<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED June 30, 1998 COMMISSION FILE NO. 1-4766
--------------------- ------------
REGENCY AFFILIATES, INC.
------------------------
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 72-0888772
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
729 South Federal Highway, Ste. 307, Stuart, Florida 34994
---------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
10842 Old Mill Road 5B, Omaha, Nebraska 68154
--------------------------------------- -----
(Address of administrative offices) (Zip Code)
Registrant's Telephone Number (executive office) including Area Code:
(561) 220-7662
- --------------
Registrant's Telephone Number (administrative office) including Area Code:
(402) 330-8750
- --------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the Issuer's
classes of common stock, as of the latest practicable date.
$.40 Par Value Common Stock - 12,618,100 shares as of June 30, 1998 .
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements........................................................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................................14
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................17
Item 2. Changes in Securities..........................................................................17
Item 3. Defaults Upon Senior Securities................................................................17
Item 4. Submission of Matters to a Vote of Security Holders............................................17
Item 5. Other Information..............................................................................17
Item 6. Exhibits and Reports on Form 8-K...............................................................17
</TABLE>
2
<PAGE> 3
REGENCY AFFILIATES, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following pages contain the information required by Part I, Item 1.
3
<PAGE> 4
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31,
-------------
ASSETS (UNAUDITED) 1997
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 890,300 $ 252,400
Certificate of deposit 2,553,500 --
Accounts receivable, net 420,600 581,600
Inventory 743,200 536,100
Other current assets 228,000 120,900
-------------- --------------
Total current assets 4,835,600 1,491,000
------------- -------------
INVESTMENTS
Partnership investment 13,813,700 11,951,800
Rental property 110,300 113,200
-------------- -------------
Total investments 13,924,000 12,065,000
------------ ------------
NET PROPERTY AND EQUIPMENT 1,517,700 140,200
------------ ---------
OTHER ASSETS
Aggregate inventory 849,000 848,900
Goodwill and intangibles, net 669,700 677,300
Debt issuance costs and other 960,400 210,100
-------------- ---------------
Total other assets 2,479,100 1,736,300
------------- -------------
$22,756,400 $15,432,500
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31,
-------------
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 1997
----
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 27,800 $ 925,000
Notes payable 648,000 140,000
Accounts payable 651,500 256,500
Accrued expenses 248,500 424,400
-------------- -------------
Total current liabilities 1,575,800 1,745,900
------------- -------------
LONG-TERM DEBT, NET OF CURRENT PORTION 10,746,300 4,031,100
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 90,700 94,500
SERIAL PREFERRED STOCK SUBJECT TO MANDATORY
REDEMPTION (liquidation preference and redemption value $256,200
in 1998 and 1997 228,300 219,300
SHAREHOLDERS' EQUITY
Serial preferred stock not subject to mandatory
redemption (maximum liquidation preference, $24,921,400
in 1998 and 1997) 1,053,000 1,053,000
Common stock, par value $.40, authorized 25,000,000 shares
issued and outstanding 12,618,100 shares 5,041,300 4,963,700
Additional paid in capital 274,000 221,600
Readjustment resulting from quasi-reorganization (1,670,600) (1,670,600)
Retained earnings 5,417,600 4,774,000
------------- ----------
Total shareholders' equity 10,115,300 9,341,700
------------ ---------
$ 22,756,400 $ 15,432,500
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
------------ ----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 718,600 $ 678,400 $ 1,350,400 $ 795,400
COSTS AND EXPENSES
Cost of goods sold 450,100 432,600 875,400 498,100
Selling and administrative 494,700 575,000 944,700 714,800
Other 7,100 500 8,400 21,700
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (233,300) (329,700) (478,100) (439,200)
INCOME FROM EQUITY INVESTMENT IN
PARTNERSHIP 989,700 1,072,300 1,964,200 1,925,700
INTEREST INCOME 17,500 12,200 25,800 37,500
INTEREST EXPENSE (595,000) (194,100) (808,600) (383,100)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE &
MINORITY INTEREST 178,900 560,700 703,300 1,140,900
INCOME TAX EXPENSE 8,800 -- 26,100 11,100
MINORITY INTEREST 1,600 1,400 (8,600) 3,000
----------- ----------- ----------- -----------
NET INCOME $ 171,700 $ 562,100 $ 668,600 $ 1,132,800
=========== =========== =========== ===========
NET INCOME APPLICABLE TO COMMON
STOCK (after accrued preferred stock
dividends of $8,000; $13,500; $16,100;
and $31,600, respectively in 1998 and
1997, and preferred stock accretion of
$4,500; $8,100; $9,000; and $16,200,
respectively in 1998 and 1997.) $ 159,200 $ 540,500 $ 643,500 $ 1,087,800
=========== =========== =========== ===========
NET INCOME PER SHARE
Basic $ .01 $ .05 $ .05 $ .09
=========== =========== =========== ===========
Fully diluted $ .01 $ .04 $ .05 $ .08
=========== =========== =========== ===========
</TABLE>
The accompany notes are an integral part of these financial statements.
6
<PAGE> 7
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 668,600 $ 1,132,800
Adjustments to reconcile net income to net cash used by
operating activities:
Minority interest 8,600 (3,000)
Stock issued for services 130,000 233,300
Income from equity investment in partnership (1,964,200) (1,925,700)
Distribution of equity earnings from partnership 102,300 102,800
Interest amortization on long-term debt 568,400 367,900
Depreciation and amortization 40,500 40,600
Changes in operating assets and liabilities:
Accounts receivable 161,000 (191,000)
Inventories (207,000) (154,200)
Other current assets (107,100) (283,200)
Other assets 2,200 (49,300)
Accounts payable 395,000 19,400
Accrued expenses (175,900) (253,100)
------------ ------------
Net cash used by operating activities (377,600) (962,700)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of $13,500 cash acquired -- (1,086,500)
Acquisition of property (1,332,700) (89,200)
Purchase of certificate of deposit (2,553,500) --
------------ ------------
Net cash used by investing activities (3,886,200) (1,175,700)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 648,000 335,000
Payment of short-term borrowings (140,000) --
Proceeds from issuance of long-term debt 10,381,000 --
Payment of long-term debt (5,003,100) --
Debt issuance and offering costs (955,700) (28,500)
Other (28,500) (29,300)
------------ ------------
Net cash provided by financing activities 4,901,700 277,200
------------ ------------
INCREASE (DECREASE) IN CASH 637,900 (1,861,200)
CASH-BEGINNING 252,400 2,303,700
------------ ------------
CASH-ENDING $ 890,300 $ 442,500
============ ============
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 25,500 $ 30,000
Interest 220,300 --
</TABLE>
Supplemental disclosure of noncash investing and financing
activities:
In 1997, the Company issued 100,000 shares of common
stock in connection with the acquisition of the assets
of Rustic Crafts Co., Inc
In 1997, 1,505 shares of Series E preferred stock were
converted into 289,300 shares of the Company's common stock
In 1998, the Company issued 187,000 shares of common stock
for payment of services rendered by the Company's President.
The balance of this page has been intentionally left blank.
The accompany notes are an integral part of these financial statements.
8
<PAGE> 9
REGENCY AFFILIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
A. Basis of Presentation - The accompanying unaudited condensed
consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required
by generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month
periods ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the year ended December
31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Registrant Company and Subsidiaries' annual report on Form
10-K for the year ended December 31, 1997.
B. Principles of Consolidation - The consolidated financial
statements include the accounts of Regency Affiliates, Inc.
(the "Company"), its wholly-owned subsidiary, Rustic Crafts
International, Inc. ("RCI"), 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.
C. Earnings Per Share - Basic earnings per share are computed by
dividing net income attributable to common shareholders (net
income less preferred stock dividend requirements and periodic
accretion) by the weighted average number of common and
dilutive equivalent shares outstanding during the period.
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.
D. Inventory - Inventories are stated at the lower of cost or
market. Cost is determined using the first-in, first-out
method. Inventories were comprised of the following at June
30, 1998:
<TABLE>
<S> <C>
Raw materials and supplies $ 175,800
Work in process 122,100
Finished products 445,300
-----------
$ 743,200
===========
</TABLE>
9
<PAGE> 10
E. Aggregate Inventory - Aggregate inventory is stated at the
lower of cost or market. Liens have been attached to the
aggregate by the holders of certain zero coupon bonds, having
a face value of $542,200 and a carrying valuing of $399,100
at June 30, 1998. The Company is also subject to a royalty
agreement which requires the payment of certain royalties to
a previous owner of the aggregate upon sales of the aggregate.
F. Income Taxes - The Company utilizes 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 based on
management's estimate, if necessary. 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.
NOTE 2. INVESTMENT IN PARTNERSHIP
In November 1994, the Company purchased a limited partnership 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 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 Company is also
entitled to receive certain management fees relating to the
partnership.
Security was organized to own and operate a building of approximately
717,000 net 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 Sheet at
10
<PAGE> 11
June 30, 1998 was $13,813,700. The income from the Company's equity
investment in the partnership for the three-months and the six months
ended June 30, 1998 was $989,700 and $1,964,200, respectively.
Summarized operating data for Security for the three months and six
months ended June 30, 1998, and June 30, 1997, is as follows:
<TABLE>
<CAPTION>
Three Months Six Months
------------ ----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $3,284,600 $2,788,500 $6,569,200 $5,524,100
Operating Expenses 810,300 743,600 1,612,300 1,541,100
Depreciation and
Amortization 707,200 623,000 1,414,400 1,208,600
Interest Expense, Net 725,000 293,000 1,474,600 747,400
---------- ---------- ---------- ----------
Net Income $1,042,100 $1,128,900 $2,067,900 $2,027,000
========== ========== ========== ==========
</TABLE>
NOTE 3. LONG-TERM DEBT
On June 24, 1998, the Company refinanced the long-term debt previously
outstanding with Southern Indiana Properties, Inc. ("SIPI") and entered
into a Loan Agreement (the "Loan") with KBC Bank N.V. (KBC). (See
Exhibit 10.1, filed herewith.) Under the terms of the Loan Agreement,
KBC advanced $9,383,320. The due date of the Loan is November 30, 2003
with interest at the rate of 7.5% compounded semi-annually on each June
1 and December 1, commencing June 1, 1998. The interest may be paid by
the Company in cash on these semi-annual dates or the Company may elect
to add the interest to the principal of the Loan then outstanding.
The Loan is secured by all of the Company's interest in Security,
including the Company's interest in all profits and distributions,
other than the payment of management fees of $100,000 annually, and
all of the Company's rights, powers, and remedies under the Security
Land and Development Company Limited Partnership Agreement as amended
and restated. (See Exhibits 10.2 and 10.3, filed herewith.) At any
time, the Company may prepay the entire principal balance of the Loan,
plus accrued and unpaid interest, plus a Make-Whole Premium as defined
in the Loan Agreement, if any.
To facilitate the Loan from KBC, the Company purchased a residual value
insurance policy through R.V.I. American Insurance Company (RVI) which
secures the repayment of the outstanding principal and interest when
due with a maximum liability of $14 million. Should RVI pay a claim
under this policy they will be entitled to certain of the Company's
rights with respect to the property of Security, including but not
limited to the right to solicit bona fide, third party offers for the
property and to accept such offers and bind the Partnership in order
to recoup the
11
<PAGE> 12
amount paid. The costs related to this insurance in the amount of
$745,000 along with legal fees and other costs associated with
obtaining the Loan in the amount of $206,000 for a total of $951,000
have been capitalized and are shown as Debt Issue Costs. These Debt
Issue Costs will be amortized over the life of the Loan.
As noted above, the KBC Loan proceeds were used to refinance the
long-term debt outstanding under the SIPI Loan Agreement. The SIPI Loan
Agreement provided that prepayment of the outstanding principal and
regular and contingent interest prior to June 1999, would result in a
prepayment penalty of 6%. The prepayment of the SIPI Loan also required
the write off of the unamortized balance of debt issuance costs
associated with the Loan. The prepayment penalty of $216,700 and the
write off of the debt issuance costs of $119,000 are included in
interest expense in the accompanying statements of operations.
NOTE 4. NOTES PAYABLE
On March 25, 1998, RCI purchased a building of 126,000 square feet
located near the current facility in Scranton, Pennsylvania. The
purchase and the cost of equipping this facility were funded in part by
a first mortgage term loan in the amount of $960,000 and a convertible
line of credit in the amount of $410,000 from PNC Bank. As of June 30,
1998, no amounts were outstanding on the convertible line of credit.
RCI also maintains a revolving line of credit with PNC Bank in the
amount of $1,000,000 of which $348,000 was outstanding at June 30,
1998.
The first mortgage term loan is payable in consecutive monthly
installments over 10 years with a 20 year amortization. The convertible
line of credit is available for 80% of the cost of construction
improvements on the building for a 2 year period at which time the
convertible line of credit becomes payable in consecutive monthly
installments over 10 years with a 20 year amortization. The interest
rates on each of the first mortgage term loan, the convertible line of
credit, and the revolving line of credit are the PNC Bank prime rate
minus one-half percent, which is currently 8 percent.
RCI's real and personal property, equipment, accounts receivable,
inventory, and other general intangibles are pledged as security for
the loans. The loans are also guaranteed by Regency Affiliates, Inc.,
the parent company. The security agreement requires RCI to maintain
certain financial ratios. RCI was in compliance with such ratios at
June 30, 1998.
In April 1998, the Company obtained a $300,000 bridge loan from the
Park Avenue Bank which matured 90 days from issuance and had an
interest rate equal to the bank's prime rate. Such interest rate was
8.5% at June 30, 1998. The bridge loan was collateralized by a
certificate of deposit in the amount of $300,000 from Republic
Management Co., Inc., a company affiliated with the Company's
President. The bridge loan was repaid in full on July 3, 1998 with
proceeds from the long-term borrowing discussed in Note 3.
12
<PAGE> 13
NOTE 5. INCOME TAXES
As indicated in Note 1, the Company utilizes 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 June 30, 1998, the Company's net deferred tax asset,
utilizing a 34% effective tax rate, consisted of:
<TABLE>
<S> <C>
Deferred tax assets:
Investment partnership earnings $ 1,921,000
Net operating loss carryforwards 12,197,000
Alternative minimum tax credits 321,000
Total deferred tax assets before valuation
allowance 14,439,000
Valuation allowance (14,439,000)
------------
Net deferred tax asset $ -0-
=============
</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 $35,800,000. 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.
For the three months and six months ended June 30, 1998, the tax effect
of net operating loss carryforwards reduced the current provision for
federal income taxes by approximately $52,000 and $213,000,
respectively. The Company provided $26,100 for taxes which relates to
the alternative minimum tax.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources.
The investment in Security is estimated to provide the Company with
management fees of approximately $100,000 per annum until 2003. In the quarter
ending June 30, 1998, the Company's income from its equity investment in the
Partnership was $989,700. These funds, however, are presently committed for the
amortization of the outstanding principal balance on Security's real estate
mortgage and, while the Company's equity investment has increased to
$13,813,700, the partnership does not provide liquidity to the Company in
excess of the $100,000 annual management fee. The Company has, however, been
successful in obtaining financing with respect to this investment (see Note 3).
