AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 2002
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ONE LIBERTY PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 13-3147497
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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60 CUTTER MILL ROAD
GREAT NECK, NEW YORK 11021
(516) 466-3100
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
MARK H. LUNDY, ESQ.
VICE PRESIDENT AND SECRETARY
ONE LIBERTY PROPERTIES, INC.
60 CUTTER MILL ROAD
GREAT NECK, NEW YORK 11021
(516) 466-3100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
JEFFREY A. BAUMEL, ESQ. HOWARD B. ADLER, ESQ.
MCCARTER & ENGLISH, LLP GIBSON, DUNN & CRUTCHER LLP
300 PARK AVENUE 1050 CONNECTICUT AVENUE, N.W.
NEW YORK, NEW YORK 10022-7402 WASHINGTON, D.C. 20036-5306
(212) 609-6800 (202) 955-8500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
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Common stock, par value $1.00 per share...... 2,875,000 $16.51 $47,466,250 $4,367
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(1) Includes 375,000 shares of common stock which may be purchased by the underwriters solely to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended, based upon the average of the high and low sales prices of the common stock on the American Stock Exchange on April 22, 2002.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
SUBJECT TO COMPLETION, DATED APRIL 24, 2002
2,500,000 SHARES
[LOGO]
ONE LIBERTY PROPERTIES, INC.
COMMON STOCK
We are selling 2,500,000 shares of our common stock. Our common stock is traded on the American Stock Exchange under the symbol "OLP." On April 22, 2002, the closing sale price of our common stock was $16.51 per share.
Of the 2,500,000 shares of our common stock offered hereby, 125,000 shares are being offered to Gould Investors L.P., an affiliate of ours, at the initial offering price, net of any underwriting discounts or commissions and subject to certain resale restrictions. For additional information, please see the "Underwriting" section of this prospectus.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. YOU SHOULD CAREFULLY CONSIDER THE INFORMATION UNDER THE HEADING "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS BEFORE BUYING SHARES OF OUR COMMON STOCK.
PRICE TOTAL(1)
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Public offering price....................................... $ $
Underwriters' discounts and commissions(2).................. $ $
Proceeds, before expenses, to us............................ $ $
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(1) Reflects the sale of up to 125,000 shares to Gould Investors L.P., net of any underwriters' discounts and commissions. If none of these shares are purchased by Gould Investors L.P. and they are instead sold to the public, the total public offering price would be $ and the total underwriters' discounts and commissions would be $ .
(2) Please see "Underwriting" for a discussion of underwriters' compensation.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We have granted an over-allotment option to the underwriters. Under this option, the underwriters may elect to purchase a maximum of 375,000 additional shares of our common stock from us within 30 days following the date of this prospectus to cover over-allotments.
The underwriters expect the shares of our common stock offered by this prospectus will be ready for delivery to purchasers on or about , 2002.
FRIEDMAN BILLINGS RAMSEYFFERRIS, BAKER WATTS
Incorporated
The date of this prospectus is , 2002.
THE ARTWORK INCLUDES A MAP OF THE UNITED STATES WITH THE STATES IN WHICH WE OWN PROPERTY HIGHLIGHTED, SURROUNDED BY SELECTED PICTURES OF OUR PROPERTIES.
TABLE OF CONTENTS
Forward-Looking Statements.................................. i Prospectus Summary.......................................... 1 Risk Factors................................................ 5 Our Company................................................. 13 Use of Proceeds............................................. 23 Market Price and Dividends on Our Common Stock.............. 24 Capitalization.............................................. 25 Selected Financial Data..................................... 26 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 29 Our Management.............................................. 36 Description of Securities................................... 39 Certain Federal Income Tax Considerations................... 43 Underwriting................................................ 55 Experts..................................................... 56 Legal Matters............................................... 56 Where You Can Find More Information......................... 56 Incorporation of Certain Documents by Reference............. 57 Index to Financial Statements............................... F-1 |
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may", "will", "believe", "expect", "intend", "anticipate", "estimate", "project" or similar expressions or variations thereof. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to:
- general economic and business conditions;
- general and local real estate conditions;
- the financial condition of our tenants and the performance of their lease obligations;
- changes in governmental laws and regulations relating to real estate and related investments;
- the level and volatility of interest rates;
- competition in our industry;
- accessibility of debt and equity capital markets;
- the availability of and costs associated with sources of liquidity; and
- the other risks described under "Risk Factors" in this prospectus.
Accordingly, there can be no assurance that our expectations will be realized.
PROSPECTUS SUMMARY
This summary highlights information in this prospectus. The summary does not contain all of the information you should consider before investing in our common stock. We urge you to read this entire prospectus, including the financial statements and related notes, along with the information that is incorporated by reference into this prospectus. You should carefully consider the information discussed under the heading "Risk Factors" before you decide to purchase our common stock. All references to "we", "us", "our" and/or "our company" in this prospectus refer to One Liberty Properties, Inc. and our subsidiaries. Except as otherwise indicated, all information in this prospectus assumes no exercise of the underwriters' over-allotment option.
OUR COMPANY
OUR BUSINESS
We are a self-administered and self-managed real estate investment trust ("REIT"). We acquire, own and manage a geographically diversified portfolio of retail, industrial, office, movie theater and other properties under long-term leases. Substantially all of our leases are "net leases", under which the tenant is responsible for real estate taxes, insurance and ordinary maintenance and repairs. As of April 19, 2002, we owned 33 properties and we participated in two joint ventures that each owned one property. Our properties are located in 13 states and have approximately 2.5 million square feet of rentable space (including all rentable space for properties in which we have a joint venture participation). Under the terms of our leases, our 2002 contractual rental income is equal to approximately $14.3 million. Our 2002 contractual rental income includes rental income that is payable to us during 2002, including our share of rental income payable to our joint ventures, and does not include rent that we would receive if two leases that expire during 2002 are renewed, or if our two vacant properties are rented. The occupancy rate of our property portfolio was 99.8% on April 19, 2002. The average remaining term of the leases in our portfolio is nine years.
OUR PROPERTIES
We acquired our portfolio of properties by balancing fundamental real estate analysis with tenant credit evaluation. The main focus of our analysis is the intrinsic value of a property, determined primarily by its location, local demographics and potential for alternative use. We also evaluate a tenant's financial ability to meet operational needs and lease obligations. We believe that our emphasis on property value enables us to achieve attractive returns on our acquired properties and also enhances our ability to re-rent or dispose of a property on favorable terms upon the expiration or early termination of a lease.
The properties in our portfolio typically have the following attributes:
- Net leases. Substantially all of our leases are net leases in which rising operating costs are typically absorbed by the tenant. We believe that investments in net leased properties may offer more predictable returns than investments in properties that are not net leased;
- Long-term leases. We generally acquire properties that are subject to long-term leases. Leases representing approximately 80.2% of our 2002 contractual rental income expire after 2007, and leases representing approximately 65.2% of our 2002 contractual rental income expire after 2010; and
- Scheduled rent increases. Leases representing approximately 78.7% of our 2002 contractual rental income provide for scheduled rent increases, of which approximately 83.3% provide for periodic contractual rent increases and approximately 16.7% provide for rent increases based on the consumer price index.
OUR PORTFOLIO REVIEW
We conduct periodic inspections of our properties and available tenant financial information. We believe that this procedure allows us to react effectively to potential problems in our portfolio.
OUR GROWTH STRATEGY
Our growth strategy includes the following elements:
- We intend to continue our internal growth by maintaining, renewing and entering into new long-term leases that contain provisions for contractual rent increases;
- We intend to pursue external growth through a strategy of acquiring additional properties within the United States that are subject to long-term net leases and that satisfy our other investment criteria; and
- As part of our external growth strategy, we actively seek to acquire properties in market or industry sectors that we identify, from time to time, as offering superior risk-adjusted returns. As an example, through our joint venture with a Deutsche Bank AG affiliate and MTC Investors LLC, we intend, in the near term, to continue to increase our investment in movie theater properties, concentrating on megaplex theaters with stadium-style seating. Within the last six months, our joint venture has purchased one megaplex movie theater and has entered into agreements, the completion of which are subject to the satisfaction or waiver of various conditions, for the purchase of three additional megaplex movie theaters. As a result of changing market conditions, we may, in the future, identify other sectors in which to invest, and we may curtail or limit our investments in megaplex theaters or other types of properties in which we currently invest.
We believe that the attributes of the properties in our portfolio, our portfolio review and our growth strategy will enable us to achieve attractive current returns with potential growth through contractual rent increases and property appreciation.
GENERAL
We were incorporated under the laws of Maryland on December 20, 1982. Our principal executive offices are located at 60 Cutter Mill Road, Great Neck, New York 11021, and our telephone number is (516) 466-3100. Our website can be visited at www.1Liberty.com. The information contained on our website is not part of this prospectus and you should not rely on it in deciding whether to invest in our common stock.
THE OFFERING
Common stock offered.............. 2,500,000 shares(1)
Common stock outstanding after the
offering.......................... 5,584,561 shares(2)
Use of proceeds................... We intend to use the proceeds of this
offering to acquire additional
properties, to repay outstanding
indebtedness and for working capital and
general corporate purposes. See "Use of
Proceeds" on page 23.
American Stock Exchange trading
symbol............................ OLP
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(1) Includes 125,000 shares of common stock to be offered to Gould Investors L.P. Does not include 375,000 shares of common stock reserved for issuance upon exercise of the underwriters' over-allotment option.
(2) 5,959,561 shares of common stock if the underwriters exercise their over-allotment option in full. Does not include 172,600 shares of common stock that may be issued upon the exercise of currently outstanding options granted under our stock option plans or 534,647 shares of common stock that are issuable upon the conversion of our convertible preferred stock.
SUMMARY FINANCIAL DATA
The summary financial data are derived from our audited financial statements for the years presented. You should read this summary financial data along with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our audited financial statements and notes thereto that are included in this prospectus beginning on page F-1.
YEAR ENDED DECEMBER 31,
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1997 1998 1999 2000 2001
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA
Revenues...................................... $6,285 $10,133 $10,180 $12,669 $15,320
Income before gain on sale.................... 2,385 5,286 4,753 4,142 4,754
Net gain on sale.............................. 599 1,132 126 3,790 112
Net income.................................... 2,984 6,418 4,879 7,932 4,866
Net income applicable to common
stockholders................................ 1,534 4,966 3,632 6,888 3,829
Weighted average number of common shares
outstanding:
Basic....................................... 1,523 2,297 2,960 2,993 3,019
Diluted..................................... 1,529 2,298 2,963 3,528 3,036
Net income per common share:
Basic....................................... $ 1.01 $ 2.16 $ 1.23 $ 2.30 $ 1.27
Diluted..................................... $ 1.00 $ 2.16 $ 1.23 $ 2.25 $ 1.26
Cash distributions per share of:
Common stock................................ $ 1.20 $ 1.20 $ 1.20 $ 1.20 $ 1.20
Preferred stock............................. $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60
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AT DECEMBER 31,
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1997 1998 1999 2000 2001
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(IN THOUSANDS)
BALANCE SHEET DATA
Real estate investments, net............... $48,317 $59,831 $70,770 $121,620 $118,564
Investment in unconsolidated joint
venture(1)............................... -- -- -- -- 6,345
Cash and cash equivalents.................. 1,606 19,089 11,247 2,069 2,285
Total assets............................... 57,648 82,678 85,949 128,219 132,939
Mortgages payable.......................... 20,545 29,422 35,735 64,123 76,587
Line of credit............................. 4,605 -- -- 10,000 --
Total liabilities.......................... 26,337 30,960 36,147 74,843 78,591
Total stockholders' equity................. 18,204 38,495 49,802 53,376 54,348
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(1) As of December 31, 2001, we had a 50% interest in a joint venture with an affiliate of the real estate equity group of Deutsche Bank AG for the general purpose of acquiring, owning and operating megaplex movie theater properties. In April 2002, we sold one-half of our 50% interest in this joint venture to MTC Investors LLC, an affiliate of an experienced shopping center and mall operator.
RISK FACTORS
An investment in our common stock involves a number of risks. Before making an investment decision, you should carefully consider all of the risks described in this prospectus, as well as the other information set forth in this prospectus, including our consolidated financial statements and related notes. If any of the risks discussed in this prospectus actually occur, our business, financial condition, prospects and results of operations could be materially adversely affected. In that event, the trading price of our common stock could decline significantly and you may lose all or a part of your investment.
RISKS RELATED TO OUR COMPANY
THE FINANCIAL FAILURE OF OUR TENANTS WOULD BE LIKELY TO CAUSE SIGNIFICANT
REDUCTIONS IN OUR REVENUES AND IN THE VALUE OF OUR PORTFOLIO.
Substantially all of our revenues are derived from rental income generated by our 35 properties, and 79.8% of our properties, based on 2001 revenues, are leased to single tenants. Accordingly, the financial failure or other default of a tenant resulting in non-payment of rent or property-related expenses or the termination of a lease could cause a significant reduction in our revenues. Additionally, approximately 62.0% and 54.1% of our revenues for the years ended December 31, 2000 and December 31, 2001, respectively, were derived from tenants in the retail and theater sectors. Weakening of economic conditions in the retail or theater sector could result in the financial failure, or other default, of a significant number of our tenants. Two of our tenants have filed for protection under the federal bankruptcy laws (such tenants represent approximately 3.3% of our 2002 contractual rental income and have continued to pay their monthly rent) and it is possible that other tenants could file for protection or could face similar difficulties in the future. In the event of a default by a tenant, we may experience delays in enforcing our rights as landlord, loss of revenues and substantial costs in protecting our investment. We may also face liabilities arising from the tenant's actions or omissions that would reduce our revenues and the value of our portfolio. Also, if we are unable to re-rent any property when the existing lease terminates, for an extended period of time, we would receive no revenues from such property and could experience a decline in the value of the property.
A SIGNIFICANT PORTION OF OUR REVENUES IS DERIVED FROM THREE TENANTS. THE DEFAULT, FINANCIAL DISTRESS OR FAILURE OF ANY OF THESE TENANTS COULD SIGNIFICANTLY REDUCE OUR REVENUES.
L-3 Communications Corp., Barnes & Noble, Inc. (a tenant at three separate properties) and The ESAB Group, Inc. accounted for approximately 11.5%, 9.7% and 8.7%, respectively, of our revenues for the year ended December 31, 2001. The default, financial distress or bankruptcy of any of these tenants could cause interruptions in the receipt or loss of a significant amount of revenues and result in the vacancy of the property occupied by the defaulting tenant, which would significantly reduce our revenues until the property is re-rented, and could decrease the ultimate sale value of the property.
THE INABILITY TO REPAY OUR INDEBTEDNESS COULD REDUCE CASH AVAILABLE FOR
DISTRIBUTIONS AND CAUSE LOSSES.
As of December 31, 2001, we had outstanding approximately $76.6 million in long-term mortgage indebtedness, all of which is non-recourse (subject to standard carve-outs). Our ratio of debt to total assets was approximately 57.6% as of December 31, 2001. In addition, we expect that our megaplex movie theater joint venture will borrow funds in the future and that such borrowings will be secured by mortgage indebtedness on its properties. The risks associated with our debt include the risk that our cash flow will be insufficient to meet required payments of principal and interest. Further, if a property or properties are mortgaged to collateralize payment of indebtedness and we are unable to make mortgage payments on the secured indebtedness, the lender could foreclose upon the property or properties resulting in a loss of revenues to us and a decline in the value of our portfolio. Even with respect to non-recourse indebtedness, the lender may have the right to recover deficiencies from us under certain circumstances that could result in a reduction in the amount of cash available to meet expenses and to make distributions and in a deterioration of our financial condition. In addition, our $15.0 million revolving credit facility expires on March 23, 2003. We cannot assure you that we will be able to renew this facility on favorable terms, or at all.
IF WE ARE UNABLE TO REFINANCE OUR BORROWINGS AT FAVORABLE RATES OR OTHERWISE RAISE FUNDS, OUR NET INCOME MAY DECLINE OR WE MAY BE FORCED TO SELL PROPERTIES ON DISADVANTAGEOUS TERMS, WHICH WOULD RESULT IN THE LOSS OF REVENUES AND IN A DECLINE IN THE VALUE OF OUR PORTFOLIO.
Because only a small portion of the principal of our mortgage indebtedness will be repaid prior to maturity and we do not plan to retain sufficient cash to repay such indebtedness at maturity, we will have to refinance debt or seek to raise funds through the financing of unencumbered properties, sale of properties or sale of additional equity. Between 2002 and 2006, we will have to refinance an aggregate of approximately $29.0 million of debt, of which approximately $1.3 million and $8.8 million will have to be refinanced in 2002 and 2003, respectively. We cannot assure you that we will be able to refinance this debt or arrange additional debt financing on unencumbered properties on terms as favorable as the terms of existing indebtedness, or at all. If prevailing interest rates or other factors at the time of refinancing result in higher interest rates, our interest expense would increase, which would adversely affect our net income, financial condition and the amount of cash available to make distributions to stockholders. If we are not successful in refinancing our existing indebtedness or financing our unencumbered properties, selling properties on favorable terms or selling additional equity, our cash flow will not be sufficient to repay all maturing debt when payments become due, and we may be forced to dispose of properties on disadvantageous terms, which would result in the loss of revenues and in a decline in the value of our portfolio.
INCREASED BORROWINGS COULD RESULT IN INCREASED RISK OF DEFAULT ON OUR
REPAYMENT OBLIGATIONS AND INCREASED DEBT SERVICE REQUIREMENTS.
Our governing instruments do not contain any limitation on the amount of indebtedness we may incur. Accordingly, increased leverage could result in increased risk of default on our payment obligations related to borrowings and in an increase in debt service requirements which would reduce our net income and the amount of cash available to meet expenses and to make distributions to holders of our common stock.
WE MAY BE UNABLE TO ACQUIRE OR MAY BE DELAYED IN ACQUIRING ADDITIONAL
PROPERTIES WITH THE PROCEEDS OF THE OFFERING.
A significant element of our growth strategy is the enhancement of our portfolio through the acquisition of additional properties. Other than the three properties set forth under the caption "Use of Proceeds" in this prospectus, we currently have no additional properties under contract for acquisition and we may be unable to acquire or may be delayed in acquiring properties with the proceeds of the offering that will generate returns consistent with our historical returns on our other properties. Pending the use of the net proceeds to acquire properties, we intend to use the net proceeds to reduce outstanding mortgage indebtedness and to make investments in short-term income producing securities. Reducing outstanding indebtedness and making short-term investments generally will provide us with a lower rate of return than investing in income-producing real estate. As a result, our inability to acquire, or any delays in acquiring, appropriate properties may decrease our return on equity resulting in a reduction in the amount of cash available to meet expenses and to make distributions to holders of our common stock.
IF WE ARE UNABLE TO RE-RENT PROPERTIES UPON THE EXPIRATION OF OUR LEASES, IT COULD ADVERSELY AFFECT OUR REVENUES AND ABILITY TO MAKE DISTRIBUTIONS AND COULD REDUCE THE VALUE OF OUR PORTFOLIO.
Substantially all of our revenues are derived from rental income paid by tenants at our properties. We cannot predict whether current tenants will renew their leases upon the expiration of their terms. In particular, the term of the lease at one of our properties which generated approximately 5.6% of our revenues in 2001, and is expected to generate approximately 4.5% of our 2002 contractual rental income, will expire in October 2002 if the lease is not renewed. In addition, we cannot predict whether current tenants will attempt to terminate their leases, or whether defaults by tenants may result in termination of their leases, prior to the expiration of their current terms. If tenants terminate or fail to renew their leases, or if leases terminate due to defaults, we may not be able to locate qualified replacement tenants and, as a result, we would lose a source of revenues while remaining responsible for the payment of our mortgage obligations and the expenses related to the properties, including taxes. Even if tenants decide to renew their leases or we find replacement tenants, the terms of renewals or new leases, including the cost of required renovations or concessions to tenants, may
be less favorable than current lease terms and could reduce the amount of cash available to meet expenses and to make distributions to holders of our common stock.
UNINSURED AND UNDERINSURED LOSSES MAY AFFECT THE REVENUES GENERATED BY, THE
VALUE OF, AND THE RETURN FROM, A PROPERTY AFFECTED BY A CASUALTY OR OTHER CLAIM.
Substantially all of our tenants obtain, for our benefit, comprehensive insurance covering our properties in amounts that are intended to be sufficient to provide for the replacement of the improvements at each property. However, the amount of insurance coverage maintained for any property may not be sufficient to pay the full replacement cost of the improvements at the property following a casualty event. In addition, the rent loss coverage under the policy may not extend for the full period of time that a tenant may be entitled to a rent abatement as a result of, or that may be required to complete restoration following, a casualty event. In addition, there are certain types of losses, such as those arising from earthquakes, floods, hurricanes and terrorist attacks, that may be uninsurable or that may not be economically insurable. Changes in zoning, building codes and ordinances, environmental considerations and other factors also may make it impossible or impracticable for us to use insurance proceeds to replace damaged or destroyed improvements at a property. If restoration is not or cannot be completed to the extent, or within a period of time, specified in certain of our leases, the tenant may have the right to terminate the lease. If any of these or similar events occur, it may reduce our revenues, or the value of, or our return from, an affected property.
OUR REVENUES AND THE VALUE OF OUR PORTFOLIO ARE AFFECTED BY A NUMBER OF
FACTORS THAT AFFECT INVESTMENTS IN REAL ESTATE GENERALLY.
We are subject to the general risks of investing in real estate. These include adverse changes in economic conditions and local conditions such as changing demographics, retailing trends and traffic patterns, declines in the rental rates we are able to obtain, changes in the supply and price of quality properties and the market supply and demand of competing properties, the impact of environmental laws, security concerns, prepayment penalties applicable under mortgage financing, changes in tax, zoning, building code, fire safety and other laws, the type of insurance coverages available in the market, and changes in the type, capacity and sophistication of building systems. Any of these conditions could have an adverse effect on our results of operations, liquidity and financial condition.
OUR REVENUES AND THE VALUE OF OUR PORTFOLIO ARE AFFECTED BY A NUMBER OF
FACTORS THAT AFFECT INVESTMENTS IN LEASED REAL ESTATE GENERALLY.
We are subject to the general risks of investing in leased real estate. These include the non-performance of lease obligations by tenants, improvements that will be costly or difficult to remove should it become necessary to re-rent the leased space for other uses, covenants in certain retail leases that limit the types of tenants to which available space can be rented (which may limit demand or reduce the rents realized on re-renting), rights of termination of leases due to events of casualty or condemnation affecting the leased space or the property or due to interruption of the tenant's quiet enjoyment of the leased premises, and obligations of a landlord to restore the leased premises or the property following events of casualty or condemnation. Any of these conditions could have an adverse impact on our results of operations, liquidity and financial condition.
OUR REAL ESTATE INVESTMENTS ARE RELATIVELY ILLIQUID AND THEIR VALUES MAY
DECLINE.
Real estate investments are relatively illiquid. Therefore, we will be limited in our ability to reconfigure our real estate portfolio in response to economic changes. We may encounter difficulty in disposing of properties when tenants vacate either at the expiration of the applicable lease or otherwise. If we decide to sell any of our properties, our ability to sell these properties and the prices we receive on their sale will be affected by the number of potential buyers, the number of competing properties on the market and other market conditions, as well as whether the property is leased and if it is leased, the terms of the lease. As a result, we may be unable to sell our properties for an extended period of time without incurring a loss, which would adversely affect our results of operations, liquidity and financial condition.
THE CONCENTRATION OF OUR PROPERTIES IN CERTAIN GEOGRAPHIC AREAS MAY MAKE OUR REVENUES AND THE VALUE OF OUR PORTFOLIO VULNERABLE TO ADVERSE CHANGES IN LOCAL ECONOMIC CONDITIONS.
We do not have specific limitations on the total percentage of our real estate properties that may be located in any one area. Consequently, properties that we own may be located in the same or a limited number of geographic regions. Approximately 57.3% of our revenues for the year ended December 31, 2001 were derived from properties located in New York and Texas. As a result, a decline in the economic conditions in these geographic regions, or in geographic regions where our properties may be concentrated in the future, may have an adverse effect on the rental and occupancy rates for, and the property values of, these properties, which could lead to a reduction in our revenues and in the value of these properties.
OUR INABILITY TO CONTROL OUR MEGAPLEX THEATER JOINT VENTURE COULD RESULT IN DIVERSION OF TIME AND EFFORT BY OUR MANAGEMENT AND THE INABILITY TO ACHIEVE THE GOALS OF THE JOINT VENTURE AGREEMENT.
Our megaplex theater joint venture investments may involve risks not otherwise present in investments made solely by us, including that our co-venturers may have different interests or goals than we do, or that our co-venturers may not be able or willing to take an action that is desired by us. Because neither we nor either of our co-venturers has full control over the joint venture, disagreements with or among our co-venturers could result in substantial diversion of time and effort by our management team and the inability to successfully acquire, operate, finance, lease or sell megaplex theaters as intended by our joint venture agreement. In addition, since there is no limitation under our organizational documents as to the amount of funds that may be invested in joint ventures, we may invest a significant amount of our funds into joint ventures which ultimately may not be profitable as a result of disagreements with or among our co-venturers.
OUR MEGAPLEX THEATER JOINT VENTURE AGREEMENT CONTAINS CERTAIN PROVISIONS RELATED TO THE TRANSFER OF OUR INTEREST, DISPUTES BETWEEN VENTURERS AND FUTURE CAPITAL CONTRIBUTIONS THAT COULD LIMIT OUR ABILITY TO LIQUIDATE OUR INTEREST OR ADVERSELY AFFECT THE VALUE OF OUR INVESTMENT.
The megaplex theater joint venture agreement provides that we cannot finance or transfer our interest in the venture without the consent of the other venturers. If we are unable to obtain the consent of our co-venturers to a proposed financing or transfer of our joint venture interest, we may be unable to dispose of such interest on favorable terms. The joint venture agreement also contains certain provisions governing disputes between the venturers that could obligate us to acquire the interest of other venturers on unfavorable terms or without adequate time to obtain satisfactory financing or force us to sell our interest on terms that may be disadvantageous. In addition, if we fail to contribute any additional capital that we are required to contribute to the joint venture in the future, our interest in the joint venture may be reduced disproportionately, or another venturer may elect to fund our portion of the capital contribution, which would result in that venturer acquiring a preferred rate of return and a right to receive interest on the amount of such contribution. The occurrence of any of these events would adversely affect the value of our investment in the joint venture.
COMPETITION IN THE REAL ESTATE BUSINESS IS INTENSE AND COULD REDUCE OUR
REVENUES AND HARM OUR BUSINESS.
We compete for real estate investments with all types of investors, including domestic and foreign corporations and real estate companies, financial institutions, insurance companies, pension funds, investment funds, other REITs and individuals. Many of these competitors have significant advantages over us, including a larger, more diverse group of properties and greater financial and other resources. Our failure to compete successfully with these competitors could result in our inability to identify and acquire valuable properties and to achieve our growth objectives.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS AND ASSOCIATED COSTS COULD
ADVERSELY AFFECT OUR LIQUIDITY.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property and may be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred in connection with contamination. The cost of investigation, remediation or removal of hazardous or toxic substances may be substantial, and the presence of such substances, or the failure to properly remediate a property, may adversely affect our ability to sell or rent the
property or to borrow money using the property as collateral. In connection with our ownership, operation and management of real properties, we may be considered an owner or operator of the properties and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and liability for injuries to persons and property, not only with respect to properties we own now or may acquire, but also with respect to properties we have owned in the past.
We cannot assure you that existing environmental studies with respect to any of our properties reveal all potential environmental liabilities, that any prior owner of a property did not create any material environmental condition not known to us, or that a material environmental condition does not otherwise exist, or may not exist in the future, as to any one or more of our properties. If a material environmental condition does in fact exist, or exists in the future, it could have a material adverse impact upon our results of operations, liquidity and financial condition.
OUR SENIOR MANAGEMENT AND OTHER KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS
AND OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RETAIN THEM.
We depend on the services of Fredric H. Gould, chairman of our board of directors, Jeffrey Fishman, our president and chief executive officer, and other members of our senior management to carry out our business and investment strategies. Only two officers, Mr. Fishman and Lawrence G. Ricketts, Jr., our vice president, acquisitions, devote substantially all of their business time to our company. The remainder of our management personnel share their services on a part-time basis with entities affiliated with us and located in the same executive offices. In addition, Messrs. Fishman and Ricketts devote a limited amount of their business time to entities affiliated with us. As we expand, we will continue to need to attract and retain qualified senior management and other key personnel, both on a full-time, as well as on a part-time basis. The loss of the services of any of our senior management or other key personnel, or our inability to recruit and retain qualified personnel in the future, could impair our ability to carry out our business and investment strategies.
OUR TRANSACTIONS WITH AFFILIATED ENTITIES INVOLVE CONFLICTS OF INTEREST.
We have entered into a number of transactions with persons and entities affiliated with us and with certain of our officers and directors and we intend to enter into additional transactions with such persons in the future. For a description of our current transactions with affiliates, please see the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Transactions." These transactions raise conflicts of interest and the potential that we may not receive terms in these transactions as favorable as those that we would receive if the transactions were entered into with unaffiliated entities. In addition, we and our affiliated entities may have opportunities, from time to time, to make investments in the same properties. If our officers and directors fail to provide us with the opportunity to acquire a valuable property that meets our investment criteria, we could be deprived of a valuable investment property.
WE ARE REQUIRED BY CERTAIN OF OUR NET LEASE AGREEMENTS TO PAY PROPERTY
RELATED EXPENSES THAT ARE NOT THE OBLIGATIONS OF OUR TENANTS.
Under the terms of substantially all of our net lease agreements, in addition to satisfying their rent obligations, our tenants are responsible for the payment of real estate taxes, insurance and ordinary maintenance and repairs. However, in the case of certain leases, we must pay some expenses, such as the costs of environmental liabilities, structural repairs, insurance and certain non-structural repairs and maintenance. If our properties incur significant expenses that must be paid by us under the terms of our lease agreements, our business, financial condition and results of operations will be adversely affected and the amount of cash available to meet expenses and to make distributions to holders of our common stock may be reduced.
COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT COULD BE COSTLY.
Under the Americans with Disabilities Act of 1990, all public accommodations must meet federal requirements for access and use by disabled persons. A determination that our properties do not comply with the Americans with Disabilities Act could result in liability for both governmental fines and damages. If we are required to make unanticipated major modifications to any of our properties to comply with the
Americans with Disabilities Act, which are determined not to be the responsibility of our tenants, we could incur unanticipated expenses that could have an adverse impact upon our results of operations, liquidity and financial condition.
WE MAY BE SUBJECT TO FURTHER RISKS IN THE EVENT WE ENGAGE IN THE
DEVELOPMENT AND CONSTRUCTION OF BUILDINGS.
We may engage in the development and construction of buildings for net lease on properties that we now own or that we may acquire in the future. Development and construction involve many risks in addition to those presented by our existing business. Development and construction also may require skills and experience we have not needed to have available to date, and the expense and time to develop or acquire these skills could have an adverse impact upon our results of operations, liquidity and financial condition.
RISKS RELATED TO THE REIT INDUSTRY
FAILURE TO QUALIFY AS A REIT WOULD RESULT IN MATERIAL ADVERSE TAX
CONSEQUENCES AND WOULD SIGNIFICANTLY REDUCE CASH AVAILABLE FOR DISTRIBUTIONS.
We believe that, since our taxable year ended December 31, 1983, we have operated so as to qualify as a REIT under the Internal Revenue Code. Qualification as a REIT involves the application of technical and complex legal provisions for which there are limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In addition, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification.
If we fail to qualify as a REIT, we will be subject to federal, state and local income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates and would not be allowed a deduction in computing our taxable income for amounts distributed to stockholders. In addition, unless entitled to relief under certain statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. The additional tax would reduce significantly our net income and the cash available for distributions to stockholders.
WE ARE SUBJECT TO CERTAIN DISTRIBUTION REQUIREMENTS THAT MAY RESULT IN OUR
HAVING TO BORROW FUNDS AT UNFAVORABLE RATES.
To obtain the favorable tax treatment associated with being a REIT, we generally will be required, among other things, to distribute to our stockholders at least 90% of our ordinary taxable income (excluding capital gains) each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by us with respect to any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
As a result of differences in timing between the receipt of income and the payment of expenses, and the inclusion of such income and the deduction of such expenses in arriving at taxable income, and the effect of nondeductible capital expenditures, the creation of reserves and the timing of required debt service (including amortization) payments, we may need to borrow funds on a short-term basis in order to make the distributions necessary to retain the tax benefits associated with qualifying as a REIT, even if we believe that then prevailing market conditions are not generally favorable for such borrowings. Such borrowings could reduce our net income and the cash available for distributions to holders of our common stock.
COMPLIANCE WITH REIT REQUIREMENTS MAY HINDER OUR ABILITY TO MAXIMIZE
PROFITS.
In order to qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, our sources of income, the amounts we distribute to our stockholders and the ownership of our stock. We may also be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Accordingly, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
In order to qualify as a REIT, we must also ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investment in securities cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, no more than 5% of the value of our assets can consist of the securities of any one issuer. If we fail to comply with these requirements, we must dispose of a portion of our assets within 30 days after the end of the calendar quarter in order to avoid losing our REIT status and suffering adverse tax consequences. This requirement could cause us to dispose of assets for consideration of less than their true value and could lead to a material adverse impact on our results of operations and financial condition.
RISKS RELATED TO OWNERSHIP OF OUR STOCK
WE MAY NEED TO SELL ADDITIONAL SHARES OF STOCK IN ORDER TO ACQUIRE MORE PROPERTIES, WHICH WILL DILUTE YOUR PERCENTAGE OWNERSHIP AND MAY CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.
There are 3,084,561 shares of our common stock outstanding as of April 19, 2002. This prospectus relates to the sale of an additional 2,500,000 shares of our common stock, which may be increased to 2,875,000 shares if the underwriters fully exercise their over-allotment option. In order to expand our company and acquire more properties, we may need to sell additional common stock, or other securities convertible into or exchangeable for our common stock, which would cause dilution of our existing common stockholders and could result in a decrease in the market price of our common stock.
WE CANNOT ASSURE YOU OF OUR ABILITY TO PAY DIVIDENDS IN THE FUTURE.
We intend to pay quarterly dividends and to make distributions to our stockholders in amounts such that all or substantially all of our taxable income in each year, subject to certain adjustments, is distributed. This, along with other factors, should enable us to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code. We have not established a minimum dividend payment level and our ability to pay dividends may be adversely affected by the risk factors described in this prospectus. All distributions will be made at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our REIT status and such other factors as our board of directors may deem relevant from time to time. We cannot assure you that we will be able to pay dividends in the future.
INCREASES IN INTEREST RATES COULD LOWER THE TRADING PRICE OF OUR COMMON
STOCK.
The trading prices of equity securities issued by REITs historically have been affected by changes in broader market interest rates, with increases in interest rates resulting in decreases in trading prices. As a result, an increase in market interest rates could lower the trading price of our common stock.
OUR DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS OWNING AT LEAST 5% OF OUR COMMON STOCK WILL BENEFICIALLY OWN APPROXIMATELY 33.7% OF THE VOTING POWER OF OUR COMPANY, IN THE AGGREGATE, AFTER THIS OFFERING. AS A RESULT, THESE STOCKHOLDERS MAY BE ABLE TO EXERT A SIGNIFICANT INFLUENCE OVER OUR BUSINESS AND AFFAIRS.
Our directors, executive officers and principal stockholders owning at least 5% of our common stock will beneficially own or control approximately 33.7%, or 31.6% if the underwriters exercise their over-allotment option in full, of the voting power of our company after this offering and giving effect to the purchase by Gould Investors L.P. of 125,000 shares of common stock in this offering. The ownership position of these persons may allow them to exert a significant influence over our management and affairs and over the approval of any proposed amendment to our charter, or over a merger or sale of all or substantially all of our stock or assets. In addition, the interests of those persons may conflict with the interests of other holders of our common stock.
PREFERRED STOCKHOLDERS HAVE PREFERENTIAL RIGHTS IN THE EVENT OF OUR
LIQUIDATION OR DISSOLUTION.
Holders of our preferred stock have a preference of $16.50 per share (or
$10.7 million in the aggregate) plus accrued and unpaid dividends in the event
of our voluntary or involuntary liquidation or dissolution, including a sale of
our business. In addition, holders of our preferred stock have the right, as a
class, to elect
two directors if we default in our payment of dividends on our preferred stock for eight consecutive quarters. Preferred stockholders may also convert each share of preferred stock which they own into 0.825 of a share of common stock. The presence of the rights and preferences of these preferred stockholders would reduce the amount of assets available for distribution to holders of our common stock on a sale of our business or upon our liquidation, and may adversely affect the holders of our common stock and the market price of our common stock.
BECAUSE PROVISIONS CONTAINED IN MARYLAND LAW, OUR CHARTER AND OUR BY-LAWS MAY RESTRICT THE ABILITY OF A THIRD PARTY TO TAKE OVER OUR COMPANY, INVESTORS MAY BE PREVENTED FROM RECEIVING A "CONTROL PREMIUM" FOR THEIR SHARES.
Provisions contained in our charter and by-laws, as well as Maryland corporate law, may delay, defer or prevent a takeover attempt, which may prevent stockholders from receiving a "control premium" for their shares. For example, these provisions may defer or prevent tender offers for our common stock or purchases of large blocks of our common stock, thereby limiting the opportunities for our stockholders to receive a premium for their common stock over then-prevailing market prices. These provisions include the following:
- Maryland control share acquisition statute. Maryland law limits the voting rights of "control shares" of a corporation in the event of a "control share acquisition," as defined in the Maryland General Corporation Law; and
- Classified board structure. Our board of directors is divided into three classes. Directors in each class are elected to serve for a term of three years, with the terms of each class beginning in different years.
For more information about these matters please see the information under the heading "Description of Securities."
OUR COMPANY
GENERAL
We are a self-administered and self-managed REIT. We acquire, own and manage a geographically diversified portfolio of retail, industrial, office, movie theater and other properties under long-term leases. Substantially all of our leases are "net leases", under which the tenant is responsible for real estate taxes, insurance and ordinary maintenance and repairs. As of April 19, 2002, we owned 33 properties and we participated in two joint ventures that each owned one property. Our properties are located in 13 states and have approximately 2.5 million square feet of rentable space (including all rentable space for properties in which we have a joint venture participation). Under the terms of our leases, our 2002 contractual rental income is equal to approximately $14.3 million. Our 2002 contractual rental income includes rental income that is payable to us during 2002, including our share of rental income payable to our joint ventures, and does not include rent that we would receive if two leases that expire during 2002 are renewed, or if our two vacant properties are rented. The occupancy rate of our property portfolio was 99.8% on April 19, 2002. The average remaining term of the leases in our portfolio is nine years.
We acquired our portfolio of properties by balancing fundamental real estate analysis with tenant credit evaluation. The main focus of our analysis is the intrinsic value of a property, determined primarily by its location, local demographics and potential for alternative use. We also evaluate a tenant's financial ability to meet operational needs and lease obligations. We believe that our emphasis on property value enables us to achieve attractive returns on our acquired properties and also enhances our ability to re-rent or dispose of a property on favorable terms upon the expiration or early termination of a lease.
The properties in our portfolio typically have the following attributes:
- Net leases. Substantially all of our leases are net leases in which rising operating costs are typically absorbed by the tenant. We believe that investments in net leased properties may offer more predictable returns than investments in properties that are not net leased;
- Long-term leases. We generally acquire properties that are subject to long-term leases. Leases representing approximately 80.2% of our 2002 contractual rental income expire after 2007, and leases representing approximately 65.2% of our 2002 contractual rental income expire after 2010; and
- Scheduled rent increases. Leases representing approximately 78.7% of our 2002 contractual rental income provide for scheduled rent increases, of which approximately 83.3% provide for periodic contractual rent increases and approximately 16.7% provide for rent increases based on the consumer price index.
We share office facilities, personnel and other resources with several affiliated entities including, among others, Gould Investors L.P., a partnership involved in the ownership and operation of a diversified portfolio of real estate, and BRT Realty Trust, a mortgage lending REIT. It is our policy, and the policy of our affiliated entities, that any investment opportunity presented to us or to any of our affiliated entities that involves primarily a net leased property will first be offered to us and declined by us before any of our affiliated entities may pursue the opportunity. Jeffrey Fishman, our president and chief executive officer, and Lawrence G. Ricketts, Jr., our vice president, acquisitions, devote substantially all of their business time to our company, while our other management personnel share their services on a part-time basis with us and other affiliated entities that share our executive offices. We believe that this sharing arrangement provides us access to a network of senior executives with substantial real estate knowledge and experience that a company of our size would not otherwise be able to afford. For a description of the background of our management, please see the information under the heading "Our Management."
OUR STRATEGY
Our business objectives are to maintain and increase the cash available for distribution to our stockholders by:
- acquiring a diversified portfolio of high quality net leased properties subject to long-term leases;
- obtaining mortgage indebtedness on favorable terms and increased access to capital to finance property acquisitions;
- conducting periodic inspections of our properties and available tenant financial information; and
- managing assets effectively through property acquisitions, lease extensions and opportunistic property sales.
Our growth strategy includes the following elements:
- We intend to continue our internal growth by maintaining, renewing and entering into new long-term leases that contain provisions for contractual rent increases;
- We intend to pursue external growth through a strategy of acquiring additional properties within the United States that are subject to long-term net leases and that satisfy our other investment criteria; and
- As part of our external growth strategy, we actively seek to acquire properties in market or industry sectors that we identify, from time to time, as offering superior risk-adjusted returns. As an example, through our joint venture with a Deutsche Bank AG affiliate and MTC Investors LLC, we intend, in the near term, to continue to increase our investment in movie theater properties, concentrating on megaplex theaters with stadium-style seating. Within the last six months, our joint venture has purchased one megaplex movie theater and has entered into agreements, the completion of which are subject to the satisfaction or waiver of various conditions, for the purchase of three additional megaplex movie theaters. As a result of changing market conditions, we may, in the future, identify other sectors in which to invest, and we may curtail or limit our investments in megaplex theaters or other types of properties in which we currently invest.
We intend to pursue properties that are subject to long-term leases. We believe that long-term leases provide a predictable income stream over the term of the lease, making fluctuations in market rental rates and in real estate values less significant to achieving our overall investment objectives. Long-term leases also make it easier for us to obtain longer-term fixed-rate mortgage financing with principal amortization, thereby moderating the interest rate risk associated with financing or refinancing our property portfolio by reducing the outstanding principal balance over time. In addition, we believe that long-term leases minimize the management time required and transaction costs incurred while we own the property. Although we regard long-term leases as a central element of our acquisition strategy, we may, in the future, acquire properties that are subject to shorter-term leases where we believe the properties represent a compelling opportunity.
We generally expect that the properties we acquire will also provide internal growth derived from scheduled rent increases. Our goal is to continue, as often as possible, to acquire properties that are subject to long-term net leases that include contractual rent increases. Periodic contractual rent increases provide reliable increases in future rent payments, while rent increases based on the consumer price index provide protection against inflation.
Generally, we acquire properties based on their intrinsic value and intend
to hold these properties for an extended period of time. Our investment criteria
are intended to identify properties from which increased asset value and overall
return can be realized from an extended period of ownership. While our
determination typically is supported by a predictable rental stream under a
long-term lease that exists at the time a property is acquired, our emphasis on
property value generally means that upon a lease termination or expiration, we
would tend to pursue a lease renewal or a new lease in preference to disposing
of a property. Although our investment criteria favor an extended period of
ownership of our properties, we may, in the future, dispose of a property
following a lease termination or expiration or even during the term of a lease
where we regard the
disposition of the property as a strong opportunity to realize the overall value of the property sooner or to avoid future risks by achieving a determinable return from the property.
OUR INVESTMENT STRATEGY
Our main focus in the evaluation of properties is the intrinsic value of a property, determined primarily by its location, local demographics and potential for alternative use. We also evaluate a tenant's financial ability to meet operational needs and lease obligations. In evaluating potential net lease investments, we consider, among other criteria, the following:
- an evaluation of the property and improvements, given its location and use;
- local demographics (population and rental trends);
- the ability of the tenant to meet operational needs and lease obligations;
- the current and projected cash flow of the property;
- the estimated return on equity to us;
- the terms of tenant leases, including the relationship between current rents and market rents;
- the projected residual value of the property;
- potential for income and capital appreciation; and
- occupancy of and demand for similar properties in the market area.
MEGAPLEX THEATER JOINT VENTURE
As part of our current expansion efforts, we have identified the acquisition of megaplex movie theaters, and in particular stadium-style theaters, as an investment opportunity that in the current market environment offers us the potential for acquiring valuable assets with returns that satisfy our investment criteria. Megaplex movie theaters have multiple screens with predominantly stadium-style seating (seating with elevation between rows to provide unobstructed viewing) and are equipped with electronics and technology that are intended to enhance the audio and visual experience for the patron. Despite the popularity of the new megaplex stadium-style theaters, many well-known movie exhibitors have experienced financial difficulties. We believe that these financial difficulties are the result of the poor performance of older, smaller, non stadium-style theaters. This poor performance has generated negative industry sentiment that, in turn, has caused investors to perceive that there is substantial risk in purchasing or financing any type of movie theater property. As a result, we believe that the lack of liquidity in the movie theater industry has presented us with the opportunity to acquire megaplex stadium-style theaters at attractive prices. We believe that well-located, megaplex stadium-style theaters that conform to our investment criteria will provide us with above average risk-adjusted returns on our investment. In order to identify the megaplex theaters that would present the most attractive acquisition candidates, our review of these properties includes an analysis of the financial performance of each specific theater.
In November 2001, we entered into a joint venture with Greenwood
Properties, Corp., an affiliate of the real estate equity group of Deutsche Bank
AG, for the general purpose of acquiring, owning and financing megaplex movie
theater properties. In April 2002, we sold one-half of our 50% interest in this
joint venture to MTC Investors LLC. We believe that MTC Investors, an affiliate
of an experienced shopping center and mall operator, will help the joint venture
significantly in locating attractive megaplex theater properties. Greenwood
Properties will contribute 50%, and our company and MTC Investors each will
contribute 25%, of the equity required for each acquisition, and each venturer
will receive its respective percentage of the profits and losses of the joint
venture. Venturers holding at least 75% of the aggregate membership interest in
this joint venture must approve all material decisions, except for property
acquisitions which require unanimous approval. In addition, the joint venture
has a right of first refusal, subject to certain exceptions, with respect to any
movie theater transaction that is presented to any venturer. Under the joint
venture operating agreement, we will receive an acquisition fee from the joint
venture equal to 0.5% of the purchase
price of each property acquired by the joint venture, other than the one property already acquired in 2001. In addition, Majestic Property Management Corp., a company owned and controlled by our chairman of the board and certain of our officers, but in which we have no ownership interest, will receive a management fee equal to 1% of all rents received by the joint venture from single-tenant properties and a management fee equal to 3% of all rents received by the joint venture from multi-tenant properties. Majestic will receive leasing and mortgage brokerage fees at any property acquired by the joint venture at a rate equal to 80% of the then market cost. Majestic will also receive a construction supervisory fee equal to 8% of the cost of any capital improvements or repairs to the property and sales commissions equal to 1% of the sales price of any properties that are sold. We expect that the joint venture will seek and in the future will obtain financing secured by its megaplex movie theater properties.
Most megaplex theaters of the type the joint venture has acquired and intends to acquire are, or are expected to be, net leased to an experienced theater operator under a long-term net lease and are expected to be equipped with stadium-style seating and advanced audio and visual equipment. In November 2001, the joint venture acquired a megaplex theater located in Norwalk, California for $12.5 million that has 20 screens and is net leased to American Multi-Cinema, Inc. for an initial term that expires in May 2021.
The joint venture has entered into agreements to purchase three additional megaplex stadium-style theaters that it expects to close during 2002. The following table provides certain information with respect to the one property already acquired and the three additional properties that are under contract:
NO. OF PURCHASE EXPIRATION OF OWNED OR UNDER
LOCATION SCREENS OPERATOR PRICE(1) INITIAL LEASE TERM CONTRACT(2)
-------- ------- ----------------------- ------------- ------------------ --------------
Norwalk, CA.............. 20 American Multi-Cinema, $12.5 million 2021 Owned
Inc.
Beavercreek, OH.......... 20 Regal Cinemas, Inc. $ 9.7 million 2014 Under Contract
Austell, GA.............. 22 Regal Cinemas, Inc. $11.8 million 2019 Under Contract
Morrow, GA............... 24 American Multi-Cinema, $14.1 million 2017 Under Contract
Inc.
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(1) Purchase price represents the total purchase price for each property without giving effect to closing costs. The three theaters under contract are expected to involve an aggregate investment by us of approximately $8.9 million, which represents our 25% share of the total purchase price, excluding estimated closing costs.
(2) The completion of each of the acquisitions "under contract" is subject to the satisfaction or waiver by both parties of certain conditions and it is possible that any or all of these properties may not be acquired by the joint venture.
OUR PROPERTIES
As of April 19, 2002, we owned 33 properties and participated in two joint ventures that each owned one property. The following table sets forth information as of April 19, 2002 concerning each property in which we currently own an equity interest and the operator of the business occupying the property (which is not necessarily the same enterprise as the actual tenant). Except as otherwise noted, we own 100% of each property:
PERCENTAGE APPROXIMATE
OF RENTABLE
LOCATION TYPE OF PROPERTY OPERATOR REVENUES(1) SQUARE FEET
-------- ---------------- ----------------------------- ----------- -----------
Hauppauge, NY............ Flex L-3 Communications 10.62% 149,870
Corporation
El Paso, TX.............. Retail Barnes & Noble, Inc.; Best 10.12% 110,179
Buy Company, Inc.; CompUSA,
Inc.; Mattress Firm(2)
Hanover, PA.............. Industrial The ESAB Group, Inc. 8.85% 458,560
Columbus, OH............. Retail Kittle's Home Furnishing 5.69% 96,924
Center, Inc.
Plano, TX................ Retail Golfsmith International, 5.48% 51,018
L.P.; BDP, L.C. -- franchisee
of Bassett Furniture
Industries, Inc.
Brooklyn, NY............. Office The City of New York(2) 4.96% 66,000
Ronkonkoma, NY........... Flex Cedar Graphics, Inc.; Gavin 4.80% 89,500
Mfg. Corp.
Manhattan, NY............ Residential Sanford Realty Associates, 4.20% 125,000
Inc.
Norwalk, CA.............. Theater American Multi-Cinema, 3.69% 80,000
Inc.(3)
Ft. Myers, FL............ Retail Barnes & Noble, Inc. 3.59% 29,993
Grand Rapids, MI......... Health & Fitness Trinity Health -- Michigan 3.43% 130,000
Atlanta, GA.............. Retail The Sports Authority, Inc. 3.08% 50,400
Greenwood Village, CO.... Retail Gart Bros. Sporting Goods 2.96% 45,000
Company
Champaign, IL............ Retail Barnes & Noble, Inc. 2.82% 50,530
Lewisville, TX........... Retail Footstar, Inc. 2.74% 21,043
Chattanooga, TN.......... Retail Rhodes, Inc. -- subtenant of 2.52% 72,897
Kmart Corp.
Mesquite, TX............. Retail BDP, L.C. -- franchisee of 2.44% 22,900
Bassett Furniture Industries,
Inc.
Selden, NY............... Retail Petco Animal Supplies, Inc. 1.97% 14,550
Grand Rapids, MI......... Health & Fitness Trinity Health -- Michigan 1.93% 72,000
Batavia, NY.............. Retail OfficeMax, Inc. 1.74% 23,483
Columbus, OH............. Industrial Kroger Company 1.70% 100,220
Houston, TX.............. Retail Party City Corporation 1.45% 12,000
New Hyde Park, NY........ Industrial Lawson Mardon USA Inc. 1.41% 89,000
Cedar Rapids, IA......... Retail Ultimate Electronics, Inc. 1.26% 15,400
Killeen, TX.............. Retail Hollywood Entertainment Corp. 1.14% 8,000
Miami, FL................ Industrial United States Cold Storage 1.07% 396,000
Inc.(3)
Houston, TX.............. Retail Kroger Company 1.05% 38,448
Hamilton, NY............. Retail Ames Department Stores, Inc. 0.96% 43,200
Rosenberg, TX............ Retail Hollywood Entertainment Corp. 0.90% 8,000
West Palm Beach, FL...... Industrial BellSouth Telecommunications 0.68% 10,361
Inc.
Seattle, WA.............. Retail Payless ShoeSource, Inc. 0.39% 3,038
Chicago, IL.............. Retail Payless ShoeSource, Inc. 0.22% 3,065
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PERCENTAGE APPROXIMATE
OF RENTABLE
LOCATION TYPE OF PROPERTY OPERATOR REVENUES(1) SQUARE FEET
-------- ---------------- ----------------------------- ----------- -----------
Ottumwa, IA.............. Retail Hy-Vee, Inc. 0.14% 3,072
Chicago Heights, IL...... Retail Vacant 0.00% 3,062
Decatur, IL.............. Retail Vacant 0.00% 3,060
------ ---------
Total................................................................ 100.00% 2,495,773
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(1) Percentage of our 2002 contractual rental income.
(2) Leases to The City of New York and Mattress Firm expire in 2002. Percentage of revenues indicated is actual revenues payable pursuant to leases. We are in negotiations with both tenants to renew these leases.
(3) Owned by a joint venture in which we are a venturer. Percentage of revenues indicated represents our share of the revenues of the venture. Approximate rentable square footage indicated represents the total rentable square footage of the property owned by the venture.
The occupancy rate for our properties, based on total rentable square footage, is currently, and was for each of 1999, 2000 and 2001, in excess of 99%.
Our properties are located in 13 states. The following table sets forth certain information, presented by state, related to our properties as of December 31, 2001:
NUMBER
OF NET BOOK 2002 RENTAL APPROXIMATE
STATE PROPERTIES VALUE(1) REVENUES(2) RENTABLE SQUARE FEET
----- ---------- -------------- ----------- --------------------
New York...................... 8 $ 37,327,054 $ 4,380,752 600,603
Texas......................... 8 32,610,436 3,617,582 271,588
Illinois...................... 4 4,318,546 434,000 59,717
Florida....................... 3 6,217,220 762,532 436,354(3)
Pennsylvania.................. 1 11,365,617 1,264,916 458,560
Other......................... 11 33,070,329 3,829,118 668,951(4)
-- ------------ ----------- ---------
Total.................... 35 $124,909,202 $14,288,900 2,495,773
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(1) Historical book value is not necessarily indicative of current market value.
(2) Reflects 2002 contractual rental income.
(3) Includes the entire 396,000 rentable square footage of one property that is owned by a joint venture.
(4) Includes the entire 80,000 rentable square footage of one property that is owned by a joint venture.
OUR TENANTS
The following table shows information about the diversification of our tenants by industry sector as of April 19, 2002:
PERCENTAGE OF
TYPE OF 2002 RENTAL NUMBER OF 2002 RENTAL
PROPERTY REVENUES(1) TENANTS REVENUES
-------- ----------- --------- --------------
Retail.......................................... $ 7,526,292 25(2) 52.67%
Flex............................................ 2,202,873 3(3) 15.42%
Industrial...................................... 1,958,448 5 13.71%
Health & Fitness................................ 765,703 2 5.36%
Office.......................................... 708,917 1 4.96%
Residential..................................... 600,000 1 4.20%
Theater......................................... 526,667 1 3.68%
----------- -- ------
Total...................................... $14,288,900 38 100.00%
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(1) Reflects 2002 contractual rental income.
(2) Includes 25 tenants renting at 21 properties. Does not include two vacant properties.
(3) Includes three tenants renting at two properties.
Although we focus on property value in analyzing our acquisitions, we also review our potential tenants. First, we undertake a credit analysis to determine the creditworthiness of a tenant. Then, we review the ability of the tenant to meet its operational needs and lease obligations. Typically our tenants are not rated or are rated below investment grade. Twenty-one of our properties are net leased to various retail operators under long-term leases and, except for two of the properties, are net leased to single tenants. Of the 21 properties net leased to retail operators, one is net leased to four separate tenants pursuant to separate leases and one is net leased to two separate tenants pursuant to separate leases. Most of our retail tenants operate on a national basis and include, among others, The Kroger Company, Barnes & Noble, Inc., Payless ShoeSource, Inc., The Sports Authority, Inc., Gart Bros. Sporting Goods Company, Best Buy, Inc. and Petco Animal Supplies, Inc. Five of our properties are industrial-type buildings, of which two are used as frozen food warehouses. Two of our properties are flex-type buildings (office, research and development and warehouse) and two are health and fitness facilities. Finally, we have one office property, one residential property and one movie theater. Two of our retail properties, representing an aggregate of 6,122 square feet, are vacant.
OUR LEASES
Substantially all of our leases are net leases, under which the tenant, in addition to its rental obligation, typically is responsible for expenses attributable to operation of the property, such as real estate taxes and assessments, water and sewer rents and other charges. The tenant is also generally responsible for maintaining the property, including non-structural repairs, and for restoration following a casualty or partial condemnation. The tenant typically also indemnifies us for claims arising from the property and is responsible for maintaining insurance coverage for the property it leases. Under some net leases we have entered into or which were in place when we acquired the property, we are responsible for structural repairs, including foundation and slab, roof repair or replacement and restoration following a casualty event, and at several properties we are responsible for certain expenses related to maintenance of the property.
Our typical lease provides for contractual rent increases periodically throughout the term of the lease. Some of our other leases provide for rent increases pursuant to a formula based on the consumer price index. While several of our leases also provide for minimum rents supplemented by additional payments based on sales derived from the property subject to the lease, such additional payments were not a material part of our 2001 rental revenues and are not expected to be a material part of our 2002 rental revenues. While our typical property is net leased to a single tenant, some of our properties are net leased to more than one tenant.
Our policy has been to acquire properties that are subject to existing long-term leases or to enter into long-term leases with our tenants. Our leases generally provide the tenant with one or more renewal options. The following table sets forth scheduled lease expirations of all leases for our properties as of April 19, 2002 (excluding two vacant properties which contain an aggregate of 6,122 square feet):
APPROXIMATE PERCENTAGE OF 2002
NUMBER OF RENTABLE SQUARE RENTAL REVENUES
YEAR OF LEASE EXPIRING FEET SUBJECT TO 2002 RENTAL REVENUES REPRESENTED BY
EXPIRATION(1) LEASES EXPIRING LEASES(2) UNDER EXPIRING LEASES(3) EXPIRING LEASES
------------- ----------- ------------------ ------------------------ ------------------
2002....................... 3 76,422 $ 818,860 5.73%
2003....................... -- -- -- 0.00
2004....................... 1 100,220 243,000 1.70
2005....................... 3 115,986 794,418 5.56
2006....................... 3 90,962 488,227 3.41
2007....................... 2 26,550 488,542 3.42
2008....................... 2 468,921 1,361,495 9.53
2009....................... 1 89,000 201,000 1.41
2010....................... 4 455,200 581,583 4.07
2011....................... 3 193,428 1,700,197 11.90
2012 & thereafter.......... 16 872,962 7,611,578 53.27
-- --------- ----------- ------
Total................. 38 2,489,651 $14,288,900 100.00%
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(1) Lease expirations assume that tenants do not exercise existing renewal options.
(2) Includes all rentable square footage in properties that are owned by our joint ventures.
(3) Reflects 2002 contractual rental income.
OUR ACQUISITION PROCESS AND POLICIES
We seek to acquire properties throughout the United States that have locations, demographics and other investment attributes that we believe to be very attractive. We seek to acquire properties that we believe will provide attractive current returns from leases with tenants that operate profitably, even if they are typically either not rated or are rated below investment grade. We identify properties where we believe that the quality of the underlying real estate mitigates the risk that may be associated with any default by the tenant. We conduct periodic property inspections and reviews of available tenant financial information, which we believe allows us to react effectively to potential problems in our portfolio. We also seek to acquire properties in market or industry sectors that we identify, from time to time, as offering superior risk-adjusted returns.
We identify properties generally through the network of contacts of our senior management and our affiliates, which includes real estate brokers throughout the United States, private equity firms, banks and law firms. In addition, we attend industry conferences and engage in direct solicitations.
We have adopted a property acquisition procedure that involves a multi-tiered analysis and approval process for each property acquisition. Under our acquisition procedure, we engage in the following:
- Preliminary Negotiations -- Our officers conduct an initial analysis and negotiation to purchase a property that includes correlating the attributes of the property to be acquired and the lease terms with our investment criteria and analyzing the deal structure, the property location and the general market;
- Acquisition Committee Approval -- Information and analyses with respect to a property is presented to our acquisition committee, which is made up of eight of our executive officers and directors who have extensive experience in the acquisition and ownership of real estate, and each acquisition must be approved by unanimous vote at a meeting of the committee with four or more members present and voting;
- Contract of Sale -- We then negotiate a contract of sale and we continue our due diligence with respect to the property and the tenants; and
- Board of Directors Approval -- Each acquisition requires the approval of a majority of our board of directors.
There is no limitation on the number of properties in which we may invest, the amount or percentage of our assets that may be invested in any specific property or property type, or on the concentration of investments in any geographic area in the United States. We do not intend to acquire properties located outside of the United States and Puerto Rico. Although we have not acquired undeveloped property in the past, we may purchase undeveloped property if the purchase is in connection with the development of a facility to be net leased to a retail operation or business upon completion of development, and we may develop for net lease surplus acreage that is part of our existing properties. We may form other entities to acquire interests in real properties, either alone or with other investors, and we may acquire interests in joint ventures or other entities that own real property.
FINANCING, RE-RENTING AND DISPOSITION OF OUR PROPERTIES
There is no limitation on the level of debt that we may incur. We borrow funds on a secured and unsecured basis and intend to continue to do so in the future. We mortgage specific properties on a non-recourse basis (subject to standard carve-outs) to enhance the return on our investment in a specific property. We also maintain a $15.0 million credit line that is a recourse obligation secured by all of the interests in our unencumbered properties. We are currently negotiating with other institutions with respect to an increase in the amount available under the credit facility. The proceeds of mortgage loans and amounts drawn on our credit line may be used for property acquisitions, to reduce bank debt and for working capital purposes.
We typically seek long-term fixed-rate mortgage financing upon or soon after the acquisition of a property to avoid the risk of movement of interest rates and fluctuating supply and demand in the mortgage capital markets. Substantially all of our mortgages provide for amortization of part of the principal balance during the term, thereby reducing the refinancing risk at maturity. Some of our properties may be financed on a cross-defaulted or cross-collateralized basis, and we may decide in the future to collateralize a single financing with more than one property. Our acquisition committee reviews and must approve each financing proposal, each of which also is subject to the approval of a majority of our board of directors.
After termination or expiration of any lease relating to any of our properties (either at lease expiration or early termination), we will seek to re-rent or sell such property in a manner that will maximize the return to us, considering, among other factors, the income potential and sale value of such property. We acquire properties for long-term investment for income purposes and do not typically engage in the turnover of investments. We will consider the sale of a property prior to termination or expiration of the relevant lease if a sale appears advantageous in view of our investment objectives. We may take a purchase money mortgage as partial payment in lieu of cash in connection with any sale and may consider local custom and prevailing market conditions in negotiating the terms of repayment. Our acquisition committee reviews and must approve each re-renting of a property (other than pursuant to the terms of a renewal option in a lease) and each property sale, each of which also is subject to the approval of a majority of our board of directors. It is our policy to use any cash realized from the sale of properties, net of any distributions to stockholders to maintain our REIT status, to pay down amounts due under loan agreements (excluding real estate mortgage loans), if any, and for the acquisition of additional properties.
