funds and
without reimbursement by the Grantor Trust, to the Grantor Trust Trustee
reasonable compensation upon receipt of an invoice therefor for all services
rendered by it in any of its capacities hereunder (which compensation is set
forth in a letter agreement between the Servicer and the Grantor Trust Trustee
and which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust); and
(b) that the Servicer shall reimburse the Grantor Trust
Trustee as a Grantor Trust Expense, to the extent requested by the Grantor Trust
Trustee in any of its capacities hereunder, for all reasonable extraordinary
expenses and disbursements to third parties incurred by it in accordance with
any provisions of this Agreement but only as and to the extent that it is
authorized to incur such expenses under this Agreement (but excluding the cost
of its employees, facilities and overhead and including the reasonable
compensation and the expenses and disbursements of its agents and counsel which
it is authorized to retain pursuant hereto), except any such expense or
disbursement as may be attributable to its misfeasance, negligence, willful
misconduct or bad faith.
The covenants in this Section 11.06 shall be for the benefit
of the Grantor Trust Trustee and shall survive the resignation or termination of
the Grantor Trust Trustee and the termination of this Agreement.
SECTION 11.07 Eligibility Requirements for Grantor Trust
Trustee. The Grantor Trust Trustee hereunder shall at all times be a corporation
or a national banking association having its principal office in a state and
city acceptable to holders of a Majority-in-Interest of the Grantor Trust T-2
Certificates and, so long as the Offered Certificates are outstanding, the REMIC
Trustee, and organized and doing business under the laws of the United States of
America or any state, authorized under such laws to exercise corporate trust
powers, and shall have a combined capital and surplus of at least $50,000,000,
or shall be a member of a bank holding system the aggregate combined capital and
surplus of which is at least $50,000,000, and the Grantor Trust Trustee shall be
subject to supervision and examination by a Federal or state authority having
jurisdiction over depository institutions. The long-term unsecured debt or
certificates of deposit of the Grantor Trust Trustee shall have a rating from an
NRSRO of at least "BBB" (or the equivalent thereof). If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of a supervising or examining authority, then for the purposes of
this Section 11.07, the combined capital and surplus of such Person shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. The Grantor Trust Trustee shall not be
affiliated with the Seller, the Affiliated Sellers, the Servicer, the Initial
Purchaser or the REMIC Trustee. In case at any time the Grantor Trust Trustee
shall cease to be eligible in accordance with the provisions of this Section
11.07, the Grantor Trust Trustee shall resign immediately in the manner and with
the effect specified in Section 11.08.
SECTION 11.08 Resignation or Removal of Grantor Trust Trustee.
The Grantor Trust Trustee may at any time resign and be discharged from the
trusts hereby created by giving written notice thereof to the Servicer. Upon
receiving such notice of resignation, the Servicer shall promptly appoint a
successor Grantor Trust Trustee which satisfies the eligibility requirements
therefor by written instrument, in duplicate, one copy of which instrument shall
be delivered to the resigning Grantor Trust Trustee and one copy to the
successor Grantor Trust Trustee. If no successor Grantor Trust Trustee shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Grantor Trust Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Grantor Trust Trustee.
If at any time the Grantor Trust Trustee shall cease to be
eligible in accordance with the provisions of Section 11.07 and shall fail to
resign after written request therefor by the Servicer, or if at any time the
Grantor Trust Trustee shall be legally unable to act, or shall be adjudged
bankrupt or insolvent, or a receiver of the Grantor Trust Trustee or of its
property shall be appointed, or any public officer shall take charge or control
of the Grantor Trust Trustee or of its property or affairs for the purpose of
rehabilitation, conservation, or liquidation, then the Servicer may remove the
Grantor Trust Trustee. If it shall remove the Grantor Trust Trustee under the
authority of the immediately preceding sentence, the Servicer shall promptly
appoint a successor Grantor Trust Trustee which satisfies the eligibility
requirements therefor by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Grantor Trust Trustee so removed and one
copy to the successor Grantor Trust Trustee.
Any resignation or removal of the Grantor Trust Trustee and
appointment of a successor Grantor Trust Trustee pursuant to any of the
provisions of this Section 11.08 shall not become effective until acceptance of
appointment by the successor Grantor Trust Trustee pursuant to Section 11.09.
SECTION 11.09 Successor Grantor Trust Trustee. Any successor
Grantor Trust Trustee appointed pursuant to Section 11.08 shall execute,
acknowledge, and deliver to the Servicer and to its predecessor Grantor Trust
Trustee an instrument accepting such appointment under this Agreement, and
thereupon the resignation or removal of the predecessor Grantor Trust Trustee
shall become effective and such successor Grantor Trust Trustee, without any
further act, deed or conveyance, shall become fully vested with all the rights,
powers, duties, and obligations of its predecessor under this Agreement, with
like effect as if originally named as Grantor Trust Trustee. The predecessor
Grantor Trust Trustee at its sole cost and expense shall deliver to the
successor Grantor Trust Trustee all documents, funds, accounts and statements
held by it under or in accordance with this Agreement, and the Servicer and the
predecessor Grantor Trust Trustee shall execute and deliver such instruments and
do such other things as may reasonably be required for fully and certainly
vesting and confirming in the successor Grantor Trust Trustee all such rights,
powers, duties, and obligations.
No successor Grantor Trust Trustee shall accept appointment as
provided in this Section 11.09 unless at the time of such acceptance such
successor Grantor Trust Trustee shall be eligible pursuant to Section 11.07.
Upon acceptance of appointment by a successor Grantor Trust
Trustee pursuant to this Section 11.09, the Servicer shall mail notice of the
successor of such Grantor Trust Trustee under this Agreement to all holders of
the Grantor Trust Certificates and all holders of the Certificates at their
respective addresses of record and to each Obligor and the Rating Agency. If the
Servicer shall fail to mail such notice within 10 days after acceptance of
appointment by successor Grantor Trust Trustee, the successor Grantor Trust
Trustee shall cause such notice to be mailed at the expense of the Servicer.
