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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X 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 NO. 1-4766
REGENCY AFFILIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 72-0888772
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
381 Robinwood Lane, Wheaton, IL 60187
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(Address of principal executive offices) (Zip Code)
10842 Old Mill Road, # 5, Omaha, Nebraska 68154
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(Address of administrative offices) (Zip Code)
Registrant's Telephone Number (executive office), including Area Code:
(708-690-8684)
Registrant's Telephone Number (administrative office), including Area Code:
(402-330-8750)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Name of Each Exchange on Which
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Title of Each Class Registered
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Common Stock, $0.40 Par Value None
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT.
________________________ None _____________________
(Title of Class)
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
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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
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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. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $3,729,100 on December 31, 1995, which value has been computed
on the basis of $0.46 per share of Common Stock, the mean of the bid and asked
price as reported on the bulletin board section of NASDAQ on December 29, 1995.
The number of shares outstanding of the registrant's $.40 Par Value Common
Stock, as of December 31, 1995 was 11,166,537.
DOCUMENTS INCORPORATED BY REFERENCE (See Exhibit Listing).
(The remainder of this page is intentionally left blank.)
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FORM 1O-K
PART I
ITEM 1. BUSINESS.
General development of business.
Regency Affiliates, Inc. (the "Company" or "Regency" or the
"Registrant") formerly Transcontinental Energy Corporation, was organized as a
Delaware corporation in 1980 to be the successor to Transcontinental Oil
Corporation which existed since 1947. In late 1984 and early 1985, the
Company, all of its wholly-owned subsidiaries and twenty-one affiliated limited
partnerships, commenced reorganization proceedings pursuant to Chapter 11 of
the Bankruptcy Reform Act of 1978, as amended.
Pursuant to two Plans of Reorganization which were completed December
31, 1987, all of the Company's assets, except for its ownership in
Transcontinental Drilling Company, Inc. ("Drilling") and all of the obligations
of the Company and of Drilling were transferred to a creditor liquidating
trust. The Plans provided that the par value of the Company's Common Stock be
increased from $.10 per share to $.40 per share and that a 1 for 4 reverse
stock split be implemented. An additional 747,500 shares of Common Stock
(approximately 20% of pro forma outstanding shares) were issued to the
creditor's liquidating trust. In addition, the Company privately placed with a
group of investors (the "Original Investors") in 1987 approximately 24% of the
pro-forma outstanding shares of Common Stock of the Company.
During the year ended December 31, 1988, the Company, through
RegTransco, Inc. an 80% owned subsidiary ("RTI"), made two acquisitions. On
June 3, 1988, RTI acquired all of the outstanding stock of Florida Truss, Inc.,
Gangnail of Palm Beach and Pinewood Lumber and Truss, Inc., collectively,
Florida Truss, Inc. ("Florida Truss"), which was involved in the manufacture of
wood trusses in the Fort Lauderdale and Palm Beach areas of Florida. In
August, 1988, RTI acquired all of the outstanding stock of Willbanks Steel
Corporation ("Willbanks"), a steel fabricator and service center with locations
in Fort Worth and Houston, Texas and Albuquerque, New Mexico.
In late 1988 and early 1989, the operating results of the two
subsidiaries began to deteriorate rapidly due to economic conditions, and other
matters affecting the Companies' operating areas. Management attempted to scale
down operations, reorganize operating management and secure additional capital
with only limited success resulting ultimately in the close down and
liquidation of the Florida operations and a Chapter XI bankruptcy filing for
the Willbanks' steel operations.
As of April 15, 1992, the Willbanks Chapter XI proceedings had been
consummated in so far as the Company was concerned with the Company turning
over its stock investment in Willbanks to the Court and the creditors. In
addition to the settlement in the Chapter XI proceedings, the Company
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also reached a settlement agreement with its senior lenders with respect to
obligations, guarantees and other credit obligations incurred in connection
with the acquisition of Willbanks and its operations. These senior lender
settlements, which settlements also included credit obligations with respect to
the liquidation of the Florida Truss operations, resulted in the issuance by
the Company of a new series of preferred stock. The new series of preferred
stock (Series B) was limited to and issued only to the two senior lenders,
Washington Square Capital, Inc. and Cargill Financial Services Corporation.
During 1990 the Company executed a stock subscription agreement with
an investor group for the sale of newly issued shares of the Company's Common
Stock (approximately 44% of the then outstanding shares on a fully diluted
basis). As a condition of the consummation of this transaction, the Company
was required to restructure its then capital structure. Agreements were
consummated with various financial groups and creditors as their interests were
affected by the capital restructuring. The transaction documents (which
documents included, among other things, a Promissory Note payable to the
Company in the amount of $4,400,000, executed by a nominee of the investor
group) were closed to escrow on July 13, 1990.
On July 25, 1990, the nominee of the investor group notified the
Company that in the investor group's opinion there had been a material adverse
change in the Company after July 13, 1990 and accordingly they were withdrawing
their investment, and the transaction terminated.
The Company made further attempts to close the transaction but was
unsuccessful in its efforts. The Company, through early 1991, attempted to
solicit other possible investors to take the place of the investor group. It
became apparent that the Company's heavy debt capital structure, even after the
restructuring for the transaction, and the Willbanks' bankruptcy filing,
continued to be a deterrent to finding another investor group. Due to the lack
of financial resources, and the likelihood that a transaction probably could
not be consummated given the present financial condition of the Company, the
Company announced in early 1991 that it probably would be unable to continue as
a going concern.
In late March of 1991, at the request of the Company, certain of the
Original Investors who had participated in a 1987 private placement agreed to
provide certain limited funding in an attempt to preserve the Company's going
concern status. These investors engaged the firm L.J. Horbach & Associates, of
which Larry J. Horbach is a principal of such firm, to review the financial
condition of the Company and prepare a plan to completely restructure the
Company ("The Restructuring Plan") and to attempt to locate a business
combination partner who could return the Company to a profitable operating
status and who could succeed to control of the Company upon completion of the
restructuring. Mr. Horbach had tendered his resignation as an officer and
director of the Company as part of the 1990 transaction discussed earlier.
The Restructuring Plan, which was submitted to all of the Original
Investors who had participated in the 1987 private placement, included the
following in general terms:
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Objective -
(i) Elimination of all obligations and guarantees of the Company
through a formal compromise and settlement outside of a
bankruptcy filing proceeding.
(ii) Preservation of the Company's two primary economic assets, its
public shareholder base and its $50,000,000 plus net operating
loss carry forward.
(iii) Reinstatement of the Company into good standing with the
various regulatory agencies.
(iv) Location of a possible business combination partner who would
be able to succeed to control of the Company and be able to
utilize the net operating loss carry forward, thus creating
value for the Company's common shareholders.
Obligations Restructuring -
(i) The creditors were segregated by classes including, but not
limited to: the senior lenders; regulatory, "going concern"
and "good standing"; general unsecured creditors; and the
Willbanks Steel Corporation Chapter XI bankruptcy filing in so
far as the Company was affected by such filing.
(ii) The creditors were asked to compromise and settle the amounts
due from Regency by continuing to honor the settlements (as
outlined in the Company's 1989 Form 10-K) reached with the
Company in connection with the 1990 transaction and to
exchange the remaining portions of their obligations for
common and/or preferred equity of Regency.
(iii) Certain creditors, in addition to the above, were asked to
forgive portions of their obligations and the interest accrued
and accruing with respect thereto.
Funding to implement the Restructuring Plan was provided by certain
investors and creditors who subscribed to an offering of $400,000 of 11%
Restructuring Serial Promissory Notes (the "Restructuring Notes") issued by the
Company. In addition, the investors who participated in the Restructuring and
subscription for the Restructuring Notes held 260,037 shares of Series A
Preferred Stock which was convertible into approximately 1,381,000 shares of
common. In contemplation of the National Resource Development Corporation
transaction herein described (the "1993 Transaction"), the investors converted
the Series A preferred stock.
The Registrant entered into an Agreement for Acquisition dated
December 12, 1992 (the "1992 Agreement") with National Resource Development
Corporation (Delaware) of Iron Mountain, Michigan and affiliated companies.
The Agreement provided for the acquisition of 80% of the
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outstanding stock of National Resource Development Corporation (Delaware) in
exchange for securities of the Registrant and its subsidiary. National
Resource Development Corporation (Delaware) was the owner of 75 million short
tons of previously quarried and piled aggregate rock located at the site of the
Groveland Mine in Iron Mountain, Michigan (the "Aggregate"). Under the 1992
Agreement, the following securities were to be issued by Regency and its wholly
owned subsidiary:
(i) 888,500 newly issued shares of Regency's participating, non
voting, cumulative, senior preferred stock with a stated
value of $10.00 per share and carrying a contingent conversion
right (Series-C).
(ii) $11,120,000 of 9% secured promissory notes, comprised of
$5,560,000 of adjustable convertible notes of Regency, and
$5,560,000 of 5-year amortized notes of Regency's wholly owned
subsidiary.
(iii) 2,700,000 shares of Regency Common Stock.
The 1992 Agreement provided that if it was not closed by December 31,
1992, it would become null and void. While the parties informally extended the
closing deadline, the transaction was unable to close in a timely fashion. The
Registrant continued negotiations with National Resource Development
Corporation (Delaware) and its affiliated companies ending in a second
Acquisition Agreement in June 1993.
On June 4, 1993, the Company entered into an Acquisition Agreement
with Statesman Group, Inc., a Bahamian international business corporation
("Statesman"), and National Resource Development Corporation (Delaware) (the
"Acquisition Agreement"), which provided for Statesman or its nominees to
acquire 2,975,000 shares of the Company's $0.40 par value Common Stock, 208,850
shares of the Company's Cumulative $100 Series-C Preferred stock and 20% of the
outstanding shares of Transcontinental Drilling Co., a subsidiary of the
Company. Statesman undertook to deliver to the Company 80% of the issued and
outstanding common shares of National Resource Development Corporation
(Delaware).
The scheduled closing of July 6, 1993 under the Acquisition Agreement
was deferred to July 7, 1993. At that time various modifications were made to
the June 4, 1993 Acquisition Agreement, including the substitution of National
Resource Development Corporation ("NRDC"), a Nevada corporation formed on June
29, 1993 for National Resource Development Corporation (Delaware), which newly
formed corporation was wholly owned by Statesman and acquired title to the
Aggregate. On July 7, 1993, 2,975,000 shares of the Company's Common Stock,
208,850 shares of the Company's Cumulative $100 Series-C Preferred stock and
20% of the outstanding shares of Transcontinental Drilling Co. were delivered
to Statesman. Statesman has the right to transfer some or all of these shares
to its nominees. Immediately following the closing, the Company had
outstanding 10,336,997 common shares outstanding of which those issued to
Statesman represented
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approximately 28.8%. On July 7, 1993, Statesman designated eight (8) persons
to fill existing vacancies on the Board of Directors of the Company. Statesman
designated Edward G. Harshfield, Donald A. Saviano, Stephanie Carey, Craig R.
Grossman, Robert L. Brock, William R. Ponsoldt, Jr., Martin J. Craffey and
Pamlyn Kelly, Ph.D. The appointments were made by the sole acting director to
fill the vacancies until their successors are duly elected and qualified. Mr.
Larry J. Horbach remained a director and became interim Secretary and Treasurer
until his resignation effective February 15, 1994. On November 16, 1994, Mr.
Horbach rejoined the Board of Directors of Regency Affiliates, Inc. when he was
again appointed to fill an existing vacancy.
Statesman, in addition to receiving the rights to 28.8% of the
Company's Common Stock in the 1993 Transaction, received irrevocable proxies
over 855,991 shares of Regency's $0.40 par value Common Stock which, when
combined with the 2,644,710 shares of Regency Common Stock owned directly by
Statesman as of December 31, 1995, entitled Statesman to vote a total of
3,500,701 shares, or approximately 31.3% of the 11,166,537 outstanding shares
as of December 31, 1995.
PRINCIPAL PRODUCTS AND RELATED INFORMATION
Reference is made to Item 1 herein. As the Florida Truss operations
were closed and liquidated, and the Company turned over its investment in
Willbanks within the Willbanks bankruptcy proceedings to the creditors and does
not plan to own and operate the businesses in the future, additional disclosure
concerning them would not be meaningful.
NRDC
NRDC has as its sole asset 75 million short tons of previously
quarried and stock piled rock located at the site of the Groveland Mine in
Dickinson County, Michigan. During the year ended December 31, 1995, NRDC made
only casual sales of Aggregate, and, since NRDC lacks any liquid assets to
support marketing efforts, there can be no assurance that NRDC will be able to
secure material sales of the Aggregate in the future.
Aggregate is primarily sold for railroad ballast, road construction,
construction along shore lines and decorative uses. The market for aggregate
stone is highly competitive and, as shipping costs are high, the majority of
sales, if any, can be anticipated to be made locally. Other companies that
produce rock and aggregate products are located in the same region as the
Groveland Mine. Many of the competitors will have greater financial and
personnel resources than the Company. As a consequence, there can be no
assurance that NRDC will be able to consummate sales of material amounts of its
Aggregate.
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SECURITY LAND AND DEVELOPMENT COMPANY LIMITED PARTNERSHIP
On November 18, 1994, Regency Affiliates, Inc. acquired a limited
partnership interest in Security Land And Development Company Limited
Partnership (the "Partnership") for an equity investment of $350,000, which
investment was used to pay brokerage fees related to Regency's purchase of its
interest in the Partnership. Regency has no obligation to make any further
capital contribution to the Partnership. The Partnership owns the 34.3 acre
complex at 1500 Woodlawn Drive, Woodlawn, MD containing the Security West
Buildings consisting of a two-story office building and a connected six-story
office tower occupied by the United States Social Security Administration
Office of Disability and International Operations under a nine year lease
expiring October 31, 2003 (the "Lease"). The buildings have a net rentable
area of approximately 717,011 square feet. The construction of the Security
West Buildings was completed in 1972 and the building has been occupied by the
Social Security Administration since 1972 under prior leases between the U.S.
Government and the Partnership.
During 1994, the Partnership completed the placement of a $56,450,000
non-recourse project note, due November 15, 2003, issued by the Partnership.
The placement of the project note was undertaken by the issuance of 7.90%
certificates of participation and was underwritten by Dillon Read & Co., Inc.
The net proceeds received from the sale of the certificates have or are being
used to refinance existing debt of the Partnership related to the project, to
finance certain alterations to the project by the Partnership, to fund certain
reserves and to pay costs of the project note issue. The project note is a
non-recourse obligation of the Partnership and is payable solely from the Lease
payments from the U.S. Government, which rental payments under the Lease are
not subject to annual appropriation by the United States Congress and
accordingly, the obligations to make such payments are unconditional general
obligations of the government backed by the full faith and credit of the United
States. The payments under the Lease consist of base rent, maintenance rent,
additional base rent, additional maintenance rent and the government tax
reimbursement amount. The base rent, maintenance rent and additional base rent
are fixed amounts and are not subject to adjustment. The base rent and the
additional base rent together constitute the finance rent, which will be
utilized to pay principal and interest on the project note, certain real estate
taxes and costs of insurance and other reserves.
The terms of the Security Land And Development Company Limited
Partnership Agreement (as amended) and the project note (which note will be
fully amortized over the term of the lease) call for Regency Affiliates, Inc.
to be allocated 95% of the profits and losses of the Partnership until October
31, 2003, and 50% thereafter. Regency is to receive certain limited cash flow
after debt service, and a contingent equity build-up depending upon the value
of the project upon termination of the Lease.
The transaction with Security Land And Development Company Limited
Partnership provides for the Company to receive management fees equaling
$100,000 per annum, which funds should be available as working capital.
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As of December 31, 1995, Regency Affiliates, Inc. had as its sole
employees, Pamlyn Kelly, Ph.D., the Company's President and Eunice M. Antosh,
the Company's Secretary. Both were employed by the Company on a part time
basis. Dr. Kelly was elected as the Company's interim President following the
resignation of Craig R. Grossman and has focused her efforts on the search for
a chief executive officer. Dr. Kelly resigned on February 1, 1996 in
connection with the election on that date of Gary K. Nuttall as President of
Regency Affiliates, Inc.
Financial information about industry segment & Narrative description
of business.
Because of Regency Affiliates, Inc.'s lack of operations during the
last three fiscal years, information about industry segments is not provided.
ITEM 2. PROPERTIES
As of December 31, 1995, NRDC owned approximately 75 million short
tons of Aggregate located at the site of the Groveland Mine in Dickinson
County, Michigan. The Groveland Mine is an iron ore mine that was shut down in
1981 by a former owner and operator, M.A. Hanna Company. The mine was acquired
by International Aggregate Corporation in December, 1989. Subsequent thereto,
International Aggregate Corporation transferred title to the Aggregate to
National Resource Development Corporation (Delaware), NRDC's predecessor.
The 75 million short tons of Aggregate is commingled with other
aggregate not owned by NRDC and is rock that was separated from iron ore during
previous mining operations. The ownership of the Aggregate is subject to a
Royalty Agreement between North American Demolition Company (International
Aggregate Corporation's predecessor in title) and M.A. Hanna Company dated
December 22, 1989, as amended, which requires the payment of certain royalties
to M.A. Hanna Company upon sales of Aggregate. The Aggregate has been pledged
to secure loans made to Regency Affiliates, Inc. by Statesman Group, Inc. and
to secure repayment of certain Zero Coupon Non-Recourse Secured Bonds due
January 1, 2002 issued by National Resource Development Corporation (Delaware).
At December 31, 1995, Bonds having a face value at maturity of $542,000 had
been issued by National Resource Development Corporation (Delaware). While a
general market for aggregate exists, the Company currently lacks the resources
required to make sales of material amounts of the aggregate.
Reference is made to Item 1, Business, page 3 of this report, for a
description of the Security West Building at 1500 Woodlawn Drive, Woodlawn,
MD, which property is owned by Security Land And Development Company Limited
Partnership.
ITEM 3. LEGAL PROCEEDINGS
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There are no material pending legal proceedings to which the Company
is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of security holders during the
quarter ending December 31, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
Market information.
Regency's Common Stock is traded in the over-the-counter market on the
bulletin board section of NASDAQ. The following table sets forth the high and
low bid prices for each calendar quarter during the last two fiscal years of
the Company. The bid quotations represent interdealer prices and do not include
retail markups, mark-downs or commissions. The prices indicated may not reflect
the actual market for substantial quantities of the Company's Common Stock. As
of December 31, 1995, Regency estimated that the outstanding shares were held
by an estimated 4,000 shareholders.
Year Ended
---------- ($) ($)
December 31, 1994 High Low
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First Quarter 13/16 1/8
Second Quarter 7/16 1/8
Third Quarter 11/16 1/8
Fourth Quarter 3/4 1/4
Year Ended
---------- ($) ($)
December 31, 1995 High Low
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First Quarter 11/16 1/4
Second Quarter 9/16 1/4
Third Quarter 7/16 1/8
Fourth Quarter 13/32 1/8
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The Company has not paid or declared cash dividends on its Common
Stock during the last two fiscal years of the since the Company has had
inadequate earnings and resources to fund the payment of cash dividends on its
Common Stock. The Company has no present intention to pay cash dividends on
its Common Stock in the future.
In early 1990, Continental Illinois National Bank & Trust of Chicago
("Continental") resigned as the Company's registrar and transfer agent because
of the Company's inability to pay Continental for services performed. The
records were forwarded to the Company and the Company has since assumed the
record keeping responsibility until such time as the Company has the funds to
secure the services of an independant transfer agent. As of December 31, 1995,
and the date of this report, such record keeping services were provided to the
Company by L.J. Horbach & Associates. On February 7, 1995, Regency
Affiliates, Inc. entered into an agreement with L.J. Horbach & Associates, Inc.
pursuant to which L.J. Horbach & Associates, Inc. will provide certain
administrative services to the Company for a monthly fee of $3,000, including
but not limited to accounting and stock transfer record keeping. L.J. Horbach
& Associates, Inc. is wholly owned by Larry J. Horbach, a member of the Board
of Directors of the Company.
Securities of the registrant.
As of February 9, 1995, Regency Affiliates, Inc. had placed 57 Units
of a $350,000 minimum, $800,000 maximum offering of the Company's Cumulative
Convertible $100 Series-E Preferred Stock and $0.40 p.v. Common Stock. The
securities were offered in 80 Units consisting of 88.5 shares in Cumulative
Convertible $100 Series-E Preferred Stock and 6,000 shares of the Common Stock
to accredited investors as defined in Regulation D for a cost of $10,000 per
unit. The proceeds of the offering were used to cover operating cash flow
deficits. Statesman Group, Inc. converted $20,000 of the debt owing to it by
the Company into two Units as part of the offering.
VOTING $0.40 PAR VALUE COMMON
Regency Affiliates, Inc. has authorized 25,000,000 shares of its
voting $0.40 p.v. Common Stock. Holders of the Common Stock are entitled to
one vote per share on matters submitted to shareholders for approval or upon
the election of directors.
