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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[MARK ONE]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________ TO ________
COMMISSION FILE NUMBER 1-11999
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ALTERNATIVE LIVING SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 39-1771281
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
450 N. SUNNYSLOPE ROAD, SUITE 300
BROOKFIELD, WI 53005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (414) 641-5100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B)
OF THE AMERICAN STOCK EXCHANGE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
COMMON STOCK, PAR VALUE $.01 AMERICAN STOCK EXCHANGE
5.75% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2002 AMERICAN STOCK EXCHANGE
SERIES A JUNIOR PREFERRED STOCK PURCHASE RIGHTS AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was $282,215,480 as of March 5, 1999. The number of
outstanding shares of the Registrant's Common Stock was 22,018,458 shares as of
March 5, 1999.
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Documents Incorporated by Reference
Part III incorporates information by reference from the Proxy Statement
for the Registrant's Annual Meeting of Stockholders to be held on May 19, 1999.
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The statements in this annual report on Form 10-K relating to matters that are
not historical facts, including, but not limited to, statements found in Item 1.
"Business" and Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are forward looking statements that are
subject to certain risks and uncertainties that could cause actual results to
differ materially from expectations. These include, without limitation, those
set forth under "Item 1. Business". These and other risks are set forth in the
reports filed by the Company with the Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
OVERVIEW
Alternative Living Services, Inc. (the "Company" or "ALS") is a leading national
assisted living company operating 350 assisted living residences with an
aggregate capacity of approximately 15,000 residents as of December 31, 1998. Of
these residences, the Company owns 77, leases 179, holds majority equity
interests in entities which own 22 and lease 6, holds minority equity interests
in entities which own 11 and lease 38, and manages 17 for other owners. The
Company's rapid growth over the last several years has had a significant impact
on the Company's results of operations and accounts for substantially all of the
changes in its results of operations for the years ended 1998, 1997 and 1996. As
of December 31, 1998, 1997 and 1996, the Company operated or managed residences
with an aggregate capacity to accommodate approximately 15,000, 9,500 and 5,200
residents, respectively.
Since 1993, the Company has grown significantly as a result of its aggressive
development and acquisition activities, which have focused on purposeful built,
free-standing assisted living residences. The Company intends to continue its
development strategy and, at December 31, 1998, was constructing 63 residences
and developing an additional 136 residences. Of these residences, at least 80
with an aggregate capacity of approximately 3,600 residents are expected to open
during 1999.
On December 31, 1998, the Company entered into a strategic alliance with HCR
Manor Care. The alliance includes four principal arrangements:
- - The Company will purchase from HCR Manor Care up to 29 Alzheimer's/dementia
care and assisted living residences with a capacity for 2,611 residents
located throughout 12 states for $200 million in cash. The acquisitions of
these residences are expected to close in the second quarter of 1999.
- - HCR Manor Care and the Company will establish and capitalize a joint venture
to develop $500 million of ALS-branded Alzheimer's/dementia care and
assisted living residences in HCR's core markets over the next three to five
years. The Company expects to begin joint development under this arrangement
in the second quarter of 1999 and to continue joint development activities
over a three to five year period.
- - HCR Manor Care has agreed in principle to license from ALS the use of ALS'
Clare Bridge(R) service mark, to share various best practices, and to engage
in joint marketing activities relating to HCR's remaining
Alzheimer's/dementia care residences. The Company expects to finalize this
arrangement in the second quarter of 1999.
- - HCR Manor Care and ALS have agreed in principle to form a new company to
provide a variety of ancillary services to ALS' resident population,
including rehabilitation therapy and hospice care. The Company expects to
finalize this arrangement in the second quarter of 1999.
In October 1997, the Company completed its merger (the "Sterling Merger") with
Sterling House Corporation ("Sterling"), which at the time of the merger
operated 104 residences with an aggregate capacity of approximately 3,900
residents. In May 1996, the Company acquired New Crossings International
Corporation
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("Crossings"), an assisted living company which operated 15 Crossings residences
with a capacity to accommodate approximately 1,420 residents throughout the
western United States; and in January 1996, the Company acquired Heartland
Retirement Services, Inc. ("Heartland"), an assisted living company which
operated 20 WovenHearts residences with an aggregate capacity of approximately
330 residents throughout Wisconsin. The Sterling Merger was accounted for as a
pooling-of-interests and both of the 1996 acquisition transactions were
accounted for as purchases.
NEW CORPORATE BRAND NAME
The Company has announced its intent to change the name of the corporation to
Alterra Healthcare Corporation, subject to stockholder approval. In doing so the
Company will create a corporate brand name, Alterra, to provide better consumer
recognition of the Company's products and service offerings. The Company's
residences operate under several brand names, including Clare Bridge, the brand
name of the Company's primary free-standing, dementia care model, Wynwood, the
brand name of the Company's upper income, frail elderly model, Sterling House
and WovenHearts are the brand names of the Company's moderately priced frail
elderly models, and Crossings, the brand name of the Company's apartment-style,
frail elderly model. Through the Alterra brand name, the Company intends to
create a strong, corporate level brand identity across all of its residence
model and service level offerings. Management believes that corporate level
branding will leverage its national scale and will focus potential residents
and referral sources on the range of services offered by the Company rather
than those offered by a single residence model. In addition, management
believes that corporate level branding will provide an opportunity to reduce
long term marketing expenditures by eliminating certain duplication inherent in
marketing each product line and residence model separately.
ASSISTED LIVING SERVICES
The Company offers a full range of assisted living care and services based upon
individual resident needs. Prior to admission, all residents are assessed by the
Company's professional staff to determine the appropriate level of care and
services required by such residents. Subsequently, individual care plans are
developed by residence staff in conjunction with the residents, their families
and their physicians. These plans are periodically reviewed, typically at six
month intervals, or when a change in medical or cognitive status occurs. To
oversee the delivery of care and services, the Company assigns a licensed nurse
to each of its residences. The Company believes that this level of attention to
the health care needs of its residents enables them to remain in the Company's
residences, in many cases, for the rest of their lives.
FRAIL-ELDERLY SERVICES. The Company offers residents 24-hour assistance with
activities of daily living ("ADLs"), ongoing health assessments by a nurse,
organized social activities, three meals a day plus snacks, housekeeping and
personal laundry services. All residents are assessed at admission to determine
the level of care and service required and placed in one of four levels ranging
from basic care to three different levels of advanced care. In addition, in some
locations the Company offers its residents exercise programs and programs
designed to address issues associated with early stages of Alzheimer's and other
forms of dementia as more fully described below.
Basic Care. At this level, residents are provided with a variety of
services, including 24 hour assistance with ADLs, ongoing health
assessments by a professional nurse, three meals per day and snacks,
coordination of special diets planned by a registered dietitian,
assistance with coordination of physician care, physical therapy and
other medical services, social and recreational activities,
housekeeping and personal laundry services.
Advanced Care. The Company also offers higher levels of personal and
health care services to residents who require more frequent or
intensive physical assistance or increased care and supervision due to
cognitive impairments. Pricing for advanced care is determined using a
proprietory assessment tool which determines additional services
provided above basic care. Charges are based on market rates and the
cost of additional care required, typically staffing. Rates charged
for these services are added to the rate charged for basic care, and
are generally up to $1,000 per month
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depending upon the level and frequency of care required and staffing
needs. Residents requiring the highest care level are typically very
physically frail or experiencing early stages of Alzheimer's disease or
other dementia. Physically frail residents may require complex
medication management, assistance with various ADLs, two-person
transfer from a wheelchair or incontinence care. Residents with
cognitive impairment may require frequent staff interaction and
intervention due to confusion.
RISE (Restoring Independence, Strength and Energy). Crossings
residences also offer RISE, a one-on-one exercise program designed to
help residents regain their independence and become healthier, and
stronger by improving flexibility, balance, strength and endurance. The
program is targeted to residents with health concerns related to
Parkinson's disease, strokes, osteoarthritis, osteoporosis, congestive
heart disease, hip fractures and other limitations in ambulation and
mobility. Monthly rates for the program range from $90 to $400
depending on the frequency and duration of sessions.
ESP (Extended Support Program). ESP, also offered at Crossings
residences, is a program designed to provide additional structure and
personal attention to residents with early stages of dementia.
Regularly scheduled group recreational activities and social events
help residents build self-esteem and decrease anxiety related to
confusion and disorientation. The ESP program has been successful in
retaining residents who, due to their dementia, might otherwise need to
relocate to a more supportive environment. The monthly program rates
range from $325 to $450.
Care and supportive services are offered in different residence models
which incorporate the Company's philosophy of preserving resident's
privacy, encouraging choice and fostering independence in a home-like
setting.
- - Wynwood. These multi-story residences are designed to serve primarily
upper income frail elderly individuals in metropolitan and suburban markets.
The Wynwood residences typically range in size from 37,500 to 45,000 square
feet and accommodate 60 to 78 residents. To achieve a more residential
environment in these large buildings, each wing or "neighborhood" in the
residence contains design elements scaled to a single-family home and
includes a living room, dining room, patio or enclosed porch, laundry room
and personal care area, as well as a care giver work station. The Company
generally maintains a minimum care giver to resident ratio of approximately
one to 10 at each of these residences and increases staffing levels to a
ratio as high as one to six to accommodate the care needs of the resident
population. The Company customarily charges monthly rates per resident
ranging from $1,800 to $2,700 for a shared room and from $2,500 to $3,100
for a private room.
- - Sterling House. These apartment-style residences are generally located in
select suburban communities and in small or medium sized towns with
populations of 10,000 or more persons. These residences range in size from
20,000 to 30,000 square feet and usually contain from 33 to 50 private
apartments, offering residents a choice of studio, one-bedroom and
one-bedroom deluxe apartments. These apartments typically include a bedroom
area, private bath, living area, individual temperature control and
kitchenettes and range in size from 320 to 420 square feet., Common space is
dispersed throughout the building and is residentially scaled. The Company
generally maintains care staff to resident ratios ranging from approximately
one to eight to one to 16, depending on the care needs of the residents. The
Company customarily charges monthly rates per resident from $1,300 to $2,800
depending on the apartment type, level of services required, resident acuity
and the geographic location of the residence.
- - Crossings. These apartment-style residences are generally located in
metropolitan markets. Apartment-style residences are favored in certain
markets in the United States, particularly throughout Western states. The
Company believes this residence model enables it to capture a broader
segment of the assisted living market. These multi-story residences range in
size from 45,000 to 65,000 square feet and accommodate 60 to 80 residents,
who choose among studio, one-bedroom and two-bedroom apartments. These
apartments typically include a bedroom, a kitchenette, a full bathroom and a
living/dining area and range in size from 280 to 700 square feet. Common
space is dispersed throughout the buildings and includes a central dining
room, a library, various activity rooms, laundry rooms and a beauty shop.
The Company generally maintains care staff to resident ratios ranging from
approximately one to 12 to one to 16, depending upon
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the care needs of the residents. The Company customarily charges monthly
rates per resident ranging from $1,500 to $3,300.
- - WovenHearts. These residences are designed to meet the needs of frail
elderly individuals in smaller markets. WovenHearts residences range in
size from 7,000 to 12,000 square feet and, accommodate 20 to 40 residents.
These single-story residences resemble, and can generally be constructed on
a site suitable for a single family home. These residences have multiple
common areas that are easily accessible from any resident room and include a
living room, a den, an entertainment room, several personal care areas as
well as a large kitchen area which opens into an adjoining dining room. This
design allows residents to participate in familiar daily activities (such as
assisting with meals, laundry and housekeeping) which promote maintenance of
their functional abilities. The Company generally maintains a minimum care
giver to resident ratio of approximately one to 12 at its WovenHearts
residences. The Company customarily charges monthly rates per resident
ranging from $1,700 to $2,200.
ALZHEIMER'S DEMENTIA SERVICES. The Company believes it is one of the leading
providers of care to residents with cognitive impairments, including Alzheimer's
and other dementias, in its free-standing Clare Bridge and Clare Bridge Cottage
residences. The Company's programs provide the attention, care and services
needed to help cognitively impaired residents maintain a higher quality of life.
Specialized services include assistance with ADLs, behavior management and a
life-skills based activities program, the goal of which is to provide a
normalized environment that supports resident's remaining functional abilities.
Whenever possible, residents participate in all facets of daily life at the
residence, such as assisting with meals, laundry and housekeeping.
The Company's specially designed, free-standing dementia residence models serve
the programmatic needs of individuals with Alzheimer's disease and other
dementias. The Company's dementia model residents typically require higher
levels of care and services as a result of their progressive decline in
cognitive abilities, including impaired memory, thinking and behavior. These
residents require increased supervision because they are typically highly
confused, wander prone and incontinent. As a result, these residences have a
staffing pattern which includes a full-time nurse and a care giver to resident
ratio of approximately one to six. Care and services offered in the Company's
dementia residence models are described below.
- - Clare Bridge. The Company's Clare Bridge dementia residence model ranges in
size from 20,500 to 28,000 square feet, is a single-story residence
accommodating 38 to 52 residents and is primarily located in metropolitan
and suburban markets. The Company seeks to create a "home-like" setting that
addresses the resident's cognitive limitations using internal neighborhoods
consisting of rooms which are scaled to the size typically found in an
upper-income, single family home with the same level of furniture, fixtures
and carpeting. Key features specific to the needs of Clare Bridge residents
generally include indoor wandering paths, a simulated "town-square" area,
secure outdoor spaces with raised gardening beds, directional aids to assist
in "wayfinding" such as signs, color-coded neighborhoods and memory boxes
with the resident's photograph outside of their unit, and specifically
designed furniture suitable for incontinent residents. The Company generally
charges monthly rates per resident ranging from $2,800 for a shared room to
$4,000 for a private room in its Clare Bridge residences.
- - Clare Bridge Cottage. During 1998 the Company introduced dementia residence
models focused on smaller to medium sized markets where income levels would
not support a more upscale Clare Bridge model. These residences range from
20 to 40 residents and offer services similar to the Clare Bridge. These
buildings resemble the Sterling House architectural styles with enhancements
for wandering paths, security and other features associated with Clare
Bridge. The Company customarily charges monthly rates between $2,800 and
$3,500 for services provided in the Clare Bridge Cottage.
ACCESS TO SPECIALIZED MEDICAL SERVICES. In addition to its care and supportive
services the Company assists its residents with the coordination of access to
medical services from third parties, including home health care, rehabilitation
therapy, pharmacy services and hospice care. These providers are often
reimbursed directly by the resident or a third party payor, such as Medicare. In
the future, the Company may elect to provide these services directly using its
own skilled employees or through contracts or joint venture agreements with
other skilled providers. Commencing in early 1999 Crystal Health LLC, a joint
venture formed by the Company and
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Omnicare, Inc. a national institutional pharmacy company, commenced providing
pharmaceutical care services and medications to the Company's residents and
other elderly customers.
JOINT VENTURES AND STRATEGIC ALLIANCES
In further support of its development strategy, the Company has formed strategic
alliances and joint ventures with established real estate development and
financial partners. These alliances and joint ventures have enabled the Company
to develop and construct additional residences while reducing the investment of,
and associated risk to, the Company.
Joint Venture with Pioneer Development Company. In 1996 the Company established
a joint venture relationship (the "ALS-Northeast J.V.") with Pioneer Development
Company, a Syracuse, New York-based commercial real estate development and
construction company ("Pioneer"), to develop, own and operate assisted living
residences in targeted market areas throughout New York, Massachusetts,
Connecticut and Rhode Island (the "ALS-Northeast Territory"). Pioneer and the
Company agreed to capitalize and form separate project entities during a
five-year development term commencing in September 1996 to develop, construct,
open and operate residences in the ALS-Northeast Territory, with the Company and
Pioneer owning and funding either a 51% and 49% equity interest, a 65% and 35%
equity interest, or an 80% and 20% equity interest, respectively, in such
project entities. Under certain circumstances, the development term for one or
more states in the ALS-Northwest Territory will be extended or shortened from
the original five-year term. During such development term, the Company and
Pioneer have agreed not to independently engage in other competitive activities
in the ALS-Northeast Territory, subject to certain limited exceptions. Pioneer
will provide development and construction management services to the
ALS-Northeast J.V. and ALS will manage the ALS-Northeast residences, all
pursuant to agreed upon arrangements. Any Losses from the operation of
residences jointly owned by ALS and Pioneer are allocated on a basis consistent
with the economic risk assumed by each of the partners, which results in losses
being disproportionately allocated to Pioneer to the extent of it's capital.
With respect to each ALS Northeast Territory residence, upon the first to occur
(i) of such residence achieving a 75% occupancy or (ii) the six-month
anniversary of the opening of such residence, Pioneer shall have the right to
require the Company to purchase Pioneer's interest in the residence (put option)
and the Company shall have an option to acquire (call option) Pioneer's interest
in such ALS-Northeast residence. The purchase price payable upon exercise of the
put and call options are based on the appraised fair market value of the
residence and shall be payable in cash and/or shares of Company Common Stock.
Joint Venture with Continuing Care Concepts, Inc. In 1994, the Company
established a joint venture with Continuing Care Concepts, Inc. ("CCC") to
develop, own and operate assisted living residences in target market areas
throughout Pennsylvania, Delaware and New Jersey (the "ALS-East Territory"). CCC
is a corporation owned and controlled by DeLuca Enterprises, Inc., an eastern
Pennsylvania-based commercial real estate development and construction company.
The joint venture arrangement between ALS and CCC contemplates the joint
development of residences in the ALS-East Territory, and CCC will have a right
of first refusal to provide 20% of the equity for any future residences
developed by ALS in the ALS-East Territory. Any losses from the operation of
residences jointly owned by ALS and CCC are any allocated on a basis consistent
with the economic risk assumed by each of the partners, which results in losses
being disproportionately allocated to CCC to the extent of it's capital. Upon
the six month anniversary of the opening of a residence jointly owned by ALS and
CCC, CCC shall have the right to require the Company to purchase CCC's interest
in such residence at fair market value (put option) and the Company shall have
an option to acquire CCC's interest in such residence at a purchase price based
upon an agreed upon return on investment (call option).
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Franchise Arrangement with Eby Holdings. The Company has a franchise
relationship with Eby Holdings Inc. ("Eby"). Under the terms of this agreement,
Eby receives the right to build and operate residences using the Company
branding, designs and operating systems in designated geographic areas.
Currently, Eby operates 14 residences in the states of Iowa and Nebraska under
the Sterling House brand. In consideration for the franchise relationship, the
Company receives fees equal to $95,000 payable at opening of the franchised
residence. In addition, the Company receives fees equal to 3% of resident
service revenue generated by the franchised residences. The Company has options
to purchase certain of the franchised residences based on fixed valuation
criteria or actual prices per unit, which options are exercisable solely at the
Company's discretion.
Development Arrangement with Investor Group. In December 1998, the Company
entered into a series of transactions with a group of investors (the "Investor")
pursuant to which the Company agreed to develop for the investors eight assisted
living/dementia care residences in the Company's construction or development
pipeline. The Investors acquired the Company's development rights in these eight
projects for approximately $12 million. The Company has agreed to complete
construction of these residences on the Investor's behalf, and will be
reimbursed by the Investor for costs incurred in connection therewith (estimated
to be approximately $23 million). The Company also agreed to provide a $26
million bridge loan to the Investor to permit them to satisfy a portion of their
obligations until they can obtain third party mortgage financing for these
residences. The bridge loan matures on the earlier of September 30, 1999 and the
closing of any such third party financing of the residences. In addition, the
Company has agreed to loan the Investor up to $800,000 for working capital
purposes and to guarantee, subject to certain limitations, the Investors third
party mortgage financing of the residences.
The Company and the Investors also entered into a (i) development agreement
pursuant to which the Company is providing the development and management
services necessary to develop and construct the residences for a fee and (ii)
management agreement pursuant to which the Company will manage the completed
residences on terms generally consistent with the Company's other management
agreements. The Company has a right of first offer with respect to any proposed
sale of these residences by the Investors.
Other Development Partnerships. The Company is a party to various other joint
venture arrangements pursuant to which the Company and other third party
development partners are jointly developing, constructing and operating
ALS-branded assisted living residences. Generally, the Company and its joint
venture partner form and capitalize a limited partnership or a limited liability
company that either acquires a fee interest or a leasehold interest in an
assisted living residence under development by the Company. The Company's
percentage equity interests in these joint venture entities varies from joint
venture to joint venture, ranging from 10% minority interests up to 80% majority
interests. These joint venture entities typically retain the Company as manager
pursuant to a market rate management agreement. Pursuant to the operative
agreements, the Company has the right to acquire (call option) the joint venture
partner's equity interest in such joint venture entity at a price based upon an
agreed upon return on investment to the joint venture partner. Similarly, after
a specified waiting period, the joint venture partner has the right to require
the Company to purchase (put option) such partner's equity interest in the joint
venture entity at a price based upon the appraised fair market value of the
residence operated by the joint venture entity. Losses from the operation of
residences owned in such joint venture structures are generally allocated on a
basis consistent with the respective partner's interest in cash distributions
and the economic substance of the joint venture arrangement, which results in
losses being disproportionately allocated to the joint venture partners to the
extent of their respective capital accounts.
GOVERNMENT REGULATION
Health care is an area of extensive and frequent regulatory change. The assisted
living industry is relatively new and, accordingly, the manner and extent to
which it is regulated at the federal and state levels is evolving.
The Company's assisted living residences are subject to regulation and licensing
by state and local health and social service agencies and other regulatory
authorities. In some states in which the Company operates, the term "assisted
living" may have a statutory definition limited to a particular type of program
or population. Some of the Company's assisted living residences may fall into
other licensing categories or may not require licensing in states with specific
"assisted living" programs, although such residences may offer services
requiring licensure (e.g., licensed home care services). Although regulatory
requirements vary from state to state, these requirements generally address,
among other things: personnel education, training and records; staffing levels;
facility services, including administration and assistance with
self-administration of medication, and limited nursing services; physical
residence specification; furnishing of residence units; food and housekeeping
services; emergency evacuation plans; and residence rights and responsibilities.
New Jersey, Kentucky and Illinois also require each assisted living residence to
obtain a Certificate of Need ("CON") prior to its opening. The Company's
residences are also subject to various state or local building codes and other
ordinances, including safety codes. Management anticipates that the states which
are establishing regulatory frameworks for assisted living residences will
require licensing of assisted living residences and will establish varying
requirements with respect to such licensing.
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The Company has obtained all required licenses for each of its residences and
expects that it will obtain all required licenses for each new residence. Each
of the Company's licenses must be renewed annually or biannually. The Company
has also obtained a CON for each residence under construction or development in
New Jersey and Kentucky, and is in the process of obtaining CONs for the
residences under development in Illinois.
Like other health care facilities, assisted living residences are subject to
periodic survey or inspection by governmental authorities. From time to time in
the ordinary course of business, the Company receives deficiency reports. The
Company reviews such reports and seeks to take appropriate corrective action.
Although most inspection deficiencies are resolved through a plan of correction,
the reviewing agency typically is authorized to take action against a licensed
facility where deficiencies are noted in the inspection process. Such action may
include imposition of fines, imposition of a provisional or conditional license
or suspension or revocation of a license or other sanctions. Any failure by the
Company to comply with applicable requirements could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company believes that its residences are in substantial compliance with all
applicable regulatory requirements.
Federal and state anti-remuneration laws, such as the Medicare/Medicaid
anti-kickback law, govern certain financial arrangements among health care
providers and others who may be in a position to refer or recommend patients to
such providers. These laws prohibit, among other things, certain direct and
indirect payments that are intended to induce the referral of patients to, the
arranging for services by, or, the recommending of, a particular provider of
health care items or services. The Medicare/Medicaid anti-kickback law has been
broadly interpreted to apply to certain contractual relationships between health
care providers and sources of patient referral. State anti remuneration laws
vary from state to state. Violation of these laws can result in loss of
licensure, civil and criminal penalties, and exclusion of health care providers
or suppliers from participation in (i.e., furnishing covered items or services
to beneficiaries) the Medicare and Medicaid programs. Although the Company
receives only a small portion of its total revenues from certain Medicaid waiver
programs and is otherwise not a Medicare or Medicaid provider or supplier, it is
subject to these laws because (i) applicable state laws typically apply
regardless of whether Medicare or Medicaid payments are at issue and (ii), some
of the Company's assisted living residences maintain contracts with certain
health care providers and practitioners, including pharmacies, home health
organizations and hospices, through which the health care providers make their
health care products or services (some of which may be covered by Medicare or
Medicaid) available to the Company's residents. There can be no assurance that
such laws will be interpreted in a manner consistent with the practices of the
Company.
In order to comply with the terms of the revenue bonds used to finance nine of
the Company's residences, the Company is required to lease a minimum of 20% of
the apartments in each such residence to low or moderate income persons as
defined pursuant to the Internal Revenue Code of 1986, as amended.
The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wage, overtime and other working conditions. A portion of the
Company's personnel is paid at rates related to the federal minimum wage and
accordingly, increases in the minimum wage will result in an increase in the
Company's labor costs.
The sale of franchises is regulated by the Federal Trade Commission and by
certain state agencies located in jurisdictions other than those states where
the Company currently operates. Principally, these regulations require that
certain written disclosures be made prior to the offer for sale of a franchise.
The disclosure documents are subject to state review and registration
requirements and must be periodically updated, not less frequently than
annually. In addition, some states have relationship laws which prescribe the
basis for terminating a franchisee's rights and regulate both the Company's and
its franchisee's post-termination rights and obligations.
Management is not aware of any non-compliance by the Company with applicable
regulatory requirements that would have a material adverse effect on the
Company's financial condition or results of operations.
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COMPETITION
The long-term care industry is highly competitive and, given the relatively low
barriers to entry and continuing health care costs containment pressures, the
Company expects that the assisted living segment of such industry will become
increasingly competitive in the future. The Company competes with other
providers of elderly residential care on the basis of the breadth and quality of
its services, the quality of its residences and, with respect to private pay
patients or residents, price. The Company also competes with other providers of
long-term care in the acquisition and development of additional residences. The
Company's current and potential competitors include national, regional and local
operators of long-term care residences, extended care centers,
assisted/independent living centers, retirement communities, home health
agencies and similar providers, many of which have significantly greater
financial and other resources than the Company. In addition, the Company
competes with a number of tax-exempt nonprofit organizations which can finance
capital expenditures on a tax-exempt basis or receive charitable contributions
unavailable to the Company and which are generally exempt from income tax. While
the Company's competitive position varies from market to market, the Company
believes that it competes favorably in substantially all of the markets in which
it operates based on key competitive factors such as the breadth and quality of
services offered, residence quality, recruitment and retention of qualified
health care personnel and reputation among local referral sources.
TRADEMARKS
Sterling House(R), Crossings(R), WovenHearts(R), Wynwood(R), Clare Bridge(R),
and Clare Bridge Cottage(R) are registered service marks of the Company and the
Company claims service mark protection in the marks Alternative Living
Services(SM), Clare Bridge(SM), Crystal Health Services(SM) and Alterra(SM).
EMPLOYEES
At December 31, 1998, the Company employed approximately 6,629 full-time
employees and 3,569 part-time employees. None of the Company's employees are
represented by a collective bargaining group.
THE COMPANY AND ITS PREDECESSORS
The Company was organized in December 1993, and was initially capitalized by
Evergreen Healthcare, Inc. ("Evergreen") and Care Living Centers, Inc. ("CLC").
Evergreen, then a NYSE-listed operator of long-term care facilities, merged with
GranCare, Inc. ("GranCare") in July 1995. At the time of the Company's
organization, CLC was owned 25% by William F. Lasky, the Company's Chief
Executive Officer, and 75% by two other shareholders. Pursuant to the terms of
an acquisition agreement between Evergreen, CLC and Alternative Living Services,
a Wisconsin general partnership owned 50% by Mr. Lasky and 50% by two other
individuals (the "ALS Partnership"), the Company was initially capitalized with
(i) $2.7 million contributed by Evergreen, of which $330,000 was in cash,
$170,000 was in satisfaction of a short-term advance and $2.2 million was in
common stock subscribed in exchange for a 51 % interest in the Company and (ii)
certain assets and contractual rights owned by CLC were contributed in exchange
for the remaining 49% interest in the Company issued to CLC. Immediately prior
to the consummation of the transaction (i) Assisted Care, Inc. ("Assisted
Care"), a corporation formed by the shareholders of CLC in 1989 to develop
assisted living facilities outside of the State of Wisconsin, was merged with
and into CLC and (ii) the ALS Partnership conveyed certain of its assets
relating to its assisted living business to CLC. Assisted Care and the ALS
Partnership were under common control through Mr. Lasky and one other
shareholder.
FACTORS AFFECTING FUTURE RESULTS AND REGARDING FORWARD-LOOKING STATEMENTS
The Company's business, results of operations and financial condition are
subject to many risks, including those set forth below. In addition, the
following important factors, among others, could cause the Company's actual
results to differ materially from those expressed in the Company's
forward-looking statements in this report and presented elsewhere by management
from time to time. When used in this report, the words "believes," "anticipates"
and similar expressions are intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking
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<PAGE> 10
statements that may be made to reflect events or circumstances after the date
of this report or to reflect the occurrence of unanticipated events. The
following discussion highlights some of these risks and others are discussed
elsewhere herein or in other documents filed by the Company with the Securities
and Exchange Commission.
SUBSTANTIAL DEBT AND OPERATING LEASE PAYMENT OBLIGATIONS. The Company had lease
expense of $44.2 million and $25.5 million for the years ended December 31, 1998
and 1997, respectively, and the Company's total indebtedness as of December 31,
1998 was $528.3 million, and its net interest expense was $11.0 million and $3.9
million for the years ended December 31, 1998 and 1997, respectively. Debt and
annual operating lease payment obligations will continue to increase
significantly as the Company pursues its growth strategy. In addition, the
Company anticipates that future development of residences may be financed with
construction loans and, therefore, there is a risk that, upon completion of
construction, permanent financing for newly developed residences may not be
available or may be available only on terms that are unfavorable or unacceptable
to the Company. Historically, the Company has not consistently had sufficient
earnings to cover fixed charges. Earnings of the Company were insufficient to
cover fixed charges by $13.9 million and $23.2 million for the years ended
December 31, 1998 and 1997. There can be no assurance that the Company will
generate sufficient cash flow to meet its future obligations. Any payment
default or other default with respect to such obligations could cause the lender
to foreclose upon the residences securing the indebtedness or, in the case of an
operating lease, to terminate the lease, with a consequent loss of income and
asset value to the Company. Moreover, because of cross-default and
cross-collateralization provisions in certain mortgages and debt instruments of
the Company and in most of its leases, a default by the Company on one of its
payment obligations could result in acceleration of other obligations and
adversely affect a significant number of its other residences. See "-- Need for
Additional Financing; Risk of Rising Interest Rates."
OPERATING LOSSES ASSOCIATED WITH NEW RESIDENCES. Newly opened assisted living
residences typically operate at a loss during the first six to 12 months of
operation, primarily due to the incurrence of certain fixed and variable
expenses in advance of the achievement of targeted rent and service fee revenues
from the lease-up of such residences. As of December 31, 1998, of the Company's
350 residences, 118 developed residences opened during 1998. In addition, the
development and construction of assisted living residences requires the
commitment of substantial capital over a typical six to 12 month construction
period, the consequence of which may be an adverse impact on the Company's
liquidity. As of December 31, 1998, the Company had 63 residences under
construction and an additional 136 residences under development. In the case of
acquired residences, resident turnover and increased marketing expenditures
which may be required to reposition such residences, together with the possible
disruption of operations resulting from the implementation of renovations, may
adversely impact the financial performance of such residences for a period of
time after their acquisition. In addition, occupancy levels and the rates which
the Company may be able to charge for its services may be adversely affected in
competitive market circumstances which would negatively impact the operating
results of affected residences. Accordingly, there can be no assurance that the
Company will not experience unforeseen expenses, difficulties, complications and
delays which could result in greater than anticipated operating losses or
otherwise materially adversely affect the Company's financial condition and
results of operations. See "-- Development and Construction Risks" and "--
Competition."
ABILITY TO CONTINUE GROWTH, TO MANAGE RAPID EXPANSION AND BUSINESS
DIVERSIFICATION. The Company has and expects to continue to pursue an aggressive
expansion strategy focused on developing, constructing and acquiring assisted
living residences. The Company is currently managing significant construction
and development activity. Accordingly, the Company's prospects are directly
affected by its ability to develop, construct and, to a lesser extent, acquire
additional residences. The Company's ability to continue to grow will depend in
large part on its ability to identify suitable and affordable development and
acquisition opportunities and successfully pursue such opportunities, identify
and obtain necessary financing commitments and effectively operate its assisted
living residences. There can be no assurance, however, that the Company will be
successful in developing, constructing or acquiring any additional residences or
that it will be able to continue to achieve or exceed its historical growth
rate. The Company's rapid expansion places significant demands on the Company's
management and operating personnel. The Company's ability to manage it's recent
and future growth effectively will require it to continue to improve its
operational, financial and management information systems and to continue to
attract, retain, train, motivate and manage key employees. If the Company is
unable to manage its growth effectively, its business, operating results and
financial condition will be adversely affected.
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<PAGE> 11
Management of the Company intends to review and, in appropriate circumstances,
pursue opportunities for development and expansion of new products and services,
such as home health care, rehabilitation and pharmacy services. Efforts to
achieve such business diversification, however, are subject to certain risks,
including management's relative unfamiliarity with such businesses, additional
uncertainties related to government regulation and possible difficulties in
integrating new products or businesses.
NEED FOR ADDITIONAL FINANCING, RISK OF RISING INTEREST RATES. To achieve its
growth strategy, the Company will need to obtain sufficient financing to fund
its continued development, construction and acquisition activities. Accordingly,
the Company's future growth will depend on its ability to obtain additional
financing on acceptable terms. The Company has executed non-binding letters of
intent with various healthcare REITs of which approximately $94 million is
available at December 31, 1998 and with conventional mortgage and bank lenders
for construction and long-term mortgage financing of which $332 million is
available at December 31, 1998. The Company's management believes financing
available pursuant to these arrangements, and pursuant to other sources of
financing, will be sufficient to fund its development and acquisition programs
for at least the next 12 months.
The Company will from time to time seek additional funding through public or
private financing, including equity or debt financing. If additional funds are
raised by issuing equity securities, the Company's stockholders may experience
dilution. In addition, the Company will require significant financial resources
to meet its operating and working capital needs, including contractual
obligations to purchase the equity interest of joint venture partners in
residences owned in joint ventures. See "-- Joint Ventures and Related Mandatory
Purchase Obligations." There can be no assurance that any newly constructed
residences will achieve a stabilized occupancy rate and attain a resident mix
that meet the Company's expectations or generate sufficient positive cash flow
to cover operating and financing costs associated with such residences. There
can be no assurance that the Company will be successful in securing additional
financing or that adequate funding will be available and, if available, will be
on terms that are acceptable to the Company. A lack of funds may require the
Company to delay or eliminate all or some of its development projects and
acquisition plans. In addition, the Company may require additional financing to
enable it to acquire additional residences, to respond to changing economic
conditions, to expand the Company's development program or to account for
changes in assumptions related to its development program.
Approximately $114.6 million, or 21.7%, of the Company's total indebtedness as
of December 31, 1998 was subject to floating interest rates. Although a majority
of the debt and lease payment obligations of the Company are not subject to
floating interest rates, indebtedness that the Company may incur in the future
may bear interest at a floating rate. In addition, future fixed rate
indebtedness and lease obligations will be based on interest rates prevailing at
the time such arrangements are obtained. Therefore, increases in prevailing
interest rates could increase the Company's interest or lease payment
obligations and could have an adverse effect on the Company's business,
financial condition and results of operations.
DEVELOPMENT AND CONSTRUCTION RISKS. The Company's growth strategy is dependent,
in part, on its ability to develop and construct a significant number of
additional residences. As of December 31, 1998, the Company had 63 residences
under construction and 136 residences under development. Development projects
generally are subject to various risks, including zoning, permitting, health
care licensing and construction delays, that may result in construction cost
overruns and longer development periods and, accordingly, higher than
anticipated start-up losses. Project management is subject to a number of
contingencies over which the Company will have little or no control and which
might adversely affect project costs and completion time. Such contingencies
include shortages of, or the inability to obtain, labor or materials, the
inability of the general contractor or subcontractors to perform under their
contracts, strikes, adverse weather conditions and changes in applicable laws or
regulations or in the method of applying such laws and regulations. As a result
of these various factors, there can be no assurance that the Company will not
experience construction delays, that it will be successful in developing and
constructing currently planned or additional residences or that any developed
residence will be economically successful. If the Company's planned development
is delayed, the Company's business, operating results and financial condition
could be adversely affected.
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<PAGE> 12
RISKS ASSOCIATED WITH ACQUISITIONS. The Company has acquired residences in the
past, is currently seeking to complete a major acquisition of up to 29
residences from HCR Manor Care and intends to continue to seek acquisition
opportunities in the future. However, no assurances can be given that the
Company will be successful in identifying any future acquisition opportunities
or completing any identified acquisitions. The acquisition of residences
involves a number of risks. Existing residences available for acquisition
frequently serve or target different market segments than those presently served
by the Company. It may be necessary in such cases to reposition and renovate
acquired residences or turn over the existing resident population to achieve a
resident acuity and income profile which is consistent with the Company's
current operations. In addition, the Company may also determine that staff and
operating management personnel changes are necessary to successfully integrate
such residences into the Company's existing operations. No assurances can be
made that management will be successful in repositioning any acquired residences
or in effecting any necessary operational or structural changes and improvements
on a timely basis. Any failure by the Company to make necessary operational or
structural changes or to successfully reposition acquired residences may
adversely impact the Company's business, operating results and financial
condition. In undertaking acquisitions of residences, the Company also may be
adversely impacted by unforeseen liabilities attributable to the prior operators
of such residences, against whom the Company may have little or no recourse.
JOINT VENTURES AND RELATED MANDATORY PURCHASE OBLIGATIONS. The Company has
entered into several joint ventures with regional real estate development
partners and others for the construction, development and ownership of assisted
living residences in targeted geographic areas. As of December 31, 1998, 77 of
the Company's operating residences were jointly owned, directly or indirectly,
with venture partners. Of the 199 residences which were either under
construction or development by the Company as of December 31, 1998, a
significant portion of such residences are being or will be constructed or
developed under joint venture agreements. The Company has agreed not to own or
operate competing assisted living residences during specified contractual
periods within specified geographic areas adjacent to residences developed
through certain of its joint ventures. While the Company typically receives a
fee for managing residences developed through joint ventures, it shares with its
joint venture partners any profits or losses realized from the operation or sale
of such residences. The Company is obligated under its joint venture
arrangements to purchase the equity interests of its joint venture partners upon
the election of such joint venture partners at a price based on the appraised
value of the residence owned by the applicable joint venture. These purchase
rights generally become exercisable during the period of six months to two years
following the opening of the residence owned by such joint venture. As a result
of these provisions, the Company might become obligated to acquire additional
interests in residences developed through joint ventures on terms or at times
that would otherwise not be acceptable to the Company, including times during
which the Company may not have adequate liquidity to fund such acquisitions.
RESIDENCE MANAGEMENT, STAFFING AND LABOR COSTS. The Company competes with other
providers of assisted living services and long-term care with respect to
attracting and retaining qualified and skilled personnel. The Company will be
dependent upon its ability to attract and retain management personnel
responsible for the day-to-day operations of each of the Company's residences.
Any inability of the Company to attract or retain qualified residence management
personnel could have a material adverse effect on the Company's financial
condition or results of operations. In addition, a possible shortage of nurses
or trained personnel may require the Company to enhance its wage and benefits
package in order to compete in the hiring and retention of such personnel. The
Company will also be dependent upon the available labor pool of semi-skilled and
unskilled employees in each of the markets in which it operates. No assurance
can be given that the Company's labor costs will not increase, or that, if they
do increase, they can be matched by corresponding increases in rates charged to
residents. Any significant failure by the Company to attract and retain
qualified management and staff personnel, to control its labor costs or to pass
on any increased labor costs to residents through rate increases would have a
material adverse effect on the Company's business, operating results and
financial condition.
COMPETITION. The long-term care industry is highly competitive and, given the
relatively low barriers to entry and continuing health care cost containment
pressures, the Company expects that the assisted living segment of such industry
will become increasingly competitive in the future. The Company competes with
other companies providing assisted living services as well as numerous other
companies providing similar service and care alternatives, such as home health
care agencies, congregate care facilities, retirement communities and skilled
nursing facilities. While the Company believes there is a need for additional
assisted living residences in the markets where the Company is constructing and
developing residences, the Company expects that, as assisted
11
<PAGE> 13
living residences receive increased market awareness and the number of states
which include assisted living services in their Medicaid programs increases,
competition will increase from new market entrants, many of whom may have
substantially greater financial resources than the Company. No assurance can be
given that increased competition will not adversely affect the Company's ability
to attract or retain residents or maintain its existing rate structures.
Moreover, in implementing its growth strategy, the Company expects to face
competition for development and acquisition opportunities from local developers
and regional and national assisted living companies. Some of the Company's
present and potential competitors have, or may have access to, greater financial
resources than those of the Company. Consequently, there can be no assurance
that the Company will not encounter increased competition in the future which
could limit its ability to attract and retain residents, to maintain or increase
resident service fees or to expand its business and could have a material
adverse effect on the Company's financial condition, results of operations and
prospects. Management of the Company is not able to predict the effect that the
health care industry trend towards managed care will have on the assisted living
marketplace. Managed care, an arrangement whereby service and care providers
agree to sell specifically defined services to one or more public or private
payors (frequently not the end user or resident) subject to a predefined system
in an effort to achieve more efficiency with respect to utilization and cost, is
not currently a significant factor in the assisted living marketplace. However,
managed care plans sponsored by insurance companies or HMOs may in the future be
a factor in the assisted living marketplace. There can be no assurance that the
Company will not encounter increased competition or be subject to other
competitive pressures that could affect its business, results of operation or
financial condition as a result of managed care.
GOVERNMENT REGULATION. Health care is an area of extensive and frequent
regulatory change. The assisted living industry is relatively new, and,
accordingly, the manner and extent to which it is regulated at the federal and
state levels is evolving. Changes in the laws or new interpretations of existing
laws may have a significant impact on the Company's methods and costs of doing
business. The Company is, and will be, subject to varying degrees of regulation
and licensing by health or social service agencies and other regulatory
authorities in the various states and localities where it operates or intends to
operate. The Company and its activities are subject to zoning, health and other
state and local government laws and regulations. Zoning variances or use permits
are often required for construction. Severely restrictive regulations could
impair the ability of the Company to open additional residences at desired
locations or could result in costly delays. Several of the Company's residences
have been financed by revenue bonds. In order to continue to qualify for
favorable tax treatment of the interest payable on certain of these bonds, the
financed residences must comply with certain federal income tax requirements,
principally pertaining to the maximum income level of a specified portion of the
residents. Failure to satisfy these requirements constitutes an event of default
under the bonds, thereby accelerating their maturity. The Company's success will
depend in part upon its ability to satisfy applicable regulations and
requirements and to procure and maintain required licenses in rapidly changing
regulatory environments. Any failure to satisfy applicable regulations or to
procure or maintain a required license could have a material adverse effect on
the Company's financial condition, results of operations and prospects.
The Company's operations could also be adversely affected by, among other
things, regulatory developments such as revisions in building code requirements
for assisted living residences, mandatory increases in the scope and quality of
care to be offered to residents and revisions in licensing and certification
standards. There can be no assurance that federal, state or local laws or
regulations will not be imposed or expanded based on evolving regulatory
interpretations or based on new statutory or regulatory provisions which
adversely impact the Company's business, financial condition, results of
operations or prospects. The Company's residence operations are also subject to
health and other state and local government regulations.
The Company has entered into franchise agreements with third parties pursuant to
which such third parties operate assisted living residences under registered
servicemarks of the Company utilizing systems and procedures prescribed by the
Company. The sale of franchises is regulated by the Federal Trade Commission and
by certain state agencies. Principally, these regulations require that certain
written disclosures be made prior to the sale of a franchise. In addition, some
states have relationship laws which prescribe the basis for terminating a
franchisee's rights and regulate both the franchisor's and its franchisees'
post-termination rights and obligations. There can be no assurance that changes
in such regulations will not have an adverse impact upon the ability of the
Company to continue its franchising activities.
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The Company intends to review and, in appropriate circumstances, pursue
opportunities for development and expansion into new products and services.
These new products and services may include home health care, rehabilitation and
pharmacy services. The federal and state regulation of such additional products
and services may be more extensive than that related to the Company's assisted
living operations. The Company has not in the past engaged in significant
activities outside of its core assisted living business. As the Company expands
into new products and services, the Company will be subject to additional
federal, state and local laws and regulations. Non-compliance with such laws and
regulations could have a material adverse effect on the Company's business,
financial condition, results of operations or prospects.
LIABILITY AND INSURANCE. The provision of personal and health care services
entails an inherent risk of liability. In recent years, participants in the
long-term care industry have become subject to an increasing number of lawsuits
alleging malpractice or related legal theories, many of which involved large
claims and resulted in the incurrence of significant defense costs. In addition,
compared to more institutional long-term care facilities, assisted living
residences (especially dementia care residences) of the type operated by the
Company offer residents a greater degree of independence in their daily lives.
This increased level of independence, however, may subject the resident and the
Company to certain risks that would be reduced in more institutionalized
settings. The Company currently maintains liability insurance intended to cover
such claims which it believes is adequate based on the nature of the risks,
historical experience and industry standards. There can be no assurance,
however, that claims in excess of such insurance or claims not covered by
insurance, such as claims for punitive damages, will not arise. A successful
claim against the Company not covered by, or in excess of, its insurance could
have a material adverse effect upon the Company's financial condition and
results of operations. Claims against the Company, regardless of their merit or
eventual outcome, may also have a material adverse effect upon the Company's
ability to attract or retain residents or expand its business and may require
management to devote substantial time to matters unrelated to day-to-day
operations. In addition, insurance policies must be renewed annually. There can
be no assurance that the Company will be able to obtain liability insurance in
the future or that, if such insurance is available, it will be available on
acceptable economic terms.
DEPENDENCE ON ATTRACTING SENIORS WITH SUFFICIENT RESOURCES TO PAY. The Company
currently relies, and for the foreseeable future, the Company expects to rely,
primarily on the ability of its residents to pay for services from their own and
their families' financial resources. Generally, only elderly adults with income
or assets meeting or exceeding the comparable median in the region where
assisted living residences of the Company are located can afford the fees for
such residences. Inflation or other circumstances which adversely affect the
ability of residents and potential residents to pay for assisted living services
could have an adverse effect on the Company. In the event that the Company
encounters difficulty in attracting seniors with adequate resources to pay for
the Company's services, the Company would be adversely affected.
ENVIRONMENTAL LIABILITY RISKS ASSOCIATED WITH REAL PROPERTY. Under various
Federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up hazardous or toxic substances or petroleum product
releases at such property, and may be held liable to a governmental entity or to
third parties for property damage and for investigation and cleanup costs
incurred by such parties in connection with the contamination. Such laws
typically impose clean up responsibility and liability without regard to whether
the owner knew of or caused the presence of contaminants, and liability under
such laws has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation or responsibility. The
costs of investigation, remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such property, may adversely affect the owner's ability to sell or
lease such property or to borrow using such property as collateral. In addition,
some environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances also may be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is owned or operated by such person. Finally, the owner of a site may be subject
to common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. With the exception of four
Sterling House residences operated by the Company or its predecessors since
prior to 1995, the Company has conducted environmental assessments of all of its
operating residences and has conducted, or is in the process of conducting,
environmental assessments of all of its undeveloped sites and sites currently
under construction. These assessments have not revealed, and the Company is not
otherwise aware of, any
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<PAGE> 15
environmental liability that it believes would have a material adverse effect on
the Company's business, assets or results of operations. There can be no
assurance, however, that environmental assessments would detect all
environmental contamination which may give rise to material environmental
liabilities. The Company believes that its respective residences are in
compliance in all material respects with all applicable environmental laws. The
Company has not been notified by any governmental authority, or is otherwise
aware, of any material non-compliance, liability or claim relating to hazardous
toxic substances or petroleum products in connection with any of the residences
its currently operates.
ANTI-TAKEOVER PROVISIONS. The Company's Restated Certificate of Incorporation
authorizes the issuance of 5,000,000 shares of preferred stock and 100,000,000
shares of Common Stock. Subject to the rules of the American Stock Exchange
("AMEX") upon which the Common Stock is listed, the Board of Directors of the
Company has the power to issue any or all of the authorized and unissued shares
without stockholder approval, and the preferred shares can be issued with such
rights, preferences and limitations as may be determined by the Company's Board.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of any holders of preferred stock that may be
issued in the future. The Company presently has no commitments or contracts to
issue any additional shares of Common Stock (other than pursuant to the exercise
of outstanding stock options or the conversion of the Company's 6.75%
Convertible Subordinated Debentures due 2006, 7% Convertible Subordinated
Debentures due 2004 or 5.25% Convertible Subordinated Debentures due 2002) or
any shares of preferred stock. Authorized and unissued preferred stock and
common stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could delay, discourage, hinder or
preclude an unsolicited acquisition of the Company, could make it less likely
that stockholders receive a premium for their shares as a result of any such
attempt and could adversely affect the market price of and the voting and other
rights of the holders of outstanding shares of Common Stock. As a Delaware
corporation, the Company is subject to Section 203 of the Delaware General
Corporation Law (the "DGCL") which, in general, prevents an "interested
stockholder" (defined generally as a person owing 15% or more of the
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) for three years following the date such
person became an interested stockholder unless certain conditions are satisfied.
On December 10, 1998, the Company entered into a Rights Agreement with American
Stock Transfer & Trust Company, as Rights Agent, pursuant to which the Company
declared and paid a dividend of one preferred share purchase right (a "Right")
for each outstanding share of Common Stock. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock, $.01 par value per share (the "Preferred
Shares"), of the Company at a price of $130.00 per one one-hundredth of a
Preferred Share. The Rights have certain anti-takeover effects, and they will
cause substantial dilution to a person or group that attempts to acquire the
Company without conditioning the offer on redemption of the Rights or on
substantially all of the Rights also being acquired. The Rights should not
interfere with any merger or other business combination approved by the
Company's Board since the Rights may be redeemed by the Company in accordance
with the Rights Agreement.
POSSIBLE PRICE VOLATILITY OF THE COMMON STOCK. The market price of the Company's
Common Stock could be subject to significant fluctuations in response to various
factors and events, including variations in the Company's operating results, and
new statutes or regulations or changes in the interpretation of existing
statutes or regulations affecting the health care industry generally or the
assisted living industry in particular. In addition, the stock market in recent
years has experienced broad price and volume fluctuations that often have been
unrelated to the operating performance of particular companies. These market
fluctuations also may adversely affect the market price of the Common Stock.
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ITEM 2. PROPERTIES
The table below sets forth certain information with respect to the Company's
residences which are operated by the Company as of December 31, 1998. The
Company owns, leases, holds equity interest in or manages, on behalf of third
parties, these residences.
OPERATING RESIDENCES
<TABLE>
<CAPTION>
OWNED (1) LEASED (2) UNCONSOLIDATED (3) MANAGED (4) TOTAL
----------------- ----------------- ------------------- ------------------- -------------------
LOCATION RES. CAP. RES. CAP. RES. CAP. RES. CAP. RES. CAP.
----------- ------- -------- ------ -------- ------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZ 3 151 1 52 6 298 -- -- 10 501
CA 2 307 -- -- -- -- -- -- 2 307
CO 5 257 9 602 -- -- 1 50 15 909
DE -- -- -- -- 1 72 -- -- 1 72
FL 5 234 29 1,216 11 492 -- -- 45 1,942
ID 1 70 2 158 -- -- -- -- 3 228
IN 2 84 -- -- 5 210 -- -- 7 294
KS 12 399 11 357 -- -- 2 80 25 836
MA 1 72 -- -- -- -- -- -- 1 72
MI 18 514 9 390 3 188 -- -- 30 1,092
MN 8 266 8 259 3 156 -- -- 19 681
NC 4 230 4 204 1 46 5 210 14 690
ND -- -- 1 71 -- -- -- -- 1 71
NJ 4 152 -- -- -- -- -- -- 4 152
NV 1 54 2 154 -- -- -- -- 3 208
NY 9 632 1 80 -- -- -- -- 10 712
OH -- -- 16 648 5 210 -- -- 21 858
OK -- -- 26 906 -- -- -- -- 26 906
OR 1 56 8 650 -- -- -- -- 9 706
PA 7 304 4 281 2 64 -- -- 13 649
SC 3 126 3 118 2 84 3 128 11 456
TN -- -- -- -- 4 176 -- -- 4 176
TX -- -- 26 1,000 -- -- -- -- 26 1,000
WA -- -- 4 388 3 156 -- -- 7 544
WI 13 306 21 532 3 55 6 48 43 941
------- -------- ------ -------- ------- -------- -------- -------- -------- -------
TOTAL 99 4,214 185 8,066 49 2,207 17 516 350 15,003
======= ======== ====== ======== ======= ======== ======== ======== ======== =======
</TABLE>
(1) Owned residences are those that are wholly or majority owned by the
Company.
(2) Leased residences are those that are operated by the Company and are
leased from a third party.
(3) Unconsolidated residences are those residences managed by the Company, but
operated by an entity in which ALS owns a minority equity interest.
(4) Managed residences are those residences that ALS manages under
management arrangements but in which ALS does not possess an ownership
interest. ALS has an option to purchase or lease eleven of these
residences.
82% of all operating residences are four years old or less and the remaining 18%
range from five to fourteen years old.
15
<PAGE> 17
At December 31, 1998, the Company was in various stages of constructing 63
residences and developing 136 residences. Set forth below is certain information
with respect to residences in construction and residence sites in development on
December 31, 1998.
RESIDENCES UNDER CONSTRUCTION OR DEVELOPMENT
<TABLE>
<CAPTION>
UNDER CONSTRUCTION UNDER DEVELOPMENT
------------------------------ ------------------------------
LOCATION RESIDENCES CAPACITY RESIDENCES CAPACITY
- --------------- -------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
AZ 2 76 3 169
CA 1 74 17 857
CO 3 140 3 118
CT -- -- 3 150
DE -- -- 2 130
FL 8 350 6 292
GA 1 36 7 280
IA -- -- 1 40
IL -- -- 2 86
IN 9 360 7 280
KS 1 40 2 78
KY -- -- 15 616
MA -- -- 1 52
MD 2 82 3 150
MI -- -- 2 82
MN 1 78 -- --
NJ 3 182 8 362
NV 1 52 2 131
NY 6 274 10 461
NC 4 156 7 258
OH 4 151 -- --
OK 2 74 2 88
OR 1 52 2 104
PA 1 52 1 38
SC 2 84 4 142
TN 6 250 8 314
TX 1 36 5 198
VA 1 40 6 240
WA 2 104 1 52
WI 1 102 4 218
WY -- -- 2 82
-------------- ----------- -------------- ------------
TOTAL 63 2,845 136 6,068
============== =========== ============== ============
</TABLE>
Certain of the residences under construction or development may be owned
directly by joint venture entities in which the Company will own varying
percentages of equity interests. See "Business - Joint Ventures and Strategic
Alliances."
"Construction" means that construction activities have commenced (ground
breaking) and are ongoing. "Development" means that the site is under "control"
(pursuant to purchase agreements or options or otherwise) and development
activities with respect to the site have commenced and are ongoing (such as site
permitting, preparation of surveys and architectural plans, and negotiation of
construction contracts).
Residences under development may not in fact be constructed for a variety of
reasons, including zoning, permitting, health care licensing and cost related
issues. In addition to residences listed in the table above as "under
development," the Company is also engaged in preliminary development activities
with respect to other possible sites for future residences.
16
<PAGE> 18
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings relating
to claims arising in the ordinary course of its business. Neither the Company
nor any of its subsidiaries is a party to any such legal proceeding, the outcome
of which, individually or in the aggregate, is expected to have a material
adverse affect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during the
fourth quarter of its fiscal year ended December 31, 1998.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is listed and traded on the American Stock Exchange
(AMEX) under the symbol "ALI". The Common Stock has been listed on the AMEX
since August 6, 1996, the date of the Company's initial public offering. The
number of holders of record of the Company's Common Stock as of March 3, 1999,
was approximately 6,012.
The following table sets forth, for the periods indicated, the high and low
closing prices for the Common Stock as reported on AMEX.
<TABLE>
<CAPTION>
HIGH LOW
----------- ----------
1998:
<S> <C> <C>
First Quarter........................ 34-1/2 27
Second Quarter....................... 35 24-3/4
Third Quarter........................ 30-1/2 17-1/8
Fourth Quarter....................... 34-1/4 17-1/4
1997:
First Quarter........................ 17-3/4 11-7/8
Second Quarter....................... 23-1/4 14-7/8
Third Quarter........................ 25-1/2 21-3/16
Fourth Quarter....................... 29-9/16 23
</TABLE>
The Company has never paid or declared cash dividends and currently intends to
retain any future earnings for the operation and expansion of its business. Any
determination to pay cash dividends in the future will be at the discretion of
the Board of Directors and will be dependent on the Company's financial
condition, results of operations, contractual restrictions, capital
requirements, business prospects, restrictive debt covenants and such other
factors as the Board of Directors deems relevant.
17
<PAGE> 19
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated historical financial data of the Company presented
below for each of the five years ended December 31, 1998 has been derived from
the Company's audited consolidated financial statements appearing elsewhere in
this report. The selected consolidated financial data presented below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto included in this report (in thousands, except per
share data).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- --------- ----------
STATEMENTS OF OPERATIONS DATA :
Revenue:
<S> <C> <C> <C> <C> <C>
Operating revenue.......................... $244,423 $ 130,744 $ 55,637 $ 15,061 $ 7,228
-------- --------- --------- -------- --------
Operating expenses:
Residence operations....................... 147,931 81,558 35,977 8,717 3,185
Lease expense.............................. 44,174 25,524 9,035 944 697
General and administrative................. 23,200 22,168 11,143 5,890 3,489
Depreciation and amortization.............. 19,730 9,271 4,223 1,275 346
Non-recurring charge....................... -- 4,656 976 -- --
-------- --------- --------- -------- --------
Total operating expenses............... 235,035 143,177 61,354 16,826 7,717
-------- --------- --------- -------- --------
Operating income (loss)...................... 9,388 (12,433) (5,717) (1,765) (489)
Other income (expense):
Interest expense, net...................... (11,024) (3,932) (3,231) (984) (397)
Lease income............................... 4,915 -- -- -- --
Equity in losses of unconsolidated affiliates (31) (226) (52) (716) (299)
Minority interest in losses of consolidated 20,610 8,440 76 160 48
subsidiaries
Other, net................................. (170) (112) (31) 479 --
-------- --------- --------- -------- --------
Total other income (expense), net.... 14,300 4,170 (3,238) (1,061) (648)
-------- --------- --------- -------- --------
Income (loss) before income taxes............ 23,688 (8,263) (8,955) (2,826) (1,137)
Income tax (expense) benefit................. (3,136) -- 159 991 --
-------- --------- --------- -------- --------
Income (loss) before extraordinary item...... 20,552 (8,263) (8,796) (1,835) (1,137)
Extraordinary item - loss from early retirement
of financing agreements.................. -- -- -- (1,176) --
-------- --------- --------- -------- --------
Net income (loss).................... $ 20,552 $ (8,263) $ (8,796) $ (3,011) $ (1,137)
======== ========= ========= ======== ========
Basic income (loss) per common share:
Income (loss) before extraordinary item (1) $ 0.94 $ (0.44) $ (0.57) $ (0.24) $ (0.26)
Extraordinary item (1)..................... -- -- -- (0.15) --
-------- --------- --------- -------- --------
Basic income (loss) per common share (1)..... $ 0.94 $ (0.44) $ (0.57) $ (0.39) $ (0.26)
======== ========= ========== ======== ========
Diluted income (loss) per common share:
Income (loss) before extraordinary item (1) $ 0.92 $ (0.44) $ (0.57) $ (0.24) $ (0.26)
Extraordinary item (1)..................... -- -- -- $ (0.15) --
-------- --------- --------- -------- --------
Diluted income (loss) per common share (1).. $ 0.92 $ (0.44) $ (0.57) $ (0.39) $ (0.26)
======== ========= ========= ======== ========
Weighted average common shares outstanding (1):
Basic...................................... 21,905 18,651 15,429 7,782 4,322
======== ========= ========= ======== ========
Diluted.................................... 24,145 18,651 15,429 7 ,782 4,322
======== ========= ========= ======== ========
</TABLE>
(1) Basic and diluted share amounts are the same for 1994-1997 since potentially
issuable shares related to stock options and convertible debt would have had an
anti-dilutive effect.
18
<PAGE> 20
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- --------- ----------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................... $ 49,934 $ 79,838 $ 39,455 $20,394 $ 896
Short-term investments...................... -- 90,000 -- -- --
Working capital (deficit)................... 28,305 129,528 20,532 10,425 (1,723)
Total assets................................ 777,810 553,552 204,353 82,450 18,160
Long-term obligations....................... 515,584 318,069 68,625 23,663 7,365
Stockholders' equity........................ $177,112 $143,897 $ 91,064 $45,466 $ 3,765
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a leading national assisted living company operating 350 assisted
living residences with an aggregate capacity of approximately 15,000 residents
as of December 31, 1998. Of these residences, the Company owns 77, leases 179,
holds majority interests in entities which own 22 and lease 6, holds minority
interests in entities which own 11 and lease 38, and manages 17 for other
owners. The Company's rapid growth over the last several years has had a
significant impact on the Company's results of operations and accounts for
substantially all of the changes in its results of operations for the years
ended 1998, 1997 and 1996. As of December 31, 1998, 1997 and 1996, the Company
operated or managed residences with an aggregate capacity to accommodate
approximately 15,000, 9,500 and 5,200 residents, respectively.
Since 1993, the Company has grown significantly as a result of its aggressive
development and acquisition activities, which have focused on purposeful built,
free-standing assisted living residences. The Company intends to continue its
development strategy and, at December 31, 1998, was constructing 63 residences
and developing an additional 136 residences. Of these residences, at least 80
with an aggregate capacity of approximately 3,600 residents are expected to open
during 1999.
On December 31, 1998, the Company entered into a strategic alliance with HCR
Manor Care. The alliance includes four principal arrangements:
- - The Company will acquire from HCR Manor Care up to 29 Alzheimer's/dementia
care and assisted living residences with a capacity for 2,611 residents
located throughout 12 states for $200 million in cash. Acquisitions of these
residences are expected to close in the second quarter of 1999.
- - HCR Manor Care and the Company will establish and capitalize a joint venture
to develop $500 million of ALS-branded Alzheimer's/dementia care and
assisted living residences in HCR's core markets over the next three to five
years. The Company expects to begin joint development under this arrangement
in the second quarter of 1999 and to continue joint development activities
over a three to five year period.
- - HCR Manor Care has agreed in principle to license from ALS the use of ALS'
Clare Bridge(R) service mark, to share various best practices, and to engage
in joint marketing activities relating to HCR's remaining
Alzheimer's/dementia care residences. The Company expects to finalize this
arrangement in the second quarter of 1999.
- - HCR Manor Care and ALS have agreed in principle to form a new company to
provide a variety of ancillary services to ALS' resident population,
including rehabilitation therapy and hospice care. The Company expects to
finalize this arrangement in the second quarter of 1999.
In October 1997, the Company completed the Sterling Merger. At the time of the
merger Sterling operated 104 residences with an aggregate capacity of
approximately 3,900 residents. In May 1996, the Company acquired Crossings, an
assisted living company which operated 15 Crossings residences with a capacity
to accommodate approximately 1,420 residents throughout the western United
States; and in January 1996, the Company acquired Heartland, an assisted living
company which operated 20 WovenHearts residences with an aggregate capacity of
19
<PAGE> 21
approximately 330 residents throughout Wisconsin. The Sterling Merger was
accounted for as a pooling-of-interest and both of the 1996 acquisition
transactions were accounted for as purchases.
The following discussion and analysis relates to, and should be read in
conjunction with, the consolidated financial statements included elsewhere
herein. These financial statements give retroactive effect to the Sterling
Merger consummated on October 23, 1997, which has been accounted for as a
pooling-of-interests. See "Index to Consolidated Financial Statements."
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Operating Revenue. Operating revenues for the year ended December 31, 1998 were
$244.4 million representing an increase of $113.7 million, or 87%, from the
$130.7 million for the comparable 1997 period. Substantially all of this
increase resulted from the addition of newly constructed residences and other
residences acquired by the Company. The Company operated or managed 350 and 223
residences at December 31, 1998 and 1997, respectively.
Other revenues for the year ended December 31, 1998 were $8.5 million, an
increase of $6.6 million over the $1.9 million of other revenue for the year
ended December 31, 1997. The increase is attributable to management fees
on an increased number of residences which were either managed for
third parties or held in minority joint venture structures in 1998 versus 1997.
As of December 31, 1998, the Company had 66 residences held in minority joint
ventures or managed for other owners as compared to 36 such residences on
December 31, 1997. The increase in other revenue was also impacted by 14 new
residences opened under franchise arrangements in 1998 and fees recognized from
a development arrangement in 1998.
Residence Operating Expenses. Residence operating expenses for the year ended
December 31, 1998 increased to $147.9 million from $81.6 million in the
comparable period in 1997 due to the increased number of residences operated
during the 1998 period. Operating expenses as a percentage of operating revenue
for the years ended December 31, 1998 and 1997 were 60.5% and 62.4%,
respectively.
Lease Expense. Lease expense for the year ended December 31, 1998 was $44.2
million, compared to $25.5 million in the comparable period in 1997. Such
increase was primarily attributable to the utilization of additional
sale/leaseback financing totaling $146 million during the twelve-month period
ended December 31, 1998.
General and Administrative Expense. General and administrative expenses for the
year ended December 31, 1998 were $23.2 million compared to $16.5 million,
before Sterling Merger related charges of $5.7 million, for the comparable 1997
period, representing a decline as a percentage of operating revenue to 9.5% in
1998 from 12.6% in 1997. The increase in expenses was primarily attributable to
salaries, related payroll taxes and employee benefits for additional corporate
personnel retained to support the Company's actual and anticipated growth. The
Company expects that its general and administrative expenses will continue to
decrease as a percentage of operating revenue as the Company grows and achieves
additional economies of scale.
Depreciation and Amortization. Depreciation and amortization for the year ended
December 31, 1998 was $19.7 million, representing an increase of $10.4 million,
or 113%, from the $9.3 million of depreciation and amortization for the
comparable period in 1997. This increase resulted primarily from depreciation of
fixed assets and amortization of pre-opening costs on the larger number of new
residences that were operated by the Company during the year ended December 31,
1998, versus the comparable period in 1997. The Company amortizes pre-opening
costs over a twelve-month period from the date the residence opens. Upon the
adoption of the AICPA Statement of Position No. 98-5 "Reporting on the Costs of
Start-up Activities," on January 1, 1999, the Company will expense pre-opening
costs, as defined, when they are incurred.
Interest Expense, Net. Interest expense, net of interest income, was $11.0
million for the year ended December 31, 1998, compared to $3.9 million for the
comparable period in 1997. Gross interest expense (before interest
capitalization and interest income) for the 1998 period was $29.8 million
compared to $13.4 million for the 1997 period, an increase of $16.4 million.
This increase is primarily attributable to the issuance in May 1997 of the 7%
Convertible Subordinated Debentures due 2004, (the "7% Debentures") the issuance
in December 1997 of the 5.25% Convertible Subordinated Debentures due 2002, (the
"5.25% Debentures") and an increase in the amount of
20
<PAGE> 22
mortgage financing used in the 1998 period as compared to the 1997 period. The
Company capitalized $13.8 million of interest expense in the 1998 period
compared to $6.7 million in the comparable 1997 period due to increased
construction activity in 1998. The Company opened 116 newly constructed
residences during the year ended December 31, 1998 compared to 78 newly
constructed residences opened in the comparable period in 1997. Interest income
for the 1998 period was $5.0 million as compared to $2.8 million for the 1997
period. This increase was primarily due to the investment of proceeds received
from the December 1997 concurrent convertible debt and equity offering.
Lease Income. The Company recorded $4.9 million of lease income on residences
owned by the Company and leased to unconsolidated joint ventures in 1998. Under
this arrangement, the Company retains ownership in underlying assets in order to
allow the use of Company financing arrangements. Lease payment obligations of
the unconsolidated joint venture entities are generally equivalent to the debt
service payable by the Company on the leased residences, which thereby, offset
Company costs associated with retaining ownership in the fixed assets.
The Company had no such arrangements in 1997.
Minority Interest in Losses of Consolidated Subsidiaries. Minority interest in
losses of consolidated subsidiaries for the year ended December 31, 1998 was
$20.6 million, representing an increase of $12.2 million from $8.4 million for
the comparable period in 1997. The increase was primarily attributable to the
increase in the number of residences in various stages of lease-up that were
owned by the Company in joint venture arrangements. Throughout 1998, the Company
had an average of 46 residences held in these joint venture arrangements
compared to an average of 17 residences held in similar joint venture
arrangements during the year ended December 31, 1997.
Income Taxes. For the year ended December 31, 1998, the Company recorded a
current income tax provision of $9.6 million which was offset by the recognition
of $6.5 million of deferred tax assets resulting in a current income tax expense
of $3.1 million. The deferred tax asset recognition was generated primarily due
to the elimination of valuation allowances associated with net deferred tax
assets in 1997 and prior.
Net Income. As a result of the foregoing, the net income for the year ended
December 31, 1998 was $20.6 million compared to a net loss of $8.3 million for
the comparable period in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Operating Revenue. Operating revenues for the year ended December 31, 1997 were
$130.7 million representing an increase of $75.1 million, or 135%, from the
$55.6 million of operating revenue for the comparable 1996 period. Substantially
all of this increase resulted from the addition of newly constructed residences,
the acquisition of Crossings in May 1996 and other acquisitions. The Company
operated 223 residences at December 31, 1997 compared to 136 residences at
December 31, 1996.
Residence Operating Expenses. Residence operating expenses for the year ended
December 31, 1997 increased to $81.6 million from $36.0 million for the
comparable 1996 period primarily as a result of an increase in the number of
residences operated during the 1997 period. Operating expense as a percentage of
operating revenue for the years ended December 31, 1997 and 1996 was 62.4% and
64.7%, respectively.
Lease Expense. Lease expense for the year ended December 31, 1997 was $25.5
million, compared to $9.0 million in the comparable period in 1996. Such
increase was attributable to the acquisition of Crossings residences in May
1996, 13 residences of which are leased, the sale/leaseback of 12 residences in
December 1996 and utilization of sale/leaseback financing totaling $160.7
million during 1997.
General and Administrative Expense. General and administrative expenses for the
year ended December 31, 1997 were $16.5 million, before Sterling Merger related
charges of $5.7 million, compared to $11.1 million for the comparable 1996
period. General and administrative expense, before Sterling Merger related
charges, as a percentage of operating revenue declined from 20% in the year
ended December 31, 1996 to 13% in the year ended December 31, 1997. The increase
in general and administrative expenses was primarily attributable to salaries,
related payroll taxes and employee benefits for additional corporate personnel
retained to support the
21
<PAGE> 23
Company's rapid growth. The $5.7 million of Sterling Merger costs represents
investment banking, legal, accounting and consulting costs related to the
transaction.
Depreciation and Amortization. Depreciation and amortization for the year ended
December 31, 1997 was $9.3 million, representing an increase of $5.1 million, or
120%, from $4.2 million for the comparable period in 1996. This increase
resulted primarily from depreciation of fixed assets and amortization of
pre-opening costs on the larger number of new residences that opened during 1997
and the fourth quarter of 1996. The Company amortizes pre-opening costs over a
twelve month period from the date the residence is available for occupancy.
Non-recurring Charge. For the year ended December 31, 1997, the Company recorded
a $4.7 million non-recurring charge related to the Sterling Merger. The
non-recurring charge established reserves for exit costs for duplicate facility
locations, systems consolidation, severance arrangements and consolidation of
corporate office functions.
Interest Expense, Net. Interest expense, net of interest income, was $3.9
million for the year ended December 31, 1997 compared to $3.2 million for the
comparable period in 1996. Gross interest expense for the 1997 period was $13.4
million compared to $7.0 million for the 1996 period, an increase of $6.4
million. This increase is primarily attributable to the issuance of the 7%
Debentures in May 1997, the issuance of the 6.75% Convertible Subordinated
Debentures due 2006 in May 1996 and an increase in the amount of construction
financing used in the 1997 period as compared to the 1996 period. The Company
capitalized $6.7 million of interest expense in the 1997 period compared to $1.9
million in the comparable 1996 period due to increased construction activity in
1997. Construction in progress was $114.3 million at December 31, 1997 compared
to $53.1 million at December 31, 1996. Interest income for the 1997 period was
$2.8 million as compared to $1.9 million for the 1996 period. This increase was
primarily due to the investment of proceeds received from the 7% Debentures
issued in May 1997.
Minority Interest in Losses of Consolidated Subsidiaries. Minority interest in
losses of consolidated subsidiaries for the year ended December 31, 1997 was
$8.4 million, representing an increase of $8.4 million from $76,000 for the
comparable period in 1996. The increase was primarily attributable to the
increase in the number of residences owned by the Company within consolidated,
majority owned joint venture arrangements. During 1997, the Company had an
average of 17 residences held in consolidated joint venture arrangements
compared to one residence held in a consolidated joint venture arrangements
during 1996.
Net Loss. As a result of the foregoing, the net loss for the year ended December
31, 1997 was $8.3 million compared to a net loss of $8.8 million for the
comparable period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
For the years ended December 31, 1998, 1997 and 1996, the Company experienced
cash flow deficits from operations of $1.1 million, $141,000 and $1.7 million,
respectively. These cash flow deficits were primarily a result of the Company's
significant development of new residences, which typically incur cash flow
deficits during the lease-up period. A significant number of these new
residences were owned in consolidated joint venture arrangements. Consistent
with the terms of these agreements, operating deficits included in cash flow
from operations of $20.6 million and $8.4 million for the years ended December
31, 1998 and 1997, respectively, were funded with capital contributions from the
minority partners. In 1998 and 1997, the cash flow deficit was also caused by
restructuring and transaction costs of approximately $5 million and $4 million
respectively, incurred in connection with the Sterling Merger and general
administrative expense necessary to support the Company's continued growth.
During the year ended December 31, 1998, the Company executed approximately
$340.4 million of new financing. Financing was provided through the sale of
5.25% Debentures pursuant to the exercise of an overallotment option and the
issuance of common stock in January 1998 which provided net proceeds of $18.3
million and $9.2 million, respectively, $145.7 million of sale/leaseback
financing, $198.4 million of secured mortgage financing, $5.0 million of
unsecured short-term financing, $26.7 million of minority partner contributions
and cash from operations. In addition, the Company assumed existing debt of
$13.3 million related to acquisitions completed in 1998.
This financing along with approximately $120 million in available cash and
investments was used to fund $366.9 million in construction and development
activity, $49.5 million in acquisition activity, $27.1 million in joint venture
buy-outs, and operating cash flow deficits.
22
<PAGE> 24
In December 1998, the Company had working capital of $28.3 million compared to
working capital of $129.5 million at December 31, 1997. The decrease was due to
the utilization of $120 million in cash and investments to fund additional
construction and development activities during 1998.
The Company's earnings were inadequate to cover fixed charges by $13.9 million
and $23.2 million for the years ended December 31, 1998 and 1997.
To achieve its growth objectives, the Company will need to obtain sufficient
financing to fund its development, construction and acquisition activities. The
Company has plans to develop approximately $325 million of residences for the
12-month period ending December 31, 1999. Historically, the Company has financed
its development program and acquisitions through a combination of various forms
of real estate financing (mortgage and sale/leaseback financing), capital
contributions from joint venture partners and the sale of its securities. The
Company currently has executed non-binding letters of intent with various
healthcare REITs and commitments from conventional lenders for financing. As of
December 31, 1998, the Company had $94 million and $332 million of remaining
financing commitments from these healthcare REITs and conventional lenders,
respectively. In addition, the Company will require approximately $200 million
to acquire the 29 properties it has agreed to purchase from HCR Manor Care. The
Company expects to finance this transaction through a separate credit facility.
In addition to financing construction and development costs, the Company will
require capital resources to meet its operating and working capital needs
incurred primarily in connection with the start-up and lease-up phases of new
residences. The Company believes that its cash on hand, financing under these
commitments, other financing that the Company expects to be able to access and
equity contributions from its joint venture development partners will be
sufficient to fund its growth strategy for the next 12 months.
A lack of funds may require the Company to delay or eliminate all or some of its
development projects and acquisition plans. In addition, the Company may require
additional financing to enable it to acquire additional residences, to respond
to changing economic conditions, to expand the Company's development program or
to account for changes in assumptions related to its development program. There
can be no assurance that any newly constructed residences will achieve a
stabilized occupancy level and attain a resident mix that meet the Company's
expectations or generate sufficient positive cash flow to cover operating and
financing costs associated with such residences. There can be no assurance that
the Company will be successful in securing additional financing or that adequate
funding will be available and, if available, will be on terms that are
acceptable to the Company.
The Company is obligated under its joint venture arrangements to purchase the
equity interests of its joint venture partners at fair market value upon the
election of such partners. Within the next twelve months, the Company will
become subject to such contingent purchase obligations with respect to equity
interests held by joint venture partners, exercisable at their election, related
to certain of the Company's residences. At such times, or earlier, as such
contingent purchase obligations are exercisable, the Company may also elect to
exercise its rights to purchase such interests. Based on a number of
assumptions, including assumptions as to the number of residences to be
developed with joint venture partners, the timing of such development, the time
at which such options may be exercised and the fair market value of such
residences at the date such options are exercised, the Company estimates that it
may require approximately $30 million to $35 million to satisfy these purchase
obligations during the 12 month period ended December 31, 1999.
IMPACT OF INFLATION
To date, inflation has not had a significant impact on the Company. Inflation
could, however, affect the Company's results of operations due to the Company's
dependence on its senior resident population who rely on liquid assets and
relatively fixed incomes to pay for the Company's services. As a result, the
Company may not be able to increase residence service fees to account fully for
increased operating expenses. In structuring its fees, the Company attempts to
anticipate inflation levels, but there can be no assurance that the Company will
be able to anticipate fully or otherwise respond to any future inflationary
pressures. In addition, given the significant amount of construction and
development activity which the Company anticipates, inflationary pressures could
affect the Company's cost of new product deployment and financing. There can be
no assurances that financing will be available on terms acceptable to the
Company.
23
<PAGE> 25
YEAR 2000 ISSUE
As a result of certain computer programs being written using two digits rather
than four to define the applicable year, any of the Company's computer systems
that have date sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000 (the so-called "Year 2000 Issue"). This could
result in certain system failures or miscalculations causing disruptions to the
operations or business activities of the Company.
The Company began evaluating its compliance with year 2000 issues in 1997. An
assessment of existing systems indicated that all of its principal systems, such
as general ledger, accounts payable, billing, property management, and all
desktop applications such as word processing, e-mail and spreadsheet
applications were compliant. To address the significant growth of the Company,
a new corporate telecommunications system was installed in 1998 and the Company
implemented a new Human Resources and Payroll system on January 1, 1999. While
preliminary indications suggest that there are no systems in the residences that
will be affected (call systems, elevators, phones, etc.), the Company will be
completing its evaluation of compliance of these systems during the second
quarter of 1999. While the Company does not believe that it has any significant
exposure from lack of compliance by third party vendors, it will also be
completing its evaluation of those vendor systems by the second quarter of 1999,
thus allowing for the remainder of 1999 to develop any contingency plans that
might be required.
Because the Company's hardware and software has been determined to be Year 2000
compliant, and third party vendor arrangements are not anticipated to have a
significant effect on operations, the Company does not expect that issues
associated with Year 2000 compliance will have any material adverse effect on
its consolidated financial position or results of operations. There can be no
assurance, however, that the computer systems of other businesses on which the
Company's operations rely, such as utilities, transportation, communications,
banking and government, will be timely modified, or that a failure to modify
such systems by such businesses, or modifications that are incompatible with the
Company's systems, would not have a material adverse effect on the Company.
Because the remaining focus around Year 2000 compliance issues relates primarily
to identifying third party problems or issues and contingency plans, if
necessary, the Company believes that the associated costs related to Year 2000
compliance will be immaterial.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates, foreign
exchange rates and equity prices. Changes in these factors cause fluctuations in
the Company's earnings and cash flows.
The Company performed a sensitivity analysis which presents the hypothetical
change in fair value of those financial instruments held by the Company at
December 31, 1998 which are sensitive to changes in interest rates. Market risk
is estimated as the potential change in fair value resulting from an immediate
hypothetical one percentage point parallel shift in the yield curve. The fair
value of the debt included in the analysis is $114.6 million. Although not
expected, a one percentage point change in the interest rates would have
caused the Company's annual interest expense to change by approximately $1.1
million. Accordingly, a significant increase in LIBOR could have a material
adverse effect on the Company's earnings.
Although a majority of the debt and lease payment obligations of the Company as
of, or during the twelve months ended, December 31, 1998 are not subject to
floating interest rates, indebtedness that the Company may incur in the future
may bear interest at a floating rate. Debt and annual operating lease payment
obligations will continue to increase significantly as the Company pursues its
growth strategy.