In 2000, we acquired eight properties and disposed of 15 properties, including the sale in a single transaction of 13 properties leased to one tenant. We sold two properties in 2001. In 2001, we acquired an interest in a megaplex stadium-style movie theater through our joint venture. In April 2002, we sold one-half of our 50% interest in our megaplex movie theater joint venture. In February 2002, we contributed our long-term leasehold interest in our industrial property in Miami, Florida into a joint venture with the owners of the fee estate in that property in exchange for approximately a 40% interest in the joint venture. To date we have executed contracts for the purchase of three properties in 2002, each of which is a megaplex stadium-style movie theater to be acquired through our joint venture.
OTHER TYPES OF INVESTMENTS
From time to time we have invested, on a limited basis, in publicly traded shares of other REITs and may make such investments on a limited basis in the future. We also may invest, on a limited basis, in the shares of entities not involved in real estate investments, provided that no such investment adversely affects our ability to qualify as a REIT under the Internal Revenue Code. We do not have any plans to invest in or to originate loans to other persons whether or not secured by real property. Although we have not done so in the past, we may issue securities in exchange for properties that fit our investment criteria. We have not, in the past, invested in the securities of another entity for the purpose of exercising control, and we do not have any present plans to invest in the securities of another entity for such purpose.
COMPETITION
We face competition for the acquisition of net leased properties from a variety of investors including corporations and real estate companies, other REITs, financial institutions, insurance companies, pension funds, investment funds and private individuals, some of which have significant advantages over us including a larger, more diverse group of properties and greater financial and other resources than we have. We believe that our management's experience in real estate, mortgage lending, credit underwriting and transaction structuring allows us to compete effectively for properties.
LEGAL PROCEEDINGS
Neither we nor our properties are presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us or our properties, other than routine litigation arising in the ordinary course of business.
USE OF PROCEEDS
Our net proceeds from the sale of 2,500,000 shares of our common stock will be approximately $ , or $ if the underwriters exercise their over-allotment option in full, and after deducting the underwriting discounts and commissions and estimated expenses of the offering.
We currently intend to use the net proceeds from this offering as follows:
- Approximately $9.1 million for our share of the purchase price (including approximately $200,000 representing our share of the estimated aggregate closing costs) in connection with the proposed purchase of the following megaplex movie theaters through our megaplex theater joint venture:
AGGREGATE OUR SHARE OF
NUMBER PURCHASE THE AGGREGATE
LOCATION OF SCREENS PRICE PURCHASE PRICE
-------- ---------- ------------- --------------
(IN MILLIONS) (IN MILLIONS)
Beavercreek, Ohio.............................. 20 $ 9.7 $2.4
Austell, Georgia............................... 22 11.8 3.0
Morrow, Georgia................................ 24 14.1 3.5
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The completion of each of the acquisitions listed above is subject to the satisfaction or waiver by both parties of certain conditions and it is possible that any or all of these properties may not be acquired by the joint venture;
- approximately $670,000 to repay the outstanding indebtedness under a mortgage loan related to our Killeen, Texas property that bears interest at a rate of 9.1% and matures on August 14, 2002;
- approximately $630,000 to repay the outstanding indebtedness under a mortgage loan related to our Rosenberg, Texas property that bears interest at a rate of 8.55% and matures on December 5, 2002; and
- the remainder for working capital, general corporate purposes and for other property acquisitions, although we currently have no agreement with respect to any purchases of properties other than as described above.
Pending such uses, we intend to invest the net proceeds from this offering in short-term income producing securities.
MARKET PRICE AND DIVIDENDS ON OUR COMMON STOCK
Our common stock trades on the American Stock Exchange under the symbol "OLP." On April 22, 2002, the closing sale price of our common stock was $16.51 per share.
The following table sets forth the high and low prices for our common stock as reported by the American Stock Exchange and the per share cash distributions paid on our common stock during the quarters presented.
COMMON STOCK
--------------- DISTRIBUTIONS
HIGH LOW PER SHARE
------ ------ -------------
2002
First Quarter........................................... $17.00 $14.60 $.33
Second Quarter (through April 22, 2002)................. $17.50 $16.37 --
2001
First Quarter........................................... $12.25 $11.00 $.30
Second Quarter.......................................... $13.98 $11.75 $.30
Third Quarter........................................... $14.41 $13.58 $.30
Fourth Quarter.......................................... $15.00 $13.50 $.30*
2000
First Quarter........................................... $13.00 $10.69 $.30
Second Quarter.......................................... $11.75 $10.63 $.30
Third Quarter........................................... $12.00 $10.94 $.30
Fourth Quarter.......................................... $11.38 $10.13 $.30
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* We paid a cash distribution of $.30 on our common stock on January 3, 2002. This distribution is reported as being paid in the fourth quarter of the prior year.
As of April 19, 2002, there were approximately 381 holders of record of our common stock and an estimated 1,700 beneficial owners of our common stock.
We elected to be taxed as a REIT under the U.S. federal income tax laws beginning with our taxable year ended December 31, 1983. We believe that we have operated in a manner qualifying us as a REIT since our election and intend to operate in a manner so that we continue to qualify as a REIT. In order to continue to qualify as a REIT, we are required to distribute to our stockholders at least 90% of our annual ordinary taxable income. The amount and timing of future distributions will be at the discretion of our board of directors and will depend upon our financial condition, earnings, business plan, cash flow and other factors. We intend to pay cash distributions in an amount necessary for us to continue to qualify as a REIT for federal income tax purposes.
We have paid cash dividends on our common stock in each consecutive quarter since 1993 and we expect to continue to pay quarterly dividends in the future.
CAPITALIZATION
Our actual capitalization at December 31, 2001, and our capitalization as adjusted to give effect to the issuance of 2,500,000 shares of our common stock in this offering at a public offering price of $ , is set forth below.
DECEMBER 31, 2001
--------------------------
ACTUAL AS ADJUSTED(1)
-------- ---------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Mortgages payable........................................... $76,587
Stockholders' equity:
Redeemable Convertible Preferred Stock, $1 par value;
$1.60 cumulative annual dividend; 2,300 shares
authorized; 648 shares issued; liquidation and
redemption values of $16.50............................ 10,693
Common Stock, $1 par value; 25,000 shares authorized;
3,058 shares issued and outstanding (5,584 shares as
adjusted).............................................. 3,058
Paid-in capital........................................... 32,192
Accumulated other comprehensive income -- net unrealized
gain on available-for-sale securities.................. 261
Accumulated undistributed net income...................... 8,144
------- --------
Total stockholders' equity............................. $54,348
======= ========
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(1) After deducting underwriting discounts and commissions and estimated offering expenses payable by us, assuming application of the proceeds as described under "Use of Proceeds", and assuming no exercise of the underwriters' over-allotment option to purchase up to an additional 375,000 shares of our common stock.
SELECTED FINANCIAL DATA
The following table sets forth the selected consolidated statement of operations data and balance sheet data for each of the periods indicated, all of which are derived from our audited consolidated financial statements and related notes. The selected financial data for each of the three years in the period ended December 31, 2001 and as of December 31, 2000 and 2001 should be read together with our consolidated financial statements and related notes appearing elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1998 1999 2000 2001
------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA
Revenues:
Rental income............................... $5,341 $ 7,087 $ 8,831 $12,333 $15,053
Interest from related party................. 833 2,660 -- -- --
Equity in earnings of unconsolidated joint
venture.................................. -- -- -- -- 83
Interest and other income................... 111 386 1,349 336 184
------ ------- ------- ------- -------
6,285 10,133 10,180 12,669 15,320
------ ------- ------- ------- -------
Expenses:
Depreciation and amortization............... 1,023 1,378 1,645 2,356 2,900
Interest -- mortgages payable............... 1,517 2,075 2,543 4,261 5,810
Interest -- line of credit.................. 210 258 -- 340 250
Leasehold rent.............................. 289 289 289 289 289
General and administrative.................. 553 628 821 1,089 1,136
Real estate expenses........................ 77 62 129 67 181
Provision for valuation adjustment of real
estate................................... -- 157 -- 125 --
------ ------- ------- ------- -------
3,669 4,847 5,427 8,527 10,566
------ ------- ------- ------- -------
Income before gain on sale and minority
interest.................................... 2,616 5,286 4,753 4,142 4,754
Minority interest........................... (231) -- -- -- --
Gain on sale................................ 599 1,132 126 3,790 112
------ ------- ------- ------- -------
Net income.................................... 2,984 6,418 4,879 7,932 4,866
====== ======= ======= ======= =======
Calculation of net income applicable to common
stockholders:
Net income.................................. 2,984 6,418 4,879 7,932 4,866
Less: dividends and accretion on preferred
stock.................................... 1,450 1,452 1,247 1,044 1,037
------ ------- ------- ------- -------
Net income applicable to common
stockholders................................ $1,534 $ 4,966 $ 3,632 $ 6,888 $ 3,829
====== ======= ======= ======= =======
Weighted average number of common shares
outstanding:
Basic....................................... 1,523 2,297 2,960 2,993 3,019
Diluted..................................... 1,529 2,298 2,963 3,528 3,036
Net income per common share:
Basic....................................... $ 1.01 $ 2.16 $ 1.23 $ 2.30 $ 1.27
Diluted..................................... $ 1.00 $ 2.16 $ 1.23 $ 2.25 $ 1.26
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YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1998 1999 2000 2001
------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Cash distributions per share of:
Common stock................................ $ 1.20 $ 1.20 $ 1.20 $ 1.20 $ 1.20
Preferred stock............................. $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60
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AT DECEMBER 31,
-------------------------------------------------
1997 1998 1999 2000 2001
------- ------- ------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA
Real estate investments, net............... $48,317 $59,831 $70,770 $121,620 $118,564
Investment in unconsolidated joint
venture(1)............................... -- -- -- -- 6,345
Cash and cash equivalents.................. 1,606 19,089 11,247 2,069 2,285
Total assets............................... 57,648 82,678 85,949 128,219 132,939
Mortgages payable.......................... 20,545 29,422 35,735 64,123 76,587
Line of credit............................. 4,605 -- -- 10,000 --
Total liabilities.......................... 26,337 30,960 36,147 74,843 78,591
Total stockholders' equity................. 18,204 38,495 49,802 53,376 54,348
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(1) As of December 31, 2001, we had a 50% interest in a joint venture with an affiliate of the real estate equity group of Deutsche Bank AG for the general purpose of acquiring, owning and operating megaplex movie theater properties. In April 2002, we sold one-half of our 50% interest in this joint venture to MTC Investors LLC, an affiliate of an experienced shopping center and mall operator.
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1998 1999 2000 2001
------- ------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OTHER DATA
Funds from operations applicable to common
stockholders(1).......................... $ 1,743 $ 3,276 $ 4,334 $ 5,324 $ 6,303
Funds from operations per common share:
Basic.................................... $ 1.14 $ 1.43 $ 1.46 $ 1.78 $ 2.09
Diluted.................................. $ 1.14 $ 1.43 $ 1.46 $ 1.78 $ 2.08
Cash flow provided by (used in):
Operating activities..................... $ 2,977 $ 5,810 $ 5,826 $ 5,840 $ 6,764
Investing activities..................... (5,959) (6,705) (10,743) (39,324) (5,702)
Financing activities..................... 2,110 18,378 (2,926) 24,306 (846)
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(1) We generally consider funds from operations applicable to common stockholders ("FFO") to be one measure of financial performance of an equity REIT. We have adopted the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO, which was effective on January 1, 2000. Under the definition, FFO represents income (loss) before minority interest (computed in accordance with generally accepted accounting principles ("GAAP")), excluding gains (losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustment for unconsolidated partnerships and joint ventures. Therefore, FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered an alternative to net income as an indication of our performance or to cash flows from operating activities as a measure of liquidity or the ability to pay distributions. Since all companies and analysts do not calculate FFO in a similar fashion, our calculation of FFO presented herein may not be comparable to similarly titled measures as reported by other companies.
The table below provides a reconciliation of net income in accordance with GAAP to FFO, as calculated under the current NAREIT definition of FFO for each of the years in the five year period ended December 31, 2001:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999 2000 2001
------- ------- ------- ------- -------
(IN THOUSANDS)
Net income................................... $ 2,984 $ 6,418 $ 4,879 $ 7,932 $ 4,866
Add: depreciation of properties(1)........... 894 1,184 1,478 2,113 2,600
Add: provision for valuation adjustment of
real estate................................ -- 157 -- 125 --
Deduct: gain on sale of real estate.......... (610) (1,102) (62) (3,802) (126)
Deduct: non-recurring income items........... -- (2,087) (793) -- --
Deduct: minority interest in partially owned
property................................... (231) -- -- -- --
Deduct: preferred distributions.............. (1,294) (1,294) (1,168) (1,044) (1,037)
------- ------- ------- ------- -------
Funds from operations applicable to common
stockholders............................... $ 1,743 $ 3,276 $ 4,334 $ 5,324 $ 6,303
======= ======= ======= ======= =======
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(1) Includes our share of depreciation expense of $16 from our unconsolidated joint venture for the year ended December 31, 2001.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
We are a self-administered REIT and we primarily own real estate that we net lease to tenants. We own 33 properties and we are a member of two joint ventures that each own one property. Our 35 properties are located in 13 states.
We have elected to be taxed as a REIT under the Internal Revenue Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we currently distribute at least 90% of ordinary taxable income to our stockholders. We intend to adhere to these requirements and to maintain our REIT status.
Our principal business strategy is to acquire improved, free standing, commercial properties subject to long-term net leases. We acquire properties for their value as long-term investments and for their ability to generate income over an extended period of time. We borrow funds on a secured and unsecured basis to finance the purchase of real estate and we intend to continue to do so in the future.
Our rental properties are generally leased to corporate tenants under operating leases which are noncancellable. Substantially all of our lease agreements are net lease arrangements that require the tenant to pay not only rent but also substantially all the operating expenses of the leased property including maintenance, taxes, utilities and insurance. A majority of our lease agreements provide for periodic rental increases; certain of our other leases provide for increases based on the consumer price index.
In 2000, we purchased eight properties in four states for a total consideration of approximately $61 million. First mortgages totaling approximately $29 million were placed on five of these properties.
In 2000, we sold 15 properties, 13 of which were sold in a single transaction for a total sales price of $12 million, which resulted in a net gain of approximately $3.8 million for financial statement purposes.
In 2001, we sold two properties for a total sales price of $800,000 and recognized a net gain of $126,000.
In November 2001, we entered into a joint venture with an affiliate of Deutsche Bank AG, which acquired a megaplex stadium-style movie theater. We invested approximately $6.3 million for our 50% participation in the joint venture. In April 2002, we sold one-half of our 50% interest in this joint venture to MTC Investors LLC. Venturers holding at least 75% of the aggregate membership interest in this joint venture must approve all material decisions, except for property acquisitions which require unanimous approval. Under the joint venture operating agreement, we will receive an acquisition fee from the joint venture equal to 0.5% of the purchase price of each property acquired by the joint venture, other than the one property already acquired in 2001. In addition, Majestic Property Management Corp., a company owned and controlled by our chairman of the board and certain of our officers, but in which we have no ownership interest, will receive a management fee equal to 1% of all rents received by the joint venture from single-tenant properties and a management fee equal to 3% of all rents received by the joint venture from multi-tenant properties. Majestic will receive leasing and mortgage brokerage fees at any property acquired by the joint venture at a rate equal to 80% of the then market cost. Majestic will also receive a construction supervision fee equal to 8% of the cost of any capital improvements or repairs to the property and a sales commission equal to 1% of the sales price of any properties that are sold.
In February 2002, we contributed our leasehold interest in our industrial property in Miami, Florida into a joint venture with the owners of the fee estate in that property in exchange for approximately a 40% interest in the joint venture.
At December 31, 2001, we had 23 outstanding mortgages payable, aggregating $76.6 million in principal amount, all of which are secured by first liens on individual real estate investments with an aggregate carrying value of approximately $116 million before accumulated depreciation. The mortgages bear interest at fixed rates ranging from 6.9% to 9.1%, and mature between 2002 and 2017.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000.
Revenues
Revenues consist primarily of rental income from tenants in our rental properties. Rental income increased by $2.8 million, or 22.8%, to $15.1 million for the year ended December 31, 2001 from $12.3 million for the year ended December 31, 2000. Rental income increased for 2001 as a result of the addition of rental income for the full year from eight properties which were acquired at various times during 2000. In addition, we entered into a joint venture in November 2001, which acquired a megaplex stadium-style movie theater in Norwalk, California. Revenues for 2001 include $83,000 that represents our 50% equity share of the earnings of this unconsolidated joint venture. The increase in rental income for 2001 was partially offset by an $878,000 reduction in rental income as a result of the sale of 13 properties in October 2000.
Interest and other income decreased by $152,000, or 45.2%, to $184,000 for the year ended December 31, 2001 from $336,000 for the year ended December 31, 2000. This decrease was due to a reduction in interest earned on cash and cash equivalents available for investment because cash and cash equivalents were used during 2000 to fund property acquisitions.
Expenses
Depreciation and amortization expense increased by $544,000, or 22.7%, to $2.9 million for the year ended December 31, 2001 from $2.4 million for the year ended December 31, 2000. This increase resulted primarily from depreciation recorded on the eight properties acquired during 2000. The increase was partially offset by a decrease in depreciation resulting from the sale of 15 properties during 2000.
Interest-mortgages payable increased by $1.5 million, or 34.9%, to $5.8 million for the year ended December 31, 2001 from $4.3 million for the year ended December 31, 2000. This increase resulted from mortgages placed on seven properties acquired during 2000.
Interest-line of credit decreased by $90,000, or 26.5%, to $250,000 for the year ended December 31, 2001 from $340,000 for the year ended December 31, 2000. This decrease resulted from reduced borrowings under our credit facility as a result of our repayment of all of the indebtedness under our line of credit during 2001. This indebtedness was incurred to facilitate the purchase of several properties during 2000 and was repaid using the proceeds from mortgage financings on two properties purchased in December 2000.
General and administrative expenses increased slightly by $47,000 for the year ended December 31, 2001 from $1.1 million for the year ended December 31, 2000. This increase was primarily due to an increase in payroll and payroll related expenses and advertising and promotional expenses resulting from an increase in our level of business activity.
Real estate expenses increased by $114,000, or 170.1%, to $181,000 for the year ended December 31, 2001 from $67,000 for the year ended December 31, 2000. This increase was primarily due to the write-off of leasing commissions, non-recurring landlord repairs and certain real estate expenses and taxes not rebilled to tenants. The results of operations for 2000 included a refund of real estate taxes received during that period.
During 2000, we determined that the estimated fair value of two properties was lower than their carrying amounts and therefore, we recorded a provision for valuation adjustment of real estate for the difference of $125,000. There was no comparable adjustment during 2001.
Gain on Sale of Real Estate
Gain on sale of real estate decreased by $3.6 million, or 96.7%, to $126,000 for the year ended December 31, 2001 from $3.8 million for the year ended December 31, 2000. This decrease was due to fewer sales of real estate in 2001. In 2001 we sold two properties, in which the gain of $172,000 from our August 2001 sale was offset in part by a $46,000 loss from our May 2001 sale. In 2000, we sold 15 properties, including 13 Total Petroleum Properties, Inc. locations which resulted in a gain of $3.6 million for financial
statement purposes, as well as a gain of $43,000 on the sale of a property in May 2000 and a gain of $156,000 on the sale of a property in February 2000.
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999
Revenues
Revenues consist primarily of rental income from tenants in our rental properties. Rental income increased by $3.5 million, or 39.8%, to $12.3 million for the year ended December 31, 2000 from $8.8 million for the year ended December 31, 1999. This increase was primarily due to $3.4 million in additional rental income for part of 2000 from eight properties that were acquired at various times during 2000 and by $178,000 from four additional properties that were acquired at various times during 1999. The increase in rental income was partially offset by a $214,000 decrease in revenues resulting from the sale of 13 properties during October 2000.
Interest and other income decreased $964,000, or 74.2% to $336,000 for the year ended December 31, 2000 from $1.3 million for the year ended December 31, 1999. This decrease was primarily due to unused escrow funds of $793,000 that were returned to us during 1999. This decrease was also due to a reduction in interest earned on cash and cash equivalents available for investment, as cash and cash equivalents were used during 1999 and 2000 to fund property acquisitions.
Expenses
Depreciation and amortization expense increased by $711,000, or 44.4%, to $2.4 million for the year ended December 31, 2000, from $1.6 million for the year ended December 31, 1999. This increase resulted primarily from depreciation recorded on the eight properties acquired during 2000.
Interest-mortgages payable increased by $1.8 million, or 72.0%, to $4.3 million for the year ended December 31, 2000 from $2.5 million for the year ended December 31, 1999. This increase resulted from mortgages placed on nine properties acquired during 2000 and 1999.
Interest-line of credit increased to $340,000 during the year ended December 31, 2000. This increase resulted from borrowings under the credit facility to facilitate property acquisitions. There were no such borrowings during the prior year.
General and administrative expenses increased by $268,000, or 32.6%, to $1.1 million for the year ended December 31, 2000 from $821,000 for the year ended December 31, 1999. This increase was primarily due to an increase in payroll and payroll related expenses and advertising and promotional expenses, as our level of business activity increased.
Real estate expenses decreased by $62,000, or 48.1%, to $67,000 for the year ended December 31, 2000 from $129,000 for the year ended December 31, 1999. This decrease was due to a refund of real estate taxes received in 2000. The related expense had been included in the results of operations for 1999.
During 2000, we determined that the estimated fair value of two properties was lower than their carrying amounts, and therefore, we recorded a provision for valuation adjustment of real estate for the differences of $125,000. There was no comparable adjustment during 1999.
Gain on Sale of Real Estate
Gain on sale of real estate increased by $3.7 million to $3.8 million for the year ended December 31, 2000 from $62,000 for the year ended December 31, 1999. This increase was primarily due to the sale of 13 properties, in a single transaction, which resulted in a net gain of $3.6 million for financial statement purposes. We also recognized a gain of $43,000 on the sale of a property in May 2000 and a gain of $156,000 on the sale of a property in February 2000. In 1999, we sold one property and recognized a gain of $62,000.
LIQUIDITY AND CAPITAL RESOURCES
We had cash and cash equivalents of $2.3 million at December 31, 2001. Our primary sources of liquidity are cash and cash equivalents, our revolving credit facility and cash generated from operating activities. On March 24, 2000, we entered into an agreement with European American Bank (now Citibank N.A.) for a $15.0 million revolving credit facility. The facility is available to us to pay down existing mortgages or to fund the acquisition of additional properties. The facility matures on March 24, 2003. Borrowings under the facility bear interest at the bank's prime rate, currently 4.75%, and there is an unused facility fee of one-quarter of 1% per annum. Net proceeds received from the sale or refinancing of properties are required to be used to repay amounts outstanding under the facility if proceeds from the facility were used to purchase or refinance the property. The facility is guaranteed by all of our subsidiaries that own unencumbered properties and is secured by the outstanding stock of all of our subsidiaries. At December 31, 2001, we had no indebtedness outstanding under the facility. We are currently negotiating with other institutions with respect to an increase in the amount available under the credit facility.
We, on our own behalf and on behalf of our megaplex theater joint venture, are involved in various stages of negotiation with respect to the acquisition of additional net leased properties. The joint venture will only acquire movie theater properties. The joint venture has agreed to acquire three theaters: a 20 screen theater located in Beavercreek, Ohio, a suburb of Dayton, for total consideration of $9.7 million, with an equity investment by us of approximately $2.4 million; a 22 screen theater located in Austell, Georgia for total consideration of $11.8 million, with an equity investment by us of approximately $3.0 million; and a 24 screen theater located in Morrow, Georgia, a suburb of Atlanta, for total consideration of $14.1 million, with an equity investment by us of approximately $3.5 million. We will use the proceeds of this offering, cash provided from operations and our credit facility to fund these and other acquisitions. The completion of these additional acquisitions is subject to the satisfaction or waiver of certain conditions. In addition, we may identify additional acquisition opportunities in the future. The joint venture is seeking mortgage financing secured by properties owned and to be acquired by it.
The following sets forth our contractual cash obligations as of December 31, 2001, all of which relate to interest and principal amortization payments and balances due at maturity under outstanding mortgages secured by our properties, for the periods indicated:
Due within 1 year........................................... $ 8,130,000 Due 1 to 3 years............................................ 24,420,000 Due 4 to 5 years............................................ 26,007,000 Due after 5 years........................................... 55,894,000 |
As of December 31, 2001, we had outstanding approximately $76.6 million in long-term mortgage indebtedness, all of which is non-recourse (subject to standard carve-outs). We expect that debt service payments of approximately $19.5 million due in the next three years will be paid primarily from cash generated from our operations. We anticipate that loan maturities of approximately $11.7 million due in the next three years (excluding approximately $1.3 million to be paid from the proceeds of this offering) will be paid primarily from mortgage financings or refinancings. If we are not successful in refinancing our existing indebtedness or financing our unencumbered properties, our cash flow will not be sufficient to repay all maturing debt when payments become due, and we may be forced to sell additional equity or dispose of properties on disadvantageous terms.
We had no outstanding contingent commitments, such as guarantees of indebtedness, or any other contractual cash obligations at December 31, 2001.
We intend to expand our investment activities independently and through our joint ventures in the near future. In the ordinary course of our business, we are involved in varying levels of discussions with respect to the acquisition of additional properties; however, the three megaplex theater properties identified above that our joint venture has contracted to purchase are the only properties that we currently have under contract to purchase. We expect that in order to execute our expansion program, we will have to identify sources for and
obtain a significant amount of additional capital, either through increased debt or additional equity or through increased reliance on joint ventures with third parties.
CASH DISTRIBUTION POLICY
We have elected to be taxed as a REIT under the Internal Revenue Code since our taxable year ended December 31, 1983. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of our ordinary taxable income to our stockholders. It is our current intention to comply with these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate federal, state or local income taxes on taxable income we distribute currently (in accordance with the Internal Revenue Code and applicable regulations) to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal, state and local income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. Even if we qualify for federal taxation as a REIT, we may be subject to certain state and local taxes on our income and to federal income and excise taxes on our undistributed taxable income, i.e., taxable income not distributed in the amounts and in the time frames prescribed by the Internal Revenue Code and applicable regulations thereunder.
It is our intention to pay to our stockholders within the time periods prescribed by the Internal Revenue Code no less than 90%, and, if possible, 100% of our annual taxable income, including gains from the sale of real estate and recognized gains on sale of securities. It will continue to be our policy to make sufficient cash distributions to stockholders in order for us to maintain our REIT status under the Internal Revenue Code.
SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, a copy of which is included in this prospectus. Certain of our accounting policies are particularly important to an understanding of our financial position and results of operations and require the application of significant judgment by our management; as a result they are subject to a degree of uncertainty. These significant accounting policies include:
REVENUES
Our revenues, which are substantially derived from rental income, include rental income that each tenant pays in accordance with the terms of its respective lease reported on a straight-line basis over the initial term of the lease. Since many of our leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record as an asset and include in revenues unbilled rent receivables which we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. Accordingly, our management must determine, in its judgment, that the unbilled rent receivable applicable to each specific tenant is collectible. We review unbilled rent receivables on a quarterly basis and take into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant is engaged and economic conditions in the area in which the property is located. In the event that the collectability of an unbilled rent receivable is in doubt, we would be required to take a reserve against the receivable or a direct write off of the receivable, which would have an adverse effect on net income for the year in which the reserve or direct write off is taken and would decrease total assets and stockholders' equity. At December 31, 2001, management had not taken a reserve or direct write off against the unbilled rent receivable of $2.4 million.
VALUE OF REAL ESTATE PORTFOLIO
We review our real estate portfolio on a quarterly basis to ascertain if there has been any impairment in the value of any of our real estate assets in order to determine if there is any need for a provision for valuation adjustment. In reviewing the portfolio, we examine the type of asset, its location, the economic situation in the area in which the asset is located, the economic situation in the industry in which the tenant is involved and the timeliness of the payments made by the tenant under its lease, as well as any current correspondence
we may have had with the tenant, including property inspection reports. We also ascertain appropriate capitalization rates for the real estate asset in the area in which the property is located and apply such capitalization rate to the net operating income derived from that asset. We do not obtain any independent appraisals in determining value, but rely on our own analysis and valuations. Any provision taken with respect to any part of our real estate portfolio will reduce our net income and reduce assets and stockholders' equity to the extent of the amount of the valuation allowance, but it will not affect our cash flow until such time as the property is sold. A $125,000 valuation adjustment was recorded in 2000. There was no valuation adjustment recorded in 2001.
CERTAIN TRANSACTIONS
Fredric H. Gould, chairman of our board of directors, is chairman of the board of trustees of BRT Realty Trust, a mortgage lending REIT, chairman of the board of directors and sole stockholder of the managing general partner of Gould Investors L.P. and sole member of a limited liability company which is also a general partner of Gould Investors L.P. Matthew Gould, one of our senior vice presidents and directors, is a senior vice president and trustee of BRT Realty Trust and president of the managing general partner of Gould Investors L.P. Jeffrey Gould, one of our senior vice presidents and directors, is president, chief executive officer and a trustee of BRT Realty Trust and a vice president of the corporate managing general partner of Gould Investors L.P. Gould Investors L.P. owns 18% of our outstanding common stock and 16% of our voting rights. In addition, David W. Kalish, Simeon Brinberg, Mark Lundy and Israel Rosenzweig, each of whom is an executive officer of our company, are also executive officers of BRT Realty Trust and of the corporate managing partner of Gould Investors L.P. Arthur Hurand, one of our directors, is a trustee of BRT Realty Trust. We also own 30,048 common shares of BRT Realty Trust, which is less than 1% of its total voting power.
We and certain of our related entities, including Gould Investors L.P. and BRT Realty Trust, occupy common office space and use certain personnel in common. In 2001, we paid Gould Investors L.P. $351,000 for general and administrative expenses, including rent, telecommunication services, computer services, bookkeeping, secretarial and other clerical services and legal and accounting services. This amount includes an aggregate of $191,500, allocated to us for services (primarily legal and accounting), performed by seven executive officers who are not engaged by us on a full time basis. The allocation of general and administrative expenses is computed on a quarterly basis and is based on the estimated time devoted by executive, administrative and clerical personnel to the affairs of each participating entity. The services of secretarial personnel generally are allocated on the same basis as that of the executive for whom each secretary works. In addition, we paid $32,615 to the law firm of Brinberg & Lundy, a partnership in which Messrs. Brinberg and Lundy are partners, for services rendered by Mr. Lundy in connection with potential property acquisitions, completed mortgage financings and our involvement in the megaplex theater joint venture. The fees paid to Brinberg & Lundy were capitalized.
In 2001, we paid Majestic Property Management Corp., a company in which we have no ownership interest and which is controlled by the chairman of our board of directors and certain of our officers, brokerage fees totaling $136,000 relating to $13.6 million principal amount of mortgages placed on two of our properties. In addition, for the year ended December 31, 2001, we paid this company a fee of $12,500 for supervision of improvements to a property that we own. The fees paid to this entity were approved by the members of our board of directors, including a majority of the independent directors, and were based on the fees which would be charged by unaffiliated persons for comparable services in the geographic area in which the properties for which the fees were paid are located. Our board of directors intended that the fees paid to related parties would not be greater than the fees which would have been paid to unaffiliated persons for comparable services.
A management fee equal to 1% of rent is paid by our megaplex joint venture tenant to Majestic Property Management Corp. The fee for 2001 was $1,300.
During October 1998, Gould Investors L.P. loaned $350,000 to Jeffrey Fishman, our president and chief executive officer, and his wife. Mr. Fishman was not our employee in 1998. The loan matured in October
2001 and was repaid prior to December 31, 2001. The loan was secured by interests in several real estate partnerships in which we or Gould Investors L.P. are the majority partners, and Mrs. Fishman is the minority partner. Mrs. Fishman is currently a 5% equity owner in Elpans LLC, a limited liability company that owns our property in Brooklyn, NY. Elpans LLC was formed, and Mrs. Fishman acquired her interest in Elpans LLC, prior to the time Mr. Fishman became our employee.
During December 1999 and January and February of 2000, we made three loans aggregating $240,000 to Mr. Fishman. These loans are evidenced by promissory notes and bear interest at the prime rate. The loans are secured by the shares of our common stock that were purchased with the proceeds of the loans and are personally guaranteed by Mr. Fishman and his wife. These loans were made for the express purpose of providing funds to Mr. Fishman for the purchase of shares of our common stock in the open market and they were agreed to by us during negotiations pertaining to Mr. Fishman's employment with us as our president and chief operating officer. As of April 19, 2002, $167,000 was outstanding under the loans.
To the extent that we engage in any transactions with our affiliated entities, it is our policy to provide that the terms of such transactions are no more favorable to our affiliated entities than they would have been had such entities contracted with an independent third party.
It is our policy, and the policy of our affiliated entities, that any investment opportunity presented to us or to any of our affiliated entities that involves primarily a net leased property will be first offered to us and declined by us before any of our affiliated entities may pursue the opportunity.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
All of our long-term debt bears interest at fixed rates and, therefore, the fair value of these instruments is affected by changes in the market interest rates. The following table presents principal cash flows based upon maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt.
YEAR ENDING PRINCIPAL CASH AVERAGE
DECEMBER 31, FLOWS INTEREST RATE
------------ -------------- -------------
(IN THOUSANDS)
2002....................................................... $ 2,493 7.85%
2003....................................................... 10,000 7.89
2004....................................................... 4,092 7.94
2005....................................................... 9,367 7.97
2006....................................................... 8,741 7.95
Thereafter................................................. 41,894 7.93
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Total................................................. $76,587 7.93
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Fair Value................................................. $77,303 7.75%
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OUR MANAGEMENT
The following sets forth information with respect to our executive officers and directors:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Fredric H. Gould(1)........................ 66 Chairman of the Board
Jeffrey Fishman............................ 43 President and Chief Executive Officer
Jeffrey Gould(2)........................... 36 Senior Vice President and Director
Matthew Gould(2)........................... 42 Senior Vice President and Director
Israel Rosenzweig.......................... 54 Senior Vice President
Simeon Brinberg............................ 68 Senior Vice President
David W. Kalish............................ 55 Senior Vice President and Chief Financial
Officer
Mark H. Lundy.............................. 40 Vice President and Secretary
Seth D. Kobay.............................. 47 Vice President and Treasurer
Karen Dunleavy............................. 43 Vice President, Financial
Lawrence G. Ricketts, Jr................... 25 Vice President, Acquisitions
Joseph A. Amato(2)......................... 65 Director
Charles Biederman(3)....................... 68 Director
James J. Burns(1).......................... 62 Director
Arthur Hurand(1)........................... 85 Director
Marshall Rose(3)........................... 65 Director
Patrick J. Callan, Jr.(4).................. 40 Director Nominee
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(1) Term as director expires at our 2003 Annual Meeting.
(2) Term as director expires at our 2004 Annual Meeting.
(3) Term as director expires at our 2002 Annual Meeting. Nominee for reelection as director.
(4) Nominee for director.
Each of the executive officers listed above will hold office until the next annual meeting of our board of directors, scheduled for June 10, 2002, or until their respective successors are elected and shall qualify.
Fredric H. Gould has served as chairman of our board of directors since 1989 and served as our chief executive officer from December 1999 to December 2001. Mr. Gould has served as chairman of the board of trustees of BRT Realty Trust, a real estate investment trust, the securities of which are traded on the New York Stock Exchange, since 1984 and as chief executive officer of BRT Realty Trust from 1996 to December 31, 2001. Since 1985, Mr. Gould has been an executive officer (and is currently chairman of the board) of the managing general partner of Gould Investors L.P., a limited partnership primarily engaged in the ownership and operation of real properties, and he serves as sole member of a limited liability company that is the other general partner of Gould Investors L.P. He is president of the advisor to BRT Realty Trust, a director of East Group Properties, Inc., a REIT the securities of which are traded on the New York Stock Exchange, and a director of Yonkers Financial Corporation and its subsidiary, Yonkers Savings and Loan Association, F.A. He is the father of Matthew Gould and Jeffrey Gould.
Jeffrey Fishman has been our president since December 1999 and has been our chief executive officer since January 1, 2002. Mr. Fishman also served as our chief operating officer from December 1999 until December 2001. From 1996 to December 1999, Mr. Fishman was a senior managing director of Cogswell Properties, LLC, a company engaged in the ownership and management of real property. For more than five years prior to 1996, he was president of Britannia Management Services, Inc., a real estate property owner and manager.
Jeffrey Gould has been our vice president since 1989 and a senior vice president and director since December 1999. Mr. Gould has been president and chief operating officer of BRT Realty Trust since March
1996 and was named chief executive officer of BRT Realty Trust on January 1, 2002. Mr. Gould has served as a trustee of BRT Realty Trust since March 1997. He has also served as a senior vice president of the managing general partner of Gould Investors L.P. since 1996. He is the son of Fredric H. Gould and the brother of Matthew Gould.
Matthew Gould served as our president and chief executive officer from 1989 to December 1999 and became a senior vice president and member of our board of directors in December 1999. Mr. Gould has served as president of the managing general partner of Gould Investors L.P. since 1996. He has been a vice president of BRT Realty Trust since 1986 and a trustee of BRT Realty Trust since March 2001, and he also serves as a vice president of the advisor to BRT Realty Trust. He is the son of Fredric H. Gould and the brother of Jeffrey Gould.
Israel Rosenzweig has been our senior vice president since June 1997 and a senior vice president of BRT Realty Trust since March 1998. From November 1994 to April 1997, he was a senior vice president and chief lending officer of Bankers Federal Savings and Loan Association. Mr. Rosenzweig has been vice president of the managing general partner of Gould Investors L.P. since May 1997. For more than five years prior to March 1995, he served as president of BRT Realty Trust.
Simeon Brinberg has served as our senior vice president since 1989. He has been secretary of BRT Realty Trust since 1983, a senior vice president of BRT Realty Trust since 1988 and a vice president of the managing general partner of Gould Investors L.P. since 1988. Mr. Brinberg is an attorney-at-law, a member of the bar of New York and a partner in the law firm of Brinberg & Lundy.
David W. Kalish has served as our senior vice president and chief financial officer since June 1990. Mr. Kalish has also been a senior vice president, finance of BRT Realty Trust since August 1998 and vice president and chief financial officer of the managing general partner of Gould Investors L.P. since 1990. Mr. Kalish is a certified public accountant.
Mark H. Lundy has been our secretary since June 1993 and our vice president since June 2000. He has been a vice president of BRT Realty Trust since April 1993 and a vice president of the managing general partner of Gould Investors L.P. since July 1990. He is an attorney-at-law, a member of the bars of New York and the District of Columbia and a partner in the law firm of Brinberg & Lundy.
Seth D. Kobay has been our vice president and treasurer since August 1994. Mr. Kobay has been vice president and treasurer of BRT Realty Trust since March 1994 and vice president of operations of the managing general partner of Gould Investors L.P. since 1986. Mr. Kobay is a certified public accountant.
Karen Dunleavy has been our vice president, financial since August 1994. She has served as treasurer of the managing general partner of Gould Investors L.P. since 1986. Ms. Dunleavy is a certified public accountant.
Lawrence G. Ricketts, Jr. has been our vice president, acquisitions since December 1999 and has been employed by us since January 1999. Mr. Ricketts began his career in May 1998 as an analyst at BRT Funding Corp., a subsidiary of BRT Realty Trust, a position he held until January 1999.
Joseph A. Amato has been a member of our board of directors since June 1989. Mr. Amato is engaged in real estate development and has been president of Kent Companies, Inc., a company engaged in real estate development, since 1970.
Charles Biederman has been a member of our board of directors since June 1989. Mr. Biederman is presently engaged in real estate development and has been a consultant to Sunstone Hotel Investors, LLC, a company engaged in the management, ownership and development of hotel properties, since 1998. From 1994 to the present, Mr. Biederman has been the president of Woodstone Homes, Inc., a builder of custom homes. From 1995 to 1998, he served as executive vice president of Sunstone Hotel Investors, Inc., a REIT engaged in the ownership of hotel properties the securities of which were publicly traded.
James J. Burns has been a member of our board of directors since June 2000. Mr. Burns has been senior vice president and chief financial officer of Wellsford Real Properties, Inc., a real estate merchant banking
company, since October 1999 and was a partner of Ernst & Young LLP, certified public accountants, from October 1977 to September 1999. He is also a director of Cedar Income Fund Ltd., a real estate investment trust.
Arthur Hurand has been a member of our board of directors since June 1989. Mr. Hurand is a private investor and has been a trustee of BRT Realty Trust since 1984.
Marshall Rose has been a member of our board of directors since June 1989. He has been the chairman of The Georgetown Group, Inc., a company engaged in real estate consulting, since 1978 and is chairman emeritus of the New York Public Library and a director of Estee Lauder, Inc., a manufacturer of cosmetic and skin care products.
Patrick J. Callan, Jr. is a nominee for election as a director at our 2002 annual meeting of stockholders. He has been vice president of real estate for Kimco Realty Corporation, a REIT the shares of which are publicly traded, since May 1998 and was a director of real estate of Kimco Realty Corporation from November 1990 to May 1998.
DESCRIPTION OF SECURITIES
GENERAL
Our charter provides that we may issue up to 27,300,000 shares of capital stock, consisting of 25,000,000 shares of common stock, par value $1.00 per share and 2,300,000 shares of preferred stock, par value $1.00 per share. As of April 19, 2002, 3,084,561 shares of common stock and 648,058 shares of redeemable convertible preferred stock were outstanding.
COMMON STOCK
Subject to the preferential rights of any other shares or series of capital stock, holders of shares of our common stock are entitled to receive distributions on such shares if, as and when authorized and declared by our board of directors out of assets legally available and to share ratably in our assets legally available for distribution to our stockholders in the event of our liquidation, dissolution or winding-up after payment of, or adequate provision for, all known debts and liabilities. Holders of shares of our preferred stock are entitled to receive, when and as declared by the board of directors cumulative cash distributions at the annual rate of $1.60 per share in preference to dividends on our common stock.
Each outstanding share of our common stock entitles the holder to one vote and each outstanding share of our preferred stock entitles the holder to one-half vote on all matters submitted to a vote of stockholders, including the election of directors. There is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of our common stock and our preferred stock, voting as one class, can elect all of the directors then standing for election and the holders of the remaining shares of our common stock and our preferred stock will not be able to elect any directors. Holders of shares of common stock have no preference, conversion, sinking fund, redemption, exchange or preemptive rights to subscribe for any of our securities.
Our board of directors may refuse to transfer or issue shares of our common stock to any person whose acquisition of such shares would, in the opinion of our board of directors, result in our disqualification as a REIT. In addition, any transfer of our common stock that results in our disqualification as a REIT will be considered void from the initial date of transfer.
Pursuant to the Maryland General Corporation Law (the "MGCL"), a corporation generally cannot (except under and in compliance with specifically enumerated provisions of the MGCL) dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business unless approved by the affirmative vote of stockholders holding at least two-thirds of the shares entitled to vote on the matter unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is set forth in the corporation's charter. Our charter provides for approval of any such action by a majority of the votes entitled to be cast in the matter, except that an amendment to our charter changing the rights, privileges or preferences of any class or series of outstanding stock must be approved by not less than two-thirds of the outstanding shares of such class or series of stock. Also, certain charter amendments affecting our preferred stock require the approval of the holders of at least two-thirds of our preferred stock as more fully described under "-- Amendment to Our Charter" below.
PREFERRED STOCK
DIVIDEND RIGHTS
The holders of our preferred stock are entitled to receive, when and as
declared by our board of directors, cumulative cash dividends at the annual rate
of $1.60 per share, payable quarterly on January 1, April 1, July 1 and October
1. Dividends on our preferred stock are cumulative and have a preference over
dividends on our common stock and any other of our junior stock that may be
outstanding from time to time.
VOTING RIGHTS
The holders of our preferred stock are entitled to one-half vote per share on any matters to be voted upon by our stockholders, including the election of directors. The holders of our preferred stock and our common stock vote as one class. In addition, the holders of our preferred stock will have the right to elect two directors as a class in the event of a default in the payment of preferred stock dividends in an amount equivalent to eight consecutive quarter-annual payments. Without the approval of the holders of at least two- thirds of the outstanding shares of our preferred stock, additional shares of our preferred stock cannot be issued and our charter and by-laws cannot be amended or repealed to change the rights, privileges or preferences of our preferred stock, or to authorize or create any class of stock having a preference as to dividends or assets over our preferred stock. Without approval of the holders of at least a majority of the outstanding shares of our preferred stock, we cannot create an additional class of preferred stock with preferences equal to our preferred stock.
LIQUIDATION RIGHTS
Holders of our preferred stock have a preference of $16.50 per share plus accrued and unpaid dividends in case of either our voluntary or involuntary liquidation or dissolution. No distribution ahead of the preferred stock will be permitted on our common stock or any other junior stock that we may issue.
REDEMPTION
Provided that there is no arrearage in the payment of dividends on our preferred stock, the preferred stock will be redeemable upon notice, at our option, at a price of $16.50 per share. No sinking fund is required.
CONVERSION RIGHTS
Each share of our preferred stock is convertible at any time, at the option of the holder thereof, into 0.825 of a share of common stock upon surrender of a share of preferred stock. The conversion right is subject to adjustment in certain events, including subdivisions or combinations of our common stock, declaration of stock dividends, issuance of rights to subscribe for our stock or other securities, change of shares of our common stock into shares of any other class or classes of stock, mergers and consolidations. Upon conversion, no adjustment will be made for cumulative dividends except that any unpaid dividends will constitute our debt to the converting stockholder. No fractional shares will be issued upon conversion, but in lieu thereof, we will pay the then market value of any such fraction in cash.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Our board of directors may refuse to transfer or issue shares of our preferred stock to any person whose acquisition of such shares would, in the opinion of our board of directors, result in our disqualification as a REIT. In addition, any transfer of preferred stock that results in our disqualification as a REIT, will be void from the initial date of transfer.
CLASSIFICATION OF OUR BOARD OF DIRECTORS, VACANCIES AND REMOVAL OF DIRECTORS
Our charter provides that the board of directors is divided into three classes. Directors of each class serve for terms of three years each, with the terms of each class beginning in different years. We currently have eight directors. Effective as of our 2002 annual meeting of stockholders, our board of directors will be expanded to nine directors. The number of directors in each class and the expiration of the current term of each class is as follows:
Class 3 -- 2 Directors; Term Expires 2002 Class 1 -- 3 Directors; Term Expires 2003 Class 2 -- 3 Directors; Term Expires 2004 |
At each annual meeting of our stockholders, successors of the class of directors whose term expires at that meeting will be elected for a three-year term and the directors in the other two classes will continue in
office. A classified board may delay, defer or prevent a change in control or other transaction that might involve a premium over the then prevailing market price for our common stock or other attributes that our stockholders may consider desirable. In addition, a classified board could prevent stockholders who do not agree with the policies of our board of directors from replacing a majority of the board of directors for two years, except in the event of removal for cause.
Our by-laws provide that any vacancy on our board may be filled by action of a majority of the entire board. A director elected by the board to fill a vacancy will hold office until the next annual meeting of stockholders or until his successor is elected and qualified. Our charter provides that our stockholders may only remove an incumbent director for cause and upon an affirmative vote of the majority of all of the outstanding shares entitled to vote thereon.
INDEMNIFICATION
Our charter obligates us to indemnify our directors and officers to the maximum extent permitted by Maryland law. The MGCL permits a corporation to indemnify its present and former directors and officers against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be a party by reason of their service in those or other capacities, unless it is established that (1) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (a) was committed in bad faith, or (b) was the result of active and deliberate dishonesty, or (2) the director or officer actually received an improper personal benefit in money, property or services, or (3) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
LIMITATION OF LIABILITY
The MGCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, except to the extent that
(1) it is proved that the person actually received an improper benefit or profit
in money, property or services, or (2) a judgment or other final adjudication is
entered in a proceeding based on a finding that the person's action, or failure
to act, was the result of active and deliberate dishonesty and was material to
the cause of action adjudicated in the proceeding. Our charter provides for
elimination of the liability of our directors and officers to us or our
stockholders for money damages to the maximum extent permitted by Maryland law
from time to time.
MARYLAND BUSINESS COMBINATION ACT
Pursuant to article X of our charter, we have expressly elected not to be subject to, or governed by, the MGCL's requirements for "business combinations" between a Maryland corporation and "interested stockholders".
MARYLAND CONTROL SHARE ACQUISITION ACT
Maryland law provides that "control shares" of a Maryland corporation acquired in a "control share acquisition" have no voting rights except to the extent approved by a stockholder vote. Two-thirds of the shares eligible to vote (excluding all interested shares) must vote in favor of granting the "control shares" voting rights. "Control shares" are voting shares which, if aggregated with all other shares previously acquired by the acquiring person, or in respect of which the acquiring person is able to exercise or direct the exercise of voting power, other than by revocable proxy, would entitle the acquiring person to exercise voting power of at least 10% of the voting power in electing directors.
Control shares do not include shares of stock the acquiring person is entitled to vote as a result of having previously obtained stockholder approval. A "control share acquisition" means the acquisition of control shares, subject to certain exceptions.
If a person who has made (or proposes to make) a control share acquisition satisfies certain conditions (including agreeing to pay expenses), that person may compel our board of directors to call a special meeting
of stockholders to be held within 50 days to consider the voting rights of the shares. If that person makes no request for a meeting, we have the option to present the question at any stockholders' meeting.
If voting rights are not approved at a meeting of stockholders, we may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value. We will determine the fair value of the shares, without regard to voting rights, as of the date of either:
- the last control share acquisition by the acquiring person; or
- any meeting where stockholders considered and did not approve voting rights of the control shares.
If voting rights for control shares are approved at a stockholders' meeting and the acquiror becomes entitled to vote a majority of the shares of stock entitled to vote, all other stockholders may exercise appraisal rights. This means that you would be able to cause us to redeem your stock for fair value. Under the MGCL, the fair value may not be less than the highest price per share paid in the control share acquisition. Furthermore, certain limitations otherwise applicable to the exercise of appraisal rights would not apply in the context of a control share acquisition.
The control share acquisition statute would not apply to shares acquired in a merger, consolidation or share exchange if we were a party to the transaction.
Our by-laws exempt any acquisition by Gould Investors L.P. of our equity securities from the provisions of the control share acquisition statute. This section of our by-laws may not be amended or repealed without the written consent of Gould Investors L.P. or approval of the holders of at least two-thirds of the outstanding shares of our capital stock.
The control share acquisition statute could have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests.
AMENDMENT TO OUR CHARTER
Our charter may be amended by the vote of a majority of the shares entitled to vote, except that no amendment changing the rights, privileges or preferences of any class or series of outstanding stock will be valid unless such amendment is authorized by not less than two-thirds of the outstanding shares of such class or series of stock. Without the approval of the holders of at least two-thirds of the outstanding shares of our preferred stock, additional shares of our preferred stock cannot be issued and our charter cannot be amended or repealed to change the rights, privileges or preferences of our preferred stock, or to authorize or create any class of stock having a preference as to dividends or assets over our preferred stock. Without approval of the holders of at least a majority of the outstanding shares of our preferred stock, we cannot create an additional class of preferred stock with preferences equal to our preferred stock.
AMENDMENT TO OUR BY-LAWS
Our board of directors has the power to alter, modify or repeal any of our by-laws and to make new by-laws, except that our board may not alter, modify or repeal (i) any by-laws made by stockholders, (ii) section 11 of article II of our by-laws governing the Gould Investors L.P. exemption from the control share acquisition statute, (iii) section 17 of article III of our by-laws that governs our investment policies and restrictions, or (iv) section 18 of article III of our by-laws that governs management arrangements. In addition, our stockholders have the power to alter, modify or repeal any of our by-laws and to make new by- laws by majority vote; however at least two-thirds of the holders of outstanding shares of our preferred stock must vote in favor of any amendment which changes the rights, privileges or preferences of our preferred stock, or to amend or repeal the Gould Investors L.P. exemption from the control share acquisition statute.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company is the transfer agent and registrar for our stock.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the U.S. federal income tax issues that you, as a prospective investor, may consider relevant. Because this section is a summary, it does not address all of the tax issues that may be important to you. In addition, this section does not address the tax issues that may be important to certain types of prospective investors that are subject to special treatment under U.S. federal income tax laws, including, without limitation, insurance companies, tax-exempt organizations (except to the extent discussed in "-- Taxation of Tax-Exempt Stockholders" below), financial institutions or broker-dealers, and non-U.S. individuals and foreign corporations (except to the extent discussed in "-- Taxation of Non-U.S. Stockholders" below).
The statements in this section are based on current U.S. federal income tax laws. We cannot assure you that new laws, interpretations of law, or court decisions, any of which may have retroactive effect, will not cause one or more statements in this section to be inaccurate.
In connection with this offering of our common stock, McCarter & English, LLP ("McC&E") is rendering an opinion, which will be filed as an exhibit to the registration statement of which this prospectus is a part. McC&E will opine that, commencing with our taxable year ended December 31, 1998, we have been organized and operated in conformity with the requirements for qualification as a REIT under U.S. federal income tax laws, and that our method of operation will enable us to meet the requirements for qualification as a REIT under U.S. federal income tax laws, provided that we continue to meet the applicable asset composition, sources of income, shareholder diversification, distribution, record-keeping and other requirements under U.S. federal income tax laws necessary for a corporation to qualify as a REIT. You should be aware that McC&E's opinion is based on current law and is not binding on the Internal Revenue Service or any court. In addition, the opinion is based on customary assumptions and on our representations as to factual matters, all of which are described in the opinion. We have not sought a ruling from the U.S. Internal Revenue Service ("IRS") or any other federal, state, local or foreign taxing authority (to the extent such rulings are available) with respect to any of the tax issues discussed in this section or which may otherwise affect stockholders.
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF INVESTING IN OUR COMMON STOCK AND OF OUR ELECTION TO BE TAXED AS A REIT. SPECIFICALLY, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH INVESTMENT AND ELECTION AND REGARDING POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION
We elected to be taxed as a REIT under the U.S. federal income tax laws beginning with our taxable year ended December 31, 1983. We believe that we have operated in a manner qualifying us as a REIT since our election and intend to operate in a manner that will preserve that qualification. This section discusses the laws governing the U.S. federal income tax treatment of a REIT and its stockholders. These laws are highly technical and complex.
Our qualification as a REIT depends on our ability to meet, on a continuing basis, qualification tests set forth in the U.S. federal tax laws. Those qualification tests involve the percentage of income that we earn from specified sources, the percentages of our assets that fall within specified categories, the diversity of our stock ownership and the percentage of our earnings that we distribute. We describe the REIT qualification tests in more detail below. For a discussion of the tax treatment of us and our stockholders if we fail to qualify as a REIT, see "-- Failure to Qualify," below.
If we qualify as a REIT, we generally will not be subject to U.S. federal income tax on the taxable income that we distribute to our stockholders. The benefit of that tax treatment is that it avoids the "double taxation"
(i.e., taxation at both the corporate and stockholder levels) that generally results from owning stock in a corporation. However, we will be subject to U.S. federal tax in the following circumstances:
- We will pay U.S. federal income tax on taxable income, including net capital gain, that we do not distribute to stockholders during, or within a specified time period after, the calendar year in which the income is earned;
- We may be subject to the "alternative minimum tax" on any items of tax preference that we do not distribute or allocate to stockholders;
- We will pay income tax at the highest corporate rate on:
- net income from the sale or other disposition of property acquired through foreclosure ("foreclosure property") that we hold primarily for sale to customers in the ordinary course of business; and
- other non-qualifying income from foreclosure property.
- We will pay a 100% tax on net income from sales or other dispositions of property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business.
- If we fail to satisfy the 75% gross income test or the 95% gross income test, as described below under "-- Income Tests," and nonetheless continue to qualify as a REIT because we meet other requirements, we will pay a 100% tax on the gross income attributable to the greater of the amounts by which we fail the 75% and 95% gross income tests, multiplied by a fraction intended to reflect our profitability.
- If we fail to distribute during a calendar year at least the sum of:
- 85% of our REIT ordinary income for the year;
- 95% of our REIT capital gain net income for the year; and
- any undistributed taxable income from earlier periods; then
we will pay a 4% excise tax on the excess of the required distribution over the amount we actually distributed.
- We may elect to retain and pay income tax on our net long-term capital gain.
- We will be subject to a 100% excise tax on transactions with a taxable REIT subsidiary that are not conducted on an arm's-length basis.
- If we acquire any asset from a C corporation (or any other corporation that generally is subject to full corporate-level tax) in a merger or other transaction in which we acquire a basis in the asset that is determined by reference either to the C corporation's basis in the asset or to another asset (a "conversion transaction"), we will pay tax at the highest regular corporate rate applicable if we recognize any net built-in gain on the sale or disposition of such asset during the 10-year period after we acquire such asset. With respect to conversion transactions that occurred on or after June 10, 1987, and before January 2, 2002, the rules described above will apply provided we make an election under the relevant Temporary Regulations. With respect to conversion transactions occurring on or after January 2, 2002, the rules described above will apply automatically.
REQUIREMENTS FOR QUALIFICATION
A REIT is an entity that meets each of the following requirements:
1. It is managed by trustees or directors.
2. Its beneficial ownership is evidenced by transferable shares, or by transferable certificates of beneficial interest.
3. It would be taxable as a domestic corporation, but for the REIT provisions of the U.S. federal income tax laws.
4. It is neither a financial institution nor an insurance company subject to special provisions of the U.S. federal income tax laws.
5. At least 100 persons are beneficial owners of its shares or ownership certificates.
6. Not more than 50% in value of its outstanding shares or ownership certificates is owned, directly or indirectly, by five or fewer individuals, which the U.S. federal income tax laws define to include certain entities, during the last half of any taxable year.
7. It elects to be a REIT, or has made such election for a previous taxable year, and satisfies all relevant filing and other administrative requirements established by the IRS that must be met to elect and maintain REIT status.
8. It meets certain other qualification tests, described below, regarding the nature of its income and assets.
We must meet requirements 1 through 4 during our entire taxable year and must meet requirement 5 during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. If we comply with all the applicable requirements for ascertaining the ownership of our outstanding shares in a taxable year and have no reason to know that we violated requirement 6, we will be deemed to have satisfied requirement 6 for that taxable year. For purposes of determining share ownership under requirement 6, an "individual" generally includes a supplemental unemployment compensation benefits plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes. An "individual," however, generally does not include a trust that is a qualified employee pension or profit sharing trust under the U.S. federal income tax laws, and beneficiaries of such a trust will be treated as holding our shares in proportion to their actuarial interests in the trust for purposes of requirement 6. We have issued sufficient shares of common stock with sufficient diversity of ownership to satisfy requirements 5 and 6. In addition, our charter restricts the ownership and transfer of the shares of common stock so that we should continue to satisfy these requirements as discussed in "Description of Securities -- Common Stock" above.
A corporation that is a "qualified REIT subsidiary" is not treated as a corporation separate from its parent REIT. All assets, liabilities and items of income, deduction and credit of a "qualified REIT subsidiary" are treated as assets, liabilities and items of income, deduction and credit of the parent REIT. A "qualified REIT subsidiary" is a corporation, all of the capital stock of which is owned by the REIT and for which no election has been made to treat such corporation as a "taxable REIT subsidiary." We own certain of our properties through subsidiaries. Each of our subsidiaries qualify as "qualified REIT subsidiaries" under U.S. federal income tax law. Accordingly, for U.S. federal income tax purposes, our subsidiaries are ignored as separate entities, and all of their assets, liabilities and items of income, deduction and credit are treated as our assets, liabilities and items of income, deduction and credit.
An unincorporated domestic entity with two or more owners is generally treated as a partnership for U.S. federal income tax purposes. In the case of a REIT that is a partner in an entity treated as a partnership, the REIT is treated as owning its proportionate share of the assets of the partnership and as earning its allocable share of the gross income of the partnership for purposes of the applicable REIT qualification tests. Thus, our proportionate share of the assets, liabilities and items of income of any partnership or joint venture or limited liability company that is treated as a partnership for U.S. federal income tax purposes in which we have acquired or will acquire an interest, directly or indirectly (a "subsidiary partnership"), will be treated as our assets and gross income for purposes of applying the various REIT qualification tests. We own the majority of membership interests in a limited liability company that is treated as a partnership for U.S. federal income tax purposes and we own membership interests in the two joint ventures. Accordingly, our proportionate share of the assets, liabilities and items of income of the limited liability company and the joint ventures will be treated as our assets and gross income for purposes of applying the various REIT qualification tests discussed in this section.
Tax legislation enacted in 1999 allows a REIT to own up to 100% of the stock of a "taxable REIT subsidiary" ("TRS") in taxable years beginning on or after January 1, 2001. A TRS may earn income that would not be qualifying income if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A TRS will pay income tax at regular corporate rates on any income that it earns. In addition, the new rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. Further, the rules impose a 100% excise tax on transactions between a TRS and its parent REIT (or the REIT's tenants) that are not conducted on an arm's-length basis. We do not currently have any TRSs, but cannot foreclose the possibility of the formation of one or more TRSs in future taxable years.
INCOME TESTS
We must satisfy two gross income tests annually to maintain our qualification as a REIT. First, at least 75% of our gross income for each taxable year must consist of specific types of income that we derive, directly or indirectly, from investments relating to real property or mortgages on real property or qualified temporary investment income. Qualifying income for purposes of this 75% gross income test generally includes:
- rents from real property;
- interest on debt secured by mortgages on real property, or on interests in real property;
- dividends or other distributions on, and gain from the sale of, shares in other REITs; and
- gain from the sale of real estate assets.
Second, in general, at least 95% of our gross income for each taxable year must consist of income that is qualifying income for purposes of the 75% gross income test, other types of interest and dividends, gain from the sale or disposition of stock or securities, income from certain interest rate hedging contracts, or any combination of the foregoing. Gross income from sales of property held primarily for sale to customers in the ordinary course of business is excluded from both the numerator and the denominator in both income tests. The following paragraphs discuss the specific application of the gross income tests to us.
A REIT will incur a 100% tax on the net income derived from any "prohibited transaction," which is a sale or other disposition of property, other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. We believe that none of our assets are held primarily for sale to customers and that a sale of any of our assets would not be in the ordinary course of our business. Whether a REIT holds an asset "primarily for sale to customers in the ordinary course of a trade or business" depends, however, on the facts and circumstances in effect from time to time, including those related to a particular asset. Nevertheless, we will attempt to comply with the terms of safe-harbor provisions in the U.S. federal income tax laws prescribing when an asset sale will not be characterized as a prohibited transaction. We cannot assure you, however, that we can comply with the safe-harbor provisions or that we will avoid owning property that may be characterized as property that we hold "primarily for sale to customers in the ordinary course of a trade or business."