On March 25, 1998, Rustic Crafts purchased a building of 126,000 square
feet located near the current facility in Scranton, Pennsylvania. Management
anticipates that the cost of acquiring and equipping this facility will approach
$2 million, which will be funded in part by new borrowings from PNC Bank in the
form of a first mortgage in the amount of $960,000 and a construction credit
line in the amount of $410,000. This new facility will significantly increase
the operating capacity and enable Rustic Crafts to service its current order
backlog and enhance its customer base. Rustic Crafts has recently employed a new
President who has substantial industry background and plans to increase its
sales and distribution of both manufactured and imported products. Management
anticipates that Rustic Crafts will provide significant cash distributions for
use by the Company.
On the date of acquisition of the new facility, a tenant was renting
23,000 square feet of a separate part of this facility at a base rent of $17,400
per year plus an allocable share of the real estate taxes. The Company intends
to maintain this tenant relationship on an ongoing basis. As of August 15, 1998,
the Company rented an additional 28,000 square feet at an annual minimum rent of
$71,680.
The Company experimented during 1997 for a one month period by
installing aggregate crushing and marketing operations at the Groveland Mine in
an informal joint venture with another company. The joint venture processed and
marketed approximately 25,000 tons of aggregate rock. Based on this experiment,
the Company is attempting to establish a permanent infrastructure to
commercialize the inventory of previously quarried and stockpiled aggregate at
the Groveland Mine in conjunction with an experienced aggregate supply company.
At this time there is no assurance that such commercialization will occur. The
Company is also exploring opportunities to monetize this asset for the benefit
of the Company's shareholders.
The Company 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 proceeds of its recent Loan
Agreement, or other loans. There can be no assurances that any such acquisitions
or transactions will come to fruition.
On January 31, 1998, NRDC entered into a non-binding Letter of Intent
with the Chancellor Group, Inc. to transfer the stock of NRDC in exchange for $7
million face value preferred shares of the Chancellor Group, Inc. The preferred
shares would carry a 7% dividend rate and be convertible at any time after 24
months from the date of issuance into the common stock of the Chancellor Group,
Inc. The Chancellor Group, Inc. would have the option to redeem the preferred
shares at any time prior to conversion at the stated face value. Management
believes that it may be appropriate to distribute the stock of NRDC to the
Regency shareholders prior to such an exchange of the NRDC stock for the
preferred shares of the Chancellor Group, Inc. While the non-binding Letter of
Intent outlines the terms of an exchange of the NRDC stock for the preferred
shares of the Chancellor Group, Inc., there can be no assurance that such an
exchange would come to fruition or that, if a definitive agreement is reached,
it will provide for the same or similar economic terms.
14
<PAGE> 15
Factors Affecting Future Results.
The Company is subject to numerous contingencies, risks and
uncertainties including, but not limited to the following, that could have a
severe impact on the Company.
(i) The Company does not generate positive cash flow and,
historically, 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 continue in existence is partly dependent upon its
ability to attain satisfactory levels of operating cash flows.
(ii) The Company currently lacks the necessary infrastructure at
the site of the Groveland Mine to permit the Company to make
more than casual sales of the aggregate.
(iii) As of June 30, 1998, the Company was dependent upon the
investment in Security, the operations of RCI, and its
interest income 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 cover its
corporate operating expenses and thus the Company must rely on
its cash reserves to fund these expenses.
(v) An unsecured default in the Lease or sudden catastrophe to the
Security office complex 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 and therefore its financial position and results
of operations (see Note 2).
(vi) The failure of the Social Security Administration to renew its
lease of the Security West Buildings upon its expiration on
October 31, 2003, could have a materially adverse impact upon
the Company's investment in Security.
(vii) The Company has significant tax loss and tax credit
carryforwards and no assurance can be provided that the
Internal Revenue Service would not attempt to limit or
disallow altogether the Company's use, retroactively and/or
prospectively, of such carryforwards, due to ownership changes
or any other reason. The disallowance of the utilization of
the Company's net operating loss would severely impact the
Company's financial position and results of operations due to
the significant amounts of taxable income (generated by the
Company's investment in Security) that has in the past been,
and is expected in the future to be, offset by the Company's
net operating loss carryforwards (see Note 5).
15
<PAGE> 16
On-Line Financial Services, Inc.
On August 10, 1998, the Company entered into a non-binding Letter of
Intent to acquire 30% of the outstanding common stock of On-Line Financial
Services, Inc. in exchange for $50,000 and a $250,000 zero coupon non-recourse
note bearing interest at 1% below the prime rate of Norwest Bank. The note is to
be secured by 125,000 tons of aggregate rock owned by NRDC. The note and accrued
and unpaid interest would be payable in five years unless earlier cancelled as a
result of On-Line Financial Services, Inc. becoming publicly traded.
On-Line Financial Services, Inc. is a mortgage broker in the Denver,
Colorado market with a web site on the Internet used to market their services
and to provide loan origination opportunities to third parties associated with
the purchase and sale of residential real estate. The address of the web site
is: www.mortgage-inc.com.
The Company has recently adopted its own web site at:
www.regencyaffiliates.com.
Cruttenden Roth
On August 17, 1998 the Company engaged Cruttenden Roth, Inc., to
assist the Company with its Acquisition Program. The Company has agreed to pay
Cruttenden Roth a fee of $25,000 payable over 12 months and a success fee if the
Company acquires a business within the next two years.
Results of Operations.
The operations of Regency Affiliates, Inc. and its subsidiaries during
the quarter ended June 30, 1998, included the casual sales of aggregate, limited
rental income and the sale of wood and cast marble decorative fireplaces, heater
logs, and related accessories as well as an active merger and acquisition
program with a view to enhance future company operations.
Three Months Ending June 30, 1998 and 1997.
-------------------------------------------
Sales of Rustic Crafts increased $37,700 in the second quarter of 1998
or 5.5%. The increase is due to an increase in volumes shipped. The backlog as
of June 30, 1998, is $881,000 compared to $619,000 at June 30, 1997.
Gross margins improved slightly to 37% from 36% in the prior year.
Selling and administrative expenses decreased by $80,300. The prior
quarter in 1997 included $140,000 of costs associated with the employment of the
Company's President. In the three months ended June 30, 1998, expenses increased
at the Company's subsidiary reflecting anticipated remodeling, construction, and
growth.
Income from equity in partnership decreased $82,600 primarily from
higher net interest expense and higher depreciation and amortization.
Interest expense increased $400,900 due to the prepayment penalty for
the SIPI Loan, the writeoff of unamortized loan issuance costs associated with
the SIPI Loan and interest expense on capitalized interest since June 30, 1997.
Net income decreased $390,400 primarily as the result of higher
interest expense and lower earnings from the equity in partnership offset by
lower general and administrative costs.
16
<PAGE> 17
Six Months Ending June 30, 1998 and 1997.
-----------------------------------------
Sales increased $555,000 in 1998 over 1997 reflecting the purchase of
Rustic Crafts in March 1997. Gross margin percentage decreased slightly in 1998
from 1997.
Selling and administrative expenses increased $229,900 primarily due to
increases at Rustic Crafts because of an additional two months of operations
included in 1998.
Interest expense increased $425,500 in 1998 reflecting higher long-term
debt, prepayment penalty on the payoff of the SIPI Loan and the writeoff of
unamortized loan issuance costs.
Net income decreased $464,200 primarily the result of the increase in
interest expense. Higher gross margins due to increased sales were offset by
higher selling and administrative expenses.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no legal proceedings pending against the Company or any of its
subsidiaries which management believes would have a material impact upon the
operations or assets of the Company.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults in the payment of principal or interest with respect
to any senior indebtedness of Regency Affiliates, Inc.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the vote of security holders during the reporting
period ending June 30, 1998.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Report on Form 8-K dated July 6, 1998
Exhibit 10.1 -- Loan Agreement with KBC Bank N.V. dated June 24, 1998
Exhibit 10.2 -- Pledge and Security Agreement dated June 24, 1998
Exhibit 10.3 -- 7th Amendment to Partnership Agreement of Security Land and
Development Company Limited Partnership dated June 24, 1998
Exhibit 27 -- Financial Data Schedule
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
REGENCY AFFILIATES, INC.
--------------------------------------------------
(Registrant)
August 19, 1998 By: /s/ William R. Ponsoldt, Sr.
- ------------------ ------------------------------------------
Date William R. Ponsoldt, Sr., President
18
<PAGE> 1
Exhibit 10.1
June 24, 1998
Regency Affiliates, Inc.
729 South Federal Highway
Suite 307
Stuart, Florida 34994
Ladies and Gentlemen:
We are pleased to inform you that our Grand Cayman Branch will make
available to you a term loan in the principal amount of US$9,383,319.77.
The terms and conditions of this loan are as follows:
1. DEFINITIONS. Unless otherwise defined in this letter, terms used as
defined terms have the meanings given to them on Exhibit A hereto.
2. THE LOAN. Subject to the terms and conditions hereof, on June 24,
1998, we will lend to you, and you will borrow from us, a term loan in the
principal amount of Nine Million Three Hundred Eighty-Three Thousand Three
Hundred Nineteen and 77/100 Dollars (US$9,383,319.77) (the "Loan"). The
Loan shall be evidenced by the Term Note in the form attached hereto as
Exhibit B (the "Note"), which you shall execute and deliver to us prior to
or simultaneously with your receipt of the proceeds of the Loan.
3. DISBURSEMENT OF LOAN. We will disburse the proceeds of the Loan to
you as set forth in your separate written instructions to us.
4. INTEREST.
(a) You shall pay interest on the outstanding principal balance of the
Loan until fully paid at a rate per annum equal to 7.5% (the "Interest
Rate"). Interest shall be computed on a daily basis for the actual number
of days elapsed over a year of 360 days, and shall be compounded
semiannually on each June 1 and December 1, commencing June 1, 1998.
Accrued interest shall be due and payable in arrears on the Loan Due Date
(as defined in Section 5(a)).
(b) Except as provided in the next succeeding sentence, in the event
the principal balance of the Loan and accrued interest thereon is not paid
in full on the Loan Due Date, then all such principal balance and accrued
interest shall bear interest from the Loan Due Date until fully paid at a
rate per annum (the "Default Rate") equal to the Interest Rate plus two
percentage points, which interest shall be payable on demand.
Notwithstanding the foregoing to the contrary, during the period between
the Scheduled Maturity Date (as defined in Section 5(a)) and the expiration
or termination of the Escrow Forbearance Period, the unpaid principal
balance of and all accrued but unpaid interest on the Loan shall bear
interest at a fluctuating rate per annum equal to LIBOR for each Interest
Period during such period plus two percent (2%), which
<PAGE> 2
interest shall be due and payable at the end of the Escrow Forbearance
Period or the earlier payment in full of the then unpaid principal balance
of the Loan.
5. PAYMENTS AND PREPAYMENTS.
(a) You shall repay the outstanding principal balance of the Loan on
the earlier of (i) November 30, 2003 (the "Scheduled Maturity Date"), in
accordance with the terms of the Note or (ii) the acceleration of the Loan
upon an Event of Default hereunder (the earlier of (i) and (ii) being
referred to herein as the "Loan Due Date").
(b) Subject to Section 7(a) of the Security Agreement, you shall
prepay the outstanding principal balance of the Loan, plus accrued interest
thereon, immediately upon receipt of any and all Partnership Distributions,
in the amount of each such Partnership Distribution. Such prepayment shall
be applied to accrued interest on and the principal balance of the Loan in
such order as we determine in our discretion.
(c) You may voluntarily prepay the Loan upon 30-day's prior written
notice to us and upon payment of the entire unpaid principal balance of the
Loan, plus accrued and unpaid interest thereon, plus the Make-Whole
Premium, if any.
(d) All payments and prepayments to be made by you of principal,
interest and other amounts due hereunder shall be made without setoff,
defense or counterclaim in lawful money of the United States of America and
in immediately available funds and at our Grand Cayman Branch, c/o KBC Bank
N.V., 125 West 55th Street, New York, New York 10019 or such other address
as we shall advise you in writing.
6. TAXES. All payments made by you hereunder or under the Note shall be
made free and clear of, and without reduction for or on account of, any
present or future income, stamp or other taxes, levies, imports, duties,
charges, fees, deduction, or withholding, now or hereafter imposed, levied,
collected, withheld or assessed by any country (or by any political
subdivision, or taxing authority thereof or therein), excluding income and
franchise taxes, if any, imposed on our overall net income from all
operations by the United States of America or any political subdivision or
taxing authority thereof or therein including Puerto Rico (such
non-excluded taxes being called "Foreign Taxes"). If any Foreign Taxes are
required to be withheld from any amounts payable to us hereunder or under
the Note, then, the amounts so payable to us shall be increased to the
extent necessary to yield to us (after payment of all Foreign Taxes)
interest or any such other amounts payable hereunder or thereunder at the
rates or the amounts specified herein and in the Note. Whenever any Foreign
Tax is payable by you, as promptly as possible thereafter, you shall send
us a certified copy of an original official receipt showing payment
thereof. If you fail to pay any Foreign Taxes when due to the appropriate
taxing authority or fail to remit to us the required receipts or other
required documentary evidence, you shall indemnify us for any incremental
Foreign Taxes, interest or penalties that may become payable by us as a
result of such failure.
7. REQUIREMENT OF LAW. In the event that any law, regulation, treaty or
directive or any change therein or in the interpretation or application
thereof or compliance by us with any
-2-
<PAGE> 3
request or directive (whether or not having the force of law) from any
central bank or other governmental authority, agency or instrumentality:
(a) does or shall subject us to any tax of any kind whatsoever with respect
to the Loan, or change the basis of taxation of payments to us of
principal, interest or any other amount payable in respect of the Loan or
Note (except for changes in the rate of tax on our overall net income); (b)
does or shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by, or
deposits or other liabilities in or for the account of advances or loans
by, other credit extended by, or any other acquisition of funds by, any of
our offices involved in making or maintaining the Loan and which were not
otherwise included in the determination of the rate of interest under this
agreement; or (c) does or shall impose on us any other condition with
respect to making or maintaining the Loan; and the result of any of the
foregoing is to increase the cost to us of making or maintaining the Loan
or to reduce any amount receivable in respect of the Loan, then, in any
such case, you shall promptly pay us, upon our demand, any additional
amounts necessary to compensate us for such additional cost or reduced
amount receivable. We shall notify you of the event by reason of which we
have become entitled as promptly as practicable after we learn of such
event, which notice shall set forth a reasonable description of the facts
and circumstances of such event and its effect on the Loan. Such notice as
to any additional amounts payable pursuant to the foregoing sentence
submitted by us to you shall be conclusive and binding on you absent
manifest error.
8. CAPITAL ADEQUACY COSTS. If the introduction of or any change in (a)
the judicial, administrative, or other governmental interpretation of any
law or regulation or (b) compliance by us or any corporation controlling us
with any guideline or request from any central bank or other governmental
authority, agency or instrumentality (whether or not having the force of
law) has the effect of requiring an increase in the amount of capital
required or expected to be maintained by us or any corporation controlling
us, and we determine that such increase is based upon making or maintaining
the Loan or upon our obligations hereunder, then, you shall pay us such
additional amount as we shall certify to be the amount allocable to our
transaction with you hereunder. We will notify you of any event occurring
after the date of this letter that will entitle us to compensation pursuant
to this Section as promptly as practicable after we obtain knowledge
thereof and determine to request such compensation. Our determination for
purposes of this Section of the effect of any increase in the amount of
capital required to be maintained by us and of the amount allocable to our
obligations to you hereunder shall be conclusive and binding on you,
provided that such determination is made on a reasonable basis.