24
<PAGE> 26
The Company does not presently use financial derivative instruments to manage
its interest costs. The Company does not use foreign currency exchange rate
forward contracts or commodity contracts and does not have foreign currency
exposure as of December 31, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-------
ALTERNATIVE LIVING SERVICES, INC. AND SUBSIDIARIES:
<S> <C>
Independent Auditors' Report.................................................................. 26
Consolidated Balance Sheets, as of December 31, 1998 and 1997................................. 27
Consolidated Statements of Operations for Years Ended December 31, 1998, 1997 and 1996........ 28
Consolidated Statements of Changes in Stockholders' Equity for Years Ended December 31,
1998, 1997 and 1996....................................................................... 29
Consolidated Statements of Cash Flows for Years Ended December 31, 1998, 1997 and 1996........ 20
Notes to Consolidated Financial Statements.................................................... 31-45
</TABLE>
25
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Alternative Living Services, Inc.:
We have audited the accompanying consolidated balance sheets of Alternative
Living Services, Inc. and subsidiaries (the Company) as of December 31, 1998 and
1997, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1998 and 1997, and the consolidated results of its
operations and it's cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Chicago, Illinois
February 22, 1999
26
<PAGE> 28
ALTERNATIVE LIVING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
----------- ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents..................................... $ 49,934 $ 79,838
Short-term investments........................................ -- 90,000
Accounts receivable........................................... 4,045 1,832
Pre-opening costs, net of amortization........................ 7,856 5,785
Note receivable............................................... 10,986 --
Other current assets.......................................... 18,031 21,378
-------- ---------
Total current assets...................................... 90,852 198,833
-------- ---------
Property and equipment, net....................................... 640,211 323,613
Long-term investments............................................. 4,504 4,435
Investments in and advances to unconsolidated affiliates.......... -- 1,607
Goodwill, net..................................................... 5,243 5,380
Other assets...................................................... 37,000 19,684
======== =========
Total assets.............................................. $777,810 $ 553,552
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term obligations............... $ 4,376 $ 2,677
Short-term notes payable...................................... 8,363 18,900
Accounts payable.............................................. 28,666 20,645
Accrued expenses.............................................. 15,723 21,603
Deferred rent and refundable deposits......................... 5,419 5,480
-------- ---------
Total current liabilities.............................. 62,547 69,305
-------- ---------
Long-term obligations, less current installments.................. 286,984 108,069
Convertible debt.................................................. 228,600 210,000
Deferred gain on sale and other................................... 18,347 12,421
Minority interest................................................. 4,220 9,860
Stockholders' equity:
Common stock.................................................. 219 214
Additional paid-in capital.................................... 177,864 165,206
Accumulated deficit........................................... (971) (21,523)
-------- ---------
Total stockholders' equity................................ 177,112 143,897
======== =========
Total liabilities and stockholders' equity................ $777,810 $ 553,552
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 29
ALTERNATIVE LIVING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
Revenue:
<S> <C> <C> <C>
Resident service fees................................. $ 235,909 $ 128,856 $ 54,210
Other................................................. 8,514 1,888 1,427
--------- --------- ---------
Operating revenue......................................... 244,423 130,744 55,637
Operating expenses:
Residence operations.................................. 147,931 81,558 35,977
Lease expense......................................... 44,174 25,524 9,035
General and administrative............................ 23,200 22,168 11,143
Depreciation and amortization......................... 19,730 9,271 4,223
Non-recurring charge.................................. -- 4,656 976
--------- --------- ---------
Total operating expenses.......................... 235,035 143,177 61,354
--------- --------- ---------
Operating income (loss)................................... 9,388 (12,433) (5,717)
Other income (expense):
Interest expense, net................................. (11,024) (3,932) (3,231)
Lease income ......................................... 4,915 -- --
(Loss) gain on sale of assets......................... -- (29) --
Equity in losses of unconsolidated affiliates......... (31) (226) (52)
Other (expense) income................................ (170) (83) (31)
Minority interest in losses of consolidated
subsidiaries........................................ 20,610 8,440 76
--------- --------- ---------
Total other income (expense), net................. 14,300 4,170 (3,238)
--------- --------- ---------
Income (loss) before income taxes......................... 23,688 (8,263) (8,955)
Income tax (expense) benefit.............................. (3,136) -- 159
--------- --------- ---------
Net income (loss)......................................... $ 20,552 $ (8,263) $ (8,796)
========= ========= =========
Net income (loss) per share:
Basic................................................. $ 0.94 $ (0.44) $ (0.57)
========= ========= =========
Diluted............................................... $ 0.92 $ (0.44) $ (0.57)
========= ========= =========
Weighted average common shares outstanding:
Basic................................................. 21,905 18,651 15,429
========= ========= =========
Diluted............................................... 24,145 18,651 15,429
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 30
ALTERNATIVE LIVING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
AND ADDITIONAL
PAID-IN CAPITAL
-------------------------
ACCUMULATED
SHARES AMOUNTS DEFICIT TOTAL
--------- ----------- ------------- --------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995.................. 12,191 $ 49,930 $ (4,464) $ 45,466
========= ========= ======== ========
Proceeds from issuance of common stock......... 3,873 41,648 -- 41,648
Shares issued in connection with acquisitions.. 2,483 12,877 -- 12,877
Purchase and retirement of common stock........ (12) (163) -- (163)
Shares issued - options exercised.............. 4 32 -- 32
Net loss....................................... -- -- (8,796) (8,796)
--------- --------- -------- --------
BALANCES AT DECEMBER 31, 1996.................. 18,539 $ 104,324 $(13,260) $ 91,064
========= ========= ======== ========
Proceeds from issuance of common stock......... 2,800 60,744 -- 60,744
Shares issued - options exercised.............. 52 352 -- 352
Net loss..................................... -- -- (8,263) (8,263)
--------- --------- -------- --------
BALANCES AT DECEMBER 31, 1997.................. 21,391 $ 165,420 $(21,523) $143,897
========= ========= ======== ========
Proceeds from issuance of common stock......... 427 9,331 -- 9,331
Shares issued - options exercised.............. 201 3,332 -- 3,332
Net income..................................... -- -- 20,552 20,552
--------- --------- -------- --------
BALANCES AT DECEMBER 31, 1998.................. 22,019 $ 178,083 $ (971) $177,112
========= ========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 31
ALTERNATIVE LIVING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss)............................................................ $ 20,552 $ (8,263) $ (8,796)
Adjustment to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................................ 19,730 9,271 4,223
Loss on sale of assets...................................................... -- 29 --
Deferred income taxes........................................................ (6,468) -- (159)
Equity in net loss from investments in unconsolidated affiliates............. 31 226 52
Minority interest in losses of consolidated subsidiaries..................... (20,610) (8,440) (76)
Tax effect of stock options exercised........................................ 1,709 -- --
Increase in net resident receivable.......................................... (2,213) (4,333) (1,293)
Increase in pre-opening costs................................................ (11,965) (3,097) (2,688)
Decrease (increase)in other current assets................................... 3,347 (7,899) (782)
Increase (decrease) in accounts payable...................................... 8,021 7,486 (344)
Increase in accrued expenses................................................. (729) 8,583 4,397
(Decrease) Increase in accrued merger charges................................ (5,151) 5,863 --
Changes in other assets and liabilities, net................................. (7,378) 433 3,777
--------- -------- --------
Net cash used in operating activities.......................................... (1,124) (141) (1,689)
--------- -------- --------
Cash flows from investing activities:
Payments for property, equipment and project development costs .............. (366,920) (294,153) (115,711)
Construction receivable due from REIT........................................ -- -- (3,848)
Net proceeds from sale of property and equipment............................. -- 2,188 --
Increase in notes receivable................................................. (10,986) -- --
Acquisitions of facilities, net of cash...................................... (49,509) (23,189) (9,998)
Changes in investments in and advances to unconsolidated affiliates.......... (4,682) (1,148) (252)
Purchase of limited partnership interests.................................... (27,053) (5,590) --
Increase in long-term investments............................................ (69) (1,600) (1,663)
Decrease (Increase) in short-term investments................................ 90,000 (90,000) --
--------- -------- --------
Net cash used in investing activities.......................................... (369,219) (413,492) (131,472)
--------- -------- --------
Cash flows from financing activities:
Repayments of short term borrowings.......................................... (15,537) (34,335) (13,844)
Repayments of long-term obligations.......................................... (53,089) (53,887) (39,626)
Proceeds from issuance of debt............................................... 216,286 145,943 39,612
Proceeds from issuance of convertible debt................................... 18,600 175,000 35,000
Payments for financing costs................................................. (8,932) (7,131) (1,602)
Proceeds from sale/leaseback transactions.................................... 145,669 160,748 91,034
Issuance of common stock and other capital contributions..................... 10,710 61,285 41,648
Contributions by minority partners and minority stockholders to fund losses.. 26,732 6,393 --
--------- -------- --------
Net cash provided by financing activities...................................... 340,439 454,016 152,222
--------- -------- --------
Net (decrease)increase in cash and cash equivalents............................ (29,904) 40,383 19,061
--------- -------- --------
Cash and cash equivalents:
Beginning of year............................................................ 79,838 39,455 20,394
--------- -------- --------
End of year.................................................................. $ 49,934 $ 79,838 $ 39,455
========= ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest, including amounts capitalized........................ $ 27,631 $ 11,660 $ 6,086
========= ======== ========
Cash paid during year for income taxes....................................... $ 5,219 $ 94 $ --
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 32
ALTERNATIVE LIVING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT BUSINESS AND ACCOUNTING POLICIES
(A) BUSINESS
Alternative Living Services, Inc. (the "Company") develops,
owns, and operates assisted living residences. As of December
31, 1998, the Company operated and managed 350 residences with
approximate capacity to accommodate 15,000 residents located
throughout the United States.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. Results of
operations of the majority-owned subsidiaries are included
from the date of acquisition. All significant intercompany
balances and transactions with such subsidiaries have been
eliminated in the consolidation. Investments in other
affiliated companies in which the Company has a minority
ownership position are accounted for on the equity method.
Included in the consolidated financial statements are the
accounts of certain wholly owned subsidiaries that have been
formed as "special purpose entities" (SPEs) in accordance with
the requirements of certain of the Company's lenders. Mortgage
lenders imposing SPE requirements typically require that, in
connection with providing mortgage financing with respect to a
pool of residences, the residences actually be owned by one or
more SPEs, which become the borrower or borrowers under the
mortgage financing arrangement. Although lender requirements
with respect to such SPEs vary, an SPE typically is required
to, maintain separate corporation records and books of
account, not commingle its assets with those of the parent
company, have a separate board of directors from the parent
company (including at least one individual board member who
is independent of the parent company), maintain arm's length
relationships with the parent company, not guarantee or
become obligated for the debts of any other entity, including
the parent company, or to hold its credit as being available
to satisfy the obligations of others and not pledge its
assets for the benefit of any other entity, including the
parent company. Given the separate corporate existence of
these SPEs and the fact that the assets of each SPE are
subject to the prior claims of the individual creditors of
such SPE, neither the creditors nor stockholders of the
Company (or of any other of the Company's subsidiaries) shall
have any right to the assets of such SPEs except indirectly
by virtue of the Company's (or such subsidiary's) equity
interest in such SPEs. SPEs included in the consolidated
financial statements include ALS Venture I, Inc. (which owns
18 residences and holds a mortgage interest in 1 residence),
ALS Venture II, Inc. (which owns 36 residences), ALS
Financing, Inc. (which owns 5 residences) and ALS Financing
II, Inc. (which owns 7 residences and holds a leasehold
interest in 1 residence and an equitable interest in 1
residence pursuant to an installment sale contract).
(C) USE OF ESTIMATES
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
31
<PAGE> 33
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from
those estimates.
(D) RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the AICPA issued Statement of Position No. 98-5
"Reporting on the Costs of Start-up Activities." This
statement provides guidance on the financial reporting of
start-up activities and organization costs. It requires that
costs of start-up activities and organization costs be
expensed when incurred. Adoption of this statement is required
for fiscal years beginning after December 15, 1998, and the
Company plans to adopt the statement effective January 1,
1999, and report the impact as a cumulative effect of a change
in accounting principle. As of December 31, 1998, the effect
of adoption of this statement would result in an after tax
charge to earnings of approximately $5.0 million, or $0.16 per
diluted share.
In September of 1998 the Financial Accounting Standards Board
issued SFAS 133 "Accounting for Derivative Instruments and
Hedging Activities," which will be effective for the Company's
fiscal year 1999. This statement establishes accounting and
reporting standards requiring that every derivative
instrument, including certain derivative instruments imbedded
in other contracts, be recorded in the balance sheet as either
an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair
value be recognized in earnings unless specific hedge
accounting criteria are met. The Company currently does not
participate in any hedging activities. However, the Company
will assess the impact of this new statement on any future
hedging transactions.
(E) CASH EQUIVALENTS
The Company considers all highly liquid investments with
original maturities of less than ninety days to be cash
equivalents for purposes of the consolidated financial
statements.
(F) FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF
CREDIT RISK
The Company determines fair value of financial assets based on
quoted market values. The fair value of debt is estimated
based on quoted market values, where available, or on current
rates offered to the Company for debt of the same maturities.
The Company's financial instruments exposed to concentrations
of credit risk consist primarily of cash and short-term
investments. The Company places its funds into high credit
quality financial institutions and, at times, such funds may
be in excess of the Federal Depository Insurance Corporation
limits.
(G) LONG-LIVED ASSETS
Property and equipment are stated at cost, net of accumulated
depreciation. Property and equipment under capital leases are
stated at the present value of minimum lease payments.
Depreciation is computed over the estimated lives of the
assets using the straight-line method. Buildings and
improvements are depreciated over 20 to 40 years, and
furniture, fixtures, and equipment are depreciated over three
to seven years. Maintenance and repairs are expensed as
incurred.
Goodwill represents the costs of acquired net assets in excess
of their fair market values. Amortization of goodwill is
computed using the straight-line method over the expected
periods to be benefited, generally 40 years. The Company's
management periodically evaluates goodwill for impairment
based upon expectations of undiscounted cash flows in relation
to the net capital investment in the entity. Accumulated
amortization of goodwill was $449,649 and $314,264 as of
December 31, 1998 and 1997, respectively.
32
<PAGE> 34
(H) DEFERRED COSTS AND PRE-OPENING COSTS
Deferred costs, which are included in other assets, are
composed of organization costs and deferred financing costs.
Organization costs are amortized on a straight-line basis over
five years. Deferred financing costs are amortized using the
effective-interest method over the term of the related debt.
Pre-opening costs are amortized over 12 months from the date a
residence is available for occupancy.
(I) REVENUE
Revenue, which is recorded when services are rendered,
consists primarily of resident service fees which are reported
at net realizable amounts. Other revenue consists of the
following components (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Management fees............................. $5,676 $1,583
Franchise fees.............................. 1,545 305
Development fees........................... 1,293 --
------ ------
Total other revenue....................... $8,514 $1,888
====== ======
</TABLE>
Management fees are recognized based on the terms of the
management agreements in place for managed residences owned by
third parties and those operated under unconsolidated joint
venture arrangements. Fees are generally recognized based on a
percentage of stabilized revenues incurred during the start-up
period which include costs to hire and train staff, licensing
and other activities.
Franchise fees are recognized based on the applicable
franchise agreements which charge fees for the right to use
Company brand names and operating systems. Fees are recognized
based on a fixed fee when franchised residences open and a
percentage of revenue once in operation.
Development fees are recognized based on the applicable
agreements whereby the Company receives fees for construction
of Company model buildings for the benefit of third parties.
These fees are recorded during the construction period based
on achievement of certain milestones as defined in the
development agreement.
(J) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the expected future tax consequences attributable to temporary
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(K) NET INCOME (LOSS) PER COMMON SHARE
The Company presents both basic and diluted earnings per
share. Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted
earnings per share
33
<PAGE> 35
reflects the potential dilution that could occur if common
stock equivalents were exercised and then shared in the
earnings of the Company. Common stock equivalents were
anti-dilutive in 1997 and 1996, accordingly, basic and
diluted loss per share amounts were the same.
(L) RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996
financial statements to conform with the 1998 presentation.
(2) BUSINESS COMBINATIONS AND ACQUISITIONS
Alternative Living Services, Inc. merged with Sterling House
Corporation ("Sterling") on October 23, 1997 (the "Sterling Merger").
On that date, the Company issued approximately 5,550,000 shares of its
common stock in exchange for approximately 5,045,000 shares of
Sterling's common stock then outstanding based on an exchange ratio of
1.1 of its shares of common stock for each share of Sterling's common
stock (the "Exchange Ratio").
The consolidated financial statements give retroactive effect to the
Sterling Merger, which has been accounted for using the
pooling-of-interests method; and as a result, the financial position,
results of operations and cash flows are presented as if the combining
companies had been consolidated for all periods presented. The
consolidated statements of stockholders' equity also reflect
retroactive combination of the accounts of the Company and Sterling for
all periods presented, with adjustments to outstanding shares based
upon the Exchange Ratio.
The consolidated financial statements, including the notes thereto,
should be read in conjunction with the historical consolidated
financial statements of the Company and Sterling included in their
respective Annual Reports on Forms 10-K dated March 31, 1997.
The results of operations previously reported by the separate
enterprises and the combined amounts presented in the accompanying
consolidated financial statements are summarized below (in thousands):
<TABLE>
<CAPTION>
1996
---------
Operating revenue:
<S> <C>
Alternative Living Services, Inc........ $ 39,599
Sterling House Corporation.............. 16,038
========
Combined............................ $ 55,637
========
Extraordinary loss:
Alternative Living Services, Inc........ $ --
Sterling House Corporation.............. --
--------
Combined............................ $ --
========
Net loss:
Alternative Living Services, Inc........ $ (7,811)
Sterling House Corporation.............. (726)
Effect of restated income (taxes)....... (259)
--------
Combined............................ $ (8,796)
========
Basic and diluted loss per share:
Alternative Living Services, Inc........ $ (0.79)
Sterling House Corporation.............. (0.14)
--------
Combined............................ $ (0.57)
========
</TABLE>
There were no transactions between the Company and Sterling prior to
the Sterling Merger.
34
<PAGE> 36
In addition to the Sterling Merger, the Company completed the following
acquisitions in 1997 and 1998:
- A residence under construction located in Mesa, Arizona in May
1997;
- A majority interest in two residences located in upstate New
York in May 1997;
- A leasehold interest in a residence located in upstate New York
in May 1997;
- The remaining ownership interests in four residences located in
central Wisconsin in June 1997;
- Two assisted living residences located in Nevada in June 1997;
- Two assisted living residences located in upstate New York in
June 1997;
- A leasehold interest in three assisted living residences
located in Minnesota in September 1997;
- Two assisted living residences located in Colorado in September
1997 acquired from a franchisee of the Company;
- An assisted living residence located in Southern California in
March 1998;
- Seven assisted living residences located in Kansas in September
1998 acquired from a franchisee of the Company;
- Two assisted living residences located in Wisconsin, one of
which was still under construction effective in September 1998;
Excluding the Sterling Merger, the aggregate purchase price for all
1997 acquisitions totaled $45 million, $22.2 million of which was paid
in cash and the remainder was debt assumed by the Company. All 1997
acquisitions (other than the Sterling Merger) have been accounted for
using the purchase method.
The aggregate purchase price for all 1998 acquisitions totaled $62.8
million, $49.5 million of which was paid in cash and the remainder was
debt assumed by the Company. All 1998 acquisitions have been accounted
for using the purchase method.
35
<PAGE> 37
(3) SHORT-TERM AND LONG-TERM INVESTMENTS
A summary of short-term and long-term investments at December 31,
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
MARKET MARKET
COST VALUE COST VALUE
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Short-term investments:
Commercial paper, maturing
9/30/98, yielding 5.50%-5.57%.. -- -- $90,000 $90,000
=========== =========== ========== ============
Long-term investments:
U.S. Treasury obligations and
certificates of deposit, maturing
at various times through 1999,
restricted as collateral for
letters of credit and debt service
reserves..................... $ 4,504 $4,504 $ 4,435 $ 4,435
=========== =========== ========== ============
</TABLE>
(4) OTHER CURRENT ASSETS
Other current assets are comprised of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Supply inventory ...................................... $ 7,511 $ 3,891
Prepaid expenses ...................................... 4,648 3,320
Other current assets .................................. 5,872 14,167
-------- --------
Total other current assets ............................ $18,031 $21,378
======== ========
</TABLE>
(5) PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land and improvements............................. $ 55,037 $ 34,143
Buildings and leasehold improvements.............. 407,631 160,991
Vehicles, furniture, fixtures, and equipment...... 55,655 23,702
Construction in progress.......................... 142,433 114,277
-------- --------
Total property and equipment...................... 660,756 333,113
Less accumulated depreciation..................... (20,545) (9,500)
-------- --------
Property and equipment, net................... $640,211 $323,613
======== ========
</TABLE>
At December 31, 1998, property and equipment includes $9.0 million of
buildings and improvements and $368,051 of fixtures and equipment held
under capital leases. Combined related accumulated amortization totaled
$1.6 million.
Interest is capitalized in connection with the construction of
residences and is amortized over the estimated useful lives of the
residences. Interest capitalized in 1998, 1997 and 1996 was
approximately $13.8 million, $6.7 million and $1.9 million,
respectively.
Construction in progress at December 31, 1998 and 1997 consisted
principally of costs related to the construction of assisted living
residences with outstanding construction commitments totaling
approximately $93.9 million and $196.9 million, respectively.
36
<PAGE> 38
(6) UNCONSOLIDATED AFFILIATES AND MANAGED RESIDENCES
The Company manages residences primarily in the start-up or lease-up
phases of operations in which it either has no ownership or a minority
ownership position, typically less than 10%. Historically, the Company
has subsequently elected to purchase or acquire the remaining ownership
interest in a majority of these residences at which point the
residences are included in consolidated operating results. As of
December 31, 1998, the Company owned minority equity interests in 49
residences and managed 17 other residences. As of December 31, 1997,
the Company owned minority equity interests in 20 residences and
managed 16 other residences. Included in other assets and liabilities
of the Company are net advances (from) to the affiliates of $(2.0)
million and $1.6 million as of December 31, 1998 and 1997,
respectively.
For the year ended December 31, 1998, the residences described above
generated operating revenues of $20.7 million and net losses before
taxes of $15.2 million. For the year ended December 31, 1997, operating
revenues were $7.4 million and net losses before taxes were $7.7
million.
Included in the results above are six residences managed pursuant to an
agreement with an affiliate under which the Company provides payroll
processing and financial statement preparation services for a
partnership that is 50% owned by an officer and a stockholder. Under
the terms of this agreement, the Company charged an annual fee of
$10,000 in 1998 and $78,000 in 1997 for provision of such management
services.
(7) OTHER ASSETS
Other assets are comprised of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred financing costs, net............ $18,290 $ 9,123
Organizational and other costs, net...... 2,631 1,087
Deposits and other....................... 16,079 9,474
======= =======
Total other assets....................... $37,000 $19,684
======= =======
</TABLE>
37
<PAGE> 39
(8) LONG-TERM DEBT, CAPITAL LEASES, AND FINANCING OBLIGATIONS
Long-term debt, capital leases, and financing obligations consist of
the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
5.25% convertible subordinated debentures due December 15, 2002,
callable by the Company on or after December 31, 2000...................... $143,750 $125,000
7.00% convertible subordinated debentures due June 1, 2004,
callable by the Company on or after June 15, 2000.......................... 50,000 50,000
6.75% convertible subordinated debentures due June 30, 2006,
callable by the Company on or after July 15, 1999.......................... 34,850 35,000
-------- --------
Total convertible debt............................................. $228,600 $210,000
-------- --------
Mortgages payable, due from 1999 through 2021; weighted average
interest rates of 7.91%.................................................... $280,219 $ 66,564
Sale/leaseback financing obligation, variable interest at the 11th
District FHLB rate plus 2-3/4%, payable in monthly installments, due 2000 4,227 4,503
Serial and term revenue bonds maturing serially from 1995 through 2013,
interest ranging from 4.0% to 9.5%........................................ 6,761 9,185
Secured construction loan financing at 10% interest funded in advance of
anticipated sale/leaseback transactions................................... -- 29,364
Other..................................................................... 153 1,130
-------- --------
Total long-term obligations......................................... 519,960 320,746
Less current installments................................................. 4,376 2,677
======== ========
Total long-term obligations, less current installments............ $515,584 $318,069
======== ========
</TABLE>
The mortgages payable are secured through security agreements and
guarantees by the Company. In addition, certain security agreements
require the Company to maintain collateral and debt reserve funds.
These funds, which are recorded as long-term investments, consist of
certificates of deposit required to be maintained from 1999 through
2002.
At December 31, 1998, the Company has outstanding $13.3 million of
mortgage notes payable that were assumed in conjunction with non-cash
acquisition activities in 1998.
Principal payments on long-term debt, capital leases, and financing
obligations for the next five years and thereafter are as follows (in
thousands):
<TABLE>
<S> <C>
1999.............................................................. $ 4,376
2000.............................................................. 7,173
2001.............................................................. 34,069
2002.............................................................. 158,900
2003.............................................................. 8,890
Thereafter........................................................ 306,552
--------
Total long-term debt, capital leases, and financing obligations... $519,960
========
</TABLE>
38
<PAGE> 40
(9) ACCRUED EXPENSES
Accrued expenses are comprised of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Accrued salaries and wages.......... $ 4,780 $5,879
Accrued merger costs................ 356 6,672
Other............................... 10,587 9,052
------- -------
Total accrued expenses.......... $15,723 $21,603
======= =======
</TABLE>
(10) STOCKHOLDERS' EQUITY
In August 1996, the Company completed a public offering of 6,000,000
shares of common stock, of which 3,443,206 shares were sold by the
Company and 2,556,794 shares were sold by existing stockholders. Net
proceeds to the Company were approximately $40.0 million.
In December 1997, the Company completed a secondary public offering of
2,800,000 shares of common stock. Net proceeds to the Company were
approximately $61.0 million.
The authorized capital stock of the Company consists of 100,000,000
shares of common stock, $.01 par value, and 5,000,000 shares of $.01
par value preferred stock. At December 31, 1998, there were 22,030,097
shares of common stock issued, of which 22,018,458 were outstanding
with 11,639 shares held in treasury. At December 31, 1997, there were
21,402,159 shares of common stock issued, of which 21,390,520 were
outstanding with 11,639 shares held in treasury. At December 31, 1998
and 1997, no shares of preferred stock were issued and outstanding.
On December 10, 1998, the Company entered into a Rights Agreement with
American Stock Transfer & Trust Company, as Rights Agent, pursuant to
which the Company declared and paid a dividend of one preferred share
purchase right (a "Right") for each outstanding share of Common Stock.
Each Right entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series A Junior Participating Preferred
Stock. $.01 par value per share (the "Preferred Shares"), of the
Company at a price of $130.00 per one one-hundredth of a Preferred
Share.
(11) STOCK OPTION PLAN
In 1995, the Company adopted a stock option plan (the "1995 Plan"),
pursuant to which the Company's Board of Directors may grant stock
options to officers and key employees. The 1995 Plan authorizes grants
of options to purchase up to 2,500,000 shares of authorized but
unissued common stock. Stock options are granted with an exercise price
equal to the stock's fair market value at the date of grant. Generally,
stock options have 10-year terms, vest 25% per year, and become fully
exercisable after four years from the date of grant.
At December 31, 1998, 896,499 shares were available for grant under the
1995 Plan. The per share weighted-average fair value of stock options
granted during 1998 and 1997 was $10.44 and $7.25, respectively, on the
date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: 1998 - expected dividend yield
0.0%, risk free interest rate of 5.0%, expected volatility of 43% and
an expected life of 7 years; 1997 - expected dividend yield 0.0%,
risk-free interest rate of 5.6%, expected volatility of 42% and an
expected life of 7 years.
In conjunction with the Sterling Merger, Sterling stock options that
were outstanding were exchanged for options to purchase the Company's
common stock, adjusted for the Exchange Ratio. Under the terms of the
Sterling House Corporation 1995 Incentive Stock Option Plan, all
options became vested and immediately exercisable as a result of the
Sterling Merger.
39
<PAGE> 41
For financial reporting, the Company applies the intrinsic value method
of APB Opinion No. 25 in accounting for stock options and, accordingly,
compensation cost has been recognized only for stock options granted
below fair market value. Had the Company determined compensation cost
based on the fair value method prescribed by SFAS No. 123 for stock
options granted in 1998 and 1997, the Company's net income (loss) and
net income (loss) per share would have been (decreased)/increased to
the pro forma amounts indicated below, (in thousands, except per share
data):
<TABLE>
<CAPTION>
NET INCOME (LOSS) NET INCOME (LOSS) PER
SHARE
------------------------------------ --------------------------------------
1998 1997 1996 1998 1997 1996
--------- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
As reported........... $20,552 $ (8,263) $(8,796) $0.92 $(0.44) $(0.57)
Pro forma............. $18,821 $(10,267) $(9,391) $0.78 $(0.55) $(0.61)
</TABLE>
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WTD.-AVG.
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1996..... 981,213 $7.74
Granted...................... 300,132 15.10
Exercised.................... (52,000) (7.08)
Forfeited.................... (41,944) (11.71)
Expired...................... -- --
--------- ---------
BALANCE AT DECEMBER 31, 1997..... 1,187,401 $9.43
Granted...................... 893,801 19.77
Exercised.................... (200,579) (8.15)
Forfeited.................... (42,997) (17.49)
Expired...................... -- --
--------- ---------
BALANCE AT DECEMBER 31, 1998..... 1,837,626 $ 14.41
========= =========
</TABLE>
<TABLE>
<CAPTION>
AVERAGE
RANGE OF NUMBER REMAINING WTD.-AVG. NUMBER WTD.-AVG.
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES 12/31/98 LIFE PRICE AT 12/31/98 PRICE
- -------------------- -------------- --------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
$0.09 12,415 6.8 years $0.09 12,415 $0.09
2.92 - 8.69 496,515 6.7 years 5.70 339,313 5.24
7.50 - 17.50 283,530 7.8 years 13.18 283,530 13.18
11.13 - 17.94 120,491 8.0 years 13.44 20,793 13.47
18.50 - 20.81 810,789 9.7 years 18.55 4,961 20.57
25.56 - 29.56 113,886 9.1 years 28.56 6,588 25.56
-------------- --------------- ----------- ------------- ------------
Total 1,837,626 8.4 years $14.41 667,600 $9.09
============== =============== =========== ============= ============
</TABLE>
40
<PAGE> 42
(12) INCOME TAXES
The components of the provision for income taxes for the years ended
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Income tax expense (benefit):
Current:
Federal............... $ 8,577 $ 726 $ --
State................. 1,027 200 --
---------- ---------- -----------
Total current.............. 9,604 926 --
Deferred:
Federal............... (5,795) (726) (141)
State................. (673) (200) (18)
---------- ---------- -----------
Total deferred............ (6,468) (926) (159)
---------- ---------- -----------
Total..................... $ 3,136 $ -- $ (159)
========== ========== ===========
</TABLE>
Deferred tax assets and liabilities consist of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
----------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............. $ 1,154 $ 1,339
Deferred gain sale/leaseback................. 5,392 4,856
Accrued expenses............................. 2,140 2,844
Investment in consolidated affiliates........ 1,194 1,359
Other........................................ -- 39
----------- --------------
Total deferred tax assets........................ 9,880 10,437
----------- --------------
Less valuation allowance..................... -- (6,816)
Deferred tax assets, net of valuation allowance.. 9,880 3,621
Deferred tax liabilities:
Acquisition basis............................ 1,715 1,736
Depreciation................................. 771 959
----------- ---------------
Deferred tax liabilities......................... $ 2,486 $ 2,695
=========== ==============
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1997
was $6.8 million, respectively. During 1998, the valuation allowance
decreased to zero because the Company was reasonably certain that such
deferred tax assets in excess of the applicable reversing deferred tax
liabilities would be realized in future years. In assessing the
realizability of deferred tax assets, management considers whether it
is more likely than not that some portion of all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
The effective tax rate on income before income taxes varies from the
statutory Federal income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Statutory rate............. 35.0% (34.0)% (34.0)%
State taxes, net........... 4.0 (5.5) (5.5)
Valuation allowance........ (28.7) 39.5 38.4
Other...................... 2.9 -- 2.8
----------- ------------ ------------
Effective tax rate......... 13.2% 0.0% 1.7%
=========== ============ ============
</TABLE>
41
<PAGE> 43
The Company has approximately $2.9 million of tax net operating loss
carryforwards at December 31, 1998. Any unused net operating loss
carryforwards will expire commencing in the year 2001 through 2009. The
utilization of net operating loss carryforwards may be further limited
as to future use due to the change in control provisions in the
Internal Revenue Code.
(13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practical
to estimate that value:
Cash and cash equivalents:
The carrying amount approximates fair value because of the short
maturity of those instruments.
Short-term investments:
The carrying amount approximates fair value because of the short
maturity of those instruments.
Long-term investments:
The carrying amount approximates fair value because of the short
maturity of the underlying investments. Long-term investments are
classified as such because they are restricted as collateral for
letters of credit and debt service reserves.
Short-term notes payable, mortgage notes payable, convertible
debentures payable:
The carrying amount of short-term notes payable approximates fair value
because of the short maturity of those instruments.
The carrying amount of mortgage notes payable approximates fair value
because the stated interest rates approximate fair value.
The fair value of the Company's convertible debentures is estimated
based on quoted market prices. At December 31, 1998, the Company's
convertible debentures had a book value of $229 million. Based on
quoted market prices at December 31, 1998, the fair value of those
convertible securities was estimated to be $310 million.
(14) COMMITMENTS AND CONTINGENCIES
The Company has entered into sale/leaseback agreements with certain
REITs as a source of financing the development, construction, and to a
lesser extent, acquisitions of assisted living residences. Under such
agreements, the Company may enter into a series of sale/leaseback
transactions whereby each new residence is sold at its negotiated value
and the Company will enter into a lease agreement for such residence.
The initial terms of the leases vary from 10 to 15 years and include
aggregate renewal options ranging from 15 to 30 years. The Company is
responsible for all operating costs, including repairs, property taxes,
and insurance. The annual minimum lease payments are based upon a
percentage of the negotiated sales value of each residence. The
residences sold in the sale/leaseback transactions are sold for an
amount equal to or less than their fair market value. The leases are
accounted for as operating leases with any applicable gain or loss
realized in the initial sales transaction being deferred and amortized
into income in proportion to rental expense over the initial term of
the lease.
42
<PAGE> 44
In addition to leased residences, the Company leases certain office
space and equipment under noncancelable operating leases from
nonaffiliates that expire at various times through 2017. Rental expense
on all such operating leases, including residences, for the years ended
December 31, 1998, 1997, and 1996 was $44.2 million, $25.5 million and
$9.0 million, respectively.
Future minimum lease payments for the next five years and thereafter
under noncancelable leases at December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
----------- -------------
<S> <C> <C>
1999..................................................... $ 718 $ 53,442
2000..................................................... 4,354 53,331
2001..................................................... -- 52,583
2002..................................................... -- 52,680
2003..................................................... -- 52,780
Thereafter............................................... -- 316,292
-----------
=============
Total minimum lease payments............................. $5,072 $581,108
=============
Less amount representing interest........................ 851
-----------
Present value of net minimum capital lease payments...... 4,221
Less current portion..................................... 293
===========
Long-term capital lease obligations...................... $3,928
===========
</TABLE>
On November 11, 1997, the Company entered into a sale/leaseback
agreement with a health care REIT involving 24 residences. The total
aggregate amount financed for the 24 residences was approximately $62.4
million.
During 1997, the Company entered into additional sale and leaseback
financing agreements with certain REITS for approximately $133 million
with financing terms similar to the arrangements described above. Any
gain or loss was deferred and will be amortized into income in
proportion to rental expense over the initial term of the lease.
During 1998, the Company entered into sale and leaseback financing
arrangements with certain REITS for approximately $148 million with
financing terms similar to the arrangements described above. Any gain
or loss was deferred and will be amortized into income in proportion to
rental expense over the initial term of the lease.
The Company is required by certain REITs to obtain a letter of credit
as collateral for leased residences. Outstanding letters of credit at
December 31, 1998 and 1997 were $4.3 million and $1.2 million,
respectively.
The Company is obligated under its joint venture arrangements to
purchase the equity interests of its joint venture partners based upon
agreed upon terms and conditions. Based on a number of assumptions,
including assumptions as to the number of residences to be developed
with joint venture partners, the timing of such development, the time
at which such options will be exercised and the fair market value of
such residences at the date such options are exercised, the Company
estimates that it may require approximately $30 million to $35 million
to satisfy these purchase obligations during 1999.
43
<PAGE> 45
(15) EARNINGS PER COMMON SHARE
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). SFAS 128 was designed to simplify the standards
for computing earnings per share and increase the comparability of
earnings per share data on an international basis. SFAS 128 replaces
the presentation of primary earnings per share with a presentation of
basic earnings per share and requires dual presentation of basic and
diluted earnings per share on the face of the statement of income of
all entities with complex capital structures. The Company adopted SFAS
128 during the first quarter of fiscal 1998 and, accordingly, earnings
per share for all prior periods presented have been restated to conform
to the requirements of this new standard. The following table sets
forth the computation of basic and diluted earnings per share (in
thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------ --------------- ------------
<S> <C> <C> <C>
Numerator:
Numerator for basic earnings per share -- Net income (loss).... $20,552 $ ( 8,263) $ (8,796)
Convertible debt interest add-back............................. 1,563 -- --
------------ --------------- ------------
Numerator for diluted earnings per share -- Net income (loss).. $22,115 $ (8,263) $ (8,796)
============ =============== ============
Denominator:
Denominator for basic earnings per share -- weighted
average shares................................................ 21,905 18,651 15,429
Effect of dilutive securities--stock options.................. 523 -- --
Effect of dilutive securities--convertible debt............... 1,717 -- --
------------ --------------- ------------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions.............. 24,145 18,651 15,429
============ =============== ============
Basic earnings (loss) per common share........................... $0.94 $ (0.44) $ (0.57)
Diluted earnings (loss) per common share......................... $0.92 $ (0.44) $ (0.57)
</TABLE>
(16) SUBSEQUENT EVENTS
On December 31, 1998, the Company entered into a strategic alliance
with HCR Manor Care. The alliance includes four principal arrangements:
- The Company will purchase from HCR Manor Care up to 29
Alzheimer's/dementia care and assisted living residences with a
capacity for 2,611 residents located throughout 12 states for $200
million in cash. Acquisitions of these residences are expected to
close in the second quarter of 1999.
- HCR Manor Care and the Company will establish and capitalize a
joint venture to develop $500 million of ALS-branded
Alzheimer's/dementia care and assisted living residences in HCR's
core markets over the next three to five years. The Company
expects to begin joint development under this arrangement in the
second quarter of 1999 and to continue joint development
activities over a three to five year period.
- HCR Manor Care has agreed in principle to license from ALS the use
of ALS' Clare Bridge(R) service mark, to share various best
practices, and to engage in joint marketing activities relating to
HCR's remaining Alzheimer's/dementia care residences. The Company
expects to finalize this arrangement in the second quarter of
1999.
44
<PAGE> 46
- HCR Manor Care and ALS have agreed in principle to form a new
company to provide a variety of ancillary services to ALS'
resident population, including rehabilitation therapy and hospice
care.
SUPPLEMENTARY FINANCIAL INFORMATION
QUARTERLY FINANCIAL SUMMARY
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
12/31 9/31 6/30 3/31
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
1998
- -------------------------------------------------
Operating revenues.......................... $ 76,454 $66,286 $55,199 $46,484
Operating income (loss)..................... 5,906 2,052 1,578 (148)
Net income.................................. 6,273 5,821 4,875 3,583
Basic income per share...................... 0.29 0.27 0.22 0.16
Diluted income per share.................... $ 0.27 $ 0.26 $ 0.22 $ 0.16
1997
- -------------------------------------------------
Operating revenues.......................... $ 41,640 $36,142 $29,262 $23,700
Operating loss.............................. (8,988) (271) (1,469) (1,705)
Net income (loss)........................... (8,342) 1,201 (127) (995)
Basic and diluted income (loss) per share... $ (0.44) $ 0.06 $ (0.01) $ (0.05)
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required under this item with respect to the Company's
Directors and Executive Officers and compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended, is incorporated herein by reference
to the Alternative Living Services, Inc. definitive proxy statement (the "1999
Proxy Statement") to be filed with the Securities and Exchange Commission in
connection with the 1999 Annual Meeting of Stockholders.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this item is incorporated by reference to
the 1999 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated by reference to
the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated by reference to
the 1999 Proxy Statement.
45
<PAGE> 47
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated by reference to
the 1999 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. The following documents are filed as part of the report:
(a) FINANCIAL STATEMENTS. The following financial statements of
the Registrant and the Report of Independent Public
Accountants therein are filed as part of this Report on Form
10-K:
PAGE
-----------
Independent Auditor's Report........................ 26
Consolidated Balance Sheets......................... 27
Consolidated Statements of Operations............... 28
Consolidated Statements of Shareholders' Equity..... 29
Consolidated Statements of Cash Flows............... 30
Notes to Consolidated Financial Statements.......... 31-45
(b) SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES. All schedules
are omitted as the required information either is not
applicable or is included in the Consolidated Financial
Statements or related notes.
(c) REPORTS ON FORM 8-K. The Registrant filed the following
reports with the Securities and Exchange Commission on Form
8-K during the quarter ended December 31, 1998:
The Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 4, 1999
reported, under Item 5, the formation of a strategic business
alliance with HCR Manor Care, Inc.
(d) EXHIBITS. The following exhibits are filed as part of, or
incorporated by reference into this report on Form 10-K:
NO. EXHIBIT
DESCRIPTION
- ----- -----------------------------------------------------------------------
2.1 Agreement of Purchase and Sale (Operating Residences) dated as of
December 31, 1998 by HCR Manor Care, Inc. and Alternative Living
Services, Inc.
2.2 Agreement of Purchase and Sale (Construction Residences) dated as of
December 31, 1998 by HCR Manor Care, Inc. and Alternative Living
Services, Inc.
3.1 Restated Certificate of Incorporation of the Registrant (incorporated
herein by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-04595, filed with the
Commission on July 30, 1996 (the "Form S-1")).
46
<PAGE> 48
NO. EXHIBIT
DESCRIPTION
- ----- -----------------------------------------------------------------------
3.2 Certificate of Merger, dated May 24, 1996 (incorporated herein by
reference to Exhibit 3.1 to the Registrant's Registration Statement on
Form S-3, Registration No. 333-37737, filed with the Commission on
October 14, 1997 (the "Form S-3")).
3.3 Certificate of Amendment to the Restated Certificate of Incorporation,
dated August 1, 1996 (incorporated herein by reference to Exhibit 3.2
to the Form S-3).
3.4 Certificate of Amendment to Restated Certificate of Incorporation
effective May 26, 1998 (incorporated herein by reference to Exhibit 3.1
to the Company's Form 10-Q for period ending June 30, 1998).
3.5 Certificate of Designation of Series A Junior Participating Preferred
Stock, dated December 10, 1998 (incorporated by reference to Exhibit A
to Exhibit 4.1 to the Registrant's Registration Statement on Form 8-A,
filed December 17, 1998).
3.6 Restated Bylaws of the Registrant (incorporated herein by reference to
Exhibit 3.4 to the Registrant's Registration Statement on Form S-3,
Registration No. 333-39705, filed with the Commission on November 6,
1997 (the "November S-3")).
3.7 Amendment to Restated Bylaws dated August 3, 1998.
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit
4.2 to the Form S-1).
4.2 See Articles Four, Six, Seven, Eight, Nine, Ten and Eleven of the
Registrant's Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.1 to the Form S-1) and the Certificate of
Amendment to the Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to the Form S-3).
4.3 See Articles two, three, five, seven, and eight of the Registrant's
Restated Bylaws (incorporated herein by reference to Exhibit 3.4 to the
November S-3).
4.4 Indenture dated as of May 23, 1996 by and between Sterling House
Corporation ("Sterling") and Fleet National Bank, as Trustee
(incorporated by reference to Exhibit 4.11 to Sterling's Registration
Statement on Form S-3 (Registration No. 333-15329 filed on November 1,
1996 (the "Sterling S-3")).
4.5 Form of Registration Rights Agreement dated as of May 17, 1996 by and
between Sterling and the initial purchasers of the 6.75% Convertible
Subordinated Debentures due 2006 (incorporated herein by reference to
Exhibit 4.9 to the Sterling S-3).
4.6 First Supplemental Indenture dated as of October 23, 1997 among the
Registrant, Sterling and State StreetBank and Trust Company, as
successor Trustee (incorporated herein by reference to Exhibit 4.9 to
the November S-3).
4.7 Indenture dated as of May 21, 1996 by and between Alternative Living
Services, Inc. and IBJ Schroder Bank & Trust Company, as Trustee
(incorporated by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K filed on May 27, 1997 (the "Form 8-K")).
4.8 Form of Registration Rights Agreement dated as of May 21, 1997 by and
between Alternative Living Services, Inc. and the purchasers of the 7%
Convertible Subordinated Debentures due 2004 (incorporated by reference
to Exhibit 99.2 to the Form 8-K).
4.9 Indenture dated as of December 19, 1997 by and between Alternative
Living Services, Inc. and United States Trust Company of New York, as
Trustee (incorporated by reference to Exhibit 1.1 to Registrant's
Registration Statement on Form 8-A, relating to Registration file
number 333-39705, filed with the Commission on December 16, 1997 (the
"Form 8-A")).
47
<PAGE> 49
NO. EXHIBIT
DESCRIPTION
- ----- -----------------------------------------------------------------------
4.10 Form of First Supplemental Indenture dated as of December 19, 1997 by
and between Alternative Living Services, Inc. and United States Trust
Company of New York, as Trustee, relating to the 5.25% Convertible
Subordinated Debentures due 2002 (incorporated by reference to Exhibit
1.2 to the Form 8-A).
4.11 Form of Second Supplemental Indenture dated as of January 2, 1998 by
and between Alternative Living Services, Inc. and United States Trust
Company of New York, as Trustee, relating to the 5.25% Convertible
Subordinated Debenture due 2002 (incorporated by reference to Exhibit
4.3 to the Registrant's Form 8-K filed on January 26, 1998).
4.12 Amended and Restated Alternative Living Services, Inc. 1995 Incentive
Compensation Plan (incorporated by reference to Exhibit 10.10 of the
Form S-1). Represents an executive compensation plan or arrangement.
4.13 Certificate of Amendment to the Company's 1995 Amended and Restated
Incentive Compensation Plan (incorporated by reference to Exhibit 10.1
to the Company's Form 10-Q for period ending September 30, 1998).
Represents an executive compensation plan or arrangement.
4.14 Rights Agreement dated as of December 10, 1998 between Alternative
Living Services, Inc. and American Stock Transfer & Trust Company,
including the form of Certificate of Designations of Series A Junior
Participating Preferred Stock of Alternative Living Services, Inc.
(Exhibit A), Form of Rights Certificate (Exhibit B), and Form of
Summary of Rights to Purchase Preferred Shares (Exhibit C)
(incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form 8-A, filed with the Commission on
December 17, 1998).
10.1 Services Agreement effective as of January 1, 1996 by and between
Petty, Kneen & Company, L.L.C. and the Company (incorporated by
reference to Exhibit 10.2 of the Form S-1). Represents an executive
compensation plan or arrangement.
10.2 Services Agreement by and between Richard W. Boehlke and the Company
dated as of May 23, 1996. (incorporated by reference to Exhibit 10.7 of
the Form S-1). Represents an executive compensation plan or
arrangement.
10.3 Employment Agreement by and between D. Lee Field and the Company dated
as of May 23, 1996 (incorporated by reference to Exhibit 10.8 of the
Form S-1). Represents an executive compensation plan or arrangement.
10.4 Employment Agreement by and between David M. Boitano and the Company
dated as of May 23, 1996 (incorporated by reference to Exhibit 10.9 of
the Form S-1). Represents an executive compensation plan or
arrangement.
10.5 Employment Agreement by and between G. Faye Godwin and the Company
dated as of May 23, 1996. (incorporated by reference to Exhibit 10.11
of the Form S-1). Represents an executive compensation plan or
arrangement.
10.6 Employment Arrangement dated as of December 30, 1996 by and between
William F. Lasky and the Company, as amended (incorporated by reference
to Exhibit 10.14 of the Company's Form 10-K, as amended, for the year
ended December 31, 1996). Represents an executive compensation plan or
arrangement.
10.7 Employment Agreement dated as of July 30, 1997 by and between
Alternative Living Services, Inc. and Timothy J. Buchanan (incorporated
by reference to Exhibit 10.9 of the Company's Form 10-K for the year
ended Dec. 31, 1997). Represents an executive compensation plan or
arrangement.
10.8 Employment Agreement dated as of July 30, 1997 by and between
Alternative Living Services, Inc. and Steven L. Vick. (incorporated by
reference to Exhibit 10.10 of the Company's Form 10-K for the year
ended Dec. 31, 1997). Represents an executive compensation plan or
arrangement.
10.9 Employment Agreement dated as of October 23, 1997 by and between
Alternative Living Services, Inc. and Mark W. Ohlendorf (incorporated
by reference to Exhibit 10.11 of the Company's Form 10-K for the year
ended Dec. 31, 1997). Represents an executive compensation plan or
arrangement.
48
<PAGE> 50
NO. EXHIBIT
DESCRIPTION
- ----- -----------------------------------------------------------------------
10.10 Employment Agreement dated as of October 23, 1997 by and between
Alternative Living Services, Inc. and Gary Anderson (incorporated by
reference to Exhibit 10.12 of the Company's Form 10-K for the year
ended Dec. 31, 1997). Represents an executive compensation plan or
arrangement.
10.11 Employment Agreement by and between Thomas E. Komula and the Company
dated as of July 3, 1996 (incorporated by reference to Exhibit 10.63 of
the Form S-1). Represents an executive compensation Plan or
arrangement.
10.12 Loan Agreement by and between South Trust Bank of Alabama, National
Association and the Company Dated as of June 19, 1996 (incorporated by
reference to Exhibit 10.20 of the Form S-1).
10.13 Acquisition Agreement dated as of September 20, 1994 by and between
CCCI/Northampton Limited Partnership, Continuing Care Concepts, Inc.
and the Company, as amended (incorporated by reference to Exhibit 10.23
of the Form S-1).
10.14 Partner Interest Acquisition Agreement dated as of August 1, 1996
between the Company, CCCI/Northampton Limited Partnership and
Continuing Care Concepts, Inc. (incorporated by reference to Exhibit
10.17 of the Form S-1).
10.15 First Amended Joint Venture Agreement dated as of April 30, 1997
between the Company and Assisted Living Equities, LLC. (incorporated by
reference to Exhibit 10.18 of the Form S-1).
10.16 Amendment No. 1 to First Amended Joint Venture Agreement dated as of
January 1, 1999 between Alternative Living Services, Inc. and Assisted
Living Equities
10.17 Second Amended Joint Venture Agreement dated as of January 1, 1999
between the Company and Assisted Living Equities, LLC.
10.18 Assisted Living Consultant and Management Services Agreement by and
between Alternative Living Services and the Company dated as of
December 14, 1993. (incorporated by reference to Exhibit 10.32 of the
Form S-1.)
10.19 Purchase and Sale Agreement dated as of December 15, 1995 by and
between Nationwide Health Properties, Inc. and New Crossings
International Corporation (incorporated by reference to Exhibit 10.33
of the Form S-1).
10.20 Schedule of Purchase and Sale Agreements substantially similar to
Exhibit 10.19 (incorporated by reference to Exhibit 10.34 of the Form
S-1).
10.21 Lease and Security Agreement by and between Nationwide Health
Properties, Inc. and New Crossings International Corporation dated as
of December 15, 1995 (the Atrium) (incorporated by reference to Exhibit
10.35 of the Form S-1).
10.22 Schedule of Lease and Security Agreements by and between Nationwide
Health Properties, Inc. and New Crossings International Corporation
substantially similar to Exhibit 10.21 (incorporated by reference to
Exhibit 10.36 of the Form S-1).
10.23 Assumption Agreement dated December 18, 1995 by and between Crossings
International Corporation, New Crossings International Corporation,
Oregon Housing Agency and National Health Properties, Inc. (Albany
Residential) (incorporated by reference to Exhibit 10.53 of the Form
S-1).
10.24 Schedule of Assumption Agreements substantially similar to Exhibit
10.23 (incorporated by reference to Exhibit 10.53 of the Form S-1).
49
<PAGE> 51
NO. EXHIBIT
DESCRIPTION
- ----- -----------------------------------------------------------------------
10.25 Lease Approval Agreement dated December 18, 1995 by and between
National Health Properties, Inc., New Crossings International
Corporation and Oregon Housing Agency (Albany Residential)
(incorporated by reference to Exhibit 10.55 of the Form S-1).
10.26 Schedule of Lease Approval Agreements substantially similar to Exhibit
10.25 (incorporated by reference to Exhibit 10.56 of the Form S-1).
10.27 Management Agreement dated August 30, 1990 by and between Housing
Division, State of Oregon and New Crossing International Corporation
(Albany Residential) (incorporated by reference to Exhibit 10.59 of the
Form S-1).
10.28 Facility Lease dated as of December 30, 1996, between Meditrust
Acquisition Corporation III and ALS Leasing, Inc. ("Form of Facility
Lease") (incorporated by reference to Exhibit 99.28 of the Company's
Form 8-K dated January 14, 1997).
10.29 Schedule of Additional Facility Leases which are substantially similar
to the Form of Facility Lease Attached as Exhibit 10.28 (incorporated
by reference to Exhibit 99.2 of the Company's Form 8-K dated January
14, 1997).
10.30 Guaranty by Alternative Living Services, Inc. to Meditrust Acquisition
Corporation III (incorporated by reference to Exhibit 99.3 of the
Company's Form 8-K dated January 14, 1997).
10.31 Affiliated Party Subordination Agreement dated December 30, 1996, by
and among ALS Leasing, Inc., the Company, the parties listed on
Schedule A thereto, all other Affiliates as defined therein and
Meditrust Acquisition Corporation III (incorporated by reference to
Exhibit 99.4 of the Company's Form 8-K dated January 14, 1997).
10.32 Agreement Regarding Related Lease Transactions dated December 30, 1996,
by and among ALS Leasing, Inc., the Company and Meditrust Acquisition
Corporation III (incorporated by reference to Exhibit 99.5 of the
Company's Form 8-K dated January 14, 1997).
10.33 Form of Facility Lease dated as of November 21, 1997, between Meditrust
Acquisition Corporation III and ALS Leasing, Inc. ("Form of Facility
Lease") (incorporated by reference to Exhibit 99.1 of the Company's
Form 8-K filed December 2, 1997).
10.34 Schedule of Additional Facility Leases which are substantially similar
to the Form of Facility Lease Referenced in Exhibit 10.33 (incorporated
by reference to Exhibit 99.2 of the Company's Form 8-K filed December
2, 1997).
10.35 Guaranty by Alternative Living Services, Inc. to Meditrust Acquisition
Corporation III (incorporated by reference to Exhibit 99.3 of the
Company's Form 8-K filed December 2, 1997).
10.36 Affiliated Party Subordination Agreement dated November 21, 1997, by
and among ALS Leasing, Inc., the Company, the parties listed on
Schedule A thereto, all other Affiliates as defined therein and
Meditrust Acquisition Corporation III (incorporated by reference to
Exhibit 99.4 of the Company's Form 8-K filed December 2, 1997).
10.37 Agreement Regarding Related Lease Transactions dated November 21, 1997,
by and among ALS Leasing, Inc., the Company and Meditrust Acquisition
Corporation III (incorporated by reference to Exhibit 99.5 of the
Company's Form 8-K filed December 2, 1997).
10.38 Guaranty and Suretyship Agreement by Alternative Living Services, Inc.
in favor of Nomura Asset Capital Corporation dated March 31, 1998
(incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q
for period ending March 31, 1998).
10.39 Loan Agreement dated March 31, 1998 by and between ALS-Venture I, Inc.
and Nomura Asset Capital Corporation (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for period ending March 31,
1998).
50
<PAGE> 52
NO. EXHIBIT
DESCRIPTION
- ----- -----------------------------------------------------------------------
10.40 Guaranty and Suretyship Agreement by Alternative Living Services, Inc.
in favor of Nomura Asset Capital Corporation dated May 26, 1998
(incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q
for period ending June 30, 1998).
10.41 Loan Agreement dated May 26, 1998, by and between ALS-Venture II, Inc.
and Nomura Asset Capital Corporation (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for period ending June 30,
1998).
10.42 Loan Agreement dated July 30, 1998, by and between ALS Financing, Inc.
and GMAC Commercial Mortgage Corporation (incorporated by reference to
Exhibit 10.1 to the Company's Form 10-Q for period ending September 30,
1998).
10.43 First Amendment to Loan Agreement and Reaffirmation Agreement dated
July 30, 1998, by and between The Capital Company of America LLC and
ALS Venture II, Inc. (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for period ending September 30, 1998).
10.44 First Amendment to Loan Agreement and Reaffirmation Agreement dated
August 28, 1998, by and between Nomura Asset Capital Company and ALS
Venture I, Inc. (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for period ending September 30, 1998).
10.45 Guaranty of Payment Agreement dated September 28, 1998, by Alternative
Livings Services, Inc., for the benefit of Bank United (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for period ending
September 30, 1998).
10.46 Financing and Security Agreement dated September 28, 1998, by and
between ALS Holdings, Inc. and Bank United (incorporated by reference
to Exhibit 10.1 to the Company's Form 10-Q for period ending September
30, 1998).
10.47 Second Amendment to Loan Agreement, First Amendment to Guaranty and
Suretyship Agreement, and Reaffirmation Agreement dated September 30,
1998, by and between The Capital Company of America LLC and ALS-Venture
II, Inc. (incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q for period ending September 30, 1998).
10.48 Form of Facility Lease dated as of September 4,1998, between Meditrust
Acquisition Corporation III and ALS Leasing, Inc. ("Form of Facility
Lease") (incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q for period ending September 30, 1998).
10.49 Schedule of Additional Facility Leases which are substantially similar
to the Form of Facility attached as Exhibit 10.48 (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for period ending
September 30, 1998).
10.50 Sixth Amendment to Amended and Restated Agreement Regarding Related
Lease Transactions, Amended and Restated Environmental Indemnity
Agreement and Amended and Restated Affiliated Party Subordination
Agreement dated September 4, 1998, by and among ALS Leasing, Inc., the
Company and Meditrust Acquisition Corporation III (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for period ending
September 30, 1998).
10.51 Seventh Amendment to Amended and Restated Agreement Regarding Related
Lease Transactions, dated September 4, 1998 by and among ALS Leasing,
Inc., the Company and Meditrust Acquisition Corporation III
(incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q
for period ending September 30, 1998).
10.52 Eleventh Amendment to Amended and Restated Agreement Regarding Related
Lease Transactions, dated September 4, 1998, by and among Assisted
Living Properties, Inc., Meditrust Company, LLC Meditrust Of Texas,
Inc., Meditrust of Kansas, Inc., Meditrust of Ohio, Inc. and MOC Health
Care Company (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for period ending September 30, 1998).
10.53 Form of Mortgage, Assignment and Security Agreement between ALS
Holdings, Inc., the Company and Bank United made as of November 18,
1998.
51
<PAGE> 53
NO. EXHIBIT
DESCRIPTION
- ----- -----------------------------------------------------------------------
10.54 Schedule of Additional Mortgage, Assignment and Security Agreements
("Mortgage") which are substantially similar to the Form of Mortgage
attached as Exhibit 10.53.
10.55 Additional Borrower Joinder Supplement by and among ALS Holdings, Inc.,
ALS Wisconsin Holdings, Inc., the Company and Bank United, dated
December 10, 1998.
10.56 Master Purchase Agreement between the Company and National Health
Investors, Inc. dated December 22, 1998.
10.57 Form of Lease between National Health Investors, Inc. and the Company,
dated as of December 22, 1998.
10.58 Schedule of Additional Leases which are substantially similar to the
Form of Lease attached as Exhibit 10.57.
10.59 Credit Agreement between the Company and Deutsche Bank AG dated October
6, 1998.
10.60 Master Construction Line of Credit Agreement between the Company, Key
Corporate Capital, Inc., and the lending institutions named therein,
dated October 6, 1998.
10.61 Development Joint Venture Agreement between the Company and HCR Manor
Care, Inc. dated December 31, 1998.
11.1 Statement re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
27.1 Financial Data Schedule (for SEC use only).
52
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Brookfield,
State of Wisconsin, on the 26th day of March, 1999.
ALTERNATIVE LIVING SERVICES, INC.
By: /s/ THOMAS E. KOMULA
-----------------------------------------------------------------
Senior Vice President, Treasurer, Chief Financial Officer and
Secretary
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- ------------------------------------------- ------------------
<S> <C> <C>
/S/ WILLIAM F. LASKY
- -------------------------------------
William F. Lasky President, Chief Executive Officer and March 29, 1999
Director (Principal Executive Officer)
/S/ STEVEN L. VICK
- -------------------------------------
Steven L. Vick Chief Operating Officer and Director March 29, 1999
/S/ THOMAS E. KOMULA
- -------------------------------------
Thomas E. Komula Senior Vice President, Secretary, Treasurer, March 29, 1999
Chief Financial Officer
/S/ JOHN D. PETERSON
- -------------------------------------
John D. Peterson Vice President, Controller and Assistant March 29, 1999
Secretary (Principal Accounting Officer)
/S/ WILLIAM G. PETTY, JR.
- -------------------------------------
William G. Petty, Jr. Chairman of the Board and Director March 29, 1999
/S/ TIMOTHY J. BUCHANAN
- -------------------------------------
Timothy J. Buchanan Vice Chairman and Director March 29, 1999
/S/ RICHARD W. BOEHLKE
- -------------------------------------
Richard W. Boehlke Director March 29, 1999
/S/ GENE E. BURLESON
- -------------------------------------
Gene E. Burleson Director March 29, 1999
/S/ ROBERT HAVEMAN
- -------------------------------------
Robert Haveman Director March 29, 1999
/S/ RONALD G. KENNY
- -------------------------------------
Ronald G. Kenny Director March 29, 1999
/S/ JERRY L. TUBERGEN
- -------------------------------------
Jerry L. Tubergen Director March 29, 1999
</TABLE>
53
<PAGE> 1
EXHIBIT 2.1
AGREEMENT OF PURCHASE AND SALE
(Operating Residences)
By and Between
ALTERNATIVE LIVING SERVICES, INC.
and
HCR MANOR CARE, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Purchase and Sale of Operating Residences.............................................................. 1
A. Real Property................................................................................. 1
B. Residency Agreements.......................................................................... 2
C. Leases........................................................................................ 2
D. Improvements.................................................................................. 3
E. Personal Property............................................................................. 3
F. Service Contracts............................................................................. 3
G. Operating Interests........................................................................... 4
2. Purchase Price for the Operating Residences............................................................ 6
A. Payment....................................................................................... 6
B. Allocation.................................................................................... 6
3. Nonexclusive License................................................................................... 7
4. Closing................................................................................................ 8
A. Delivery; Possession.......................................................................... 8
B. Transfer Taxes................................................................................ 8
C. Seller's Closing Costs........................................................................ 8
D. Purchaser's Closing Costs..................................................................... 8
E. Existing Fines and Penalties.................................................................. 9
F. Other Costs................................................................................... 9
5. Title.................................................................................................. 9
A. Examination of Title.......................................................................... 9
B. Survey Matters................................................................................ 11
6. Prorations and Credits at Closing...................................................................... 11
A. Real Estate Taxes and Assessments............................................................. 11
B. Prepaid Resident Rent......................................................................... 11
C. Custodial Accounts............................................................................ 11
D. Rents......................................................................................... 12
E. Security Deposits............................................................................. 12
F. Utility Expenses and Payments................................................................. 12
G. Utility Deposits.............................................................................. 12
H. Service Contract Payments..................................................................... 12
I. Personal Property Taxes....................................................................... 13
J. Accrued Benefits.............................................................................. 13
K. Payroll....................................................................................... 13
L. Reproration after Closing..................................................................... 13
M. Performance of Obligations.................................................................... 13
7. Accounts Receivable.................................................................................... 13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
8. Conveyances and Deliveries at each Residence Closing................................................... 14
A. Deed; Affidavit............................................................................... 14
B. Bill of Sale.................................................................................. 14
C. Assignment of Residency Agreements and Leases................................................. 14
D. Assignment of Service Contracts............................................................... 15
E. Notices of Assignment......................................................................... 15
F. Books and Records, Floor Plans, Plans and Specifications, Medical Records, Original
Documents and Other Instruments............................................................... 15
G. Section 1445 Certificate; Form 8594........................................................... 15
H. Termination of Management Agreement and Service Contracts..................................... 15
I. Closing Statement............................................................................. 16
J. Reaffirmation of Representations and Warranties............................................... 16
K. Other Conveyances and Instruments............................................................. 16
9. Seller's Representations, Warranties and Covenants..................................................... 16
A. Title to Personal Property; Condition of Personal Property.................................... 16
B. Residency Agreements and Leases............................................................... 16
C. Title to Improvements; Condition of Improvements.............................................. 18
D. No Other Leases/Occupancies................................................................... 18
E. Other Contracts............................................................................... 18
F. Service Contracts............................................................................. 18
G. Accuracy of Operating Statements.............................................................. 18
H. Accuracy and Completeness of Other Seller Documents and Records............................... 19
I. Litigation and Other Proceedings.............................................................. 19
J. Compliance of Property With Zoning and Other Laws............................................. 19
K. Environmental Matters......................................................................... 19
L. No Options or Other Interests................................................................. 20
M. Assessments, Fees and Liens................................................................... 20
N. Pending Assessments and Condemnation Proceedings.............................................. 20
O. Disclosure.................................................................................... 20
P. Authority..................................................................................... 21
Q. Licensure and Regulatory Matters.............................................................. 21
R. Reports....................................................................................... 21
S. Employees; Unions............................................................................. 21
10. Purchaser's Representations and Warranties............................................................. 22
A. Organization, Power and Authority............................................................. 22
B. No Bankruptcy................................................................................. 22
11. Pre-Closing Covenants.................................................................................. 22
A. Inspection of Property........................................................................ 22
B. Compliance with Laws, Leases, Contracts....................................................... 22
C. Standard of Operation and Maintenance......................................................... 23
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
D. New Leases and Modifications to Existing Leases; Residency Agreements......................... 23
E. New Service Contracts and Modifications to Existing Service Contracts......................... 23
F. Notice of Revision of Representations Due to Discovery of New Facts........................... 23
G. Personal Property Inventory................................................................... 23
H. Transfer of Permits........................................................................... 24
I. Compliance of Improvements and Real Property.................................................. 24
J. Existing Employees............................................................................ 24
K. Notices and Consents.......................................................................... 25
12. Purchaser's Inspection of Property..................................................................... 25
A. Access........................................................................................ 25
B. Termination Election.......................................................................... 26
C. Right to Update Information, including Representations and Warranties......................... 26
13. Conditions to Each Residence Closing................................................................... 27
A. Conditions to Each Parties' Obligation to Close............................................... 27
B. Conditions to Purchaser's Obligation to Close................................................. 27
14. Seller's Options Upon Failure of Purchaser Closing Condition........................................... 28
A. Deferral of Residence Closing Date............................................................ 28
B. Indemnification and Cure...................................................................... 28
C. Withdrawal of Residence....................................................................... 28
D. Withdrawal and Substitution................................................................... 28
15. Notices................................................................................................ 29
16. Casualty and Condemnation.............................................................................. 30
A. Casualty...................................................................................... 30
B. Condemnation.................................................................................. 30
17. Brokers................................................................................................ 31
18. Default................................................................................................ 31
19. Survival of Representations and Warranties; Indemnification............................................ 32
A. Survival of Representations and Warranties.................................................... 32
B. Seller's Indemnification Obligations.......................................................... 32
C. Purchaser's Indemnification Obligations....................................................... 32
D. Procedure for Indemnification Claims.......................................................... 33
20. Campus Properties...................................................................................... 34
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
21. Post-Execution Delivery of Schedules................................................................... 34
22. Shared Facilities. ................................................................................... 35
23. Termination. ......................................................................................... 36
24. General Provisions. .................................................................................. 36
A. Agreement Binding; Assignment................................................................. 36
B. Entire Agreement.............................................................................. 36
C. Execution Necessary........................................................................... 37
D. Time is of the Essence........................................................................ 37
E. Governing Law................................................................................. 37
F. Interpretation; Date of Agreement............................................................. 37
G. Waiver........................................................................................ 37
H. Facsimile Signature; Counterparts............................................................. 37
I. Non-Waiver.................................................................................... 37
J. Rights Cumulative............................................................................. 38
K. Schedules..................................................................................... 38
L. Attorneys' Fees............................................................................... 38
SCHEDULES
Schedule I Name of Seller Entity Owner, Licensure Category and Number of Units/Beds
Schedule II List of Construction Residences
Schedule 1-B Residency Information for each of the Operating Residences*
Schedule 1-C Lease Summary Information for each of the Operating Residences*
Schedule 1-E(i) List of Excluded Personal Property for each of the Operating Residences*
Schedule 1-E(ii) List of Personal Property for each of the Operating Residences*
Schedule 1-F List of Service Contracts for each of the Operating Residences*
Schedule 9-A Aggregate Limits on Past Due Rent for each of the Operating Residences*
Schedule 9-B Description of Pending Litigation and Licensing Warnings or Violations*
Schedule 9-C Zoning and Legal Noncompliance for each of the Operating Residences*
Schedule 9-D Employee Matters for each of the Operating Residences*
Schedule 18 Applicable Liquidated Damages Amounts
Schedule 20 Campus Properties
Schedule 22 Shared Facilities
</TABLE>
*To be delivered by Seller to Purchaser post-execution
(see Section 21)
AGREEMENT OF PURCHASE AND SALE
(Operating Residences)
<PAGE> 6
THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") is made and
entered into effective as of the 31st day of December, 1998, by and between HCR
MANOR CARE, INC., a Delaware corporation ("HCR Manor Care"), the wholly-owned
subsidiaries of HCR Manor Care that are signatories hereto (which together with
HCR Manor Care are collectively referred to as "Seller"), and ALTERNATIVE LIVING
SERVICES, INC., a Delaware corporation (together with its transferees and
assigns hereinafter referred to as "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller owns and operates the twenty-one (21) assisted living
and dementia care residences being more particularly identified on Schedule I
attached hereto and incorporated herein by reference (collectively, and as more
particularly described in Section 1 hereof, the "Operating Residences", as such
term is more particularly defined below) and Seller is developing and
constructing the eight (8) assisted living and dementia care residences being
more particularly identified on Schedule II attached hereto and incorporated
herein by reference (collectively, the "Construction Residences"); and
WHEREAS, Seller desires to sell, and Purchaser desires to purchase,
each of (i) the Operating Residences in accordance with the terms and conditions
hereinafter set forth and (ii) the Construction Residences in accordance with
the terms and conditions set forth in the Agreement of Purchase and Sale
(Construction Residences) dated as of the date hereof by and between Purchaser,
HCR Manor Care and certain wholly-owned subsidiaries of HCR Manor Care (the
"Construction Purchase Agreement").
NOW, THEREFORE, for and in consideration of the foregoing, the sum of
Ten Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Seller hereby agree
as follows:
1. PURCHASE AND SALE OF OPERATING RESIDENCES.
Upon and subject to the terms and conditions set forth in this
Agreement, Purchaser shall purchase from Seller, and Seller shall sell to
Purchaser, good and marketable fee simple title in and to the following
described property:
A. Real Property. All those tracts or parcels of land having the street
addresses described on Schedule I attached hereto and made a part hereof (the
"Land"), including, without limitation, (a) any and all buildings or structures
located on the Land and all other Improvements (as hereinafter defined), (b) to
the extent assignable and subject to the receipt of any approvals needed for
assignments, which Seller shall use commercially reasonable efforts to obtain
upon request by Purchaser, all easements appurtenant to the Land and other
licenses, grants of right, privileges or other agreements for the benefit of,
belonging to or appurtenant to the Land regardless of whether situate upon the
Land, and regardless of whether specifically referenced on
<PAGE> 7
Schedule I attached hereto, (c) to the extent assignable and subject to the
receipt of any approvals needed for assignment, which Seller agrees to use
commercially reasonable efforts to obtain upon request by Purchaser, all
mineral, oil and gas rights, riparian rights, water rights, sewer rights and
other utility rights allocated to the Land, (d) to the extent assignable and
subject to the receipt of any approvals needed for assignment, which Seller
agrees to use commercially reasonable efforts to obtain upon request by
Purchaser, all right, title and interest, if any, of Seller in and to any and
all swales, strips and gores of land located on or adjacent to the Land, (e) to
the extent assignable and subject to the receipt of any approvals needed for
assignment, which Seller agrees to use commercially reasonable efforts to
obtain upon request by Purchaser, all right, title and interest of the owner of
the Land in and to any roads, streets and ways, public or private, open or
proposed, in front of or adjoining all or any part of the Land and serving the
Land, and (f) to the extent assignable and subject to the receipt of any
approvals needed for assignment, which Seller agrees to use commercially
reasonable efforts to obtain upon request by Purchaser, all rights to
development of the Land granted by governmental entities having jurisdiction
over the Land (the Land and all of the foregoing interests are sometimes
hereinafter collectively referred to as the "Real Property"). To the extent
that Purchaser and Seller determine that one (1) or more of the seven (7)
parcels of Real Property identified as a "Campus Property" on Schedule 20
cannot as a practical matter be legally subdivided from the adjacent facility
or facilities campused therewith, then and in such event Purchaser and Seller
agree that such parcel or parcels shall be governed by the terms and provisions
of Section 20 of this Agreement.
B. Residency Agreements. All residency agreements, entrance agreements
and other agreements for use or occupancy of all or any portion of each of the
Operating Residences entered into by all Residents (as hereinafter defined)
(collectively, the "Residency Agreements"), together with all prepaid rents and
advance rentals (other than the monthly residence fees paid by Residents in
advance for the month in which the Residence Closing Date (as hereinafter
defined) occurs) and all security deposits (collectively, the "Advances") with
respect to the Residency Agreements and the guaranties or warranties of payment
by all guarantors or co-signers with respect to the Residency Agreements. The
name or room number of each occupant or resident under the Residency Agreements
(herein referred to as a "Resident" or "Residents") for each Operating
Residence, the name of each Seller entity that is a party to the Residency
Agreements for such Operating Residence, the current rental payable thereunder,
the date of the Residency Agreement, and the amount of any past due or
delinquent rental and the Advances therefor, will be set forth on Schedule 1-B,
which Schedule shall be delivered by Seller to Purchaser as provided in Section
21 hereof (the "Rent Roll").
C. Leases. Any other agreements for use or occupancy of any portion of
any of the Operating Residences, excluding only the Residency Agreements,
including without limitation all leases, subleases and rental agreements
(collectively, the "Leases"), together with all rights appurtenant thereto and
any prepaid rents and advance rentals (other than the monthly rental paid by a
tenant in advance for the month in which the Residence Closing Date occurs) and
all security deposits with respect to the Leases (which, together with the
Advances, are hereinafter collectively called the "Deposits"). The name of each
tenant or lessee under the Leases (hereinafter referred to as a "Tenant" or
collectively "Tenants") for each Operating Residence,
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the names of each Seller entity that is a party to such Lease, the date of each
Lease, the current rental payable thereunder, any past due or delinquent rental
and the Deposits therefor, will be set forth on Schedule 1-C, which Schedule
shall be delivered by Seller to Purchaser as provided in Section 21 hereof (the
"Lease Summary").
D. Improvements. All buildings, structures (surface and subsurface)
and other improvements and fixtures situated on or attached to or constituting
a portion of all or any portion of the Real Property (herein collectively
referred to as the "Improvements").
E. Personal Property. All tangible personal property located at the
Operating Residences and used or useable in connection with any present or
future occupation, operation or maintenance of all or any part of the Real
Property or the Improvements or both, together with (to the extent not
constituting a portion of the Real Property or the Improvements) all fixtures,
trade fixtures, furniture, furnishings, carpeting, draperies, linens, fittings,
equipment, machinery, apparatus and appliances, now located on the Real Property
and used or useable in connection with any present or future occupation or
operation of all or any part of the Real Property or the Improvements or both,
including, without limitation, all elevators, escalators, boilers, furnaces,
heating, ventilating and air-conditioning systems, furnishings and equipment,
building drawings, plans and specifications, building materials and wall
partitions, sprinkler and well systems, sewerage systems, electrical equipment,
fire prevention and extinguishing apparatus, engineering, maintenance, cooking,
housekeeping and medical or therapeutical supplies and materials, mowers and
edgers and other lawn maintenance equipment and supplies, vans, buses,
automobiles or other motor vehicles, fuel and other supplies of all kinds
whether used, unused or in stock for future use in connection with the
occupation, maintenance or operation of the Operating Residences, which are on
hand on the date hereof, subject to such depletion and including such
resupplying as shall occur and which Seller is hereby obligated to make in the
ordinary course of operating the ongoing business at the Operating Residences
(the aforesaid items, subject to the following exclusions, are hereinafter
collectively referred to as the "Personal Property"), excluding only, however,
(i) all items of personal property which are the property of Residents or
Tenants, (ii) the rights of the owner of any equipment leased pursuant to, or
owned by parties other than Seller (and which are not affiliated with Seller)
pursuant to the Service Contracts, as hereinafter defined and (iii) those items
of Personal Property specifically excluded hereunder which will be more
particularly set forth on Schedule 1-E(i), which Schedule shall delivered by
Seller to Purchaser as provided in Section 21 hereof and which may include items
of Personal Property owned or leased by affiliates of Seller. A current
inventory of all material items of the Personal Property for each Operating
Residence will be set forth on Schedule 1-E(ii), which shall be delivered by
Seller to Purchaser as provided in Section 21 hereof (the "Personal Property
Inventory").
F. Service Contracts. To the extent assignable and subject to the
receipt of any consents to assignment which may be needed for assignment, which
Seller agrees to use commercially reasonable efforts to obtain upon request by
Purchaser, all service, supply, development, construction, management,
maintenance and other contracts for leasing, management, maintenance or
operation of the Operating Residences that Purchaser is obligated to assume
pursuant to the terms hereof, including, but not limited to, all leases by which
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<PAGE> 9
equipment is leased and is used or useable in connection with any present or
future occupation, operation or maintenance of the Operating Residences, and all
operating files relating to all of the aforesaid, but not including any such
contracts which, pursuant to the terms hereof, Purchaser is not obligated to
accept or assume (and does not elect to assume) in connection with the purchase
and sale contemplated in this Agreement (herein collectively referred to as the
"Service Contracts"). A summary list of all Service Contracts in effect as of
the date of this Agreement and all other such contracts that Purchaser has not
yet rejected but that Purchaser may reject pursuant to the terms of this
Agreement, including the identity of contract parties, the date of contract, the
expiration date of the contract, and the amounts payable thereunder will be set
forth on Schedule 1-F, which Schedule shall be delivered by Seller to Purchaser
as provided in Section 21 hereof (the "List of Service Contracts").
G. Operating Interests. Any and all of the following (hereinafter
collectively referred to as the "Operating Interests"):
(i) The business of Seller conducted at the Operating
Residences as a going concern, including without limitation, all
intangible rights and interests associated with the Operating
Residences, any name or trade name by which the Improvements or the
Operating Residences or any part thereof may be known, including, but
not limited to names used on the date hereof in connection with the
ownership and operation of the Operating Residences, and all
registrations for such names or intangible rights and interests, but
expressly excluding the names "HCR", "Health Care and Retirement",
"Heartland", "Manor Care", "Arden Court", "Spring House", and any names
including any of the foregoing or any derivations thereof (the
"Excluded Names") and all telephone numbers of Seller presently in use
therein, including without limitation goodwill and going concern value,
and any and all marketing materials, promotional materials, letterhead,
envelopes or other materials bearing such names and logos, but
expressly excluding (a) all cash and bank accounts (other than the
Custodial Accounts, as hereinafter defined), (b) all Receivables (as
hereinafter defined) and (c) all liabilities and obligations resulting
from the business of Seller conducted at the Operating Residences as a
going concern except as expressly assumed by Purchaser at the
applicable Residence Closing Date to the extent provided herein;
provided, however that Seller makes no representation or warranty
whatsoever with regard to its rights to use any such name, trade name,
telephone numbers or any other intangible rights or registration
therefor;
(ii) To the extent assignable or transferable and subject to
receipt of any consents required for such assignments or transfers,
which Seller agrees to use commercially reasonable efforts to obtain
upon request by Purchaser, each and every bond, guaranty and warranty
concerning the Real Property, the Improvements and the Personal
Property, including, without limitation, any roofing, air conditioning,
heating, elevator or other bond, guaranty and warranty relating to the
construction, maintenance or replacement of the Improvements or any
portion thereof, including prepaid bonds but excluding any bonds
requiring future payments to be made at Seller's cost;
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<PAGE> 10
(iii) To the extent in the possession of Seller or any
affiliate of Seller, all files relating to the original construction of
the Improvements and replacements made to the Improvements, as well as
all repair and maintenance files (including, without limitation, those
relating to the building systems such as elevators and HVAC systems),
and all operating manuals relating to the building systems;
(iv) All licenses, permits, accreditations, approvals and
certificates used in or relating to the ownership, occupancy or
operation of any part of the Operating Residences, including, without
limitation, (a) any permit, license, accreditation or other approval
necessary under applicable federal, state or local law in order to
permit the operation of the Operating Residences as the type of
residence, and for the number of Residents, set forth with respect to
each such Operating Residence on Schedule 1 and (b) any provider
agreements with Medicaid, Medicare and any other third-party payor
programs entered into solely with respect to the Operating Residences
((a) and (b) are hereinafter collectively referred to as the
"Permits"); provided, however, Seller's obligation to transfer or
assign the Permits is expressly limited to the extent and only to the
extent that the same can be assigned or transferred in accordance with
applicable law and subject to the receipt or satisfaction of any
approvals or other requirements for such assignment or transfer to
Purchaser, as is more particularly set forth below;
(v) All documents, charts, records and lists maintained with
respect to the Residents (subject to the respective Residents' rights
to access to their respective medical records as provided by law and
subject to confidentiality requirements);
(vi) Seller's books of account, accounting records and work
papers, files, reports and other records with respect to the Operating
Residences and the ownership, occupancy and operation of any part of
the Operating Residences, to the extent located at the Operating
Residences or specifically relating only to the Operating Residences
and in the possession or control of Seller, including without
limitation all licensing or regulatory reports, surveys or
correspondence with respect to the licensing of the Operating
Residences, the operation thereof, the compliance with all permits and
applicable laws and other similar matters;
(vii) All employee and personnel files, documents, records and
lists relating to operations at the Operating Residences;
(viii) All plans and specifications in the possession or
control of Seller pertaining to the Operating Residences, as well as
copies of existing surveys;
(ix) Any appurtenant and reciprocal easements or other
instruments affecting the Real Property in the possession or control of
Seller, including all amendments and modifications and Seller's
operating files relating thereto; and
(x) All soils reports and environmental reports and surveys
prepared with respect to the Operating Residences and engineering
studies relating to completed
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projects at the Operating Residences, together with all written
communications and documents relating to such reports and surveys sent
or received by Seller or any affiliate of Seller.
The Real Property, the Improvements, the Residency Agreements, the Leases, the
Deposits, the Service Contracts, the Personal Property and the Operating
Interests related to and associated with a specific Operating Residence are
herein collectively referred to as the "Operating Residence." On or before the
date thirty (30) days after the date hereof, with respect to each of the
Operating Residences, Seller will provide access to Purchaser to the Residency
Agreements and Seller will deliver to Purchaser true, correct and complete
copies of the Leases and the Service Contracts and, with respect to the
Operating Interests, copies of any documents or correspondence that relate to
items to be disclosed on Schedules 9-A, 9-B, 9-C or 9-D and access to the
remainder of Seller's files with respect to the Operating Interests and Seller
shall provide Purchaser with full and complete access to all other documents,
books, records, reports and files of Seller with respect to the Operating
Residences (such copies, documents, books, records and files are hereinafter
collectively referred to as the "Files"). Upon the Residence Closing Date for
any Operating Residence, Seller shall deliver originals of the Files with
respect to such Operating Residence to Purchaser to the extent Seller has not
previously done so and in accordance with other provisions of this Agreement,
and Seller shall continue to have access thereto as provided herein.
2. PURCHASE PRICE FOR THE OPERATING RESIDENCES.
A. Payment. Subject to adjustments as may be applicable pursuant to
Section 6 hereof, the purchase price for each Operating Residence shall be as
set forth on the Addendum of even date herewith by and between HCR Manor Care
and Purchaser (the "Addendum"), which Addendum is incorporated herein by
reference (each, the "Residence Purchase Price"). The Residence Purchase Price
for an Operating Residence shall be payable to Seller at the Residence Closing
Date for such Operating Residence in accordance with Section 4 hereof, subject
to the prorations and adjustments set forth herein, by wire transfer through the
federal reserve system in immediately available funds to an account designated
by Seller in advance.
B. Allocation. Purchaser and Seller hereby agree that within thirty
(30) days after the date of this Agreement, Seller will deliver to Purchaser
Seller's proposed calculation of the allocation of the Residence Purchase Price
among the Real Property, the Improvements, the Personal Property and the
Operating Interests with respect to each Operating Residence, and thereafter
Purchaser and Seller will negotiate in good faith to finalize such allocation,
such allocation to be agreed upon between Purchaser and Seller on or prior to
the applicable Residence Closing Date. In the event Purchaser and Seller agree
upon the allocation, then at the Residence Closing Purchaser and Seller shall
enter into an agreement to file IRS Form 8594 reflecting such agreed upon
allocation. If Purchaser and Seller are unable to agree upon an allocation, then
Purchaser and Seller shall each be entitled to report the transaction to the IRS
using their respective allocations without further obligation to the other party
with respect thereto.