While income from foreclosure property qualifies for purposes of satisfying the 75% and 95% gross income tests, we will be subject to tax at the maximum corporate rate on any income from such foreclosure property, other than any portion of such income that otherwise would be qualifying income for purposes of the 75% gross income test, less expenses directly connected with the production of that income. "Foreclosure property" is any real property, including interests in real property, and any personal property incident to such real property:
- that is acquired by a REIT as a result of the REIT having bid on such property at foreclosure, or having otherwise reduced such property to ownership or possession by agreement or process of law, after there was a default (or default was imminent) on a lease of such property or on indebtedness that such property secured;
- for which the related loan was acquired by the REIT at a time when the default was not imminent or anticipated; and
- for which the REIT makes a proper election to treat the property as foreclosure property.
However, a REIT will not be considered to have foreclosed on a property where the REIT takes control of the property as a mortgagee-in-possession and cannot receive any profit or sustain any loss except as a creditor of the mortgagor. Property generally ceases to be foreclosure property at the end of the third taxable year following the taxable year in which the REIT acquired the property, or longer if an extension is granted by the Secretary of the Treasury. This grace period terminates and foreclosure property ceases to be foreclosure property on the first day:
- on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for purposes of the 75% gross income test, or any amount is received or accrued, directly or indirectly, pursuant to a lease entered into on or after such day that will give rise to income that does not qualify for purposes of the 75% gross income test;
- on which any construction takes place on the property, other than completion of a building or any other improvement, where more than 10% of the construction was completed before default became imminent; or
- which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business which is conducted by the REIT, other than through an independent contractor from whom the REIT itself does not derive or receive any income.
We have no foreclosure property as of the date of this prospectus.
Rent that we receive from real property that we own and lease to tenants will qualify as "rents from real property," which is qualifying income for purposes of both the 75% and 95% gross income tests, only if each of the following conditions is met:
- The rent must not be based, in whole or in part, on the income or profits of any person, but may be based on a fixed percentage or percentages of receipts or sales;
- Neither we nor any direct or indirect owner of 10% or more of our shares may own, actually or constructively, 10% or more of a tenant from whom we receive rent (other than a TRS in taxable years beginning after December 31, 2000). Rent we receive from a TRS will qualify as "rents from real property" if at least 90% of the leased space of the property is rented to persons other than TRSs and 10%-owned tenants and the amount of rent paid by the TRS is substantially comparable to the rent paid by the other tenants of the property for comparable space;
- Not all of the rent received under a lease of real property will qualify as "rents from real property" if the rent attributable to the personal property leased in connection with such lease is more than 15% of the total rent received under the lease. If rent attributable to the personal property leased is more than 15% of the total rent received, none of the rent allocable to the personal property will be considered "rents from real property" for purposes of the 75% and 95% gross income tests. Pursuant to legislation effective January 1, 2001, the allocation of rent between real and personal property is based on the relative fair market values of the real and personal property; and
- We generally must not operate or manage our real property or furnish or render services to our tenants, other than through an independent contractor who is adequately compensated and from whom we do not derive revenue. However, we need not provide services through an independent contractor, but instead may provide services directly, if the services are "usually or customarily rendered" in connection with the rental of space for occupancy only and are not considered to be provided for the tenants' convenience. In addition, we may provide a minimal amount of "noncustomary" services to the tenants of a property, other than through an independent contractor, as long as our income from the services does not exceed 1% of our income from the related property. Further, we may own up to 100% of the stock of a TRS in taxable years beginning after December 31, 2000. A TRS generally can provide customary and noncustomary services to our tenants without tainting our rental income.
We believe that the rents we receive meet all of these conditions.
If we fail to satisfy one or both of the gross income tests for any taxable year, we nevertheless may qualify as a REIT for that year if we qualify for relief under certain provisions of the U.S. federal income tax laws. Those relief provisions generally will be available if:
- our failure to meet such tests is due to reasonable cause and not due to willful neglect;
- we attach a schedule of the sources of our income to our tax return; and
- any incorrect information on such schedule is not due to fraud with intent to evade tax.
We cannot predict, however, whether in any relevant circumstance we would qualify for the relief provisions referenced above. In addition, as discussed above in "-- Taxation," even if the relief provisions apply, we would incur a 100% tax on the gross income attributable to the greater of the amounts by which we fail the 75% and 95% gross income tests, multiplied by a fraction intended to reflect our profitability.
ASSET TESTS
To maintain our qualification as a REIT, we also must satisfy two asset tests at the end of each quarter of each taxable year. First, at least 75% of the value of our total assets must consist of:
- cash or cash items, including certain receivables;
- government securities;
- interests in real property, including leaseholds and options to acquire real property and leaseholds;
- interests in mortgages on real property;
- stock in other REITs; and
- investments in stock or debt instruments during the one-year period following our receipt of new capital that we raise through equity offerings or offerings of debt featuring at least a five-year term.
Under the second asset test, except for (1) securities in the 75% asset class, (2) securities in a TRS or qualified REIT subsidiary, and (3) certain partnership interests and certain debt obligations:
- not more than 5% of the value of our total assets may be represented by securities of any one issuer; and
- we may not own securities that possess more than 10% of the total voting power of the outstanding securities of any one issuer; and beginning January 1, 2001, we may not own securities that have a value of more than 10% of the total value of the outstanding securities of any one issuer.
In addition, beginning January 1, 2001, not more than 20% of the value of our total assets may be represented by securities of one or more TRSs.
We believe that our existing assets are qualifying assets for purposes of the aforementioned asset tests. We also believe that any additional real property that we acquire, loans that we extend and temporary investments that we make generally will be qualifying assets for purposes of such asset tests. We will monitor the status of our acquired assets for purposes of the various asset tests and will manage our portfolio in order to comply at all times with such tests.
If we fail to satisfy the asset tests at the end of a calendar quarter, we will not lose our REIT status if:
- we satisfied the asset tests at the end of the preceding calendar quarter; and
- the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of our assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets.
If we did not satisfy the condition described in the first item, above, we still could avoid disqualification by eliminating any discrepancy within 30 days after the close of the calendar quarter in which it arose.
Although we own no TRSs currently, we may own up to 100% of the stock of one or more TRSs in the future. TRSs can perform activities unrelated to our tenants, such as third-party management, development, and other independent business activities, as well as provide services to our tenants. Should such an entity be organized, we and the relevant subsidiary must elect for the subsidiary to be treated as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS itself. The deductibility of interest paid or accrued by a TRS to us is limited to assure that the TRS is subject to an appropriate level of corporate taxation. Further, there is a 100% excise tax on transactions between a TRS and us or our tenants that are not conducted on an arm's-length basis. We may not own more than 10% of the voting power or value of the stock of a taxable subsidiary that is not treated as a TRS. As noted above, no more than 20% of our assets can consist of securities of TRSs.
DISTRIBUTION REQUIREMENTS
For taxable years beginning on or after January 1, 2001, we must distribute dividends, other than capital gain dividends and deemed distributions of retained capital gain, to our stockholders in an aggregate amount at least equal to the sum of:
- 90% of our "REIT taxable income," computed without regard to the dividends paid deduction and our net capital gain or loss; and
- 90% of our after-tax net income, if any, from foreclosure property; minus
- the sum of certain items of non-cash income.
We must pay such distributions in the taxable year to which they relate, or in the following taxable year if we declare the distribution before we timely file our U.S. federal income tax return for the year and pay the distribution on or before the first regular dividend payment date after such declaration.
We will pay U.S. federal income tax on taxable income, including net capital gain, that we do not distribute to stockholders. Furthermore, if we fail to distribute during a calendar year, or by the end of January following the calendar year in the case of distributions with declaration and record dates falling in the last three-months of the calendar year, at least the sum of:
- 85% of our REIT ordinary income for such year;
- 95% of our REIT capital gain net income for such year; and
- any undistributed taxable income from prior period, then
we will incur a 4% nondeductible excise tax on the excess of such required distribution over the amounts we actually distributed. We may elect to retain and pay income tax on the net long-term capital gain we receive in a taxable year. See "-- Taxation of Taxable U.S. Stockholders," below. If we so elect, we will be treated as having distributed any such retained amount for purposes of the 4% excise tax described above. We have made, and we intend to continue to make, timely distributions sufficient to satisfy the foregoing annual distribution requirements.
It is possible that, from time to time, we may experience timing differences between:
- the actual receipt of income and actual payment of deductible expenses; and
- the inclusion of that income and the deduction of such expenses in arriving at our REIT taxable income.
Under certain circumstances, we may be able to correct a failure to meet the distribution requirement for a year by paying "deficiency dividends" to our stockholders in a later year. We may include such deficiency dividends in our deduction for dividends paid for the earlier year. Although we may be able to avoid income tax on amounts distributed as deficiency dividends, we will be required to pay interest to the IRS based upon the amount of any deduction we take for deficiency dividends.
RECORDKEEPING REQUIREMENTS
We must maintain certain records in order to qualify as a REIT. In addition, to avoid a monetary penalty, we must request information from our stockholders on an annual basis designed to disclose the actual ownership of our outstanding shares. We have complied, and we intend to continue to comply, with these requirements.
FAILURE TO QUALIFY
If we fail to qualify as a REIT in any taxable year, and no relief provision is available, we would be subject to U.S. federal income tax and any applicable alternative minimum tax on our taxable income at regular corporate rates. In calculating our taxable income in a year in which we fail to qualify as a REIT, we would not be able to deduct amounts paid out to stockholders. Moreover, we would not be required to distribute any amounts to stockholders in that year. In such event, to the extent of our current and accumulated earnings and profits, all distributions to stockholders would be taxable to them as ordinary income. Under such circumstances and subject to certain limitations of the U.S. federal income tax laws, corporate stockholders might be eligible for the dividends received deduction. Unless we qualified for relief under specific statutory provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. We cannot predict whether, under any applicable circumstances, we would qualify for any available statutory relief if we ever fail to qualify as a REIT.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As long as we qualify as a REIT, a taxable "U.S. stockholder" must take into account as ordinary income distributions made out of our current or accumulated earnings and profits that we do not designate as capital gain dividends or retained long-term capital gain. A corporate U.S. stockholder will not qualify for the dividends received deduction generally available to corporations with respect to such distributions. The term "U.S. stockholder" means a holder of common stock that, for U.S. federal income tax purposes, is:
- a citizen or resident of the U.S.;
- an entity created or organized under the laws of the U.S. or of a political subdivision of the U.S.;
- an estate whose income from sources outside the U.S. is includible in gross income for U.S. federal income tax purposes regardless of its source; or
- any trust with respect to which:
- a U.S. court is able to exercise primary supervision over its administration; and
- one or more U.S. persons have the authority to control all of its substantial decisions.
A U.S. stockholder generally will recognize and be taxed on distributions that we designate as capital gain dividends as long-term capital gain without regard to the period for which the U.S. stockholder has held its common stock. A corporate U.S. stockholder, however, may be required to treat up to 20% of certain capital gain dividends as ordinary income.
We may elect to retain and pay income tax on the net long-term capital gain that we receive in a taxable year. In that case, a U.S. stockholder would be taxed on its proportionate share of our undistributed long-term capital gain. The U.S. stockholder would, however, receive a credit or refund for its proportionate share of the tax we paid. The U.S. stockholder would increase the basis in its shares of common stock by the amount of its proportionate share of our undistributed long-term capital gain, minus its share of the tax we paid.
A U.S. stockholder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if the distribution does not exceed the adjusted tax basis of the U.S. stockholder's shares of common stock. Instead, the distribution will reduce the adjusted tax basis of such shares of common stock in the U.S. stockholder's hands. A U.S. stockholder will recognize and pay tax on a distribution in excess of both our current and accumulated earnings and profits and such stockholder's adjusted tax basis in its shares
of common stock as long-term capital gain, or short-term capital gain if the shares of common stock have been held by the stockholder for one year or less, assuming the shares of common stock are a capital asset in the hands of the U.S. stockholder. For purposes of determining whether a distribution is made out of our current or accumulated earnings and profits, our earnings and profits will be allocated first to dividends on our preferred stock and then to dividends on our common stock.
Stockholders may not include in their individual income tax returns any of our net operating losses or capital losses. Instead, these losses are generally carried over by us for potential offset against our future income. Taxable distributions from us and gain from the disposition of the shares of common stock will not be treated as passive activity income and, therefore, stockholders generally will not be able to apply any "passive activity losses," such as losses from certain types of limited partnerships in which the stockholder is a limited partner, against such income. In addition, taxable distributions from us and gain from the disposition of shares of common stock generally will be treated as investment income for purposes of the investment interest limitations. We will notify stockholders after the close of each taxable year as to the portions of the distributions attributable to that year that constitute ordinary income, return of capital and capital gain.
TAXATION OF U.S. STOCKHOLDERS ON THE DISPOSITION OF COMMON STOCK
In general, a U.S. stockholder who is not a dealer in securities must treat any gain or loss realized upon a taxable disposition of his or her shares of common stock as long-term capital gain or loss if the U.S. stockholder has held the shares of common stock for more than one year. However, a U.S. stockholder must treat any loss upon a sale or exchange of shares of common stock held by such stockholder for six-months or less as a long-term capital loss to the extent of capital gain dividends and other distributions from us that such U.S. stockholder treats as long-term capital gain. All or a portion of any loss that a U.S. stockholder realizes upon a taxable disposition of the shares of common stock may be disallowed if the U.S. stockholder purchases other shares of common stock within 30 days before or after the disposition.
CAPITAL GAINS AND LOSSES
The U.S. federal tax rate differential between long-term capital gain and ordinary income for non-corporate taxpayers currently is (and may remain) significant. A taxpayer generally must hold a capital asset for more than one year for gain or loss derived from its sale or exchange of such asset to be treated as long-term capital gain or loss. The highest marginal individual income tax rate on ordinary income for the 2002 tax year is 38.6% and, under current law, is to be reduced in the future. The maximum tax rate on long-term capital gain applicable to non-corporate taxpayers is 20% for sales and exchanges of assets held for more than one year. The maximum tax rate on long-term capital gain from the sale or exchange of "section 1250 property," or depreciable real property, is 25% to the extent that such gain would have been treated as ordinary income if the property were "section 1245 property." With respect to distributions that we designate as capital gain dividends and any retained capital gain that we are deemed to distribute, we may designate whether such a distribution is taxable to our non-corporate stockholders at a 20% or 25% rate. In addition, the characterization of income as capital gain or ordinary income may affect the deductibility of capital losses. A non-corporate taxpayer may deduct capital losses not offset by capital gains against its ordinary income only up to a maximum annual amount of $3,000. A non-corporate taxpayer may carry forward unused capital losses indefinitely. A corporate taxpayer must pay tax on its net capital gain at ordinary corporate rates. A corporate taxpayer can deduct capital losses only to the extent of capital gains, with unused losses being carried back three years and forward five years.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
We will report to our stockholders and to the IRS the amount of distributions we pay during each calendar year, and the amount of tax we withhold, if any. Under the backup withholding rules, a stockholder
may be subject to backup withholding at a rate of 30% in 2002 (subject to adjustment in future years) with respect to distributions unless the holder:
- is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or
- provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules.
A stockholder who does not provide us with its correct taxpayer identification number also may be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the stockholder's income tax liability. In addition, we may be required to withhold a portion of capital gain distributions to any stockholders who fail to certify their non-foreign status to us. For a discussion of the backup withholding rules as applied to non-U.S. stockholders, see "-- Taxation of Non-U.S. Stockholders," below.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt from U.S. federal income taxation. However, they are subject to taxation on their unrelated business taxable income. While many investments in real estate generate unrelated business taxable income, the IRS has issued a ruling that dividend distributions from a REIT to an exempt employee pension trust do not constitute unrelated business taxable income so long as the exempt employee pension trust does not otherwise use the shares of the REIT in an unrelated trade or business of the pension trust. Based on that ruling, amounts that we distribute to tax-exempt stockholders generally should not constitute unrelated business taxable income. However, if a tax-exempt stockholder were to finance its acquisition of shares of common stock with debt, a portion of the income that it receives from us would constitute unrelated business taxable income pursuant to the "debt-financed property" rules. Furthermore, social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans that are exempt from taxation under special provisions of the U.S. federal income tax laws are subject to different unrelated business taxable income rules, which generally will require them to characterize distributions that they receive from us as unrelated business taxable income. Finally, in certain circumstances, a qualified employee pension or profit sharing trust that owns more than 10% of our shares must treat a percentage of the dividends that it receives as unrelated business taxable income. Such percentage is equal to the gross income we would be deemed to derive from an unrelated trade or business, determined as if we were a pension trust, divided by our total gross income for the year in which we pay the dividends. This rule applies to a pension trust holding more than 10% of our shares only if:
- the percentage of our dividends that the tax-exempt trust must treat as unrelated business taxable income is at least 5%;
- we qualify as a REIT by reason of the modification of the rule requiring that no more than 50% of our shares be owned by five or fewer individuals that allows the beneficiaries of the pension trust to be treated as holding our shares in proportion to their actuarial interests in the pension trust; and
- either
- one pension trust owns more than 25% of the value of our shares; or
- a group of pension trusts individually holding more than 10% of the value of our shares collectively owns more than 50% of the value of our shares.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing U.S. federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships, and other foreign stockholders are complex. This section is only a summary of such rules. WE URGE NON-U.S. STOCKHOLDERS TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF U.S. FEDERAL, STATE, AND LOCAL INCOME TAX LAWS
(AS WELL AS THE TAX LAWS OF THEIR HOME JURISDICTIONS) ON OWNERSHIP OF SHARES OF
COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
A non-U.S. stockholder that receives a distribution that is not attributable to gain from our sale or exchange of U.S. real property interests, as defined below, and that we do not designate as a capital gain dividend or retained capital gain, will recognize ordinary income to the extent that we pay the distribution out of our current or accumulated earnings and profits. A withholding tax equal to 30% of the gross amount of the distribution ordinarily will apply unless an applicable tax treaty reduces or eliminates the tax. However, if a distribution is treated as effectively connected with the non-U.S. stockholder's conduct of a U.S. trade or business, the non-U.S. stockholder generally will be subject to U.S. federal income tax on the distribution at graduated rates, in the same manner as U.S. stockholders are taxed on distributions, and also may be subject to the 30% branch profits tax in the case of a non-U.S. stockholder that is a non-U.S. corporation. We plan to withhold U.S. income tax at the rate of 30% on the gross amount of any distribution paid to a non-U.S. stockholder unless either:
- a lower treaty rate applies and the non-U.S. stockholder files the required form evidencing eligibility for that reduced rate with us; or
- the non-U.S. stockholder files the required Form W-8 ECI (or any successor form) with us claiming that the distribution is effectively connected income.
A non-U.S. stockholder will not incur tax on a distribution that is in excess of our current and accumulated earnings and profits if the distribution does not exceed the adjusted basis of its shares of common stock. Instead, the distribution will reduce the adjusted basis of such non-U.S. stockholder in those shares of common stock. A non-U.S. stockholder will be subject to tax on a distribution that exceeds both our current and accumulated earnings and profits and the adjusted basis of its shares of common stock if the non-U.S. stockholder otherwise would be subject to tax on gain from the sale or disposition of its shares of common stock, as described below. Because we generally cannot determine at the time we make a distribution whether or not the distribution will exceed our current and accumulated earnings and profits, we normally will withhold tax on the entire amount of any distribution at the same rate as we would withhold on a dividend. However, a non-U.S. stockholder may obtain a refund of amounts that we withhold if we later determine that a distribution, in fact, exceeded our current and accumulated earnings and profits.
We must withhold 10% of any distribution that exceeds our current and accumulated earnings and profits. Consequently, although we intend to withhold at a rate of 30% on the entire amount of any distribution, to the extent that we do not do so, we will withhold at a rate of 10% on any portion of a distribution not subject to withholding at a rate of 30%.
For any year in which we qualify as a REIT, a non-U.S. stockholder will incur tax on distributions that are attributable to gain from our sale or exchange of "U.S. real property interests" under special provisions of the U.S. federal income tax laws known as "FIRPTA." The term "U.S. real property interests" includes interests in U.S. real property and shares in corporations at least 50% of whose assets consists of interests in U.S. real property. Under those rules, a non-U.S. stockholder is taxed on distributions attributable to gain from sales of U.S. real property interests as if the gain were effectively connected with a U.S. business of the non-U.S. stockholder. A non-U.S. stockholder thus would be taxed on this distribution at the normal capital gain rates applicable to U.S. stockholders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual. A non-U.S. corporate stockholder not entitled to treaty relief or exemption also may be subject to the 30% branch profits tax on such a distribution. We must withhold 35% of any distribution to a non-U.S. stockholder that we could designate as a capital gain dividend. A non-U.S. stockholder may receive a credit against its tax liability for the amount we withhold.
A non-U.S. stockholder generally will not incur tax under FIRPTA as long as at all times, non-U.S. persons hold, directly or indirectly, less than 50% in value of our shares. We cannot assure you that that test will be met at all times or at any specific time. However, a non-U.S. stockholder that owned, actually or constructively, 5% or less of the shares of common stock at all times during a specified testing period will not incur tax under FIRPTA if the shares of common stock are "regularly traded" on an established securities
market. Because the common stock is regularly traded on an established securities market, a non-U.S. stockholder will not incur tax under FIRPTA unless it owns more than 5% of the common stock. If the gain on the sale of the shares of common stock were taxed under FIRPTA, a non-U.S. stockholder would be taxed on that gain in the same manner as U.S. stockholders subject to applicable alternative minimum tax, a special alternative minimum tax in the case of nonresident alien individuals, and the possible application of the 30% branch profits tax in the case of non-U.S. corporations. Furthermore, a non-U.S. stockholder generally will incur tax on gain not subject to FIRPTA if:
- the gain is effectively connected with the non-U.S. stockholder's U.S. trade or business, in which case the non-U.S. stockholder will be subject to the same tax treatment as U.S. stockholders with respect to such gain; or
- the non-U.S. stockholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and has a "tax home" in the U.S., in which case the non-U.S. stockholder will incur a 30% tax on his or her capital gains.
STATE AND LOCAL TAXES
We and/or our stockholders may be subject to taxation by various states and localities, including those in which we or a stockholder transacts business, owns property or resides. The state and local tax treatment may differ from the U.S. federal income tax treatment described above. Consequently, stockholders should consult their own tax advisors regarding the effect of state and local tax laws upon an investment in the shares of common stock.
IMPORTANCE OF OBTAINING PROFESSIONAL TAX ADVICE
THE TAX DISCUSSION SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY. TAX CONSEQUENCES MAY VARY BASED UPON THE PARTICULAR CIRCUMSTANCES OF EACH INVESTOR. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL, STATE AND LOCAL AND APPLICABLE FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN OUR COMMON STOCK.
UNDERWRITING
Friedman, Billings, Ramsey & Co., Inc. ("FBR") and Ferris, Baker Watts Incorporated are acting as representatives of the underwriters. Subject to the terms and conditions contained in the underwriting agreement, we have agreed to sell to each underwriter, and each underwriter has agreed to purchase from us, the number of shares of common stock set forth opposite its name below. The underwriting agreement provides that the obligation of the underwriters to pay for and accept delivery of our common stock is subject to approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all shares of our common stock offered (other than those covered by the over-allotment option described below) if any of the shares are taken.
UNDERWRITER NUMBER OF SHARES
----------- ----------------
Friedman, Billings, Ramsey & Co., Inc. .....................
Ferris, Baker Watts Incorporated............................
---------
Total....................................................... 2,500,000
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We have granted the underwriters an option exercisable for 30 days after the date of this prospectus to purchase up to 375,000 additional shares of common stock to cover over-allotments, if any, at the public offering price less the underwriting discounts set forth on the cover page of this prospectus. To the extent that the underwriters exercise the option, each underwriter will be committed, subject to certain conditions, to purchase that number of additional shares of common stock that is proportionate to such underwriter's initial commitment.
As described in the underwriting agreement, we have agreed to reimburse the underwriters for certain accountable out of pocket expenses incurred in connection with this offering. The following table provides information regarding the per share and total underwriting discounts and commissions that we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional 375,000 shares.
NO EXERCISE OF FULL EXERCISE OF
OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------------------- ---------------------
Per share(1)..................................... $ $
Total(1)......................................... $ $
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(1) Reflects the sale of up to 125,000 shares to Gould Investors L.P., net of any underwriters' discount and commission. If none of these shares are purchased by Gould Investors L.P. and they are instead sold to the public, the total underwriters' discounts and commissions would be $ and $ , without and with the over-allotment, respectively.
We expect to incur expenses, excluding the underwriting discounts and commissions, of approximately $ in connection with this offering.
The underwriters propose to offer our common stock directly to the public at $ per share and to certain dealers at this price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the common stock is released for sale to the public, the underwriters may change the offering price and other selling terms.
Each of our officers, directors and principal stockholders, including Gould L.P., has agreed with FBR, for a period of 90 days after the date of this prospectus, subject to certain exceptions, not to sell any shares of common stock or any securities convertible into or exchangeable for shares of common stock owned by them, without the prior written consent of FBR. However, FBR may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to these agreements.
At our request, the underwriters have reserved up to 125,000 shares of our common stock for sale to Gould Investors L.P., one of our affiliates, at the public offering price, net of any underwriting discounts or
commissions. The number of shares available for sale to the general public will be reduced to the extent Gould Investors L.P. purchases such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public at the public offering price on the same basis as the other shares offered hereby.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the underwriters may be required to make in respect thereof.
In connection with this offering, the underwriters are permitted to engage in certain transactions that stabilize the price of our common stock. These transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of our common stock. If the underwriters create a short position in our common stock in connection with this offering by selling more than 2,500,000 shares of common stock, the underwriters may reduce that short position by purchasing our common stock in the open market. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of those purchases. Neither the underwriters nor we make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither the underwriters nor we make any representation that the underwriters will engage in those transactions or that those transactions, once commenced, will not be discontinued without notice.
The underwriters have informed us that they do not intend to confirm sales of common stock offered by this prospectus to any accounts over which they exercise discretionary authority.
For the 12 month period following this offering, we have engaged FBR as our financial advisor in connection with future transactions, subject to certain limitations, and have granted them a right of first offer to participate in public offerings of our securities, for which they may receive customary compensation. The underwriters or their affiliates may also provide us with other investment banking, financial advisory, or commercial banking services in the future, for which they may receive customary compensation.
Our common stock is listed on the American Stock Exchange under the symbol "OLP."
EXPERTS
The consolidated financial statements of One Liberty Properties, Inc. and subsidiaries at December 31, 2000 and 2001, and for each of the three years in the period ended December 31, 2001, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the common stock offered by this prospectus has been passed upon for us by McCarter & English, LLP. In addition, the description of federal income tax consequences in "Certain Federal Income Tax Considerations" is based on the opinion of McCarter & English, LLP. Certain legal matters in connection with this offering will be passed upon for the underwriters by Gibson, Dunn & Crutcher LLP.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy the materials we file at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Our Commission filings are also available to the public from the Commission's World Wide Web site on the Internet at
http://www.sec.gov. This site contains reports, proxy and information statements and other information regarding issuers that we file electronically with the Commission.
We have filed a registration statement, of which this prospectus is a part, covering the offered securities. As allowed by Commission rules, this prospectus does not include all of the information contained in the registration statement and the included exhibits, financial statements and schedules. We refer you to the registration statement and the included exhibits, financial statements and schedules for further information. This prospectus is qualified in its entirety by such other information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" information into this prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the Commission under the Securities Exchange Act of 1934 (the "Exchange Act"). The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information in this prospectus. The following documents have been filed by us with the Commission (File No. 0-11083) and are incorporated by reference into this prospectus:
- Our annual report on Form 10-K for the year ended December 31, 2001; and
- Our current report on Form 8-K filed on April 22, 2002.
You may obtain copies of all documents which are incorporated in this prospectus by reference (other than the exhibits to those documents which are not specifically incorporated by reference herein) without charge by writing or calling Mr. Mark Lundy, at One Liberty Properties, Inc., 60 Cutter Mill Road, Great Neck, New York 11021, telephone number (516) 466-3100.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-2 Consolidated Balance Sheets at December 31, 2000 and 2001... F-3 Consolidated Statements of Income for the Three Years Ended December 31, 2001......................................... F-4 Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 2001....................... F-5 Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2001................................... F-6 Notes to Consolidated Financial Statements.................. F-7 |
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of One Liberty Properties, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of One Liberty Properties, Inc. and Subsidiaries (the "Company") as of December 31, 2000 and 2001, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of One Liberty Properties, Inc. and Subsidiaries at December 31, 2000 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
New York, New York
March 1, 2002
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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
2000 2001
---------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
ASSETS
Real estate investments, at cost (Notes 3, 4, and 5)
Land...................................................... $ 26,279 $ 25,939
Buildings and improvements................................ 101,585 101,288
-------- --------
127,864 127,227
Less accumulated depreciation............................. 6,244 8,663
-------- --------
121,620 118,564
Investment in unconsolidated joint venture (Note 3)......... -- 6,345
Cash and cash equivalents................................... 2,069 2,285
Unbilled rent receivable (Note 3)........................... 1,615 2,442
Rent, interest, deposits and other receivables.............. 976 1,157
Notes receivable -- officer (Note 7)........................ 240 167
Investment in BRT Realty Trust -- (related party) (Note
2)........................................................ 240 361
Deferred financing costs.................................... 1,154 1,247
Other (including available-for-sale securities of $228 and
$249) (Note 2)............................................ 305 371
-------- --------
$128,219 $132,939
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable (Note 5)................................ $ 64,123 $ 76,587
Line of credit (Note 5)................................... 10,000 --
Dividends payable......................................... -- 1,177
Accrued expenses and other liabilities.................... 720 827
-------- --------
Total liabilities...................................... 74,843 78,591
-------- --------
Commitments and contingencies............................... -- --
Stockholders' equity (Notes 6, 8, and 9):
Redeemable Convertible Preferred Stock, $1 par value;
$1.60 cumulative annual dividend; 2,300 shares
authorized; 648 shares issued; liquidation and
redemption values of $16.50............................ 10,693 10,693
Common Stock, $1 par value; 25,000 shares authorized;
3,010 and 3,058 shares issued and outstanding.......... 3,010 3,058
Paid-in capital........................................... 31,650 32,192
Accumulated other comprehensive income -- net unrealized
gain on available-for-sale securities (Note 2)......... 76 261
Accumulated undistributed net income...................... 7,947 8,144
-------- --------
Total stockholders' equity............................. 53,376 54,348
-------- --------
$128,219 $132,939
======== ========
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See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------
1999 2000 2001
------- ------- -------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues:
Rental income (Note 3).................................... $ 8,831 $12,333 $15,053
Equity in earnings of unconsolidated joint venture........ -- -- 83
Interest and other income (Note 3)........................ 1,349 336 184
------- ------- -------
10,180 12,669 15,320
------- ------- -------
Expenses:
Depreciation and amortization............................. 1,645 2,356 2,900
Interest -- mortgages payable (Note 5).................... 2,543 4,261 5,810
Interest -- line of credit (Note 5)....................... -- 340 250
Leasehold rent............................................ 289 289 289
General and administrative (Note 7)....................... 821 1,089 1,136
Real estate expenses...................................... 129 67 181
Provision for valuation adjustment of real estate (Note
4)..................................................... -- 125 --
------- ------- -------
5,427 8,527 10,566
------- ------- -------
Income before gain on sale.................................. 4,753 4,142 4,754
------- ------- -------
Gain on sale of real estate (Note 3)........................ 62 3,802 126
Gain (loss)on sale of available-for-sale securities......... 64 (12) (14)
------- ------- -------
126 3,790 112
------- ------- -------
Net income.................................................. $ 4,879 $ 7,932 $ 4,866
======= ======= =======
Calculation of net income applicable to common stockholders:
Net income................................................ $ 4,879 $ 7,932 $ 4,866
Less dividends and accretion on preferred stock........... 1,247 1,044 1,037
------- ------- -------
Net income applicable to common stockholders................ $ 3,632 $ 6,888 $ 3,829
======= ======= =======
Weighted average number of common shares outstanding:
Basic..................................................... 2,960 2,993 3,019
======= ======= =======
Diluted................................................... 2,963 3,528 3,036
======= ======= =======
Net income per common share (Notes 2 and 8):
Basic..................................................... $ 1.23 $ 2.30 $ 1.27
======= ======= =======
Diluted................................................... $ 1.23 $ 2.25 $ 1.26
======= ======= =======
Cash distributions per share:
Common Stock.............................................. $ 1.20 $ 1.20 $ 1.20
======= ======= =======
Preferred Stock........................................... $ 1.60 $ 1.60 $ 1.60
======= ======= =======
|
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2001
ACCUMULATED
OTHER ACCUMULATED
PREFERRED COMMON PAID-IN COMPREHENSIVE UNDISTRIBUTED
STOCK STOCK CAPITAL INCOME NET INCOME TOTAL
--------- ------ ------- ------------- ------------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Balances, December 31,
1998....................... $ -- $2,940 $30,965 $100 $ 4,490 $38,495
Distributions -- Common Stock
($1.20 per share).......... -- -- -- -- (3,552) (3,552)
Distributions -- Preferred
Stock ($1.60 per share).... -- -- -- -- (1,168) (1,168)
Preferred Stock (Note 6)..... 10,802 -- -- -- -- 10,802
Accretion on Preferred
Stock...................... -- -- (79) -- -- (79)
Preferred shares converted to
Common Stock............... -- 1 7 -- -- 8
Shares issued through
dividend reinvestment
plan....................... -- 39 445 -- -- 484
Net income................... -- -- -- -- 4,879 4,879
Other comprehensive
income -- net unrealized
loss on
available-for-sale
securities (Note 2)..... -- -- -- (67) -- (67)
-------
Comprehensive income......... -- -- -- -- -- 4,812
------- ------ ------- ---- ------- -------
Balances, December 31,
1999....................... 10,802 2,980 31,338 33 4,649 49,802
Distributions -- Common Stock
($1.20 per share).......... -- -- -- -- (3,590) (3,590)
Distributions -- Preferred
Stock ($1.60 per share).... -- -- -- -- (1,044) (1,044)
Preferred Stock (Note 6)..... (109) -- 18 -- -- (91)
Shares issued through
dividend reinvestment
plan....................... -- 30 294 -- -- 324
Net income................... -- -- -- -- 7,932 7,932
Other comprehensive
income -- net unrealized
gain on
available-for-sale
securities (Note 2)..... -- -- -- 43 -- 43
-------
Comprehensive income......... -- -- -- -- -- 7,975
------- ------ ------- ---- ------- -------
Balances, December 31,
2000....................... 10,693 3,010 31,650 76 7,947 53,376
Distributions -- Common Stock
($1.20 per share).......... -- -- -- -- (3,632) (3,632)
Distributions -- Preferred
Stock ($1.60 per share).... -- -- -- -- (1,037) (1,037)
Exercise of options.......... -- 33 368 -- -- 401
Shares issued through
dividend reinvestment
plan....................... -- 15 174 -- -- 189
Net income................... -- -- -- -- 4,866 4,866
Other comprehensive
income -- net unrealized
loss on
available-for-sale
securities (Note 2)..... -- -- -- 185 -- 185
-------
Comprehensive income......... -- -- -- -- -- 5,051
------- ------ ------- ---- ------- -------
Balances, December 31,
2001....................... $10,693 $3,058 $32,192 $261 $ 8,144 $54,348
======= ====== ======= ==== ======= =======
|
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------
1999 2000 2001
-------- -------- --------
(AMOUNTS IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 4,879 $ 7,932 $ 4,866
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of real estate............................... (62) (3,802) (126)
Gain (loss) on sale of available-for-sale securities...... (64) 12 14
Increase in rental income from straight-lining of rent.... (572) (669) (827)
Equity in earnings of unconsolidated joint venture........ -- -- (83)
Distribution from unconsolidated joint venture............ -- -- 65
Payments to minority interest by subsidiary............... (13) (32) (23)
Provision for valuation adjustment........................ -- 125 --
Depreciation and amortization............................. 1,645 2,356 2,900
Changes in assets and liabilities:
Increase in rent, interest, deposits and other
receivables............................................ (82) (422) (153)
Increase in accrued expenses and other liabilities........ 95 340 131
-------- -------- --------
Net cash provided by operating activities.............. 5,826 5,840 6,764
-------- -------- --------
Cash flows from investing activities:
Additions to real estate.................................. (11,499) (51,994) (152)
Net proceeds from sale of real estate..................... 210 12,514 749
Investment in unconsolidated joint venture................ -- -- (6,327)
Net proceeds from sale of available-for-sale securities... 1,203 156 201
Collection of mortgages receivable........................ 228 -- --
Purchase of available-for-sale securities................. (885) -- (173)
-------- -------- --------
Net cash used in investing activities.................. (10,743) (39,324) (5,702)
-------- -------- --------
Cash flows from financing activities:
Proceeds (repayments) from bank line of credit............ -- 10,000 (10,000)
Proceeds from mortgages payable........................... 5,775 20,162 13,600
Payment of financing costs................................ (238) (666) (408)
Repayment of mortgages payable............................ (528) (789) (1,136)
Cash distributions -- Common Stock........................ (4,434) (3,590) (2,714)
Cash distributions -- Preferred Stock..................... (1,491) (1,044) (778)
Exercise of stock options................................. -- -- 401
Repurchase of preferred stock, which was cancelled........ (2,494) (91) --
Issuance of shares through dividend reinvestment plan..... 484 324 189
-------- -------- --------
Net cash (used in) provided by financing activities.... (2,926) 24,306 (846)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents........ (7,843) (9,178) 216
Cash and cash equivalents at beginning of year.............. 19,090 11,247 2,069
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 11,247 $ 2,069 $ 2,285
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense............ $ 2,546 $ 4,464 $ 6,084
Supplemental schedule of non cash investing and financing
activities:
Assumption of mortgage payable in connection with purchase
of real estate......................................... $ 1,065 $ 9,015 $ --
|
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 1 -- ORGANIZATION AND BACKGROUND
One Liberty Properties, Inc. (the "Company") was incorporated in 1982 in the state of Maryland. The Company is a self-administered real estate investment trust ("REIT") which currently participates in net leasing transactions and has engaged in other real property transactions. The Company owns thirty-three properties, a leasehold position with respect to one property and is a member of a joint venture which owns one property. The thirty-five properties are located in thirteen states.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of One Liberty Properties, Inc., its wholly-owned subsidiaries and a majority-owned limited liability company. Material intercompany items and transactions have been eliminated. The Company's investment in a less than majority owned joint venture has been accounted for using the equity method. One Liberty Properties, Inc., its subsidiaries and the limited liability company are hereinafter referred to as the Company.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
INCOME RECOGNITION
Rental income includes the base rent that each tenant is required to pay in accordance with the terms of their respective leases reported on a straight-line basis over the initial term of the lease. Some of the leases provide for additional contingent rental revenue in the form of percentage rents and increases based on the consumer price index. The percentage rents are based upon the level of sales achieved by the lessee and are recorded once the required sales levels are reached.
DEPRECIATION
Depreciation of buildings is computed on the straight-line method over an estimated useful life of 40 years for commercial properties and 27 and one half years for residential properties.
DEFERRED FINANCING COSTS
Mortgage and credit line costs are deferred and amortized on a straight-line basis over the terms of the respective debt obligations, which approximates the effective interest method.
FEDERAL INCOME TAXES
The Company has qualified as a real estate investment trust under the applicable provisions of the Internal Revenue Code. Under these provisions, the Company will not be subject to federal income taxes on amounts distributed to stockholders providing it distributes substantially all of its taxable income and meets certain other conditions.
Total distributions made during 2000 and 2001 included approximately 1% attributable to capital gains, with the balance to ordinary income.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company determines the appropriate classification of securities at the time of purchase and reassesses the appropriateness of the classification at each report date. At December 31, 2001, all marketable securities have been classified as available-for-sale and, as a result, are stated at fair value. Unrealized gains and losses on available-for-sale securities are recorded as accumulated other comprehensive income in the stockholders' equity section.
The Company's investment in 30,048 common shares of BRT Realty Trust ("BRT"), a related party of the Company, (accounting for less than 1% of the total voting power of BRT), purchased at a cost of $97,000 has a fair market value at December 31, 2001 of $361,000. The net unrealized holding gain of $264,000 is excluded from earnings. In addition, the Company has invested $252,000 in various other equity securities which have a fair market value of $249,000 at December 31, 2001. The aggregate net unrealized holding loss of $3,000 on these investments is also excluded from earnings. At December 31, 2001, the cumulative unrealized gain of $261,000 on these investments is reported as accumulated other comprehensive income in the stockholders' equity section.
Realized gains and losses are determined using the average cost method. During 2000 and 2001, sales proceeds and gross realized gains and losses on securities classified as available-for-sale were:
2000 2001
-------- --------
Sales proceeds.............................................. $156,000 $201,000
======== ========
Gross realized losses....................................... $(12,000) $(17,000)
======== ========
Gross realized gains........................................ $ -- $ 3,000
======== ========
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet for these instruments approximate their fair values.
Notes receivable -- officer: The carrying amount of the notes receivable reported on the balance sheet is their face value. The notes carry an interest rate equal to the prime rate and thus the outstanding balance approximates the fair value.
Investment in equity securities: Since these investments are considered "available-for-sale", they are reported in the balance sheet based upon quoted market prices.
Mortgages payable: At December 31, 2001, the estimated fair value of the Company's mortgages payable exceeded its carrying value by $800,000, assuming a market interest rate of 7.75%.
Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
ACCRETION ON PREFERRED STOCK
The Company has Preferred Stock outstanding which is both redeemable and convertible. The stock was initially recorded in the financial statements at its fair value based upon the initial average trades on the American Stock Exchange. The amount by which the redemption value exceeded the carrying value was accreted using the interest method through July 1, 1999. (See Note 6.)
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER COMMON SHARE
Basic earnings per share was determined by dividing net income applicable to common stockholders for each year by the weighted average number of shares of Common Stock outstanding during each year.
Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in the earnings of the Company. For the years ended December 31, 1999 and 2001, diluted earnings per share was determined by dividing net income applicable to common stockholders for each year by the total of the weighted average number of shares of Common Stock outstanding plus the dilutive effect of the Company's outstanding options (3,376 and 16,498 shares for the years ended 1999 and 2001, respectively) using the treasury stock method. The Preferred Stock was not considered for the purpose of computing diluted earnings per share for the years ended December 31, 1999 and 2001 because their assumed conversion was antidilutive. For the year ended December 31, 2000, diluted earnings per share was determined by dividing net income by the total of the weighted average number of shares of Common Stock outstanding plus the dilutive effect of the Company's outstanding options (49,500 shares) plus the dilutive effect of the Company's Preferred Stock using the if-converted method.
Various options were not included in the computation of diluted earnings per share in each year because the exercise price of these options is greater than the average market price of the common shares and, therefore, the effect would be antidilutive.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with maturities of three months or less when purchased.
VALUATION ALLOWANCE ON REAL ESTATE OWNED
The Company reviews each real estate asset owned for which indicators of impairment are present to determine whether the carrying amount of the asset will be recovered. Recognition of impairment is required if the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Measurement is based upon the fair market value of the asset. Real estate assets that are expected to be disposed of are valued at the lower of carrying amount or fair value less costs to sell on an individual asset basis.
ACCOUNTING FOR LONG-LIVED ASSETS
The Financial Accounting Standards Board issued Statement No. 144, Accounting for the Impairment of Long-Lived Assets which supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, however it retains the fundamental provisions of that statement related to the recognition and measurement of the impairment of long-lived assets to be "held and used". In addition, Statement No. 144 provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset or asset group to be disposed of other than by sale (e.g. abandoned) be classified as "held and used" until it is disposed of, and establishes more restrictive criteria to classify an asset or asset group as "held for sale". The Company's management does not anticipate that the adoption of this statement will have an effect on the earnings or the financial position of the Company.
SEGMENT REPORTING
Effective January 1, 1998, the Company adopted the Financial Accounting Standards Board's Statement No. 131, Disclosure About Segments of an Enterprise and Related Information. Statement No. 131 established standards for the way that public business enterprises report information about operating segments
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Virtually all of the Company's real estate assets are comprised of real estate owned that is net leased to tenants on a long-term basis. Therefore, the Company operates predominantly in one industry segment, and thus, Statement No. 131 did not have a material impact on that Company's financial statements.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001 the Company adopted the Financial Accounting Standards Board Statement No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133. Statement No. 137 deferred for one year the effective date of Statement No. 133, Accounting for Derivatives Instruments and Hedging Activities. Because of the Company's minimal use of derivatives, Statement No. 137 did not have a significant effect on earnings or the financial position of the Company.
RECLASSIFICATION
Certain amounts reported in previous financial statements have been reclassified in the accompanying financial statements to conform to the current year's presentation.
NOTE 3 -- REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS
In November, 2001, a joint venture entered into by the Company with an affiliate of Deutsche Bank A.G., an unrelated party, acquired a megaplex stadium style theatre. The Company invested approximately $6,300,000 for its 50% participation in the joint venture. All decisions of the venture are subject to joint control. A management fee equal to 1% of rent paid by the tenant is paid to a company controlled by the Chairman of the Board of Directors and certain officers of the Company. The fee for the year ending December 31, 2001 was $1,300.
During the year ended December 31, 2000, the Company purchased eight properties in four states for a total consideration of $61,009,000. First mortgages totaling $29,015,000 were placed on five of these properties.
The rental properties owned at December 31, 2001 are leased under noncancellable operating leases to corporate tenants with current expirations ranging from 2002 to 2038, with certain tenant renewal rights. The majority of lease agreements are net lease arrangements which require the tenant to pay not only rent but all the expenses of the leased property including maintenance, taxes, utilities and insurance. Certain lease agreements provide for periodic rental increases and others provide for increases based on the consumer price index.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The minimum future rentals to be received over the next five years and thereafter on the operating leases in effect at December 31, 2001 are as follows:
(IN THOUSANDS)
Year Ending December 31,
2002...................................................... $ 13,616
2003...................................................... 13,078
2004...................................................... 13,167
2005...................................................... 13,097
2006...................................................... 12,636
Thereafter................................................ 98,572
--------
Total.................................................. $164,166
========
|
At December 31, 2001, the Company has recorded an unbilled rent receivable aggregating $2,442,000, representing rent reported on a straight-line basis in excess of rental payments required under the initial term of the respective leases. This amount is to be billed and received pursuant to the lease terms over the next sixteen years. The minimum future rentals presented above include amounts applicable to the repayment of these unbilled rent receivables.
For the year ended December 31, 2001, one tenant generated revenues of 11.4% of the Company's total revenues. This tenant, who occupies an entire flex building, generated $1,746,000 in rental revenue. The initial term of the tenant's lease expires December 31, 2014.
SALES OF REAL ESTATE
In May and August, 2001, the Company sold two properties for a total sales price of $800,000 and recognized a net gain of $126,000.
On October 20, 2000, the Company sold the thirteen locations it owned in Michigan that were net leased to Total Petroleum, Inc. The gross sales price was $12,000,000 which resulted in a gain of $3,603,000 for financial statement purposes. The Company did not realize a gain for federal income tax purposes on the sale in accordance with Internal Revenue Section 1031.
In February and May, 2000, the Company sold two properties for a total sales price of $890,000 and recognized gains totaling $199,000.
In July 1999, the Company sold a property for a sales price of $225,000 and recognized a gain of $62,000.
Included in other income for the year ended December 31, 1999 is $793,000 which represents the return to the Company of unused escrow funds by the escrow agent pursuant to the lease agreement with Total Petroleum, Inc. (entered into in 1991).
NOTE 4 -- PROVISION FOR VALUATION ADJUSTMENT
During the year ended December 31, 2000, the Company determined that the estimated fair value of two properties were lower than their carrying amounts and thus, the Company recorded a $125,000 provision for the differences. The $125,000 provision was recorded as a direct write-down of the respective investments on the balance sheet and depreciation was calculated using the new basis.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- DEBT OBLIGATIONS
MORTGAGES PAYABLE
At December 31, 2001, there are twenty-three outstanding mortgages payable, all of which are secured by first liens on individual real estate investments with an aggregate carrying value of $116,453,000 before accumulated depreciation. The mortgages bear interest at rates ranging from 6.9% to 9.1%, and mature between 2002 and 2017. The weighted average interest rate was 7.6%, 7.7% and 8% for the years ended December 31, 1999, 2000 and 2001, respectively.
Scheduled principal repayments during the next five years and thereafter are as follows:
(IN THOUSANDS)
Year Ending December 31,
2002...................................................... $ 2,493
2003...................................................... 10,000
2004...................................................... 4,092
2005...................................................... 9,367
2006...................................................... 8,741
2007 and thereafter....................................... 41,894
-------
Total.................................................. $76,587
=======
|
LINE OF CREDIT
On March 24, 2000 the Company entered into an agreement with European American Bank ("EAB") to provide for a two year $15,000,000 revolving credit facility ("Facility"). EAB merged into Citibank NA and accordingly, Citibank, successor to EAB is hereafter referred to as the "Bank". The Facility provides that the Company pay interest at the Bank's prime rate on funds borrowed and an unused facility fee of 1/4%. The Company paid $175,000 in fees and closing costs which are being amortized over the term of the loan. The Company has exercised an option to extend the term for one year until March 24, 2003. The Facility is guaranteed by all of the Company's subsidiaries which own unencumbered properties and the shares of all the subsidiaries are pledged as collateral. The Company has agreed that it and its affiliates will maintain on deposit with the Bank at least 10% of the average outstanding annual principal balance of take downs under the Facility. If minimum balances are not maintained by the Company and its affiliates, a deficiency fee is charged to the Company.
The Facility is available to finance the acquisition of commercial real estate. The Company is required to comply with certain covenants. Net proceeds received from the sale or refinance of properties are required to be used to repay amounts outstanding under the Facility if proceeds from the Facility were used to purchase the property.
NOTE 6 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Preferred Stock has the following rights, qualifications and
conditions: (i) a cumulative dividend preference of $1.60 per share per annum;
(ii) a liquidation preference of $16.50 per share; (iii) a right to convert each
share of Preferred Stock at any time into .825 of a share of Common Stock; (iv)
redeemable by the Company at $16.50 per share; and (v) one-half vote per share.
Pursuant to the Company's certificate of incorporation, as amended, each preferred shareholder of the Company had a one-time right to "put" the Preferred Stock to the Company at $16.50 per share for a period of ninety (90) days commencing July 1, 1999. During this period, preferred shareholders "put" 137,268
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preferred shares to the Company for a total payment by the Company of $2,265,000. The preferred shareholders no longer have any rights to "put" their shares to the Company.
During the years ended December 31, 1999 and 2000 the Company repurchased 13,950 and 6,600 shares of Preferred Stock for an aggregate consideration of $228,000 and $91,000, respectively.
NOTE 7 -- RELATED PARTY TRANSACTIONS
At December 31, 2000 and 2001, Gould Investors L.P. ("Gould"), a related party, owned 542,397 shares of the common stock of the Company or approximately 18% of the equity interest and held approximately 16% of the voting rights.
Gould charged the Company $248,000, $272,000 and $351,000 during the years ended December 31, 1999, 2000 and 2001, respectively, for allocated general and administrative expenses and payroll based on time incurred by various employees.
The Company paid a company controlled by the Chairman of the Board of Directors and certain officers of the Company 1% brokerage fees totaling $102,000, $200,000 and $136,000 during the years ended December 31, 1999, 2000 and 2001 relating to mortgages placed on five, three and two of the Company's properties, respectively. These fees were deferred and are being amortized over the lives of the respective loans. During the years ended December 31, 2000 and 2001, this controlled company was paid fees of $4,000 and $12,500, respectively, for supervision of improvements and repairs to properties and was paid a brokerage fee of $300,000 relating to the sale of the Total Petroleum properties during the year ended December 31, 2000.
In 1999 and 2000, the Company made loans aggregating $240,000 to its current president providing for an interest rate equal to the prime rate and maturing in December, 2004. These loans are secured by shares of the Company purchased with the proceeds and personally guaranteed by him and his wife. The outstanding loan balance at December 31, 2001 is $167,000.
During October 1998 and prior to his being employed by the Company, Gould made a $350,000 loan to the current president and his wife which matured in October, 2001 and was repaid by December 31, 2001. The loan was secured by interests in several real estate partnerships in which Gould and the Company are the majority partners, and the wife of the Company's president is the minority partner. The loan bore interest at 9% and was personally guaranteed.
The minority partner of a limited liability company, which is consolidated within these financial statements, is the wife of the current president. This entity purchased real estate in March 1998, prior to the current president being employed by the Company.
NOTE 8 -- STOCK OPTIONS
On November 17, 1989, the directors of the Company adopted the 1989 Stock Option Plan. Stock options under the 1989 Stock Option Plan are granted at per share amounts at least equal to their fair market value at the date of grant. A maximum of 225,000 common shares were reserved for issuance under the 1989 Stock Option Plan, of which none are available for grant at December 31, 2001.
On December 6, 1996, the directors of the Company adopted the 1996 Stock
Option Plan (Incentive/ Nonstatutory Stock Option Plan). Incentive stock options
are granted at per share amounts, at least equal to their fair market value at
the date of grant, whereas for nonstatutory stock options the exercise price may
be any amount determined by the Board of Directors. Options granted under the
Plan will expire no later than ten years after the date on which the option is
granted. The options granted under the Plans are cumulatively exercisable at a
rate of 25% per annum, commencing six months after the date of grant, and expire
five years after the date of grant. A maximum of 225,000 shares of common stock
of the Company (which includes
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
100,000 additional shares which were approved by the Company's shareholders as an amendment to the Plan at the 2001 annual meeting of stockholders) are reserved for issuance to employees, officers, directors, consultants and advisors to the Company, of which 85,000 are available for grant at December 31, 2001.
Changes in the number of common shares under all option arrangements are summarized as follows:
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 2000 2001
-------------- -------------- --------------
Outstanding at beginning of period... 80,500 128,000 177,500
Granted.............................. 47,500 49,500 57,500
Option prices........................ $12.375 $11.125 $12.19
Exercisable at end of period......... 62,250 106,625 122,850
Exercised............................ -- -- (32,400)
Expired.............................. -- -- --
Outstanding at end of period......... 128,000 177,500 202,600
Option price per share outstanding... $12.375-$14.50 $11.125-$14.50 $11.125-$14.50
|
As of December 31, 2001, the outstanding options had a weighted average remaining contractual life of approximately 2.41 years and a weighted average exercise price of $12.62.
The Company adopted Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations in accounting for its employee stock options. Under APB 25, no compensation expense is recognized because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant. The alternative fair value accounting provided for under FASB No. 123, Accounting for Stock-Based Compensation, is not applicable because it requires use of option valuation models that were not developed for use in valuing employee stock options.
Pro forma information regarding net income and earnings per share is required by FASB No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1999, 2000 and 2001, respectively: risk free interest rate of 6.41%, 5.22% and 4.06%, dividend yield of 9.7%, 11.03% and 10.07%, volatility factor of the expected market price of the Company's Common Stock based on historical results of .116, .135 and 1.41; and expected lives of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate, management believes the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Had the fair value method of accounting been applied to the Company's stock plan, which requires recognition of compensation cost ratably over the vesting period, pro forma net income applicable to common stockholders would have been $3,610,000 which would result in pro forma earnings of $1.22 per share in 1999. The Company has elected not to present pro forma information for 2000 and 2001 because the impact on the reported net income and earnings per share is immaterial.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- DISTRIBUTION REINVESTMENT PLAN
In May, 1996, the Company implemented a Distribution Reinvestment Plan (the "Plan"). The Plan provides owners of record of 100 shares or more of its common and/or preferred stock the opportunity to reinvest cash distributions in newly-issued common stock of the Company at a five percent discount from the market price. No open market purchases are made under the Plan. During the years ended December 31, 2000 and 2001, the Company issued 30,532 and 15,098 common shares, respectively, under the Plan.
NOTE 10 -- INCOME TAXES (UNAUDITED)
The Company elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code, commencing with its taxable year ended December 31, 1983. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its stockholders. It is management's current intention to adhere to these requirements and maintain the Company's REIT status. As a REIT, the Company generally will not be subject to corporate level federal, state and local income tax on taxable income it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal, state and local income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income.
RECONCILIATION BETWEEN FINANCIAL STATEMENT NET INCOME AND FEDERAL TAXABLE
INCOME
The following table reconciles financial statement net income to federal taxable income for the years ended December 31, 1999, 2000 and 2001 (amounts in thousands):
1999 2000 2001
ACTUAL ACTUAL ESTIMATE
------ ------- --------
Net income................................................ $4,879 $ 7,932 $4,866
Straight line rent adjustments............................ (572) (669) (827)
Financial statement gain on sale in excess of tax gain.... (129) (3,745) (69)
Rent received in advance.................................. -- 127 101
Financial statement provision for valuation adjustment.... -- 125 --
Financial statement depreciation in excess of tax......... -- -- 85
Other adjustments......................................... (11) (4) (2)
------ ------- ------
Federal taxable income.................................... $4,167 $ 3,766 $4,154
====== ======= ======
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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILIATION BETWEEN CASH DIVIDENDS PAID AND DIVIDENDS PAID DEDUCTION
The following table reconciles cash dividends paid with the dividends paid deduction for the years ended December 31, 1999, 2000 and 2001 (amounts in thousands):
1999 2000 2001
------- ------- -------
Cash dividends paid..................................... $ 4,720 $ 4,634 $ 4,669
Dividend reinvestment plan(1)........................... 20 18 12
------- ------- -------
4,740 4,652 4,681
Less: Dividends designated to prior years............... (3,094) (2,521) (1,645)
Plus: Dividends designated from following year.......... 2,521 1,645 1,128
------- ------- -------
Dividends paid deduction(2)............................. $ 4,167 $ 3,776 $ 4,164
======= ======= =======
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(1) Amount reflects the 5% discount on the Company's common shares purchased through the dividend reinvestment plan.
(2) Dividends paid deduction is higher than federal taxable income in 2000 and 2001 so as to account for adjustments made to federal taxable income as a result of the alternative minimum tax.
NOTE 11 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
QUARTER ENDED
----------------------------------------------- TOTAL
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FOR YEAR
-------- ------- ------------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000
Revenues............................ $2,559 $3,295 $3,356 $3,459 $12,669
Net income.......................... 1,140 1,156 1,081 4,555(b)(c) 7,932
Net income applicable to common
stockholders...................... 878 894 820 4,296(b)(c) 6,888
Net income per common share:
Basic............................. .29 .30 .27 1.43 2.30(a)
Diluted........................... .29 .30 .27 1.29 2.25(a)
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QUARTER ENDED
----------------------------------------------- TOTAL
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FOR YEAR
-------- ------- ------------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2001
Revenues............................ $3,784 $3,882 $3,798 $3,856 $15,320
Net income.......................... 1,186 1,163 1,303 1,214 4,866
Net income applicable to common
stockholders...................... 927 904 1,044 954 3,829
Net income per common share:
Basic............................. .31 .30 .35 .32 1.27(a)
Diluted........................... .31 .30 .34 .31 1.26(a)
|
(a) Calculated on weighted average shares outstanding for the year.
(b) Net income reflects a provision for valuation adjustment of real estate amounting to $125 for the quarter ending December 31, 2000.
(c) Includes $3,603, (or $1.20 and $1.06 per common share, basic and diluted, respectively) from the sale of the Total Petroleum properties. See Note 3.
2,500,000 SHARES
[LOGO]
COMMON STOCK
FRIEDMAN BILLINGS RAMSEYFFERRIS, BAKER WATTS
Incorporated
, 2002
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
AMOUNT
------
SEC registration fee........................................ $4,367
Transfer agent and registrar fee............................ *
Printing expenses........................................... *
Accountant fees............................................. *
American Stock Exchange additional listing fee.............. *
Counsel fees................................................ *
NASD filing fee............................................. 5,247
Miscellaneous............................................... *
------
Total.................................................. *
======
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* to be completed by amendment
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our charter and by-laws provide that each of our directors, officers and employees will be indemnified by us to the full extent permitted by the General Corporation Laws of the State of Maryland, now or hereafter in force. Our charter provides that to the maximum extent that Maryland law in effect from time to time permits the limitation of liability of directors and officers, no director or officer will be liable to us or our stockholders for money damages. We do not maintain officers and directors liability insurance.
ITEM 16. EXHIBITS.
EXHIBIT DESCRIPTION
------- -----------
1.1+ Form of Underwriting Agreement
4.1 Form of Common Stock Certificate
5.1+ Opinion of McCarter & English, LLP
8.1+ Tax Opinion of McCarter & English, LLP
10.1* Credit Agreement between Registrant and European American
Bank
10.2** Operating Agreement for OLP Holdings, LLC for the joint
venture between OLP Theatres LLC and Greenwood Properties,
Corp., as amended
10.3 Lease Agreement between OLP Hauppauge LLC and L-3
Communications Corporation
10.4 One Liberty Properties, Inc. 1989 Stock Option Plan
10.5 One Liberty Properties, Inc. 1996 Stock Option Plan
10.6 One Liberty Properties, Inc. Pension Plan
10.7+ Amended and Restated Operating Agreement between the
Registrant and Elpans LLC
10.8 Lease Agreement between the Registrant and The ESAB Group,
Inc., as amended
10.9 Secured Promissory Notes of Jeffrey Fishman dated December
21, 1999, January 20, 2000 and February 29, 2000
23.1 Consent of Ernst & Young LLP
23.2 Consent of McCarter & English, LLP (contained in Exhibit
5.1)
23.3 Consent of Patrick J. Callan, Jr.
24.1 Powers of Attorney (included on signature page of
registration statement)
|
II-1
* Previously filed with the Securities and Exchange Commission as an Exhibit to the Registrant's Form 8-K filed on March 31, 2000 and incorporated herein by reference.
** Previously filed with the Securities and Exchange Commission as an Exhibit to the Registrant's Form 8-K filed on April 22, 2002 and incorporated herein by reference.
+ To be filed by amendment.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to Item 14 hereof, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-2
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Great Neck, New York, on the 19th day of April 2002.
ONE LIBERTY PROPERTIES, INC.
By: /s/ JEFFREY FISHMAN
------------------------------------
Jeffrey Fishman
President
|
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated on the 19th day of April, 2002. Each person whose signature appears below hereby constitutes and appoints Jeffrey Fishman and Jeffrey Gould, or either of them, as such person's true and lawful attorney-in-fact and agent with full power and substitution for such person and in such person's name, place and stead, in any and all capacities, to sign and to file with the Securities and Exchange Commission, any and all amendments and post-effective amendments to this Registration Statement, with exhibits thereto and other documents in connection therewith, including any registration statements or amendments thereto filed pursuant to Rule 462(b) under the Securities Act, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or any substitute therefor, may lawfully do or cause to be done by virtue thereof.