SECTION 11.10 Merger or Consolidation of Grantor Trust
Trustee. Any corporation or other entity (i) into which the Grantor Trust
Trustee may be merged or consolidated, (ii) which may result from any merger,
conversion, or consolidation to which the Grantor Trust Trustee shall be a
party, or (iii) which may succeed to the business of the Grantor Trust Trustee,
shall be the successor of the Grantor Trust Trustee hereunder, provided such
corporation or other entity shall be eligible pursuant to Section 11.07, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto; anything herein to the contrary notwithstanding. Such
successor of the Grantor Trust Trustee shall notify the Rating Agency of the
occurrence of any of the foregoing events.
SECTION 11.11 Representations and Warranties of Grantor Trust
Trustee. The Grantor Trust Trustee hereby makes the following representations
and warranties on which the Seller, the Servicer and holders of the Grantor
Trust Certificates may rely:
(i) Organization and Good Standing. It is duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization and has the corporate power to own its
assets and to transact the business in which it is currently engaged.
It is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the character of the
business transacted by it or properties owned or leased by it requires
such qualification and in which the failure so to qualify would have a
material adverse effect on its business, properties, assets, or
condition (financial or otherwise).
(ii) Authorization; Binding Obligations. It has the power and
authority to make, execute, deliver and perform this Agreement and all
of the transactions contemplated under this Agreement, and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Agreement. When executed and delivered, this
Agreement will constitute its legal, valid and binding obligation
enforceable in accordance with its terms, except as enforcement of such
terms may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies.
(iii) No Consent Required. It is not required to obtain the
consent of any other party or any consent, license, approval or
authorization from, or registration or declaration with, any
governmental authority, bureau or agency in connection with the
execution, delivery, performance, validity or enforceability of this
Agreement, the failure of which so to obtain would have a material
adverse effect on its business, properties, assets or condition
(financial or otherwise).
(iv) No Violations. The execution, delivery and performance of
this Agreement by it will not violate any provision of any existing law
or regulation or any order or decree of any court or its constituent
documents, or constitute a material breach of any mortgage, indenture,
contract or other agreement to which it is a party or by which it may
be bound.
(v) Litigation. No litigation or administrative proceeding of
or before any court, tribunal or governmental body is currently
pending, or to its knowledge threatened, against it or any of its
properties or with respect to this Agreement, the Pooling Agreement,
the Grantor Trust Certificates or the Certificates, which, if adversely
determined, would, in its opinion, have a material adverse effect on
the transactions contemplated by this Agreement.
SECTION 11.12 Tax Returns. The Servicer shall prepare (or
cause to be prepared) in accordance with Section 13.10, the Grantor Trust
Trustee shall sign, and the Servicer shall file (or cause to be filed) on a
timely basis the applicable Federal, state or local tax or information returns
of the Grantor Trust as may be required by the Code or applicable state or local
statutes or other authorities and shall furnish all applicable forms or
statements to holders of the Grantor Trust Certificates.
SECTION 11.13 Obligor Claims. In connection with any offset
defenses, or affirmative claims for recovery, asserted in legal actions brought
by Obligors under one or more Contract Receivables based upon provisions therein
or upon other rights or remedies arising from any legal requirements applicable
to the Contract Receivables:
(a) The Grantor Trust Trustee is the holder of the Contract
Receivables only as trustee on behalf of the holders of the Grantor
Trust Certificates, and not as a principal or in any individual or
personal capacity.
(b) The Grantor Trust Trustee shall not, by reason of this
Agreement, be personally liable for, or obligated to pay Obligors, any
affirmative claims asserted thereby, or responsible to holders of the
Grantor Trust Certificates for any offset defense amounts applied
against Contract Receivable payments, pursuant to such legal actions.
(c) The Grantor Trust Trustee will pay, solely from available
Grantor Trust money, affirmative claims for recovery by Obligors only
pursuant to final judicial orders or judgments, or judicially-approved
settlement agreements, resulting from such legal actions.
(d) The Grantor Trust Trustee will comply with judicial orders
and judgments which require its actions or cooperation in connection
with Obligors' legal actions to recover affirmative claims against
holders of the Grantor Trust Certificates.
(e) The Grantor Trust Trustee will cooperate with and assist
holders of the Grantor Trust Certificates in their defense of legal
actions by Obligors to recover affirmative claims if such cooperation
and assistance is not contrary to the interests of the Grantor Trust
Trustee as a party to such legal actions and if the Grantor Trust
Trustee is satisfactorily indemnified for all liability, costs and
expenses arising therefrom.
SECTION 11.14 Liabilities to Obligors. No liability to any
Obligor under any of the Contract Receivables arising out of any act or omission
to act of the Servicer in servicing the Contract Receivables prior to the
Closing Date is intended to be assumed by the Seller, the Affiliated Sellers,
the Grantor Trust or the holders of the Grantor Trust Certificates under, or as
a result of, this Agreement and the transactions contemplated hereby and, to the
maximum extent permitted and valid under applicable provisions of law, the
Seller, the Affiliated Sellers, the Grantor Trust and the holders of the Grantor
Trust Certificates expressly disclaim such assumption.
SECTION 11.15 Agents of Grantor Trust Trustee. To the extent
not prohibited by law and not inconsistent with the terms of this Agreement, the
Grantor Trust Trustee may appoint one or more agents to carry out ministerial
matters on behalf of the Grantor Trust Trustee under this Agreement.
SECTION 11.16 Acts of Holders of the Grantor Trust
Certificates.
(a) Except as otherwise specifically provided herein, whenever
approval, authorization, direction, notice, consent, waiver or other action is
required of holders of Grantor Trust Certificates hereunder, such approval,
authorization, direction, notice, consent, waiver or other action shall be
deemed to have been given or taken on behalf of, and shall be binding upon, all
holders of the Grantor Trust Certificates if agreed to by the holders of a
Majority-in-Interest of the Grantor Trust T-2 Certificates and, so long as the
Offered Certificates are outstanding, the REMIC Trustee, as holder of the
Grantor Trust T-1 Certificate.