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3. NONEXCLUSIVE LICENSE.
Seller hereby grants to Purchaser a perpetual license (the "Seller
License") to use the Seller Systems (as hereinafter defined) and the Seller
Marks (as hereinafter defined) with respect to the operation of assisted living
or dementia care residences.
A. For purposes of this Agreement, (i) "Seller Systems" shall mean all
formats, systems, methods, specifications, standards, procedures and trade dress
developed or utilized by Seller or its affiliates in operating any of the
Operating Residences or Construction Residences and (ii) "Seller Marks" shall
mean the marks "Arden Court", "Springhouse" and all associated logos, commercial
symbols, and designs.
B. Notwithstanding anything to the contrary herein, Seller retains, for
itself and its associated affiliates, the right in its sole discretion to:
(i) Utilize the Seller System and the Seller Marks, or any
portion thereof, in the management or operation of other assisted
living or dementia care residences or in connection with any other
business in which Seller or its affiliates may engage, as determined by
Seller in its sole discretion; and
(ii) Grant other licenses in the Seller Systems or Seller
Marks, as Seller, in its sole discretion, deems appropriate.
C. In consideration of the Seller License, Purchaser shall pay to
Seller a licensing fee of $5,000,000 (the "Licensing Fee"), simultaneously with
the execution of this Agreement by Purchaser and Seller, which Licensing Fee
constitutes payment in full for the Seller License.
D. Seller makes no representations or warranties, express or implied,
regarding either the Seller Systems or the Seller Marks, which are hereby
licensed "AS-IS". Without limitation of the foregoing, Seller hereby expressly
disclaims (i) any warranty of merchantability, (ii) any warranty of fitness for
a particular purpose, and (iii) any warranty regarding the ability of any
computer software included in the Seller Systems to properly recognize or
process dates from and after January 1, 2000.
E. Purchaser hereby agrees that, with respect to any assisted living or
dementia care residence using the Seller Marks pursuant to the Seller License,
Purchaser shall operate such residence using at least the same high quality
levels of service and standards of care as Seller and its affiliates have
maintained in their operation of residences using the Seller Marks.
F. Purchaser hereby agrees to indemnify, defend and hold harmless
Seller and its affiliates from and against any loss, cost, damage or liability
asserted against, imposed upon or incurred by Purchaser as a result of any
claim, suit or action made or brought by any third party against Seller or any
of its affiliates arising out of any use of the Seller Marks or the Seller
Systems pursuant to the Seller License. This indemnification shall survive
indefinitely.
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G. Seller hereby agrees to cause its affiliates to take such further
actions as Purchaser may reasonably request to confirm and perfect the grant of
license made pursuant to this Section
H. Purchaser may transfer its rights to the Seller Systems without
restriction, but may not transfer its rights to the Seller Marks.
4. CLOSING.
The closing or settlement of the purchase and sale of each of the
Operating Residences contemplated by this Agreement shall be held at such time
and at such place as Seller and Purchaser shall mutually agree. The parties
hereby acknowledge that, to facilitate an orderly transition of the Operating
Residences from Seller to Purchaser, it will likely be desirable to schedule
multiple closings whereby closings will be held with respect to one or more (but
less than all) of the Operating Residences during the period commencing February
1, 1999 and ending March 31, 1999. Notwithstanding the foregoing, in the event
that all conditions to closing with respect to any particular Operating
Residence have been either satisfied or waived by the party for whose benefit
they were imposed, and Seller and Purchaser have not agreed upon an alternative
closing date, time and place, a closing for such Operating Residence shall be
held at 10:00 a.m. on March 31, 1999, at the offices of Rogers & Hardin LLP,
2700 International Tower, 229 Peachtree St., N.E., Atlanta, Georgia 30303. Each
closing of one or more Operating Residences contemplated hereby shall be
referred to herein as a "Residence Closing" and the date of any such Residence
Closing shall be referred to herein as the "Residence Closing Date."
A. Delivery; Possession. At the Residence Closing for any Operating
Residence, Seller shall deliver to Purchaser the items required of Seller as
elsewhere set forth herein and Purchaser shall deliver to Seller the Residence
Purchase Price, subject to the prorations and adjustments as herein provided,
and the items required of Purchaser as elsewhere set forth herein. Seller shall
deliver possession of the applicable Operating Residence to Purchaser at the
time of such Residence Closing, subject only to the applicable Permitted Title
Exceptions (as hereinafter defined).
B. Transfer Taxes. The parties agree that any and all city, county or
state conveyance or transfer taxes, state stamp or documentary taxes and surtax
stamps due upon the transfer of any Operating Residence or the deed evidencing
same (including recording costs) shall be borne by the party that customarily
pays such cost (or split between the parties in accordance with such custom) in
the state in which the applicable Operating Residence is located. In the event
that the parties are unable to agree in good faith what is customary for payment
of such costs, then, absent manifest error, the decision of Title Company (as
hereinafter defined) as to what is customary for payment of such costs in such
states shall be binding.
C. Seller's Closing Costs. Seller shall pay the costs (including
recording costs) of any cure of title defects required of Seller hereunder and
the fees and expenses of Seller's own attorneys. All costs of satisfying any and
all Monetary Encumbrances (as hereinafter defined), including without limitation
the amount of the outstanding principal, accrued but unpaid outstanding
interest, all prepayment penalties and all other sums that must be paid to cause
the
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holder of any Monetary Encumbrance to release such Monetary Encumbrance, shall
be borne by Seller.
D. Purchaser's Closing Costs. Purchaser shall pay the cost of the title
examinations, the premium for the Title Policies (as hereinafter defined), the
costs of any surveys of the Real Property obtained by Purchaser, the costs of
any other investigations, studies and appraisals conducted by Purchaser, and the
fees and expenses of Purchaser's own attorneys.
E. Existing Fines and Penalties. If any governmental authorities or
agencies have levied any fines, penalties or assessments against any Operating
Residence or Seller resulting from failure or alleged failure to comply with any
regulatory or other governmental requirements (hereinafter collectively referred
to as "Fines"), and Seller fails to pay any such Fines prior to the Residence
Closing for such Operating Residence, and the failure to pay such Fines or any
portion thereof (i) prevents the issuance or assignment of any Permit to
Purchaser necessary for Purchaser's operation of such Operating Residence or
results in the imposition of conditions to such Permit unacceptable to Purchaser
or (ii) otherwise prohibits Purchaser's right to operate the Operating Residence
for the licensure category and number of Residents identified on Schedule 1,
then the full amount of such Fines, together with any additional penalties or
interest, shall be withheld from the Residence Purchase Price payable to Seller
and shall be paid directly to the appropriate governmental officials or
agencies.
F. Other Costs. All other closing costs shall be paid by the party
incurring same.
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5. TITLE.
At each Residence Closing, Seller shall convey and transfer to
Purchaser such good, indefeasible fee simple and marketable title to the
applicable Operating Residence as will enable Chicago Title Insurance Company
("Title Company") to issue its full coverage, American Land Title Association
Standard Coverage Owner's Policy of Title Insurance with the standard exceptions
therein deleted, and with endorsements to include, at a minimum, zoning, access,
comprehensive, survey and, if available in the state of such Operating
Residence, utility availability and contiguity coverage (collectively referred
to herein as the "Title Policy") in the amount of the applicable Residence
Purchase Price, subject only to those matters hereinafter defined as the
"Permitted Title Exceptions"; provided, however, in the event that Seller is
unable to comply with this sentence due to the existence of a Non-Monetary
Defect (as hereinafter defined) which does not constitute a Permitted Title
Exception, Seller shall not be deemed to be in default hereunder, but Purchaser
shall not be obligated to close the acquisition of the Operating Residence
affected thereby and the parties shall proceed as set forth in Section 14
hereof. Title to each Operating Residence shall be free and clear of, and shall
not be subject to mechanics', materialmen's or similar liens, pledges,
mortgages, deeds of trust, security deeds, security agreements, liens,
judgments, conditional sales contracts, UCC financing statements or fixture
filings, encumbrances, ground rents, past due taxes or assessments, fines,
levies or other encumbrances of a monetary nature (herein collectively referred
to as "Monetary Encumbrances") or leases, tenancies, parties in possession,
covenants, conditions, restrictions, right-of-ways, easements, encroachments or
any other agreements, contracts, rights, acts or other matters of any nature
affecting the title thereto, except as permitted in this Agreement or the
Permitted Title Exceptions.
A. Examination of Title. Provided that Seller delivers to Purchaser
copies of Seller's existing title policies (and not just commitments) and
surveys for the Operating Residences within ten (10) days after the date of this
Agreement, Purchaser shall have until the date forty-five (45) days after the
date of this Agreement to examine title to each of the Operating Residences and
to obtain Surveys (as hereinafter defined) and to deliver to Seller copies of
title commitments issued by Title Company and such Surveys. Such forty-five (45)
day period shall be extended one (1) day for each day that Seller is late in
delivering the copies of Seller's title policies and surveys (provided that if
Seller notifies Purchaser that Seller lacks such items, such forty-five (45) day
period shall commence as of the date of such notice). Purchaser shall, within
such period, notify Seller in writing of any defects in title which may be
revealed by Purchaser's examination (which defects may include any matters
revealed by the Surveys), including Monetary Encumbrances and any title defects
that are non-monetary in nature other than Permitted Title Exceptions
("Non-Monetary Defects"). Purchaser agrees that Purchaser shall not object to
(A) any recorded utility easements serving only an Operating Residence or any
recorded utility easements serving adjacent properties and located on the Real
Property, but, with respect to all such recorded utility easements Purchaser
shall not object if and only to the extent (i) any building constituting a part
of the Improvements for such Operating Residence does not encroach upon and is
not constructed over such easement, (ii) such easement has been located and
identified by the surveyor on the Survey applicable thereto, and (iii) such
easement does not render title unmarketable or unreasonably interfere with the
current or future operations of the
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Operating Residence, (B) any minor encroachments of improvements such as
fences, paving or similar improvements, and (C) any other matters as Purchaser
in the exercise of good faith reasonably determines will not have a material
adverse impact on Purchaser's operation of the Operating Residence or otherwise
is a defect that is not a material impediment to Purchaser's ability to finance
or convey such Operating Residence. (A) - (C) shall be deemed to be "Permitted
Title Exceptions" hereunder. Within ten (10) days after Seller's receipt of
Purchaser's notice with respect to any Operating Residence, Seller shall give
notice to Purchaser either (x) refusing to cure the applicable Non-Monetary
Defects or (y) setting forth Seller's intent to cure such Non-Monetary Defects
and stating in detail how Seller will accomplish same. Failure of Seller to
timely give such notice shall be deemed to be a refusal by Seller to cure any
such Non-Monetary Defects. Upon the later of receipt of Seller's notice or
expiration of the ten (10) day period, then Purchaser may, at any time prior to
ten (10) days after the receipt by Purchaser of Seller's response or expiration
of Seller's response time, by notice to Seller, (i) elect to terminate
Purchaser's obligation to purchase such Operating Residence pursuant to this
Agreement, whereupon the provisions of Section 14 shall be applicable with
respect to such Operating Residence, or (ii) accept title to such Operating
Residence subject to the Non-Monetary Defects that Seller has not undertaken to
cure, in which event such Non-Monetary Defects, together with all title
exceptions and matters appearing on the Title Commitment with respect to such
Operating Residence to which Purchaser did not object, will be deemed Permitted
Title Exceptions hereunder. If Seller elects option (y) as to any Operating
Residence and at the applicable Residence Closing Seller fails to cure the
applicable Non-Monetary Defects in the manner Seller has undertaken to so cure
in its notice to Purchaser to the satisfaction of Purchaser, Purchaser will
again have the options set forth in (i) and (ii) above. Seller agrees not to
further voluntarily alter or encumber in any way title to any Operating
Residence after the date of this Agreement, except for encumbrances imposed in
the ordinary course of business of which Seller notifies Purchaser and which
Seller will cause to be removed at or prior to the applicable Residence
Closing. In the event that Purchaser fails to timely notify Seller of title
defects as to any Operating Residence, then such failure to notify Seller shall
constitute a waiver of Purchaser's right to object to any Non-Monetary Defects
with respect to any Operating Residence but shall not be a waiver of Seller's
absolute obligation hereunder to remove Monetary Encumbrances, nor a waiver of
Purchaser's right to object to matters that arise subsequent to such date.
Purchaser shall have the right to re-examine and update title to any Operating
Residence and update the applicable Survey through and including the applicable
Residence Closing Date and in the event any such examination or update reveals
any new matters first arising or appearing of record subsequent to Purchaser's
first examination of title (other than Permitted Title Exceptions), then (i) if
such new matters were voluntarily imposed by Seller in violation of this
Section 5.A, Seller shall be in default hereunder and the provisions of Section
18.B shall apply or (ii) if such new matters were not voluntarily imposed by
Seller, then Purchaser shall have the right to object to same and will again
have the options set forth in (i) and (ii) above.
B. Survey Matters. Purchaser may obtain a current as-built plat of
survey ("Survey") of the Land for each Operating Residence. Each Survey shall be
prepared for and certified by a registered land surveyor licensed as such in the
state in which the Operating Residence is
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located. Purchaser's and Seller's rights and obligations with regard to title
defects revealed by Surveys shall be those indicated in Section 5.A. above.
6. PRORATIONS AND CREDITS AT CLOSING.
In each proration set forth below, the portion thereof allocable to
periods beginning with the applicable Residence Closing Date shall be credited
to Purchaser, or charged to Purchaser, as applicable, as of 12:01 a.m. on the
applicable Residence Closing. The following items shall be prorated between
Purchaser and Seller or credited to Purchaser or Seller at the Residence Closing
of each Operating Residence:
A. Real Estate Taxes and Assessments. All ad valorem real estate taxes
with respect to the Operating Residence for the then current year shall be
prorated as of the applicable Residence Closing Date with Seller receiving a
credit for any such taxes paid in advance for any period after the applicable
Residence Closing Date or with Purchaser receiving a credit for the period prior
to and including the applicable Residence Closing Date for which such taxes have
not been paid by Seller. Seller shall pay all assessments levied upon the
Operating Residence prior to the applicable Residence Closing Date. In the event
that tax bills for the current year's taxes are not available on the applicable
Residence Closing Date, taxes shall be prorated based upon the tax bills for the
previous year and increased or decreased based upon any known increase or
decrease in the assessed valuation or the millage rate. Seller and Purchaser
hereby agree that the parties shall, if necessary, re-prorate the taxes when
actual tax bills for the current year are available.
B. Prepaid Resident Rent. Purchaser shall receive a credit for any
advance payments made by any Residents of the applicable Operating Residence to
the extent attributable to the applicable Residence Closing Date and any periods
thereafter.
C. Custodial Accounts. At the applicable Residence Closing, Seller
shall provide Purchaser with a written account of all funds belonging to
Residents at the Operating Residence that are held by Seller in a custodial
capacity (the "Custodial Accounts"). Such accounting shall set forth the names
of the Residents for whom such funds are held, the amounts held on behalf of
each Resident and Seller's warranty that the accounting is true, correct and
complete. At the applicable Residence Closing, Seller will either assign
Seller's rights in the Custodial Accounts to Purchaser or Seller will cause the
funds in the Custodial Accounts to be transferred to new accounts designated by
Purchaser or Seller will otherwise comply with applicable laws if a different
procedure is required with respect thereto.
D. Rents. Rents, including without limitation all payments received by
Seller from any Tenants under any Leases applicable to the Operating Residence
and all payments of all Residents under any Resident Agreements received prior
to the Residence Closing Date shall be prorated as of the applicable Residence
Closing Date and the portion thereof allocable to periods beginning with such
Residence Closing Date shall be credited to Purchaser at such Residence Closing.
Any checks for any such rental payments received after such Residence Closing by
Seller and belonging in their entirety to Purchaser shall be promptly endorsed
to Purchaser by
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Seller and promptly transmitted to Purchaser, and any checks for any rental
payments received after such Residence Closing by Seller and belonging in part
to Seller and in part to Purchaser shall be promptly deposited by Seller and
the part thereof belonging to Purchaser shall be promptly paid to Purchaser and
the balance shall be retained by Seller. In the event that on such Residence
Closing Date there shall be any unpaid rental payments due under any Lease,
then (i) for a period of ninety (90) days after the Residence Closing, any
rental payment received by Purchaser with respect to such Lease subsequent to
such Residence Closing Date shall be applied first to pay the current portion
of such rental payment due Seller under such Lease and the remaining portion of
such rental payment, to the extent applicable to a period beginning on or after
such Residence Closing Date, shall be retained by Purchaser in satisfaction of
amounts owed to it, and (ii) thereafter, Purchaser may apply such amounts first
to amounts owed to it. During such ninety (90) day period, Purchaser shall use
its reasonable efforts in the ordinary course of business to collect for Seller
amounts owed to Seller of which it has knowledge, but shall not be required to
employ counsel or any collection agency or to initiate litigation, ejectment
proceeding or use any extraordinary means of collection. Seller shall at all
times be entitled to pursue collection of any amounts owed to it, and Purchaser
shall cooperate with Seller in connection therewith.
E. Security Deposits. Purchaser shall receive a credit against the
applicable Residence Purchase Price at such Residence Closing for all Deposits
remaining outstanding to any Resident or Tenant for such Operating Residence.
F. Utility Expenses and Payments. Water, sewer, gas, waste fees, fire
protection, cable television, electric and all other utility expenses and
payments due or made with respect to such Operating Residence shall be prorated
as of such Residence Closing Date and the portion thereof allocable to periods
beginning with such Residence Closing Date shall be credited or charged to
Purchaser, as applicable, at such Residence Closing.
G. Utility Deposits. Seller shall receive a credit at such Residence
Closing for the amount of any utility or similar deposits made by Seller with
respect to such Operating Residence which are not refundable to Seller by the
holder thereof and which deposits are transferred to Purchaser at such Residence
Closing.
H. Service Contract Payments. All payments due or made under any
Service Contracts accepted by Purchaser in accordance with the provisions hereof
shall be prorated as of such Residence Closing Date and the portion thereof
allocable to periods beginning with such Residence Closing Date shall be charged
to Purchaser at such Residence Closing, and any amounts due under the Service
Contracts allocable to periods prior to such Residence Closing Date shall be
charged to Seller at such Residence Closing.
I. Personal Property Taxes. All ad valorem personal property or similar
taxes with respect to the Personal Property at such Operating Residence for the
current year shall be prorated as of such Residence Closing Date with Seller
receiving a credit for any such taxes paid in advance for any period after such
Residence Closing Date or with Purchaser receiving a credit for the period prior
to and including such Residence Closing Date for which such taxes have not
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been paid by Seller. In the event that tax bills for the current year's taxes
are not available on such Residence Closing Date, taxes shall be prorated based
upon the tax bills for the previous year after taking into account any known
increases or decreases. Seller and Purchaser shall, if necessary, re-prorate
the taxes when actual tax bills for the current year are available.
J. Accrued Benefits. At such Residence Closing, Seller shall provide
Purchaser with a schedule of all accrued sick, vacation and personal holiday pay
earned, accrued and outstanding by Seller's employees working at such Operating
Residence ("Employees") as of such Residence Closing Date ("Seller's Benefits"),
which schedule shall include the names, addresses and amount of Seller's
Benefits for each Employee to whom such amounts are owed, and shall be certified
as true, complete and correct by Seller. At such Residence Closing, Seller shall
be charged with the amount of Seller's Benefits, which at Purchaser's election,
(i) shall be paid directly to the respective Employee entitled to same or (ii)
with respect to Employees employed by Purchaser as of such Residence Closing
Date (such Employees, "Continued Employees"), shall be credited to Purchaser.
K. Payroll. Seller shall receive a charge for all salaries, benefits
and other payments owed to all Continued Employees of such Operating Residence
through and including 12:01 a.m. on such Residence Closing Date.
L. Reproration after Closing. In the event that the actual amounts of
any of the aforesaid proration items are unavailable as of such Residence
Closing Date, then such proration shall be made on the basis of an amount
reasonably estimated by Purchaser and Seller at such Residence Closing and
Purchaser and Seller shall thereupon re-prorate such items at such times as the
exact amounts for such items become available.
M. Performance of Obligations. To the extent that any amount is
credited in favor of Purchaser hereunder, Purchaser shall thereafter make the
payments of taxes, hold and disburse the Custodial Accounts, refund or apply the
Security Deposits, pay the utility bills or Service Contracts, credit the
Employees entitled to Seller's Benefits or otherwise discharge any similar
obligation that Seller may have had to any third party with respect to the item
so credited, but only to the extent of the amount so credited to Purchaser.
7. ACCOUNTS RECEIVABLE.
On and after the Residence Closing Date with respect to each Operating
Residence, Purchaser shall assume responsibility for billing and collection of
all payments on account of services rendered at such Operating Residence
including, without limitation, any payments or reimbursements made or to be made
by any federal, state or local governmental agency or organization for medical
or therapeutical care or other goods or services rendered or supplied to any
Resident, including, without limitation, payments or reimbursements resulting
from third-party payor agreements such as Medicaid, Medicare, private pay
insurance companies or other similar programs (herein collectively referred to
as "Receivables"). In order to facilitate Purchaser's collection efforts with
respect to Receivables accruing prior to the Closing, Seller agrees to deliver
to Purchaser, within a reasonable time after each Residence Closing, a schedule
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identifying all of those Receivables with balances owing for the period prior to
such Residence Closing Date and Purchaser agrees to forward to Seller any
payments received which are specifically designated as being applicable to
services rendered prior to such Residence Closing to Seller. In the event such
payments specifically indicate that they relate to services rendered on or after
such Residence Closing Date, such payments shall be retained by Purchaser. With
respect to any payments received by Purchaser during the first ninety (90) days
after the applicable Residence Closing Date that do not specify whether such
payments relate to services rendered prior or subsequent to such Residence
Closing Date, such payments shall be applied first to any amounts due and owing
to Seller and the remaining portion shall be applied to amounts due to
Purchaser; thereafter such amounts may be applied first to amounts owing to
Purchaser. During such ninety (90) day period, Purchaser shall use its
reasonable efforts in the ordinary course of business to collect pre-closing
Receivables, but shall not be obligated to employ counsel or any collection
agency or to initiate any litigation, ejectment proceedings or use any
extraordinary means of collection, and, subject to the foregoing, shall have no
liability for uncollectible pre-closing Receivables. In the event that either
party shall receive any check for Receivables belonging in part to such party
and in part to the other, such party shall promptly deposit such check and the
part thereof belonging to the other party shall be promptly paid to such party.
Seller shall at all times be entitled to pursue collection of any amounts owed
to it, and Purchaser shall cooperate with Seller in connection therewith.
8. CONVEYANCES AND DELIVERIES AT EACH RESIDENCE CLOSING.
A. Deed; Affidavit. At each Residence Closing, Seller shall convey the
Land comprising a part of such Operating Residence, together with any easements
appurtenant thereto and any Improvements thereon, to Purchaser by Limited
Warranty Deed subject only to the Permitted Title Exceptions and using a legal
description based upon the Survey and approved by Title Company. The Limited
Warranty Deed shall be accompanied by a completed and executed transfer tax or
similar instrument in the prescribed form. Seller shall also execute and deliver
an owner's affidavit in the form prescribed by Title Company and reasonably
acceptable to Seller to enable Title Company to endorse over or delete the
exceptions from the Title Policy for mechanics', materialmen's and other similar
liens, rights of parties in possession under unrecorded leases (other than the
applicable Residents), and the other standard exceptions.
B. Bill of Sale. At each Residence Closing, Seller shall also convey
the Personal Property comprising a part of such Operating Residence to Purchaser
by Bill of Sale, which Bill of Sale shall incorporate by reference the
warranties and representations set forth herein with respect to the Personal
Property, subject to the limitations contained herein. Seller shall also deliver
properly endorsed certificates of title to any motor vehicles to be conveyed
pursuant hereto.
C. Assignment of Residency Agreements and Leases. At each Residence
Closing, Seller shall assign to Purchaser Seller's interest in and to the
Residency Agreements and the Leases comprising a part of such Operating
Residence by a duly executed assignment of Residency Agreements and Leases and
Purchaser shall assume Seller's obligations thereunder and first arising on or
after the Residence Closing Date by a duly executed assumption.
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D. Assignment of Service Contracts. At each Residence Closing, Seller
shall assign to Purchaser Seller's interest in the Service Contracts and the
Operating Interests comprising a part of such Operating Residence by a duly
executed assignment and Purchaser shall assume Seller's obligations thereunder
and first arising on or after the Residence Closing Date by a duly executed
assumption.
E. Notices of Assignment. On or promptly after each Residence Closing
Date (or earlier if Purchaser and Seller shall so agree), Seller and Purchaser
shall send a written notice, in form and content satisfactory to Purchaser and
Seller, to each Resident of such Operating Residence and their respective legal
guardians, next of kin or others designated to be notified in the event of an
emergency or otherwise, and all Tenants under the Leases of such Operating
Residence, informing them of the sale of the applicable Operating Residence and
of the assignment to Purchaser of Seller's interest in the Residency Agreements
and the Leases and directing that all rental payments and other sums payable on
or after such Residence Closing Date shall be paid to Purchaser at the address
set forth in the notice. If Purchaser shall so elect, Seller and Purchaser shall
also send a written notice, in form and content acceptable to Purchaser and
Seller, to each party to a Service Contract informing such party of the
assignment to Purchaser of Seller's interest in such Service Contract. Following
the filing by Purchaser of an application with the applicable state agency for a
license to operate the Operating Residence, Seller and Purchaser shall send any
other written notice and make any necessary filing as may be required under
applicable law with respect to sale of the Operating Residence or a transfer of
ownership of such Operating Residence.
F. Books and Records, Floor Plans, Plans and Specifications, Medical
Records, Original Documents and Other Instruments. At or promptly after each
Residence Closing, Seller shall deliver to Purchaser the originals (or, if
originals are unavailable, duplicate originals or copies) of all Files related
to such Operating Residence not previously delivered by Seller pursuant to the
provisions of Section 1 this Agreement, subject to Seller's rights of access at
all reasonable times at Seller's expense to examine and make copies of any and
all of said original Files for a period of three (3) years after such Residence
Closing Date; and Purchaser shall be obligated to retain such Files for such
three (3) year period.
G. Section 1445 Certificate; Form 8594. At each Residence Closing,
Seller shall also execute and deliver to Purchaser a certificate and affidavit
with respect to Section 1445 of the Internal Revenue Code stating that Seller is
not a foreign person as defined in said Section 1445 and applicable regulations
thereunder. At such Residence Closing, Seller and Purchaser shall execute an
agreement to timely file IRS Form 8594 with the Internal Revenue Service
reflecting the agreed upon allocation (if any) of the Residence Purchase Price
as provided in Section 2.B.
H. Termination of Management Agreement and Service Contracts. At each
Residence Closing, Seller shall also deliver to Purchaser an executed original
of an agreement terminating, as of such Residence Closing Date, any and all
management agreements entered into by Seller with respect to the Operating
Residence, and an executed original of an agreement
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terminating as of such Residence Closing Date, any Service Contracts that
Purchaser is not obligated to (and does not elect to) maintain in force after
such Residence Closing Date. To the extent assignable and transferable by
Seller to Purchaser without the consent or approval of any other party (or if
such consent or approval has been obtained), at each Residence Closing, Seller
shall assign, and Purchaser shall assume, all Service Contracts relating
exclusively to the operation of such Operating Residence entered into in the
ordinary course of business (unless on terms materially inconsistent with
industry standards) and any contract which may be terminated upon thirty (30)
days (or less) notice.
I. Closing Statement. At each Residence Closing, Seller and Purchaser
shall execute and deliver a Closing Statement which shall, among other items,
set forth the applicable Residence Purchase Price, all credits against such
Residence Purchase Price, the amounts of all prorations and other adjustments to
such Residence Purchase Price and all disbursements made at such Residence
Closing and which shall recite that the provisions of this Agreement shall
survive such Residence Closing in the manner expressly set forth herein.
J. Reaffirmation of Representations and Warranties. Subject to Seller's
right to update information under Section 12.C and furnish Schedules after the
date hereof pursuant to Section 21 of this Agreement, at each Residence Closing,
both Seller and Purchaser shall reaffirm in writing that all representations and
warranties (as so updated and qualified) made by each of them, respectively, are
true, correct and complete as of such Residence Closing Date as to all matters
relating to such Operating Residence or such party's good standing,
authorization, lack of bankruptcy or other matters related to such party.
K. Other Conveyances and Instruments. At each Residence Closing, Seller
shall also execute and deliver to Purchaser a conveyance or assignment of any
portion of the Operating Residence sold hereunder for which the conveyance or
assignment is not otherwise provided in this Section 8, and Purchaser shall
assume any other of Seller's obligations which it is required to assume
hereunder, subject to the limitations set forth herein.
9. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
Seller represents, warrants and covenants to and with Purchaser that,
as to each Seller entity, as applicable, and as to each Operating Residence:
A. Title to Personal Property; Condition of Personal Property. The
Seller entity identified on Schedule I for each Operating Residence is the owner
of good, marketable and fee simple title to the Personal Property for such
Operating Residence free and clear of all encumbrances except for liens and
encumbrances which will be paid by Seller at the applicable Residence Closing
(provided, however, no representation or warranty is made hereunder with respect
to title to the Real Property or any portion thereof). There are no material
defects known to Seller in the order, repair, condition or sufficiency of the
Personal Property.
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B. Residency Agreements and Leases:
(i) Title. The Seller entities to be identified on
Schedule 1-C for each Operating Residence are the lessors or landlords
under the Leases and the Seller entities to be identified on Schedule
1-B for each Operating Residence are the owners and holders of the
Residency Agreements for such Operating Residences free and clear of
all encumbrances and each is entitled to receive the rents, issues or
profits from the Leases, the Residency Agreements and from the
Operating Residences. Without limiting the foregoing, the Leases and
the Residency Agreements are free and clear of any and all liens,
security interests and encumbrances except such liens, security
interests and encumbrances that secure indebtedness that shall be paid
in full by Seller at each Residence Closing and Seller has made no
assignment of any of the rights of Seller under any of the Leases, the
Residency Agreements or with respect to any of said rents, issues or
profits except as shall be so released at each Residence Closing.
(ii) Validity; No Defaults. The Leases and the Residency
Agreements are valid and enforceable and in full force and effect and
there are no material defaults under or with respect to the Leases or
the Residency Agreements on the part of Seller, and to Seller's
knowledge there are no material defaults on the part of any other party
to the Leases or the Residency Agreements and no conditions or facts
which, with the passage of time or giving of notice or both would
constitute such a default on the part of Seller or to Seller's
knowledge any such other party to any Lease or Residency Agreement,
other than any past due or delinquent rental payable under the Leases
and the Residency Agreements with respect to any Operating Residence as
will be more particularly set forth on Schedules 1-B and 1-C to be
delivered by Seller to Purchaser pursuant to Section 21 hereof.
(iii) Rent. Except as will be specifically set forth on
Schedules 1-B and 1-C, no more than one month's rents under the Leases
and the Residency Agreements have been paid in advance, and no rents
reserved in the Leases or the Residency Agreements have been assigned
and no rents for any period subsequent to the date of this Agreement
have been anticipated or collected in advance of the time when the same
becomes due under the terms of the Leases and the Residency Agreements.
With respect to each Operating Residence, the aggregate amount of all
past due Rent under all of the Residency Agreements as of the date of
this Agreement (or most recent date for which such information is
available, as indicated on such Schedule) does not exceed the amounts
set forth in Schedule 9-A.
(iv) Copies; No Other Agreements. All copies of the
Leases, the Residency Agreements, the Rent Roll and the Lease Summary
which have been or will be furnished by Seller to Purchaser are true,
correct and complete copies thereof. None of the Leases or the
Residency Agreements have been modified, amended or extended and there
are no other understandings, concessions, promises or agreements,
written or oral, between the parties thereto.
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(v) Rent Roll. The Rent Roll to be set forth on Schedule
1-B and the Summary of Leases to be attached hereto as Schedule 1-C
will be in all material respects accurate, complete and not misleading.
(vi) Scope of Leases. The Leases relate to the use of a
small portion of each Operating Residence and are intended solely to
facilitate the delivery of services for the convenience of Residents,
such as a beauty salon, pharmacy or other similar service and, if such
Leases relate to services being provided by any affiliate of Seller,
Purchaser shall have the right to cause Seller to terminate such Leases
as of the Residence Closing Date for the Operating Residence affected
thereby. No Lease is a ground lease or other lease encumbering or
affecting all or a substantial portion of any Operating Residence.
C. Title to Improvements; Condition of Improvements. Seller is the
owner of good and marketable fee simple title to the Improvements free and clear
of all encumbrances except for the Permitted Title Exceptions and except for
liens and encumbrances that will be paid by Seller at the Residence Closing
(provided, however, no representation or warranty is made hereunder with respect
to title to the Real Property or any portion thereof). There are no material
defects known to Seller in the order, repair or condition of the Improvements.
D. No Other Leases/Occupancies. There are no leases or other agreements
relating to use or occupancy of the Operating Residence, except for the
Residency Agreements and the Leases. No party other than the Residents or
Tenants have any right to occupancy of any portion of the Operating Residence.
No party other than the Residents or Tenants are actually occupying any portion
of the Operating Residence.
E. Other Contracts. As of the applicable Residence Closing Date, there
will be no management, real estate, leasing, rental commission, service,
maintenance, employment, union or other contracts of any kind or description in
existence relating to the applicable Operating Residence, except for the
Permitted Title Exceptions, the Residency Agreements, the Leases and the Service
Contracts to be assumed by Purchaser pursuant to Section 8.I hereof. Seller
will, prior to the applicable Residence Closing Date, terminate any and all
other such contracts applicable thereto.
F. Service Contracts. The Service Contracts to be assumed by Purchaser
pursuant to Section 8.I hereof are valid and enforceable and in full force and
effect. There are no material defaults under or with respect to the Service
Contracts on the part of Seller, and to Seller's knowledge there are no material
defaults on the part of any other party to any Service Contract and no
conditions or facts which, with the passage of time or the giving of notice, or
both, would constitute such a default on the part of Seller or to Seller's
knowledge any such other party to any Service Contract. All copies of the
Service Contracts which have been or will be furnished by Seller to Purchaser
are true, correct and complete copies thereof (except for immaterial omissions)
and such Service Contracts have not been modified, amended or extended and there
are no other material understandings, concessions, promises or agreements,
written or oral, between the parties thereto.
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G. Accuracy of Operating Statements. Seller has delivered to Purchaser
true, correct and complete copies of the unaudited income and expense statements
with respect to each Operating Residence for the period beginning October 1,
1997 and ending November 30, 1998 (or, if the applicable Operating Residence has
not been open or operated by Seller for such time, for such shorter period as
Seller shall have owned or operated such Operating Residence) (hereinafter
collectively referred to as the "Operating Statements"). The Operating
Statements were prepared in accordance with Seller's books and records and in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered by such statements except that the Operating
Statements omit footnote disclosures and have not been audited, and the
Operating Statements fairly present the results of operations of each Operating
Residence for the periods then ended. At each Residence Closing, Seller shall
deliver updated unaudited income and expense statements through and including
the last calendar month ended thirty (30) days prior to the Residence Closing
Date and Seller shall be deemed to have made the foregoing representations and
warranties of Seller with respect to updated statements.
H. Accuracy and Completeness of Other Seller Documents and Records.
Seller will provide Purchaser with access to the Files after the date of this
Agreement.
I. Litigation and Other Proceedings. Except as set forth on Schedule
9-C to be delivered by Seller to Purchaser pursuant to the provisions of Section
21 hereof, there are no judgments, consent decrees, injunctions, litigation,
claims or proceedings (i) relating solely to Seller and not to any of the
Operating Residences and (ii) which, if adversely determined with respect to
Seller, would have a material adverse effect on HCR Manor Care's ability to
perform its obligations hereunder. In addition and not in limitation of the
foregoing, except as set forth on Schedule 9-B to be delivered by Seller to
Purchaser pursuant to the provisions of Section 21 hereof, there are no
judgments unsatisfied against Seller or any Operating Residence, except as set
forth on Schedule 9-B to be delivered by Seller to Purchaser pursuant to the
provisions of Section 21 hereof, or consent decrees or injunctions to which
Seller or any Operating Residence is subject, and there is no litigation, claim
or proceeding pending or to Seller's knowledge threatened against or relating to
Seller or Seller's ownership, operation of or title to any Operating Residence,
nor does Seller know of any governmental investigation relative to Seller or any
Operating Residence. Seller is not in the hands of a receiver nor has Seller
committed an act of bankruptcy nor has an order for relief been entered with
respect to Seller.
J. Compliance of Property With Zoning and Other Laws. Seller has not
received any notification from any governmental or public authority that any
Operating Residence currently violates any existing fire, health, building,
handicapped persons, environmental, sanitation, use and occupancy or zoning laws
or that any work is required to be done upon or in connection with any Operating
Residence or that any modifications or alterations now or in the future will
need to be made to maintain the licensure category of any Operating Residence.
Except as disclosed on Schedule 9-C to be delivered by Seller to Purchaser
pursuant to the provisions of Section 21 hereof, no notice or warning from any
governmental authority with respect to any failure or alleged failure of Seller
to comply with any law, regulation or order has been received by Seller.
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K. Environmental Matters. Except with respect to use, storage and
disposal in the ordinary course of business that complied in all material
respects with all applicable Environmental Laws, Seller has not used, nor
authorized, nor knowingly allowed the use of any Operating Residence, and to
Seller's knowledge no Operating Residence has been used, for the generating,
handling, treatment, storage, disposal or release of any hazardous substance,
hazardous waste, petroleum or petroleum products, asbestos, lead-based paint,
contaminant, pollutant or other words of similar import (hereinafter
collectively referred to as "Hazardous Substances") referred to or defined as
such under any applicable local, state or federal law or regulation regulating
the discharge of solid, liquid or gaseous waste into the environment or the
placement of structures or materials into any waters (surface or subsurface) or
otherwise regulating or appertaining to matters affecting the environment
(hereinafter collectively referred to as "Environmental Laws"). Seller has not
used, nor authorized, nor knowingly allowed the use of any Operating Residence,
and to Seller's knowledge no Operating Residence has been used, in any manner
other than in full compliance with all Environmental Laws. In furtherance of and
not in limitation of the foregoing:
(i) Seller has received no notice and there are no
claims, actions, suits, proceedings or investigations known to Seller,
pending or threatened, related to Hazardous Substances with respect to
the ownership, use, condition, or operation of any of the Operating
Residences, in any court or before or by any federal, state or other
governmental or quasi-governmental agency or authority or private
arbitration tribunal (hereinafter collectively referred to as
"Environmental Litigation").
(ii) To Seller's knowledge, Seller has complied with all
applicable reporting requirements under all Environmental Laws
concerning the disposal or release of Hazardous Substances at or from
all Operating Residences, and Seller has made no such reports.
L. No Options or Other Interests. No Resident, Tenant or any other
person or entity has any deed, option or other evidence of any right or interest
in or to any Operating Residence except for each Tenant's and each Resident's
rights to possession as set forth in and as evidenced by such Tenant's Lease or
such Resident's Residency Agreement.
M. Assessments, Fees and Liens. No assessments for public improvements
have been made against any Operating Residence which are due and payable and
which will remain unpaid at the Residence Closing. As of each Residence Closing
Date there will be no outstanding bills, invoices, charges, fees or expenses
owing, accrued or incurred with respect to the applicable Operating Residence or
by or on behalf of Seller which have not been paid in full on or prior to the
Residence Closing Date, except such items (i) as shall be incurred in the
ordinary course of business, (ii) for which Seller shall be obligated to pay all
amounts owed following the Residence Closing Date and (iii) which are not
Monetary Encumbrances. At the Residence Closing there will be no Monetary
Encumbrances and no mechanics', materialmen's or laborers' liens against the
applicable Operating Residence (either filed or inchoate), no claims for labor,
services, profit or material furnished for constructing, repairing or improving
such Operating Residence which remain unpaid, and no other chattel liens,
conditional sales contracts
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or security interests against such Operating Residence, other than those items
as shall be paid by Seller and released at such Residence Closing.
N. Pending Assessments and Condemnation Proceedings. Seller has
received no notice of, and there is no pending or threatened special assessment
or condemnation or eminent domain proceedings which would affect any Operating
Residence, or any part thereof or access thereto.
O. Disclosure. No statement, warranty or representation by Seller
contains an untrue statement of material fact or omits to state a material fact
necessary in order to make the statements made in light of the circumstances
under which such statements are made not misleading.
P. Authority. Each Seller entity is duly formed, validly existing and
in good standing under the laws of the state of its incorporation or
organization, and each has all necessary power to execute and deliver this
Agreement and perform all its obligations hereunder. Each Seller entity has the
full power and authority to enter into and perform this Agreement and the
execution, delivery and performance of this Agreement by such Seller entity (i)
has been duly and validly authorized by all necessary action on the part of such
Seller entity, (ii) does not conflict with or result in a violation of such
Seller entity's articles of incorporation, bylaws, partnership agreement,
operating agreement or other governing instruments, or any judgment, order or
decree of any court or arbiter in any proceeding to which such Seller entity is
a party, and (iii) does not conflict with or constitute a material breach of, or
constitute a material default under, any contract, agreement or other instrument
by which such Seller entity is bound or to which it is a party. This Agreement
is the valid and legally binding obligation of each Seller entity enforceable in
accordance with its terms.
Q. Licensure and Regulatory Matters. Each Operating Residence is duly
and properly licensed by all appropriate federal, state and local governmental
agencies to operate and perform the services rendered therein as an assisted
living or dementia care residence offering the service levels and with the
number of units set forth on Schedule I hereof and is duly authorized under all
third-party payor or provider programs to receive payments or reimbursements
currently received. Except as will be set forth in Schedule 9-C, all licenses,
approvals, accreditations or certificates, including, without limitation, the
Permits, are in full force and effect and in good standing and there is no
action pending, or to Seller's knowledge threatened or recommended by the
appropriate state, federal or local agency having jurisdiction to revoke,
withdraw or suspend any license, approval, accreditation or certificate
including without limitation the Permits to operate the Operating Residence or
to terminate or fail to renew any third-party payor agreement for payment or
reimbursement, nor has Seller received any warning or notice of any violation of
any applicable law with respect to services and care provided to Residents or
the operation of the Operating Residence except as will be set forth on Schedule
9-C. Seller has or will within thirty (30) days after the date of this Agreement
delivered to Purchaser true, correct and complete copies of the licensing
surveys and inspection reports for the previous three (3) calendar years as well
as copy of the license to operate the
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Operating Residence and the other material Permits (including without
limitation the certificates of occupancy).
R. Reports. Seller to Seller's knowledge has filed all material
reports, disclosures and other information as is required under the laws or
regulations of any federal, state or local governmental organization or agency.
S. Employees; Unions. Schedule 9-D, which Seller shall provide to
Purchaser in accordance with the provisions of Section 21 hereof, is a true,
correct and complete list of the payroll report for all Employees employed at
each Operating Residence, which payroll report identifies each Employee, their
hire date, such Employee's rate of pay and any bonuses or other incentives
promised or contemplated with respect to such Employee. Except to the extent set
forth in such reports, there are no other employees or others entitled to
compensation or a salary at the Operating Residence. Seller is not a party to
any collective bargaining agreements, contracts of employment, profit sharing,
bonus, deferred compensation, stock option, severance pay or pension or
retirement plans with respect to any of its Employees at the Operating Residence
and is not a party to or aware of any labor dispute or grievance with respect to
the Property except as shall be summarized on Schedule 9-D. None of the
Employees at the Operating Residences is employed pursuant to a written
employment agreement.
From and after the date of this Agreement, Seller will not take any
action, or fail to take any action or consent to or affirmatively permit any
third party to take or fail to take any action, which would reasonably be
expected to result in an inaccuracy or a breach of any warranty, representation
or covenant contained in this Section 9 or which would impair or impede Seller's
ability to reaffirm such representations, warranties and covenants as true,
correct and complete as of the Residence Closing Date.
10. PURCHASER'S REPRESENTATIONS AND WARRANTIES.
Purchaser, as of the date of the execution of this Agreement by
Purchaser, represents and warrants to Seller as follows:
A. Organization, Power and Authority. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all necessary power to execute and deliver this Agreement and
perform all its obligations hereunder. Purchaser has the full power and
authority to enter into and perform this Agreement and the execution, delivery
and performance of this Agreement by Purchaser (i) has been duly and validly
authorized by all necessary action on the part of Purchaser, (ii) does not
conflict with or result in a violation of Purchaser's Restated Articles of
Incorporation or Restated Bylaws, each as amended, or any judgment, order or
decree of any court or arbiter in any proceeding to which Purchaser is a party,
and (iii) does not conflict with or constitute a material breach of, or
constitute a material default under, any contract, agreement or other instrument
by which Purchaser is bound or to which it is a party. This Agreement is the
valid and legally binding obligation of Purchaser enforceable in accordance with
its terms.
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B. No Bankruptcy. Purchaser is not in the hands of a receiver nor has
it committed an act of bankruptcy nor has an order for relief been entered with
respect to Purchaser.
11. PRE-CLOSING COVENANTS.
Purchaser and Seller covenant and agree that between the date hereof
and the last to occur of the Residence Closing Dates:
A. Inspection of Property. Seller shall allow Purchaser and its agents
to inspect all Operating Residences and any part thereof and all books, records
and accounts located at the Operating Residences, or relating solely to the
Operating Residences and located elsewhere or any of Seller's operations
thereon, at such times and from time to time as Purchaser may reasonably request
and as shall be reasonably acceptable to Seller.
B. Compliance with Laws, Leases, Contracts. Seller shall comply in all
material respects with all laws, ordinances, regulations and orders relating to
all Operating Residences, the operation thereof and the Permits and with all the
terms, conditions and provisions of the Residency Agreements and the Leases, and
with the requirements of all liens and encumbrances, agreements and other
contractual arrangements to which any Operating Residence or Seller is subject
and make all payments required to be paid thereunder.
C. Standard of Operation and Maintenance. Seller shall operate, manage
and maintain all Operating Residences in the ordinary course of business and in
at least the same manner as Seller has been so operating immediately prior to
the date of this Agreement and with due regard to the proper maintenance and
repair of such Operating Residences. Seller will use its reasonable efforts to
preserve the goodwill of all Residents and to maintain all present Resident
occupancy levels.
D. New Leases and Modifications to Existing Leases; Residency
Agreements. After the date of this Agreement (and except as may be reflected on
the applicable Rent Roll), Seller shall not enter into any new Leases except in
the ordinary course of business and that otherwise will not prevent Seller from
giving the representation and warranty set forth in Section 9.B.(vi) or cancel,
modify, extend or renew any existing Lease, nor waive any default under or
accept any surrender of any Lease, nor accept any prepayment of rent thereunder
without in each case the prior written consent of Purchaser, which consent will
not be unreasonably withheld or delayed. Seller may enter into new Residency
Agreements in the ordinary course of business and may extend or renew any
existing Residency Agreement provided same are on substantially similar economic
terms and are for the same length of time as was customary for the Operating
Residence during the previous twelve (12) month period. Seller shall update the
applicable Rent Roll immediately prior to each Residence Closing and shall
certify same as true, correct and complete as of the applicable Residence
Closing Date.
E. New Service Contracts and Modifications to Existing Service
Contracts. After the date of this Agreement, and except in the ordinary course
of business consistent with Seller's prior conduct of business at the Operating
Residences, Seller shall not enter into any new Service
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Contracts which cannot be terminated, without penalty, prior to the applicable
Residence Closing Date, and Seller shall promptly notify Purchaser if any
Service Contracts are entered into and shall provide copies of same with such
notification. In addition, and except in the ordinary course of business
consistent with Seller's prior conduct of business at the Operating Residences,
Seller shall not cancel, modify, extend or renew any Service Contract, nor
waive any default under or accept any surrender of any Service Contract,
without in each case the prior written consent of Purchaser, which consent will
not be unreasonably withheld or delayed. Seller shall update the List and
Summary of Service Contracts attached hereto as Schedule 1-F prior to the
applicable Residence Closing and shall certify same as true, correct and
complete at such Residence Closing.
F. Notice of Revision of Representations Due to Discovery of New Facts.
Seller shall notify Purchaser as promptly as is reasonably practicable but in
any event prior to the Residence Closing Date if Seller becomes aware of any
fact, transaction, event or occurrence which could make any of the warranties,
representations and covenants of Seller under this Agreement not true with the
same force and effect as if made on or as of the date hereof.
G. Personal Property Inventory. Except in the ordinary course of
business consistent with Seller's prior conduct of business at the Operating
Residences and provided Seller promptly replaces same, Seller shall not remove
any of the Personal Property from any Operating Residence nor use any of the
Personal Property except such use thereof as is normal and customary in the
operation and maintenance of the Property. Seller covenants that all Personal
Property shall be maintained in the ordinary course of business consistent with
past practices of Seller and at customary levels of reserves and all Personal
Property will be available and conveyed to Purchaser on the applicable Residence
Closing Date. Seller shall update the Personal Property Inventory attached
hereto as Schedule 1-E(ii) immediately prior to the Residence Closing and shall
certify same as true, correct and complete at such Residence Closing.
H. Transfer of Permits. Purchaser shall be responsible for preparation
of all applications and notices and payment of all fees to enable all Permits to
be transferred to or issued in the name of Purchaser and, in connection
therewith Seller shall execute all applications and instruments reasonably
required in connection with the transfer of all Permits, to the extent
transferable, in order to transfer the benefits of each such Permit to Purchaser
and, if requested by Purchaser, Seller shall otherwise cooperate with
Purchaser's efforts to have all permits, licenses and certificates of occupancy
or equivalent governmental instruments required for the operation of the
Operating Residence issued to and in the name of Purchaser on or prior to the
applicable Residence Closing Date, at no cost to Seller. Seller shall use its
best efforts to preserve in force all existing Permits and to renew all those
expiring prior to the applicable Residence Closing Date on terms acceptable to
Purchaser. If any such Permit shall be suspended or revoked, Seller shall
promptly notify Purchaser and shall diligently take all measures reasonably
necessary to cause the reinstatement of such Permit without any additional
limitation or condition and shall cause such Permit to be reinstated. Seller
shall not seek or allow any amendment to any Permit which would alter the
existing uses of the Operating Residence or any part thereof.
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I. Compliance of Improvements and Real Property. Seller shall cooperate
with Purchaser (at no cost to Seller) in Purchaser's efforts to obtain
satisfactory evidence that each of the Operating Residences and the use and
operation thereof meet and comply with all deed restrictions, restrictive
covenants, building, zoning and environmental laws and any other covenants,
restrictions or regulations, if any, affecting the Real Property (collectively,
the "Land Use Requirements"). Such evidence shall include but shall not be
limited to obtaining copies of certificates of completion or occupancy and
letters or other evidence from the agencies administering compliance with Land
Use Requirements indicating that all of the Improvements, as constructed and
operated, fully comply with said requirements. In addition, said items shall be
directed to Purchaser specifically with knowledge on the part of the party
issuing same that Purchaser will be relying upon the same and said items shall
be submitted to Purchaser as soon as it is reasonably possible to do so.
J. Existing Employees. Seller will continue to employ the Employees
employed at each of the Operating Residences in the ordinary course of business
through and until the applicable Residence Closing (subject to Seller's right to
terminate such Employees for cause in the ordinary course of business) and
Seller agrees not to increase the compensation or other benefits or bonuses
payable or to become payable to any of the Employees. Purchaser shall have the
right to employ the Employees upon or subsequent to the applicable Residence
Closing upon such terms as Purchaser shall offer and as shall be acceptable to
the Employees; provided, however, that Purchaser hereby agrees that, upon the
Residence Closing of such Operating Residence, Purchaser shall extend an offer
of continued employment at such Operating Residence to the Employees thereof at
existing salary or wage levels and on other terms and conditions which, taken as
a whole, are substantially equivalent to the terms and conditions under which
such Employees are currently employed. The parties hereto hereby agree that the
provisions of this Section 11(J) are for the sole and exclusive benefit of the
parties hereof, and, accordingly, no third party (including Employees) shall be
entitled to rely upon or enforce any of the agreements set forth herein.
K. Notices and Consents. Each of Purchaser and Seller will (and will
cause any of its affiliates to) give any notices to, make any filings with, and
use commercially reasonable efforts to obtain any authorizations, consents and
approvals of governments and governmental agencies required in connection with
consummating the sale of the Operating Residences pursuant hereto; provided that
with respect to Permits, Section 11.H shall govern. Without limiting the
generality of the foregoing, each of the parties hereto will file any
Notification and Report Forms and related material that it may be required to
file with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), will use commercially reasonable
efforts to obtain an early termination of any applicable waiting period and will
make any further filings pursuant thereto that may be necessary or advisable in
connection therewith.
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12. PURCHASER'S INSPECTION OF PROPERTY.
A. Access. Purchaser shall, at all reasonable times as reasonably
scheduled with Seller prior to the applicable Residence Closing Date, have the
privilege of visiting and inspecting each Operating Residence with its agents,
representatives and contractually retained independent contractors as needed to
inspect, examine, test, appraise and survey such Operating Residence, including,
but not limited to, investigations of the zoning status and physical status
thereof and verification of all information made or to be made available to
Purchaser with respect to such Operating Residence. In addition, Purchaser shall
have the right to obtain such letters, certificates or statements from
appropriate governmental officials or other experts concerning zoning and other
matters related to the Operating Residences. This privilege shall include the
right to make surveys, examinations, appraisals and other tests to obtain any
relevant information necessary to determine subsurface and topographic
conditions, including, but not limited to, Hazardous Substances studies, soil
tests, asbestos analysis and structural review, all of which tests, studies and
reviews shall be performed at Purchaser's sole cost and expense and which shall
not materially interfere with the operation of the Operating Residences by
Seller. In addition, Purchaser shall have the right to inspect all other matters
required to be delivered by Seller to Purchaser hereunder. In consideration of
Purchaser's right to inspect the Operating Residences as described in this
Section 12.A, Purchaser shall, and does hereby agree to, indemnify, defend and
hold Seller and Seller's employees, agents and residents harmless from any
losses, costs or expenses arising out of the exercise of such privileges by
Purchaser (including any rights or claims of materialmen or mechanics to liens
on the Operating Residences, but excepting acts resulting from the negligence or
willful conduct of Seller or Seller's agents, principals, employees,
representatives, affiliates or others whose presence is suffered or permitted by
Seller), which indemnity, defense and hold harmless agreement shall survive any
termination of this Agreement. Purchaser shall repair any damage to the
Operating Residences resulting from Purchaser's inspection of the Operating
Residences and shall maintain (or cause its contractors to maintain) adequate
liability insurance and shall provide evidence of same to Seller.
B. Termination Election. In the event that any of Purchaser's
inspections, examinations, tests or surveys of any Operating Residence reveal
any condition or fact (or raises substantial uncertainty with respect to the
existence of any such condition or fact) with respect to (i) compliance of the
Operating Residence with all Land Use Requirements materially necessary for the
current and future operation of the Operating Residences or which will
substantially impede future financing of any Operating Residence or (ii) a
Recognized Environmental Condition (as hereinafter defined), hereof, then
provided that Purchaser shall give notice thereof (together with a copy of any
report or reports related thereto) within forty-five (45) days after the date of
this Agreement (the "Review Period"), Purchaser may, in its sole and absolute
discretion, have the right to elect to terminate this Agreement with respect to
such Operating Residence, whereupon the provisions of Section 14 hereof shall be
applicable with respect to such Operating Residence. Failure of Purchaser to
give notice of a termination election pursuant to this Section 12.B. prior to
the expiration of the Review Period shall constitute a waiver of Purchaser's
right to terminate this Agreement pursuant to this Section 12.B. unless
Purchaser has conducted customary inspections and examinations during such
Review Period which did not reveal such
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condition or fact, and Purchaser first becomes aware of any such condition or
fact after expiration of such Review Period. As used herein, a "Recognized
Environmental Condition" is defined as the presence or likely presence of any
Hazardous Substances on, in, under or adjacent to an Operating Residence under
conditions that indicate an existing release, a past release or a material
threat of a release of any Hazardous Substance on the Operating Property or
into the ground, groundwater or surface water of the Operating Property or
properties adjacent thereto. The term includes Hazardous Substances even under
conditions in compliance with Environmental Laws. The term is not intended to
include de minimus conditions that do not present a material risk of harm to
public health or the environment and that generally would not be the subject of
an enforcement action if brought to the attention of appropriate governmental
agencies.
C. Right to Update Information, including Representations and
Warranties. Seller shall have the right at any time during the term of this
Agreement to update any information previously provided by Seller to Purchaser,
including without limitation the Schedules to this Agreement and any information
necessary to qualify any representation or warranty set forth in Section 9
(through the addition of new Schedules) which Seller determines is incorrect
other than as a result of Seller's breach of its obligations hereunder (in which
event Section 18.B shall apply). If Seller provides Purchaser with an updated
Schedule or other updated information at any time on or before the applicable
Residence Closing and such update is not a result of Seller's breach hereunder,
then Purchaser shall have ten (10) days in which to elect to terminate this
Agreement with respect to the applicable Operating Residence by delivering
notice to Seller within ten (10) days after receipt by Purchaser of such update,
whereupon the provisions of Section 14 shall be operative with respect to such
Operating Residence; provided, however, that Schedules originally delivered
pursuant to Section 21 hereof shall not be deemed "updated schedules" pursuant
to this sentence. Failure of Purchaser to elect to terminate this Agreement with
respect to an Operating Residence by timely notice to Seller shall be deemed a
waiver of Purchaser's right to elect to terminate as a result of such update but
shall not limit or impair Purchaser's right to thereafter elect to terminate in
the event of any subsequent update. The applicable Residence Closing Date shall
be extended, if necessary, to permit ten (10) days for Purchaser to make
Purchaser's election as set forth above.
13. CONDITIONS TO EACH RESIDENCE CLOSING.
A. Conditions to Each Parties' Obligation to Close. The respective
obligations of each party hereto to affect any Residence Closing shall be
subject to the fulfillment at or prior to the applicable Residence Closing Date
of the following conditions, any or all of which may be waived, in whole or in
part, to the extent permitted by applicable law:
(i) HSR Act. The applicable waiting period under the HSR Act
shall have expired or been terminated without action by the Justice
Department or the Federal Trade Commission to prevent consummation of
any of the transactions contemplated hereby and without the impositions
of any conditions.
(ii) Licensing Arrangement. Prior to or simultaneously with
the first Residence Closing, HCR Manor Care, Purchaser and their
respective affiliates intended
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to be parties thereto shall have entered into definitive license
agreements with respect the licensing arrangement contemplated by that
certain Letter of Intent related thereto dated as of the date of this
Agreement by and between HCR Manor Care and Purchaser.
B. Conditions to Purchaser's Obligation to Close. The obligation of
Purchaser to purchase each Operating Residence hereunder is subject to the
following additional conditions, any or all of which may be waived by Purchaser
to the extent permitted by applicable law:
(i) Accuracy of Representations (and the facts recited
therein); No Default by Seller. All the warranties, representations and
covenants of Seller contained in this Agreement with respect to such
Operating Residence or the Seller entities owning such Operating
Residence (as qualified by any Schedules delivered pursuant to Sections
12.C or 21) shall be true in all respects on the applicable Residence
Closing Date with the same effect as if they had been made on such
Residence Closing Date and shall be reaffirmed by Seller in writing at
the Residence Closing, and Seller shall have performed all covenants
and obligations to have been performed and satisfied by Seller with
respect to such Operating Residence prior to the Residence Closing
Date; provided, however, that with respect to any breach of a
representation, warranty or covenant by Seller with respect an
Operating Residence or the Seller entities which own such Operating
Residence which do not (i) interfere with or impair such Seller
entities' right and ability to fully perform its obligations hereunder
with respect to such Operating Residence or (ii) materially and
adversely affect the fair market value of such Operating Residence (any
such breach referred to herein as a "Minor Breach"), Purchaser's sole
remedy shall be an action for damages pursuant to Section 18 hereof and
the existence of any such Minor Breach shall not excuse Purchaser's
obligation to purchase such Operating Residence hereunder.
(ii) Licensing. Purchaser, after the exercise of reasonable
and diligent efforts, shall have received all necessary permits,
licenses, approvals, accreditations and certificates from all
applicable federal, state and local governmental authorities or
agencies or others having jurisdiction in order to (a) permit Purchaser
to operate the Operating Residence for the licensing category and
number of units and residents described on Schedule I and (b) permit
the transfer of the Operating Residence from Seller to Purchaser,
except for such permits, licenses, approvals, accreditations or
certificates which, if not received by Purchaser, would not materially
and adversely affect Purchaser's ability to operate the Operating
Residence. Notwithstanding the foregoing, the condition set forth in
this Section 13.B(ii) shall be deemed satisfied with respect to an
Operating Residence if, with respect to such Operating Residence,
Purchaser is entitled to receive the economic benefits of ownership by
entering into a lease or management agreement with Seller whereby
Seller remains the licensee (under applicable law) provided that Seller
enters into such an arrangement with Purchaser and all necessary
regulatory approvals or waivers are obtained with respect thereto.
(iii) Termination Election. Purchaser shall not have given
notice to Seller of it election to terminate this Agreement with
respect to such Operating Residence pursuant
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to Sections 5.A, 12.B, 12.C, 16.A, 16.B, Seller shall not have given
notice to Purchaser pursuant to Section 14.C and neither party shall
have given notice of termination pursuant to Sections 18, 20, 21, 22
or 23 hereof.
14. SELLER'S OPTIONS UPON FAILURE OF PURCHASER CLOSING CONDITION.
In the event that any condition to Purchaser's obligation to purchase
any Operating Residence hereunder shall not have been satisfied or waived by
Purchaser as of the applicable Residence Closing Date (such condition, a "Failed
Condition"), Seller may, by written notice given to Purchaser prior to or within
three (3) business days following the date that such Residence Closing would
have occurred, elect one of the following alternatives:
A. Deferral of Residence Closing Date. Seller may defer the Residence
Closing Date with respect to such Operating Residence for a period of up to 30
days after the original Residence Closing Date in order to seek to satisfy any
such Failed Condition.
B. Indemnification and Cure. Seller may agree to indemnify Purchaser
with respect to all liability or exposure arising as a result of such Failed
Condition pursuant to an indemnification agreement in form and substance
satisfactory to Purchaser, such approval not to be unreasonably withheld,
whereupon Purchaser shall be obligated to proceed with the purchase of such
Operating Residence provided that pursuant to such indemnification agreement
Seller agrees to repurchase the Operating Residence from Purchaser for a
purchase price equal to the purchase price paid by Purchaser to Seller
hereunder, together with interest thereon at the per annum rate of 9% from the
date of such Residence Closing to the date of such repurchase, in the event that
the Failed Condition shall not have been cured or satisfied by Seller within 90
days of the original Residence Closing Date.
C. Withdrawal of Residence. With respect to no more than three (3) of
the Operating Residences in the aggregate, Seller may elect to withdraw and
remove such Operating Residence from the terms of this Agreement whereupon
Purchaser shall have no further obligation hereunder to purchase such Operating
Residence.
D. Withdrawal and Substitution. Seller shall be entitled to withdraw
such Operating Residences from the terms of this Agreement provided that Seller
offers to Purchaser in replacement thereof one (1) or more assisted living or
dementia care residences owned by Seller having a comparable economic value. If
Purchaser is willing to agree to such substitution and Purchaser and Seller
agree upon an appropriate purchase price for such substituted residences, the
parties shall execute an amendment to this Agreement adding such substituted
residence as an Operating Residence at the agreed upon price.
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15. NOTICES.
All notices, consents, approvals and other communications which may be
or are required to be given by either Seller or Purchaser under this Agreement
shall be properly given if made in writing and sent by (a) hand delivery, or (b)
certified mail, return receipt requested, or (c) nationally recognized overnight
delivery service for next business day delivery (such as Express Mail, Federal
Express or Airborne Express), or (d) facsimile or telecopier, provided a
confirming copy thereof is thereafter also sent via the methods described in
(a)-(c), above, with all postage and delivery charges paid by the sender and
addressed to Purchaser or Seller, as applicable, as follows. Such notices
delivered (a) by hand shall be deemed received upon actual delivery, (b) by
overnight delivery service shall be deemed received on the business day
following the date of deposit with such overnight service, (c) by mail shall be
deemed received upon the earlier of actual receipt or two (2) business days
after mailing, and (d) by facsimile or telecopier shall be deemed received upon
the date the sender receives verbal or electronic confirmation of such
transmission, without regard to when the confirming copy is sent or delivered.
Said notice addresses are as follows:
IF TO SELLER:
HCR Manor Care, Inc.
One SeaGate, 23rd floor
Toledo, Ohio 43604-2616
Attn: R. Jeffrey Bixler, Esq.
Telecopier: (419) 252-5599
Telephone: (419) 252-5770
with a copy to:
Reed Smith Shaw & McClay LLP
1301 K St., N.W.
East Tower, Suite 1100
Washington, DC 20005
Attn: Robert J. Hill
Telecopier: (202) 414-9299
Telephone: (202) 414-9402
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IF TO PURCHASER:
Alternative Living Services, Inc.
450 N. Sunnyslope Road, Suite 300
Brookfield, Wisconsin 53005
Attn: William F. Lasky
Telecopier: (414) 641-5100
Telephone: (414) 789-9592
with a copy to:
Rogers & Hardin LLP
2700 International Tower
Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Alan C. Leet, Esq.
Telecopier: (404) 525-2224
Telephone: (404) 420-4616
Either party may change its address for notices hereunder upon not less than
five (5) days notice to the other, and either party's counsel may give notice on
behalf of their respective clients. Inability to give notices due to incorrect
address or due to failure of a party to give notice of a change of address,
refusal to accept notices, and inability to transmit notices due to mechanical
or other difficulties on the recipient's end (including without limitation a
malfunctioning facsimile machine) shall be deemed to be effective notice
hereunder.
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16. CASUALTY AND CONDEMNATION.
A. Casualty. In the event that prior to the applicable Residence
Closing Date any of the Improvements of the applicable Operating Residence are
damaged or destroyed by fire or other casualty to any extent (other than such
minor damage as may be fully repaired by Seller prior to the Residence Closing
Date), then Seller shall give Purchaser immediate notice thereof and Purchaser
shall have the right to elect not to purchase such Operating Residence so
damaged or destroyed (a "Section 16.A. Election") by written notice to Seller
within ten (10) days after Purchaser receives notice of such fire or other
casualty, and thereafter neither party hereto shall have any further rights,
obligations or liabilities hereunder with respect to such Operating Residence
except to the extent that any right, obligation or liability set forth herein
expressly survives termination of this Agreement. In the event that Purchaser
does not make a Section 16.A. Election with respect to an Operating Residence,
Purchaser shall be obligated to close the purchase and sale contemplated by this
Agreement as scheduled without adjustment of the applicable Residence Purchase
Price and Seller shall assign to Purchaser at such Residence Closing all
insurance proceeds payable under Seller's insurance policies on account of such
damage or destruction or pay to Purchaser all such insurance proceeds previously
paid, and pay to Purchaser at such Residence Closing an amount equal to the
amount which the insurer is entitled pursuant to the terms of the applicable
insurance policy to deduct from the proceeds otherwise payable to Seller on
account of such casualty loss, and Seller shall not be obligated to repair or
restore the Property. The applicable Residence Closing Date shall be extended,
if necessary, to permit ten (10) days for Purchaser to make Purchaser's election
as set forth above.
B. Condemnation. In the event that prior to any Residence Closing Date
there shall be instituted against any portion of the applicable Operating
Residence any proceeding in condemnation, eminent domain or any written request
for a conveyance in lieu thereof, or limiting or restricting access thereto or
should Seller receive notice that such proceedings are threatened or have been
commenced against such Operating Residence (hereinafter collectively referred to
as "Condemnation Proceedings"), then Seller shall give Purchaser immediate
notice thereof and Purchaser shall have the right to elect not to purchase such
Operating Residence (a "Section 16.B. Election") by written notice to Seller
within ten (10) days after Purchaser receives notice of such Condemnation
Proceedings, and thereafter neither party hereto shall have any further rights,
obligations or liabilities hereunder with respect to such Operating Residence
except to the extent that any right, obligation or liability set forth herein
expressly survives termination of this Agreement. In the event that Purchaser
shall not make a Section 16.B. Election with respect to an Operating Residence,
Purchaser shall be obligated to close the purchase and sale contemplated hereby
less the portion of such Operating Residence so taken or subject to said
Condemnation Proceedings without adjustment of the applicable Residence Purchase
Price and Seller shall assign or pay to Purchaser at the applicable Residence
Closing all of Seller's right, title and interest in any award payable on
account of such Condemnation Proceedings or pay to Purchaser all such awards
previously paid and Seller shall have no obligation to repair or restore such
Operating Residence not so taken by said Condemnation Proceedings. The Closing
Date shall be extended, if necessary, to permit ten (10) days for Purchaser to
make Purchaser's election as set forth above.
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<PAGE> 39
17. BROKERS.
Except with respect to any fees payable by Seller to Merrill Lynch or
any fees payable by Purchaser to Schroeders, each party hereto represents and
warrants to the other that it has not employed any broker, finder or other
person or entity who might, by reason thereof, have any claim for payment of any
brokerage commission, finder's fee or other similar compensation from any other
party hereto. Seller and Purchaser further represent and warrant that they each
shall be responsible for payment of any broker or finder employed (expressly or
impliedly) by them, respectively. Seller and Purchaser shall and do hereby
indemnify and defend the other against and hold the other harmless of and from
all claims, demands and liabilities for any breach of the foregoing
representations and warranties, including without limitation, for any
commission, fee or other compensation payable to or claimed by any broker or
finder employed (express or implied) by it or with whom it made an agreement
(express or implied) to pay a broker's commission, a finder's fee or other
compensation.
18. DEFAULT.
A. In the event that Purchaser defaults in the observance or
performance of its covenants and obligations hereunder after written notice by
Seller to Purchaser of such default and Purchaser's failure to cure such default
within ten (10) days after receipt of such notice, Seller shall be entitled to
terminate this Agreement by written notice to Purchaser of such termination and
shall also be entitled, as its sole and exclusive remedy hereunder, to payment
by Purchaser to Seller of the Applicable Liquidated Damage Amount as defined and
set forth on Schedule 18 hereof as full liquidated damages for such default of
Purchaser. The parties hereby acknowledge the difficulty of ascertaining the
actual damages in the event of such a default, that it is impossible more
precisely to estimate the damages to be suffered by Seller upon Purchaser's
default and that the aforesaid payments are intended not as a penalty, but as
full liquidated damages and that such amounts constitutes a good faith estimate
of the potential damages arising therefrom. Seller's right to so terminate this
Agreement and to retain the aforesaid payment as full liquidated damages is
Seller's sole and exclusive remedy in the event of default hereunder by
Purchaser, and Seller hereby waives, relinquishes, releases and covenants not to
pursue any and all other rights and remedies, including, but not limited to (i)
any right to sue Purchaser for specific performance of this Agreement, (ii) any
right to sue Purchaser for damages or to prove that Seller's actual damages
exceed the amounts agreed upon herein as full liquidated damages, and (iii) any
other right or remedy which Seller may otherwise have against Purchaser, either
hereunder, at law, in equity or otherwise.
B. In the event that Seller defaults in the observance or performance
of its covenants and obligations hereunder after written notice by Purchaser to
Seller of such default and Seller's failure to cure such default within thirty
(30) days after receipt of such notice, Purchaser shall be entitled: (i) in the
case of any default other than a Minor Breach, to pursue any or all rights or
remedies as may be provided hereunder and at law, in equity or otherwise,
including, without limitation, the right to terminate this Agreement as to any
Operating Residence which is affected by such default (subject to the provisions
of Section 14 hereof) or (ii) in the case of any Minor
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<PAGE> 40
Breach, to pursue an action for damages resulting from such Minor Breach,
including without limitation an action to recover all costs and expenses
incurred by Purchaser in pursuing such damages, including attorneys' fees and
expenses. Notwithstanding the foregoing in no event shall Purchaser be entitled
to bring an action for any Minor Breach or Minor Breaches except to the extent
that the aggregate amount that Purchaser but for this sentence would be
entitled to recover on account of such Minor Breach and any Minor Breaches
under that Construction Purchase Agreement exceeds $4,000,000.00 and in no
event shall Seller's aggregate liability for Minor Breaches under this
Agreement and the Construction Purchase Agreement exceed $25,000,000.00.
19. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
A. Survival of Representations and Warranties. All representations and
warranties contained in this Agreement and in any certificate delivered at any
Residence Closing shall be deemed to have been relied upon notwithstanding any
investigation heretofore or hereafter made or omitted by any party hereto and
shall survive each Residence Closing for a period of two (2) years after the
date of the final Residence Closing hereunder.
B. Seller's Indemnification Obligations. Subject to the terms and
conditions of this Section 19, Seller agrees to indemnify and hold Purchaser
harmless against any and all losses, costs and expenses (including, without
limitation, legal and other expenses) resulting from or relating to:
(i) any debt, liability or obligation of Seller other than any
liabilities of Seller expressly assumed by Purchaser in accordance
herewith, and any claim or demand of any third party with respect to
any act or occurrence at, or the operation of, any Operating Residence
prior to such Operating Residence's Residence Closing Date (provided,
that the foregoing shall not be deemed to make Seller liable for any
physical condition of an Operating Residence as of a Residence Closing
Date); and
(ii) any failure of Seller to comply with the Bulk Sales Law
of the states in which any of the Operating Residences are located;
any and all actions, suits, demands, assessments or judgments with respect to
any claim arising out of or relating to the subject matter of the
indemnification. Notwithstanding the foregoing, nothing in this Section 19B
shall be deemed to require Seller to indemnify Purchaser for any claim, demand,
action, suit, assessment or judgment against Purchaser solely for contribution
(or other similar action) because Purchaser appears in the chain of title.
C. Purchaser's Indemnification Obligations. Subject to the terms and
conditions of this Section 19, Purchaser agrees to indemnify and hold Seller
harmless against any and all losses, costs and expenses (including, without
limitation, legal and other expenses), resulting from or relating to:
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<PAGE> 41
(i) any claim or demand of any third party with respect to any
act or occurrence at, or the operation of any Operating Residence on or
after such Operating Residence's Residence Closing Date.
any and all actions, suits, demands, assessments or judgments with respect to
any claim arising out of or relating to the subject matter of the
indemnification. Notwithstanding the foregoing, nothing in this Section 19C
shall be deemed to require Purchaser to indemnify or hold Seller harmless with
respect to any claim, demand, action, suit, assessment or judgment against
Seller solely for contribution (or other similar action) because Seller appears
in the chain of title.
D. Procedure for Indemnification Claims. The respective indemnification
obligations of Seller and Purchaser pursuant to Section 19 shall be conditioned
upon compliance by Seller and Purchaser with the following procedures for
indemnification claims based upon or arising out of any claim, action or
proceeding by any person not a party to this Agreement.
(i) If at any time a claim shall be made or threatened, or an
action or proceeding shall be commenced or threatened, against a party
hereto (the "Aggrieved Party") which could result in liability of the
other party (the "Indemnifying Party") under its indemnification
obligations hereunder, the Aggrieved Party shall give to the
Indemnifying Party prompt notice of such claim, action or proceeding.
Such notice shall state the basis for the claim, action or proceeding
and the amount thereof (to the extent such amount is determinable at
the time when such notice is given) and shall permit the Indemnifying
Party to assume the defense of any such claim, action or proceeding
(including any action or proceeding resulting from any such claim).
Failure by the Indemnifying Party to notify the Aggrieved Party of its
election to defend any such claim, action or proceeding within a
reasonable time, but in no event more than fifteen days after notice
thereof shall have been given to the Indemnifying Party, shall be
deemed a waiver by the Indemnifying Party of its right to defend such
claim, action or proceeding; provided, however, that the Indemnifying
Party shall not be deemed to have waived its right to contest and
defend against any claim of the Aggrieved Party for indemnification
hereunder based upon or arising out of such claim, action or
proceeding.
(ii) If the Indemnifying Party assumes the defense of any such
claim, action or proceeding, the obligation of the Indemnifying Party
as to such claim, action or proceeding shall be limited to taking all
steps necessary in the defense or settlement thereof and, provided the
Indemnifying Party is held to be liable for indemnification hereunder,
to holding the Aggrieved Party harmless from and against any and all
losses, damages and liabilities caused by or arising out of any
settlement approved by the Indemnifying Party or any judgment or award
rendered in connection with such claim, action or proceeding. The
Aggrieved Party may participate, at its expense, in the defense of such
claim, action or proceeding provided that the Indemnifying Party shall
direct and control the defense of such claim, action or proceeding. The
Aggrieved Party agrees to cooperate and make available to the
Indemnified Party all books and records and such officers, employees
and agents as are reasonably necessary and useful in connection with
the defense. The Indemnifying Party shall not, in the defense of such
claim, action or
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proceeding, consent to the entry of any judgment or award, or enter
into any settlement which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Aggrieved
Party of a release from all liability in respect of such claim, action
or proceeding, except in either event with the prior consent of the
Aggrieved Party.
(iii) If the Indemnifying Party does not assume the defense of
any such claim, action or proceeding, the Aggrieved Party may defend
against such claim, action or proceeding in such manner as it may deem
appropriate. The Indemnifying Party agrees to cooperate and make
available to the Aggrieved Party all books and records and such
officers, employees and agents as are reasonably necessary and useful
in connection with the defense.
(iv) In the event an Aggrieved Party or Indemnifying Party
shall cooperate in the defense or make available books, records,
officers, employees or agents, as required by the terms of
subparagraphs (ii) and (iii), respectively, of this Section 19.D., the
party to which such cooperation is provided shall pay the out-of-pocket
costs and expenses including legal fees and disbursements) of the party
providing such cooperation and of its officers, employees and agents
reasonably incurred in connection with providing such cooperation, but
shall not be responsible to reimburse the party providing such
cooperation for such party's time or the salaries or costs of fringe
benefits or other similar expenses paid by the party providing such
cooperation to its officers and employees in connection therewith.
20. CAMPUS PROPERTIES.
Purchaser and Seller acknowledge and agree that with respect to the
campus properties (each, a "Campus Property") constituting one of the Operating
Residences identified on Schedule 20, the parties may determine prior to the
applicable Residency Closing Date that is not possible to legally subdivide such
Campus Properties from the adjacent facility or facilities. With respect to any
Campus Property that Purchaser and Seller determine cannot be so legally
subdivided, Purchaser and Seller agree that they shall negotiate in good faith
for Seller to convey such Campus Property together with the adjacent facility or
facilities to Purchaser at no increase in the Residence Purchase Price
applicable thereto and thereafter Purchaser and Seller shall enter into a long
term ground lease by Seller of the adjacent facility or facilities, which long
term ground lease shall be for an initial term of ninety-nine (99) years and
which shall be renewable at the option of Seller for an additional ninety-nine
(99) year term. Pursuant to such ground lease, the tenant thereunder shall have
all obligations for maintenance, repair and operation of such adjacent
facilities and the rent for such adjacent facilities shall be payable in a
single installment upon the commencement date in an amount equal to $1.00, with
rental for the renewal period to be equal to $1.00. Such lease shall be fully
assignable, transferable and subleaseable by the tenant thereunder who shall
also be entitled to mortgage or pledge such lease or its leasehold estate in
connection with any financing. The ground lease shall contain such provisions as
the parties shall negotiate in good faith to address issues involving
subordination/priority of financing transactions, nondisturbance rights and
other similar issues to afford Seller protection with respect to its leasehold
estate in the event of Purchaser's financing and to afford Purchaser
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<PAGE> 43
protection with respect to the impact on the financability of the Campus
Property as a result of the ground lease. Such ground lease shall contain such
other customary provisions as the parties so agree including appropriate
easements, cost sharing agreements and other similar matters. Notwithstanding
the foregoing, neither party shall have any obligation to engage in the
above-described transaction if such party determines in its discretion that
doing so may cause material problems for it for accounting, tax, licensure,
financing or other reasons such as future marketability, in which event such
Campus Property shall be treated under Section 14.
21. POST-EXECUTION DELIVERY OF SCHEDULES.
Purchaser and Seller acknowledge that in the interest of expediting
execution of this Agreement, Seller had inadequate time to prepare and Purchaser
had inadequate time to review all of the necessary schedules to accompany this
Agreement. Accordingly, Seller hereby agrees that Seller shall, on or before the
date thirty (30) days after the date of this Agreement deliver to Purchaser
Schedules identified on page (y) hereof as well as any additional schedules
which Seller believes are necessary to make Seller's representations and
warranties, as qualified thereby, true and accurate in all respects (the
"Post-Execution Schedules"). Upon receipt of all of the Post-Execution
Schedules, Purchaser shall have a period of thirty (30) days to review such
Post-Execution Schedules, to request such additional information or
clarification as Purchaser shall reasonably deem necessary and to object by
notice to Seller to any matters shown thereon which in Purchaser's reasonable
judgment are material matters that Purchaser would have required Seller address
or correct prior to the execution hereof had adequate time been available
("Objectionable Schedule Items"). Within ten (10) days after Seller's receipt of
Purchaser's notice with respect to any Objectionable Schedule Items, Seller
shall give notice to Purchaser either (i) refusing to cure the applicable
Objectionable Schedule Items or (ii) setting forth Seller's intent to cure such
Objectionable Schedule Items and stating in detail how Seller will accomplish
same. Failure of Seller to timely give such notice shall be deemed to be a
refusal by Seller to cure any such Objectionable Schedule Items. Upon the latter
of receipt of Seller's notice or expiration of the ten (10) day period, then
Purchaser may, at any time prior to ten (10) days after the receipt by Purchaser
of Seller's response or expiration of Seller's response time, by notice to
Seller, (x) elect to terminate Purchaser's obligation to purchase any Operating
Residence effected by such Objectionable Schedule Item pursuant to this
Agreement, whereupon the provisions of Section 14 shall be applicable with
respect to such Operating Residence or (y) accept such Operating Residences
subject to such Objectionable Schedule Items that Seller has not undertaken to
cure, in which event such Objectionable Schedule Items, together with all other
items appearing on the schedules to which Purchaser did not object, will be
deemed Acceptable Schedule Items hereunder. If Purchaser elects option (ii) as
to any Objectionable Schedules Items and at the applicable Residence Closing
Seller fails to cure the Objectionable Schedule Items in the manner Seller has
undertaken to so cure in its notice to Purchaser to the satisfaction of
Purchaser, Purchaser will again have the option set forth in (x) and (y) above.
In the event that Purchaser fails to timely notify Seller of Objectional
Schedule Items, then such failure to notify Seller shall constitute a waiver of
Purchaser's right to object to such Objectionable Schedule Items but shall not
be a waiver of Seller's other obligations hereunder nor a waiver of Purchaser's
right to object to matters that arise subsequent to such date.
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22. SHARED FACILITIES.