SIGNATURE TITLE
--------- -----
/s/ FREDRIC H. GOULD Chairman of the Board of Directors
------------------------------------------------
Fredric H. Gould
/s/ JEFFREY FISHMAN President and Chief Executive Officer
------------------------------------------------
Jeffrey Fishman
/s/ JOSEPH A. AMATO Director
------------------------------------------------
Joseph A. Amato
/s/ CHARLES BIEDERMAN Director
------------------------------------------------
Charles Biederman
/s/ JAMES J. BURNS Director
------------------------------------------------
James J. Burns
/s/ JEFFREY GOULD Director
------------------------------------------------
Jeffrey Gould
/s/ MATTHEW GOULD Director
------------------------------------------------
Matthew Gould
|
II-3
SIGNATURE TITLE
--------- -----
/s/ ARTHUR HURAND Director
------------------------------------------------
Arthur Hurand
/s/ MARSHALL ROSE Director
------------------------------------------------
Marshall Rose
/s/ DAVID W. KALISH Senior Vice President and
------------------------------------------------ Chief Financial Officer
David W. Kalish
|
II-4
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
4.1 Form of Common Stock Certificate
10.3 Lease Agreement between OLP Hauppauge, LLC and L-3
Communications Corporation
10.4 One Liberty Properties, Inc. 1989 Stock Option Plan
10.5 One Liberty Properties, Inc. 1996 Stock Option Plan
10.6 One Liberty Properties, Inc. Pension Plan
10.8 Lease Agreement between the Registrant and The ESAB Group,
Inc., as amended
10.9 Secured Promissory Notes of Jeffrey Fishman dated December
21, 1999, January 20, 2000 and February 29, 2000
23.1 Consent of Ernst & Young LLP
23.3 Consent of Patrick J. Callan, Jr.
|
Exhibit 4.1
NUMBER SHARES
CU
ONE LIBERTY PROPERTIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
COMMON STOCK SEE REVERSE FOR CERTAIN
PAR VALUE $1.00 DEFINITIONS AND RESTRICTIONS
CUSIP 682406 10 3
This Certifies that
SPECIMEN
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is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE
$1.00 PER SHARE, OF
ONE LIBERTY PROPERTIES, INC.
transferable on the books of the Corporation by the holder hereof, or person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby shall be held subject to all of the provisions of the Articles of Incorporation of the Corporation and of amendments thereto, copies of which are on file with the Corporation and the Transfer Agent, to all of which the holder by his acceptance hereof assents. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
Secretary [SEAL] President
AUTHORIZED SIGNATURE
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.) TRANSFER AGENT
AND REGISTRAR
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THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS WHICH ARE SET FORTH IN FULL IN THE ARTICLES OF INCORPORATION OF THE CORPORATION, SUCH REQUEST MAY BE MADE TO THE CORPORATION OR THE TRANSFER AGENT.
The transferability of the shares represented hereby is subject to certain restrictions and such shares are subject to redemption as provided in the Articles of Incorporation of the Corporation, to which reference is hereby made, to prevent disqualification of the Corporation as a real estate investment trust under Sections 856 to 860 of the Internal Revenue Code of 1954, as amended. A copy of the applicable provisions of the Articles of Incorporation will be furnished to any stockholder on request and without charge.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ....Custodian.....
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts
of survivorship and right as to Minors Act
tenants in common ..................
(State)
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Additional abbreviations may also be used though not in the above list.
For value received, ____________ hereby sell, assign and transfer unto
_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _________________________
_______________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated:_______________________
_______________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
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Exhibit 10.3
MASTER LEASE AGREEMENT
OLP HAUPPAUGE LLC
- LANDLORD -
L-3 COMMUNICATIONS CORPORATION
- TENANT -
DECEMBER 28, 2000
LEASE dated as of December 28, 2000, between OLP Hauppauge LLC, a New York limited company having an address at 60 Cutter Mill Road, Great Neck, NY, 11021, as Landlord, and L-3 Communications Corporation, a Delaware corporation, having an address at 600 Third Avenue, 34th Floor, New York, NY 10016, as Tenant, of premises known as 435 Moreland Road, Hauppauge, New York.
WHEREAS, pursuant to a sale leaseback transaction, Landlord has this date acquired that certain parcel of land containing approximately 17.4 acres (the "Land" or "Building") together with the improvements thereon (the "Building" or the "Improvements") all commonly known as the 435 Moreland Road, Hauppauge, New York and more particularly described on Exhibit A (collectively, any of the "Demised Premises", the "Premises", the "Property" or the "Real Property"); and
WHEREAS, as a condition to Landlord's acquisition of the Demised Premises and of Tenant's disposition of the Demised Premises, Landlord now desires to lease the Demised Premises to Tenant and Tenant now desires to lease the Demised Premises from Landlord all upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual premises herein set forth, the sufficiency of which being hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE 1
Demised Premises and Parking Area
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the premises outlined in red and shown on the plan annexed hereto as Exhibit A, with all the appurtenances belonging thereto, containing an aggregate area of approximately 149,870 square feet, the legal description of which is set forth on Exhibit I annexed hereto.
Condition of the Premises. Tenant expressly understands and agrees and acknowledges that Landlord would not have entered this Lease or acquired the Demised Premises without the express provisions of this Article 1. It is understood that the Demised Premises and all improvements and fixtures (including, without limitation, the Building) shall be delivered "AS IS" in their present condition and with all faults. Landlord shall not be liable for any latent or patent defects in the Demised Premises. Tenant acknowledges that neither Landlord nor any of its representatives, employees, officers, directors, shareholders, trustees, members, partners, counsel or agents has made (and Landlord hereby disclaims) any representations or warranties, express or implied, as to the physical condition, state of repair, tenancy, income, expenses or operation of the Demised Premises. Tenant acknowledges that it has not relied on any representations, warranties or "broker set-ups" in its decision to lease the Demised Premises in accordance with the terms hereof and also acknowledges that Tenant is intimately familiar with the Demised Premises due to its previous ownership of same.
In particular, except as herein specifically set forth, Landlord is unwilling to make any representations or warranties in respect of (i) the physical condition of the Demised Premises (including, without limitation, in respect of the presence, non-presence or condition of hazardous, toxic or other environmentally sensitive materials or substances), (ii) the compliance or non-compliance of the Demised Premises with applicable laws (including, without limitation, those relating to the protection of the environment or the safety of employees or workers), (iii) the revenues, income or expenses of the Demised Premises, (iv) the adequacy or inadequacy of the utilities, if any, provided to the Demised Premises, (v) the zoning of the Demised Premises or (vi) any other matter concerning the Demised Premises. Tenant acknowledges the foregoing and warrants and represents that it (or its principal officers if Tenant shall be an entity) has had sufficient time and opportunity to inspect the Demised Premises and other matters deemed important to Tenant, that it (or its principal officers if Tenant shall be an entity) is experienced in owning real property similar to the Demised Premises and that it is represented by advisors and counsel of its choosing and that Tenant is intimately familiar with the Demised Premises due to its previous ownership of same.
ARTICLE 2
Term of Lease
A. The original term of this Lease (hereinafter the "Original Term") shall commence on the "Commencement Date" (as defined in paragraph B of this Article) and shall expire at midnight on the date which is fourteen (14) years after the day before the Commencement Date, subject to extension pursuant to Article "3" hereof ("Expiration Date"). The term "Lease Year" shall be deemed to mean each successive period of twelve (12) full months following the Commencement Date.
B. The Commencement Date shall be December 28, 2000.
ARTICLE 3
Options to Extend
Provided Tenant is not in default beyond any applicable grace or cure period of any of its obligations under the Lease at the time it exercises its option, Tenant shall have the right, provided (i) this Lease has not been terminated pursuant to the provisions of this Lease or otherwise, and (ii) in respect of any extended term after the first extended term, this Lease has been extended for the prior extended term, to elect to extend the term of this Lease for three (3) terms of five (5) years (each such term being hereinafter called "Extended Term"), each Extended Term to be upon the same terms, covenants and agreements as in this Lease provided, except Tenant shall have no further right to extend the term of this Lease for any period beyond the expiration of the third Extended Term. If Tenant so elects to extend the term of this Lease, Tenant shall give written notice to Landlord of such election at least twelve months prior to the date of expiration of the Original Term or any Extended Term, as the case may be.
(b) The option may be exercised only by Tenant giving written notice to Landlord of Tenant's said option by certified mail, return receipt requested, not less than twelve (12) months prior to the Expiration Date of the Original Term or of any Extended Term (the "Exercise Notice"). If Tenant shall not give Landlord the Exercise Notice at the time and in the manner set forth herein, the option shall terminate and be deemed waived by Tenant. Time is of the essence as to the date for the giving of each Exercise Notice.
(c) Notwithstanding the foregoing provisions of this Article 3, if on the date that Tenant exercises the option, or if on any subsequent date up to and including the date upon which the extension of the Term commences, Tenant is in default, beyond any applicable notice and grace periods, in the payment of Minimum Annual Rent or additional rent hereunder, or any other term or condition of this Lease, Tenant's exercise of the Option and the extension of the Term contemplated thereby shall, at the option of Landlord exercised by written notice to Tenant, be rendered null and void and shall be of no further force and effect and Tenant shall have no other additional right to exercise such Option, which shall be deemed waived by Tenant.
(d) If Tenant exercises the Option, then, at Landlord's request, Tenant agrees within fifteen (15) business days after request is made, to execute, acknowledge and deliver to Landlord an instrument in form and substance satisfactory to Landlord, confirming (i) the fixed annual rent payable under this Lease, (ii) the expiration date of the term, and (iii) the other modifications provided for in this Article 3, but no such instrument shall be required in order to make the provisions hereof effective.
ARTICLE 4
Covenant to Pay Fixed Rent or Minimum Annual Rent
A. Fixed Rent
Subject to the provisions of this Article, Tenant agrees to pay to Landlord, during the Original Term and any Extended Term, in equal monthly installments in advance without prior
demand and without any set off or deduction whatsoever on the first day of each calendar month at the address of Landlord as hereinabove set forth or such other address as Landlord may designate, Minimum Annual Rent ("Fixed Rent or Minimum Annual Rent" ) as follows:
TERM FIXED MONTHLY MINIMUM ANNUAL
RENT RENT
12/28/2000 - 12/31/2001 $123,333.33 $1,480,000.00
1/1/2002 - 12/31/2002 $126,416.66 $1,517,000.00
1/1/2003 - 12/31/2003 $129,577.08 $1,554,925.00
1/1/2004 - 12/31/2004 $132,816.50 $1,593,798.00
1/1/2005 - 12/31/2005 $136,136.91 $1,633,643.00
1/1/2006 - 12/31/2006 $139,540.33 $1,674,484.00
1/1/2007 - 12/31/2007 $143,028.83 $1,716,346.00
1/1/2008 - 12/31/2008 $146,604.58 $1,759,255.00
1/1/2009 - 12/31/2009 $150,269.66 $1,803,236.00
1/1/2010 - 12/31/2010 $154,026.41 $1,848,317.00
1/1/2011 - 12/31/2011 $157,877.08 $1,894,525.00
1/1/2012 - 12/31/2012 $161,824.00 $1,941,888.00
1/1/2013 - 12/31/2013 $165,869.58 $1,990,435.00
1/1/2014 - 12/31/2014 $170,016.33 $2,040,196.00
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FIRST OPTION TERM FIXED MONTHLY MINIMUM ANNUAL
RENT RENT
1/1/2015 - 12/31/2015 $174,266.75 $2,091,201.00
1/1/2016 - 12/31/2016 $178,623.41 $2,143,481.00
1/1/2017 - 12/31/2017 $183,089.00 $2,197,068.00
1/1/2018 - 12/31/2018 $187,666.25 $2,251,995.00
1/1/2019 - 12/31/2019 $192,357.91 $2,308,295.00
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SECOND OPTION TERM FIXED MONTHLY MINIMUM ANNUAL
RENT RENT
1/1/2020 - 12/31/2020 $197,166.83 $2,366,002.00
1/1/2021 - 12/31/2021 $202,096.00 $2,425,152.00
1/1/2022 - 12/31/2022 $207,148.41 $2,485,781.00
1/1/2023 - 12/31/2023 $212,327.16 $2,547,926.00
1/1/2024 - 12/31/2024 $217,635.33 $2,611,624.00
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THIRD OPTION TERM FIXED MONTHLY MINIMUM ANNUAL
RENT RENT
1/1/2025 - 12/31/2025 $223,076.16 $2,676,914.00
1/1/2026 - 12/31/2026 $228,653.08 $2,743,837.00
1/1/2027 - 12/31/2027 $234,369.41 $2,812,433.00
1/1/2028 - 12/31/2028 $240,228.66 $2,882,744.00
1/1/2029 - 12/31/2029 $246,234.41 $2,954,813.00
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The parties acknowledge and agree that this Lease is and is intended to be a triple net lease and the parties hereto intend that Landlord shall receive all Minimum Annual Rent and all additional rent payable hereunder free and clear of any and all liability or responsibility of Landlord for impositions, taxes, liens, charges or expenses, offsets, or similar deductions of any nature whatsoever. Tenant shall pay all costs, expenses and damage which are attributable to Tenant or the ownership, use or possession of the Demised Premises and which, except for the execution of this Lease, would have been chargeable against the Demised Premised or otherwise payable by the Landlord. Tenant understands and agrees that Landlord is to have no obligation whatsoever under this Lease or otherwise in respect of the repair, operation, maintenance and/or replacement of the Demised Premises or for the quality or compliance with applicable law of its construction (or in
either case, the lack thereof) with all such obligations being those of the Tenant, at its sole cost and expense.
Notwithstanding anything to the contrary contained herein, Tenant shall not be responsible for the Landlord's income taxes, debt service attributable to any mortgage, deed of trust or other instrument, nor any depreciation.
ARTICLE 5
Use and Occupancy
A. Tenant expressly covenants, represents, warrants and agrees that it shall use and occupy the Demised Premises for executive offices, manufacturing, assembly and storage of electronic and communications equipment and uses incidental thereto, and any other lawful use. Tenant is prohibited from using the Demised Premises for any other purposes.
ARTICLE 6
Additional Rent
A. Any and all sums due under this Lease from Tenant to Landlord (other than the Minimum Annual Rent) shall be deemed additional rent. A failure to pay additional rent shall have the same effect and shall be treated identically to a failure to pay Fixed Rent as all such sums are hereby considered "rent".
B. Except as otherwise specifically noted in A above, Tenant will pay or cause to be paid when due and payable all real estate taxes, sales taxes, rent taxes, assessments (including, but not limited to, all assessments for public improvements or benefits and any payable in installments shall nonetheless be paid at once), liens, water and sewer rates, common area maintenance charges, charges or expenses due under any Restrictions (hereafter defined), vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Demised Premises, charges for public or private utilities, license permit fees, inspection fees and other governmental levies or payments, of every kind and nature whatsoever, general and special, ordinary and extraordinary, unforeseen as well as foreseen, which at any time may be assessed, levied, confirmed, imposed or which may become a lien upon the Demised Premises or any portion thereof, or which are payable with respect thereto, or upon the rents, issues, income or profits thereof, or on the occupancy, operation, use, possession or activities thereof, whether any or all of the same be levied directly or indirectly or as excise taxes or as income taxes, and all taxes, assessments or charges which may be levied on this Lease, or the interest thereon. Tenant will deliver to Landlord, within fifteen (15) days of any such payment, copies of official receipts or other satisfactory proof evidencing such payments.
C. The obligations of Tenant to pay all Minimum Annual Rent, additional rent and other sums hereunder, and all other obligations of Tenant under this Lease, are independent, unconditional covenants and are not dependent upon performance by Landlord of its obligations and covenants hereunder, if any.
ARTICLE 7
Repairs and Maintenance
A. Tenant agrees that Landlord shall have no obligation whatsoever in respect of the repair, operation, maintenance, compliance and/or replacement of the Demised Premises and it is Tenant's obligation, at Tenant's sole cost and expense, to repair, operate, maintain and/or replace all and every part of the Demised Premises or Building. In particular, without implied limitation:
B. Tenant shall, at its sole cost and expense, continuously cause the repair, maintenance, operation and/or replacement of the Demised Premises to keep same in good order and repair and in such a fashion as is consistent with prior practice of Tenant, and, at its sole cost and expense, will promptly make or cause to be made all necessary and appropriate repairs, replacements
and renewals thereof, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen. All repairs, replacements and renewals shall be at least equal in quality and class to the original Improvements. Tenant's obligation to repair shall include the obligation to rebuild in the event of destruction however caused. The Minimum Annual Rent and any additional rent shall not be reduced and Landlord shall not be liable under any circumstances for a loss of or injury to property, loss of profits, or for injury to or interference with Tenant's business arising from or in connection with the condition of the Demised Premises (including without limitation due to latent defects) or by virtue of Tenant's failure to make any repairs, maintenance, alterations or improvements in or to any portion of the Demised Premises or in or to fixtures, appurtenances and equipment therein. Tenant hereby irrevocably waives and releases its right to make repairs at Landlord's expense under any applicable law, statute, or ordinance now or hereafter in effect.
C. Tenant shall keep the Demised Premises in good and sanitary condition and repair at Tenant's sole cost and expense including, without limitation, snow removal, cleaning and rubbish removal. Should any law, standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such laws, standards or regulations.
D. Tenant acknowledges and agrees that Landlord has never occupied or operated at the Demised Premises and that Landlord acquired the Demised Premises directly from Tenant (who constructed or had constructed the Improvements on the Demised Premises) and Tenant hereby agrees to undertake all of the maintenance, repair, compliance and replacement responsibilities at the Demised Premises regardless of how or when such responsibilities arise or arose.
E. Tenant shall be solely responsible, at is sole cost and expense, to make the Demised Premises safe and secure for any all persons at the Demised Premises and Tenant shall obtain and provide such services including without limitation fire prevention, fire detection, sprinklers, alarm and security including guards as is necessary or appropriate to make the Demised Premises safe and secure.
ARTICLE 8
Alterations
Tenant is permitted to make non-structural interior alterations (as hereinafter defined) to the Demised Premises without Landlord's consent and without the submission of plans and specifications; provided, however, in the event any such Alteration which is non-structural in nature requires an application for a building permit to be signed by Landlord or its authorized representative, Tenant shall, in each instance, first obtain Landlord's prior written consent, which consent shall not be unreasonably conditioned, withheld or delayed. Notwithstanding the foregoing, in the event the named Tenant herein desires to make structural alterations to the Demised Premises, whether or not a permit is required, Tenant shall in each instance first obtain Landlord's prior written consent which consent shall not be unreasonably conditioned, withheld or delayed.
The term "Alteration" as used in this Lease shall mean any decoration, improvement, addition, change, installation or work of, in, or to the Demised Premises, including, without limitation, any of such involving electrical, air conditioning, ventilation, heating, plumbing, ceilings, stairways, partitions, demising walls within the Demised Premises, doors, gates, vaults, radiators, enclosures, and whether or not the same are made in connection with the repair, replacement or addition to trade fixtures or similar machinery and equipment.
In connection with any Alterations (other than decorative Alterations or Alterations that do not require a building permit), Tenant shall:
A. Take out and maintain in force (and require its Contractors and subcontractors to take out and maintain in force) Workers Compensation Insurance, and public liability insurance in the amounts mentioned in Article 10 hereof, naming Landlord as an additional insured, and deliver certificates of all such insurance to Landlord prior to the commencement of any Alteration. The policy shall require thirty (30) days written notice to Landlord prior to cancellation or modification.
B. Submit in advance for Landlord's approval, which approval shall not be unreasonably conditioned, withheld, or delayed all plans and specifications to be used in connection with any structural Alteration. Any such plans and specifications shall be approved by any governmental, municipal, or other authority having jurisdiction, and Tenant shall deliver to Landlord promptly after receipt thereof, copies of such written approval of such department or governmental authority.
C. Perform all Alterations in a good workmanlike manner, fully completed, free of all liens and encumbrances and in accordance with all applicable laws, rules and regulations but nothing herein shall be construed to prohibit Tenant from leasing, conditionally acquiring or granting a lien in any of Tenant's equipment or trade fixtures. Tenant shall be responsible for the proper maintenance of all of the Alterations performed by or on behalf of Tenant in the Demised Premises.
D. During the progress of the Alterations to be done by the Tenant hereunder, said Alteration shall be subject to inspection by representatives of the Landlord who shall be permitted access and the opportunity to inspect at all reasonable times upon prior reasonable notice and compliance with Tenant's security regulations.
E. Tenant shall proceed with all Alterations promptly and shall prosecute the same to completion with reasonable diligence and continuity.
F. Tenant shall, at its sole expense, obtain all required consents, authorizations and licenses from all federal, state and/or municipal authorities having jurisdiction over any of the Alterations. All the Alterations shall be done in accordance with the plans and specifications, and the consents, authorizations and licenses obtained. All Alterations shall be performed in compliance with the provisions of law and regulations applicable thereto. Landlord shall cooperate with Tenant in the obtaining of any and all necessary permits, authorizations and governmental approvals.
G. Tenant will indemnify and save Landlord, its agents or employees, harmless from and against any and all bills for labor performed and equipment, fixtures and materials furnished to Tenant and from and against any and all liens, bills or claims therefor or against the Demised Premises or the building containing the same and from and against all losses, damages, costs, expenses, suits and claims whatsoever in connection with any such Alteration, including, without limitation, any liability or charge for sales or other taxes imposed or demanded for labor or materials in connection therewith.
ARTICLE 9
Liens
Tenant shall not permit to be created nor to remain undischarged any lien, encumbrance or charge to be filed against the Demised Premises as a result of any materials provided to or work performed by or on behalf of Tenant including any Alterations made to the Demised Premises. If a lien, encumbrances or charge is filed, the Tenant shall, within twenty (20) days from the date of filing, cause the lien to be vacated by payment or by filing the requisite bond and shall hold the Landlord harmless against the lienor's claim. The Tenant shall defend for its own account and for the account of the Landlord, at Tenant's expense, any action or proceeding brought to compel payment of the lienor's claim and, in the event of a final judgment in the lienor's favor, shall, without delay, satisfy the judgment and cause a satisfaction to be recorded and the lis pendens, if any, vacated.
ARTICLE 10
Insurance
Indemnification. Landlord shall not be liable for and Tenant hereby
relinquishes any claims against Landlord (and the lessor or lessors under all
ground or underlying leases and the holder of any mortgage or deed of trust
encumbering Landlord's interest in the Demised Premises and all of their
shareholders, members, partners, officers, directors, trustees, employees,
agents or representatives (collectively, "Landlord's Affiliates")) for damage to
any property, illness or death of any person in, upon, or about the Demised
Premises arising at any time and from any cause whatsoever other than damages
proximately and solely caused by reason of the active negligence or willful
misconduct of Landlord or its agents and employees. Tenant shall indemnify,
defend, and protect Landlord and Landlord's Affiliates, and hold Landlord and
Landlord's Affiliates harmless from any and all loss, cost, damage, expense and
liability (including without limitation court costs and attorneys' fees)
incurred in connection with or arising from any cause in, on or about the
Demised Premises, including, without limiting the generality of the foregoing:
(i) any default by Tenant in the observance or performance of any of the terms,
covenants or conditions of this Lease on Tenant's part to be observed or
performed; (ii) the use or occupancy of the Demised Premises by any party; (iii)
the condition of the Demised Premises or any occurrence or happening an the
Demised Premises from any cause whatsoever; or (iv) any acts, omissions or
negligence of any party in, on or about the Demised Premises or the Real
Property, either prior to, during or after the expiration of the Lease Term,
including, without limitation, any acts, omissions or negligence in the making
or performance of any alterations. Tenant further agrees to indemnify and save
harmless Landlord and Landlord's Affiliates, from and against any and all loss,
cost, liability, damage and expense including, without limitation, attorneys'
fees, incurred in connection with or arising from any claims by any persons by
reason of injury to persons or damage to property occasioned by any use,
occupancy, condition, occurrence, happening, act, omission or negligence
referred to in the preceding sentence or otherwise at, on or about the Demised
Premises. The provisions of this Article 10 shall survive the expiration or
sooner termination of this Lease with respect to any claims or liability
occurring prior to such expiration or termination.
Fire and Casualty. Tenant shall maintain, at its sole cost and expense, with insurers approved by Landlord (a) insurance with respect to the Demised Premises against loss or damage by perils customarily included under standard "all-risk" policies, in amounts sufficient to prevent Mortgagor or Mortgagee from becoming a co-insurer of any partial loss under the applicable policies, but in any event in an amount not less than 100% of the then full insurable value (with an actual replacement value endorsement) of the Demised Premises, as determined at Tenant's expense by the insurer or insurers or by an expert approved by Landlord, (b) explosion insurance in respect of any steam and pressure boilers and similar apparatus located in the Property in such amounts as are usually carried by persons operating similar properties in the same general locality, but in any event in an amount not less than $10,000,000, (c) flood and earthquake hazard insurance, (d) worker's compensation insurance to the full extent required by applicable law for all employees of Tenant engaged in any work on or about the Demised Premises and employer's liability insurance with a limit of not less than $1,000,000 for each occurrence, (e) business interruption insurance in an amount equal to the loss of gross earnings and rental value and the extra expense that could result from the cessation of the business conducted by Tenant at the Demised Premises for a period of at least 24 months due to loss or damage resulting from any of the risks referred to in the clauses (a) through (d), which business interruption insurance may be subject to a deductible (or an exclusion) not exceeding the first five days following each loss, and (f) all-risk builders' risk insurance with respect to the Demised Premises during any period in which there is any construction occurring at the Demised Premises, against loss or damage by fire and such other risks, including vandalism, malicious mischief and sprinkler leakage, as are included in so-called "extended coverage" clauses at the time available with respect to similar property, in an amount not less than 100% of the then full insurable value (with an actual replacement value endorsement) of the Demised Premises.
Tenant Insurance. Tenant shall obtain and maintain throughout the Lease Term, at its sole cost and expense, a policy or policies of standard fire, extended coverage and special extended coverage insurance ("All Risks"), including a vandalism and malicious mischief endorsement, sprinkler leakage coverage and earthquake sprinkler leakage in an amount equal to the
full replacement value new without deduction for depreciation of all fixtures, furniture and leasehold improvements installed in the Building and all alterations and additions thereto, and replacement cost insurance on all plate or tempered glass in or enclosing the Demised Premises.
Liability Insurance. Tenant shall obtain and maintain throughout the Lease Term, and at its sole cost and expense, comprehensive general liability insurance, including public liability and property damage insurance in the amount of no less than Ten Million Dollars ($10,000,000) per person and Ten Million Dollars ($10,000,000) per occurrence for personal injuries or deaths of persons occurring in or about the Demised Premises including a Broad Form Comprehensive General Liability endorsement covering the insuring provisions of this Lease and the performance of Tenant of the indemnity agreements set forth in this Article. Provided however, insurance required hereunder for contractors and subcontractors shall be in such commercially reasonable amounts as Landlord shall reasonably determine.
Environmental Insurance. (a) Tenant shall obtain and maintain throughout the Original Term, any Extended Term and for three (3) years following the end of the later to occur of the expiration of the Original Term or an Extended Term, at its sole cost and expense, a pollution liability insurance policy (the "Environmental Policy") in form and substance at least equal to that currently maintained by Tenant pursuant to Policy # PLS8086867, Pollution Legal Liability Select Policy, issued by Commerce and Industry Insurance Co., with a coverage limit of $10,000,000 per occurrence (the "Existing Environmental Policy").
(b) Tenant shall use its best efforts to have the Landlord identified as a named insured on the Existing Environmental Policy and any subsequently issued Environmental Policy. In the event Tenant using its best efforts cannot have Landlord so named, Tenant shall have Landlord named as an additional insured on the Existing Environmental Policy and any subsequently issued Environmental Policy.
(c) In the event Landlord becomes an additional insured, Tenant shall use its best efforts to have the insurance carrier delete paragraph 2 of Endorsement 8 to the Existing Environmental Policy and shall thereafter use its best efforts to have similar provisions deleted from any subsequently issued Environmental Policy.
Additional Insurance. Tenant shall carry and maintain during Lease Term, at its sole cost and expense, such other types of insurance coverage and in such amounts covering the Premises and Tenant's operations therein, as may be reasonably requested by Landlord or its lender or ground lessor, including, but not limited to, workers' compensation, automobile, liquor liability, and business interruption insurance which shall cover a minimum of two (2) years of business interruption.
Form of Policies. The minimum limits of policies of insurance
required of Tenant under this Lease shall in no event limit the liability of
Tenant under this Lease. Such insurance shall: (i) name Landlord, and any other
party which Landlord specifies, as a named insured including without limitation
one or more loss payee endorsements in favor of the holders of any mortgages or
deeds of trust encumbering the interest of Landlord in the Demised Premises or
the ground or underlying lessors of the Land, or any portion thereof; (ii) be
issued by an insurance company having a rating of not less than A-X in Best's
Insurance Guide or which is otherwise acceptable to Landlord or Landlord's
Mortgagees and licensed to do business in the State(s) in which the Demised
Premises is located; (iii) be primary insurance as to all claims thereunder and
that any insurance carried by Landlord is excess and non-contributing with any
insurance requirement of Tenant; (iv) provide that said insurance shall not be
cancelled or coverage changed unless thirty (30) days' prior written notice
shall have been given to Landlord and any lender or ground lessor of Landlord's;
(v) contain a cross liability endorsement or severability of interest clause
acceptable to Landlord; and (vi) shall not have a deductible in excess of
$250,000.00. To the extent that Landlord carries liability insurance on the
Premises and the Real Property, and Tenant has an insurable interest thereunder
over and above the insurance coverage that it is required to maintain under this
Article 10, Landlord shall attempt to name Tenant as an additional insured
thereunder, as its interest may appear, so long as such naming will not have any
effect on Tenant's obligations under this Article 10 or the nature, effect or
extent of the insurance coverage required to be maintained hereunder by Tenant.
Tenant shall, at Tenant's sole cost and expense, comply with all insurance
company requirements pertaining to the Demised
Premises. Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body. Landlord shall be entitled to increase any or all of the minimum insurance coverages provided for in this Lease to such higher amounts as Landlord shall deem, in its good faith determination, to be appropriate.
Subrogation. Tenant agrees to have its insurance company(ies) issuing property damage insurance waive any rights of subrogation that such company(ies) may have against Landlord.
Delivery of Policies, etc. Tenant will deliver, or cause to be
delivered, to Landlord, on or before the Commencement Date and thereafter no
later than 30 days prior to the expiration of any policy a binder or certificate
of the insurer evidencing the replacement thereof and not later than 15 days
prior to the expiration of such policy, (a) the original or true copies of all
policies or certificates evidencing all insurance required to be maintained
under this Article 10 together with certificates of insurance and a letter from
an insurance broker or agent satisfactory to Landlord to the effect that the
insurance policies maintained by Tenant comply with the terms of this Lease, and
(b) evidence as to the payment of all premiums due thereon (with respect to
public liability insurance policies, all installments for the current year due
thereon to such date), provided that Landlord shall not be deemed by reason of
its custody of such policies to have knowledge of the contents thereof. Tenant
will also deliver to Landlord, promptly upon request, a certificate of a
principal of Tenant (a "Compliance Certificate") setting forth the particulars
as to all such insurance policies and certifying that the same comply with the
requirements of this Article, that all premiums due thereon have been paid and
that the same are in full force and effect. Tenant will also deliver to Landlord
an original copy (or true copy) of the new policy or a certificate evidencing
such new policy. In the event Tenant shall fail to procure such insurance, or to
deliver such policies or certificate, Landlord may, at its option, following 5
business days notice to Tenant procure such policies for the account of Tenant,
and the cost thereof shall be paid to Landlord as additional rent within thirty
(30) days after delivery to Tenant of bills therefor.
Separate Insurance. Tenant will not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained pursuant to this Article 10.
ARTICLE 11
Emergency Lighting
A. Tenant shall designate, to the extent required by law, each exit from the Demised Premises with an illuminated sign.
B. Tenant shall, at its sole cost and expense, to the extent required by law, have sufficient emergency lighting to illuminate the Demised Premises and to comply with all laws, rules and regulations of governmental agencies and Landlord's and/or Tenant's insurance companies.
ARTICLE 12
Broker
The parties warrant and represent to each other that they have consulted no broker in connection with this transaction other than Ron Parr. Tenant agrees to hold the Landlord harmless for any claims made by any other broker, and all costs, expenses and liabilities incurred by Landlord in connection therewith, including attorneys' fees and expenses, resulting from the breach of Tenant's representations hereunder. Tenant shall pay commissions due Ron Parr pursuant to a separate agreement.
ARTICLE 13
Force Majeure
If any of the following ("force majeure") shall occur: (i) strike, lockout or labor dispute; (ii) inability to obtain labor and materials, or reasonable substitutes therefore; (iii) acts of God, governmental restrictions, regulations or controls, enemy or hostile governmental action, civil commotion, insurrection, revolution, sabotage, fire or other casualty; or (iv) matters beyond the reasonable control of the parties obligated to perform, and, as a result of any such event, either party hereto shall fail to perform punctually any obligation of this Lease, except the payment of Fixed Rent and additional rent within the period set forth in this Lease for performance, then such time for performance shall be extended for the period equal to the duration of the delay caused by such event, but such party shall punctually perform the obligations of this Lease as soon as practicable after the reason for such delay has ceased.
ARTICLE 14
Governmental Approvals and Compliance with Laws
Tenant, at its sole cost and expense, will comply, or cause compliance with:
(a) all provisions of any insurance policy covering or applicable to the Demised Premises or any part thereof, all requirements of the issuer of any such policy, and all orders, rules, regulations and other requirements of the New York Board of Fire Underwriters (or any other body exercising similar functions) applicable to or affecting the Demised Premises or any part thereof or any use or condition of the Demised Premises or any part thereof;
(b) all laws, statutes, codes, acts, ordinances, orders, permits, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements (including, without limitation, those relating to the protection of the environment and the Americans with Disabilities Act) of all governments, departments, commissions, boards, courts, authorities, agencies, officials and officers, which now or at any time hereafter may be applicable to the Demised Premises or any part thereof, or any of the adjoining sidewalks, curbs, vaults and vault space, if any, streets or ways, or any use or condition of the Demised Premises or any part thereof (collectively, "Legal Requirements");
(c) all restrictions, easements, reciprocal easement agreements and covenants now or hereafter of record and affecting all or any portion of the Demised Premises (collectively, "Restrictions"); and
(d) the provisions of any underlying or ground lease or mortgage or deed of trust now or hereafter affecting all or any portion of Landlord's interest in the Demised Premises.
The Tenant's obligation, at its sole cost and expense, to comply with the provisions of (a)-(d) above is absolute and is regardless whether or not compliance therewith shall require structural changes or replacements in or interference with the use and enjoyment of the Demised Premises or any part thereof and whether or not such compliance could be foreseen or is unforeseen, ordinary or extraordinary. Tenant's obligations shall include any defects or other items that may need correction as of the date hereof or which may have resulted from defective construction or design of the Demised Premises.
Tenant's obligations under this Lease to comply with Legal Requirements shall not include compliance with Legal Requirements relating to employment practice.
Late Charges. Tenant hereby acknowledges that late payment by Tenant to Landlord of Minimum Annual Rent or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which are extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Landlord by the terms of any mortgage or deed of trust covering the Premises.
Accordingly, if any installment of Minimum Annual Rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee within five (5) days of the date due following written notice, then (and without prejudice to Landlord's rights and remedies in respect of such default) Tenant shall pay to Landlord a late charge equal to five percent (5%) of such amount overdue plus any attorneys' fees incurred by Landlord by reason of Tenant's failure to pay rent and/or other charges when due hereunder. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of the late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. The late charge shall be deemed additional rent and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. In addition to the five percent (5%) late charge described above, any rents or other amounts owing hereunder which are not paid within five (5) days after the date they are due shall thereafter bear interest until paid at a rate per annum equal to the lesser of the prime rate as announced from time to time in the Wall Street Journal (the "Prime Rate") plus seven percent (7%) per annum or the highest rate permitted by applicable law. If such Prime Rate is no longer published, Landlord shall have the right to substitute a replacement index that in Landlord's good faith determination is reasonably similar to the Prime Rate.
In the event the Landlord does not commence any proceedings to review or contest any real estate taxes, rent taxes, or other sums due pursuant to this Article on or before sixty (60) days prior to the expiration of the period within which to institute such proceeding, Tenant may, at Tenant's sole cost and expense, undertake such proceedings to review or contest any such tax or assessment as it deems necessary in its name or in the name of the Landlord, and Landlord agrees to cooperate with Tenant and to execute any and all reasonable instruments which may be reasonably required for the prosecution of any such proceedings. Provided that Tenant has complied with all of the terms and conditions of this Lease, beyond any applicable cure or grace periods, including without limitation, the payment of all sums due pursuant to this Article, Tenant shall be entitled to the full amount of any refund due on account of taxes or assessments payable upon the Demised Premises if Tenant shall be successful in securing a reduction in such taxes or assessments. To the extent that Landlord incurs any expenses or costs in connection with the Tenant's commencement or any review or contest of any tax or assessment, Tenant shall reimburse Landlord for its reasonable expenses and costs including reasonable attorneys fees, appraisers fees, etc. upon thirty (30) days of demand therefore. Tenant shall provide Landlord with copies of all correspondence, documentation and other writings submitted to any governmental agency having jurisdiction over the Demised Premises pertaining to any contest.
Tenant shall have the right, at its sole cost and expense, to contest all Legal Requirements or Environmental Laws (as defined in Articles 14 and 45) provided such contest does not subject the Landlord to any costs, penalties, judgments, liens, expenses, fines or other impositions of any kind or nature and provided further that said contest does not subject Landlord to any criminal or civil proceedings of any kind or nature. Tenant shall provide Landlord with copies of all correspondence, documentation and other writings submitted to any governmental agency having jurisdiction over the Demised Premises pertaining to any contest.
Tenant's compliance with Legal Requirements or Environmental Laws (as hereinafter defined in Article 45) shall be deemed adequate compliance by Tenant provided said compliance is performed to the satisfaction of all governmental agencies having jurisdiction over the Demised Premises.
ARTICLE 15
Lesser Payments
No payment by the Tenant or receipt by the Landlord of a lesser amount than the Fixed Rent or any other payment demanded by Landlord (including additional rent as set forth in Article 6) shall be deemed other than a payment on account of the earliest Fixed Rent due, nor shall any endorsement or statement on any check or on any letter accompanying any check or payment as
Fixed Rent or additional rent be deemed an accord and satisfaction and the Landlord may accept such check or payment without prejudice to its right to recover the balance of the Fixed Rent or additional rent or to pursue any other remedy provided for in this Lease.
ARTICLE 16
Indemnity
Tenant, during the Original Term, and any Extended Terms and any period in which Tenant occupies or uses the Demised Premises, shall indemnify and save harmless the Landlord, Landlord's Affiliates, Landlord's agents, servants and employees and Landlord's lessor, if any, from and against any and all claims and demands whether for injuries to persons or loss of life, or damage to property, arising out of the use and occupancy of the Demised Premises by Tenant, or occasioned by any act or omission of Tenant, its agents, contractors, employees, servants, lessees, concessionaires, invitees, licensees and customers except to the extent solely caused by the active negligence or wilful misconduct of Landlord, Landlord's agents, servants and/or for employees.
ARTICLE 17
Exculpation
If the Landlord or any successor in interest be a corporation, limited liability company, an individual, a joint venture, a tenancy in common, a co-partnership, an unincorporated association, or other unincorporated aggregate of individuals (all of which are referred to below, individually and collectively, as an "unincorporated Landlord") then, anything elsewhere to the contrary notwithstanding, Tenant shall look solely to the estate and property, if any, of such unincorporated Landlord in the Demised Premises, for the satisfaction of Tenant's remedies for the collection of a judgment (or judicial process) requiring the payment of money by Landlord in the event of any default or breach by Landlord with respect to any of the terms, covenants and conditions of this Lease to be observed and/or performed by Landlord, and no other property or assets of such unincorporated Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies. Notwithstanding anything herein to the contrary, in the event Landlord effectuates a Subdivision (as hereafter defined), the parcel that is the subject of the Subdivision will no longer be deemed part of the Landlord's estate in the Demised Premises for purposes of this Article 17.
ARTICLE 18
Air Conditioning, Heat and Utilities
A. Tenant shall keep and maintain in reasonably good repair, including replacement thereof, if necessary, at its own cost and expense, the air conditioning system, the heating system, electrical system and all other related equipment and pay for electrical service. The heating and air conditioning equipment, including any addition or replacements, are the property of the Landlord. Tenant agrees, at its sole cost and expense, to arrange for, and pay for, the hooking up of, and the connection to, all requisite utilities to the Demised Premises, including meters, and to directly pay for the use of all such utilities. In the event that any utilities are billed directly to Landlord, whether sub-metered or otherwise, then and in that event Tenant shall pay to Landlord immediately upon demand all of such expenses.
B. Tenant shall furnish and promptly pay for all utility service, including, but not limited to, heat, air conditioning, water, steam, ventilating, sewer rents, gas and electric service required for the exclusive use of the Demised Premises.
C. Landlord shall not be liable for, and Tenant shall not be entitled to any reduction of the Minimum Annual Rent or of the additional rent on account of Tenant's failure to receive any utility service on account of accident, breakage, when such failure is caused by acts of God, war, repairs, strikes, lockouts or other labor disturbances or disputes, unavailability of materials or labor, or by any other cause whatsoever, or by rationing or restrictions on the use of said services
and utilities due to energy shortages, war or any other reason, or the making of repairs, alterations or improvements to the Demised Premises or Building. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish or receive any of the foregoing services or utilities. Landlord shall be entitled to cooperate voluntarily in a reasonable manner with the efforts of national, state or local governmental bodies or of suppliers of utilities in reducing energy or other resources consumption, and Tenant shall not be relieved of its obligation to pay the full Minimum Annual Rent or any additional rent by reason thereof.
ARTICLE 19
Assignment by Landlord
Landlord may sell the Demised Premises, Building, or Landlord's interest therein or assign its interest in this Lease, or any part thereof, in the exercise of its sole discretion, and upon the written request of Landlord, Tenant shall acknowledge the consent to any such assignment in writing, provided that Landlord's purchaser or assignee assumes all of Landlord's covenants, liabilities and agreements contained in this Lease. Additionally, upon the written request of Landlord, Tenant shall provide any information or certification (in form and substance reasonably satisfactory to Landlord) of the status of this Lease reasonably requested by Landlord and Tenant shall execute any memoranda, certificate, attornment or other document in recordable form or otherwise as reasonably required by Landlord or to undertake any action reasonably requested by Landlord to evidence the existence of this Lease or to effectuate any such sale or assignment.
ARTICLE 20
Assignment and Subletting
Restrictions. Tenant shall not transfer, assign, sublet, mortgage,
license, grant a concession or otherwise hypothecate or encumber this Lease, or
Tenant's interest in and to the Demised Premises (collectively, a "Transfer"),
without first obtaining the Landlord's written consent thereto, which consent
shall not be unreasonably withheld, conditioned or delayed. Any such attempted
or purported Transfer without Landlord's prior written consent shall be void and
of no force or effect and shall constitute a default under this Lease.
Procedure for Transfer. Should Tenant desire to make a Transfer
hereunder, Tenant shall, in each instance, give written notice of its intention
to do so to Landlord at least thirty (30) days prior to the effective date of
any such proposed Transfer, specifying in such notice the details of the
proposed Transfer transaction and the proposed date thereof, and specifically
identifying the proposed transferee. Such notice shall be accompanied, in the
case of a subletting, license, assignment or concession agreement, by a copy of
the proposed sublease, license, assignment or concession agreement and any other
documents or financial information Landlord may reasonably require in order to
make a determination as to the proposed Transfer. Landlord shall, within fifteen
(15) days after its receipt of such notice of a proposed Transfer from Tenant,
by mailing written notice to Tenant of its intention to do so, pursuant to
Article 20 of this Lease, either (i) withhold consent to the Transfer, or (ii)
consent to such Transfer, but if Landlord shall fail to timely send its
determination, then Landlord shall be deemed to have rejected the proposed
Transfer.
Effect of a Transfer. The transferee shall agree to comply with and
be bound by and shall assume all of the terms, covenants, conditions, provisions
and agreements of this Lease to the extent of the space transferred, assigned or
sublet; and Tenant shall deliver to Landlord promptly after execution an
executed copy of each such Transfer document and an agreement of compliance by
the transferee. No Transfer of this Lease or agreement entered into with respect
thereto, whether with or without Landlord's consent, shall relieve Tenant from
its primary liability under this Lease.
Required Documents. Each Transfer to which Landlord has consented
shall be evidenced by a written instrument in form reasonably satisfactory to
Landlord, executed by Tenant and the transferee, under which the Transferee
shall agree in writing for the benefit of Landlord to assume, to perform and to
abide by all of the terms, covenants and conditions of this Lease to be
done, kept and performed by Tenant, including the payment of all amounts due or to become due under this Lease directly to Landlord and the obligation to use the Premises only for the purposes specified in this Lease. Provided, however, in the event of a sublease of a portion of the Demised Premises, subleasee shall be responsible only for the terms, covenants and conditions of this Lease applicable to the subleased premises and the payment of only the amount due or to become due under said sublease. Tenant agrees to reimburse Landlord for Landlord's attorneys, and administrative fees incurred in conjunction with the processing of and documentation for each such requested Transfer, whether or not the Transfer is consummated.
Assignment of Subleases, etc. In the event of a sublet, license or grant of a concession to all or any portion of the Demised Premises, such sublet, license or grant shall be deemed pledged to Landlord and Tenant hereby assigns to Landlord all its right, title and interest as landlord under any such sublease, license or concession agreement now existing or hereafter entered into, and all rents and other sums payable to Tenant under each such agreement, together with the right to collect and receive the same, provided that, if and so long as no default shall have occurred under this Lease, Tenant shall be permitted to exercise its rights and perform its obligations as landlord under such agreements and to collect and receive such rents and other sums for its own uses and purposes. Upon the occurrence of a default, such permission shall automatically terminate and shall without Landlord's express written consent. Such assignment shall be fully operative without any further action on the part of either party and Landlord shall be entitled, at its option, upon the occurrence of a default hereunder, to all rents, income and other benefits from the Demised Premises whether or not Landlord takes possession of the Demised Premises. All actions or collections by Landlord pursuant to this Article 20 shall be without prejudice to its other rights and remedies on account of any default of Tenant.
For purposes of this Article 20, notwithstanding anything to the contrary contained herein, occupancy of the Demised Premises by any subsidiary and/or any division of the named Tenant herein or any transfer of stock of Tenant shall not be deemed a sublease or assignment. Landlord's consent shall not be required with respect to any assignment by Tenant to any affiliated corporation or any successor corporation resulting from a merger or asset acquisition.
ARTICLE 21
Recording
Tenant may not record this Lease or any Memoranda of Lease. Nothing herein shall prohibit Landlord from recording this Lease or a Memoranda thereof. If so requested by Landlord, Tenant shall promptly execute such Memoranda.
ARTICLE 22
Termination and Hold Over
(a) Whenever Tenant shall default in the payment of any installment of Fixed Rent, or any item of additional rent, and such default shall continue for five (5) business days after Landlord shall have given to Tenant a written notice specifying such default; or
(b) Whenever Tenant shall do, or permit anything to be done, whether by action or inaction, contrary to any covenant or agreement on the part of Tenant herein contained or contrary to any of the covenants, agreements, terms or provisions of this Lease, or shall fail in the keeping of performance of any of the covenants, agreements, terms or provisions contained in this Lease which on the part or behalf of Tenant are to be kept or performed (other than those referred to in the foregoing subsection [a] of this Article), and Tenant shall fail to commence to take steps and remedy (subject to unavoidable delay) the same within thirty (30) days after Landlord shall have given to Tenant a written notice specifying the same, or having so commenced shall thereafter fail to proceed diligently to remedy the same; or
(c) Whenever an involuntary petition shall be filed against Tenant under any bankruptcy or insolvency law or under the Reorganization provisions of the United States
Bankruptcy Act or under the provisions of any law of like import, or a Receiver or Trustee of Tenant or of or for the property of Tenant shall be appointed without the acquiescence of Tenant, and such situation under this subsection (c) shall continue and shall not be remedied by Tenant within thirty (30) days after the happening of any such event; or
(d) Whenever Tenant shall make an assignment of the property of Tenant for the benefit of creditors or shall file a voluntary petition under any bankruptcy or insolvency law, or whenever any court of competent jurisdiction shall approve a petition filed by Tenant under the Reorganization provisions of the United States Bankruptcy Act or under the provisions of any law of like import, or whenever a petition shall be filed by Tenant under the Arrangement provisions of the United States Bankruptcy Act or under the provisions of any law of like import, then, regardless of and notwithstanding that Landlord prior to the giving of such notice, shall have received rent or any payment, however designated, for the use of the Demised Premises from or on behalf of Tenant or from any other person and regardless of and notwithstanding the fact that the Landlord has or may have some other remedy under this Lease or by virtue hereof, or in law or in equity;
Then with respect to Tenant's defaults under this Article, Landlord or its attorneys, Moritt, Hock, Hamroff & Horowitz, LLP or its successor, may at any time after any of such events, and the giving of such notice as may be required hereunder, give to Tenant a notice of intention to end the Term of this Lease, specifying a day not less than five (5) days thereafter and, upon the giving of such notice, this Lease and the term and estate hereby granted shall expire and terminate upon the day so specified in such notice as fully and completely and with the same force and effect as if the day so specified were the date hereinabove fixed for the expiration of the Original Term or any Extended Term of this Lease and all rights of Tenant under this Lease shall expire and terminate, but Tenant shall remain liable for damages as hereinafter provided in this Lease.
(e) Upon any such termination or expiration of this Lease, Tenant shall peaceably quit and surrender the Demised Premises, in broom clean condition, to Landlord, and Landlord may, without further notice, enter upon, re-enter, possess and repossess itself thereof, by summary proceedings, ejectment or otherwise, and may dispossess and remove Tenant and all other persons and property from the Demised Premises and may have, hold and enjoy the Demised Premises and the right to receive all rental and other income of and from the same. The exercise by Landlord of any right granted in this Article 22 shall not relieve Tenant from the obligation to make all payments of Fixed Rent, Additional Rent and Taxes on Real Estate and to fulfill all other covenants required by this Lease, at the time and in the manner provided herein. No re-entry by Landlord shall be deemed an acceptance of a surrender of this Lease.
(f) Upon the termination or expiration of the term of this Lease, should the Tenant holdover and remain in possession of the Demised Premises, the Tenant shall pay as use and occupancy a sum equal to one hundred fifty (150%) percent of the monthly Fixed Rent provided for in Article 4 hereof for the last month of the Original Lease Term or the then-applicable Extended Term, together with a sum equal to all additional rent payable hereunder for each month or part thereof during which the Tenant remains in possession of the Demised Premises beyond the expiration of the term hereof.
ARTICLE 23
Assignment in Bankruptcy
Without limiting any of the provisions of the United States Bankruptcy Code (or any similar law hereafter enacted having the same general purpose), if Tenant is permitted to assign this Lease notwithstanding the restrictions contained in this Lease, adequate assurance of future performance by an assignee expressly permitted under such Code shall be deemed to mean the deposit of cash security in an amount equal to the sum of one (1) year's Fixed Rent plus an amount equal to the Additional Rent for the Lease Year preceding the year in which the assignment occurs, which deposit shall be held by Landlord for the balance of the Lease Term, without interest, as security for the full performance of all of Tenant's obligations under this Lease.
ARTICLE 24
Merger
Subject to the terms of this Lease all negotiations, considerations, representations and understanding between the parties are incorporated in this Lease. Landlord or Landlord's agents have made no representations or promises with respect to the Demised Premises, except as herein expressly set forth.
ARTICLE 25
Executed Counterparts of Lease
This Lease may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same Lease.
ARTICLE 26
No Offer
The submission of this document to Tenant for examination does not constitute an offer to lease, or a reservation of or option to lease, and becomes effective only upon execution and delivery thereof by Landlord and Tenant.
ARTICLE 27
Severability
If any provision of this Lease or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Lease and the application of that provision to other persons or circumstances shall not be affected but rather shall be enforced to the extent permitted by law. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease or any part thereof to be drafted. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require.
ARTICLE 28
Remedies on Default
Upon the occurrence of any event of default by Tenant, beyond applicable grace or cure periods, if any, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity, the option to pursue any one or more of the following remedies (each and all of which shall be cumulative and nonexclusive) without any notice or demand whatsoever:
Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefore; and Landlord may recover from Tenant the following:
(i) Landlord shall be entitled to receive from Tenant, and Tenant covenants and agrees to pay to Landlord, the difference between the total amount of Minimum Annual Rent that remains to be paid for the balance of the Lease Term then in effect immediately prior to the termination of this Lease plus reasonable allowances for items of additional rent less the actual rent, if any, and net of collection, brokerage, concession and renovation costs therefor actually to be collected by Landlord pursuant to any new lease, if any, that Landlord may have obtained at the time
of the termination of this Lease and for the entire remaining balance of the Lease Term then in effect. If the foregoing calculation results in a negative number no payment shall be due from Tenant hereunder and in no event shall Tenant be entitled to any sums from Landlord. Landlord shall be under no obligation or liability to attempt to mitigate its damages and to the extent that Landlord shall attempt to relet all or any portion of the Demised Premises Landlord shall not be liable for its inability to effect such a reletting or even if a reletting shall occur for its failure to collect all or any portion of the rents provided for in such reletting.
(ii) All sums due from Tenant to Landlord as calculated herein shall be paid by the wire transfer of immediately available funds within five (5) business days after the good faith determination by Landlord of the amount due pursuant to (i) above.
If Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including, but not limited to, (i) the right to recover all Fixed Rent and additional rent as it becomes due, (ii) the right to re-enter the Demised Premises, and (iii) the right to re-let the Demised Premises or any portion thereof from time to time without terminating this Lease. Any such reletting may be an such terms and conditions including, but not limited to, the term thereof and the rent to be paid thereunder, as Landlord may determine in its sole discretion. Any rents received by Landlord during such reletting shall be applied first, to any and all costs incurred by Landlord in connection with such reletting including, but not limited to, brokerage commissions, construction costs and professional fees, second, to all sums due or which become due from Tenant to Landlord hereunder, and any remaining sums shall be held by Landlord to be applied in the future against any rent and all other charges which be come due hereunder. If the rent and other sums received by Landlord as a result of such reletting during any month are less that the amounts Landlord was to receive from Tenant hereunder during that month, Tenant shall immediately pay any such deficiency to Landlord by the wire transfer of immediately available funds. Such deficiency shall be calculated and paid on a monthly basis. During any reletting term, Tenant shall be deemed to have voluntarily surrendered possession of the Premises to Landlord so that Landlord will be permitted to give any new tenant from time to time full and unencumbered use, occupancy and possession of the Premises, all without any rights of possession or interference from Tenant.
Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for Possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases , licenses, concessions or arrangements.
Form of Payment After Default. Following the occurrence of an event of default by Tenant, Landlord shall have the right to require that any or all subsequent amounts paid by Tenant to Landlord hereunder, whether in the cure of the default in question or otherwise, be paid in the form of cash, money order, cashier's or certified check drawn on an institution acceptable to Landlord, or by other means approved by Landlord, notwithstanding any prior practice of accepting payments in any different form.
Waiver of Default No waiver by Landlord or Tenant of any violation or breach of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other or later violation or breach of the same or any other of the terms, provisions, and covenants herein contained. Forbearance by Landlord in enforcement of one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default. The acceptance of any rent hereunder by Landlord following the occurrence of any default, whether or not known to Landlord, shall not be deemed a waiver of any such default, except only a default in the payment of the rent so accepted. Landlord shall be free to accept checks from or on behalf of Tenant without prejudice to Landlord's rights and remedies and no special endorsement or notation on any check shall in any manner be binding on Landlord and Landlord shall be free to accept such checks.
Mitigation. Landlord shall not be required to relet the Demised Premises nor exercise any other right granted to Landlord hereunder, nor shall Landlord be under any obligation to minimize Tenant's loss as a result of Tenant's default. If Landlord attempts to relet the Demised Premises, Landlord shall be the sole judge as to whether or not a proposed tenant is suitable and acceptable. Landlord shall not be liable for failure to relet the Demised Premises.
ARTICLE 29
Subordination and Non Disturbance
This Lease shall be subject and subordinate at all times to: (i) all ground leases or underlying leases now existing or hereafter executed affecting the Building or any of the Real Property, or both; and (ii) the lien of any mortgage or deed of trust now existing or hereafter executed in any amount for which any of the Demised Premises, ground leases, underlying leases, or Landlord's interest or estate in any of said items is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or any such liens to underlying leases or to this Lease. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination and at the option of such successor, attorn to and become Tenant of the successor in interest to Landlord, at the option of such successor in interest. Tenant covenants and agrees to execute and deliver, within ten (10) days of request by Landlord and in the form requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or in the lien of any such mortgage or deed of trust. If Tenant fails to timely execute such additional documents, Tenant hereby appoints Landlord as Tenant's attorney-in-fact for the sole purpose of executing such additional documents on behalf of Tenant. If requested by any present or future lender or ground lessor, Tenant agrees to amend this Lease provided such amendment does not materially increase the obligations or materially decrease the rights of Tenant under this Lease.
ARTICLE 30
Eminent Domain
Permanent Taking. A. If the entire Demised Premises (meaning all of separate properties comprising the Demised Premises) is taken under power of eminent domain or sold, transferred or conveyed in lieu thereof, either Landlord or Tenant shall have the right to terminate this Lease as of the earliest of the date of vesting of title or the date possession is taken by the condemning authority; such right shall be exercised by the giving of written notice to the other party on or before said date. In either of such events, Landlord shall receive the entire award which may be made in such taking or condemnation, and Tenant hereby assigns to Landlord any and all rights of Tenant now or hereafter arising in or to the same whether or not attributable to the value of the unexpired portion of this Lease; provided, however, that nothing contained herein shall be deemed to give Landlord any interest in or to require Tenant to assign to Landlord any award made to Tenant solely for Tenant's moving expenses, or the taking of the unamortized or the undepreciated value of Tenant's personal property, or that portion of the unamortized or undepreciated portion of Tenant's improvements, which were not purchased with any funds from a tenant improvement allowance supplied by Landlord.
B. In the event of any other taking or a sale, transfer, or conveyance in lieu thereof (each a "Taking"), or if this Lease is not terminated by Landlord or Tenant as provided above, then this Lease shall continue in full force and effect in respect of the remaining portion of the Demised Premises. Landlord agrees to make the net condemnation proceeds, if any (subject to the standard disbursement procedures of the Lender in connection with a construction/building loan of its lender(s)) available to Tenant, and said net condemnation proceeds shall be disbursed to Tenant in reimbursement of the final costs of any reasonable restoration needed due to such Taking but (i) only upon the completion in full of the restoration of the Demised Premises and the receipt of all applicable governmental approvals such as, but not limited to, a final certificate of occupancy, (ii) only upon receipt of an architect's certification satisfactory to Landlord that the restoration has been
completed in accordance with the plans and specifications therefor previously approved by Landlord, (iii) only upon the production of such lien waivers and title endorsements as Landlord shall require, (iv) only after such time as Tenant has resumed full operations at the Premises, (v) only if there shall be no default under the Lease and (vi) only to the extent of the actual and reasonable third party expenses of Tenant incurred with such restoration as reasonably established to Landlord; provided that (x) no disbursements shall be made in respect of the restoration of Tenant's personalty, and (y) Tenant shall be responsible for any excess cost of restoration over the amount of net condemnation proceeds, if any, regardless of the amount of such excess cost.
Tenant to Reconstruct. Tenant shall, at its sole cost and expense (and regardless or whether or not covered by condemnation proceeds in whole or part), forthwith repair and/or replace Demised Premises to as close to its original condition as is possible following a Taking and shall complete same within one hundred twenty (120) days of the damage or such longer period as is reasonable to complete said repairs. In no event shall Landlord be required to repair any injury or damage to or to make any repairs or replacements. In connection with such repairs and replacements Tenant shall submit to Landlord, for Landlord's review and prior written approval, all plans, specifications and working drawings relating thereto. Tenant shall not be entitled to any compensation or damages from Landlord for damage to any of Tenant's improvements, alterations, fixtures, or Tenant's other property, for loss of use of the Demised Premises or any part thereof, or for any damage to or interference with Tenant's business, loss of profits, or for any disturbance to Tenant caused by any Taking or the restoration of the Demised Premises following such Taking. All such restoration shall be performed by Tenant in accordance with all of the requirements of this Lease. In the event that the Taking is not covered in whole or in part by net condemnation proceeds, Tenant shall nonetheless be responsible, at its sole cost and expense, to repair and/or replace the Demised Premises as required by this Article. To the fullest extent permitted by applicable law, Tenant hereby waives any and all rights it might otherwise have pursuant to applicable law which permits a termination of this Lease due to any Taking.
Temporary Taking. In the event of temporary taking of all or any portion of the Premises for a period of 360 days or less, then this Lease shall not terminate and the Minimum Annual Rent and the additional rent shall not be abated for the period of such taking except solely to the extent, if any, Landlord shall receive any net condemnation proceeds on account of its lost rents. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.
Landlord's Fees. Tenant shall promptly reimburse Landlord (and Landlord shall be entitled to reimburse itself directly out of the net condemnation proceeds) for any costs incurred by Landlord in connection with a Taking or a restoration necessitated thereby.
ARTICLE 31
Shoring and Rights or Entry by Landlord and Others
A. Following reasonable notice to Tenant and compliance with Tenant's security regulations, the Tenant agrees to permit and allow the Landlord, as well as the public utilities or other suppliers, furnishing services to the Demised Premises or supplying facilities thereto, artisans and mechanics, their servants, agents and employees, to enter upon the Demised Premises during the Tenant's regular business hours, or in the event of an emergency at any other hours, for the purpose of using a reasonable portion of the same for the erection, maintenance and servicing of meters, conduits, traps, pipes, switch boxes and switches, valves, etc., which may be necessary or required for the proper operation of the Demised Premises or of any building to be erected thereon or as a result of the Subdivision by the Landlord and for the safety and convenience of the Tenant, and the Landlord shall be permitted to make any reasonable change and/or modification of the location, replacement, addition, repair or substitution of such facilities, utilities, etc.
B. In the event of any shoring and/or excavation, Landlord agrees to use reasonable efforts so as not to substantially interfere with Tenant's day to day business operations.
ARTICLE 32
Notices
Any notice, communication or demand which under the terms of this Lease or under any statute must or may be given or made by Landlord to Tenant or by Tenant to Landlord shall be in writing, sent prepaid by telex, cable or telecopier, or sent, postage prepaid by registered, certified or express mail, or reputable overnight courier service, and shall be deemed given when so delivered by hand, telexed, cabled or telecopied, or if mailed, three (3) business days after mailing (one [1] business day in case of express mail or overnight courier service) as follows:
TO LANDLORD: Suite 303
60 Cutter Mill Road
Great Neck, NY 11021
Attn: Jeff Fishman and Mark Lundy, Esq.
WITH A COPY THEREOF TO: Moritt, Hock, Hamroff
& Horowitz, LLP
400 Garden City Plaza
Suite 202
Garden City, New York 11530
Attn: David H. Cohen, Esq.
TO TENANT: L-3 Communications Corporation
600 Third Avenue, 34th Fl.
New York, NY 10016
Attn: Vice President, General Counsel
WITH A COPY THEREOF TO: Leonard Levine, Esq.