9. [INTENTIONALLY OMITTED.]
10. CONDITIONS PRECEDENT TO THE LOAN. Our obligation to make the Loan
is subject to satisfaction of the following conditions precedent: (i) we
shall have received the Note conforming to the requirements hereof,
executed by your duly authorized officers; (ii) we shall have received
certified copies of your Articles of Incorporation and By-Laws and of all
corporate action by you to authorize the execution, delivery and
performance of the Loan Documents, together with such other documents as we
shall reasonably require; (iii) we shall have received certificates as to
the incumbency and signatures of your officers authorized to sign the Loan
Documents; (iv) we shall have received the Security Agreement, and the
other Loan Documents executed by your duly authorized officer; (v) we shall
have received, in form and substance
-3-
<PAGE> 4
satisfactory to us, all releases, terminations and such other documents as
we may request to evidence and effectuate the termination of your financing
arrangements with SIPI under the SIPI Loan Agreement and the SIPI Security
Agreement, the repayment of all your obligations to SIPI, and the
termination and release by them of any interest in and to any of your
assets and property, including, but not limited to, UCC termination
statements; (vi) we have received evidence, in form and substance
satisfactory to us, that we have a valid perfected, first priority security
interest in and lien upon the Collateral; (vii) we have received, in form
and substance satisfactory to us, all consents, waivers, acknowledgements
and other agreements from third parties when we may deem necessary or
desirable in order to permit, protect and perfect our security interest in
the Collateral; (viii) we have received an appraisal of the Property by
Marshall & Stevens, in form and substance acceptable to us; (ix) we have
received an environmental survey by E. Langan Engineering and Environmental
Services, Inc., in form and substance acceptable to us; (x) we have
received an engineer's report of E. Langan Engineering and Environmental
Services, Inc., in form and substance acceptable to us; (xi) the Residual
Value Insurance shall have been issued and shall be in full force and
effect and we shall have been named as a loss payee with respect thereto;
(xii) all of your representations and warranties in this letter and the
other Loan Documents are complete and correct as of the date of the Loan
and after giving effect thereto as if made on and as of such date; (xiii)
on the date of the Loan and after giving effect thereto, you shall have
complied and then be in compliance in all respects with all of the terms,
covenants, and conditions of this letter and the other Loan Documents that
bind or apply to you; (xiv) no Event of Default, or event which would be an
Event of Default after notice or passage of time or the happening of any
other contingency, shall have occurred and be continuing as of the date of
the Loan or after giving affect thereto; (xv) we shall have received the
legal opinion of Graham & James LLP, covering such matters as we reasonably
request, in form and substance satisfactory to us and our counsel; (xvi) no
event of default, or any event which would be an event of default after
notice or passage of time or the happening of any other contingency, shall
have occurred and be continuing as of the date of the Loan under any
Project Document; (xvii) the Seventh Amendment shall have been duly
executed by each partner of the Partnership and shall be in full force and
effect, and we shall have received a duly executed copy thereof; (xviii)
the Escrow Agreement shall have been duly executed and delivered by each of
the parties thereto in addition to us and shall be in full force and
effect; we shall have received a duly executed copy thereof; and all
documents constituting the "Escrowed Documents" thereunder shall have been
delivered to and shall be held by the escrow agent thereunder; (xix) we
shall have received correct and complete copies of the Partnership
Agreement and the Project Documents as in effect on the date the Loan is
made; and (xx) all other documents and legal matters in connection with the
transactions contemplated by this agreement shall be reasonably
satisfactory in form and substance to us and our counsel.
11. REPRESENTATIONS AND WARRANTIES. You hereby represent and warrant to
us as follows:
11.1 ORGANIZATION, QUALIFICATION, POWER AND AUTHORITY. (a) You are
duly organized, validly existing and in good standing as a corporation
under the laws of the State of Delaware; (b) you are qualified to do
business and in good standing in all jurisdictions in which the failure to
be so qualified and in good standing would have a material adverse effect
on your
-4-
<PAGE> 5
business, properties, or financial condition; and (c) you have all
requisite power and authority to conduct your business as now conducted and
own your property.
11.2 EXECUTION, DELIVERY AND PERFORMANCE OF LOAN DOCUMENTS. You have
the full power, authority and legal right to execute, deliver, and perform
the Loan Documents. You have taken all required corporate and other action,
to authorize the borrowing evidenced hereby and to authorize the execution,
delivery, and performance of the Loan Documents. Each Loan Document has
been duly authorized by you by all required corporate action, has been duly
executed and delivered by you, and constitutes your legal, valid and
binding agreement and obligation enforceable against you in accordance with
its terms without setoff, defense or counterclaim. The execution and
delivery of the Loan Documents and the carrying out of their terms and
provisions do not and will not: (i) require any action or consent of or any
registration or filing with, any governmental authority, bureau or agency,
or any party to any agreement or other undertaking, or under any order or
decree applicable to you or, to the best of your knowledge, the
Partnership; or (ii) conflict with, or constitute a default under, or
result in the creation or imposition of any lien on your properties and
assets or the property or assets of, to the best of your knowledge, the
Partnership, by reason of the terms of (1) any contract, mortgage, lien,
lease, agreement, indenture, instrument, or judgement to which you or, to
the best of your knowledge, the Partnership are a party or which is or
purports to be binding you, (2) any judgment, law, statute, rule or
governmental regulation applicable to you or, to the best of your
knowledge, the Partnership, or (3) your Articles of Incorporation and
By-Laws or the Partnership Agreement.
11.3 COMPLIANCE. At the date hereof, you are not in violation of or in
default in any material respect with respect to any judgment, decree, order
or any federal, state or local law, rule, regulation, statute, or ordinance
applicable to your business or properties (including, without limitation,
those relating to environmental protection and pollution control), or any
contract, mortgage, lien, lease, indenture, instrument, agreement, or
document to which you are a party or bound. Without limiting the foregoing,
you have complied with all the requirements of the Residual Value Insurance
applicable to you with which compliance was required on or prior to the
date hereof and have not taken any action, or failed to take any action,
which could cause the Residual Value Insurance or any coverage of such
insurance to cease to be in full force and effect in all respects with
regard to the insured, any additional insured or loss payee named therein.
11.4 LITIGATION. There are no pending, or to your knowledge,
threatened suits, actions, proceeding, or counterclaims by any Person, or
investigation by any Public Authority, or any basis for any of the
foregoing, which challenge the validity or enforceability of any of the
Loan Documents, or which could materially and adversely affect your
financial condition, business or operation.
11.5 USE OF PROCEEDS. The loan proceeds will be used solely for the
purpose of repaying all debts, obligations and other liabilities
outstanding under or in respect of the SIPI Loan Agreement, paying the
costs and expenses incurred in connection with the transactions under the
Loan Documents, financing acquisitions of businesses, and other general
corporate purposes.
-5-
<PAGE> 6
11.6 MARGIN SECURITIES. The proceeds of the Loan will not be used,
directly or indirectly, for the purpose of purchasing or carrying any
margin security, for the purpose of reducing or returning any indebtedness
which was originally incurred to purchase or carry any margin security or
for any other purpose which might cause the Loan to be considered a
"purpose credit" within the meaning of, or otherwise to violate, Regulation
G, T, U or X of the Board of Governors of the Federal Reserve System.
11.7 FINANCIAL STATEMENT. Your audited financial statements for the
fiscal year ended December 31, 1996, which you have delivered to us, have
been prepared in accordance with generally accepted accounting principles
and fairly present, your financial condition and results of operation as at
such date and for the period then ended. No material adverse change has
occurred in your financial condition, business, or operations since
December 31, 1996.
11.8 TAXES. At the date hereof, you have filed all tax and information
returns and other reports that you required by law to have filed, and you
have paid all taxes, assessments, fees, and other governmental charges, and
all penalties and interest, if any, against you or your property or income,
or franchise, that have become due and payable.
11.9 PARTNERSHIP DOCUMENTS. You have delivered to us accurate and
complete copies of the Partnership Agreement and the Project Documents.
There are no modifications of or supplements to the Partnership Agreement
or the Project Documents other than as contemplated hereby, and, except for
the Partnership Agreement, there are no agreements or documents relating to
the organization and management of the Partnership, or the partners of the
Partnership and the rights and obligations thereof. You and, to the best of
your knowledge, each of the other partners of the Partnership is in
compliance with the terms of the Partnership Agreement.
All of the foregoing representations and warranties shall survive the
execution and delivery of this letter.
12. COVENANTS. You covenant that, at all times during the term hereof
and so long as the Obligations remain outstanding you will perform and
comply with the following covenants:
12.1 CORPORATE EXISTENCE AND GOOD STANDING. You shall preserve and
maintain your corporate existence and good standing in all jurisdictions
necessary to conduct your business and own or lease your property, and
maintain all licenses, permits, franchises, and governmental authorizations
necessary to conduct your business and own or lease your property.
12.2 COMPLIANCE WITH LAW AND AGREEMENTS. You shall comply with
each order, ordinance, law, rule, decree, judgement, governmental
regulation and statute applicable to you (including, without limitation,
those relating to environmental protection and pollution control) and each
contract, mortgage, lien, lease, indenture, order, instrument, agreement
or document to which you are a party or bound.
-6-
<PAGE> 7
12.3 MAINTENANCE OF BOOKS AND RECORDS. You shall keep adequate books
and records of accounts, in which complete entries will be made in
accordance with generally accepted accounting principles consistently
applied, reflecting all your or its financial transactions.
12.4 TAXES AND OTHER OBLIGATIONS. You shall file when due all tax and
information returns and other reports which you are required to file; pay
or provide for the payment of, when due, all taxes, fees, assessments and
other governmental charges against or upon your property, income or
franchises; make all required withholding and other tax deposits; establish
adequate reserves for the payment of all such items; provide to us, upon
request, satisfactory evidence of your timely compliance with the
foregoing; and pay when due all Indebtedness for Borrowed Money owed by you
and perform and discharge in a timely manner all other obligations
undertaken by you.
12.5 FINANCIAL STATEMENTS. You shall furnish to us (i) no later than
90 days after the end of each of your fiscal years, an audited consolidated
balance sheet, statement of income, and statement of cash flow and uses of
funds for you and your consolidated subsidiaries, if any, as at the end of
such year and for the fiscal year then ended; and (ii) no later than 45
days after the end of each of your fiscal quarters, other than the last
fiscal quarter of a fiscal year, an unaudited consolidated balance sheet,
statement of income and statement of cash flow for you and your
consolidated subsidiaries, if any, as at the end of such quarter and for
the period from the beginning of the fiscal year until the end of such
quarter. All such financial statements shall be prepared in accordance with
generally accepted accounting principles and shall present fairly the
financial position and results of operations for you and your consolidated
subsidiaries, if any, as at the dates thereof and for the period then
ended. All annual financial statements shall be examined by and accompanied
by the unqualified report of independent certified public accountants
reasonably acceptable to us. All quarterly financial statements shall be
certified to be correct by your chief financial or accounting officer,
subject to year-end adjustments. You shall furnish to us copies of all
financial statements, tax or information returns, operating reports, and
other written communication received from the Partnership, promptly after
your receipt.
12.6 MERGERS, CONSOLIDATIONS OR SALES. You shall not enter into any
transaction of merger or consolidation with, or transfer, sell, assign,
lease or otherwise dispose of all or substantially all of your properties
or assets to, any Person (except a merger in which you are the surviving
entity and after giving effect to which you are in compliance with all of
your other covenants in the Loan Documents and no Event of Default, or
event or circumstance that with the passage of time or the giving of notice
or both would constitute an Event of Default, exists), or wind up,
liquidate or dissolve or agree to do any of the foregoing.
12.7 NOTICES. You shall notify us in writing of the following matters
at the following times:
(a) Immediately after becoming aware thereof, any Event of
Default, or event of default or default under any Project Document,
and
-7-
<PAGE> 8
(b) Immediately after becoming aware thereof, any pending or
threatened action, suit, proceeding, or counterclaim by any Person, or
any pending or threatened investigation by a Public Authority, which
may materially and adversely affect the Project Documents, the
repayment of the Obligations, our rights under the Loan Documents or
your or the Partnership's property, business, operations or condition
(financial or otherwise).
12.8 INDEBTEDNESS. You shall not have outstanding any Indebtedness for
Borrowed Money in excess of $80,000,000 in aggregate principal amount at
any time.
12.9 NEGATIVE PLEDGE. You shall not create, incur, assume or suffer to
exist any Lien in or upon the Collateral except in our favor.
12.10 FINANCIAL COVENANTS. You shall maintain a ratio of total
Indebtedness for Borrowed Money to total equity of no greater than
1.25:1.00.
12.11 DISPOSAL OF PARTNERSHIP INTEREST. You will not sell, transfer,
assign or otherwise convey your interest in the Partnership or any portion
thereof, or grant any options or rights to purchase such interest or any
portion thereof except pursuant to the Loan Documents or under Article XIV
of the Partnership Agreement, as amended by the Seventh Amendment.
12.12 ACTION UNDER PARTNERSHIP AGREEMENT. You shall not cast any vote,
make any election, give or withhold any consent or approval, waive any
provision, or take any other action under the Partnership Agreement which
you may be permitted or required to cast, take, give, take or withhold,
waive or make pursuant to the terms of the Partnership Agreement without
our prior written consent:
(a) if such vote, election, consent, approval, waiver, or other action
is with respect to (i) the dissolution or winding-up of the Partnership,
(ii) any amendment, modification, or supplement to or waiver or consent
under the Project Documents, (iii) any voluntary or involuntary petition
for relief or similar filing or action under the United States Bankruptcy
Code or any other statute, law or proceeding for the relief of debtors, or
any assignment for the benefit of creditors, or any appointment of a
custodian, receiver or trustee, (iv) any incurrence of Indebtedness for
Borrowed Money, (v) the imposition of any Lien on the Property, (vi) any
sale or other disposition of the Property or any interest therein or of all
or substantially all of the assets and property of the Partnership, or any
merger or combination of the Partnership with or into any other Person, or
(vii) any amendment, modification, or supplement to the Partnership
Agreement; or
(b) without at least 10 days prior written notice to us in the case of
any other vote, election, consent, approval, waiver, or other action.
12.13 TRANSACTIONS WITH AFFILIATES. You will not enter into or permit
to exist any transaction or series of transactions with any affiliate other
than in the ordinary course of business and on an arm's length basis,
except transactions disclosed in your Annual Report on Form 10-K for the
year ended December 31, 1996, your Quarterly Report on Form 10-Q/A for
-8-
<PAGE> 9
the quarter ended September 30, 1997, your Current Report on Form 8-K,
dated June 13, 1997, and the Project Documents.
12.14 YEAR 2000. You shall take all action necessary to assure that
your computer based systems are able to process effectively data including
dates on and after January 1, 2000. At our request, you shall provide us
with assurance reasonably acceptable to us of your year 2000 capability.
12.15 FURTHER ASSURANCES. You shall execute and deliver to us, upon
request, such documents and agreements and do such other acts, as we may,
from time to time, reasonably request to carry out the terms and conditions
of this letter.