(b) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement to be given or taken
by holders of the Grantor Trust Certificates may be embodied in and evidenced by
one or more instruments of substantially similar tenor signed by such holders of
the Grantor Trust Certificates in person or by agent duly appointed in writing;
and except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Grantor Trust
Trustee and, where required, to the Servicer. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Agreement and (subject to Section 11.01) conclusive in favor of
the Grantor Trust Trustee, the Servicer and the Seller if made in the manner
provided in this Section 11.16.
(c) The fact and date of the execution by any holder of a
Grantor Trust Certificate of any such instrument or writing may be proved in any
reasonable manner which the Grantor Trust Trustee deems sufficient.
(d) The ownership of Grantor Trust Certificates shall be
proved by the Grantor Trust Certificate Register.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other act by a holder of the Grantor Trust Certificate shall
bind every holder of every Grantor Trust Certificate issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof, in
respect of anything done, or omitted to be done by the Grantor Trust Trustee,
the Servicer or the Seller in reliance thereon, whether or not notation of such
action is made upon such security.
ARTICLE XII
TERMINATION
SECTION 12.01 Termination of the Grantor Trust. The Grantor
Trust, and the respective obligations and responsibilities of BT, the Seller,
the Servicer, the Affiliated Sellers and the Grantor Trust Trustee (other than
the obligation of the Grantor Trust Trustee to make certain payments after the
final Distribution Date to holders of the Grantor Trust Certificates and the
obligation of the Servicer to send certain notices as hereinafter set forth)
(except as provided in Section 9.02) shall terminate upon the earlier to occur
of (i) the final payment, liquidation or sale of the last Contract Receivable
remaining in the Grantor Trust and the disposition of all property acquired upon
any Remedial Proceeding in respect of the Contract Receivables, or (ii) if none
of the Offered Certificates are outstanding, at any time with the consent of all
holders of the Grantor Trust Certificates; provided, however, that in no event
shall the Grantor Trust created by this Agreement continue beyond the expiration
of 21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador to the Court of St. James, living on the date of
this Agreement. The Servicer shall promptly notify the Grantor Trust Trustee of
any prospective termination pursuant to this Section 12.01.
Notice of any termination, specifying the Distribution Date
upon which the holders of the Grantor Trust Certificates may surrender their
Grantor Trust Certificates to the Grantor Trust Paying Agent for payment of the
final distribution and cancellation, shall be given promptly by the Grantor
Trust Paying Agent by letter to holders of the Grantor Trust Certificates mailed
not earlier than the 15th day and not later than the 25th day of the month next
preceding the specified Distribution Date stating the amount of any such final
payment, and stating that payments will be made only upon surrender and
cancellation of the Grantor Trust Certificates at the office of the Grantor
Trust Paying Agent therein specified. The Grantor Trust Paying Agent shall give
such notice to the Grantor Trust Certificate Registrar at the time such notice
is given to holders of the Grantor Trust Certificates. Upon presentation and
surrender of the Grantor Trust Certificates, the Grantor Trust Paying Agent
shall cause to be distributed to holders of the Grantor Trust Certificates
amounts distributable on such Distribution Date pursuant to Section 6.07.
In the event that all of the holders of the Grantor Trust
Certificates subject to such repurchase shall not surrender their Grantor Trust
Certificates for cancellation within six months after the date specified in the
above-mentioned written notice, the Servicer shall give a second written notice
to the remaining holders of the Grantor Trust Certificates to surrender their
Grantor Trust Certificates for cancellation and receive the final distribution
with respect thereto. If within one year after the second notice all the Grantor
Trust Certificates shall not have been surrendered for cancellation, the Grantor
Trust Certificate Registrar may take appropriate steps, or may appoint an agent
to take appropriate steps, to contact the remaining holders of the Grantor Trust
Certificates concerning surrender of their Grantor Trust Certificates, and the
cost thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Grantor Trust after the
Servicer notifies the Grantor Trust Paying Agent in writing that the Servicer
has exhausted such remedies shall be paid by the Grantor Trust Paying Agent to
the Servicer for deposit into an escrow account and thereafter holders of the
Grantor Trust Certificates shall look only to such escrow account with respect
to any claims in respect of such funds.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01 Amendment. This Agreement may be amended in
writing from time to time, without prior notice to or the consent of any of the
holders of the Grantor Trust Certificates, by the Grantor Trust Trustee, the
Seller and the Affiliated Sellers or their successors, and the Servicer, (i) to
correct manifest error, to cure any ambiguity, to correct or supplement any
provisions herein which may be inconsistent with any other provisions herein,
(ii) to add any other provisions with respect to matters or questions arising
under this Agreement which shall not be inconsistent with the provisions of this
Agreement, or (iii) to add or amend any provisions as required by the Rating
Agency in order to maintain or improve any rating of the Offered Certificates
(it being understood that, after the required rating has been obtained, none of
the Grantor Trust Trustee, the Seller, the Affiliated Sellers or the Servicer is
obligated to maintain or improve the ratings); provided, however, that such
action shall not, as evidenced by an Opinion of Counsel, (i) adversely affect in
any material respect the interests of the Grantor Trust or any holder of a
Grantor Trust Certificate, or (ii) adversely affect the status of the assets of
the Trust as to which a REMIC election has been made as a REMIC or the status of
the Grantor Trust as a grantor trust under subpart E, part I of subchapter J of
the Code.