CUMULATIVE CONVERTIBLE 7% PREFERRED $10 STATED VALUE SERIES-A STOCK - $0.10 PAR
VALUE
All of the authorized, issued and outstanding shares of the Series-A
Preferred Stock were converted into 1,380,796 shares of the Company's $0.40
p.v. Common Stock prior to the 1993 Transaction.
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CUMULATIVE CONTINGENT CONVERTIBLE PREFERRED $10 STATED VALUE SERIES-B STOCK -
$0.10 PAR VALUE
By agreement and in settlement of the Senior Lenders' obligations as
part of the Company's Restructuring Plan, 212,747 shares of the Series-B
Preferred Stock were issued to Washington Square Capital and 158,000 shares to
Cargill Financial Services. Such shares (370,747 in the aggregate) represent
100% of the shares of Series-B authorized, issued and outstanding. Semi-annual
dividend periods commence on the 24th month from the consummation of an
"Initial Business Combination", as defined in the Certificate of Designation
for the Series-B Preferred Stock, and accrue for a period of 35 months without
cash payment. Dividends accrue at the rate of 6% per annum. The holders of
the Series-B Preferred Stock hold contingent rights to convert into Common
Stock exercisable on the earlier of the date that the Company (and its tax
consolidated subsidiaries) has accumulated consolidated taxable earnings of $55
Million, or the date that at least 80% in value of any convertible securities
of the Company, as adjusted in certain circumstances, issued in the Initial
Business Combination are retired or converted by the holders thereof. The
Series-B shares carry a preference upon liquidation. Except in limited
circumstances, the Series-B shares carry no voting rights. The Company has the
right to redeem the Series-B Preferred Stock, at any time.
CUMULATIVE SENIOR PREFERRED $100 STATED VALUE SERIES-C STOCK - $0.10 PAR VALUE
On July 7, 1993, 208,850 shares of the Company's Cumulative Senior
Preferred $100 Series-C Stock were delivered to Statesman Group, Inc. as part
of the 1993 Transaction. Such shares represent 100% of the issued and
outstanding Series-C shares. 210,000 shares of the Series-C Preferred Stock
are authorized. Quarterly dividend periods commenced on September 30, 1993 and
quarterly dividends per share are equal to 20%, not to exceed $500,000, of the
annual after tax earnings of NRDC, divided by the number of shares outstanding.
During the fiscal year ending December 31, 1995, with the consent of the holder
of the Series-C Preferred Stock, the contingent rights to convert the Series-C
Preferred Stock into Common Stock were eliminated. The Series-C shares carry a
preference upon liquidation. Except in limited circumstances, the Series-C
shares carry no voting rights. The Company has the right to redeem the
Series-C Preferred Stock, at any time.
CUMULATIVE CONTINGENT CONVERTIBLE JUNIOR PREFERRED $10 STATED VALUE SERIES-D
STOCK - $0.10 PAR VALUE
The Series-D junior preferred shares were issued in exchange for the
serial restructuring promissory notes issued as part of Company's Restructuring
Plan. The total issued was 25,694 shares and was required by the Acquisition
Agreement as a condition to closing. 26,000 shares of the Series-D Preferred
Stock are authorized. Annual dividend periods commenced on January 1, 1993.
Dividends accrue at the rate of 7% per annum. The holders of the Series-D
Preferred Stock hold contingent rights to convert into Common Stock, but can
not convert until the Series-C Preferred Stock has been converted into Common
Stock, or with the consent of a majority of the holders of the Series-C
Preferred Stock. The Series-D shares carry a preference upon liquidation.
Except in limited
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circumstances, the Series-D shares carry no voting rights. The Company has the
right to redeem the Series-D Preferred Stock, at any time.
SERIES-E CUMULATIVE CONVERTIBLE PREFERRED STOCK - $100 STATED VALUE - $0.10 PAR
VALUE
Quarterly dividends on the Series-E Preferred Stock are cumulative
from the dates of original issue and are payable in cash or accrued at the
option of the Company. The Series-E Preferred Stock carries the right to
receive an annual dividend of $12.50 per share. Subject to certain conditions,
the Series-E Preferred Stock must be redeemed by the Company commencing on the
fifth anniversary from the date of issuance. At any time after the second
anniversary of the date of issuance, the Company may redeem the shares at their
stated value plus accrued and unpaid dividends. Holders of the Series-E
Preferred Stock, commencing on the second anniversary of the date of issuance,
have the right to convert their shares into a number of shares of Common Stock
of the Company determined by dividing $1,000, plus accrued and unpaid
dividends, by a figure equal to 88% of the average bid price for Common Stock
for the 90 days previous to the date the Series-E stock is surrendered for
conversion. Redemption of the Series-E shares by the Company will terminate
the conversion rights. The Series-E shares carry a preference upon
liquidation. Except in limited circumstances, the Series-E shares carry no
voting rights. As of December 31, 1995, 5,044.5 shares of the Series-E
Preferred Stock had been issued and remained outstanding.
REGTRANSCO, INC. OWNERSHIP
RegTransco, Inc. (RTI) has two classes of outstanding common stock,
Class A and Class B. There are 20,000 shares of Class A common stock
outstanding, all of which are owned by Drilling (a wholly owned subsidiary of
Regency Affiliates, Inc.). Five thousand (5,000) shares of Class B common
stock were issued to the Original Investors who financed the Company's Chapter
XI filing in 1986 and 1987 and represented 20% of the voting power of RTI's
outstanding common stock. As part of the Restructuring Plan, the holders of the
Class B stock returned their 20% interest as a group to RTI. RTI's Class A and
Class B common stock are equal to each other in all respects except dividend
preference. Holders of shares of Class A and Class B common stock are entitled
to one vote per share in the election of directors.
TRANS CONTINENTAL DRILLING COMPANY OWNERSHIP
As part of the 1993 Transaction, Drilling issued sufficient shares to
transfer 20% of the issued and outstanding stock of Drilling to Statesman
Group, Inc. The remainder (80%) is owned by Regency Affiliates, Inc.
NRDC
As part of the 1993 Transaction, Regency Affiliates, Inc. acquired 80%
of the issued and outstanding stock of NRDC. The remainder (20%) is owned by
Statesman Group, Inc.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUES $2,597 $5,125 $0 $0 $0
INCOME FROM EQUITY INVESTMENT
IN PARTNERSHIP 3,718,056 100,000 0 0 0
LOSS FROM LIQUIDATION OF
DISCONTINUED OPERATIONS 0 0 0 0 (997,555)
EXTRAORDINARY GAIN FROM DEBT
RESTRUCTURING 0 0 0 78,000 10,599,302
NET INCOME (LOSS) 3,298,589 (102,541) (121,789) (50,568) 9,526,556
INCOME (LOSS) FROM CONTINUING
OPERATIONS PER SHARE 0.29 (0.01) (0.01) (0.03) (0.02)
EXTRAORDINARY GAIN PER SHARE 0 0 0 0.02 2.23
NET INCOME (LOSS) PER SHARE
(PRIMARY) 0.29 (0.01) (0.01) (0.01) 2.00
NET INCOME (LOSS) PER SHARE
(FULLY DILUTED) 0.09 (0.01) (0.01) (0.01) 2.00
TOTAL ASSETS 4,980,148 1,473,832 853,922 93 6,531
LONG-TERM DEBT & REDEEMABLE 691,254 557,954 272,100 0 372,300
PREFERRED STOCK
</TABLE>
14
<PAGE> 15
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company may, from time to time, issue forward looking statements,
including, but not limited to the statements of future economic performance
contained in Item 7 of this Report, or elsewhere herein. Such forward looking
statements, whether contained in this report on Form 10-K, or elsewhere, are
subject to the following factors that could cause actual results to differ
materially from those contained in the forward looking statements:
(i) The Company suffers from a severe lack of liquidity and its
ability to remain a going concern is dependent upon the
Company's ability to continue to raise working capital from
its shareholders, or from the sale of its assets or securities
or from the proceeds of outside financing.
(ii) The Company lacks the necessary infrastructure at the site of
the Groveland Mine, and the capital necessary to place such
infrastructure in place, in order to permit the company to
make more than casual sales of the Aggregate.
(iii) The Company's lack of operations render the Company dependant
upon the investment in Security Land And Development Company
Limited Partnership for a material portion of its cash flow
and for a material portion of its reportable income.
(iv) The investment activities of the Company do not, in and of
themselves, generate sufficient cash flow to permit the
Company to continue as a going concern.
(v) An unsecured default in the Lease or sudden catastrophe to the
Security West Building from uninsured acts of God or war could
have a materially adverse impact upon the Company's investment
in Security Land And Development Company Limited Partnership.
Liquidity and Capital Resources.
In the last quarter of 1994, Regency Affiliates, Inc. commenced a
private placement of its Cumulative Convertible $100 Series-E Preferred Stock
and $0.40 p.v. Common Stock (the "Private Placement") in a transaction reported
on Form D, Notice of Sale of Securities Pursuant To Regulation D, filed with
the Securities and Exchange Commission on November 23, 1994, the contents of
which are incorporated herein by reference thereto. As of February 9, 1995,
the most recent sale under the Private Placement, Regency Affiliates, Inc. had
placed 57 Units ($570,000) of the $350,000 minimum, $800,000 maximum offering.
The securities were offered in 80 Units, each consisting of 88.5 shares in
Cumulative Convertible $100 Series-E Preferred Stock and 6,000 shares
15
<PAGE> 16
of the Common Stock, to accredited investors as defined in Regulation D for a
cost of $10,000 per unit. The proceeds of the offering were used for to cover
negative operating cash flows. Because of the restatement of the acquisition
cost of NRDC reported in the Company's report on Form 10-K for the year ending
December 31, 1994, management has determined to offer rescission to certain of
the purchasers in the Private Placement. Management believes there is no
substantial likelihood that the offerees will exercise rescission because the
restatement does not result from a change in the fair market value of the
Aggregate. However, should all of the offerees exercise the right of
rescission, the Company would have inadequate cash resources to pay them in
full.
The investment in Security Land And Development Company Limited
Partnership should provide the Company with management fees of at least
$100,000 per annum until 2003. In the fiscal year ending December 31, 1995,
the Company's income from its equity investment in the Partnership was
$3,718,056.
Despite the cash flow from the Partnership and the working capital
raised by the Private Placement, the Company continues to suffer from a
relative lack of liquidity and capital resources. Gary K. Nuttall, who was
elected as the Company's President on February 1, 1996, is, in large part,
focusing his efforts on obtaining a financing to be secured by the Company's
investment in Security Land And Development Company Limited Partnership. While
preliminary negotiations have been favorable and the board of directors of a
potential lender has given its approval to a loan to the Company, neither due
diligence nor definitive loan agreements have been concluded, and there can be
no assurance that the contemplated transaction will be consummated.
Regency Affiliates, Inc. is continuing to explore opportunities for
the acquisition of companies with operations that will provide additional
liquidity and cash flow. The Company anticipates that such acquisitions would
be financed by borrowings secured by the assets acquired and by the Company's
investment in Security Land And Development Company Limited Partnership. The
Company is also continuing to explore transactions which would utilize the
Company's uncommitted and remaining net operating losses. There can be no
assurances that any such acquisitions or transactions will come to fruition.
As part of the 1993 Transaction with NRDC, the Company received a
working capital loan of $100,000 from Statesman Group, Inc., which loan matured
on July 7, 1995 and carries a 10% interest obligation payable quarterly in
arrears. Statesman has agreed to extend the maturity of its loan beyond 1995,
to a date yet to be determined. During 1994, the Company paid Statesman
$15,509.22 in interest and $97,464.32 in principal, bringing the loans current
as of December 31, 1994. As of December 31, 1995, the Company had a principal
balance outstanding on notes payable to Statesman of $80,000.
16
<PAGE> 17
Results of Operations.
The operations of Regency Affiliates, Inc. and its subsidiaries in
1995 were limited to casual sales of Aggregate (less than $3,000) and the
Company's ongoing effort to secure acquisitions and/or business combinations to
provide the Company with material operations and cash flow.
SFAS 121.
In March 1995, the Financial Accounting Standards Board issued a new
standard (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." SFAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS 121 is
effective for financial statements for fiscal years beginning after December
15, 1995. The Company intends to adopt SFAS 121 in the first quarter of 1996.
The Company does not believe its adoption will have a material effect on the
Company's financial position or results of operation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company, as a result of its financial condition, did not have
funds to have timely audits conducted for the years ended December 31, 1990,
1991 and 1992. The report of independent accountants with respect to the 1989
financial statements contained a qualification with respect to adjustments that
might result in the event that the Company were unable to continue as a going
concern. On November 5, 1993, R.L. Quint & Co. issued its independent
auditor's report for the years ended December 31, 1990, 1991 and 1992. Because
as of December 31, 1992, the Company had an excess of liabilities over assets
and had no revenue producing activities, the auditors reported substantial
doubt about the Company's ability to continue as a going concern. The
auditors' report for the year ended December 31, 1993 also expressed
substantial doubt about the Company's ability to continue as a going concern
because of the Company's continued lack of revenue producing activities and
working capital.
The following pages contain the Financial Statements and supplementary
data required by Item 8 of Part II of Form 10-K for the year ending December
31, 1995.
(The remainder of this page is intentionally left blank.)
17
<PAGE> 18
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
1995 CONSOLIDATED FINANCIAL REPORT
F-1
<PAGE> 19
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONTENTS
______________________________________________________________________________
Page
AUDITORS' REPORT F-3
FINANCIAL STATEMENTS
Consolidated balance sheets F-4 - F-5
Consolidated statements of operations F-6
Consolidated statements of shareholders' equity F-7
Consolidated statements of cash flows F-8
Notes to consolidated financial statements F-9 - F-20
F-2
<PAGE> 20
Independent Auditors' Report
----------------------------
Shareholders and Board of Directors
Regency Affiliates, Inc.
Wheaton, Illinois
We have audited the accompanying consolidated balance sheets of Regency
Affiliates, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years then ended. 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 did not audit the 1995 financial statements of Security Land and
Development Company Limited Partnership, the investment in which is reflected in
the accompanying financial statements using the equity method of accounting. The
investment in this partnership represents 82% of consolidated total assets as of
December 31, 1995 and 100% of the income from equity investment in partnership
for the year ended December 31, 1995. Those financial statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the 1995 amounts included for Security Land and Development
Company Limited Partnership, is based solely on the reports of such other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Regency Affiliates, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As described in Note 14 to the consolidated financial statements, the
Company's management determined that its 1993 acquisition of National Resource
Development Corporation was improperly accounted for. The correction of the
error was treated as a prior period adjustment and the 1993 year end balances of
certain assets, liabilities and equity accounts were, therefore, restated.
HAUSSER + TAYLOR
Cleveland, Ohio
March 26, 1996
F-3
<PAGE> 21
REGENCY AFFLIATES, INC. SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
--------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 39,689 $ 150,027
Accounts receivable 2,691 2,129
------------ ------------
Total current assets 42,380 152,156
OTHER ASSETS
Investment in partnership 4,068,056 450,000
Inventory 850,000 850,000
Other 19,712 21,676
------------ ------------
4,937,768 1,321,676
------------ ------------
$ 4,980,148 $ 1,473,832
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 22
<TABLE>
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
--------------------------
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Note payable $ - $ 300,000
Notes payable - related party 80,000 105,800
Accounts payable 95,980 73,382
Accrued expenses 79,816 5,705
----------- -----------
Total current liabilities 255,796 484,887
LONG-TERM DEBT 323,000 296,500
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 106,449 111,391
SERIAL PREFERRED STOCK SUBJECT TO MANDATORY
REDEMPTION (liquidation preference and redemption
value, $504,400 and $309,700 in 1995 and 1994, respectively) 368,254 261,454
SHAREHOLDERS' EQUITY
Serial preferred stock not subject to mandatory redemption
(maximum liquidation preference, $24,903,368 and
$24,885,382 in 1995 and 1994, respectively) 1,052,988 1,052,988
Common stock, par value $.40, authorized 25,000,000 shares
issued and outstanding 11,166,537 and 10,524,537 shares
in 1995 and 1994, respectively (net of 22,460 treasury shares) 4,456,308 4,199,508
Additional paid-in capital 140,000 -
Readjustment resulting from quasi-reorganization at
December 31, 1987 (1,670,596) (1,670,596)
Accumulated deficit (52,051) (3,262,300)
----------- -----------
Total shareholders' equity 3,926,649 319,600
----------- -----------
$ 4,980,148 $ 1,473,832
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-5
<PAGE> 23
<TABLE>
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1995 and 1994
--------------------------------------
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
NET SALES $ 2,597 $ 5,125
OPERATING EXPENSES
General and administrative expenses 311,611 166,213
Interest expense 45,395 45,329
---------- ---------
357,006 211,542
---------- ---------
LOSS FROM OPERATIONS (354,409) (206,417)
INCOME FROM EQUITY INVESTMENT IN PARTNERSHIP 3,718,056 100,000
---------- ---------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE
AND MINORITY INTEREST 3,363,647 (106,417)
INCOME TAX EXPENSE 70,000 -
MINORITY INTEREST 4,942 3,876
---------- ---------
NET INCOME (LOSS) $3,298,589 $(102,541)
========== =========
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON SHAREHOLDERS
[after paid or accrued preferred stock dividends of
$78,526 and $17,986 in 1995 and 1994, respectively, and
preferred stock accretion of $27,800 in 1995] $3,192,263 $(120,527)
========== =========
NET INCOME (LOSS) PER COMMON SHARE:
PRIMARY $ 0.29 $ (0.01)
========== =========
FULLY DILUTED $ 0.09 $ (0.01)
========== =========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-6
<PAGE> 24
<TABLE>
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1995 and 1994
--------------------------------------
<CAPTION>
Readjustment
Preferred Stock* Common Stock** Additional Resulting
----------------- ------------------ Paid-In From Quasi- Accumulated Shareholders'
Shares Amount Shares Amount Capital Reorganization Deficit Equity
------ ---------- ---------- ---------- --------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1994,
AS RESTATED (See Note 14) 605,291 $1,052,988 10,304,537 $4,111,508 $ - $(1,670,596) $(3,159,759) $ 334,141
Issuance of common stock - - 220,000 88,000 - - - 88,000
Net loss - - - - - - (102,541) (102,541)
------- ---------- ---------- ---------- -------- ------------ ----------- ----------
BALANCE - DECEMBER 31, 1994 605,291 1,052,988 10,524,537 4,199,508 - (1,670,596) (3,262,300) 319,600
Issuance of common stock - - 642,000 256,800 140,000 - - 396,800
Net income - - - - - - 3,298,589 3,298,589
Accretion of Series E
preferred stock - - - - - - (27,800) (27,800)
Payment of dividend on
Series E preferred stock - - - - - - (60,540) (60,540)
------- ---------- ---------- ---------- -------- ----------- ----------- ----------
BALANCE - DECEMBER 31, 1995 605,291 $1,052,988 11,166,537 $4,456,308 $140,000 $(1,670,596) $ (52,051) $3,926,649
======= ========== ========== ========== ========= =========== =========== ==========
<FN>
* Preferred stock does not include Series E Preferred
Stock which is subject to mandatory redemption
** Common stock is net of 22,460 treasury shares
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-7
<PAGE> 25
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 and 1994
--------------------------------------
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 3,298,589 $ (102,541)
Adjustments to reconcile net income (loss) to net cash used by
operating activities:
Minority interest (4,942) (3,876)
Income from equity investment in partnership (3,718,056) (100,000)
Distribution of equity earnings from partnership 100,000 -
Interest amortization on long-term debt 26,500 24,400
Issuance of treasury stock in lieu of cash compensation - 4,000
Changes in operating assets and liabilities:
Accounts receivable (562) (2,129)
Other assets 1,964 (21,676)
Accounts payable 22,598 64,832
Accrued expenses 74,111 (18,159)
---------- ---------
Total adjustments (3,498,387) (52,608)
---------- ---------
Net cash used by operating activities (199,798) (155,149)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in partnership - (50,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings (5,800) 5,800
Proceeds from issuance of preferred stock 152,000 266,000
Proceeds from issuance of common stock 48,000 84,000
Offering costs (44,200) (4,546)
Dividends paid (60,540) -
---------- ---------
Net cash provided by financing activities 89,460 351,254
---------- ---------
(DECREASE) INCREASE IN CASH (110,338) 146,105
CASH - BEGINNING 150,027 3,922
---------- ---------
CASH - ENDING $ 39,689 $ 150,027
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 20,944 $ 20,301
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
In 1994, the Company, as part of its investment in the partnership,
issued a $300,000 note payable. In 1995, the note was converted into 400,000
shares of the Company's common stock (see Note 3).
In 1995, $20,000 of debt was converted into equity (see Note 3) and
$44,000 of stock offering costs were satisfied by the issuance of 110,000
shares of the Company's common stock.
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 26
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Business and Reorganization -- Regency Affiliates, Inc. (the
"Company"), formerly Transcontinental Energy Corporation, was
organized as a Delaware corporation in 1980 to be the successor to
Transcontinental Oil Corporation which existed since 1947. In late
1984 and early 1985 the Company, all of its wholly owned
subsidiaries and twenty-one affiliated limited partnerships
commenced reorganization proceedings pursuant to Chapter 11 of the
Bankruptcy Reform Act of 1978, as amended.