13. DEFAULT AND REMEDIES.
13.1 DEFAULTS. Each of the following constitutes an event of default
("Event of Default"):
(a) you fail to pay any principal of or accrued interest on the Note
when due or fail to pay when due any of the other Obligations;
(b) any representation or warranty made by you herein, in the Loan
Documents, in any written statement or certificate furnished or deemed
furnished by you to us at any time, or in any agreement, instrument, or
document now or hereafter in effect evidencing, securing, guaranteeing, or
relating in any way to your Obligations to us shall have been untrue in any
material respect when made;
(c) you default in the observance or performance of, or breach, any
covenant or agreement herein, in the Loan Documents, or in any other
agreement, instrument, or documents now or hereafter in effect evidencing,
securing, guaranteeing, or relating in any way to your Obligations to us,
or an event of default otherwise occurs under any such other agreement,
instrument, or document, and in the case of a breach of Section 12.2, 12.3,
12.4, 12.5, 12.7 or 12.14, such breach continues for ten (10) days
unremedied or uncured;
(d) the holder of any other of your Indebtedness for Borrowed Money in
an outstanding principal amount in excess of $100,000 declares that a
default exists with respect to such Indebtedness for Borrowed Money or
under any agreement relating thereto;
(e) you or the Partnership commence, have commenced against you or it,
or acquiesce in the commencement or any action or proceeding in bankruptcy
or seeking reorganization, arrangement, readjustment of debts, or any other
relief under the United States Bankruptcy Code, as amended, or under any
other bankruptcy or insolvency law, state or federal, now or hereafter
existing, whether or not an order for relief has been entered therein, and
in the event of an action or proceeding commenced against you, such action
or proceeding, is not withdrawn or dismissed within forty-five (45) days
after it is commenced;
-9-
<PAGE> 10
(f) you or the Partnership apply for or acquiesce in the appointment
of, or have appointed against you or it, a receiver, custodian, trustee,
sequestrator, or similar officer for you or it or all or any part of your
or its property;
(g) you or the Partnership make an assignment for the benefit of
creditors;
(h) you or the Partnership file a certificate of dissolution under
applicable state law, are liquidated, or take any action or have any action
taken against you or it in furtherance of dissolution or liquidation;
(i) one or more final judgements for the payment of money aggregating
$100,000 or more are rendered against you which remains undischarged,
unvacated, unbonded or unstayed for a period of thirty (30) days;
(j) any Lien, other than in our favor or pursuant to the Project Loan
Documents, is filed or recorded with respect to or otherwise imposed upon
the Collateral or the Property;
(k) you are or the Partnership is enjoined, restrained or in any way
prevented by order of any Public Authority from conducting all or any
material part of your or its business and such order continues for more
than fifteen (15) days;
(l) we do not have or cease to have a valid and perfected first
priority security interest in the Collateral for any reason other than the
failure to take any action within our control;
(m) any of the Loan Documents for any reason, other than a payment in
full of the Obligations, ceases to be in full force and effect or is
declared to be null and void or you deny that you have any further
liability under any Loan Document to which you are a party, or give notice
to such effect;
(n) any material damage to, or loss, theft or destruction of, the
Collateral or the Property, whether or not insured, or any Condemnation,
act of force majeure or other casualty occurs which causes, for more than
sixty (60) consecutive days, the cessation or substantial curtailment of
revenue producing activities at any of your facilities or those of the
Partnership if any such event or circumstances could reasonably be expected
to have a Material Adverse Effect unless, within such sixty (60) day
period, you have either (i) commenced and pursued diligently all action
available to you under the Lease Agreement or (ii) provided to us a plan
(acceptable to us in our discretion), and in the case of a casualty, work
has commenced and is being diligently pursued under such plan, in each case
for the purpose of returning your property or the Property to a revenue
production state similar to the state of your property or the Property
prior to the occurrence of such casualty or other event;
(o) the Partnership engages in any type of business activity other
than the ownership, lease and operation of the Property in accordance with
past practices; or
-10-
<PAGE> 11
(p) the General Partner or any limited partner of the Partnership
defaults in the observance or performance of, or breaches, any covenant or
agreement in Article XIV, Section 9.01(d) or Section 22.07 of the
Partnership Agreement or any representation or warranty made by it therein
shall have been untrue in any material respect when made; or
(q) the Partnership defaults in the observance or performance of, or
breaches, any covenant or agreement contained in any Project Document, or
any default or event of default otherwise occurs thereunder.
13.2 REMEDIES. (a) If an Event of Default occurs, then, in addition to
any other rights and remedies that we may have under law or agreement
(including, without limitation, our rights and remedies under the Escrow
Agreement and the Partnership Agreement, which are subject to the terms and
conditions thereof), but subject to subsection (b) of this Section, we may,
without notice to or demand on you, declare the unpaid principal balance of
the Loan, together with accrued but unpaid interest thereon and all other
Obligations, to be and all such sums shall thereupon become immediately due
and payable. You waive presentment or payment, demand, protest, notice of
protest and demand or dishonor hereof, and all other notices to which you
may be entitled.
(b) If you fail to pay the principal balance of and accrued but unpaid
interest on the Loan at the Scheduled Maturity Date, and no other Event of
Default is then continuing and we have not theretofore declared the
principal balance of the Loan due and payable pursuant to Section 13.2(a),
then, during the General Forbearance Period (as hereinafter defined), we
will forbear from enforcing our remedies arising from such failure of
payment. For the purposes hereof, the "General Forbearance Period" shall
mean the period commencing on the Scheduled Maturity Date and ending on the
earliest to occur of: (x) April 30, 2005; (y) the closing of a Qualifying
Financing (as defined below) or a Qualifying Sale (as defined below); or
(z) the earlier termination of the General Forbearance Period in accordance
with this subsection. We may terminate the General Forbearance Period at
any time that either of the following events or circumstances shall exist
or occur:
(i) any Event of Default (other than your failure to pay the
Obligations on the Scheduled Maturity Date) shall occur and be
continuing; or
(ii) after the repayment in full of the Partnership's
obligations pursuant to the Project Loan Agreement, any of the
following conditions are not satisfied:
(A) the Government is the tenant of the Property and is
paying rent for the use and occupancy of the Property; you
are receiving distributions of your share of such rent under
the Partnership Agreement (as "Net Cash Flow" or otherwise)
within thirty days after each rental payment is received;
each of such distributions is in an amount
-11-
<PAGE> 12
which on an annualized basis is not less than $6,000,000 per
annum; and such distributions are being remitted by the
Partnership directly to us without reduction for application
to the Obligations; and
(B) either (1) the Partnership is engaged in and is
diligently pursuing good faith negotiation for (a) a new
lease for the Property, or an extension of the Lease
Agreement, providing for a rent and on other terms that will
enable the Partnership to obtain financing in an amount such
that the proceeds thereof that are to be distributed to you
under the Partnership Agreement will be sufficient to repay
the Loan and all accrued interest thereon (such financing
being referred to hereinafter as a "Qualifying Financing")
and (b) Qualifying Financing; or (2) the Partnership is
engaged in and is diligently pursuing good faith
negotiations for the sale of the Property at a price and on
terms such that the amount of cash to be distributed to you
under the Partnership Agreement from the proceeds of such
sale will be sufficient to repay the Loan and all accrued
interest thereon (such sale being referred to as a
"Qualifying Sale").
Upon the expiration or termination of the General Forbearance Period,
unless the Loan and all accrued interest thereon have been fully and
finally paid, we shall be entitled at such time and at any time thereafter
to enforce all of our rights and remedies for payment of the Obligations,
to the same extent as if we had not agreed to forbear from doing so during
the General Forbearance Period; provided, however, that we shall not be
entitled at such time to enforce our rights and remedies under the Escrow
Agreement unless the Escrow Forbearance Period (as defined in
Section13.2(c)) has also expired or been terminated.
(c) If you fail to pay the principal balance of and accrued but unpaid
interest on the Loan at the Loan Due Date, then, whether or not another
Event of Default is then continuing, during the Escrow Forbearance Period
(as hereinafter defined), we will forbear from enforcing our rights and
remedies under the Escrow Agreement arising from such failure of payment.
For the purposes hereof, the "Escrow Forbearance Period" shall mean the
period commencing on the Loan Due Date and ending on the earlier to occur
of: (x) April 30, 2005; or (y) the earlier termination of the Escrow
Forbearance Period in accordance with this subsection. We may terminate the
Escrow Forbearance Period at any time that either of the following events
or circumstances shall exist or occur:
(i) there shall occur and be continuing an event described
in Section 13.1, subsection (e), (f), (g), (h), or (p), with
respect to the Partnership or the General Partner, which, in the
case of an event described in
-12-
<PAGE> 13
Section 13.1(p), continues uncured for more than 10 days after
the General Partner's receipt of written notice from us of such
occurrence; or
(ii) after the repayment in full of the Partnership's
obligations pursuant to the Project Loan Agreement, any of the
conditions set forth in subsections (b)(ii)(A) or (b)(ii)(B) of
this Section are not satisfied.
Upon the expiration or termination of the Escrow Forbearance Period, unless
the Loan and all accrued interest thereon have been fully and finally paid,
we shall be entitled at such time and at any time thereafter to enforce all
or our rights and remedies under the Escrow Agreement, to the same extent
as if we had not agreed to forbear from doing so during the Escrow
Forbearance Period.
(d) Our forbearance as provided hereunder shall not be construed as a
waiver of any of our rights or remedies, nor shall it be the basis to deem
us estopped from taking any action at a later date. All statutes of
limitations applicable to actions that we may be entitled to bring to
enforce our rights and remedies shall be tolled during the General
Forbearance Period or the Escrow Forbearance Period, as the case may be,
and each time period provided in each such statute of limitations shall be
extended by a period of time equal to the duration of the General
Forbearance Period or the Escrow Forbearance Period.
(e) We acknowledge that the rights and remedies granted to us in
Article XIV of the Partnership Agreement are subject to the terms,
conditions, and limitations therein and that we are bound thereby to the
same extent as if we were a party to the Partnership Agreement.
14. OBLIGATIONS UNCONDITIONAL; CUMULATIVE REMEDIES; NO PRIOR RECOURSE.
Your obligations under the Loan Documents, except as otherwise expressly
set forth therein, are absolute and unconditional and shall not be
released, discharged, or otherwise affected by any action or inaction on
our part in enforcing our rights hereunder, by a bankruptcy, insolvency, or
similar proceeding, or by any other matter which might vary your risk or
operate to discharge you as a matter of law. Our rights and remedies under
the Loan Documents are cumulative and not exclusive of other rights and
remedies provided by law. We may proceed directly against you for payment
and performance of your obligations without prior recourse to any
collateral or to any other person liable therefor.
15. COMPLETE AGREEMENT; MODIFICATIONS AND WAIVERS. This Agreement and
the other Loan Documents are the complete agreement between you and us
regarding the transactions described herein and supersede any and all oral
or other written agreements relating to such transactions. In entering into
the agreements embodied in the Loan Documents, you have not relied on any
agreements, representations, warranties, or statements by us that are not
expressly set forth in this letter. The Loan Documents may not be modified,
supplemented, or amended, or any of their provisions waived, except by a
writing signed by you and us; provided, however, that you and we shall not
amend Section 13.2 (c) or Section 13.1, subsections (e), (f), (g), (h), or
-13-
<PAGE> 14
(p) (insofar as such subsections apply to the Partnership and the General
Partner), without the prior written consent of the General Partner. No
waiver by us of a breach or Event of Default by you shall be deemed a
waiver of any other previous, concurrent, or subsequent breach or Event of
Default.
16. REINSTATEMENT. If after receipt of any payment pursuant to the Loan
Documents, we are for any reason compelled to surrender such payment to any
person or entity, because such payment is determined to be void or voidable
as a preference, impermissible set off, or a diversion of trust funds, or
for any other reason, then the Loan Documents and your obligations intended
to be paid by such payment shall be reinstated, if necessary, and shall
continue in full force notwithstanding any contrary action which we may
have taken in reliance upon such payment. Any such contrary action so taken
shall be without prejudice to our rights under the Loan Documents and shall
be deemed to have been conditioned upon such payment having become final
and irrevocable.
17. COSTS AND EXPENSES. You will pay or reimburse to us on demand any
and all charges, costs, and taxes incurred in preparing, negotiating,
documenting, implementing, and enforcing the Loan Documents and collecting
Obligations, including without limitation, fees and disbursements of legal
counsel, and all amounts payable by us under the Escrow Agreement.
18. GOVERNING LAW; BINDING EFFECT. Unless otherwise expressly stated
therein, the Loan Documents shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, without
giving effect to any conflicts of laws or principles thereof. The terms and
provisions of the Loan Documents shall inure to the benefit of and be
binding upon each of us and our respective successors and assigns;
provided, however, that you may not assign any of your interests therein or
obligations thereunder without our prior written consent. We may assign or
grant participations in all or any of our rights and obligations under this
letter, the Note and the other Loan Documents to one or more Persons, so
long as the assignee or participant is not at the time of the assignment or
sale of the participation entitled to demand a payment under Sections 6,7,
or 8 that you are not then entitled to demand.
19. SEVERABILITY. If any clause or provision of the Loan Documents
shall be held invalid or unenforceable, in whole or in part, in any
jurisdiction, such invalidity or unenforceability shall attach only to such
clause or provisions, or part thereof, and shall not in any manner affect
any other clause or provision in any jurisdiction.
20. ADMISSIBILITY OF BOOKS AND RECORDS. You agree that our books and
records showing the transactions contemplated by the Loan Documents shall
be admissible in any action or proceeding arising therefrom and shall
constitute prima facie proof thereof.
21. CONSENT TO JURISDICTION. You agree that, in addition to any other
courts that may have jurisdiction under applicable law and rules, the
Supreme Court of the State of New York, in the County of New York, and the
United States District Court for the Southern District of New York shall
have jurisdiction to hear and determine any claims or disputes pertaining
directly or indirectly to the Loan Documents or to any matter arising
therefrom. You expressly submit and consent, in advance, to such
jurisdiction in any action or proceeding in such courts, agree that
-14-
<PAGE> 15
venue will be proper in such courts for all such matters and waive personal
service of the summons and complaint or other process or papers issued
therein. You agree that service of such summons or complaint or other
process or papers may be made by registered or certified mail (return
receipt requested) addressed to you at the address set forth in Section 22.
22. NOTICES. Any notice or other communication given hereunder shall be
in writing, shall be delivered against receipt, or mailed by registered or
certified mail, return receipt requested, postage prepaid, and addressed to
the party to be notified as follows, or to such other address as such party
may designate by like notice:
If to us, to: KBC Bank N.V.
Grand Cayman Branch
c/o 125 West 55th Street
New York, New York 10019
Attn: Edward Sproull
Telephone No.: (212) 541-0600
Telecopy No.: (212) 956-5580
If to you, to: Regency Affiliates, Inc.
729 South Federal Highway, Suite 307
Stuart, Florida 34994
Attn: William R. Ponsoldt
Telephone No.: (561) 220-7662
Telecopy No.: (561) 220-2974
23. SETOFF. Whenever an Event of Default exists, we, without notice to
or demand on you, may elect in our sole discretion to setoff against the
amount due and all moneys then or thereafter owed to you by us or an
affiliate, including, without limitation, all of your deposit and other
accounts and funds in our or such affiliate's possession or control. We
shall be deemed to have exercised this right immediately at the time of our
election even though any charge therefor is made or entered on our records
subsequent to that time. All costs and expenses, including, without
limitation, attorney's fees, paid or incurred by us in connection with any
such setoff shall be paid by you on demand and shall bear interest at the
rate then applicable to the Loan from the date paid or incurred.