12 Orchard Hill Road
Katonah, NY 10536
and
L-3 Communications Corporation
435 Moreland Road
Hauppauge, New York 11788
Attn: Accounts Payable
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ARTICLE 33
Destruction, Fire and Other Casualty
Tenant to Reconstruct. Tenant shall promptly notify Landlord if all or any portion of the Demised Premises shall be damaged resulting from fire or any other cause. If, at any time during the Original Term or any Extended Term, any portion of the Demised Premises are damaged by fire or other cause, Tenant shall, at its sole cost and expense (and regardless or whether or not insured in whole or part), forthwith repair and/or replace the same and in any event shall complete same within one hundred twenty (120) days of the damage or such longer period as is reasonable to complete such repairs. In no event shall this Lease terminate and this Lease shall remain in full force and effect without any reduction in the Minimum Annual Rent and additional rent. In no event shall Landlord be required to repair any injury or damage to or to make any repairs or replacements of any alterations or any other improvements installed at the Demised Premises by or for Tenant, and Tenant shall, at Tenant's sole cost and expense, repair and restore all Tenant's improvements and all other alterations and improvements in the same condition existing prior to such event. In connection with such repairs and replacements Tenant shall submit to Landlord, for Landlord's review and prior written approval, all plans, specifications and working drawings relating thereto. Tenant shall not be entitled to any compensation or damages from Landlord for damage to any of Tenant's improvements, alterations, fixtures, or Tenant's other property, for loss of use of the Demised Premises or any part thereof, or for any damage to or interference with Tenant's business, loss of profits, or for any disturbance to Tenant caused by any casualty or the restoration of the Demised Premises following such casualty or other cause. All such restoration shall be performed by Tenant in accordance with all of the requirements of this Lease.
Waiver of Statutory Provisions. The provisions of this Lease, including this Article 33, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Demised Premises, and any applicable statute or regulation with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Demised Premises.
Insurance Proceeds. A. All insurance shall be and are the property
of Landlord and shall be paid to Landlord (or its lender(s) or ground lessor(s)
if so required) and shall not be paid to Tenant. If Tenant shall come into
possession of any insurance proceeds same shall be deemed to be held in trust
for Landlord and shall immediately be transferred to Landlord. Landlord (and any
lender's and ground lessor's) shall make insurance proceeds, if any, and net of
any collection or adjustment costs available to Tenant for the restoration with
disbursement of such proceeds to be consistent with the lender(s) standard
disbursement practices for a construction/building loan. If Landlord (and its
lender(s) and ground lessor(s)) shall determine to make the net insurance
proceeds available to Tenant, then same shall be disbursed to Tenant in
reimbursement of the final costs of such restoration (i) only upon the
completion in full of the restoration of the Demised Premises and the receipt of
all applicable governmental approvals such as, but not limited to, a final
certificate of occupancy, (ii) only upon receipt of an architect's certification
satisfactory to Landlord that the restoration has been completed in accordance
with the plans and specifications therefor previously approved by Landlord,
(iii) only upon the production of such lien waivers and title endorsements as
Landlord shall require, (iv) only after such time as Tenant has resumed full
operations at the Premises, (v) only if there shall be no default under the
Lease and (vi) only to the extent of the actual and reasonable third party
expenses of Tenant incurred with such restoration as reasonably established to
Landlord; provided that (x) no disbursements shall be made in respect of the
restoration of Tenant's personalty, (y) any excess net insurance proceeds shall
be retained by Landlord without rent abatement or credit and (z) Tenant shall be
responsible for any excess cost of restoration over the amount of net insurance
proceeds, regardless of the amount of such excess cost.
B. In the event that the destruction or damage is not covered in whole or in part by insurance, tenant shall nonetheless be responsible, at its sole cost and expense, to repair and/or replace the Demised Premises as required by this Article.
C. In the event that Landlord shall determine not to make the net insurance proceeds available to Tenant, then in such event (i) Tenant shall nonetheless be required, at its sole cost and expense, to forthwith repair the damage so as to remove any hazardous condition, to make
same sightly and to comply with all applicable law, mortgages, ground leases and restrictive covenants and to continue to operate the undamaged portions of the Demised Premises.
Landlord's Fees. Tenant shall promptly reimburse Landlord (and Landlord shall be entitled to reimburse itself directly out of the net insurance proceeds) for any costs incurred by Landlord in connection with a casualty or other damage or a restoration necessitated thereby.
ARTICLE 34
Governing Law
Irrespective of the place of execution or performance, Landlord and Tenant and their successors and assigns hereby agree that this Lease shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving reference to principles of conflicts of law.
ARTICLE 35
Authorization
The person executing this Lease on behalf of Tenant represents and warrants to Landlord that he is duly authorized to execute this Lease on behalf of Tenant.
ARTICLE 36
Survival of Tenant's Obligations
Any obligation of Tenant which by its nature or under the circumstances can only be, or by the provisions of this Lease, may be performed after the expiration or earlier termination of this Lease, and any liability for a payment which shall have accrued to or with respect to any period ending prior to or at the time of such expiration or termination, unless expressly otherwise provided in this Lease, shall survive the expiration or earlier termination of this Lease.
ARTICLE 37
Estoppel Certificates
Upon the reasonable request of either party, at any time or from time to time, Landlord and Tenant agree to execute, acknowledge and deliver to the other, within ten (10) days after request, a written instrument, duly executed and acknowledged, (a) certifying that this Lease has not been modified and is in full force and effect or, if there has been a modification of this Lease, that this Lease is in full force and effect as modified, stating such modifications, (b) specifying the dates to which the Fixed Rent and Additional Rent have been paid, (c) stating whether or not, to the knowledge of the party executing such instrument, the other party is in default, stating the nature of such default, and (d) whether or not there are then existing any setoffs or defenses against the enforcement of any of the obligations hereunder upon the part of the Landlord or Tenant, as the case may be, to be performed or complied with (and, if so, specifying the same).
ARTICLE 38
Quiet Enjoyment
Upon Tenant paying the Minimum Annual Rent and all additional rent and performing all of Tenant's covenants, agreements and obligations under this Lease, Tenant may peacefully and quietly enjoy the Demised Premises during the Lease Term as against all persons or entities lawfully claiming by or through Landlord, subject, however, to the provisions of this Lease and to any present or future mortgages or ground or underlying leases of all or any portion of the Real Property and to any present or future Restrictions and Legal Requirements.
ARTICLE 39
Mortgagee Modifications
If, in connection with obtaining financing for the Demised Premises or Building or any refinancing or substitute, new or additional financing, a lender or the holder of a superior mortgage shall request reasonable modifications of this Lease, Tenant shall promptly consent to such modifications, provided such modifications do not materially (i) increase the obligations of Tenant under this Lease or (ii) affect the leasehold interest of Tenant created by this Lease or (iii) affect the rights and leasehold interest of Tenant.
ARTICLE 40
Signs
Subject to (i) Tenant's receipt of the approval of all governmental authorities having jurisdiction over the Demised Premises, and (ii) the terms covenants and conditions of any covenants, conditions and restrictions and/or reciprocal easement agreements which encumber the Demised Premises, Tenant may install identification signage on the Demised Premises for Tenant's operations only. Any signs, notices, logos, pictures, names or advertisements which are installed must be designed, installed and utilized in keeping with Tenant's corporate identity, and shall be similar in size, nature, and materials used in Tenant's other business locations.
ARTICLE 41
Access to Premises
Following prior notice and compliance with Tenant's security regulations, Tenant shall permit Landlord to enter upon the Demised Premises, at all reasonable times, during customary business hours of Tenant, but only so long as Landlord shall not unreasonably interfere with the conduct of Tenant's business, or, in the case of a bona fide emergency, at any time.
ARTICLE 42
Defaults by Landlord
Tenant agrees that Landlord shall not be in default hereunder unless Landlord fails to perform the obligations, if any, required of Landlord within thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Demised Premises and to any ground lessor, whose name and address shall have theretofore been furnished to Tenant, in writing specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such 30-day period and thereafter diligently prosecutes the same to completion within one hundred twenty (120) days thereafter. In no event shall Tenant have the right to terminate this Lease as a result of Landlord's default, and Tenant's sole remedy shall be to effect the cure of such default itself and then bring separate action for reimbursement of its actual third party costs from Landlord with it being expressly understood (i) Tenant shall in no event be entitled to a rent abatement, credit or offset and (ii) Landlord shall in no circumstance whatsoever be liable to Tenant for consequential damages. Nothing herein contained shall be interpreted to mean that Tenant is excused from paying rent due hereunder as a result of any default by Landlord.
ARTICLE 43
Non-Waiver
All rights and remedies of Landlord and Tenant herein created or otherwise extending at law, equity or by statute, are cumulative, and the exercise of one or more rights or remedies may be exercised and enforced concurrently or consecutively and whenever and as often as deemed desirable.
The failure of either Landlord or Tenant to insist upon strict performance by the other of any of the covenants, conditions, and agreements of this Lease shall not be deemed a waiver of any subsequent breach or default in any of the covenants, conditions and agreements of this Lease. The failure of either party to seek redress for violation of, or to insist upon the strict performance of, any term, covenant or condition in this Lease shall not prevent a similar subsequent act from constituting a default under this Lease.
ARTICLE 44
Successors and Assigns
All covenants, promises, conditions, representations and agreements herein contained shall be binding upon, apply and inure to the parties hereto and their respective heirs, executors, administrators, successors and assigns.
ARTICLE 45
Environmental Compliance
Environment. (a) Subject to the matters and information set forth in the environmental audits (collectively, "Reports") prepared by H2M Associates dated March, 1987 and Matrix Environmental & Geotechnical Services dated May 14, 1989;
(b) Tenant covenants, represents and warrants (i) that the Demised Premises does not contain and will not contain in violation of "Environmental Laws" and requiring remediation; (A) asbestos in any form; (B) urea formaldehyde foam insulation; (C) transformers or other equipment which contain dielectric fluid containing polychlorinated biphenyls (PCB's); (D) fuel oil, gasoline, other petroleum products or by-products, (E) lead-based paint or (F) any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous, controlled or toxic substances, or any pollutant or contaminant, or related materials defined in or controlled pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 9601, et seq.), and in the regulations adopted and publications promulgated pursuant thereto, or any other federal, state or local environmental law, ordinance, rule, or regulation; collectively "Environmental Laws"; or which, even if not so regulated, may or could pose a hazard to the health or safety of the occupants of the Demised Premises or surrounding properties or the owners of the Demised Premises or surrounding properties (the substances described in (A), (B), (C), (D), (E) and (F) above are referred to collectively herein as "Hazardous Materials"), (ii) that the Demised Premises and any buildings and other improvements and additions previously, now or hereafter located thereon, are not now being used nor have ever been used and will never be used for any activities involving, directly or indirectly, the use, generation, treatment, transportation, storage or disposal of any Hazardous Materials whether by Tenant, any prior owner of the Demised Premises or any tenant or prior tenant of the Demised Premises in violation of Environmental Laws; (iii) that there has never been any Hazardous Materials Release (as defined below in this Article) on, from or affecting the Demised Premises, which has not been remedied to the satisfaction of the governmental agencies having jurisdiction over the Demised Premises; (iv) that none of the Demised Premises, any previous owner of the Demised Premises, nor Tenant are subject to any past, existing, pending, or threatened notice, summons, citation, directive, investigation, litigation, proceeding, inquiry, lien, encumbrance or restriction, settlement, remedial,
response, cleanup or closure arrangement or any other remedial obligations by or with any governmental authority (collectively "Regulatory Actions") under, or are in violation of, any applicable Environmental Laws, which has not been remedied to the satisfaction of the governmental agencies having jurisdiction over the Demised Premises. Tenant does not know and has no reason to know of any violation of the foregoing representations, warranties and covenants.
(c) Tenant represents, warrants and covenants that with respect to the Demised Premises and any buildings and other improvements and additions thereon, Tenant (i) shall comply with and ensure compliance by all subtenants, invitees, patrons and other persons with all applicable Environmental Laws, (ii) shall not store, utilize, generate, treat, transport or dispose (or permit or acquiesce in the storage, utilization, generation, transportation, treatment or disposal of) any Hazardous Materials on or from the Demised Premises in violation of Environmental Laws, (iii) shall ensure that all permitted subleases of the Demised Premises contain agreements requiring the subtenant's compliance with the requirements of the foregoing clauses (i) and (ii); and (iv) shall cause any subtenant, licensee, concessionaire or other person or entity using and/or occupying any part of the Demised Premises to comply with the representations, warranties and covenants contained in this Article.
(d) In the event of any storage, presence, utilization, generation, transportation, treatment or disposal of Hazardous Materials on the Demised Premises or in the event of any Hazardous Materials Release whatsoever or howsoever occurring in violation of applicable Environmental Laws, Tenant shall as soon as is possible, at the direction of and satisfaction of any federal, state, or local authority or other governmental authority, remove any such Hazardous Materials and rectify any such Hazardous Materials Release, and otherwise comply with the laws, rules, regulations or orders of such authority, all at the sole cost and expense of Tenant, including without limitation, the undertaking and completion of all investigations, studies, sampling and testing and all remedial, removal and other actions necessary to clean up and remove all Hazardous Materials, on, from or affecting the Demised Premises in violation of applicable Environmental Laws. If Tenant shall fail to proceed with such removal or otherwise comply with such Environmental Laws within the cure period permitted under the applicable regulation or order, the same shall constitute a default hereunder without right of further notice or grace period, and Landlord shall have the right, at its sole option but with no obligation, to do whatever is necessary to eliminate such Hazardous Materials from the Demised Premises or otherwise comply with the applicable law, rule, regulation or order, acting either in its own name or in the name of Tenant pursuant to this Article, and the cost thereof shall be and become immediately due and payable without notice by Tenant to Landlord. In addition to and without limiting Landlord's rights pursuant to this Lease, Tenant shall give to Landlord and its agents and employees access to the Demised Premises and all buildings and other improvements and additions thereon for such purposes and hereby specifically grants to Landlord a license to remove such Hazardous Materials and otherwise comply with applicable Environmental Laws acting either in its own name or in the name of Tenant pursuant to this Article.
(e) Tenant shall defend, indemnify and save Landlord and Landlord's
Affiliates harmless from, against, for and in respect of, any and all damages,
losses, settlement payments, obligations, liabilities, claims, actions or causes
of actions, encumbrances, fines, penalties, and costs and expenses suffered,
sustained, incurred or required to be paid by any such indemnified party
(including, without limitation, fees and disbursements of attorneys, engineers,
laboratories, contractors and consultants) because of, or arising out of or
relating to any "Environmental Liabilities" (as defined below) in connection
with the Demised Premises or any buildings previously, now or hereafter located
thereon. For purposes of this indemnification clause, "Environmental
Liabilities" shall include all costs and liabilities with respect to the past,
present or future presence, removal, utilization, generation, storage,
transportation, disposal or treatment of any Hazardous Materials or any release,
spill, leak, pumping, pouring, emitting, emptying, discharge, injection,
escaping, leaching, dumping or disposing into the environment (air, land or
water) of any Hazardous Materials in violation of applicable Environmental Laws
(each a "Hazardous Materials Release"), including without limitation, (i)
cleanups, remedial and response actions, remedial investigations and feasibility
studies, permits and licenses required by, or undertaken in order to comply with
the requirements of, any federal, state or local law, regulation, or agency or
court, any damages for injury to person, property or natural resources, claims
of governmental agencies or third parties for cleanup costs and costs of
removal, discharge, and satisfaction of all liens, encumbrances and restrictions
on
the Demised Premises relating to the foregoing and (ii) injury to person or property in any manner related to a Hazardous Materials Release on, near or from the Demised Premises or otherwise related to environmental matters on or near the Demised Premises. Hazardous Materials Release shall also include by means of any contamination, leaking, corrosion or rupture of or from underground or above ground storage tanks, pipes or pipelines.
(f) Tenant shall promptly notify Landlord in writing of the occurrence of any Hazardous Materials Release or any pending or threatened Regulatory Actions, or any claims made by any governmental authority or third party, relating to any Hazardous Materials or Hazardous Materials Release on or from, the Demised Premises, or any buildings or other improvements or additions previously, now or hereafter located thereon and shall promptly furnish Landlord with copies of any correspondence or legal pleadings or documents in connection therewith. Landlord shall have the right, but shall not be obligated, to notify any governmental authority of any state of facts which may come to its attention with respect to any Hazardous Materials or Hazardous Materials Release on or from the Demised Premises.
(g) The liability of Tenant to Landlord pursuant to, by reason of or arising from the representations, warranties, covenants and indemnities provided for this Article is unlimited and shall survive the expiration of the term of this Lease and shall not exclude or limit in any manner the matters or information set forth in the Reports. Nothing herein shall limit Tenant's obligations to remediate or comply with governmental requirements with respect to matters set forth in the Reports.
(h) Tenant covenants, represents and warrants that to the best of its knowledge and belief, the Demised Premises, and any buildings and other improvements and additions previously, now or hereafter located thereon, do not now and never have, contained any underground or aboveground storage tanks, pipes or pipelines for the storage or transportation of Hazardous Materials, including without limitation, heating oil, fuel oil, gasoline and/or other petroleum products, whether such tanks are in operation, not operational, closed, removed or abandoned. Without limiting the generality of the foregoing, Tenant is in full compliance with all registration and other requirements of 42 USC (0) 6991, "Regulation of Underground Storage Tanks" and all federal, state and local laws and regulations implementing the provisions of such act.
(i) The provisions of this Article 45 are in addition to and not intended to limit (i) any representations, warranties, covenants, agreements and indemnities concerning the environment by Tenant in favor of Landlord in the contract of sale, if any, between the parties relating to Landlord's acquisition of the Demised Premises from Tenant or in any other documents related thereto and (ii) the provisions of applicable law and pursuant to which Landlord and Tenant acknowledge and agree that Tenant shall at all times be deemed to be the "operator" of the Demised Premises and to bear the primary responsibility under applicable law. Tenant acknowledges and agrees that Landlord has never occupied or operated at the Demised Premises and that Landlord acquired the Demised Premises directly from Tenant and therefor it is appropriate for Tenant to undertake all of the environmental responsibilities at the Demised Premises regardless of how or when such responsibilities arise or arose.
ARTICLE 46
Security Deposit
NONE.
ARTICLE 47
Miscellaneous Provisions.
(a) Notwithstanding anything to the contrary contained in this Lease, any wall-to-wall carpeting installed in the Demised Premises shall upon installation become the property of Landlord and shall remain in and be surrendered with the Demised Premises upon the expiration or earlier termination of this Lease.
(b) This Lease is submitted to Tenant for signature with the understanding that it shall not bind Landlord or Tenant unless and until it is duly executed by both Tenant and Landlord and an executed copy is delivered to Tenant.
(c) Landlord shall have the right to erect any gate, chain or other obstruction or to close off any portion of the Building to the public at any time to the extent necessary to prevent a dedication thereof for public use.
(d) The paragraph headings throughout this Lease are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Lease.
(e) Satellite Dish. Subject to Landlord's consent and aesthetic approval which will not be unreasonably withheld, and subject further to all Legal Requirements and Restrictions, Tenant shall have the right to install satellite dishes on the roof of the Building (or elsewhere on the Demised Premises. Any installation of the satellite dish shall be performed in such a manner so as to minimize the ability to view the satellite dish above the upper level of the roof of the Building. Prior to such installation, Tenant shall submit to Landlord and all appropriate governmental authorities having jurisdiction thereof, all plans and specifications relating to such installation. Tenant shall be responsible to obtain all necessary government approvals that are required in order to install the satellite dish, it shall prepare all plans and specifications, and it shall acquire, install, operate and keep the satellite dish in good repair, all at its sole cost and expense. Landlord shall be entitled to withhold its consent to the installation of any satellite dish during the Lease Term if such installation would violate or affect the structural integrity or warranty of the roof of the Building, or cause any leaks to be created from the roof, and Landlord shall be entitled to require Tenant to remove the satellite dish if, subsequent to any approved installation, the satellite dish creates leaks from the roof of the Building or adversely affects the integrity of the roof. Upon the expiration or earlier termination of the Lease Term, and if Landlord so requests, Tenant shall remove the satellite dish from the roof of the Building, and shall promptly, at its sole cost and expense, repair any damage caused by the prior operation of the satellite dish or its installation or removal. If Landlord does not request Tenant to remove the satellite dish and Tenant elects not to remove same, the satellite dish and all of its components shall thereupon become the property of Landlord for no consideration. Tenant's obligations under this Article 47 shall survive the expiration or earlier termination of this Lease. In the event that any governmental authority having jurisdiction over the installation and/or use and/or operation of Tenant's satellite dish either (i) refuses to permit the installation of the satellite dish for any reason whatsoever or for no apparent reason, (ii) requires the removal of the satellite dish after the occurrence of the Lease Commencement Date, or (iii) changes the rules or regulations effecting the use and/or operation of the satellite dish in any manner whatsoever after the Lease commencement Date, then in any of such events, Tenant shall not have any claim of any kind against Landlord, and the provisions of this Lease shall remain in full force and effect.
(f) Captions The titles or captions in this Lease are for reference purposes only and have no effect upon the construction or interpretation of any part hereof. The use herein of the singular includes the plural and vice versa, and the use herein of the neuter gender includes the masculine and the feminine and vice versa, whenever and wherever the context so requires.
(g) Attorney's Fees. If Landlord commences litigation against Tenant for the specific performance of this Lease, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder or otherwise retains counsel in connection with the enforcement or interpretation of this Lease, Tenant shall be liable for and shall immediately reimburse Landlord for all such costs and attorneys' fees as may have been incurred. Further, if for any reason Landlord consults legal counsel or otherwise incurs any costs or expenses as a result of its rightful attempt to enforce the provisions of this Lease, even though no litigation is commenced, or if commenced is not pursued to final judgment, Tenant shall be obligated to pay to Landlord, in addition to all other amounts for which Tenant is obligated hereunder, all of Landlord's reasonable costs and expenses incurred in connection with any such acts, including reasonable attorneys' fees
ARTICLE 48
Additional Negative Obligations and Covenants of Tenant
Tenant covenants and agrees that at all times during the Term, it shall not at any time, without first obtaining Landlord's prior written consent:
(a) use the plumbing facilities for any purpose other than that for which they were constructed, or dispose of any garbage or other foreign substances therein, whether through the utilization of so-called "disposal" or similar units, or otherwise.
(b) perform any act or carry on any practice which may damage, mar or deface the Demised Premises or any other part of the Building.
ARTICLE 49
Tenant's Waiver of Declaratory Judgment and Injunctive Relief
Tenant expressly agrees not to seek injunctive relief in the Supreme Court
of the State of New York, which injunctive relief would seek to stay, extend or
otherwise toll any notice to cure sent by Landlord to Tenant in accordance with
the terms and provisions of this Lease. It is further agreed that in the event
injunctive relief is sought by Tenant, or if a "Yellowstone" injunction (First
National Stores, Inc. v. Yellowstone Shopping Centers, Inc., 21 N.Y.2d 630) is
sought by Tenant, such relief shall be denied by the court from which such
relief shall be sought, and Landlord shall be entitled to recover the costs of
opposing such an application or action, including Landlord's attorneys' fees
reasonably and actually incurred in connection therewith. If Landlord shall
serve Tenant with a Notice of Default pursuant hereto, and (i) if Tenant shall
dispute either the existence of such default, or whether or not the terms and
provisions of this Lease obligate Tenant to so cure such alleged default, and
(ii) following the expiration of any period of time provided in this Lease to
cure such alleged Event of Default and the subsequent delivery by Landlord to
Tenant of a notice terminating this Lease, the appropriate court shall determine
that Landlord is entitled to a final and unappealable judgment of possession as
a result of such failure of Tenant to so timely cure such alleged default, then
Tenant shall have ten (10) days from the date of entry of such judgment in which
to cure the default; provided, however, that if Tenant shall contend that such
default can not be cured within such ten (10) day period, then such cure period
will be extended to the reasonable period required to cure such default, as
determined by the appropriate court, provided Tenant shall commence the curing
of such default within ten (10) days (or such longer time as shall be set by the
court) of the beginning of the period of time so established by the appropriate
court, and Tenant shall thereafter diligently prosecute the curing of such
default. In the event that the appropriate court shall refuse or for any reason
whatsoever fail to determine such reasonable period required to so cure such
default, Landlord and Tenant shall promptly meet to set such period of time,
provided, however, that if Landlord and Tenant shall not agree on such period of
time, then such matter shall, at the request of either Landlord or Tenant, be
determined by arbitration in accordance with the American Arbitration
Association rules for commercial arbitration, it being understood and agreed
that such arbitration shall be for the sole purpose of determining a reasonable
period of time to perform those acts required for such cure, and that neither
party shall submit any evidence to the arbitrator with respect to the
appropriate court determination of the existence of such Event of Default.
Landlord agrees to stay the warrant of eviction during the cure period
determined as set forth above. In the event of the completion of such cure by
Tenant in a timely fashion, Landlord waives any right it may have to execute on
such warrant of eviction, and Tenant may, at its option, either (i) apply to the
appropriate court for permanent stay of the execution of the warrant of eviction
based upon the curing of such default, (ii) apply to the appropriate court for
the revival of this Lease and the estate granted to Tenant hereby, or (iii)
require Landlord to enter into a new lease with Tenant dated as of the date of
this Lease for the remaining term of this Lease and otherwise on all of the same
terms and conditions of this Lease. Notwithstanding anything to the contrary set
forth in this Article 49, neither this Lease nor Tenant's leasehold estate in
the demised premises shall terminate unless all of the following events have
occurred:
(1) Following a proceeding in which Landlord has demonstrated to the appropriate court the existence of a material default on the part of Tenant which was not timely
cured, the appropriate court shall determine that Landlord is entitled to a final judgment of possession due to such failure of Tenant to timely cure such default;
(2) Tenant has exhausted its appeals therefrom; and
(3) Tenant has thereafter failed to timely cure the default pursuant to the provisions of this article.
ARTICLE 50
Landlord's Right to Cure Default; Payments by Tenant
Landlord's Cure. All covenants and agreements to be kept or performed under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Minimum Annual Rent or additional rent. If Tenant shall default in the performance of its obligations under this Lease and if such default is not cured within the applicable grace period provided in this Lease, Landlord may, but shall not be obligated to, make any such payment or perform any such act on Tenant's part without waiving its rights or remedies based upon such or any other default of Tenant and without releasing Tenant from any obligations hereunder.
Tenant's Reimbursement. Tenant shall pay to Landlord, within thirty
(30) days after delivery by Landlord to Tenant of statements therefor: (i) sums
equal to expenditures made and obligations incurred by Landlord in connection
with the remedying by Landlord of Tenant's defaults pursuant to the provisions
of this Article or elsewhere in this Lease; and (ii) sums equal to all
expenditures made and obligations incurred by Landlord in collecting or
attempting to collect the Minimum Annual Rent or additional rent or in enforcing
or attempting to enforce any rights of Landlord under this Lease or pursuant to
law , including, without limitation, all legal fees and other amounts so
expended. Tenant's obligations under this Article shall survive the expiration
or sooner termination of the Lease Term.
ARTICLE 51
Bankruptcy Protections
A. Tenant warrants and represents that this transaction is a bona fide third party transaction and is being made for fair value. Tenant warrants and represents that this transaction is a bona fide sale-leaseback transaction and does not constitute a joint venture, partnership or mortgage/lending relationship.
B. As a material inducement for Landlord to enter into this Lease (and the sale/leaseback of which it is a part and without which Landlord would not have entered into this transaction with Tenant) Tenant hereby (i) to the fullest extent permitted by applicable law, waives any right to reject all or any part of this Lease or Tenant's obligations hereunder, (ii) to the fullest extent permitted by applicable law and in the event (i) above is not enforceable, waives any provision or ability to extend the minimum period within which Tenant shall have to assume or reject this Lease, and (iii) agrees that in the event of an assignment by Tenant out of or pursuant to the bankruptcy or similar proceeding of Tenant, the proposed assignee shall not be deemed creditworthy and Landlord shall be entitled to reject the proposed assignee unless (x) such proposed assignee has a net worth (certified by independent auditors and determined in accordance with Generally Accepted Accounting Principles) equal to or exceeding $250 Mil. or (y) such proposed assignee shall post a security deposit (or irrevocable letter of credit acceptable to Landlord) with Landlord equal to two year's worth of Minimum Annual Rent then in effect.
ARTICLE 52
Surrender of Premises; Ownership and Removal of Trade Fixtures
Surrender of Premises. No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a
surrender of the Premises unless such intent is specifically acknowledged in a writing signed by Landlord. The delivery of keys to the Demised Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Demised Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises.
Removal of Tenant Property by Tenant. Upon the early termination of this Lease due to Tenant's default hereunder, Tenant shall, subject to the provisions of this Article 52, quit and surrender possession of the Premises to Landlord in as good order and condition as at the date of the making of this Lease, reasonable wear and tear excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, free-standing cabinet work, trade fixtures, and other articles of personal property owned by Tenant or installed or placed by Tenant in the Demised Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Demised Premises and Building resulting from such removal.
Removal of Tenant's Property by Landlord. Whenever Landlord shall re-enter the Demised Premises as provided in this Lease, any personal property of Tenant not removed by Tenant upon the expiration of the Lease Term, or within forty-eight (48) hours after a termination by reason of Tenant's default as provided in this Lease, shall be deemed abandoned by Tenant and may be disposed of by Landlord, at Tenants cost, in accordance with applicable law or in accordance with any judicial decisions which may supplement or supplant those provisions from time to time.
Landlord's Property. All fixtures, alterations, additions, repairs, improvements and/or appurtenances attached to or built into, on, or about the Demised Premises prior to or during the term hereof, whether by Landlord at its expense or at the expense of Tenant, or by Tenant at its expense, or by previous occupants of the Demised Premises, shall be and remain part of the Demised Premises and shall not be removed by Tenant at the end of the Lease Term, unless otherwise expressly provided for in this Lease or unless such removal is required by Landlord pursuant to the provisions of this Lease. If Tenant shall fail to complete such removal and repair such damage, Landlord may do so and may charge the cost thereof to Tenant. Such fixtures, alterations, additions, repairs, improvements and/or appurtenances shall include, without limitation, floor coverings, drapes, paneling, molding, doors, kitchen and dishwashing fixtures and equipment, plumbing systems, electrical systems, lighting systems, silencing equipment, communication systems, all fixtures and outlets for the systems mentioned above and for all telephone, radio, telegraph and television purposes, and any special flooring or ceiling installations.
Landlord's Actions on Demised Premises. Tenant hereby waives all claims against Landlord with respect to Landlord's removal as herein provided and same shall not constitute forcible entry.
ARTICLE 53
Waiver of Jury Trial
To the fullest extent permitted by law, Tenant hereby waives any right to a trial by jury in any litigation where Tenant and Landlord are parties.
ARTICLE 54
Subdivision
Notwithstanding anything to the contrary contained herein, Landlord shall have the absolute right, in its sole and absolute discretion, at any time during the Original Term or any Extended Term of this Lease, to subdivide the approximate five (5) acres as more particularly set forth on Exhibit "B" hereto from the Demised Premises (the "Subdivision"). Such Subdivision shall be at the sole cost and expense of Landlord. Following the Subdivision there shall be no reduction in the Minimum Annual Rent payable by Tenant to Landlord during the Original Term or any Extended Term. Nothing contained herein shall obligate the Landlord to commence or complete the Subdivision but in the event Landlord completes the Subdivision, Landlord may sell, lease, convey, develop, encumber or any other such transaction or conveyance without any limitation under this Lease or obligation to Tenant. In the event the Subdivision affects all or any portion of the Tenant's parking lot that currently comprises a portion of the Demised Premises, Landlord shall, at its expense, restore any curb cuts, driveways or the parking lot so effected. Tenant acknowledges that Landlord may in its sole and absolute discretion in connection with the Subdivision, create any and all easements, declarations, covenants and restrictions (collectively "Easements") as Landlord deems appropriate. Landlord agrees that said Easements shall not materially adversely affect Tenant's use and enjoyment of the Demised Premises.
LANDLORD:
WITNESS:
OLP Hauppauge LLC
BY: /s/
_____________________ ________________________
Name:
Title:
|
TENANT:
L-3 Communications Corporation
BY: /s/ Frank C. Lanza,
_____________________ ________________________
Name: Frank C. Lanza,
Title: Chairman, CEO
|
Exhibit 10.4
ONE LIBERTY PROPERTIES, INC.
1989 STOCK OPTION PLAN
1. Purpose. The purpose of the 1989 Stock Option Plan of One Liberty Properties, Inc. (the "Company") is to provide incentive to officers, directors and key employees of the Company and to attract to the Company individuals of experience and ability.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, together with any applicable amendments.
(c) "Common Stock" shall mean the Common Stock, $1.00 par value of the Company.
(d) "Company" shall mean One Liberty Properties, Inc., a corporation organized under the laws of the State of Maryland and any of its Subsidiaries.
(e) "Controlled Entities" shall mean any entity (corporation, partnership or other business organization) in which the officer, director or Employee is a controlling person; i.e., the officer, director or Employee has the power, direct or indirect, to direct or cause the direction of the management and policies of the entity either through the ownership of voting securities, by contract or otherwise.
(f) "Disability" shall mean the condition of an officer, director or Employee who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months.
(g) "Employee" shall mean an individual (who may be an officer or a director who does not devote full time to the affairs of the Company employed by the Company (within the meaning of Code section 3401 and the regulations thereunder).
(h) "Exercise Price" shall mean the price per Share, determined by the Board (or a committee selected pursuant to Section 4 of the Plan), at which an Option may be exercised.
(i) "Fair Market Value" of a Share as of a specified date shall mean the closing price of a Share on the principal securities exchange on which such Shares are traded on the day immediately preceding the date as of which Fair Market Value is being determined, or on the next preceding date on which such Shares are traded if no Shares were traded on such immediately preceding day, or if the Shares are not traded on a securities exchange, Fair Market Value shall be deemed to be the average of the high bid and low asked prices of the Shares in the over-the-counter market on the day immediately preceding the date as of which Fair Market Value is being determined. If the Shares are not publicly traded, Fair Market Value shall be determined by the Board (or a committee selected pursuant to Section 4 of the Plan). In no case shall Fair Market Value be less than the par value of a Share.
(j) "Incentive Stock Option" shall mean an Option described in Code section 422A(b).
(k) "Nonstatutory Stock Option" shall mean an Option not described in Code sections 422(b), 422A(b), 423(b) or 424(b).
(1) "Option" shall mean a stock option granted pursuant to the Plan.
(m) "Purchase Price" shall mean the Exercise Price times the number of whole Shares with respect to which an Option is exercised.
(n) "Optionee" shall mean an officer, director or Employee to whom an Option has been granted.
(o) "Plan" shall mean this One Liberty Properties, Inc. 1989 Stock Option Plan.
(p) "Retirement" shall mean the voluntary termination by an Employee of employment with the Company, provided that on the effective date of Retirement the Employee shall have attained 62 years of age.
(q) "Share" shall mean one share of Common Stock adjusted in accordance with Section 10 of the Plan (if applicable).
(r) "Subsidiary" shall mean those subsidiaries of the Company as defined in section 425(f) of the Code.
3. Effective Date. The Plan was approved by the Board effective October 16, 1989 and must be approved by shareholders on or before October 15, 1990.
4. Administration. The Plan shall be administered by the Board or at the discretion of the Board by a committee of three directors not employed by the Company. Members of the committee shall be eligible to receive Option grants under the Plan, but Options granted to any member of the committee shall be granted only by action of the full Board. The Board or the committee, as appropriate, shall from time to time make determinations with respect to officers, directors or Employees who shall be granted Options, the number of Shares to be optioned to each and the designation, in accordance with the terms of the Plan, as Incentive Stock Options or Nonstatutory Stock Options. The interpretation and construction by the Board or the committee, as appropriate, of any provisions of the Plan or of any Option granted hereunder shall be binding and conclusive on all Optionees and on their legal representatives and beneficiaries.
5. ELIGIBILITY. Optionees shall be such officers, directors or Employees of the Company who perform services of importance to the management, operation and development of the business of the Company as the Board or the committee, as appropriate, shall select, but subject to the terms and conditions set forth below.
No Employee who, at the time of the grant of an Option, would own (or have options to acquire) more than ten percent (l0%) of the total combined voting power of all classes of outstanding stock of the Company, its parent or any of its Subsidiaries (a 10% shareholder) is eligible to receive the grant of an Incentive Stock Option pursuant to the Plan. However, an Employee who is a 10% shareholder is eligible to receive the grant of an Incentive Stock Option pursuant to the Plan if
(a) the Exercise Price of the Incentive Stock Option is at least 110% of the Fair Market Value of a Share on the date of grant, and
(b) the Incentive Stock Option, by its terms, is not exercisable after the expiration of five (5) years from the date it is granted.
No officer or director who is not an Employee of the Trust is eligible to receive the grant of an Incentive Stock Option pursuant to the Plan.
6. Stock. (a) The stock subject to Options granted under the Plan shall be the Company's authorized but unissued or reacquired shares of Common Stock. The aggregate number of Shares which may be issued under Options exercised under this Plan shall not exceed 225,000. The number of Shares subject to Options outstanding under the Plan at any time may not exceed the number of Shares
remaining available for issuance under the Plan. In the event that any Option outstanding under the Plan expires for any reason or is terminated, the Shares allocable to the unexercised portion of such Option may again be subjected to an Option under the Plan.
(b) (1) Shares acquired pursuant to the exercise of Nonstatutory Stock Options granted under the Plan will be forfeited to the Company within the meaning of Code Section 83(c)(1) at the Optionee's exercise price if the Optionee does not continue in the Company's employ or if a non-employee director or officer does not continue to render services to the Company for any reason (other than death or Retirement as defined in Section 2(p) of the Plan) for a two year period of time beginning on the date the option is exercised.
(2) Any Shares so acquired may not be transferred (other than by will or by the laws of descent and distribution) during this two year period of time other than to a Controlled Entity which would succeed to the forfeiture provisions described in Section 6(b)(1) hereof.
(c) The limitations established by this Section 6 shall be subject to adjustment upon the occurrence of the events specified and in the manner provided in Section 10 hereof.
7. Terms and Conditions of Options. Options granted pursuant to the Plan shall be evidenced by written agreements in such form as the Board or the committee, as appropriate, shall from time to time determine, which agreements shall comply with and be subject to the following terms and conditions:
(a) Date of Grant. Each Option shall specify its effective date (the "date of grant"), which shall be the date specified by the Board or the committee in its action relating to the grant of the Option.
(b) Number of Shares. Each Option shall state the number of Shares to which it pertains and shall provide for the adjustment thereof in accordance with the provisions of Section 10 hereof.
(c) Exercise Price. Each Option shall state the Exercise Price, which price, with respect to Incentive Stock Options, shall not be less than the Fair Market Value of a Beneficial Share on the date of grant. In the case of a Nonstatutory Stock Option, the Exercise Price may be any amount determined by the Board or the committee, but not less than the par value of the shares subject to the Option.
(d) Exercise of Options and Medium and Time of
Payment. To exercise an Option, the Optionee shall give written notice to the Company specifying the number of shares to be purchased and accompanied by payment for the full Purchase Price therefor. No Share shall be issued until full payment therefor has been made. Payment for Shares shall be in cash or by certified check or surrender of stock certificates representing like shares having an aggregate Fair Market Value, determined as of the date of exercise, equal to the number of Shares with respect to which such option is exercised multiplied by the Exercise Price per share, or a combination of cash and surrender of stock certificate representing like shares, the cash and the shares having an aggregate value equal to the number of Shares with respect to which such Option is exercised multiplied by the Exercise Price per share; provided the Board or the committee may impose whatever restrictions it deems necessary or desirable with respect to payment, in whole or in part, for Shares by the surrender of stock certificates representing like shares of the Company.
(e) Term and Exercise of Options; Nontransferability of Options. Each Option shall state the time or times when it becomes exercisable. Options granted under the Plan may be of such duration as shall be determined by the Board of Directors or the committee, as appropriate, but no Option shall be exercisable after the expiration of ten years (five years in the case of a 10% shareholder) from the date it is granted. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee and shall not be assignable or transferable. In the event of the Optionee's death, no Option shall be transferable by the Optionee otherwise than by will or the laws of descent and distribution.
(f) Termination of Employment Except Death. In the case of an Incentive Stock Option, if an Optionee shall cease to be employed by the Trust for any reason other than his or her death, such Optionee shall have the right to exercise the Option at any time within thirty (30) days after such termination of employment (six (6) months if termination was due to Disability or Retirement), to the extent that, on the day preceding the date of termination of employment, the Optionee's right to exercise such Option had accrued pursuant to the terms of the option agreement pursuant to which such Option was granted, and had not previously been exercised.
In the case of a Nonstatutory Stock Option, the termination of employment or relationship with the Company as an officer or director, except by death, Disability or Retirement shall extinguish the Optionee's right to exercise such option effective thirty (30) days after the date of termination but the right to exercise shall be limited to the number of Shares Optionee had the right to exercise on
the date of termination. The Optionee, if an Employee, upon Disability or
Retirement shall have the right to exercise the Option at any time within six
(6) months of termination to the extent that on the day preceding the date of
termination of employment, the Optionee's right to exercise such Option had
accrued pursuant to the terms of the option agreement pursuant to which such
Option was granted, and such Option had not previously been exercised.
For this purpose, the employment relationship will be treated as continuing intact while the Optionee is on sick leave or other bona fide leave of absence (to be determined in the sole discretion of the Board or the committee, in accordance with rules and regulations construing Code section 422A(a) (2)). Notwithstanding the foregoing, in the case of an Incentive Stock Option, employment shall not be deemed to continue beyond the ninetieth (90th) day after the Optionee ceased active employment, unless the Optionee's reemployment rights are guaranteed by statute or by contract.
Anything herein to the contrary notwithstanding, if termination of employment or provision of services is for cause (as determined by the Board of Directors in its discretion) any Option will terminate effective upon notice of termination.
(g) Death of Optionee. If the Optionee shall die while in the employ of or providing services to, the Company and shall not have fully exercised the Option, an Option may be exercised at any time within six (6) months after the Optionee's death, by the executors or administrators of his or her estate or by any person or persons who shall have acquired the Option directly from the Optionee by bequest or inheritance to the extent that, on the day preceding the date of death, the Optionee's right to exercise such Option had accrued pursuant to the terms of the option agreement pursuant to which such Option was granted, and had not previously been exercised.
(h) Rights as a Shareholder. An Optionee or a transferee of an Optionee shall have no rights as a shareholder with respect to any Shares covered by his or her Option until the date of the issuance of a stock certificate for such Shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 10.
(i) Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of the Plan, the Board may modify, extend or renew outstanding Options granted under the Plan, or accept
the exchange of outstanding Options (to the extent not theretofore exercised) for the granting of new Options in substitution therefor. Notwithstanding the foregoing, however, no modification of an Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option theretofore granted under the Plan.
(j) Other Provisions. The option agreements authorized under the Plan shall contain such provisions not inconsistent with the terms of the Plan, including, without limitation, restrictions upon the exercise of the Option, as the Board or the committee, as appropriate, shall deem advisable.
8. Limitation on Annual Awards.
The aggregate Fair Market Value (determined as of the date an Option is granted) of the stock with respect to which Incentive Stock Options are exercisable for the first time by an Employee during any calendar year under the Plan and all other plans maintained by the Trust may not exceed $100,000.
9. Term of Plan. Options may be granted pursuant to the Plan until the termination of the Plan on October 15, 1999.
10. Recapitalization. Subject to any required action by the shareholders, the number of Shares covered by this Plan as provided in Section 6, the number of Shares covered by each outstanding Option, and the Exercise Price thereof shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a subdivision or consolidation of Shares, stock split, or the payment of a stock dividend.
Subject to any required action by the shareholders, if the Company shall be the surviving entity in any merger or consolidation, each outstanding Option shall pertain and apply to the securities to which a holder of the number of Shares subject to the Option would have been entitled. A dissolution or liquidation of the Company shall cause each outstanding Option to terminate, provided that each Optionee in such event, shall have the right immediately prior to such dissolution or liquidation to exercise the Option in whole.
In the event of a change in Shares as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without a par value, the shares resulting from any such change shall be deemed to be Shares within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or securities to the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.
Except as hereinbefore expressly provided in this Section 10, the Optionee shall have no rights by reason of any subdivision, or consolidation of shares of stock of any class, stock split, or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, or spin-off of assets or stock of another corporation, and any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to the Option.
The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
11. Effect of Change in Control or Tender Offer. (a) Each Stock Option Agreement entered into pursuant to the Plan shall provide that options granted under the Plan shall be exercisable in full, at the option of the Optionee, for a period of thirty (30) days (i) following the date of a Change in Control of the Company or (ii) commencing on the date of approval by the Company's shareholders of an agreement providing for a merger in which the Company will not remain an independent, publicly-owned entity, or a consolidation, or a sale or other disposition of all or substantially all the assets of the Company, provided that the foregoing shall not extend the term of any Option. A Change in Control shall be deemed to occur if (i) any person, including a "group", as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, who was not previously such an owner, becomes a beneficial owner of Shares entitled to cast twenty percent (20%) or more of the total number of votes for the election of the Board; or (ii) as a result of, or in connection with, a merger or other business combination, sale of assets, cash tender or exchange offer, or contested election, or any combination of the foregoing transactions, the persons who were directors of the Company before the transaction ("Existing Board") cease to constitute a majority of the Board of the Company or any successor entity.
(b) A tender offer or exchange offer for Shares which results in a Change in Control shall be deemed to constitute
a Tender Offer.
(c) All Options outstanding at the end of the period specified in subsection (a) shall be surrendered to the Secretary of the Company for cancellation in exchange for a settlement payment. The amount paid in settlement for the surrender and cancellation of each Option shall be the higher of:
(i) the excess of the Fair Market Value of the Shares subject to the Option (regardless of exercisability) at the end of the period specified in subsection (a) over the Exercise Price; or
(ii) the excess of the "Offer Price per Share" (as hereinafter defined), if any, of the Shares subject to the Option (regardless of exercisability) over the Exercise Price.
As used in subparagraph (ii) above, the term "Offer Price per Share" shall mean the highest price per Share payable in any Tender Offer which was in effect at any time during the period beginning sixty (60) days prior to the date on which such Option was surrendered. Any securities or other property which are part of the consideration paid for Shares in a Tender Offer shall be valued in determining the Offer Price per Share at the valuation placed on such securities or property by the corporation, person or other entity making the Tender Offer.
(d) The Existing Board at any time may exempt from the operation of subsections (a) and (c) any outstanding Option selected by the Existing Board or may exempt all outstanding Options. No exemption shall, however, be effective after a Change of Control or after payment or delivery of Shares have been made in settlement of a surrendered Option.
(e) The Existing Board shall have sole discretion to determine whether settlement payments shall be made wholly in cash, wholly in shares or by a combination of cash and shares. In the event no action is taken by the Board to determine the method of payment, the amount due shall be paid in cash.
(f) Notwithstanding subsections (a) and (c), Options granted to an Optionee subject to Section 16(b) of the Securities Exchange Act of 1934 shall not be exercised or surrendered for cancellation earlier than the expiration of six (6) months from the date of grant in the event of a Change in Control or Tender Offer, except that such limitation shall not apply in the event of death or Disability of such Optionee occurring prior to the expiration of such six-month period.
12. Securities Law Requirements. No Shares shall be issued upon the exercise of any Option unless and until the Company has determined that: (i) it and the Optionee have taken all actions required to register the Shares under the Securities Act of 1933 or perfect an exemption from the registration requirements thereof; (ii) any applicable listing requirement of any stock exchange on which the Shares are listed has been satisfied; and (iii) any other applicable provision of state or federal law has been satisfied.
13. Amendment of the Plan. The Board may, insofar as permitted by law, from time to time, with respect to any Shares at the time not subject to Options, suspend or discontinue the Plan or revise or amend it in any respect whatsoever except that, without approval of the shareholders, no such revision or amendment shall:
(a) Increase the number of Shares subject to the plan; or
(b) Change the designation in Section 5 of the Plan of the persons eligible to receive options.
(c) amend this Section 13 to defeat its purpose.
14. Application of Funds. The proceeds received by the Company from the sale of Shares pursuant to the exercise of an Option will be used for general corporate purposes.
15. No Obligation to Exercise Option. The granting of an Option shall impose no obligation upon the Optionee to exercise such Option.
16. Withholding Taxes. The Company's obligation to deliver Shares or make any payment upon the exercise of any Option shall be subject to applicable federal, state and local tax withholding requirements. Accordingly, the Company may at its option either (i) reduce the number of shares otherwise issuable, or (ii) require reimbursement from the holder equal to the withholding applicable under federal, state, and local income tax laws and regulations.
Exhibit 10.5
ONE LIBERTY PROPERTIES, INC.
1996 STOCK OPTION PLAN
1. Purpose.
The purpose of this plan (the "Plan") is to secure for One Liberty Properties, Inc. (the "Corporation") and its shareholders the benefits arising from ownership of shares of Common Stock, $1.00 par value ("Common Stock") by employees, officers and directors of, and consultants or advisors to, the Corporation who are expected to contribute to the Corporation's future growth and success. Except where the context otherwise requires, the term "Corporation" shall include all present and future subsidiaries of the Corporation as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from time to time (the "Code"). Those provisions of the Plan which make express reference to Section 422 shall apply only to Incentive Stock Options (as that term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be authorized by action of the Board of Directors of the Corporation and may be either incentive stock options ("Incentive Stock Options") meeting the requirements of Section 422 of the Code or non-statutory options which are not intended to meet the requirements of Section 422 of the Code.
(b) Administration. The Plan will be administered by the Audit and Compensation Committee (the "Committee") appointed by the Board of Directors of the Corporation (or any successor committee), whose construction and interpretation of the terms and provisions of the Plan shall be final and conclusive. The delegation of powers to the Committee shall be consistent with applicable laws or regulations (including, without limitation, applicable state law and Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3")). The Committee shall have authority, subject to the express provisions
of the Plan, to construe the respective option agreements and the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the respective option agreements, which need not be identical, and to make all other determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. No director or person acting pursuant to authority delegated by the Board of Directors shall be liable for any action or determination under the Plan made in good faith. Subject to adjustment as provided in Section 15 below, the aggregate number of shares of Common Stock that may be granted to any person in a calendar year shall not exceed 25,000 Beneficial Shares.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make express reference to Rule 16b-3 shall apply to the Corporation only at such time as the Corporation's shares of Common Stock are registered under the Exchange Act, subject to the last sentence of Section 3(b), and then only to such persons as are required to file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the time of grant, employees, officers or directors of, or consultants or advisors to, the Corporation or any subsidiaries of the Corporation as defined in Sections 424(e) and 424(f) of the Code ("Participants") provided, that Incentive Stock Options may only be granted to individuals who are employees of the Corporation (within the meaning of Section 3401(c) of the Code). Subject to the limitation contained in Section 2(b) above. A person who has been granted an option may, if he or she is otherwise eligible, be granted additional options if the Committee shall so determine.
(b) Grant of Options to Reporting Persons. The selection of a director or an officer who is a Reporting Person (as the terms "director" and "officer" are defined for purposes of Rule 16b-3) as a recipient of an option, the timing of the option grant, the exercise price of the option
and the number of shares subject to the option shall be determined either (i) by the Board of Directors, or (ii) by a committee consisting solely of two or more directors having full authority to act in the matter, each of whom shall be a "Non-Employee Director" . For the purposes of the Plan, a director shall be deemed to be a "Non-Employee Director" only if such person qualifies as a "Non-Employee Director" as such term is defined in Rule 16b-3, as such term is interpreted from time to time. If at least two of the members of the Board of Directors do not qualify as a "Non-Employee Director" within the meaning of Rule 16b-3, as such term is interpreted from time to time, then the granting of options to officers and directors who are Reporting Persons under the Plan shall not be determined in accordance with this Section 3(b) but shall be determined in accordance with the other provisions of the Plan.
4. Stock Subject to Plan.
The stock subject to options granted under the Plan shall be shares of authorized but unissued or reacquired Common Stock. Subject to adjustment as provided in Section 15 below, the maximum number of shares of Common Stock of the Corporation which may be issued and sold under the Plan is 125,000 shares. If an option granted under the Plan shall expire, terminate or is cancelled for any reason without having been exercised in full, the unpurchased shares subject to such option shall again be available for subsequent option grants under the Plan.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient of an option shall execute an option agreement in such form not inconsistent with the Plan as may be approved by the Board of Directors or the Committee. Such option agreements may differ among recipients.
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable upon the exercise of an option shall be determined by the Board of Directors at the time of grant of such option; provided, however, that in the case of an Incentive Stock Option, the exercise price shall not be less than 100% of the Fair Market Value (as hereinafter defined) of such stock, at the time of grant of such option, or less than 110% of such Fair Market Value in the case of options described in Section 11(b). "Fair Market Value" of a share of Common Stock as of a specified date for the purposes of the Plan shall mean the closing price of a share of Common Stock on the principal securities exchange (including the Nasdaq National Market) on which such shares are traded on the day as of which Fair Market Value is being determined, or on the next preceding date on which such shares are traded if no shares were traded on such day, or if the shares are not traded on a securities exchange, Fair Market Value shall be deemed to be the average of the high bid and low asked prices of the shares in the over-the-counter market on the day immediately preceding the date as of which Fair Market Value is being determined or on the next preceding date on which such high bid and low asked prices were recorded. If the shares are not publicly traded, Fair Market Value of Beneficial Shares shall be determined in good faith by the Board of Directors. In no case shall Fair Market Value be determined with regard to restrictions other than restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the Plan may provide for the payment of the exercise price by delivery of cash or a check to the order of the Corporation in an amount equal to the exercise price of such options, or by any other means which the Board of Directors determines are consistent with the purpose of the Plan and with applicable laws and regulations (including, without limitation, the provisions of Rule 16b-3 and Regulation T promulgated by the Federal Reserve Board).
7. Option Period.
Subject to earlier termination as provided in the Plan, each option and all rights thereunder shall expire on such date as determined by the Board of Directors and set forth
in the applicable option agreement, provided, that such date shall not be later than (10) ten years after the date on which the option is granted.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full or in installments at such time or times and during such period as shall be set forth in the option agreement evidencing such option, subject to the provisions of the Plan. No option granted to a Reporting Person for purposes of the Exchange Act, however, shall be exercisable during the first six months after the date of grant. Subject to the requirements in the immediately preceding sentence, if an option is not at the time of grant immediately exercisable, the Board of Directors may (i) in the agreement evidencing such option, provide for the acceleration of the exercise date or dates of the subject option upon the occurrence of specified events, and/or (ii) at any time prior to the complete termination of an option, accelerate the exercise date or dates of such option.
9. Transferability of Options.
Incentive Stock Options granted under the Plan shall not be
assignable in whole or in part except by will or by the laws of descent and
distribution. Options granted under this Plan which are non-statutory options
shall be assignable or otherwise transferable by the optionee in whole or in
part (i) by will or by the laws of descent and distribution, (ii) pursuant to a
qualified domestic relations order as defined in the Code, (iii) pursuant to
Title I of the Employee Retirement Income Security Act, or the rules thereunder,
(iv) to the spouse, children, grandchildren or parents of the optionee
("Qualifying Relatives") or any trust created or existing for the benefit of the
optionee and/or one or more Qualifying Relatives, and (v) to any partnership or
limited liability company in which the optionee and/or one or more Qualifying
Relatives is a partner or member. The Board of Directors or the Committee, in
their discretion, may permit the transfer of options granted under the Plan to
other persons or entities, provided that Incentive Stock Options are not
assignable or otherwise transferable except by will or the laws of descent and
distribution.
In the event an optionee dies during his employment by the Corporation or any of its subsidiaries, or during the three-month period following the date of termination of such employment, the option shall thereafter be exercisable, during the period specified in the option agreement, by his executors or administrators or by any assignee or transferee to the extent to which such option was exercisable at the time of the optionee's death during the periods set forth in Section 10 or 11(d).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options and except as otherwise determined by the Committee at the date of grant
of an Option, and subject to the provisions of the Plan, an optionee (or any
permitted assignee or transferee of an option granted hereunder), may exercise
an option at any time within three months following the termination of the
optionee's employment or other relationship with the Corporation or within one
(1) year if such termination was due to the death or disability of the optionee
but, except in the case of the optionee's death, in no event later than the
expiration date of the Option. If the termination of the optionee's employment
is for cause or is otherwise attributable to a breach by the optionee of an
employment or confidentiality or non-disclosure agreement, the option shall
expire for all purposes and with respect to any assignee or transferee
immediately upon such termination. The Board of Directors shall have the power
to determine what constitutes a termination for cause or a breach of an
employment or confidentiality or non-disclosure agreement, whether an optionee
has been terminated for cause or has breached such an agreement, and the date
upon which such termination for cause or breach occurs. Any such determinations
shall be final and conclusive and binding upon the optionee and any assignee or
transferee of any option granted hereunder.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the Plan shall, at the time of grant, be specifically designated as such in the option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any person to whom an Incentive Stock Option is to be granted under the Plan is, at the time of the grant of such option, the owner of stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation (after taking into account the attribution of stock ownership rules of Section 424(d) of the Code), then the following special provisions shall be applicable to the Incentive Stock Option granted to such individual:
(i) The purchase price per share of Common Stock subject to such Incentive Stock Option shall not be less than 110% of the Fair Market Value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options granted under the Plan (and any other incentive stock option plans of the Corporation) which are intended to constitute Incentive Stock Options shall not constitute Incentive Stock Options to the extent that such options, in the aggregate, become exercisable for the first time in any one calendar year for shares of Common Stock with an aggregate Fair Market Value, as of the respective date or dates of grant, of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock Option may be exercised unless, at the time of such exercise, the optionee is, and has been continuously since the date of grant of his or her option, employed by the Corporation, except that:
(i) an Incentive Stock Option may be exercised within the period of three months after the date the optionee ceases to be an employee of the Corporation (or within such lesser period as may be specified in the applicable option agreement), provided, that the agreement with respect to such option may designate a longer exercise period and that the exercise after such three-month period shall be treated as the exercise of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Corporation, or within three months after the optionee ceases to be such an employee, the Incentive Stock Option may be exercised by the person to whom it is transferred by will or the laws of descent and distribution within the period of one year after the date of death (or within such lesser period as may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provisions thereto)
while in the employ of the Corporation, the Incentive Stock Option
may be exercised within the period of one year after the date the
optionee ceases to be such an employee because of such disability
(or within such lesser period as may be specified in the applicable
option agreement).
For all purposes of the Plan and any option granted hereunder, "employment" shall be defined in accordance with the provisions of Section 1.421-7(h) of the Income Tax Regulations (or any successor regulations). Notwithstanding the foregoing provisions, no Incentive Stock Option may be exercised after its expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its sole discretion, include additional provisions in option agreements covering options granted under the Plan, including without limitation, repurchase rights, rights of first refusal, or such other provisions as shall be determined by the Board of Directors; provided, that such additional provisions shall not be inconsistent with any other term or condition of the Plan and such additional provisions shall not cause any Incentive Stock Option granted under the Plan to fail to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its sole discretion, (i) accelerate the date or dates on which all or any particular option or options granted under the Plan may be exercised or (ii) extend the dates during which all, or any particular, option or options granted under the Plan may be exercised; provided, however, that no such extension shall be permitted if it would cause the Plan to fail to comply with Section 422 of the Code or with Rule 16b-3 (if applicable).
13. General Restrictions.
(a) Investment Representations. The Corporation may require any person to whom an Option is granted, as a condition of exercising such option, to give written assurances in substance and form satisfactory to the Corporation to the effect that such person is acquiring the shares of Common Stock subject to the option or award, for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Corporation deems necessary or appropriate in order to comply with federal and applicable state securities laws.
(b) Compliance With Securities Law. Each Option shall be subject to the requirement that if, at any time, counsel to the Corporation shall determine that the listing, registration or qualification of the shares subject to such option upon any securities exchange or automated quotation system or under any
state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with the issuance or purchase of shares thereunder, such option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval, or satisfaction of such condition shall have been effected or obtained on conditions acceptable to the Board of Directors. Nothing herein shall be deemed to require the Corporation to apply for or to obtain such listing, registration or qualification, or to satisfy such condition.
14. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder with respect to any shares covered by the option (including, without limitation, any rights to receive dividends or non-cash distributions with respect to such shares) until the date of issue of a stock certificate to him or her for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations, Reorganizations and Related Transactions.
(a) Recapitalizations and Related Transactions. If, through or as a result of any recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, (i) the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities of the Corporation, or (ii) additional shares or new or different shares or other non-cash assets are distributed with respect to such shares of Common Stock or other securities, an appropriate and proportionate adjustment shall be made in (x) the maximum number and kind of shares reserved for issuance under or otherwise referred to in the Plan, (y) the number and kind of shares or other securities subject to any then outstanding options under the Plan, and (z) the price for each share subject to any then outstanding options under the Plan, without changing the aggregate purchase price as to which such options remain exercisable. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment (i) would cause the Plan to fail to comply with Section 422 of the Code or with Rule 16b-3 or (ii) would be considered as the adoption of a new plan requiring stockholder approval.
(b) Reorganization, Merger and Related Transactions. All outstanding Options under the Plan shall become fully exercisable for a period of sixty (60) days following the occurrence of any Trigger Event, whether or not such Options are then exercisable under the provisions of the applicable agreements relating thereto. For purposes of the Plan, a "Trigger Event" is any one of the following events:
(i) the date on which shares of Common Stock are first purchased pursuant to a tender offer or exchange offer (other than such an offer by the Corporation, any Subsidiary, any employee benefit plan of the Corporation or of any Subsidiary or any entity holding shares of Common Stock or other securities of the Corporation for or pursuant to the terms of such plan), whether or not such offer is approved or opposed by the Corporation and regardless of the number of shares purchased pursuant to such offer;
(ii) the date the Corporation acquires knowledge that any person or group deemed a person under Section 13(d)-3 of the Exchange Act (other than the Corporation, any Subsidiary, any employee benefit plan of the Corporation or of any Subsidiary or any entity holding shares of Common Stock or other securities of the Corporation for or pursuant to the terms of any such plan or any individual or entity or group or affiliate thereof which acquired its beneficial ownership interest prior to the date the Plan was adopted by the Board), in a transaction or series of transactions, has become the beneficial owner, directly or indirectly (with beneficial ownership determined as provided in Rule 13d-3, or any successor rule, under the Exchange Act), of securities of the Corporation entitling the person or group to 30% or more of all votes (without consideration of the rights of any class or stock to elect directors
by a separate class vote) to which all shareholders of the Corporation would be entitled in the election of the Board of Directors were an election held on such date;
(iii) the date, during any period of two consecutive years, when individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the stockholders of the Corporation, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period; and
(iv) the date of approval by the stockholders of the Corporation of an agreement (a "reorganization agreement") providing for:
(A) The merger or consolidation of the Corporation with another corporation where the stockholders of the Corporation, immediately prior to the merger or consolidation, do not beneficially own, immediately after the merger or consolidation, shares of the entity issuing cash or securities in the merger or consolidation entitling such shareholders to 80% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all stockholders of such corporation would be entitled in the election of directors or where the members of the Board of Directors of the Corporation, immediately prior to the merger or consolidation, do not, immediately after the merger or consolidation, constitute a majority of the Board of Directors of the entity issuing cash or securities in the merger or consolidation; or
(B) The sale or other disposition of all or substantially all the assets of the Corporation.