Pursuant to two Plans of Reorganization which were completed
December 31, 1987, all of the Company's assets, except for its
ownership in Transcontinental Drilling Company, Inc. (Drilling) and
all of the obligations of the Company and of Drilling were
transferred to a creditor liquidating trust. The Plans provided that
the par value of the Company's common stock be increased from $.10
per share to $.40 per share and that a 1 for 4 reverse stock split
be implemented. An additional 747,500 shares were issued to the
creditor's liquidating trust, 238,700 were issued to TransCapital,
Ltd. for a cash purchase price of $111,480 and 954,800 shares were
issued to investors.
During the year ended December 31, 1988 the Company, through
RegTransco, Inc. ("RTI"), made two acquisitions. On June 3, 1988 RTI
acquired all of the outstanding stock of Florida Truss, Inc.,
Gangnail of Palm Beach and Pinewood Lumber and Truss, Inc.
(collectively, "Florida Truss, Inc."), which was involved in the
manufacture of wood trusses in the Fort Lauderdale and Palm Beach
areas of Florida. In August 1988, RTI acquired all of the
outstanding stock of Willbanks Steel Corporation ("Willbanks"), a
steel fabricator and service center with locations in Fort Worth and
Houston, Texas and Albuquerque, New Mexico. In 1990 and 1991, the
Company elected to discontinue operations at its subsidiaries,
Florida Truss and Willbanks, respectively.
On July 7, 1993 the Company entered into an Acquisition Agreement
with National Resource Development Corporation and Statesman Group,
Inc. ("Statesman"), an international business corporation organized
under the laws of the Bahamas which provided for the acquisition of
an 80% interest in National Resource Development Corporation, which
was wholly owned by Statesman in exchange for 2,975,000 shares of
the Company's common stock, 208,850 shares of the Company's Series C
Preferred stock and 20% of the outstanding shares of
Transcontinental Drilling Co. (the "Transaction"). Statesman has the
right to transfer some or all of these shares to its nominees.
Immediately following the closing, the Company had outstanding
10,336,997 common shares outstanding of which those issued to
Statesman represented approximately 28.8%.
Statesman, in addition to receiving the rights to approximately
28.8% of the Company's common stock, received irrevocable proxies
over 855,991 common shares of the Company.
As part of the closing of the Transaction on July 7, 1993, the then
sole director of the Company redesignated the nominal value of the
Company's Series C Preferred stock from $10.00 to $100.00 per share.
Immediately following the closing there were 208,850 shares of the
Company's Series C Preferred stock outstanding, all of which were
issued to Statesman as part of the Transaction.
F-9
<PAGE> 27
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. Principles of Consolidation -- The consolidated financial
statements include the accounts of Regency Affiliates, Inc. (the
"Company") and its 80% owned subsidiaries National Resource
Development Corporation ("NRDC"), Transcontinental Drilling Company
("Drilling") and RegTransco, Inc. ("RTI"). All significant
intercompany balances and transactions have been eliminated in
consolidation. Regency Affiliates, Inc.'s (Registrant's) share of
consolidated net assets at December 31, 1995 and 1994 consist
principally of cash of approximately $37,000 and $150,000,
respectively, investment in partnership of approximately $4,068,000
and $450,000, respectively, and liabilities of approximately
$256,000 and $485,000, respectively.
C. Earnings (Loss) Per Share -- Primary earnings (loss) per share
are computed by dividing net income (loss) attributable to common
shareholders (net income (loss) less preferred stock dividend
requirements and periodic accretion) by the weighted average number
of common and dilutive equivalent shares outstanding during the
year. Fully diluted earnings per share computations assume the
conversion of Series E, Series B, and Junior Series D preferred
stock during the period that the preferred stock issues were
outstanding. If the result of these assumed conversions is dilutive,
the dividend requirements and periodic accretion for the preferred
stock issues are reduced (See Note 7).
The weighted average number of shares used in primary earnings
(loss) per share computations for 1995 and 1994 were approximately
10,941,000 and 10,327,000, respectively. The weighted average number
of shares used in the computation of fully diluted earnings (loss)
per share for 1995 was approximately 37,847,000. The computation of
fully diluted earnings (loss) per share for the year ended December
31, 1994 was antidilutive; therefore, the amounts reported for
primary and fully diluted earnings (loss) per share are the same for
that year. The Company's stock is thinly traded in the
over-the-counter market on the bulletin board section of NASDAQ. In
1995, a market price of $.25 per share was utilized in the
conversion formulas for the computation of fully diluted earnings
per share. If a market price of $.125 per share, the lowest bid
price of the Company's common shares during the year, was used in
the conversion formulas, the weighted average number of shares
utilized in the computation of fully diluted earnings per share
would amount to approximately 63,658,000 yielding fully diluted
earnings per share of $.05.
D. Cash -- The Company places its cash with high credit quality
financial institutions which may exceed federally insured amounts at
times.
E. Inventory -- Inventory, which consists of aggregate, is stated at
lower of cost or market. Liens have been attached to the aggregate
inventory by the note payable to the related party and the holders
of the zero coupon bonds. The Company is also subject to a royalty
agreement which requires the payment of certain royalties to a
previous owner of the aggregate inventory upon sales of the
aggregate.
F-10
<PAGE> 28
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
F. Income Taxes - Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes," which requires an asset and liability
approach to financial accounting and reporting for income taxes. The
difference between the financial statement and tax basis of assets and
liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those temporary differences that have
future tax consequences using the current enacted tax laws and rates
that apply to the periods in which they are expected to affect taxable
income. In some situations SFAS 109 permits the recognition of
expected benefits of utilizing net operating loss and tax credit
carryforwards. Valuation allowances are established, if necessary, to
reduce the deferred tax asset to the amount that will, more likely
than not, be realized. Income tax expense is the current tax payable
or refundable for the period plus or minus the net change in the
deferred tax assets and liabilities.
G. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
H. Statement of Financial Accounting Standard No. 121 - In March 1995,
the Financial Accounting Standards Board issued a new standard,
Statement of Financial Accounting Standard No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS 121). SFAS 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
SFAS 121 is effective for financial statements for fiscal years
beginning after December 15, 1995. The Company intends to adopt SFAS
121 in the first quarter of 1996. The Company does not believe its
adoption will have a material effect on the Company's financial
position or results of operations.
NOTE 2. INVESTMENT IN PARTNERSHIP
In November 1994, the Company invested $50,000 and a $300,000 note payable
(see Note 3) for a limited partner interest in Security Land and
Development Company Limited Partnership ("Security"), which owns and
operates an office complex. The Company has limited voting rights and is
entitled to be allocated 95% of the profit and loss of the partnership
until October 31, 2003 (the lease termination date of the sole tenant of
the office complex) and 50% thereafter. The Company is entitled to 95% of
operating cash flow distributions, as defined, until October 31, 2003,
which are expected to be limited, and 50% thereafter. Further, the partners
are entitled to the net cash flow generated from the sale or refinancing of
the property in the proportion of their individual positive capital account
balance to the total positive capital account balances of all the partners.
The Company can force the sale of the property after December 31, 2004.
F-11
<PAGE> 29
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INVESTMENT IN PARTNERSHIP (CONTINUED)
Security was organized to own and operate, for investment purposes,
two buildings containing approximately 717,000 net rentable square
feet consisting of a two-story office building and a connected
six-story office tower. The building was purchased by Security in 1986
and is located on approximately 34.3 acres of land which is also owned
by Security. The building has been occupied by the United States
Social Security Administration's Office of Disability and
International Operations for approximately 22 years under leases
between the United States of America, acting by and through the
General Services Administration ("GSA"). Effective November 1, 1994,
Security and the GSA entered into a nine-year lease (the "Lease") for
100% of the building. Security has received an opinion of the
Assistant General Counsel to the GSA that lease payments are not
subject to annual appropriation by the United States Congress and the
obligations to make such payments are unconditional general
obligations of the United States Government.
The Company accounts for the investment in partnership on the equity
method, whereby the carrying value of the investment is increased or
decreased by the Company's allocable share of income or loss. The
investment in partnership included in the Consolidated Balance Sheets
at December 31, 1995 and 1994 was $4,068,056 and $450,000,
respectively. The income from the Company's equity investment in the
partnership for the years ended December 31, 1995 and 1994 was
$3,718,056 and $100,000, respectively. The undistributed earnings from
the Company's equity investment in the partnership as of December 31,
1995 and 1994 amounted to $3,718,056 and $100,000, respectively.
Summarized financial information for Security is as follows:
<TABLE>
<CAPTION>
1995 1994
BALANCE SHEET DATA ---- ----
------------------
<S> <C> <C>
Cash and receivables $ 1,344,049 $ 1,340,903
Restricted cash 18,514,573 30,065,176
Real estate 38,706,350 25,336,736
Other assets 2,252,224 2,573,546
---------- ----------
Total assets $ 60,817,196 $ 59,316,361
========== ==========
Accounts payable and accrued expenses $ 1,510,030 $ 1,088,400
Project note payable 51,380,596 55,760,764
Other liabilities 4,623,171 2,972,277
---------- ----------
Total liabilities 57,513,797 59,821,441
Partners' capital (deficit):
Regency Affiliates, Inc. 4,068,056 450,000
Other partners (764,657) (955,080)
---------- ----------
Total partners' capital (deficit) 3,303,399 (505,080)
---------- ----------
Total liabilities and partners' capital (deficit) $ 60,817,196 $ 59,316,361
========== ==========
</TABLE>
F-12
<PAGE> 30
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INVESTMENT IN PARTNERSHIP (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
STATEMENT OF OPERATIONS DATA ----- -----
----------------------------
<S> <C> <C>
Revenues $ 11,757,102 $ 5,880,551
Expenses 4,215,587 3,920,118
---------- ----------
Net operating income 7,541,515 1,960,433
Other revenue and expenses (3,627,772) (2,487,007)
---------- ----------
Income (loss) before extraordinary item 3,913,743 (526,574)
Extraordinary gain on forgiveness of debt - 10,322,652
---------- ----------
Net income $ 3,913,743 $ 9,796,078
========== ==========
</TABLE>
Note 3. Notes Payable
Notes payable consist of:
A note payable of $300,000 at December 31, 1994, due to Security
Land and Development Company Limited Partnership as part of the
Company's initial capital contribution (see Note 2). The note
payable was satisfied in July 1995 upon delivery to the note
holder of 400,000 shares of the Company's common stock in lieu of
cash.
Note payable - related party of $80,000 and $105,800 at December
31, 1995 and 1994, respectively, is due Statesman and is secured
by the aggregate inventory. Interest is payable quarterly at 10%
per annum with the principal due on January 1, 1996. Statesman
has agreed to waive the Company's obligation to pay the note
until it has funds available to make payment which is expected to
be in 1997. In 1995, Statesman converted $20,000 of the debt into
two units of the stock offering described in Note 6.
F-13
<PAGE> 31
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. LONG-TERM DEBT
Long-term debt consists of zero coupon non-recourse secured bonds, due
January 1, 2002, with a face value of $542,000 and a carrying value of
$323,000 and $296,500 at December 31, 1995 and 1994, respectively. The
bonds were issued by NRDC and the difference (discount) between
the face value and carrying value is being amortized utilizing the
interest method at 9%. Interest expense related to the bonds for
1995 and 1994 was $26,500 and $24,400, respectively. The bonds are
redeemable at anytime at the option of the Company at an amount that
approximates the carrying value. As of December 31, 1995, a sinking
fund has not been established to fund the payment of the zero coupon
non-recourse secured bonds upon maturity. The Collateral Trust
Indenture ("Indenture"), dated as of April 1, 1991, states that the
Company is prohibited from selling all or any of the pledged aggregate
inventory unless the Company makes a payment to the bond trustee for
deposit into the sinking fund. The Indenture grants the trustee to
secure the bonds a first priority mortgage lien and security interest
in the aggregate and establishes a "mandatory sinking fund payment per
short ton sold" of pledged aggregate inventory until the maturity of
the bonds. The minimum payment for sales during calendar years 1994
through 2002 ranges from $0.60 to $1.00 per short ton. The Indenture
provides that the Company will have no personal liability for the
payment of the debts evidenced by the Indenture or any bond or for the
performance of the covenants, representations and warranties of the
Company in the Indenture or any bond, and that the rights of the
trustee and the bondholders shall be limited to the foreclosure on the
lien, with certain exceptions.
Based on borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of long-term
debt is $235,000.
NOTE 5. MINORITY INTEREST
Statesman Group, Inc. has a 20% minority interest in the Company's
subsidiaries. In addition, Statesman holds a significant common stock
interest in the Company.
NOTE 6. STOCK OFFERING
Through a private placement memorandum dated November 18, 1994, and
concluded in 1995, the Company offered for sale 80 units of
securities, each unit consisting of 88.5 shares of 12.5% cumulative
convertible Series E preferred stock and 6,000 shares of common stock.
The units were priced at $10,000 per unit. As of December 31, 1995 and
1994, subscriptions for 57 and 35 units, respectively, were received
and offering costs of $92,746 and $4,546, respectively, were incurred.
Purchasers of units were issued financial statements containing errors
resulting from the improper accounting treatment of the acquisition of
NRDC (see Note 14). Management intends to offer such purchasers
rescission, however, because the appraised fair value of the
underlying net assets of NRDC are significantly in excess of the
carrying value for accounting purposes, management believes the
likelihood of rescission is remote.
F-14
<PAGE> 32
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. SERIAL PREFERRED STOCK
At December 31, 1995 and 1994, the Company had 5,000,000 authorized
shares of $.10 par value serial preferred stock. Serial preferred
stock at December 31, 1995 and 1994, all of which is convertible
(other than Series C) and cumulative consists of:
<TABLE>
<CAPTION>
Mandatory Redeemable Shares - Series E, $100 stated value, 12.5% cumulative
---------------------------------------------------------------------------
Shares Value
------------------------ ------------------------
Designated Outstanding Carrying Liquidation
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 - - $ - $ -
Issuance, net of offering costs 566,400 3,097 261,454 309,700
------- ------ ------- -------
Balance, December 31, 1994 566,400 3,097 261,454 309,700
Issuance, net of offering costs - 1,947 79,000 194,700
Accretion - - 27,800 -
------- ------ ------- -------
Balance, December 31, 1995 566,400 5,044 $ 368,254 $ 504,400
======= ===== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Redeemable Shares at Company's Option
-------------------------------------
Shares Value
------------------------ ---------------------------------------------
1995 1994
Designated Outstanding Carrying Liquidation Liquidation
---------- ----------- -------- ----------- -----------
<S> <C>
Series C, $100 stated
value 210,000 208,850 $ 229,136 $ 20,885,000 (a) $ 20,885,000 (a)
Series B, $10 stated
value, 6% cumulative 370,747 370,747 566,912 3,707,470 3,707,470
Junior Series D, $10
stated value, 7%
cumulative 26,000 25,694 256,940 310,898 (b) 292,912 (b)
------- ------- --------- ---------- ----------
606,747 605,291 $ 1,052,988 $ 24,903,368 $ 24,885,382
======= ======= ========= ========== ==========
</TABLE>
(a) This represents the estimated maximum possible liquidation value of
the Series C preferred shares, which is defined as the lesser of: 1)
net proceeds of the assets of NRDC, or 2) the redemption value
(defined below). In the event of liquidation, the Series C shares are
senior to all other shares of the Company's stock, with the exception
of the Series E shares.
(b) The liquidation value of the Junior Series D shares includes accrued
and unpaid dividends of $53,958 and $35,972 at December 31, 1995 and
1994, respectively.
F-15
<PAGE> 33
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. SERIAL PREFERRED STOCK (CONTINUED)
SERIES E - The Series E shares must be redeemed by the Company at the
stated value plus accrued and unpaid dividends on the fifth
anniversary from the date of issuance. The Company, at its option, may
redeem the shares beginning on the second anniversary of the date of
issuance. The carrying value of the Series E stock was recorded at its
issue price (net of issue costs). Beginning in 1995, the carrying
value is being increased by periodic accretion to the Company's
accumulated deficit, for the difference between the initial carrying
value and the redemption value. Accretion, utilizing the interest
method, for 1995 was $27,800. Dividends of $60,540 on the Series E
stock were paid or accrued in 1995. Holders of Series E stock may
convert their shares to common stock based on the stated value
multiplied by ten (10) divided by 88% of the average bid price for the
90 days preceding the conversion date of the Company's common shares
beginning on the second anniversary from the date of issuance of the
Series E shares.
SERIES C - The Series C shares were issued on July 7, 1993 as part of
the transaction to acquire an 80% interest in NRDC. The cumulative
dividend right is equal to 20% (not to exceed $500,000) of annual
after tax earnings of NRDC. At the Company's option, the Series C may
be redeemed at the lesser of (a) the stated value plus accrued and
unpaid dividends, or (b) the fair market value of the common stock
interest acquired by the Company in NRDC. The Company and Statesman,
the sole shareholder of Series C shares, agreed to permanently waive
the contingent conversion feature related to such shares for no
consideration.
SERIES B - The Series B shares were issued in 1991 as part of a
restructuring plan limited to senior lenders and was issued in
exchange for all obligations and any claims or causes of action
relating to the Company's obligations and the Florida Truss and
Willbanks Steel Corp. guarantees. Such preferred stock includes, among
other provisions and preferences, the following:
a) A 6% cumulative dividend right commencing on the 24th month from
the consummation of a defined "initial business combination
transaction" and if the Company has reached a defined ratio of
earnings to fixed charges. In addition, dividends accrue for a
period of 35 additional months without cash payment.
b) At the Company's option, the shares may be redeemed subject to
certain limitations, by cash payment or by exchanging shares of
its common stock at 77% of its stated value divided by the quoted
market value of its common stock.
c) A contingent conversion provision which conversion right, and the
Company common shares to be issued in connection with the
conversion, would be based on the stated value divided by the
average bid and asked price for the 90 days preceding the
conversion date of the Company's common shares. In addition, the
number of the Company's common shares to be received upon
conversion is subject to certain limitations.
F-16
<PAGE> 34
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. SERIAL PREFERRED STOCK (CONTINUED)
JUNIOR SERIES D - The junior preferred stock was issued in 1992 in
exchange for the Company's Restructuring Serial Promissory Notes. This
preferred stock is redeemable, at the Company's option, at the stated
value plus accrued and unpaid dividends and is contingently
convertible into common at the fair market value of the common as
determined by the average of the bid and asked price for the thirty
(30) day period preceding the conversion date.
Generally, no dividends can be made on the Company's common stock
until all cumulative dividends on the serial preferred stock have been
paid. Additionally, no dividends on the Company's common shares can be
made if the Company is in default or in arrears with respect to any
sinking or analogous fund or any call or tenders or other agreement
for the purchase, redemption or other retirement of shares of
preferred stock. No provision for dividends has been made for the
Company's Series B and C "increasing rate preferred stock," as defined
in Staff Accounting Bulletin Topic 5Q, due to the contingent nature of
dividends on such shares.
Generally the preferred shares have limited voting rights. However, in
the event dividends payable on the Series C and E shares,
respectively, are accumulated and unpaid for seven quarterly dividends
(whether or not declared and whether or not consecutive), the holders
of record of the Series C and E shares, respectively, shall thereafter
have the right to elect two directors (each) until all arrears in
required cash dividends (whether or not declared) on such shares have
been paid. Its bylaws provide for eight members on its Board of
Directors. At December 31, 1995, the Company had no accumulated and
unpaid dividends on Series C and E preferred shares.
NOTE 8. STOCK OPTION PLANS
The Company has reserved 125,000 shares of its common stock for
issuance upon exercise of incentive stock options under the 1984
Incentive Stock Option Plan. The plan provides that options must be
granted within ten years after February 8, 1984, the effective date of
the plan, must have not more than a ten year term, and, in general,
must be exercised during the optionee's employment. The exercise price
must be equal to the fair market value of the common stock on the date
of the grant. Subject to the limitations in the plan, an Employee
Incentive Stock Option Plan committee of the Board of Directors
determines the optionee, the number of shares covered by each option
and the duration of each option. As of December 31, 1995 and 1994,
options aggregating 50,000 shares had been granted, exercisable at
prices of $1.31 to $1.75 per share.
In addition, the Company has reserved 500,000 shares of common stock
for issuance upon exercise of incentive stock options under the 1988
Incentive Stock Option Plan. The plan provides that no option is
exercisable less than six months nor more than ten years from the
grant date, and, in general, must be exercised during the optionee's
employment. The exercise price must be at least equal to the fair
market value of the common stock on the date of the grant. Subject to
limitations in the plan, a Personnel and Compensation Committee of the
Board of Directors determines the optionee, the number of shares to be
granted to each employee and the restrictions to be imposed upon each
grant. As of December 31, 1995 and 1994, no options to purchase stock
under this plan were outstanding.