24. WAIVER OF JURY TRIAL, ETC. YOU HEREBY WAIVE TRIAL BY JURY, AND YOU
HEREBY WAIVE RIGHT OF SETOFF AND THE RIGHT TO IMPOSE COUNTERCLAIMS (OTHER
THAN COMPULSORY COUNTERCLAIMS), IN ANY LITIGATION IN ANY COURT WITH RESPECT
TO, IN CONNECTION WITH, OR ARISING OUT OF THE LOAN DOCUMENTS, OR ANY OTHER
CLAIM OR DISPUTE HOWSOEVER ARISING BETWEEN US. YOU CONFIRM THAT THE
FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.
25. SECURITY AND GUARANTEES. We may, without notice or demand and
without affecting your Obligations, from time to time:
-15-
<PAGE> 16
(a) take from any Person and hold collateral for the payment of all or
any part of your Obligations hereunder and exchange, enforce or release
such collateral or any part thereof; and
(b) accept and hold any endorsement or guarantee of payment of
all or any part of the Obligations and release or substitute any such
endorser or guarantors, or any Person who has given any Lien in any
collateral as security for the payment of all or any part of the
Obligations, or any other Person in any way obligated to pay all or any
part of the Obligations.
Please countersign below to indicate your acceptance of the terms
hereof.
[Signatures on Following Page]
-16-
<PAGE> 17
KBC BANK N.V.
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
Agreed and Accepted:
REGENCY AFFILIATES, INC.
By:
------------------------------
William R. Ponsoldt, Sr.
President
[LOAN AGREEMENT]
<PAGE> 18
EXHIBIT A
DEFINITIONS
When used in the letter to which this is attached:
"Accreted Interest" means in respect of each interest compounding
period in connection with the Loan, the total amount of interest accrued,
but unpaid, as of the end of such period for such period, on the Total
Amount of the Loan.
"Accreted Interest Balance" means as of any date of determination in
respect of the Loan, the aggregate of all Accreted Interest in respect of
all interest compounding periods ending on or before such date of
determination less all payments, if any, made on account of such Accreted
Interest.
"Business Day" means any day other than a Saturday, Sunday or other day
on which our New York Branch is authorized or required by law to close.
"Collateral" means the Collateral, under and as defined in the Security
Agreement, and any other property in which we are granted a lien, charge,
or security interest as security for the Obligations.
"Condemnation" means any taking of or damage to any property or any
part thereof by reason of any public improvement or condemnation
proceeding, or in any other similar manner.
"Deed of Trust" means the Amended and Restated Deed of Trust, dated as
of November 1, 1994, for the benefit of the Trustee.
"Dollars" or "$" means United States Dollars.
"Escrow Agreement" means the Escrow Agreement dated June 24, 1998 by
and among the Partnership, us, R.V.I America Insurance Company, and State
Street Bank and Trust Company, as escrow agent and as trustee.
"General Partner" means 1500 Woodlawn Limited Partnership, a Delaware
limited partnership, which is the General Partner of the Partnership.
"Guarantee" by any Person means all obligations of such Person which in
any manner directly or indirectly guaranty the payment or performance of
any indebtedness, dividend or other obligation of any other Person (the
"guaranteed obligations"), or assure or in effect assure the holder of the
guaranteed obligations against loss in respect thereof, including, without
limitation, any such obligations incurred through an agreement: (a) to
purchase the guaranteed obligations or any property constituting security
therefor or (b) to advance or supply funds for the purchase
-1-
<PAGE> 19
or payment of the guaranteed obligations or to maintain working capital or
other balance sheet condition.
"Government" means the United States of America, acting by and through
the General Services Administration.
"Indebtedness for Borrowed Money" of any Person means all of such
Person's liabilities, obligations and indebtedness to any Person, of any
kind or nature, now or hereafter owing, arising, due or payable, howsoever
evidenced, created, incurred, acquired or owing, in respect of: (a) the
Obligations, (b) all other liabilities, obligations, and indebtedness for
borrowed money or evidenced by a note, debenture, or other instrument for
the payment of money, (c) all obligations and liabilities of any Person
secured by any Lien on your property even though you have not assume or
become liable for the payment thereof, provided that all such obligations
and liabilities which are limited in recourse to such property shall be
included in Indebtedness only to the extent of the book value of such
property that would be shown on your balance sheet prepared in accordance
with generally accepted accounting principles, (d) all obligations or
liabilities created or arising under any capitalized lease or conditional
sale or other title retention agreement with respect to property used or
acquired by you, even if the rights and remedies of the lessor, seller or
lender thereunder are limited to repossession of such property, provided,
however, that all such obligations and liabilities which are limited in
recourse to such property shall be included in Indebtedness only to the
extent of the book value of such property that would be shown on your
balance sheet prepared in accordance with generally accepted accounting
principles, and (e) all obligations and liabilities under any Guarantee of
another Person's Indebtedness for Borrowed Money.
"Interest Period" means each period commencing on the Scheduled
Maturity Date or the last day of the next preceding Interest Period and
ending on the numerically corresponding day which is one month thereafter;
provided, however, that if an Interest Period would end on a day which is
not a LIBOR Business Day, then such Interest Period shall be extended and
shall end on the next succeeding LIBOR Business Day.
"Lease Agreement" means the U.S. Government Lease for Real Property No.
gs-03B-40131, between the Government and the Partnership.
"LIBOR" means, for any Interest Period, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate
Page 3570 (or any successor page) as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two (2)
Business Days prior to the first day of such Interest Period. If for any
reason Telerate Page 3570 is not available, the term "LIBOR Rate" shall
mean, for any Interest Period, the rate per annum (rounded upwards if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO
Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two (2) Business Days prior to the
first day of such Interest Period for a term comparable to such Interest
Period; provided, however, if more than one rate is specified on Reuters
Screen LIBO Page, the applicable rate shall be the sum of the arithmetic
mean of all such rates.
-2-
<PAGE> 20
"LIBOR Business Day" means a Business Day on which dealings in U.S.
Dollar deposits are carried out in the London interbank market.
"Lien" means: (a) any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute or contract, and
including, without limitation, a security interest, charge, claim, or lien
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes; or
(b) any condition, restriction, lease or other title exception or
encumbrance affecting property.
"Loan Documents" means this letter, the Note, the Pledge and Security
Agreement, the Seventh Amendment, the Escrow Agreement, and all other
documents, agreements and instruments heretofore, now or hereafter
evidencing, securing, guaranteeing or otherwise relating to the Obligations
arising from or with respect to the transaction contemplated hereby, and
all amendments, additions, extensions and substitutions.
"Make-Whole Premium" means the excess, if any, of (1) the sum of the
respective Payment Values (as such term is defined below) of (x) each
prospective Accreted Interest amount the would be added to the portion of
the Total Amount of the Loan being prepaid on or after the date of
prepayment if the prepayment were not made and (y) the portion of the Total
Amount of the Loan to be prepaid (the amount of each such payment being
herein referred to as a "Payment"), over (2) the portion of the Total
Amount of the Loan being prepaid. The "Payment Value" of each Payment shall
be determined by discounting such Payment at the Reinvestment Rate (as such
term is defined below), for, in the case of Accreted Interest amounts, the
period from the relevant prospective compounding date on which such payment
would have compounded to the Scheduled Maturity Date and, in the case of
the Total Amount of the Loan, the period from the prepayment date to the
Scheduled Maturity Date. The "Reinvestment Rate" is the yield which shall
be imputed from the yields of those actively traded U.S. Treasury
securities, having a maturity equal to the Weighted Average Life to Final
Maturity (as such term is defined below) of the Loan, provided that, if
such Weighted Average Life to Final Maturity is not equal to the maturity
of actively traded U.S. Treasury securities (calculated to the nearest
one-twelfth (1/12) of a year), such yield shall be obtained by linear
interpretation from the yields of actively traded U.S. Treasury securities
having the greater maturity closest to and the lesser maturity closest to
such Weighted Average Life to Final Maturity. The yields of such U.S.
Treasury securities shall be determined by us as of 10 a.m. New York City
time on the fifth (5th) Business Day prior to the prepayment date.
"Weighted Average Life to Final Maturity" of the Loan as of the time of
determination thereof means the number of years (rounded to the nearest
one-twelfth (1/12)) obtained by dividing the then Remaining Dollar-Years
(as such term is defined below) of the Loan by the then outstanding Total
Amount of the Loan. "Remaining Dollar Years" means the sum of the amounts
obtained by multiplying the amount of each then prospective Accreted
Interest amount that would have compounded on the Total Amount of the Loan
being prepaid, or the Total Amount of the Loan being prepaid, as the case
may be, by the number of years (calculated to the nearest one-twelfth
(1/12)) which will elapse between the prepayment date and the relevant
prospective interest compounding date or Scheduled Maturity Date, as the
case may be.
-3-
<PAGE> 21
"Material Adverse Effect" means (a) a material adverse effect upon your
business, operations, properties, assets or condition (financial or
otherwise) or that of the Partnership on an individual basis, (b) the
impairment of your ability to perform your obligations under any Loan
Document to which you are a party or our ability to enforce any Loan
Document or collect any of the Obligations or (c) the impairment of the
Partnership's ability to perform its obligations under any Project Document
to which it is a party. In determining whether any individual event would
result in such effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event and all other then existing
events would result in a Material Adverse Effect.
"Obligations" means any and all of your present and future loans,
advances, debts, liabilities, obligations, covenants, duties and
indebtedness owing by you to us, whether or not arising under this letter,
whether or not evidenced by any note, or other instrument or document,
whether arising from an extension of credit, opening of a letter of credit,
loan, guaranty, indemnification or otherwise, whether direct or indirect
(including, without limitation, those acquired by assignment from others
and any participation by us in your debts owing to others), absolute or
contingent, due or to become due, primary or secondary, as principal or
guarantor, and including, without limitation, all loans, interest, charges,
expenses, fees, attorneys' fees, filing fees and any other sums chargeable
to you hereunder, under another Loan Document or under any other agreement
or instrument with us.
"Partnership" means Security Land and Development Company Limited
Partnership, a Maryland limited partnership.
"Partnership Agreement" means the Security Land and Development Company
Limited Partnership Amended and Restated Limited Partnership Agreement and
Amended and Restated Certificate of Limited Partnership, dated as of
November 25, 1986, as amended by the First Amendment, dated as of November
25, 1986, the Second Amendment, dated as of November 22, 1988, the Third
Amendment, dated as of January 1, 1989, the Fourth Amendment, dated as of
August 20, 1990, the Fifth Amendment, dated as of November 17, 1994, the
Sixth Amendment, dated as of November 17, 1994, and the Seventh Amendment,
among, you, the General Partner and the other limited partners from time to
time.
"Partnership Distributions" means all proceeds of all distributions
received by you from the Partnership, whether in the nature of insurance or
Condemnation proceeds, refinancing proceeds, proceeds from the disposition
of any assets of the Partnership or from any other Partnership source
whatsoever or of any kind, except as provided in Section 7(a) of the
Security Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
governmental body, agency or bureau, or any other entity.
"Project Documents" shall mean the Lease, the Project Loan Agreement,
the Trust Agreement, and the Deed of Trust.
-4-
<PAGE> 22
"Project Loan Agreement" means the Project Loan Agreement, dated as of
November 1, 1994, between the Partnership and the Trustee.
"Property" means the land described on Exhibit D hereto, and the
buildings, improvements, and fixtures thereon, located at 1500 Woodlawn
Drive, Baltimore, Maryland.
"Public Authority" means any nation, government, governmental
department, commission, board, bureau, agency, regulatory authority,
instrumentality, judicial or administrative body, domestic or foreign,
federal, national, state or local having or claiming jurisdiction over the
matter or matters in question.
"Residual Value Insurance" means a Residual Value Insurance Policy in
form and substance acceptable to us issued by R.V.I. America Insurance
Company, or other insurer acceptable to us, in the amount of Fourteen
Million Dollars ($14,000,000), which names us as a loss payee.
"Security Agreement" means the Pledge and Security Agreement, dated as
of June 24, 1998, between you and us.
"Seventh Amendment" means the Seventh Amendment to the Partnership
Agreement, dated as of June 24, 1998, in the form of Exhibit C to this
letter.
"SIPI" means Southern Indiana Properties, Inc.
"SIPI Agreement" means the Credit Agreement, dated June 21, 1996,
between you and SIPI.
"SIPI Security Agreement" means the Collateral Assignment, Pledge and
Security Agreement, dated June 21, 1996, between you and SIPI.
"Total Amount" means as of any date, the sum of the unpaid principal
balance and the Accreted Interest Balance of the Note.
"Trust Agreement" means the Trust Agreement, dated as of November 1,
1994, between the Partnership and the Trustee.
"Trustee" means State Street Bank and Trust Company, successor trustee
to Shawmut Bank, N.A., not in its individual capacity, but solely as
trustee under the Trust Agreement, or any substitute pursuant to the terms
thereof.
-5-
<PAGE> 23
EXHIBIT B
TERM NOTE
US$ New York, New York
------- Date: June___, 1998
FOR VALUE RECEIVED, REGENCY AFFILIATES, INC., a Delaware corporation
(the "Borrower"), hereby unconditionally promises to pay to the order of KBC
BANK N.V., Grand Cayman Branch (the "Bank"), at 125 West 55th Street, New York,
New York 10019, or such other place as the holder hereof may hereafter designate
in writing, the principal sum of ____ Million ____ Hundred Thousand Dollars
(US$________) in lawful money of the United States of America and in
immediately available funds on November 30, 2003.
The Borrower shall also pay interest to the Bank, in like money, on the
unpaid principal balance of this Note outstanding from time to time until such
principal is fully paid at the rate per annum equal to ___% (the "Interest
Rate"). Interest shall be computed on a daily basis for the actual number of
days elapsed over a year of 360 days, shall be compounded semiannually on each
June 1 and December 1, commencing June 1, 1998, and shall be due and payable in
arrears on the earlier of (a) November 30, 2003 or (b) the earlier acceleration
of the Loan upon an Event of Default. Any amount of principal or interest hereof
which is not paid when due, whether at stated maturity, by acceleration or
otherwise, shall bear interest from the date when due until said principal
amount is paid in full, at the applicable rate per annum set forth in the
Agreement. In no event shall the rate of interest and other charges exceed the
maximum rate permitted by laws governing this Note. If the interest and other
charges collected exceed the maximum amount permitted by such laws, such excess
shall be deemed received on the account of, and shall automatically be applied
to reduce the principal balance of this Note.
The Borrower shall pay to the holder of this Note all reasonable
attorneys' fees and disbursements and all out-of-pocket costs and expenses
incurred by the holder in collecting upon or enforcing this Note.
The Borrower waives presentment for payment, demand, protest, notice of
dishonor hereof, and all other notices to which it may be entitled.
Unless otherwise defined herein, all defined terms used in this Note
shall be the meanings given to them in the letter dated the date hereof between
the Borrower and the Bank pursuant to which this Note has been delivered (the
"Agreement").