Purchaser and Seller acknowledge that two (2) of the Operating
Residences consist of buildings containing both beds for assisted
living/dementia care Residents and beds for skilled nursing home patients, such
Operating Residences being more particularly identified on Schedule 22 (the
"Shared Facilities"). Purchaser and Seller further acknowledge that Purchaser
and Seller intend to negotiate in good faith with respect to how such Shared
Facilities can be conveyed, leased or managed in a transaction to enable
Purchaser to obtain the economic benefits of the assisted living/dementia care
beds and to enable Seller to obtain the economic benefits of the skilled nursing
beds, after taking into consideration all possible implications of such
transaction, including without limitation tax consequences, accounting
treatment, licensure implications, impact on financing sources or cost or
availability, future marketability, shared services agreements (including
without limitation costs and liability issues) and all other aspects of such
transaction. In the event Purchaser and Seller are unable to agree upon a
structure for the transaction that satisfies the economic benefits requirements
set forth above and is otherwise satisfactory to both parties with respect to
the other implications noted above, then and in such event either party may upon
notice to the other terminate this Agreement with respect to the Shared
Facilities (or either of them), whereupon neither party shall be obligated to
close with respect to such Shared Facility or Facilities and such Shared
Facility or Facilities shall be treated under Section 14. Seller agrees that
Seller shall reasonably consider guaranteeing indebtedness or provide financing
upon such terms as Seller shall find acceptable and that helps to accomplish the
consummation of the transaction.
23. TERMINATION.
In the event that as of May 31, 1999, there is any Operating Residence
as to which Seller and Purchaser shall not have consummated a Residence Closing,
either Purchaser or Seller may thereafter terminate this Agreement with respect
to such Operating Residence by delivery of written notice of termination to the
other party. No such termination shall affect either party's liability for any
breach of this Agreement occurring prior to such termination.
24. GENERAL PROVISIONS.
A. Agreement Binding; Assignment. This Agreement shall be binding upon
each party hereto and such party's successors and assigns and shall inure to the
benefit of each party hereto and such party's successors and assigns. As used
herein, all references to "Seller" shall mean individually each entity
constituting a Seller hereunder and collectively all such entities, all of which
shall be jointly and severally liable for the performance of all obligations of
Seller hereunder. Any reference herein to any "Seller entity" (or words of
similar import) are not intended to be in limitation of the foregoing definition
but are included for clarity purposes only. In addition, the term is to in all
instances to be broadly construed to include other affiliates of Seller
(including without limitation subsidiaries, affiliates, employees and others)
with respect to the making of any representations or warranties or the
performance of Seller's covenants or the breadth of Seller's knowledge, it being
the intent of the parties that the term in such contexts is to
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be broadly construed even though such broad definition would not by its terms
apply to the joint and several aspects of this Agreement. Seller hereby
expressly affirms its obligations to cause all such affiliates to so comply,
Seller hereby expressly acknowledging that only Seller is in a position to best
determine which of Seller's affiliates should be the party making such
representation or warranty, performing such covenant or gathering such
knowledge and the parties intend Purchaser should not be disadvantaged thereby.
As used in this Agreement, Seller's "knowledge" shall mean the knowledge of all
Employees of Seller who are responsible for the matter at issue. Purchaser may
assign this Agreement and Purchaser's rights hereunder without the prior
written consent of Seller to any affiliate of Purchaser or to a real estate
investment trust or an affiliated lender to effect a sale/leaseback or other
financing transaction, provided that no such assignment shall affect
Purchaser's obligations hereunder. Purchaser may not otherwise assign its
rights hereunder without Seller's prior written consent.
B. Entire Agreement. This Agreement, the Addendum and all the Schedules
referenced herein and annexed hereto contain the entire agreement of the parties
hereto with respect to the matters contained herein, and no prior agreement or
understanding pertaining to any of the matters connected with this transaction
shall be effective for any purpose. Except as may be otherwise provided herein,
the agreements embodied herein may not be amended except by an agreement in
writing signed by the parties hereto.
C. Execution Necessary. This Agreement shall not be binding upon Seller
or Purchaser until fully executed and delivered by representatives of Seller or
Purchaser, as the case may be, and no action taken by Seller's or Purchaser's
representatives shall be deemed an acceptance of this Agreement until this
Agreement has been so executed by Seller or Purchaser, as the case may be, and
delivered to the other party hereto.
D. Time is of the Essence. Time is of the essence of the transaction
contemplated by this Agreement.
E. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
F. Interpretation; Date of Agreement. The titles, captions and Section
headings are inserted for convenience only and are in no way intended to
interpret, define, limit or expand the scope or content of this Agreement or any
provision hereof. If any party to this Agreement is made up of more than one
person or entity, then all such persons and entities shall be jointly and
severally liable hereunder, even though the defined term for such party is used
in the singular in this Agreement and in each instance in which a defined term
for such party is used in the singular it shall mean, collectively, all persons
and entities, jointly and severally, and each person or entity constituting a
portion thereof, severably. If any time period under this Agreement ends on a
day other than a Business Day (as hereinafter defined), then the time period
shall be extended until the next business day. The term "Business Day" shall
mean Monday through Friday excluding holidays recognized by the state government
of the States of Ohio and Wisconsin. All references in this Agreement to "the
date of this Agreement" shall be deemed to refer to the date set forth in the
first Section hereof, which date evidences the effective date of the agreement
of
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the parties as to the terms and conditions set forth herein, regardless of
the date when this Agreement was actually executed by both parties.
G. Waiver. Purchaser or Seller, as the case may be, reserves the right
to waive, in whole or in part, any provision hereof which is for the benefit of
the party so waiving, including without limitation any condition precedent under
Section 12 hereof.
H. Facsimile Signature; Counterparts. This Agreement may be executed by
facsimile signature and in separate counterparts, each of which shall be deemed
an original and all of which, taken as a whole, shall be deemed to be one (1)
original. This Agreement shall be deemed fully executed when each party whose
signature is required has signed at least one (1) counterpart even though no one
(1) counterpart contains the signatures of all of the parties to this Agreement.
I. Non-Waiver. Unless otherwise expressly provided herein, no waiver by
Seller or Purchaser of any provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party. No delay or omission in
the exercise of any right or remedy accruing to Seller or Purchaser upon any
breach under this Agreement shall impair such right or remedy or be construed as
a waiver of any such breach theretofore or thereafter occurring. The waiver by
Seller or Purchaser of any breach of any term, covenant or condition herein
stated shall not be deemed to be a waiver of any other breach, or of a
subsequent breach of the same or any other term, covenant or condition herein
contained.
J. Rights Cumulative. Subject to the limitations set forth in Section
18 and 19 hereof, all rights, powers, options or remedies afforded to Seller or
Purchaser either hereunder or by law shall be cumulative and not alternative,
and the exercise of one right, power, option or remedy shall not bar other
rights, powers, options or remedies allowed herein or by law, unless expressly
provided to the contrary herein.
K. Schedules. The exhibits referred to in and attached to this
Agreement are incorporated herein in full by reference.
L. Attorneys' Fees. If there is any legal action, arbitration or
proceeding between Seller and Purchaser arising from or based on this Agreement
or the interpretation or enforcement of any provisions hereof, then the
unsuccessful party to such action, arbitration or proceeding shall pay to the
prevailing party all costs and expenses, including reasonable attorneys' fees,
incurred by such prevailing party in such action, arbitration or proceeding and
in any appeal in connection therewith. If such prevailing party recovers a
judgment in any such action, arbitration, proceeding or appeal, then such costs,
expenses and attorneys' fees shall be included in and as a part of such
judgment.
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IN WITNESS WHEREOF, the undersigned have caused their duly authorized
representatives to execute and deliver this Agreement as of the day and year
first above written.
SELLER:
HCR MANOR CARE, INC., a Delaware corporation
By: /s/ R. Jeffrey Bixler
---------------------------------------------
Name: R. Jeffrey Bixler
---------------------------------------------
Its: Vice President and General Counsel
---------------------------------------------
MANOR CARE, INC., a Delaware corporation
By: /s/ R. Jeffrey Bixler
---------------------------------------------
Name: R. Jeffrey Bixler
---------------------------------------------
Its: Vice President and General Counsel
---------------------------------------------
MANORCARE HEALTH SERVICES, INC.,
a Delaware corporation
By: /s/ R. Jeffrey Bixler
---------------------------------------------
Name: R. Jeffrey Bixler
---------------------------------------------
Its: Vice President and General Counsel
---------------------------------------------
MANOR CARE OF DUNEDIN, INC.,
a Florida corporation
By: /s/ R. Jeffrey Bixler
---------------------------------------------
Name: R. Jeffrey Bixler
---------------------------------------------
Its: Vice President and General Counsel
---------------------------------------------
MANOR CARE OF SARASOTA, INC.,
a Florida corporation
By: /s/ R. Jeffrey Bixler
---------------------------------------------
Name: R. Jeffrey Bixler
---------------------------------------------
Its: Vice President and General Counsel
---------------------------------------------
MANOR CARE OF BOYNTON BEACH, INC.,
a Florida corporation
By: /s/ R. Jeffrey Bixler
---------------------------------------------
Name: R. Jeffrey Bixler
---------------------------------------------
Its: Vice President and General Counsel
---------------------------------------------
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PURCHASER:
ALTERNATIVE LIVING SERVICES, INC.,
a Delaware corporation
By: /s/ Thomas E. Komula
---------------------------------------------
Name: Thomas E. Komula
---------------------------------------------
Its: Senior Vice President
---------------------------------------------
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SCHEDULE I - OPERATING RESIDENCES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Facility Name and HCR Manor Type of License and Number of
Care ID # Address Type Units Licensed Beds
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mesa, #329 6145 East Arbor Avenue AC 56 Unclassified Residential Care
Mesa, AZ 85206 Facility until 5/31/99, then
Directed Care - 56 beds
- ---------------------------------------------------------------------------------------------------------------------
Sun City West, #428 21739 North 151st Avenue AC 56 Directed Care (new category) - 56
Sun City West, AZ 85375 beds
- ---------------------------------------------------------------------------------------------------------------------
Peoria, #630 9296 W. Union Hills Drive AC 56 Directed Care - 56 beds
Peoria, ZA 85382
- ---------------------------------------------------------------------------------------------------------------------
Tucson, #497 3701 N. Swan Road SH 107 Unclassified Residential Care
Tucson, AZ 85718 Facility until 12/31/99; then
Directed Care - 109 beds
- ---------------------------------------------------------------------------------------------------------------------
Citrus Heights, #337 7375 Stock Ranch Road AC 56 Residential Care Facility for the
Citrus Heights, CA 95621 Elderly - 56 beds
- ---------------------------------------------------------------------------------------------------------------------
Whittier, #480 8101 South Painter Avenue SH 75 Residential Care Facility for the
Whittier, CA 90602 Elderly - 146 beds
- ---------------------------------------------------------------------------------------------------------------------
Brea, #474 285 West Central Avenue SH 100 Residential Care Facility for the
Brea, CA 92621 Elderly - 196 beds
- ---------------------------------------------------------------------------------------------------------------------
Laguna Palm Terrace, #459 24962 Calle Aragon SH 193 Residential Care Facility for the
Laguna Hills, CA 92653 Elderly - 186 beds
- ---------------------------------------------------------------------------------------------------------------------
Dunedin, #475 880 Patricia Avenue SH 105 Assisted Living Facility -
Dunedin, FL Extended Congregate Care - 120
beds
- ---------------------------------------------------------------------------------------------------------------------
Sarasota, #496 5501 Swift Road SH 101 Assisted Living Facility -
Sarasota, FL 34231 Limited Nursing Service - 120 beds
- ---------------------------------------------------------------------------------------------------------------------
Boynton Beach, #491 3005 South Congress Avenue SH 125 Assisted Living Facility -
Boynton Beach, FL 33426 Standard (applying for Limited
Nursing Service)
- ----------------------------- -------------------------------- ------- --------- ------------------------------------
Boyton Village, #520 1935 South Federal Highway SH 116 Assisted Living Facility, Limited
Boynton Beach, FL 33435 Nursing Service - 127 beds
- ---------------------------------------------------------------------------------------------------------------------
Cobb County, #330 4375 Beech Haven Trail, SE AC 56 Personal Care Home - 56 beds
Smyrna, GA 30080
- ---------------------------------------------------------------------------------------------------------------------
Fulton County, #331 1262 Hightower Trail AC 56 Personal Care Home - 56 beds
Atlanta, GA 30350
- ---------------------------------------------------------------------------------------------------------------------
Fulton County, #391 1260 Hightower Trail SH 109 Personal Care Home - 109 beds
Atlanta, GA 30350
- ---------------------------------------------------------------------------------------------------------------------
Overland Park, #327 11001 Oakmont AC 60 Adult Care Home - Residential
Overland Park, KS 66210 Health Care - 56 beds
- ---------------------------------------------------------------------------------------------------------------------
West Orange, #383 520 Prospect Avenue SH 112 Assisted Living Residence - 116
West Orange, NJ 07052 beds
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 50
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wayne, #382 820 Hamburg Turnpike SH 105 Assisted Living Residence - 105
Wayne, NJ 07470 beds
- ------------------------------------------------------------------------------------------------------------------
Reno, #375 3105 Plumas Street AC 56 Residential Facility for Groups -
Reno, NV 89509 56 beds
- ------------------------------------------------------------------------------------------------------------------
Westlake, #464 27569 Detroit Road SH 96 Rest Home
Westlake, OH 44145
- ------------------------------------------------------------------------------------------------------------------
Woodridge, #502 3801 Woodbridge Blvd. SH 189 Rest Home
Fairfield, OH 45014
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 51
SCHEDULE II - CONSTRUCTION RESIDENCES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Facility Name and HCR Manor Type of License to be Applied For
Care ID # Address Type Units
- --------------------------------------------------------------------------------------------------------------------
Denver West II, #640 290 S. Monaco Parkway AC 60 Personal Care Boarding Home
Denver, CO 80224
- --------------------------------------------------------------------------------------------------------------------
Colorado Springs, #633 2850 N. Academy Blvd. AC 60 Personal Care Boarding Home
Colorado Springs, CO 80917
- --------------------------------------------------------------------------------------------------------------------
Palmer Ranch, #393 5111 Palmer Ranch Parkway SH 109 AL Assisted Living Facility -
Sarasota, FL 34238 (plus Limited Nursing Service
60 SNF)
- --------------------------------------------------------------------------------------------------------------------
Decatur, #650 475 Irving Court AC 60 Personal Care Home
Decatur, Ga 30030
- --------------------------------------------------------------------------------------------------------------------
Charlotte, #342 5326 Park Road AC 56 Adult Care Home
Charlotte, NC 28209
- --------------------------------------------------------------------------------------------------------------------
Emerson, #368 590 Old Hook Road SH 105 Assisted Living Residence
Charlotte, NJ 07630
- --------------------------------------------------------------------------------------------------------------------
Roanoke, #653 1127 Persinger Road AC 56 Adult Care Residence, Assisted
South West, Roanoke, VA 24015 Living Facility
- --------------------------------------------------------------------------------------------------------------------
Lynnwood, #447 18706 36th Ave. AC 60 Boarding Home
Lynnwood, WA 98037
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 1
Exhibit 2.2
AGREEMENT OF PURCHASE AND SALE
(Construction Residences)
By and Between
HCR MANOR CARE, INC.
and
ALTERNATIVE LIVING SERVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. PURCHASE AND SALE OF CONSTRUCTION RESIDENCES.....................................................................6
A. Real Property...........................................................................................6
B. Residency Agreements....................................................................................7
C. Leases..................................................................................................7
D. Improvements............................................................................................8
E. Personal Property.......................................................................................8
F. Service Contracts.......................................................................................9
G. Related Interests.......................................................................................9
2. PURCHASE PRICE FOR THE CONSTRUCTION RESIDENCES..................................................................11
A. Payment................................................................................................11
B. Allocation.............................................................................................11
C. Calculation of Purchase Price..........................................................................12
3. [INTENTIONALLY DELETED].........................................................................................12
4. CLOSING.........................................................................................................12
A. Delivery; Possession...................................................................................12
B. Transfer Taxes.........................................................................................13
C. Seller's Closing Costs.................................................................................13
D. Purchaser's Closing Costs..............................................................................13
E. Existing Fines and Penalties...........................................................................13
F. Other Costs............................................................................................13
5. TITLE...........................................................................................................13
A. Examination of Title...................................................................................14
B. Survey Matters.........................................................................................15
6. PRORATIONS AND CREDITS AT CLOSING...............................................................................16
A. Real Estate Taxes and Assessments......................................................................16
B. Prepaid Resident Rent..................................................................................16
C. Custodial Accounts.....................................................................................16
D. Rents..................................................................................................16
E. Security Deposits......................................................................................17
F. Utility Expenses and Payments..........................................................................17
G. Utility Deposits.......................................................................................17
H. Service Contract Payments..............................................................................17
I. Personal Property Taxes................................................................................17
J. Accrued Benefits.......................................................................................18
K. Payroll................................................................................................18
L. Reproration after Closing..............................................................................18
M. Performance of Obligations.............................................................................18
7. ACCOUNTS RECEIVABLE.............................................................................................18
8. CONVEYANCES AND DELIVERIES AT EACH RESIDENCE CLOSING............................................................19
A. Deed; Affidavit........................................................................................19
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
B. Bill of Sale...........................................................................................19
C. Assignment of Residency Agreements and Leases..........................................................19
D. Assignment of Service Contracts........................................................................20
E. Notices of Assignment..................................................................................20
F. Books and Records, Floor Plans, Plans and Specifications, Medical Records, Original
Documents and Other Instruments........................................................................20
G. Section 1445 Certificate; Form 8594....................................................................20
H. Termination of Management Agreement and Service Contracts..............................................21
I. Closing Statement......................................................................................21
J. Reaffirmation of Representations and Warranties........................................................21
K. Other Conveyances and Instruments......................................................................21
9. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS...................................................................21
A. Title to Personal Property; Condition of Personal Property.............................................21
B. Residency Agreements and Leases........................................................................22
C. Title to Improvements; Condition of Improvements.......................................................23
D. No Other Leases/Occupancies............................................................................23
E. Other Contracts........................................................................................23
F. Service Contracts......................................................................................24
G. Intentionally Deleted..................................................................................24
H. Accuracy and Completeness of Other Seller Documents and Records........................................24
I. Litigation and Other Proceedings.......................................................................24
J. Compliance of Property With Zoning and Other Laws......................................................24
K. Environmental Matters..................................................................................25
L. No Options or Other Interests..........................................................................25
M. Assessments, Fees and Liens............................................................................25
N. Pending Assessments and Condemnation Proceedings.......................................................26
O. Disclosure.............................................................................................26
P. Authority..............................................................................................26
Q. Licensure and Regulatory Matters.......................................................................26
R. Reports................................................................................................27
S. Employees; Unions......................................................................................27
10. PURCHASER'S REPRESENTATIONS AND WARRANTIES......................................................................27
A. Organization, Power and Authority......................................................................27
B. No Bankruptcy..........................................................................................28
11. PRE-CLOSING COVENANTS...........................................................................................28
A. Inspection of Property.................................................................................28
B. Compliance with Laws, Leases, Contracts................................................................28
C. Standard of Construction...............................................................................28
D. New Leases and Modifications to Existing Leases; Residency Agreements..................................28
E. New Service Contracts and Modifications to Existing Service Contracts..................................29
F. Notice of Revision of Representations Due to Discovery of New Facts....................................29
G. Personal Property Inventory............................................................................29
H. Transfer of Permits....................................................................................29
I. Compliance of Improvements and Real Property...........................................................30
J. Existing Employees.....................................................................................30
K. Notices and Consents...................................................................................30
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
12. PURCHASER'S INSPECTION OF PROPERTY..............................................................................31
A. Access.................................................................................................31
B. Termination Election...................................................................................31
C. Right to Update Information, including Representations and Warranties..................................32
13. CONDITIONS TO EACH RESIDENCE CLOSING............................................................................32
A. Conditions to Each Parties'Obligation to Close.........................................................32
B. Conditions to Purchaser's Obligation to Close..........................................................33
14. SELLER'S OPTIONS UPON FAILURE OF PURCHASER CLOSING CONDITION....................................................33
A. Deferral of Residence Closing Date.....................................................................34
B. Indemnification and Cure...............................................................................34
C. Withdrawal of Residence................................................................................34
D. Withdrawal and Substitution............................................................................34
15. NOTICES.........................................................................................................34
16. CASUALTY AND CONDEMNATION.......................................................................................36
A. Casualty...............................................................................................36
B. Condemnation...........................................................................................36
17. BROKERS.........................................................................................................37
18. DEFAULT.........................................................................................................37
19. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.....................................................38
A. Survival of Representations and Warranties.............................................................38
B. Seller's Indemnification Obligations...................................................................38
C. Purchaser's Indemnification Obligations................................................................39
D. Procedure for Indemnification Claims...................................................................39
20. CAMPUS PROPERTIES...............................................................................................40
21. POST-CLOSING DELIVERY OF SCHEDULES..............................................................................41
22. CLOSING COMPLETED RESIDENCE; CLOSING PRIOR TO COMPLETION OF CONSTRUCTION........................................42
A. Completed Residence Defined............................................................................42
B. Incomplete Residence...................................................................................42
23. CONSTRUCTION OVERSIGHT AND RELATED ISSUES.......................................................................43
A. Approval of Plans and Specifications...................................................................43
B. Employees; Pre-Opening Expenses........................................................................43
C. Change Orders..........................................................................................44
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
24. TERMINATION.....................................................................................................44
25. GENERAL PROVISIONS..............................................................................................44
A. Agreement Binding; Assignment..........................................................................44
B. Entire Agreement.......................................................................................45
C. Execution Necessary....................................................................................45
D. Time is of the Essence.................................................................................45
E. Governing Law..........................................................................................45
F. Interpretation; Date of Agreement......................................................................45
G. Waiver.................................................................................................45
H. Facsimile Signature; Counterparts......................................................................46
I. Non-Waiver.............................................................................................46
J. Rights Cumulative......................................................................................46
K. Schedules..............................................................................................46
L. Attorneys'Fees.........................................................................................46
</TABLE>
SCHEDULES
Schedule I Address, Name of Seller Entity Owner, Licensing Category and
Numbers of Units/Beds for each of the Construction Residences
Schedule II List of Operating Residences
Schedule 1-B Residency Information for each of the Construction
Residences*
Schedule 1-C Lease Summary Information for each of the Construction
Residences*
Schedule 1-E(i) Excluded Personal Property for each of the
Construction Residences*
Schedule 1-E(ii) List of Personal Property for each of the Construction
Residences*
Schedule 1-F List of Service Contracts for each of the Construction
Residences*
Schedule 9-A Aggregate Limits on Past Due Rent for each of the Construction
Residences*
Schedule 9-B Description of Pending Litigation and Licensing Warnings
or Violations*
Schedule 9-C Zoning Matters for each of the Construction Residences*
Schedule 9-D Employee Matters for each of the Construction Residences*
Schedule 18 Applicable Liquidated Damages Amounts
Schedule 20 Campus Properties
Schedule 23 Construction Items
* To be delivered by Seller to Purchaser post-execution (see Section 21)
<PAGE> 6
AGREEMENT OF PURCHASE AND SALE
(Construction Residences)
THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") is made and
entered into effective as of the 31st day of December, 1998, by and between HCR
MANOR CARE, INC., a Delaware corporation ("HCR Manor Care"), the wholly-owned
subsidiaries of HCR Manor Care that are signatories hereto (which together with
HCR Manor Care are collectively referred to as "Seller"), and ALTERNATIVE LIVING
SERVICES, INC., a Delaware corporation (together with its transferees and
assigns hereinafter referred to as "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is developing and constructing the eight (8) assisted
living and dementia care residences being more particularly identified on
Schedule I attached hereto and incorporated herein by reference (collectively,
and as more particularly described in Section 1 hereof, the "Construction
Residences", as such term is more particularly defined below) and Seller owns
and operates the twenty-one (21) assisted living and dementia care residences
being more particularly identified on Schedule II attached hereto and
incorporated herein by reference (collectively, the "Operating Residences"); and
WHEREAS, Seller desires to sell, and Purchaser desires to purchase,
each of (i) the Construction Residences in accordance with the terms and
conditions hereinafter set forth and (ii) the Operating Residences in accordance
with the terms and conditions set forth in the Agreement of Purchase and Sale
(Operating Residences) dated as of the date hereof by and between Purchaser, HCR
Manor Care and certain wholly-owned subsidiaries of HCR Manor Care (the
"Operating Purchase Agreement").
NOW, THEREFORE, for and in consideration of the foregoing, the sum of
Ten Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Seller hereby agree
as follows:
1. PURCHASE AND SALE OF CONSTRUCTION RESIDENCES.
Upon and subject to the terms and conditions set forth in this
Agreement, Purchaser shall purchase from Seller, and Seller shall sell to
Purchaser, good and marketable fee simple title in and to the following
described property:
A. Real Property. All those tracts or parcels of land having the street
addresses described on Schedule I attached hereto and made a part hereof (the
"Land"), including, without limitation, (a) any and all buildings or structures
located on the Land and all other Improvements (as hereinafter defined), (b) to
the extent assignable and subject to the receipt of any approvals needed for
assignments, which Seller shall use commercially reasonable efforts to obtain
upon
<PAGE> 7
request by Purchaser, all easements appurtenant to the Land and other licenses,
grants of right, privileges or other agreements for the benefit of, belonging to
or appurtenant to the Land regardless of whether situate upon the Land, and
regardless of whether specifically referenced on Schedule I attached hereto, (c)
to the extent assignable and subject to the receipt of any approvals needed for
assignment, which Seller agrees to use commercially reasonable efforts to obtain
upon request by Purchaser, all mineral, oil and gas rights, riparian rights,
water rights, sewer rights and other utility rights allocated to the Land, (d)
to the extent assignable and subject to the receipt of any approvals needed for
assignment, which Seller agrees to use commercially reasonable efforts to obtain
upon request by Purchaser, all right, title and interest, if any, of Seller in
and to any and all swales, strips and gores of land located on or adjacent to
the Land, (e) to the extent assignable and subject to the receipt of any
approvals needed for assignment, which Seller agrees to use commercially
reasonable efforts to obtain upon request by Purchaser, all right, title and
interest of the owner of the Land in and to any roads, streets and ways, public
or private, open or proposed, in front of or adjoining all or any part of the
Land and serving the Land, and (f) to the extent assignable and subject to the
receipt of any approvals needed for assignment, which Seller agrees to use
commercially reasonable efforts to obtain upon request by Purchaser, all rights
to development of the Land granted by governmental entities having jurisdiction
over the Land (the Land and all of the foregoing interests are sometimes
hereinafter collectively referred to as the "Real Property"). To the extent that
Purchaser and Seller determine that the parcel of Real Property identified as a
"Campus Property" on Schedule 20 cannot as a practical matter be legally
subdivided from the adjacent facility or facilities campused therewith, then and
in such event Purchaser and Seller agree that such parcel shall be governed by
the terms and provisions of Section 20 of this Agreement.
B. Residency Agreements. All residency agreements, entrance agreements
and other agreements for use or occupancy of all or any portion of each of the
Construction Residences entered into by all current or future Residents (as
hereinafter defined) (collectively, the "Residency Agreements"), together with
all prepaid rents and advance rentals (other than the monthly residence fees
paid by Residents in advance for the month in which the Residence Closing Date
(as hereinafter defined) occurs) and all security deposits (collectively, the
"Advances") with respect to the Residency Agreements and the guaranties or
warranties of payment by all guarantors or co-signers with respect to the
Residency Agreements. The name or room number of each current or future occupant
or resident under the Residency Agreements (herein referred to as a "Resident"
or "Residents") for each Construction Residence, the name of each Seller entity
that is a party to the Residency Agreements for such Construction Residence, the
current or future rental payable thereunder, the date of the Residency
Agreement, and the amount of any past due or delinquent rental and the Advances
therefor, will be set forth on Schedule 1-B, which Schedule shall be delivered
by Seller to Purchaser as provided in Section 21 hereof (the "Rent Roll").
C. Leases. Any other agreements for use or occupancy of any portion of
any of the Construction Residences, excluding only the Residency Agreements,
including without limitation all leases, subleases and rental agreements
(collectively, the "Leases"), together with all rights appurtenant thereto and
any prepaid rents and advance rentals (other than the monthly rental paid by a
tenant in advance for the month in which the Residence Closing Date occurs) and
all security deposits with respect to the Leases (which, together with the
Advances, are
2
<PAGE> 8
hereinafter collectively called the "Deposits"). The name of each tenant or
lessee under the Leases (hereinafter referred to as a "Tenant" or collectively
"Tenants") for each Construction Residence, the names of each Seller entity that
is a party to such Lease, the date of each Lease, the current rental payable
thereunder, any past due or delinquent rental and the Deposits therefor, will be
set forth on Schedule 1-C, which Schedule shall be delivered by Seller to
Purchaser as provided in Section 21 hereof (the "Lease Summary").
D. Improvements. All buildings, structures (surface and subsurface) and
other improvements and fixtures situated on or attached to or constituting a
portion of all or any portion of the Real Property (herein collectively referred
to as the "Improvements").
E. Personal Property. All tangible personal property of Seller located
at the Construction Residences and used or useable in connection with any
present or future occupation, operation or maintenance of all or any part of the
Real Property or the Improvements or both, together with (to the extent not
constituting a portion of the Real Property or the Improvements) all fixtures,
trade fixtures, furniture, furnishings, carpeting, draperies, linens, fittings,
equipment, machinery, apparatus and appliances of Seller, now located on the
Real Property and used or useable in connection with any present or future
occupation or operation of all or any part of the Real Property or the
Improvements or both, including, without limitation, all elevators, escalators,
boilers, furnaces, heating, ventilating and air-conditioning systems,
furnishings and equipment, building drawings, plans and specifications, building
materials and wall partitions, sprinkler and well systems, sewerage systems,
electrical equipment, fire prevention and extinguishing apparatus, engineering,
maintenance, cooking, housekeeping and medical or therapeutical supplies and
materials, mowers and edgers and other lawn maintenance equipment and supplies,
vans, buses, automobiles or other motor vehicles, fuel and other supplies of all
kinds whether used, unused or in stock for future use in connection with the
occupation, maintenance or operation of the Construction Residences, which are
on hand on the date hereof, but excluding any of the foregoing used in
connection with the construction of the Construction Residences and not intended
for use in the operations of the Construction Residences, subject to such
depletion and including such resupplying as shall occur and which Seller is
hereby obligated to make in the ordinary course of preparing the Construction
Residences for operation as an ongoing business (the aforesaid items, subject to
the foregoing and following exclusions, are hereinafter collectively referred to
as the "Personal Property"), excluding however (i) all items of personal
property which are the property of Residents or Tenants, (ii) the rights of the
owner of any equipment leased pursuant to, or owned by parties other than Seller
(and which are not affiliated with Seller) pursuant to the Service Contracts, as
hereinafter defined and (iii) those items of Personal Property specifically
excluded hereunder which will be more particularly set forth on Schedule 1-E(i),
which Schedule shall delivered by Seller to Purchaser as provided in Section 21
hereof and which may include items of Personal Property owned or leased by
affiliates of Seller. A current inventory of all material items of the Personal
Property for each Construction Residence will be set forth on Schedule 1-E(ii),
which shall be delivered by Seller to Purchaser as provided in Section 21 hereof
(the "Personal Property Inventory").
F. Service Contracts. To the extent assignable and subject to the
receipt of any consents to assignment which may be needed for assignment, which
Seller agrees to use
3
<PAGE> 9
commercially reasonable efforts to obtain upon request by Purchaser, all
service, supply, management, maintenance and other contracts for leasing,
management, maintenance or operation of the Construction Residences (other than
agreements relating to the construction of the Construction Residences) that
Purchaser is obligated to assume pursuant to the terms hereof, including, but
not limited to, all leases by which equipment is leased and is used or useable
in connection with any present or future occupation, operation or maintenance of
the Construction Residences, and all operating files relating to all of the
aforesaid, but not including any such contracts which, pursuant to the terms
hereof, Purchaser is not obligated to accept or assume (and does not elect to
assume) in connection with the purchase and sale contemplated in this Agreement
(herein collectively referred to as the "Service Contracts"). A summary list of
all Service Contracts in effect as of the date of this Agreement and all other
such contracts that Purchaser has not yet rejected but that Purchaser may reject
pursuant to the terms of this Agreement, including the identity of contract
parties, the date of contract, the expiration date of the contract, and the
amounts payable thereunder will be set forth on Schedule 1-F, which Schedule
shall be delivered by Seller to Purchaser as provided in Section 21 hereof (the
"List of Service Contracts").
G. Related Interests. Any and all of the following (hereinafter
collectively referred to as the "Related Interests"):
(i) The pre-opening business activities of Seller conducted at
the Construction Residences, including without limitation, all
intangible rights and interests associated with the Construction
Residences, any name or trade name by which the Improvements or the
Construction Residences or any part thereof may be currently be known,
including, but not limited to names used on the date hereof in
connection with the ownership and construction of the Construction
Residences, and all registrations for such names, or intangible rights
and interests, but expressly excluding the names "HCR", Health Care and
Retirement", "Heartland", "Manor Care", "Arden Court", "Spring House",
and any names including any of the foregoing or any derivations thereof
(the "Excluded Names") and all telephone numbers of Seller presently in
use therein, including without limitation goodwill and going concern
value, and any and all marketing materials, promotional materials,
letterhead, envelopes or other materials, but expressly excluding (a)
all cash and bank accounts (other than the Custodial Accounts, as
hereinafter defined) (b) all Receivables (as hereinafter defined) and
(c) all liabilities and obligations resulting from the activities of
Seller conducted at the Construction Residences prior to the applicable
Residence Closing Date (as hereinafter defined) except as expressly
assumed by Purchaser at the applicable Residence Closing Date to the
extent provided herein, provided, however that Seller makes no
representation or warranty whatsoever with regard to its right to use
any such name, trade name, telephone numbers or any other intangible
rights or registration thereafter;
(ii) To the extent assignable or transferable and subject to
receipt of any consents required for such assignments or transfers,
which Seller agrees to use commercially reasonable to obtain upon
request by Purchaser obtain prior to the applicable Residence Closing
Date, each and every bond, guaranty and warranty concerning the Real
Property, the Improvements and the Personal Property, including,
4
<PAGE> 10
without limitation, any roofing, air conditioning, heating, elevator or
other bond, guaranty and warranty relating to the construction,
maintenance or replacement of the Improvements or any portion thereof;
provided, that Purchaser shall assume any obligation of Seller with
respect to any such bond (including any obligation to provide related
security, which shall be released back to Seller);
(iii) To the extent in the possession of Seller or any
affiliate of Seller, all files relating to the original construction of
the Improvements and replacements made to the Improvements, as well as
all repair and maintenance files (including, without limitation, those
relating to the building systems such as elevators and HVAC systems),
and all operating manuals relating to the building systems;
(iv) All licenses, permits, accreditations, approvals and
certificates used in or relating to the construction, ownership,
occupancy or operation of any part of the Construction Residences,
including, without limitation, (a) any permit, license, accreditation
or other approval necessary under applicable federal, state or local
law in order to permit the construction or, upon completion of
construction for the operation of the Construction Residences as the
type of residence, and for the number of Residents, set forth with
respect to each such Construction Residence on Schedule 1 and (b) any
provider agreements with Medicaid, Medicare and any other third-party
payor programs entered into solely with respect to the Construction
Residences ((a) and (b) are hereinafter collectively referred to as the
"Permits"); provided, however, Seller's obligation to transfer or
assign the Permits is expressly limited to the extent and only to the
extent that the same can be assigned or transferred in accordance with
applicable law and subject to the receipt or satisfaction of any
approvals or other requirements for such assignment or transfer to
Purchaser, as is more particularly set forth below;
(v) All documents, charts, records and lists maintained with
respect to the Residents (subject to the respective Residents' rights
to access to their respective medical records as provided by law and
subject to confidentiality requirements);
(vi) Seller's books of account, accounting records and work
papers, files, reports and other records with respect to the
Construction Residences and the ownership, occupancy and operation of
any part of the Construction Residences, to the extent located at the
Construction Residences or specifically relating only to the
Construction Residences and in the possession or control of Seller,
including without limitation all licensing or regulatory reports,
surveys or correspondence with respect to the proposed or pending
licensing of the Construction Residences, the construction or operation
thereof, the compliance with all permits and applicable laws and other
similar matters;
(vii) All employee and personnel files, documents, records and
lists relating to operations at the Construction Residences;
(viii) All architectural drawings, plans and specifications,
architectural contracts, construction contracts, construction working
drawings and related files,
5
<PAGE> 11
documents and working papers in the possession or control of Seller
pertaining to the construction of the Construction Residences, as well
as copies of existing surveys;
(ix) Any appurtenant and reciprocal easements or other
instruments affecting the Real Property in the possession or control of
Seller, including all amendments and modifications and Seller's
operating files relating thereto; and
(x) All soils reports and environmental reports and surveys
prepared with respect to the Construction Residences and engineering
studies relating to completed projects at the Construction Residences,
together with all written communications and documents relating to such
reports and surveys sent or received by Seller or any affiliate of
Seller.
The Real Property, the Improvements, the Residency Agreements, the Leases, the
Deposits, the Service Contracts, the Personal Property and the Related Interests
related to and associated with a specific Construction Residence are herein
collectively referred to as the "Construction Residence." On or before the date
thirty (30) days after the date hereof, with respect to each of the Construction
Residences, Seller will provide access to Purchaser to the Residency Agreements
and Seller will deliver to Purchaser true, correct and complete copies of the
Leases, the Service Contracts and, with respect to the related Interests, copies
of any documents or correspondence that relate to items to be disclosed on
Schedules 9-A, 9-B, 9-C or 9-D and access to all other documents, books,
records, reports and files of Seller with respect to the Construction Residences
(such copies, documents, books, records and files are hereinafter collectively
referred to as the "Files"). Upon the Residence Closing Date for any
Construction Residence, Seller shall deliver originals of the Files with respect
to such Construction Residence to Purchaser to the extent Seller has not
previously done so and in accordance with other provisions of this Agreement,
and Seller shall continue to have access thereto as provided herein.
2. PURCHASE PRICE FOR THE CONSTRUCTION RESIDENCES.
A. Payment. Subject to adjustments as may be applicable pursuant to
Section 6 hereof, the purchase price for each Construction Residence shall be as
set forth on the Addendum of even date herewith by and between HCR Manor Care
and Purchaser (the "Addendum"), which Addendum is incorporated herein by
reference (each, the "Residence Purchase Price"). The Residence Purchase Price
for a Construction Residence shall be payable to Seller at the Residence Closing
Date for such Construction Residence in accordance with Section 4 hereof,
subject to the prorations and adjustments set forth herein, by wire transfer
through the federal reserve system in immediately available funds to an account
designated by Seller in advance.
B. Allocation. Purchaser and Seller hereby agree that within thirty
(30) days after the date of this Agreement, Seller will deliver to Purchaser
Seller's proposed calculation of the allocation of the Residence Purchase Price
among the Real Property, the Improvements, the Personal Property and the Related
Interests with respect to each Construction Residence, and thereafter Purchaser
and Seller will negotiate in good faith to finalize such allocation, such
allocation to be agreed upon between Purchaser and Seller on or prior to the
applicable Residence Closing Date. In the event Purchaser and Seller agree upon
the allocation, then at the
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Residence Closing Purchaser and Seller shall enter into an agreement to file IRS
Form 8594 reflecting such agreed upon allocation. If Purchaser and Seller are
unable to agree upon an allocation, then Purchaser and Seller shall each be
entitled to report the transaction to the IRS using their respective allocations
without further obligation to the other party with respect thereto.
C. Calculation of Purchase Price. The Residence Purchase Price for each
Construction Residence shall be as set forth on the Addendum, provided that such
Construction Residence is a Completed Residence (as hereinafter defined) on the
Residence Closing Date. In the event that any Construction Residence fails to
qualify as a Completed Residence on the Residence Closing Date, then and in such
event a portion of the Residence Purchase Price therefor shall be placed in
escrow as provided in Section 22.
3. [INTENTIONALLY DELETED].
4. CLOSING.
The closing or settlement of the purchase and sale of each of the
Construction Residences contemplated by this Agreement shall be held at such
time and at such place as Seller and Purchaser shall mutually agree, subject to
Section 22 hereof. The parties hereby acknowledge that, to facilitate an orderly
transition of the Construction Residences from Seller to Purchaser, it will
likely be desirable to schedule multiple closings whereby closings will be held
with respect to one or more (but less than all) of the Construction Residences
during the period commencing February 1, 1999. Notwithstanding the foregoing, in
the event that all conditions to closing with respect to any particular
Construction Residence have been either satisfied or waived by the party for
whose benefit they were imposed, and Seller and Purchaser have not agreed upon
an alternative closing date, time and place, a closing for such Construction
Residence shall be held at 10:00 a.m. on the date ten (10) days after Seller
shall have delivered to Purchaser evidence that such Construction Residence is a
Completed Residence, at the offices of Rogers & Hardin LLP, 2700 International
Tower, 229 Peachtree St., N.E., Atlanta, Georgia 30303. Each closing of one or
more Construction Residences contemplated hereby shall be referred to herein as
a "Residence Closing" and the date of any such Residence Closing shall be
referred to herein as the "Residence Closing Date."
A. Delivery; Possession. At the Residence Closing for any Construction
Residence, Seller shall deliver to Purchaser the items required of Seller as
elsewhere set forth herein and Purchaser shall deliver to Seller the Residence
Purchase Price, subject to the prorations and adjustments as herein provided,
and the items required of Purchaser as elsewhere set forth herein. Seller shall
deliver possession of the applicable Construction Residence to Purchaser at the
time of such Residence Closing, subject only to the applicable Permitted Title
Exceptions (as hereinafter defined).
B. Transfer Taxes. The parties agree that any and all city, county or
state conveyance or transfer taxes, state stamp or documentary taxes and surtax
stamps due upon the transfer of any Construction Residence or the deed
evidencing same (including recording costs) shall be borne by the party that
customarily pays such cost in the state in which the applicable
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Construction Residence is located. In the event that the parties are unable to
agree in good faith which party responsible for payment of such costs, then the
decision of Title Company (as hereinafter defined) as to whether sellers or
purchasers customarily bear such costs in such states shall be binding.
C. Seller's Closing Costs. Seller shall pay the costs (including
recording costs) of any cure of title defects required of Seller hereunder and
the fees and expenses of Seller's own attorneys. All costs of satisfying any and
all Monetary Encumbrances (as hereinafter defined), including without limitation
the amount of the outstanding principal, accrued but unpaid outstanding
interest, all prepayment penalties and all other sums that must be paid to cause
the holder of any Monetary Encumbrance to release such Monetary Encumbrance,
shall be borne by Seller.
D. Purchaser's Closing Costs. Purchaser shall pay the cost of the title
examinations, the premium for the Title Policies (as hereinafter defined), the
costs of any surveys of the Real Property obtained by Purchaser, the costs of
any other investigations, studies and appraisals conducted by Purchaser, and the
fees and expenses of Purchaser's own attorneys.
E. Existing Fines and Penalties. If any governmental authorities or
agencies have levied any fines, penalties or assessments against any
Construction Residence or Seller resulting from failure or alleged failure to
comply with any regulatory or other governmental requirements (hereinafter
collectively referred to as "Fines"), and Seller fails to pay any such Fines
prior to the Residence Closing for such Construction Residence, and the failure
to pay such Fines or any portion thereof (i) prevents the issuance or assignment
of any Permit to Purchaser necessary for Purchaser's operation of such
Construction Residence or results in the imposition of conditions to such Permit
unacceptable to Purchaser or (ii) otherwise prohibits Purchaser's right to
operate the Construction Residence for the licensure category and number of
Residents identified on Schedule 1, then the full amount of such Fines, together
with any additional penalties or interest, shall be withheld from the Residence
Purchase Price payable to Seller and shall be paid directly to the appropriate
governmental officials or agencies.
F. Other Costs. All other closing costs shall be paid by the party
incurring same.
5. TITLE.
At each Residence Closing, Seller shall convey and transfer to
Purchaser such good, indefeasible fee simple and marketable title to the
applicable Construction Residence as will enable Chicago Title Insurance Company
("Title Company") to issue its full coverage, American Land Title Association
Standard Coverage Owner's Policy of Title Insurance with the standard exceptions
therein deleted, and with endorsements to include, at a minimum, zoning, access,
comprehensive, survey and, if available in the state of such Construction
Residence, utility availability and contiguity coverage (collectively referred
to herein as the "Title Policy") in the amount of the applicable Residence
Purchase Price, subject only to those matters hereinafter defined as the
"Permitted Title Exceptions"; provided, however, in the event that Seller is
unable to comply with this sentence due to the existence of a Non-Monetary
Defect (as hereinafter defined) which does not constitute a Permitted Title
Exception, Seller shall not be deemed to be
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in default hereunder, but Purchaser shall not be obligated to close the
acquisition of the Construction Residence affected thereby and the parties shall
proceed as set forth in Section 14 hereof. Title to each Construction Residence
shall be free and clear of, and shall not be subject to mechanics',
materialmen's or similar liens, pledges, mortgages, deeds of trust, security
deeds, security agreements, liens, judgments, conditional sales contracts, UCC
financing statements or fixture filings, encumbrances, ground rents, past due
taxes or assessments, fines, levies or other encumbrances of a monetary nature
(herein collectively referred to as "Monetary Encumbrances") or leases,
tenancies, parties in possession, covenants, conditions, restrictions,
right-of-ways, easements, encroachments or any other agreements, contracts,
rights, acts or other matters of any nature affecting the title thereto, except
as permitted in this Agreement or the Permitted Title Exceptions.
A. Examination of Title. Provided that Seller delivers to Purchaser
copies of Seller's existing title policies (and not just commitments) and
surveys for the Construction Residences within ten (10) days after the date of
this Agreement, Purchaser shall have until the date forty-five (45) days after
the date of this Agreement to examine title to each of the Construction
Residences and to obtain Surveys (as hereinafter defined) and to deliver to
Seller copies of title commitments issued by Title Company and such Surveys.
Such forty-five (45) day period shall be extended one (1) day for each day that
Seller is late in delivering the copies of Seller's title policies and surveys
(provided that if Seller notifies Purchaser that Seller lacks such items, such
forty-five (45) day period shall commence as of the date of such notice).
Purchaser shall, within such period, notify Seller in writing of any defects in
title which may be revealed by Purchaser's examination (which defects may
include any matters revealed by the Surveys), including Monetary Encumbrances
and any title defects that are non-monetary in nature other than Permitted Title
Exceptions ("Non-Monetary Defects"). Purchaser agrees that Purchaser shall not
object to (A) any recorded utility easements serving only a Construction
Residence or any recorded utility easements serving adjacent properties and
located on the Real Property, but, with respect to all such recorded utility
easements Purchaser shall not object if and only to the extent (i) any building
constituting a part of the Improvements for such Construction Residence does not
encroach upon and is not constructed over such easement, (ii) such easement has
been located and identified by the surveyor on the Survey applicable thereto,
and (iii) such easement does not render title unmarketable or unreasonably
interfere with the current or future operations of the Construction Residence,
(B) any minor encroachments of improvements such as fences, paving or similar
improvements, and (C) any other matters as Purchaser in the exercise of good
faith reasonably determines will not have a material adverse impact on
Purchaser's operation of the Construction Residence or otherwise is a defect
that is not a material impediment to Purchaser's ability to finance or convey
such Construction Residence. (A) - (C) shall be deemed to be "Permitted Title
Exceptions" hereunder. Within ten (10) days after Seller's receipt of
Purchaser's notice with respect to any Construction Residence, Seller shall give
notice to Purchaser either (x) refusing to cure the applicable Non-Monetary
Defects or (y) setting forth Seller's intent to cure such Non-Monetary Defects
and stating in detail how Seller will accomplish same. Failure of Seller to
timely give such notice shall be deemed to be a refusal by Seller to cure any
such Non-Monetary Defects. Upon the later of receipt of Seller's notice or
expiration of the ten (10) day period, then Purchaser may, at any time prior to
ten (10) days after the receipt by Purchaser of Seller's response or expiration
of Seller's response time, by notice to Seller, (i) elect to terminate
Purchaser's obligation to purchase such Construction Residence
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pursuant to this Agreement, whereupon the provisions of Section 14 shall be
applicable with respect to such Construction Residence, or (ii) accept title to
such Construction Residence subject to the Non-Monetary Defects that Seller has
not undertaken to cure, in which event such Non-Monetary Defects, together with
all title exceptions and matters appearing on the Title Commitment with respect
to such Construction Residence to which Purchaser did not object, will be deemed
Permitted Title Exceptions hereunder. If Seller elects option (y) as to any
Construction Residence and at the applicable Residence Closing Seller fails to
cure the applicable Non-Monetary Defects in the manner Seller has undertaken to
so cure in its notice to Purchaser to the satisfaction of Purchaser, Purchaser
will again have the options set forth in (i) and (ii) above. Seller agrees not
to further voluntarily alter or encumber in any way title to any Construction
Residence after the date of this Agreement, except for encumbrances imposed in
the ordinary course of business of which Seller notifies Purchaser and which
Seller will cause to be removed at or prior to the applicable Residence Closing.
In the event that Purchaser fails to timely notify Seller of title defects as to
any Construction Residence, then such failure to notify Seller shall constitute
a waiver of Purchaser's right to object to any Non-Monetary Defects with respect
to any Construction Residence but shall not be a waiver of Seller's absolute
obligation hereunder to remove Monetary Encumbrances, nor a waiver of
Purchaser's right to object to matters that arise subsequent to such date.
Purchaser shall have the right to re-examine and update title to any
Construction Residence and update the applicable Survey through and including
the applicable Residence Closing Date and in the event any such examination or
update reveals any new matters first arising or appearing of record subsequent
to Purchaser's first examination of title (other than Permitted Title
Exceptions), then (i) if such new matters were voluntarily imposed by Seller in
violation of this Section 5.A, Seller shall be in default hereunder and the
provisions of Section 18.B shall apply or (ii) if such new matters were not
voluntarily imposed by Seller, then Purchaser shall have the right to object to
same and will again have the options set forth in (i) and (ii) above.
B. Survey Matters. Purchaser may obtain a current as-built plat of
survey ("Survey") of the Land for each Construction Residence. Each Survey shall
be prepared for and certified by a registered land surveyor licensed as such in
the state in which the Construction Residence is located. Purchaser's and
Seller's rights and obligations with regard to title defects revealed by Surveys
shall be those indicated in Section 5.A. above.
6. PRORATIONS AND CREDITS AT CLOSING.
In each proration set forth below, the portion thereof allocable to
periods beginning with the applicable Residence Closing Date shall be credited
to Purchaser, or charged to Purchaser, as applicable, as of 12:01 a.m. on the
applicable Residence Closing. The following items shall be prorated between
Purchaser and Seller or credited to Purchaser or Seller at the Residence Closing
of each Construction Residence:
A. Real Estate Taxes and Assessments. All ad valorem real estate taxes
with respect to the Construction Residence for the then current year shall be
prorated as of the applicable Residence Closing Date with Seller receiving a
credit for any such taxes paid in advance for any period after the applicable
Residence Closing Date or with Purchaser receiving a credit for the period prior
to and including the applicable Residence Closing Date for which such taxes have
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not been paid by Seller. Seller shall pay all assessments levied upon the
Construction Residence prior to the applicable Residence Closing Date. In the
event that tax bills for the current year's taxes are not available on the
applicable Residence Closing Date, taxes shall be prorated based upon the tax
bills for the previous year and increased or decreased based upon any known
increase or decrease in the assessed valuation or the millage rate. Seller and
Purchaser hereby agree that the parties shall, if necessary, re-prorate the
taxes when actual tax bills for the current year are available.
B. Prepaid Resident Rent. Purchaser shall receive a credit for any
advance payments made by any Residents of the applicable Construction Residence
to the extent attributable to the applicable Residence Closing Date and any
periods thereafter.
C. Custodial Accounts. At the applicable Residence Closing, Seller
shall provide Purchaser with a written account of all funds belonging to
Residents at the Construction Residence that are held by Seller in a custodial
capacity (the "Custodial Accounts"). Such accounting shall set forth the names
of the Residents for whom such funds are held, the amounts held on behalf of
each Resident and Seller's warranty that the accounting is true, correct and
complete. At the applicable Residence Closing, Seller will either assign
Seller's rights in the Custodial Accounts to Purchaser or Seller will cause the
funds in the Custodial Accounts to be transferred to new accounts designated by
Purchaser or Seller will otherwise comply with applicable laws if a different
procedure is required with respect thereto.
D. Rents. Rents, including without limitation all payments received by
Seller from any Tenants under any Leases applicable to the Construction
Residence and all payments of all Residents under any Resident Agreements
received prior to the Residence Closing Date shall be prorated as of the
applicable Residence Closing Date and the portion thereof allocable to periods
beginning with such Residence Closing Date shall be credited to Purchaser at
such Residence Closing. Any checks for any such rental payments received after
such Residence Closing by Seller and belonging in their entirety to Purchaser
shall be promptly endorsed to Purchaser by Seller and promptly transmitted to
Purchaser, and any checks for any rental payments received after such Residence
Closing by Seller and belonging in part to Seller and in part to Purchaser shall
be promptly deposited by Seller and the part thereof belonging to Purchaser
shall be promptly paid to Purchaser and the balance shall be retained by Seller.
In the event that on such Residence Closing Date there shall be any unpaid
rental payments due under any Lease, then (i) for a period of ninety (90) days
after the Residence Closing, any rental payment received by Purchaser with
respect to such Lease subsequent to such Residence Closing Date shall be applied
first to pay the current portion of such rental payment due Seller under such
Lease and the remaining portion of such rental payment, to the extent applicable
to a period beginning on or after such Residence Closing Date, shall be retained
by Purchaser in satisfaction of amounts owed to it, and (ii) thereafter
Purchaser may apply such amounts first to amounts owed to it. During such ninety
(90) day period, Purchaser shall use its reasonable efforts in the ordinary
course of business to collect for Seller amounts owed to Seller of which it has
knowledge, but shall not be required to employ counsel or any collection agency
or to initiate litigation, ejectment proceeding or use any extraordinary means
of collection. Seller shall at all times be entitled to pursue collection of any
amounts owed to it, and Purchaser shall cooperate with Seller in connection
therewith.
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E. Security Deposits. Purchaser shall receive a credit against the
applicable Residence Purchase Price at such Residence Closing for all Deposits
remaining outstanding to any Resident or Tenant for such Construction Residence.
F. Utility Expenses and Payments. Water, sewer, gas, waste fees, fire
protection, cable television, electric and all other utility expenses and
payments due or made with respect to such Construction Residence shall be
prorated as of such Residence Closing Date and the portion thereof allocable to
periods beginning with such Residence Closing Date shall be credited or charged
to Purchaser, as applicable, at such Residence Closing.
G. Utility Deposits. Seller shall receive a credit at such Residence
Closing for the amount of any utility or similar deposits made by Seller with
respect to such Construction Residence which are not refundable to Seller by the
holder thereof and which deposits are transferred to Purchaser at such Residence
Closing.
H. Service Contract Payments. All payments due or made under any
Service Contracts accepted by Purchaser in accordance with the provisions hereof
shall be prorated as of such Residence Closing Date and the portion thereof
allocable to periods beginning with such Residence Closing Date shall be charged
to Purchaser at such Residence Closing, and any amounts due under the Service
Contracts allocable to periods prior to such Residence Closing Date shall be
charged to Seller at such Residence Closing.
I. Personal Property Taxes. All ad valorem personal property or similar
taxes with respect to the Personal Property at such Construction Residence for
the current year shall be prorated as of such Residence Closing Date with Seller
receiving a credit for any such taxes paid in advance for any period after such
Residence Closing Date or with Purchaser receiving a credit for the period prior
to and including such Residence Closing Date for which such taxes have not been
paid by Seller. In the event that tax bills for the current year's taxes are not
available on such Residence Closing Date, taxes shall be prorated based upon the
tax bills for the previous year after taking into account any known increases or
decreases. Seller and Purchaser shall, if necessary, re-prorate the taxes when
actual tax bills for the current year are available.
J. Accrued Benefits. At such Residence Closing, Seller shall provide
Purchaser with a schedule of all accrued sick, vacation and personal holiday pay
earned, accrued and outstanding by Seller's employees working at such
Construction Residence ("Employees") as of such Residence Closing Date
("Seller's Benefits"), which schedule shall include the names, addresses and
amount of Seller's Benefits for each Employee to whom such amounts are owed, and
shall be certified as true, complete and correct by Seller. At such Residence
Closing, Seller shall be charged with the amount of Seller's Benefits, which at
Purchaser's election, (i) shall be paid directly to the respective Employee
entitled to same or (ii) with respect to Employees employed by Purchaser as of
such Residence Closing Date (such Employees, "Continued Employees"), shall be
credited to Purchaser.
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K. Payroll. Seller shall receive a charge for all salaries, benefits
and other payments owed to all Continued Employees of such Construction
Residence through and including 12:01 a.m. on such Residence Closing Date.
L. Reproration after Closing. In the event that the actual amounts of
any of the aforesaid proration items are unavailable as of such Residence
Closing Date, then such proration shall be made on the basis of an amount
reasonably estimated by Purchaser and Seller at such Residence Closing and
Purchaser and Seller shall thereupon re-prorate such items at such times as the
exact amounts for such items become available.
M. Performance of Obligations. To the extent that any amount is
credited in favor of Purchaser hereunder, Purchaser shall thereafter make the
payments of taxes, hold and disburse the Custodial Accounts, refund or apply the
Security Deposits, pay the utility bills or Service Contracts, credit the
Employees entitled to Seller's Benefits or otherwise discharge any similar
obligation that Seller may have had to any third party with respect to the item
so credited, but only to the extent of the amount so credited to Purchaser.
7. ACCOUNTS RECEIVABLE.
On and after the Residence Closing Date with respect to each
Construction Residence, Purchaser shall assume responsibility for billing and
collection of all payments on account of services rendered at such Construction
Residence including, without limitation, any payments or reimbursements made or
to be made by any federal, state or local governmental agency or organization
for medical or therapeutical care or other goods or services rendered or
supplied to any Resident, including, without limitation, payments or
reimbursements resulting from third-party payor agreements such as Medicaid,
Medicare, private pay insurance companies or other similar programs (herein
collectively referred to as "Receivables"). In order to facilitate Purchaser's
collection efforts with respect to Receivables accruing prior to the Closing,
Seller agrees to deliver to Purchaser, within a reasonable time after each
Residence Closing, a schedule identifying all of those Receivables with balances
owing for the period prior to such Residence Closing Date and Purchaser agrees
to forward to Seller any payments received which are specifically designated as
being applicable to services rendered prior to such Residence Closing to Seller.
In the event such payments specifically indicate that they relate to services
rendered on or after such Residence Closing Date, such payments shall be
retained by Purchaser. With respect to any payments received by Purchaser during
the first ninety (90) days after the applicable Residence Closing Date that do
not specify whether such payments relate to services rendered prior or
subsequent to such Residence Closing Date, such payments shall be applied first
to any amounts due and owing to Seller and the remaining portion shall be
applied to amounts due to Purchaser; thereafter, such amounts may be applied
first to amounts owing to Purchaser. During such ninety (90) day period,
Purchaser shall use its reasonable efforts in the ordinary course of business to
collect pre-closing Receivables, but shall not be obligated to employ counsel or
any collection agency or to initiate any litigation, ejectment proceedings or
use any extraordinary means of collection, and, subject to the foregoing, shall
have no liability for uncollectible pre-closing Receivables. In the event that
either party shall receive any check for Receivables belonging in part to such
party and in part to the other, such party shall promptly deposit such check and
the part thereof belonging to the other party shall be promptly paid to
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such party. Seller shall at all times be entitled to pursue collection of any
amounts owed to it, and Purchaser shall cooperate with Seller in connection
therewith.
8. CONVEYANCES AND DELIVERIES AT EACH RESIDENCE CLOSING.
A. Deed; Affidavit. At each Residence Closing, Seller shall convey the
Land comprising a part of such Construction Residence, together with any
easements appurtenant thereto and any Improvements thereon, to Purchaser by
Limited Warranty Deed subject only to the Permitted Title Exceptions and using a
legal description based upon the Survey and approved by Title Company. The
Limited Warranty Deed shall be accompanied by a completed and executed transfer
tax or similar instrument in the prescribed form. Seller shall also execute and
deliver an owner's affidavit in the form prescribed by Title Company and
reasonably acceptable to Seller to enable Title Company to endorse over or
delete the exceptions from the Title Policy for mechanics', materialmen's and
other similar liens, rights of parties in possession under unrecorded leases
(other than the applicable Residents), and the other standard exceptions. If
required by Title Company, Seller shall also obtain any lien waivers or lien
releases required by Title Company to so endorse.
B. Bill of Sale. At each Residence Closing, Seller shall also convey
the Personal Property comprising a part of such Construction Residence to
Purchaser by Bill of Sale, which Bill of Sale shall incorporate by reference the
warranties and representations set forth herein with respect to the Personal
Property, subject to the limitations contained herein. Seller shall also deliver
properly endorsed certificates of title to any motor vehicles to be conveyed
pursuant hereto.
C. Assignment of Residency Agreements and Leases. At each Residence
Closing, Seller shall assign to Purchaser Seller's interest in and to the
Residency Agreements and the Leases comprising a part of such Construction
Residence by a duly executed assignment of Residency Agreements and Leases and
Purchaser shall assume Seller's obligations thereunder and first arising on or
after the Residence Closing Date by a duly executed assumption.
D. Assignment of Service Contracts. At each Residence Closing, Seller
shall assign to Purchaser Seller's interest in the Service Contracts and the
Related Interests comprising a part of such Construction Residence by a duly
executed assignment and Purchaser shall assume Seller's obligations thereunder
and first arising on or after the Residence Closing Date by a duly executed
assumption.
E. Notices of Assignment. On or promptly after each Residence Closing
Date (or earlier if Purchaser and Seller shall so agree), Seller and Purchaser
shall send a written notice, in form and content satisfactory to Purchaser and
Seller, to each Resident of such Construction Residence and their respective
legal guardians, next of kin or others designated to be notified in the event of
an emergency or otherwise, and all Tenants under the Leases of such Construction
Residence, informing them of the sale of the applicable Construction Residence
and of the assignment to Purchaser of Seller's interest in the Residency
Agreements and the Leases and directing that all rental payments and other sums
payable on or after such Residence Closing Date shall be paid to Purchaser at
the address set forth in the notice. If Purchaser shall so elect,
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Seller and Purchaser shall also send a written notice, in form and content
acceptable to Purchaser and Seller, to each party to a Service Contract
informing such party of the assignment to Purchaser of Seller's interest in such
Service Contract. Following the filing by Purchaser of an application with the
applicable state agency for a license to operate the Construction Residence,
Seller and Purchaser shall send any other written notice and make any necessary
filing as may be required under applicable law with respect to sale of the
Construction Residence or a transfer of ownership of such Construction
Residence.
F. Books and Records, Floor Plans, Plans and Specifications, Medical
Records, Original Documents and Other Instruments. At or promptly after each
Residence Closing, Seller shall deliver to Purchaser the originals (or, if
originals are unavailable, duplicate originals or copies) of all Files related
to such Construction Residence not previously delivered by Seller pursuant to
the provisions of Section 1 this Agreement, subject to Seller's rights of access
at all reasonable times at Seller's expense to examine and make copies of any
and all of said original Files for a period of three (3) years after such
Residence Closing Date; and Purchaser shall be obligated to retain such Files
for such three (3) year period.
G. Section 1445 Certificate; Form 8594. At each Residence Closing,
Seller shall also execute and deliver to Purchaser a certificate and affidavit
with respect to Section 1445 of the Internal Revenue Code stating that Seller is
not a foreign person as defined in said Section 1445 and applicable regulations
thereunder. At such Residence Closing, Seller and Purchaser shall execute an
agreement to timely file IRS Form 8594 with the Internal Revenue Service
reflecting the agreed upon allocation (if any) of the Residence Purchase Price
as provided in Section 2.B.
H. Termination of Management Agreement and Service Contracts. At each
Residence Closing, Seller shall also deliver to Purchaser an executed original
of an agreement terminating, as of such Residence Closing Date, any and all
management agreements entered into by Seller with respect to the Construction
Residence, and an executed original of an agreement terminating as of such
Residence Closing Date, any Service Contracts that Purchaser is not obligated to
(and does not elect to) maintain in force after such Residence Closing Date. To
the extent assignable and transferable by Seller to Purchaser without the
consent or approval of any other party (or if such consent or approval has been
obtained), at each Residence Closing, Seller shall assign, and Purchaser shall
assume, all Service Contracts relating exclusively to the operation of such
Construction Residence entered into in the ordinary course of business (unless
on terms materially inconsistent with industry standards) and any contract which
may be terminated upon thirty (30) days (or less) notice.
I. Closing Statement. At each Residence Closing, Seller and Purchaser
shall execute and deliver a Closing Statement which shall, among other items,
set forth the applicable Residence Purchase Price, all credits against such
Residence Purchase Price, the amounts of all prorations and other adjustments to
such Residence Purchase Price and all disbursements made at such Residence
Closing and which shall recite that the provisions of this Agreement shall
survive such Residence Closing in the manner expressly set forth herein.
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J. Reaffirmation of Representations and Warranties. Subject to Seller's
right to update information under Section 12C and furnish Schedules after the
date hereof pursuant to Section 21 of this Agreement, at each Residence Closing,
both Seller and Purchaser shall reaffirm in writing that all representations and
warranties (as so updated and qualified) made by each of them, respectively, are
true, correct and complete as of such Residence Closing Date as to all matters
relating to such Construction Residence or such party's good standing,
authorization, lack of bankruptcy or other matters related to such party.
K. Other Conveyances and Instruments. At each Residence Closing, Seller
shall also execute and deliver to Purchaser a conveyance or assignment of any
portion of the Construction Residence sold hereunder for which the conveyance or
assignment is not otherwise provided in this Section 8, and Purchaser shall
assume any other of Seller's obligations which it is required to assume
hereunder, subject to the limitations set forth herein.
9. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
Seller represents, warrants and covenants to and with Purchaser that,
as to each Seller entity, as applicable, and as to each Construction Residence:
A. Title to Personal Property; Condition of Personal Property. The
Seller entity identified on Schedule I for each Construction Residence is the
owner of good, marketable and fee simple title to the Personal Property for such
Construction Residence free and clear of all encumbrances except for liens and
encumbrances which will be paid by Seller at the applicable Residence Closing
(provided, however, no representation or warranty is made hereunder with respect
to title to the Real Property or any portion thereof). There are no material
defects in the order, repair, condition or sufficiency of the Personal Property
on the applicable Residence Closing Date.
B. Residency Agreements and Leases:
(i) Title. The Seller entities to be identified on
Schedule 1-C for each Construction Residence are the lessors or
landlords under the Leases and the Seller entities to be identified on
Schedule 1-B for each Construction Residence are the owners and holders
of the Residency Agreements for such Construction Residences free and
clear of all encumbrances and each is entitled to receive the rents,
issues or profits from the Leases, the Residency Agreements and from
the Construction Residences. Without limiting the foregoing, the Leases
and the Residency Agreements are free and clear of any and all liens,
security interests and encumbrances except such liens, security
interests and encumbrances that secure indebtedness that shall be paid
in full by Seller at each Residence Closing and Seller has made no
assignment of any of the rights of Seller under any of the Leases, the
Residency Agreements or with respect to any of said rents, issues or
profits except as shall be so released at each Residence Closing.
(ii) Validity; No Defaults. The Leases and the Residency
Agreements are valid and enforceable and in full force and effect and
there are no material defaults under or with respect to the Leases or
the Residency Agreements on the part of Seller,
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and to Seller's knowledge there are no material defaults on the part of
any other party to the Leases or the Residency Agreements and no
conditions or facts which, with the passage of time or giving of notice
or both would constitute such a default on the part of Seller or to
Seller's knowledge any such other party to any Lease or Residency
Agreement, other than any past due or delinquent rental payable under
the Leases and the Residency Agreements with respect to any
Construction Residence as will be more particularly set forth on
Schedules 1-B and 1-C to be delivered by Seller to Purchaser pursuant
to Section 21 hereof.
(iii) Rent. Except as will be specifically set forth on
Schedules 1-B and 1-C, no more than one month's rents under the Leases
and the Residency Agreements have been paid in advance, and no rents
reserved in the Leases or the Residency Agreements have been assigned
and no rents for any period subsequent to the date of this Agreement
have been anticipated or collected in advance of the time when the same
becomes due under the terms of the Leases and the Residency Agreements.
With respect to each Construction Residence, the aggregate amount of
all past due Rent under all of the Residency Agreements as of the date
of this Agreement (or most recent date for which such information is
available, as indicated on such Schedule) does not exceed the amounts
set forth in Schedule 9-A.
(iv) Copies; No Other Agreements. All copies of the
Leases, the Residency Agreements, the Rent Roll and the Lease Summary
which have been or will be furnished by Seller to Purchaser are true,
correct and complete copies thereof. None of the Leases or the
Residency Agreements have been modified, amended or extended and there
are no other understandings, concessions, promises or agreements,
written or oral, between the parties thereto.
(v) Rent Roll. The Rent Roll to be set forth on Schedule
1-B and the Summary of Leases to be attached hereto as Schedule 1-C
will be in all material respects accurate, complete and not misleading.
(vi) Scope of Leases. The Leases relate to the use of a
small portion of each Construction Residence and are intended solely to
facilitate the delivery of services for the convenience of Residents,
such as a beauty salon, pharmacy or other similar service and, if such
Leases relate to services being provided by any affiliate of Seller,
Purchaser shall have the right to cause Seller to terminate such Leases
as of the Residence Closing Date for the Construction Residence
affected thereby. No Lease is a ground lease or other lease encumbering
or affecting all or a substantial portion of any Construction
Residence.
C. Title to Improvements; Condition of Improvements. Seller is the
owner of good and marketable fee simple title to the Improvements free and clear
of all encumbrances except for the Permitted Title Exceptions and except for
liens and encumbrances that will be paid by Seller at the Residence Closing
(provided, however, no representation or warranty is made hereunder with respect
to title to the Real Property or any portion thereof). On the applicable
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Residence Closing Date, there will be no material defects known to Seller in the
order, repair or condition of the Improvements.
D. No Other Leases/Occupancies. There are no leases or other agreements
relating to use or occupancy of the Construction Residence, except for the
Residency Agreements and the Leases. No party other than the Residents or
Tenants have any right to occupancy of any portion of the Construction
Residence. No party other than the Residents or Tenants are actually occupying
any portion of the Construction Residence.
E. Other Contracts. As of the applicable Residence Closing Date, there
will be no management, real estate, leasing, rental commission, service,
maintenance, employment, union or other contracts of any kind or description in
existence relating to the applicable Construction Residence, except for the
Permitted Title Exceptions, the Residency Agreements, the Leases, the Service
Contracts to be assumed by Purchaser pursuant to Section 8.I hereof and, with
respect to the Incomplete Residences (as hereinafter defined), the contracts to
be assigned to Purchaser pursuant to Section 22 hereof. Seller will, prior to
the applicable Residence Closing Date, terminate any and all other such
contracts applicable thereto.
F. Service Contracts. The Service Contracts to be assumed by Purchaser
pursuant to Section 8.I hereof are valid and enforceable and in full force and
effect. There are no material defaults under or with respect to the Service
Contracts on the part of Seller, and to Seller's knowledge there are no material
defaults on the part of any other party to any Service Contract and no
conditions or facts which, with the passage of time or the giving of notice, or
both, would constitute such a default on the part of Seller or to Seller's
knowledge any such other party to any Service Contract. All copies of the
Service Contracts which have been or will be furnished by Seller to Purchaser
are true, correct and complete copies thereof (except for immaterial omissions)
and such Service Contracts have not been modified, amended or extended and there
are no other material understandings, concessions, promises or agreements,
written or oral, between the parties thereto.
G. Intentionally Deleted.
H. Accuracy and Completeness of Other Seller Documents and Records.
Seller will provide Purchaser with access to the Files after the date of this
Agreement.
I. Litigation and Other Proceedings. Except as set forth on Schedule
9-B to be delivered by Seller to Purchaser pursuant to the provisions of Section
21 hereof, there are no judgments, consent decrees, injunctions, litigation,
claims or proceedings (i) relating solely to Seller and not to any of the
Construction Residences and (ii) which, if adversely determined with respect to
Seller, would have a material adverse effect on HCR Manor Care's ability to
perform its obligations hereunder. In addition and not in limitation of the
foregoing, except as set forth on Schedule 9-B to be delivered by Seller to
Purchaser pursuant to the provisions of Section 21 hereof, there are no
judgments unsatisfied against Seller or any Construction Residence or consent
decrees or injunctions to which Seller or any Construction Residence is subject,
and there is no litigation, claim or proceeding pending or to Seller's knowledge
threatened against or relating to Seller or Seller's ownership, operation of or
title to any Construction Residence, nor
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does Seller know of any governmental investigation relative to Seller or any
Construction Residence except as set forth on Schedule 9-B to be delivered by
Seller to Purchaser pursuant to the provisions of Section 21 hereof. Seller is
not in the hands of a receiver nor has Seller committed an act of bankruptcy nor
has an order for relief been entered with respect to Seller.
J. Compliance of Property With Zoning and Other Laws. Seller has not
received any notification from any governmental or public authority that any
Construction Residence currently violates any existing fire, health, building,
handicapped persons, environmental, sanitation, use and occupancy or zoning laws
or that any work is required to be done upon or in connection with any
Construction Residence or that any modifications or alterations now or in the
future will need to be made to obtain the licensure category of any Construction
Residence as set forth on Schedule I (except for work necessary to complete such
Construction Residence). Except as disclosed on Schedule 9-C to be delivered by
Seller to Purchaser pursuant to the provisions of Section 21 hereof, no notice
or warning from any governmental authority with respect to any failure or
alleged failure of Seller to comply with any law, regulation or order has been
received by Seller.
K. Environmental Matters. Except with respect to use, storage and
disposal in the ordinary course of business that complied in all material
respects with all applicable Environmental Laws, Seller has not used, nor
authorized, nor knowingly allowed the use of any Construction Residence, and to
Seller's knowledge no Construction Residence has been used, for the generating,
handling, treatment, storage, disposal or release of any hazardous substance,
hazardous waste, petroleum or petroleum products, asbestos, lead-based paint,
contaminant, pollutant or other words of similar import (hereinafter
collectively referred to as "Hazardous Substances") referred to or defined as
such under any applicable local, state or federal law or regulation regulating
the discharge of solid, liquid or gaseous waste into the environment or the
placement of structures or materials into any waters (surface or subsurface) or
otherwise regulating or appertaining to matters affecting the environment
(hereinafter collectively referred to as "Environmental Laws"). Seller has not
used, nor authorized, nor knowingly allowed the use of any Construction
Residence, and to Seller's knowledge no Construction Residence has been used, in
any manner other than in full compliance with all Environmental Laws.
In furtherance of and not in limitation of the foregoing:
(i) Seller has received no notice and there are no
claims, actions, suits, proceedings or investigations known to Seller,
pending or threatened, related to Hazardous Substances with respect to
the ownership, use, condition, or operation of any of the Construction
Residences, in any court or before or by any federal, state or other
governmental or quasi-governmental agency or authority or private
arbitration tribunal (hereinafter collectively referred to as
"Environmental Litigation").
(ii) To Seller's knowledge, Seller has complied with all
applicable reporting requirements under all Environmental Laws
concerning the disposal or release of Hazardous Substances at or from
all Construction Residences, and Seller has made no such reports.
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L. No Options or Other Interests. No Resident, Tenant or any other
person or entity has any deed, option or other evidence of any right or interest
in or to any Construction Residence except for each Tenant's and each Resident's
rights to possession as set forth in and as evidenced by such Tenant's Lease or
such Resident's Residency Agreement.
M. Assessments, Fees and Liens. No assessments for public improvements
have been made against any Construction Residence which are due and payable and
which will remain unpaid at the Residence Closing. As of each Residence Closing
Date there will be no outstanding bills, invoices, charges, fees or expenses
owing, accrued or incurred with respect to the applicable Construction Residence
or by or on behalf of Seller which have not been paid in full on or prior to the
Residence Closing Date, except such items (i) as shall be incurred in the
ordinary course of business, (ii) for which Seller shall be obligated to pay all
amounts owed following the Residence Closing Date and (iii) which are not
Monetary Encumbrances. At the Residence Closing there will be no Monetary
Encumbrances and no mechanics', materialmen's or laborers' liens against the
applicable Construction Residence (either filed or inchoate), no claims for
labor, services, profit or material furnished for constructing, repairing or
improving such Construction Residence which remain unpaid, and no other chattel
liens, conditional sales contracts or security interests against such
Construction Residence, other than those items as shall be paid by Seller and
released at such Residence Closing.
N. Pending Assessments and Condemnation Proceedings. Seller has
received no notice of, and there is no pending or threatened special assessment
or condemnation or eminent domain proceedings which would affect any
Construction Residence, or any part thereof or access thereto.
O. Disclosure. No statement, warranty or representation by Seller
contains an untrue statement of material fact or omits to state a material fact
necessary in order to make the statements made in light of the circumstances
under which such statements are made not misleading.
P. Authority. Each Seller entity is duly formed, validly existing and
in good standing under the laws of the state of its incorporation or
organization, and each has all necessary power to execute and deliver this
Agreement and perform all its obligations hereunder. Each Seller entity has the
full power and authority to enter into and perform this Agreement and the
execution, delivery and performance of this Agreement by such Seller entity (i)
has been duly and validly authorized by all necessary action on the part of such
Seller entity, (ii) does not conflict with or result in a violation of such
Seller entity's articles of incorporation, bylaws, partnership agreement,
operating agreement or other governing instruments, or any judgment, order or
decree of any court or arbiter in any proceeding to which such Seller entity is
a party, and (iii) does not conflict with or constitute a material breach of, or
constitute a material default under, any contract, agreement or other instrument
by which such Seller entity is bound or to which it is a party. This Agreement
is the valid and legally binding obligation of each Seller entity enforceable in
accordance with its terms.
Q. Licensure and Regulatory Matters. Except with respect to Incomplete
Residences sold pursuant to Section 22.B, on the applicable Residence Closing
Date, each Construction
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Residence will be in such physical condition as to enable such Construction
Residence to be licensed by all appropriate federal, state and local
governmental agencies to operate and perform the services rendered therein as an
assisted living or dementia care residence offering the service levels and with
the number of units set forth on Schedule I hereof. As of the date of this
Agreement and on the applicable Residence Closing Date, all licenses, approvals,
accreditations or certificates necessary to enable Seller to complete
construction of the Construction Residence, including, without limitation, the
Permits, are or will be in full force and effect and in good standing and there
is no action pending, or to Seller's knowledge threatened or recommended by the
appropriate state, federal or local agency having jurisdiction to revoke,
withdraw or suspend any license, approval, accreditation or certificate nor has
Seller received any warning or notice of any violation of any applicable law
with respect to the construction of the Construction Residence. Seller has
delivered or will within thirty (30) days after the date of this Agreement
deliver to Purchaser true, correct and complete copies of the Permits relating
to construction the Construction Residence (including without limitation the
grading and building permits).
R. Reports. Seller to Seller's knowledge has filed all material
reports, disclosures and other information as is required under the laws or
regulations of any federal, state or local governmental organization or agency.
S. Employees; Unions. Schedule 9-D, which Seller shall provide to
Purchaser in accordance with the provisions of Section 21 hereof, is a true,
correct and complete list of the payroll report for all Employees employed at
each Construction Residence, which payroll report identifies each Employee,
their hire date, such Employee's rate of pay and any bonuses or other incentives
promised or contemplated with respect to such Employee. Except to the extent set
forth in such reports, there are no other employees or others entitled to
compensation or a salary at the Construction Residence. Seller is not a party to
any collective bargaining agreements, contracts of employment, profit sharing,
bonus, deferred compensation, stock option, severance pay or pension or
retirement plans with respect to any of its Employees at the Construction
Residence and is not a party to or aware of any labor dispute or grievance with
respect to the Property except as shall be summarized on Schedule 9-D. None of
the Employees at the Construction Residences is employed pursuant to a written
employment agreement.
From and after the date of this Agreement, Seller will not take any
action, or fail to take any action or consent to or affirmatively permit any
third party to take or fail to take any action, which would reasonably be
expected to result in an inaccuracy or a breach of any warranty, representation
or covenant contained in this Section 9 or which would impair or impede Seller's
ability to reaffirm such representations, warranties and covenants as true,
correct and complete as of the Residence Closing Date.
10. PURCHASER'S REPRESENTATIONS AND WARRANTIES.
Purchaser, as of the date of the execution of this Agreement by
Purchaser, represents and warrants to Seller as follows:
A. Organization, Power and Authority. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all
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necessary power to execute and deliver this Agreement and perform all its
obligations hereunder. Purchaser has the full power and authority to enter into
and perform this Agreement and the execution, delivery and performance of this
Agreement by Purchaser (i) has been duly and validly authorized by all necessary
action on the part of Purchaser, (ii) does not conflict with or result in a
violation of Purchaser's Restated Articles of Incorporation or Restated Bylaws,
each as amended, or any judgment, order or decree of any court or arbiter in any
proceeding to which Purchaser is a party, and (iii) does not conflict with or
constitute a material breach of, or constitute a material default under, any
contract, agreement or other instrument by which Purchaser is bound or to which
it is a party. This Agreement is the valid and legally binding obligation of
Purchaser enforceable in accordance with its terms.
B. No Bankruptcy. Purchaser is not in the hands of a receiver nor has
it committed an act of bankruptcy nor has an order for relief been entered with
respect to Purchaser.
11. PRE-CLOSING COVENANTS.
Purchaser and Seller covenant and agree that between the date hereof
and the last to occur of the Residence Closing Dates:
A. Inspection of Property. Seller shall allow Purchaser and its agents
to inspect all Construction Residences and the construction progress thereof and
any part thereof and all books, records and accounts located at the Construction
Residences, or relating solely to the Construction Residences and located
elsewhere or any of Seller's operations thereon, at such times and from time to
time as Purchaser may reasonably request and as shall be reasonably acceptable
to Seller. Seller shall provide Purchaser with periodic reports as to the status
of the construction of the Construction Residence and any anticipated delays.
B. Compliance with Laws, Leases, Contracts. Seller shall comply in all
material respects with all laws, ordinances, regulations and orders relating to
the construction and ownership all Construction Residences and the Permits and
with all the terms, conditions and provisions of the Residency Agreements and
the Leases, and with the requirements of all liens and encumbrances, agreements
and other contractual arrangements to which any Construction Residence or Seller
is subject and make all payments required to be paid thereunder.
C. Standard of Construction. Seller shall comply with the requirements
of Sections 22 and 23 with respect to the construction of the Construction
Residences.
D. New Leases and Modifications to Existing Leases; Residency
Agreements. After the date of this Agreement (and except as may be reflected on
the applicable Rent Roll), Seller shall not enter into any new Leases except in
the ordinary course of business and that otherwise will not prevent Seller from
giving the representation and warranty set forth in Section 9.B.(vi) or cancel,
modify, extend or renew any existing Lease, nor waive any default under or
accept any surrender of any Lease, nor accept any prepayment of rent thereunder
without in each case the prior written consent of Purchaser, which consent will
not be unreasonably withheld or delayed. Seller may enter into new Residency
Agreements in the ordinary course of business and may extend or renew any
existing Residency Agreement provided same are on economic terms
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acceptable to Purchaser. Seller shall update the applicable Rent Roll
immediately prior to each Residence Closing and shall certify same as true,
correct and complete as of the applicable Residence Closing Date.