F-17
<PAGE> 35
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. STOCK WARRANTS
Previously issued warrants to purchase 500,000 shares of the Company's
common stock, issued to two former Company directors, were cancelled
and extinguished during the year ended December 31, 1994.
NOTE 10. INCOME TAXES
As referred to in Note 1, the Company accounts for income taxes under
SFAS 109, "Accounting for Income Taxes." The deferred taxes are the
result of long-term temporary differences between financial reporting
and tax reporting for earnings from the Company's partnership
investment in Security Land and Development Company Limited
Partnership related to depreciation and amortization and the
recognition of income tax carryforward items.
At December 31, 1995 and 1994, the Company's net deferred tax asset,
utilizing a 34% effective tax rate, consists of:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Investment partnership earnings $ 1,020,000 $ 1,020,000
Net operating loss carryforwards 15,060,000 16,210,000
------------ ------------
Total deferred tax assets before valuation allowance 16,080,000 17,230,000
Valuation allowance (16,080,000) (17,230,000)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
</TABLE>
The valuation allowance was established to reduce the net deferred tax
asset to the amount that will more likely than not be realized. This
reduction is necessary due to uncertainty of the Company's ability to
utilize the net operating loss and tax credit carryforwards before
they expire.
For regular federal income tax purposes, the Company has remaining net
operating loss carryforwards of approximately $44,300,000. These
losses can be carried forward to offset future taxable income and, if
not utilized, will expire in varying amounts beginning in the year
2000. The Company's tax returns have not recently been examined by the
Internal Revenue Service ("Service") and there is no assurance that
the Service would not attempt to limit the Company's use of its net
operating loss and tax credit carryforwards.
For the years ended December 31, 1995 and 1994, the tax effect of net
operating loss carryforwards reduced the current provision for regular
federal income taxes by approximately $1,150,000 and $1,020,000,
respectively. At December 31, 1995, the Company has provided $70,000
for taxes, which relates to alternative minimum tax liabilities.
F-18
<PAGE> 36
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. EMPLOYMENT AGREEMENT
On February 1, 1996, the Company entered into a written employment
agreement with Gary K. Nuttall pursuant to which Mr. Nuttall was
employed as the Company's President and Chief Executive Officer. Mr.
Nuttall's agreement calls for him to receive 466,667 shares of the
Company's common stock upon execution, one-half of which may be
forfeited by Mr. Nuttall under certain circumstances. During his
employment with the Company, Mr. Nuttall is to receive base
compensation in the amount of $3,000 payable semi-monthly, and
certain other benefits. He is to receive a cash flow bonus equal to
20% of eligible cash flow, defined generally as net cash provided (or
used) by operations and distributions from partnerships or
distributions from or sales of other passive investments and income
tax expense as reported on the financial statements of the Company
each year before such bonus, however, distributions from proceeds of
sale or refinancing of Security Land and Development Company Limited
Partnership ("Security") shall only be included to the extent that
such cash flows exceed the carrying amount of Security on the
Company's financial statement. It is payable in cash, or part of
which may be paid in warrants to purchase the Company's common stock,
at 50% of the average bid price, at the option of the Company.
Mr. Nuttall is also to receive a bonus equal to 10% of any financing
secured solely by the Company's investment in Security, part of which
may also be paid in the Company's common stock or in warrants to
purchase the Company's common stock, at 50% of the average bid price
for the week ended December 1, 1995, also at the option of the
Company. The agreement also provides for a grant of options to
purchase 450,000 shares of the Company's common stock pursuant to the
terms of the Company's 1988 Incentive Stock Option Plan. The options
shall become exercisable at the rate of 150,000 shares for each $.03
annual increase in the per share book value of the Company excluding
the effects of the non-cash income accrual on the Company's
investment in Security, and the effects of any non-cash interest
expense on indebtedness of the Company secured by the investment in
Security. The option price is the greater of 50% of the average of
the bid price for the Company's common stock during the week ended
December 1, 1995 or the par value of the stock at the date of the
grant.
NOTE 12. RELATED PARTY TRANSACTIONS
In 1995, L. J. Horbach and Associates, of which L. J. Horbach, a
director of the Company, is the sole owner, was compensated for
services rendered in the amount of $33,000 under an agreement to
provide certain administrative services to the Company for a monthly
fee of $3,000.
In 1994, Mr. Horbach advanced the Company $50,000 to fund the equity
investment in Security Land and Development Company Limited
Partnership. The funds were repaid with interest during 1994. In
addition, Mr. Horbach was issued 10,000 shares of the Company's
common stock, out of treasury shares, for the payment of commitment
fees. L. J. Horbach and Associates was also compensated for services
rendered in the amount of $1,500. Mr. Horbach also holds 1,238 shares
of the Junior Series D preferred stock.
F-19
<PAGE> 37
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. GOING CONCERN
Since 1990 the Company has had limited operating activities and
substantially all of its efforts have been devoted to acquiring or
developing profitable operations. The Company's ability to become an
operating entity and to continue in existence is partly dependent upon
its ability to arrange adequate financing and to attain satisfactory
levels of operating cash flows, including its ability to develop
positive cash flow and profitable operations in NRDC to meet its
obligations. However, due to the minimal operating expenses the
Company currently has, management believes the Company can continue in
existence for an extended period of time. Additionally, the Company's
anticipated cash flow from its investment in Security (see Note 2) and
the proceeds of anticipated financings should provide sufficient
working capital to fund its 1996 operations and obligations.
NOTE 14. PRIOR PERIOD ADJUSTMENT
In 1994, management of the Company determined that its 1993
acquisition of NRDC had been improperly accounted for. Originally the
acquisition was recorded at the March 16, 1994 appraised value of
NRDC's inventory ($15,000,000). The acquisition should have been
recorded at the purchase cost of NRDC's net assets which approximates
the estimated historical cost of NRDC's underlying assets and
liabilities.
The correction of the error has been recorded as a prior period
adjustment and, therefore, certain 1993 ending and 1994 beginning
balance sheet amounts have been restated. The effect of the
restatement on the balance sheet follows:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1993
Balances As Balances
Previously Reported As Adjusted
------------------- -----------------
<S> <C> <C>
Inventory $15,000,000 $850,000
Long-term Debt $ 542,000 $272,100
Minority Interest $ 2,891,287 $115,267
Shareholders' Equity $11,438,221 $334,141
</TABLE>
The effect on 1993 results of operations and net loss per share of the
prior period adjustment was not material.
F-20
<PAGE> 38
Reznick Fedder & Silverman
Certified Public Accountants - Business Consultants
A Professional Corporation
4520 East-West Highway - Suite 300 - Bethesda, MD 20814-3319 -
(301) 652-9100 - Fax (301) 652-1848
INDEPENDENT AUDITORS' REPORT
To the Partners
Security Land and Development Company Limited Partnership
We have audited the accompanying balance sheet of Security Land and
Development Company Limited Partnership as of December 31, 1995, and the
related statements of operations, changes in partners, capital and cash flows
for the year then ended. These financial statements are the responsibility of
the partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Security Land and
Development Company Limited Partnership as of December 31, 1995, and the
results of its operations, changes in partners' capital and cash flows for the
year then ended in conformity with generally accepted accounting principles.
Bethesda, Maryland
January 25, 1996
[List of addresses]
F-21
<PAGE> 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has not been and do not presently exist any disagreements
between the Company and its accountants concerning accounting principles,
auditing procedures or financial disclosure.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS OF THE REGISTRANT.
Identification of directors and officers.
Since there has not been an annual meeting of the stockholders since
August of 1988, the sitting Directors have appointed persons to fill existing
vacancies on the Board. Executive officers are elected annually by the Board of
Directors or until their successors are duly elected and qualified. In
connection with the Transaction, new directors were designated to fill eight
vacant director positions to serve until elected at the next annual meeting of
stockholders. Following is a list of the names and addresses, ages, positions
with the Company, principal occupation and periods of service of the directors.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES HELD AND PRINCIPAL
OCCUPATIONS OR EMPLOYMENT DURING PAST FIVE
NAME, ADDRESS (AGE) YEARS
<S> <C>
Stephanie Carey (45) Director since July 1993. Ms. Carey is a principal and the
West Bay Street Investment Manager for Managed Companies with Bradley
P.O. Box CB 10985 Management (Bahamas) Limited. She is also a director of
Nassau, Bahamas Regal Bahamas International Airways Limited.
</TABLE>
18
<PAGE> 40
<TABLE>
<S> <C>
Martin J. Craffey (58) Director since July 1993. From January 1988 until December
58 Mainsail Drive 31, 1993, Mr. Craffey was a real estate and business
Patchogue, New York 11772 broker and contract vendee with Prudential Realty of Long
Island, N.Y. Mr. Craffey is presently employed in seeking
financing for and reorganizing real estate projects.
Larry J. Horbach (54) Director from 1987 to 1990, from 1992 to February 15, 1994
1869 South 120th Street and since November 16, 1994. Interim Secretary and
Omaha, Nebraska 68144 Treasurer from July 1993 until his resignation effective
February 15, 1994. Mr. Horbach has been Chairman of the
Board, President and Chief Executive Officer of Gateway
Energy Corporation since June 1990 and had served as a
director of Seilon, Inc., both reporting companies under
the Securities Exchange Act of 1934. In addition, during
the past five years, Mr. Horbach has been associated with
L.J. Horbach & Associates, a firm specializing in re-
organizations and restructurings. Mr. Horbach was
designated to fill a vacancy on the Board on November 16,
1994.
Pamlyn Kelly, Ph.D. (52) Director since July 1993. Dr. Kelly is principal and Chief
10 Winged Foot Drive Executive Officer of Human Resource Concepts, Novato, CA,
Novato, California 94949 a registered minority owned management consultant firm and
has a private practice. Dr. Kelly is a licensed
Psychologist in both Arizona and California. Dr. Kelly
received her Ph.D. in Clinical Psychology in 1990. She
received a discharge under Chapter 12 of the United States
Bankruptcy laws in 1991.
Gary K. Nuttall (49) Director and President since February, 1996. Since 1994,
381 Robinwood Lane Mr. Nuttall has served as President of G-BAN Inc., an
Wheaton, IL 60187 investment and financial services advisory company. From
1990 to 1994, Mr. Nuttall served as managing partner and
managing director of Cornerstone Financial Advisors
Limited Partnership of Chicago, Illinois.
</TABLE>
19
<PAGE> 41
<TABLE>
<S> <C> <C>
William R. Ponsoldt, Jr. (29) Director since July 1993. Mr. Ponsoldt is an attorney
50 S.E. Kindred Street engaged in the private practice of law in Florida with the
Stuart, Fla. 34994 law firm of Kohl, Metzter, Spotts, P.A. Formerly, he was
with Kohl, Bobko, McKey, McManus & Higgins, P.A.
Eunice M. Antosh (46) Secretary of the Company since February 25, 1994. Mrs.
Rural Route One Antosh has been employed by L.J. Horbach & Associates
Box 130 since 1983 being responsible for clerical and accounting
Yutan, Nebraska 68073 matters.
</TABLE>
Each of Messrs. Ponsoldt and Craffey, Dr. Kelly and Ms. Carey were
appointed directors of the Company by Statesman as part of the closing of the
Transaction on July 7, 1993. Each had an understanding with Statesman and/or
the Company that as an inducement to accept their positions as directors he or
she would receive certain consideration from Statesman and/or the Company as
set forth in Item 11, COMPENSATION OF DIRECTORS, to which reference is made.
Mr. Horbach was a Director of the Company from 1987 to 1990 and again
from 1992 to February 15, 1994. As noted above, he rejoined the Board on
November 16, 1994 agreeing to serve as a director until the next shareholders'
meeting, at which time he intends not to stand for re- election. Mr. Horbach
served as the interim President of the Registrant on a part time basis until
the closing of the 1993 Transaction. Mr. Horbach had served as the chief
financial officer of the Company from 1987 to 1989 and as Secretary of the
Company from July 7, 1993 to February 15, 1994. From 1976 through the current
date, Mr. Horbach was primarily self-employed with L.J. Horbach & Associates, a
firm specializing in reorganizations. He previously served as Vice President
and Chief Financial Officer of American Beef Packers, Inc., now Sudbury
Holdings, Inc., on a part time basis from 1977 through that Company's
reorganization in 1983, after which he continued to work for Sudbury on a
project by project basis. From 1963 to 1976 he was with Arthur Andersen & Co.,
a public accounting firm. In January 1990, Mr. Horbach was elected to the
Board of Directors of Gateway Sporting Goods Company, a public company (name
later changed to Gateway Energy Corporation.). In June 1990, Mr. Horbach was
appointed the interim President and agreed to serve as the interim Chairman of
the Board upon the resignation of the then president and chairman, and is
currently serving as Gateway's Chairman, President and Chief Executive Officer.
In January 1992, Mr. Horbach was also elected to the Board of Directors of
Seilon, Inc., a public company currently restructuring and without operations
and resigned therefrom on December 13, 1994. On February 7, 1995, Regency
Affiliates, Inc. entered into an agreement with L.J. Horbach & Associates, Inc.
pursuant to which L.J. Horbach & Associates, Inc. will provide certain
administrative services to the Company for a monthly fee of
20
<PAGE> 42
$3,000, including but not limited to accounting and stock transfer record
keeping. L.J. Horbach & Associates, Inc. is wholly owned by Larry J. Horbach.
Item 405 Disclosure.
Stephanie Carey failed to timely file a Form 4 reporting on her
September, 1995 sale of 100,000 shares of the Company's $0.40 p.v. Common
Stock in a private transaction. Ms. Carey did report the transaction on a Form
5.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table.
The following table sets forth the annual and long-term compensation,
attributable to all service in the fiscal year 1995 to Mr. Craig R. Grossman,
Pamlyn Kelly, Ph.D., and Ms. Eunice M. Antosh, the only officers who received
compensation during fiscal 1995.
21
<PAGE> 43
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
-------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
Other Securities
Name and Annual Restricted Underlying All Other
Principal Compen- Stock Options/ LTIP Compensation
Position Year Salary ($) Bonus ($) sation ($) Award(s) ($) SARs (#) Payouts ($) $
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edward G. 1995 -0- -0- -0- -0- -0- -0- -0-
Harshfield 1994 -0- -0- -0- -0- -0- -0- -0-
1993 -0- -0- -0- -0- 750,000(1) -0- -0-
Gary F. 1995 -0- -0- -0- -0- -0- -0- -0-
Spahn 1994 20,000.00 -0- -0- -0- -0- -0- -0-
1993 12,500.00 -0- -0- -0- 250,000(2) -0- -0-
Craig R. 1995 25,000.00 -0- -0- -0- -0- -0- -0-
Grossman, 1994 18,000.00 -0- -0- -0- -0- -0- -0-
President 1993 -0- -0- -0- -0- 2,000(3) -0- -0-
Pamlyn 1995 6,000.00 -0- -0- -0- -0- -0- -0-
Kelly, Ph.D. 1994 500.00 -0- -0- -0- -0- -0- -0-
President 1993 -0- -0- -0- -0- -0- -0- -0-
Eunice M. 1995 11,000.00 -0- -0- -0- -0- -0- -0-
Antosh, 1994 -0- -0- -0- -0- -0- -0- -0-
Secretary 1993 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
____________________________
(1) During the fiscal year ending December 31, 1994, Mr.
Harshfield relinquished the remaining unexercised warrants held by
him.
(2) During the fiscal year ending December 31, 1994, Mr. Spahn
relinquished the remaining unexercised warrants held by him.
(3) Statesman Group, Inc. granted Mr. Grossman warrants to
purchase 2,000 shares of the Company's Cumulative Senior Preferred
$100 Series-C Stock from Statesman at $0.01 per share.
22
<PAGE> 44
STOCK OPTIONS.
The Option/SAR Grants Table is omitted as there were no individual
grants of stock options (whether or not in tandem with SARs) nor freestanding
SARs made during the last completed fiscal year.
The Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values table is omitted as there were no exercise of stock options
(nor tandem SARs) nor freestanding SARs during the last completed fiscal year.
Incentive Stock Option Plans.
The Company has reserved 500,000 shares of its Common Stock for
issuance under the 1988 INCENTIVE STOCK PLAN. In addition, 125,000 shares were
reserved for issuance under the 1984 INCENTIVE STOCK OPTION PLAN. During the
year ending December 31, 1995, no options were granted to executive officers or
directors under either plan.
Non-Qualified Stock Options.
The shareholders of the Company approved in 1989 non-qualified stock
options (stock purchase warrants), granted by the Board of Directors in 1988,
for the purchase of 100,000 shares of Regency's Common Stock to Donald L.
Anderson, a former director, 75,000 shares to each of L.J. Horbach and Paul V.
Degenhart, a former officer and director, and 25,000 shares to each of Stanley
M. Seeds and Joseph Wilwerding (also former directors). Each of these options
was exercisable at $1.50 per share and had a five-year term beginning on
December 19, 1988. In July, 1988, Messrs. Degenhart, Horbach and Wilwerding
exercised their warrants by execution of a secured promissory note to the
Company. The notes were secured by the shares received upon exercise of the
warrants. As part of the Restructuring Plan, certain of these promissory notes
were forgiven in a compromise and settlement of prior compensation due the
executive officers and certain shares issued upon exercise of the warrants, as
well as the remaining warrants, were forfeited and returned to the Company.
OTHER.
LTIP Awards.
There have been no awards under any Long-Term Incentive Plan during
the last completed fiscal year.
Defined Benefit Plans.
The Company has no defined benefit or actuarial plans.
23
<PAGE> 45
Compensation of Directors.
Standard Arrangements. The members of the Board of Directors of
Regency Affiliates, Inc. did not receive any standard compensation for services
as directors or for attendance at meetings during the last completed fiscal
year.
Other Arrangements. There were no other arrangements pursuant to
which any director of the Regency Affiliates, Inc. was compensated during the
Company's last completed fiscal year for services provided as a director.
Employment Contracts, Termination of Employment and Change in Control
Arrangements.
As of December 31, 1995, Regency Affiliates, Inc. had no formal
employment contracts with any executive officers. On February 1, 1996, the
Company entered into a written employment agreement with Gary K. Nuttall
pursuant to which Mr. Nuttall was employed as the Company's President and Chief
Executive Officer. Mr. Nuttall's agreement calls for him to receive 466,667
shares of the Company's $0.40 p.v. Common Stock upon execution, one-half of
which may be forfeited by Mr. Nuttall under certain circumstances. During his
employment with the Company, Mr. Nuttall is to receive base compensation in the
amount of $3,000 payable semi-monthly, a cash flow bonus equal to 20% of
eligible cash flow, payable in cash or in warrants to purchase the Company's
$0.40 p.v. Common Stock, at the option of the Company, and certain other
benefits. Mr. Nuttall is also to receive a bonus equal to 10% of any financing
secured solely by the Company's investment in Security Land And Development
Company Limited Partnership, part of which may also be paid in warrants to
purchase the Company's $0.40 p.v. Common Stock, also at the option of the
Company. The agreement also provides for a grant of options to purchase
450,000 shares of the Company's $0.40 p.v. Common Stock pursuant to the terms
of the Company's 1988 Incentive Stock Option Plan. The option price is the
greater of 50% of the average of the bid price for the Company's $0.40 p.v.
Common Stock during the week ending December 1, 1995 or the par value of the
stock at the date of the grant. In the event that Mr. Nuttall's employment is
terminated without cause by the Company, Mr. Nuttall is entitled to receive his
base compensation, other compensation and benefits for a twelve month period
following his termination. A copy of Mr. Nuttall's agreement is filed herewith
at page E-12.
Compensation Committee Report on Executive Compensation.
This item is omitted as Regency Affiliates, Inc. qualifies as a "small
business issuer" under Rule 405 and Regulation S-B.
Performance Graph.
24
<PAGE> 46
This item is omitted as Regency Affiliates, Inc. qualifies as a "small
business issuer" under Rule 405 and Regulation S-B.
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions.
This item is omitted as Regency Affiliates, Inc. qualifies as a "small
business issuer" under Rule 405 and Regulation S-B.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Security ownership of certain beneficial owners.
To the best of the Company's knowledge, the only beneficial owners of
more than five percent of Regency's voting securities as of February 1, 1996
are listed below:
<TABLE>
<CAPTION>
(2) Name and address of (3) Amount and nature of (4) Percent of
--------------------- ----------------- -- ----------
(1) Title of class beneficial owner beneficial ownership class
-------------- ---------------- -------------------- -----
<S> <C> <C> <C>
Regency Affiliates, Statesman Group, Inc. 2,644,710 (4) 22.7%
Inc. $0.40 p.v. King & George Streets
Common Stock Nassau, Bahamas
Regency Affiliates, Gary K. Nuttall and 666,667 (5) 5.7%
Inc. $0.40 p.v. G-BAN Inc.
Common Stock 381 Robinwood Lane
Wheaton, IL 60187
</TABLE>
____________________
(4) The nature of beneficial ownership is sole investment power and sole
voting power as to all shares listed.