<PAGE> 24
This Note is issued under and is subject to the terms of the Agreement,
which terms are hereby incorporated herein by reference. This Note is secured
pursuant to and the holder is entitled to the benefits of the Pledge and
Security Agreement, dated as of June 24, 1998, between and Borrower and the Bank
(the "Security Agreement").
The Borrower may prepay the principal of this Note only upon prior
written notice to the Bank and subject to the terms and provisions of the
Agreement.
If any Event of Default shall occur and be continuing, then the entire
outstanding principal balance of and all accrued but unpaid interest on this
Note may become or be declared immediately due and payable, as provided in the
Agreement.
This Note may not be modified, changed, or terminated orally, but only
by an agreement in writing signed by the party to be bound by it. No act,
failure, or delay by the Bank shall constitute a waiver of any of its rights and
remedies. Any written waiver shall be applicable only in the specific instance
for which it is given.
The holder of this Note at its option may extend the time for payment
of this Note, postpone the enforcement hereof, or grant any other indulgences,
without affecting or diminishing the holder's right to recourse against the
Borrower or any endorser, sureties, or guarantors, which right is expressly
reserved.
The terms and provisions hereof shall inure to the benefit of, and be
binding upon, the respective successors and assigns of the Bank and the
Borrower; provided, however, that the Borrower may not assign any of its
interests herein or obligations hereunder without the prior written consent of
the Bank.
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without giving effect to the
conflicts of laws principles of such State.
The Borrower agrees that, in addition to any other courts that may have
jurisdiction under applicable law and rules, the Supreme Court of the State of
New York, County of New York, and the United States District Court for the
Southern District of New York shall have jurisdiction to hear and determine any
claims or disputes pertaining directly or indirectly to this Promissory Note or
to any matter arising herefrom. The Borrower expressly submits and consents in
advance to such jurisdiction in any action or proceeding in such courts, agrees
that venue will be proper in such courts for all such matters and waives
personal service of the summons and complaint or other process or papers issued
therein. The Borrower agrees that service of such summons and complaint or other
process of paper may be made by registered or certified mail (return receipt
requested) addressed to the Borrower at the address set forth below.
THE BORROWER AND THE BANK WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING IN ANY COURT ARISING ON, OUT OF, UNDER, BY VIRTUE OF, OR IN ANY WAY
RELATING TO THE NOTE, OR THE TRANSACTIONS OCCURRING IN CONNECTION HEREWITH. THE
BORROWER AND THE BANK CONFIRM THAT THE FOREGOING WAIVER IS INFORMED AND
VOLUNTARY.
<PAGE> 25
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by
its duly authorized officers on the date first above written.
REGENCY AFFILIATES, INC.
By:
----------------------------
William R. Ponsoldt, Sr.
President
<PAGE> 26
EXHIBIT C
7th Amendment to Partnership Agreement
<PAGE> 1
Exhibit 10.2
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT (this "Security Agreement"),
dated June 24, 1998 between KBC BANK N.V., Grand Cayman Branch ("Pledgee"), and
REGENCY AFFILIATES, INC., a Delaware corporation ("Pledgor").
RECITALS
A. Pledgor is a limited partner in Security Land and
Development Company Limited Partnership, a Maryland limited partnership
("Partnership").
B. Pledgor and Pledgee have entered into a Loan Agreement of
even date herewith as it may be amended, restated, supplemented or otherwise
modified from time to time, the "Loan Agreement"). All capitalized terms used
herein shall have the meanings ascribed to them in the Loan Agreement or the
Uniform Commercial Code as adopted in New York, as applicable.
C. Pledgee has agreed, subject to the terms and conditions of
the Loan Agreement, to make a Loan (the "Loan") in the amount of Nine Million
Three Hundred Eighty-Three Thousand Three Hundred Nineteen and 77/100 Dollars
($9,383,319.77).
D. As a condition precedent to Pledgee making the Loan, the
Pledgee requires that the Pledgor execute and deliver this Security Agreement to
Pledgee to secure the prompt and complete performance of all of the obligations
and payment of all of the Obligations.
Accordingly, Pledgor hereby agrees with Pledgee as follows:
1. Security Interest. In consideration of the Loan and any
loan, advance, or other extension of credit heretofore or hereafter made by
Pledgee under the Loan Agreement or otherwise to, or for the account or benefit
of the Pledgee, and as security for the Obligations (as hereinafter defined),
Pledgor hereby delivers, pledges and grants a continuing security interest to
Pledgee (the "Security Interest") in all right, title and interest of Pledgor,
whether now owned or hereafter acquired, in and to the limited partnership
interest of Pledgor in the Partnership (the "Pledged Interest"), including
without limitation: (i) all of Pledgor's interests in respect of the Pledged
Interest in the capital of the Partnership and Pledgor's interest in all profits
and distributions to which Pledgor shall at any time be entitled in respect of
such Pledged Interest; (ii) all other payments, if any, due or to become due to
Pledgor in respect of such Pledged Interest pursuant to the Partnership
Agreement whether as contractual obligations, damages, insurance proceeds or
otherwise, other than payments of management fees; (iii) all of Pledgor's
rights, powers and remedies, if any, under the Partnership Agreement as a
limited partner thereunder or arising from its ownership of the Pledged Interest
pursuant thereto; (iv) all of Pledgor's rights under the Partnership Agreement
as a limited partner to make determinations, to exercise any election
(including, but not limited to, election of remedies) or option or to give or
receive any notice, consent, amendment, waiver or approval, together with full
power and authority to demand, receive, enforce, execute, endorse or cash any
checks or other payments, or
<PAGE> 2
other instruments or orders, to file any claims and to take any action that (in
the opinion of Pledgee) may be necessary or advisable in connection with any of
the foregoing; and (v) to the extent not otherwise included, all proceeds of any
or all of the foregoing (collectively, the "Collateral").
2. Obligations Secured. The Collateral secures payment and
performance (a) by Pledgor of all of the Obligations as defined in the Loan
Agreement and (b) by Pledgor of all current and future debts, liabilities,
agreements, covenants, and obligations of Pledgor to Pledgee in connection with
the Loan and the Note, under or pursuant to this Security Agreement or the Loan
Agreement (all of the foregoing referred to collectively herein as the
"Obligations").
3. Representations and Warranties of Pledgor. Pledgor
represents and warrants that: (a) Pledgor is the legal and beneficial owner of
the Collateral free of all pledges, security interests, charges, liens, or other
encumbrances, except under this Security Agreement; (b) Pledgor has the power
and authority to convey any or all of its rights and interests in the
Collateral; (c) the General Partner and each limited partner of the Partnership
has consented to the Security Interest being granted herein to Pledgee, and
Pledgor has the full power to convey the Collateral subject only to the terms
and conditions set forth in the Partnership Agreement; (d) there are no options,
warrants, calls, or other rights or commitments of any character giving any
person the right to purchase the Collateral from Pledgor; (e) no certificates,
Instruments or documents have been issued by the Partnership to evidence the
Collateral; (f) there are no restrictions on the voting rights associated with
the Collateral or upon the transfer of any of the Collateral, other than those
restrictions contained in this Security Agreement, the Loan Agreement and the
Partnership Agreement, which have not been waived by the party having the right
to enforce such restrictions; (g) the execution and delivery by Pledgor of, and
performance by Pledgor of its obligations under, this Security Agreement does
not and will not result in any violation of or conflict with the terms of
Pledgor's articles of organization or by-laws, the Partnership Agreement or any
agreement, indenture, instrument, license, judgment, decree, order, law,
statute, or, ordinance or other governmental rule or regulation applicable to or
binding upon Pledgor; (h) no security agreement, financing statement, assignment
or equivalent security or lien instrument or continuation statement covering all
or any part of the Collateral is on file or of record in any public office or at
the records of the Partnership, except financing statements with respect to the
Collateral filed by the Pledgee pursuant to this Security Agreement; (i) upon
the filing of all appropriate financing statements under the Uniform Commercial
Code, and the execution and delivery by Pledgor and the Partnership of a Control
Letter, all steps necessary to create and perfect the security interest created
by this Security Agreement as a valid and continuing first lien on and first
perfected security interest in the Collateral in favor of the Pledgee prior to
all other Liens will have been taken; and (j) the chief place of business and
the chief executive office of the Pledgor and the office where the Pledgor keeps
its records concerning the Collateral is located at 729 South Federal Highway,
Suite 307, Stuart, Florida 34994.
4. Covenants of Pledgor. So long as this Security Agreement is
in effect, Pledgor: (a) will defend the Collateral against the claims and
demands of all other parties; will keep the Collateral free from all security
interests or other encumbrances, except under this Security Agreement; will not
sell, transfer, assign, deliver or otherwise dispose of any Collateral
- 2 -
<PAGE> 3
or any interest therein or right thereunder or grant to any person any option,
warrant, or other rights to acquire any of the Collateral or any interest
therein or right thereunder, without the prior written consent of Pledgee; and
will not cause, permit or consent to any amendment or modification to the
Partnership Agreement without the prior written consent of Pledgee; (b) in
connection herewith, will execute and deliver to Pledgee such financing
statements, assignments, and other documents and do such other things relating
to the Collateral and the Pledgee's Security Interest as Pledgee may reasonably
request (all costs of lien searches and filing financing statements, assignments
and other documents in all public offices reasonably requested by Pledgee shall
constitute part of the Obligations and be secured by all of the Collateral as
well as all other property serving as security for the Obligations); (c) will
notify Pledgee promptly in writing of any change in Pledgor's address; (d) will
not, except upon Pledgee's request or with Pledgee's prior written consent, seek
or take delivery of any additional Instrument or other written document
constituting or evidencing any Collateral, and if Pledgor receives any such
Instrument or document (whether or not at Pledgee's request or with its
consent), Pledgor will immediately notify Pledgee thereof and immediately
deliver such Instrument or document to Pledgee, duly endorsed as Pledgee
requests or accompanied by an appropriate instrument of transfer executed in
blank; (e) will pay or reimburse Pledgee for all taxes, assessments and other
charges of every nature which may be imposed, levied or assessed on Pledgee in
respect of the Collateral; (f) will defend the right, title and interest
hereunder of the Pledgor as a first priority security interest; (g) will advise
Pledgor (i) promptly of any lien, security interest, encumbrance or claim made
or asserted against the Collateral, (ii) of any distribution of cash or other
property by the Partnership, or (iii) the occurrence of any other event would
have an adverse effect on the value of the Collateral or the Security Interest
of the Pledgee; and (h) will not change its name unless it has given thirty days
prior written notice to Pledgee.
5. Voting Rights. During the term of this Security Agreement,
so long as no Event of Default shall have occurred, Pledgor shall have the right
to vote the Collateral, to the extent such right exists under the Partnership
Agreement, on all partnership questions for all purposes not inconsistent with
the terms of this Security Agreement and with the Pledgee's prior written
consent. Upon the occurrence of an Event of Default, Pledgee shall thereafter
have, at its discretion, subject to the Project Documents, the option to
exercise all voting powers and other partnership rights, to the extent such
powers and rights exist under the Partnership Agreement, pertaining to the
Collateral.
6. Consent of Partners of Pledgee.
(a) Contemporaneously herewith, and as an additional
condition precedent to Pledgee's obligation to make the Loan, Pledgor shall
execute and deliver and shall cause the general partner of the Partnership to
execute and deliver the notice of pledge in the form of Exhibit A attached
hereto.
- 3 -
<PAGE> 4
(b) At any time after an Event of Default has occurred and
is continuing, Pledgee is authorized to transfer the Collateral or any part
thereof into its own name or that of its nominee so that Pledgee or its nominee
may become admitted as a limited partner of Partnership.
7. Distributions and Other Income from Collateral.
(a) Pledgor hereby grants to Pledgee full irrevocable power
and authority to receive and hold cash and non-cash distributions (including
without limitation, Partnership Distributions) by the Partnership which may be
held free and clear of the liens created hereby, and to convert any such
non-cash distributions to cash, and, except as provided in the next succeeding
sentence, to apply any such cash distributions or proceeds of conversion in the
manner specified in the Loan Agreement. So long as no Event of Default has
occurred and is continuing, Pledgee shall remit to Pledgor an amount of each
distribution of Net Cash Flow (and defined below) received prior to October 31,
2003, equal to the lesser of the amount of such distribution and three (3%) of
the income of the Partnership for the taxable year to which such distribution
relates which was allocated to Pledgor under the Partnership Agreement. For the
purposes hereof, "Net Cash Flow" has the meaning given to such term by Section
9.01(e) of the Partnership Agreement, excluding, in any event, all proceeds from
a sale or financing of the Property.
(b) If Pledgor receives, or becomes entitled to receive,
any additional limited partnership interest in the Partnership or any other
property (whether by reclassification, readjustment, or other change in the
capital structure of such Pledgee, or in any other manner), such additional or
other property shall constitute Collateral, and Pledgor shall direct the
Partnership to record such additional limited partnership interest in the name
of Pledgee on its books and deliver all such other property directly to Pledgee
to be held as Collateral.
(c) If, notwithstanding the foregoing, Pledgor receives any
distribution or other property which should have been paid or delivered directly
to Pledgee, as provided in subsections (a) or (b), above, or which was paid to
Pledgor in violation of subsection (a), Pledgor shall receive such distribution
or property, as the case may be, in trust for the benefit of Pledgee, shall
segregate such distribution or property from the other property or funds of
Pledgor, and deliver it immediately to Pledgee in the form received (with any
necessary endorsement).
8. Increases, Profits, Payments or Distributions. Whether or
not an Event of Default has occurred any increase in or profits on the
Collateral (which, for the purposes hereof, shall not include distributions
referred to in Section 7(a)) shall be part of the Collateral.
9. Events of Default. It shall be an Event of Default
hereunder if any Event of Default under the Loan Agreement occurs.
10. Remedies.
(a) Whenever an Event of Default occurs and so long as it
continues, Pledgee shall have, and may exercise with respect to the Collateral,
in such order and manner as it determines, all rights and remedies of a secured
party under the Uniform Commercial Code and under any other applicable law, as
the same may from time to time be in effect, as well as those rights granted
herein, under the Loan Agreement, and in any other agreement now or hereafter in
effect between Pledgor and Pledgee. Without limiting the generality of the
- 4 -
<PAGE> 5
foregoing, whenever an Event of Default exists, Pledgee may sell or otherwise
dispose of all or any part of the Collateral upon prior notice to Pledgor, by
public or private sale, in one or more transactions, and in such order as
Pledgee determines. Proceeds realized from such sales and dispositions shall be
applied first to Pledgee's costs and expenses in connection therewith and then
to the Obligations in such order as Pledgee determines. Pledgor recognizes that
Pledgee may be unable to effect a public sale of all or a part of the Collateral
by reason of certain provisions contained in the Securities Act of 1933, as
amended (the "Securities Act") and the securities laws of various states, and
may be compelled to resort to one or more private sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire the
Collateral for their own account, for investment and without a view to the
distribution or resale thereof. Pledgor understands that private sales so made
may be at prices and other terms less favorable than if the Collateral were sold
at public sales, and agrees that Pledgee has no obligation to delay the sale of
the Collateral for the period of time necessary to permit Pledgee to register
the Collateral for sale under the Securities Act or such state laws. Pledgor
agrees that private sales under the foregoing circumstances shall be deemed to
have been made in a commercially reasonable manner.