This Agreement may also be amended in writing from time to
time by the Servicer, the Seller and the Affiliated Sellers or their successors,
and the Grantor Trust Trustee, with the consent of the holders of a
Majority-in-Interest of the Grantor Trust T-2 Certificates and the REMIC
Trustee, as holder of the Grantor Trust T-1 Certificate, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement, or of modifying in any manner the rights of the
holders of the Grantor Trust Certificates; provided, however, that no such
amendment shall increase or reduce in any manner the amount of, or accelerate or
delay the timing of, collections of payments on the Contract Receivables, or
distributions which are required to be made on any Grantor Trust Certificate
without the consent of the holder of each Grantor Trust Certificate affected
thereby.
This Agreement may also be amended in writing from time to
time, without prior notice to or the consent of any of the holders of the
Grantor Trust Certificates, by the Grantor Trust Trustee, the Seller and the
Affiliated Sellers or their successors, and the Servicer to modify, eliminate or
add to the provisions of this Agreement to such extent as shall be necessary to
(i) maintain the qualification of the assets of the Trust as to which a REMIC
election was made under the Code and under relevant state and local law or
avoid, or reduce the risk of, the imposition of any tax on the Trust under the
Code that would be a claim against the assets of the Trust, provided that there
shall have been delivered an Opinion of Counsel reasonably satisfactory to the
REMIC Trustee to the effect that such action is necessary to maintain such
qualification or avoid any such tax or reduce the risk of its imposition, or
(ii) prevent the Trust or the Grantor Trust from entering into any transaction
which would cause the Trust to be treated as having entered into a "prohibited
transaction" as defined in Section 860F of the Code, provided that there shall
have been delivered an Opinion of Counsel reasonably satisfactory to the REMIC
Trustee, to the effect that such action is necessary to avoid, or reduce the
risk of, the Trust or the Grantor Trust entering into any transaction which
would cause the Trust to be treated as having entered into a "prohibited
transaction" and that such amendment shall not adversely affect in any material
respect the interests of any Certificateholder (including, without limitation,
the maintenance of the Trust as a REMIC under the Code and under relevant state
and local law).
Promptly after the execution of any amendment or consent
pursuant to this Section, the Grantor Trust Trustee shall furnish written
notification of the substance of such amendment to each holder of the Grantor
Trust Certificate (but only if such amendment is pursuant to the second
paragraph of this Section 13.01) and, in all cases, to the Rating Agency, which
notification will be prepared by the Servicer and delivered to the Grantor Trust
Trustee.
The Grantor Trust Trustee may, but shall not be obligated to,
enter into any such amendment which affects the Grantor Trust Trustee's own
rights, duties or immunities under this Agreement or otherwise.
In connection with any amendment pursuant to this Section
13.01, the Grantor Trust Trustee shall be entitled to receive an Opinion of
Counsel to the effect that such amendment is authorized or permitted by this
Agreement.
Upon the execution of any amendment or consent pursuant to
this Section 13.01, this Agreement shall be modified in accordance therewith,
and such amendment or consent shall form a part of this Agreement for all
purposes, and every holder of Grantor Trust Certificates theretofore or
thereafter issued hereunder shall be bound thereby.
Notwithstanding the foregoing provisions, on and after the
REMIC Liquidation Date, holders of a Majority-in-Interest of the Grantor Trust
T-2 Certificates and the holder of the Grantor Trust T-1 Certificate may (i)
remove and replace the Servicer (in each of its capacities hereunder) or the
Grantor Trust Trustee and the successor need not be an Eligible Servicer or an
Eligible Institution and need not satisfy the requirements of this Agreement,
(ii) direct the parties hereto to amend this Agreement in writing for any
purpose, (iii) give Instructions or Directions without depositing the requisite
deposit or delivering any indemnity agreement or pledge agreement, (iv) direct
the Servicer to agree to any amendments, modifications, waivers or substitutions
or releases of collateral with respect to any of the Contract Receivables or to
commence or prosecute a Remedial Proceeding, and (v) cause any or all of the
Contract Receivables to be distributed to the appropriate holder or holders of
Grantor Trust Certificates or the stock of or distributions on or proceeds of
the stock of Derby, Saber and Sentec to be distributed to the holders of the
Grantor Trust T-2 Certificates.
SECTION 13.02 Protection of Title to Grantor Trust.
(a) From time to time the Servicer shall, subject to the
following paragraph, take and cause to be taken such actions and execute such
documents as are necessary to perfect and protect the interests of the holders
of the Grantor Trust Certificates' in the Contract Receivables and their
proceeds against all other persons, including, without limitation, the filing of
protective financing statements, amendments thereto and continuation statements,
the execution of transfer instruments and the making of notations on or taking
possession of all records or documents of title.
The Servicer will maintain the Grantor Trust's title to each
Contract Receivable so long as the Contract Receivable is the property of the
Grantor Trust, as provided in Section 4.06 hereof.
The Servicer agrees to pay all reasonable costs and
disbursements in connection with the maintenance, as against all third parties,
of the holders' of the Grantor Trust Certificates right, title and interest in
and to the Contract Receivables.
(b) The Servicer shall maintain accounts and records as to
each Contract Receivable accurately and in sufficient detail to permit (i) the
reader thereof to know at any time the status of such Contract Receivable,
including payments and recoveries made and payments owing (and the nature of
each) and (ii) reconciliation between payments or recoveries on (or with respect
to) each Contract Receivable and the amounts from time to time deposited in each
account or fund in respect of such Contract Receivable.
(c) Each of the Seller and the Servicer shall maintain its
computer systems so that, from and after the time of sale under this Agreement
of the Contract Receivables to the Grantor Trust, the master computer records of
the Seller and the Servicer (including archives) that shall refer to a Contract
Receivable indicate clearly that such Contract Receivable is owned by the
Grantor Trust. Indication of the Grantor Trust's ownership of a Contract
Receivable shall be deleted from or modified on the Seller's and the Servicer's
computer systems when, and only when, the Contract Receivable shall have been
paid in full, purchased or assigned pursuant hereto.