(c) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if
any, will be made and the extent thereof will be final, binding and conclusive. No fractional shares will be issued under the Plan on account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of any sale, merger, transfer or acquisition of the Corporation or substantially all of the assets of the Corporation in which the Corporation is not the surviving entity, and provided that after the Corporation shall have requested the acquiring or succeeding entity (or an affiliate thereof), that equivalent options shall be substituted and such successor entity shall have refused or failed to assume all options outstanding under the Plan or issue substantially equivalent options, then any or all outstanding options under the Plan shall accelerate and become exercisable in full immediately prior to such event. The Committee will notify holders of options under the Plan that any such options shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the options will terminate upon expiration of such notice.
(b) Substitute Options. The Corporation may grant options under the Plan in substitution for options held by employees of another entity who become employees of the Corporation, or a subsidiary of the Corporation, as the result of a merger or consolidation of the employing entity with the Corporation or a subsidiary of the Corporation, or as a result of the acquisition by the Corporation, or one of its subsidiaries, of property or stock of the employing entity. The Corporation may direct that substitute options be granted on such terms and conditions as the Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any optionee any right with respect to the continuation of his or her employment by the Corporation or interfere in any way with the right of the Corporation at any time to terminate such employment or to increase or decrease the compensation of the optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as compensation, the amount of any compensation deemed to be received by an employee as a result of the exercise of an option or the sale of shares received upon such exercise will not constitute compensation with respect to which any other employee benefits of such employee are determined, including, without limitation, benefits under any bonus, pension, profit-sharing, life insurance or salary continuation plan, except as otherwise specifically determined by the Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect; provided, however, that if at any time the approval of the stockholders of the Corporation is required under Section 422 of the Code or any successor provision with respect to Incentive Stock Options, the Board of Directors may not effect such modification or amendment without such approval.
(b) The modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an option previously
granted to him or her. With the consent of the optionee affected, the Board of
Directors may amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to amend or modify
(i) the terms and provisions of the Plan and of any outstanding Incentive Stock
Options granted under the Plan to the extent necessary to qualify any or all
such options for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded incentive stock options under
Section 422 of the Code and (ii) the terms and provisions of the Plan and of any
outstanding option to the extent necessary to ensure the qualification of the
Plan under Rule 16b-3.
20. Withholding.
(a) The Corporation shall have the right to deduct from payments of any kind otherwise due to the optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan. Subject to the prior approval of the Corporation, which may be withheld by the Corporation in its sole discretion, the optionee may elect to satisfy such obligations, in whole or in part, (i) by causing the Corporation to withhold shares of Common Stock otherwise issuable pursuant to the exercise of an option or (ii) by delivering to the Corporation shares of Common Stock already owned by the optionee. The shares so delivered or withheld shall have a Fair Market Value equal to such withholding obligation as of the date that the amount of tax to be withheld is to be determined. An optionee who has made an election pursuant to this Section 20(a) may only satisfy his or her withholding obligation with shares of Common Stock which are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an
Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Corporation if any or all of such shares are disposed of by the
optionee within two years from the date the option was granted or within one
year from the date the shares were issued to the optionee pursuant to the
exercise of the option, and (ii) if required by law, to remit to the
Corporation, at the time of and in the case of any such disposition, an amount
sufficient to satisfy the Corporation's federal, state and local withholding tax
obligations with respect to such disposition, whether or not, as to both (i) and
(ii), the optionee is in the employ of the Corporation at the time of such
disposition.
(c) Notwithstanding the foregoing, in the case of a Reporting Person whose options have been granted in accordance with the provisions of Section 3(b) herein, no election to use shares for the payment of withholding taxes shall be effective unless made in compliance with any applicable requirements of Rule 16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time and from time to time, with the consent of the affected optionees, (i) the cancellation of any or all outstanding options under the Plan and the grant in substitution therefor of new options under the Plan covering the same or different numbers of shares and having an option exercise price per share which may be lower or higher than the exercise price per share of the cancelled options or (ii) the amendment of the terms of any and all outstanding options under the Plan to provide an option exercise price per share which is higher or lower than the then-current exercise price per share of such outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the Board of Directors, but no Incentive Stock Option granted under the Plan shall become exercisable unless and until the Plan shall have been approved by the Corporation's stockholders. If such stockholder approval is not obtained within twelve months after the date of the Board's adoption of the Plan, no options previously granted under the Plan shall be deemed to be Incentive Stock Options and no Incentive Stock Options shall be granted thereafter. Amendments to the Plan not requiring stockholder approval shall become effective when adopted by the Board of Directors; amendments requiring shareholder approval (as provided in Section 21) shall become effective when adopted by the Board of Directors, but no Incentive Stock Option granted after the date of such amendment shall become exercisable (to the extent that such amendment to the Plan was required to enable the Corporation to grant such Incentive Stock Option to a particular optionee) unless and until such amendment shall have been approved by the Corporation's stockholders. If such stockholder approval is not obtained within twelve months of the Board's adoption of such amendment, any Incentive Stock Options granted on or after the date of such amendment shall terminate to the extent that such amendment to the Plan was required to enable the Corporation to grant such option to a
particular optionee. Subject to this limitation, options may be granted under the Plan at any time after the effective date and before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 16, the Plan shall terminate upon the earlier of (i) the close of business on the day next preceding the tenth anniversary of the date of its adoption by the Board of Directors, or (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise or cancellation of options granted under the Plan. If the date of termination is determined under (i) above, then options outstanding on such date shall continue to have force and effect in accordance with the provisions of the instruments evidencing such options.
23. Governing Law.
The provisions of this Plan shall be governed and construed in accordance with the laws of the State of Maryland.
Adopted by the Board of Directors on December 6, 1996
ONE LIBERTY PROPERTIES, INC.
PENSION PLAN
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
ADMINISTRATION
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER...........................................................................12
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY...............................................................................13
2.3 POWERS AND DUTIES OF THE ADMINISTRATOR................................................................................13
2.4 RECORDS AND REPORTS...................................................................................................14
2.5 APPOINTMENT OF ADVISERS...............................................................................................15
2.6 PAYMENT OF EXPENSES...................................................................................................15
2.7 CLAIMS PROCEDURE......................................................................................................15
2.8 CLAIMS REVIEW PROCEDURE...............................................................................................15
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY.............................................................................................16
3.2 EFFECTIVE DATE OF PARTICIPATION.......................................................................................16
3.3 DETERMINATION OF ELIGIBILITY..........................................................................................16
3.4 TERMINATION OF ELIGIBILITY............................................................................................16
3.5 OMISSION OF ELIGIBLE EMPLOYEE.........................................................................................17
3.6 INCLUSION OF INELIGIBLE EMPLOYEE......................................................................................17
3.7 ELECTION NOT TO PARTICIPATE...........................................................................................17
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION.........................................................................17
4.2 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION..............................................................................18
4.3 ACCOUNTING AND ALLOCATIONS............................................................................................18
4.4 MAXIMUM ANNUAL ADDITIONS..............................................................................................20
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS.............................................................................22
4.6 TRANSFERS FROM QUALIFIED PLANS........................................................................................22
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ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND...........................................................................................24
5.2 METHOD OF VALUATION...................................................................................................24
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT.............................................................................25
6.2 DETERMINATION OF BENEFITS UPON DEATH..................................................................................25
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY......................................................................26
6.4 DETERMINATION OF BENEFITS UPON TERMINATION............................................................................26
6.5 DISTRIBUTION OF BENEFITS..............................................................................................29
6.6 DISTRIBUTION OF BENEFITS UPON DEATH...................................................................................33
6.7 TIME OF SEGREGATION OR DISTRIBUTION...................................................................................37
6.8 DISTRIBUTION FOR MINOR BENEFICIARY....................................................................................37
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN........................................................................37
6.10 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION......................................................................37
6.11 DIRECT ROLLOVER......................................................................................................37
ARTICLE VII
AMENDMENT, TERMINATION, MERGERS AND LOANS
7.1 AMENDMENT.............................................................................................................38
7.2 TERMINATION...........................................................................................................39
7.3 MERGER OR CONSOLIDATION...............................................................................................39
7.4 LOANS TO PARTICIPANTS.................................................................................................40
ARTICLE VIII
TOP HEAVY
8.1 TOP HEAVY PLAN REQUIREMENTS...........................................................................................41
8.2 DETERMINATION OF TOP HEAVY STATUS.....................................................................................41
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS..................................................................................................44
9.2 ALIENATION............................................................................................................45
9.3 CONSTRUCTION OF PLAN..................................................................................................45
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9.4 GENDER AND NUMBER.....................................................................................................45
9.5 LEGAL ACTION..........................................................................................................46
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS................................................................................46
9.7 BONDING...............................................................................................................46
9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE............................................................................47
9.9 INSURER'S PROTECTIVE CLAUSE...........................................................................................47
9.10 RECEIPT AND RELEASE FOR PAYMENTS.....................................................................................47
9.11 ACTION BY THE EMPLOYER...............................................................................................47
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY...................................................................47
9.13 HEADINGS.............................................................................................................48
9.14 APPROVAL BY INTERNAL REVENUE SERVICE.................................................................................48
9.15 UNIFORMITY...........................................................................................................49
9.16 WAIVER OF FUNDING....................................................................................................49
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ADOPTION BY OTHER EMPLOYERS..........................................................................................50
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS..............................................................................50
10.3 DESIGNATION OF AGENT.................................................................................................51
10.4 EMPLOYEE TRANSFERS...................................................................................................51
10.5 PARTICIPATING EMPLOYER CONTRIBUTION..................................................................................51
10.6 AMENDMENT............................................................................................................51
10.7 DISCONTINUANCE OF PARTICIPATION......................................................................................51
10.8 ADMINISTRATOR'S AUTHORITY............................................................................................52
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ONE LIBERTY PROPERTIES, INC.
PENSION PLAN
THIS PLAN, hereby adopted this __________ day of ______________________________, by One Liberty Properties, Inc. (herein referred to as the "Employer").
W I T N E S S E T H:
WHEREAS, the Employer desires to recognize the contribution made to its successful operation by its employees and to reward such contribution by means of a Money Purchase Pension Plan for those employees who shall qualify as Participants hereunder;
NOW, THEREFORE, effective January 1, 1 999, (hereinafter called the "Effective Date"), the Employer hereby establishes a Money Purchase Pension Plan (the "Plan") for the exclusive benefit of the Participants and their Beneficiaries, on the following terms:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.
1.2 "Administrator" means the Employer unless another person or entity has been designated by the Employer pursuant to Section 2.2 to administer the Plan on behalf of the Employer.
1.3 "Affiliated Employer" means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o).
1.4 "Aggregate Account" means, with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions of
Section 8.2.
1.5 "Anniversary Date" means December 31st.
1.6 "Annuity Starting Date" means, with respect to any Participant, the first day of the first period for which an amount is paid as an annuity or any other form.
1.7 "Beneficiary" means the person to whom the share of a deceased Participant's total account is payable, subject to the restrictions of Sections 6.2 and 6.6.
1.8 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time.
1.9 "Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).
For purposes of this Section, the determination of Compensation shall be made by:
(a) including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which
are not includible in the gross income of the Participant
under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or
457(b), and Employee contributions described in Code Section
414(h)(2) that are treated as Employer contributions.
For a Participant's initial year of participation, Compensation shall be recognized for the entire Plan Year.
Compensation in excess of $150,000 shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any short Plan Year the Compensation limit shall be an amount equal to the Compensation limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). In applying this limitation, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q)(6) as in effect prior to the Small Business Job Protection Act of 1996 because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, shall be treated as a single Participant, except that for this purpose Family Members shall include only the affected Participant's spouse and any lineal descendants who have not attained age nineteen (19) before the close of the year. If, as a result of the application of such rules the adjusted limitation is exceeded, then the limitation shall be prorated among the affected Family Members in proportion to each such Family Member's Compensation prior to the application of this limitation, or the limitation shall be adjusted in accordance with any other method permitted by Regulation.
If, as a result of such rules, the maximum "annual addition" limit of Section 4.4(a) would be exceeded for one or more of the affected Family Members, the prorated Compensation of all affected Family Members shall be adjusted to avoid or reduce any excess. The prorated Compensation of any affected Family Member whose allocation would exceed the limit shall be adjusted downward to the level needed to provide an allocation equal to such limit. The prorated Compensation of affected Family Members not affected by
such limit shall then be adjusted upward on a pro rata basis not to exceed each such affected Family Member's Compensation as determined prior to application of the Family Member rule. The resulting allocation shall not exceed such individual's maximum "annual addition" limit. If, after these adjustments, an "excess amount" still results, such "excess amount" shall be disposed of in the manner described in Section 4.5(a) pro rata among all affected Family Members.
For purposes of this Section, if the Plan is a plan described in Code Section 413(c) or 414(f) (a plan maintained by more than one Employer), the limitation applies separately with respect to the Compensation of any Participant from each Employer maintaining the Plan.
1.10 "Contract" or "Policy" means any life insurance policy, retirement income or annuity policy or annuity contract (group or individual) issued pursuant to the terms of the Plan.
1.11 "Early Retirement Date." This Plan does not provide for a retirement date prior to Normal Retirement Date.
1.12 "Eligible Employee" means any Employee.
Employees whose employment is governed by the terms of a collective bargaining agreement between Employee representatives (within the meaning of Code Section 7701(a)(46)) and the Employer under which retirement benefits were the subject of good faith bargaining between the parties will not be eligible to participate in this Plan unless such agreement expressly provides for coverage in this Plan.
Employees of Affiliated Employers shall not be eligible to participate in this Plan unless such Affiliated Employers have specifically adopted this Plan in writing.
1.13 "Employee" means any person who is employed by the Employer or Affiliated Employer. Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force.
1.14 "Employer" means One Liberty Properties, Inc. and any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. The Employer is a corporation, with principal offices in the State of New York. In addition, where appropriate, the term Employer shall include any Participating Employer (as defined in Section 10.1) which shall adopt this Plan.
1.15 "Family Member" means, with respect to an affected Participant, such Participant's spouse and such Participant's lineal descendants and ascendants and their spouses, all as described in Code Section 414(q)(6)(B) as in effect prior to the Small Business Job Protection Act of 1996.
1.16 "Fiduciary" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice
for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan, including, but not limited to, the Trustee, the Employer and its representative body, and the Administrator.
1.17 "Fiscal Year" means the Employer's accounting year of 12 months commencing on January 1st of each year and ending the following December 31st.
1.18 "Forfeiture" means that portion of a Participant's Account that is not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Terminated Participant's Account, or
(b) the last day of the Plan Year in which the Participant incurs five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a Terminated Participant whose Vested benefit is zero, such Terminated Participant shall be deemed to have received a distribution of his Vested benefit upon his termination of employment. Restoration of such amounts shall occur pursuant to Section 6.4(e)(2). In addition, the term Forfeiture shall also include amounts deemed to be Forfeitures pursuant to any other provision of this Plan.
1.19 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason.
1.20 "415 Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. "415 Compensation" must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).
1.21 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the "determination year" or "look-back year" were "five percent owners" as defined in Section 1.27(c).
(b) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $50,000 and were in the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) and received "415 Compensation" during the "look-back year" from the Employer greater than 50 percent of the limit in effect under Code Section 415(b)(1)(A) for any such Plan Year. The number of officers shall be limited to the lesser of (i) 50 employees; or (ii) the greater of 3 employees or 10 percent of all employees. For the purpose of determining the number of officers, Employees described in Sections 1.46(a),1.46(b),1.46(c) and 1.46(d) shall be excluded, but such Employees shall still be considered for the purpose of identifying the particular Employees who are officers. If the Employer does not have at least one officer whose annual "415 Compensation" is in excess of 50 percent of the Code Section 415(b)(1)(A) limit, then the highest paid officer of the Employer will be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees paid the greatest "415 Compensation" during the "determination year" and are also described in (b), (c) or (d) above when these paragraphs are modified to substitute "determination year" for "look-back year."
The "determination year" shall be the Plan Year for which testing is being performed, and the "look-back year" shall be the immediately preceding twelve-month period.
If an Employee is, during a "determination year" or "look-back year", a Family Member of either a "five percent owner" (whether active or former) or a Highly Compensated Employee who is one of the 10 most Highly Compensated Employees ranked on the basis of "415 Compensation" paid by the Employer during such year, then the Family Member and the "five percent owner" or top-ten Highly Compensated Employee shall be aggregated. In such case, the Family Member and "five percent owner" or top-ten Highly Compensated Employee shall be treated as a single Employee receiving "415 Compensation" and Plan contributions or benefits equal to the sum of such "415 Compensation" and contributions or benefits of the Family Member and "five percent owner" or top-ten Highly Compensated Employee.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions. Additionally, the
dollar threshold amounts specified in (b) and (c) above shall be adjusted at
such time and in such manner as is provided in Regulations. In the case of such
an adjustment, the dollar limits which shall be applied are those for the
calendar year in which the "determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year."
1.22 "Highly Compensated Former Employee" means a former Employee who had a separation year prior to the "determination year" and was a Highly Compensated Employee in the year of separation from service or in any "determination year" after attaining age 55. Notwithstanding the foregoing, an Employee who separated from service prior to 1987 will be treated as a Highly Compensated Former Employee only if during the separation year (or year preceding the separation year) or any year after the Employee attains age 55 (or the last year ending before the Employee's 55th birthday), the Employee either received "415 Compensation" in excess of $50,000 or was a "five percent owner." For purposes of this Section, "determination year," "415 Compensation" and "five percent owner" shall be determined in accordance with Section 1.21. Highly Compensated Former Employees shall be treated as Highly Compensated Employees. The method set forth in this Section for determining who is a "Highly Compensated Former Employee" shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable.
1.23 "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the Plan.
1.24 "Hour of Service" means (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties (these hours will be credited to the Employee for the computation period in which the duties are performed); (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor regulation 2530.200b-2 which is incorporated herein by reference); (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages (these hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made). The same Hours of Service shall not be credited both under (1) or (2), as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single
computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate.
Notwithstanding the foregoing, a Participant shall be credited with 190 Hours of Service for each month in which an Employee is paid or entitled to payment for at least one Hour of Service.
For purposes of this Section, Hours of Service will be credited for employment with other Affiliated Employers. The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.
1.25 "Income" means the income or losses allocable to Excess Deferred Compensation or Excess Contributions which amount shall be allocated in the same manner as income or losses are allocated pursuant to Section 4.3(e).
1.26 "Investment Manager" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company.
1.27 "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of his Beneficiaries) is considered a Key Employee if he, at any time during the Plan Year that contains the "Determination Date" or any of the preceding four (4) Plan Years, has been included in one of the following categories:
(a) an officer of the Employer (as that term is
defined within the meaning of the Regulations under Code
Section 416) having annual "415 Compensation" greater than 50
percent of the amount in effect under Code Section
415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation" from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer.
(c) a "five percent owner" of the Employer. "Five percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an annual "415 Compensation" from the Employer of more than $150,000. "One percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. However, in determining whether an individual has "415 Compensation" of more than $150,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
1.28 "Late Retirement Date" means the first day of the month coinciding with or next following a Participant's actual Retirement Date after having reached his Normal Retirement Date.
1.29 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer. A Leased Employee shall not be considered an Employee of the
recipient:
(a) if such employee is covered by a money purchase pension plan providing:
(1) a non-integrated employer contribution rate of at
least 10% of compensation, as defined in Code Section
415(c)(3), but including amounts which are
contributed by the Employer pursuant to a salary
reduction agreement and which are not includible in
the gross income of the Participant under Code
Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or
457(b), and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer
contributions.
(2) immediate participation; and
(3) full and immediate vesting; and
(b) if Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force.
1.30 "Non-Highly Compensated Participant" means any Participant who is neither a Highly Compensated Employee nor a Family Member.
1.31 "Non-Key Employee" means any Employee or former Employee (and his Beneficiaries) who is not a Key Employee.
1.32 "Normal Retirement Age" means the Participant's sixty-fifth (65th) birthday. A Participant shall become fully vested in his Participant's Account upon attaining his Normal Retirement Age.
1.33 "Normal Retirement Date" means the first day of the month coinciding with or next following the Participant's Normal Retirement Age.
1.34 "1-Year Break in Service" means the applicable computation period during which an Employee has not completed more than 500 Hours of Service with the Employer. Further, solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for "authorized leaves of absence" and "maternity and paternity leaves of absence." Years of Service and 1-Year Breaks in Service shall be measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years beginning after December 31, 1984, an absence from work for any period by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service, or, in any other case, in the immediately following
computation period. The Hours of Service credited for a "maternity or paternity leave of absence" shall be those which would normally have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a "maternity or paternity leave of absence" shall not exceed 501.
1.35 "Participant" means any Eligible Employee who participates in the Plan and has not for any reason become ineligible to participate further in the Plan.
1.36 "Participant's Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan resulting from the Employer contributions.
1.37 "Plan" means this instrument, including all amendments thereto.
1.38 "Pre-Retirement Survivor Annuity" means a death benefit which is an immediate annuity for the life of the Participant's spouse the payments under which must be equal to the amount of benefit which can be purchased with 50% of the accounts of a Participant.
A proportionate share of each of the Participant's accounts shall be used to provide the Pre-Retirement Survivor Annuity.
1.39 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or his delegate, and as amended from time to time.
1.40 "Retired Participant" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan.
1.41 "Retirement Date" means the date as of which a Participant retires
for reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date or Late Retirement Date (see
Section 6.1).
1.42 "Super Top Heavy Plan" means a plan described in Section 8.2(b).
1.43 "Terminated Participant" means a person who has been a Participant, but whose employment has been terminated other than by death, Total and Permanent Disability or retirement.
1.44 "Top Heavy Plan" means a plan described in Section 8.2(a).
1.45 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top Heavy Plan.
1.46 "Top Paid Group" means the top 20 percent of Employees who performed services for the Employer during the applicable year, ranked according to the amount of "415 Compensation" (determined for this purpose in accordance with Section 1.21) received from the Employer during such year. All Affiliated Employers shall be taken into account as a single employer, and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered
by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, for the purpose of determining the number of active Employees in any year, the following additional Employees shall also be excluded; however, such Employees shall still be considered for the purpose of identifying the particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer are covered under agreements the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, and the Plan covers only Employees who are not covered under such agreements, then Employees covered by such agreements shall be excluded from both the total number of active Employees as well as from the identification of particular Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be
applied on a uniform and consistent basis for all purposes for which the Code
Section 414(q) definition is applicable.
1.47 "Total and Permanent Disability" means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders him incapable of continuing any gainful occupation and which condition constitutes total disability under the federal Social Security Acts.
1.48 "Trustee" means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors.
1.49 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time.
1.50 "USERRA" means the Uniformed Services Employment and Reemployment
Rights Act of 1994. Notwithstanding any provision of this Plan to the contrary,
effective December 12, 1994, contributions, benefits and service credit with
respect to qualified military service will be provided in accordance with Code
Section 414(u).
1.51 "Valuation Date" means the Anniversary Date and such other date or dates deemed necessary by the Administrator. The Valuation Date may include any day during the Plan Year that the Trustee, any transfer agent appointed by the Trustee or the Employer and any stock exchange used by such agent are open for business.
1.52 "Vested" means the nonforfeitable portion of any account maintained on behalf of a Participant.
1.53 "Year of Service" means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1000 Hours of Service.
For vesting purposes, the computation periods shall be the Plan Year, including periods prior to the Effective Date of the Plan.
The computation period shall be the Plan Year if not otherwise set forth herein.
Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). However, in determining whether an Employee has completed a Year of Service for benefit accrual purposes in the short Plan Year, the number of the Hours of Service required shall be proportionately reduced based on the number of full months in the short Plan Year.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
ADMINISTRATION
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) In addition to the general powers and responsibilities otherwise provided for in this Plan, the Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to ensure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. The Employer may appoint counsel, specialists, advisers, agents (including any nonfiduciary agent) and other persons as the Employer deems necessary or desirable in connection with the exercise of its fiduciary duties under this Plan. The Employer may compensate such agents or advisers from the assets of the Plan as fiduciary expenses (but not including any business (settlor) expenses of the Employer), to the extent not paid by the Employer.
(b) The Employer may, by written agreement or designation, appoint at its option an Investment Manager (qualified under the Investment Company Act of 1940 as amended), investment adviser, or other agent to provide direction to the Trustee with respect to any or all of the Plan assets. Such appointment shall be given by the Employer in writing in a form acceptable to the Trustee and shall specifically identify the Plan assets with respect to which the Investment Manager or other agent shall have authority to direct the investment.
(c) The Employer shall establish a "funding policy and method," i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a "funding policy and method" shall not, however, constitute a directive to the Trustee as to investment of the Trust Funds. Such "funding policy and method" shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act.
(d) The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways.
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall be the Administrator. The Employer may appoint any person, including, but not limited to, the Employees of the Employer, to perform the duties of the Administrator. Any person so appointed shall signify his acceptance by filing written acceptance with the Employer. Upon the resignation or removal of any individual performing the duties of the Administrator, the Employer may designate a successor.
2.3 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect to all nondiscretionary or otherwise directed disbursements from the Trust;
(d) to maintain all necessary records for the administration of the Plan;
(e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof;
(f) to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased;
(g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan;
(h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives;
(i) to prepare and distribute to Employees a procedure for notifying Participants and Beneficiaries of their rights to elect joint and survivor annuities and Pre-Retirement Survivor Annuities as required by the Act and regulations thereunder;
(j) to assist any Participant regarding his rights, benefits, or elections available under the Plan.
2.4 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, policies, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law.
2.5 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, agents (including nonfiduciary agents) and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan, including but not limited to agents and advisers to assist with the administration and management of the Plan, and thereby to provide, among such other duties as the Administrator may appoint, assistance with maintaining Plan records and the providing of investment information to the Plan's investment fiduciaries.
2.6 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, or any person or persons retained or appointed by any Named Fiduciary incident to the exercise of their duties under the Plan, including, but not limited to, fees of accountants, counsel, Investment Managers, and other specialists and their agents, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund.
2.7 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the Administrator. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure.
2.8 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.7 shall be entitled to request the Administrator to give further consideration to his claim by filing with the Administrator (on a form which may be obtained from the Administrator) a request for a hearing. Such request, together with a written statement of the reasons why the claimant believes his claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written notification provided for in Section 2.7. The Administrator shall then conduct a hearing within the next 60 days, at which the claimant may be represented by an attorney or any other representative of his choosing and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of his claim. At the hearing (or prior thereto upon 5 business days written notice to the Administrator) the claimant or his representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court
reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60 day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed six (6) months of service and has attained age 21 shall be eligible to participate hereunder as of the date he has satisfied such requirements.
For purposes of this Section, an Eligible Employee will be deemed to have completed six (6) months of service if he is in the employ of the Employer at any time six (6) months after his employment commencement date. Employment commencement date shall be the first day that he is entitled to be credited with an Hour of Service for the performance of duty.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the last day of the Plan Year in which such Employee met the eligibility requirements of Section 3.1, provided said Employee was still employed as of such date (or if not employed on such date, as of the date of rehire if a 1-Year Break in Service has not occurred).
In the event an Employee who is not a member of an eligible class of Employees becomes a member of an eligible class, such Employee will participate immediately if such Employee has satisfied the minimum age and service requirements and would have otherwise previously become a Participant.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review per Section 2.8.
3.4 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in his interest in the Plan for each Year of Service completed while a noneligible Employee, until such time as his Participant's Account shall
be forfeited or distributed pursuant to the terms of the Plan. Additionally, his interest in the Plan shall continue to share in the earnings of the Trust Fund.
(b) In the event a Participant is no longer a member of an eligible class of Employees and becomes ineligible to participate, such Employee will participate immediately upon returning to an eligible class of Employees.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the said Employer would have contributed with respect to him had he not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a Forfeiture for the Plan Year in which the discovery is made.
3.7 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer,
elect voluntarily not to participate in the Plan. The election not to
participate must be communicated to the Employer, in writing, at least thirty
(30) days before the beginning of a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION
(a) The Employer shall make contributions over such period of years as the Employer may determine on the following basis. On behalf of each Participant eligible to share in allocations, for each year of his participation in this Plan, the Employer shall contribute 15% of his annual Compensation.
(b) Should the Employer, for any reason, fail to make
a contribution for any year or should the Employer fail to
make a contribution as provided for herein, then such
deficiency shall be made up in subsequent years pursuant to
Section 9.16.
(c) The Employer shall not contribute on behalf of any Participant who is not entitled to share in the allocation of the Employer contribution as provided in Section 4.3(d) unless otherwise required pursuant to Section 4.3(g).
4.2 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to the Plan for each Plan Year within the time prescribed by law, including extensions of time, for the filing of the Employer federal income tax return for the Fiscal Year.
4.3 ACCOUNTING AND ALLOCATIONS
(a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date all amounts allocated to each such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer contributions for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution to each Participant's Account in accordance with Section 4.1.
(c) As of each Anniversary Date any amounts which
became Forfeitures since the last Anniversary Date shall first
be made available to reinstate previously forfeited account
balances of Former Participants, if any, in accordance with
Section 6.4(e)(2). The remaining Forfeitures, if any, shall be
allocated among the Participant's Account in the same
proportion that each such Participant's Compensation for the
year bears to the total Compensation of all Participant's for
the year. Provided, however, that in the event the allocation
of Forfeitures provided herein shall cause the "annual
addition" (as defined in Section 4.4) to any Participant's
Account to exceed the amount allowable by the Code, the excess
shall be reallocated in accordance with Section 4.5.
(d) Participants shall be eligible to share in the allocation of contributions and Forfeitures for a Plan Year in accordance with the following:
(1) Only Participants who have completed a Year of Service during the Plan Year shall be eligible to share in the allocation of contributions and Forfeitures for that Plan Year.
(2) For any Top Heavy Plan Year, Employees not
otherwise eligible to share in the allocation of
contributions and Forfeitures as provided above,
shall receive the minimum allocation provided for in
Section 4.3(f) if eligible pursuant to the provisions
of Section 4.3(g).
(e) As of each Valuation Date, before the current valuation period allocation of Employer contributions and Forfeitures, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant's and Former Participant's nonsegregated accounts bear to the total of all Participants' and Former Participants' nonsegregated accounts as of such date.
Participants' transfers from other qualified plans deposited in the general Trust Fund shall share in any earnings and losses (net appreciation or net depreciation) of the Trust Fund in the same manner provided above. Each segregated account maintained on behalf of a Participant shall be credited or charged with its separate earnings and losses.
(f) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer contributions and Forfeitures allocated to the Participant's Account of each Employee shall be equal to at least three percent (3%) of such Employee's "415 Compensation" (reduced by contributions and forfeitures, if any, allocated to each Employee in any defined contribution plan included with this plan in a Required Aggregation Group). However, if (1) the sum of the Employer contributions and Forfeitures allocated to the Participant's Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee's "415 Compensation" and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the Employer contributions and Forfeitures allocated to the Participant's Account of each Employee shall be equal to the largest percentage allocated to the Participant's Account of any Key Employee.
(g) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Account of all Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Employees who have (1) failed to complete a Year of Service, and (2) declined to make mandatory contributions (if required) to the Plan.
(h) For the purposes of this Section, "415 Compensation" shall be limited to $150,000. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any short Plan Year the "415 Compensation" limit shall be an amount equal to the "415 Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12).
(i) If a Former Participant is reemployed after five
(5) consecutive 1-Year Breaks in Service, then separate
accounts shall be maintained as follows:
(1) one account for nonforfeitable benefits attributable to pre-break service; and
(2) one account representing his status in the Plan attributable to post-break service.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual additions" credited to a Participant's accounts for any "limitation year" shall equal the lesser of: (1) $30,000 adjusted annually as provided in Code Section 415(d) pursuant to the Regulations, or (2) twenty-five percent (25%) of the Participant's "415 Compensation" for such "limitation year." For any short "limitation year," the dollar limitation in (1) above shall be reduced by a fraction, the numerator of which is the number of full months in the short "limitation year" and the denominator of which is twelve (12).
(b) For purposes of applying the limitations of Code
Section 415, "annual additions" means the sum credited to a
Participant's accounts for any "limitation year" of (1)
Employer contributions, (2) Employee contributions, (3)
forfeitures, (4) amounts allocated, after March 31, 1984, to
an individual medical account, as defined in Code Section
415(l)(2) which is part of a pension or annuity plan
maintained by the Employer and (5) amounts derived from
contributions paid or accrued after December 31, 1985, in
taxable years ending after such date, which are attributable
to post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code Section
419A(d)(3)) under a welfare benefit plan (as defined in Code
Section 419(e)) maintained by the Employer. Except, however,
the "415 Compensation" percentage limitation referred to in
paragraph (a)(2) above shall not apply to: (1) any
contribution for medical benefits (within the meaning of Code
Section 419A(f)(2)) after separation from service which is
otherwise treated as an "annual addition," or (2) any amount
otherwise treated as an "annual addition" under Code Section
415(l)(1).
(c) For purposes of applying the limitations of Code
Section 415, the transfer of funds from one qualified plan to
another is not an "annual addition." In addition, the
following are not Employee contributions for the purposes of
Section 4.4(b)(2): (1) rollover contributions (as defined in
Code Sections 402(e)(6), 403(a)(4), 403(b)(8) and 408(d)(3));
(2) repayments of loans made to a Participant from the Plan;
(3) repayments of distributions received by an Employee
pursuant to Code Section 411(a)(7)(B) (cash-outs); (4)
repayments of distributions received by an Employee pursuant
to Code Section 411(a)(3)(D) (mandatory contributions); and
(5) Employee contributions to a simplified employee pension
excludable from gross income under Code Section 408(k)(6).
(d) For purposes of applying the limitations of Code
Section 415, the "limitation year" shall be the Plan Year.
(e) For the purpose of this Section, all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan.
(f) For the purpose of this Section, if the Employer
is a member of a controlled group of corporations, trades or
businesses under common control (as defined by Code Section
1563(a) or Code Section 414(b) and (c) as modified by Code
Section 415(h)), is a member of an affiliated service group
(as defined by Code Section 414(m)), or is a member of a group
of entities required to be aggregated pursuant to Regulations
under Code Section 414(o), all Employees of such Employers
shall be considered to be employed by a single Employer.
(g) For the purpose of this Section, if this Plan is a Code Section 413(c) plan, each Employer who maintains this Plan will be considered to be a separate Employer.
(h)(1) If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum "annual additions" under this Plan shall equal the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited to such Participant's accounts during the "limitation year."
(2) If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, "annual additions" will be credited to the Participant's accounts under the defined contribution plan subject to Code Section 412 prior to crediting "annual additions" to the Participant's accounts under the defined contribution plan not subject to Code Section 412.
(3) If a Participant participates in more than one defined contribution plan subject to Code Section 412 maintained by the Employer which has the same Anniversary Date, the maximum "annual additions" under this Plan shall equal the product of (A) the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the "annual additions" which would be credited to such Participant's accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such "annual additions" for all plans described in this subparagraph.
(i) Notwithstanding anything contained in this
Section to the contrary, the limitations, adjustments and
other requirements prescribed in this Section shall at all
times comply with the provisions of Code Section 415 and the
Regulations thereunder, the terms of which are specifically
incorporated herein by reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of Forfeitures, a reasonable error in estimating a Participant's Compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any Participant under the limits of Section 4.4 or other facts and circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the "annual additions" under this Plan would cause the maximum "annual additions" to be exceeded for any Participant, the Administrator shall (1) distribute any elective deferrals (within the meaning of Code Section 402(g)(3)) or return any Employee contributions (whether voluntary or mandatory), and for the distribution of gains attributable to those elective deferrals and Employee contributions, to the extent that the distribution or return would reduce the "excess amount" in the Participant's accounts (2) hold any "excess amount" remaining after the return of any elective deferrals or voluntary Employee contributions in a "Section 415 suspense account" (3) allocate and reallocate the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to all Participants in the Plan before any Employer or Employee contributions which would constitute "annual additions" are made to the Plan for such "limitation year" (4) reduce Employer contributions to the Plan for such "limitation year" by the amount of the "Section 415 suspense account" allocated and reallocated during such "limitation year."
(b) For purposes of this Article, "excess amount" for any Participant for a "limitation year" shall mean the excess, if any, of (1) the "annual additions" which would be credited to his account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum "annual additions" determined pursuant to Section 4.4.
(c) For purposes of this Section, "Section 415 suspense account" shall mean an unallocated account equal to the sum of "excess amounts" for all Participants in the Plan during the "limitation year." The "Section 415 suspense account" shall not share in any earnings or losses of the Trust Fund.
(d) The Plan may not distribute or return "excess amounts," other than elective deferrals (within the meaning of Code Section 402(g)(3)) or Employee contributions (whether voluntary or mandatory) and gains attributable to such elective deferrals and Employee contributions, to Participants or Former Participants.
4.6 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be transferred from other qualified plans by Participants, provided that the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or Trust or create adverse tax consequences for the Employer. The amounts transferred
shall be set up in a separate account herein referred to as a "Participant's Rollover Account." Such account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as provided in paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including Regulation 1.411(d)-4), amounts attributable to elective contributions (as defined in Regulation 1.401(k)-1(g)(3)), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan-to-plan transfer shall be subject to the distribution limitations provided for in Regulation 1.401(k)-1(d). However, the foregoing shall not otherwise permit any distributions from this Plan by reason of a Participant's hardship.
(d) At Normal Retirement Date, or such other date when the Participant or his Beneficiary shall be entitled to receive benefits, the fair market value of the Participant's Rollover Account shall be used to provide additional benefits to the Participant or his Beneficiary. Additionally, the Administrator, at the election of the Participant, shall direct the Trustee to distribute all or a portion of the amount credited to the Participant's Rollover Account (other than any direct or indirect transfers as that term is defined and interpreted under Code Section 401(a)(11) and the Regulations thereunder) from a defined benefit plan, money purchase plan (including a target benefit plan), stock bonus or profit sharing plan. Any distributions of amounts held in a Participant's Rollover Account shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 417 and 411(a)(11) and the Regulations thereunder. Furthermore, such amounts shall be considered as part of a Participant's benefit in determining whether an involuntary cash-out of benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made after a Valuation Date be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short term debt security acceptable to the Trustee until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund, to be determined by the Administrator.
(f) For purposes of this Section, the term "qualified
plan" shall mean any tax qualified plan under Code Section
401(a). The term "amounts transferred from other qualified
plans" shall mean: (i) amounts transferred to this Plan
directly from another qualified plan; (ii) distributions from
another qualified plan which are eligible rollover
distributions and which are either transferred by the Employee
to this Plan within sixty (60) days following his receipt
thereof or are transferred pursuant to a direct rollover;
(iii) amounts
transferred to this Plan from a conduit individual retirement
account provided that the conduit individual retirement
account has no assets other than assets which (A) were
previously distributed to the Employee by another qualified
plan as a lump-sum distribution (B) were eligible for tax-free
rollover to a qualified plan and (C) were deposited in such
conduit individual retirement account within sixty (60) days
of receipt thereof and other than earnings on said assets; and
(iv) amounts distributed to the Employee from a conduit
individual retirement account meeting the requirements of
clause (iii) above, and transferred by the Employee to this
Plan within sixty (60) days of his receipt thereof from such
conduit individual retirement account.
(g) Prior to accepting any transfers to which this
Section applies, the Administrator may require the Employee to
establish that the amounts to be transferred to this Plan meet
the requirements of this Section and may also require the
Employee to provide an opinion of counsel satisfactory to the
Employer that the amounts to be transferred meet the
requirements of this Section.
(h) Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not result in the elimination or reduction of any "Section 411(d)(6) protected benefit" as described in Section 7.1.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Valuation Date, to determine the net worth of the assets comprising the Trust Fund as it exists on the Valuation Date. In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value as of the Valuation Date and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust Fund which are listed on a registered stock exchange, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange preceding the close of business on the Valuation Date. If such securities were not traded on the Valuation Date, or if the exchange on which they are traded was not open for business on the Valuation Date, then the securities shall be valued at the prices at which they were last traded prior to the Valuation Date. Any unlisted security held in the Trust Fund shall be valued at its bid price next preceding the close of business on the Valuation Date, which bid price shall be obtained from a registered broker or an investment banker. In determining the fair market value of assets other than securities for which trading or bid prices can be obtained, the Trustee may appraise such assets itself, or in its discretion, employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and retire for the purposes hereof on his Normal Retirement Date. However, a Participant may postpone the termination of his employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.3, shall continue until his Late Retirement Date. Upon a Participant's Retirement Date or attainment of his Normal Retirement Date without termination of employment with the Employer, or as soon thereafter as is practicable, the Trustee shall distribute, at the election of the Participant, all amounts credited to such Participant's Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or other termination of his employment, all amounts credited to such Participant's Account shall become fully Vested. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute the value of the deceased Participant's accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute any remaining Vested amounts credited to the accounts of a deceased Former Participant to such Former Participant's Beneficiary.
(c) Any security interest held by the Plan by reason of an outstanding loan to the Participant or Former Participant shall be taken into account in determining the amount of the Pre-Retirement Survivor Annuity.
(d) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive.
(e) Unless otherwise elected in the manner prescribed in Section 6.6, the Participant's spouse shall receive a death benefit equal to the Pre-Retirement Survivor Annuity. The Participant may designate a Beneficiary other than his spouse to receive that portion of his death benefit which is not payable as a Pre-Retirement Survivor Annuity. The Participant may also designate a Beneficiary other than his spouse to receive the Pre-Retirement Survivor Annuity but only if:
(1) the Participant and his spouse have validly waived the Pre-Retirement Survivor Annuity in the manner prescribed in
Section 6.6, and the spouse has waived his or her right to be the Participant's Beneficiary, or
(2) the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in Code Section 414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke his designation of a Beneficiary or change his Beneficiary by filing written notice of such revocation or change with the Administrator. However, the Participant's spouse must again consent in writing to any change in Beneficiary of that portion of the death benefit that would otherwise be paid as a Pre-Retirement Survivor Annuity unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. The Participant may, at any time, designate a Beneficiary to receive death benefits that are in excess of the Pre-Retirement Survivor Annuity. In the event no valid designation of Beneficiary exists at the time of the Participant's death, the death benefit shall be payable to his estate.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to his Retirement Date or other termination of his employment, all amounts credited to such Participant's Account shall become fully Vested. In the event of a Participant's Total and Permanent Disability, the Trustee, in accordance with the provisions of Sections 6.5 and 6.7, shall distribute to such Participant all amounts credited to such Participant's Account as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) If a Participant's employment with the Employer is terminated for any reason other than death, Total and Permanent Disability or retirement, such Participant shall be entitled to such benefits as are provided hereinafter pursuant to this Section 6.4.
Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Total and Permanent Disability or Normal Retirement). However, at the election of the Participant, the Administrator shall direct the Trustee to cause the entire Vested portion of the Terminated Participant's Account to be payable to such Terminated Participant on or after the Anniversary Date coinciding with or next following termination of
employment. Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 417 and 411(a)(11) and the Regulations thereunder.
For purposes of this Section 6.4, if the value of a Terminated Participant's Vested benefit is zero, the Terminated Participant shall be deemed to have received a distribution of such Vested benefit.
(b) The Vested portion of any Participant's Account shall be a percentage of the total amount credited to his Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule:
Vesting Schedule
Years of Service Percentage
Less than 2 0 %
2 20 %
3 40 %
4 60 %
5 80 %
6 100 %
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(c) Notwithstanding the vesting schedule above, upon any full or partial termination of the Plan, all amounts credited to the account of any affected Participant shall become 100% Vested and shall not thereafter be subject to Forfeiture.
(d) The computation of a Participant's nonforfeitable percentage of his interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. For this purpose, the Plan shall be treated as having been amended if the Plan provides for an automatic change in vesting due to a change in top heavy status. In the event that the Plan is amended to change or modify any vesting schedule, a Participant with at least three (3) Years of Service as of the expiration date of the election period may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the amendment from the Employer or Administrator.
(e)(1) If any Former Participant shall be reemployed by the Employer before a 1-Year Break in Service occurs, he shall continue to participate in the Plan in the same manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, and such Former Participant had received, or was deemed to have received, a distribution of his entire Vested interest prior to his reemployment, his forfeited account shall be reinstated only if he repays the full amount distributed to him before the earlier of five (5) years after the first date on which the Participant is subsequently reemployed by the Employer or the close of the first period of five (5) consecutive 1-Year Breaks in Service commencing after the distribution, or in the event of a deemed distribution, upon the reemployment of such Former Participant. In the event the Former Participant does repay the full amount distributed to him, or in the event of a deemed distribution, the undistributed portion of the Participant's Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the Valuation Date coinciding with or preceding his termination. The source for such reinstatement shall first be any Forfeitures occurring during the year. If such source is insufficient, then the Employer shall contribute an amount which is sufficient to restore any such forfeited Accounts.
(3) If any Former Participant is reemployed after a 1-Year Break in Service has occurred, Years of Service shall include Years of Service prior to his 1-Year Break in Service subject to the following rules:
(i) If a Former Participant has a 1-Year Break in Service, his pre-break and post-break service shall be used for computing Years of Service for eligibility and for vesting purposes only after he has been employed for one (1) Year of Service following the date of his reemployment with the Employer;
(ii) Any Former Participant who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions shall lose credits otherwise allowable under (i) above if his consecutive 1-Year Breaks in Service equal or exceed the greater of (A) five (5) or (B) the aggregate number of his pre-break Years of Service;
(iii) After five (5) consecutive 1-Year Breaks in Service, a Former Participant's Vested Account balance attributable to pre-break service shall not be increased as a result of post-break service;
(iv) If a Former Participant is reemployed by the Employer, he shall participate in the Plan immediately on his date of reemployment;
(v) If a Former Participant (a 1-Year Break in Service previously occurred, but employment had not terminated) is credited with an Hour of Service after the first eligibility computation period in which he incurs a 1-Year Break in Service, he shall participate in the Plan immediately.
6.5 DISTRIBUTION OF BENEFITS
(a)(1) Unless otherwise elected as provided below, a
Participant who is married on the Annuity Starting Date and
who does not die before the Annuity Starting Date shall
receive the value of all of his benefits in the form of a
joint and survivor annuity. The joint and survivor annuity is
an annuity that commences immediately and shall be equal in
value to a single life annuity. Such joint and survivor
benefits following the Participant's death shall continue to
the spouse during the spouse's lifetime at a rate equal to 50%
of the rate at which such benefits were payable to the
Participant. This joint and 50% survivor annuity shall be
considered the designated qualified joint and survivor annuity
and automatic form of payment for the purposes of this Plan.
However, the Participant may elect to receive a smaller
annuity benefit with continuation of payments to the spouse at
a rate of seventy-five percent (75%) or one hundred percent
(100%) of the rate payable to a Participant during his
lifetime, which alternative joint and survivor annuity shall
be equal in value to the automatic joint and 50% survivor
annuity. An unmarried Participant shall receive the value of
his benefit in the form of a life annuity. Such unmarried
Participant, however, may elect in writing to waive the life
annuity. The election must comply with the provisions of this
Section as if it were an election to waive the joint and
survivor annuity by a married Participant, but without the
spousal consent requirement. The Participant may elect to have
any annuity provided for in this Section distributed upon the
attainment of the "earliest retirement age" under the Plan.
The "earliest retirement age" is the earliest date on which,
under the Plan, the Participant could elect to receive
retirement benefits.
(2) Any election to waive the joint and survivor annuity must be made by the Participant in writing during the election period and be consented to by the Participant's spouse. If the spouse is legally incompetent to give consent, the spouse's legal guardian, even if such guardian is the Participant, may give consent. Such election shall designate a Beneficiary (or a form of benefits) that may not be changed without spousal consent (unless the consent of the spouse expressly permits designations by the Participant without the requirement of further consent by the spouse). Such spouse's consent shall be irrevocable and must acknowledge the effect of such election and be witnessed by a Plan representative or a notary public. Such consent shall not be required if it is established to the satisfaction of the Administrator that the required consent cannot be obtained because there is no spouse, the spouse cannot be located, or other circumstances that may be prescribed by Regulations. The election made by the Participant and consented to by his spouse may be revoked by the Participant in writing without the consent of the spouse at any time during the election period.
The number of revocations shall not be limited. Any new election must comply with the requirements of this paragraph. A former spouse's waiver shall not be binding on a new spouse.
(3) The election period to waive the joint and survivor annuity shall be the 90 day period ending on the Annuity Starting Date.
(4) With regard to the election, the Administrator shall provide to the Participant no less than 30 days and no more than 90 days before the Annuity Starting Date a written explanation of:
(i) the terms and conditions of the joint and survivor annuity,
(ii) the Participant's right to make, and the effect of, an election to waive the joint and survivor annuity,
(iii) the right of the Participant's spouse to consent to any election to waive the joint and survivor annuity, and
(iv) the right of the Participant to revoke such election, and the effect of such revocation.
(5) Any distribution provided for in this Section 6.5 may commence less than 30 days after the notice required by Code Section 417(a)(3) is given, provided that:
(i) the Administrator clearly informs the Participant that the Participant has a right to a period of 30 days after receiving the notice to consider whether to waive the joint and survivor annuity and consent to a form of distribution other than a joint and survivor annuity,
(ii) the Participant is permitted to revoke an affirmative distribution election at least until the Annuity Starting Date, or, if later, at any time prior to the expiration of the 7-day period that begins the day after the explanation of the joint and survivor annuity is provided to the Participant,
(iii) the Annuity Starting Date is after the
date that the explanation of the joint and
survivor annuity is provided to the
Participant. However, the Annuity Starting
Date may be before the date that any
affirmative distribution election is made by
the Participant and before the date that the
distribution is permitted to commence under
(iv) below, and
(iv) distribution in accordance with the affirmative election does not commence before the expiration of the 7-day period that begins the day after the explanation of the joint and survivor annuity is provided to the Participant.
(b) In the event a married Participant duly elects pursuant to paragraph (a)(2) above not to receive his benefit in the form of a joint and survivor annuity, or if such Participant is not married, in the form of a life annuity, the Administrator, pursuant to the election of the Participant, shall direct the Trustee to distribute to a Participant or his Beneficiary any amount to which he is entitled under the Plan in one or more of the following methods:
(1) One lump-sum payment in cash or in property.
(2) Payments over a period certain in monthly, quarterly, semiannual, or annual cash installments. In order to provide such installment payments, the Administrator may (A) segregate the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate or other liquid short-term security or (B) purchase a nontransferable annuity contract for a term certain (with no life contingencies) providing for such payment. The period over which such payment is to be made shall not extend beyond the Participant's life expectancy (or the life expectancy of the Participant and his designated Beneficiary).
(3) Purchase of or providing an annuity. However, such annuity may not be in any form that will provide for payments over a period extending beyond either the life of the Participant (or the lives of the Participant and his designated Beneficiary) or the life expectancy of the Participant (or the life expectancy of the Participant and his designated Beneficiary).
(c) The present value of a Participant's joint and survivor annuity derived from Employer and Employee contributions may not be paid without his written consent. Further, the spouse of a Participant must consent in writing to any immediate distribution if the value of the Participant's benefit exceeds, or has ever exceeded, $3,500 at the time of any prior distribution. Any written consent required by this Section 6.5(c) must be obtained not more than 90 days before commencement of the distribution and shall be made in a manner consistent with Section 6.5(a)(2).
(d) Any distribution to a Participant who has a benefit which exceeds, or has ever exceeded, $3,500 at the time of any prior distribution shall require such Participant's consent pursuant to this Section 6.5(d) if such distribution commences prior to the later of his Normal Retirement Age or age 62. With regard to this required consent:
(1) No consent shall be valid unless the Participant has received a general description of the material features and an explanation of the relative values of the optional forms of benefit available under the Plan that would satisfy the notice requirements of Code Section 417.
(2) The Participant must be informed of his right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the commencement of payment of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 6.5(e).
(3) Notice of the rights specified under this paragraph shall be provided no less than 30 days and no more than 90 days before the Annuity Starting Date.
(4) Consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than 90 days before the Annuity Starting Date.
(5) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution.
Any such distribution may commence less than 30 days, subject to Section 6.5(a)(5), after the notice required under Regulation 1.411(a)-11(c) is given, provided that: (1) the Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution.
(e) Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant's benefits, whether under the Plan or through the purchase of an annuity contract, shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder (including Regulation 1.401(a)(9)-2), the provisions of which are incorporated herein by reference:
(1) A Participant's benefits shall be distributed or
must begin to be distributed to him not later than
April 1st of the calendar year following the later of
(i) the calendar year in which the Participant
attains age 70 1/2 or (ii) the calendar year in which
the Participant retires, provided, however, that this
clause (ii) shall not apply in the case of a
Participant who is a "five (5) percent owner" at any
time during the five (5) Plan Year period ending in
the calendar year in which he attains age 70-1/2 or,
in the case of a Participant who becomes a "five (5)
percent owner" during any subsequent Plan Year,
clause (ii) shall no longer apply and the required
beginning date shall be the April-1st of the calendar
year following the calendar year in which such
subsequent Plan Year ends. Such distributions shall
be equal to or greater than any required
distribution. Notwithstanding the foregoing, clause
(ii) above shall not apply to any Participant unless
the Participant had attained age 70 1/2 before
January 1, 1988 and was not a "five (5) percent
owner" at any time during the Plan Year ending with
or within the calendar year in which the Participant
attained age 66 1/2 or any subsequent Plan Year.
Alternatively, distributions to a Participant must begin no later than the applicable April 1st as determined under the preceding paragraph and must be made over the life of the Participant (or the lives of the Participant and the Participant's designated Beneficiary) or the life expectancy of the Participant (or the life expectancies of the Participant and his designated Beneficiary) in accordance with Regulations.
(2) Distributions to a Participant and his
Beneficiaries shall only be made in accordance with
the incidental death benefit requirements of Code
Section 401(a)(9)(G) and the Regulations thereunder.
(f) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse (other than in the case of a life annuity) shall not be redetermined in accordance with Code Section 401(a)(9)(D). Life expectancy and joint and last survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9.
(g) All annuity Contracts under this Plan shall be non-transferable when distributed. Furthermore, the terms of any annuity Contract purchased and distributed to a Participant or spouse shall comply with all of the requirements of the Plan.
(h) If a distribution is made at a time when a Participant is not fully Vested in his Participant's Account and the Participant may increase the Vested percentage in such account:
(1) a separate account shall be established for the Participant's interest in the Plan as of the time of the distribution; and
(2) at any relevant time, the Participant's Vested portion of the separate account shall be equal to an amount ("X") determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested percentage at the relevant time, AB is the account balance at the relevant time, D is the amount of distribution, and R is the ratio of the account balance at the relevant time to the account balance after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a Vested Participant who dies before the Annuity Starting Date and who has a surviving spouse shall have the Pre-Retirement Survivor Annuity paid to his surviving spouse. The Participant's spouse may direct that payment of the Pre-Retirement Survivor Annuity commence within a reasonable period after the Participant's death. If the spouse does not so direct, payment of such benefit will commence at the time the Participant would have attained the
later of his Normal Retirement Age or age 62. However, the spouse may elect a later commencement date. Any distribution to the Participant's spouse shall be subject to the rules specified in Section 6.6(g).
(b) Any election to waive the Pre-Retirement Survivor Annuity before the Participant's death must be made by the Participant in writing during the election period and shall require the spouse's irrevocable consent in the same manner provided for in Section 6.5(a)(2). Further, the spouse's consent must acknowledge the specific nonspouse Beneficiary. Notwithstanding the foregoing, the nonspouse Beneficiary need not be acknowledged, provided the consent of the spouse acknowledges that the spouse has the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elects to relinquish such right.
(c) The election period to waive the Pre-Retirement Survivor Annuity shall begin on the first day of the Plan Year in which the Participant attains age 35 and end on the date of the Participant's death. An earlier waiver (with spousal consent) may be made provided a written explanation of the Pre-Retirement Survivor Annuity is given to the Participant and such waiver becomes invalid at the beginning of the Plan Year in which the Participant turns age 35. In the event a Vested Participant separates from service prior to the beginning of the election period, the election period shall begin on the date of such separation from service.
(d) With regard to the election, the Administrator shall provide each Participant within the applicable period, with respect to such Participant (and consistent with Regulations), a written explanation of the Pre-Retirement Survivor Annuity containing comparable information to that required pursuant to Section 6.5(a)(4). For the purposes of this paragraph, the term "applicable period" means, with respect to a Participant, whichever of the following periods ends last:
(1) The period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35;
(2) A reasonable period after the individual becomes a Participant;
(3) A reasonable period ending after the Plan no longer fully subsidizes the cost of the Pre-Retirement Survivor Annuity with respect to the Participant;
(4) A reasonable period ending after Code Section 401(a)(11) applies to the Participant; or
(5) A reasonable period after separation from service in the case of a Participant who separates before attaining age 35. For this purpose, the Administrator must provide the explanation beginning one year before the separation from service and ending one year after such separation. If
such a Participant thereafter returns to employment with the Employer, the applicable period for such Participant shall be redetermined.
For purposes of applying this Section 6.6(d), a reasonable period ending after the enumerated events described in paragraphs (2), (3) and (4) is the end of the two year period beginning one year prior to the date the applicable event occurs, and ending one year after that date.
(e) An immediate distribution of the present value of the Pre-Retirement Survivor Annuity derived from Employer and Employee contributions may be made to the surviving spouse, provided such surviving spouse consents in writing to such distribution. Any written consent required under this paragraph must be obtained not more than 90 days before commencement of the distribution and shall be made in a manner consistent with Section 6.5(a)(2).
(f)(1) To the extent the death benefit is not paid in the form of a Pre-Retirement Survivor Annuity, it shall be paid to the Participant's Beneficiary by either of the following methods, as elected by the Participant (or if no election has been made prior to the Participant's death, by his Beneficiary), subject to the rules specified in Section 6.6(g):
(i) One lump-sum payment in cash or in property.
(ii) Payment in monthly, quarterly, semi-annual, or annual cash installments over a period to be determined by the Participant or his Beneficiary. After periodic installments commence, the Beneficiary shall have the right to direct the Trustee to reduce the period over which such periodic installments shall be made, and the Trustee shall adjust the cash amount of such periodic installments accordingly.
(2) In the event the death benefit payable pursuant to Section 6.2 is payable in installments, then, upon the death of the Participant, the Administrator may direct the Trustee to segregate the death benefit into a separate account, and the Trustee shall invest such segregated account separately, and the funds accumulated in such account shall be used for the payment of the installments.
(g) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. If the death benefit is paid in the form of a Pre-Retirement Survivor Annuity, then distributions to the Participant's surviving spouse must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31st of the calendar year in which the Participant would have attained age 70 1/2. If it is determined pursuant to Regulations that the distribution of a Participant's interest has begun and the Participant dies before his entire interest has been distributed
to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 6.5 as of his date of death. If a Participant dies before he has begun to receive any distributions of his interest under the Plan or before distributions are deemed to have begun pursuant to Regulations (and distributions are not to be made in the form of a Pre-Retirement Survivor Annuity), then his death benefit shall be distributed to his Beneficiaries by December 31st of the calendar year in which the fifth anniversary of his date of death occurs.
However, the 5-year distribution requirement
of the preceding paragraph shall not apply to any portion of
the deceased Participant's interest which is payable to or for
the benefit of a designated Beneficiary. In such event, such
portion may, at the election of the Participant (or the
Participant's designated Beneficiary), be distributed over the
life of such designated Beneficiary (or over a period not
extending beyond the life expectancy of such designated
Beneficiary) provided such distribution begins not later than
December 31st of the calendar year immediately following the
calendar year in which the Participant died. However, in the
event the Participant's spouse (determined as of the date of
the Participant's death) is his Beneficiary, the requirement
that distributions commence within one year of a Participant's
death shall not apply. In lieu thereof, distributions must
commence on or before the later of: (1) December 31st of the
calendar year immediately following the calendar year in which
the Participant died; or (2) December 31st of the calendar
year in which the Participant would have attained age 70 1/2.
If the surviving spouse dies before distributions to such
spouse begin, then the 5-year distribution requirement of this
Section shall apply as if the spouse was the Participant.
(h) For purposes of Section 6.6(g), the election by a designated Beneficiary to be excepted from the 5-year distribution requirement must be made no later than December 31st of the calendar year following the calendar year of the Participant's death. Except, however, with respect to a designated Beneficiary who is the Participant's surviving spouse, the election must be made by the earlier of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died or, if later, the calendar year in which the Participant would have attained age 70 1/2; or (2) December 31st of the calendar year which contains the fifth anniversary of the date of the Participant's death. An election by a designated Beneficiary must be in writing and shall be irrevocable as of the last day of the election period stated herein. In the absence of an election by the Participant or a designated Beneficiary, the 5-year distribution requirement shall apply.
(i) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse (other than in the case of a life annuity) shall not be redetermined in accordance with Code Section 401(a)(9)(D). Life expectancy and joint and last survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make a distribution or to commence a series of payments the distribution or series of payments may be made or begun as soon as is practicable. However, unless a Former Participant elects in writing to defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall begin not later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (a) the date on which the Participant attains the earlier of age 65 or the Normal Retirement Age specified herein; (b) the 10th anniversary of the year in which the Participant commenced participation in the Plan; or (c) the date the Participant terminates his service with the Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the Administrator may direct that such distribution be paid to the legal guardian, or if none, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains his residence, or to the custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at the later of the Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored unadjusted for earnings or losses.
6.10 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." Furthermore, a distribution to an "alternate payee" shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected Participant has not separated from service and has not reached the "earliest retirement age" under the Plan. For the purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414(p).
6.11 DIRECT ROLLOVER
(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an eligible rollover distribution that is equal to at least
$500 paid directly to an eligible retirement plan specified by the distributee in a direct rollover.
(b) For purposes of this Section the following definitions shall apply:
(1) An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); the portion of any other distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and any other distribution that is reasonably expected to total less than $200 during a year.
(2) An eligible retirement plan is an individual
retirement account described in Code Section 408(a),
an individual retirement annuity described in Code
Section 408(b), an annuity plan described in Code
Section 403(a), or a qualified trust described in
Code Section 401(a), that accepts the distributee's
eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(3) A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse.
(4) A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.
ARTICLE VII
AMENDMENT, TERMINATION, MERGERS AND LOANS
7.1 AMENDMENT
(a) The Employer shall have the right at any time to amend the Plan, subject to the limitations of this Section. However, any amendment which affects the rights, duties or responsibilities of the Trustee and Administrator, other than an amendment to remove the Trustee or Administrator, may only be made with the Trustee's and Administrator's written consent. Any such amendment shall become effective as provided
therein upon its execution. The Trustee shall not be required to execute any such amendment unless the Trust provisions contained herein are a part of the Plan and the amendment affects the duties of the Trustee hereunder.
(b) No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective to the extent it eliminates or reduces any "Section 411(d)(6) protected benefit" or adds or modifies conditions relating to "Section 411(d)(6) protected benefits" the result of which is a further restriction on such benefit unless such protected benefits are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment. "Section 411(d)(6) protected benefits" are benefits described in Code Section 411(d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms of benefit.
7.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any full or partial termination, all amounts credited to the affected Participants' Accounts shall become 100% Vested as provided in Section 6.4 and shall not thereafter be subject to forfeiture, and all unallocated amounts shall be allocated to the accounts of all Participants in accordance with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent with and satisfies the provisions of Section 6.5. Distributions to a Participant shall be made in cash or in property or through the purchase of irrevocable nontransferable deferred commitments from an insurer. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 411(d)(6) protected benefits" in accordance with Section 7.1(c).