(b) Without in any way requiring notice to be given in the
following time and manner, Pledgor agrees that any notice by Pledgee of a sale,
disposition or other intended action hereunder or in connection herewith,
whether required by the Uniform Commercial Code or otherwise, shall constitute
reasonable notice to Pledgor if such notice is mailed by registered or certified
mail, return receipt requested, postage prepaid, or delivered personally against
receipt, or sent by a recognized overnight delivery service, at least five (5)
days prior to such action, to Pledgor's address set below his signature hereto
or to such other address as is specified in writing to Pledgee as the address to
which notices shall be given to Pledgor.
(c) All costs and expenses incurred by Pledgee in enforcing
this Security Agreement, in realizing upon or protecting any Collateral and in
enforcing and collecting any Obligations or any guaranty thereof (including,
without limitation, if Pledgee retains counsel for advice, suit, appeal,
insolvency or other proceedings under the federal Bankruptcy Code or otherwise,
or for any of the above purposes, the actual attorneys' and paralegals' fees
incurred by Pledgee), shall constitute part of the Obligations, and all such
costs and expenses are secured by the Collateral, as well as by all other
property serving as security for the Obligations.
11. Miscellaneous.
(a) Pledgor authorizes Pledgee, without notice or demand
and without affecting any obligations hereunder, from time to time: (i) to
renew, extend, increase, accelerate, or otherwise change the time of payment,
the terms of, or the interest on the Obligations or any part thereof; (ii) to
take from any party and hold collateral (other than the Collateral) for the
payment of the Obligations or any part thereof, and to exchange, enforce or
release such collateral or any part thereof; (iii) to accept and hold any
endorsement or guaranty of payment of the Obligations or any part thereof and to
release or substitute any such endorser or guarantor, or any party who has given
any security interest in any other collateral as security for the payment
- 5 -
<PAGE> 6
of the Obligations or any part thereof, or any other party in any way obligated
to pay the Obligations or any part thereof; and (iv) to direct the order or
manner of the disposition of the Collateral and any and all other collateral and
the enforcement of any and all endorsements and guaranties relating to the
Obligations or any part thereof as Pledgee, in its sole discretion, may
determine.
(b) Pledgor hereby appoints Pledgee as Pledgor's
attorney-in-fact (without requiring Pledgee) to perform all acts which Pledgee
deems appropriate in accordance with this Security Agreement to perfect and
continue its interests hereunder in the Collateral and to protect, preserve and
realize upon the Collateral. Pledgor further appoints Pledgee as its
attorney-in-fact to execute such orders and receipts for payment of the
Collateral in accordance with this Security Agreement as Pledgee deems
appropriate in its sole discretion. These powers of attorney are coupled with an
interest and shall be irrevocable and are given to secure performance by Pledgor
of the Obligations. Pledgor ratifies and approves all acts of such attorney, and
Pledgee shall not be liable for any acts or omissions or any error of judgment
or mistake of fact or law other than resulting from Pledgee's gross negligence
or willful misconduct. Whenever Pledgee takes any action hereunder as Pledgor's
attorney when an Event of Default does not exist, then Pledgee shall give
Pledgor reasonable contemporaneous notice (which may be by telephone) of such
action. Subject to the terms of this Security Agreement, Pledgee may demand,
collect, and sue on the Collateral (in either its or Pledgor's name, at
Pledgee's sole option), and enforce, compromise, settle, or discharge the
Collateral, without discharging the Obligations or any part thereof and whether
or not any such action results in the imposition of any penalty. Pledgor
authorizes and directs each Pledgee to make any payments in respect of the
Collateral as Pledgee may direct and hereby releases each Pledgee from any
liability to Pledgor for making such payments.
(c) Upon Pledgor's failure to perform any of its duties
hereunder and under the Loan Agreement, Pledgee may, but shall not be obligated
to, perform any or all such duties, and the cost thereof shall be secured by the
Collateral, as well as by all other property serving as security for the
Obligations.
(d) Pledgee's failure to exercise any right, remedy or
option under this Security Agreement or any supplement or other agreement
between Pledgee and Pledgor or delay by Pledgee in exercising the same will not
operate as a waiver. No waiver by Pledgee shall affect its right to require
strict performance of this Security Agreement. Pledgee's rights and remedies
will be cumulative and not exclusive.
(e) Pledgee shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if such
Collateral is accorded treatment substantially equal to that which Pledgee
accords its own property, it being understood that Pledgee shall not have
responsibility for (i) ascertaining or taking action with respect to any matters
relative to any Collateral, whether or not Pledgee has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve rights
against any parties with respect to any Collateral. Pledgor shall have the sole
responsibility for taking any and all steps to preserve rights against any and
all parties to any Collateral, whether or not in Pledgee's possession. Pledgee
shall not be responsible for loss or damage resulting from Pledgee's failure
- 6 -
<PAGE> 7
to enforce or collect any Collateral or to collect any moneys due or to become
due thereunder. Pledgor waives protest of any Instrument constituting Collateral
at any time held by Pledgee on which such Pledgor is in any way liable and
waives notice of any other action taken by Pledgee.
(f) If any provision of this Security Agreement shall be
prohibited or invalid under applicable law, it shall be ineffective only to such
extent, without invalidating the remainder of this Security Agreement.
(g) Upon any assignment by Pledgee of its rights and
obligations, or any part thereof, in accordance with the Loan Agreement, such
assignee shall become vested with Pledgee's rights and benefits hereunder to the
extent of such assignment.
(h) If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Pledgee is
required to surrender or return such payment or proceeds to any person for any
reason, then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Security Agreement shall
continue in full force and effect as if such payment or proceeds had not been
received by Pledgee. This subsection shall remain effective notwithstanding any
contrary action which may be taken by Pledgee in reliance upon such payment or
proceeds. This subsection shall survive the termination or revocation of this
Security Agreement.
(i) This Security Agreement may not be modified, altered or
amended, except by an agreement in writing signed by Pledgor and Pledgee.
(j) Neither Pledgee nor any Pledgee Affiliate (as defined
below) shall be liable for any indirect, special, incidental or consequential
damages in connection with any breach of contract, tort or other wrong relating
to this Security Agreement or the Obligations or the establishment,
administration or collection thereof (including without limitation damages for
loss of profits, business interruption, and the like), whether such damages are
foreseeable or unforeseeable, even if Pledgee has been advised of the
possibility of such damages. Neither Pledgee nor any Pledgee Affiliate shall be
liable for any claims, demands, losses or damages, of any kind whatsoever, made,
claimed, incurred or suffered by Pledgor through the ordinary negligence of
Pledgee, or any Pledgee Affiliate. "Pledgee Affiliate" shall mean Pledgee's
directors, officers, employees, agents, attorneys and any other person or entity
affiliated with or representing Pledgee.
(k) This Security Agreement, the Loan Agreement and the
other Loan Documents represent the entire agreement and understanding of the
parties concerning the subject matter hereof, and supersedes all other prior
agreements, understandings, negotiations and discussions, representations,
warranties, commitments, proposals, offers and contracts concerning the subject
matter hereof, whether oral or written.
(l) All terms, conditions, promises, covenants, provisions
and warranties set forth in this Security Agreement shall inure to the benefit
of and bind Pledgee's and Pledgor's respective representatives, successors and
assigns.
- 7 -
<PAGE> 8
(m) THIS SECURITY AGREEMENT SHALL BE INTERPRETED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK GOVERNING CONTRACTS
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND WITHOUT GIVING EFFECT TO ANY
CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE. PLEDGOR HEREBY CONSENTS TO THE
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY
OF NEW YORK IN THE STATE OF NEW YORK. PLEDGOR WAIVES ANY OBJECTION OF FORUM NON
CONVENIENS AND VENUE. PLEDGOR FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON HIM, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE
MANNER SET FORTH IN SECTION 11(o) HEREOF FOR THE GIVING OF NOTICE.
(n) PLEDGEE AND PLEDGOR EACH HEREBY WAIVES THE RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY
WAY RELATING TO THIS SECURITY AGREEMENT OR ANY CONDUCT, ACTS OR OMISSIONS OF
PLEDGEE OR PLEDGOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH PLEDGEE OR PLEDGOR IN CONNECTION
WITH THIS SECURITY AGREEMENT OR THE COLLATERAL, IN EACH OF THE FOREGOING CASES,
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
(o) Any notice required hereunder shall be in writing and
addressed to Pledgor and to Pledgee at their addresses set forth beneath their
respective signatures below. Notices hereunder shall be deemed received on the
earlier of receipt, whether by mail, personal delivery, facsimile, or otherwise,
or two (2) days after deposit in the United States mail, postage prepaid.
(p) This Security Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
(q) This Security Agreement shall remain in full force and
effect until all of the Obligations have been indefeasibly paid and performed in
full and the Loan Agreement and all other agreements, documents and instruments
referred to therein or at any time executed and/or delivered in connection
therewith or related thereto, including, but not limited to, this Security
Agreement, have been terminated, at which time Pledgee shall release its
Security Interest in the Collateral.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, Pledgor has executed and delivered this
Security Agreement on June ____, 1998.
PLEDGOR
REGENCY AFFILIATES, INC.
By:
---------------------------------
William R. Ponsoldt, Sr.
President
Address: 729 South Federal Highway
Suite 307
Stuart, Florida 34994
PLEDGEE
Accepted at ____________, ____________
this _____ day of June, 1998
KBC BANK N.V.,
Grand Cayman Branch
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Address: c/o 125 West 55th Street
New York, New York 10019
[ PLEDGE AND SECURITY AGREEMENT ]
<PAGE> 10
EXHIBIT A
Regency Affiliates, Inc.
729 South Federal Highway
Suite 307
Stuart, Florida 34994
KBC Bank N.V.
125 West 55th Street
New York, New York 10019
RE: PLEDGE OF LIMITED PARTNERSHIP
Ladies and Gentlemen:
You have advised us that, pursuant to a Pledge and Security
Agreement, dated June __, 1998 with KBC Bank N.V., Grand Cayman branch,
("Pledgee"), a copy of which is attached hereto (the "Security Agreement"),
Regency Affiliates, Inc. ("Limited Partner") has pledged to Pledgee and granted
to Pledgee a security interest in its limited partnership interest in Security
Land and Development Company Limited Partnership (the "Partnership") and in
certain other property described therein (collectively, the "Collateral").
Defined terms used herein shall have the meanings assigned thereto in the Loan
Agreement dated June __, 1998 between Limited Partner and Pledgee providing a
loan from KBC Bank to Limited Partner (the "Loan Agreement"). In connection
therewith, we hereby acknowledge and agree, for the benefit of Limited Partner
and Pledgee, as follows:
1. We hereby acknowledge notice that Limited Partner has
pledged to Pledgee and granted to Pledgee a security interest in the Collateral
(as defined in the Security Agreement). We agree to mark the books and records
of the Partnership accordingly to reflect such pledge and security interest.
2. Until Pledgee notifies us in writing to the contrary, we
agree to: (i) pay directly to Pledgee when due and payable (a) all distributions
payable to Pledgor, (b) all payments in respect of the redemption of all or any
part of the Collateral payable to Pledgor, (c) all payments in respect of the
Collateral payable to Pledgor upon the Partnership's liquidation, dissolution,
or winding-up, and (d) all other sums at any time due in respect of the
Collateral payable to Pledgor; and (ii) deliver directly to Pledgee any
certificate, instrument, or other tangible evidence of any Collateral,
including, without limitation, any additional securities or any warrant, right
or option to acquire, or any security convertible into, any interest of the
Partnership, to the extent at any time issued or issuable to Limited Partner.
<PAGE> 11
3. We shall not, without Pledgee's prior written consent,
register on the Partnership's books or otherwise give effect to any transfer of
the Collateral or any pledge thereof, security interest therein, or other
encumbrance thereon.
4. We will send to Pledgee a copy of each of the following
items that we send to the Limited Partner or the Trustee at the time we provide
the same to the Limited Partner or the Trustee: all tax information and tax
reports concerning the Partnership; financial information and financial reports
concerning the Partnership; information and reports concerning the value or
condition of the Collateral; notices required by the Project Documents; and any
other material notice, report, or other communication.
5. We agree that, if the General Partner of the Partnership
receives (a) written notice from Pledgee that the loan under the Loan Agreement
is outstanding and that an Event of Default has occurred and continues under the
Loan Agreement and that the General Forbearance Period (as defined in Section
14.02 of the Partnership Agreement), if any, has expired or been terminated and
(b) written instructions from Pledgee to transfer the Limited Partner's
partnership interest in the Partnership to Pledgee or RVI American Insurance
Company, a subsidiary or affiliate of either , or any designee, as specified in
such notice, then the General Partner shall cause such assignment on the books
of the Partnership and shall take such other action as is contemplated and
authorized by Section 14.02 of the Partnership Agreement to effectuate the
assignment of the Limited Partner's partnership interest and the substitution of
the assignee pursuant to such section.
6. We shall have no liability to Pledgee in the event that
any agreement, instrument or document executed by us as attorney-in-fact for a
limited partner of the Partnership at Pledgee's request in connection with the
enforcement of Pledgee's security interest shall be determined to have exceeded
the authority granted in the applicable power of attorney.
7. We hereby represent and warrant to Pledgee as follows:
(a) The Partnership is duly organized, validly existing
and in good standing as a limited partnership under the laws of the State of
Maryland. The Partnership is qualified to do business and in good standing in
all jurisdictions in which the failure to be so qualified and in good standing
would have a material adverse effect on its business, properties, or financial
condition. The Partnership has all requisite power and authority to conduct its
business as now conducted and own its property.
(b) The Partnership has the full power, authority and
legal right to execute, deliver, and perform the Escrow Agreement dated the date
hereof by and among the Partnership, KBC Bank, R.V.I, and State Street Bank and
Trust Company, as escrow agent and trustee (the "Escrow Agreement"). The
Partnership has taken all required action to authorize the execution, delivery,
and performance of the Escrow Agreement. The Escrow Agreement has been duly
executed and delivered by the Partnership, and constitutes its legal, valid and
binding agreement and obligation enforceable against it in accordance with its
terms.
<PAGE> 12
8. We agree that none of the terms of this letter may be
modified in any respect without the prior written consent of Pledgee, and we
further agree that such terms shall continue in full force and effect until
Pledgee notifies us in writing that the pledge and security interest under the
Security Agreement has terminated.
9. Limited Partner hereby agrees that we may comply with
the terms of this letter without any obligation to inquire into the propriety or
validity of any action taken or omitted by Pledgee and without any liability to
Limited Partner whatsoever for any action or inaction hereunder on our part.
10. This letter shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York (without
giving effect to the conflicts of laws principles of such state). This letter
may be signed in one or more counterparts and by each party in separate
counterparts, each of which shall be an original and all of which together
constitute one agreement.
(Signatures Follow)
<PAGE> 13
Very truly yours,
1500 WOODLAWN LIMITED PARTNERSHIP
By: Woodlawn Investment Group, Inc.,
Managing General Partner
By:
--------------------------------
Name:
Title:
WOODLAWN INVESTMENT GROUP, INC.
By:
--------------------------------
Name:
Title:
Accepted and Agreed:
REGENCY AFFILIATES, INC.
By:
------------------------------------
William R. Ponsoldt, Sr.