E. New Service Contracts and Modifications to Existing Service
Contracts. After the date of this Agreement, and except in the ordinary course
of business consistent with Seller's prior conduct of business at residences
comparable to the Construction Residences, Seller shall not enter into any new
Service Contracts which cannot be terminated, without penalty, prior to the
applicable Residence Closing Date, and Seller shall promptly notify Purchaser if
any Service Contracts are entered into and shall provide copies of same with
such notification. In addition, and except in the ordinary course of business
consistent with Seller's prior conduct of business at residences comparable to
the Construction Residences, Seller shall not cancel, modify, extend or renew
any Service Contract, nor waive any default under or accept any surrender of any
Service Contract, without in each case the prior written consent of Purchaser,
which consent will not be unreasonably withheld or delayed. Seller shall update
the List and Summary of Service Contracts attached hereto as Schedule 1-F prior
to the applicable Residence Closing and shall certify same as true, correct and
complete at such Residence Closing.
F. Notice of Revision of Representations Due to Discovery of New Facts.
Seller shall notify Purchaser as promptly as is reasonably practicable but in
any event prior to the Residence Closing Date if Seller becomes aware of any
fact, transaction, event or occurrence which could make any of the warranties,
representations and covenants of Seller under this Agreement not true with the
same force and effect as if made on or as of the date hereof.
G. Personal Property Inventory. Seller shall not remove any of the
Personal Property from any Construction Residence nor use any of the Personal
Property except such use thereof as is normal and customary in the operation and
maintenance of the Property. Seller covenants that, except with respect to
Incomplete Residences on the applicable Residence Closing Date all Personal
Property shall be present at the Construction Facility consistent with past
practices of Seller with respect to comparable facilities, ready to open for
operations and at customary levels of reserves and all Personal Property will be
available and conveyed to Purchaser on the applicable Residence Closing Date.
Seller shall update the Personal Property Inventory attached hereto as Schedule
1-E(ii) immediately prior to the Residence Closing and shall certify same as
true, correct and complete at such Residence Closing.
H. Transfer of Permits. Purchaser shall be responsible for preparation
of all applications and notices and payment of all fees to enable all Permits to
be transferred to or issued in the name of Purchaser and, in connection
therewith Seller shall execute all applications and instruments reasonably
required in connection with the transfer of all Permits, to the extent
transferable, in order to transfer the benefits of each such Permit to Purchaser
and, if requested by Purchaser, Seller shall otherwise cooperate with
Purchaser's efforts to have all permits, licenses and certificates of occupancy
or equivalent governmental instruments required for the operation of the
Construction Residence issued to and in the name of Purchaser on or prior to the
applicable Residence Closing Date, at no cost to Seller. Seller shall use its
best efforts to preserve in force all existing Permits and to renew all those
expiring prior to the applicable Residence Closing Date on terms acceptable to
Purchaser. If any such Permit shall be suspended
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or revoked, Seller shall promptly notify Purchaser and shall diligently take all
measures reasonably necessary to cause the reinstatement of such Permit without
any additional limitation or condition and shall cause such Permit to be
reinstated. Seller shall not seek or allow any amendment to any Permit which
would alter the existing uses of the Construction Residence or any part thereof.
Purchaser shall be responsible for obtaining licensure of the Construction
Residences to operate as the respective types of facilities set forth on
Schedule 1, provided that this sentence shall not be deemed to limit Seller's
obligations with respect to the physical plant as set forth in Section 22.
I. Compliance of Improvements and Real Property. Seller shall cooperate
with Purchaser (at no cost to Seller) in Purchaser's efforts to obtain
satisfactory evidence that each of the Construction Residences and the use and
operation thereof meet and comply with all deed restrictions, restrictive
covenants, building, zoning and environmental laws and any other covenants,
restrictions or regulations, if any, affecting the Real Property (collectively,
the "Land Use Requirements"). Such evidence shall include but shall not be
limited to obtaining copies of certificates of completion or occupancy and
letters or other evidence from the agencies administering compliance with Land
Use Requirements indicating that all of the Improvements, as constructed and
operated, fully comply with said requirements. In addition, said items shall be
directed to Purchaser specifically with knowledge on the part of the party
issuing same that Purchaser will be relying upon the same and said items shall
be submitted to Purchaser as soon as it is reasonably possible to do so.
J. Existing Employees. Seller's and Purchaser's obligations with
respect to persons engaged to perform pre-opening activities will be governed by
Section 23 hereof. The parties hereto hereby agree that the provisions of this
Section 11(J) and Section 23 are for the sole and exclusive benefit of the
parties hereof, and, accordingly, no third party (including Employees) shall be
entitled to rely upon or enforce any of the agreements set forth herein.
K. Notices and Consents. Each of Purchaser and Seller will (and will
cause any of its affiliates to) give any notices to, make any filings with, and
use commercially reasonable efforts to obtain any authorizations, consents and
approvals of governments and governmental agencies required in connection with
consummating the sale of the Construction Residences pursuant hereto; provided,
that with respect to Permits, Section 11.H shall govern. Without limiting the
generality of the foregoing, each of the parties hereto will file any
Notification and Report Forms and related material that it may be required to
file with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), will use commercially reasonable
efforts to obtain an early termination of any applicable waiting period and will
make any further filings pursuant thereto that may be necessary or advisable in
connection therewith.
12. PURCHASER'S INSPECTION OF PROPERTY.
A. Access. Purchaser shall, at all reasonable times as reasonably
scheduled with Seller prior to the applicable Residence Closing Date, have the
privilege of visiting and inspecting each Construction Residence with its
agents, representatives and contractually
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retained independent contractors as needed to inspect, examine, test, appraise
and survey such Construction Residence, including, but not limited to,
investigations of the zoning status and physical status thereof and verification
of all information made or to be made available to Purchaser with respect to
such Construction Residence. In addition, Purchaser shall have the right to
obtain such letters, certificates or statements from appropriate governmental
officials or other experts concerning zoning and other matters related to the
Construction Residences. This privilege shall include the right to make surveys,
examinations, appraisals and other tests to obtain any relevant information
necessary to determine subsurface and topographic conditions, including, but not
limited to, Hazardous Substances studies, soil tests, asbestos analysis and
structural review, all of which tests, studies and reviews shall be performed at
Purchaser's sole cost and expense and which shall not materially interfere with
the operation of the Construction Residences by Seller. In addition, Purchaser
shall have the right to inspect all other matters required to be delivered by
Seller to Purchaser hereunder. In consideration of Purchaser's right to inspect
the Construction Residences as described in this Section 12.A, Purchaser shall,
and does hereby agree to, indemnify, defend and hold Seller and Seller's
employees, agents and residents harmless from any losses, costs or expenses
arising out of the exercise of such privileges by Purchaser (including any
rights or claims of materialmen or mechanics to liens on the Construction
Residences, but excepting acts resulting from the negligence or willful conduct
of Seller or Seller's agents, principals, employees, representatives, affiliates
or others whose presence is suffered or permitted by Seller), which indemnity,
defense and hold harmless agreement shall survive any termination of this
Agreement. Purchaser shall repair any damage to the Construction Residences
resulting from Purchaser's inspection of the Construction Residences and shall
maintain (or cause its contractors to maintain) adequate liability insurance and
shall provide evidence of same to Seller.
B. Termination Election. In the event that any of Purchaser's
inspections, examinations, tests or surveys of any Construction Residence reveal
any condition or fact (or raises substantial uncertainty with respect to the
existence of any such condition or fact) with respect to (i) compliance of the
Construction Residence with all Land Use Requirements materially necessary for
the current and future operation of the Construction Residence or which will
substantially impede future financing of any Construction Residence or (ii) a
Recognized Environmental Condition (as hereinafter defined), then provided that
Purchaser shall give notice thereof (together with a copy of any report or
reports related thereto) within forty-five (45) days after the date of this
Agreement (the "Review Period"), Purchaser may, in its sole and absolute
discretion, have the right to elect to terminate this Agreement with respect to
such Construction Residence, whereupon the provisions of Section 14 hereof shall
be applicable with respect to such Construction Residence. Failure of Purchaser
to give notice of a termination election pursuant to this Section 12.B prior to
the expiration of the Review Period shall constitute a waiver of Purchaser's
right to terminate this Agreement pursuant to this Section 12.B unless Purchaser
has conducted customary inspections and examinations during such Review Period
which did not reveal such condition or fact, and Purchaser first becomes aware
of any such condition or fact after expiration of such Review Period. As used
herein, a "Recognized Environmental Condition" is defined as the presence or
likely presence of any Hazardous Substances on, in, under or adjacent to an
Construction Residence under conditions that indicate an existing release, a
past release or a material threat of a release of any Hazardous Substance on the
Construction Property or into the ground, groundwater or surface water of the
Construction
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Property or properties adjacent thereto. The term includes Hazardous Substances
even under conditions in compliance with Environmental Laws. The term is not
intended to include de minimus conditions that do not present a material risk of
harm to public health or the environment and that generally would not be the
subject of an enforcement action if brought to the attention of appropriate
governmental agencies.
C. Right to Update Information, including Representations and
Warranties. Seller shall have the right at any time during the term of this
Agreement to update any information previously provided by Seller to Purchaser,
including without limitation the Schedules to this Agreement and any information
necessary to qualify any representation or warranty set forth in Section 9
(through the addition of new Schedules) which Seller determines is incorrect
other than as a result of Seller's breach of its obligations hereunder (in which
event Section 18.B shall apply). If Seller provides Purchaser with an updated
Schedule or other updated information at any time on or before the applicable
Residence Closing and such update is not a result of Seller's breach hereunder,
then Purchaser shall have ten (10) days in which to elect to terminate this
Agreement with respect to the applicable Construction Residence by delivering
notice to Seller within ten (10) days after receipt by Purchaser of such update,
whereupon the provisions of Section 14 shall be operative with respect to such
Construction Residence; provided, however, that Schedules originally delivered
pursuant to Section 21 hereof shall not be deemed "updated schedules" with
respect to this sentence. Failure of Purchaser to elect to terminate this
Agreement with respect to an Construction Residence by timely notice to Seller
shall be deemed a waiver of Purchaser's right to elect to terminate as a result
of such update but shall not limit or impair Purchaser's right to thereafter
elect to terminate in the event of any subsequent update. The applicable
Residence Closing Date shall be extended, if necessary, to permit ten (10) days
for Purchaser to make Purchaser's election as set forth above.
13. CONDITIONS TO EACH RESIDENCE CLOSING.
A. Conditions to Each Parties' Obligation to Close. The respective
obligations of each party hereto to affect any Residence Closing shall be
subject to the fulfillment at or prior to the applicable Residence Closing Date
of the following conditions, any or all of which may be waived, in whole or in
part, to the extent permitted by applicable law:
(i) HSR Act. The applicable waiting period under the HSR Act
shall have expired or been terminated without action by the Justice
Department or the Federal Trade Commission to prevent consummation of
any of the transactions contemplated hereby and without the impositions
of any conditions.
(ii) Licensing Arrangement. Prior to or simultaneously with
the first Residence Closing, HCR Manor Care, Purchaser and their
respective affiliates intended to be parties thereto shall have entered
into definitive license agreements with respect the licensing
arrangement contemplated by that certain Letter of Intent related
thereto dated as of the date of this Agreement by and between Seller
and Purchaser.
B. Conditions to Purchaser's Obligation to Close. The obligation of
Purchaser to purchase each Construction Residence hereunder is subject to the
following additional
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conditions, any or all of which may be waived by Purchaser to the extent
permitted by applicable law:
(i) Accuracy of Representations (and the facts recited
therein); No Default by Seller. All the warranties, representations and
covenants of Seller contained in this Agreement with respect to such
Construction Residence or the Seller entities owning such Construction
Residence (as qualified by any Schedules delivered pursuant to Sections
12.C or 21) shall be true in all respects on the applicable Residence
Closing Date with the same effect as if they had been made on such
Residence Closing Date and shall be reaffirmed by Seller in writing at
the Residence Closing, and Seller shall have performed all covenants
and obligations to have been performed and satisfied by Seller with
respect to such Construction Residence prior to the Residence Closing
Date; provided, however, that with respect to any breach of a
representation, warranty or covenant by Seller with respect an
Construction Residence or the Seller entities which own such
Construction Residence which do not (i) interfere with or impair such
Seller entities' right and ability to fully perform its obligations
hereunder with respect to such Construction Residence or (ii)
materially and adversely affect the fair market value of such
Construction Residence (any such breach referred to herein as a "Minor
Breach"), Purchaser's sole remedy shall be an action for damages
pursuant to Section 18 hereof and the existence of any such Minor
Breach shall not excuse Purchaser's obligation to purchase such
Construction Residence hereunder.
(ii) Completed Construction. Such Construction Residence shall
comply with the definition of a Completed Residence (as defined in
Section 22), except in the case of up to three (3) Incomplete
Residences.
(iii) Termination Election. Purchaser shall not have given
notice to Seller of it election to terminate this Agreement with
respect to such Construction Residence pursuant to Sections 5.A.,
12.B., 12.C., 16.A, 16.B, Seller shall not have given notice to
Purchaser pursuant to Section 14.C and neither party shall have given
notice of termination pursuant to Sections 18, 20, 21, 22, 23 or 24
hereof.
14. SELLER'S OPTIONS UPON FAILURE OF PURCHASER CLOSING CONDITION.
In the event that any condition to Purchaser's obligation to purchase
any Construction Residence to Section 13.B. hereunder shall not have been
satisfied or waived by Purchaser as of the applicable Residence Closing Date
(such condition, a "Failed Condition"), Seller may, by written notice given to
Purchaser prior to or within three (3) business days following the date that
such Residence Closing would have occurred, elect one of the following
alternatives:
A. Deferral of Residence Closing Date. Seller may defer the Residence
Closing Date with respect to such Construction Residence for a period of up to
30 days after the original Residence Closing Date in order to seek to satisfy
any such Failed Condition.
B. Indemnification and Cure. Seller may agree to indemnify Purchaser
with respect to all liability or exposure arising as a result of such Failed
Condition pursuant to an
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indemnification agreement in form and substance satisfactory to Purchaser, such
approval not to be unreasonably withheld, whereupon Purchaser shall be obligated
to proceed with the purchase of such Construction Residence provided that
pursuant to such indemnification agreement Seller agrees to repurchase the
Construction Residence from Purchaser for a purchase price equal to the purchase
price paid by Purchaser to Seller hereunder, together with interest thereon at
the per annum rate of 9% from the date of such Residence Closing to the date of
such repurchase, in the event that the Failed Condition shall not have been
cured or satisfied by Seller within 90 days of the original Residence Closing
Date.
C. Withdrawal of Residence. With respect to no more than three (3) of
the Construction Residences in the aggregate, Seller may elect to withdraw and
remove such Construction Residence from the terms of this Agreement whereupon
Purchaser shall have no further obligation hereunder to purchase such
Construction Residence.
D. Withdrawal and Substitution. Seller shall be entitled to withdraw
such Construction Residences from the terms of this Agreement provided that
Seller offers to Purchaser in replacement thereof one (1) or more assisted
living or dementia care residences owned by Seller having a comparable economic
value. If Purchaser is willing to agree to such substitution and Purchaser and
Seller agree upon an appropriate purchase price for such substituted residences,
the parties shall execute an amendment to this Agreement adding such substituted
residence as an a Construction Residence at the agreed upon price.
15. NOTICES.
All notices, consents, approvals and other communications which may be
or are required to be given by either Seller or Purchaser under this Agreement
shall be properly given if made in writing and sent by (a) hand delivery, or (b)
certified mail, return receipt requested, or (c) nationally recognized overnight
delivery service for next business day delivery (such as Express Mail, Federal
Express or Airborne Express), or (d) facsimile or telecopier, provided a
confirming copy thereof is thereafter also sent via the methods described in
(a)-(c), above, with all postage and delivery charges paid by the sender and
addressed to Purchaser or Seller, as applicable, as follows. Such notices
delivered (a) by hand shall be deemed received upon actual delivery, (b) by
overnight delivery service shall be deemed received on the business day
following the date of deposit with such overnight service, (c) by mail shall be
deemed received upon the earlier of actual receipt or two (2) business days
after mailing, and (d) by facsimile or telecopier shall be deemed received upon
the date the sender receives verbal or electronic confirmation of such
transmission, without regard to when the confirming copy is sent or delivered.
Said notice addresses are as follows:
IF TO SELLER:
HCR Manor Care, Inc.
One SeaGate, 23rd Floor
Toledo, Ohio 43604-2616
Attn: R. Jeffrey Bixler, Esq.
Telecopier: (419) 252-5599
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Telephone: (419) 252-5770
with a copy to:
Reed Smith Shaw & McClay LLP
1301 K St., N.W.
East Tower, Suite 1100
Washington, DC 20005
Attn: Robert J. Hill
Telecopier: (202) 414-9299
Telephone: (202) 414-9402
IF TO PURCHASER:
Alternative Living Services, Inc.
450 N. Sunnyslope Road, Suite 300
Brookfield, Wisconsin 53005
Attn: Mr. William F. Lasky
Telecopier: (414) 789-9565
Telephone: (414) 789-9592
with a copy to:
Rogers & Hardin LLP
2700 International Tower
Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Alan C. Leet, Esq.
Telecopier: (404) 525-2224
Telephone: (404) 420-4616
Either party may change its address for notices hereunder upon not less than
five (5) days notice to the other, and either party's counsel may give notice on
behalf of their respective clients. Inability to give notices due to incorrect
address or due to failure of a party to give notice of a change of address,
refusal to accept notices, and inability to transmit notices due to mechanical
or other difficulties on the recipient's end (including without limitation a
malfunctioning facsimile machine) shall be deemed to be effective notice
hereunder.
16. CASUALTY AND CONDEMNATION.
A. Casualty. In the event that prior to the applicable Residence
Closing Date any of the Improvements of the applicable Construction Residence
are damaged or destroyed by fire or other casualty to any extent (other than
such minor damage as may be fully repaired by Seller prior to the Residence
Closing Date), then Seller shall give Purchaser immediate notice thereof and
Purchaser shall have the right to elect not to purchase such Construction
Residence so
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damaged or destroyed (a "Section 16.A. Election") by written notice
to Seller within ten (10) days after Purchaser receives notice of such fire or
other casualty, and thereafter neither party hereto shall have any further
rights, obligations or liabilities hereunder with respect to such Construction
Residence except to the extent that any right, obligation or liability set forth
herein expressly survives termination of this Agreement. In the event that
Purchaser does not make a Section 16.A. Election with respect to an Construction
Residence, Purchaser shall be obligated to close the purchase and sale
contemplated by this Agreement as scheduled without adjustment of the applicable
Residence Purchase Price and Seller shall assign to Purchaser at such Residence
Closing all insurance proceeds payable under Seller's insurance policies on
account of such damage or destruction or pay to Purchaser all such insurance
proceeds previously paid, and pay to Purchaser at such Residence Closing an
amount equal to the amount which the insurer is entitled pursuant to the terms
of the applicable insurance policy to deduct from the proceeds otherwise payable
to Seller on account of such casualty loss, and Seller shall not be obligated to
repair or restore the Property. The applicable Residence Closing Date shall be
extended, if necessary, to permit ten (10) days for Purchaser to make
Purchaser's election as set forth above.
B. Condemnation. In the event that prior to any Residence Closing Date
there shall be instituted against any portion of the applicable Construction
Residence any proceeding in condemnation, eminent domain or any written request
for a conveyance in lieu thereof, or limiting or restricting access thereto or
should Seller receive notice that such proceedings are threatened or have been
commenced against such Construction Residence (hereinafter collectively referred
to as "Condemnation Proceedings"), then Seller shall give Purchaser immediate
notice thereof and Purchaser shall have the right to elect not to purchase such
Construction Residence (a "Section 16.B. Election") by written notice to Seller
within ten (10) days after Purchaser receives notice of such Condemnation
Proceedings, and thereafter neither party hereto shall have any further rights,
obligations or liabilities hereunder with respect to such Construction Residence
except to the extent that any right, obligation or liability set forth herein
expressly survives termination of this Agreement. In the event that Purchaser
shall not make a Section 16.B. Election with respect to an Construction
Residence, Purchaser shall be obligated to close the purchase and sale
contemplated hereby less the portion of such Construction Residence so taken or
subject to said Condemnation Proceedings without adjustment of the applicable
Residence Purchase Price and Seller shall assign or pay to Purchaser at the
applicable Residence Closing all of Seller's right, title and interest in any
award payable on account of such Condemnation Proceedings or pay to Purchaser
all such awards previously paid and Seller shall have no obligation to repair or
restore such Construction Residence not so taken by said Condemnation
Proceedings. The Closing Date shall be extended, if necessary, to permit ten
(10) days for Purchaser to make Purchaser's election as set forth above.
17. BROKERS.
Except with respect to any fees payable by Seller to Merrill Lynch or
any fees payable by Purchaser to Schroeders, each party hereto represents and
warrants to the other that it has not employed any broker, finder or other
person or entity who might, by reason thereof, have any claim for payment of any
brokerage commission, finder's fee or other similar compensation from any other
party hereto. Seller and Purchaser further represent and warrant that they each
shall be responsible for payment of any broker or finder employed (expressly or
impliedly) by them,
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respectively. Seller and Purchaser shall and do hereby indemnify and defend the
other against and hold the other harmless of and from all claims, demands and
liabilities for any breach of the foregoing representations and warranties,
including without limitation, for any commission, fee or other compensation
payable to or claimed by any broker or finder employed (express or implied) by
it or with whom it made an agreement (express or implied) to pay a broker's
commission, a finder's fee or other compensation.
18. DEFAULT.
A. In the event that Purchaser defaults in the observance or
performance of its covenants and obligations hereunder after written notice by
Seller to Purchaser of such default and Purchaser's failure to cure such default
within ten (10) days after receipt of such notice, Seller shall be entitled to
terminate this Agreement by written notice to Purchaser of such termination and
shall also be entitled, as its sole and exclusive remedy hereunder to payment by
Purchaser to Seller of the Applicable Liquidated Damage Amount as defined and
set forth on Schedule 18 hereof as full liquidated damages for such default of
Purchaser. The parties hereby acknowledge the difficulty of ascertaining the
actual damages in the event of such a default, that it is impossible more
precisely to estimate the damages to be suffered by Seller upon Purchaser's
default and that the aforesaid payments are intended not as a penalty, but as
full liquidated damages and that such amounts constitutes a good faith estimate
of the potential damages arising therefrom. Seller's right to so terminate this
Agreement and to retain the aforesaid payment as full liquidated damages is
Seller's sole and exclusive remedy in the event of default hereunder by
Purchaser, and Seller hereby waives, relinquishes, releases and covenants not to
pursue any and all other rights and remedies, including, but not limited to (i)
any right to sue Purchaser for specific performance of this Agreement, (ii) any
right to sue Purchaser for damages or to prove that Seller's actual damages
exceed the amounts agreed upon herein as full liquidated damages, and (iii) any
other right or remedy which Seller may otherwise have against Purchaser, either
hereunder, at law, in equity or otherwise.
B. In the event that Seller defaults in the observance or performance
of its covenants and obligations hereunder after written notice by Purchaser to
Seller of such default and Seller's failure to cure such default within ten (10)
days after receipt of such notice, Purchaser shall be entitled: (i) in the case
of any default other than a Minor Breach, to pursue any or all rights or
remedies as may be provided hereunder and at law, in equity or otherwise,
including, without limitation, the right to terminate this Agreement as to any
Construction Residence which is affected by such default (subject to the
provisions of Section 14 hereof) or (ii) in the case of any Minor Breach, to
pursue an action for damages resulting from such Minor Breach, including without
limitation an action to recover all costs and expenses incurred by Purchaser in
pursuing such damages, including attorneys' fees and expenses. Notwithstanding
the foregoing in no event shall Purchaser be entitled to bring an action for any
Minor Breach or Minor Breaches except to the extent that the aggregate amount
that Purchaser, but for this sentence, would be entitled to recover on account
of such Minor Breach and any Minor Breaches under the Operating Purchase
Agreement in the aggregate exceeds $4,000,000.00 and in no event shall Seller's
aggregate liability for Minor Breaches under this Agreement and the Operating
Purchase Agreement exceed $25,000,000.00.
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19. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
A. Survival of Representations and Warranties. All representations and
warranties contained in this Agreement and in any certificate delivered at any
Residence Closing shall be deemed to have been relied upon notwithstanding any
investigation heretofore or hereafter made or omitted by any party hereto and
shall survive each Residence Closing for a period of two (2) years after the
date of the final Residence Closing hereunder.
B. Seller's Indemnification Obligations. Subject to the terms and
conditions of this Section 19, Seller agrees to indemnify and hold Purchaser
harmless against any and all losses, costs and expenses (including, without
limitation, legal and other expenses) resulting from or relating to:
(i) any debt, liability or obligation of Seller other than any
liabilities of Seller expressly assumed by Purchaser in accordance
herewith, and any claim or demand of any third party with respect to
any act or occurrence at, or the operation of, any Construction
Residence prior to such Construction Residence's Residence Closing Date
(provided, that the foregoing shall not be deemed to make Seller liable
for any loss, cost or expense resulting from the physical condition of
a Construction Residence as of a Residence Closing Date); and
(ii) any failure of Seller to comply with the Bulk Sales Law
of the states in which any of the Construction Residences are located;
any and all actions, suits, demands, assessments or judgments with respect to
any claim arising out of or relating to the subject matter of the
indemnification. Notwithstanding the focusing, nothing in this Section 19-B
shall be deemed to require Seller to indemnify Purchaser for any claim, demand,
action, suit, assessment or judgment against Purchaser solely for contribution
(or similar action) because Purchaser appears in the chain of title.
C. Purchaser's Indemnification Obligations. Subject to the terms and
conditions of this Section 19, Purchaser agrees to indemnify and hold Seller
harmless against any and all losses, costs and expenses (including, without
limitation, legal and other expenses), resulting from or relating to:
(i) any claim or demand of any third party with respect
to any act or occurrence at, or the operation of, any
Construction Residence on or after such Construction
Residence's Residence Closing Date; and
any and all actions, suits, demands, assessments or judgments with respect to
any claim arising out of or relating to the subject matter of the
indemnification. Notwithstanding the foregoing, nothing in this Section 19-C
shall be deemed to require Purchaser to indemnify Seller for any claim, demand,
action, suit, assessment or judgment against Purchaser solely for contribution
(or similar action) because Seller appears in the chain of title.
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D. Procedure for Indemnification Claims. The respective indemnification
obligations of Seller and Purchaser pursuant to Section 19 shall be conditioned
upon compliance by Seller and Purchaser with the following procedures for
indemnification claims based upon or arising out of any claim, action or
proceeding by any person not a party to this Agreement.
(i) If at any time a claim shall be made or threatened, or an
action or proceeding shall be commenced or threatened, against a party
hereto (the "Aggrieved Party") which could result in liability of the
other party (the "Indemnifying Party") under its indemnification
obligations hereunder, the Aggrieved Party shall give to the
Indemnifying Party prompt notice of such claim, action or proceeding.
Such notice shall state the basis for the claim, action or proceeding
and the amount thereof (to the extent such amount is determinable at
the time when such notice is given) and shall permit the Indemnifying
Party to assume the defense of any such claim, action or proceeding
(including any action or proceeding resulting from any such claim).
Failure by the Indemnifying Party to notify the Aggrieved Party of its
election to defend any such claim, action or proceeding within a
reasonable time, but in no event more than fifteen days after notice
thereof shall have been given to the Indemnifying Party, shall be
deemed a waiver by the Indemnifying Party of its right to defend such
claim, action or proceeding; provided, however, that the Indemnifying
Party shall not be deemed to have waived its right to contest and
defend against any claim of the Aggrieved Party for indemnification
hereunder based upon or arising out of such claim, action or
proceeding.
(ii) If the Indemnifying Party assumes the defense of any such
claim, action or proceeding, the obligation of the Indemnifying Party
as to such claim, action or proceeding shall be limited to taking all
steps necessary in the defense or settlement thereof and, provided the
Indemnifying Party is held to be liable for indemnification hereunder,
to holding the Aggrieved Party harmless from and against any and all
losses, damages and liabilities caused by or arising out of any
settlement approved by the Indemnifying Party or any judgment or award
rendered in connection with such claim, action or proceeding. The
Aggrieved Party may participate, at its expense, in the defense of such
claim, action or proceeding provided that the Indemnifying Party shall
direct and control the defense of such claim, action or proceeding. The
Aggrieved Party agrees to cooperate and make available to the
Indemnified Party all books and records and such officers, employees
and agents as are reasonably necessary and useful in connection with
the defense. The Indemnifying Party shall not, in the defense of such
claim, action or proceeding, consent to the entry of any judgment or
award, or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff
to the Aggrieved Party of a release from all liability in respect of
such claim, action or proceeding, except in either event with the prior
consent of the Aggrieved Party.
(iii) If the Indemnifying Party does not assume the defense of
any such claim, action or proceeding, the Aggrieved Party may defend
against such claim, action or proceeding in such manner as it may deem
appropriate. The Indemnifying Party agrees to cooperate and make
available to the Aggrieved Party all books and records and such
officers, employees and agents as are reasonably necessary and useful
in connection with the defense.
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(iv) In the event an Aggrieved Party or Indemnifying Party
shall cooperate in the defense or make available books, records,
officers, employees or agents, as required by the terms of
subparagraphs (ii) and (iii), respectively, of this Section 19.F., the
party to which such cooperation is provided shall pay the out-of-pocket
costs and expenses including legal fees and disbursements) of the party
providing such cooperation and of its officers, employees and agents
reasonably incurred in connection with providing such cooperation, but
shall not be responsible to reimburse the party providing such
cooperation for such party's time or the salaries or costs of fringe
benefits or other similar expenses paid by the party providing such
cooperation to its officers and employees in connection therewith.
20. CAMPUS PROPERTIES.
Purchaser and Seller acknowledge and agree that with respect to the
campus properties (each, a "Campus Property") constituting one of the
Construction Residences identified on Schedule 20, the parties may determine
prior to the applicable Residency Closing Date that is not possible to legally
subdivide such Campus Properties from the adjacent facility or facilities. With
respect to any Campus Property that Purchaser and Seller determine cannot be so
legally subdivided, Purchaser and Seller agree that they shall negotiate in good
faith for Seller to convey such Campus Property together with the adjacent
facility or facilities to Purchaser at no increase in the Residence Purchase
Price applicable thereto and thereafter Purchaser and Seller shall enter into a
long term ground lease by Seller of the adjacent facility or facilities, which
long term ground lease shall be for an initial term of ninety-nine (99) years
and which shall be renewable at the option of Seller for an additional
ninety-nine (99) year term. Pursuant to such ground lease, the tenant thereunder
shall have all obligations for maintenance, repair and operation of such
adjacent facilities and the rent for such adjacent facilities shall be payable
in a single installment upon the commencement date in an amount equal to $1.00,
with rental for the renewal period to be equal to $1.00. Such lease shall be
fully assignable, transferable and subleaseable by the tenant thereunder who
shall also be entitled to mortgage or pledge such lease or its leasehold estate
in connection with any financing. The ground lease shall contain such provisions
as the parties shall negotiate in good faith to address issues involving
subordination/priority of financing transactions, nondisturbance rights and
other similar issues to afford Seller protection with respect to its leasehold
estate in the event of Purchaser's financing and to afford Purchaser protection
with respect to the impact on the financability of the Campus Property as a
result of the ground lease. Such ground lease shall contain such other customary
provisions as the parties so agree including appropriate easements, cost sharing
agreements and other similar matters. Notwithstanding the foregoing, neither
party shall have any obligation to engage in the above-described transaction if
it determines in its discretion that doing so may cause material problems for it
for accounting, tax, licensure, financing or other reasons such as future
marketability, in which event such Campus Property shall be treated under
Section 14.
21. POST-EXECUTION DELIVERY OF SCHEDULES.
Purchaser and Seller acknowledge that in the interest of expediting
execution of this Agreement, Seller had inadequate time to prepare and Purchaser
had inadequate time to review
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all of the necessary schedules to accompany this Agreement. Accordingly, Seller
hereby agrees that Seller shall, on or before the date thirty (30) days after
the date of this Agreement deliver to Purchaser Schedules identified on page
(iv) hereof as well as any additional schedules which Seller believes are
necessary to make Seller's representations and warranties, as qualified thereby,
true and accurate in all respects (the "Post-Execution Schedules"). Upon receipt
of all of the Post-Execution Schedules, Purchaser shall have a period of thirty
(30) days to review such Post-Execution Schedules, to request such additional
information or clarification as Purchaser shall reasonably deem necessary and to
object by notice to Seller to any matters shown thereon which in Purchaser's
reasonable judgment are material matters that Purchaser would have required
Seller address or correct prior to the execution hereof had adequate time been
available ("Objectionable Schedule Items"). Within ten (10) days after Seller's
receipt of Purchaser's notice with respect to any Objectionable Schedule Items,
Seller shall give notice to Purchaser either (i) refusing to cure the applicable
Objectionable Schedule Items or (ii) setting forth Seller's intent to cure such
Objectionable Schedule Items and stating in detail how Seller will accomplish
same. Failure of Seller to timely give such notice shall be deemed to be a
refusal by Seller to cure any such Objectionable Schedule Items. Upon the latter
of receipt of Seller's notice or expiration of the ten (10) day period, then
Purchaser may, at any time prior to ten (10) days after the receipt by Purchaser
of Seller's response or expiration of Seller's response time, by notice to
Seller, (x) elect to terminate Purchaser's obligation to purchase any
Construction Residence effected by such Objectionable Schedule Item pursuant to
this Agreement, whereupon the provisions of Section 14 shall be applicable with
respect to such Construction Residence or (y) accept such Construction
Residences subject to such Objectionable Schedule Items that Seller has not
undertaken to cure, in which event such Objectionable Schedule Items, together
with all other items appearing on the schedules to which Purchaser did not
object, will be deemed Acceptable Schedule Items hereunder. If Purchaser elects
option (ii) as to any Objectionable Schedules Items and at the applicable
Residence Closing Seller fails to cure the Objectionable Schedule Items in the
manner Seller has undertaken to so cure in its notice to Purchaser to the
satisfaction of Purchaser, Purchaser will again have the option set forth in (x)
and (y) above. In the event that Purchaser fails to timely notify Seller of
Objectional Schedule Items, then such failure to notify Seller shall constitute
a waiver of Purchaser's right to object to such Objectionable Schedule Items but
shall not be a waiver of Seller's other obligations hereunder nor a waiver of
Purchaser's right to object to matters that arise subsequent to such date.
22. CLOSING COMPLETED RESIDENCE; CLOSING PRIOR TO COMPLETION OF
CONSTRUCTION.
A. Completed Residence Defined. Purchaser and Seller acknowledge and
agree that Purchaser shall have no obligation to consummate the closing of any
Construction Residence hereunder unless and until such residence is a "Completed
Residence". As used herein, the term "Completed Residence" shall mean a
residence that satisfies all of the following: (i) such residence has been
completed in accordance with all Construction Items (as hereinafter defined)
approved by Purchaser and such completion has been certified by Seller's
architect in a certificate addressed to Purchaser; (ii) a certificate of
occupancy has been issued by the applicable governmental entity issuing such
permits in the jurisdiction in which the Construction Residence is located and
such certificate of occupancy is not conditioned or temporary; (iii) the
governmental agency or regulatory authority that conducts the physical
inspections necessary for the issuance of all applicable operating licensure
shall have completed such inspection and shall
35
<PAGE> 41
have provided a written report either identifying no defects in the physical
plant of the Construction Residence or, if such defects are noted, Seller shall
have corrected or caused such defects to be corrected and shall have provided
evidence thereof to Purchaser; (iv) all material items of Personal Property
shall be present at the Construction Residence acquired hereunder and (v) all
other obligations in Section 13 shall be satisfied.
B. Incomplete Residence. Purchaser and Seller acknowledge that it is
possible that some of the Construction Residences will not be Completed
Residences as of June 1, 1999 and accordingly, Purchaser and Seller agree that
notwithstanding such failure to meet such definition, Purchaser will be
obligated to acquire up to, but not to exceed, three (3) Construction Residences
which fail to meet the definition of Completed Residences on June 1, 1999. As to
any Construction Residence which fails to meet the definition of a Completed
Residence but which is included within the three (3) Construction Residences
that Purchaser is obligated to acquire on June 1, 1999 (hereinafter collectively
referred to as "Incomplete Residences"), at the Residence Closing for such
Incomplete Residence, Seller's architect shall certify the percentage of
construction of such residence which remain uncompleted and the percentage of
the Residence Purchase Price allocable thereto plus a ten percent (10%)
retainage shall be delivered into escrow with Title Company, (the "Escrow Fund")
who shall hold and disburse the Escrow Fund in accordance with an Escrow
Agreement. The Escrow Fund shall include not only the applicable proportionate
share of the purchase price allocable to the Incomplete Residence, but also any
additional sums for Personal Property that Seller is obligated to deliver
pursuant hereto but which is not in place at the Incomplete Residence as of the
Residence Closing Date. The Escrow Closing Agreement shall provide that Title
Company shall hold and disburse such Escrow Fund either on a construction draw
basis to be agreed upon by Purchaser and Seller or in a single disbursement when
the Construction Residence meets the definition of a Completed Residence and the
10% retainage shall be refunded at that time. In addition, upon the disbursement
of the Escrow Fund for such residence, Seller shall be obligated to deliver
final lien waivers so as to enable Title Company to endorse Purchaser's title
policy in an aggregate amount equal to the total purchase price (including the
Escrow Fund), with an appropriate date down endorsement and without exception
for mechanic's or materialmen's liens. At each Residence Closing, Seller shall
also assign to Purchaser all of Seller's rights under and with respect to any
architectural, engineering or construction contracts, and shall contain the
consent of the third parties thereto, and shall cause Purchaser to be named as a
dual obligee on any existing payment and performance bonds; provided, however,
that in the event that Seller is unable to obtain the consents of third parties
required hereunder, Seller shall not be deemed to be in default hereunder, but
Purchaser shall not be obligated to close the acquisition of the Construction
Residence affected thereby and the parties shall proceed as set forth in Section
14 hereof. Seller and Purchaser shall also execute and enter into a development
agreement at such Residence Closing whereby Seller will confirm its obligations
to complete or cause to be completed the construction of the Construction
Residence to satisfy the definition of a Completed Residence at no cost or
expense to Purchaser pursuant to a timetable agreed upon by Purchaser and Seller
therein and Seller will acknowledge that any cost overruns in completing such
construction shall be borne by Seller.
23. CONSTRUCTION OVERSIGHT AND RELATED ISSUES.
36
<PAGE> 42
A. Approval of Plans and Specifications. Within thirty (30) days after
the date of this Agreement, Seller shall deliver to Purchaser those items
identified on Schedule 23 hereto (the "Construction Items"). Purchaser shall
thereafter review the Construction Items and notify Seller with respect to any
matters found thereon that are inconsistent in any material respect with any
similar residence previously owned or operated by Seller as to the level of
tenant improvements and finishes, quality and quantity of Personal property and
other similar matters. Upon receipt of such notice, Seller and Purchaser shall
work together to resolve any disputes and to agree upon final specifications for
each of the Construction Items. Thereafter, at each Residence Closing, Seller
shall deliver such Construction Residence in compliance with the applicable
Construction Items related thereto, including, without limitation, fully stocked
with all applicable Personal Property necessary for the ordinary operation of
the facility upon the admission of residents.
B. Employees; Pre-Opening Expenses. Purchaser acknowledges that Seller
has existing Employees with respect to some of the Construction Residences,
which employees will be identified on Schedule 9-D to be delivered by Seller
hereunder. Purchaser agrees that Purchaser shall hire such employees to be
Purchaser's employees and to conduct such pre-opening market activities during
the first three (3) months that this Agreement is in effect, with all such
Employees to be employed by Purchaser by the earlier of (i) the Residence
Closing for the applicable Construction Residences or (ii) March 31, 1999.
Purchaser shall extend offers of employment to such employees at existing salary
or wage levels and on other terms and conditions which, taken as a whole, are
substantially equivalent to the terms and conditions under which such employees
are currently employed. Purchaser further agrees that with respect to any
Pre-Opening Expenses (as hereinafter defined) incurred by Seller commencing on
January 1, 1999, Purchaser shall reimburse Seller at the applicable Residence
Closing for any and all such amounts as shall have been previously submitted to
Purchaser pursuant to a budget and which Purchaser shall have approved in
advance (provided, however, that with respect to any expenditures made in
January, 1999, prior to submission or approval of such budget, Purchaser shall
be obligated to reimburse Seller with respect to such items as shall be incurred
by Seller in the ordinary course consistent with previous practices of Seller.)
As used herein, "Pre-Opening Expenses" shall mean and include advertising costs,
employee wages and benefits with respect pre-opening marketing activities,
recruiting costs associated therewith, supplies and general administrative and
similar expenses but shall not include any amounts with respect to the physical
construction of the Construction Residence.
C. Change Orders. In the event that following approval of any
Construction Items as hereinafter set forth, Seller desires to make any changes
with respect to such items, Seller shall seek Purchaser's approval thereof,
which approval will not be unreasonably withheld, conditioned or delayed.
24. TERMINATION.
In the event that as of July 31, 1999, there is any Construction
Residence as to which Seller and Purchaser shall not have consummated a
Residence Closing, either Purchaser or Seller may thereafter terminate this
Agreement with respect to such Construction Residence by delivery
37
<PAGE> 43
of written notice of termination to the other party. No such termination shall
affect either party's liability for any breach of this Agreement occurring prior
to such termination.
25. GENERAL PROVISIONS.
A. Agreement Binding; Assignment. This Agreement shall be binding upon
each party hereto and such party's successors and assigns and shall inure to the
benefit of each party hereto and such party's successors and assigns. As used
herein, all references to "Seller" shall mean individually each entity
constituting a Seller hereunder and collectively all such entities, all of which
shall be jointly and severally liable for the performance of all obligations of
Seller hereunder. Any reference herein to any "Seller entity" (or words of
similar import) are not intended to be in limitation of the foregoing definition
but are included for clarity purposes only. In addition, the term is to in all
instances to be broadly construed to include other affiliates of Seller
(including without limitation subsidiaries, affiliates, employees and others)
with respect to the making of any representations or warranties or the
performance of Seller's covenants or the breadth of Seller's knowledge, it being
the intent of the parties that the term in such context is to be broadly
construed even though such broad definition would not by its terms apply to the
joint and several aspects of this Agreement. Seller hereby expressly affirms its
obligations to cause all such affiliates to so comply, Seller hereby expressly
acknowledging that only Seller is in a position to best determine which of
Seller's affiliates should be the party making such representation or warranty,
performing such covenant or gathering such knowledge and the parties intend
Purchaser should not be disadvantaged thereby. As used in this Agreement,
Seller's "knowledge" shall mean the knowledge of all Employees of Seller who are
responsible for the matter at issue. Purchaser may assign this Agreement and
Purchaser's rights hereunder without the prior written consent of Seller to any
affiliate of Purchaser or to a real estate investment trust or an affiliated
lender to effect a sale/leaseback or other financing transaction, provided that
no such assignment shall affect Purchaser's obligations hereunder. Purchaser may
not otherwise assign its rights hereunder without Seller's prior written
consent.
A. Entire Agreement. This Agreement, the Addendum and all the Schedules
referenced herein and annexed hereto contain the entire agreement of the parties
hereto with respect to the matters contained herein, and no prior agreement or
understanding pertaining to any of the matters connected with this transaction
shall be effective for any purpose. Except as may be otherwise provided herein,
the agreements embodied herein may not be amended except by an agreement in
writing signed by the parties hereto.
B. Execution Necessary. This Agreement shall not be binding upon Seller
or Purchaser until fully executed and delivered by representatives of Seller or
Purchaser, as the case may be, and no action taken by Seller's or Purchaser's
representatives shall be deemed an acceptance of this Agreement until this
Agreement has been so executed by Seller or Purchaser, as the case may be, and
delivered to the other party hereto.
C. Time is of the Essence. Time is of the essence of the transaction
contemplated by this Agreement.
38
<PAGE> 44
D. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
E. Interpretation; Date of Agreement. The titles, captions and Section
headings are inserted for convenience only and are in no way intended to
interpret, define, limit or expand the scope or content of this Agreement or any
provision hereof. If any party to this Agreement is made up of more than one
person or entity, then all such persons and entities shall be jointly and
severally liable hereunder, even though the defined term for such party is used
in the singular in this Agreement and in each instance in which a defined term
for such party is used in the singular it shall mean, collectively, all persons
and entities, jointly and severally, and each person or entity constituting a
portion thereof, severably. If any time period under this Agreement ends on a
day other than a Business Day (as hereinafter defined), then the time period
shall be extended until the next business day. The term "Business Day" shall
mean Monday through Friday excluding holidays recognized by the state government
of the States of Ohio and Wisconsin. All references in this Agreement to "the
date of this Agreement" shall be deemed to refer to the date set forth in the
first Section hereof, which date evidences the effective date of the agreement
of the parties as to the terms and conditions set forth herein, regardless of
the date when this Agreement was actually executed by both parties.
F. Waiver. Purchaser or Seller, as the case may be, reserves the right
to waive, in whole or in part, any provision hereof which is for the benefit of
the party so waiving, including without limitation any condition precedent under
Section 12 hereof.
G. Facsimile Signature; Counterparts. This Agreement may be executed by
facsimile signature and in separate counterparts, each of which shall be deemed
an original and all of which, taken as a whole, shall be deemed to be one (1)
original. This Agreement shall be deemed fully executed when each party whose
signature is required has signed at least one (1) counterpart even though no one
(1) counterpart contains the signatures of all of the parties to this Agreement.
H. Non-Waiver. Unless otherwise expressly provided herein, no waiver by
Seller or Purchaser of any provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party. No delay or omission in
the exercise of any right or remedy accruing to Seller or Purchaser upon any
breach under this Agreement shall impair such right or remedy or be construed as
a waiver of any such breach theretofore or thereafter occurring. The waiver by
Seller or Purchaser of any breach of any term, covenant or condition herein
stated shall not be deemed to be a waiver of any other breach, or of a
subsequent breach of the same or any other term, covenant or condition herein
contained.
I. Rights Cumulative. Subject to the limitations set forth in Section
18 and 19 hereof, all rights, powers, options or remedies afforded to Seller or
Purchaser either hereunder or by law shall be cumulative and not alternative,
and the exercise of one right, power, option or remedy shall not bar other
rights, powers, options or remedies allowed herein or by law, unless expressly
provided to the contrary herein.
39
<PAGE> 45
J. Schedules. The exhibits referred to in and attached to this
Agreement are incorporated herein in full by reference.
K. Attorneys' Fees. If there is any legal action, arbitration or
proceeding between Seller and Purchaser arising from or based on this Agreement
or the interpretation or enforcement of any provisions hereof, then the
unsuccessful party to such action, arbitration or proceeding shall pay to the
prevailing party all costs and expenses, including reasonable attorneys' fees,
incurred by such prevailing party in such action, arbitration or proceeding and
in any appeal in connection therewith. If such prevailing party recovers a
judgment in any such action, arbitration, proceeding or appeal, then such costs,
expenses and attorneys' fees shall be included in and as a part of such
judgment.
40
<PAGE> 46
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
representatives to execute and deliver this Agreement as of the day and year
first above written.
SELLER:
HCR MANOR CARE, INC., a Delaware corporation
By: /s/ R. Jeffrey Bixler
-----------------------------------------------
Name: R. Jeffrey Bixler
-----------------------------------------------
Its: Vice President and General Counsel
-----------------------------------------------
MANORCARE HEALTH SERVICES, INC.,
a Delaware corporation
By: /s/ R. Jeffrey Bixler
-----------------------------------------------
Name: R. Jeffrey Bixler
-----------------------------------------------
Its: Vice President and General Counsel
-----------------------------------------------
COLEWOOD LIMITED PARTNERSHIP,
a Maryland limited partnership
By: AMERICAN HOSPITAL BUILDING
CORPORATION, a Delaware corporation, as its
General Partner
By: /s/ R. Jeffrey Bixler
-----------------------------------------------
Name: R. Jeffrey Bixler
-----------------------------------------------
Its: Vice President and General Counsel
-----------------------------------------------
MANOR CARE OF BOYNTON BEACH, INC.,
a Florida corporation
By: /s/ R. Jeffrey Bixler
-----------------------------------------------
Name: R. Jeffrey Bixler
-----------------------------------------------
Its: Vice President and General Counsel
-----------------------------------------------
41
<PAGE> 47
MANOR CARE OF MEADOW PARK, INC.,
a Washington corporation
By: /s/ R. Jeffrey Bixler
-----------------------------------------------
Name: R. Jeffrey Bixler
-----------------------------------------------
Its: Vice President and General Counsel
-----------------------------------------------
ROANOKE ARDEN, L.L.C., a Delaware
limited liability company
By: MANOR CARE, INC., a Delaware corporation,
as its sole Member
By: /s/ R. Jeffrey Bixler
-----------------------------------------------
Name: R. Jeffrey Bixler
-----------------------------------------------
Its: Vice President and General Counsel
-----------------------------------------------
PURCHASER:
ALTERNATIVE LIVING SERVICES, INC.,
a Delaware corporation
By: /s/ Thomas E. Komula
-----------------------------------------------
Name: Thomas E. Komula
-----------------------------------------------
Its: Senior Vice President
-----------------------------------------------
42
<PAGE> 48
SCHEDULE I - CONSTRUCTION RESIDENCES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Facility Name and HCR Manor
Care ID # Address Type Units Type of License to be Applied For
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Denver West II, #640 290 S. Monaco Parkway AC 60 Personal Care Boarding Home
Denver, CO 80224
- ---------------------------------------------------------------------------------------------------------------------
Colorado Springs, #633 2850 N. Academy Blvd. AC 60 Personal Care Boarding Home
Colorado Springs, CO 80917
- ---------------------------------------------------------------------------------------------------------------------
Palmer Ranch, #393 5111 Palmer Ranch Parkway SH 109 AL Assisted Living Facility -
Sarasota, FL 34238 (plus Limited Nursing Service
60 SNF)
- ---------------------------------------------------------------------------------------------------------------------
Decatur, #650 475 Irving Court AC 60 Personal Care Home
Decatur, Ga 30030
- ---------------------------------------------------------------------------------------------------------------------
Charlotte, #342 5326 Park Road AC 56 Adult Care Home
Charlotte, NC 28209
- ---------------------------------------------------------------------------------------------------------------------
Emerson, #368 590 Old Hook Road SH 105 Assisted Living Residence
Charlotte, NJ 07630
- ---------------------------------------------------------------------------------------------------------------------
Roanoke, #653 1127 Persinger Road AC 56 Adult Care Residence, Assisted
South West, Roanoke, VA 24015 Living Facility
- ---------------------------------------------------------------------------------------------------------------------
Lynnwood, #447 18706 36th Ave. AC 60 Boarding Home
Lynnwood, WA 98037
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 49
SCHEDULE II - OPERATING RESIDENCES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Facility Name and HCR Manor Type of License and Number of
Care ID # Address Type Units Licensed Beds
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mesa, #329 6145 East Arbor Avenue AC 56 Unclassified Residential Care
Mesa, AZ 85206 Facility until 5/31/99, then
Directed Care - 56 beds
- ---------------------------------------------------------------------------------------------------------------------
Sun City West, #428 21739 North 151st Avenue AC 56 Directed Care (new category) - 56
Sun City West, AZ 85375 beds
- ---------------------------------------------------------------------------------------------------------------------
Peoria, #630 9296 W. Union Hills Drive AC 56 Directed Care - 56 beds
Peoria, ZA 85382
- ---------------------------------------------------------------------------------------------------------------------
Tucson, #497 3701 N. Swan Road SH 107 Unclassified Residential Care
Tucson, AZ 85718 Facility until 12/31/99; then
Directed Care - 109 beds
- ---------------------------------------------------------------------------------------------------------------------
Citrus Heights, #337 7375 Stock Ranch Road AC 56 Residential Care Facility for the
Citrus Heights, CA 95621 Elderly - 56 beds
- ---------------------------------------------------------------------------------------------------------------------
Whittier, #480 8101 South Painter Avenue SH 75 Residential Care Facility for the
Whittier, CA 90602 Elderly - 146 beds
- ---------------------------------------------------------------------------------------------------------------------
Brea, #474 285 West Central Avenue SH 100 Residential Care Facility for the
Brea, CA 92621 Elderly - 196 beds
- ---------------------------------------------------------------------------------------------------------------------
Laguna Palm Terrace, #459 24962 Calle Aragon SH 193 Residential Care Facility for the
Laguna Hills, CA 92653 Elderly - 186 beds
- ---------------------------------------------------------------------------------------------------------------------
Dunedin, #475 880 Patricia Avenue SH 105 Assisted Living Facility -
Dunedin, FL Extended Congregate Care - 120
beds
- ---------------------------------------------------------------------------------------------------------------------
Sarasota, #496 5501 Swift Road SH 101 Assisted Living Facility -
Sarasota, FL 34231 Limited Nursing Service - 120 beds
- ---------------------------------------------------------------------------------------------------------------------
Boynton Beach, #491 3005 South Congress Avenue SH 125 Assisted Living Facility -
Boynton Beach, FL 33426 Standard (applying for Limited
Nursing Service)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 50
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Facility Name and HCR Manor
Care ID # Address Type Units Type of License to be Applied For
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Boyton Village, #520 1935 South Federal Highway SH 116 Assisted Living Facility, Limited
Boynton Beach, FL 33435 Nursing Service - 127 beds
- ---------------------------------------------------------------------------------------------------------------------
Cobb County, #330 4375 Beech Haven Trail, SE AC 56 Personal Care Home - 56 beds
Smyrna, GA 30080
- ---------------------------------------------------------------------------------------------------------------------
Fulton County, #331 1262 Hightower Trail AC 56 Personal Care Home - 56 beds
Atlanta, GA 30350
- ---------------------------------------------------------------------------------------------------------------------
Fulton County, #391 1260 Hightower Trail SH 109 Personal Care Home - 109 beds
Atlanta, GA 30350
- ---------------------------------------------------------------------------------------------------------------------
Overland Park, #327 11001 Oakmont AC 60 Adult Care Home - Residential
Overland Park, KS 66210 Health Care - 56 beds
- ---------------------------------------------------------------------------------------------------------------------
West Orange, #383 520 Prospect Avenue SH 112 Assisted Living Residence - 116
West Orange, NJ 07052 beds
- ---------------------------------------------------------------------------------------------------------------------
Wayne, #382 820 Hamburg Turnpike SH 105 Assisted Living Residence - 105
Wayne, NJ 07470 beds
- ---------------------------------------------------------------------------------------------------------------------
Reno, #375 3105 Plumas Street AC 56 Residential Facility for Groups -
Reno, NV 89509 56 beds
- ---------------------------------------------------------------------------------------------------------------------
Westlake, #464 27569 Detroit Road SH 96 Rest Home
Westlake, OH 44145
- ---------------------------------------------------------------------------------------------------------------------
Woodridge, #502 3801 Woodbridge Blvd. SH 189 Rest Home
Fairfield, OH 45014
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 1
EXHIBIT 3.7
AMENDMENT TO
AMENDED AND RESTATED BYLAWS OF
ALTERNATIVE LIVING SERVICES, INC.
ADOPTED BY UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS
DATED AUGUST 3, 1998
The second sentence of Section 3.15 of the Corporation's Restated
Bylaws is hereby amended and restated in its entirety as follows:
"The members of the Executive Committee shall be the Corporation's
Chairman, Vice Chairman and Chief Executive Officer (provided, however,
that if none of such persons is a Sterling Director, the Board shall
replace one of such persons with a Sterling Director), and each such
person shall serve as a member of such committee for so long as he
holds such office."
<PAGE> 1
EXHIBIT 10.16
AMENDMENT NO. 1 TO
FIRST AMENDED JOINT VENTURE AGREEMENT
This Amendment No. 1 ("Amendment No. 1"), dated as of January
1, 1999, to the first amended joint venture agreement (the "First Amended
Agreement"), dated as of April 30, 1997, by and between ALTERNATIVE LIVING
SERVICES, INC., a Delaware corporation ("ALS"), and ASSISTED LIVING EQUITIES,
LLC, a New York limited liability company ("ALE").
WITNESSETH:
WHEREAS, the parties entered into that certain joint venture
agreement (together with the several agreements and instruments entered into in
connection therewith or pursuant thereto, including without limitation the New
York Addendum executed in connection therewith, the "Original Agreement"), dated
as of September 11, 1996; and
WHEREAS, the parties amended and restated the Original
Agreement in the form of the First Amended Agreement (subject to certain
provisions of the Original Agreement which were stated to survive with respect
to the Original NY Facilities as described in Article 2 of the First Amended
Agreement); and
WHEREAS, the parties desire to amend certain provisions of the
First Amended Agreement as set forth herein; and
WHEREAS, simultaneously herewith, the parties are entering
into a second amended joint venture agreement (the "Second Amended Agreement"),
the terms and conditions of which will pertain to Project Entities that are not
Existing Project Entities or Grandfathered Project Entities (as each such term
is defined herein); and
WHEREAS, the First Amended Agreement as amended by this
Amendment No. 1 and the Second Amended Agreement will each be in full force and
effect simultaneously as integral components of the expression of the parties'
intentions and agreements, with the understanding that the First Amended
Agreement as amended by this Amendment No. 1 will have application to the
Existing Project Entities and the Grandfathered Project Entities and that the
Second Amended Agreement will have application to all other Project Entities;
NOW, THEREFORE, in consideration of the premises and of the
promises and agreements hereinafter set forth, the parties hereto, intending to
be legally bound, do hereby agree that the provisions of the First Amended
Agreement are hereby amended as follows:
<PAGE> 2
1. Definitions
All terms utilized in this Amendment No. 1 without other
definition shall have the respective meanings assigned thereto in the First
Amended Agreement. In addition, (i) the term "ALS-Northeast Entity" shall be
deemed to include a Corporate Licenseholder (as such term is defined herein),
and (ii) the following terms shall have the indicated meanings:
"Corporate Licenseholder" shall mean any corporate entity the
stock of which is owned by an ALS employee or former employee and that holds an
"adult home" license for a Facility.
"Existing Project Entities" shall mean the Project Entities
known as:
Williamsville/6076 Main Street, LLC;
Perinton Sully's Trail, LLC;
Manlius Highbridge Street, LLC; and
Niskayuna Pinecrest Drive, LLC.
"Grandfathered Project Entities" shall mean the seven Project
Entities listed on Schedule 1 hereto plus a total of three additional Project
Entities chosen by ALE and identified in one or more notices given to ALS on or
prior to March 31, 1999, it being understood that ALE shall not have the right
to so designate a Project Entity after the date on which ALE and ALS execute an
Operating Agreement with respect to such Project Entity.
"Manager" shall mean ALS, ALS-New York, Inc. or such other
Affiliate of ALS that acts as the manager of a Facility the license for which is
held by a Corporate Licenseholder.
"MSA" shall mean the management services agreement between a
given Corporate Licenseholder and its Manager.
2
<PAGE> 3
2. Grandfathered Project Entities
All of the terms and conditions of the First Amended Agreement
shall apply to the Grandfathered Project Entities except that ALE's equity
ownership percentage in, and the percentage of the Mandatory Capital Call
Contributions of the members that ALE is obligated to contribute to, each of the
Grandfathered Project Entities shall be (i) in the case of any Grandfathered
Project Entity listed on Schedule 1, the percentage figure listed on Schedule 1
opposite the name of such Grandfathered Project Entity, and (ii) in the case of
any Grandfathered Project Entity that is identified by notice given by ALE to
ALS on or prior to March 31, 1999, 35%. With the sole exception of the
percentage ownership of ALE, including the percentage of the Mandatory Capital
Call Contributions that ALE is obligated to make, each Grandfathered Project
Entity shall be deemed to be a Project Entity that is a 49% Entity for purposes
of the First Amended Agreement as amended by this Amendment No. 1 although the
actual percentage ownership interest of ALE in such Grandfathered Project Entity
shall be as set forth in the preceding sentence.
3. Deal Flow Standard Met for 1998 and 1999
ALS and ALE agree that the Deal Flow Standard shall be deemed
to have been met for the Joint Venture Agreement Years ended September 30, 1998
and September 30, 1999.
4. Additional Governance Matters
A new paragraph (d) is hereby added to Section 3.8 of the
First Amended Agreement reading as follows:
"(d) In the case of a Corporate Licenseholder with respect to
a Facility, so long as ALE has an interest in such Facility or in such Corporate
Licenseholder:
(i) ALS shall not, without first obtaining the
express written consent of ALE, cause the Manager to enter into or
amend any subcontract with respect to any of the functions of the
Manager to any third party on any basis that places an additional
expense burden on the Facility not anticipated in the applicable
Approved Business Plan (as such term is defined in the applicable
Management Agreement) or the annual operating budget for such Facility
that has been approved by ALE.
(ii) ALS shall cause the Manager to keep ALE
informed and advised of any reports of inspection or investigation by
any governmental agency and of any actual or threatened enforcement
actions or other governmental citations which could result in fines or
the revocation or suspension of the operating certificate of the
Operator with respect to the Facility, and shall cause the Manager to
consult with ALE in advance with respect to any response to any of the
foregoing.
3
<PAGE> 4
(iii) ALS shall not, without first obtaining the
express written authorization of ALE, cause the Manager to draw on the
Facility Account to pay any amounts that are not Facility Expenses,
such consent not to be unreasonably withheld.
(iv) ALS shall cause the Manager to provide to
ALE its calculation of all amounts paid or payable, pursuant to the
MSA, as Base Management Fees.
(v) In the circumstances described in Section
6.4(b) of the MSA, ALS shall not permit the Manager to engage a
submanager unless ALE shall have given its prior written consent to the
identity and terms of engagement of such submanager, such consent not
to be unreasonably withheld.
(vi) With respect to each Facility and each
fiscal period, ALS shall cause the Manager to adopt for such Facility
and for such period, and to abide by, in all material respects, an
annual operating budget with respect to such Facility and for such
period that has been consented to by ALE, such consent not to be
unreasonably withheld."
5. Cash Flow Distributions
A new first sentence is hereby added to Section 3.15(e) of the
First Amended Agreement reading as follows:
"Each Project Entity shall determine on a quarterly basis its
cash flow after the payment of scheduled debt service and operating
expenses and after the payment of scheduled management fees for such
quarter, and shall distribute such cash flow in proportion to the
parties' respective Percentage Interests."
A new final sentence is hereby added to Section 3.15(e) of the
First Amended Agreement reading as follows:
"The Project Agreements of each Project Entity (including the
Project Agreements of the Grandfathered Project Entities) shall be
amended or be prepared so as to conform to the provisions of this
Section 3.15(e)."
6. Cross Default
Any breach or default by a party under the Second Amended
Agreement which extends beyond the applicable grace or cure period, if any,
shall also constitute a breach or default by such party beyond any applicable
grace or cure period under the First Amended Agreement as amended by this
Amendment No. 1.
4
<PAGE> 5
7. Counterparts
This Amendment No. 1 may be executed in counterparts each of
which shall be considered an original and all of which together shall constitute
one and the same instrument.
8. No Further Amendments
Except as expressly amended hereby, the First Amended
Agreement is hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first written above.
ALTERNATIVE LIVING SERVICES, INC.
BY: /s/ Mark W. Ohlendorf
------------------------------------------
ITS: Senior Vice President
------------------------------------------
ASSISTED LIVING EQUITIES, LLC
BY: /s/ Neil A. Rube
------------------------------------------
ITS: Executive Committee Member
------------------------------------------
5
<PAGE> 6
SCHEDULE 1
GRANDFATHERED PROJECT ENTITIES
<TABLE>
<CAPTION>
ALE Percentage
Facility Ownership
-------- ---------
<S> <C>
Greece II, NY 35%
Saratoga Springs, NY 35%
Orchard Park, NY 49%
Ithaca I, NY 35%
Ithaca II, NY 35%
Farmington, CT 35%
Glastonbury Clare Bridge, CT 35%
</TABLE>
6
<PAGE> 1
EXHIBIT 10.17
SECOND AMENDED JOINT VENTURE AGREEMENT
between
ALTERNATIVE LIVING SERVICES, INC.
and
ASSISTED LIVING EQUITIES, LLC
AS OF JANUARY 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
<S> <C>
DEFINITIONS...................................................................2
1.1 Affiliate...................................................2
1.2 Adjusted EBITDAR............................................2
1.3 ALE Affiliate...............................................2
1.4 ALE Ancillary Agreements....................................2
1.5 ALS Affiliate...............................................2
1.6 ALS Ancillary Agreements....................................2
1.7 ALS-Northeast...............................................2
1.8 ALS-Northeast Entities......................................2
1.9 Ancillary Agreements........................................2
1.10 Architect's Agreement.......................................2
1.11 bed.........................................................2
1.12 Business....................................................3
1.13 Business Plan...............................................3
1.14 Capital Account.............................................3
1.15 Certificate of Occupancy....................................3
1.16 Collateral Assignment Agreement.............................3
1.17 Commons Facility............................................3
1.18 Completion of Construction..................................3
1.19 Confidential Information....................................3
1.20 Construction Agreement......................................3
1.21 Contracting ALE Affiliates..................................4
1.22 Corporate Licenseholder.....................................4
1.23 Defaulting Party............................................4
1.24 Default Loan Rate...........................................4
1.25 Development Term............................................4
1.26 EBITDAR.....................................................4
1.27 EBITDAR Before Management Fees..............................5
1.28 Exclusivity Standard........................................5
1.29 Excusing Event..............................................5
1.30 Existing Project Entities...................................5
1.31 Extender Standard...........................................5
1.32 Facility or Facilities......................................5
1.33 Family Member...............................................5
1.34 Floor EBITDAR Margin........................................5
1.35 Grandfathered Project Entity................................6
1.36 Joint Venture Agreement.....................................6
1.37 Joint Venture Agreement Year................................6
1.38 Large Facility..............................................6
1.39 Large Facility Entity.......................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
1.40 Majority Vote...............................................6
1.41 Management Agreement........................................6
1.42 Manager.....................................................6
1.43 Mandatory Capital Call Contribution.........................6
1.44 Mandatory Capital Call Schedule.............................7
1.45 Market Approval.............................................7
1.46 Non-Defaulting Party........................................7
1.47 Nonexclusive Year...........................................7
1.48 Operating Agreement (ALS-Northeast).........................7
1.49 Operating Agreement.........................................7
1.50 Operating Losses............................................7
1.51 Original Agreement..........................................7
1.52 Original NY Facilities......................................7
1.53 PDC.........................................................7
1.54 PDC Guaranty Amendment......................................8
1.55 Percentage Interest.........................................8
1.56 Permitting Completion.......................................8
1.57 Pipeline Projects...........................................8
1.58 Pipeline Project Purchase Price.............................8
1.59 Person......................................................8
1.60 Preferred Equity Contribution...............................8
1.61 Preferred Equity Rate.......................................8
1.62 Preferred Equity Return.....................................8
1.63 Prime Rate..................................................9
1.64 Project Agreements..........................................9
1.65 Project Entity..............................................9
1.66 Project Start...............................................9
1.67 Pro Forma Stabilized Rates..................................9
1.68 Requisite Level.............................................9
1.69 Small Facility.............................................10
1.70 Small Facility Entity......................................10
1.71 Territory..................................................10
1.72 Total Development Cost.....................................10
1.73 Total ROA Base Costs.......................................10
1.74 Waived Facility............................................10
1.75 Unreturned Preferred Equity Amount.........................10
ARTICLE 2
APPLICABILITY AND PURPOSE OF
JOINT VENTURE; DEVELOPMENT TERM..............................................11
2.1 Applicability and Purpose.......................................11
2.2 Development Term................................................11
</TABLE>
ii
<PAGE> 4
ARTICLE 3
<TABLE>
<S> <C>
COVENANTS....................................................................14
3.1 Joint Ownership and Development............................14
3.2 Formation of Project Entities..............................18
3.3 Not Used...................................................19
3.4 Capitalization of Project Entities.........................19
3.5 Failure to Meet Capital Calls..............................20
3.6 Project Financing..........................................21
3.7 Responsibilities of the Parties............................23
3.8 Decision-Making............................................24
3.9 Construction and Development Services......................27
3.10 Management.................................................29
3.11 Restrictions on Transferability of Interests...............31
3.12 Put and Call Options.......................................32
3.13 Collateral Assignment......................................40
3.14 Noncompetition.............................................41
3.15 Interests in Profits, Losses and Distributions.............44
3.16 Confidentiality............................................46
3.17 Further Assurances.........................................47
3.18 No Liens...................................................47
3.19 Public Statement...........................................47
3.20 PDC Guaranty Amendment.....................................48
3.21 Special Project Entity Profit and Loss Allocations.........48
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ALS........................................48
4.1 Organization...............................................48
4.2 Authorization, Enforceability..............................48
4.3 No Violation or Conflict...................................49
4.4 Brokers....................................................49
4.5 Litigation.................................................49
4.6 Governmental Approvals.....................................49
4.7 Required Consent...........................................49
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ALE........................................49
5.1 Organization...............................................49
5.2 Authorization, Enforceability..............................50
5.3 No Violation or Conflict...................................50
5.4 No Broker..................................................50
5.5 No Litigation..............................................50
5.6 Governmental Approvals.....................................51
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> C>
5.7 Required Consent...........................................51
ARTICLE 6
NOT USED.....................................................................51
ARTICLE 7
NOT USED.....................................................................51
ARTICLE 8
NOT USED.....................................................................51
ARTICLE 9
INDEMNIFICATION..............................................................51
9.1 ALE's Indemnity............................................51
9.2 ALS's Indemnity............................................52
9.3 Provisions Regarding Indemnities...........................53
ARTICLE 10
NOT USED.....................................................................54
ARTICLE 11
MISCELLANEOUS................................................................54
11.1 Entire Agreement; Amendment................................54
11.2 Fees and Expense...........................................54
11.3 Applicable Law.............................................54
11.4 Binding Effect, Assignment.................................54
11.5 Notices....................................................54
11.6 Counterparts...............................................55
11.7 Headings...................................................55
11.8 Construction...............................................55
11.9 Severability...............................................56
11.10 Knowledge..................................................56
11.11 Survival of Representations and Warranties.................56
11.12 Arbitration................................................56
11.13 Waiver of Compliance.......................................57
11.14 Third Parties..............................................57
11.15 Set Off Rights of Parties..................................57
11.16 Effect of Commons Acquisition Agreement....................58
11.17 Cross Default..............................................58
</TABLE>
iv
<PAGE> 6
SECOND AMENDED JOINT VENTURE AGREEMENT
THIS SECOND AMENDED JOINT VENTURE AGREEMENT (the "Second Amended
Agreement") is made and entered into as of the 1st day of January, 1999, by and
between ALTERNATIVE LIVING SERVICES, INC., a Delaware corporation ("ALS"), and
ASSISTED LIVING EQUITIES, LLC, a New York limited liability company ("ALE").
WITNESSETH:
WHEREAS, the parties agreed to form a joint venture pursuant to that
certain Joint Venture Agreement dated as of September 11, 1996, between ALS and
ALE (together with the several agreements and instruments entered into in
connection therewith or pursuant thereto, including without limitation the New
York Addendum, referred to herein as the "Original Agreement"); and
WHEREAS, the parties entered into a First Amended Joint Venture
Agreement, dated as of April 30, 1997 (together with the several agreements and
instruments entered into in connection therewith or pursuant thereto, including
without limitation the New York Addendum, and as such agreements have been
amended by Amendment No. 1 (as such term is hereinafter defined), referred to
herein as the "First Amended Agreement"); and
WHEREAS, simultaneously herewith, the parties are entering into an
amendment no. 1 ("Amendment No. 1") to the First Amended Agreement, the terms
and conditions of which will pertain to Project Entities that are Existing
Project Entities or Grandfathered Project Entities (as each such term is defined
in Amendment No. 1); and
WHEREAS, the First Amended Agreement as amended by Amendment No. 1 and
this Second Amended Agreement will each be in full force and effect
simultaneously as integral components of the expression of the parties'
intentions and agreements, with the understanding that the First Amended
Agreement as amended by Amendment No. 1 will have application to the Existing
Project Entities and the Grandfathered Project Entities and that this Second
Amended Agreement will have application to all other Project Entities;
NOW, THEREFORE, in consideration of the premises and of the promises
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, do hereby agree as follows:
<PAGE> 7
ARTICLE 1
DEFINITIONS
In addition to the other definitions contained elsewhere herein, the
following definitions shall apply for purposes of this Agreement:
1.1 Affiliate. "Affiliate" shall have the meaning set forth in
Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
1.2 Adjusted EBITDAR. "Adjusted EBITDAR" has the meaning ascribed
to such term in Schedule 1.
1.3 ALE Affiliate. "ALE Affiliate" means any Affiliate of ALE,
excluding any ALS-Northeast Entity owned jointly by ALS and ALE.
1.4 ALE Ancillary Agreements. "ALE Ancillary Agreements" means any
Ancillary Agreement to which ALE or any ALE Affiliate is a party.
1.5 ALS Affiliate. "ALS Affiliate" means any Affiliate of ALS,
excluding any ALS-Northeast Entity owned jointly by ALE and ALS.
1.6 ALS Ancillary Agreements. "ALS Ancillary Agreements" means any
Ancillary Agreement to which ALS is a party.
1.7 ALS-Northeast. "ALS-Northeast" means ALS-Northeast, L.L.C., a
New York limited liability company, which has been organized and formed for the
purposes referred to in the Original Agreement.
1.8 ALS-Northeast Entities. "ALS-Northeast Entities" means
ALS-Northeast, the Project Entities and the Corporate Licenseholders.
1.9 Ancillary Agreements. "Ancillary Agreements" means all of the
agreements executed and delivered by ALS and ALE, or either of them (or any ALS
Affiliate or ALE Affiliate), with an ALS-Northeast Entity or with each other,
pursuant to this Agreement or in connection with the transactions contemplated
by this Agreement, including without limitation the Operating Agreement of each
of the Project Entities.
1.10 Architect's Agreement. "Architect's Agreement" means an
agreement in substantially the form of Exhibit A attached to the First Amended
Agreement.
1.11 bed. "bed" means each sleeping accommodation intended to be
made available at a Facility under the applicable Business Plan (notwithstanding
that another capacity may be licensed or feasible in a given case).
2
<PAGE> 8
1.12 Business. "Business" means the business of developing or
acquiring, owning and operating the Facilities and activities related or
incidental thereto.
1.13 Business Plan. "Business Plan" means a business plan developed
and agreed upon by ALS and ALE for each Project Entity contemporaneous with the
formation of such Project Entity as contemplated by Section 3.2 or a business
plan developed by ALS as contemplated by Section 3.1.3 hereof or, if with
respect to a given period an operating budget has been approved by ALE, such
operating budget.
1.14 Capital Account. "Capital Account" shall have the meaning set
forth in the Operating Agreement (ALS-Northeast) with respect to the members of
ALS-Northeast, or the applicable Operating Agreement with respect to the members
of Project Entities, as the context may require.
1.15 Certificate of Occupancy. "Certificate of Occupancy" means the
certificate or other official document issued by a state or local governmental
unit or agency to evidence the permission to occupy a Facility in accordance
with applicable building ordinances and regulations (in jurisdictions, such as
certain local jurisdictions in the State of New York, where a temporary
certificate of occupancy permits occupancy of the premises, the term
"Certificate of Occupancy" shall mean such a temporary certificate of occupancy,
and in jurisdictions where no such certificate or official document is
customarily issued, a "Certificate of Occupancy" will be deemed to have been
granted upon substantial completion of the Facility in accordance with the
Construction Agreement).
1.16 Collateral Assignment Agreement. "Collateral Assignment
Agreement" means that certain Collateral Assignment Agreement dated as of
September 11, 1996 between ALS and ALE.
1.17 Commons Facility. "Commons Facility" shall have the meaning
ascribed thereto in the First Amended Agreement.
1.18 Completion of Construction. "Completion of Construction" of a
Facility means the issuance of a Certificate of Occupancy or the equivalent for
each Facility.
1.19 Confidential Information. "Confidential Information" shall
have the meaning provided in Section 3.16 of this Agreement.
1.20 Construction Agreement. "Construction Agreement" means each
Construction Agreement between an Affiliate of ALE and a Project Entity
established to acquire and develop a Facility, in substantially the form of
Exhibit D attached to this Second Amended Agreement, which form of agreement is
incorporated herein by this reference, subject to such modifications as will
necessarily vary by Facility and to any changes to properly reflect the identity
of the Project Entity and location of the Facility being constructed, with such
changes as the parties to such agreement may agree upon.
3
<PAGE> 9
1.21 Contracting ALE Affiliates. "Contracting ALE Affiliates" shall
have the meaning provided in Section 5.1 of this Agreement.
1.22 Corporate Licenseholder. "Corporate Licenseholder" shall mean
any corporate entity the stock of which is owned by an ALS employee or former
employee and that holds an "adult home" license for a Facility located in New
York.
1.23 Defaulting Party. "Defaulting Party" shall have the meaning
provided in Section 3.5.1 of this Agreement.
1.24 Default Loan Rate. "Default Loan Rate" shall have the meaning
provided in Section 3.5.1 of this Agreement.
1.25 Development Term. "Development Term" means with respect to
each of the states in the Territory, the period commencing on September 11, 1996
and ending on December 31, 2001; provided, however, (I) such Development Term
may be immediately terminated by (A) ALS if an "Event of Default", as defined in
the PDC Guaranty, shall arise or (B) either party hereto upon written notice to
the other party (i) if the other party files a voluntary petition of bankruptcy,
is adjudged bankrupt or insolvent or any involuntary bankruptcy proceeding is
filed against such other party, and such proceeding is not dismissed within 90
days thereafter; (ii) if the other party has become a Defaulting Party as to a
Mandatory Capital Call Contribution; or (iii) if the other party or an Affiliate
of the other party has breached and failed to timely cure an Ancillary Agreement
following notice and opportunity to cure in the manner provided therein;
provided, however, that any termination of the Development Term pursuant to
clauses (ii) or (iii) hereof shall be effective only if notice of termination by
the non-defaulting party is given within 120 days of such right to terminate
(pursuant to such clauses (ii) or (iii), respectively) first becoming
exercisable by such non-defaulting party (it being understood that no such
termination will affect the obligations of the parties with respect to a Project
Entity that has already been formed); and (II) if not previously terminated
pursuant to clause (I) above, such Development Term may be extended or shortened
with respect to a given state within the Territory as provided in Section 2.2.
1.26 EBITDAR. "EBITDAR" with respect to a Facility for any period
means the earnings (i.e., the net operating income) with respect to the Facility
(inclusive of all revenue generated at the Facility by the Project Entity owning
such Facility or by another entity that is an ALS Affiliate, such as a licensed
home care agency operating at the Facility, but without counting management fees
received by the Manager as receipts for such purpose, and exclusive of any
earnings of any person that is not an Affiliate of ALS or ALE) for such period
before (i.e., without giving effect to) charges for interest, taxes,
depreciation, amortization or rent. For any period for which EBITDAR is being
determined and during which a stated contractual management fee is not projected
to be charged by ALS or any Affiliate with respect to a Facility, EBITDAR shall
be determined for such Facility as if a management fee were charged with respect
to such a Facility for such period at a level equal to six percent (6%) of
Facility revenues.
4
<PAGE> 10
1.27 EBITDAR Before Management Fees. "EBITDAR Before Management
Fees" with respect to a Facility for any period means EBITDAR calculated without
giving effect to any contractual management fee that may be charged with respect
to the Facility.
1.28 Exclusivity Standard. "Exclusivity Standard" shall have the
meaning ascribed thereto in Section 2.2.1.
1.29 Excusing Event. "Excusing Event" means that ALS or an
Affiliate of ALS is in default of its obligations under this Agreement or under
its obligations in any Project Agreements, ALE has given notice to ALS that it
intends to treat such default as an Excusing Event, and ALS has not cured such
default within ten (10) days after the giving of such notice (or if such default
is not reasonably capable of cure within such ten (10) day period, ALS has
commenced efforts to have accomplished such cure within such ten (10) day period
and is diligently pursuing such cure).
1.30 Existing Project Entities. "Existing Project Entities" shall
have the meaning ascribed thereto in the First Amended Agreement.
1.31 Extender Standard. "Extender Standard" shall have the meaning
ascribed thereto in Section 2.2.1.
1.32 Facility or Facilities. "Facility" or "Facilities" means the
land and improvements constituting an assisted living, dementia or other
specialty care facility or facilities for the elderly located in the Territory
(other than a Commons Facility, an Original NY Facility, a Facility owned by a
Grandfathered Project Entity, a Waived Facility pursuant to Section 3.1.3 or a
Refused Facility pursuant to Section 3.14(d)(i)) which is or are developed or
acquired by ALE, ALS or by a Project Entity pursuant to or as contemplated by
this Agreement.
1.33 Family Member. "Family Member" means, with respect to any
natural person, (a) the spouse of such natural person, (b) any parent,
grandparent, brother, sister, child or other ancestor or descendant of such
natural person, or the spouse of any of the foregoing natural persons described
in this clause (b), (c) a custodian, guardian or personal representative of a
natural person described in clause (a) or (b); or (d) a trust for the benefit of
one or more of the natural persons described in clause (a) or (b).
1.34 Floor EBITDAR Margin. "Floor EBITDAR Margin" means a
percentage figure representing the EBITDAR margin figure to be used in applying
the provisions of Sections 3.12(d) and 3.12(e) in respect of a Facility for any
period equal to the greater of (i) the result obtained by dividing (x) EBITDAR
Before Management Fees for such Facility for such period by (y) the gross
Facility revenue (net only of allowances for bad debts and contractual
allowances) for such Facility for such period, (ii) 42% in the case of Small
Facilities and 43% in the case of Large Facilities, and (iii) that percentage
which, when multiplied by projected Facility revenue (i.e., the level of pro
forma earnings that would be utilized in respect of such Facility pursuant to
the provisions of Section 3.12(d)(iii)) would
5
<PAGE> 11
equal 12.5% of the Total ROA Base Costs of such Facility. It is understood that
in determining the Floor EBITDAR Margin all revenue generated at the Facility by
a Project Entity or another entity that is an ALS Affiliate, such as a licensed
home care agency, operating at the Facility will be included, but that
management fees received by the Manager will not be counted as revenue for such
purpose, and that all revenue of any person that is not an Affiliate of ALS or
ALE will be excluded).
1.35 Grandfathered Project Entity. "Grandfathered Project Entity"
shall have the meaning ascribed thereto in the First Amended Agreement.
1.36 Joint Venture Agreement. "Joint Venture Agreement" means the
First Amended Agreement as amended by Amendment No. 1 and this Second Amended
Agreement, taken as an integral whole.
1.37 Joint Venture Agreement Year. "Joint Venture Agreement Year"
means each successive period of January 1 through December 31, provided that the
period October 1, 1998 through December 31, 1998 shall be deemed to be included
in Joint Venture Agreement Year 1999.
1.38 Large Facility. "Large Facility" means any Facility other than
a Small Facility.
1.39 Large Facility Entity. "Large Facility Entity" means a Project
Entity owning a Large Facility.
1.40 Majority Vote. "Majority Vote" with respect to any
ALS-Northeast Entity means the affirmative vote, approval or consent, as the
case may be, of equity owners of such ALS Northeast Entity holding in excess of
fifty percent (50%) of the total Percentage Interests held by all equity owners
of such ALS-Northeast Entity entitled to vote on, approve or consent to the
particular matter, decision or action.
1.41 Management Agreement. "Management Agreement" means each
Assisted Living Consultant and Management Services Agreement between ALS and a
Project Entity in substantially the form of the Assisted Living Consultant and
Management Services Agreement (Future Project Entities), attached as Exhibit E
to the First Amended Agreement, together with any changes to properly reflect
the identity of the applicable Project Entity and location of the Facility being
managed and any other changes that the parties to such agreement may agree upon.