(5) 466,667 shares of the Company's $0.40 p.v. Common Stock were owned
directly by Gary K. Nuttall as of February 1, 1996 over which Mr. Nuttall has
sole investment power and sole voting power. An additional 200,000 shares were
owned as of that date by G-BAN Inc., a corporation owned by members of the
immediate family of Mr. Nuttall and a corporation of which Mr. Nuttall serves as
Secretary and Treasurer and a member of its Board of Directors. As a director
of G-BAN Inc., Mr. Nuttall shares the power to direct the vote and direct the
disposition of the shares held by G-BAN Inc.
25
<PAGE> 47
<TABLE>
<S> <C> <C> <C>
Transcontinental Statesman Group, Inc. 250 (6) 20%
Drilling Company, King & George Streets
Inc. $1.00 p.v. Nassau, Bahamas
Common Stock
</TABLE>
Statesman Group, Inc. is an international business corporation
organized under the laws of the Bahamas. Statesman's principal business is the
making of investments in the United States and elsewhere. Statesman is
currently a holding company for the securities acquired by it in the 1993
Transaction. Both its principal business and principal office is located at
King & George Streets, Nassau, Bahamas. The William R. Ponsoldt, Sr.
Irrevocable Trust dated April 15, 1991 is the controlling person of Statesman.
The William R. Ponsoldt Sr. Trust is an irrevocable trust for the benefit of
William R. Ponsoldt, Jr., a director of the Company, Tracey A. Ponsoldt, now
married and sometimes known as Tracey A. Powers, and Christopher J. Ponsoldt,
all children of William R. Ponsoldt, Sr. The acting trustee of the William R.
Ponsoldt, Sr. Irrevocable Trust dated April 15, 1991 has the sole right to
control the disposition of and vote the Regency securities acquired by
Statesman and the irrevocable proxies over Regency Common Stock delivered to
Statesman pursuant to the terms of the 1993 Transaction.
On February 1, 1996, Mr. Nuttall was elected as President and Chief
Executive Officer of Regency Affiliates, Inc. As an inducement for Mr. Nuttall
to assume his offices and enter into the employment agreement with Regency
Affiliates, Inc. heretofore described, the Company issued to Mr. Nuttall
466,667 shares of the Company's $0.40 p.v. Common Stock. G-BAN Inc. is a
corporation organized under the laws of the State of Illinois. All of the
issued and outstanding shares of G-BAN Inc. are owned directly by Mr. Nuttall's
wife and children. G-BAN Inc. received 200,000 shares of the Company's $0.40
p.v. Common Stock from the Company as part of the finder's fee paid by the
Company for the acquisition by the Company of its partnership interest in
Security Land And Development Company Limited Partnership. Mr. Nuttall
disclaims the right to acquire beneficial ownership of the shares held by G-BAN
Inc.
Security ownership of management.
The following tables set forth as of February 1, 1996 the number of
shares of Regency's on $0.40 p.v. Common Stock beneficially owned by each
director and by all executive officers and directors of Regency as a group as
of such date. Unless otherwise indicated, each person has sole voting and
investment powers with respect to the shares indicated.
____________________
(6) The nature of beneficial ownership is sole investment power and sole
voting power as to all shares listed.
26
<PAGE> 48
<TABLE>
<CAPTION>
(2) Name of beneficial (3) Amount and nature of (4) Percent of
-------------------- ----------------- -- ----------
(1) Title of class owner beneficial ownership class
-------------- ----- -------------------- -----
<S> <C> <C> <C>
Regency Affiliates, Gary K. Nuttall and 666,667 (7) 5.7%
Inc. $0.40 p.v. G-BAN Inc.
Common Stock
Regency Affiliates, Larry J. Horbach 385,204 (8) 3.3%
Inc. $0.40 p.v.
Common Stock
Regency Affiliates, Eunice M. Antosh 62,345 0.5%
Inc. $0.40 p.v.
Common Stock
Regency Affiliates, All officers and directors 1,114,216 9.6%
Inc. $0.40 p.v. as a group (3 individuals)
Common Stock
</TABLE>
Cumulative Senior Preferred $100 Series-C Stock
As of December 31, 1995 certain members of the Board of Directors of
Regency Affiliates, Inc. held warrants to purchase Cumulative Senior Preferred
$100 Series-C Stock from Statesman Group, Inc., as follows: William R.
Ponsoldt, Jr. (warrants to purchase 1,000 shares); Pamlyn Kelly, Ph.D.
(warrants to purchase 1,000 shares); and Martin J. Craffey (warrants to
purchase 1,000 shares).
____________________
(7) See footnote 5 supra.
(8) An irrevocable proxy with respect to 375,205 of these shares, so
long as the shares are held by Mr. Horbach, was given to Statesman Group, Inc.
as part of the 1993 Transaction.
27
<PAGE> 49
Series-D Junior Preferred Stock - $10 Stated Value
Larry J. Horbach holds 1,238 shares of the Series-D Junior Preferred
Stock - $10 Stated Value over which he has sole voting power and sole
investment power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Transactions with management and others.
During the fiscal year ending December 31, 1995, the Company made
payments of interest and principal to Statesman aggregating $25,211, leaving a
principal balance due Statesman at year end of $80,000.
Reference is made to Part III, Item 12, page 26 of this report for a
description of the transactions with Mr. Gary K. Nuttall which resulted in Mr.
Nuttall becoming a director and an executive officer of the Company and
receiving the securities described therein.
Certain business relationships.
At the end of Regency Affiliates, Inc.'s last fiscal year the Company
had no indebtedness to Larry J. Horbach.
Indebtedness of Management.
Reference is made to "Non-Qualified Stock Options" under Part III,
Item 11.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM
8-K.
Financial information:
(2) Exhibits
See Index to Exhibits
(3) Certain schedules are omitted because of the condition under which
they are required or because the required information is included in
the financial statements or notes thereof.
(4) Reports on Form 8-K during the fourth quarter of the Company's fiscal
year:
28
<PAGE> 50
None.
SUBSEQUENT EVENTS
Reference is made to Part III, Item 12, page 26 of this report for a
description of the transactions with Mr. Gary K. Nuttall which resulted in Mr.
Nuttall becoming a director and an executive officer of the Company and
receiving the securities described therein.
(The balance of this page was intentionally left blank).
29
<PAGE> 51
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.
REGENCY AFFILIATES, INC.
-------------------------------
(Registrant)
3/27/96 /s/ Gary K. Nuttall
__________ By: __________________________
Date Gary K. Nuttall, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
DATE SIGNATURE AND TITLE
- ---- -------------------
<S> <C>
3/27/96 /s/ Gary K. Nuttall
- --------------- ----------------------------------------------
Date Gary K. Nuttall, President
3/27/96 /s/Eunice Antosh
- ----------------- ------------------------------------------
Date Eunice Antosh, Secretary
3/27/96 /s/ Stephenie Carey
- ----------------- -----------------------------------------
Date Stephanie Carey,*
Director
3/27/96 /s/ Martin J. Craffey
- --------------- -------------------------------------------
Date Martin J. Craffey,*
Director
</TABLE>
<PAGE> 52
<TABLE>
<S> <C>
3/27/96 /s/ Larry J. Horbach
- ----------------- -----------------------------------------
Date Larry J. Horbach,*
Director
3/27/96 /s/ Pamlyn Kelly, Ph.D.
- ----------------- ------------------------------------------
Date Pamlyn Kelly, Ph.D.,*
Director
3/27/96 /s/ Gary K. Nuttall
- ---------- ------------------------------------
Date Gary K. Nuttall,*
Director
3/27/96 /s/ William R. Ponsoldt, Jr.
- ----------- -------------------------------------
Date William R. Ponsoldt, Jr.,*
Director
*By /s/ Gary K. Nuttall
-------------------------------------
Gary K. Nuttall,
Attorney-in-fact
</TABLE>
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ----------- -----------------------
<S> <C>
1 (a) Agreement For Acquisition among Regency Affiliates, Inc., Statesman
Group, Inc., and National Resource Development Corporation, as amended,
and incorporated herein by reference
1 (b) Irrevocable Proxies over 855,991 shares of Regency's $0.40 par value
Common Stock, and incorporated herein by reference
1 (c) National Resource Development Corporation Assignment and Assumption
Agreement, and incorporated herein by reference
1 (d) Security Land And Development Company Limited Partnership
Agreement, as amended, filed as Exhibit 1(a) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994, and incorporated
herein by reference
1 (e) Letter Agreement dated November 17, 1994 between TCG Management
Corporation and Regency Affiliates, Inc., filed as Exhibit 1(b) to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994, and incorporated herein by reference
1 (f) Security Land And Development Company Limited Partnership Irrevocable
Written Instruction Concerning Payments From Escrow Fund, filed as
Exhibit 1(c) to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, and incorporated herein by reference
1 (g) Audited financial statement for Security Land And Development Company
Limited Partnership, filed as Exhibit 1(d) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994, and incorporated
herein by reference
3 (a) Certificate of Incorporation of Registrant filed at Exhibit 6.1 to
Registrant's Registration Statement on Form S-14, Registration No. 2-66923
1 (a), p. E-1 Agreement For Acquisition among Regency Affiliates, Inc.,
Statesman Group, Inc., and National Resource Development Corporation, as
amended, and incorporated herein by reference
</TABLE>
32
<PAGE> 54
<TABLE>
<S> <C>
3 (b) Certificate of Amendment of Certificate of Incorporation of Registrant filed
at Exhibit 3.2 to Registrant's Annual Report on Form 10-K, and incorporated
herein by reference
3 (c) Certificate of Amendment of Certificate of Incorporation filed February 15, 1988,
and incorporated herein by reference
3 (d) By-laws of Registrant filed at Exhibit 3.4 to Registrant's Registration
Statement on Form S-1, Registration No. 2-86906, and incorporated herein
by reference
4 Certificate of Designation - Series A Cumulative $10 Convertible
Preferred Stock, $.10 par value, filed as Exhibit to Form 8-K dated
June 19, 1989, and incorporated herein by reference
4 (a) Restated Certificate of Designation Series A $10 Convertible Preferred
Stock, $.10 par value filed as Exhibit to Form 10-K dated June 7, 1993
and incorporated herein by reference
4 (b) Certificate of Designation - Series B Preferred Stock, $10 Stated Value,
$.10 Par Value filed as Exhibit to Form 10-K dated June 7, 1993 and
incorporated herein by reference
4 (c) Certificate of Designation - Series C Preferred Stock, $100 Stated Value,
$.10 Par Value filed as Exhibit to Form 10-K dated June 7, 1993 and
incorporated herein by reference
4 (d) Certificate of Designation - Series D Junior Preferred Stock, $10 Stated
Value, $.10 Par Value filed as Exhibit to Form 10-K dated June 7, 1993 and
incorporated herein by reference
4 (e) Certificate of Designation, Preferences and Rights of Cumulative Senior
Preferred Stock $100, Series C and incorporated herein by reference
4 (f) Specimen of Certificate representing Cumulative Senior Preferred Stock $100,
Series C and incorporated herein by reference
4 (g) Specimen of Certificate representing Warrants and incorporated herein by
reference
4 (h) Restated Certificate of Designation of Preferences and Rights of Cumulative
Senior Preferred $100, Series-C Stock, filed as Exhibit 4(a) to
</TABLE>
33
<PAGE> 55
<TABLE>
<S> <C>
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994,
and incorporated herein by reference
4 (i) Certificate of Designation of Preferences and Rights of Cumulative Contingent
Convertible Senior Preferred $100, Series-E Stock, filed as Exhibit 4(b) to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994,
and incorporated herein by reference
4 (j) Specimen Certificate for Cumulative Contingent Convertible Senior Preferred
$100, Series-E Stock, filed as Exhibit 4(c) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994, and incorporated herein by
reference
9 Letter dated November 30, 1994 from R.L. Quint & Co. to Regency Affiliates,
Inc., filed as Exhibit 4(c) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994
10 1984 Incentive Stock Option filed as exhibit to Registrants' 1984 Proxy
Statement, and incorporated herein by reference
10 (a) Agreement For Acquisition among Regency Affiliates, Inc., Statesman Group,
Inc., and National Resource Development Corporation filed as Exhibit to
Form 10-K dated June 7, 1993 and incorporated herein by reference
10 (b) Agreement between Regency Affiliates, Inc. and Edward G. Harshfield, as
amended and incorporated herein by reference
10 (c) Agreement dated July 25, 1994 between Edward G. Harshfield and Regency
Affiliates, Inc., filed as Exhibit 10(a) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994
10 (d) Agreement dated July 21, 1994 between Gary F. Spahn and Regency Affiliates,
Inc., filed as Exhibit 10(b) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994
10 (e) Letter Agreement dated February 7, 1995 between L.J. Horbach & Associates,
Inc., filed as Exhibit 10(c) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1994
22 Schedule of Registrant's subsidiaries, and incorporated herein by reference
</TABLE>
34
<PAGE> 56
<TABLE>
<S> <C>
28 Private Placement Offering Memorandum dated June 3, 1991 offering
$400,000 of Regency Restructuring Serial Promissory Notes filed as
Exhibit to Form 10-K dated June 7, 1993 and incorporated herein by
reference
</TABLE>
EXHIBITS FILED HEREWITH:
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ----------- -----------------------
<S> <C>
4.1, p. E-1 Certificate of Designation - Series C Preferred Stock, $100 Stated Value,
$.10 Par Value
10.1, p. E-12 Agreement executed February 1, 1996 between Gary K. Nuttall and
Regency Affiliates, Inc.
Exhibit 13
24.1, p. E-23 Power of Attorney for Stephanie Carey
24.2, p. E-25 Power of Attorney for Martin J. Craffey
24.3, p. E-27 Power of Attorney for Larry J. Horbach
24.4, p. E-29 Power of Attorney for Pamlyn Kelly, Ph.D.
24.5, p. E-31 Power of Attorney for William R. Ponsoldt, Jr.
27.1 Financial Data Schedule
99.1, p. E-49 Certified resolution of the Board of Directors of Regency Affiliates, Inc.
authorizing the use of powers of attorney to execute this report on Form 10-
K dated March 20, 1996
</TABLE>
35
<PAGE> 1
State of Delaware PAGE 1
Office of the Secretary of State
-------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "REGENCY AFFILIATES, INC.", FILED IN THIS OFFICE ON THE
EIGHTEENTH DAY OF DECEMBER, A.D. 1995, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL] /s/ Edward J. Freel
------------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7766737
0886945 8100 DATE: 12-26-95
E-1
950298824
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/18/1995
950298824 - 886945
CERTIFICATE OF DESIGNATION
PREFERENCES AND RIGHTS
of
Cumulative
Senior Preferred Stock $100, Series C
of
REGENCY AFFILIATES, INC.
AMENDED
REGENCY AFFILIATES, INC., a corporation organized and existing under the
laws of the State of Delaware (herein referred to as the "Corporation" or
"Regency"), in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, does hereby CERTIFY;
ARTICLE I
The Restated Certificate of Incorporation fixes the total number of shares
of all classes of capital stock which the Corporation shall have the authority
to issue as thirty million (30,000,000) shares, of which five million
(5,000,000) shares shall be shares of Preferred Stock, with a par value of $0.10
per share and twenty-five million (25,000,000) shares shall be common stock,
with a par value of $0.40 per share ("Common Stock").
ARTICLE II
The Restated Certificate of Incorporation of the Corporation expressly
grants to the Board of Directors of the Corporation authority to provide for
the issuance of the Preferred Stock in one or more series, with such voting
powers, full or limited, and with such designations, preferences, and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the Restated
Certificate of Incorporation or any amendment thereto, or in the resolution or
resolutions providing for the issue of such stock adopted by the Board of
Directors.
ARTICLE III
Pursuant to the authority conferred upon the Board of Directors by the
Restated Certificate of Incorporation of the Corporation, the Board of
Directors, by action duly taken on June 4, 1993,
E-2
<PAGE> 3
and as amended by action duly taken on November 18, 1994, adopted resolutions
that as amended provided for a series of the Preferred Stock as follows:
"RESOLVED", that an issue of a series of Preferred Stock of the Corporation
(such Preferred Stock being herein referred to as "Series C Preferred Stock",
which term shall include any additional shares of Preferred Stock of the same
class heretofore or hereafter authorized to be issued by the Corporation),
consisting of Two Hundred Ten Thousand (210,000) shares is hereby provided for,
and the voting power, designation, preference and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions are hereby fixed as follows:
1. Designation. The designation of such series shall be Cumulative, Senior
Preferred Stock $100, Series C, par value $0.10 per share (hereinafter referred
to as the "Series C Preferred Stock") and the number of shares constituting such
series shall be Two Hundred Ten Thousand (210,000). The number of authorized
shares of Series C Preferred Stock may be reduced by further resolution duly
adopted by the Board of Directors of the Corporation or an Executive Committee
of the Board of Directors and by the filing of a certificate pursuant to the
provisions of the General Corporation Law of the State of Delaware stating that
such reduction has been so authorized, but the number of authorized shares of
Series C Preferred Stock shall not be increased.
2. Dividends. Quarterly Dividend Periods shall commence on September 30,
1993. Such dividends shall be cumulative from the respective dates of original
issue of shares of Series C Stock and shall he payable, in cash or accrued at
the sole option of the Corporation, when and as declared by the Board of
Directors, commencing September 30, 1993 and ending upon redemption as provided
for herein in Section 4. Each such dividend shall be paid to the holders of
record of shares of Series C Preferred Stock as they appear on the stock
register of the Corporation on such record date, not exceeding 30 days preceding
the payment date thereof, as shall be fixed by the Board of Directors of the
Corporation. Cash dividends on account of accruals for any past Dividend Periods
may be declared and paid at any time, without reference to any regular dividend
payment date, to holders of record on such date, not exceeding 45 days preceding
the payment date thereof, as may be fixed by the Board of Directors of the
Corporation. If there shall be outstanding shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Series C Preferred
Stock, the Corporation, in making any dividend payment on account of accruals on
the Series C Preferred Stock or such other series of Preferred Stock, shall make
payments ratably upon all outstanding shares of Series C Preferred Stock and
such other series of Preferred Stock in proportion to the respective amounts of
dividends in accrued or in arrears upon all such outstanding shares of Series C
Preferred Stock and such other series of Preferred Stock to the date of such
dividend payment.
The amount of dividends per share payable each Quarterly Dividend Period
shall be equal to twenty percent (20%), not to exceed five hundred thousand
($500,000) dollars of the annual
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<PAGE> 4
after tax earnings (net income based on a December 31 fiscal year end) of
National Resource Development Corporation divided by the number of shares of
Series C Preferred Stock outstanding. Dividends payable on the Series C
Preferred Stock for any period less than a full Quarterly Dividend Period, shall
be computed on the basis of a 360-day year and the actual number of days elapsed
in the period for which payable.
3. Redemption. (a) The Corporation, as it option, may redeem shares of the
Series C Preferred Stock from any holder thereof, as a whole or in part, at any
time or from time to time, at a redemption price equal to the lesser of the
stated value of the shares so redeemed plus accrued and unpaid dividends, or
the underlying value (fair market value) of the common stock interest
acquired by the Corporation in National Resource Development Corporation, a
Nevada corporation pursuant to the Agreement for Acquisition dated June 4, 1993,
as amended on July 7, 1993.
(b) If the Corporation shall redeem shares of Series C Preferred Stock
pursuant to this Section 3, notice of such redemption shall be given by first
class mail, postage prepaid, mailed not less than 15 nor more than 30 days prior
to the redemption date, to each holder of record of the shares to be redeemed,
at such holder's address as the same appears on the stock register of the
Corporation. Each such notice shall state: (i) the redemption date; (ii) the
number of shares of Series C Preferred Stock to be redeemed and, if less than
all the shares held by such holder are to be redeemed, the number of such shares
to be redeemed from such holder; (iii) the redemption price; (iv) the place or
places where certificates for such shares are to be surrendered for payment of
the redemption price; and (v) that dividends on the shares to be redeemed will
cease to accrue on such redemption date. Notice having been mailed as aforesaid,
from and after the redemption date (unless default shall be made by the
Corporation in providing money for the payment of the redemption price)
dividends on the shares of the Series C Preferred Stock so called for redemption
shall cease to accrue, and said shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive from the Corporation the redemption
price and accrued by unpaid dividends) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors of the Corporation
shall so require and the notice shall so state), such shares shall be redeemed
by the Corporation at the redemption price aforesaid.
4. Shares to be Retired. All shares of Series C Preferred Stock redeemed by
the Corporation shall be retired and cancelled and shall be restored to the
status of authorized by unissued shares of Preferred Stock, without designation
as to series, and may thereafter be issued.
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<PAGE> 5
5. Voting. Except as hereinafter in this Section 7 expressly provided or as
otherwise required by law, the Series C Preferred Stock shall have no voting
power.
Whenever and as often as dividends payable on any share or shares of the
Preferred Stock at the time outstanding shall be accumulated and unpaid for
seven quarterly dividends (whether or not declared and whether or not
consecutive), the holders of record of the Series C Preferred Stock shall
thereafter have the right; to elect two Directors, and, subject to the terms of
any outstanding series of preferred stock, the holder of record of the common
stock, as a single class, shall have the right to elect the remaining authorized
number of Directors. In any such election, the holders of shares of Series C
Preferred Stock shall be entitled to cast one vote per share.