President
KBC BANK N.V.,
Grand Cayman Branch
By:
------------------------------------
Name:
Title
By:
------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.3
SEVENTH AMENDMENT TO
SECURITY LAND AND DEVELOPMENT COMPANY
LIMITED PARTNERSHIP AMENDED AND RESTATED LIMITED
PARTNERSHIP AGREEMENT AND AMENDED
AND RESTATED CERTIFICATE OF LIMITED PARTNERSHIP
THIS SEVENTH AMENDMENT TO SECURITY LAND AND DEVELOPMENT
COMPANY LIMITED PARTNERSHIP AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
AND AMENDED AND RESTATED CERTIFICATE OF LIMITED PARTNERSHIP (this "Amendment")
is made and entered into as of the 24th day of June, 1998, by and among (i) 1500
Woodlawn Limited Partnership ("Woodlawn"), a Delaware limited partnership
qualified to do business in the State of Maryland, as general partner, and (ii)
(a) William A. Rodgers, an individual resident of the State of Maryland, (b)
Harry W. Rodgers, III, an individual resident of the State of Maryland, (c) W.
Dale Hess, an individual resident of the State of Maryland, and (d) Regency
Affiliates, Inc., a Delaware corporation, as limited partners (the parties set
forth in clauses (i) and (ii) are collectively referred to as the "Partners").
W I T N E S E T H:
WHEREAS, Security Investment Company (the "Partnership"), a
Maryland limited partnership, was formed pursuant to (i) that certain
Certificate of Limited Partnership dated November 8, 1967, and recorded on
December 29, 1967, among the co-partnership records of Baltimore County,
Maryland in Liber O.T.G. No. 2, Folio 45, amended by that certain Amendment to
Certificate dated March 10, 1972, and recorded March 16, 1972, among the
aforesaid co-partnership records in Liber I.T.G. No. 3, folio 471, which
Amendment to Certificate provided for the change of the name of the Partnership
to Security Land and Development Company Limited Partnership (as so amended, the
"Original Certificate"), and (ii) that certain Limited Partnership Agreement
dated November 8, 1967, as amended by amendments thereto dated November 8, 1967,
July 28, 1968, December 1, 1971, and December 28, 1973 (as so amended, the
"Original Partnership Agreement");
WHEREAS, the Original Certificate and the Original Partnership
Agreement have been amended and restated pursuant to that certain Amended and
Restated Limited Partnership Agreement and Amended and Restated Certificate of
Limited Partnership dated as of November 25, 1986, and further amended by a
First Amendment dated as of March 12, 1987, a Second Amendment dated as of
November 22, 1988, a Third Amendment dated as of January 1, 1989, a Fourth
Amendment dated as of August 20, 1990, a Fifth Amendment dated as of November
17, 1994, and a Sixth Amendment dated as of November 17, 1994 (as so amended and
restated and further amended, the "Partnership Agreement"); and
<PAGE> 2
WHEREAS, the parties hereto desire to further amend the
Partnership Agreement (i) to delete the provision allowing Partners to solicit
third-party offers for the Security West Building and requiring objecting
Partners to purchase the soliciting Partner's interest if the objecting Partners
do not accept such third-party offers, and (ii) to add certain new provisions
relating to financing for one of the Partners.
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. Article XIV of the Partnership Agreement is hereby deleted
and a new Article XIV is added to state as follows:
ARTICLE XIV
RIGHTS AND OBLIGATIONS OF THE PARTNERS
WITH REGARD TO THE PROPERTY
14.01 Under the terms of the Escrow Agreement dated June 24,
1998 (the "Escrow Agreement"), simultaneous with the execution of this
Amendment, and with the consent of the Partners, which is evidenced
hereby, the General Partner has delivered to State Street Bank and
Trust Company, as Escrow Agent (the "Escrow Agent"), (i) a duly
executed special warranty deed to transfer fee simple title to the
Property to R.V.I. America Insurance Company ("RVI") or its designee,
(ii) a Bill of Sale to convey to RVI or its designee all personal
property included in the Property, (iii) an Assignment and Assumption
of Leases to assign to RVI or its designee all leases of the Property
and rents and deposits thereunder, (iv) a State of Maryland Land
Instrument Intake Sheet, and (v) an Application for Lien Certificate,
and may hereafter deliver additional documents to the Escrow Agent
pursuant to an undertaking of further assurances set forth in a
separate letter agreement dated on or about the date of the Escrow
Agreement (items (i) through (v) above and such other delivered
documents being referred to collectively as the "Escrowed Documents').
Each Partner acknowledges and agrees that, under the Escrow Agreement,
if the Escrow Agent receives written notice (a "Transfer Notice") from
KBC Bank N.V. ("KBC Bank") that a Notice of Final Claim under Policy
Number 01-01-200220 of RVI (the "Policy"), relating to the Property and
issued in support of that certain loan by KBC Bank to Regency (the "KBC
Loan"), has been delivered by KBC Bank to RVI and is in effect, that
the KBC Loan and accrued interest thereon has not been paid in full,
and that the Escrow Forbearance Period (as defined in the Escrow
Agreement), has expired or been terminated, and if the Escrow Agent
receives confirmation from the Trustee under the Project Loan Agreement
that all amounts due and payable under the Project Loan Agreement have
been paid and that the lien secured by the Trust Agreement shall have
been released (the "Trustee Confirmation"), then the Escrowed Documents
shall be released from escrow and the Escrow Agent, under the terms of
the Escrow Agreement, shall deliver the Escrowed Documents to
- 2 -
<PAGE> 3
RVI or its designee as specified in the Transfer Notice or any written
amendment thereto not later than ten (10) days after the Escrow Agent
receives the Trustee Confirmation (but not earlier than two (2)
business days after the general partner of the Partnership (the
"General Partner") receives a copy of the Transfer Notice as provided
in the next succeeding sentence). The Escrow Agent shall send to the
General Partner a copy of the Transfer Notice contemporaneously with
the receipt thereof by the Escrow Agent. Each Partner acknowledges and
agrees that under the Escrow Agreement, the Escrow Agent has no
obligation to obtain the consent or approval of the General Partner or
the Partnership in order to effectuate the delivery of the Escrowed
Documents in accordance with the Escrow Agreement.
14.02 Each of the Partners hereby consents to the pledge of
and security interest in the Limited Partnership Interest of Regency
granted by Regency to KBC Bank to secure the KBC Loan. If the General
Partner receives (i) written notice from KBC Bank that the KBC Loan is
outstanding and that an Event of Default has occurred and continues
under the letter agreement dated June 24, 1998 pursuant to which KBC
Bank made the KBC Loan (the "KBC Loan Agreement") and that the General
Forbearance Period (as defined below), if any, has expired or been
terminated; and (ii) written instruction from KBC Bank to assign
Regency's Limited Partnership Interest (the "Pledged Interest") to KBC
Bank, a subsidiary or affiliate of KBC Bank, or any other designee, as
specified in the notice, the Partners hereby consent to, and the
General Partner shall cause, such assignment of the Pledged Interest on
the books of the Partnership and further consent and agree that, to the
extent of the transfer requested in KBC Bank's written instructions,
such transferee shall become a substitute Limited Partner and shall
succeed to all of Regency's rights in the Partnership. The foregoing
consents shall be effective for all purposes of Article XI hereof,
provided, that a transferee under this Section shall be required to
satisfy the requirements of subsections (a), (c), and (d) of Section
12.02 hereof. Each Limited Partner hereby authorizes and directs the
General Partner to execute and deliver such agreements, instruments and
documents, in the name of and on behalf of the Partnership and each
Limited Partner, as may be necessary or appropriate to effectuate an
assignment and substitution of the Pledged Interest pursuant to this
Section, and confirms and agrees, without limiting the generality of
the foregoing, that the power of attorney granted in Section 21.01 of
the Partnership Agreement extends to and includes such agreements,
instruments, and documents. For the purposes of the Partnership
Agreement, "General Forbearance Period" means the period commencing on
November 30, 2003 and ending on the earliest to occur of: (i) April 30,
2005; (ii) the closing of a Qualifying Financing (as defined below) or
a Qualifying Sale (as defined below); or (iii) the earlier termination
of the General Forbearance Period as provided in the next succeeding
sentence. KB may terminate the General Forbearance Period at any time
that either of the following events or circumstances shall exist or
occur: (i) any Event of Default, as defined in the KBC Loan Agreement
as in effect on the date hereof (other than Regency's failure to pay
the Obligations (as defined in the KBC Loan Agreement) on November 30,
2003) shall occur and be
- 3 -
<PAGE> 4
continuing; or (ii) after the repayment in full of the Partnership's
obligations pursuant to the Project Loan Agreement, any of the
following conditions are not satisfied: (A) the United States
Government is the tenant of the Property and is paying rent for the use
and occupancy of the Property; Regency is receiving distributions of
its share of such rent under the Partnership Agreement (as "Net Cash
Flow" or otherwise) within thirty days after each rental payment is
received; each of such distributions is in an amount which on an
annualized basis is not less than $6,000,000 per annum; and such
distributions are being remitted by the Partnership directly to KB
without reduction for application to the Obligations; and (B) either
(1) the Partnership is engaged in and is diligently pursuing good faith
negotiation for (a) a new lease for the Property, or an extension of
the existing lease, providing for a rent and on other terms that will
enable the Partnership to obtain financing in an amount such that the
proceeds thereof that are to be distributed to Regency under the
Partnership Agreement will be sufficient to repay the KBC Loan and all
accrued interest thereon (such financing being referred to hereinafter
as a "Qualifying Financing") and (b) a Qualifying Financing; or (2) the
Partnership is engaged in and is diligently pursuing good faith
negotiations for the sale of the Property at a price and on terms such
that the amount of cash to be distributed to Regency under the
Partnership Agreement from the proceeds of such sale will be sufficient
to repay the KBC Loan and all accrued interest thereon (such sale being
referred to as a "Qualifying Sale").
14.03 After the expiration or earlier termination of the
Escrow Forbearance Period, if a Notice of Preliminary Claim has been
made under the Policy and the KBC Loan is outstanding, KBC Bank, the
subsidiary, affiliate or designee to which the Pledged Interest has
been transferred pursuant to Section 14.02 hereof, or RVI, shall have
the right to solicit bona fide, third party offers for the Property,
and shall have the right to accept such an offer and bind the
Partnership; provided that such offer and the proposed terms of the
transaction comply with the terms of the Project Loan Agreement.
14.04 The Partnership shall not enter into any refinancing
transaction with respect to the Property while the KBC Loan is
outstanding without the consent of KBC Bank and RVI (which each may
grant in its sole discretion), unless the amount of the proceeds from
such financing distributable by the Partnership to Regency under the
Partnership Agreement is at least equal to all of the obligations then
due and payable under the KBC Loan, and unless there are no
restrictions on the immediate distribution to Regency of such amount of
proceeds from such financing. While the KBC Loan is outstanding, all
amounts which, under applicable law or the Partnership Agreement, are
distributable to Regency as a Limited Partner, up to an amount equal to
the obligations that are then due and payable under the KBC Loan, shall
be paid directly by the Partnership to KBC Bank or its designee. Such
distributions paid to KBC Bank shall be deemed for purposes of the
Partnership Agreement to have been made to Regency.
- 4 -
<PAGE> 5
2. Article XXII of the Partnership Agreement is hereby amended
by adding a new Section 22.07 to read as follows:
22.07 Anything to the contrary in the Partnership Agreement
notwithstanding, until the Obligations under the KBC Loan have been
paid in full, without the prior written consent of KBC Bank and RVI,
which each may grant in its sole discretion: (a) no additional Limited
Partner shall be admitted to the Partnership, except pursuant to
Section 14.02 hereof or as a transferee of any portion of the Limited
Partner interests existing on June 24, 1998; (b) no transferee of
Regency's interest in the Partnership, other than pursuant to Section
14.02 hereof, shall be admitted to the Partnership; (c) Article VII,
Article IX, Article X, Section 12.02, Article XIII, Article XIV,
Section 15.01, Section 22.06, and Section 22.07 of the Partnership
Agreement shall not be amended or modified in any respect, and no other
provision of the Partnership Agreement shall be amended in any manner
which has or could reasonably be expected to have a material adverse
effect on KBC Bank's rights and remedies with respect to the KBC Loan
or the Pledged Interest, on Regency's ability to repay the KBC Loan
with interest when due, or on the performance of the terms of the
Escrow Agreement; and (d) neither the Partnership nor any of its
Partners shall create or permit to exist any lien, security interest,
or encumbrance on or to the Property except the lien of the Trustee
created pursuant to the Project Loan Agreement and except for liens,
security interests, and encumbrances which would constitute "Permitted
Encumbrances", as defined in the Project Loan Agreement, whether or not
the Project Loan Agreement is then in effect. The provisions of this
Section 22.07 and Article XIV shall inure to the benefit of, and are
enforceable directly by, KBC Bank and RVI.
3. Section 9.01(d) of the Partnership Agreement is hereby
amended by adding the following sentence at the end thereof:
Notwithstanding the foregoing provisions of this
Subsection to the contrary, until the Obligations under the KBC Loan
(as defined in Article XIV) have been paid in full, all distributions
of all Net Cash Flow of the Partnership shall be distributed
ninety-five percent (95%) to Regency and five percent (5%) to the Class
A Partners as a group. After repayment in full of all Obligations under
the KBC Loan, distributions of Net Cash Flow shall be made in
accordance with the first three sentences of this subsection.
4. Woodlawn hereby represents and warrants that attached
hereto as Exhibit A is a complete and correct copy of the Partnership's
information return filed with the Internal Revenue Service (including all Forms
K-1 filed therewith) with respect to the tax years ended December 31, 1996 and
December 31, 1997.
5. Except as amended hereby, the Partnership Agreement is
ratified and affirmed in all respects.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, each of the undersigned has executed this
Amendment as of the day and year first above written.
GENERAL PARTNER:
1500 WOODLAWN LIMITED PARTNERSHIP
WITNESS: By: Woodlawn Investment Group, Inc., its
managing general partner
By:
- ----------------------------- ---------------------------------------
Name: Conrad Cafritz
Title: President
LIMITED PARTNERS:
WITNESS:
- ----------------------------- -------------------------------------------
HARRY W. RODGERS, III
WITNESS:
- ----------------------------- -------------------------------------------
WILLIAM A. RODGERS
WITNESS:
- ----------------------------- -------------------------------------------
W. DALE HESS
WITNESS: REGENCY AFFILIATES, INC.
By:
- ----------------------------- ---------------------------------------
William R. Ponsoldt, Sr.
President
[SEVENTH AMENDMENT]
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 890,300
<SECURITIES> 2,553,500
<RECEIVABLES> 420,600
<ALLOWANCES> 0
<INVENTORY> 743,200
<CURRENT-ASSETS> 4,835,600
<PP&E> 1,575,600
<DEPRECIATION> 57,900
<TOTAL-ASSETS> 22,756,400
<CURRENT-LIABILITIES> 1,575,800
<BONDS> 10,746,300
228,300
1,053,000
<COMMON> 5,041,300
<OTHER-SE> 4,021,000
<TOTAL-LIABILITY-AND-EQUITY> 22,756,400
<SALES> 1,350,400
<TOTAL-REVENUES> 1,350,400
<CGS> 875,400
<TOTAL-COSTS> 875,400
<OTHER-EXPENSES> 953,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 808,600
<INCOME-PRETAX> 703,300
<INCOME-TAX> 26,100
<INCOME-CONTINUING> 668,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668,600
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