1.42 Manager. "Manager" shall mean ALS, ALS-New York, Inc. or such
other Affiliate of ALS that acts as the manager of a Facility the adult home
license for which is held by a Corporate Licenseholder.
1.43 Mandatory Capital Call Contribution. "Mandatory Capital Call
Contribution" means the funding of equity obligations, either in the form of
contributions of equity capital to
6
<PAGE> 12
a Project Entity and/or the provision of services, as required of each party
hereto by the Operating Agreement for such Project Entity.
1.44 Mandatory Capital Call Schedule. "Mandatory Capital Call
Schedule" means the mandatory capital call schedule for a Project Entity
included in the respective Business Plan for such Project Entity.
1.45 Market Approval. "Market Approval" means the approval by ALS
of a given market within which ALS proposes that one or more Facilities be
constructed by a Project Entity. It is understood that each Market Approval
delivered by ALS shall relate to a market area that is generally configured in a
manner consistent with the past practice of the parties so as to contemplate and
support the development of no more than four Facilities.
1.46 Non-Defaulting Party. "Non-Defaulting Party" shall have the
meaning provided in Section 3.5.1 of this Agreement.
1.47 Nonexclusive Year. "Nonexclusive Year" means for any state in
the Territory any Joint Venture Agreement Year beginning with 2002 for which the
Exclusivity Standard has not been met for such state with respect to any
preceding Joint Venture Agreement Year commencing with 2001.
1.48 Operating Agreement (ALS-Northeast). "Operating Agreement
(ALS-Northeast)" means the Operating Agreement of ALS-Northeast dated September
11, 1996 between ALS and ALE as amended by an amendment thereto dated July 1,
1997.
1.49 Operating Agreement. "Operating Agreement" means an Operating
Agreement in substantially the form of the Operating Agreement attached as
Exhibit G to the First Amended Agreement with only such changes therein as shall
be necessary to reflect the express terms and conditions of this Second Amended
Agreement.
1.50 Operating Losses. "Operating Losses" for a Project Entity for
any period means the difference for such period between the operating expenses
of such Project Entity incurred for such period and the operating revenues of
such Project Entity for such period.
1.51 Original Agreement. "Original Agreement" shall have the
meaning set forth in the premises of this Agreement.
1.52 Original NY Facilities. "Original NY Facilities" shall mean
each of the first four assisted living facilities in development and/or
construction in the State of New York pursuant to the terms of the Original
Agreement.
1.53 PDC. "PDC" means Pioneer Development Associates, LLC, a New
York limited liability company formerly known as Pioneer Development Company,
LLC.
7
<PAGE> 13
1.54 PDC Guaranty Amendment. "PDC Guaranty Amendment" shall mean
the Amended Guaranty of PDC and others to be executed and delivered pursuant to
Section 3.20 hereof.
1.55 Percentage Interest. "Percentage Interest" means, as applied
to an ALS-Northeast Entity, the percentage interest of ALS or ALE in such
Entity, which shall initially be a 66.66% or 75% interest for ALS and a 33.33%
or 25% interest for ALE, depending upon whether the Facility owned by such
Entity is a Large Facility or a Small Facility, respectively.
1.56 Permitting Completion. "Permitting Completion" shall mean the
point at which a building permit has been issued with respect to a Pipeline
Project the development of which has been continued by ALS alone or with one or
more development or operational partners or participants pursuant to Section
3.1.3(b)(ii).
1.57 Pipeline Projects. "Pipeline Projects" means the development
rights of ALS and ALE with respect to a Facility for which, pursuant to a Market
Approval, site control has been obtained by or on behalf of a Project Entity as
of the first to occur of (a) the date of the commencement of a Nonexclusive Year
with respect to the state in which such Facility is located and (b) the date of
termination of the Development Term with respect to such state.
1.58 Pipeline Project Purchase Price. "Pipeline Project Purchase
Price" means, in the case where one of the parties continues the development of
a Pipeline Project without the involvement of the other party pursuant to
Section 3.1.3(b), an amount determined pursuant to Section 3.1.3(b)(iii) as the
value of the interest in the Pipeline Project of the party that is not
continuing to participate in the development of such Pipeline Project.
1.59 Person. "Person" means a natural person, corporation, trust,
partnership, limited liability company, governmental entity (or agency, branch
or department thereof) or any other legal entity.
1.60 Preferred Equity Contribution. "Preferred Equity Contribution"
shall have the meaning ascribed to such term in Section 3.4.2.
1.61 Preferred Equity Rate. "Preferred Equity Rate" means (i) for
the Joint Venture Year ending December 31, 1999, 11% and (ii) for any Joint
Venture Year thereafter a percentage that is 600 basis points in excess of the
average over the ninety (90) days preceding the first day of such Joint Venture
Year of the yield on U.S. Treasury Notes having a maturity of five years.
1.62 Preferred Equity Return. "Preferred Equity Return" means a
return calculated on the amount of any Preferred Equity Contribution to a
Project Entity from time to time at a rate per annum equal to the Preferred
Equity Rate, compounded annually.
1.63 Prime Rate. "Prime Rate" means the prime interest rate in
effect from time to time as published in the "Money Rates" section of the Wall
Street Journal, or its successor.
8
<PAGE> 14
1.64 Project Agreements. "Project Agreements" means the agreements
entered into by ALS, ALE and their respective Affiliates, or any of them, with a
Project Entity or with each other, in connection with the formation of a Project
Entity and the development and ownership of a Facility, including, without
limitation, an Operating Agreement or other charter documents, a Management
Agreement, and a Construction Agreement for such Entity.
1.65 Project Entity. "Project Entity" means any limited liability
company or other entity formed by an ALS Affiliate and an ALE Affiliate pursuant
to Section 3.1 hereof to jointly develop or acquire and own a Facility.
1.66 Project Start. "Project Start" means the commencement of
development of a Large Facility or a Small Facility by a Project Entity
hereunder or by ALS using the development services of ALE or an ALE Affiliate as
contemplated by Section 3.9.1, which shall be deemed to have occurred when (i)
if such Facility is being developed by a Project Entity, a Business Plan for
such Facility has been approved by ALS and ALE, (ii) control of the site for the
Facility has been obtained by or on behalf of a Project Entity or ALS and (iii)
all building permits required to commence construction (or in the case of a
Facility located in the State of New York all approvals required to obtain all
building permits necessary to commence construction) of such Facility have been
obtained by or on behalf of such Project Entity or ALS.
1.67 Pro Forma Stabilized Rates. "Pro Forma Stabilized Rates" for a
Facility means the average of (i) the actual Facility revenue derived from all
occupied beds and (ii) the projected Facility revenue to be derived from
advertised rates for all unoccupied beds over the twelve month period
immediately preceding the first day of the Put/Call Period applicable to such
Facility (including pre-opening marketing rates and actual rates applicable
after opening).
1.68 Requisite Level. "Requisite Level" means with respect to any
state for any Joint Venture Agreement Year(s) Market Approvals sufficient to
support a number of Facilities that is equal to (a) for the Joint Venture
Agreement Years 1999-2000, the product of (i) 1.5 times (ii) the difference
between (x) the number of Facilities reflected in the table in Section 2.2.1 for
such state for such Joint Venture Agreement Years and (y) the number of Project
Starts occurring in such state during the period of January 1, 1999, through
June 30, 1999 (such product rounded to the next highest whole number), and (b)
for each other Joint Venture Agreement Year, the product of 1.5 times the number
of Facilities reflected in the table in Section 2.2.1 for such state for such
Joint Venture Agreement Year (rounded to the next highest whole number).
1.69 Small Facility. "Small Facility" means a Facility that is a
Sterling House(TM), Sterling Cottage(TM) or WovenHearts(TM) Facility, as branded
by ALS or that has a projected Total Development Cost (excluding budgeted
lease-up deficit) of less than $5 million.
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<PAGE> 15
1.70 Small Facility Entity. "Small Facility Entity" means a Project
Entity that owns a Small Facility.
1.71 Territory. "Territory" means the States of New York,
Massachusetts, Connecticut and Rhode Island.
1.72 Total Development Cost. "Total Development Cost" means the
aggregate development cost of a Facility as reflected in the construction and
development budget that is part of the Business Plan for such Facility,
including the fees and expenses described in Sections 3.9.1 and 3.9.2 for such
Facility and the value of the services described in Section 3.9.3 for such
Facility.
1.73 Total ROA Base Costs. "Total ROA Base Costs" for a Project
Entity means the actual total development costs incurred with respect to such
Project Entity, including the fees and expenses described in Sections 3.9.1 and
3.9.2 for such Project Entity and the value of the services described in Section
3.9.3 for such Facility, and including all other soft costs and all pre-opening
costs and all operating deficits incurred with respect to such Project Entity
prior to the achievement of stabilized occupancy and break-even operations.
1.74 Waived Facility. "Waived Facility" shall have the meaning
provided in Section 3.1.3.
1.75 Unreturned Preferred Equity Amount. "Unreturned Preferred
Equity Amount" as of any date with respect to any Project Entity to which ALE
has made a Preferred Equity Contribution means the difference between (i) the
sum of the Preferred Equity Contribution of ALE and the Preferred Equity Return
thereon from the date of contribution to the date of calculation, and (ii) the
sum at the date of calculation of all distributions of cash by such Project
Entity that are applied pursuant to Section 3.15(e) in satisfaction of ALE's
entitlements in respect of such Preferred Equity Contribution (it being
understood that any such distributions of cash shall be applied first in
satisfaction of the Preferred Equity Return and then to return the Preferred
Equity Contribution of ALE, and such application shall be taken into account to
reduce the compounding effect of the Preferred Equity Return and, if applicable,
to reduce the Preferred Equity Contribution on which the Preferred Equity Return
is calculated, in each case from time to time as and when such cash
distributions are so applied).
10
<PAGE> 16
ARTICLE 2
APPLICABILITY AND PURPOSE OF
JOINT VENTURE; DEVELOPMENT TERM
2.1 Applicability and Purpose. This Agreement amends and
supplements the First Amended Agreement and governs the affairs of the parties
hereto with respect to Project Entities (other than Existing Project Entities
and Grandfathered Project Entities). It is understood that the First Amended
Agreement will continue to remain in full force and effect and be applicable to
the Original NY Facilities, the Commons Facilities, Facilities owned by Existing
Project Entities and Facilities owned by Grandfathered Project Entities; that
this Second Amended Agreement will remain in full force and effect
simultaneously and be applicable to Facilities and Project Entities other than
those to which the First Amended Agreement is applicable; and that the First
Amended Agreement and this Second Amended Agreement represent integral
components of the parties' overall intentions and agreements with respect to the
Joint Venture. The parties have entered into the joint venture contemplated by
the First Amended Agreement and this Second Amended Agreement to develop or
acquire, own or lease and operate Facilities in targeted market areas throughout
the Territory through jointly owned limited liability companies or other
entities agreed to by the parties. The Facilities shall vary in size depending
on market conditions. The parties intend to operate multiple Facilities in
targeted market areas in the Territory in order to become the market leader and
preferred provider of assisted living, dementia or other specialty care services
for the elderly in each target market.
2.2 Development Term. The provisions of this Section 2.2 shall
apply to determine whether the Development Term shall be extended or, in the
case of any state in the Territory other than New York, shortened with respect
to a given state in the Territory from the termination date of December 31, 2001
that would be applicable absent the provisions of this Section 2.2.
2.2.1 Development Objectives. The parties agree that it is
their mutual objective to bring about Project Starts for Facilities or units in
each state of the Territory of at least the following levels in each of the
Joint Venture Agreement Years ending on December 31 of each of the indicated
years:
<TABLE>
<CAPTION>
Cumulative Cumulative
Facilities Units Facilities Units Facilities Units
State 1999 and 2000 1999 and 2000 2001 2001 2002 2002
----- ------------- ------------- ------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
New York 15 688 7 288 7 288
Connecticut 6 333 3 150 3 150
Massachusetts 6 362 3 183 3 183
Rhode Island 4 243 1 60 1 60
</TABLE>
11
<PAGE> 17
If Project Starts occur for Facilities or units in a given state during Joint
Venture Agreement Year 2001 or 2002 at a level that is equal to or in excess of
the level reflected in the table above in this Section 2.2.1 for such Joint
Venture Agreement Year, or if Project Starts would have occurred in such state
during such Joint Venture Agreement Year at such level but for the failure of
ALS to act on or respond to proposals of ALE for development of Facilities on a
timely basis or otherwise fulfill its obligations under the Joint Venture
Agreement with reasonable promptness (including without limitation its
obligation to provide timely Market Approvals pursuant to Section 2.2.2), then
the "Exclusivity Standard" for such state for such Joint Venture Year shall be
deemed to have been met. If Project Starts occur for Facilities or units in
Facilities in a given state during the Joint Venture Agreement Years 1999 and
2000 at a level that equals or exceeds the cumulative total reflected in the
table above in this Section 2.2.1 for the Joint Venture Agreement Years 1999 and
2000, or if Project Starts would have occurred in such state during such period
at such level but for the failure of ALS to act on or respond to proposals of
ALE for development of Facilities on a timely basis or otherwise fulfill its
obligations under the Joint Venture Agreement with reasonable promptness
(including without limitation its obligation to provide timely Market Approvals
pursuant to Section 2.2.2), then the "Extender Standard" for such state shall be
deemed to have been met.
2.2.2 Approvals. The parties agree that it is critical to
their ability to achieve the objectives described in Section 2.2.1 that ALS
deliver Market Approvals at the Requisite Levels in a timely fashion.
Accordingly, ALS agrees that it will use its best efforts to deliver a list of
Market Approvals at the Requisite Level for each Joint Venture Agreement Year or
Joint Venture Agreement Year(s) (as applicable) for each state in the Territory
by no later than the following dates:
<TABLE>
<CAPTION>
For Joint Venture The Market Approval
Agreement Year(s): List Delivery Date is:
------------------ ----------------------
<S> <C>
1999 and 2000 June 30, 1999
2001 September 30, 2000
2002 December 31, 2001
</TABLE>
It is understood that a Market Approval List may include Market Approvals that
have been delivered previously by ALS that relate to markets that remain
approved for development activity hereunder but for which no Facility or site
meeting the requirements of the relevant Market Approval has been acquired or
contracted for as of the date of delivery of the Market Approval List and the
targets that incorporate activity in Joint Venture Agreement Years 2001 and 2002
as reflected in the table in Section 2.2.1 may be revised by mutual agreement of
ALS and ALE to increase (but not decrease) the production targets for such year
based upon revised targets which ALS shall deliver to ALE on or prior to
December 31 of the preceding Joint Venture Agreement Year. ALS also undertakes,
in its consideration of approvals of capital expenditure commitments (as part of
or which become incorporated into Business Plans) for Facilities in market areas
with respect to which Market Approvals have been delivered, to
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<PAGE> 18
apply in good faith the same approval criteria as it applies to comparable
facilities developed by or for ALS or an ALS Affiliate outside the Territory.
2.2.3 Counting; Substitution and Reimbursement Rules. The
period of time within which the meeting of the Exclusivity Standard and the
Extender Standard for a given state and a given period may be met, and the
Development Term for the corresponding state, shall be extended in each case by
one month (i) for each month by which ALS is late in delivering Market Approvals
at the Requisite Level under the standards of Section 2.2.2 and (ii) for each
month that has elapsed after a given Market Approval is delivered by ALS, if ALS
notifies ALE that such Market Approval is withdrawn as a result of an
acquisition that ALS or an ALS Affiliate has effected (whether or not ALE has
elected to participate in such acquisition pursuant to Section 3.14(d)(i)) and
if the withdrawal of the Market Approval reduces the number of Market Approvals
delivered by ALS (excluding withdrawn Market Approvals) to a level that is below
the Requisite Level for such Joint Venture Agreement Year or Joint Venture
Agreement Years. In addition, (A) if ALS gives such a notification of withdrawal
with respect to a Market Approval, (B) such withdrawal reduces the number of
Market Approvals delivered by ALS (excluding withdrawn Market Approvals) to a
level that is below the Requisite Level for such Joint Venture Agreement Year or
Joint Venture Agreement Years, and (C) such notification is given (x) within six
months after such Market Approval was delivered to ALE (or if later within six
months after such Market Approval was last listed by ALS on a list of Market
Approvals delivered pursuant to Section 2.2.2) or (y) after site control was
achieved by ALE or an ALE Affiliate for a planned Facility within the market
area of such Market Approval, then (I) within a reasonable period of time (not
to exceed 90 days) after ALE shall request a substitute Market Approval ALS
shall deliver to ALE a Market Approval that the parties reasonably concur
constitutes a reasonable substitute for such withdrawn Market Approval and (II)
unless ALE, alone or with one or more other development or operational partners,
continues development of an assisted living, dementia or other specialty care
facility for the elderly at such site, ALS shall reimburse ALE for all costs
incurred by ALE pursuant to this Second Amended Agreement or any Ancillary
Agreement (including contributions to ALS Northeast that have not been
reimbursed) and expended by ALE in connection with the development of any
proposed Facility within the area of such Market Approval (whether such
expenditure occurred before or after the date on which such notification of
withdrawal is given, so long as the obligation to make such expenditure was
incurred prior to the date of such notification), such reimbursement to be made
within thirty days after delivery by ALE of customary supporting documentation
evidencing such expenditure. If ALE introduces to ALS the opportunity to acquire
a Facility in a state in the Territory other than New York and such Facility is
subsequently acquired by a Project Entity or ALS or an ALS Affiliate, such
acquisition shall be deemed a "Project Start" in such state for purposes of this
Section 2.2 as of the date of execution of the acquisition contract therefor,
provided that only one such acquisition may be deemed to constitute a "Project
Start" for any single Joint Venture Agreement Year.
2.2.4 Extension of Development Term. If the Extender
Standard is met with respect to a given state, then the Development Term shall
be deemed to be extended for such state through the period ending March 31,
2003. During any Nonexclusive Year for any state,
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<PAGE> 19
the development activity pursuant to the Joint Venture Agreement for such state
shall be governed by Section 3.1.3.
2.2.5 Shortening of Development Term. If the Extender
Standard is not met for a given state for the Joint Venture Agreement Years 1999
and 2000, then (i) if such state is a state other than the State of New York,
the Development Term shall terminate with respect to such state as of December
31, 2000, or (ii) if such state is the State of New York, the Development Term
shall terminate with respect to such state as of December 31, 2001.
2.2.6 Failure to Meet Exclusivity Standard. If the
Exclusivity Standard is not met for a given state with respect to any Joint
Venture Agreement Year in accordance with Section 2.2.1 then, commencing as of
the first day of the Nonexclusive Year arising therefrom, and subject to the
provisions of Section 3.1.3 with respect to Pipeline Projects, the provisions of
Section 3.14(a) shall no longer be operative with respect to such state and the
parties hereto shall have no further exclusive obligation to one another
pursuant to this Agreement to jointly develop, acquire, own, lease or operate
additional Facilities in such state. It is understood that, notwithstanding the
commencement of a Nonexclusive Year, the provisions of Sections 3.14(b)-(f)
shall continue to bind the parties in accordance with their terms. It is further
understood that, once a Project Start occurs with respect to a given Facility,
the terms of this Agreement shall continue to apply to such Facility and the
Project Entity that owns it, regardless of whether after such Project Start the
Development Term shall end or a Nonexclusive Year shall commence.
ARTICLE 3
COVENANTS
3.1 Joint Ownership and Development.
3.1.1 Formation and Capitalization of ALS Northeast. ALS
and ALE have formed ALS Northeast by entering into the Operating Agreement (ALS
Northeast). ALS Northeast will own no real property, unless the parties agree
otherwise; rather, ALS Northeast will fund and engage in site selection and
preliminary development activities with respect to a specified Facility to be
owned by a Project Entity until ALS and ALE mutually agree to develop such
Facility, a specific site is agreed upon and a Project Entity is formed to
acquire such site. Capital contributions to ALS-Northeast will be made by ALS
and ALE with respect to each proposed Facility in the percentages that the
equity of the Project Entity that will own such Facility are proposed to be
owned by ALS and ALE, respectively, as of the date any capital contribution to
ALS-Northeast is required.
3.1.2 Joint Development of Large Facilities. During (i) the
period of the Development Term for any state that falls within Joint Venture
Agreement Years 1999, 2000 and 2001 and (ii) the period of the Development Term
for any state in the Territory that falls within any subsequent Joint Venture
Agreement Year for such state if such Joint Venture Year
14
<PAGE> 20
is not a Nonexclusive Year, the development of Large Facilities hereunder shall
be governed by this Section 3.1.2. During the period of the Development Term for
a given state in the Territory when the development of Facilities hereunder is
governed by this Section 3.1.2, (i) the decision as to whether or not to proceed
to develop a Large Facility and enter into a Project Agreement for an applicable
Project Entity shall be made by ALS and ALE in their sole and absolute
discretion, (ii) a Business Plan will be finalized prior to the acquisition of
real property by a Project Entity that is developing a Large Facility, (iii)
with respect to each such Large Facility, ALE shall act as developer of such
Large Facility on the terms contemplated by Section 3.9 and shall have the
right, but not the obligation, to own equity in and to make capital
contributions to the Project Entity owning the Large Facility in accordance with
the terms contemplated hereby as a member of a Large Facility Entity in which
the percentage interest of ALE will equal 33.33%, and (iv) the other terms and
conditions of the respective equity investments of ALS and ALE in, and the
respective activities and involvement of ALS and ALE with respect to, such
Project Entity shall be governed by the terms of this Article 3 (other than
Section 3.1.3 and any provisions of this Article 3 that are by their terms
inapplicable to a given Project Entity).
3.1.3 Development Activity Not Governed by Section 3.1.2.
(a) At all times during the Development Term for a given state in the Territory
with respect to Small Facilities (other than periods of the Development Term
falling within a Nonexclusive Year for such state), the development of such
Facilities shall be governed by this Section 3.1.3(a). For each Small Facility
the development of which is governed by this Section 3.1.3(a), ALS shall prepare
a Business Plan for such Facility providing a description of such Facility,
estimated construction and development costs, the Mandatory Capital Call
Schedule required for such Facility and a five (5) year budget for such
Facility, and shall provide a copy of such Business Plan to ALE. Upon its
receipt of such Business Plan for such a Facility, ALE shall have thirty (30)
days to make one of the following elections: (x) to act as the developer of such
Facility on the terms contemplated by Section 3.9, (y) to act as the developer
of such Facility on the terms contemplated by Section 3.9 and to own equity in
and to make capital contributions to the Project Entity owning the Small
Facility in accordance with the terms contemplated hereby as a member of a Small
Facility Entity in which the percentage interest of ALE will be 25%, or (z) not
to participate in the development or equity ownership of such Facility.
If ALE makes the election described in clause (z) of the preceding
sentence with respect to a Facility or if ALE shall fail to make an election
with respect to a Facility within the applicable thirty day period (any such
Facility so described or as to which such election has not been made, a "Waived
Facility"), ALE shall be deemed to have waived its right to participate in the
development of such Facility and ALS shall be free to develop such Facility in
accordance with the terms of the applicable Business Plan in all material
respects, either alone or with one or more equity partners. If ALE makes any
election to own equity in and make capital contributions to a Project Entity as
contemplated by this Section 3.1.3(a), the Entity Documents and Mandatory
Capital Call Schedule shall be developed and implemented in the same manner as
would be applicable to a Large Facility Entity governed by Section 3.1.2. If ALS
proceeds with the development of a Waived Facility and after the delivery of a
Business Plan to ALE as contemplated by this Section 3.1.3 but prior to the
Project Start of such
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<PAGE> 21
Facility the Business Plan for such Waived Facility shall change in any material
respect that is within the control of ALS (excluding, however, such changes as
would be materially adverse to such Facility or an investment therein), ALS
shall be obligated to offer or to cause the entity owning such Facility to offer
to ALE the right to make an equity investment representing an ownership interest
of 25% in consideration of a cash payment to the equity owners of such Facility
equal to 25% of such equity owners' actual capital investment in such Facility.
(b) Within fifteen days after the date on which a
Nonexclusive Year begins for any state within the Territory or the Development
Term is terminated for any state within the Territory, ALS shall determine, in
its sole discretion, whether to subject any Pipeline Project to development in
accordance with the terms of this Agreement as if the Development Term continued
and such Joint Venture Agreement Year were not a Nonexclusive Year with respect
to the development of such Pipeline Project. If within such fifteen-day period
ALS gives notice to ALE of its election so to continue the development of a
given Pipeline Project, then the parties shall be bound by all of the terms of
this Agreement with respect to such Pipeline Project as if the Development Term
continued with respect to such Pipeline Project and such Joint Venture Agreement
Year were not a Nonexclusive Year. If ALS does not give such notice of election
within such period, then the parties shall follow the procedure described in
this Section 3.1.3(b) with respect to each such Pipeline Project:
(i) Within thirty days after the end of the
fifteen-day period provided for such notice
of election by ALS, ALE shall by notice
given to ALS elect whether it wishes to
continue development of such Pipeline
Project alone or with one or more other
development or operational partners or
participants, and shall include in such
notice of election the Pipeline Project
Purchase Price that ALE proposes to pay to
ALS in respect of such Pipeline Project. If
ALE determines so to continue development of
the Pipeline Project, ALE shall within a
period of forty-five days after the date on
which the amount of the Pipeline Project
Purchase Price for such Pipeline Project is
determined pursuant to Section 3.1.3(b)(iii)
pay to ALS the Pipeline Project Purchase
Price for such Pipeline Project.
(ii) If ALE does not give notice to ALS of its
election so to continue the development of
such Pipeline Project, ALS shall have the
right to elect, by notice given to ALE
within thirty days after the expiration of
the 30-day period described in Section
3.1.3(b)(i), to continue the development of
such Pipeline Project alone or with one or
more other development or operational
partners or participants, and in such event
ALS shall include in such notice of election
the amount of the Pipeline Project Purchase
Price that ALS proposes to pay to ALE in
respect of such Pipeline Project. If ALS
elects so to continue development of the
Pipeline Project, ALS shall, within a period
of forty-five days after the date on
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<PAGE> 22
which the Pipeline Project Purchase Price is
determined for such Pipeline Project
pursuant to Section 3.1.3(b)(iii), pay to
ALE the Pipeline Project Purchase Price for
such Pipeline Project.
(iii) Upon the giving by either ALE or ALS of a
notice of election to continue development
of a Pipeline Project without the
participation of the other, the parties
shall endeavor, within a period of fifteen
days after the date on which such notice of
election is given by the electing party, to
determine by mutual agreement the amount of
the Pipeline Project Purchase Price payable
by the electing party pursuant to this
Section 3.1.3(b). If within such period the
parties are unable to reach mutual agreement
with respect to the amount of the Pipeline
Project Purchase Price, then the amount of
the applicable Pipeline Project Purchase
Price shall be determined by arbitration as
follows: (A) within five days after the
expiration of the fifteen-day period
referred to in this Section 3.1.3(b)(iii),
each party shall by notice to the other
designate an independent real estate
development expert with expertise in the
development of assisted living projects; (B)
the two experts designated by the parties
(or, if one party fails to appoint an
expert, the expert appointed by the other
party) shall determine, based on information
submitted to him, her or them by the parties
within five days after his, or her or their
appointment, the applicable Pipeline Project
Purchase Price in accordance with the terms
of this Agreement including without
limitation the next sentence of this Section
3.1.3(b)(iii) and shall give notice thereof
to the parties within fifteen days after
such appointment; and (C) if one expert is
appointed, his or her determination shall
constitute the applicable Pipeline Project
Purchase Price, and if two experts are
appointed and their determinations are
different, the applicable Pipeline Project
Purchase Price shall be the average of the
two determinations. It is understood that
the Pipeline Project Purchase Price payable
to a party shall in no event be less than
the project costs incurred by such party in
connection with the development of the
applicable Pipeline Project to the date on
which the other party gives such notice of
election, plus, in the case of ALE, an
amount equal to a percentage of the
Development Services Contribution Amount
with respect to the Project Entity
developing such Pipeline Project pursuant to
Section 3.9.3 determined as follows: (x) if
as of the date of termination of the
Development Term or the commencement of the
Nonexclusive Year (as applicable) the
Project Entity developing such Pipeline
Project has had site control of the
development site for six months or more,
such percentage shall be fifty, and (y) if
as of the date of termination
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<PAGE> 23
of the Development Term or the commencement
of the Nonexclusive Year (as applicable) the
Project Entity developing such Pipeline
Project has had site control of the
development site for less than six months,
such percentage shall be twenty-five.
(iv) Upon the payment by ALS or ALE, as the case
may be, of the Pipeline Project Purchase
Price with respect to a Pipeline Project,
the paying party shall be free to exercise
all rights with respect to such Pipeline
Project free of any claim of the receiving
party with respect thereto.
(v) At the election of ALS by notice given to
ALE together with ALS's notice to ALE
pursuant to Section 3.1.3(b)(ii), ALS may
require ALE, at the cost and risk of ALS, to
continue to pursue the permitting of the
applicable Pipeline Project to the point of
Permitting Completion, at which point ALS
shall pay to ALE an amount equal to the
difference between (x) 100% of the
Development Services Contribution Amount
with respect to such Pipeline Project
determined as if Section 3.9.3 were
applicable thereto, and (y) the percentage
of such Development Services Contribution
Amount with respect to such Pipeline Project
described in the last sentence of Section
3.1.3(b)(iii).
3.2 Formation of Project Entities. When a Project Entity is
formed, each of ALS-Northeast, ALE and ALS will be reimbursed by the Project
Entity for the jointly approved site selection and development costs expended by
them with respect to the Facility to be owned by such Project Entity. Pursuant
to the terms of the Entity Documents for any Project Entity, unless consented to
by ALS and ALE such Project Entity shall not: (i) materially change the
character of the business, Business Plan, strategy or licensing status of the
Facility owned by such Project Entity from that contemplated by this Agreement
and the applicable Business Plan; (ii) make any material investment in any
person or entity other than as contemplated by the applicable Business Plan or
money market-type investments; (iii) make any distribution in kind of assets of
the Project Entity (other than distributions of distributable cash); (iv)
initiate any litigation not in the ordinary course of business of such Project
Entity; or (v) use the proceeds of any insurance or condemnation award other
than to rebuild or repair the Facility owned by such Project Entity.
3.3 Not Used.
3.4 Capitalization of Project Entities.
3.4.1 The parties shall make Mandatory Capital Call
Contributions to each Project Entity as more fully set forth in the Entity
Documents for such Project Entity. Unless otherwise mutually agreed to by the
parties hereto, it is contemplated that, with respect to each Project Entity,
(i) ALE will fund a portion of its Mandatory Capital Call Contribution
18
<PAGE> 24
obligation in the form of a contribution of development services, which services
shall be valued for purposes of this Agreement as set forth in Section 3.9.3
hereof (such value, with respect to each Project Entity, is referred to herein
as the "Development Services Contribution Amount" as defined in Section 3.9.3
hereof), and contribute equity capital to such Project Entity in the form of
cash in an amount sufficient to satisfy the balance of its Mandatory Capital
Call Contribution obligation, and (ii) ALS will contribute equity capital to
such Project Entity in the form of cash in an amount sufficient to satisfy its
Mandatory Capital Call Contribution obligation in full. ALE will not receive any
Capital Account credit for the Development Services Contribution Amount upon its
contribution of the development services to each Project Entity (although for
all other purposes, including internal monitoring of compliance with the
parties' economic deal, ALE shall be viewed as contributing capital in the form
of development services, equal to the Development Services Contribution Amount).
The Mandatory Capital Call Contributions for each Project Entity shall not
exceed, in the aggregate, the amounts shown in the Mandatory Capital Call
Schedule in the Business Plan with respect to such Project Entity, unless the
parties otherwise agree. Neither ALS nor ALE will have any obligation to make an
expenditure, provide capital or loan funds to any ALS-Northeast Entity except as
specifically provided in the Entity Documents for such Project Entity, the
Project Agreements for such Project Entity or as otherwise expressly agreed to
by the parties in writing from time to time. Additional equity capital beyond
the Mandatory Capital Call Contribution amounts for a Project Entity will be
contributed only upon the mutual agreement of the equity owners of such Project
Entity.
3.4.2 Provided that an Excusing Event has not occurred
(unless the default given rise to such Excusing Event has been cured), if during
the period when ALE is an equity owner of a Project Entity the Project Entity
requires equity capital in order to fund Operating Losses at a time when losses
have been allocated to ALE that have exceeded the amount of Mandatory Capital
Contributions theretofore made to the Project Entity by ALE, then ALE shall be
obligated to contribute 100% of the amount of such required additional capital
within fifteen days after ALE's call therefor to which ALE does not reasonably
object up to a maximum amount of (i) $1,500 per bed in the case of a Small
Facility Entity or (ii) $2,000 per bed in the case of a Large Facility Entity
(any such required additional capital that ALE contributes is referred to as a
"Preferred Equity Contribution").
3.5 Failure to Meet Capital Calls.
3.5.1 If either ALS or ALE fails to meet a Mandatory
Capital Call Contribution for a Project Entity (ALS or ALE, as applicable, is
referred to herein as a "Defaulting Party"), then the nondefaulting party (the
"Non-Defaulting Party") may, at its option and in addition to any and all other
remedies available to it, (a) make its or its and the Defaulting Party's
Mandatory Capital Call Contributions to such Project Entity, and in such event
the respective Percentage Interests in the Project Entity will be adjusted to
reflect the relative cumulative capital contributions made by the parties to the
Project Entity after giving effect to such contribution by the Non-Defaulting
Party, (b) loan its and/or the Defaulting Party's Mandatory Capital Call
Contribution (provided that such Non-Defaulting Party has either made its
Mandatory Capital Call Contribution or loaned such amount as contemplated
19
<PAGE> 25
hereby) to such Project Entity in exchange for a note bearing interest at a rate
equal to three (3) percentage points over the Project Entity's mortgage loan
rate in effect from time to time, (or if there is no mortgage loan, then at a
rate equal to the Prime Rate from time to time in effect plus five (5)
percentage points) (such applicable rate, the "Default Loan Rate") or (c) elect
not make its Mandatory Capital Call Contribution. If, with respect to any
Mandatory Capital Call Contribution, the Non-Defaulting Party shall make its
Mandatory Capital Call Contribution and shall loan the Defaulting Party's
portion of such contribution, then any repayment of such loan (or interest
thereon) by the Project Entity shall be treated, as between ALS and ALE, as a
distribution by such Project Entity for the benefit of such Defaulting Party
(and shall be so reflected in the Capital Account of the Defaulting Party for
such Project Entity) such that distributions to the Non-Defaulting Party will
not be reduced as a result of such loan payments. In addition, upon a failure to
meet a Mandatory Capital Call Contribution for any Project Entity, the
Non-Defaulting Party shall also have the right pursuant to the provisions of the
applicable Operating Agreement to designate a majority of the governing board
of, and otherwise assume control of, such Project Entity, and to terminate any
one or more Ancillary Agreements between such Project Entity and the Defaulting
Party or its Affiliates.
3.5.2 All notes from a Project Entity to a Non-Defaulting
Party pursuant to Section 3.5.1 hereof shall be non-recourse to ALS and ALE
(except the parties hereby agree that such note shall be recourse to the
respective interests of ALS and ALE in and to some or all Project Entities
pursuant to the Collateral Assignment Agreement), shall be subordinated only to
the senior and other debt of the Project Entity issuing the note, and shall be
repaid only as and when cash becomes available from such Project Entity or any
other Project Entity, but in any event, within one year.
3.5.3 If after the expenditure or commitment of the
Mandatory Capital Cash Contributions and any Preferred Equity Contributions for
a Project Entity either ALS or ALE reasonably believes that additional capital
("Additional Capital") is required by such Project Entity in accordance with the
Business Plan for such Project Entity and the construction plans and
specifications, and the other party herein does not agree to contribute its
proportionate share of such Additional Capital (based on its Percentage Interest
in the Project Entity at the time the contribution is requested) after being
advised by the first party of the required amount of Additional Capital and the
portion thereof that would be required to be contributed by each of the parties,
then the contributing party may loan such required funds to such Project Entity
in exchange for a note bearing interest at a rate equal to the Prime Rate from
time to time in effect plus two (2) percentage points (such interest to begin to
accrue only when such Additional Capital is actually applied or invested by such
Project Entity). Notwithstanding the foregoing, if the party who declines to
contribute such Additional Capital is able to arrange for financing from a third
party on a non-recourse basis (except for recourse by the third party to the
respective Percentage Interest of ALS and ALE in and to such Project Entity,
which recourse shall be prior in right to any security interest granted to ALE
or ALS pursuant to the Collateral Assignment Agreement) in a timely manner on
the same or more favorable economic terms to the Project Entity than the loan
terms from the first party, then the Project Entity shall borrow the funds from
the third party.
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<PAGE> 26
3.5.4 All notes from a Project Entity to either party
pursuant to Section 3.5.3 hereof shall be subordinated only to the senior and
other debt of the Project Entity issuing the note and shall be repaid only as
and when cash becomes available from the cash flow of the Project Entity (but
prior to distributions to the parties), but in any event, within ten years. Such
notes shall be non-recourse to ALS and ALE except that (i) in the case of
Additional Capital to fund operating deficits, such note shall be recourse to
the respective Percentage Interests of ALS and ALE in and to all Project
Entities pursuant to the Collateral Assignment Agreement and (ii) in the case of
Additional Capital to fund capital improvements and other non-operating items,
such note shall be recourse to the respective interests of ALS and ALE solely in
and to the Project Entity receiving such Additional Capital.
3.5.5 No reduction of a party's Percentage Interest in a
Project Entity pursuant to Section 3.5.1 shall reduce the percentage of a
Mandatory Capital Call Contribution required to be contributed to such Project
Entity by such party or otherwise reduce the indemnification or other
obligations of such party to the other party pursuant to this Agreement, the
Operating Agreement (ALS-Northeast), the Entity Documents for any Project Entity
or any Ancillary Agreement.
3.6 Project Financing.
3.6.1 ALS Northeast will use its best efforts to obtain the
necessary construction and permanent financing for each new Facility constructed
by a Large Facility Entity. If required by the construction loan lender, ALE or
an ALE Affiliate acceptable to the lender will guaranty the construction
financing for each new Facility to be constructed by any Large Facility Entity.
With respect to any payment or call upon such guaranty occurring prior to such
time as a Certificate of Occupancy is issued for such Facility, ALS shall
indemnify ALE for 66.66% of such payment or call provided that such payment or
call is not the result of any breach or failure to perform by ALE or an ALE
Affiliate under the Construction Agreement for that Facility (in which case, ALS
shall have no such indemnity or contribution obligation with respect thereto).
Subsequent to receiving the Certificate of Occupancy and until such time as a
Facility owned by a Large Facility Entity reaches 75% of full occupancy ("75%
Occupancy"), provided that the interest of ALE in the Large Facility Entity has
not been acquired by ALS pursuant to Section 3.12, ALS and ALE shall, as between
each other, bear a portion of any risk or obligation arising under any guarantee
given by ALS or ALE to secure financing for such Facility on a 66.66%/33.33%
basis, respectively. The Large Facility Entity and ALS will each use its best
efforts to obtain permanent financing promptly after a Facility reaches 75%
Occupancy, and ALS will be the sole guarantor of such permanent financing if a
guaranty is required. During any period after 75% Occupancy has been initially
attained and regardless of whether permanent financing has been obtained, ALS
shall indemnify ALE and its Affiliates for any obligation ALE or its Affiliates
may have arising under, and shall thereafter bear all risk associated with, any
guaranty given by ALS or ALE and its Affiliates to secure financing for such
Facility. Promptly following such time as a Facility reaches 75% occupancy, ALS
shall offer to the lender with respect to such Facility its unsecured guaranty
in substitution for the guaranty or guaranties of ALE or such ALE Affiliate
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<PAGE> 27
as has guaranteed the construction financing for such Facility and will
cooperate with ALE or such ALE Affiliate to obtain the release by such lender of
any such existing guarantees of ALE or such ALE Affiliate, provided that the
terms of the construction financing that is then in place or the permanent
financing that has been arranged for such Facility remain the same as those
previously approved by ALS or are otherwise acceptable to ALS in its sole
discretion. ALE shall have no obligation to indemnify ALS in respect of any
indebtedness of a Large Facility Entity after the interest of ALE in such Large
Facility Entity has been acquired by ALS pursuant to Section 3.12, and ALS shall
bear all risk associated with any guaranty given by ALS to secure financing for
such Facility.
3.6.2 ALS will use its best efforts to obtain the necessary
construction and permanent financing for each new Facility constructed by a
Small Facility Entity. If required by the construction loan lender, ALS will
guaranty the construction financing for each new Facility to be constructed by a
Small Facility Entity. With respect to any payment or call upon such guaranty
occurring prior to such time as a 75% Occupancy has been initially attained at a
Facility owned by a Small Facility Entity, provided that the interest of ALE in
the Small Facility Entity has not been acquired by ALS pursuant to Section 3.12,
ALE and ALS shall, as between each other, bear a portion of any risk or
obligation arising under any guarantee given by ALS to secure financing for such
Facility on a 25%/75% basis, respectively. The Small Facility Entity and ALS
will each use its best efforts to obtain permanent financing promptly after a
Facility reaches 75% Occupancy, and ALS will be the sole guarantor of such
permanent financing if a guaranty is required. During any period after 75%
Occupancy has been initially attained at a Facility owned by a Small Facility
Entity, and regardless of whether permanent financing has been obtained,
3.6.3 If an existing Facility is acquired by a Project
Entity and a guaranty of the financing for such Facility is required by the
lender, then (i) ALS and, if required by the lender, ALE will guarantee such
financing for such Facility and (ii) if either or both of the parties are called
on as guarantors to pay any obligations pursuant to their guaranties, then the
parties shall make payments on such obligations in proportion to their
Percentage Interests in the Project Entity as of the date of acquisition (except
that ALE shall have no such liability following a purchase of ALE's interest by
ALS pursuant to Section 3.12), so that at all times neither party has paid more
than its proportionate share of such obligations based on its Percentage
Interests in the Project Entity as of the date of acquisition.
3.6.4 If either party is called upon to make any payment to
a lender pursuant to any guaranty described in this Section 3.6, the Project
Entity shall evidence its obligations to repay such advance by delivery to such
party of a promissory demand note bearing interest at the Default Loan Rate.
3.7 Responsibilities of the Parties. With respect to the
activities to be conducted by the Project Entities:
(a) ALS shall be responsible for:
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(i) providing to the Project Entities market
research with site-specific market studies
for purposes of obtaining debt and/or equity
capital;
(ii) providing to the Project Entities sales,
pre-marketing and ongoing marketing
supervision;
(iii) obtaining state (and, if applicable,
federal) licensing for Project Entities or
Facilities, compliance with state (and, if
applicable, federal) regulations;
(iv) day-to-day facility operations management
for Project Entities pursuant to the
applicable Management Agreement; and
(v) obtaining construction financing for Small
Facility Entities and permanent financing
for Project Entities, as contemplated
hereby.
(b) ALE will be responsible for:
(i) providing to the Project Entities analysis
and advice regarding site acquisition,
right-to-build, zoning and use issues;
(ii) obtaining any permits and approvals
necessary from municipal, state or federal
agencies to construct Facilities for Project
Entities;
(iii) obtaining construction financing for Large
Facility Entities; hiring of all necessary
consultants for building design and
construction for Project Entities; and
(iv) building construction supervision for
Facilities.
(c) All charges associated with the foregoing services
provided by ALS or ALE, including, without limitation, pre-marketing,
pre-opening, operating, predevelopment, third party, overhead and aborted
project costs, shall be paid by ALS-Northeast (or if incurred for the benefit of
an existing Project Entity, then by such Project Entity) or as agreed to by both
parties in writing. Each Project Entity shall reimburse ALS-Northeast for any
site selection, development or other costs incurred by ALS-Northeast for such
Project Entity's benefit. A detailed schedule of services to be performed by ALS
and ALE (or their respective Affiliates) as set forth in Sections 3.7(a) and
3.7(b) of this Agreement ("Listed Services") and any related charges are set
forth in Exhibit H attached hereto and incorporated herein by reference. Except
for the Listed Services, and except as otherwise expressly contemplated by this
Agreement or as subsequently agreed on by ALS and ALE, the Project Entities will
not pay any compensation of any type to ALS, ALE or their Affiliates.
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<PAGE> 29
3.8 Decision-Making.
(a) Subject to the provisions of this Section 3.8 and the
provisions of Section 3.12(n), approval of a Sale Transaction (as defined in
Section 3.12(n) hereof) shall require the approval of the equity owners of the
respective Project Entity holding the right to cast a Majority Vote (provided
that prior to or upon the consummation of the Sale Transaction any guarantees by
ALE or any ALE Affiliate of indebtedness of such Project Entity are released).
The prior approval of both ALS and ALE shall be required for any activities
related to the following:
(i) site selection, facility design,
architectural features, site layout and
facility type for Facilities jointly
developed pursuant to Section 3.1.2 and
equity capital calls of Project Entities
other than Mandatory Capital Call
Contributions; and
(ii) approval of a Business Plan for each
ALS-Northeast Entity and approval of
amendments to the Entity Documents of any
Project Entity; in addition, ALS shall not
adopt an operating budget for any period to
which ALE has not consented (such consent
not to be unreasonably withheld);
(iii) the retention by any ALS-Northeast Entity of
the following professionals or any other
professionals in connection with the
construction or development of a Facility
(and any contract or engagement letter
executed in connection therewith):
1. geotechnical professionals;
2. environmental consulting
professionals; and
3. architectural professionals;
(iv) the execution or amendment of, or any waiver
under or early termination of, any agreement
between any ALS-Northeast Entity, on the one
hand, and ALS, ALE or any of their
respective Affiliates, on the other hand;
(v) the determination by any ALS-Northeast
Entity to commence bankruptcy, insolvency or
dissolution proceedings; and
(vi) any tax election not in the ordinary course
of business that materially alters the
anticipated tax treatment of the equity
owners of any ALS-Northeast Entity.
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<PAGE> 30
Subject to Section 3.2 and the preceding provisions of this Section 3.8(a) and
the delegation of authority to ALS or the Manager for the day-to-day management
of the Facilities pursuant to applicable Management Agreements, all other
matters pertaining to the operation and activities of (i) ALS-Northeast shall
require the approval of both ALS and ALE and (ii) each Project Entity shall
require the approval of (A) both ALS and ALE with respect to matters arising
prior to the date (the "First Occupancy Date") on which the Facility owned by
such Project Entity actually opens and residency at such Facility actually
begins and (B) equity owners of the Project Entity holding the right to cast a
Majority Vote with respect to matters arising after the First Occupancy Date for
such Facility.
(b) ALE shall be responsible for the preparation of a
construction budget for each Facility, and ALS shall be responsible for the
preparation of the annual operating budgets for each Facility; provided,
however, that with respect to each such construction budget and operating
budget, the non-preparing party shall have a minimum of a twenty (20) day period
to review, comment and approve each such budget. Notwithstanding the foregoing
provisions of this Section 3.8(b), each party to this Agreement shall be
entitled to enforce on behalf of an ALS-Northeast Entity, or solely direct the
actions of an ALS-Northeast Entity with respect to, any obligation of the other
party to this Agreement or its Affiliate to such ALS-Northeast Entity or solely
direct the exercise by such ALS-Northeast Entity of any significant
discretionary action to be taken by such ALS-Northeast Entity pursuant to any
agreement with the other party to this Agreement or its Affiliate.
(c) In the case of a Corporate Licenseholder with respect
to a Facility, so long as ALE has an interest in such Facility or in such
Corporate Licenseholder:
(i) ALS shall not, without first obtaining the
express written consent of ALE, cause the
Manager to enter into or amend any
subcontract with respect to any of the
functions of the Manager to any third party
on any basis that places an additional
expense burden on the Facility not
anticipated in the applicable Approved
Business Plan (as such term is defined in
the applicable Management Agreement) or the
annual operating budget for such Facility
that has been approved by ALE.
(ii) ALS shall cause the Manager to keep ALE
informed and advised of any reports of
inspection or investigation by any
governmental agency and of any actual or
threatened enforcement actions or other
governmental citations which could result in
fines or the revocation or suspension of the
operating certificate of the Operator with
respect to the Facility, and shall cause the
Manager to consult with ALE in advance with
respect to any response to any of the
foregoing.
(iii) ALS shall not, without first obtaining the
express written authorization of ALE, cause
the Manager to draw on the Facility
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<PAGE> 31
Account to pay any amounts that are not
Facility Expenses, such consent not to be
unreasonably withheld.
(iv) ALS shall cause the Manager to provide to
ALE its calculation of all amounts paid or
payable, pursuant to the MSA, as Base
Management Fees.
(v) In the circumstances described in Section
6.4(b) of the MSA, ALS shall not permit the
Manager to engage a submanager unless ALE
shall have given its prior written consent
to the identity and terms of engagement of
such submanager, such consent not to be
unreasonably withheld.
(vi) With respect to each Facility and each
fiscal period, ALS shall cause the Manager
to adopt for such Facility and for such
period, and to abide by, in all material
respects, an annual operating budget with
respect to such Facility and for such period
that has been consented to by ALE (such
consent not to be unreasonably withheld).
3.9 Construction and Development Services.
3.9.1 Feasibility and Right-to-Build Phase Expenses. During
the Development Term, ALE shall provide development services to each Project
Entity formed to develop a Facility. Each Project Entity will reimburse ALE for
personnel costs expended in connection with ALE's services to such Project
Entity during the feasibility and right-to-build phase of a specific Facility's
development, as per an agreed upon rate schedule, up to a not-to-exceed cost of
$3,500.00 and $3,200.00 per bed for Large and Small Facilities, respectively.
Costs that exceed the applicable per bed cap will not be reimbursed unless
otherwise agreed upon by ALS and ALE. ALS and ALE shall each be separately
entitled to reimbursement for reasonable travel and subsistence expenses of
their respective personnel incurred during the feasibility and right-to-build
phase of such Facility (the parties agreeing that such costs shall not exceed
$350.00 per bed per party for any Large or Small Facility). Except as otherwise
provided herein with respect to Listed Services, all miscellaneous and "soft
costs" related to site, feasibility, right-to-build and preconstruction services
will be charged directly to the Facility, with no additional mark-up, "at cost".
During the Development Term, ALE shall also have the right to provide to ALS
development services in accordance with Section 3.9.3 with respect to Waived
Facilities other than Waived Facilities whose Project Start occurs during a
Nonexclusive Year and shall be entitled to reimbursement of personnel, travel
and subsistence expenses in accordance herewith with respect to Waived
Facilities other than such expenses incurred after notice from ALS during a
Nonexclusive Year with regard to Waived Facilities whose Project Start occurs
during a Nonexclusive Year.
3.9.2 Construction Services. During the Development Term,
ALE or an ALE Affiliate ("ALE Construction"), shall have the right to provide
construction services to (i) any
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<PAGE> 32
Project Entity or (ii) ALS with respect to any Waived Facility whose Project
Start occurs during the Development Term (but not during any Nonexclusive Year)
(ALS or such Project Entity, as applicable in such cases, the "Developer
Entity") on an exclusive basis, in the manner contemplated hereby, in connection
with the construction by such Developer Entity of new assisted living or
specialty care facilities for the elderly ("New Facilities") in the Territory in
the manner set forth below:
(a) Except as provided in Section 3.9.2(b) below, ALE
Construction shall cause each New Facility to be constructed for a guaranteed
maximum price (the "GMP") agreed upon by ALE Construction and the Developer
Entity in accordance with the terms of a construction agreement for such New
Facility, such agreement (if ALE Construction shall be the successful bidder
pursuant to Section 3.9.2(b)) to be substantially in the form of the
Construction Agreement.
(b) The Developer Entity shall solicit from ALE
Construction and, at the election of the Developer Entity, from others, sealed
bids for the construction of the New Facility prior to executing the
Construction Agreement with ALE Construction (such bids from others, but not
from ALE Construction, to be inclusive of a payment and performance bond from a
nationally recognized insurer). Such sealed bids shall be opened in the presence
of a representative of ALE Construction. If (i) as a result of such competitive
bidding process, the guaranteed maximum price bid (covering project hard costs,
excluding the cost of any furniture, fixtures and equipment purchased directly
by the Developer Entity, excluding the amounts reimbursable to ALE pursuant to
Section 3.9. 1, excluding the value of the development services to be provided
by ALE pursuant to Section 3.9.3 and excluding any construction management
personnel costs reimbursable to ALE pursuant to Section 3.9.3) made by ALE
Construction shall be 105 % or more than the comparable bid (the "Lower Bid")
made by another reputable, qualified, bona fide bidder (the "Lower Bidder") and
(ii) within ten (10) Business days following notice of such Lower Bid to ALE
Construction, ALE Construction does not revise its bid to no higher than 105% of
the Lower Bid, then the Developer Entity shall be entitled to engage such Lower
Bidder to construction the New Facility and the Developer Entity shall have no
further obligation to engage ALE Construction with respect to the construction
of such New Facility; provided, however, ALE or ALE Construction shall be
entitled to all fees to which they may otherwise be entitled in accordance with
the terms of this Agreement, including without limitation recognition of the
value of development services provided or contributed to the Developer Entity as
contemplated by Section 3.9.3.
(c) To the extent that the total actual costs of the
construction for a Facility with respect to which ALE Construction is providing
construction services under a Construction Agreement that are intended to be
"capped" within the definition of GMP pursuant to such construction Agreement
(including construction profit of 5% of costs of construction as calculated
pursuant to this Section 3.9) as of the date of the issuance of a Certificate of
Occupancy in respect of such Facility are less than such GMP applicable to such
Facility on such date (such difference, the "Construction Cost Savings"), then
ALE (i) shall cause ALE Construction to retain 100% of such Construction Cost
Savings for a period of
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<PAGE> 33
twelve months following issuance of the Certificate of Occupancy, (ii) during
such twelve month period shall cause ALE Construction to apply 100% of such
Construction Cost Savings to the discharge of any costs of construction for
which ALE Construction is responsible in excess of the GMP budget with respect
to any other Facility completed during such 12-month period as to which ALE
Construction is acting as builder, and (iii) at the end of such twelve-month
period shall cause ALE Construction to pay to the Project Entity owning such
Facility an amount equal to 50% of any remaining balance of such Construction
Cost Savings after application of the amounts described in clause (ii) of this
sentence. Upon payment to a Project Entity of the amount described in clause
(iii) of the preceding sentence, ALE Construction shall be entitled to retain
the other 50% portion of such remaining balance of such Construction Cost
Savings.
3.9.3 Development Services. ALE shall contribute
development services to each Project Entity in connection with the development
of New Facilities in the Territory during the Development Term and shall have
the right to provide development services to ALS in connection with the
development of New Facilities in the circumstances specified in Section 3.9.1.
Such services will be valued at an amount (the "Development Services
Contribution Amount") equal to (a) in the case of any Large Facility, the
product obtained by multiplying $5,000 times the number of beds in the New
Facility or (b) in the case of any Small Facility, the product obtained by
multiplying $4,000 times the number of beds in the New Facility. Except as
otherwise provided in the Construction Agreement, the Development Services
Contribution Amount shall encompass within it all construction profit and
overhead except for construction management personnel (at cost) pursuant to an
agreed upon rate schedule expressly allowed pursuant to the applicable
Construction Agreement. If the Development Service Contribution Amount for any
Project Entity exceeds ALE's Mandatory Capital Call Contribution to such Project
Entity, such excess shall be payable by such Project Entity to ALE in cash in
the manner set forth in the following sentence. If ALE shall provide development
services to ALS (and not to a Project Entity) as contemplated by Section 3.9.1
hereof, ALS shall pay ALE the Development Services Contribution Amount as
follows: fifty percent (50%) of the Development Services Contribution Amount
shall be paid at the point of issuance of a building permit to ALS; an
additional twenty-five percent (25%) of the Development Services Contribution
Amount shall be paid at the point at which as mutually agreed by the parties
construction is fifty percent (50%) complete; and the final twenty-five percent
(25%) of the Development Services Contribution Amount shall be paid at issuance
of a certificate of occupancy.
3.9.4 CPI Adjustment. All per bed dollar amounts and caps
set forth in Section 3.9.3 shall be CPI adjusted on December 31 of each year
commencing in 1996 using December 31, 1995 as the base year, in the same manner
as described in Section 4.1 of the Management Agreement.
3.9.5 Architect. The architect shall be Aldrian Guszkowski,
Elm Grove, Wisconsin or such other architect hereafter approved by ALS and ALE
(the "Architect"), and each contract with the Architect shall be in the form of
the Architect's Agreement, with such changes as agreed to by the parties
therein.
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3.10 Management. ALS shall perform management services for each
Project Entity. Such services will be provided pursuant to a management
agreement pursuant to which ALS will manage the Facility owned by such Project
Entity for an initial term of eight (8) years, subject to an extension by
agreement of ALS and ALE for two additional five (5) year periods. The term of a
management agreement for a Facility shall expire automatically upon a sale of
the Facility. The management fee (which shall be applicable to both Large
Facilities and Small Facilities) under each such management agreement shall be
as follows:
<TABLE>
<CAPTION>
Individual No. of Large Facilities
Project Revenue Managed by ALS Fee (% of Revenue)
- --------------- -------------- ------------------
<S> <C> <C>
Up to $2 million 1 - 2 7.5%
in annual revenue 3 - 5 7.0%
more than 5 6.5%
Greater than $2 million 1 - 2 7.0%
in annual revenue 3 - 5 6.5%
more than 5 6.0%
</TABLE>
The $2 million revenue threshold will be adjusted for inflation for
each calendar year based upon the change in the Consumer Price Index for Medical
Care Services ("CPI", as defined as "Medical Care Services - United States City
Average," as published by the United States Department of Labor, Bureau of Labor
Statistics, converted to 1982 - 1984 base 100, or successor index most
comparable thereto) from December 31, 1995 to December 31 of each such calendar
year. Each management agreement for a Facility (an "Existing Facility") shall
state that as other Facilities within the same "Individual Project Revenue"
category as such Existing Facility are developed, the management fee payable
under the management agreement for such Existing Facility shall be reduced, if
necessary, so that the management fee payable shall be the same for all
Facilities in such category.
For purposes of the above table, (i) annual revenue will be measured on
a calendar year basis for each Facility (and annualized for any partial calendar
year falling within the term of the management agreement) and (ii) the number of
Large Facilities shall consist of all Large Facilities located in the Territory
and managed by ALS for its own account or for the account of entities in which
ALS owns a majority equity interest or for a Project Entity (including a Project
Entity as to which the applicable Put Option or Call Option (each, as
hereinafter defined) has been exercised) and any Managed Facilities (hereinafter
defined in Section 3.14(d)(ii)), provided that such Managed Facility, had it
been developed by ALS and ALE hereunder, would have been a Large Facility.
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<PAGE> 35
The management agreements will provide that ALS will be reimbursed at
ALS's actual cost for pre-opening, operating, sales and marketing costs provided
to ALS-Northeast and/or each new Project Entity during the construction period
but not to exceed the amounts shown in each Facility operating proforma budget
(the "Proforma") included as part of the applicable Business Plan. During the
lease-up period set forth in the Proforma for each Facility, the management fee
will be equal to a fixed amount determined by multiplying the monthly fee which
would be payable once the projected stabilized revenue is attained by the number
of months in such lease-up period, and shall be payable monthly on a pro-rata
basis during such period. Thereafter, the management fee shall be based on a
percentage of revenues as set forth above, regardless of whether stabilized
revenue has been obtained, and payable monthly.
If a 75% occupancy level for a Facility is not attained within the
timeframe set forth in the Proforma, ALS shall thereafter continue to earn its
management fee at the rate specified in the table above, but the payment of such
management fee (up to $100,000) shall be deferred (a) until such 75% occupancy
level is achieved or the Facility is sold or the Project Entity is liquidated,
and (b) if ALE has made any Preferred Equity Contributions to the Project Entity
owning such Facility, to the extent necessary to enable the Project Entity
owning such Facility to satisfy in full the entitlement of ALE to receive
distributions from such Project Entity equal to the Preferred Equity Return (but
not a return of the Preferred Equity Contribution) in respect of such Project
Entity. Thereafter, any deferred management fees due ALS shall be paid as soon
as cash becomes available from such Project Entity to pay such deferred
management fees after the payment of operating expenses then due (and funding of
appropriate working capital reserves) but before any distributions to the equity
owners of such Project Entity other than distributions in respect of the
Preferred Equity Return entitlement of ALE, provided that the payment of such
deferred fees does not cause the Project Entity paying such deferred fees to
violate any covenants in the loan documentation to which such Project Entity is
a party.
ALS shall enter into a Management Agreement in the form of the
Management Agreement, subject to such modifications that will necessarily vary
by Facility in accordance herewith, which agreement will be executed by ALS, as
facility manager, and the applicable Project Entity, as the owner, when such
Project Entity is formed.
3.11 Restrictions on Transferability of Interests. From and after
the date hereof, neither ALS nor ALE shall transfer any of its Percentage
Interest in any ALS-Northeast Entity except to the other party or pursuant to
the Collateral Assignment Agreement; provided, however, that ALS may transfer a
nominal portion of its Percentage Interest in a Project Entity to an ALS
Affiliate prior to the exercise and closing of a Put or Call Option solely to
preserve the existence of such Project Entity following such purchase. Any
purported transfer prohibited by this Section 3.11 shall be void ab initio, and
shall be deemed a breach of both this Agreement and the Operating Agreement of
the applicable ALS-Northeast Entity. A transfer means any disposition of a
Percentage Interest, including, without limitation, any sale, gift, assignment,
pledge or encumbrance, whether such disposition occurs voluntarily, by operation
of law or otherwise. A transfer shall be deemed to have occurred by ALE in
violation of the foregoing restriction if a combination of Messrs. Michael J.
Falcone, Michael
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<PAGE> 36
P. Falcone and Mark G. Falcone (or, upon their respective deaths, their Family
Members) and trusts for the benefit of Michael P. Falcone, Mark G. Falcone and
their sisters and their respective children cease to control ALE (a "ALE Change
in Control") and any transfers of interests in ALE that do not result in a ALE
Change in Control shall not be prohibited by this Section 3.11. No change or
changes in ownership of ALS shall be deemed to be a transfer by ALS in violation
of this Section 3.11.
3.12 Put and Call Options.
(a) ALS hereby grants to ALE, and shall confirm in each
Project Entity Operating Agreement, the right to sell to ALS all (but not less
than all) of ALE's equity interest in any one or more Project Entities at the
purchase price (determined as set forth below) for ALE's interest in such
Project Entity or Entities pursuant to the terms and conditions set forth herein
("Put Option"). The Put Option with respect to a Project Entity owning a
Facility shall be exercisable by ALE at any time from and after the earlier to
occur of (i) achievement of 75% Occupancy at such Facility (the "75% Trigger");
or (ii) the six month anniversary of the issuance of the Certificate of
Occupancy for the Facility owned by such Project Entity, through and until the
tenth (10th) anniversary of the date of issuance of the Certificate of Occupancy
for such Facility (such period, the "Put/Call Period"). ALE shall not be
entitled to exercise a Put Option in any given Put Year (as hereafter defined)
utilizing the 75% Trigger if during the then-existing Put Year ALE's equity
interest in one or more Facilities already have been put to ALS utilizing such
75% Trigger, and such equity interests have an aggregate purchase price in
excess of $5 million. "Put Year" shall refer to each consecutive twelve (12)
month period commencing on the first day of the first Put/Call Period.
(b) At ALS' election, the purchase price for ALE's equity
interest in a Project Entity owning a Facility pursuant to Section 3.12(a) shall
be payable either: (a) all in cash or in cash and a note as provided below (the
"Non-Stock Option") or (b) in cash and/or ALS common stock ("ALS Stock"), such
cash and ALS stock to be in such combination as ALS may elect.
(i) To the extent a Put Option is exercised and ALS
elects to pay the purchase price using the Non-Stock
Option, (A) if the price is $500,000 or less, the
entire price shall be paid in cash at the closing of
the sale of ALE's equity interest to ALS; and (B) if
the price to be paid is in excess of $500,000, an
amount equal to 1/3 of such price shall be paid in
cash at the closing of the sale of ALE's interest to
ALS, and ALS shall give to ALE at such closing ALS's
promissory note for the remaining 2/3 of the price.
Such note shall provide for payment of (C) 50% of the
principal amount of the note on the six-month
anniversary of the note, (D) the balance of the
principal amount of the note on the one-year
anniversary date of the note, (E) monthly
installments of interest only in arrears at the
Default Loan Rate applicable to such Project Entity,
and (F) acceleration of the entire balance due at the
election of the holder of the note upon default in
the payment of any installment of principal or
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interest which continues for at least ten (10) days
uncured or upon the sale of the Project Entity or
ALS's ownership interest therein. Such note may be
prepaid at ALS's option without penalty. The note
shall be secured by a collateral pledge of the
ownership interest in the Project Entity which is
sold.
(ii) To the extent a Put Option is exercised and ALS
elects to pay the purchase price using ALS Stock,
then (A) ALE shall be entitled to confirm ALS's
intentions with respect thereto prior to exercising
the Put Option and rely upon such expression of
intention; (B) if a Public Offering (hereinafter
defined) shall not have occurred prior to the closing
of such Put Option exercise, ALS shall pay a portion
of the purchase price in cash to the extent necessary
to permit ALE to pay state and federal income taxes
due as a result of the sale of its interest in the
Project Entity pursuant to the exercise of such Put
Option (such cash portion of the purchase price
referred to as a "Required Cash Portion"); and (C) if
ALS Stock shall have been sold in a public offering
registered under the Securities Act of 1933 (a
"Public Offering") prior to the closing of such Put
Option exercise, but ALS shares to be delivered as
payment (or partial payment) of the purchase price
shall be subject to resale restrictions under
applicable securities laws, then ALS shall either (1)
pay a portion of the purchase price in cash equal to
the Required Cash Portion or (2) register such ALS
Stock to be delivered in connection therewith
pursuant to applicable federal and state securities
laws, and cause such shares to be listed on any
applicable exchange or trading system upon which the
ALS Stock is listed, prior to or concurrently with
its delivery. ALE shall advise ALS of the amount and
its basis of calculation of the Required Cash Portion
prior to requesting ALS's confirmation referenced in
clause (A) of this Section 3.12(b)(ii).
The Put Option shall be exercised by written notice from ALE to ALS during such
times as such Put Option is exercisable in accordance herewith, and the exercise
by ALE of its Put Option or a failure to exercise such Put Option for one
Project Entity shall not preclude ALE from later exercising one or more Put
Options for other Project Entities.
(c) ALE hereby grants to ALS, and shall confirm in each
Project Entity Operating Agreement, the right to purchase all (but not less than
all) of ALE's equity interest in any one or more Project Entities at the
purchase price (determined as set forth below) for ALE's interest in such
Project Entity or Entities pursuant to the terms and conditions set forth herein
("Call Option"). The Call Option shall be exercisable as to each Project Entity
at any time during the applicable Put/Call Period. The purchase price with
respect to a Call Option shall be payable either in cash or ALS Stock (or a
combination thereof, provided that the stock portion shall constitute at least
50% of such consideration and have a value of at least $500,000) at ALE's
election, payable at the closing. The Call Option shall be exercised by written
notice from ALS to ALE during such times as such Call Option is exercisable in
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<PAGE> 38
accordance herewith, and the exercise by ALS of its Call Option or a failure to
exercise such Call Option for a Project Entity shall not preclude ALS from later
exercising one or more Call Options for other Project Entities. Prior to
exercising the Call Option, ALS shall use commercially reasonable efforts to
seek to release ALE and any ALE Affiliate from any loan guarantees that may
exist with respect to loans to the Project Entity to which such Call Option
relates. ALS shall be deemed to have made commercially reasonable efforts if ALS
shall have taken such steps as are contemplated by the second to last sentence
of Section 3.6.1 hereof in an effort to secure such release or releases. If ALS
is not successful in securing such release or releases, then ALS's indemnity
pursuant to Section 3.12(h) hereof shall be secured pursuant to the Collateral
Assignment and by a pledge of ALS's equity interest in said Project Entity,
which collateral security interest for such Section 3.12(h) indemnity
obligations shall be extinguished upon the release or releases of ALE or its
Affiliates contemplated hereby.
(d) (i) The purchase price for ALE's equity interest in each
Project Entity payable upon the exercise of a Call
Option shall be equal to the sum of (x) the
Unreturned Preferred Equity Amount, if any, with
respect to such Project Entity as of the date of the
purchase, and (y) the product obtained by multiplying
(a) ALE's Percentage Interest in the Project Entity
at the time of exercise of such Call Option times (b)
the excess of the fair market value of the Project
Entity over the Unreturned Preferred Equity Amount,
if any, which fair market value shall be determined
as of the end of the calendar month preceding the
date on which a Call Option is exercised, as follows:
The fair market value of a Project Entity shall be
the fair market value of such Project Entity as
mutually agreed in writing by ALS and ALE within
fifteen days following the exercise of a Call Option
or, if the parties shall be unable so to agree within
such period, as established in accordance with
Section 3.2(d)(ii) by an appraiser jointly agreed
upon by both parties.
(ii) In determining the fair market value of such Project
Entity in connection with the exercise of a Call
Option such appraiser (and any other appraisers
designated pursuant to this Section 3.12(d)) shall be
instructed to separately value any working capital of
such Project Entity in accordance with generally
accepted accounting principles and to add thereto the
value of the Facility owned by such Project Entity
utilizing Adjusted EBITDAR (as described in Schedule
1) in lieu of the component of any valuation formula
that corresponds to EBITDAR to the extent required by
the terms of Schedule 1. If the parties are unable to
agree to an appraiser, then each party will designate
an appraiser and the two appraisers will each
determine a fair market value. If any party shall
fail to designate an appraiser within fifteen (15)
days following its receipt of notice from the other
party containing (i) the identity of the appraiser
designated by such other party and (ii) reference to
such party's obligation to designate an appraiser
pursuant to this Section 3.12 within said fifteen
(15) day period, then the appraiser for such other
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<PAGE> 39
party shall be deemed to be jointly agreed upon by
both parties. If the fair market value amounts
determined by the two appraisers are equal to or
within 5% of their average, then the fair market
value shall be equal to such average. Otherwise, the
two appraisers will mutually select and appoint a
third appraiser to determine the fair market value,
in which event the fair market value of the Project
Entity shall be equal to the result obtained by
averaging the two of the three appraisals which
deviate the least from the average of the first two
appraisals, and multiplying the result by ALE's
Percentage Interest in the Project Entity. Each party
will bear equally the fees and expenses of the
appraiser jointly agreed upon or selected and if
applicable the third appraiser, but each party will
be solely responsible for the fees and expenses of
any appraiser selected solely by such party. In
determining such fair market value of a Project
Entity (on the condition, however, that ALS is not a
Defaulting Party with respect to such Project
Entity), the assumption shall be made that the
management agreement with ALS or another manager will
continue indefinitely and that the percentage
management fee then being charged to the applicable
Project Entity is equal to the greater of (i) the
percentage management fee which is actually being
charged at such time, or (ii) six percent (6%). Each
appraiser selected hereunder shall be a reputable
appraisal firm which has experience in appraising
commercial real estate and long-term care and/or
assisted living facilities (or similar businesses).
All appraisers shall have complete access to the
relevant books and records of the Project Entity they
are appraising during the conduct of their
appraisals.
(iii) Notwithstanding the provisions of this Section
3.12(d), if ALE's equity interest in a Project Entity
is to be acquired by ALS pursuant to the exercise of
a Call Option at any time prior to (x) the second
anniversary of the First Occupancy Date for the
Facility owned by such Project Entity or (y) if the
Facility has not reached 95% occupancy by the second
anniversary of the First Occupancy Date for the
Facility owned by such Project Entity, then the third
anniversary of such First Occupancy Date, the fair
market value for such Project Entity shall not be
less than the sum of the working capital of such
Project Entity as of the date of the closing of the
conveyance of ALE's equity interest plus an amount
determined by capitalizing at 11% (i.e., dividing by
11%) the pro forma earnings that would be generated
by such Facility assuming (i) 95% occupancy, (ii) the
constant application of Pro Forma Stabilized Rates
inflated at the rate of 4% annually at each
anniversary of the First Occupancy Date (i) inflated
for each anniversary of such First Occupancy Date
that precedes such exercise of the Call Option, which
in no case will exceed two (in the circumstances
contemplated in clause (x) of this sentence) or three
(in the circumstances contemplated by (y) of this
sentence) anniversary dates), and (iii) the constant
application of an
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EBITDAR margin equal to the Floor EBITDAR Margin. In
addition, the purchase price for ALE's equity
interest in a Project Entity payable upon the
exercise of a Call Option at any time shall in no
event be less than (x) the Percentage Interest of ALE
in such Project Entity (as a fraction of one) times
the sum of the total capital contributions by the
equity owners of such Project Entity and the amount
of the Development Service Contribution Amount for
such Project Entity and (y) any payments by ALE or
any ALE Affiliates pursuant to a loan repayment
guaranty given by them for which reimbursement
pursuant to ALS's indemnity obligation under Section
3.12(h) has not been received.
(e) The purchase price for ALE's equity interest in each
Project Entity payable upon the exercise of a Put Option shall be equal to the
proceeds that ALE would receive if such Project Entity were to sell its Facility
at its then-fair market value (allocating any gain or loss resulting therefrom
pursuant to the methodology set forth in Sections 3.15(b), 3.15(d) and 3.21
hereof), satisfy all creditors, and then liquidate in accordance with Section
3.15(e) hereof. For this purpose, the fair market value of a Facility shall be
determined as of the end of the calendar month preceding the date on which a Put
Option is exercised, as follows: The fair market value of a Facility shall be
the fair market value of such Facility as mutually agreed in writing by ALS and
ALE within fifteen days following the exercise of a Put Option or, if the
parties shall be unable so to agree within such period, as established by an
appraiser jointly agreed upon by both parties, provided, however, that in
determining the fair market value of such Project Entity such appraiser (and any
other appraisers designated pursuant to this Section 3.12(d)) shall be
instructed to separately value any working capital of such Project Entity in
accordance with generally accepted accounting principles and to add thereto the
value of the Facility owned by such Project Entity utilizing Adjusted EBITDAR
(as described in Schedule 1) in lieu of the component of any valuation formula
that corresponds to EBITDAR to the extent required by the terms of Schedule 1.
If the parties are unable to agree to an appraiser, then each party will
designate an appraiser and the two appraisers will each determine a fair market
value. If any party shall fail to designate an appraiser within fifteen (15)
days following its receipt of notice from the other party containing (i) the
identity of the appraiser designated by such other party and (ii) reference to
such party's obligation to designate an appraiser pursuant to this Section 3.12
within said fifteen (15) day period, then the appraiser for such other party
shall be deemed to be jointly agreed upon by both parties. If the fair market
value amounts determined by the two appraisers are equal to or within 5 % of
their average, then the fair market value shall be equal to such average.
Otherwise, the two appraisers will mutually select and appoint a third appraiser
to determine the fair market value, in which event the fair market value of the
Facility shall be equal to the result obtained by averaging the two of the three
appraisals which deviate the least from the average of the first two appraisals.
Each party will bear equally the fees and expenses of the appraiser jointly
agreed upon or selected and if applicable the third appraiser, but each party
will be solely responsible for the fees and expenses of any appraiser selected
solely by such party. In determining such fair market value of a Facility (on
the condition, however, that ALS is not a Defaulting Party with respect to such
Facility), the assumption shall be made that the management agreement with ALS
or another manager will continue indefinitely and that the
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<PAGE> 41
percentage management fee then being charged to the applicable Project Entity is
equal to the greater of (i) the percentage management fee which is actually
being charged at such time, or (ii) six percent (6%). Each appraiser selected
hereunder shall be a reputable appraisal firm which has experience in appraising
commercial real estate and long-term care and/or assisted living facilities (or
similar businesses). All appraisers shall have complete access to the relevant
books and records of the Project Entity which owns the Facility that they are
appraising during the conduct of their appraisals.
(f) Either party may invoke the appraisal process of this
Section 3.12 for a Project Entity prior to the exercise of its Put or Call
Option, as the case may be, so as to enable such party to determine the fair
market value of such Project Entity or Facility (as the case may be) before it
exercises its option, and the price so determined shall govern any subsequent
exercise of such Put or Call Option that occurs within the 60-day period after
the determination thereof; provided, however, that if the party invoking the
appraisal process or the other party does not exercise its Put or Call Option
within sixty (60) days after the determination of the fair market value in
accordance herewith, then the party invoking the appraisal process will bear all
the costs of the appraisal(s).
(g) Any and all transfers to ALS of ALE's equity interest
in such Project Entity pursuant to the exercise of a Put or a Call Option as
provided herein shall be closed, and all payments and deliveries contemplated
thereby made, upon the last to occur of (i) thirty (30) days after the purchase
price for ALE's equity interest in such Project Entity or Entities is determined
in accordance herewith or (ii) ninety (90) days following the exercise of such
Put or Call Option.
(h) At the closing of the exercise of a Put or Call
Option required by Section 3.12(g) of this Agreement:
(i) ALE shall deliver to ALS an instrument
evidencing the transfer of the ownership
interest in the Project Entity being
purchased and sold, free and clear of all
security interests, liens and restrictions
(other than liens arising under the
Collateral Assignment Agreement and
restrictions imposed by this Agreement and
the Ancillary Agreements and any Loan
Documents), together with such other
documents as ALS may reasonably request in
connection therewith; and
(ii) ALS shall deliver to ALE cash, ALS's
promissory note and pledge securing such
note and/or ALS Stock, if applicable,
constituting the purchase price for ALE's
equity interest in such Project Entity,
together with such other documents as ALE
may reasonably request.
At the time of the exercise of an Option, if ALE has guaranteed any financing of
a Project Entity subject to such option, then ALS will use its best efforts to
obtain a release of ALE of
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such guaranty. If ALS is unable to obtain such a release, and following the
closing of a Put or Call Option there occurs a default in the payment or
performance of any obligation whatsoever, whether monetary or otherwise, in
connection with such financing, then ALS will indemnify ALE for any damages,
costs and expenses (including reasonable attorneys' fees) which ALE incurs
pursuant to any guaranty.
(i) If at the time of the closing of a Put or Call Option
ALS Stock is being publicly traded on either the New York, American,
Philadelphia or Pacific Stock Exchange or quoted on NASDAQ or in the
over-the-counter market, the price of ALS Stock to be utilized for purposes of a
Put or Call Option shall be the average closing sales price per share of ALS
Stock (or in the case where no closing sales prices are reported, the average of
the bid and the asked price) during the period commencing thirty (30) trading
days prior to the exercise of the Put or Call Option and ending on the date of
the exercise of the Put or Call Option. If the ALS Stock is not publicly traded
in such manner, the value per share shall be equal to the fair market value of
ALS (determined by an appraiser jointly agreed to by the parties) divided by the
total number of shares of common stock of ALS then issued and outstanding. If
the parties are unable to agree upon an appraiser, then each party will
designate an appraiser and the two appraisers will each determine a fair market
value. If the two fair market value amounts are equal to or within 5% of their
average, then the fair market value shall be equal to such average. Otherwise,
the two appraisers will mutually select and appoint a third appraiser to
determine the fair market value, in which event the fair market value of ALS
shall be equal to the result obtained by averaging the two of the three
appraisals which deviate the least from the average of the first two appraisals.
If any party shall fail to designate an appraiser within fifteen (15) days
following its receipt of notice from the other party containing (i) the identity
of the appraiser designated by such other party and (ii) reference to such
party's obligation to designate an appraiser pursuant to this Section 3.12
with-in said fifteen (15) day period, then the appraiser for such other party
shall be deemed to be jointly agreed upon by both parties. Each party will bear
equally the fees and expenses of the appraiser jointly agreed upon or selected
and if applicable the third appraiser, but each party will be solely responsible
for the fees and expenses of any appraiser selected solely by such party. Either
party may invoke the foregoing appraisal process for ALS Stock prior to the
exercise of its Put or Call Option, so as to enable such party to determine the
fair market value of such stock before it exercises its Put or Call Option and
the price so determined shall govern any subsequent exercise of such Put or Call
Option that occurs within the 60-day period after the determination thereof;
provided, however, that if the party invoking the appraisal process or the other
party does not exercise the Put or Call Option within a specified period after
completion of the appraisal(s), the party invoking the appraisal process will
bear all the costs of the appraisals.
(j) Notwithstanding any provision contained in this
Section 3.12 to the contrary:
(i) if a Put or Call Option is exercised, then
ALS may assign its rights and obligations in
respect of the Put or Call Option to an
Affiliate of ALS so as to preserve the legal
existence of the
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Project Entity, but no such assignment shall
relieve ALS from any obligations to ALE;
(ii) any real estate transfer fee which arises in
connection with any purchase and sale
hereunder shall be borne by the parties in
proportion to their respective Percentage
Interests; and
(iii) equitable adjustments shall be made for any
distributions or capital contributions which
occur between the date of the determination
of the fair market value of the Project
Entity and the closing of the Put Option or
Call Option transaction.
(k) The Put Option and the Call Option provided for in
this Section 3.12 are intended to be agreements of the type described in Item
901(c)(2)(i) of Regulation S-K promulgated by the Securities and Exchange
Commission.
(l) Any shares of ALS Stock acquired pursuant to Section
3.12 that are not registered at the time of delivery will be acquired by ALE for
investment only and not with a view to resell or otherwise distribute them, and
ALE will not sell, transfer, give, pledge or otherwise transfer or dispose of
the shares, or any of them, unless and until such disposition of such shares is
registered or, in the written opinion of counsel to ALE reasonably acceptable to
ALS, such sale, transfer, pledge or other disposition of the shares, or any of
them, does not contravene any provision of the federal securities laws or
applicable state securities laws. ALE acknowledges that ALS may cause the stock
certificate(s) representing such shares to have the following legend printed or
typed thereon:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or the securities laws of any state. No transfer of
the shares represented by this certificate may be made without
compliance with or exception from the Act and other applicable
securities laws.
(m) Neither ALS nor ALE shall take any action that would
have the effect of frustrating the Put Option or Call Option, respectively.
(n) If any Project Entity (i) shall desire to accept a
bona fide third party offer (a "Third Party Offer") to purchase or lease any
Facility or any material portion thereof or any material interest or estate
therein to a third party (a "Sale Transaction") and (ii) such Sale Transaction
has not been approved by both ALS and ALE, then, notwithstanding anything herein
to the contrary, ALS shall cause such Project Entity to offer (the "RFR Offer
Notice") to ALE the opportunity to consummate the Sale Transaction on the same
terms and conditions as are contained in the Third Party Offer, and shall not
consummate such Sale Transaction with any party other than ALE prior to the
expiration of thirty (30) days after the giving of the RFR Offer Notice (unless
ALE first waives its rights pursuant to this Section 3.12(n) in writing). If
during such thirty (30) day period, ALE accepts such offer contained in the RFR
Offer Notice,
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then ALS shall not permit such Project Entity to enter into the Sale Transaction
with any party unless ALE accepting such offer defaults in its obligations in
respect thereof. If ALE accepts such an offer contained in the RFR Offer Notice,
ALS shall cooperate with ALE to structure the terms of the Sale Transaction to
allow ALE or an ALE Affiliate designated by ALE to acquire the interest of ALS
in such Project Entity at a price equal to the amount that ALS would have
received had such Project Entity sold or leased (as applicable) its Facility
pursuant to the terms of the Third Party Offer and such Project Entity had
thereafter been liquidated. ALS shall also offer as part of the RFR Offer Notice
to continue, extinguish or modify any management arrangements and/or debt
guarantees on the same terms as would be applicable under the terms of the Third
Party Offer. If any offer made to ALE pursuant to this Section 3.12(n) is not
accepted within the time period described herein, then the applicable Project
Entity shall be free to consummate the Sale Transaction pursuant to the Third
Party Offer described in the applicable RFR Offer Notice, provided that if such
Sale Transaction is to be consummated on terms that are in any material respects
less favorable to the Project Entity than those described in the Third Party
Offer within a period of one hundred eight (180) days after the giving of the
RFR Offer Notice, then ALS shall not permit such Project Entity to enter into a
Sale Transaction with respect to such Facility unless it first causes such
Project Entity again to comply with the provisions of this Section 3.12(n). The
exercise by ALE or an ALE Affiliate of its rights pursuant to Section 3.12(n)
shall not constitute the exercise of a Put Option for purposes of the other
provisions of this Section 3.12.
