Finding 9(a)), terminate Spa Health Clubs, Inc.'s interest under that lease, and relet the premises to FEA for the remainder of the original twenty-year term at the same terms and conditions, including the $ 3,000 per month rental. The interim lease agreement also provided that it would be superseded by a new lease agreement, "upon the same terms and conditions," to be executed by City Line and an FEA subsidiary (T.167-68) (U-3).
19. On March 6, 1974, City Line notified Spa Health Clubs, Inc. that it was exercising its rights under paragraph 14(c) of the 1967 lease (U-2).
20. Shortly after assuming management of the four spas, FEA transferred operation of the 4600 City Line Avenue spa to Old United, its wholly-owned subsidiary (T.169-70).
21. In June or July 1974, Don Parry brought suit against FEA, Old United and others in the Court of Common Pleas of Philadelphia, seeking to regain the premises. This suit was settled by an agreement dated August 9, 1974 (Z-46). As part of the settlement, Spa Health Clubs, Inc. assigned all of its right, title and interest in the 1967 lease to Old United (T.170).
22. The written assignment dated August 8, 1974, of the 1967 lease (Z-4) could not be recorded by Old United because it had not been properly notarized (U-10A).
23. As contemplated by the March 5, 1974 interim lease agreement between FEA and City Line (see Finding 18), a new lease, also dated March 5, 1974 (the 1974 lease) (U-4, Z-5), was executed by Old United and City Line on September 13, 1974 (T.16, 169). The 1974 lease contained the same terms as the 1967 lease, including the $ 3,000 per month rental and the termination date of January 1, 1989. (Compare U-4 with Z-1).
24. The 1974 lease was not recorded until December 22, 1977, after Old United had assigned its interest under the 1974 lease to New United (see Finding 57 infra). Old United did not record the 1974 lease because it feared that GSB, whose consent to the lease had not been obtained as required under the mortgage from City Line (see Finding 7), would foreclose if it learned of the lease to Old United (T.60-63) (U-10A).
25. As of September 13, 1974, Old United could trace its interest in the premises at 4600 City Line Avenue to (1) the agreement of lease dated October 10, 1967 between Spa Health Clubs, Inc. and City Line, which had been assigned to Old United by Spa Health Clubs, Inc. on or about August 8, 1974 (see Findings 8 & 21), and (2) the 1974 lease between itself and City Line (see Finding 23).
26. In 1974, FEA was named as one of several defendants in a large securities litigation in United States District Court in Utah. The defense of this suit substantially depleted FEA's resources and caused it to fall behind on its payment of principal and interest to Zions (T.171-75).
27. On November 26, 1975, FEA gave Zions a renewal note for $ 375,000 payable on demand or on November 25, 1976 (T.205).
28. On June 21, 1976, Old United mortgaged its interest under the 1967 lease to Zions to secure the debt owed to Zions by its parent corporation, FEA, under the 1975 note. (Z-6). The mortgage had been drafted by Old United's counsel (T.179).
29. At the time the mortgage was given:
(a) FEA was in default on its obligation under the 1975 note to make quarterly interest payments to Zions (T.170-72).
(b) FEA was indebted to Zions for the principal amount of $ 277,000 plus interest (T.193).
(c) Old United was indebted to FEA in the amount of $ 499,311 (T.193).
30. In exchange for the leasehold mortgage from Old United, Zions agreed to defer quarterly interest payments on the 1975 note from FEA (T.71-72) (Z-19, p.5).
31. At the time Old United gave Zions the mortgage on its 1967 leasehold interest, Lee Schoonmaker, Old United's president, was aware of the existence of the 1974 lease. Nevertheless, Schoonmaker intended that Zions would have a valid lien (T.217-18).
32. Since the original leasehold mortgage was in the possession of Old United, Zions could not record the mortgage, and despite Zions' repeated pleas, Old United did not record the mortgage until January 12, 1977 (T.77-78) (Z-25).
33. In late summer of 1976, Angus Belliston, a vice president in Zions' commercial loan department, assumed responsibility over the loan to FEA, replacing Jerry Holyoak who had been transferred to another position within the bank. On September 30, 1976, Belliston had his first real contact with the loan to FEA when he met with Schoonmaker at Holyoak's office in Salt Lake City, Utah. The purpose of this meeting was to acquaint Belliston with Schoonmaker and to discuss the status of the FEA loan. Also discussed at this meeting was FEA's failure to record the leasehold mortgage as it had promised to do. Schoonmaker gave assurances that he would see that the mortgage was recorded on his return to Philadelphia (T.33-36). No mention was made at that time by either Holyoak or Schoonmaker of any proposal to create a new corporation (T.226-27).
34. On December 9-10, 1976, Belliston met with Schoonmaker at Philadelphia. At these meetings, Belliston reviewed FEA's operations, including those of Old United, and examined FEA's financial condition. Discussions with Schoonmaker involved renewal of the November 1975 note (which had matured on November 25, 1976, and was now in default). In addition, Schoonmaker presented a new loan proposal to Zions which was designed to insulate FEA's most viable asset, the spa at 4600 City Line Avenue, from any adverse judgment which might be entered against FEA in the Utah securities action. (See Finding 26). Under Schoonmaker's plan, FEA would sell the Philadelphia spa and all its assets, including its lease, for "full value" to a new corporation to be created by Schoonmaker and a few other FEA stockholders. Zions' role under Schoonmaker's plan was twofold:
(a) First, Zions would lend to the new corporation money to be used to satisfy FEA's debt to Zions.
(b) Second, Zions would release the FEA accounts receivable then held as collateral, and, as collateral for the loan to the new corporation, take a mortgage, first on Old United's leasehold and then, when created, on the leasehold of the new corporation.