(d) At all times during the term hereof, the Servicer shall
afford the Grantor Trust Trustee each holder of a Grantor Trust Certificate and
the authorized agents of any of the foregoing reasonable access during normal
business hours to the Servicer's records relating to the Contract Receivables
and will cause its personnel to assist in any examination of such records by the
Grantor Trust Trustee or its authorized agents. The examination referred to in
this Section 13.02(d) will be conducted in a manner which does not unreasonably
interfere with the Servicer's normal operations or customer or employee
relations. Without otherwise limiting the scope of the examination the Grantor
Trust Trustee may make, the Grantor Trust Trustee, each holder of a Grantor
Trust Certificate or the authorized agents of any of the foregoing, may, using
generally accepted audit procedures, verify the status of each Contract
Receivable and review the records relating thereto for conformity to Servicer
Reports prepared pursuant to Article IV and compliance with the standards
represented to exist as to each Contract Receivable in this Agreement. Nothing
in this Section 13.02(d) shall affect the obligation of the Servicer to observe
any applicable law prohibiting disclosure of information regarding the Obligors,
and the failure of the Servicer to provide access to information as a result of
such obligation shall not constitute a breach of this Section 13.02(d). The
Grantor Trust Trustee shall have no obligation to examine or review the records
relating to the Contract Receivables.
(e) Upon request, the Servicer shall furnish to the Grantor
Trust Trustee or a holder of a Grantor Trust Certificate, within five Business
Days, a list of all Contract Receivables by name of Obligor as of the end of the
most recent Collection Period held as part of the Grantor Trust, together with a
reconciliation of such list to the Contract Receivable Schedule.
At all times during the term hereof, the Servicer shall keep
available a copy of the Contract Receivable Schedule at its principal executive
office for inspection by holders of the Grantor Trust Certificates.
SECTION 13.03 Limitation on Rights of Holders of the Grantor
Trust Certificates. The death or incapacity of any holder of a Grantor Trust
Certificate shall not operate to terminate this Agreement or the Grantor Trust,
nor entitle the holder of such Grantor Trust Certificate's legal representatives
or heirs to claim an accounting or to take any action or commence any proceeding
in any court for a partition or winding up of the Grantor Trust, nor otherwise
affect the rights, obligations, and liabilities of the parties to this Agreement
or any of them.
No holder of the Grantor Trust Certificate shall have any
right to vote (provided that the rights of such holder to give Directions,
Instructions or consents expressly provided in this Agreement shall not be
deemed such a right to vote) or in any manner otherwise control the operation
and management of the Grantor Trust, or the obligations of the parties to this
Agreement, nor shall anything set forth in this Agreement or contained in the
terms of the Grantor Trust Certificates, be construed so as to constitute the
holders as partners or members of an association; nor shall any holder of the
Grantor Trust Certificate be under any liability to any third person by reason
of any action taken pursuant to any provision of this Agreement.
No holder of a Grantor Trust Certificate shall have any right
by virtue or by availing itself of any provisions of this Agreement to institute
any suit, action, or proceeding in equity or at law upon or under or with
respect to this Agreement, except as provided in Section 11.03(b); no one or
more holders of Grantor Trust Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb, or prejudice the rights of the holders of any
other of the Grantor Trust Certificates, or to obtain or seek to obtain priority
over or preference to any other such holder, or to enforce any right under this
Agreement, except in the manner provided in this Agreement and for the equal,
ratable and common benefit of all holders of the Grantor Trust Certificates. For
the protection and enforcement of the provisions of this Section 13.03, each
holder of a Grantor Trust Certificate and the Grantor Trust Trustee shall be
entitled to such relief as can be given either at law or in equity.
SECTION 13.04 Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO ITS CONFLICT OF LAWS PROVISIONS.
SECTION 13.05 Notices. All communications and notices pursuant
hereto to the Seller, the Affiliated Sellers, the Servicer, the Grantor Trust
Trustee, the T-2 Holder and the Rating Agency shall be in writing and delivered,
sent by facsimile or mailed to each of them at the appropriate following
address:
If to the Seller:
Presidio CR Holdings, L.P.
c/o Wexford Management LLC
411 West Putnam Avenue, Suite 125
Greenwich, CT 06830
Fax: (203) 862-7490
If to the Affiliated Sellers:
Presidio Capital Corp.
c/o Wexford Management LLC
411 West Putnam Avenue, Suite 125
Greenwich, CT 06830
Fax: (203) 862-7490
Integrated Resources Life Companies Inc.
c/o Wexford Management LLC
411 West Putnam Avenue, Suite 125
Greenwich, CT 06830
Fax: (203) 862-7490
If to the T-2 Holder:
T-Two Partners, L.P.
411 West Putnam Avenue, Suite 125
Greenwich, CT 06830
Fax: (203) 862-7490
If to the Servicer, the GT Collateral Agent, the Custodian,
the Grantor Trust Paying Agent and the Grantor Trust Certificate Registrar:
Bankers Trust Company
Four Albany Street
New York, NY 10006
Fax: (714) 253-7577
Attention: Presidio Series 1996-1
with a copy to:
Bankers Trust Company
3 Park Plaza, 16th Floor
Irvine, California 92714
Attention: Presidio Series 1996-1
If to the Grantor Trust Trustee:
Union Bank
Corporate Trust Department
350 California Street, Suite 1150
San Francisco, CA 94104
Fax: (415) 705-7537
If to the Rating Agency:
Duff & Phelps Credit Rating Co.
55 East Monroe Street
Suite 3500
Chicago, Illinois 60603
Fax: (312) 263-2852
Attention: Commercial Mortgage
Monitoring and Surveillance Group
or at such other address as the party may designate by notice to the other
parties hereto, which notice shall be effective when received.
All communications and notices pursuant hereto to a holder of
the Grantor Trust Certificate shall be in writing and delivered, sent by
facsimile or mailed to the address shown in the Grantor Trust Certificate
Register.