(o) ALS will consider in connection with the exercise of
a Put or Call Option for a Project Entity, (a) participating in an Internal
Revenue Code Section 1031 exchange for the Facility owned by the Project Entity
or (b) structuring the purchase of ALE's equity interest in the Project Entity
as a tax-free exchange under Internal Revenue Code Section 368. However, in any
such case ALE shall bear the entire amount of transactional costs, and legal and
tax costs and risks, created by such alternative structuring.
3.13 Collateral Assignment. Simultaneously with the execution of
this Agreement, the Collateral Assignment Agreement shall be amended to (i)
incorporate the matters described in Section 3.12(c), (ii) include within the
definition of "Joint Venture Agreement" therein this Second Amended Agreement.
3.14 Noncompetition.
(a) With respect to each state in the Territory, neither
ALE nor ALS will directly or indirectly (except (i) for facilities acquired by
ALS or ALE or their Affiliates pursuant to the exercise of a Put Option, Call
Option, RFR Offer Notice or otherwise as permitted by the Joint Venture
Agreement or pursuant to any other transaction in which ALS or ALE, or their
respective Affiliates, have expressly consented to such ownership or activity
otherwise prohibited by this Section 3.14, (ii) through or in connection with
ALS-Northeast Entities, the Original NY Facilities, the Commons Facilities, the
Corporate Licenseholders or as otherwise permitted by the First Amended
Agreement, this Section 3.14 or Section 3.1.3 hereof) own, operate, develop,
construct, manage or participate in the ownership, development, construction,
operation or management of an assisted living, dementia or other
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specialty care facility for the elderly located in such state until the first to
occur of (A) the expiration or termination of the Development Term of such state
or (B) the first day of a Nonexclusive Year as to such state. The parties
acknowledge that their mutual election to continue development of a Pipeline
Project after the end of the Development Term for the state in which such
Pipeline Project is located shall not constitute an extension of the Development
Term for such state for purposes of this Section 3.14(a).
(b) Beginning on the date hereof and ending on the first
anniversary of the last date on which ALS and ALE jointly own equity interests
in a given Facility, neither party will directly or indirectly (except (i) for
facilities acquired by ALS or ALE or their Affiliates pursuant to the exercise
of a Put Option, Call Option, RFR Offer Notice or otherwise as permitted by the
Joint Venture Agreement or pursuant to any other transaction in which ALS or
ALE, or their respective Affiliates, have expressly consented to such ownership
or activity otherwise prohibited by this Section 3.14, (ii) through or in
connection with ALS-Northeast Entities, the Original NY Facilities, the Commons
Facilities, the Corporate Licenseholders or Waived Facilities) own, operate,
develop, construct, manage or participate in the ownership, operation,
development, construction, or management of an assisted living, dementia or
other specialty care facility for the elderly located within ten (10) miles of
any such jointly-owned Facility or any Waived Facility, Original NY Facility or
Commons Facility. In the event that either ALE or ALS ceases to own an equity
interest in one or more ALS Northeast Entities by reason of the failure to make
a Mandatory Capital Call Contribution or otherwise through the foreclosure of
its equity interest in a Project Entity or Entities pursuant to the Collateral
Assignment Agreement, such party shall nonetheless be deemed to be restricted by
the provisions of this Section 3.14 as if such party were a joint owner of all
ALS-Northeast Entities, until the first to occur of: (i) such time as the other
party ceases to have an interest in every ALS-Northeast Entity, or (ii) three
(3) years after such party ceases to have an interest in any ALS-Northeast
Entity.
(c) The restrictions on ALE set forth in Section 3.14(a)
and (b) also apply to Messrs. Michael J. Falcone, Michael P. Falcone and Mark G.
Falcone, and any entities directly or indirectly under the control of ALE or
such individuals. The restrictions on ALS set forth in Section 3.14(a) and (b)
herein also apply to any entity directly or indirectly under the control of ALS,
but in no event shall such restrictions apply to the shareholders of ALS.
(d) The restrictions set forth heretofore in this Section
3.14 (the "Restrictions") are subject to the following exceptions:
(i) The Restrictions shall not be violated by reason of
ALS or ALE, or any of their respective Affiliates,
acquiring any assisted living, dementia or other
specialty care facility for the elderly located in
the Territory ("Assisted Living Facilities"), or
acquiring an entity that owns such a facility, as
long as (A) such facility is not located within ten
(10) miles of a Commons Facility, a Waived Facility
or any Facility owned jointly by ALS and ALE or any
Facility in which a Defaulting Party once owned an
interest if that party or its Affiliates are the
acquiring party and (B)
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either (I) ALS or ALE, as the case may be, has first
offered to ALE or ALS, respectively, in writing, an
opportunity to participate in such acquisition on
substantially the same terms as contemplated herein,
and ALE or ALS, respectively, has declined such offer
(such facility, a "Refused Facility") or (II) in the
case of ALS only, ALS has delivered Market Approvals
at the Requisite Level for each of Massachusetts,
Connecticut and Rhode Island for each of the Joint
Venture Agreement Years ending December 31, 1999 and
December 31, 2000 prior to undertaking any
acquisition pursuant to this Section
3.14(d)(i)(B)(II) and so long as the aggregate number
of facilities acquired by ALS pursuant to this
Section 3.14(d)(i)(B)(II) does not exceed seven in
the aggregate in Massachusetts, Connecticut and Rhode
Island. ALE or ALS, respectively, shall have thirty
(30) days following its receipt of any such offer and
of all material economic information regarding such
offer to accept or reject, in writing, such offer
made to it by the other party in this regard, and a
failure to timely respond shall be deemed a
rejection.
(ii) The Restrictions shall not be violated by ALS if ALS
manages an Assisted Living Facility or the Person(s)
that own such facility, so long as ALS has no direct
or indirect equity interest in the facility or the
entity that owns such facility and no right to
receive a fee based on the profitability (other than
gross revenues) of such facility (such facilities
referred to herein as "Managed Facilities");
(iii) The Restrictions shall not be considered violated
solely by reason of the activities of a person or
entity which is not an Affiliate of ALS or ALE at the
time this Agreement is signed but which subsequently
becomes an Affiliate of such party insofar as the
activities of such Affiliate that predate such
affiliation are concerned;
(iv) The Restrictions in Section 3.14(a) shall not apply
to a Non-Defaulting Party from and after any default
by the other party in the making of a Mandatory
Capital Call Contribution to any ALS-Northeast
Entity;
(v) The Restrictions shall not apply to a party during
the continuance of any order or other action by a
regulatory agency or body which prohibits or
restricts the other party from owning, operating or
managing an Assisted Living Facility in the
Territory;
(vi) The Restrictions shall not prevent ALE or its
Affiliates from managing any ALS-Northeast Facility
following the termination of the Management Agreement
with ALS for such Facility;
(vii) Not Used.
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(viii) The Restrictions shall not be violated by reason of
ALS, ALE or any of their respective Affiliates
acquiring all or substantially all of the operations
of another multi-facility operator (or a
multi-facility division or operating unit of such
operator) of Assisted Living Facilities, whether by
merger, stock or asset purchase or otherwise,
provided that (A) none of the acquired Assisted
Living Facilities (the "Acquired Facilities") are
located within ten (10) miles of any Facility then
jointly owned by ALS and ALE or any Facility in which
a Defaulting Party once owned an interest if that
party is the acquiring party or any Facility not yet
completed but for which a Project Entity has been
formed, and (B) the Acquired Facilities include one
or more facilities located outside of the Territory;
and
(ix) The Restrictions shall not be violated by ALS by ALS
providing feasibility studies and related services to
third parties on a fee basis (i.e., compensation that
is not calculated on or with respect to, or that
otherwise constitutes a participation in, the profits
(as opposed to gross revenue or adjusted gross
revenue) of any subject facility) so long as ALS has
no direct or indirect equity interest in such third
party or in the facilities owned or operated by such
third party.
(e) Each party to this Agreement hereby agrees that the
restrictions set forth in this Section 3.14 are founded on valuable
consideration and are reasonable in duration and geographic area in view of the
circumstances under which this Agreement was executed, and that such
restrictions are necessary to protect the legitimate interests of the parties.
If any provision of this Section 3.14 is determined to be invalid by any
arbitrator or court of competent jurisdiction, then the provisions of this
Section 3.14 shall be deemed to have been amended, and the parties agree to
execute any documents and take whatever action is necessary to evidence such
amendment, so as to eliminate or modify any such invalid provision and to carry
out the intent of this Section 3.14 and to render the terms of this Section 3.14
enforceable in all respects as so modified.
(f) Each party to this Agreement acknowledges and agrees
that irreparable injury may result to the other party and/or a Project Entity if
the other party breaches any covenant contained in this Section 3.14, and that
the remedy at law for the breach of any such covenant will be inadequate.
Therefore, if either party shall engage in any act which is a violation of any
of the provisions of this Section 3.14, then the other party and the affected
Project Entity (or either of them) shall be entitled to, in addition to such
other remedies and damages as may be available to either or both of them at law
or pursuant to this Agreement, injunctive relief to enforce the provisions of
this Section 3.14.
3.15 Interests in Profits, Losses and Distributions. The Entity
Documents for each Project Entity shall provide as follows:
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(a) Net Losses from Operations. Any net losses with
respect to a particular Facility, other than net losses resulting from a sale or
other disposition of such Facility, as determined on a quarterly basis, shall be
allocated (i) first, to the extent that net profits have been allocated pursuant
to Section 3.15(c)(v) hereof in proportion to the parties' respective Percentage
Interests for any prior fiscal quarter and such net profits have not been
distributed by the Project Entity to the members or already reversed out
pursuant to Section 3.15(b)(i) hereof or this Section 3.15(a)(i), net losses
shall be allocated to offset such undistributed net profits pro rata among the
members in proportion to their shares of the retained net profits being offset
(and thereafter such allocations of retained profits, to the extent offset
pursuant to this Section 3.15(a)(i), shall be disregarded for purposes of
computing subsequent allocations pursuant to this Section 3.15); (ii) second,
one hundred percent (100%) to ALE until ALE's Capital Account is a negative
number that is equal to ALE's limited Capital Account restoration obligation as
set forth in clause (b) of the second to last sentence of Section 3.21 hereof
(the "ALE Restoration Amount"); (iii) third, one hundred percent (100%) to ALS
until its Capital Account is a positive number that is equal to the ALE
Restoration Amount; and (iv) lastly, in proportion to the parties' then
respective Percentage Interests (provided, however, that any such net loss to be
allocated pursuant to this clause (iv) that is attributable to Partner
Nonrecourse Debt (as such term is defined in Section 1.704-2(b)(4) of the
Treasury Regulations (herein, "Regulations") promulgated under the Internal
Revenue Code of 1986, as amended (the "Code")) shall be allocated to the member
that bears the economic risk of loss pursuant to Section 1.752-2(b)-(j) of the
Regulations for such Partner Nonrecourse Debt and, if more than one member bears
such economic risk of loss, such Partner Nonrecourse Deductions shall be
allocated among the members in accordance with the ratios in which they share
such economic risk of loss). Nonrecourse Deductions (as such term is defined in
Section 1.704-2(b)(1) of the Regulations) shall be allocated to ALS and ALE in
proportion to their Percentage Interests.
(b) Net Losses from Dispositions. Except as otherwise
provided in Section 3.21 hereof, any net loss resulting from a sale or other
disposition of a Facility shall be allocated (i) first, to the extent that net
profits have been allocated pursuant to Section 3.15(c)(v) hereof in proportion
to the parties' respective Percentage Interests for any prior fiscal quarter and
such net profits have not been distributed by the Project Entity to the members
or already reversed out pursuant to Section 3.15(a)(i) hereof or this Section
3.15(b)(i), net loss on a sale or other disposition of a Facility shall be
allocated to offset such undistributed net profits pro rata among the members in
proportion to their shares of the retained net profits being offset; (ii)
second, one hundred percent (100%) to ALS until the sum of the cumulative net
losses allocated to ALS pursuant to this Section 3.15(b)(ii) and the cumulative
net losses previously allocated to ALS pursuant to Section 3.15(a)(iii) hereof
(but only to the extent such net losses have not been previously reversed out by
net profit allocations made to ALS pursuant to Section 3.15(c)(ii) hereof) equal
75/25ths (assuming that the Percentage Interests of ALS and ALE are 75 % and
25%, respectively, and if such Percentage Interests are different, the
applicable ratio for each loss allocation offset shall be the ratio of the
Percentage Interest held by ALS at the time of such loss allocation to the
Percentage Interest held by ALE at such time) of the cumulative net losses
allocated to ALE pursuant to Section 3.15(a)(ii) (but only to the extent such
net losses have not been previously
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reversed out by net profit allocations made to ALE pursuant to Section
3.15(c)(iii) hereof); (iii) third, to ALE and ALS, in proportion to their
positive Capital Account balances, until the Capital Account balances of both
ALE and ALS equal zero; and (iv) lastly, in proportion to the parties' then
respective Percentage Interests.
(c) Net Profits from Operations. Any net profits with
respect to a particular Facility, other than net profits resulting from a sale
or other disposition of such Facility, as determined on a quarterly basis, shall
be allocated first to the parties to "reverse out" any prior net loss
allocations made pursuant to Sections 3.15(a)(ii), (iii) and (iv) hereof in the
reverse order made, and then to ALE to "match" any Preferred Equity Return, with
any remaining net profit (i.e., any net overall profit in excess of previously
allocated losses and ALE's Preferred Equity Return) to be allocated in
proportion to the parties' then respective Percentage Interests. That is, any
quarterly net profits shall be allocated (i) first, between ALS and ALE to
restore any net losses previously allocated to them pursuant to Section
3.15(a)(iv) hereof, in proportion to their relative shares of such net losses;
(ii) second, one hundred percent (100%) to ALS to restore any net losses
allocated to it pursuant to Section 3.15(a)(iii) hereof; (iii) third, one
hundred percent (100%) to ALE to reverse any net losses allocated to it pursuant
to Section 3.15(a)(ii) hereof; (iv) fourth, one hundred percent (100%) to ALE to
the extent that the total Preferred Equity Return computed through the end of
such quarter exceeds the cumulative net profits previously allocated to ALE
pursuant to this Section 3.15(c)(iv); and (v) lastly, between ALS and ALE in
proportion to their respective Percentage Interests.
(d) Net Profits from Dispositions. Except as otherwise
provided in Section 3.21 hereof, any net profits resulting from a sale or other
disposition of a Facility shall be allocated (i) first, one hundred percent
(100%) to ALE until its Capital Account balance (as increased by the amounts, if
any, which ALE is deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulation Sections 1.7042(g)(1) and 1.704-2(i)(5)) is
equal to the sum of (A) 25/75ths (assuming that the Percentage Interests of ALS
and ALE are 75% and 25%, respectively, and if such Percentage Interests are
different, the applicable ratio shall be the ratio of the Percentage Interest
held by ALE at the time of the relevant loss allocation that is being restored
by this net profits allocation to the Percentage Interest held by ALS at such
time) of ALS's Capital Account balance (as increased by the amounts, if any,
which ALS is deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5)), plus
(B) the Unreturned Preferred Equity Amount, if any and (ii) then, to ALS and ALE
in proportion to their respective Percentage Interests.
(e) Distributions. Each Project Entity with respect to
which a Preferred Equity Contribution has been made shall determine on a
quarterly basis its cash flow after the payment of scheduled debt service and
operating expenses and prior to the payment of any management fees for such
quarter, and shall distribute such cash flow 100% to ALE to the extent necessary
to enable such Project Entity to satisfy in full the entitlement of ALE to
receive distributions from such Project Entity equal to the Preferred Equity
Return (but not a return of the Preferred Equity Contribution) in respect of
such Project Entity. Each Project Entity as to which no Preferred Equity
Contribution has been made, or as to which such
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Preferred Equity Return entitlement has been satisfied, shall determine on a
quarterly basis its cash flow after the payment of scheduled debt service and
operating expenses and after the payment the payment of scheduled management
fees for such quarter, and shall distribute such cash flow in proportion to the
parties' respective Percentage Interests. Distributions upon liquidation of the
Project Entity (i.e., the distribution of proceeds from the sale of the
respective Facility) shall be distributed in accordance with the parties'
respective Capital Account balances (after giving effect to the allocation of
any gain or loss resulting from such liquidating sale in accordance with the
provisions of this Section 3.15 as modified by Section 3.21 hereof). The Project
Agreements of each Project Entity (including the Project Agreements of the
Grandfathered Project Entities) shall be amended or be prepared so as to conform
to the provisions of this Section 3.15(e).
3.16 Confidentiality. Except to the extent permitted by Section
3.19 hereof, the parties hereto will at all times hold and cause their officers,
employees, agents, consultants and advisors (collectively, "Representatives") to
hold in confidence the information contained in this Agreement. In addition,
each party (the "Receiving Party") who receives any Confidential Information
(hereinafter defined) concerning the other party (the "Disclosing Party") will
at all times hold and cause its Representatives to hold in strict confidence
such Confidential Information which shall have been or will be furnished by the
Disclosing Party to the Receiving Party or its Representatives in connection
with the transactions contemplated by this Agreement. All such Confidential
Information shall be disclosed by a Receiving Party only to its Representatives
engaged in the evaluation of such information. The provisions of this Section
3.16 shall not apply to the extent that such Confidential Information (a) was
previously known to the Receiving Party prior to disclosure by the Disclosing
Party, (b) is in the public domain through no fault of the Receiving Party, (c)
is lawfully acquired by the Receiving Party from a third party under no
obligation of confidence to the Disclosing Party, or (d) is required by any law
or by any governmental or judicial body to be disclosed. Such Confidential
Information shall not be used to the detriment of the Disclosing Party in any
manner. Notwithstanding the foregoing, the parties acknowledge that the
financial position and results of operations of, and other operating
characteristics or data relating to, any Facility may be disclosed by ALS in
connection with its public reporting under applicable securities laws and stock
exchange rules.
For purposes of this Section 3.16, the term "Confidential Information"
shall mean any data or information that is designated as "confidential" by the
Disclosing Party, is of value to the Disclosing Party and is not generally known
to competitors of the Disclosing Party or to the public, and whose
confidentiality is maintained by the Disclosing Party. Confidential Information
shall include, but not be limited to, written lists of the Disclosing Party's
current or potential residents or other customers, the identity of various
suppliers, non-public information concerning the Disclosing Party's executives
and employees and its financial affairs, business plans, services, research,
development, purchasing, accounting, engineering and marketing.
Nothing in this Section 3.16 will limit or restrict a Non-Defaulting
Party in respect of its ownership or operation of a Facility following a default
by the other party or its Affiliates in
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an obligation to make a Mandatory Capital Call Contribution or under an
Ancillary Agreement relating to such Facility.
3.17 Further Assurances. Each party agrees to execute such further
documents and perform such further acts as may be reasonably necessary to con
ate the transactions contemplated by this Agreement, the Commons Acquisition
Agreement and the Ancillary Agreements and in accordance with the terms of this
Agreement, the Commons Acquisition Agreement and the Ancillary Agreements, to
aid the more efficient execution of the transactions contemplated hereby and
thereby.
3.18 No Liens. Each of ALS and ALE hereby agrees to keep its
ownership interest in all ALS-Northeast Entities free and clear from any and all
security interests, liens, restrictive covenants or other encumbrances in favor
of any and all third parties other than those arising pursuant to the Collateral
Assignment Agreement or the Loan Documents.
3.19 Public Statement. Each party to this Agreement will consult
with the other party prior to issuing any press release or making any other
public statement with respect to this Agreement and the transactions
contemplated in this Agreement, and will not issue any such release or make any
such statement without the approval of the other party (in the other party's
sole discretion), except, such disclosure as is required to be reported in any
regulatory filings, and as may be required or appropriate in the reasonable
judgment of such party's counsel pursuant to any applicable state or federal
securities law or the rules and regulations of any relevant securities exchange
or quotation system upon which such party's securities are listed or traded.
3.20 PDC Guaranty Amendment. ALE and ALS are simultaneously
herewith executing an amendment to the PDC Guaranty Amendment described in the
First Amended Agreement to release Assisted Living Equity Investors as a
guarantor under such PDC Guaranty Amendment.
3.21 Special Project Entity Profit and Loss Allocations. Each
Operating Agreement for a Project Entity shall, except as otherwise provided in
the balance of this Section, generally allocate all profits, gains, losses and
deductions (including nonrecourse deductions), as well as any distributions,
among the parties hereto in accordance with the provisions of Section 3.15
hereof. Notwithstanding the provisions of Section 3.15 hereof, each Operating
Agreement shall contain special allocation provisions whereby, prior to any
allocations provided for in Section 3.15 hereof, (i) ALE shall be specially
allocated any gain realized on any sale or other disposition of a Facility in an
amount necessary to reflect in its Capital Account (after consideration of all
prior special gain and loss allocations provided for in this Section 3.21), and
limited to, the Development Services Contribution Amount, and (ii) ALS shall be
specially allocated losses realized on any sale or other disposition of a
Facility in an amount equal to (after consideration of all such prior special
gain and loss allocations provided for in this Section 3.21), and limited to,
75/25ths (or 66.66/33.33ths, as applicable) of the Development Services
Contribution Amount. Upon liquidation of the Project Entity, ALE shall be
obligated to restore the lesser of (a) its negative Capital Account balance, if
any, or (b) 75% or 66.66%
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(as applicable) of the Development Services Contribution Amount. Liquidating
distributions upon the liquidation of a Project Entity shall be made to ALE and
ALS in accordance with the balances in their respective Capital Accounts (after
taking into account all allocations of profits, gains, losses, and deductions of
the Project Entity, including all special gain or loss allocations described in
this Section).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ALS
ALS hereby represents and warrants to ALE that:
4.1 Organization. ALS is a corporation validly existing and in
good standing under the laws of the State of Delaware and has full corporate
power and authority to conduct its business as presently conducted and to become
an owner of the ALS-Northeast Entities. ALS will be qualified to transact
business as a foreign corporation in the States of New York, Massachusetts,
Connecticut and Rhode Island, as necessary to carry out the transactions
contemplated by this Agreement and the Ancillary Agreements.
4.2 Authorization, Enforceability. The execution, delivery and
performance by ALS of this Agreement and the ALS Ancillary Agreements are within
the corporate power of ALS and have been duly authorized by all necessary
corporate action. A certified copy of resolutions of the Board of Directors of
ALS authorizing this Agreement and the ALS Ancillary Agreements has been
delivered to ALE. This Agreement, and the ALS Ancillary Agreements when executed
and delivered by ALS, will be the valid and binding obligations of ALS,
enforceable against ALS in accordance with the respective terms of such
agreements.
4.3 No Violation or Conflict. The execution, delivery and
performance of this Agreement and the ALS Ancillary Agreements by ALS will not
conflict with or violate any law, judgment, order, decree or regulation, the
Certificate of Incorporation or Bylaws of ALS, or any contract or agreement to
which ALS is a party or by which ALS is bound.
4.4 Brokers. Neither ALS nor any Affiliate of ALS has incurred any
brokers', finders' or any similar fee in connection with the transactions
contemplated by this Agreement or the ALS Ancillary Agreements.
4.5 Litigation. There is no litigation, arbitration, proceeding,
governmental investigation, citation or action of any kind pending or, to the
knowledge of ALS, proposed or threatened, against ALS which could have a
material adverse effect on the transactions contemplated hereby. There is no
action, suit or proceeding against ALS by any person or entity which questions
the validity, legality or propriety of the transactions contemplated by this
Agreement or the ALS Ancillary Agreements.
4.6 Governmental Approvals. No permission, approval,
determination, consent or waiver by, or any declaration, filing or registration
with, any governmental or regulatory
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authority is required on the part of ALS in connection with its execution and
delivery of this Agreement and the ALS Ancillary Agreements and the consummation
by ALS of the transactions contemplated in this Agreement and the ALS Ancillary
Agreements, other than such licenses as may be required to operate or manage
Facilities in the Territory.
4.7 Required Consent. There are no approvals or consents which ALS
is required to obtain from any third parties to enter into this Agreement or the
ALS Ancillary Agreements which have not been obtained.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ALE
ALE hereby represents and warrants to ALS that:
5.1 Organization. ALE is a limited liability company validly
existing and in good standing under the laws of the State of New York. Each ALE
Affiliate that is or is intended to be a party to the Ancillary Agreements,
including without limitation PDC (the "Contracting ALE Affiliates") is (or upon
formation will be) a corporation, partnership or limited liability company, as
applicable, validly existing and in good standing under the laws of its
organization. ALE and each Contracting ALE Affiliate have (or, as to Contracting
ALE Affiliates, upon formation will have) full corporate, partnership or limited
liability company (as applicable) power and authority to conduct its business as
presently conducted and, in the case of ALE, to become an owner of the
ALS-Northeast Entities. ALE and the Contracting ALE Affiliates are (or upon
formation will be) duly qualified to transact business as a limited liability
company or other entity in the States of New York, Massachusetts, Connecticut
and Rhode Island, as necessary to carry out the transactions contemplated by
this Agreement and the Ancillary Agreements. Exhibit I, attached hereto and
incorporated herein by this reference, contains a correct list of the current
owners of ALE, PDC and Central New York Contractors, Inc. (the ALE Affiliate
that will enter into the Construction Agreement).
5.2 Authorization, Enforceability. The execution, delivery and
performance by ALE of this Agreement and by ALE and the Contracting ALE
Affiliates of the ALE Ancillary Agreements are within the corporate, partnership
or limited liability company (as applicable) power of, and have been duly
authorized by, ALE and the Contracting ALE Affiliates, respectively. This
Agreement, and the ALE Ancillary Agreements when executed and delivered by ALE
and the Contracting ALE Affiliates, will be the valid and binding obligations of
ALE and the Contracting ALE Affiliates, as applicable, enforceable against ALE
and such Contracting ALE Affiliates in accordance with their respective terms
and conditions. A certified copy of the resolutions of the members of ALE and
the Contracting ALE Affiliates authorizing this Agreement and ALE Ancillary
Agreements has been delivered to ALS.
5.3 No Violation or Conflict. The execution, delivery and
performance by ALE of this Agreement and by ALE and the Contracting ALE
Affiliates of the ALE Ancillary Agreements will not conflict with or violate any
law, judgment, order, decree or regulation,
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the Articles of Incorporation, Articles of Organization or operating agreement
of ALE and the Contracting ALE Affiliates, respectively, or any contract or
agreement to which ALE and the Contracting ALE Affiliates are a party or by
which they are bound.
5.4 No Broker. Neither ALE nor any Affiliate of ALE (including the
Contracting ALE Affiliates) has incurred any brokers', finders' or any similar
fee in connection with the transactions contemplated by this Agreement or the
ALE Ancillary Agreements.
5.5 No Litigation. There is no litigation, arbitration,
proceeding, governmental investigation, citation or action of any kind pending
or, to the knowledge of ALE, proposed or threatened, against ALE or any
Contracting ALE Affiliate which could have a material adverse effect on the
transactions contemplated hereby. There is no action, suit or proceeding by any
person or governmental agency against ALE or any Contracting ALE Affiliate which
questions the legality, validity or propriety of the transactions contemplated
by this Agreement or the ALE Ancillary Agreements.
5.6 Governmental Approvals. No permission, approval,
determination, consent or waiver by, or any declaration, filing or registration
with, any governmental or regulatory authority is required on the part of ALE or
any Contracting ALE Affiliate in connection with its execution and delivery of
this Agreement and the ALE Ancillary Agreements and the consummation by ALE and
the Contracting ALE Affiliates of the transactions contemplated in this
Agreement and the ALE Ancillary Agreements, other than such licenses and permits
as may be required in connection with the construction of Facilities.
5.7 Required Consent. There are no approvals or consents which ALE
or any Contracting ALE Affiliate are required to obtain from third parties to
enter into this Agreement or the ALE Ancillary Agreements which have not been
obtained.
ARTICLE 6
NOT USED
ARTICLE 7
NOT USED
ARTICLE 8
NOT USED
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ARTICLE 9
INDEMNIFICATION
9.1 ALE's Indemnity. ALE hereby agrees to indemnify ALS, each ALS
Affiliate and, except for the matters referenced in (c) and (d) below, the
ALS-Northeast Entities, or any of them, and hold them harmless from and against
any and all losses, damages, costs, expenses, liabilities, obligations and
claims of any kind (including, without limitation, reasonable attorneys fees and
other reasonable legal costs and expenses) which any of them may at any time
suffer or incur, or become subject to, as a result of or in connection with:
(a) any breach or inaccuracy when made of any of the
representations and warranties made by ALE or any ALE Affiliates in
this Agreement or in any ALE Ancillary Agreement;
(b) any failure by ALE or any ALE Affiliate to carry out,
perform, satisfy or discharge any of its covenants, agreements,
undertakings, liabilities or obligations under this Agreement or under
any ALE Ancillary Agreement;
(c) any unpaid or unsatisfied indemnification right of
ALS pursuant to Section 3.6 hereof;
(d) provided that the interest of ALE in the
ALS-Northeast Entity has not been acquired by ALS pursuant to Section
3.12, any payments by ALS with respect to any obligations of any
ALS-Northeast Entity not described in Section 3.6 which have been
jointly guaranteed in writing by ALS and ALE, to the extent such
payments exceed the initial ALS Percentage Interest in such
ALS-Northeast Entity upon its organization;
(e) any suit, action or other proceeding brought by any
Person against ALS, any ALS Affiliate or any ALS-Northeast Entity
arising out of, or in any way related to, any obligation in respect of
which an indemnity obligation is owed pursuant to paragraphs (a)
through (d) of this Section 9.1.
9.2 ALS's Indemnity. ALS hereby agrees to indemnify ALE, each ALE
Affiliate and, except for the matters referenced in (c) and (d) below, the
ALS-Northeast Entities or any of them, for and hold them harmless from and
against any and all losses, damages, costs, expenses, liabilities, obligations
and claims of any kind (including reasonable attorneys' fees and other
reasonable legal costs and expenses) which any of them may at any time suffer or
incur, or become subject to, as a result of or in connection with:
(a) any breach or inaccuracy when made of any of the
representations and warranties made by ALS in this Agreement or in any
and all ALS Ancillary Agreements;
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(b) any failure by ALS to carry out, perform, satisfy or
discharge any of its covenants, agreements, undertakings, liabilities
or obligations under this Agreement or under any and all ALS Ancillary
Agreements;
(c) any unpaid or unsatisfied indemnification right of
ALE pursuant to Section 3.6 hereof;
(d) any payments by ALE with respect to any obligations
of any ALS-Northeast Entity not described in Section 3.6 which have
been jointly guaranteed in writing by ALE and ALS, to the extent such
payments exceed the initial ALE Percentage Interest in such
ALS-Northeast Entity upon its organization; or
(e) any suit, action or other proceeding brought by any
Person against ALE, any ALE Affiliate or any ALS-Northeast Entity
arising out of, or in any way related to, any obligation in respect of
which an indemnity obligation is owed pursuant to paragraphs (a)
through (d) of this Section 9.2.
Further, in the event that any net losses of a Project Entity properly allocated
to ALE pursuant to Section 3.15(a)(ii) are disallowed upon federal and/or state
income tax audit and additional federal, state or local income tax, interest
thereon and/or penalties related thereto are therefore assessed upon the members
of ALE by reason of such disallowance, ALS shall indemnify such members for 100%
of such penalties and an amount equal to the product of (i) ALS's initial
Percentage Interest with respect to such Project Entity times (ii) any interest
(but no portion of the additional tax itself) incurred by such members solely by
reason of such disallowance; provided, however, that such indemnification
obligation shall arise and apply only to the extent that such disallowance is
solely attributable to ALE's being allocated a portion of net loss pursuant to
Section 3.15(a)(ii) that is greater than its Percentage Interest at the time of
such net loss allocation with respect to such Project Entity.
9.3 Provisions Regarding Indemnities.
(a) The obligations of ALE and ALS under Section 9 of
this Agreement shall survive for the statute of limitations period applicable to
claims in respect of which such rights of indemnification apply. Delivery of any
written demand for indemnification by an indemnified party shall toll the
survival period for the subject of the particular demand and, once notice is
given, the indemnified party may pursue the particular claim to its conclusion
to the extent permitted by applicable law.
(b) The indemnified party shall promptly notify the
indemnifying party in writing and in reasonable detail of any claim, demand,
action or proceeding for which indemnification will be sought under Section 9 of
this Agreement, and if such claim, demand, action or proceeding is a third party
claim, demand, action or proceeding, the indemnifying party will have the right,
at its expense, to assume the defense thereof using counsel reasonably
acceptable to the indemnified party. The indemnified party shall have the right
to participate, at its own expense, with respect to any such third party claim,
demand, action or proceeding.
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In connection with any such third party claim, demand, action or proceeding, the
parties shall cooperate with each other and provide each other with access to
relevant books and records in their possession. No such third party claim,
demand, action or proceeding shall be settled without the prior written consent
of the indemnified party, unless the settlement is for money damages only and is
satisfied in full simultaneously with the conclusion of the settlement.
(c) Any indebtedness or other obligations of ALE or ALS
to its respective Affiliates will be subordinated to any indemnification
obligations of ALE to ALS or ALS to ALE, respectively.
ARTICLE 10
NOT USED
ARTICLE 11
MISCELLANEOUS
11.1 Entire Agreement; Amendment. This Agreement, the Commons
Acquisition Agreement and the other agreements and documents executed in
connection therewith or contemplated thereby, constitute the entire agreement
between the parties pertaining to the subject matter of this Agreement, and
(except as otherwise provided in Article 2 and Section 11.16 hereof) supersede
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto. No amendment, supplement, modification or
waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision of this
Agreement, whether or not similar, nor shah such waiver constitute a continuing
waiver unless otherwise expressly provided.
11.2 Fees and Expense. Whether or not the transactions contemplated
by this Agreement are consummated, and except as expressly provided herein or in
any Ancillary Agreement, each of the parties hereto shall pay the fees and
expenses of such party's counsel, accountants, brokers, consultants, investment
bankers and other experts incident to the negotiation and preparation of this
Agreement and the consummation of the transactions contemplated by this
Agreement.
11.3 Applicable Law. All questions concerning the construction,
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the law of the State
of New York without giving effect to principles of conflicts of laws.
11.4 Binding Effect, Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective
52
<PAGE> 58
successors and assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned or delegated by any of the
parties hereto without the prior written consent of the other party, whether by
operation of law or otherwise.
11.5 Notices. Each notice, request, demand or other communication
("Notice") by either party to the other party pursuant to this Agreement shall
be in writing and shall be personally delivered or sent by U.S. certified mail,
return receipt requested, postage prepaid, or by nationally recognized overnight
commercial courier, charges prepaid, or by facsimile transmission (but each such
Notice sent by facsimile transmission shall be confirmed by sending an original
thereof to the other party by U.S. mail or commercial courier as provided herein
no later than the following business day), addressed to the address of the
receiving party set forth below or to such other address as such party shall
have communicated to the other party in accordance with this Section. Any Notice
hereunder shall be deemed to have been given and received on the date when
personally delivered, on the date of sending when sent by facsimile, on the
third business day following the date of sending when sent by mail or on the
first business day following the date of sending when sent by commercial
courier.
If to ALE: Assisted Living Equities, LLC
250 South Clinton Street, Suite 200
Syracuse, New York 13202-1258
Attn: Legal Department
Telephone: (315) 471-3181
Fax: (315) 471-1154
with a copy to: Kalkines, Arky, Zall & Bernstein LLP
1675 Broadway
New York, New York 10019-5809
Attn: Peter F. Olberg, Esq.
Telephone: (212) 541-9090
Fax: (212) 541-9250
If to ALS: Alternative Living Services, Inc.
450 North Sunnyslope Road
Suite 300
Brookfield, Wisconsin 53005
Attn: Mr. William F. Lasky
Fax: (414) 789-9592
with a copy to: Rogers & Hardin
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Alan C. Leet, Esq.
Fax: (404) 525-2224
53
<PAGE> 59
11.6 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute one and the same Agreement.
11.7 Headings. The Article and Section headings in this Agreement
are inserted for convenience of reference only and shall not constitute a part
hereof.
11.8 Construction. Common nouns and pronouns shall be deemed to
refer to the masculine, feminine, neuter, singular and plural, as the identity
of the person may in the context require. References to Sections herein include
all subsections which are subsidiary to the Section referred to. No provision of
this Agreement shall be construed in favor of or against any party hereto by
reason of the extent to which any such party or its counsel participated in the
drafting thereof.
11.9 Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is held
invalid, then the remainder of this Agreement, or the application of such
provision, clause or part under other circumstances, shall not be affected
thereby unless such invalidity materially impairs the ability of the parties to
consummate the transactions contemplated by this Agreement.
11.10 Knowledge. Any representation, warranty, covenant or statement
which is made to the knowledge of any party to this Agreement shall require that
such party make reasonable investigation and inquiry with respect thereto to
ascertain the correctness and validity thereof.
11.11 Survival of Representations and Warranties. All
representations and warranties of the parties contained in this Agreement or
made pursuant to this Agreement shall survive the execution of this Agreement
and the consummation of the transactions contemplated by this Agreement. All
obligations of the parties hereunder with respect to any Project Entity will
survive the term hereof for so long as the parties or their Affiliates have
interests in or rights or obligations in respect of such Project Entity. Any
termination of the Development Term shall not affect the obligations of ALE or
ALS or their respective Affiliates to complete any Facilities then under
development for which a Project Entity has been formed.
11.12 Arbitration. The parties hereto agree that, subject to the
provisions of this Section 11.12, any and all controversies or claims arising
out of or relating to this Agreement, any of the ALS Ancillary Agreements or ALE
Ancillary Agreements or the breach of any of the foregoing, shall be settled by
arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. ss.1 et seq., in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The parties hereto further agree that the arbitrators in any such
arbitration shall not be authorized to award any punitive damages in connection
with any controversy or a claim settled by arbitration hereunder. The decision
of the arbitrator in any such arbitration shall be final and binding upon the
parties and judgment upon the award may be entered in any court having
jurisdiction thereof. Any arbitration shall take place in such place as is
agreed on by the parties hereto, or, if they cannot agree, in Chicago, Illinois,
and the expenses of the
54
<PAGE> 60
arbitrators shall be borne by the losing party. The arbitration shall be
conducted before a panel of three (3) arbitrators, one selected by ALE, one
selected by ALS, and one selected by mutual agreement of the arbitrators
selected by ALE and ALS. The arbitrators shall have the right to retain and
consult experts and competent authorities skilled in the matters under
arbitration. The arbitrators shall render their award, upon the concurrence of
at least two (2) of their number, if practicable, within sixty (60) days after
the appointment of the third arbitrator. Such award shall be in writing and
shall be final and conclusive on the parties and counterpart copies thereof
shall be delivered to each of the parties. In rendering such decision and award,
the arbitrators shall not add to, subtract from or otherwise modify the
provisions of this Agreement. Judgment may be had on the decision and award of
the arbitrators so rendered, in any court of competent jurisdiction. Each party
shall pay the fees and expenses of the one of the two original arbitrators
appointed by or for such party, as well as the attorneys' fees, witness fees and
similar expenses incurred by such party, and the fees and expenses of the third
arbitrator and all other expenses of the arbitration shall be borne by the
parties equally. Notwithstanding the foregoing, if a majority of the arbitrators
determine that the position of either party was taken willfully and is without
merit, the arbitrators may require such party to bear all of the expenses of the
arbitration as well as all or part of the prevailing party's witness fees,
attorney fees and similar expenses. To the extent that one or more of the
provisions of this Section 11.12 shall be declared invalid, void or
unenforceable, the remainder of the provisions of this Section 11.12 shall
remain in full force and effect. All notices in connection with the arbitration
shall be made in the manner set forth in Section 115 hereof. Notwithstanding the
foregoing, any determination of value of a Project Entity or of ALS Stock in the
manner set forth in Section 3.12 of this Agreement shall be final and binding
upon the parties and not subject to arbitration under this Section 11.12.
11.13 Waiver of Compliance. Any failure of ALS or ALE to comply with
any obligation, covenant, agreement or condition contained herein may be
expressly waived in writing by ALE or ALS, respectively; provided, however, that
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure by the other party.
11.14 Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any Person other than the parties hereto and their
successors or assigns, any rights or remedies under or by reason of this
Agreement.
11.15 Set Off Rights of Parties. Each of ALS and any ALS Affiliate
shall have the right to set off against any liquidated monetary obligation it
may owe ALE or any ALE Affiliate under this Agreement or any Ancillary Agreement
any liquidated monetary obligation which ALE or any ALE Affiliate may owe ALS or
any ALS Affiliate. Similarly, each of ALE and any ALE Affiliate shall have the
right to set off against any liquidated monetary obligation it may owe ALS or
any ALS Affiliate under this Agreement or any Ancillary Agreement any liquidated
monetary obligation which ALS or any ALS Affiliate may owe ALE or any ALE
Affiliate. This mutual dollar-for-dollar set off of liquidated monetary
obligations due and owing between ALS and the ALS Affiliates, on the one hand,
and ALE and the ALE
55
<PAGE> 61
Affiliates, on the other hand is contained in this Agreement because the parties
understand and acknowledge that such mutual set off right in all events arises
out of the single transaction memorialized by this Agreement. The ALS Affiliates
and ALE Affiliates having obligations under this Agreement or an Ancillary
Agreement are intended beneficiaries of this Section 11. 15.
11.16 Effect of Commons Acquisition Agreement. The parties'
respective rights and obligations hereunder, and under any other Project
Agreement or Ancillary Agreement, shall not be dependent on or in any manner
affected by the performance or lack of performance by any party to the Commons
Acquisition Agreement. The entities owning the Commons Facilities are not
ALS-Northeast Entities and the Commons Acquisition Agreement is not an Ancillary
Agreement. The rights and responsibilities of the parties with respect to the
Commons Facilities shall be solely as set forth in the Commons Acquisition
Agreement and in the other agreements and instruments entered into or to be
entered into directly in connection therewith or pursuant thereto.
Notwithstanding the foregoing, it is understood that the Collateral Assignment
will be amended to collateralize certain indemnity obligations of ALS related to
Pioneer Kenmore Company, LLC and Pioneer Niskayuna Company, LLC as contemplated
by Section 3.13.
11.17 Cross Default. Any breach or default by a party under the
First Amended Agreement as amended by Amendment No. 1 which extends beyond the
applicable grace or cure period, if any, shall also constitute a breach or
default by such party beyond any applicable grace or cure period under this
Second Amended Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first written above.
ALTERNATIVE LIVING SERVICES, INC.
By: /s/ Mark W. Ohlendorf
-------------------------------
Its: Senior Vice President
-------------------------------
ASSISTED LIVING EQUITIES, LLC
By: /s/ Neil A. Rube
-------------------------------
Its: Executive Committee Member
-------------------------------
56
<PAGE> 62
SCHEDULE 1
PUT/CALL PRICING LIMITING FACTOR
In determining the purchase price for ALE's equity interest in any
Project Entity, the appraisers establishing the fair market value of the
Facility owned by such Project Entity shall apply the limiting factor described
in this Schedule 1 if the annual projected stabilized EBITDAR for the Facility
in question equals an amount (the "Triggering Amount") in excess of 14.75% of
Total ROA Base Cost for the Project Entity owning such Facility. It is
understood that the appraisers' determination of the fair market value of a
Facility represents a calculation separate and distinct from the determination
of the valuation of any non-Facility assets of a Project Entity, and that any
such non-Facility assets shall be valued without giving effect to the limiting
factor described in this Schedule 1 (e.g., the valuation of the working capital
of any Project Entity shall be established in accordance with generally accepted
accounting principles).
In the case described in the preceding paragraph, the appraisers shall
utilize an adjusted annual projected stabilized EBITDAR ("Adjusted EBITDAR") in
establishing or determining fair market value of a Facility, as follows:
(i) To the extent that annual projected stabilized
EBITDAR as determined by the appraiser exceeds the Triggering Amount,
then
(ii) Adjusted EBITDAR shall be calculated by reducing such
EBITDAR figure by an amount equal to 70% of the excess of such EBITDAR
over the Triggering Amount.
Example:
<TABLE>
=============================================================================
<S> <C> <C>
Total ROA Base Cost: $5,000,000 (A)
- -----------------------------------------------------------------------------
Triggering Amount (14.75% x (A)): $ 737,500 (B)
- -----------------------------------------------------------------------------
Annual Projected Stabilized EBITDAR: $ 787,500 (C)
- -----------------------------------------------------------------------------
Difference between (C) and (B): $ 50,000 (D)
- -----------------------------------------------------------------------------
Reduction in EBITDAR to calculate Adjusted $ 35,000 (E)
EBITDAR
(70% of (D)):
- -----------------------------------------------------------------------------
Adjusted EBITDAR $ 752,500
((C) - (E)):
=============================================================================
</TABLE>
57
<PAGE> 63
EXHIBIT A
[Not Used]
58
<PAGE> 64
EXHIBIT B
[Not Used]
59
<PAGE> 65
EXHIBIT C
[Not Used]
60
<PAGE> 66
EXHIBIT D
[Construction Agreement]
61
<PAGE> 67
EXHIBIT E
[Not Used]
62
<PAGE> 68
EXHIBIT F
[Not Used]
63
<PAGE> 69
EXHIBIT G
[Not Used]
64
<PAGE> 70
EXHIBIT H
[Not Used]
65
<PAGE> 1
Exhibit 10.53
THE MAXIMUM PRINCIPAL AMOUNT SECURED FOR PURPOSES OF CALCULATION OF KANSAS
MORTGAGE TAX IS $2,850,000.
MORTGAGE, ASSIGNMENT AND SECURITY AGREEMENT
(Sterling House of Leawood, Kansas)
THIS MORTGAGE, ASSIGNMENT AND SECURITY AGREEMENT (this "Mortgage") is
made this 18th day of November, 1998, from ALS HOLDINGS, INC., a Delaware
corporation whose mailing address is c/o Alternative Living Services, Inc., 450
North Sunnyslope Road, Suite 300, Brookfield, Wisconsin 53005 (the "Mortgagor"),
ALTERNATIVE LIVING SERVICES, INC., a Delaware corporation whose mailing address
is 450 North Sunnyslope Road, Suite 300, Brookfield, Wisconsin 53005 ("ALS"), to
BANK UNITED, whose mailing address is 3200 Southwest Freeway, Suite 2000,
Houston, Texas 77022-7528, as Mortgagee acting as agent (the "Agent") for itself
and for all additional Lenders (collectively with the Agent, the "Lenders") as
may from time to time agree to lend a portion of the Credit Facility (as
hereinafter defined) pursuant to the terms and conditions of an Agency Agreement
(as defined in the Financing Agreement (as hereinafter defined)).
RECITALS
A. The Agent, together with such additional Lenders as may be added
from time to time, has extended to the Mortgagor and one or more additional
borrowers (collectively, the "Borrower") a revolving line of credit in the
maximum principal amount at any one time outstanding of $100,000,000 (the
"Credit Facility"). The Credit Facility shall be advanced as provided in and
subject to the terms and conditions of the Financing and Security Agreement
dated September 28, 1998 by and between Mortgagor and Agent (as amended,
restated or substituted from time to time, the "Financing Agreement").
Capitalized terms used, but not defined, in this Mortgage shall have the meaning
set forth in the Financing Agreement.
B. The advances under the Credit Facility shall be evidenced by the
Promissory Note dated of even date herewith from Mortgagor to Agent and such
additional promissory notes as may be entered into from time to time by Borrower
for the benefit of additional Lenders (as amended, restated or substituted from
time to time, individually or collectively, the "Note").
C. Mortgagor and ALS have entered into an Assisted Living Consultant
and Operations Agreement for Certain Sterling House Facilities relating to the
management and operation of the Property (as the same may from time to time be
amended, restated, supplemented or otherwise modified (subject, however, to the
limitations thereon set forth in the Financing Documents), the "Management
Agreement").
D. The lien of this Mortgage secures up to the principal amount of
$2,850,000 (the "Lien Amount") of the unpaid principal balance of the Credit
Facility from time to time.
<PAGE> 2
E. As a condition precedent to making an advance of the Credit Facility
referred to above to the Mortgagor, the Lenders have required that the Mortgagor
and ALS secure the payment and performance of all obligations of the Borrower
(up to the Lien Amount in the case of principal) arising out of, or in
connection with, the Credit Facility by the execution of this Mortgage.
NOW, THEREFORE, in order to induce the Agent to make an advance of the
Credit Facility to the Mortgagor, the Mortgagor and ALS, respectively, agree as
follows:
ARTICLE I
DEFINITIONS, RULES OF CONSTRUCTION
Section 1.1 Definitions
As used in this Mortgage, the terms defined in the Preamble and
Recitals hereto shall have the respective meanings specified therein, and the
following terms shall have the meanings indicated:
"Access Laws" has the meaning given to such term in Section 4.23 (a)
(Access Law).
"Account," individually, and "Accounts," collectively mean with respect
to the Mortgagor and with respect to the Manager pertaining to the Property, all
presently existing or hereafter acquired or created accounts, accounts
receivable, contract rights, notes, drafts, instruments, acceptances, chattel
paper, leases and writings evidencing a monetary obligation or a security
interest in or a lease of goods, all rights to receive the payment of money or
other consideration under present or future contracts arising out of or relating
to all or any portion of the Property (including, without limitation, all rights
to receive the payment of money or other consideration from, or on behalf of,
any private pay resident), or by virtue of services rendered, loans and advances
made or other considerations given, by or set forth in, or arising out of, any
present or future chattel paper, note, draft, lease, acceptance, writing, bond,
insurance policy, instrument, document or general intangible, and all extensions
and renewals of any thereof, all rights under or arising out of present or
future contracts, agreements which gave rise to any or all of the foregoing
insofar as they pertain to the Property, including all claims or causes of
action now existing or hereafter arising in connection with or under any
agreement or document or by operation of law or otherwise, all collateral
security of any kind (including real property mortgages) given by any person
with respect to any of the foregoing, including, without limitation, all rights
to receive payment of money or other consideration from, or on behalf of, any
private pay patient, all rights to receive payments under all Resident
Agreements, and all third-party payor contracts (including Medicare and Medicaid
to the extent permitted by Laws), including, but not limited to, the Veterans
Administration, Participation Agreements, and any and all depository
2
<PAGE> 3
accounts (other than resident trust accounts) into which the proceeds of all or
any portion of such accounts may be now or hereafter deposited, and all Proceeds
of the foregoing.
"Additions" means any and all alterations, additions, accessions and
improvements to Property, substitutions therefor, and renewals and replacements
thereof.
"Banking Days" means a day on which Agent is open for the conduct of
substantially all of its banking business at its office in the city in which the
Note is payable and must also be a day on which dealings are carried on in the
applicable interbank Eurodollar market.
"Casualty" means any act or occurrence of any kind or nature that
results in damage, loss or destruction to the Property.
"Chattel Paper" means a writing or writings, whether presently existing
or hereafter acquired or created, arising out of or relating to the Property,
which evidences both a monetary obligation and a security interest in or lease
of specific goods; any returned, rejected or repossessed goods covered by any
such writing or writings and all proceeds (in any form including, without
limitation, accounts, contract rights, documents, chattel paper, instruments and
general intangibles) of such returned, rejected or repossessed goods; and all
Proceeds of the foregoing.
"Claim" means any liability, suit, action, claim, demand, loss,
expense, penalty, fine, judgment or other cost of any kind or nature whatsoever,
including without limitation, reasonable fees, costs and expenses of attorneys,
consultants, contractors and experts.
"Condemnation" means any taking of title, of use, or of any other
property interest to or in the Property under the exercise of the power of
eminent domain, whether temporarily or permanently, by any Governmental
Authority or by any Person acting under Governmental Authority.
"Condemnation Award" means any and all judgments, awards of damages
(including, but not limited to, severance and consequential damages), payments,
proceeds, settlements, amounts paid for a taking in lieu of Condemnation, or
other compensation heretofore or hereafter made, including interest thereon, and
the right to receive the same, as a result of, or in connection with, any
Condemnation of the Property or threatened Condemnation of the Property.
"Contracts of Sale" means any contracts for the sale of all or any part
of the Property or any interest therein, whether now or hereafter executed,
including, without limitation, all of the Proceeds thereof, any funds deposited
thereunder to secure performance by the purchasers of their obligations and the
right, after the occurrence of an Event of Default, to receive and collect all
payments due under any contracts of sale.
3
<PAGE> 4
"Default" means an event which, with the giving of Notice or lapse of
time, or both, would constitute an Event of Default under the provisions of this
Mortgage.
"Encumbrance" means any Lien, easement, right of way, roadway (public
or private), common area, condominium regime, cooperative housing regime,
restrictive covenant, Lease or other matter of any nature that would affect
title to the Property.
"Environmental Assessment" means a report of an environmental
assessment of the Property of such scope (including but not limited to the
taking of soil borings and air and groundwater samples and other above and below
ground testing) as the Agent may request, prepared by a recognized environmental
consulting firm reasonably acceptable to the Agent in all respects and
sufficient in detail to comply with the Agent's established guidelines and the
guidelines of any appropriate Governmental Authority.
"Environmental Requirement" means any Law or other agreement or
restriction, whether public or private (including but not limited to any
condition or requirement imposed by any insurer or surety company), now existing
or hereafter created, issued or enacted and all amendments thereto,
modifications thereof and substitutions therefor, which in any way pertains to
human health, safety or welfare, Hazardous Materials, Hazardous Materials
Contamination or the environment (including but not limited to ground, air,
water or noise pollution or contamination, and underground or above ground
tanks) and shall include without limitation, the Resource Conservation and
Recovery Act (the Solid Waste Disposal Act), 42 U.S.C. ss. 6901 et seq.; the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. ss. 9601 et seq. ("CERCLA"), as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"); the Hazardous Materials Transportation
Act, 49 U.S.C. ss. 1801 et seq.; the Federal Water Pollution Control Act, 33
U.S.C. ss. 1251 et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the
Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.; and the Safe Drinking
Water Act, 42 U.S.C. ss. 300f et seq.
"Equipment" means all equipment, machinery, furniture and fixtures and
supplies of every nature, presently existing or hereafter acquired or created,
used or usable in connection with the Property, together with all accessions,
additions, fittings, accessories, special tools, and improvements thereto and
substitutions therefor and all parts and equipment which may be attached to or
which are necessary for the operation and use of such personal property, whether
or not the same shall be deemed to be affixed to real property, and all rights
under or arising out of present or future contracts relating to the foregoing
and all Proceeds of the foregoing.
"Event of Default" means the occurrence of any one or more of the
events specified in ARTICLE VI (Events of Default) and the continuance of such
event beyond the applicable cure periods, if any, set forth in ARTICLE VI
(Events of Default).
4
<PAGE> 5
"Expenses" means all reasonable costs and expenses of any nature
whatsoever incurred at any time and from time to time (whether before or after
an Event of Default) by the Lenders in exercising or enforcing any rights,
powers and remedies provided in this Mortgage or any of the other Financing
Documents, including, without limitation, reasonable attorney's fees, court
costs, receiver's fees, management fees and costs incurred in the repair,
maintenance and operation of, or taking possession of, or selling, the Property.
"Facility" means an assisted living facility, an independent living
facility or a dementia care facility for persons with Alzheimer's disease and
other forms of memory impairment, as the
5
<PAGE> 6
case may be, located on the Property and known as "Sterling House of Leawood,
Kansas" (the "Facility").
"Financing Agreement" means the Financing and Security Agreement dated
as of September 28, 1998 between the Mortgagor and the Agent which sets forth,
among other things, the terms and conditions upon which the proceeds of the
Credit Facility will be disbursed, as the same may from time to time be
extended, amended, restated, supplemented or otherwise modified.
"Financing Documents" means this Mortgage, the Note, the Financing
Agreement, the Assignment of Leases and any and all other documents which the
Mortgagor and/or ALS or any other party or parties have executed and delivered,
or may hereafter execute and deliver, to evidence, secure or guarantee the
Obligations, or any part thereof, as the same may from time to time be extended,
amended, restated, supplemented or otherwise modified.
"General Intangibles" means any and all general intangibles of every
nature, whether presently existing or hereafter acquired or created, arising out
of or relating to the Property, including without limitation all books,
correspondence, credit files, records, computer programs, computer tapes, cards
and other papers and documents in the possession or control of the Mortgagor
and/or ALS, claims (including without limitation all claims for income tax and
other refunds), choses in action, judgments, patents, patent licenses,
trademarks (excluding the "Wynwood", "Crossings", "Claire Bridge",
"Wovenhearts", "Sterling House" and "Sterling Cottage" trademark or tradename),
trademark licenses (excluding any license to the Mortgagor and/or ALS for the
"Wynwood", "Crossings", "Claire Bridge", "Wovenhearts", "Sterling House" or
"Sterling Cottage" trademarks or tradenames), licensing agreements, rights in
intellectual property, goodwill, as that term is defined in accordance with
generally accepted accounting principles in effect in the United States of
America from time to time (including all goodwill of the Mortgagor's and/or ALS'
business symbolized by, and associated with, any and all trademarks, trademark
licenses, copyrights and/or service marks), royalty payments, contractual
rights, rights as lessee under any lease of real or personal property, literary
rights, copyrights, service names, service marks, logos, trade secrets, all
amounts received as an award in or settlement of a suit in damages, deposit
accounts, interest in joint ventures or general or limited partnerships (but
only with respect to a general or limited partnership relating to the Facility),
all Licenses to the extent and only to the extent the same can be pledged or
assigned in compliance with applicable law (whether or not designated with
initial capital letters), construction permits, Operating Agreements and
Management Contracts, Participation Agreements, Management Agreements and
Resident Agreements to the extent and only to the extent the same can be pledged
or assigned in compliance with applicable law (whether or not designated with
initial capital letters), and all Proceeds of the foregoing.
"Governmental Authority" means any governmental or quasi-governmental
entity, including, without limitation, any department, commission, board,
bureau, agency,
6
<PAGE> 7
administration, service or other instrumentality of any governmental entity.
"Hazardous Materials" means any and all hazardous or toxic substances,
wastes or materials which, because of their quantity, concentration, or
physical, chemical or infectious
7
<PAGE> 8
characteristics, may cause or pose a present or potential hazard or nuisance to
human health, safety or welfare or to the environment when used, treated,
stored, disposed of, generated, manufactured, transported or otherwise handled,
including without limitation, any substance, waste or material which is or
contains asbestos, radon, polychlorinated biphenyls, urea formaldehyde,
explosives, radioactive materials or petroleum products.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Mortgage) of the
Improvements, facilities, soil, ground water, air or other elements on, in or
constituting a part of, the Property by Hazardous Materials, or the
contamination of the buildings, facilities, soil, ground water, air or other
elements on, in or constituting a part of, any other property as a result of
Hazardous Materials at any time (whether before or after the date of this
Mortgage) emanating from the Property.
"Improvements" means the Facility and all other buildings, structures
and other improvements now or hereafter existing, erected or placed on the Land,
or in any way used in connection with the use, enjoyment, occupancy or operation
of the Land.
"Instruments" means any and all notes, notes receivable, drafts,
acceptances, and similar instruments or documents, both now owned or hereafter
created or acquired arising out of or relating to the Facility (or any part
thereof).
"Inventory" means any and all inventory of the Mortgagor and/or ALS and
all right, title and interest of the Mortgagor and/or ALS in, and to, all of its
now owned and hereafter acquired goods, merchandise and other personal property
furnished under any contract of service or intended for sale or lease arising
out of or relating to the Facility, including, without limitation, all supplies
of any kind, nature or description which are used or consumed in the Mortgagor's
and/or ALS' business and all documents of title or documents representing the
same and all Proceeds and products of the foregoing.
"Joint Venture Lease" means, if applicable to the Facility, a lease
between Mortgagor and another entity formed as a joint venture between Manager
or a Wholly Owned Subsidiary and one or more joint venture partners and formed
as a single-purpose, bankruptcy-remote legal entity to operate the Facility.
"Land" means the land described in Exhibit "A" attached hereto,
together with (a) all estates, title interests, title reversion rights,
increases, issues, profits, rights of way or uses, additions, accretions,
servitudes, gaps, gores, liberties, privileges, water rights, water courses,
alleys, streets, passages, ways, vaults, licenses, tenements, franchises,
hereditaments, appurtenances, easements and other rights, now or hereafter owned
by the Mortgagor and/or ALS and belonging or appertaining to the Land, (b) all
Claims whatsoever of the Mortgagor and/or ALS with respect to the Land, either
at law or in equity, in possession or in expectancy, and (c) all estate, right,
title and interest of the Mortgagor and/or ALS in and to
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all streets, roads and public places, opened or proposed, now or hereafter
adjoining or appertaining to, the Land.
"Laws" means federal, state and local laws, statutes, rules,
ordinances, regulations, codes, licenses, authorizations, decisions,
injunctions, interpretations, orders or decrees of any court or other
Governmental Authority having jurisdiction as may be in effect from time to
time.
"Leases" means all leases, subleases, license agreements and other
occupancy or use agreements (whether oral or written) including Joint Venture
Leases and all Resident Agreements, now or hereafter existing, which cover or
relate to the Property, together with all options therefor, amendments thereto
and renewals, modifications and guarantees thereof, including, without
limitation, any cash or securities deposited under the Leases to secure
performance by the tenants of their obligations under the Leases, whether such
cash or securities are to be held until the expiration of the terms of the
Leases or applied to one or more of the installments of rent coming due and all
rents, royalties, issues, income, profits and other benefits arising from the
Property.
"Licenses" means any and all licenses, certificates of need, operating
permits, franchises, and other licenses, authorizations, certifications,
permits, or approvals, other than construction permits, issued by, or on behalf
of, any Governmental Authority now existing or at any time hereafter issued,
with respect to the acquisition, construction, renovation, expansion, leasing,
management, ownership and/or operation of the Property, accreditation of the
Property, and/or the participation or eligibility for participation in any third
party payment or reimbursement programs to the extent the Mortgagor or Manager
is participating in such programs (but specifically excluding any and all
Participation Agreements to the extent required by law), any and all operating
licenses issued by any state Governmental Authority, any and all pharmaceutical
licenses and other licenses related to the purchase, dispensing, storage,
prescription or use of drugs, medications, and other "controlled substances,"
any and all licenses relating to the operation of food or beverage facilities or
amenities, if any, and any and all certifications and eligibility for
participation in Medicare, Medicaid, Blue Cross and/or Blue Shield, or any of
the Managed Care Plans, private insurer, employee assistance programs or other
third party payment or reimbursement programs as the same may from time to time
be amended, renewed, restated, reissued, restricted, supplemented or otherwise
modified.
"Lien" means any mortgage, deed of trust, pledge, security interest,
assignment, judgment, lien or charge of any kind, including, without limitation,
any conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of, or agreement to give, any financing statement under
the Uniform Commercial Code of any jurisdiction.
"Manager" means ALS, and its successors and assigns, in its capacity as
the manager and operator of the Facility.
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"Material Lease" means a Lease that generates $25,000 per year or more
in revenue for the Property.
"Mortgage" means this Mortgage, Assignment and Security Agreement
executed by the Mortgagor and ALS for the benefit of the Mortgagee, as the same
may from time to time be extended, amended, restated, supplemented or otherwise
modified.
"Mortgagee" means the Agent and all additional Lenders as may from time
to time agree to lend a portion of the Credit Facility pursuant to the terms and
conditions of an Agency Agreement (as defined in the Financing Agreement), and
their successors and assigns.
"Net Proceeds", when used with respect to any Condemnation Award or
insurance proceeds allocable to the Property, means the gross proceeds from any
Casualty or Condemnation remaining after payment of all reasonable expenses
(including attorneys' fees) incurred in the collection of such gross proceeds.
"Notice" means a written communication delivered by hand, or sent by
overnight courier, or by certified or registered mail, postage prepaid, return
receipt requested, to the Person to whom such communication is to be given, at
the following addresses:
Agent: Bank United
3200 Southwest Freeway
Suite 2000
Houston Texas 77027-7528
Attention: William B. Roberson
Vice President
Mortgagor: ALS Holdings, Inc.
c/o Alternative Living Services, Inc.
450 North Sunnyslope Road
Suite 300
Brookfield, Wisconsin 53005
Attention: Mark Ohlendorf
and David M. Boitano
ALS: Alternative Living Services, Inc.
450 North Sunnyslope Road
Suite 300
Brookfield, Wisconsin 53005
Attention: Mark Ohlendorf
and David M. Boitano
or at such other address as any party shall have notified the others of in the
manner set forth
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in this definition.
"Obligations" means all present and future debts, obligations and
liabilities of the Mortgagor to the Lenders arising pursuant to, and/or on
account of, the provisions of this Mortgage, the Note and any of the other
Financing Documents, including, without limitation, the obligations to (a) pay
all principal up to the Lien Amount (including, again without limitation, any
principal advanced after the date of this Mortgage and any principal that is
repaid and readvanced up to, but not exceeding the Lien Amount), interest, late
charges and prepayment premiums (if any) due at any time under the Note, and (b)
pay all Expenses, indemnification payments and other sums due at any time under
this Mortgage together with interest thereon as provided in Section 4.19
(Reimbursement; Interest), and (c) perform, observe and comply with all of the
terms, covenants and conditions, expressed or implied, which the Mortgagor
and/or ALS is required by this Mortgage and any of the other Financing
Documents, to perform, observe or comply with.
"Operating Agreements and Management Contracts" means any and all
contracts and agreements previously, now or at any time hereafter at any time
entered into by the Mortgagor and/or the Manager with respect to the
acquisition, construction or renovation of a significant nature, expansion,
ownership, operation, maintenance, use or management of the Property or
otherwise concerning the operations and business of the Property, including,
without limitation, any and all service and maintenance contracts, any
employment contracts, any and all management agreements other than the
Management Agreement, any and all consulting agreements, laboratory servicing
agreements, pharmaceutical contracts, physician, other clinician or other
professional services provider contracts, food and beverage service contracts,
and other contracts for the operation and maintenance of, or provision of
services to, the Property, as the same may from time to time be amended,
restated, supplemented, renewed or modified.
"Participation Agreements" means any and all third party payor
participation or reimbursement agreements now or at any time hereafter existing
for the benefit of Mortgagor and/or Manager relating to rights to payment or
reimbursement from, and claims against, private insurers, Managed Care Plans,
material employee assistance programs, Blue Cross and/or Blue Shield, federal,
state and local Governmental Authorities, including without limitation, Medicare
and Medicaid, and other third party payors, as the same may from time to time be
amended, restated, extended, supplemented or modified.
"Permitted Encumbrances" means (a) the Encumbrances set forth in the
Commitment for Title Insurance No. 984223 issued on July 9, 1998 by Chicago
Title Insurance Company, as updated to the date of this Mortgage, (b) this
Mortgage, (c) any Leases so long as such Leases are subject and subordinate to
this Mortgage if and to the extent required to be subordinate pursuant to
Section 4.14 (Leases) of this Mortgage, (d) liens for Property Assessments which
are either (i) not delinquent, or (ii) being contested in accordance with the
provisions of Section 4.20 (Permitted Contests), and (e) Resident Agreements.
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"Person" means an individual, a corporation, a partnership, a limited
liability company, a joint venture, a trust, an unincorporated association, any
Governmental Authority or any other entity.
"Personalty" means all of the Mortgagor's and/or ALS' interest in
personal property of any kind or nature whatsoever, whether tangible or
intangible and whether now owned or hereafter acquired, which is used in the
construction of, or is placed upon, or is derived from or used in connection
with the maintenance, use, occupancy or enjoyment of, the Property, including,
without limitation, (a) the Equipment, (b) the Accounts, (c) all Licenses to the
extent and only to the extent the same can be pledged or assigned in compliance
with applicable law (whether or not designated with initial capital letters),
and all Operating Agreements and Management Contracts (provided all of such
Operating Agreements and Management Contracts with non-affiliated parties that
are for more than one (1) year in duration shall be subordinate to this
Mortgage, and the Lenders shall have no responsibility for the performance of
the Mortgagor's and/or ALS' obligations thereunder), and (d) all General
Intangibles, Chattel Paper, Instruments and Inventory, and (e) with respect to
the Property, any and all plans and specifications, contracts and subcontracts
for the construction or repair of the Improvements, sewer and water taps,
allocations and agreements for utilities, bonds, permits, licenses, guarantees,
warranties, causes of action, judgments, Claims, profits, security deposits,
utility deposits, refunds of fees or deposits paid to any Governmental
Authority, letters of credit and policies of insurance; together with all
Additions to the Personalty and Proceeds thereof.
"Proceeds", when used with respect to any of the collateral described
in this Mortgage, means all proceeds within the meaning of the Uniform
Commercial Code of the State and shall also include the proceeds of any and all
insurance policies.
"Property" means the Land, the Improvements and the Personalty, and all
Additions to, and Proceeds of, all of the foregoing.
"Property Assessments" means all taxes, payments in lieu of taxes,
water rents, sewer rents, ground rents, assessments, condominium charges,
maintenance charges and other governmental or municipal or public or private
dues, charges and levies and any Liens (including federal tax liens) which are
or may be levied, imposed or assessed upon the Property or any part thereof, or
upon any Leases or any Rents, whether levied directly or indirectly or as excise
taxes, as income taxes, or otherwise.
"Real Property" means the Land and the Improvements, and all Additions
to, and Proceeds of, each of the foregoing.
"Reimbursement Rate" means the Post-Default Rate (as defined in the
Financing Agreement).
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"Rents" means all of the rents, royalties, issues, profits, revenues,
earnings, income and other benefits of the Property, or arising from the use or
enjoyment of the Property, or from any Lease or other use or occupancy agreement
pertaining to the Property.
"Resident Agreements" means any and all contracts, authorizations,
agreements and/or consents executed by or on behalf of any resident or other
person seeking services from the Mortgagor and/or Manager pursuant to which the
Mortgagor and/or Manager provides or furnishes health or assisted living care
and related services at the Property, including the consent to treatment,
assignment of payment of benefits by third party, as amended, restated, or
substituted from time to time.
"State" means the State of Kansas.
"Taxes" means all taxes and assessments whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, which at any time may be
assessed, levied, confirmed or imposed on the Mortgagor and/or Manager or on any
of their respective properties or assets or any part thereof or in respect of
any of their respective franchises, businesses, income or profits.
"Transfer" means any direct or indirect sale, assignment, conveyance or
transfer, including, without limitation, any contract or agreement to sell,
assign, convey or transfer, whether made with or without consideration.
"Wholly Owned Subsidiary" or "Wholly Owned Subsidiaries" means one or
more subsidiaries 100% owned by ALS which is or has been created for the sole
purpose of acquiring, constructing, owning and operating the Facility.
Section 1.2 Rules of Construction.
The words "hereof", "herein", "hereunder", "hereto", and other words of
similar import refer to this Mortgage in its entirety. The terms "agree" and
"agreements" mean and include "covenant" and "covenants". The headings of this
Mortgage are for convenience only and shall not define or limit the provisions
hereof. All references (a) made in the neuter, masculine or feminine gender
shall be deemed to have been made in all such genders, (b) made in the singular
or plural number shall be deemed to have been made, respectively, in the plural
or singular number as well, (c) to the Land, Improvements, Personalty, Real
Property or Property shall mean all or any portion of each of the foregoing,
respectively, and (d) to Section numbers are to the respective Sections
contained in this Mortgage unless expressly indicated otherwise. If the
Mortgagor is two (2) or more Persons, the term "Mortgagor" shall also refer to
all of the Persons signing this Mortgage as a Mortgagor, and to each of them,
and all of them are jointly and severally bound, obligated and liable hereunder.
The Agent may release, compromise, modify or settle with any of the Mortgagor,
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in whole or in part, without impairing, lessening or affecting the obligations
and liabilities of the others of the Mortgagor hereunder or under the Note. Any
of the acts mentioned aforesaid may be done without the approval or consent of,
or notice to, any of the Mortgagor and/or ALS.
ARTICLE II
GRANTING CLAUSES; CONDITION OF GRANT
In order to secure the prompt payment and performance of the
Obligations, each of the Mortgagor and, to the extent of its interest, if any,
therein, ALS (a) mortgages, warrants (subject to Permitted Encumbrances),
grants, bargains, sells and conveys the Real Property unto the Agent, for itself
and as agent for the Lenders, to have and to hold the Real Property in fee
simple forever; and (b) grants the Agent, for itself and as agent for the
Lenders, a lien on, and security interest in, the Personalty; and (c)
unconditionally and absolutely assigns the Leases and Rents to the Agent, for
itself and as agent for the Lenders (but subject to the license for collection
of Rents described in Section 4.14(b) (Leases)); and (d) assigns to, and grants
the Agent, for itself and as agent for the Lenders, a security interest in, any
Contracts of Sale; and (e) assigns and grants to the Agent, for itself and as
agent for the Lenders, all Condemnation Awards and any insurance proceeds
payable with respect to any Casualty. If and when the Mortgagor has paid and
performed all of the Obligations, and no further advances are to be made under
the Financing Agreement, the Agent will provide a release of this Mortgage to
the Mortgagor and ALS, and, to the extent permitted by Laws, the Mortgagor shall
be responsible for the recordation of such release and payment of any recording
costs.
This instrument secures, inter alia, obligations which may provide for
obligatory future advances and/or revolving credit advances or readvances, which
when made, shall have the same priority as advances or readvances made on the
date hereof whether or not (a) any advances or readvances were made on the date
hereof and (b) any indebtedness is outstanding at the time any advance or
readvance is made. Notwithstanding anything to the contrary contained herein,
the maximum principal indebtedness secured under any contingency by this
instrument at any one time shall in no event exceed $2,850,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES.
The Mortgagor and ALS make the following representations and warranties
to the Lenders:
Section 3.1 Organization, Power and Authority of the Mortgagor and ALS;
Financing Documents.
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The Mortgagor and ALS (a) are corporations duly organized, existing and
in good standing under the laws of the state in which they are organized, and
are duly qualified to do business and in good standing in the State (if
different from the state of their formation) and in any other state in which
they conduct business, and (b) have the power, authority and legal right to own
their property and carry on the business now being conducted by them and to
engage in the transactions contemplated by the Financing Documents. The
execution and delivery of, and the carrying out of the transactions contemplated
by, the Financing Documents executed by the Mortgagor and/or ALS, and the
performance and observance of the terms and conditions of such Financing
Documents, have been duly authorized by all necessary corporate action of the
Mortgagor and ALS, respectively. The Financing Documents to which the Mortgagor
and/or ALS are parties constitute the valid and legally binding obligations of
the Mortgagor and ALS, respectively, and are fully enforceable against the
Mortgagor and ALS in accordance with their respective terms.
Section 3.2 Other Documents; Laws.
The execution and performance of the Financing Documents executed by
the Mortgagor and/or ALS and the consummation of the transactions contemplated
thereby will not conflict with, result in any breach of, or constitute a default
under, the corporate charter and bylaws of the Mortgagor and/or ALS, or any
contract, agreement, document or other instrument to which the Mortgagor and/or
ALS are parties or by which the Mortgagor and/or ALS may be bound or affected,
and do not and will not violate or contravene any Law to which the Mortgagor
and/or ALS are subject.
Section 3.3 Taxes
The Mortgagor has filed all federal, state, county and municipal Tax
returns required to have been filed by the Mortgagor and has paid all Taxes
which have become due pursuant to such returns or pursuant to any Tax
assessments received by the Mortgagor.
Section 3.4 Legal Actions
There are no (a) Claims pending or, to the best of the Mortgagor's
knowledge and belief, threatened, against or affecting the Mortgagor, the
Mortgagor's business or the Property, or (b) investigations at law or in equity,
before or by any court or Governmental Authority, pending or, to the best of the
Mortgagor's knowledge and belief, threatened, against or affecting the
Mortgagor, the Mortgagor's business, or the Property. The Mortgagor is not in
default with respect to any order, writ, injunction, decree or demand of any
court or any Governmental Authority affecting the Mortgagor or the Property.
Section 3.5 Nature of Credit Facility; Usury; Disclosures.
The Mortgagor and ALS are business or commercial organizations, and the
Credit Facility is being made solely for the purpose of carrying on or acquiring
a business or
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commercial enterprise. The rate of interest charged on the Credit Facility does
not, and will not, violate any usury Law or interest rate limitation. The Credit
Facility is not subject to the federal Consumer Credit Protection Act (15 U.S.C.
ss.1601 et. seq.) nor any other federal or state disclosure or consumer
protection laws.
Section 3.6 Trade Names.
The Mortgagor and/or ALS conduct their respective businesses at the
Property solely under the name set forth in the Preamble to this Mortgage and
make use of no trade names in connection therewith other than Sterling House of
Leawood, Kansas, unless such trade names have been previously disclosed to the
Agent in writing.
Section 3.7 Warranty of Title.
The Mortgagor and/or ALS are (a) the owner of the fee simple legal
title to the Real Property, (b) except for the Permitted Encumbrances, the owner
of all of the beneficial and/or equitable interest in and to the Real Property,
and (c) lawfully seized and possessed of the Real Property. The Mortgagor and
ALS have the right and authority to convey the Real Property and do hereby
warrant specially, and agree to defend, the Real Property and the title thereto,
whether now owned or hereafter acquired, against all Claims by any Person
claiming by, through, or under the Mortgagor and/or ALS. The Real Property is
subject to no Encumbrances other than the Permitted Encumbrances.
Section 3.8 Property Assessments.
The Real Property is assessed for purposes of Property Assessments as a
separate and distinct parcel from any other property, such that the Real
Property shall never become subject to the Lien of any Property Assessments
levied or assessed against any property other than the Real Property.
Section 3.9 Independence of the Real Property.
No building or other improvements on property not covered by this
Mortgage rely on the Real Property or any interest therein to fulfill any
requirement of any Governmental Authority for the existence of such property,
building or improvements; and none of the Real Property relies, or will rely, on
any property not covered by this Mortgage or any interest therein to fulfill any
requirement of any Governmental Authority. The Real Property has been properly
subdivided from all other property in accordance with the requirements of any
applicable Governmental Authorities.
Section 3.10 Existing Improvements.
The existing Improvements, if any, were constructed, and are being
maintained, in accordance with all applicable Laws, including, without
limitation, zoning Laws.
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Section 3.11 Personalty.
The Mortgagor and/or ALS have good title to the Equipment, and the
Personalty is not subject to any Encumbrance other than the Permitted
Encumbrances.
Section 3.12 Leases, Rents, Contracts of Sale.
The Leases, Rents and Contracts of Sale are not subject to any
Encumbrance other than the Permitted Encumbrances.
Section 3.13 Presence of Hazardous Materials or Contamination;
Compliance With Environmental Requirements.
To the best of the Mortgagor's and ALS' knowledge and belief, (a) no
Hazardous Materials are currently located on the Property, nor is the Property
affected by any Hazardous Materials Contamination, (b) the Property has never
been used as a manufacturing, storage, treatment, processing, recycling or
disposal site for Hazardous Materials, and (c) no property in the vicinity of
the Real Property has ever been used as a manufacturing, storage, treatment,
processing, recycling or disposal site for Hazardous Materials, nor is any such
property affected by Hazardous Materials Contamination. The present condition
and uses of, and activities on, the Property do not violate any Environmental
Requirement and the uses of the Property which the Mortgagor and/or ALS and each
tenant and subtenant, if any, intend in the future to make of the Property
comply and will comply with all applicable Environmental Requirements. Neither
the Mortgagor or ALS, nor to the Mortgagor's or ALS' knowledge, any tenant,
subtenant or resident, has obtained or is required to obtain any permit or other
authorization to construct, occupy, operate, use or conduct any activity on, the
Property by reason of any Environmental Requirement. Neither the Mortgagor nor
ALS has received no notice, and is not aware, of any Claim involving a violation
of any Environment Requirement with respect to the Property or any parcel in the
vicinity of the Real Property or any operation conducted on the Property or on
any parcel in the vicinity of the Real Property. There is no Environmental
Requirement that requires any work, repair, construction, capital expenditure,
or other remedial work of any nature whatsoever to be undertaken with respect to
the Property.
ARTICLE IV
AFFIRMATIVE COVENANTS.
Section 4.1 Obligations.
The Mortgagor agrees to promptly pay and/or perform all of the
Obligations, time being of the essence in each case.
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Section 4.2 Insurance.
The Mortgagor or ALS shall maintain the following insurance at its sole
cost and expense:
(a) During any period of construction upon the Property,
insurance against Casualty to the Property under a policy or policies covering
such risks as are ordinarily insured against by similar businesses, but in any
event including fire, lightning, windstorm, hail, explosion, riot, riot
attending a strike, civil commotion, damage from aircraft, smoke, vandalism and
malicious mischief in the form of an "all risk" 100% non-reporting policy and
containing such other extended coverage as Agent may require. Unless otherwise
agreed in writing by the Agent, such insurance shall be for the greater of (i)
the full insurable value of the Property, or (ii) the Lien Amount. The
deductible amount under such policy or policies shall not exceed $5,000. No
policy of insurance shall be written such that the proceeds thereof will produce
less than the minimum coverage required by this Section by reason of
co-insurance provisions or otherwise. The term "full insurable value" means the
actual replacement cost of the Property (excluding foundation and excavation
costs and costs of underground flues, pipes, drains and other uninsurable
items). The "full insurable value" shall be determined from time to time at the
request of the Agent (but not more frequently than once every three (3) years)
by an appraiser or appraisal company or one of the insurers, who shall be
selected and paid for by the Mortgagor or ALS but subject to the Agent's
approval. In no event shall such insurance contain a co-insurance provision.
Upon completion of construction, the policy shall be converted to a standard
hazard insurance policy with extended coverage endorsement and insurance for
boiler or pressure vessel explosion (if there are boilers or pressure vessels
located on the property), in form and amount as Agent shall require.
(b) Comprehensive general public liability insurance for
injuries to Persons and damage to property, in limits of not less than
$5,000,000 for the aggregate of all occurrences during any given annual policy
period. Such insurance shall name the Agent on behalf of the Lenders as loss
payee thereunder as a certificate holder.
(c) Workers' compensation insurance for all employees of the
Mortgagor and ALS in such amount as is required by Law.
(d) During any period of construction upon the Property, the
Mortgagor or ALS shall maintain, or cause others to maintain, builder's risk
insurance (non-reporting form) of the type customarily carried in the case of
similar construction for the full replacement cost of work in place and
materials stored at or upon the Property.
(e) If at any time the Property is in an area that has been
identified by the Federal Emergency Management Act as having special flood and
mudslide hazards, and flood insurance is available in such area under the Flood
Disaster Protection Act of 1973, the Mortgagor or ALS shall purchase and
maintain a flood insurance policy in form and amount acceptable to the Agent. In
the event that the Property is not in an area having special flood and mudslide
hazards, the Mortgagor or ALS shall deliver to the Agent upon request evidence
satisfactory to the Agent stating that the Property is not in such a flood or
mudslide hazard area.