7.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any "Section 411(d)(6) protected benefits" in accordance with Section 7.1(c).
7.4 LOANS TO PARTICIPANTS
(a) The Trustee may, in the Trustee's discretion, make loans to Participants and Beneficiaries under the following circumstances: (1) loans shall be made available to all Participants and Beneficiaries on a reasonably equivalent basis; (2) loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Participants and Beneficiaries; (3) loans shall bear a reasonable rate of interest; (4) loans shall be adequately secured; and (5) shall provide for repayment over a reasonable period of time.
(b) Loans made pursuant to this Section (when added to the outstanding balance of all other loans made by the Plan to the Participant) shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans from the Plan to the Participant during the one year period ending on the day before the date on which such loan is made, over the outstanding balance of loans from the Plan to the Participant on the date on which such loan was made, or
(2) one-half (1/2) of the present value of the non-forfeitable accrued benefit of the Participant under the Plan.
For purposes of this limit, all plans of the Employer shall be considered one plan.
(c) Loans shall provide for level amortization with
payments to be made not less frequently than quarterly over a
period not to exceed five (5) years. However, loans used to
acquire any dwelling unit which, within a reasonable time, is
to be used (determined at the time the loan is made) as a
principal residence of the Participant shall provide for
periodic repayment over a reasonable period of time that may
exceed five (5) years. For this purpose, a principal residence
has the same meaning as a principal residence under Code
Section 1034. Loan repayments will be suspended under this
Plan as permitted under Code Section 414(u)(4).
(d) Any loan made pursuant to this Section where the Vested interest of the Participant is used to secure such loan shall require the written consent of the Participant's spouse in a manner consistent with Section 6.5(a)(1). Such written consent must be obtained within the 90-day period prior to the date the loan is made. However, no spousal consent shall be required under this paragraph if the total accrued benefit subject to the security is not in excess of $3,500.
(e) Any loans granted or renewed shall be made pursuant to a Participant loan program. Such loan program shall be established in writing and must include, but need not be limited to, the following:
(1) the identity of the person or positions authorized to administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans offered;
(5) the procedure under the program for determining a reasonable rate of interest;
(6) the types of collateral which may secure a Participant loan; and
(7) the events constituting default and the steps that will be taken to preserve Plan assets.
Such Participant loan program shall be contained in a separate written document which, when properly executed, is hereby incorporated by reference and made a part of the Plan. Furthermore, such Participant loan program may be modified or amended in writing from time to time without the necessity of amending this Section.
ARTICLE VIII
TOP HEAVY
8.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.3 of the Plan.
8.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant's Present Value of Accrued Benefit and/or Aggregate Account
balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group). In addition, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the five year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of the Determination Date is the sum of:
(1) his Participant's Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date;
(2) contributions that would be allocated as of a date not later than the Determination Date, even though those amounts are not yet made or required to be made.
(3) any Plan distributions made within the Plan Year that includes the Determination Date or within the four (4) preceding Plan Years. However, in the case of distributions made after the Valuation Date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant's Aggregate Account balance as of the Valuation Date. Notwithstanding anything herein to the contrary, all distributions, including distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted. Further, distributions from the Plan (including the cash value of life insurance policies) of a Participant's account balance because of death shall be treated as a distribution for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary or mandatory. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan
maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section. If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the Participant's Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section. If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant's Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two
employers are to be treated as the same employer in
(5) and (6) above, all employers aggregated under
Code Section 414(b), (c), (m) and (o) are treated as
the same employer.
(d) "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410, will be required to be aggregated. Such group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group. No plan in the Required Aggregation Group will be considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Sections 401(a)(4) and 410. Such group shall be known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group. No
plan in the Permissive Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of the Employer if it was maintained within the last five (5) years ending on the Determination Date.
(e) "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411(b)(1)(C). The determination of the Present Value of Accrued Benefit shall be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Code Section 416 and the Regulations thereunder for the first and second plan years of a defined benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for all Participants.
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time
regardless of the effect which such discharge shall have upon him as a Participant of this Plan.
9.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or his Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law.
(b) This provision shall not apply to the extent a Participant or Beneficiary is indebted to the Plan, as a result of a loan from the Plan. At the time a distribution is to be made to or for a Participant's or Beneficiary's benefit, such proportion of the amount distributed as shall equal such loan indebtedness shall be paid by the Trustee to the Trustee or the Administrator, at the direction of the Administrator, to apply against or discharge such loan indebtedness. Prior to making a payment, however, the Participant or Beneficiary must be given written notice by the Administrator that such loan indebtedness is to be so paid in whole or part from his Participant's Account. If the Participant or Beneficiary does not agree that the loan indebtedness is a valid claim against his Vested Participant's Account, he shall be entitled to a review of the validity of the claim in accordance with procedures provided in Sections 2.7 and 2.8.
(c) This provision shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a "qualified domestic relations order," a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan.
9.3 CONSTRUCTION OF PLAN
This Plan shall be construed and enforced according to the Act and the laws of the State of New York, other than its laws respecting choice of law, to the extent not preempted by the Act.
9.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all
cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply.
9.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee, the Employer or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee, the Employer or the Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable.
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any trust fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Act Section
403(c)(2)(A), the Employer may demand repayment of such
excessive contribution at any time within one (1) year
following the time of payment and the Trustees shall return
such amount to the Employer within the one (1) year period.
Earnings of the Plan attributable to the excess contributions
may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
9.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted by the Act and regulations thereunder, shall be bonded in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in Act Section 412(a)(2)), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund or by the Employer.
9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer, the Administrator, nor the Trustee, nor their successors shall be responsible for the validity of any Contract issued hereunder or for the failure on the part of the insurer to make payments provided by any such Contract, or for the action of any person which may delay payment or render a Contract null and void or unenforceable in whole or in part.
9.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax or legal aspects of this Plan. The insurer shall be protected and held harmless in acting in accordance with any written direction of the Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be required to question any actions directed by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the insurer.
9.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer.
9.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority.
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the Administrator and (3) the Trustee. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan or as accepted by or assigned to them pursuant to any procedure provided under the Plan, including but not limited to any agreement allocating or delegating their responsibilities, the terms of which are incorporated herein by reference. In general, unless otherwise indicated herein or pursuant to such agreements, the Employer shall have the duties specified in Article II hereof, as the same may be allocated or delegated thereunder, including but not limited to the responsibility for making the contributions provided for under Section 4.1; and shall have the authority to appoint and remove the Trustee and the Administrator; to formulate the Plan's "funding policy and method"; and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the responsibility for the administration of the Plan, including but not limited to the items specified in Article II of
the Plan, as the same may be allocated or delegated thereunder. The Trustee shall have the responsibility of management and control of the assets held under the Trust, except to the extent directed pursuant to Article II or with respect to those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan and any agreement with the Trustee. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan as specified or allocated herein. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. In the furtherance of their responsibilities hereunder, the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and to resolve ambiguities, inconsistencies and omissions, which findings shall be binding, final and conclusive.
9.13 HEADINGS
The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof.
9.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, contributions to this Plan are conditioned upon the initial qualification of the Plan under Code Section 401. If the Plan receives an adverse determination with respect to its initial qualification, then the Plan may return such contributions to the Employer within one year after such determination, provided the application for the determination is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan was adopted, or such later date as the Secretary of the Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary,
except Sections 3.5 and 3.6, any contribution by the Employer
to the Trust Fund is conditioned upon the deductibility of the
contribution by the Employer under the Code and, to the extent
any such deduction is disallowed, the Employer may, within one
(1) year following the disallowance of the deduction, demand
repayment of such disallowed contribution and the Trustee
shall return such contribution within one (1) year following
the disallowance. Earnings of the Plan attributable to the
excess contribution may not be returned to the Employer, but
any losses attributable thereto must reduce the amount so
returned.
9.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan provisions shall control.
9.16 WAIVER OF FUNDING
(a) In the event that the minimum funding requirement for a particular Plan Year has been waived in whole or in part, then, an Adjusted Account Balance shall be established for each Participant which shall reflect the Account balance the Participant would have had, had the waived amount been contributed. The Adjusted Account Balance shall remain in effect until such time as the value of the Participant's Account equals the value of the Participant's Adjusted Account Balance:
(1) The excess of the value of each Participant's Adjusted Account Balance over the value of the Participant's Account balance will be credited with earnings equal to 150 percent of the Federal mid-term rate (as in effect under Code Section 1274 for the first month of such Plan Year).
(2) The waiver payment to be made by the Employer in the year after the waiver is granted shall at least equal the amount necessary to amortize over 5 years, at the appropriate interest rate, the excess of the sum of the Adjusted Account Balances over the total value of the Trust Fund attributable to Employer contributions. In the next year, the excess for such subsequent year, if any, is amortized over 4 years. In each succeeding year the amortization period is reduced by one year. The Employer may, however, make such larger payments at any time as the Employer shall deem appropriate.
(3) An unallocated Waiver Suspense Account shall be created, to which shall be made all payments designed to reduce the waived deficiency. If at the time of a distribution, the nonforfeitable portion of a Participant's Adjusted Account Balance exceeds that Participant's actual Account balance, that Participant will receive the larger amount to the extent that there are then funds in the unallocated Waiver Suspense Account to cover the excess. If at any time, a Participant may not be able to receive a total distribution of the entire nonforfeitable portion of his Adjusted Account Balance, such Participant would receive subsequent distributions derived from future waiver payments.
(b) When the total value of the Trust Fund equals the sum of the Adjusted Account Balances, the Waiver Suspense Account shall be allocated to the affected Participants so that each Participant's actual Account balance equals that Participant's Adjusted Account Balance.
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of the Employer and Trustee, any other corporation or entity, whether an affiliate or subsidiary or not, may adopt this Plan and all of the provisions hereof, and participate herein and be known as a Participating Employer, by a properly executed document evidencing said intent and will of such Participating Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to use the same Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to, commingle, hold and invest as one Trust Fund all contributions made by Participating Employers, as well as all increments thereof. However, the assets of the Plan shall, on an ongoing basis, be available to pay benefits to all Participants and Beneficiaries under the Plan without regard to the Employer or Participating Employer who contributed such assets.
(c) The transfer of any Participant from or to an Employer participating in this Plan, whether he be an Employee of the Employer or a Participating Employer, shall not affect such Participant's rights under the Plan, and all amounts credited to such Participant's Account as well as his accumulated service time with the transferor or predecessor, and his length of participation in the Plan, shall continue to his credit.
(d) All rights and values forfeited by termination of employment shall inure only to the benefit of the Participants of the Employer or Participating Employer by which the forfeiting Participant was employed, except if the Forfeiture is for an Employee whose Employer is an Affiliated Employer, then said Forfeiture shall be allocated to the Participants employed by the Employer or Participating Employers who are Affiliated Employers. Should an Employee of one ("First") Employer be transferred to an associated ("Second") Employer which is an Affiliated Employer, such transfer shall not cause his account balance (generated while an Employee of "First" Employer) in any manner, or by any amount to be forfeited. Such Employee's Participant Account balance for all purposes of the Plan, including length of service, shall be considered as though he had always been employed by the "Second" Employer and as such had received contributions, forfeitures, earnings or losses, and appreciation or depreciation in value of assets totaling the amount so transferred.
(e) Any expenses of the Trust which are to be paid by the Employer or borne by the Trust Fund shall be paid by each Participating Employer in the same proportion that the total amount standing to the credit
of all Participants employed by such Employer bears to the total standing to the credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a party to this Plan; provided, however, that with respect to all of its relations with the Trustee and Administrator for the purpose of this Plan, each Participating Employer shall be deemed to have designated irrevocably the Employer as its agent. Unless the context of the Plan clearly indicates the contrary, the word "Employer" shall be deemed to include each Participating Employer as related to its adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between Participating Employers, and in the event of any such transfer, the Employee involved shall carry with him his accumulated service and eligibility. No such transfer shall effect a termination of employment hereunder, and the Participating Employer to which the Employee is transferred shall thereupon become obligated hereunder with respect to such Employee in the same manner as was the Participating Employer from whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYER CONTRIBUTION
Any contribution subject to allocation during each Plan Year shall be allocated only among those Participants of the Employer or Participating Employer making the contribution, except if the contribution is made by an Affiliated Employer, in which event such contribution shall be allocated among all Participants of all Participating Employers who are Affiliated Employers in accordance with the provisions of this Plan. On the basis of the information furnished by the Administrator, the Trustee shall keep separate books and records concerning the affairs of each Participating Employer hereunder and as to the accounts and credits of the Employees of each Participating Employer. The Trustee may, but need not, register Contracts so as to evidence that a particular Participating Employer is the interested Employer hereunder, but in the event of an Employee transfer from one Participating Employer to another, the employing Employer shall immediately notify the Trustee thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be a Participating Employer hereunder shall only be by the written action of each and every Participating Employer and with the consent of the Trustee where such consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or revoke its participation in the Plan. At the time of any such discontinuance or revocation, satisfactory evidence thereof and of any applicable conditions imposed shall be delivered to the Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts and other Trust
Fund assets allocable to the Participants of such Participating Employer to such new Trustee as shall have been designated by such Participating Employer, in the event that it has established a separate pension plan for its Employees, provided however, that no such transfer shall be made if the result is the elimination or reduction of any "Section 411(d)(6) protected benefits" in accordance with Section 7.1(c). If no successor is designated, the Trustee shall retain such assets for the Employees of said Participating Employer pursuant to the provisions of the Trust. In no such event shall any part of the corpus or income of the Trust as it relates to such Participating Employer be used for or diverted to purposes other than for the exclusive benefit of the Employees of such Participating Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary rules or regulations, binding upon all Participating Employers and all Participants, to effectuate the purpose of this Article.
IN WITNESS WHEREOF, this Plan has been executed the day and year first above written.
One Liberty Properties, Inc.
By /s/
-------------------------------
EMPLOYER
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Exhibit 10.8
Execution Copy
LEASE
DATED: As of July 8, 1988
LANDLORD: WESTINGHOUSE CREDIT CORPORATION
TENANT: ALLOY RODS CORPORATION
PREMISES: Hanover, Pennsylvania
TABLE OF CONTENTS
Section Page
------- ----
1. DEMISE; TITLE; CONDITION 1
2. TERM 2
3. RENT 2
4. USE 3
5. NET LEASE; NONTERMINABILITY 3
6. TAXES AND OTHER CHARGES; LAW AND AGREEMENTS 4
7A. LEASEHOLD MORTGAGES 6
7B. LIENS 10
8. INDEMNIFICATION; FEES AND EXPENSES 10
9. HAZARDOUS WASTE 11
10. MAINTENANCE AND REPAIR 12
11. ALTERATIONS AND ADDITIONS AND CONSTRUCTION
OF NEW BUILDINGS BY TENANT 13
12. CONDEMNATION AND CASUALTY 17
13. INSURANCE 21
14. FINANCIAL COVENANTS AND CERTIFICATES 23
15. OPTION TO PURCHASE LEASED PROPERTY 24
16. PURCHASE PROCEDURE 25
17. INVESTMENT CREDIT 26
18. QUIET ENJOYMENT 26
19. SURVIVAL 27
20. ASSIGNMENT AND SUBLETTING 27
21. ADVANCES BY LANDLORD; LATE PAYMENTS 28
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LEASE dated as of July 8, 1988, between WESTINGHOUSE CREDIT CORPORATION ("Landlord"), a Delaware corporation having an office at One Oxford Centre, 301 Grant Street, Pittsburgh, Pennsylvania 15219, and ALLOY RODS CORPORATION ("Tenant"), a Delaware corporation having an office at Wilson Avenue, Hanover, Pennsylvania 17331.
Landlord and Tenant agree as follows (capitalized terms not otherwise defined when they first appear are defined in Article 30 hereof):
1. DEMISE; TITLE; CONDITION
In consideration of the agreements and provisions of this Lease hereinafter stipulated to be observed and performed by Tenant, Landlord hereby demises and lets to Tenant, and Tenant hereby leases from Landlord, subject to the terms and conditions hereinafter set forth, for the term described in Article 2 hereof, the parcels of land described in Schedule A annexed hereto (together with all buildings and improvements located thereon and all easements and appurtenances thereto, individually the "Parcel"; collectively, the "Leased Property").
The Leased Property is demised and let in its present condition without representation or warranty by Landlord, subject to (a) the rights of any parties in possession thereof, (b) the state of the title thereto existing at the time Landlord acquired title to the Leased Property, (c) any state of facts which an accurate survey or physical inspection might show, (d) all applicable laws, rules, regulations, ordinances and restrictions now in effect, and (e) any violations of such laws, rules, regulations, ordinances and restrictions which may exist at the commencement of the Term of this Lease. Tenant has examined the Leased Property, and Landlord's title thereto, and has found the same to be satisfactory.
Landlord has not made an inspection of the Leased Property and makes no representation or warranty, express or implied, with respect to same or the location, use description, design, merchantability, fitness for use for a particular purpose, condition or durability thereof, or as to quality of the material or workmanship therein; and all risks incidental to the Leased Property shall be borne by Tenant. In the event of any defect or deficiency of any nature in the Leased Property or any fixture or other item constituting a portion thereof, whether patent or latent, neither Landlord nor Landlord's mortgagee shall have any responsibility or liability with respect thereto. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION BY LANDLORD OF, AND LANDLORD DOES HEREBY DISCLAIM ANY AND ALL WARRANTIES BY LANDLORD EXPRESS OR IMPLIED, WITH RESPECT
TO THE LEASED PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR OTHERWISE.
This Lease is and shall be superior to all mortgages, which now or hereafter affect the Leased Property, and to all renewals, modifications, consolidations, replacements, and extensions thereof. This clause shall be self-operative and no further instrument of superiority shall be required.
2. TERM
(a) Subject to the provisions hereof, Tenant shall have and hold the Leased Property for a term which shall begin on the Commencement Date set forth in Schedule B annexed hereto, and end on the Termination Date set forth in Schedule B annexed hereto (the "Basic Term"), unless sooner terminated or extended as hereinafter provided.
(b) Tenant may elect to extend the Term of this Lease for two additional successive terms of five (5) years each as set forth on Schedule B annexed hereto ("Extended Terms"). Tenant shall exercise its option to extend the Term for the first five year renewal term (the "First Extended Term") by giving notice of such election to Landlord not less than one (1) year prior to the expiration of the Basic Term. Tenant shall exercise its option to extend the Term for the second five year renewal term (the "Second Extended Term") by giving notice of such election to Landlord not less than one (1) year prior to the expiration of the First Extended Term. Each notice of election to extend given in accordance with the provisions of this Article 2 shall automatically extend the Term of this Lease for one Extended Term without further writing. However, either party, upon request of the other, will execute and acknowledge, in form suitable for recording, an instrument confirming any such extension.
3. RENT
(a) Tenant shall pay to Landlord, in lawful money of the United States, the rent provided for in Schedule B annexed hereto ("Basic Rent") by wire transfer of immediately available funds to an account designated by Landlord. Basic Rent shall be payable by Tenant in installments in the amounts set forth in Schedule B and shall be due and payable on the dates ("Installment Payment Dates") set forth in Schedule B. If any Installment Payment Date falls on a day which is not a Business Day, Basic Rent shall be due and payable on the next succeeding Business Day without interest or penalty if paid on such Business Day.
(b) All amounts which Tenant is required to pay or discharge pursuant to this Lease in addition to Basic Rent (including any amount payable as the purchase price for the Leased Property pursuant to any provision hereof and any amount payable as liquidated damages pursuant to paragraph (c) of Article 22 hereof) together with any interest or penalty which may be added for late payment thereof, shall constitute additional rent hereunder ("Additional Rent"). In the event of any failure by Tenant to pay or discharge any such amount, or in the event of any failure by Tenant to pay any amount payable as the purchase price for the Leased Property pursuant to any provision hereof or as liquidated damages pursuant to paragraph (c of Article 22 hereof, Landlord shall have all rights, powers and remedies provided for herein or by law or otherwise in the case of nonpayment of Basic Rent. Tenant may pay Additional Rent directly to the person entitled thereto.
(c) In the event that this Lease terminates with respect to one parcel, but not the entire Leased Property, under the provisions of section (c) of Article 12 of this Lease, Basic Rent shall be reduced in a manner so as to preserve Landlord's Yield (as defined in Article 30 hereof).
4. USE
Tenant may use each of the parcels comprising the Leased Property as an office, lab or manufacturing facility.
5. NET LEASE; NONTERMINABILITY
(a) This Lease is a "net lease" and Tenant shall pay all Basic Rent, Additional Rent, and all other payments hereunder required to be made by Tenant without notice, demand, counterclaim, set-off, deduction, or defense, and without abatement, suspension, deferment, diminution or reduction, free from any charges, assessments, impositions, expenses or deductions of any and every kind or nature whatsoever. All costs, expenses and obligations of every kind and nature whatsoever relating to the Leased Property and the appurtenances thereto and the use and occupancy thereof which may arise or become due during or with respect to the period constituting the term hereof shall be paid by Tenant, and Landlord shall be indemnified and saved harmless by Tenant from and against the same. Tenant assumes the sole responsibility for the condition, use, operation, maintenance, underletting and management of the Leased Property, and Tenant shall indemnify and hold Landlord harmless from and against any and all liability, costs, damages, losses and claims (including reasonable attorneys' fees) in respect thereof, and Landlord shall have no responsibility in respect thereof and shall have no liability for damage to the property of Tenant or any subtenant of Tenant on any account or
for any reason whatsoever. Without limiting the generality of the foregoing, during the Term of this Lease Tenant shall perform all of the obligations of the sublandlord under any subleases affecting all or any part of the Leased Property which Tenant may hereafter enter into as sublandlord.
(b) Except as otherwise expressly provided in paragraph (c) of Article 12 and clause (ii) of paragraph (b) of Article 22 hereof, this Lease shall not terminate, nor shall Tenant have any right to terminate this Lease or to be released or discharged from any obligations or liabilities hereunder for any reason, including without limitation, any damage to or destruction of the Leased Property; any restriction, deprivation (including eviction) or prevention of, or any interference with, any use or the occupancy of the Leased Property (whether due to any defect in or failure of Landlord's title to the Leased Property or otherwise); any condemnation, requisition or other taking or sale of the use, occupancy or title to the Leased Property; any action, omission or breach on the part of Landlord under this Lease or under any other agreement between Landlord and Tenant; the inadequacy or failure of the description of the Leased Property to demise and let to Tenant the property intended to be leased hereby; Tenant's acquisition of ownership of the Leased Property or any sale or other disposition of the Leased Property; the impossibility or illegality of performance by Landlord or Tenant or both; any action of any court, administrative agency or other governmental authority; or any other cause, whether similar or dissimilar to the foregoing, any present or future law notwithstanding.
(c) Tenant will remain obligated under this Lease in accordance with its terms, and will not take any action to terminate (except in accordance with the provisions of paragraph (c) of Article 12), rescind or avoid this Lease for any reason, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting Landlord or any assignee of Landlord, or any action with respect to this Lease which may be taken by any receiver, trustee or liquidator or by any court. Tenant waives all rights at any time conferred by statute or otherwise to quit, terminate or surrender this Lease or the Leased Property, or to any abatement or deferment of any amount payable by Tenant hereunder, or for damage, loss or expense suffered by Tenant on account of any cause referred to in this Article 5 or otherwise.
6. TAXES AND OTHER CHARGES; LAW AND AGREEMENTS
(a) Tenant shall pay and discharge, on or before the last day upon which the same may be paid without interest or penalty, all taxes, including any transaction privilege tax based upon or measured by gross rentals or receipts from the Leased Property, assessments, levies, fees, water and sewer
rents and other governmental and similar charges, general and special, ordinary or extraordinary, and any interest and penalties thereon, which are levied or assessed during the Term of this Lease (including all of the taxes, assessments, fees, water and sewer rents and other governmental charges for the year in which this Lease is executed which are now a lien but not yet delinquent) against (i) Landlord and which relate to Landlord's ownership of the Leased Property, the use and occupancy of the Leased Property or the transactions contemplated by this Lease, (ii) Landlord's mortgagee and which relate to Landlord's mortgagee's interest in the Leased Property, the use and occupancy of the Leased Property or the transactions contemplated by this Lease, (iii) the Leased Property or the interest of Tenant or Landlord therein, (iv) Basic Rent, Additional Rent or any other amount payable by Tenant hereunder, (v) this Lease or the interest of Tenant or Landlord hereunder, (vi) the use, occupancy, construction, repair or rebuilding of the Leased Property or any portion thereof, or (vii) gross receipts from the Leased Property. If any tax or assessment levied or assessed against the Leased Property may legally be paid in installments, Tenant shall have the option to pay such tax or assessment in installments. Nothing in this Lease shall require payment by Tenant of any franchise, estate, inheritance, succession, transfer, net income or profits taxes of Landlord, unless such tax is in lieu of or a substitute for any other tax or assessment upon or with respect to the Leased Property, which, if such other tax or assessment were in effect, would be payable by Tenant hereunder. Tenant shall furnish to Landlord, within sixty (60) days of the final due date of such tax or assessment for each of the Parcels, proof of the payment of any such tax, assessment, fee, rent or charge which is payable by Tenant. Such taxes, assessments, fees, water and sewer rents and other governmental charges shall be apportioned between Landlord and Tenant as of the date on which this Lease terminates or expires.
(b) Tenant shall pay all charges for utility, communication and other services rendered or used during the Term of this Lease on or about the Leased Property, whether or not payment therefor shall become due after the Term of this Lease.
(c) Tenant shall at all times during the Term of this Lease, at Tenant's own cost and expense, perform and comply with all laws, rules, orders, ordinances, regulations and requirements now or hereafter enacted or promulgated, of every government and municipality having jurisdiction over the Leased Property and of any agency thereof, relating to the Leased Property, or the improvements thereon, or the facilities or equipment thereon or therein, or the streets, sidewalks, vaults, vault spaces, curbs and gutters adjoining the Leased Property, or the appurtenances to the Leased Property, or the franchises
and privileges connected therewith, whether or not such laws, rules, orders, ordinances, regulations or requirements so involved shall necessitate structural changes, improvements, interference with use and enjoyment of the Leased Property, replacements or repairs, extraordinary as well as ordinary, and Tenant shall so perform and comply, whether or not such laws, rules, orders, ordinances, regulations or requirements shall now exist or shall hereafter be enacted or promulgated, and whether or not such laws, rules, orders, ordinances, regulations or requirements can be said to be within the present contemplation of the parties hereto.
(d) Tenant shall have the right to contest, by appropriate legal proceedings, any tax, charge, levy, assessment, lien or other encumbrance, and/or any law, rule, order, ordinance, regulation or other governmental requirement affecting the Leased Property, and to postpone payment of or compliance with the same during the pendency of such contest, provided that (i) Tenant shall immediately furnish a bond, deposit (to be deposited in an interest-bearing account) or such similar security as Landlord or Landlord's mortgagee may reasonably require in an amount sufficient to assure such payment and/or compliance in full; (ii) Tenant shall not postpone the payment of any such tax, charge, levy, assessment, lien or other encumbrance for such length of time as shall permit the Leased Property, or any lien thereon created by such item being contested, to be sold by federal, state, county or municipal authority for the non-payment thereof; and (iii) Tenant shall not postpone compliance with any such law, rule, order, ordinance, regulation or other governmental requirement if Landlord will thereby be subject to civil liability or criminal prosecution, or if any municipal or other governmental authority shall commence a process according to applicable law to carry out any work to comply with the same or to foreclose or sell any lien affecting all or part of the Leased Property which shall have arisen by reason of such postponement or failure of compliance.
(e) Tenant will pay and discharge, and indemnify and reimburse Landlord for its payment or discharge of, all taxes and other charges required to be paid and discharged by Landlord under any mortgage of Landlord's interest in the Leased Property.
7A. LEASEHOLD MORTGAGES
(a) Tenant may not grant a mortgage of its leasehold interest hereunder, except that Landlord will permit Tenant to grant to Pittsburgh National Bank (hereinafter referred to as "Leasehold Mortgagee") one leasehold mortgage encumbering Tenant's leasehold estate hereunder (the "PNB Leasehold Mortgage") on terms and conditions reasonably satisfactory to Landlord. If Tenant shall mortgage its leasehold interest
hereunder to Leasehold Mortgagee, and if Leasehold Mortgagee shall forward to Landlord an executed counterpart of the PNB Leasehold Mortgage in force proper for record, then, until the time, if any, that the PNB Leasehold Mortgage shall be satisfied of record or Leasehold Mortgagee shall give to Landlord written notice that the PNB Leasehold Mortgage has been satisfied:
(i) No action or agreement hereafter taken or entered into by Tenant to cancel, surrender, or modify this Lease shall be binding upon Leasehold Mortgagee or affect the lien of the PNB Leasehold Mortgage, without the prior written consent of Leasehold Mortgagee.
(ii) If Landlord shall give any notice of default (hereinafter referred to as a "Notice") to Tenant pursuant to Article 22 and 23 hereof, Landlord shall at the same time give a copy of each such Notice to Leasehold Mortgagee at the address theretofore designated by Leasehold Mortgagee. Such copies of Notices shall be sent by registered or certified mail, and shall be deemed given at the time such copy is deposited in a United States Post Office with postage charges prepaid, enclosed in a securely sealed envelope addressed to Leasehold Mortgagee. No Notice given by Landlord to Tenant shall be binding upon or affect Leasehold Mortgagee unless a copy of said Notice shall be given to Leasehold Mortgagee pursuant to this subdivision (ii). In the case of an assignment of the PNB Leasehold Mortgage or change in address of Leasehold Mortgagee, said assignee or Leasehold Mortgagee, by written notice to Landlord, may change the address to which such copies of Notices are to be sent. Landlord shall not be bound to recognize any assignment of the PNB Leasehold Mortgage unless and until Landlord shall be given written notice of such assignment and the name and address of the assignee, and thereafter such assignee shall be deemed to be "Leasehold Mortgagee" under this Article 7A. If the PNB Leasehold Mortgage is held by more than one person, corporation or other entity, no provision of this Lease requiring Landlord to give a Notice or copy of a Notice to Leasehold Mortgagee shall be binding upon Landlord unless and until all of said holders shall designate in writing one of their number to receive all such Notices and copies of Notices and shall have given to Landlord an original executed counterpart of such designation in form proper for record.
(iii) Subject to subdivision (iv) of this Article 7A, Leasehold Mortgagee shall have the right to perform any term, covenant, condition or agreement and to remedy any default by Tenant hereunder, and Landlord shall accept such performance by Leasehold Mortgagee with the same force and effect as if furnished by Tenant; provided, however, that Leasehold Mortgagee shall not thereby or hereby be subrogated to the rights of Landlord.
(iv) If Tenant shall fail to make any payment of Basic Rent, Additional Rent or other sums due hereunder when due (a "Payment Default"), and provided that Landlord shall give notice of such default to Tenant, then Landlord shall also give notice of such default to Leasehold Mortgagee, as set forth above, and Leasehold Mortgagee shall have thirty (30) days after the date of such notice to cure such Payment Default, provided, however, that Leasehold Mortgagee shall not be permitted to cure any such Payment Default if it shall have previously cured six (6) consecutive or eight (8) total such Payment Defaults, unless Leasehold Mortgagee has initiated a foreclosure proceeding with respect to the PNB Leasehold Mortgage.
(v) In the case of a default by Tenant in the performance or observance of any term, covenant, condition or agreement on Tenant's part to be performed under this Lease, other than a Payment Default, and provided that Landlord shall have given notice of such default to Tenant, then Landlord shall also give notice of such default to Leasehold Mortgagee, as set forth above, and if such default is of such a nature that the same cannot practicably be cured by Leasehold Mortgagee without taking possession of the Leased Property, or if such default is of such a nature that the same in not susceptible of being cured by Leasehold. Mortgagee, then Landlord shall not serve a notice of election to terminate this Lease pursuant to Article 22 hereof, or otherwise terminate the leasehold estate of Tenant hereunder by reason of such default, if and so long as:
(1) in the case of a default which cannot practicably be cured by Leasehold Mortgagee without taking possession of the Leased Property, Leasehold Mortgagee shall deliver to Landlord, prior to the date which is thirty (30) days after the date on which Landlord shall otherwise be entitled to give notice of election to terminate this Lease, a written instrument wherein Leasehold Mortgagee gives to Landlord its unconditional, undertaking that it will cure such default and that, if this Lease thereafter is terminated prior to the curing of such default, Leasehold Mortgagee shall pay to Landlord the cost of curing such default, if Leasehold Mortgagee be other than a life insurance company, bank or trust company having a net worth in excess of $25,000,000 such undertaking shall be accompanied by security, reasonably satisfactory to Landlord, sufficient to insure payment of the cost of curing of such default, and thereafter- Leasehold Mortgagee shall proceed diligently to obtain possession of the Leased Property as mortgagee (including possession by a receiver), and, upon obtaining such possession, shall proceed
diligently to cure such default in accordance with the guaranty set forth in this clause 1; and
(2) in the case of a default which is not susceptible of being cured by Leasehold Mortgagee, Leasehold Mortgagee shall institute foreclosure proceedings and diligently prosecute the same to completion (unless in the meantime Leasehold Mortgagee shall acquire Tenant's estate hereunder, either in its own name or through a nominee, by assignment in lieu of foreclosure).
Leasehold Mortgagee shall not be required to continue to proceed to obtain possession, or to continue in possession as mortgagee, of the Leased Property pursuant to clause (1) above, or to continue to prosecute foreclosure proceedings pursuant to clause (2) above, if and when such default shall be cured. Nothing herein shall preclude Landlord from exercising any of its rights or remedies with respect to any other default by Tenant during any period of such forbearance, but in such event Leasehold Mortgagee shall have all of the rights and protections hereinabove provided for. If Leasehold Mortgagee, or its nominee, or a purchaser at a foreclosure sale, shall acquire title to Tenant's leasehold estate hereunder, and shall cure all defaults of Tenant hereunder which are susceptible of being cured by Leasehold Mortgagee, or by said purchaser, as the case may be, then the defaults of Tenant or of any prior holder of Tenant's leasehold estate hereunder which are not susceptible of being cured by Leasehold Mortgagee (or by said purchaser) shall no longer be deemed to be defaults hereunder.
(vi) During any period that Landlord is forebearing from exercising its right to terminate the Lease as herein provided for the benefit of the Leasehold Mortgagee (or earlier if a bankruptcy, insolvency, reorganization, receivership, moratorium or similar proceeding is voluntarily or involuntarily instituted by or against Tenant), Landlord and Leasehold Mortgagee shall consult with one another to determine (a) what action to take to maximize the value of (i) the equipment, fixtures, inventory and other tangible assets in which Leasehold Mortgagee has a security interest (the "PNB Collateral"), and (ii) the Leased Property, and (b) the appropriate division of any proceeds resulting from the sale of the Leased Property and/or the PNB Collateral. Notwithstanding the foregoing, Landlord, Tenant and Leasehold Mortgagee acknowledge and agree that no duty is imposed hereby on Landlord or Leasehold Mortgagee to agree to any joint disposition of the Leased Property or the PUB Collateral and that any agreement that ultimately may be reached in connection with the disposition of the Leased Property and/or the PNB Collateral is for the sole benefit of Landlord and Leasehold Mortgagee. Neither Landlord
nor Leasehold Mortgagee shall have any liability to Tenant for failure to agree upon a joint disposition of the Leased Property or the PNB Collateral.
In the event that Leasehold Mortgagee shall acquire the interest of Tenant pursuant to a foreclosure of the PNB Leasehold Mortgage (or by assignment of Lease consented to be Landlord in lieu of foreclosure), Leasehold Mortgagee shall promptly undertake to obtain an assignee of its interest in the Lease, which assignee must (i) agree to pay as rent hereunder the greater of (a) the then fair market rent 'for industrially zoned property of like size and condition in the County of York, Commonwealth of Pennsylvania and (b) the rent set forth on Schedule B hereto, (ii) have a financial strength acceptable to Landlord, and (iii) be otherwise acceptable to Landlord. Landlord shall have the right (but not the obligations) to participate in the selection of any such assignee.
7B. LIENS
Except for a lien permitted pursuant to Article 7A hereof, Tenant will promptly, but no later than 30 days after the filing thereof, remove and discharge of record, by bond or otherwise, any charge, lien, security interest or encumbrance upon the Leased Property, which arises for any reason, including ail liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of the Leased Property or by reason of labor or materials furnished or claimed to have been furnished to Tenant for the Leased Property. Nothing contained in this Lease shall be construed as constituting the consent or request of Landlord, express or implied, to or for the performance by any contractor, laborer, materialman, or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to the Leased Property or any part thereof. Notice is hereby given that Landlord will not be liable for any labor, services or materials furnished or to be furnished to Tenant, or to anyone holding an interest in the Leased Property or any part thereof through or under Tenant, and that no mechanic's or other liens for any such labor, services or materials shall attach to or affect the interest of Landlord in and to the Leased Property. In the event of the failure of Tenant to discharge any charge, lien, security interest or encumbrance as aforesaid, Landlord or Landlord's mortgagee may discharge such items by payment or bond or both, and Tenant will repay to Landlord or Landlord's mortgagee as the case may be, upon demand, any and all amounts paid therefor, or by reason of any liability on such bond, and also any and all incidental expenses, including reasonable attorneys' fees, incurred by Landlord or Landlord's mortgagee, as the case may be, in connection therewith.
8. INDEMNIFICATION; FEES AND EXPENSES
Tenant shall pay, and shall protect, defend, indemnify and hold
Landlord and Landlord's mortgagee harmless from and against all liabilities,
losses, damages, costs, expenses (including reasonable attorneys' fees and
expenses), claims, demands or judgments of any nature arising or alleged to
arise from or in connection with the following events: (i) any injury to, or the
death of, any person or any damage to or loss of property on the Leased Property
or growing out of or directly or indirectly connected with, or alleged to grow
out of or be directly or indirectly connected with, the ownership, use, nonuse,
occupancy, construction, repair or rebuilding of the Leased Property or
adjoining property, or resulting, or alleged to result, from the condition of
any thereof, other than any injury, death, damage or loss arising out of
Landlord's willful misconduct or gross negligence; (ii) violation, or alleged
violation, by Tenant of any provision of this Lease whether or not such
violation or alleged violation results in a violation of any provision of any
mortgage affecting Landlord's interest in the Leased Property, or of any law,
rule, regulation, ordinance or restriction as of the date hereof or hereafter in
effect and affecting the Leased Property, or of any lease or other agreement
relating to the Leased Property as of the date hereof or hereafter in effect to
which Tenant is a party or by which Tenant is bound, or of any agreement of
which Tenant has actual or constructive notice as of the date hereof, and which
is in effect as of the date hereof, affecting the Leased Property or the
ownership, use, nonuse, occupancy, construction, repair or rebuilding thereof or
of adjoining property; (iii) any tax (other than income taxes), assessment,
charge or levy assessed against Landlord or Landlord's mortgagee relating to the
Leased Property; (iv) any contest permitted by paragraph (d) of Article 6; or
(v) Tenant's failure to pay any Additional Rent or purchase price for the Leased
Property pursuant to any provision hereof or liquidated damages pursuant to
paragraph (c) of Article 22 hereof in accordance with the terms and provisions
hereof.
9. HAZARDOUS WASTE
Tenant warrants and represents to Landlord and Landlord's mortgagee that (a) to the best of Tenant's knowledge, the Leased Property complies with all existing federal, state and local environmental laws, rules and regulations ("Environmental Laws"), (b) except for violations referred to in that certain letter agreement dated February 24, 1986 between
the Commonwealth of Pennsylvania Department of Environment Resources Bureau of Waste Management and Tenant, neither Tenant, nor to the best of Tenant's knowledge, any prior owner of the Leased Property has used the Leased Property in violation of any Environmental Laws, (c) except for violations referred to in that certain letter agreement dated February 24, 1986 between the Commonwealth of Pennsylvania Department of Environment Resources Bureau of Waste Management and Tenant, no proceedings have been commenced, or orders of violation, non-compliance or notice received, concerning any alleged violation of Environmental Laws relating to the Leased Property, (d) except as disclosed in that certain preliminary environmental evaluation and facility evaluation dated May, 1988 prepared for Westinghouse Credit Corporation by S&ME Environmental Services (the "Environmental Report"), to the best of Tenant's knowledge, the Leased Property is free of hazardous waste, asbestos, contaminants, oil, radioactive or other materials ("Hazardous Waste"), (e) except as disclosed in the Environmental Report, Tenant has not used and, to the best of Tenant's knowledge, the Leased Property has not been used to generate, manufacture, refine, produce, store, handle, transfer, process or transport any Hazardous Waste, (f) except as disclosed in the Environmental Report, Tenant shall not use and shall prohibit the use of the Leased Property for the generation, manufacture, refinement, production, storage, handling, transfer, processing or transportation of Hazardous Waste, and (g) except as disclosed in the Environmental Report, Tenant shall not permit any Hazardous Waste to be brought onto the Leased Property, or if so brought or found or located thereon, shall cause the same to be immediately removed in full compliance with all applicable laws, ordinances, rules, codes or regulations, and Tenant's obligation to so remove shall survive the Term of this Lease.
Tenant agrees to indemnify and hold harmless Landlord and each and all of Landlord's shareholders, officers, directors, employees, attorneys and agents and Landlord's mortgagee (collectively called the "Indemnitees") from and against any and all losses, liability, suits, obligations, fines, damages, judgments, penalties, claims, charges, costs and expenses (including, without limitation, all fees and disbursements of counsel and consultants), which may be suffered or incurred by, or asserted against, an Indemnitee and which arises directly or indirectly out of or in connection with a violation of this Article 9.
The warranties and obligations of Tenant and the rights and remedies of Landlord and each Indemnitee under this Article 9 are in addition to and not in limitation of any other
warranties, obligations, rights and remedies of Landlord provided in any other agreement between Landlord and Tenant or otherwise at law or in equity.
10. MAINTENANCE AND REPAIR
Tenant will, at its cost and expense, keep and maintain the Leased Property in good repair and condition and will make all structural and non-structural, and ordinary and extraordinary changes, repairs and replacements, foreseen or unforeseen, which may be required, whether or not caused by its act or omission, to be made upon or in connection with the improvements to the Leased Property in order to keep the same in good repair and condition, including taking or causing to be taken action necessary to maintain the Leased Property in compliance with any applicable laws or regulations, including environmental laws or regulations. Landlord shall not be required to maintain, alter, repair, rebuild or replace any improvements on the Leased Property or to maintain the Leased Property, and Tenant expressly waives the right to make repairs at the expense of Landlord pursuant to any law at any time in effect.
11. ALTERATIONS AND ADDITIONS AND CONSTRUCTION OF NEW BUILDINGS BY TENANT
(a) If Tenant complies with the requirements of paragraph (a) of this Article 11, Tenant may, at its own cost and expense, make additions or improvements to or alterations of the buildings and improvements now or hereafter erected on the Leased Property ("Additional Improvements"), and may also, at its own cost and expense, construct new buildings and improvements ("New Buildings") on any portion of the Leased Property which is not then improved with a building or improvement. Notwithstanding the foregoing, Tenant shall not make (i) any Additional Improvements or construct New Buildings in violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to the Leased Property; or (ii) demolish any building on the Leased Property without the prior written consent of Landlord. The making of Additional Improvements and the construction of New Buildings shall be subject to the following conditions:
(i) Title to any such Additional Improvements and New Buildings (other than Additional Improvements which are removable without material damage to the Leased Property and are not operational components of the Leased Property) shall immediately vest in Landlord and shall be a part of the Leased Property and subject to the terms, covenants and conditions of this Lease;
(ii) No Additional Improvements or New Buildings shall be undertaken until Tenant shall have procured and paid for, so far as the same may be required from time to time, all permits and authorizations of all municipal and other governmental authorities having jurisdiction of the Leased Property. Landlord shall join in the application for any such permit or authorization whenever such joinder is necessary at Tenant's expense.
(iii) The making of the Additional Improvements and the construction of the New Buildings shall be expeditiously completed in a good and workmanlike manner and in compliance with all applicable laws, rules, regulations, ordinances and covenants and restrictions then in effect;
(iv) The making of any Additional Improvements involving structural changes estimated to have a cost (as defined in paragraph (d) of Article 11 hereof) in excess of $250,000, and the construction of any New Buildings, shall be conducted under the supervision of an architect or engineer employed or engaged and paid by Tenant and approved in writing by Landlord; and neither shall be undertaken except in accordance with detailed plans and specifications and cost estimates prepared by Tenant and approved by Landlord. Landlord agrees that it will not unreasonably withhold or delay its approval of said architect or engineer, or of said plans and specifications and cost estimates;
(v) In the case of the making of Additional Improvements or the construction of New Buildings, in either case having a cost in excess of $250,000, or the total or material demolition of an existing building or improvement, Tenant shall, prior to the commencement thereof, notify Landlord and, upon request of Landlord furnish Landlord with a surety bond in such amount and with such surety as shall be satisfactory to Landlord or other security satisfactory to Landlord to assure the completion of such Additional Improvements or the construction of such New Buildings as the case may be;
(vi) The cost of any Additional Improvements or New Buildings shall be paid by Tenant when due so that the Leased Property shall at all times be free of liens; for labor and materials supplied or claimed to have been supplied to the Leased Property;
(vii) No Additional Improvements shall, when completed, be of such a character as to make any change
in or diminish the character of the then existing buildings or improvements erected upon the Leased Property, capable of being operated independently of any other buildings or improvements; and, when completed, such buildings and improvements shall have a fair market value at least equal to the fair market value of the then existing buildings prior to the commencement of construction of such Additional Improvements;
(viii) During the period when any Additional Improvements or New Buildings are being made or constructed, Tenant shall maintain the following insurance (in addition to the insurance required to be maintained by Tenant pursuant to the provisions of Article 13 hereof): (A) completed value builders risk insurance for the Leased Property, including all building materials thereon, covering loss or damage from fire, lightning, extended coverage perils, sprinkler leakage, vandalism, malicious mischief and perils insured under a difference in conditions policy in an amount not less than the cost, as estimated by Tenant, of the construction of the Additional Improvements or New Buildings, as the case may be, and (B) worker's compensation insurance covering the full statutory liability as an employer of the contractor performing the work of making such Additional Improvements or constructing said New Buildings;
(ix) Upon completion of the making of the Additional Improvements or the construction of the New Buildings, if the cost thereof shall be in excess of $250,000, Tenant shall furnish Landlord and Landlord's mortgagee with (A) a new title insurance policy or an endorsement to the policy or policies of title insurance which shall have been issued to Landlord and Landlord's mortgagee insuring title to the Leased Property, increasing the amount of the liability of the title company or title companies under said policy or policies of title insurance by the amount of the cost of such Additional Improvements or New Buildings, as the case may be, and (B) all Certificates of Occupancy or other certificates required by applicable laws;
(x) In the case of any Additional Improvement constituting or including a change in the exterior walls of a building, and in the case of the construction of New Buildings, Tenant shall furnish Landlord and Landlord's mortgagee with an "as-built" survey showing the location of said Additional Improvements or New Buildings, as the case may be,
prepared by a licensed surveyor reasonably acceptable to Landlord,
certified to Landlord, Landlord's mortgagee, and the title insurance
company or companies issuing a policy or an endorsement pursuant to clause
(ix) of paragraph (a) of this Article 11; and
(xi) The making of Additional Improvements and the construction of New Buildings shall not constitute gross income to Landlord for Federal Income Tax purposes.
(b) Tenant may, at its own cost and expense, install or place or reinstall or replace upon or remove from the Leased Property any trade fixtures, machinery and equipment. Any such trade fixtures, machinery and equipment shall not become the property of Landlord (other than replacements of fixtures, machinery and equipment which are the property of Landlord, which replacement shall also be the property of Landlord). Replacements of fixtures, machinery and equipment which are property of the Landlord shall be of at least equal quality to the replaced fixtures, machinery and equipment when the replaced items were new.
(c) If the estimated costs and expenses for construction of Additional Improvements on the Leased Property exceed $250,000, Tenant may request Landlord to construct such Additional Improvements for Tenant and to finance such construction itself or to arrange for the financing of such construction on terms and conditions which shall be satisfactory to Landlord and Tenant. If Tenant makes any such request, Landlord and Tenant shall negotiate in good faith concerning the financing of construction of such Additional Improvements and any amendment of this Lease appropriate in connection therewith including, but not limited to, increasing the Basic Rent hereunder to cover said costs, having regard to then existing economic, financial and market conditions and the terms and conditions of Tenant's request. Tenant shall pay all costs and expenses associated with the arrangement of any such financing, provided that Tenant may request that such costs and expenses be included as part of the cost of such Additional Improvements to be financed under this paragraph (c) of Article 11. The parties hereto recognize that such amendment to this Lease, including increases in Basic Rent adequate to amortize fully any additional indebtedness incurred by Landlord and to provide a reasonable return (typical of similar transactions) to Landlord with respect to its additional equity contribution, if any, must be of such nature as to permit Landlord to sell such notes or other debt obligations as may be necessary to accomplish such financing. Landlord agrees to act in good faith as provided above, but Landlord shall incur no liability by reason of Landlord's inability or failure to arrange for such financing or
to agree with Tenant as to the terms thereof, and this Lease shall continue in full force and effect notwithstanding such failure.
(d) For the purposes of this Article 11 the term "cost" shall include without limitation (i) all costs properly charged or chargeable, in accordance with generally accepted accounting principles, as capital expenditures in connection with the making of the Additional Improvements or the construction of the New Buildings, as the case may be including, without limitation attorneys', architects' and engineers' fees, interest charges during construction and the fees and charges for the preparation of the plans and specifications relating to such Additional Improvements or New Buildings, (ii) survey charges and title insurance premiums in connection with the issuance of endorsements or policies, if any, to owner's and mortgagee's title insurance policies pursuant to the provisions of clause (ix) of paragraph (a) of this Article 11, (iii) recording charges and any mortgage or transfer or other taxes (if any), and (iv) accounting, printing, duplicating and other expenses incurred in connection with the financing referred to in paragraph (c) of this Article 11.
12. CONDEMNATION AND CASUALTY
(a) Tenant hereby assigns to Landlord any award, compensation, insurance proceeds or other payment to which Tenant may become entitled by reason of its interest in the Leased Property, other than any award, compensation or insurance payment made to Tenant for interruption of business, for moving expenses or for any inventory, fixtures, machinery, equipment or other personal property belonging to Tenant, (hereinafter referred to as "Tenant's Loss") (i) if the Leased Property, or any portion thereof, is damaged or destroyed by fire or other casualty or cause, or (ii) by reason of any condemnation, requisition or other taking or sale of the use, occupancy or title to the Leased Property or any portion thereof in, by or on account of any actual or threatened eminent domain proceeding or other action by any governmental authority or other person having the power of eminent domain. Subject to the consent of Landlord, which consent shall not be unreasonably withheld, Tenant is hereby authorized and empowered, at its cost and expense, in the name and behalf of Landlord, Tenant or otherwise, to appear in any such proceeding or other action, to negotiate, accept and prosecute any claim for any award, compensation, insurance proceeds or other payment on account of any such loss, damage, destruction, condemnation, requisition or other taking or sale, and to cause any such award, compensation, insurance proceeds or other payment to be paid to Landlord, except that Tenant shall be entitled to submit a claim for Tenant's Loss and retain any award applicable thereto. All
amounts so paid or payable to Landlord or Tenant shall be retained or paid over
to the party entitled thereto in accordance with the provisions of this Article
12. Tenant shall take all appropriate action in connection with each such
claim, proceeding or other action, and shall pay all costs and expenses in
connection therewith. Notwithstanding the foregoing, Landlord may participate in
all such proceedings in all respects.
(b) If any one or more of the Parcels or any part thereof shall be damaged or destroyed by fire or other casualty, and Tenant may not or does not elect to terminate the Lease with respect to all or a portion of said Parcel(s) pursuant to paragraph (c) of this Article 12, then Tenant shall give prompt written notice thereof to Landlord, and shall, at Tenant's own cost and expense and in conformity with the requirements set forth in paragraph (a) of Article 11 hereof, proceed with reasonable diligence and promptness to carry out any necessary demolition and to restore, repair, replace, and/or rebuild the Parcel(s) in order to restore the Parcel(s), as nearly as practicable, to the condition and fair market value thereof immediately prior to such damage or destruction.
Basic and Additional Rent shall not abate hereunder by reason of any such damage to or destruction of the Leased Property, and Tenant shall continue to perform and fulfill all of Tenant's obligations, covenants and agreements hereunder notwithstanding such damage or destruction.
If the Net Award (as defined in paragraph (c) of this Article 12) does
not exceed $250,000 and provided Tenant is not in default under this Lease, then
the Net Award shall be paid to Tenant to be applied to the repair and rebuilding
work required by this paragraph (b). If the Net Award exceeds $50,000, the
proceeds shall be disbursed in accordance with clauses (i)-(iii) of paragraph
(d) of this Article 12.
(c) If, at any time during the Term of this Lease all or substantially all of any one or more of the Parcels shall be condemned or taken in the exercise of the power of eminent domain by any sovereign, municipality, or other public or private authority or shall be destroyed by fire or other casualty or, after any condemnation, taking or casualty of a Parcel(s), if the Parcel(s) is unsuitable for continued use in Tenant's business, or if any condemnation, taking or casualty of any portion of the Parcel(s) shall take place during the last two years of the Basic Term hereof or during the last two years of any Extended Term, then Tenant may give notice to Landlord of Tenant's intention to terminate this Lease with respect to such Parcel(s). Substantially all of a Parcel shall be deemed to have been taken if the remaining portion of the Parcel shall not be of sufficient size or character to permit the operation by
Tenant of its business thereon and therein on an economically feasible basis, assuming that such remaining portion had been repaired and restored to the fullest extent possible. If Landlord and Tenant do not agree on whether all or substantially all of a Parcel shall have been taken or destroyed then their dispute shall be settled by arbitration in accordance with Article 33 hereof. Tenant shall give notice to Landlord of Tenant's intention to terminate this Lease with respect to a Parcel not later than 180 days after the occurrence of such condemnation or casualty. Tenant's notice to Landlord shall (i) contain a description of the relevant condemnation, taking or casualty, (ii) specify the date on which this Lease shall terminate with respect to such Parcel, which shall be the Installment Payment Date first occurring at least 180 days after such notice is given (the "Termination Date"), (iii) if such notice of termination shall be based on a determination by Landlord and Tenant that a Parcel is no longer suitable for use in Tenant's business as aforesaid, contain a certification by Tenant that the Board of Directors of Tenant has made such determination, and that, on or before such Termination Date, Tenant will discontinue the use of the Parcel in Tenant's ordinary course of business, (iv) if such Termination Date shall occur during the Basic Term, contain the irrevocable offer of Tenant to purchase Landlord's interest in the Parcel (and the Net Award hereinafter referred to), on such Termination Date at the Termination Value with respect to such Parcel (defined as the amount corresponding to the applicable Termination Date on Schedule C annexed hereto), and (v) contain a commitment by Tenant to deposit with a Depository not later than one year after the date of the condemnation or casualty as security for payment of the purchase price for the Parcel the applicable Termination Value with respect to such Parcel less the amount of any insurance proceeds or condemnation award previously paid with respect to such casualty or taking and held by Landlord or Landlord's designee pursuant to paragraph (a) of this Article 12. If Landlord shall reject any such offer to purchase by notice given to Tenant not later than 10 days prior to such Termination Date, or if such Termination Date shall occur during an Extended Term, then this Lease shall terminate on such Termination Date with respect to such Parcel and the Net Award shall be paid and belong to Landlord. Unless Landlord shall reject such offer to purchase as provided in the preceding sentence, Landlord shall be conclusively deemed to have accepted such offer, and on such Termination Date Landlord shall transfer, and Tenant shall purchase, Landlord's interest in the Parcel (and the Net Award) in accordance with the provisions of Article 16 hereof. Upon completion of such purchase, and payment of the Termination Value by Tenant, the entire award, compensation or other payment, if any, on account of any such taking or casualty, less any expenses incurred by Landlord in
collecting such award, compensation, insurance proceeds or other payment and not paid (or reimbursed to Landlord) by Tenant pursuant to the last sentence of paragraph (a) of Article 12, shall be paid and belong to Tenant (such award, compensation, insurance proceeds or other payment, less such expenses, being herein called the "Net Award"). The additional amount, if any, deposited by Tenant pursuant to clause (v) of paragraph (c) of this Article 12 shall be paid to Tenant on the Termination Date if Tenant is not in default under this Lease.
(d) If Tenant shall not give, and shall not be required to give, notice of its intention to terminate this Lease with respect to a Parcel in accordance with paragraph (c) of this Article 12, then this Lease shall continue in full force and effect, and Tenant shall, at its own cost and expense and in conformity with all of the requirements of paragraph (a) of Article 11 hereof, repair and rebuild the Parcel to the extent necessary to restore the Parcel as nearly as practicable to the condition and fair market value thereof immediately prior to such taking. Tenant shall commence such repair and rebuilding promptly after such taking, and shall thereafter proceed with due diligence to complete such repair and rebuilding. Provided Tenant is not in default under this Lease, if the Net Award shall not exceed $250,000 then such Net Award shall be paid to Tenant to be applied to the repair and rebuilding work required by this paragraph (d). If the Net Award shall exceed $250,000, or if Tenant is in default under this Lease, then:
(i) the full amount thereof shall be paid to a depositary (the
"Depositary") to be selected as hereinafter provided. The Depositary shall
be a bank or trust company selected by Landlord which is authorized to do
business in the state in which the Parcel is located, and which has a net
worth of $100,000,000 or more. The Depositary shall have no affirmative
obligation to prosecute a determination of the amount of, or to effect the
collection of, any insurance proceeds or condemnation award or awards,
unless the Depositary shall have given an express written undertaking to do
so. Moneys received by the Depositary pursuant to the provisions of this
Lease shall not be mingled with the Depositary's own funds and shall be
held by the Depositary in trust separately for the uses and purposes
provided in this Lease. The Depositary shall place any moneys held by it
into an interest bearing account; any interest paid or received by the
Depositary on the moneys so held in trust shall be added to the moneys so
held in trust by the Depositary. In disbursing monies pursuant to clause
(ii) of this paragraph (d), the Depositary may rely
conclusively on the information contained in any notice given to the Depositary by Tenant in accordance with the provisions of said clause (ii), unless Landlord shall notify the Depositary in writing within five (5) days after the giving of any such notice that Landlord intends to dispute such information, in which case the disputed amount shall not be disbursed but shall continue to be held by the Depositary until such dispute shall have been resolved.
(ii) From time to time, but not more often than once in any 30-day
period, Tenant may request reimbursement out of the Net Award for the
actual costs and expenses incurred by Tenant in connection with such repair
and rebuilding. Such requests shall be made by written notice to the
Depositary, with a copy to Landlord, setting forth in reasonable detail all
of such costs and expenses incurred by Tenant. The Depositary shall
promptly disburse to Tenant out of the Net Award the amount of such costs
and expenses. If Landlord shall in good faith desire to dispute the
information contained in any notice given by Tenant pursuant to this clause
(ii), Landlord shall so notify Tenant and the Depositary in writing within
five (5) business days after the giving of such notice, specifying the
amount intended to be disputed and the nature of the dispute.
(iii) Upon the completion of such repair and rebuilding, any remaining Net Award shall be paid to and belong to Landlord, and each payment of Basic Rent payable during the remaining Basic Term to occur following the payment of such remaining Net Award to Landlord shall be reduced by an amount so as to preserve Landlord's Yield; provided that in no event will Basic Rent be reduced to an amount which is less than the debt service payable with respect to any mortgage of Landlord's interest in the Leased Property.
(e) Notwithstanding any other provision to the contrary contained in this Article 12, in the event of a temporary condemnation, this Lease shall remain in full force and effect and Tenant shall be entitled to the Net Award allowable to such temporary condemnation; except that such portion of the Net Award allocable to the time period after the expiration or termination of the Term of this Lease shall be paid to Landlord
13. INSURANCE
(a) Tenant shall during the term hereof, at its cost and expense, maintain valid and enforceable insurance of the following character:
(i) "all risks" insurance covering the Leased Property and all replacements and additions thereto, and all building materials, equipment, machinery, appliances, furniture, furnishings and other property which constitute part of the Leased Property. Coverage shall be in an amount not less than the full insurable value on a replacement cost basis of the Leased Property. The term "full insurable value" as used herein means the actual replacement cost, including the costs of debris removal, but excluding the cost of the land, the foundation and the footings.
(ii) comprehensive general public liability insurance on an occurrence basis, covering the legal liability of Landlord and Tenant against claims for bodily injury, death or property damage, occurring on, in or about any of the Parcels and the adjoining land or occurring as a result of ownership of facilities located on any of the Parcels or as a result of the use of products or materials manufactured, processed, constructed or sold, or services rendered, on any of the Parcels, in the minimum amount of $5,000,000 with respect to any one occurrence, accident or disaster or incidence of negligence. Coverage should include "premises/operations", "independent contractors", and "blanket contractual" liabilities.
(iii) such other insurance, in such amounts and against such risks, as is customarily maintained by operators of properties similar to the Leased Property in the areas where the Parcels are located (including, but not limited to, "flood", "earthquake", and "boiler and machinery" if such insurance is customarily maintained by operators of such similar properties).
Such insurance shall be written by companies of recognized financial standing which are rated at least A+XV by national rating organizations and are legally qualified to issue such insurance, and are reasonably acceptable to Landlord, and shall name as the insured parties Landlord and Tenant, and Landlord's mortgagee, if any, as their interests may appear. Such insurance may provide for such reasonable deductible amounts as are customarily provided for in insurance maintained by operators of like facilities (but in no event in excess of
$50,000) and may be obtained by Tenant by endorsement on its blanket insurance policies provided that each such endorsement on the blanket insurance policy shall provide for a reserved amount thereunder with respect to each of the Parcels so as to assure that the amount of insurance required by clause (i) of paragraph (a) of this Article 13 will be available notwithstanding any losses with respect to other property covered by such blanket policy. Tenant may, at its cost and expense, prosecute any claim against any insurer or contest any settlement proposed by any insurer, and Tenant may bring any such prosecution or contest in the name of Landlord, Tenant or both, and Landlord will join therein at Tenant's request, provided that Tenant shall indemnify Landlord against any costs or expenses which Landlord may incur in connection with such prosecution or contest.
(b) Insurance claims by reason of damage or destruction to any portion of the Leased Property shall be adjusted by Tenant, subject to the approval of Landlord, which approval Landlord agrees not to unreasonably withhold or delay.
(c) In addition to the foregoing, every insurance policy maintained
pursuant to clause (viii) of paragraph (a) of Article 11 hereof, or paragraph
(a) of this Article 13 shall: (i) name Landlord as an insured; (ii) contain a
standard first mortgage endorsement naming any mortgagee of Landlord's interest
in the Leased Property; (iii) provide that in any instance where the total loss
proceeds payable by reason of a single occurrence shall exceed $50,000, all of
such proceeds shall be paid as provided in paragraph (d) of Article 12 hereof;
(iv) provide that the issuer waives all rights of subrogation against Landlord,
any successor to Landlord's interest in the Leased Property, and any mortgagee
of Landlord's interest in the Leased Property; (v) provide that 30 days advance
written notice of cancellation, modification, termination or lapse of coverage
shall be given to Landlord and any mortgagee of Landlord's interest in the
Leased Property and that such insurance, as to the interest of Landlord and such
mortgagee, shall not be invalidated by any act or neglect of Tenant or any
party, nor by any foreclosure or any other proceedings relating to the Leased
Property, nor by any change in the title ownership of the Leased Property, nor
by use or occupation of the Leased Property for purposes more hazardous than are
permitted by such policy; (vi) be primary and without right or provision of
contribution as to any other insurance carried by Landlord or any other
interested party; and (vii) and otherwise be satisfactory in form, substance,
limits, deductibles, and retentions to Landlord and Landlord's mortgagee.