SECTION 13.06 Severability of Provisions. If any one or more
of the covenants, agreements, provisions, or terms of this Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions, or terms shall be deemed severable from the remaining covenants,
agreements, provisions, or terms of this Agreement and shall in no way affect
the validity or enforceability of the other provisions of this Agreement or of
the Grantor Trust Certificates or the rights of the holders thereof.
SECTION 13.07 Grantor Trust Certificates Nonassessable and
Fully Paid. The interests represented by the Grantor Trust Certificates shall be
nonassessable for any losses or expenses of the Grantor Trust (except as
provided in the Reserve Fund Indemnity Agreement, the Repurchase Reserve Fund
Indemnity Agreement and any DHRF Indemnity Agreement and any RORF Indemnity
Agreement with respect to the Grantor Trust T-2 Certificate) or for any reason
whatsoever, and, upon authentication thereof by the Grantor Trust Trustee
pursuant to Section 5.01, each Grantor Trust Certificate shall be deemed fully
paid.
SECTION 13.08 Submission to Jurisdiction; Venue. Each of the
parties hereto irrevocably submits to the non-exclusive jurisdiction of any
Federal or New York State court having jurisdiction in the Borough of Manhattan,
the City of New York, for the purpose of any suit, action or proceeding arising
out of or relating to this Agreement or the Grantor Trust Certificates. Each of
the parties hereto irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding brought in such court and any claim that any
suit, action or proceeding in such a court has been brought in an inconvenient
forum.
SECTION 13.09 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument.
SECTION 13.10 Tax Treatment.
(a) The parties hereto agree that the Grantor Trust created
hereby will at all times be characterized as an investment trust as described in
Treasury Regulations Section 301.7701-4(c) taxable as a grantor trust for
Federal, state and local income tax purposes. The parties also agree to treat
the respective interests of the Certificateholders in payments under each
Contract Receivable, other than a Contract Receivable listed on Exhibit B, as an
instrument subject to the "stripping" rules of Section 1286 of the Code for all
Federal, state and local income tax purposes. For all income tax purposes, (i)
any income, gain or loss of the Grantor Trust associated with a T-1 Allocable
Payment or attributable to any asset of the Grantor Trust, to the extent of the
beneficial interest therein of the holder of the Grantor Trust T-1 Certificate,
is the income, gain or loss of the holder of the Grantor Trust T-1 Certificate,
and (ii) any income, gain or loss of the Grantor Trust associated with a T-2
Allocable Payment, including, without limitation, all amounts deposited in the
Certificate Account pursuant to Section 6.09, or attributable to any asset of
the Grantor Trust, to the extent of the beneficial interest therein of the
holders of the Grantor Trust T-2 Certificates, is the income, gain or loss of
the holders of the Grantor Trust T-2 Certificates.
(b) The Seller agrees that on or prior to the tenth day after
the Closing Date, the Seller shall provide the Servicer with a written
notification relating to each Class of Certificates, setting forth (i) the
"issue prices" thereof as defined in Section 1273(b) of the Code stated in
dollars and as a percentage of par; (ii) the prepayment assumption used in
pricing the Certificates; (iii) the yield to maturity as of the issue date for
each Class of the Certificates and for each Grantor Trust Certificate; (iv) the
projected cash flow of the Certificates and for each Grantor Trust Certificate
using the pricing prepayment speed assumption; (v) sub-pooling criteria for the
collateral and any other criteria which may have been used in generating the
cash flow model for the pricing of each of the Certificates and for each Grantor
Trust Certificate; and (vi) such other information as to matters of fact as the
Servicer may reasonably request to enable it to comply with its reporting
requirements with respect to each Class of such Certificates to the extent such
information can in the good faith judgment of the Seller be determined by it.
SECTION 13.11 Merger and Integration. Except as specifically
stated otherwise herein, this Agreement and the Pooling Agreement set forth the
entire understanding of the parties relating to the subject matter hereof, and
all prior understandings, written or oral, are superseded by this Agreement and
the Pooling Agreement. This Agreement and the Pooling Agreement may not be
modified, amended, waived, or supplemented except as provided herein and
therein, respectively.
SECTION 13.12 Headings. The headings herein are for purposes
of reference only and shall not otherwise affect the meaning or interpretation
of any provision hereof.
SECTION 13.13 Indemnities.
(a) The Grantor Trust shall indemnify, defend and hold
harmless each director and officer of Derby, Saber and Sentec (to the extent
that a Servicing Officer is serving in such capacity), and BT and its agents,
but only in its capacities as Servicer, GT Collateral Agent, Custodian, Grantor
Trust Certificate Registrar or Grantor Trust Paying Agent, from and against any
and all liabilities, losses, claims, damages, penalties, actions, judgments or
suits (other than in connection with a Remedial Proceeding or a Liquidation)
arising out of or incurred in connection with the execution, delivery,
enforcement, performance and administration of its duties under this Agreement,
including the reasonable costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent that such liability, loss,
claim, damage, penalty, action, judgment or suit (a) shall be due to the
misfeasance, willful misconduct, negligence or bad faith of BT or its agents; or
(b) shall arise from BT's breach of any of its covenants, representations or
warranties hereunder. Any amounts to which BT is entitled as indemnification
under this Agreement shall be payable to BT as Grantor Trust Expenses.
(b) BT, in each of its capacities hereunder shall indemnify,
defend and hold harmless the Grantor Trust Trustee, the Trust, the REMIC
Trustee, the Grantor Trust, the holders of the Certificates and the holders of
the Grantor Trust Certificates from and against any and all costs, expenses,
losses, damages, claims and liabilities, to the extent that such cost, expense,
loss, claim, damage or liability arose out of, or was imposed upon, such
persons, through the misfeasance, negligence, willful misconduct or bad faith of
Bankers Trust in the performance of its duties or by reason of reckless
disregard of its obligations and duties. This indemnity shall survive any
Service Transfer, provided that a Servicer's obligations under this Section
13.13 shall not relate to any actions of any subsequent Servicer after a Service
Transfer. Each successor to BT in any of its capacities shall be deemed to have
assumed the obligations of this paragraph from and after the date on which it
assumes such office, and shall be deemed to be a beneficiary of the immediately
preceding paragraph.