Upon the happening of the occurrence hereinabove set forth in this Section
7, a special meeting of stockholders of the Corporation then entitled to vote
shall be called by the Chairman and Chief Executive Officer or the President or
the Secretary of the Corporation, if requested in writing by the holders of
record of not less than fifty percent of the Series C Preferred Stock then
outstanding. At such special meeting, or, if no such special meeting shall have
been called, then at the next annual meeting of stockholders, the stockholders
of the Corporation then entitled to vote shall elect, voting as above provided,
an entirely new Board of Directors, and the term of office of the Directors in
office at the time of such election shall expire upon the election of their
successors at such meeting; provided, however, that nothing herein contained
shall be construed to be a bar to the re-election of any Director at such
meeting. At all meetings of stockholders at which holders of Series C Preferred
Stock shall be entitled to vote for Directors as a single class, the holders of
a majority of the outstanding shares of such class or series of capital stock of
the Corporation having the right to vote as a single class shall be necessary
to constitute a quorum, whether present in person or by proxy, for the
election by that class or series of its designated Directors. In order to
validate an election of Directors by stockholder voting as a class, such
Directors shall be elected by the vote of at least a plurality of shares held by
such stockholders present or represented at the meeting. At any such meeting,
the election of Directors by stockholders voting as a class shall be valid
notwithstanding that a quorum of other stockholders voting as one or more
classes may not be present or represented at such meeting, and if any
stockholders voting as a class shall elect Directors, the Directors so elected
shall be deemed to be Directors of the Corporation unless and until the other
stockholders entitled to vote as one or more classes shall elect their
Directors.
While class voting is in effect with respect to the preferred stock, any
Director elected by holders of preferred stock voting as a class may be removed
at any annual or special meeting, by vote of a majority of the stockholders
voting as a class who elected such Director, for any cause deemed sufficient by
such stockholders present at such meeting. In case any vacancy shall occur among
the Directors elected by such stockholders voting as a class, such vacancy may
be filled
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<PAGE> 6
by the remaining Director so elected, or his successor then in office, and the
Director so elected to fill such vacancy shall serve until the next meeting of
stockholders for the election of Directors.
Such voting rights of the holders of Series C Stock as a single class, once
effective, shall continue only until all arrears in required cash dividends
(whether or not declared) on the Series C Preferred Stock shall have been paid
at which time the right to vote as a single class for the election of
Directors, as hereinabove set forth, shall terminate. Upon such termination, a
special meeting of the stockholders of the Corporation then entitled to vote may
be called by the Chairman or the President, and shall be called by the Chairman
or the President or the Secretary of the Corporation if requested in writing by
the holders of record of not less than one percent of the common stock then
outstanding, and at such special meeting, or if no such special meeting shall
have been called then at the next annual meeting of the stockholders, the
stockholders of the Corporation then entitled to vote shall elect an entirely
new Board of Directors and the term of office of the Directors in office at the
time of such election shall expire upon the election of their successors at such
meeting; provided, however, that nothing herein contained shall be construed to
be a bar to the re-election of any such Director at such meeting.
The consent of a majority of the holders of the shares of Series C
Preferred Stock at the time outstanding, which consent shall not be unreasonably
withheld, given in person or by proxy, either in writing or at a meeting of
stockholders at which the holders of the Series C Preferred Stock shall vote
separately as a class without regard to series, the holders of shares of Series
C Preferred Stock being entitled to cast one vote per share thereon, shall be
necessary for effecting or validating any change in the Restated Certificate of
Incorporation or certificate supplemental thereto or By-laws of the Corporation
or the Restated Certificate of Designation of Cumulative Senior Preferred
Stock, Series C which would materially and adversely alter or change the
preference, privileges, rights or powers given to the holders of the Series C
Preferred Stock, provided, that if one or more but not all series of preferred
stock at the time outstanding are so affected, only the consent of the holders
of each series so affected, voting separately as a class, shall be required.
Notwithstanding the foregoing, nothing herein should be construed as affecting
the right of the Corporation to issue shares of any other class of stock of the
Corporation (including other series of Preferred Stock) ranking prior to the
Series C Preferred Stock.
6. Liquidation Preference. In the event of any liquidation, dissolution or
winding up of the Corporation, voluntary or involuntary, the holders of all
shares of Series C Preferred Stock shall be entitled to the lesser of net
proceeds of the assets of National Resource Development Corporation ("NRDC")
available for distribution to stockholders, or the Redemption Value under
Section 3(a), before any distribution of assets shall be made to holders of
common stock or of any other shares of stock of the Corporation. if, upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the amounts payable with respect to the Series C
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<PAGE> 7
Preferred Stock and any other shares of preferred stock of the Corporation
ranking as to any such distribution on a parity with the Series C Preferred
Stock are not paid in full (after the NRDC distributuin), the holders of the
Series C Preferred Stock and of such other shares shall share ratably in any
remaining distribution of assets of the Corporation in proportion to the full
preferential amounts provided for in this Section 8, the holders of the Series
C Preferred Stock shall be entitled to no further participation in any
distribution of assets by the Corporation.
Consolidation or merger of the Corporation with or into another
corporation or corporations, or a sale, whether for cash, shares of stock,
securities or properties, of all or substantially all of the assets of the
Corporation, shall not be deemed or construed to be a liquidation, dissolution
of winding up of the Coporation within the meaning of this Section 6.
7. Limitation on Dividends on Junior Ranking Stock. So long as
any Series C Preferred Stock shall be outstanding, the Corporation shall not
declare any dividends on the common stock of the Corporation or any other stock
of the Corporation or any other stock of the Corporation ranking as to
dividends or distribution of assets junior to the Series C Preferred Stock (the
common stock and any other stock being herein referred to as "Junior Stock"),
or make any payment on account of, or set apart money for, a sinking or other
analogous fund for the purchase, redemption or other retirement of any shares
of Junior Stock, or make any distribution in respect thereof, whether in cash
or property or in obligations or stock of the Corporation, other than Junior
Stock (such dividends, payments, setting apart and distributions being herein
called "Junior Stock Payments"), unless all of the conditions set forth in the
following subsections A and B shall exist at the date of such declaration in
the case of any such fund, or the date of such setting apart, or the date of
such payment or distribution in the case of any other Junior Stock Payment:
A. Full cumulative dividends shall have been paid upon all
outstanding shares of Series C Preferred Stock.
B. The Corporation shall not be in default or in arrears with
respect to any sinking or other analogous fund or any call for tenders or other
agreement for the purchase, redemption or other retirement of any shares of
Series C Preferred Stock.
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<PAGE> 8
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this certificate to be signed by its President, and
witnessed this 4 day of December, 1995.
REGENCY AFFILIATES, INC.
ATTESTED:
/s/ Eunice M. Antosh By /s/ Pamlyn Kelly, Ph.D.
- --------------------------- ------------------------
Eunice Antosh, Secretary Pamlyn Kelly Ph.D.
STATE OF )
) SS.
COUNTY OF )
On this ___ day of ____________, 1995, before me, a Notary Public in
and for said County and State, personally appeared Pamlyn Kelly Ph.D.,
President of Regency Affiliates, Inc., known to me to be the person who
executed the foregoing Restated Certficate of Designation on behalf of said
corporation and acknowledged to me that he exectued the same for the purpose
therein stated.
IN WITNESS WHEREOF, I have herein to set my hand and affixed my
notarial seal the day and year last above written.
________________________________
Notary Public
My Commission Expires:
____________________________
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<PAGE> 9
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California
-------------
County of Marin
------------
<TABLE>
<CAPTION>
On December 4, 1995 before me, Teri I. Miller, Notary Public,
---------------- --------------------------------------------------------
Name and Title of Officer (e.g. "Jane Doe, Notary Public")
personally appeared Pamlyn Kelly,
-------------------------------------------------------------------
Name(s) of Signer(s)
<S> <C>
[] personally known to me - OR - [x] proved to me on the basis of satisfactory evidence to be
the person whose name is subscribed to the within instrument
and acknowledged to me that she executed the same in her
authorized capacity, and that by her signature on the
instrument the person or the entity upon behalf of which
the person acted, executed the instrument.
[SEAL] WITNESS my hand and official seal.
/s/ Teri I. Miller
------------------------------------------------
Signature of Notary Public
<CAPTION>
- ----------------------------------------------- OPTIONAL ----------------------------------------------------
Though the information below is not required by law, it may prove valuable to persons relying on the document
and could prevent fraudulent removal and reattachment of this form to another document.
DESCRIPTION OF ATTACHED DOCUMENT
Title or type of Document: Certificate & Designation Preferences and of cumulative Senior Preferred Stock $100, Series Rights
-----------------------------------------------------------------------------------------------------
Document Date: Signed Dec. 4, 1995 Number of Pages
-------------------------------------- -----------------------------------------------------------
Signer(s) Other Than Named Above: No other signers notarized
----------------------------------------------------------------------------------------------
CAPACITY CLAIMED BY SIGNER
<S> <C>
Signer's Name: Pamlyn Kelly Signer's Name: N/A
----------------------------------- -------------------------------------
[x] Individual [ ] Individual
[x] Corporate Officer [ ] Corporate Officer
Title(s): President Title(s):
------------------------------------ ------------------------------------
[ ] Partner - [ ] Limited [ ] General [ ] Partner - [ ] Limited [ ] General
[ ] Attorney-in-Fact [ ] Attorney-in-Fact
[ ] Trustee [ ] Trustee
[ ] Guardian or Conservator ----------------- [ ] Guardian or Conservator -----------------
[ ] Other: RIGHT THUMBPRINT [ ] Other: RIGHT THUMBPRINT
--------------------- OF SIGNER --------------------- OF SIGNER
--------------------- Top of thumb here --------------------- Top of thumb here
N/A N/A
Signer is Representing: Signer is Representing:
Regency Affiliates, Inc.
- ------------------------------ ------------------------------
- ------------------------------ ----------------- ------------------------------ -----------------
</TABLE>
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<PAGE> 10
REGENCY AFFILIATES, INC.
------------------------
SECRETARY'S CERTIFICATE
-----------------------
The undersigned, Eunice Antosh, hereby certifies that she is the duly
elected Secretary of REGENCY AFFILIATES, INC., an Delaware corporation, and
that:
1. The Certifcate of Designation of Preferences and Rights attached
hereto is the act and deed of Regency Affiliates, Inc. and has
been duly executed by Pamlyn Kelly, its President.
2. That at a meeting of the Board of Directors of the Corporation
held on June 22, 1995 the following action was taken:
Upon motion duly made and seconded, the Board
unanimously resolved to proceed with the proposed
amendment to the certificate of designation and to
authorized the officers of Regency to execute all
documents, certificates, agreements and other
matters necessary and appropriate for the
consummation of the same, including, but not
limited to the filing of an amended certficate of
designation with the Secretary of State of Delaware.
IN WITNESS WHEREOF, I have signed this certificate this 6 day of
December, 1995.
/s/ Eunice M. Antosh
---------------------------------
Eunice M. Antosh, Secretary
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<PAGE> 11
CONSENT
-------
The undersigned, Statesman Group, Inc., hereby consents to the execution
and filing with the Secretary of State of the State of Delaware of the amended
Certificate of Designation of the Preferences and Rights of the Cumulative
Contingent Convertible Senior Preferred Stock, $100, Series C of Regency
Affiliates, Inc., a copy of which is attached hereto as Exhibit A.
STATESMAN GROUP, INC.
/s/ Jacqueline M. Teske
------------------------------
Jacqueline M. Teske, Secretary
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<PAGE> 1
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of the 1st day of December, 1995 by and between
Gary K. Nuttall (the "Executive") and Regency Affiliates, Inc. (the "Company").
WITNESSETH:
-----------
WHEREAS, the Company wishes to obtain the future services of the Executive
for the Company; and
WHEREAS, the Executive is willing, upon the terms and conditions herein set
forth, to provide services hereunder;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. NATURE OF EMPLOYMENT
--------------------
The Company hereby employs the Executive, and the Executive agrees to
accept such employment as the President and Chief Executive Officer of the
Company and to undertake such duties and responsibilities as may be reasonably
assigned to Executive from time to time by the Board of Directors of the
Company. As an inducement for Executive to enter into this Employment Agreement,
the Company shall issue 466,667 shares of its common stock to the Executive upon
execution of this Employment Agreement by the Executive and the Company. In the
event that the Executive is discharged for cause, within one (1) year of the
date hereof, as detailed in Section 4.(c), or resigns within one (1) year of the
date hereof, the Executive shall return 233,333 shares of the Company's common
stock to the Company.
2. EXTENT OF EMPLOYMENT
--------------------
(a) During the Term of Employment, the Executive shall perform his
obligations hereunder faithfully, diligently and to the best of his ability,
under the direction of the Board of Directors of the Company (the "Board").
(b) During the Term of Employment (except for vacation periods, (holidays)
and reasonable periods of illness or other incapacity), the Executive shall
devote such of his business time, energy and skill as Executive shall reasonably
consider appropriate after consultation with the Board to the performance of his
duties, responsibilities and obligations hereunder, understanding that the
Executive may devote business time, energy and skills to business ventures
unrelated to Regency. The Executive shall not be required to keep detailed time
sheets or records of the time spent on the Company's affairs, but shall be
accountable to the Board in respect thereof.
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<PAGE> 2
3. LOCATION
--------
During the Term of Employment, the Executive shall perform his duties
hereunder at his home or such other place as shall be agreed upon by the
Executive and the Board. The Executive shall, however, also travel to other
locations at such time as may be appropriate in the performance of his duties.
4. TERMS OF EMPLOYMENT
-------------------
The "Term of Employment" shall commence upon execution of this Agreement
and continue until the thirtieth day after The Executive notifies the Board of
Directors of the Company of his decision not to continue his employment with the
Company; provided, that the Term of Employment may be terminated at any time by
the Company as follows:
(a) If the Executive fails to perform his duties under this Agreement on
account of illness or other incapacity which continues for a period of six
consecutive calendar months, the Corporation may give notice to the Executive to
terminate this Agreement on a date not less than 30 days thereafter (the "Notice
Period"); and if the Executive has not resumed full performance of his duties
under this Agreement within such Notice Period, then the Executive's employment
under this Agreement will terminate 30 days after the date provided in the
notice ("Termination Date"). The Executive's right to exercise warrants granted
by this Agreement or subsequent awards of warrants, options or the like shall be
exercisable by the Executive at the Executive's sole discretion.
(b) If the Executive dies, the spouse or estate of the Executive shall be
entitled to receive the base compensation and pro-rated bonus to which the
Executive would have been entitled had the Term of Employment not been
terminated, for a ninety-day period beginning with such termination. The
Executive's rights upon any such termination to warrants, options, perquisites,
and benefits payable under other benefit plans shall be exercisable by the
spouse or estate of the Executive and such termination shall not be in
derogation of any rights that the Executive may then have to such.
(c) The Corporation may terminate the Executive's employment for just cause
at any time by giving written notice thereof to the Executive. (The date of such
notice is the "Termination Date" unless otherwise provided in the notice).
Within 30 days after the Termination Date the Corporation shall pay to the
Executive his Base Salary as then in effect which has accrued to the Termination
Date, and the Executive's rights upon such termination to warrants, options,
perquisites, and benefits payable under other benefit plans shall be exercisable
by the Executive at his sole discretion. For the purposes of this subparagraph,
"just cause" shall mean willful and deliberate misconduct by the Executive or a
breach by the Executive of the provisions of this Agreement which, in either
case, is detrimental in a significant way to the interests of the Corporation.
(d) Termination of the Executive's employment by the Corporation for any
reason not specified in subparagraphs (a), (b),or (c) of this Section 4 shall
not constitute a breach by the Corporation of this Agreement In such event, the
Executive shall continue to receive the Base Salary
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<PAGE> 3
and other compensation and benefits (as detailed under Sections 5,6,7, & 8
below) that he would have received if he had continued his employment with the
Corporation in the same position he occupied on the date his employment was
terminated until twelve months following the termination of the Executive's
employment, as severance. If the Executive presents an acquisition with
attendant financing to the Board which the Board believes would be in the best
interest of the Company to pursue, but the proposed acquisition economics given
the Cash Flow Bonus (as defined below) that the Company would be required to pay
under Section 5.(b) if it completed this transaction would be unacceptable to
the Board, and the Executive and the Board are unable to reach a mutually
satisfactory agreement as to an alternative form, timing or amount of the Cash
Flow Bonus, the Executive acknowledges that the Board would have the right to
terminate the Executive's employment without cause. In such event, if the
Company completed the transaction which was the subject of this dispute, the
Executive's compensation for the twelve months following the Executive's
termination would be calculated without regard to the cash flow provided by the
disputed transaction. In the event of a breach of this Agreement, the Executive
shall have recourse to all remedies at law or in equity, including the recovery
of damages.
5. COMPENSATION
------------
(a) BASE COMPENSATION:
During the Term of Employment, the Company shall pay to the
Executive as base compensation for his services in equal semi-monthly
installments of $3,000 each, to be adjusted on January 1 of every year by any
increase in the Consumer Price Index for All Urban Consumers, U.S. city average,
as published by the U.S. Department of Labor Bureau of Labor Statistics ("CPI").
(b) CASH FLOW BONUSES:
The Executive will be paid a bonus equal to 20.0 percent of the
sum of the Company's "Net Cash provided (or used) by Operations" (excluding
financing activities) and "Distributions from Partnerships" or distributions
from or sales of other passive investments (from the Company's Consolidated
Statement of Cash Flows) and "Income Tax Expense" (from the Company's
Consolidated Statement of Operations) as reported in the Financial Statements of
the Company each year before such bonus (the "Cash Flow Bonus"), as illustrated
in Exhibit A, provided, however, that distributions from proceeds of sale or
refinancing of the Security Land and Development Company Limited Partnership
shall only be included to the extent that such cash flows exceed the amount at
which this investment is reported on the Company's financial statements and of
the previous quarterly reporting period. The Cash Flow Bonus shall be paid by
January 31 of the Following year based on the unaudited financial statements of
the Company, with any final adjustments made upon the completion of the audited
financial statements of the Company. The Company may elect, at the end of each
year, to pay 50 percent of of the Cash Flow Bonus in the form of warrants (the
"Warrants") to purchase the Company Stock of the Company at a price equal to 50
percent of the average bid price for the stock for the week ended December 1,
1996, for the period from December 1, 1995 to December 31, 1996 and, thereafter,
at 50 percent of the average bid
3
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<PAGE> 4
price for the stock for the fourth calendar quarter of each year for which such
bonus is payable (the "Warrant Price").
(c) FINANCING BONUSES:
For the period from December 1, 1995 to December 31, 1996, upon
the funding of any financing for the Company secured solely by the Company's
investment in the Security Land and Development Company Limited Partnership, the
Executive shall be paid a bonus (the "Financing Bonus") equal to 10 percent of
such financing, in cash. At the option of the Company, half of the Financing
Bonus may be paid in cash at funding of such financing and half of which may be
paid in the form of the Company's Common Stock, which stock will be valued at 50
percent of the average bid price for the stock for the week ended December 1,
1995 (the "Stock Fair Market Value"). Alternatively, at the option of the
Company, part of the issuance of Common Stock may be in the form of Warrants.
(d) MECHANICS OF WARRANT ISSUES TO THE EXECUTIVE:
If the Company elects to pay the Executive a portion of any of
the above described bonuses in the form of Warrants, the Company shall
irrevocably agree to pay to the Executive in an amount equal to that portion of
the bonus to be paid in the form of Warrants (the "Agreement to Pay"). The
number of Warrants issued under any provision of this Section 5 shall be equal
to the amount of the bonus to be paid by the issuance of Warrants divided by the
Warrant Price.
Any Agreement to Pay issued by the Company to the Executive
shall carry an interest rate equal to the mid-term Treasury rate, which interest
shall accrue and be paid in addition to the Executive's compensation each year.
The Agreement to Pay, and accrued interest thereon, shall be applied to the
Warrant Price should the Executive decide to purchase the Company's stock by the
exercise of the Warrant
If the per share Warrant Price is less than the par value of the
Common Stock (the "Stock Spread"), and if the Executive exercises the Warrant
and purchases the stock, at the option of the Executive, the Company will
either, at the option of the Executive:
(i) declare such Stock Spread multiplied by the number of
shares purchased by the exercise of the Warrant (the "Warrant Spread") to be
additional compensation paid to the Executive; or
(ii) allow the Executive to issue a non-recourse note to
the Company in the amount of the Warrant Spread (the "Note"), which Note would
accrue interest at the mid-term Treasury rate, be secured only by the stock
received by the Executive and become due and payable upon the sale of the stock
acquired by the exercise of the Warrant or the Executive leaving the employment
of the Company.