(d) Tenant shall not obtain or carry separate insurance concurrent in form or contributing in the event of
loss with that required in this Article 13 to be furnished by Tenant, unless Landlord and Landlord's mortgagee are included therein as named insureds, with loss payable as provided in this Lease. Tenant shall immediately notify Landlord whenever any such separate insurance is obtained and shall deliver to Landlord and Landlord's mortgagee the policy or policies.
(e) Tenant shall deliver to Landlord, prior to the execution of this Lease and 30 days before the expiration date of each policy as evidence of the renewal of such policies, a complete certified copy of each policy received pursuant to this Article 13 (including policy jacket, all forms, all endorsements, declaration pages, etc.) signed by an authorized insurance company representative.
(f) Tenant shall comply with all of the terms and conditions of each insurance policy maintained pursuant to the terms of this Lease.
14. FINANCIAL STATEMENTS AND CERTIFICATES
(a) Tenant shall furnish the following statements to Landlord (i) as soon as practicable, and in any event within 90 days after the end of each fiscal year of Tenant, audited consolidated and consolidating financial statements of Tenant, as of the end of and for such year, including a consolidated and consolidating balance sheet, a consolidated and consolidating statement of income and a consolidated and consolidating statement of changes in financial position as of the end of and for such fiscal year; (ii) as soon as practicable, and in any event not later than fifteen (15) days after the close of each calendar quarter, an internally prepared consolidated and consolidating balance sheet of Tenant, a consolidated and consolidating statement of profit and loss reconciliation and a consolidated and consolidating statement of changes in financial position for the period from the beginning of the fiscal year to the date of such statement; (iii) as soon as practicable, and in any event within 90 days after the end of the calendar year, a copy of Tenant's Corporate Federal Income Tax Return; and (iv) as soon as practicable, copies of all such financial statements and reports as Tenant shall send to its stockholders; the foregoing (i) and (ii) to be in reasonable detail and satisfactory in scope to Landlord and the foregoing (i) to be certified by a firm of independent certified public accountants, whose certificate shall be based upon an examination conducted in accordance with generally accepted auditing standards and the application of such tests as said accountants deem necessary in the circumstances. Together with each delivery of financial statements required by subdivision (a) above, Tenant will deliver or cause to be delivered to Landlord a certificate of Tenant's President,
any Vice President, or Treasurer stating to the best of such officer's knowledge based on reasonable inquiry that there exists no Event of Default, or, if any such Event of Default exists, specifying the nature thereof, the period of existence thereof and what action Tenant proposes to take with respect thereto. Together with each delivery of financial statements required by subdivision (a) above, Tenant will deliver or cause to be delivered to Landlord a certificate of said accountants stating that, in making the audit necessary to the certification of such financial statements, they have obtained no knowledge of any Event of Default or, if any such Event of Default exists, specifying the nature and period of existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any such Event of Default.
15. OPTION TO PURCHASE LEASED PROPERTY
(a) If at the time no Event of Default shall have occurred and be continuing, Tenant shall have the option to purchase all of Landlord's interest in the Leased Property, which purchase must include both Parcels then subject to this Lease, on the last day of the Basic Term or the last day of any Extended Term, at a price determined as set forth below and in accordance with the provisions of Article 16 of this Lease. Unless exercised, Tenant's options hereunder shall expire upon the expiration of the Basic Term or exercised Extended Term or earlier termination of this Lease and shall thereafter be of no further force and effect.
(b) Tenant shall have the right to exercise the option to purchase Landlord's interest in the Leased Property by giving notice of exercise ("Option Notice") to Landlord (i) at least one (1) year before the expiration of the Basic Term or (ii) at least one (1) year before the expiration of the applicable Extended Term.
(c) The purchase price of Landlord's interest in the Leased Property shall be the then fair market value of the Leased Property. For purposes of this Article 15, the fair market value of the Leased Property shall be determined as encumbered by this Lease. If Landlord and Tenant are unable to agree on the fair market value of the Leased Property within sixty (60) days after the date of the Option Notice, then the fair market value shall be determined by appraisal as provided below.
(d) Upon failure of Landlord and Tenant to agree on the fair market value of the Leased Property within the 60-day period provided for above, the fair market value shall be determined by appraisers selected in the following manner: on
or before the expiration of the 60-day period provided for above, Landlord and Tenant shall each appoint an appraiser. Within forty-five (45) days after the appointment, if the two appraisers so appointed are unable to agree, the fair market value of the Leased Property shall be the average of the amounts determined by the appraisers, if the greater of such amounts is no more than 110% of the lesser of such amounts. If the greater of such amounts exceeds 110% of the lesser of such amounts, a determination of the fair market value shall be made by a third appraiser appointed by the other two appraisers, which appointment shall be made on or before the expiration of the 45-day period referred to in the immediately preceding sentence. Such determination shall be made by the third appraiser within forty-five (45) days after his appointment. In such event, the fair market value shall be the average of the two closest appraised amounts. Tenant agrees that it shall bear the costs of all such appraisals. Landlord shall convey the Leased Property to Tenant or its designee pursuant to and in compliance with Article 16 of this Lease. All appraisers shall be M.A.I. appraisers having at least ten (10) years experience appraising commercial properties in the geographic area where the Leased Property is located of a nature and type similar to that of the Leased Property.
16. PURCHASE PROCEDURE
(a) In the event of the purchase of Landlord's interest in the Leased Property, or either Parcel, by Tenant pursuant to any provision of this Lease, the terms and conditions of this Article 16 shall apply.
(b) On the closing date fixed for the purchase of Landlord's interest in the Leased Property or either Parcel:
(i) Tenant shall pay to Landlord, in lawful money of the United States, at Landlord's address hereinabove stated or at any other place in the United States which Landlord may designate, the purchase price; and
(ii) Landlord shall execute and deliver to Tenant a good and sufficient deed, assignment and/or such other instrument or instruments as may be appropriate, which shall transfer Landlord's interest in the Leased Property or Parcel, subject to (A) any encumbrances existing on the Commencement Date hereof, (B) all liens, encumbrances, charges, exceptions and restrictions attaching to the Leased Property or Parcel after the Commencement Date which shall not have been created or caused by Landlord unless consented to by Landlord, and (C) all applicable laws, rules,
regulations, ordinances and governmental restrictions then in effect. In the case of a purchase of Landlord's interest in the Leased Property or Parcel by Tenant pursuant to paragraph (b) of Article 12 hereof, Landlord shall also pay to Tenant the Net Award, if any.
(c) Tenant shall pay all charges incident to such transfer, including but not limited to all transfer taxes, recording fees, attorneys' fees and expenses, including, but not limited to, Landlord's attorney's fees and expenses, title insurance premiums and federal, state and local taxes, except for any net income or profit taxes of Landlord.
(d) Tenant shall pay to Landlord all Basic Rent and Additional Rent due and payable on the date Tenant purchases Landlord's interest in the Leased Property or Parcel.
17. INVESTMENT CREDIT
Landlord hereby elects under the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), to pass through to Tenant all investment tax credits which may be applied from time to time in respect of the Leased Property or any part thereof under Section 38 of the Code (or under the corresponding section of any U.S. income tax law at any time in effect during the Term of this Lease). Landlord agrees, at Tenant's expense, to execute timely all documents prepared by Tenant and delivered to Landlord in advance and required by the Code and regulations issued thereunder to enable Tenant to obtain such investment tax credits.
18. QUIET ENJOYMENT
Upon due performance of the covenants and agreements to be performed by Tenant under this Lease, Landlord covenants that Tenant shall and may at all times peaceably and quietly have, hold and enjoy the Leased Property during the Term of this Lease. Notwithstanding the preceding sentence, Landlord or its agents may enter into and inspect the Leased Property at any reasonable time, upon the giving of reasonable notice, if they take precautions not to unreasonably inconvenience Tenant or any persons occupying the Leased Property in accordance with this Lease and are accompanied by an employee or other representative of Tenant at all times during such entry and inspection, or at any time in the event of an emergency.
19. SURVIVAL
In the event of the termination of this Lease as herein provided, the obligations and liabilities of Tenant, actual or
contingent, under this Lease which arose at or prior to such termination shall survive such termination.
20. ASSIGNMENT AND SUBLETTING
(a) Neither this Lease, nor the term and estate hereby granted, nor
any part hereof or thereof, nor the interest of Tenant in any permitted sublease
or the rentals thereunder, shall be assigned, mortgaged, pledged, encumbered, or
transferred by operation of law or otherwise, and neither the Leased Property,
nor any part thereof, shall be encumbered in any manner by reason of any act or
omission on the part of Tenant or anyone claiming under or through Tenant, or
shall be sublet, used or occupied, or permitted to be used or occupied other
than by Tenant except as expressly provided in this Article 20. For the purposes
hereof, the transfer of the stock of Tenant or the sale or disposition of all or
substantially all of the assets of Tenant shall be deemed to be a "transfer"
which is expressly prohibited hereby without the prior written consent of
Landlord. Notwithstanding the foregoing and subject to subparagraphs (b), (c),
(d) and (e) hereof, Tenant may sublet the Leased Property or any portion or
portions thereof, provided that each sublease shall expressly be made subject to
the provisions of this Lease.
(b) Tenant shall not sublease the Leased Property or a portion thereof if the effect of such sublease would be to cause the Leased Property or any portion thereof to be considered as used by a tax-exempt or foreign entity with the result that some or all of the federal, state or local income tax deductions which Landlord otherwise would be permitted to report with respect to the Leased Property or the Lease would be deferred or denied.
(c) No such sublease shall affect or reduce any obligations of Tenant or rights of Landlord hereunder, and all obligations of Tenant hereunder shall continue in full effect as the obligations of a principal and not of a guarantor or surety, as though no subletting had been made.
(d) Tenant shall, within 10 days after the execution of any such sublease, deliver to Landlord a conformed copy thereof (with acknowledgments) and a conformed copy of any short form lease or memorandum of lease suitable for recording.
(e) Except for the lien of a mortgage permitted pursuant to Article 7A hereof, Tenant shall not mortgage this lease or the Term of this Lease, nor shall Tenant mortgage or pledge the interest of Tenant in and to any sublease of the Leased Property or any portion thereof or the rental payable
thereunder. Any such mortgage or pledge and any sublease not permitted by this Article 20, shall be void.
(g) Subject to Article 15 of this Lease, Landlord may syndicate, assign, convey or otherwise transfer its estate, right, title and interest hereunder or in the Leased Property, and upon execution and delivery of any such assignment, conveyance or other transfer, Landlord shall be released from its obligations hereunder; provided, however, that if any such assignment is made as collateral security, the execution and delivery thereof shall not impair or diminish any obligations of Landlord hereunder. Any such assignment, conveyance or other transfer shall be subject to this Lease. Landlord shall, within 30 days after the execution of any such instrument of mortgage, assignment, conveyance or transfer, deliver written notice thereof to Tenant. Any failure of Landlord so to deliver a notice of such instrument shall not however, in any way impair or affect the validity thereof. Notwithstanding the foregoing, provided that Tenant is not in default of any of its obligations hereunder, Landlord shall not sell, convey, or otherwise transfer its state, right, title and interest in this Lease or the Leased Property to Teledyne, Inc., Lincoln Electric or Hobart Brothers.
21. ADVANCES BY LANDLORD; LATE PAYMENTS
If Tenant shall fail to make or perform any payment or act required by this Lease, then, upon fifteen (15) days' notice to Tenant (or upon shorter notice, or with no notice at all, to the extent necessary to meet an emergency or a governmental or municipal time limitation or to prevent an event of default under any mortgage affecting the Leased Property) Landlord or Landlord's mortgagee as the case may be may at its option make such payment or perform such act for the account of Tenant, and Landlord shall not thereby be deemed to have waived any default or released Tenant from any obligation hereunder. All amounts so paid by Landlord or Landlord's mortgagee, as the case may be, and all incidental costs and expenses (including attorneys' fees and expenses) incurred in connection with such payment or performance, together with interest at the annual rate equal to the greater of (i) fourteen (14%) percent, and (ii) three (3%) percent above the "Base Rate" as announced from time to time in New York, New York by Citibank, N.A. (or at the highest rate not prohibited by applicable law, whichever is less) (the "Overdue Rate") from the date of the making of such payment or of the incurring of such costs and expenses, shall be paid by Tenant to Landlord, or Landlord's mortgagee, as the case may be, on demand.
If Tenant shall fail to make any payment of Basic or Additional Rent or purchase price for the Leased Property pursuant to any provision hereof or as liquidated damages,
pursuant to paragraph (c) of Article 22 hereof in the amount and on the date provided for herein, Tenant shall be liable for interest on such late payment at the Overdue Rate from the date such payment was due to the date such payment was received.
22. CONDITIONAL LIMITATIONS; EVENTS OF DEFAULT AND REMEDIES
(a) Any of the following occurrences or acts shall constitute an "Event of Default" under this Lease:
(i) if Tenant shall default in making payment when due of any installment of Basic Rent or Additional Rent, and such default shall continue for five (5) days after the same is due; or
(ii) if Tenant shall default in the due observance or performance of any covenant, agreement or obligation contained in this Lease, or if there shall be a material misrepresentation by Tenant (which misrepresentation is hereinafter referred to as a "default") in any covenant, representation or warranty contained in this Lease, the Agreement of Sale and Purchase (the "Agreement of Sale and Purchase") dated as of even date hereof between Landlord and Tenant, any of the Closing Documents (as defined in the Agreement of Sale and Purchase) or any other documents necessary to or in connection with the transactions contemplated thereby) other than as set forth in clause (i) of this paragraph (a), and if such default shall continue for 30 days after Landlord shall have given to Tenant notice specifying such default and demanding that the same be cured (or, if by reason of the nature thereof such default cannot be cured by the payment of money and cannot with due diligence be wholly cured within such period of 30 days, if Tenant shall fail to proceed promptly to cure the same and thereafter prosecute the curing of such default with all due diligence, or if Tenant shall fail to advise Landlord from time to time, promptly after Landlord's request therefore, as to any action which Tenant is taking to cure such default and as to the progress with respect to such cure, it being intended in connection with a default not susceptible of being wholly cured with due diligence within such period that the time within which to cure the same shall be extended for such period up to 90 days as may be necessary to complete the curing of same with all due diligence, subject to delays as a result of force majeure) (for purposes of this subparagraph (ii), a
delay shall be deemed to be a result of force majeure if it results from: an act of God; an act of war; an act of public enemies; any casualty or condemnation (as such terms are defined in this Lease); all applicable present or future laws, ordinances, codes, rules, orders or regulations or compliance therewith; requests or directives of any public authority or compliance therewith; strikes, lockouts, stoppages or restraint of labor; riot or civil commotion; shortages of material; or other causes outside of the reasonable control of Tenant, whether similar or dissimilar to the foregoing, provided, however, that Tenant notifies Landlord of any such event in writing immediately after Tenant acquires knowledge thereof); or
(iii) if Tenant, or any corporation succeeding to Tenant by merger, consolidation or acquisition of all or substantially all of its assets, shall file a petition in bankruptcy or for reorganization or for an arrangement pursuant to the Bankruptcy Act, or shall be adjudicated a bankrupt or become insolvent or shall make an assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall be dissolved, or shall suspend payment of its obligations, or shall take any corporate action in furtherance of any of the foregoing; or
(iv) if a petition or answer shall be filed proposing the adjudication of Tenant or any corporation succeeding to Tenant by merger, consolidation or acquisition of all or substantially all of its assets as a bankrupt or its reorganization pursuant to the Bankruptcy Act, and (A) Tenant or its successor corporation shall consent to the filing thereof, or (B) such petition or answer shall not be discharged or denied within sixty (60) days after the filing thereof; or
(v) if a receiver, trustee or liquidator (or other similar official) shall be appointed for or take possession or charge of Tenant or any corporation succeeding to Tenant by merger, consolidation or acquisition of all or substantially all of its assets, or of all or substantially all of the business or assets of Tenant or its successor corporation or of Tenant's or its successor corporation's estate or interest in the Leased Property, and shall not be discharged within sixty (60) days thereafter or if Tenant or its successor corporation shall consent to or acquiesce in such appointment; or
(vi) if the estate or interest of Tenant in the Leased Property or any sublease thereof shall be levied upon or attached in any proceeding and such process shall not be vacated or discharged within sixty (60y days after such levy or attachment, unless Tenant shall be contesting such levy or attachment in accordance with the requirements of paragraph (d) of Article 6 hereof; or
(vii) if Tenant shall be in default in the payment or performance of any obligation, beyond any applicable grace period, under any agreement or instrument to which Tenant is a party relating to the payment or guaranty of any obligation, note or other evidence of indebtedness, or loan agreement, in excess of $100,000 (each of the foregoing is hereinafter individually referred to as an "Indebtedness"), or any other event shall occur, if the effect of such failure or other event is to accelerate, or permit the holder of such Indebtedness or any other person to accelerate the maturity of such Indebtedness, or any such Indebtedness shall be required to be prepaid (other than by a regularly scheduled required payment) in whole or in part prior to its stated maturity; or
(viii) if Tenant fails to pay Landlord the purchase price of the Leased Property pursuant to Articles 12, 15 and 16 of this Lease; or
(ix) if Tenant fails to maintain the required insurance coverage as set forth in Article 13 hereof; or
(x) if Tenant transfers the Leased Property except as provided in Article 15 hereof.
(b) This Lease and the term and estate hereby granted are subject to the limitation that whenever an Event of Default shall have occurred and be continuing, Landlord may, at Landlord's option, elect to (i) re-enter the Leased Property, without notice, and remove all persons and property therefrom, either by summary proceedings or by any suitable action or proceeding at law, or otherwise, without being liable to indictment, prosecution or damages therefor, and may have, hold and enjoy the Leased Property, together with the appurtenances thereto and the improvements thereon; and/or (ii) terminate this Lease at any time by giving ten (10) days' notice in writing to Tenant, electing to terminate this Lease, and the Term of this Lease shall expire by limitation at the expiration of said last mentioned ten (l0) days' notice as fully and completely as if
said date were the date herein originally fixed for the expiration of the term hereby granted, and Tenant shall thereupon quit and peacefully surrender the Leased Property to Landlord, without any payment therefor by Landlord, and Landlord, upon the expiration of said last mentioned ten (10) days' notice, or at any time thereafter, may re-enter the Leased Property as provided in the preceding clause (i).
(c) In case of any such re-entry, termination and/or dispossess by summary proceedings or otherwise as provided in the immediately preceding paragraph, (i) the Basic Rent and Additional Rent shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, together with such expenses, including attorneys' fees, as Landlord shall incur in connection with such re-entry, termination and/or dispossess by summary proceedings or otherwise; (ii) Landlord may in good faith relet the Leased Property or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may, at Landlord's option, be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term of this Lease; (iii) Tenant shall also pay to Landlord all other damages and expenses which Landlord shall have sustained by reason of the breach of any provision of this Lease, including without limitation legal expenses, attorneys' fees, brokerage commissions and expenses incurred in altering, repairing and putting the Leased Property and any buildings and improvements thereon in good order and condition and in preparing the same for reletting, which expenses shall be paid by Tenant as they are incurred by Landlord; (iv) Tenant shall also pay to Landlord the amount by which the Basic Rent reserved in this Lease exceeds the net amount, if any, of the rents collected on account of the leases of the Leased Property for each month of the period which would otherwise have constituted the Term of this Lease (excluding unexercised extension options), which amounts shall be paid in quarterly installments by Tenant on the respective Installment Payment Dates specified therefor, and any suit brought to collect said amounts for any month or months shall not prejudice in any way the rights of Landlord to collect the deficiency in any subsequent period by a similar action or proceeding; and/or (v) at the option of Landlord exercised at any time, Landlord forthwith shall be entitled to recover from Tenant as liquidated damages, in addition to any other proper claims but in lieu of and not in addition to any amount which would thereafter have become payable under the preceding clause (iv), whichever of the following sums Landlord shall elect:
(A) an amount equal to the Basic Rent and Additional Rent reserved in this Lease and/or covenanted to be paid for the remainder of the Term of
this Lease (excluding unexercised extension periods), discounted at the rate of six (6%) percent per year to present worth; provided that, if Tenant shall so request, Landlord shall at the time of such payment assign and convey the Leased Property to Tenant, without further consideration, in accordance with the terms and provisions of Article 16 hereof; or
(B) an amount equal to the then outstanding principal balance, plus accrued interest and premiums, if any, under any mortgage, if any, affecting Landlord's interest in the Leased Property; or
(C) the Termination Value, plus any penalty imposed upon Landlord pursuant to any mortgage affecting Landlord's interest in the Leased Property due to Landlord's prepayment of the debt secured by said mortgage.
Landlord, at Landlord's option, may make such alterations and/or decorations in the Leased Property as Landlord, in Landlord's sole judgment, considers advisable and necessary for the purpose of reletting the Leased Property; and the making of such alterations and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid.
(d) No receipts of moneys by Landlord from Tenant after a termination of this Lease by Landlord shall reinstate, continue or extend the Term of this Lease or affect any notice theretofore given to Tenant, or operate as a waiver of the right of Landlord to enforce the payment of Basic Rent and Additional Rent, and any purchase price to be paid by Tenant to Landlord for the purchase of the Leased Property then due or thereafter falling due, it being agreed that after the commencement of suit for possession of the Leased Property, or after final order or judgment for the possession of the Leased Property, Landlord may demand, receive and collect any moneys due or thereafter falling due without in any manner affecting such suit, order or judgment, all such moneys collected being deemed payments on account of the use and occupation of the Leased Property or, at the election of Landlord, on account of Tenant's liability hereunder. Tenant hereby waives any and all rights of redemption provided by any law, statute or ordinance now in effect or which may hereafter be enacted. Landlord shall have, receive and enjoy as Landlord's sole and absolute property, without right or duty to account therefor to Tenant, any and all sums collected by Landlord as rent or otherwise upon reletting the Leased Property after Landlord shall resume possession thereof as hereinbefore provided, including, without limitation upon the
generality of the foregoing, any amounts by which the sum or sums so collected shall exceed the continuing liability of Tenant hereunder.
(e) The word "re-enter", as used in this Lease, is not and shall not be restricted to its technical legal meaning, but is used in the broadest sense. No such taking of possession of the Leased Property by Landlord shall constitute an election to terminate the Term of this Lease unless notice of such intention be given to Tenant or unless such termination be decreed by a court having jurisdiction.
(f) If an action shall be brought for the enforcement of any provision of this Lease, in which it shall be determined that Tenant was in default, Tenant shall pay to Landlord all costs and other expenses which may become payable as a result thereof, including reasonable attorneys' fees and expenses. If Landlord shall, without fault on its part, be made a party to any litigation commenced against Tenant, Tenant shall pay all costs and reasonable attorneys' fees incurred or paid by Landlord in connection with such litigation.
(g) No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to any other legal or equitable right or remedy given hereunder, or at any time existing. The failure of Landlord to insist upon the strict performance of any provision or to exercise any option, right, power or remedy contained in this Lease shall not be construed as a waiver or a relinquishment thereof for the future. Receipt by Landlord of any Basic Rent or Additional Rent payable hereunder with knowledge of the breach of any provision contained in this Lease shall not constitute a waiver of such breach (other than the prior failure to pay such Basic Rent or Additional Rent), and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless made under signature of an officer of Landlord.
23. NOTICES
All notices and other instruments given or delivered pursuant to this Lease shall be sent by prepaid United States registered or certified mail, return receipt requested, and the giving of such notice or other communication shall be deemed complete on the actual date of receipt by the addressee (as evidenced by the return receipt). Landlord and Tenant shall each have the right to specify, from time to time, as its address for purposes of this Lease, any address and any addressee, in the continental United States, upon giving 15
days' written notice thereof to the other party. The addresses of Landlord and Tenant for purposes of this Lease, until notice has been given as above provided, shall be as follows:
Landlord: Westinghouse Credit Corporation
One Oxford Centre
301 Grant Street
Pittsburgh, Pennsylvania 15219
Attn: Vice President Real Estate
Lease Financing
with a copy to: Kelley Drye & Warren
141 Park Avenue
New York, New York 10178
Attn: John A. Garraty, Jr., Esq.
Tenant: Alloy Rods Corporation
Wilson Avenue
Hanover, Pennsylvania 17331
Attn: Chief Executive Officer
with a copy to: Kirkpatrick & Lockhart
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Attn: Edward A. Craig, III
24. ESTOPPEL CERTIFICATES
Each party hereto agrees that at any time and from time to
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time during the term of this Lease, it will promptly, but in no event later than fifteen (15) days after request by the other party hereto, execute, acknowledge and deliver to such other party or to any prospective purchaser, assignee or mortgagee designated by such other party, a certificate stating, to the best of such party's knowledge, (a) that this Lease is unmodified and in force and effect (or if there have been modifications, that this Lease is in force and effect as modified, and identifying the modification agreements); (b) the date to which rent has been paid; (c) whether or not there is an existing default by Tenant in the payment of Basic Rent or any other sum of money hereunder, and whether or not there is any other existing default by either party hereto with respect to which a notice of default has been served, and, if there is any such default, specifying the nature and extent thereof; and (d) whether or not there are any setoffs, defenses or counterclaims against enforcement of the obligations to be performed hereunder existing in favor of the party executing such certificate.
25. NO MERGER
There shall be no merger of this Lease or of any leasehold or subleasehold estate hereby or thereby created with the fee or any other estate or ownership interest in the Leased Property or any part thereof by reason of the fact that the same person, firm, corporation or other entity may acquire or own or hold, directly or indirectly, (a) this Lease or any leasehold or subleasehold estate created hereby or thereby or any interest in this Lease or in any such leasehold or subleasehold estate and (b) the fee estate or other estate or ownership interest in the Leased Property or any part thereof, and this Lease shall not be terminated for any cause except as expressly provided herein and any instrument of transfer shall so provide.
26. SURRENDER
(a) Upon the expiration or earlier termination of the Term of this Lease, Tenant shall surrender the Leased Property to Landlord in the same condition and suitable for the same use in which the Leased Property was originally received from Landlord except as repaired, rebuilt or altered as required or permitted by this Lease (and/or except for such casualty damage as Tenant shall not be required to repair or restore hereunder), and except for ordinary wear and tear. Tenant shall remove from the Leased Property on or prior to such expiration or earlier termination all property belonging to Tenant except such property as agreed upon by Landlord and Tenant in writing, which agreement shall be entered into at least thirty (30) days prior to the expiration or earlier termination of the Term of this Lease, and shall repair any damage caused by such removal. Property not so removed shall become the property of Landlord, which may cause such property to be removed from the Leased Property and disposed of, but the cost of any such removal and disposition and of repairing any damage caused by such removal shall be borne by Tenant.
(b) Except for surrender upon the expiration or earlier termination of the term hereof, no surrender to Landlord of this Lease or of the Leased Property shall be valid or effective unless agreed to and accepted in writing by Landlord.
27. SEPARABILITY
Each provision contained in this Lease shall be separate and independent and the breach of any such provision by Landlord shall not discharge or relieve Tenant from its obligation to perform each obligation of this Lease to be performed by Tenant. If any provision of this Lease or the application thereof to any person or circumstance shall to any
extent be invalid and unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and shall be enforceable to the extent permitted by law.
28. BINDING EFFECT; ENTIRE AGREEMENT; MODIFICATIONS
All provisions contained in this Lease shall be binding upon, inure to the benefit of and be enforceable by the respective successors and permitted assigns of Landlord and Tenant to the same extent as if each such successor or assign were named as a party hereto. This Lease embodies the entire agreement between Landlord and Tenant relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. Neither this Lease nor any provision hereof may be amended, modified, waived, discharged or terminated orally, but only as expressly provided herein or by an instrument signed by Landlord and Tenant.
29. SIGNS; SHOWING
During the one year period preceding the date on which the Term of this Lease (as the same may be extended from time to time) shall terminate or fully expire, Landlord may, subject to all applicable governmental laws, rules and regulations, (a) place signs in reasonable locations on the Leased Property advertising that the same will be available for rental or purchase, and (b) show the Leased Property to prospective tenants or purchasers at such reasonable times during normal business hours as Landlord may select. In no other event may Landlord place any sign whatsoever on the Leased Property.
30. CERTAIN DEFINITIONS
As used in this Lease the following terms have the meanings set forth below:
"Bankruptcy Act" shall mean Title 11 of the United States Code or any other Federal or state bankruptcy, insolvency or similar law, now or hereafter in effect.
"Board of Directors of Tenant" shall mean either the board of directors of Tenant or an executive committee thereof.
"Business Day" shall mean any day except Saturdays, Sundays and the days observed by the Federal or the Pennsylvania governments as public holidays.
"Event of Default" shall have the meaning given that term in paragraph (a) of Article 21.
"Landlord's Yield" means Landlord's after-tax rate of return and total after-tax cash flow per dollar of equity, on the basis of the same assumptions originally used by Landlord in computing Landlord's Yield. In the event that Landlord and Tenant are unable to agree to the amount of any adjustment of Basic Rent necessary to preserve Landlord's Yield hereunder, the matter will be submitted for resolution by a nationally recognized firm of certified public accountants selected by Landlord and reasonably approved by Tenant.
"Parcel(s)" shall have the meaning set forth in Article 1 hereof.
"Term of this Lease" shall mean the Basic Term, plus any Extended Term or Terms which may be effected pursuant to Article 2 hereof.
31. NATURE OF LANDLORD'S OBLIGATIONS
Anything in this Lease to the contrary notwithstanding, no recourse or relief shall be had under any rule of law or equity, statute or constitution or by any enforcement of any assessments or penalties, or otherwise or based on or in respect of this Lease (whether by breach of any obligation, monetary or non-monetary), against Landlord (or any officer or partner of Landlord or any predecessor or successor corporation (or other entity) of Landlord), it being expressly understood that any obligations of Landlord under or relating to this Lease are solely obligations payable out of the Leased Property and are compensable solely therefrom. It is expressly understood that all such liability is being expressly waived and released as a condition for the execution of this Lease, and Tenant expressly waives and releases all such liability as a condition of, and as consideration for, the execution of this Lease; provided, however, that nothing herein contained is to be taken to prevent recourse to and enforcement against Tenant of this Lease and of all liabilities, obligations and undertakings binding upon it and contained herein.
32. WAIVER OF TRIAL BY JURY
To the extent permitted by law Landlord and Tenant hereby waive trial by jury in any litigation brought by either of the parties hereto against the other on any matter arising out of or in any way connected with this Lease or the Leased Property.
33. ARBITRATION
Any arbitration for which provision is made herein shall be conducted in accordance with the then prevailing rules of the American Arbitration Association, or the successor party thereto from time to time in existence. The fees and expenses of the arbitrator(s) shall be paid by Tenant. Landlord and Tenant shall each bear their own expenses (including, but not limited to, attorney's fees and expenses of witnesses) in any arbitration proceedings. The arbitration proceeding shall be held in the County of Allegheny, Commonwealth of Pennsylvania.
34. GRANTING OF EASEMENTS, ETC.
If no Event of Default hereunder has occurred and is continuing, Landlord will join with Tenant, from time to time at the request of Tenant (and at Tenant's sole cost and expense), with respect to their interests in the Leased Property to (i) grant, in the ordinary course of business, easements, licenses, rights of way and other rights and privileges in the nature of easements, (ii) release, in the ordinary course of business, existing easements and appurtenances which benefit the Leased Property, and (iii) execute and deliver any instrument, in form and substance reasonably acceptable to Landlord, necessary or appropriate to make or confirm such grants or releases to any person, with or without consideration, but only if Landlord shall have received (x) a certificate of an authorized officer of Tenant stating that such grant or release was granted in the ordinary course of Tenant's business, does not interfere with and is not detrimental to the conduct of business on the Leased Property and does not materially impair the usefulness of the Leased Property or materially impair the fair market value of the Leased Property or materially impair Landlord's interests in the Leased Property, and (y) a duly authorized and binding undertaking of Tenant, in form and substance satisfactory to Landlord, to remain obligated under this Lease and under any instrument executed by Tenant consenting to the assignment of Landlord's interest in this Lease as security for indebtedness, as though such easement, license, right-of-way or other right or privilege has not been granted or released, and to perform all obligations of the grantor or releasor under such instrument of grant or release during the Term of this Lease.
35. RECORDING
Landlord and Tenant will execute, acknowledge, deliver and cause to be recorded or filed in the manner and place required by any present or future law this Lease or a memorandum thereof, and all other instruments, including, without limitation, financing statements, continuation statements and
instruments of similar character, which shall be reasonably requested by Landlord as being necessary or appropriate in order to protect the Landlord's interest in the Leased Property or to publish notice of or to create, maintain and protect the lien and security interest intended to be created by any mortgage upon, and the interest of Landlord's mortgagee in, the Leased Property. If Tenant shall fail to comply with this paragraph, Landlord shall be and is hereby irrevocably appointed the agent and attorney in fact of Tenant to comply therewith, but this sentence shall not prevent any default in the observance of this Article from constituting an Event of Default.
36. MISCELLANEOUS
This Lease shall be binding upon and shall inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. No term or provision hereof may be amended, changed, waived, discharged or terminated orally, but only by an instrument signed by the party against whom enforcement thereof is sought. No failure, delay, forbearance or indulgence on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, or as an acquiescence in any breach, nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Any provision of this Lease which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. This Lease and the rights and obligations in respect hereof shall be governed by, and construed and interpreted in accordance with, the laws of the Commonwealth of Pennsylvania, including matters of internal law, conflicts of law, and arbitration. All headings are for reference only and shall not be considered as part of this Lease. This Lease may be executed in any number of counterparts, each of which shall be an original, and such counterparts together shall constitute but one and the same instrument.
The dating of this Lease "as of July 8, 1988" is for convenience of reference only, and this Lease shall become
effective only upon its execution and delivery by Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant hereto have each caused this Lease to be duly executed and delivered in their respective names and behalf, as of the day and year first above written.
WESTINGHOUSE CREDIT CORPORATION
By: /s/ James W. Meighan
-----------------------------
Name: James W. Meighan
--------------------------
Title: Senior Vice President
--------------------------
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ALLOY RODS CORPORATION
By: /s/ Robert B. Egan
-----------------------------
Name: Robert B. Egan
--------------------------
Title: Chief Executive Officer
--------------------------
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SCHEDULE A
PARCEL I
ALL THE FOLLOWING described two (2) tracts of land situate in the Township
of Penn, County of York and Commonwealth of Pennsylvania, more particularly
bounded and described according to a Plan of Survey made by Reed Engineering,
Inc., dated May, 1988, as follows, to wit:
TRACT A: BEGINNING at a Re-Bar on the eastern legal right-of-way line of
Wilson Avenue (Township Road T-338) (50 feet wide) 25 feet southeastwardly from
the center of the Pennsylvania Railroad; thence parallel with and 25 feet
southeastwardly from the center of said Pennsylvania Railroad, North 57 degrees
43 minutes 21 seconds East, 944.18 feet to a Re-Bar; thence along same by a
curve to the right, having a radius of 10,980.99 feet and a chord of North 59
degrees 04 minutes 02 seconds East, 515.40 feet, an arc distance of 515.45 feet
to a Re-Bar; thence along same, North 60 degrees 24 minutes 43 seconds East,
145.79 feet to a Re-Bar at lands now or formerly of Daniel H. and Sarah M.
Bair; thence along said Bair lands, South 45 degrees 46 minutes 13 seconds
East, 555.01 feet to a Re-Bar on the northern legal right-of-way line Karen
Lane (Township Road T-341); thence along said legal right-of-way line of Karen
Lane, South 26 degrees 23 minutes 50 seconds West, 76.87 feet to a point; thence
along same by a curve to the right, having a radius of 562.51 feet and a chord
of South 41 degrees 52 minutes 39 seconds West, 300.27 feet, an arc distance of
303.96 feet to a Re-Bar; thence along same, South 57 degrees 21 minutes 27
seconds West, 1,364.56 feet to a Re-Bar on the eastern legal right-of-way line
of Wilson Avenue; thence along said eastern legal right-of-way line North 33
degrees 34 minutes 00 seconds West, 689.44 feet to the first mentioned point
and place of BEGINNING.
TRACT B: BEGINNING from a corner on the southern legal right-of-way line
of 50 feet wide Karen Lane at lands now or formerly of Daniel H. and Sarah M.
Bair; thence along lands of Daniel H. Bair and Sarah M. Bair, South 45 degrees
16 minutes 12 seconds East, 817.81 feet to a corner at a post set in concrete
at lands of Hanover Canning Co.; thence along said Canning Co. lands, South 49
degrees 42 minutes 17 seconds West, 441.62 feet to a point at a concrete
monument; thence South 70 degrees 10 minutes 47 seconds West, 451.96 feet to a
railroad rail; thence South 51 degrees 38 minutes 51 seconds West, 41.52 feet
to an iron pipe at lands now or formerly of Ger-Mar Associates; thence along
said lands of Ger-Mar Associates, North 32 degrees 38 minutes 33 seconds West,
642.38 feet to a Re-Bar on the southern legal right-of-way line of aforesaid
Karen Lane; thence along said legal right-of-way line, North 57 degrees 21
minutes 27
seconds East, 374.10 feet to a point; thence along the same by a curve to the left, having a radius of 612.51 feet and a chord of North 41 degrees 52 minutes 39 seconds East, 326.96 feet, an arc distance of 330.97 feet to a point; thence North 26 degrees 23 minutes 50 seconds East, 60.30 feet to a corner, the place of BEGINNING.
PARCEL II
ALL THE FOLLOWING described tract of land situate in the Township of Penn,
County of York and Commonwealth of Pennsylvania, more particularly bounded and
described according to a Plan of Survey made by Reed Engineering, Inc., dated
May, 1988, as follows, to wit:
BEGINNING at a Re-Bar on the western legal right-of-way line of Wilson
Avenue (Township Road T-338) (50 feet wide), 25 feet southeastwardly from the
center of the Pennsylvania Railroad; thence along the western legal
right-of-way line of Wilson Avenue, South 33 degrees 34 minutes 00 seconds
East, 689.76 feet to a Re-Bar at line of lands of Ger-Mar Associates; thence
along said Ger-Mar Associates lands, South 57 degrees 21 minutes 27 seconds
West, 545.73 feet to an iron pin in line of land of Doubleday Company; thence
along said lands of Doubleday Company, North 36 degrees 43 minutes 08 seconds
West, 695.15 feet to a Re-Bar 25 feet southeastwardly from the center of the
Pennsylvania Railroad; thence parallel with and 25 feet southeastwardly from
the center of said Pennsylvania Railroad, North 57 degrees 43 minutes 21
seconds East, 584.03 feet to the first mentioned point and place of BEGINNING.
SCHEDULE B
I. LEASE TERM
The Basic Term shall commence on July 8, 1988 and shall terminate on July 8, 2003.
The Term of the Lease may be extended for up to two (2) consecutive Extended Terms of five years each, each such Extended Term to commence on the date immediately following the last day of the previous Extended Term (or the Basic Term, in the case of the First Extended Term).
II. BASIC RENT
Installment Payment Date Installment Payment
------------------------ -------------------
10/8/1988 287286.11
1/8/1989 287286.11
4/8/1989 287286.11
7/8/1989 287286.11
10/8/1989 287286.11
1/8/1990 287286.11
4/8/1990 287286.11
7/8/1990 287286.11
10/8/1990 287286.11
1/8/1991 287286.11
4/8/1991 287286.11
7/8/1991 287286.11
10/8/1991 297705.85
1/8/1992 297705.85
4/8/1992 297705.85
7/8/1992 297705.85
10/8/1992 297705.85
1/8/1993 297705.85
4/8/1993 297705.85
7/8/1993 297705.85
10/8/1993 297705.85
1/8/1994 297705.85
4/8/1994 297705.85
7/8/1994 297705.85
10/8/1994 316228.89
1/8/1995 316228.89
4/8/1995 316228.89
7/8/1995 316228.89
10/8/1995 316228.89
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1/8/1996 316228.89 4/8/1996 316228.89 7/8/1996 316228.89 10/8/1996 316228.89 1/8/1997 316228.89 4/8/1997 316228.89 7/8/1997 316228.89 10/8/1997 335765.92 1/8/1998 335765.92 4/8/1998 335765.92 7/8/1998 335765.92 10/8/1998 335765.92 1/8/1999 335765.92 4/8/1999 335765.92 7/8/1999 335765.92 10/8/1999 335765.92 1/8/2000 335765.92 4/8/2000 335765.92 7/8/2000 335765.92 10/8/2000 350355.31 1/8/2001 350355.31 4/8/2001 350355.31 7/8/2001 350355.31 10/8/2001 350355.31 1/8/2002 350355.31 4/8/2002 350355.31 7/8/2002 350355.31 10/8/2002 350355.31 1/8/2003 350355.31 4/8/2003 350355.31 7/8/2003 350355.31 |
Rent Per Quarter
(Payable Oct. 8, Jan. 8, Apr. 8)
and July 8 of each Year)
-----------------------
First Renewal Term 350,355.31
Second Renewal Term 385,390.84
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-45-a-
SCHEDULE C
The Termination Values for each Parcel shall be the total Termination Value set forth below multiplied by the following percentages:
Parcel Percentage ------ ---------- Office Lab 28% Hanover Plant 72% |
Date Termination Value ------------- ----------------- 8 OCT 1988 8819235 8 JAN 1989 8883252 8 APR 1989 8784790 8 JUL 1989 8757493 8 OCT 1989 8748138 8 JAN 1990 8727457 8 APR 1990 8704577 8 JUL 1990 8682951 8 OCT 1990 8659182 8 JAN 1991 8534000 8 APR 1991 8606928 8 JUL 1991 8580322 8 OCT 1991 8541496 8 JAN 1992 8500782 8 APR 1992 8457385 8 JUL 1992 8414938 8 OCT 1992 8369886 8 JAN 1993 8322988 8 APR 1993 8273319 8 JUL 1993 8224483 8 OCT 1993 8172915 8 JAN 1994 8119373 8 APR 1994 8062927 |
8 JUL 1994 8007352 8 OCT 1994 7930458 8 JAN 1995 7850785 8 APR 1995 7767527 8 JUL 1995 7584517 8 OCT 1995 7598216 8 JAN 1996 7509127 8 APR 1996 7416340 8 JUL 1996 7323726 8 OCT 1996 7227429 8 JAN 1997 7128247 8 APR 1997 7025166 8 JUL 1997 6922247 8 OCT 1997 6795965 8 JAN 1998 6665874 8 APR 1998 6531111 8 JUL 1998 6395880 8 OCT 1998 6256030 8 JAN 1999 6112411 8 APR 1999 5963915 8 JUL 1999 5814695 8 OCT 1999 5660578 8 JAN 2000 5502409 8 APR 2000 5339675 8 JUL 2000 5174964 8 OCT 2000 4990018 8 JAN 2001 4802381 8 APR 2001 4607352 8 JUL 2001 4411122 8 OCT 2001 4288998 8 JAN 2002 4001851 8 APR 2002 3788498 8 JUL 2002 3573288 8 OCT 2002 3351803 8 JAN 2003 3124915 8 APR 2003 2891227 8 JUL 2003 2640171 |
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made and entered into this 19th day of December, 1989, by and between WESTINGHOUSE CREDIT CORPORATION, a Delaware corporation ("WCC"), and ALLOY RODS CORPORATION, a Delaware corporation ("ARC");
W I T N E S S E T H, That:
WHEREAS, WCC, as "landlord," and ARC, as "tenant," entered into that certain Lease dated as of July 8, 1988 (the "Lease"); and
WHEREAS, WCC and ARC now desire to amend the Lease in certain respects;
NOW, THEREFORE, incorporating the foregoing recital of facts and in consideration of the mutual covenants hereinafter set forth, WCC and ARC, intending to be legally bound, hereby agree as follows:
1. Recitals. The foregoing recitals are true and correct and are incorporated herein.
2. Lease Amendments. The Lease is hereby amended to provide that, notwithstanding any other provision thereof to the contrary, from and after the date hereof:
2.1. Insurance Deductible. The parenthetical appearing at the bottom of Page 23 which states "(but in no event in excess of $50,000)" shall be deleted in its entirety and the following inserted in lieu thereof: "(but in no event in excess of $150,000)."
2.2. Delivery of Financial Statements. The provision appearing in
Paragraph 14 (a) clause (ii) which states "as soon as practicable, and in any
event not later than fifteen (15) days after the close of each calendar quarter
. . ." shall be deleted in its entirety and the following inserted in lieu
thereof: "as soon as practicable, and in any event not later than thirty (30)
days after the close of each calendar quarter . . . ."
2.3. Additional Reports. The provision appearing in Paragraph 14 (a) clause (iv) which states "as soon as practicable, copies of all such financial statements and reports as Tenant shall send to its stockholders;" shall be deleted in its entirety.
3. Limitation on Modification. Except as specifically modified herein, the terms and conditions of the Lease shall remain in full force and effect as executed. This Amendment is a modification of terms only as set out herein, leaving in effect all features of the Lease except as specifically or necessarily modified hereby.
4. Estoppel. ARC hereby acknowledges, warrants, and confirms to WCC that there exist no defenses, set-offs, or counterclaims to its obligations under the Lease and that WCC is under no obligation further to amend or modify the Lease. WCC hereby acknowledges, warrants, and confirms to ARC that there exist no defenses, setoffs, or counterclaims to its obligations under the Lease and that to its knowledge ARC is not in default thereunder.
5. Parties Bound. This Amendment shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, and assigns.
6. Governing Law. All questions with respect to the construction of this Amendment and the rights and liabilities of the parties hereto shall be determined in accordance with the applicable provisions of the internal laws of the Commonwealth of Pennsylvania without regard to the principles of conflicts of laws.
7. No Further Amendment. The Lease cannot be further amended except by an instrument in writing and signed by the party against whom such amendment is asserted.
IN WITNESS WHEREOF, WCC and ARC have executed this Amendment as of the day and year first above written.
WCC:
WESTINGHOUSE CREDIT CORPORATION, a
Delaware corporation
By: /s/
-------------------------------
ARC:
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ALLOY RODS CORPORATION, a Delaware
corporation
By: /s/ Robert B. Egan
-------------------------------
|
ASSIGNMENT OF SELLER'S INTEREST IN LEASES AND ASSUMPTION
AGREEMENT
THIS ASSIGNMENT OF SELLER'S INTEREST IN LEASES AND ASSUMPTION AGREEMENT (the "Assignment"), dated as of the 11 day of April, 2000, is made by and between GRIPHON STEELERS INVESTORS L.P., a Delaware limited partnership ("Assignor"), and OLP HANOVER I, L.L.C., a Pennsylvania limited liability company ("Assignee").
WHEREAS, Assignor and Assignee entered into that certain Contract of Sale dated as of January 28, 2000 (the "Sales Contract") for the purchase and sale of certain property, consisting of certain real property, as more particularly described in Exhibit A, (the "Property"), attached hereto and made a part hereof.
WHEREAS, Assignor desires to assign, transfer, set over and deliver to Assignee all of Assignor's right, title and interest in and to the leases as hereinafter provided; and
WHEREAS, Assignee desires to assume the duties and obligations of Assignor with respect to the leases from and after the date hereof.
NOW, THEREFORE, in accordance with the Sales Contract and in consideration of the sum of TEN AND NO/100 DOLLARS ($10.00), the receipt and sufficiency of which are hereby acknowledged, the parties do hereby covenant and agree as follows and take the following actions:
1. Assignor does hereby assign, transfer, set over and deliver unto Assignee all of the Assignor's right, title and interest in and to the leases, tenancies, licenses and other rights of occupancy or use of or for any portion of the Property by third parties, including all amendments, renewals and extensions thereof, in effect as of the date of this Assignment, a schedule of which is attached as Exhibit B (collectively, the "Leases"). Assignor shall defend, indemnify and hold harmless Assignee from and against any and all loss and claims asserted against or incurred by Assignee as a result of any acts or omissions occurring prior to the date of this Assignment in connection with the Leases.
2. EXCEPT AS EXPRESSLY SET FORTH HEREIN AND/OR IN THE SALES CONTRACT AND/OR IN THE SELLER'S CERTIFICATE OF EVEN DATE HEREWITH, THE LEASES ARE BEING ASSIGNED "AS IS", "WHERE IS", AND "WITH ALL FAULTS" AS OF THE DATE OF THIS ASSIGNMENT, WITHOUT ANY REPRESENTATION OR WARRANTY WHATSOEVER AS TO THEIR ENFORCEABILITY, STATUS, CONDITION, FITNESS FOR ANY PARTICULAR PURPOSE, MERCHANTABILITY OR ANY OTHER WARRANTY, EXPRESSED OR IMPLIED AND ASSIGNEE IS HEREBY ACQUIRING THE LEASES BASED SOLELY UPON ASSIGNEE'S OWN INDEPENDENT INVESTIGATIONS AND INSPECTIONS AND NOT IN
RELIANCE ON ANY INFORMATION PROVIDED BY ASSIGNOR OR ASSIGNOR'S AGENTS OR CONTRACTORS. EXCEPT AS EXPRESSLY SET FORTH HEREIN AND/OR IN THE SALES CONTRACT AND/OR IN THE SELLER'S CERTIFICATE OF EVEN DATE HEREWITH, ASSIGNOR SPECIFICALLY DISCLAIMS ANY WARRANTY, GUARANTY OR REPRESENTATION, ORAL OR WRITTEN, PAST OR PRESENT, EXPRESSED OR IMPLIED, CONCERNING THE LEASES OR ASSIGNOR'S TITLE THERETO.
3. Assignee hereby accepts the foregoing assignment of the Leases and hereby assumes all duties and obligations of Assignor under the Leases, arising on and after the date hereof. Assignee shall defend, indemnify and hold harmless Assignor from and against any and all "Claims" asserted against or incurred by Assignor as a result of any acts or omissions occurring on or after the date of this Assignment in connection with the Leases.
4. This Assignment shall be (a) binding upon, and inure to the benefit of, the parties to this Assignment and their respective heirs, legal representatives, successors and assigns and (b) construed in accordance with the laws of the jurisdiction in which the Property is located, without regard to the application of choice of law principles, except to the extent such laws are superseded by federal law.
5. This Assignment shall be construed in accordance with the laws of the State of Pennsylvania and may not be amended except by written agreement executed by Assignor and Assignee.
6. Assignor represents and warrants to Assignee that (a) Assignor is the owner
of the landlord's interest in the Leases, (b) Assignor has full right and
title to the Leases and the authority to transfer and convey the Leases and
(c) the Leases are free and clear of all liens and encumbrances (except the
Permitted Exceptions, as such term is defined in the Sales Contract).
IN WITNESS whereof, this Assignment has been signed, sealed and delivered by the parties as of the date first above written.
GRIPHON STEELERS INVESTORS, L.P., a Delaware
limited partnership
By: Griphon Steelers, LLC, a Delaware limited
liability company, its General Partner
By: Barrow Street Capital, LLC, a Delaware
limited liability company, its Sole
Member
By: Barrow Street Partners, LLC, a
Delaware limited liability
company, its Managing Member
By: /s/ Robert Greenhill
-----------------------
Name: Robert Greenhill
Title: Member
|
OLP HANOVER I, L.L.C., a Pennsylvania limited liability company
By: OLP Hanover PA, Inc., a Pennsylvania corporation, its Member
By: /s/
---------------------
Name:
Title:
|
Exhibit 10.9
SECURED PROMISSORY NOTE
FOR ONE LIBERTY PROPERTIES, INC.
Great Neck, New York
$80,000.00 December 21, 1999
FOR VALUE RECEIVED, the undersigned, whose address appears below, promises to pay (without notice, demand or setoff) to the order of ONE LIBERTY PROPERTIES, INC., a Maryland corporation having its principal office at 60 Cutter Mill Road, Suite 303, Great Neck, NY 11021 ("Lender"), at the principal office of Lender, or at such other place as may be designated in writing by the holder of this Note, the principal sum of EIGHTY THOUSAND DOLLARS and NO CENTS ($80,000.00) on December 20, 2004 with interest thereon with respect to the preceding period, at a rate equal to the prime rate as announced from time to time in the Wall Street Journal, adjustable monthly. Provided there shall be no default, payments shall be made quarterly in arrears (commencing January 1, 2000) and shall be comprised of interest only on the outstanding principal balance calculated at the Interest Rate. Interest shall be computed as if each full calendar year consisted of 360 days and each full calendar month consisted of 30 days, for actual number of days elapsed. Under no circumstances shall the undersigned be charged more than the highest rate of interest which lawfully may be charged by the holder hereof and paid by the undersigned on the indebtedness evidenced hereby. It is therefore agreed that if at any time interest on the indebtedness evidenced hereby would otherwise exceed the highest lawful rate, only such highest lawful rate will be paid by the undersigned. Should any amount be paid by the undersigned in excess of such highest lawful amount, such excess shall be deemed to have been paid in reduction of the principal balance hereof.
The undersigned, and all persons liable or to become liable on this Note, agree, jointly and severally, to pay all costs of collection, including reasonable attorneys' fees and disbursements, in case the unpaid principal balance of this Note, or any payment of principal and/or interest and/or other charges thereon, is not paid when due, or in case it becomes necessary to protect the security for the indebtedness evidenced hereby, whether suit be brought or not.
Presentment for payment, notice of dishonor, protest, notice of protest, and trial by jury are hereby waived.
This Note shall be governed by and interpreted in accordance with the laws of the State of New York (without reference to its conflict of law provisions).
This Note is a secured note and is secured by a Pledge and Security Agreement (the "Pledge") affecting collateral more particularly described therein (to-wit shares of common stock of One Liberty Properties, Inc. being acquired by the undersigned). Upon (a) default in making any payment of principal or interest hereunder when due and payable and such default continuing for ten (10) days or (b) the occurrence of an Event of Default (as such term is defined in the Pledge) or (c) the default
beyond applicable grace period, if any, under any other indebtedness of the
undersigned to Lender, (i) the unpaid principal balance hereof and all accrued
interest and other charges thereon shall become immediately due and payable and
(ii) the entire principal amount and accrued but unpaid interest and other
charges thereon due under this Note shall accrue interest at eighteen percent
(18%) interest per annum (or the highest rate permitted by law, whichever is
lower) from the date of the missed payment or the Event of Default, as the case
may be. In enforcing its rights under this Note and under the Pledge and other
instruments delivered in connection with the loan represented hereby, the holder
shall have the right and option to pursue its remedies with respect to this Note
or to enforce the provisions of the Pledge or such other instruments, or any
combination thereof, and either simultaneously or in such order as the holder
shall deem in its best interest. This Note may only be modified or any of its
terms waived by a written instrument signed by the party to be charged by such
modification or waiver.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Secured Promissory Note on the date first hereinabove written.
Witness:
/s/ Jeffrey Fishman ------------------- Jeffrey Fishman, as maker /s/ Melissa Fishman ------------------- Melissa Fishman, as guarantor |
Address:
9 Gifford Lake Drive
Armonk, New York 10504
SECURED PROMISSORY NOTE
FOR ONE LIBERTY PROPERTIES, INC.
Great Neck, New York
$80,000.00 January 20, 2000
FOR VALUE RECEIVED, the undersigned, whose address appears below, promises to pay (without notice, demand or setoff) to the order of ONE LIBERTY PROPERTIES, INC., a Maryland corporation having its principal office at 60 Cutter Mill Road, Suite 303, Great Neck, NY 11021 ("Lender"), at the principal office of Lender, or at such other place as may be designated in writing by the holder of this Note, the principal sum of EIGHTY THOUSAND DOLLARS and NO CENTS ($80,000.00) on December 20, 2004 with interest thereon with respect to the preceding period, at a rate equal to the prime rate as announced from time to time in the Wall Street Journal, adjustable monthly. Provided there shall be no default, payments shall be made quarterly in arrears (commencing April 1, 2000) and shall be comprised of interest only on the outstanding principal balance calculated at the Interest Rate. Interest shall be computed as if each full calendar year consisted of 360 days and each full calendar month consisted of 30 days, for actual number of days elapsed. Under no circumstances shall the undersigned be charged more than the highest rate of interest which lawfully may be charged by the holder hereof and paid by the undersigned on the indebtedness evidenced hereby. It is therefore agreed that if at any time interest on the indebtedness evidenced hereby would otherwise exceed the highest lawful rate, only such highest lawful rate will be paid by the undersigned. Should any amount be paid by the undersigned in excess of such highest lawful amount, such excess shall be deemed to have been paid in reduction of the principal balance hereof.
The undersigned, and all persons liable or to become liable on this Note, agree, jointly and severally, to pay all costs of collection, including reasonable attorneys' fees and disbursements, in case the unpaid principal balance of this Note, or any payment of principal and/or interest and/or other charges thereon, is not paid when due, or in case it becomes necessary to protect the security for the indebtedness evidenced hereby, whether suit be brought or not.
Presentment for payment, notice of dishonor, protest, notice of protest, and trial by jury are hereby waived.
This Note shall be governed by and interpreted in accordance with the laws of the State of New York (without reference to its conflict of law provisions).
This Note is a secured note and is secured by a Pledge and Security Agreement (the "Pledge") affecting collateral more particularly described therein (to-wit shares of common stock of One Liberty Properties, Inc. being acquired by the undersigned). Upon (a) default in making any payment of principal or interest hereunder when due and payable and such default continuing for ten (10) days or (b) the occurrence of an Event of Default (as such term is defined in the Pledge) or (c) the default
beyond applicable grace period, if any, under any other indebtedness of the
undersigned to Lender, (i) the unpaid principal balance hereof and all accrued
interest and other charges thereon shall become immediately due and payable and
(ii) the entire principal amount and accrued but unpaid interest and other
charges thereon due under this Note shall accrue interest at eighteen percent
(18%) interest per annum (or the highest rate permitted by law, whichever is
lower) from the date of the missed payment or the Event of Default, as the case
may be. In enforcing its rights under this Note and under the Pledge and other
instruments delivered in connection with the loan represented hereby, the holder
shall have the right and option to pursue its remedies with respect to this Note
or to enforce the provisions of the Pledge or such other instruments, or any
combination thereof, and either simultaneously or in such order as the holder
shall deem in its best interest. This Note may only be modified or any of its
terms waived by a written instrument signed by the party to be charged by such
modification or waiver.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Secured Promissory Note on the date first hereinabove written.
Witness:
/s/ Jeffrey Fishman ------------------- Jeffrey Fishman, as maker /s/ Melissa Fishman ------------------- Melissa Fishman, as guarantor |
Address:
9 Gifford Lake Drive
Armonk, New York 10504
SECURED PROMISSORY NOTE
FOR ONE LIBERTY PROPERTIES, INC.
Great Neck, New York
$80,000.00 February 29, 2000
FOR VALUE RECEIVED, the undersigned, whose address appears below, promises to pay (without notice, demand or setoff) to the order of ONE LIBERTY PROPERTIES, INC., a Maryland corporation having its principal office at 60 Cutter Mill Road, Suite 303, Great Neck, NY 11021 ("Lender"), at the principal office of Lender, or at such other place as may be designated in writing by the holder of this Note, the principal sum of EIGHTY THOUSAND DOLLARS and NO CENTS ($80,000.00) on December 20, 2004 with interest thereon with respect to the preceding period, at a rate equal to the prime rate as announced from time to time in the Wall Street Journal, adjustable monthly. Provided there shall be no default, payments shall be made quarterly in arrears (commencing April 1, 2000) and shall be comprised of interest only on the outstanding principal balance calculated at the Interest Rate. Interest shall be computed as if each full calendar year consisted of 360 days and each full calendar month consisted of 30 days, for actual number of days elapsed. Under no circumstances shall the undersigned be charged more than the highest rate of interest which lawfully may be charged by the holder hereof and paid by the undersigned on the indebtedness evidenced hereby. It is therefore agreed that if at any time interest on the indebtedness evidenced hereby would otherwise exceed the highest lawful rate, only such highest lawful rate will be paid by the undersigned. Should any amount be paid by the undersigned in excess of such highest lawful amount, such excess shall be deemed to have been paid in reduction of the principal balance hereof.
The undersigned, and all persons liable or to become liable on this Note, agree, jointly and severally, to pay all costs of collection, including reasonable attorneys' fees and disbursements, in case the unpaid principal balance of this Note, or any payment of principal and/or interest and/or other charges thereon, is not paid when due, or in case it becomes necessary to protect the security for the indebtedness evidenced hereby, whether suit be brought or not.
Presentment for payment, notice of dishonor, protest, notice of protest, and trial by jury are hereby waived.
This Note shall be governed by and interpreted in accordance with the laws of the State of New York (without reference to its conflict of law provisions).
This Note is a secured note and is secured by a Pledge and Security Agreement (the "Pledge") affecting collateral more particularly described therein (to-wit shares of common stock of One Liberty Properties, Inc. being acquired by the undersigned). Upon (a) default in making any payment of principal or interest hereunder when due and payable and such default continuing for ten (10) days or (b) the occurrence of an Event of Default (as such term is defined in the Pledge) or (c) the default
beyond applicable grace period, if any, under any other indebtedness of the
undersigned to Lender, (i) the unpaid principal balance hereof and all accrued
interest and other charges thereon shall become immediately due and payable and
(ii) the entire principal amount and accrued but unpaid interest and other
charges thereon due under this Note shall accrue interest at eighteen percent
(18%) interest per annum (or the highest rate permitted by law, whichever is
lower) from the date of the missed payment or the Event of Default, as the case
may be. In enforcing its rights under this Note and under the Pledge and other
instruments delivered in connection with the loan represented hereby, the holder
shall have the right and option to pursue its remedies with respect to this Note
or to enforce the provisions of the Pledge or such other instruments, or any
combination thereof, and either simultaneously or in such order as the holder
shall deem in its best interest. This Note may only be modified or any of its
terms waived by a written instrument signed by the party to be charged by such
modification or waiver.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Secured Promissory Note on the date first hereinabove written.
Witness:
/s/ Jeffrey Fishman ------------------- Jeffrey Fishman, as maker /s/ Melissa Fishman ------------------- Melissa Fishman, as guarantor |
Address:
9 Gifford Lake Drive
Armonk, New York 10504
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 1, 2002 in the Registration Statement (Form S-2 No. 333-_____) and related Prospectus of One Liberty Properties, Inc. for the registration of 2,875,000 shares of common stock.
/s/ Ernst & Young LLP
New York, New York
April 24, 2002
|
EXHIBIT 23.3
CONSENT OF PATRICK J. CALLAN, JR. - NOMINEE FOR DIRECTOR
I hereby consent to be named as a nominee for Director of One Liberty Properties, Inc. (the "Company") in the Registration Statement of the Company (Form S-2, File No. 333- ), including any and all amendments thereto.
Dated: April 19, 2002
/s/ Patrick J. Callan, Jr.
--------------------------
Patrick J. Callan, Jr.
|