(c) The Grantor Trust shall indemnify, defend and hold
harmless the Grantor Trust Trustee from and against any and all liabilities,
losses, claims, damages, penalties, actions, judgments or suits arising out of
or incurred in connection with the acceptance or performance of the trusts and
duties contained hereunder, including the reasonable costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder, except to the extent
that such liability, loss, claim, damage, penalty, action, judgment or suit (a)
shall be due to the misfeasance, willful misconduct, negligence or bad faith of
the Grantor Trust Trustee or its agents; or (b) shall arise from the Grantor
Trust Trustee's breach of any of its covenants, representations or warranties
hereunder. Any amounts to which the Grantor Trust Trustee is entitled to receive
as indemnification under this Agreement shall be payable to the Grantor Trust
Trustee as Grantor Trust Expenses.
(d) Indemnification under this Section 13.13 shall include
reasonable fees and expenses of counsel and expenses of litigation. If BT or the
Grantor Trust shall have made any indemnity payments pursuant to this Section
13.13 and the recipient thereafter collects any of such amounts from others, the
recipient shall receive and hold the same in trust pending prompt repayment of
such amounts to BT and/or the Grantor Trust, without interest. The indemnities
under this Section 13.13 shall survive the resignation or removal of the Grantor
Trust Trustee, BT in its capacity as the Servicer or otherwise or the REMIC
Trustee, or the termination of this Agreement or the Pooling Agreement.
The parties hereto agree that this Agreement is the separate
letter agreement described in each Paying Agent Agreement and that the
indemnification provisions of this Section 13.13(a) include the indemnification
of BT as the Paying Agent as and to the extent provided in each Paying Agent
Agreement.
SECTION 13.14 Replacement of Bankers Trust.
Pursuant to this Agreement, BT has been appointed as the
Servicer. In its capacity as Servicer, BT shall receive the Servicing Fee,
payable from the Servicing and Grantor Trust Expenses at the times and from the
sources described in Section 6.04 of this Agreement and Section 6.01 of the
Pooling Agreement. For its role in each of its other capacities hereunder, BT
shall receive no additional compensation therefor and BT shall be responsible
for paying all fees of the Grantor Trust Trustee (and any successor thereto) and
the REMIC Trustee (and any successor thereto). This Agreement is the separate
letter agreement described in each Paying Agent Agreement, and the Servicing Fee
hereunder includes the compensation for BT (or any successor to BT as Paying
Agent) for its services under each Paying Agent Agreement. If BT shall be
replaced as Servicer, it shall be replaced in all of its other capacities under
this Agreement. The Grantor Trust Trustee shall temporarily assume each such
role and perform the duties and obligations of BT in each such capacity, without
additional compensation, until such time as it appoints a replacement which
meets each of the eligibility requirements therefor. The successor Servicer
appointed hereunder shall be the Servicer hereunder and (except as provided in
Section 10.02) receive the same Servicing Fee and Special Servicing Fee as the
Servicer. The successor Servicer shall assume each role and perform the duties
of BT in all of the other capacities in which BT currently serves (or retain one
or more Eligible Institutions to perform in such capacities) and the successor
Servicer and Eligible Institutions, if any, shall not receive any additional
compensation therefor.
SECTION 13.15 Calculations.
Except as otherwise provided in this Agreement, all interest
rate and basis point calculations under this Agreement will be made on the basis
of a 360-day year consisting of twelve thirty-day months and will be carried out
to at least three decimal places.
SECTION 13.16 No Bankruptcy Petition.
Each of the Seller, the Affiliated Sellers, the Servicer, the
T-2 Holder and the Grantor Trust Trustee, on behalf of the Grantor Trust, agrees
that, prior to the date which is one year and one day after the payment in full
of the Offered Certificates it will not institute against, or join any other
Person in instituting against, the Grantor Trust, the T-2 Holder or the Trust,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other proceedings under any Federal or state bankruptcy or
similar law.
SECTION 13.17 Waiver of Lien on Grantor Trust.
Each of the Grantor Trust Trustee and BT in each of its
capacities hereunder hereby waive and agree not to assert, claim or endeavor to
exercise any right or setoff, banker's lien or other similar lien, security
interest or encumbrance or other purported form of claim with respect to the
Grantor Trust and assets or funds from time to time held in the Grantor Trust or
the Trust, the Pledged Funds, the Net Sandwich Investments, a Sandwich
Investment Account any funds or investments held on any account established
pursuant to Article VII hereof, and any proceeds of or income on any of the
foregoing.
SECTION 13.18 Presidio Tax Indemnification.
Presidio hereby agrees to indemnify and hold harmless the
Grantor Trust against all taxes, charges, penalties, interests and all other
losses, claims, damages or liabilities (i) arising out of the failure to have
filed timely all returns, declarations, reports, estimates, information returns
and statements with respect to any taxes required to be filed on or prior to the
Closing Date under U.S. Federal, state, local or any foreign laws by each of
Derby, Saber and Sentec, with respect to any period or periods ending on or
prior to the Closing Date and (ii) arising out of the failure by Derby, Saber or
Sentec to have paid, within the time and in the manner prescribed by law, any
taxes that are or may become due and payable by them for all periods ending on
or prior to the Closing Date, without any regard for any extensions which may
have been received or to which Derby, Saber and Sentec are entitled. Promptly
after receipt by the Grantor Trust Trustee, the Servicer or the GT Collateral
Agent of a notice of the commencement of any action or claim that may give rise
to an indemnification claim hereunder, it shall notify in writing Presidio of
the commencement of such action but the omission to so notify will not relieve
Presidio of any liability which Presidio may have hereunder unless such failure
to notify materially prejudices Presidio or its ability to defend against such
claim. Presidio will be entitled to assume the defense of such claim at
Presidio's expense and with counsel selected by Presidio. Presidio will not be
liable for any settlement of any such action effected without its prior written
consent which consent shall not be unreasonably withheld, but, if settled with
such consent, Presidio shall indemnify the Grantor Trust as provided hereunder.