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<PAGE> 5
The Executive may elect to finance the Warrant Spread partly
under 5.(d)(i) above and partly under 5.(d)(ii) above, and may elect to convert
any portion, or all of the financing provided under alternative 5.(d)(ii) above
and the accrued interest on the Note, as compensation under 5.(d)(i) above in
periods subsequent to the Initial election by the Executive.
(e) INCENTIVE STOCK OPTIONS:
The Executive will be granted options to purchase 450,000 common
shares of the Company at the greater of the Stock Fair Market Value of the
Company's common stock (as determined under Section 5.(c) above) or the par
value of the common stock at date of grant. The Company agrees to reserve
450,000 shares from its 1988 Incentive Stock Option Plan to meet the
requirements of this paragraph. The options shall become exercisable and shall
remain exercisable until the expiration date as provided for in the Plan, at the
rate of 150,000 shares for each $.03 annual increase in the per share book value
of the Company (excluding the effects of the non-cash income accrual on the
Company's investment in the Security Land and Development Company Limited
Partnership, and the effects of any noncash interest expense on indebtedness of
the Company secured by this asset), or any pro rata portion thereof if less
than $.03 per share. Executive shall have the right, with respect to the
exercise of any such options, to follow the mechanisms as set forth under
Section 5.(d) above with respect to the payment of the option exercise price.
6. BENEFITS
--------
During the Term of Employment, and to the extent reasonably
available, The Executive and his wife shall receive medical insurance coverage.
The Company shall maintain insurance that will entitle The Executive to receive
$50,000 per year in the event he suffers a mental or physical disability that
prevents him from remaining an employee of the Company, and shall provide such
other appropriate benefits to him as are reasonably acceptable to the Board of
Directors of the Company. At such time as directors' and officers' insurance
shall become reasonably available to the Company, the Executive shall be added
to the Company's policy as an additional insured.
7. VEHICLE ALLOWANCE
-----------------
During the Term of Employment, the Company shall pay The Executive a
vehicle allowance of $600 per month, which allowance shall increase each January
1 by any increase in the CPI index as described above. The Executive shall not
be required to account for the expenditure of this allowance.
5
E-16
<PAGE> 6
8. REIMBURSEMENT OF EXPENSES
-------------------------
During the Term of Employment, the Company shall reimburse The
Executive for documented travel, entertainment and other expenses reasonably
incurred by The Executive in connection with the performance of his duties. Such
expenses shall include compensation actually paid by the Executive at market
rates for secretarial and other business related services provided by Brenda
Nuttall or by a third-party. The Executive may also incur expense directly in
behalf of Regency. The Executive shall be reimbursed for the reasonable fees and
expenses of legal and tax advisors to review this Agreement, subject to a cap of
$2,000. Upon completion of any financing for the Company in 1996, the Executive
shall be reimbursed all out of pocket expenses incurred in the negotiation,
closing and accounting for the Company's investment in the Security Land and
Development Partnership Limited Partnership, subject to a cap of $2,000.
9. APPOINTMENT AS A DIRECTOR OF THE COMPANY
----------------------------------------
Upon execution of this Agreement, the Executive shall be appointed as
a member of the Company's Board of Directors.
10. DISCLOSURE OF CONFLICTS OF INTEREST: NONCOMPETITION; CONFIDENTIAL
-----------------------------------------------------------------
INFORMATION
-----------
(a) DISCLOSURE OF CONFLICTS OF INTEREST:
Since it is understood that the Executive shall devote business
time, energy and skills to business ventures unrelated to Regency, the Executive
shall, at least annually, disclose to the Board of Directors of the Company
transactions unrelated to the Company in which he has participated. Where
transactions may represent an investment opportunity for the Company, before
pursuing other alternatives, The Executive will seek direction from a
sub-committee of Company's Board of Directors. The Executive shall use his good
faith judgement as to whether or not he should seek such advice of the
sub-committee of the Company Board of Directors.
(b) NONCOMPETITION;
Executive promises that, during the term of his employment with
the Company, he will not engage in any business or activity in competition with
the Company within the United States of America, either directly, whether for
himself or a third party, without the express written permission of the
Employer.
Executive promises that for a period of two (2) years following
the termination of his employment with the Company he will not, either directly
or indirectly, whether for himself or a third party, without the express written
permission of the Employer, pursue any business opportunity that was actively
pursued by the Company during his tenure of employment and not abandoned by the
Company.
6
E-17
<PAGE> 7
(c) CONFIDENTIAL INFORMATION:
The Executive promises that he will not at any time during or
after his employment, and without the Company's express written permission,
reveal or use for his own benefit or the benefit of a third party, any trade
secret, customer list or information, sales data, business plans, or other
confidential information related to the Company's business.
(d) REMEDIES:
The parties agree that the violation or threatened violation by
the Executive of his undertakings hereunder, will cause the Company irreparable
harm for which damages will be inadequate or unascertainable. Accordingly, in
such case the Company shall be entitled to appropriate temporary and permanent
injunctive relief, in addition to all other legal and equitable relief.
If a court finds that the scope or duration, or both, of the
restrictions stated in this contract is excessive, the court is requested to
determine the maximum lesser scope or duration, or both, that the court
considers reasonable, and the Executive agrees that the lesser restriction
determined by the court shall be as binding as if originally part of this
contract. Nothing in this contract shall be construed as an admission by either
party that the scope or duration of the restrictions stated herein are
excessive.
11. INDEMNIFICATION OF EXECUTIVE
----------------------------
The Executive shall not be liable, responsible or accountable in
damages or otherwise to the Company or any Shareholder of the Company for any
loss or damage incurred by reason of any act or omission performed or omitted by
the Executive in good faith either on behalf of the Company or in furtherance of
the interests of the Company and in a manner reasonably believed by him to be
within the scope of authority granted to him by the Company or by law, provided
that the Executive was not guilty of gross negligence, fraud or bad faith, or
willful misconduct with respect to such acts or omissions. The Company shall
indemnify and hold harmless the Executive if the Executive is a party or is
threatened to be made a party to any threatened, or pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(including any action by or in the right of the Company), by reason of any acts
or omissions or alleged acts or omissions arising out of his activities as an
employee of the Company, if such activities were performed in good faith either
on behalf of the Company or in furtherance of the interests of the Company, and
in a manner reasonably believed by the Executive to be within the scope of the
authority conferred by the Company or by law, against losses, damages or
expenses for which he has not otherwise been reimbursed (including attorneys'
fees, judgements, fines and amounts paid in settlement) actually and reasonably
incurred by the Executive in connection with such action, suit or proceeding,
so long as the Executive was not guilty of gross negligence, fraud, bad faith,
willful misconduct with respect to such acts or omissions. The Company shall
pay the expenses as and when incurred by the Executive in defending a civil
or criminal action, suit or proceeding in advance
7
E-18
<PAGE> 8
of the final disposition of such action, suit or proceeding, upon receipt of an
undertaking by the Executive to repay such payment if there shall be
adjudication or determination that indemnification should not be provided
hereunder.
12. NOTICE
------
Any notice, request, demand or other communication required or
permitted to be given under this Agreement shall be given in writing and if
delivered personally, or sent by certified or registered mail, return receipt
requested, as follows (or to such other addressee or address as shall be set
forth in a notice given in the same manner):
If to the Executive: Gary K. Nuttall
381 Robinwood Lane
Wheaton, Illinois 60187
If to the Company: Regency Affiliates, Inc.
10842 Old Mill Road, Suite #5
Omaha, Nebraska 68154
Any such notices shall be deemed to be given on the date personally
delivered or such return receipt is issued.
13. ARBITRATION
-----------
It is agreed that in the event that any disagreement, dispute,
controversy or claim arises out of or in relation to or in connection with this
Agreement or breach thereof, the parties shall seek to solve the matter amicably
through discussions between the parties. Each party agrees to consider in good
faith any reasonable request by the other party to engage in mediation or any
other means of alternative dispute resolution short of arbitration. Only if the
parties fail to resolve such disagreement, dispute, controversy, claim or breach
by amicable arrangement and compromise within 60 days, may the aggrieved party
seek arbitration as set forth herein. Any disagreement, dispute, controversy or
claim with respect to the validity of this Agreement or arising out of or in
relation to the construction or interpretation of this Agreement, or breach
hereof, shall be finally settled by binding arbitration. The arbitration shall
take place in Cleveland, Ohio in accordance with the rules of the American
Arbitration Association or as the parties shall otherwise agree. The arbitration
shall be brought before three (3) arbitrators, one (1) each appointed by the
respective parties and one (1) additional arbitrator selected by the two (2)
appointed arbitrators. Judgement upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. The arbitrators shall have
the power, in addition to the power of determining the merits of the
arbitration, to determine the scope and limits of discovery and to enforce the
rights, remedies, procedures, duties, liabilities and obligations of discovery
by the imposition of the same terms, conditions, consequences, liabilities,
sanctions, and penalties as can be or may be imposed on the like circumstances
in a civil action by a State Court of the State of Ohio under the provisions of
the
8
E-19
<PAGE> 9
Ohio Rules of Civil Procedure, except the power to order the arrest or
imprisonment of a person. Each party shall absorb its own costs of arbitration,
including attorney's fees, and the parties shall split equally any arbitrators'
fees.
Notwithstanding the section above, the parties shall have recourse to
the courts of Ohio for the purpose of obtaining any injunctive relief remedy as
permitted by the laws of the State of Ohio.
14. SEVERABILITY
------------
Whenever possible, each provision of this Agreement will be
interpreted in such manner so as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
15. WAIVER OF BREACH
----------------
The waiver by the Company or the Executive of a breach of any
provision of this Agreement by the other party shall not operate, or be
construed, as a waiver of any other breach of such other party. Each of the
parties (and third party beneficiaries) to this Agreement will be entitled to
enforce its rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in its favor.
16. AMENDMENT: ENTIRE AGREEMENT
---------------------------
This Agreement may not be changed orally but only by an agreement in
writing agreed to by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. This Agreement embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter of this Agreement, and supersedes and replaces all prior
Agreements, understandings and commitments with respect to such subject matter.
17. GOVERNING LAW
-------------
This Agreement shall be governed by, construed, applied and enforced
in accordance with the Laws of the State of Ohio, and no doctrine of choice of
law shall be used to apply any law other than that of Ohio, and no defense,
counterclaim or right of set-off given or allowed by the laws of any other state
or jurisdiction, or arising out of the enactment, modification or repeal of any
law, regulation, or ordinance or decree of any foreign jurisdiction, shall be
interposed in any action hereon.
9
E-20
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first above written.
EXECUTIVE: /s/ Gary K. Nuttall
---------------------------
Gary K. Nuttall
REGENCY AFFILIATES, INC.
By: /s/ Eunice M. Antosh
-----------------------------------
Its: Secretary of the Board
10
E-21
<PAGE> 11
EXHIBIT A
<TABLE>
<CAPTION>
10Q 9 MONTH $ ANNUALIZED $
LINE ITEM NAME PAGE # AMOUNT AMOUNT
-------------- ------ ---------- ------------
<S> <C> <C> <C>
Net Cash Provided (or used) by Operating Activies 6 (273,308) (364,410)
Distributions from Partnerships 6 100,000 100,000 1
Income Taxes 5 103,000 137,000
-------- --------
EBTDA for Purposes of Calculating the "Cash Flow (70,308) (127,410)
Bonus"
Cash Flow Bonus @ 20% of EBTDA (if positive) n/a 0
<FN>
- --------------
1 Not annualized since this is received only once each year.
</TABLE>
11
E-22
<PAGE> 1
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
SECURITY LAND AND DEVELOPMENT COMPANY
LIMITED PARTNERSHIP
DECEMBER 31, 1995
E-33
<PAGE> 2
Security Land and Development Company Limited Partnership
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENT OF OPERATIONS 5
STATEMENT OF PARTNERS' CAPITAL 6
STATEMENT OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
</TABLE>
E-34
<PAGE> 3
[Reznick Fedder & Silverman Letterhead]
INDEPENDENT AUDITORS' REPORT
To the Partners
Security Land and Development Company Limited Partnership
We have audited the accompanying balance sheet of Security Land and
Development Company Limited Partnership as of December 31, 1995, and the related
statements of operations, changes in partners' capital and cash flows for the
year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Security Land and
Development Company Limited Partnership as of December 31, 1995, and the results
of its operations, changes in partners' capital and cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 25, 1996
-3-
E-35
<PAGE> 4
Security Land & Development Company
Limited Partnership
BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Investment in real estate, net of $38,706,350
accumulated depreciation
Cash and cash equivalents 331,163
Restricted escrow 18,514,573
Tenant accounts receivable 1,012,886
Prepaid expenses and other receivables 377,075
Deferred charges, net of accumulated
amortization of $753,578 1,875,149
-----------
Total Assets $60,817,196
===========
Note payable, net of discount $51,380,596
Accounts payable and accrued expenses 996, 976
Accrued interest payable 513,054
Deferred rental income 3,763,183
Deferred interest income 859,988
-----------
57,513,797
Partners' Capital 3,303,399
-----------
$60,817,196
===========
</TABLE>
See notes to financial statements
E-36
-4-
<PAGE> 5
Security Land & Development Company
Limited Partnership
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Revenues
Rental income $11,643,629
Interest income 208,426
Tenant reimbursements 113,473
-----------
Total revenue 11,965,528
-----------
Administrative
Management fees 250,000
Professional fees 62,923
Payroll expenses 434,722
Office expenses 28,889
-----------
776,434
-----------
Operating
Janitorial contract 1,020,180
Maintenance contracts 81,601
Repairs and maintenance 89,847
Maintenance supplies 183,376
-----------
1,375,004
-----------
Interest, taxes and insurance
Interest 3,836,198
Real estate taxes 545,667
Insurance 93,508
-----------
4,475,373
-----------
Depreciation and Amortization
Depreciation 995,733
Amortization 429,241
-----------
1,424,974
-----------
Total expenses 8,051,785
-----------
Net income $ 3,913.743
===========
</TABLE>
See notes to financial statements
-5-
E-37
<PAGE> 6
Security Land & Development Company
Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
Year ended December 31, 1995
<TABLE>
<CAPTION>
Special
General Limited Limited
Total Partner Partner Partner
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, beginning $ (505,080) $ 543,790 $(1,498,870) $ 450,000
Net income 3,913,743 158,115 37,572 3,718,056
Distributions (105,264) (4,253) (1,011) (100,000)
----------- --------- ----------- -----------
Balance, ending $ 3,303,399 $ 697,652 $(1,462,309) $ 4,068,056
=========== ========= =========== ===========
</TABLE>
See notes to financial statements
-6-
E-38
<PAGE> 7
Security Land & Development Company
Limited Partnership
STATEMENT OF CASH FLOW
Year Ended December 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities
Net Income $ 3,913,743
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 995,733
Amortization expense 429,241
Deferred rental income 1,029,002
Amortization of debt discount 129,769
Decrease in tenant accounts receivable 3,351
Increase in prepaid expenses and other receivables (107,918)
Decrease in accounts payable and accrued expenses -
operating (21,855)
Decrease in accrued interest payable (32,002)
------------
Net cash provided by operating
activities 6,339,064
------------
Cash flows from investing activities
Withdrawals from restricted escrow 12,212,613
Investment in real estate (13,929,982)
------------
Net cash used in investing activities (1,717,369)
------------
Cash flows from financing activities
Payments on note payable (4,509,934)
Distributions (105,264)
------------
Net cash used for financing activities (4,615,198)
------------
NET INCREASE IN CASH 6,497
Cash and cash equivalents, beginning 324,666
------------
Cash and cash equivalents, end $ 331,163
============
Cash paid for interest during the year, net of amount
capitalized $ 3,738,431
============
</TABLE>
See notes to financial statements
-7-
E-39
<PAGE> 8
Security Land and Development Company Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Security Land and Development Company Limited Partnership (the
"partnership") was formed under the laws of the State of Maryland. The
partnership was organized to own and operate, for investment purposes, the
project (the "project") which consists of a building known as the Security
West Building (the "building").
The building is approximately 717,000 square foot, two-phase office
building, consisting of a two-story office building and a connected
six-story office tower, located at 1500 Woodlawn Drive, Woodlawn, Maryland.
The building was purchased by the partnership in 1986 and is located on
land which is approximately 34.3 acres, also owned by the partnership. The
building has been occupied by the United States Social Security
Administration's Office of Disability and International Operations (the
"tenant") for approximately 23 years under leases between the United States
of America, acting by and through the General Services Administration
("GSA"). Effective November 1, 1994, the partnership and GSA entered into
a nine-year lease (the "lease") for the Building. The terms of the lease
agreement call for substantial alterations to the building. The partnership
has executed a contract in the original amount of approximately $24,000,000
to complete the alterations.
The general partner of the partnership is 1500 Woodlawn Limited Partnership
(the "general partner"), a Delaware limited partnership with an 80.8
percent general partner interest. Three limited partners ("limited
partners"), own the remaining 19.2 percent limited partnership interest.
The limited partners and the general partner are herein referred to as
Class A partners. Regency Affiliates, Inc. (the "special limited
partner") is a special limited partner with no stated voting interest in
the partnership.
Profits, losses and cash available for distribution to partners as defined
by the partnership agreement, as amended, is allocated as follows:
-8-
E-40
<PAGE> 9
Security Land and Development Company Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Before After
11/1/2003 10/31/2003
--------- ----------
General partner 4.04% 40.4%
Special limited partner 95.00 50.0
Limited partners 0.96 9.6
------ -----
100.00% 100.0%
====== =====
Notwithstanding these allocation percentages, the partnership has made
arrangements so that to the extent that 95% of cash available for
distribution is less than $100,000, funds which would otherwise be used to
pay management fees to TCG Management (see note F) up to the $100,000 will
be made available for distribution. For financial reporting purposes,
income or loss is allocated among the partners based upon their stated
interests in cash available for distribution.
Taxable gains recognized upon sale, exchange or liquidation of the
partnership are allocated: first, to bring negative capital accounts to
zero; second, to bring the capital accounts of the Class A partners as a
group equal to the capital account of the special limited partner; third,
$1,000,000 to the Class A partners as a group; and then 50% to the Class A
partners as a group and 50% to the special limited partner. Taxable losses
recognized upon sale, exchange or liquidation of the partnership are
generally allocated: first, to bring the capital account of the special
limited partner to not less than zero and to bring the capital accounts of
the Class A partners as a group to not less than a $1,000,000 deficit;
second, in accordance with each partner's risk of loss, as called for by
the partnership agreement; and third, in accordance with partnership
interests.
The terms of the partnership agreement call for the proceeds from
liquidation, sale of any assets or refinancing to be used first in
settlement of partnership liabilities and for the establishment of reserves
(as deemed necessary by the general partner) and then to the partners in
proportion to their positive capital account balances.
-9-
E-41
<PAGE> 10
Security Land and Development Company Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Real Estate
-----------
Real estate is carried at cost. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line method for
financial reporting purposes.
Deferred Charges
----------------
Deferred charges consist of permanent loan closing costs which are being
amortized over the term of the related note payable using the effective
interest method.
Deferred Rental Income
----------------------
Rents of $2,785,769 received upon signing the lease agreement are being
amortized on a straight-line basis over the life of the lease. Rental
income received for phases under construction is deferred until
construction is complete and is then amortized over the remaining term of
the lease.
Deferred Interest Income
------------------------
Interest earned on the Project Account is deferred because such funds, if
not expended, must be paid to the tenant (see note D).
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flow, cash and cash equivalents
include the partnership's operating money market accounts, excluding
restricted escrow held by the escrow agent (see note C).
- 10 -
E-42
<PAGE> 11
Security Land and Development Company Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Restricted Escrow
-----------------
The partnership has a portfolio of investments in money market accounts,
repurchase agreements, and debt securities, which are held in trust by
Shawmut Bank, NA (see note D). Management determines the appropriate
classification of the debt securities at the time they are acquired and
evaluates the appropriateness of such classifications at each balance sheet
date. As of December 31, 1995, the company has classified all investments
in debt securities as held-to-maturity. Held-to-maturity securities consist
solely of debt securities which the company has the positive intent and
ability to hold to maturity and are stated at amortized cost.
Income Taxes
------------
No provision or benefit for income taxes has been included in these
financial statements since taxable income or loss passes through to, and is
reportable by, the partners individually.
Reclassifications
-----------------
Certain 1994 amounts have been reclassified to conform with the 1995
presentation.
NOTE B - INVESTMENT IN REAL ESTATE
Investment in real estate is carried at cost and consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful Life
-----------
<S> <C> <C>
Land - $ 2,151,154
Building 40 years 28,436,133
Improvements - Building 40 years 8,498,091
Improvements - Tenant 9 years 2,441,299
Improvements - Land 10 years 388,858
Furniture and equipment 7 years 65,508
Construction in progress - 3,580,592
-----------
45,561,635
Less accumulated depreciation 6,855,285
-----------
$38,706,350
===========
</TABLE>
- 11 -
E-43
<PAGE> 12
Security Land and Development Company Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE B - INVESTMENT IN REAL ESTATE (Continued)
For income tax reporting purposes, depreciation has been computed in
accordance with the Internal Revenue Code, generally using shorter lives
and accelerated methods.