In no event shall Presidio's liability under this Section 13.18 exceed $915,000
(less any out-of-pocket expenses incurred by Presidio in defending any claim
which would give rise to an indemnification claim under this Section).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of January 1, 1996.
PRESIDIO CR HOLDINGS, L.P.
By: PRESIDIO GP CORP., as
general partner
By: WEXFORD MANAGEMENT
LLC, as agent
By: /s/ Mark Plaumann
Name: Mark Plaumann
Title: Sr. Vice President
PRESIDIO CAPITAL CORP.
By: WEXFORD MANAGEMENT
LLC, as agent
By: /s/ Mark Plaumann
Name: Mark Plaumann
Title: Sr. Vice President
INTEGRATED RESOURCES LIFE COMPANIES INC.
By: /s/ Mark Plaumann
Name: Mark Plaumann
Title: Sr. Vice President
BANKERS TRUST COMPANY,
as Servicer, Custodian, Collateral Agent, Grantor
Trust Certificate Registrar, Grantor Trust Paying
Agent, and GT Collateral Agent
By:/s/ Katherine M. Keller
Name: Katherine M. Keller
Title: Assistant Secretary
UNION BANK, as Grantor
Trust Trustee
By: /s/Mike McGhee
Name: Mike McGhee
Title: Assistant Vice President
<PAGE>
Acknowledged and Agreed Solely for Purposes of Sections 2.05,
2.07, 3.02, 4.05(l), 4.20(h), 6.03, 6.05, 7.02, 7.03, 13.10
and 13.16.
T-TWO PARTNERS, L.P.
By: T-TWO GENERAL, L.P., as
general partner
By: T-TWO GENERAL CORP., as
general partner
By: /s/ Mark Plaumann
Name: Mark Plaumann
Title: Vice President
SECURED PROMISSORY NOTE
$31,500,000.00 New York, New York
March 28, 1996
The undersigned, Roundhill Associates Limited Partnership and Roundhill
Associates Limited Partnership II (the "Borrowers"), HEREBY JOINTLY AND
SEVERALLY PROMISE TO PAY, immediately upon the earlier of the date of the
consummation of a public offering of interests in T-Two Holding, L.L.C. and
March 19, 1999, to the order of Presidio Capital Corp. ("PCC"), (i) the
principal sum of Thirty-One Million Five Hundred Thousand Dollars
($31,500,000.00) and (ii) interest on any and all principal amounts remaining
unpaid hereunder from time to time outstanding, from the date hereof until such
payment is made at a fluctuating rate per annum equal at all times to the sum of
25% per annum.
(a) All interest shall be computed on the basis of a year of 360 days
for the actual number of days (including the first day but excluding the last
day) elapsed. Notwithstanding any other provision of this Note, interest paid or
becoming due hereunder shall be the lesser of the rate set forth herein and the
maximum rate permitted by applicable law.
(b) Both principal and interest are payable in lawful money of the
United States and in immediately available funds at the offices of PCC located
at c/o Wexford Management LLC, 411 West Putnam Avenue Greenwich, CT 06830 or at
such other place as PCC shall designate in writing to the Borrowers.
(c) The Borrowers represent and warrant as follows: (a) each Borrower
is a partnership duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization; (b) the execution, delivery and
performance by the Borrowers of this Note are within each Borrower's powers,
have been duly authorized by all necessary action, and do not contravene (i) the
Borrowers' organizational documents or (ii) any law or any contractual
restriction binding on or affecting the Borrowers; (c) no authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execution, delivery and
performance by the Borrowers of this Note; and (d) the Note constitutes the
legal, valid and binding obligation of the Borrowers, enforceable against the
Borrowers in accordance with its terms.
(d) This Note shall be governed by, and construed in accordance with,
the law of the State of New York without giving effect to the conflicts of law
principles thereof, and shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, personal or legal
representatives and permitted assigns.
(e) The Borrowers hereby waive presentment for payment, demand, protest
and notice of dishonor of this Note. (f) Each Borrower hereby (i) irrevocably
submits to the jurisdiction of any New York State or Federal court sitting in
New York City in any action or proceeding arising out of or relating to this
Note, (ii) irrevocably waives any defense based on doctrines of venue or forum
non conveniens, or similar rules or doctrines, and (iii) irrevocably agrees that
all claims in respect of such an action or proceeding may be heard and
determined in such New York State or Federal court.
<PAGE>
(g) Wherever possible each provision of this Note shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under such law, such
provision shall be ineffective to the extent of such prohibition of invalidity
without invalidating the remainder of such provision or the remaining provisions
of this Note and shall be interpreted so as to be effective and valid.
SIGNED AND DELIVERED as of the day and year first hereinabove set
forth.
Roundhill Associates Limited Partnership
By: /s/Charles E. Davidson
----------------------------------------
Name: Charles E. Davidson
Title: General Partner
Roundhill Associates Limited Partnership II
By: /s/Charles E. Davidson
----------------------------------------
Name: Charles E. Davidson
Title: General Partner
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS CONTAINED IN ITEM 8 TO THE PRESIDIO CAPITAL CORP. 1995 FORM 10-K, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 120,613
<SECURITIES> 32,769
<RECEIVABLES> 311,874
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,256
<PP&E> 5,519
<DEPRECIATION> 0
<TOTAL-ASSETS> 470,775
<CURRENT-LIABILITIES> 80,652
<BONDS> 4,895
0
0
<COMMON> 0
<OTHER-SE> 385,228
<TOTAL-LIABILITY-AND-EQUITY> 470,775
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