NOTE C - NOTE PAYABLE
The partnership has a note payable to Shawmut Bank, NA, as Trustee
(Trustee), dated November 17, 1994. The note is in the principal amount of
$56,450,000, and is effectively secured by substantially all the assets of
the partnership and rights to future lease payments. In addition, the
partnership has agreed to various covenants including those that require
the partnership to conduct its affairs as a separate entity and prohibit it
from selling all or substantially all of its assets; conducting business
other than related to the project; conducting business other than arms
length; commingling assets with other entities; acting as creditor or
pledging its assets for the benefit of another entity; and incurring
certain types of indebtedness.
The debt proceeds were obtained by the trustee through the sale of
Certificates of Participation (COPs) representing interests in a trust
established pursuant to a trust agreement between the partnership and the
Trustee. The net proceeds received from the sale of the COPs were used to
repay the then existing debt of the partnership, to fund certain reserves,
and to pay costs of issuance.
The COPs were issued at a discount of $705,625 which is being amortized
over the life of the note on the effective interest method. Unamortized
discount at December 31, 1995 was $559,467. Amortized discount for the year
ending December 31, 1995 was $129,769, and is included in interest expense
on the accompanying statement of operations.
- 12 -
E-44
<PAGE> 13
Security Land and Development Company Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE C - NOTE PAYABLE (Continued)
The note requires semiannual payments of principal and interest in
accordance with the terms of the COPs. Those terms require payments of
interest at a rate of 7.9% and two principal payments per year (May 15 and
November 15) aggregating to:
1996 $ 4,873,259
1997 5,265,850
1998 5,690,068
1999 6,148,461
2000 6,643,763
Thereafter 23,318,662
-----------
Total 51,940,063
Less: Unamortized
Discount 559,467
-----------
Total $51,380,596
===========
Interest incurred during the year ending December 31, 1995 was $4,315,281
excluding discount amortization of $129,769. $608,852 of interest relating
to construction has been capitalized to the cost improvements.
NOTE D - RESTRICTED ESCROW
The partnership is required to setup and maintain escrow accounts with
Shawmut Bank, NA as the escrow agent. Amounts on deposit are classified as
restricted escrow in the accompanying balance sheet. The required accounts
and funded balance at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Description Amount
----------------------------- -----------
<S> <C> <C>
Project Account To be used for alterations $16,133,217
Note Payment To repay Certificates of
Accounts Participation 879,272
Liquidity Account To be used for debt liquidity 740,178
Replacement To be used for capital
Reserve Account improvements 304,662
Tax Account To pay real estate taxes 307,839
Insurance Account To pay insurance expense 14,287
Operations Account To pay operating expenses 100,000
Partnership Account To pay partnership
distributions 35,118
-----------
$18,514,573
===========
</TABLE>
- 13 -
E-45
<PAGE> 14
Security Land and Development Company Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE D - RESTRICTED ESCROW (Continued)
Restricted escrow is invested in money market funds of $2,382,083 and
repurchase agreements of $1,108,000, which approximate fair value. The
remaining funds are invested in debt securities and at December 31, 1995
are as follows:
Held-to-Maturity
---------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ----------- -----------
U.S. Government
Debt Securities $15,024,490 $906,073 $ - $15,930,563
=========== ======== ===== ===========
The amortized cost and fair value of debt securities classified as
held-to-maturity, by contractual maturity, as of December 31, 1995 are as
follows:
Amortized Fair
Cost Value
----------- -----------
Due within one year $ 7,125,543 $ 7,530,447
Due after one year
through three years 7,898,947 8,400,116
----------- -----------
$15,024,490 $15,930,563
=========== ===========
Earnings on funds deposited in the project account have been deferred
because any amounts remaining in this account after the alterations have
been completed revert back to the tenant either in a lump sum payment or to
be applied against rental income. If any changes to the budgeted
alterations require the use of the amounts earned, the income will be
recognized at that time.
The partnership deposited with the escrow agent a letter of credit to
satisfy the requirements for the Supplemental Disbursement Account. At
December 31, 1995, $450,000 was outstanding.
- 14 -
E-46
<PAGE> 15
Security Land and Development Company Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE E - RENTAL OPERATIONS
On November 17, 1994, the partnership and the tenant entered into a lease
agreement for 100% of the building with a term of nine years expiring on
October 31, 2003. The lease agreement provides for minimum annual lease
payments of $12,154,632 payable monthly in arrears, plus provisions for
escalations in the event of increased operating costs and real estate
taxes.
Future minimum rentals are as follows:
December 31, 1996 $12,154,632
1997 12,154,632
1998 12,154,632
1999 12,154,632
2000 12,154,632
Thereafter 34,438,124
-----------
$95,211,284
===========
The partnership has received an opinion of Assistant General Council to the
General Services Administration that lease payments are not subject to
annual appropriation by the United States Congress and the obligations to
make such payments are unconditional general obligations of the United
States Government.
The Lease requires the partnership to maintain and repair the building and
land in accordance with specific standards, to maintain certain insurance
coverages and to use amounts in the Project Account plus interest accrued
to make certain alterations (the "Alterations").
The partnership assigned its right to receive payments under the lease with
GSA to the Escrow Agent. Payments received or distributions made by the
Escrow Agent and transfers between individual accounts are governed by an
escrow agreement for the ultimate benefit of the partnership.
NOTE F - CONCENTRATION OF CREDIT RISK
The partnership maintains a cash account insured by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000. At December 31, 1995 the
balance was $330,163. The uninsured balance at December 31, 1995 was
$230,163.
- 15 -
E-47
<PAGE> 16
Security Land and Development Company Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE G - RELATED PARTY TRANSACTIONS
Janitorial Services
-------------------
The partnership entered into an agreement with Woodlawn Service
Corporation, an affiliate of the general partner, to provide janitorial
services for the building. The agreement provides for a fee for services
provided and for a reimbursement for expenses incurred, not to exceed
$1,905,770 per annum from which Woodlawn Service Corporation is to provide
the cost of materials, salaries and other costs of providing such services.
The agreement extends to the year 2003 with options to renew annually
thereafter. Total janitorial fees for the year ending December 31, 1995
were $1,020,180 with $85,015 remaining unpaid at year end.
Management Services
-------------------
The partnership entered into an agreement with TCG Management Corporation,
an affiliate of the general partner, to provide management services. The
agreement provides for a fee of $250,000 per annum. The agreement is for a
term of one year with automatic renewals through the year 2003. Total
management fees for the year ending December 31, 1995 were $250,000, with
$20,833 remaining unpaid at year end.
Construction Management Services
--------------------------------
The partnership entered into an agreement with TCG Construction Corporation
to provide construction management services relating to the building and
tenant alterations. The agreement provides for a management construction
fee of 10% of total costs incurred in connection with the alterations. In
addition, TCG Construction shall receive 100% of any cost savings payments
received by the partnership related to the alterations. The agreement is
for a term of one year with automatic renewals through the year 2003. Total
fees incurred at December 31, 1995 are $1,249,809 and have been capitalized
to the cost of improvements.
- 16 -
E-48
<PAGE> 17
CERTIFICATE
-----------
The undersigned, the duly elected Secretary of Regency Affiliates,
Inc., does hereby certify that the following is a true and accurate copy of a
resolution of the Board of Directors adopted on March 16, 1996:
RESOLVED, that the President and Secretary of the Corporation shall be
authorized to file the Corporation's report on SEC Form 10-K for the
year ending December 31, 1995 and that the same officers shall be, and
they hereby are authorized to execute said report utilizing powers of
attorney provided to them by the members of the Board of Directors of
the Corporation.
/s/ Eunice M. Antosh
------------------------------
Eunice M. Antosh
Dated this 20th day of March, 1996.
E-49
<PAGE> 1
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS:
That I, Stephanie Carey, do hereby make, constitute and appoint Gary K.
Nuttall and Eunice M. Antosh, or either of them, my true and lawful
Attorney-in-Fact, for me and in my name, place and stead, to sign, execute,
acknowledge and deliver the report on Form 10-K for Regency Affiliates, Inc.
for the year ended December 31, 1995 to be filed with the Securities and
Exchange Commission.
This Power of Attorney is limited to the foregoing acts, however, it shall
not be affected by disability of the Donor and all of the authority given to
the Attorney-in-Fact herein shall be exercisable by said Attorney-in-Fact as
provided in this instrument, notwithstanding any later disability, incapacity
or adjudication of incompetency of the Donor. All acts therein by said
Attorney-in-Fact, pursuant to this written instrument, during such period of
disability, incapacity or adjudication of incompetency of the Donor shall have
the same effect and inure to the benefit of the Donor and bind the Donor's
heirs, devisees and personal representatives as if the Donor where competent
and not disabled or incapacitated.
IN WITNESS WHEREOF, I have hereunto set my hand, this 15th day of February,
1996.
In the presence of:
??? /s/ Stephanie Carey
- -------------------------- ------------------------------------
Stephanie Carey
???
- --------------------------
1
E-23
<PAGE> 2
NASSAU, COMMONWEALTH OF BAHAMAS
Before me, a Notary Public in and for Nassau, Commonwealth of Bahamas,
personally appeared the above named, Stephanie Carey, who acknowledged to me
that he did sign the foregoing Power of Attorney and that the same is his or
her free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this
15th day of February, 1996.
/s/ ? ? Smith
-----------------------------
NOTARY PUBLIC
THIS INSTRUMENT PREPARED BY:
James F. Koehler, Esq.
Gallagher, Sharp, Fulton & Norman
Seventh Floor, Bulkley Building
1501 Euclid Avenue
Cleveland, Ohio 44115
(216) 522-1055
2
E-24
<PAGE> 1
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS:
That I, Martin J. Craffey, do hereby make, constitute and appoint Gary K.
Nuttall and Eunice M. Antosh, or either of them, my true and lawful
Attorney-in-Fact, for me and in my name, place and stead, to sign, execute,
acknowledge and deliver the report on Form 10-K for Regency Affiliates, Inc.
for the year ended December 31, 1995 to be filed with the Securities and
Exchange Commission.
This Power of Attorney is limited to the foregoing acts, however, it shall
not be affected by disability of the Donor and all of the authority given to
the Attorney-in-Fact herein shall be exercisable by said Attorney-in-Fact as
provided in this instrument, notwithstanding any later disability, incapacity
or adjudication of incompetency of the Donor. All acts therein by said
Attorney-in-Fact, pursuant to this written instrument, during such period of
disability, incapacity or adjudication of incompetency of the Donor shall have
the same effect and inure to the benefit of the Donor and bind the Donor's
heirs, devisees and personal representatives as if the Donor where competent
and not disabled or incapacitated.
IN WITNESS WHEREOF, I have hereunto set my hand, this 13th day of February,
1996.
In the presence of:
/s/ Martin J. Craffey
- --------------------------- ---------------------------------
Martin J. Craffey
- --------------------------- ANTHONY J. PALERMO
NOTORY PUBLIC, STATE OF NEW YORK
NO. 4914444, SUFFOLK COUNTY
TERM EXPIRES DEC. 14, 1997
/S/ Anthony J. Palermo
----------------------
1
E-25
<PAGE> 2
STATE OF NEW YORK )
) SS:
COUNTY OF SUFFOLK )
Before me, a Notary Public in and for said County and State, personally
appeared the above named, Martin J. Craffey, who acknowledged to me that he did
sign the foregoing Power of Attorney and that the same is his or her free act
and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this
13th day of February, 1996.
ANTHONY J. PALERMO
NOTARY PUBLIC, STATE OF NEW YORK
NO. 4914444, SUFFOLK COUNTY
TERM EXPIRES DEC. 14, 1997
---------------------------------------
NOTARY PUBLIC
/s/ Anthony J. Palermo
-------------------
THIS INSTRUMENT PREPARED BY:
James F. Koehler, Esq.
Gallagher, Sharp, Fulton & Norman
Seventh Floor, Bulkley Building
1501 Euclid Avenue
Cleveland, Ohio 44115
(216) 522-1055
2
E-26
<PAGE> 1
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS:
That I, Larry J. Horbach, do hereby make, constitute and appoint Eunice M.
Antosh, my true and lawful Attorney-in-Fact, for me and in my name, place and
stead, to sign, execute, acknowledge and deliver the report on Form 10-K for
Regency Affiliates, Inc. for the year ended December 31, 1995 to be filed with
the Securities and Exchange Commission.
This Power of Attorney is limited to the foregoing acts, however, it shall
not be affected by disability of the Donor and all of the authority given to
the Attorney-in-Fact herein shall be exercisable by said Attorney-in-Fact as
provided in this instrument, notwithstanding any later disability, incapacity
or adjudication of incompetency of the Donor. All acts therein by said
Attorney-in-Fact, pursuant to this written instrument, during such period of
disability, incapacity or adjudication of incompetency of the Donor shall have
the same effect and inure to the benefit of the Donor and bind the Donor's
heirs, devisees and personal representatives as if the Donor where competent
and not disabled or incapacitated.
IN WITNESS WHEREOF, I have hereunto set my hand, this 13th day of February,
1996.
In the presence of:
/s/ Anne Horbach /s/ Larry J. Horbach
- ------------------------------ ------------------------------------
Larry J. Horbach
/s/ Sally H. Johnston
- ------------------------------
1
E-27
<PAGE> 2
STATE OF NEBRASKA )
) SS:
COUNTY OF DOUGLAS )
Before me, a Notary Public in and for said County and State, personally
appeared the above named, Larry J. Horbach, who acknowledged to me that he did
sign the foregoing Power of Attorney and that the same is his or her free act
and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this
13th day of February, 1996.
GENERAL NOTARY-STATE NEBRASKA /s/ Roger E. Pfeifer
ROGER E. PFEIFER -----------------------------------
My Comm. Exp. Sept. 21, 1998 NOTARY PUBLIC
THIS INSTRUMENT PREPARED BY:
James F. Koehler, Esq.
Gallagher, Sharp, Fulton & Norman
Seventh Floor, Bulkley Building
1501 Euclid Avenue
Cleveland, Ohio 44115
(216) 522-1055
1
E-28
<PAGE> 1
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS:
That I, Pamlyn Kelly, Ph.D., do hereby make, constitute and appoint Gary K.
Nuttall and Eunice M. Antosh, or either of them, my true and lawful
Attorney-in-Fact, for me and in my name, place and stead, to sign, execute,
acknowledge and deliver the report on Form 10-K for Regency Affiliates, Inc.
for the year ended December 31, 1995 to be filed with the Securities and
Exchange Commission.
This Power of Attorney is limited to the foregoing acts, however, it shall
not be affected by disability of the Donor and all of the authority given to
the Attorney-in-Fact herein shall be exercisable by said Attorney-in-Fact as
provided in this instrument, notwithstanding any later disability, incapacity
or adjudication of incompetency of the Donor. All acts therein by said
Attorney-in-Fact, pursuant to this written instrument, during such period of
disability, incapacity or adjudication of incompetency of the Donor shall have
the same effect and inure to the benefit of the Donor and bind the Donor's
heirs, devisees and personal representatives as if the Donor where competent
and not disabled or incapacitated.
IN WITNESS WHEREOF, I have hereunto set my hand, this 20th day of February,
1996.
In the presence of:
/s/ L. David Wilson /s/ Pamlyn Kelly, Ph.D.
- --------------------------- --------------------------------
Pamlyn Kelly, Ph.D.
/s/ ? ?
- ---------------------------
1
E-29
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C>
____________________________________________________________________________________________________________________________
| RIGHT THUMBPRINT (OPTIONAL)
State of California \ | TOP OF THUMB HERE
} | ___________________________________
County of Contra Costa / | | |
| | |
On 2/20/96 before me,________/s/ Wendy Gordillo, Notary________________________, | | |
(DATE) (NAME, TITLE OF OFFICER-I.E., "JANE DOE, NOTARY PUBLIC") | | |
| |___________________________________|
personally appeared _______/s/ Pamlyn Kelly, PH.D______________________________ |
(NAME(S) OF SIGNER(S)) | CAPACITY CLAIMED BY SIGNER(S)
|
_______________________________________________________________________________ | [X] INDIVIDUAL(S)
| [ ] CORPORATE________________________
_____________________________________________________________________________ , | OFFICER(S)_______________________
| (TITLE(S))
[ ] personally known to me - OR - [X] proved to me on the basis of | [ ] PARTNER(S)
satisfactory evidence to be the person | [ ] ATTORNEY IN FACT
_________________NNA1_________________ whose name is subscribed to the within | [ ] TRUSTEE(S)
| | instrument and acknowledged to me that | [ ] GUARDIAN/CONSERVATOR
| WENDY GORDILLO | she executed the same in her | [ ] OTHER:___________________________
| COMM. #1016702 | authorized capacity, and that by her | _________________________________
| [SEAL] Notary Public -- California | signature on the instrument the |
| CONTRA COSTA COUNTY | person, or the entity upon behalf of | SIGNER IS REPRESENTING:
| My Comm. Expires FEB 9, 1998 | which the person acted, executed the | (NAME OF PERSON(S) OR ENTITY(IES))
|_________________NNA1_________________| instrument. |
| _____________________________________
Witness my hand and official seal. |
| _____________________________________
/s/ Wendy Gordillo |
(SEAL) ------------------------------------- | _____________________________________
(SIGNATURE OF NOTARY) |
========================================================================================================================
ATTENTION NOTARY: The information requested below is OPTIONAL. It could, however, prevent fraudulent attachment of this
certificate to any unauthorized document.
Title or Type of Document Limited Power of Attorney
THIS CERTIFICATE ----------------------------------------------------------
MUST BE ATTACHED Number of Pages 1 Date of Document 2/20/96
TO THE DOCUMENT ------------------------- ------------------------
DESCRIBED AT RIGHT: Signer(s) Other Than Named Above
---------------------------------------------------
____________________________________________________________________________________________________________________________
WOLCOTTS FORM 63240 -- ALL PURPOSE ACKNOWLEDGMENT WITH SIGNER CAPACITY/REPRESENTATION/FINGERPRINT -- Rev. 12-92
(C) 1992 WOLCOTTS FORMS
</TABLE>
E-30
<PAGE> 1
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS:
That I, William R. Ponsoldt, Jr., do hereby make, constitute and appoint Gary
K. Nuttall and Eunice M. Antosh, or either of them, my true and lawful
Attorney-in-Fact, for me and in my name, place and stead, to sign, execute,
acknowledge and deliver the report on Form 10-K for Regency Affiliates, Inc.
for the year ended December 31, 1995 to be filed with the Securities and
Exchange Commission.
This Power of Attorney is limited to the foregoing acts, however, it shall
not be affected by disability of the Donor and all of the authority given to
the Attorney-in-Fact herein shall be exercisable by said Attorney-in-Fact as
provided in this instrument, notwithstanding any later disability, incapacity
or adjudication of incompetency of the Donor. All acts therein by said
Attorney-in-Fact, pursuant to this written instrument, during such period of
disability, incapacity or adjudication of incompetency of the Donor shall have
the same effect and inure to the benefit of the Donor and bind the Donor's
heirs, devisees and personal representatives as if the Donor where competent
and not disabled or incapacitated.
IN WITNESS WHEREOF, I have hereunto set my hand, this 15th day of March,
1996.
In the presence of:
/s/ Karol D. Leuelan /s/ William R. Ponsoldt, Jr.
- ----------------------------- ------------------------------------
Karol D. Leuelan William R. Ponsoldt, Jr.
/s/ Judith Kaufman
- -----------------------------
Judith Kaufman
1
E-31
<PAGE> 2
STATE OF FLORIDA )
) SS:
COUNTY OF MARTIN )
Before me, a Notary Public in and for said County and State, personally
appeared the above named, William R. Ponsoldt, Jr., who acknowledged to me that
he did sign the foregoing Power of Attorney and that the same is his or her
free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this
15th day of March, 1996.
/s/ Frances K. Brown
-----------------------------
NOTARY PUBLIC
[seal] FRANCES K. BROWN
MY COMMISSION # CC 229954 EXPIRES
October 23, 1996
BONDED THRU TROY FAIN INSURANCE, INC.
THIS INSTRUMENT PREPARED BY:
James F. Koehler, Esq.
Gallagher, Sharp, Fulton & Norman
Seventh Floor, Bulkley Building
1501 Euclid Avenue
Cleveland, Ohio 44115
(216) 522-1055
2
E-32
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000099249
<NAME> REGENCY AFFILIATES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 39,689
<SECURITIES> 0
<RECEIVABLES> 2,691
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,380
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,980,148
<CURRENT-LIABILITIES> 255,796
<BONDS> 323,000
<COMMON> 4,456,308
368,254
1,052,988
<OTHER-SE> (1,582,647)
<TOTAL-LIABILITY-AND-EQUITY> 4,980,148
<SALES> 2,597
<TOTAL-REVENUES> 2,597
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,395
<INCOME-PRETAX> 3,363,647
<INCOME-TAX> 70,000
<INCOME-CONTINUING> 3,298,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,298,589
<EPS-PRIMARY> .29
<EPS-DILUTED> .22
</TABLE>