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(f) Upon the issuance of a certificate of occupancy for the
Property, the Mortgagor or ALS shall obtain business interruption insurance in
an amount equal to at least twelve (12) months debt service on the Lien Amount.
(g) To the extent that health care professionals are employed
by the Manager or the Mortgagee, Mortgagor shall obtain medical liability,
malpractice and other health care professional liability insurance protecting
Manager and Mortgagee, as the case may be, against claims arising from the
professional services performed by Manager or Mortgagee, as the case may be,
with limits of no less than $1,000,000 with respect to injury or death for each
person or occurrence and $3,000,000 in the aggregate for claims made for injury
or death in any one year, and an umbrella policy insuring against such liability
in an aggregate amount of $5,000,000. In the alternative, at Mortgagor's option,
Mortgagor may cause Manager to obtain and maintain such insurance.
(h) The Mortgagor or ALS will obtain and keep in force such
other and further insurance as may be required from time to time by the Agent in
order to comply with regular requirements and practices of the Agent in similar
transactions.
Each policy of insurance shall (i) be issued by one or more recognized,
financially sound and responsible insurance companies approved by the Agent and
which are qualified or authorized by the Laws of the State to assume the risks
covered by such policy, (ii) with respect to the insurance described under the
preceding subsections (a), (d), and (e), have attached thereto standard
non-contributing, non-reporting mortgagee clauses in favor of and entitling the
Agent on behalf of the Lenders without contribution to collect any and all
proceeds payable under such insurance, (iii) provide that such policy shall not
be canceled or modified without at least thirty (30) days prior written notice
to the Agent, and (iv) provide that any loss otherwise payable thereunder shall
be payable notwithstanding any act or negligence of the Mortgagor or ALS which
might, absent such agreement, result in a forfeiture of all or a part of such
insurance payment. Unless an escrow account has been established for insurance
premiums pursuant to Section 4.5 (Property Assessments; Escrow), the Mortgagor
or ALS shall promptly pay all premiums when due on such insurance and, on or
prior to the expiration dates of each such policy, the Mortgagor or ALS will
deliver to the Agent a renewal policy or policies marked "premium paid" and
ACORD evidence of insurance or other evidence of payment satisfactory to the
Agent. The Mortgagor or ALS will immediately give the Agent Notice of any
cancellation of, or change in, any insurance policy. The Lenders shall not,
because of accepting, rejecting, approving or obtaining insurance, incur any
liability for (i) the existence, nonexistence, form or legal sufficiency
thereof, (ii) the solvency of any insurer, or (iii) the payment of losses.
Section 4.3 Adjustment of Condemnation and Insurance Claims.
The Mortgagor or ALS shall give prompt Notice to the Agent of any
Casualty or any Condemnation or threatened Condemnation. The Agent is
authorized, at its sole option, to commence, appear in and prosecute, in its own
and/or the Lenders' names or in the
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Mortgagor's and/or ALS' names, any action or proceeding relating to any
Condemnation or Casualty, and to settle or compromise any Claim in connection
therewith. In such case, the Agent may also deduct from any payment all of the
Lenders' Expenses. The Agent agrees, however, that, so long as no Event of
Default has occurred, it will not settle or compromise any such Claim without
the prior written consent of the Mortgagor or ALS, which consent shall not be
unreasonably withheld or delayed. If the Agent elects not to adjust a Claim, the
Mortgagor and ALS agree to promptly pursue the settlement and compromise of the
Claim subject to the Agent's approval that will not be unreasonably withheld or
delayed. If, prior to the receipt by the Agent of any Condemnation Award or
insurance proceeds, the Property shall have been sold pursuant to the provisions
of Section 7.2 (Foreclosure), the Agent on behalf of the Lenders shall have the
right to receive such funds to the extent of (a) any deficiency found to be due
upon such sale with interest thereon (whether or not a deficiency judgment on
this Mortgage shall have been sought or recovered or denied), and (b) necessary
to reimburse the Lenders for their Expenses. The Mortgagor and ALS agree to
execute and deliver from time to time, upon the request of the Agent, such
further instruments or documents as may be requested by the Agent to confirm the
grant and assignment to the Lenders of any Condemnation Awards or insurance
proceeds.
Section 4.4 Application of Net Proceeds.
Net Proceeds must be applied to either the payment of the Obligations,
or the restoration of the Property. Unless an Event of Default has occurred and
continued beyond any applicable cure period, at Mortgagor's request Net Proceeds
shall be applied to the restoration of the Property as hereinafter provided.
Subsequent to such an Event of Default, the Lenders shall determine, in their
sole discretion, the manner in which Net Proceeds are to be applied. In the
event that, and to the extent that, Net Proceeds are to be applied to the
restoration of the Property, each of the following conditions must also be met
and complied with:
(a) An escrow account shall have been established with the
Agent composed of Net Proceeds, and, if necessary, additional deposits made by
the Mortgagor, which, in the reasonable judgment of the Agent, are sufficient to
restore the Property to its use, value and condition immediately prior to the
Casualty or Condemnation. The Agent shall be entitled, at the expense of the
Mortgagor, to consult such professionals as the Agent may deem necessary, in its
sole discretion, to determine the total costs of restoring the Property. No
interest will be paid on funds in the escrow account. The Mortgagor and ALS
hereby assign to, and grant the Agent, for itself and as agent for the Lenders,
a security interest in, such escrow account and the funds therein to secure the
payment and performance of the Obligations.
(b) All Material Leases must continue in full force and effect
(subject to rent abatement during restoration as may be provided in the Material
Leases) or, if terminated, the terminated Material Leases must have been
replaced with Material Leases of equal quality in the reasonable judgment of the
Agent. Any tenant having the right to terminate its Material
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Lease due to the Casualty or Condemnation, and which has not exercised that
right, shall have confirmed in writing to the Agent its irrevocable waiver of
such termination right.
(c) Proceeds from rental loss or business interruption
insurance, or both, or other moneys of the Mortgagor or ALS, must be available
to the Mortgagor or ALS in such amounts as the Agent, in its reasonable
judgment, considers sufficient to pay the debt service under the Note, and all
Property Assessments, insurance premiums and other sums becoming due from the
Mortgagor pursuant to this Mortgage and the Note during the time required for
restoration.
(d) All restoration will be conducted under the supervision of
an architect or engineer, or both, selected and paid for by the Mortgagor or ALS
and approved in advance by the Agent, and by a general contractor who shall be
approved by the Agent and shall have executed a fixed price contract.
(e) The restoration will be performed pursuant to plans and
specifications approved by the Agent.
If any of the foregoing conditions are not satisfied, the Agent may, in
its sole discretion, apply Net Proceeds to the payment of the Obligations.
If applied to restoration, Net Proceeds (and any other funds required
to be deposited with the Agent) shall be disbursed from time to time in
accordance with the terms and conditions of the construction loan agreement most
commonly used by the Agent at the time of the Casualty or Condemnation for major
commercial construction loans, and subject also to the following conditions
(which shall control in the event of any conflict with the provisions of such
construction loan agreement):
(a) Restoration shall commence within thirty (30) days
following receipt of the Net Proceeds by the Agent and shall be completed within
such time as may be reasonably determined by the Agent in view of the extent of
the Casualty or Condemnation but, in any event, shall be completed within a
reasonable period after the date the Net Proceeds are received.
(b) At the time of each disbursement, (i) no Material Leases
shall have been terminated which either singularly or in the aggregate affect
more than ten percent (10%) of the leasable area of the Property unless the same
have been replaced with Material Leases of equal quality, in the reasonable
judgment of the Agent, and (ii) no Default shall have occurred.
(c) Restoration shall be performed in accordance with the
requirements of Section 5.4 (Additional Improvements).
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(d) With respect to each disbursement and accompanying each
request therefor, there shall be delivered to the Agent (i) a certificate
addressed to the Agent on behalf of the Lenders from the architect or engineer
supervising the restoration stating that such disbursement is to pay the cost of
restoration not paid previously by any prior disbursement, that all restoration
completed to the date of such certificate has been completed in accordance with
applicable Laws and the approved plans and specifications, and that the amount
of such disbursement, together with all other disbursements, does not exceed
ninety percent (90%) of the aggregate of all costs incurred or paid on account
of work, labor or services performed on, and materials installed in, the
Property at the date of such certificate, and (ii) evidence satisfactory to the
Agent that all Claims then existing for labor, services and materials have been
paid in full or will be paid in full from the proceeds of the disbursement
requested.
(e) The final ten percent (10%) holdback shall be disbursed
only upon delivery to the Agent on behalf of the Lenders, in addition to the
items required in paragraph (d) above, of the following:
(i) Final waivers of Liens from all contractors
and subcontractors.
(ii) A certificate of the architect or engineer
stating that the restoration has been
completed in a good and workmanlike manner,
in accordance with the plans and
specifications approved by the Agent and in
accordance with all applicable Laws.
(iii) An estoppel affidavit from each tenant
occupying or leasing space in the Property
under a Material Lease stating that its
Material Lease is in full force and effect.
(f) Immediately upon the occurrence of any Event of Default,
the Lenders may apply Net Proceeds and any other sums deposited with the Agent
to the repayment of the Obligations.
Section 4.5 Property Assessments; Escrow.
(a) Unless an escrow account for payment of Property
Assessments is created pursuant to subsection (c) below, the Mortgagor or ALS
will (i) promptly pay in full and discharge all Property Assessments, and (ii)
exhibit to the Agent, upon demand, the receipted bills for such Property
Assessments prior to the day upon which the same shall become delinquent.
Property Assessments shall be considered delinquent as of the first day any
interest or penalties commence to accrue thereon.
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(b) In the event of the passage of any Law subsequent to the
date of this Mortgage in any manner changing or modifying the Laws now in force
governing the taxation of mortgages or debts secured by mortgages or the manner
of collecting any such taxes so as to adversely affect the Lenders (including,
without limitation, a requirement that internal revenue stamps be affixed to
this Mortgage or any of the other Financing Documents), the Mortgagor or ALS
will promptly pay any such tax. If the Mortgagor or ALS fails to make such
prompt payment, or if any Law prohibits the Mortgagor or ALS from making such
payment or would penalize the Lenders if the Mortgagor or ALS makes such
payment, then the entire unpaid balance of the Obligations shall, without
Notice, immediately become due and payable at the sole option of the Agent. In
no event, however, shall any income taxes of the Lenders or franchise taxes of
the Lenders measured by income, or taxes in lieu of such income taxes or
franchise taxes, be required to be paid by the Mortgagor or ALS.
(c) Upon demand by the Agent after the occurrence of a
Default, the Mortgagor or ALS shall pay to the Agent monthly, on any date
selected by the Agent, such amount as the Agent from time to time estimates will
generate sufficient funds to pay all Property Assessments and premiums for the
insurance required by Section 4.2 (Insurance) prior to the date such Property
Assessments or insurance premiums next become due. The Agent's estimates shall
be based on the amounts actually payable or, if unknown, on the amounts actually
paid for the year preceding that for which such payments are being made. Any
deficiencies shall be promptly paid by the Mortgagor or ALS to the Agent on
demand. The Mortgagor or ALS shall transmit bills for the Property Assessments
and insurance premiums to the Agent as soon as received. When the Agent has
received from the Mortgagor or ALS, or on its account, funds sufficient to pay
the same, the Agent shall, except as provided below following an Event of
Default, pay such bills. Payments for such purposes may be made by the Agent at
its discretion even though subsequent owners of the Property may benefit
thereby. Upon foreclosure or release of this Mortgage or, to the extent
permitted by Law, upon the occurrence of an Event of Default, the Lenders may
apply any sums so deposited to the payment of the Obligations. If from time to
time funds are accumulated under the terms of this Section in excess of the
amount needed to pay the Property Assessments and such insurance premiums, the
Mortgagor at least annually shall be given the option of (i) receiving a refund
of the excess funds, (ii) applying the excess funds to the payment of the
Obligations (provided prepayment is then permitted without penalty pursuant to
the Note), or (iii) permitting the excess funds to remain in the escrow account
established pursuant to this Section. If the Mortgagor or ALS fails to give
Notice to the Agent of its intent with respect to the application of the excess
funds as provided in this Section within sixty (60) days from the date the Agent
mailed notice of the accumulation of the excess funds, the Agent shall promptly
return the excess funds to the Mortgagor. Within sixty (60) days after receipt
from the Mortgagor or ALS of a Notice requesting a refund, the Agent shall also
return excess funds to the Mortgagor.
Section 4.6 Compliance with Laws.
The Mortgagor and ALS will comply with and not violate, and cause to be
complied with and not violated, all present and future Laws applicable to the
Property and its use and operation.
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Section 4.7 Maintenance and Repair of the Property.
The Mortgagor or ALS, at the Mortgagor's or ALS' sole expense, will (a)
keep and maintain the Improvements and the Equipment in good condition, working
order and repair, and (b) make all necessary or appropriate repairs and
Additions to the Improvements and Equipment, so that each part of the
Improvements and all of the Equipment shall at all times be in good condition
and fit and proper for the respective purposes for which they were originally
intended, erected, or installed.
Section 4.8 Additions to Security.
All right, title and interest of the Mortgagor and ALS in and to all
Improvements and Additions hereafter constructed or placed on the Property and
in and to any Equipment hereafter acquired shall, without any further mortgage,
conveyance, assignment or other act by the Mortgagor or ALS, become subject to
the Lien of this Mortgage as fully and completely, and with the same effect, as
though now owned by the Mortgagor or ALS and specifically described in the
granting clauses hereof. The Mortgagor and ALS agree, however, to execute and
deliver to the Agent such further documents as may be required pursuant to
Section 8.2 (Further Assurances).
Section 4.9 Inspection.
The Mortgagor and ALS will permit the Lenders, or one or more of them,
or any Person authorized by the Agent, to enter and make inspections of the
Property at all reasonable times and as often as may be requested by the
Lenders. Subject to the provisions of Section 4.18, the Lenders, or one or more
of them, shall provide to Mortgagor or ALS Notice of its intention to conduct
such an inspection not less than two (2) Banking Days prior to making such
inspection. The Lenders shall use good faith efforts to accommodate the
reasonable privacy rights of residents in the Facility.
Section 4.10 Management.
The Mortgagor or ALS at all times shall provide for the competent and
responsible management and operation of the Property. Any management contract or
contracts affecting the Property must be approved in writing by the Agent prior
to the execution of the same. The Agent hereby approves the Management Agreement
with respect to the Property and certain other properties.
Section 4.11 Books and Records.
The Mortgagor or ALS will keep and maintain full and accurate records
and books administered in accordance with generally accepted accounting
principles, consistently applied, showing in detail the earnings and expenses of
the Property and the operation thereof. The Mortgagor and ALS shall permit the
Lenders, or one or more of them, or any Person authorized by the Agent, to
inspect and examine such records and books (regardless
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of where maintained) and all supporting vouchers and data and to make copies and
extracts therefrom at all reasonable times and as often as may be requested by
the Lenders, or one or more of them.
Section 4.12 Estoppel Certificates.
Within ten (10) days after any request by the Agent or a proposed
assignee or purchaser of the Credit Facility, the Mortgagor and ALS shall
certify in writing to the Lenders, or to such proposed assignee or purchaser,
the then unpaid balance of the Credit Facility and whether the Mortgagor or ALS
have any right of defense or setoff to the payment or performance of any of the
Obligations.
Section 4.13 Subrogation.
To the extent permitted by Law, the Lenders shall be subrogated,
notwithstanding its release of record, to any Lien now or hereafter existing on
the Property to the extent that such Lien is paid or discharged by the Lenders
whether or not from the proceeds of the Credit Facility. This Section shall not
be deemed or construed, however, to obligate the Lenders to pay or discharge any
Lien.
Section 4.14 Leases.
(a) Any and all Material Leases or Joint Venture Leases on any
portion of the Property (other than Resident Agreements) may only be entered
into with the prior written consent of the Agent. All Resident Agreements (to
the extent that the form thereof is not mandated by Governmental Authorities)
and non-Material Leases shall be entered into on the Mortgagor's or ALS'
standard form, pre-approved by Agent. Unless otherwise agreed to by Agent,
Leases shall (i) be at market rents, (ii) other than Resident Agreements, be
subordinate to the lien of this Mortgage (provided that Joint Venture Leases and
Material Leases shall be subordinate to the lien of this Mortgage pursuant to
the terms of such Leases or subordination agreements acceptable to the Agent
(but in all cases there shall be nondisturbance provisions for Joint Venture
Leases and, if acceptable to the Agent, for other Material Leases)), (iii) other
than Resident Agreements, contain attornment language requiring each tenant to
attorn to any subsequent purchaser of the Property, (iv) other than with respect
to Joint Venture Leases and other than with respect to Material Leases with
respect to which the Agent has agreed to a nondisturbance provision, not contain
non-disturbance language entitling such tenant to remain at the Property after
any sale of such Property, and shall be in all other respects acceptable to the
Agent. At any time, within thirty (30) days after Notice from the Agent, the
Mortgagor or ALS will deliver to the Agent a written description in such
reasonable detail as the Agent may request of all of the Leases, including,
without limitation, the names of all tenants, the terms of all Leases and the
Rents payable under all Leases, and, on demand, the Agent will furnish to the
Agent fully executed copies of any Leases and such subordination and attornment
agreements as the Agent may request in accordance with the foregoing provision.
If any Lease provides for the giving by the tenant of certificates with respect
to the status of such Lease, the Mortgagor or ALS (as required) shall exercise
its right to require such certificate within ten (10) days after any request
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by the Agent. Within thirty (30) days after any request by the Agent, the
Mortgagor or ALS (as required) will notify all tenants under existing Leases,
and agrees to thereafter notify all tenants under future Leases, that (i) the
Mortgagor and/or ALS collect and receive all Rents pursuant to the license
granted to it hereunder, and (ii) upon Notice from the Agent that such license
has been revoked, the tenant shall pay all unpaid Rent directly to the Agent.
(b) So long as no Event of Default has occurred, the Mortgagor
and ALS shall have a license (which license shall terminate automatically and
without Notice upon the occurrence of an Event of Default) to collect upon, but
not prior to accrual, the Rents under the Leases and, where applicable,
subleases, such Rents to be held in trust for the Lenders. Each month, provided
no Event of Default has occurred, the Mortgagor and ALS may retain such Rents as
were collected that month and held in trust for the Lenders. Upon revocation of
such license and following notification to the tenants under the Leases by the
Agent that Rents are to be paid to the Agent, all Rents shall be paid directly
to the Agent and not through the Mortgagor or ALS. A demand by the Agent on any
tenant for the payment of Rent shall be sufficient to warrant such tenant to
make future payments of Rent to the Agent without the necessity of further
consent by the Mortgagor or ALS.
(c) The Mortgagor or ALS, at its sole cost and expense, will
use its best efforts to enforce or secure, or cause to be enforced or secured,
the performance of each and every obligation and undertaking of the respective
tenants under any Leases and will appear in and defend, at its sole cost and
expense, any action or proceeding arising under, or in any manner connected
with, such Leases.
(d) Neither the Mortgagor nor ALS will assign the whole or any
part of the Leases or Rents without the prior written consent of the Agent, and
any assignment without such consent shall be null and void.
(e) The Mortgagor and ALS will promptly perform all of their
obligations under any Leases. Neither the Mortgagor nor ALS will, without the
prior written consent of the Agent, (i) other than under or with respect to
Resident Agreements in the ordinary course of business, cancel, terminate,
accept a surrender of, reduce the payment of rent under, or accept any
prepayment of rent for more than one (1) month in advance under, any Lease, or
(ii) permit a Lien on the Property superior to any Lease, other than this
Mortgage.
(f) If any Lease is subordinate (either by its date, its
express terms, or by subsequent agreement of the tenant) to this Mortgage, such
Lease shall be subject to the condition (and this Mortgage so authorizes) that,
in the event of any sale of the Property pursuant to the provisions of Section
7.2 (Foreclosure), but subject to any non-disturbance agreement of the Lenders
with respect to such Lease, the Lease (other than any Resident Agreement) shall,
at the sole option of the Agent or any purchaser at such sale, either (i)
continue in full force and effect as set forth in the required advertisement of
sale, and the tenant or tenants thereunder will, upon request, attorn to and
acknowledge in writing the purchaser or purchasers at such sale or
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sales as landlord thereunder, or (ii) upon notice to such effect from the Agent
or any purchaser or purchasers, terminate within ninety (90) days from the date
of sale. As to any Lease, neither the Lenders nor any purchaser or purchasers at
foreclosure shall be bound by any payment of rent for more than one (1) month in
advance or by any amendment or modification of the Lease made without the prior
written consent of the Agent or, subsequent to a foreclosure sale, such
purchaser or purchasers. Notwithstanding the foregoing, the tenant under any
existing or future Joint Venture Lease shall execute a subordination,
non-disturbance and attornment agreement in compliance with Section 4.14
(Leases) of the Mortgage and otherwise in form and substance satisfactory to
Agent as a condition to Agent's approval of such Joint Venture Lease.
(g) The Lenders shall not be obligated to perform or discharge
any obligation of the Mortgagor or ALS under any Lease. This assignment of the
Leases in no manner places on the Lenders any responsibility for (i) the
control, care, management or repair of the Property, (ii) the carrying out of
any of the terms and conditions of the Leases, (iii) any waste committed on the
Property, or (iv) any dangerous or defective condition on the Property (whether
known or unknown). The Mortgagor and ALS agree to indemnify the Lenders for, and
forever hold them harmless from, any and all Claims arising out of, or in
connection with, any Leases or any assignment thereof.
Section 4.15 Contracts of Sale.
Following the occurrence of an Event of Default, the Mortgagor and ALS
irrevocably authorize the Agent, at its sole option, to collect, in the name of
the Mortgagor and/or ALS or in its own name as assignee, all payments due or to
become due under any Contract of Sale. The Mortgagor and ALS agree that they
will facilitate in every reasonable way the collection by the Agent of such
payments, and will, upon written request by the Agent, execute a written notice
and deliver the same to each purchaser directing the purchaser to make such
payments to the Agent. In no event shall the Lenders be accountable for more
moneys than they actually receive pursuant to a Contract of Sale, nor shall the
Lenders be liable for any failure to collect payments under any Contract of
Sale. The right to determine the method of collection and the extent to which
the enforcement of collection shall be prosecuted is reserved to the sole
discretion of the Agent. The Mortgagor and/or ALS, without the prior written
consent of the Agent, will not execute any assignment of any Contract of Sale or
the payments due thereunder. The Mortgagor and/or ALS shall furnish to the
Agent, within ten (10) days after a written request from the Agent, a written
certification containing the names of all contract purchasers of the Property
and shall attach to such certification a copy of any Contract of Sale. Nothing
contained in this Section shall (a) be construed as a consent by the Lenders to
any Transfer of the Property, or (b) constitute a delegation to the Lenders of
any of the Mortgagor's duties or obligations under any Contract of Sale. The
Mortgagor and ALS agree to indemnify the Lenders for, and forever hold them
harmless from, any Claim arising out of, or in connection with, any Contract of
Sale.
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Section 4.16 Taxes.
The Mortgagor shall pay and discharge all Taxes prior to the date on
which penalties are attached thereto unless and to the extent only that such
Taxes are contested in accordance with Section 4.20 (Permitted Contests).
Section 4.17 Hazardous Materials; Contamination.
(a) The Mortgagor and ALS agree to (i) give Notice to the
Agent within five (5) Banking Days of the Mortgagor's or ALS' acquiring
knowledge of the presence of any Hazardous Materials on the Property or of any
Hazardous Materials Contamination or of any Claim made or threatened against the
Mortgagor, ALS or the Property with respect to any Environmental Requirement
with a full description thereof; (ii) at the Mortgagor's or ALS' sole cost and
expense, promptly comply with any and all Environmental Requirements relating to
the Property or such Hazardous Materials or Hazardous Materials Contamination
and provide the Agent with satisfactory evidence of such compliance; (iii)
provide the Agent, within thirty (30) days after a demand by the Agent, with a
bond, letter of credit or similar financial assurance evidencing to the Agent's
satisfaction that the necessary funds are available to pay the cost of complying
with such Environmental Requirements and removing, treating and disposing of
such Hazardous Materials or Hazardous Materials Contamination and discharging
any Lien which may be established on the Property as a result thereof; and (iv)
take whatever other action as the Agent may deem necessary or appropriate to
restore to the Mortgagor and ALS the full use and benefit of the Property as
contemplated by the Financing Documents.
(b) The Mortgagor and ALS shall immediately upon the receipt
of Notice from the Agent, which may be given at any time and from time to time
by the Agent in its sole discretion after the occurrence of a Default or at any
time that Lenders have a reasonable belief that Hazardous Materials may be on
the Property or that Hazardous Materials Contamination may be on the Property or
that any claim may be made or threatened against the Mortgagor, ALS or the
Property with respect to any Environmental Requirement, cause an Environmental
Assessment to be undertaken with respect to the Property and furnish the same to
the Agent within thirty (30) days after the date of the Agent's request. The
cost of any such Environmental Assessment shall be borne exclusively by the
Mortgagor and ALS. The Mortgagor and ALS shall cooperate with each environmental
consulting firm engaged to make any such Environmental Assessment and shall
supply to each such environmental consulting firm, from time to time and
promptly on request, all information available to the Mortgagor and/or ALS to
facilitate the completion of the Environmental Assessment. Notwithstanding the
foregoing, the Lenders shall be under no duty to require the preparation of any
Environmental Assessment of the Property, and in no event shall any such
Environmental Assessment by the Lenders be or give rise to any representation or
warranty by the Lenders that Hazardous Materials are or are not present on the
Property, or that there has been compliance by the Mortgagor, ALS or any other
Person with any Environmental Requirement.
(c) The Mortgagor and ALS shall protect, indemnify, defend and
hold the Lenders, any Persons owned or controlled by, owning or controlling, or
under the common control of or affiliated with, any of the Lenders, any
participants in the Credit Facility, the
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directors, officers, employees and agents of any of the Lenders, and/or such
other Persons, and the heirs, personal representatives, successors and assigns
of each of the foregoing, harmless from and against any and all Claims of any
kind or nature whatsoever arising out of or in any way connected with any
investigative, enforcement, cleanup, removal, containment, remedial or other
private, governmental or regulatory action at any time threatened, instituted or
completed pursuant to any applicable Environmental Requirement against the
Mortgagor and/or ALS or the Lenders or against or with respect to the Property
or any condition, use or activity on the Property or at any time threatened or
made by any Person against the Mortgagor and/or ALS or the Lenders or against or
with respect to the Property or any condition, use or activity on the Property
relating to any damage, contribution, cost recovery, compensation, loss or
injury resulting from or in any way arising in connection with any Hazardous
Materials or Hazardous Materials Contamination. Upon demand by the Agent, the
Mortgagor and/or ALS shall diligently defend any such Claim which affects the
Property or is made or commenced against the Lenders, whether alone or together
with the Mortgagor, ALS or any other Person, all at the Mortgagor's and/or ALS'
sole cost and expense and by counsel to be approved by the Agent in the exercise
of its reasonable judgment. In the alternative, the Lenders may at any time
elect to conduct their own defense through counsel selected by the Lenders and
at the cost and expense of the Mortgagor and ALS.
Section 4.18 Right to Perform.
If the Mortgagor and ALS fail to promptly pay or perform any of the
Obligations, the Agent, after the giving of any applicable Notice and the
expiration of any applicable cure period that would transform the failure of
Mortgagor or ALS to pay or perform an Obligation into an Event of Default
(provided that no Notice or opportunity to cure shall apply with respect to this
Section 4.18 if the Agent reasonably believes that the lien of the Mortgage
against the Property may be impaired or the condition and value of the Property
may materially decline by virtue of the delay which would result from the giving
of any such Notice and/or opportunity to cure), but without further Notice to or
demand upon the Mortgagor or ALS, and without waiving or releasing any
Obligation or Default, may (but shall be under no obligation to) at any time
thereafter make such payment or perform such act for the account and at the
expense of the Mortgagor and ALS. The Lenders may enter upon the Property for
that purpose and take all action thereon as the Lenders consider necessary or
appropriate. All Expenses incurred by the Lenders pursuant to this Section,
together with interest thereon at the Reimbursement Rate, shall be paid by the
Mortgagor or ALS to the Lenders as provided in Section 4.19 (Reimbursement;
Interest).
Section 4.19 Reimbursement; Interest.
If the Lenders shall incur any Expenses or pay any Claims to which the
Lenders become a party by reason of this Mortgage or the rights and remedies
provided hereunder (regardless of whether this Mortgage expressly provides for
an indemnification against such Claims by the Mortgagor and/or ALS), such
Expenses and Claims shall be (a) paid by the Mortgagor and/or ALS to the Agent
on demand, together with interest thereon from the date
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incurred until paid in full by the Mortgagor or ALS at the Reimbursement Rate,
and (b) a part of the Obligations secured by this Mortgage. Notwithstanding the
foregoing, however, in any action or proceeding to foreclose this Mortgage or to
recover or collect the Obligations, the provisions of Law governing the recovery
of costs, disbursements and allowances shall prevail unaffected by this Section.
Whenever this Mortgage provides for interest to be paid at the Reimbursement
Rate, the Reimbursement Rate shall be calculated on the basis of a 360-day year
factor applied to actual days elapsed and adjusted simultaneously with any
change in the Agent's prime rate of interest.
Section 4.20 Permitted Contests.
Neither the Mortgagor nor ALS shall be required to pay any of the
Property Assessments, or to comply with any Law, so long as the Mortgagor and/or
ALS shall in good faith, and at their cost and expense, contest the amount or
validity thereof, or take other appropriate action with respect thereto, in good
faith and in an appropriate manner or by appropriate proceedings; provided that
(a) such proceedings operate to prevent the collection of, or other realization
upon, such Property Assessments or enforcement of the Law so contested, (b)
there will be no sale, forfeiture or loss of the Property during the contest,
(c) the Lenders are not subjected to any Claim, and (d) the Mortgagor or ALS
provides assurances satisfactory to the Agent (including, without limitation,
the establishment of an appropriate reserve account with the Agent) of its
ability to pay such Property Assessments or comply with such Law in the event
the Mortgagor or ALS is unsuccessful in its contest. Each such contest shall be
promptly prosecuted to final conclusion or settlement, and the Mortgagor and ALS
shall indemnify and save the Lenders harmless against all Claims in connection
therewith. Promptly after the settlement or conclusion of such contest or
action, the Mortgagor and ALS shall comply with such Law and/or pay and
discharge the amounts which shall be levied, assessed or imposed or determined
to be payable, together with all penalties, fines, interests, costs and expenses
in connection therewith.
Section 4.21 Security Agreement.
This Mortgage creates a security interest in the Personalty, and, to
the extent the Personalty is not real property, this Mortgage constitutes a
security agreement from the Mortgagor and ALS to the Lenders under the Uniform
Commercial Code of the State. The Mortgagor and ALS hereby agree to execute and
deliver on demand, and hereby irrevocably constitute and appoint the Agent the
attorney-in-fact of each of the Mortgagor and ALS, to execute, deliver and, if
appropriate, to file with the appropriate filing office or offices, such
financing statements or other instruments as the Agent may request or require in
order to perfect the security interest granted hereby or to continue the
effectiveness of the same.
Section 4.22 Appraisals.
The Lenders shall have the right, but not the obligation, to require
annual updated appraisals of the Property, which appraisals shall be prepared by
an appraiser or appraisers
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designated by the Agent and shall be in all respects reasonably acceptable to
the Agent. The basis of the appraisal calculations shown on such appraisal
reports and all other aspects of the appraisal reports must be satisfactory to
the Agent in all respects. The release of such appraisal reports by the Agent to
the Mortgagor or ALS shall be at the Agent's sole option if the Mortgagor or ALS
has not paid the cost of such appraisal. If the Mortgagor or ALS has paid the
cost of the appraisal, a copy of the appraisal will be provided to the Mortgagor
or ALS upon its signing of the Agent's standard appraisal release letter. The
Mortgagor and/or ALS shall reimburse the Lenders upon demand for all costs and
expenses incurred by any of the Lenders with respect to the preparation and
review of all future appraisals required pursuant to the terms hereof, if either
(i) such appraisal is required by law or banking regulation, (ii) an Event of
Default has occurred hereunder or under any of the Financing Documents, or (iii)
the Lenders or any of them has reason to believe a significant change in value
has occurred in the Facility due to a material adverse change in the occupancy
status or operating performance thereof and such appraisal actually reflects
such significant change.
The appraisals shall include, if deemed necessary by Agent, in its sole
discretion, updated discounted cash flow analysis, inspections of and commentary
on the physical status of the Facility and an engineering review. The basis of
the appraisal calculations shown on such appraisal reports and all other aspects
of the appraisal reports must be satisfactory to Lenders in all material
respects. If Mortgagor or ALS has paid the cost of the appraisal, a copy of the
appraisal will be provided to Mortgagor or ALS upon its signing of the Agent's
standard appraisal release letter. An Event of Default shall occur, if upon
receipt of an updated appraisal, the value of the facility, as determined by the
Lenders based upon their review of such appraisal, is less than that required in
the Financing Agreement unless Mortgagor and/or ALS comply with the provisions
of the Financing Agreement with respect to a Borrowing Base Deficiency (as
defined in the Financing Agreement).
Section 4.23 Access Law.
(a) The Mortgagor and ALS agree to use their best efforts to
ensure that the Property shall at all times comply with and remain in compliance
with the requirements of the Americans with Disabilities Act of 1990, all state
and local Laws and ordinances related to handicapped access and all rules,
regulations, and orders issued pursuant to any of the foregoing, including,
without limitation, the Americans with Disabilities Act Accessibility Guidelines
for Buildings and Facilities, all to the extent applicable to the Property
(collectively, "Access Laws").
(b) Notwithstanding any provisions set forth herein or in any
other document regarding the Agent's approval of alterations of the Property,
neither the Mortgagor nor ALS shall alter the Property in any manner which would
increase the Mortgagor's and/or ALS' responsibilities for compliance with the
applicable Access Laws without the prior written approval of the Agent. The
foregoing shall apply to tenant improvements constructed by the Mortgagor, ALS
or by any of its tenants (if any) or residents. The Agent may condition any such
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approval upon receipt of a certificate of Access Law compliance from an
architect, engineer, or other person acceptable to the Agent.
(c) The Mortgagor and ALS agree to give prompt notice to the
Agent of the receipt by the Mortgagor and/or ALS of any complaints related to
violations of any Access Laws and of the commencement of any proceedings or
investigations which relate to compliance with applicable Access Laws.
ARTICLE V
NEGATIVE COVENANTS.
Section 5.1 Encumbrances.
Without the prior written consent of the Agent, neither the Mortgagor
nor ALS will permit the Real Property or the Personalty, or the Leases, Rents
and Contracts of Sale, to become subject to any Encumbrances other than the
Permitted Encumbrances. The Mortgagor and/or ALS shall give the Agent Notice of
any default under any Lien and Notice of any foreclosure or threat of
foreclosure.
Section 5.2 Transfer of the Property.
Neither the Mortgagor nor ALS will Transfer, or contract to Transfer,
all or any part of the Property or any legal or beneficial interest therein
(except for Transfers of the Equipment permitted by Section 5.3 (Removal, etc.
of Equipment and Improvements)), other than (a) (i) sales or other dispositions
of assets in the ordinary course of business for value, provided the proceeds
thereof are used to pay down the Obligations or the asset sold or disposed of is
replaced by one of equal or greater value or (ii) the transfer of the Property
or the sale of the Property, in either case, in which the Property is eligible
for release from the lien of this Mortgage pursuant to the Financing Agreement,
or (b) changes in the legal or beneficial ownership of ALS which are not
precluded pursuant to the terms of the Financing Agreement.
Section 5.3 Removal, etc. of Equipment and Improvements.
Except to the extent permitted by the following sentence, none of the
Improvements or Equipment shall be removed, demolished or materially altered,
without the prior written consent of the Agent. The Mortgagor and ALS may remove
and dispose of, free from the Lien of this Mortgage, such Equipment as from time
to time becomes worn out or obsolete, provided that, either (a) at the time of,
or prior to, such removal, any such Equipment is replaced with other Equipment
which is free from Liens other than Permitted Encumbrances and has a value at
least equal to that of the replaced Equipment (and by such removal and
replacement the Mortgagor and/or ALS shall be deemed to have subjected such
Equipment to the Lien of this Mortgage), or (b) so long as a prepayment may be
made without penalty pursuant to the Note, such Equipment is sold at fair market
value for cash and the net cash
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proceeds received from such disposition are paid over promptly to the Agent to
be applied to the prepayment of the principal of the Credit Facility.
Section 5.4 Additional Improvements.
Neither the Mortgagor nor ALS will construct any Improvements other
than those presently on the Land without the prior written consent of the Agent.
The Mortgagor and/or ALS will complete and pay for, within a reasonable time,
any Improvements which the Mortgagor and/or ALS are permitted to construct on
the Land. The Mortgagor and ALS will construct and erect any permitted
Improvements (a) strictly in accordance with all applicable Laws and any private
restrictive covenants, (b) entirely on lots or parcels of the Land, (c) so as
not to encroach upon any easement or right of way or upon the land of others,
and (d) wholly within any building restriction lines applicable to the Land.
Section 5.5 Restrictive Covenants, Zoning, etc.
Without the prior written consent of the Agent, neither the Mortgagor
nor ALS will initiate, join in, or consent to any change in, any restrictive
covenant, easement, zoning ordinance, or other public or private restrictions,
limiting or defining the uses which may be made of the Property. The Mortgagor
and ALS will (a) promptly perform and observe, and cause to be performed and
observed, all of the terms and conditions of all agreements affecting the
Property, and (b) do or cause to be done all things necessary to preserve intact
and unimpaired any and all easements, appurtenances and other interests and
rights in favor of, or constituting any portion of, the Property.
Section 5.6 Prohibition on Hazardous Materials.
Neither the Mortgagor nor ALS will cause, commit, permit or allow to
continue any violation of any Environmental Requirement by any Person on or with
respect to the Property. Neither the Mortgagor nor ALS will place, install,
store, spill, leak, dispose of or release, or cause, commit, permit, or allow
the placement, installation, storage, spilling, leaking, disposal or release of,
any Hazardous Materials on the Property and will keep the Property free of all
Hazardous Materials Contamination.
ARTICLE VI
EVENTS OF DEFAULT.
The occurrence of any one or more of the following shall constitute an
"Event of Default" under this Mortgage:
Section 6.1 Payment Obligations.
The Mortgagor fails to promptly pay any of the Obligations within five
(5) calendar days of the date when due, except with regard to payment of (a) any
Borrowing Base
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Deficiency (as defined in the Financing Agreement) which shall be due as
provided in Section 2.1(h) of the Financing Agreement and (b) amounts due at
maturity for which no notice or cure period shall be required to be given.
Section 6.2 Transfer of the Property; Encumbrances.
The Mortgagor and/or ALS fail to comply with Section 5.1 (Encumbrances)
or Section 5.2 (Transfer of the Property).
Section 6.3 Insurance Obligations.
The Mortgagor and/or ALS fail to promptly perform or comply with any of
the terms and conditions set forth in Section 4.2 (Insurance).
Section 6.4 Environmental Obligations.
The Mortgagor and/or ALS fail to promptly perform or comply with any of
the terms and conditions set forth in Section 4.17 (Hazardous Materials;
Contamination ) or Section 5.6 (Prohibition on Hazardous Materials).
Section 6.5 Appraisals.
The Mortgagor and/or ALS fail to comply with Section 4.22 (Appraisals).
Section 6.6 Other Obligations
The Mortgagor and/or ALS fail to promptly perform or comply
with any of the Obligations (other than those expressly described in the other
Sections of this ARTICLE VI or in ARTICLE IX of the Financing Agreement), and
such failure continues uncured for a period of thirty (30) days after Notice
from the Agent to the Mortgagor or ALS unless the nature of the failure is such
that (a) it cannot be cured within the thirty (30) day period, and (b) the
Mortgagor or ALS institutes corrective action within the thirty (30) day period
and (c) the Mortgagor or ALS diligently pursues such action and completes the
cure within ninety (90) days.
Section 6.7 Event of Default Under Other Financing Documents.
An Event of Default (as defined therein) occurs under any of the
Financing Documents other than this Mortgage.
Section 6.8 Change in Zoning or Public Restriction.
Any change in any zoning ordinance or regulation or any other public
restriction is enacted, adopted or implemented, that limits or defines the uses
which may be made of the Property such that the present or intended use of the
Property, as specified in the Financing Documents, would be in violation of such
zoning ordinance or regulation or public
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restriction, as changed.
Section 6.9 Default Under Other Lien Documents.
A default occurs under any other mortgage, deed of trust or security
agreement covering all or any portion of the Property, including, without
limitation, any Permitted Encumbrances which is not cured within any grace
period provided therein.
Section 6.10 Execution; Attachment.
Any execution or attachment is levied against the Property, and such
execution or attachment is not set aside, discharged or stayed within thirty
(30) days after the same is levied.
ARTICLE VII
RIGHTS AND REMEDIES.
Upon the occurrence of any Event of Default, the Lenders may at any
time thereafter exercise any of the following rights, powers or remedies:
Section 7.1 Acceleration.
The Agent may declare (without Notice to the Mortgagor or ALS and
without presentment, demand, protest or notice of protest or of dishonor, all of
which the Mortgagor and ALS hereby waive) the Obligations to be immediately due
and payable.
Section 7.2 Foreclosure.
The Agent shall be entitled to foreclose this Mortgage as a mortgage
and shall be entitled to a judgment for the sum due upon the Note (not to exceed
the Lien Amount and all accrued interest thereon), and any additional sums paid
by virtue of this Mortgage, including all costs and expenses of enforcing the
same and reasonable attorney's fees, to the extent permitted by law, and shall
be entitled to a decree for the sale of the Property in satisfaction of said
judgment foreclosing all of the rights and equities of Mortgagor and ALS in and
to the Property, as well as all persons claiming under Mortgagor and/or ALS and
at which sale appraisement of the Property is hereby expressly waived by
Mortgagor and ALS. In connection with any foreclosure, the Agent may (a) procure
such title reports, surveys, tax histories and appraisals as they deem
necessary, and (b) make such repairs and Additions to the Property as it deems
advisable, all of which shall constitute Expenses. In case of any sale under
this Mortgage, by virtue of judicial proceedings or otherwise, the Property may
be sold as an entirety or in parcels, by one sale or by several sales, as may be
deemed by the Agent to be appropriate and without regard to any right of the
Mortgagor, ALS or any other Person to the marshalling of assets. Any sale
hereunder shall be made at public sale, at such time or times, at such place or
places, and upon such terms and conditions and after such previous
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public notice as required by Law. The proceeds of such sale or sales under this
Mortgage shall be applied as follows: First, to pay (a) all Expenses incurred in
connection with such sale or in preparing the Property for such sale including,
among other things, a reasonable counsel fee to the attorneys representing the
Lenders for conducting the proceedings if without contest, but if legal services
be rendered to the Lenders in connection with any contested matter in the
proceedings, then such other reasonable counsel fees shall be allowed and paid
out of the proceeds of such sale or sales as the court having jurisdiction may
deem proper, and (b) if allowed in the state or states in which the subject
Property is located, a commission equal to the commission allowed mortgagees for
making sales of property under decrees of the equity court having jurisdiction;
Second, to pay all of the Obligations and all interest then due and accrued
thereon, which shall include interest through the date of ratification of the
auditor's account; and Lastly, to pay the surplus, if any, to the Mortgagor, ALS
or any Person entitled thereto upon surrender and delivery to the purchaser or
purchasers of the Property, and less the Expenses, if any, of obtaining
possession.
Section 7.3 Taking Possession or Control of the Property.
As a matter of right without regard to the adequacy of the security,
and to the extent permitted by law without Notice to the Mortgagor or ALS, the
Agent shall be entitled, upon application to a court of competent jurisdiction,
to the immediate appointment of a receiver for all or any part of the Property
and the Rents, whether such receivership be incidental to a proposed sale of the
Property or otherwise, and the Mortgagor and ALS hereby consent to the
appointment of such a receiver. In addition, to the extent permitted by Law, and
with or without the appointment of a receiver, or an application therefor, the
Agent may (a) enter upon, and take possession of (and the Mortgagor and ALS
shall surrender actual possession of), the Property or any part thereof, without
Notice to the Mortgagor or ALS and without bringing any legal action or
proceeding, or, if necessary by force, legal proceedings, ejectment or
otherwise, and (b) remove and exclude the Mortgagor and ALS and their agents and
employees therefrom.
Section 7.4 Management of the Property.
Upon obtaining possession of the Property or upon the appointment of a
receiver as described in Section 7.3 (Taking Possession or Control of the
Property), the Agent or the receiver, as the case may be, may, at its sole
option, (a) make all necessary or proper repairs and Additions to or upon the
Property, (b) operate, maintain, control, make secure and preserve the Property,
(c) receive all Rents, and (d) complete the construction of any unfinished
Improvements on the Property and, in connection therewith, continue any and all
outstanding contracts for the erection and completion of such Improvements and
make and enter into any further contracts which may be necessary, either in
their or its own name or in the name of the Mortgagor and/or ALS (the cost of
completing the Improvements shall be Expenses secured by this Mortgage and
accrue interest as set forth in Section 4.19 (Reimbursement; Interest)). In so
doing, the Agent or such receiver shall have the right to manage the Property
and to carry on the business of the Mortgagor and/or ALS and may
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exercise all of the rights and powers of the Mortgagor and/or ALS, either in the
name of the Mortgagor and/or ALS, or otherwise, including, but without limiting
the generality of the foregoing, the right to lease the Property, to cancel,
modify, renew or extend any Lease or sub-lease of the Property and to carry on
any contracts entered into by the Mortgagor and/or ALS with respect to the
Property. The Agent or such receiver shall be under no liability for, or by
reason of, any such taking of possession, entry, holding, removal, maintaining,
operation or management, except for gross negligence or willful misconduct. Any
Rents received shall be applied (a) first, to pay all Expenses, and (b) the
balance, if any, to payment of the other Obligations. The Mortgagor or ALS shall
pay on demand to the Agent or the receiver (as the case may be) the amount of
any deficiency between (a) the Rents received by the Agent or the receiver, and
(b) all Expenses incurred together with interest thereon at the Reimbursement
Rate as provided in Section 4.19 (Reimbursement; Interest). The exercise of the
remedies provided in this Section shall not cure or waive any Event of Default,
and the enforcement of such remedies, once commenced, shall continue for so long
as the Lenders shall elect, notwithstanding the fact that the exercise of such
remedies may have, for a time, cured the original Event of Default.
Section 7.5 Uniform Commercial Code.
The Agent may proceed under the Uniform Commercial Code of the State as
to all or any part of the Personalty, and in conjunction therewith may exercise
all of the rights, remedies and powers of a secured creditor under the Uniform
Commercial Code of the State. Upon the occurrence of any Event of Default, the
Mortgagor and/or ALS shall assemble all of the Equipment and make the same
available within the Improvements. Any notification required by Section 9-504 of
the Uniform Commercial Code of the State shall be deemed reasonably and properly
given if sent in accordance with the Notice provision of this Mortgage at least
ten (10) days before any sale or other disposition of the Personalty.
Disposition of the Personalty shall be deemed commercially reasonable if made
pursuant to a public sale advertised at least twice in a newspaper of general
circulation in the community where the Property is located. Proceeds from any
such sale shall be applied as follows: (a) first, to pay all Expenses incurred
in connection with the sale, and (b) the balance, if any, to payment of the
other Obligations.
Section 7.6 Other Remedies.
The Agent shall have the right from time to time to enforce any legal
or equitable remedy against the Mortgagor and/or ALS and to sue the Mortgagor
for any sums (whether interest, damages for failure to pay principal or any
installments thereof, taxes, or any other sums required to be paid under the
terms of this Mortgage, as the same become due), without regard to whether or
not any other of the Obligations shall be due, and without prejudice to the
right of the Lenders thereafter to enforce any appropriate remedy against the
Mortgagor and ALS, including, without limitation, an action of foreclosure or an
action for specific performance, for a Default by the Mortgagor and/or ALS
existing at the time such earlier action was commenced.
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Section 7.7 Remedies, etc. Cumulative.
Each right, power and remedy of the Lenders as provided for in this
Mortgage, or in any of the other Financing Documents or now or hereafter
existing by Law, shall be cumulative and concurrent and shall be in addition to
every other right, power or remedy provided for in this Mortgage, or in any of
the other Financing Documents or now or hereafter existing by Law, and the
exercise or beginning of the exercise by the Agent on its behalf and on behalf
of the Lenders of any one or more of such rights, powers or remedies shall not
preclude the simultaneous or later exercise by or on behalf of the Lenders of
any or all such other rights, powers or remedies.
Section 7.8 No Waiver by Mortgagee, etc.
No course of dealing or conduct between the Mortgagee, ALS and the
Lenders shall be effective to amend, modify or change any provisions of this
Mortgage or the other Financing Documents. No failure or delay by the Lenders to
insist upon the strict performance of any term, covenant or agreement of this
Mortgage or of any of the other Financing Documents, or to exercise any right,
power or remedy consequent upon a breach thereof, shall constitute a waiver of
any such term, covenant or agreement or of any such breach, or preclude the
Lenders from exercising any such right, power or remedy at any later time or
times. By accepting payment after the due date of any of the Obligations, the
Lenders shall not be deemed to waive the right either to require prompt payment
when due of all other Obligations, or to declare an Event of Default for failure
to make prompt payment of any such other Obligations. Neither the Mortgagor, ALS
nor any other Person now or hereafter obligated for the payment of the whole or
any part of the Obligations shall be relieved of such liability by reason of (a)
the failure of the Lenders to comply with any request of the Mortgagor, ALS or
of any other Person to take action to foreclose this Mortgage or otherwise
enforce any of the provisions of this Mortgage, or (b) any agreement or
stipulation between any subsequent owner or owners of the Property and the
Lenders, or (c) the Lenders extending the time of payment or modifying the terms
of this Mortgage or any of the other Financing Documents without first having
obtained the consent of the Mortgagor, ALS or such other Person. Regardless of
consideration, and without the necessity for any notice to or consent by the
holder of any subordinate Lien on the Property, the Lenders may release any
Person at any time liable for any of the Obligations or any part of the security
for the Obligations, and may extend the time of payment or otherwise modify the
terms of this Mortgage or any of the other Financing Documents without in any
way impairing or affecting the Lien of this Mortgage or the priority of this
Mortgage over any subordinate Lien. The holder of any subordinate Lien shall
have no right to terminate any Lease regardless of whether or not such Lease is
subordinate to this Mortgage. The Lenders may resort to the security or
collateral described in this Mortgage or any of the other Financing Documents in
such order and manner as the Lenders may elect in their sole discretion.
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Section 7.9 Waivers and Agreements Regarding Remedies.
To the full extent the Mortgagor and/or ALS may do so, the Mortgagor
and/or ALS hereby:
(a) agree that they will not at any time plead, claim or take
advantage of any Laws now or hereafter in force providing for any appraisement,
valuation, stay, extension or redemption, and waive and release all rights of
redemption, valuation, appraisement, stay of execution, extension and notice of
election to accelerate the Obligations;
(b) waive all rights to a marshalling of the assets of the
Mortgagor and/or ALS, including without limitation, the Property, or to a sale
in the inverse order of alienation in the event of a foreclosure of the
Property, and agree not to assert any right under any Law pertaining to the
marshalling of assets, the sale in inverse order of alienation, the exemption of
homestead, the administration of estates of decedents, or other matters
whatsoever to defeat, reduce or affect the right of the Lenders under the terms
of this Mortgage to a sale of the Property without any prior or different resort
for collection, or the right of the Lenders to the payment of the Obligations
out of the proceeds of sale of the Property in preference to every other
claimant whatsoever;
(c) waive any right to bring or utilize any defense,
counterclaim or setoff, other than one which denies the existence or sufficiency
of the facts upon which any foreclosure action is grounded. If any defense,
counterclaim or setoff, other than one permitted by the preceding clause, is
timely raised in a foreclosure action, such defense, counterclaim or setoff
shall be dismissed. If such defense, counterclaim or setoff is based on a Claim
which could be tried in an action for money damages, such Claim may be brought
in a separate action which shall not thereafter be consolidated with the
foreclosure action. The bringing of such separate action for money damages shall
not be deemed to afford any grounds for staying the foreclosure action; and
(d) waive and relinquish any and all rights and remedies which
the Mortgagor and/or ALS may have or be able to assert by reason of the
provisions of any Laws pertaining to the rights and remedies of sureties.
Section 7.10 Setoff.
The Lenders may set off against and apply any funds of the Mortgagor
and/or ALS on deposit with, or under the control of, the Lenders, or any one of
them, to the payment of the Obligations, without Notice and without resort to
any judicial proceeding.
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ARTICLE VIII
MISCELLANEOUS.
Section 8.1 Application of Moneys.
Whenever it is provided in this Mortgage for any moneys to be applied
to payment of the Obligations, and no express order of payment is set forth,
such moneys shall be applied to the Obligations in such order and manner as the
Lenders may determine in their sole discretion.
Section 8.2 Further Assurances.
At any time, and from time to time, upon request by the Agent, the
Mortgagor and ALS will, at the Mortgagor's and ALS' expense, (a) correct any
defect, error or omission which may be discovered in the form or content of any
of the Financing Documents, and (b) make, execute, deliver and record, or cause
to be made, executed, delivered and recorded, any and all further instruments,
certificates, and other documents as may, in the opinion of the Agent, be
necessary or desirable in order to complete, perfect or continue and preserve
the Lien of this Mortgage. Upon any failure by the Mortgagor and ALS to do so,
the Agent may make, execute and record any and all such instruments,
certificates and documents for and in the name of the Mortgagor and ALS, all at
the sole expense of the Mortgagor and ALS, and the Mortgagor and ALS hereby
irrevocably appoint the Agent the agent and attorney-in-fact of the Mortgagor
and ALS to do so, this appointment being coupled with an interest. With respect
to any financing statement, the Mortgagor and ALS agree that a carbon,
photographic or other reproduction of a security agreement or a financing
statement is sufficient as a financing statement for purposes of Section 9-402
of the Uniform Commercial Code of the State.
Section 8.3 Notices.
All notices, certificates or other communications hereunder shall be
deemed given when delivered by hand or courier, the following Banking Day after
delivery by Federal Express or similar overnight delivery service, or three (3)
Banking Days after being mailed by certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Agent
or the Lenders: Bank United
- -------------- 3200 Southwest Freeway
Suite 1902
Houston, TX 77027
Attn: William B. Roberson
and
David Jones, Esq.
Office of General Counsel
Bank United
3200 Southwest Freeway
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Suite 1610
Houston, Texas 77027
With a courtesy
copy to: Mays & Valentine L.L.P.
8201 Greensboro Drive, Suite 800
McLean, Virginia 22102
Attn: Margaret Ann Brown, Esq.
if to the Mortgagor: c/o Alternative Living Services, Inc.
450 North Sunnyslope Road
Brookfield, Wisconsin 53005
Attn: Mark W. Ohlendorf
With a courtesy Rogers & Hardin
copy to: 2700 International Tower, Peachtree Center
229 Peachtree Street, N.E.
Atlanta, GA 30303-1601
Attn: Miriam J. Dent, Esq.
if to ALS: c/o Alternative Living Services, Inc.
450 North Sunnyslope Road
Brookfield, Wisconsin 53005
Attn: Mark W. Ohlendorf
With a courtesy Rogers & Hardin
copy to: 2700 International Tower, Peachtree Center
229 Peachtree Street, N.E.
Atlanta, GA 30303-1601
Attn: Miriam J. Dent, Esq.
Section 8.4 Successors and Assigns.
All of the grants, covenants, terms, provisions and conditions of this
Mortgage shall run with the Land and shall apply to and bind the respective
successors and assigns of the Mortgagor and ALS (including any permitted
subsequent owner of the Property), and inure to the benefit of the Lenders,
their successors and assigns.
Section 8.5 No Warranty by Mortgagee.
By inspecting the Property or by accepting or approving anything
required to be observed, performed or fulfilled by the Mortgagor and/or ALS or
to be given to the Agent or the Lenders pursuant to this Mortgage or any of the
other Financing Documents, the Lenders shall not be deemed to have warranted or
represented the condition, sufficiency, legality,
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effectiveness or legal effect of the same, and such acceptance or approval shall
not constitute any warranty or representation with respect thereto by the
Lenders.
Section 8.6 Amendments.
This Mortgage may not be modified or amended except by an agreement in
writing, signed by the party against whom enforcement of the change is sought.
Section 8.7 Illegality.
If fulfillment of any provision of this Mortgage or any transaction
related hereto shall at any time involve transcending the limit of validity
prescribed by Law, then ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity; and if any clause or provision herein
contained, other than the provisions requiring the Mortgagor and/or ALS to pay
the Obligations, operates or would prospectively operate to invalidate this
Mortgage in whole or in part, then such clause or provision only shall be void,
as though not herein contained, and the remainder of this Mortgage shall remain
operative and in full force and effect; and if such clause or provision requires
the Mortgagor and/or ALS to pay any of the Obligations, then at the sole option
of the Lenders, all of the Obligations shall become due and payable.
Section 8.8 Governing Law.
This Mortgage is being executed and delivered in the State and shall be
construed, governed and enforced in accordance with the Laws in effect from time
to time in the State.
[SIGNATURES BEGIN ON NEXT PAGE]
42
<PAGE> 43
IN WITNESS WHEREOF, the Mortgagor and ALS have each caused this
Mortgage to be executed under seal as of the day and year first written above.
WITNESS OR ATTEST: ALS HOLDINGS, INC.
/s/ Jan Campbell By /s/ Mark W. Ohlendorf (SEAL)
- ---------------------- ----------------------------------
Name: Mark W. Ohlendorf
Title: Vice President
WITNESS OR ATTEST: ALTERNATIVE LIVING SERVICES, INC.
/s/ Jan Campbell By /s/ Mark W. Ohlendorf (SEAL)
- ---------------------- ----------------------------------
Name: Mark W. Ohlendorf
Title: Senior Vice President
<PAGE> 44
STATE OF Wisconsin, CITY/COUNTY OF Waukesha, TO WIT:
I HEREBY CERTIFY, that on this 18th day of November, 1998, before me,
the undersigned Notary Public of said State, personally appeared Mark W.
Ohlendorf, who acknowledged himself/herself to be the Vice President of ALS
Holdings, Inc., a Delaware corporation, known to me (or satisfactorily proven)
to be the person whose name is subscribed to the within instrument, and
acknowledged that he/she executed the same for the purposes therein contained as
the duly authorized Vice President of said corporation by signing the name of
the corporation by himself as Vice President.
WITNESS my hand and Notarial Seal.
/s/ Joyce Hansen
-------------------------
Notary Public
My Commission Expires:
STATE OF Wisconsin, CITY/COUNTY OF Waukesha, TO WIT:
I HEREBY CERTIFY, that on this 18th day of November, 1998, before me,
the undersigned Notary Public of said State, personally appeared Mark W.
Ohlendorf, who acknowledged himself/herself to be the Senior Vice President of
Alternative Living Services, Inc., a Delaware corporation, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument, and acknowledged that he/she executed the same for the purposes
therein contained as the duly authorized Senior Vice President of said
corporation by signing the name of the corporation by himself as Senior Vice
President.
WITNESS my hand and Notarial Seal.
/s/ Joyce Hansen
__________________________
Notary Public
My Commission Expires:
44
<PAGE> 1
EXHIBIT 10.54
SCHEDULE OF MORTGAGES
WHICH ARE SUBSTANTIALLY IN THE FORM OF MORTGAGE
ATTACHED AS EXHIBIT 10.53
<TABLE>
<CAPTION>
DATE OF
MORTGAGOR FACILITY NAME LOCATION MORTGAGE AMOUNT MORTGAGE
--------- ------------- -------- --------------- --------
<S> <C> <C> <C> <C>
ALS Holdings, Inc. Sterling House of Olathe II 751 North Somerset Terrace $2,202,505 November 18, 1998
Olathe, KS 66062
ALS Holdings, Inc. Sterling House of Topeka 5820 S.W. Drury Lane $2,992,500 November 18, 1998
Topeka, KS 66604
ALS Holdings, Inc. Sterling House of Lawrence 3220 Peterson Road $3,210,000 November 18, 1998
Lawrence, KS 66049
ALS Holdings, Inc. Sterling House of Leawood 12720 State Line Road $2,850,000 November 18, 1998
Leawood, KS 66209
ALS Holdings, Inc. Sterling House of Lenexa I 8710 Caenen Lake Road $2,325,000 November 18, 1998
Lenexa, KS 66215
ALS Holdings, Inc. Sterling House of Lenexa II 8740 Caenen Lake Road $2,325,000 November 18, 1998
Lenexa, KS 66215
ALS Wisconsin Wynwood of Appleton 5800 Pennsylvania Avenue $5,397,360 December 10, 1998
Holdings, Inc.* Grand Chute, WI
ALS Wisconsin Wynwood of Madison 1601 Wheeler Rd. $4,012,500 December 10, 1998
Holdings, Inc.* Madison, WI
</TABLE>
* The form of mortgages entered into for these properties were conformed to meet
the requirements of Wisconsin law.
<PAGE> 1
EXHIBIT 10.55
ADDITIONAL BORROWER JOINDER SUPPLEMENT
THIS ADDITIONAL BORROWER JOINDER SUPPLEMENT (this "Agreement") is made
this 10th day of December, 1998, by and among ALS HOLDINGS, INC., a corporation
organized under the laws of the State of Delaware ("Holdings"), ALS WISCONSIN
HOLDINGS, INC., a Delaware corporation (the "Additional Borrower"), and
wholly-owned subsidiary of ALTERNATIVE LIVING SERVICES, INC. A corporation
organized under the law of the State of Delaware ("ALS"), and BANK UNITED (the
"Agent") in its capacity as agent for each of the Lenders (as defined in the
Financing Agreement, as that term is defined hereinbelow).
NOW, THEREFORE, for value received the undersigned agree as follows:
1. Reference is hereby made to the Financing and Security
Agreement dated as of September 28, 1998 (as amended, modified, restated,
substituted, extended and renewed at any time and from time to time, the
"Financing Agreement") by and among Holdings and each Person which is included
in the definition of "Borrower" (as that term is defined in the Financing
Agreement) immediately prior to the date of this Agreement (together with
Holdings, collectively, the "Existing Borrower"), and the Agent. Capitalized
terms not otherwise defined in this Agreement shall have the meanings given to
them in the Financing Agreement.
2. (a) As a condition precedent to extending the Credit
Facility to the Borrower, the Lenders required that any Wholly Owned Subsidiary
which owns a Facility to be encumbered with a Deed of Trust to secure the Credit
Facility execute this Agreement to evidence its agreement to the terms of the
Financing Documents as applicable. The Additional Borrower and the Existing
Borrowers are Wholly Owned Subsidiaries of ALS. The Additional Borrower and the
Existing Borrowers hereby acknowledge, confirm and agree that on and as of the
date of this Agreement the Additional Borrower has become an "Additional
Borrower" (as that term is defined in the Financing Agreement), and, along with
the Existing Borrowers, is included in the definition of "Borrower" under the
Financing Agreement and the other Financing Documents for all purposes thereof,
and as such shall be jointly and severally liable, as provided in the Financing
Documents, for all Obligations thereunder (whether incurred or arising prior to,
on, or subsequent to the date hereof) and otherwise bound by all of the terms,
provisions and conditions thereof.
(b) The Additional Borrower and the Existing Borrowers
hereby acknowledge, confirm and agree that on and as of the date of this
Agreement Additional Borrower has received the benefit of advances made under
the Loan and granted a first lien Mortgage/Deed of Trust, Assignment and
Security Agreement covering its Facilities located in Outagamie County,
Wisconsin known as "Wynwood of Appleton" and Dane County, Wisconsin known as
"Wynwood of Madison" (collectively, the "Property") to secure the Obligations,
and as such shall be jointly and severally liable, as provided in the Financing
Documents, for all Obligations thereunder (whether incurred or arising prior to,
on, or subsequent to the date hereof) and otherwise bound by all of the terms,
provisions and conditions thereof.
(c) Without in any way implying any limitation on any of
the provisions of
<PAGE> 2
this Agreement, the Additional Borrower agrees to execute such financing
statements, instruments, and other documents as the Agent may require to further
evidence the Additional Borrower's obligations under the Financing Agreement and
to further secure the Obligations.
(d) Without in any way implying any limitation on any of
the provisions of this Agreement, the Additional Borrower hereby represents and
warrants that all of the representations and warranties contained in the
Financing Documents are true and correct on and as of the date hereof as if made
on and as of such date, both before and after giving effect to this Joinder
Supplement, and that no Event of Default or Default has occurred and is
continuing or exists or would occur or exist after giving effect to this Joinder
Supplement.
3. The Additional Borrower hereby promises to pay, jointly and
severally with the Existing Borrowers all sums due or to become due under the
Note and all of the other Obligations. This Agreement shall constitute an
Allonge to the Note for the purposes of adding the Additional Borrower as a
Borrower, jointly and severally liable with the Existing Borrowers.
4. Each Person included in the term "Borrower" hereby covenants
and agrees with the Agent and the Lenders as follows:
(a) The Obligations include all present and future
indebtedness, duties, obligations, and liabilities, whether now existing or
contemplated or hereafter arising, of any one or more of the Additional Borrower
or the Existing Borrowers.
(b) Reference in this Agreement, the Financing Agreement
and the other Financing Documents to the "Borrower" or otherwise with respect to
any one or more of the Persons now or hereafter included in the definition of
"Borrower" shall mean each and every such Person and any one or more of such
Persons, jointly and severally, unless the context requires otherwise (by way of
example, and not limitation, if only one such Person is the owner of the real
property which is the subject of a mortgage).
(c) Each Person included in the term "Borrower" in the
discretion of its respective management is to agree among themselves as to the
allocation of the proceeds of the Credit Facility, provided, however, that each
such Person be deemed to have represented and warranted to the Agent and the
Lenders at the time of allocation that each benefit and use of proceeds is a
Permitted Use.
(d) For administrative convenience, each Person included
in the term "Borrower" hereby irrevocably appoints Holdings as the Borrower's
attorney-in-fact, with power of substitution (with the prior written consent of
the Agent in the exercise of its sole and absolute discretion), in the name of
Holdings or in the name of the Borrower or otherwise to take any and all actions
with respect to this Agreement, the other Financing Documents, the Obligations
and/or the Collateral (including, without limitation, the proceeds thereof) as
Holdings may so elect from time to time, including, without limitation, actions
to (i) request advances under the Loan, and direct the Agent to disburse or
credit the proceeds of any advance under the Loan directly to an account of
Holdings, any one or more of such Persons or otherwise, which direction shall
evidence the making of such advance and shall constitute the acknowledgment by
each such Person of the receipt of the proceeds of such
2
<PAGE> 3
Loan or the benefit of such Letter of Credit, (ii) enter into, execute, deliver,
amend, modify, restate, substitute, extend and/or renew this Agreement, any
Additional Borrower Joinder Supplement, any other Financing Documents, security
agreements, mortgages, deposit account agreements, instruments, certificates,
waivers, letter of credit applications, releases, documents and agreements from
time to time, and (iii) endorse any check or other item of payment in the name
of such Person or in the name of ALS. The foregoing appointment is coupled with
an interest, cannot be revoked without the prior written consent of the Agent,
and may be exercised from time to time through ALS' duly authorized officer,
officers or other Person or Persons designated by ALS to act from time to time
on behalf of ALS.
(e) Each Person included in the term "Borrower" hereby
irrevocably authorizes each of the Lenders to make advances to any one or more
or to all of such Persons, pursuant to the provisions of this Agreement upon the
written, oral or telephonic request of any one or more of the Persons who is
from time to time a Responsible Officer of a Borrower under the provisions of
the most recent certificate of corporate resolutions and/or incumbency of the
Person included in the term "Borrower" on file with the Agent and also upon the
written, oral or telephone request of any one of the Persons who is from time to
time designated pursuant to Section 2.2 of the Financing Agreement.
(f) Neither the Agent nor any of the Lenders assumes any
responsibility or liability for any errors, mistakes, and/or discrepancies in
the oral, telephonic, written or other transmissions of any instructions,
orders, requests and confirmations between the Agent and any one or more of the
Persons included in the term "Borrower" or the Agent and any of the Lenders in
connection with the Credit Facilities, any advance under the Loan, or any other
transaction in connection with the provisions of this Agreement with the
exception of those arising from the Agent's or any of the Lenders' gross
negligence or willful misconduct.
5. Without implying any limitation on the joint and several
nature of the Obligations, the Lenders agree that, notwithstanding any other
provision of this Agreement, the Persons included in the term "Borrower" may
create reasonable inter-company indebtedness between or among the Persons
included in the term "Borrower" with respect to the allocation of the benefits
and proceeds of the advances under the Financing Agreement. The Persons included
in the term "Borrower" agree among themselves, and the Agent and the Lenders
consent to that agreement, that each such Person shall have rights of
contribution from all of the such Persons to the extent such Person incurs
Obligations in excess of the proceeds of the Loans received by, or allocated to
purposes for the direct benefit of, such Person. All such indebtedness and
rights shall be, and are hereby agreed by the Persons included in the term
"Borrower" to be, subordinate in priority and payment to the indefeasible
repayment in full in cash of the Obligations, and, unless the Agent agrees in
writing otherwise, shall not be exercised or repaid in whole or in part until
all of the Obligations have been indefeasibly paid in full in cash. Each Person
included in the term "Borrower" agrees that all of such inter-company
indebtedness and rights of contribution are part of the Collateral and secure
the Obligations. Each Person included in the term "Borrower" hereby waives all
rights of counter claim, recoupment and offset between or among themselves
arising on account of that indebtedness and otherwise. Unless otherwise
consented to in writing by the Agent, no Person included in the term "Borrower"
shall evidence the inter-company indebtedness or rights of contribution by note
or other instrument, and shall
3
<PAGE> 4
not secure such indebtedness or rights of contribution with any Lien or
security.
6. (a) Each Person included in the term "Borrower" hereby
represents and warrants to the Agent and the Lenders that each of them will
derive benefits, directly and indirectly, from each advance under the Loan, both
in their separate capacity and as a member of the integrated group to which each
such Person belongs and because the successful operation of the integrated group
is dependent upon the continued successful performance of the functions of the
integrated group as a whole, because (i) the terms of the consolidated financing
provided under this Agreement are more favorable than would otherwise would be
obtainable by such Persons individually, and (ii) the additional administrative
and other costs and reduced flexibility associated with individual financing
arrangements which would otherwise be required if obtainable would substantially
reduce the value to such Persons of the financing.
(b) Each Person included in the term "Borrower" hereby
represents and warrants that all of the representations and warranties contained
in the Financing Documents are true and correct on and as of the date hereof as
if made on and as of such date, both before and after giving effect to this
Agreement, and that no Event of Default or Default has occurred and is
continuing or exists or would occur or exist after giving effect to this
Agreement.
7. Guaranty.
(a) Each Person included in the term "Borrower" hereby
unconditionally and irrevocably, guarantees to the Agent and the Lenders:
(i) the due and punctual payment in full (and
not merely the collectibility) by the other Persons included
in the term "Borrower" of the Obligations, including unpaid
and accrued interest thereon, in each case when due and
payable, all according to the terms of this Agreement, the
Notes and the other Financing Documents;
(ii) the due and punctual payment in full (and
not merely the collectibility) by the other Persons included
in the term "Borrower" of all other sums and charges which may
at any time be due and payable in accordance with this
Agreement, the Notes or any of the other Financing Documents;
(iii) the due and punctual performance by the
other Persons included in the term "Borrower" of all of the
other terms, covenants and conditions contained in the
Financing Documents; and
(iv) all the other Obligations of the other
Persons included in the term "Borrower".
(b) The obligations and liabilities of Each Person
included in the term "Borrower" as a guarantor under this paragraph 7 shall be
absolute and unconditional and joint and several, irrespective of the
genuineness, validity, priority, regularity or enforceability of this Agreement,
any of the Notes or any of the Financing Documents or any other circumstance
which might otherwise constitute a legal or equitable discharge of a surety or
guarantor. Each Person included in the term "Borrower" in its capacity as a
4
<PAGE> 5
guarantor expressly agrees that the Agent and the Lenders may, in their sole and
absolute discretion, without notice to or further assent of such Borrower and
without in any way releasing, affecting or in any way impairing the joint and
several obligations and liabilities of such Person as a guarantor hereunder:
(i) waive compliance with, or any defaults
under, or grant any other indulgences under or with respect to
any of the Financing Documents;
(ii) modify, amend, change or terminate any
provisions of any of the Financing Documents;
(iii) grant extensions or renewals of or with
respect to the Credit Facilities, the Notes or any of the
other Financing Documents;
(iv) effect any release, subordination,
compromise or settlement in connection with this Agreement,
any Note or any of the other Financing Documents;
(v) agree to the substitution, exchange, release
or other disposition of the Collateral or any part thereof, or
any other collateral for the Loan or to the subordination of
any lien or security interest therein;
(vi) make advances for the purpose of performing
any term, provision or covenant contained in this Agreement,
any of the Notes or any of the other Financing Documents with
respect to which the Borrower shall then be in default;
(vii) make future advances pursuant to the
Financing Agreement or any of the other Financing Documents;
(viii) assign, pledge, hypothecate or otherwise
transfer, the Obligations, the Note, any of the other
Financing Documents or any interest therein, all as and to the
extent permitted by the provisions of this Agreement;
(ix) deal in all respects with the other Persons
included in the term "Borrower" as if this paragraph 7 were
not in effect;
(x) effect any release, compromise or settlement
with any of the other Persons included in the term "Borrower",
whether in their capacity as a Borrower or as a guarantor
under this paragraph 7 or any other guarantor; and
(xi) provide debtor-in-possession financing or
allow use of cash collateral in proceedings under the
Bankruptcy Code, it being expressly agreed by all Persons
included in the term "Borrower" that any such financing and/or
use would be part of the Obligations.
(c) The obligations and liabilities of each Person
included in the term "Borrower", as guarantor under this paragraph 7 shall be
primary, direct and immediate, shall not be subject to any counterclaim,
recoupment, set off, reduction or defense based upon any claim that such Person
may have against any one or more of the other Persons included in the term
"Borrower", the Agent, any one or more of the Lenders and/or any other guarantor
and shall not be conditional or contingent upon pursuit or enforcement by the
Agent or other Lenders of any remedies it may have against Persons included in
the term "Borrower" with respect to this Agreement, the Note or any of the other
Financing Documents, whether pursuant to the terms thereof or by operation of
law. Without limiting the generality of the
5
<PAGE> 6
foregoing, the Agent and the Lenders shall not be required to make any demand
upon any of the Persons included in the term "Borrower", or to sell the
Collateral or otherwise pursue, enforce or exhaust its or their remedies against
the Persons included in the term "Borrower" or the Collateral either before,
concurrently with or after pursuing or enforcing its rights and remedies
hereunder. Any one or more successive or concurrent actions or proceedings may
be brought against each Person included in the term "Borrower" under this
paragraph 7, either in the same action, if any, brought against any one or more
of the Persons included in the term "Borrower" or in separate actions or
proceedings, as often as the Agent may deem expedient or advisable. Without
limiting the foregoing, it is specifically understood that any modification,
limitation or discharge of any of the liabilities or obligations of any one or
more of the Persons included in the term "Borrower", any other guarantor or any
obligor under any of the Financing Documents, arising out of, or by virtue of,
any bankruptcy, arrangement, reorganization or similar proceeding for relief of
debtors under federal or state law initiated by or against any one or more of
the Persons included in the term "Borrower", in their respective capacities as
borrowers and guarantors under this paragraph 7, or under any of the Financing
Documents shall not modify, limit, lessen, reduce, impair, discharge, or
otherwise affect the liability of each Borrower under this paragraph 7 in any
manner whatsoever, and this paragraph 7 shall remain and continue in full force
and effect. It is the intent and purpose of this paragraph 6 that each Person
included in the term "Borrower" shall and does hereby waive all rights and
benefits which might accrue to any other guarantor by reason of any such
proceeding, and the Persons included in the term "Borrower" agree that they
shall be liable for the full amount of the obligations and liabilities under
this paragraph 6 regardless of, and irrespective to, any modification,
limitation or discharge of the liability of any one or more of the Persons
included in the term "Borrower", any other guarantor or any obligor under any of
the Financing Documents, that may result from any such proceedings.
(d) Except with respect to any applicable notice and/or
opportunity to cure required to be given under the Financing Documents, each
Person included in the term "Borrower", as guarantor under this paragraph 7 ,
hereby unconditionally, jointly and severally, irrevocably and expressly waives:
(i) presentment and demand for payment of the
Obligations and protest of non-payment;
(ii) notice of acceptance of this paragraph 7 and
of presentment, demand and protest thereof;
(iii) notice of any default hereunder or under the
Notes or any of the other Financing Documents and notice of
all indulgences;
(iv) notice of any increase in the amount of any
portion of or all of the indebtedness guaranteed by this
paragraph 7;
(v) demand for observance, performance or
enforcement of any of the terms or provisions of this
paragraph 7, the Notes or any of the other Financing
Documents;
(vi) all errors and omissions in connection with the
Lender's administration of all indebtedness guaranteed by this
paragraph 7 except errors and omissions resulting from acts of bad
faith or gross negligence;
6
<PAGE> 7
(vii) any right or claim of right to cause a marshalling of
the assets of any one or more of the other Persons included in the term
"Borrower";
(viii) any act or omission of the Agent or the Lenders
(except acts or omissions in bad faith or constituting gross
negligence) which changes the scope of the risk as guarantor hereunder;
and
(ix) all other notices and demands otherwise required by
law which such Person may lawfully waive.
(e) Within ten (10) days following any request of the Agent so to
do, each Person included in the term "Borrower" will furnish the Agent and the
Lenders and such other persons as the Agent may direct with a written
certificate, duly acknowledged stating in detail whether or not any credits,
offsets or defenses exist with respect to this paragraph 7.
8. Acknowledgment of Guarantor. ALS in its capacity as guarantor under
the Guaranty of Payment Agreement dated September 28, 1998 by ALS for the
benefit of the Lenders (as amended, modified, substituted, extended and renewed
from time to time the "Guaranty") and in order to induce the Agent to enter into
the foregoing Agreement, (a) consents to the transactions contemplated by and
agreements made by the Additional Borrower and the Existing Borrower under the
foregoing Agreement, and (b) ratifies, confirms and reissues the terms,
conditions, promises, covenants, grants, assignments, agreements,
representations, warranties and provisions contained in the Guaranty.
9. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Texas, without regard to principles of
choice of law.
7
<PAGE> 8
WITNESS the due execution hereof as of the day and year first written
above.
WITNESS: ALS WISCONSIN HOLDINGS, INC.
/s/ Jan Campbell By: /s/ Mark W. Ohlendorf (SEAL)
- ------------------------- ------------------------
Name: Mark W. Ohlendorf
Title: Vice President
WITNESS: ALS HOLDINGS, INC.
/s/ Jan Campbell By: /s/ Mark W. Ohlendorf (SEAL)
- ------------------------- ------------------------
Name: Mark W. Ohlendorf
Title: Vice President
WITNESS: ALTERNATIVE LIVINGS SERVICES, INC.
/s/ Jan Campbell By: /s/ Mark W. Ohlendorf (SEAL)
- ------------------------- ------------------------
Name: Mark W. Ohlendorf
Title: Senior Vice President
WITNESS: BANK UNITED
in its capacity as Agent on behalf of the
Lenders
- ------------------------- By: /s/ (Seal)
----------------------------
Name:
Title:
8
<PAGE> 9
STATE/COMMONWEALTH OF WISCONSIN,
CITY/COUNTY OF WAUKESHA, TO WIT:
I HEREBY CERTIFY, that on this 8th day of December, 1998, before me,
the undersigned Notary Public of said State/Commonwealth, personally appeared
Mark W. Ohlendorf, who acknowledged himself/herself to be the Vice President of
ALS Wisconsin Holdings, Inc., a Delaware corporation, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument, and acknowledged that he executed the same for the purposes therein
contained as the duly authorized Vice President of said corporation by signing
the name of the corporation by himself/herself as Vice President.
WITNESS my hand and Notarial Seal.
/s/ Joyce Hansen
--------------------------------------
Notary Public
My Commission Expires: 5/26/02.
STATE/COMMONWEALTH OF WISCONSIN,
CITY/COUNTY OF WAUKESHA, TO WIT:
I HEREBY CERTIFY, that on this 8th day of December, 1998, before me,
the undersigned Notary Public of said State/Commonwealth, personally appeared
Mark W. Ohlendorf, who acknowledged himself/herself to be the Vice President of
ALS Holdings, Inc, a Delaware corporation, known to me (or satisfactorily
proven) to be the person whose name is subscribed to the within instrument, and
acknowledged that he executed the same for the purposes therein contained as the
duly authorized Vice President of said corporation by signing the name of the
corporation by himself/herself as Vice President.
WITNESS my hand and Notarial Seal.
/s/ Joyce Hansen
--------------------------------------
Notary Public
My Commission Expires: 5/26/02.
9
<PAGE> 10
STATE/COMMONWEALTH OF WISCONSIN,
CITY/COUNTY OF WAUKESHA, TO WIT:
I HEREBY CERTIFY, that on this 8th day of December, 1998, before
me, the undersigned Notary Public of said State/Commonwealth, personally
appeared Mark W. Ohlendorf, who acknowledged himself/herself to be the Senior
Vice President of Alternative Living Services, Inc., a Delaware corporation,
known to me (or satisfactorily proven) to be the person whose name is subscribed
to the within instrument, and acknowledged that he executed the same for the
purposes therein contained as the duly authorized Senior Vice President of said
corporation by signing the name of the corporation by himself/herself as Senior
Vice President.
WITNESS my hand and Notarial Seal.
/s/ Joyce Hansen
--------------------------------------
Notary Public
My Commission Expires: 5/26/02.
STATE/COMMONWEALTH OF ___________,
CITY/COUNTY OF ____________ , TO WIT:
I HEREBY CERTIFY, that on this _____ day of _____________, 19__, before
me, the undersigned Notary Public of said State/Commonwealth, personally
appeared ________________, who acknowledged himself/herself to be a
_______________ of Bank United, known to me (or satisfactorily proven) to be a
person whose name is subscribed to the within instrument, and acknowledged that
she executed the same for the purposes therein contained as the duly authorized
___________________ of said Bank by signing the name of the Bank by herself as
_______________.
WITNESS my hand and Notarial Seal.
------------------------------
Notary Public
My Commission Expires:
10
<PAGE> 1
EXHIBIT 10.56
MASTER PURCHASE AGREEMENT
This Master Purchase Agreement (as it may be amended and/or restated from
time to time, this "Agreement") is made as of the 22nd day of December, 1998 by
and between NATIONAL HEALTH INVESTORS, INC., a Maryland corporation (herein the
"Buyer") and ALTERNATIVE LIVING SERVICES, INC., a Delaware corporation (herein
the "Seller").
RECITALS:
A. Seller individually and through affiliated companies develops,
constructs and operates assisted living facilities (the "Projects") throughout
the United States.
B. Buyer has agreed to provide to Seller up to $100,000,000.00 for
sale/leaseback transactions relating to certain of the Projects, which
transactions are to close between the date of this Agreement and December 31,
1999, subject to the terms, provisions and conditions of this Agreement.
C. Seller and Buyer are entering into this Agreement to set forth the
terms and conditions under which Seller (or Seller's affiliated companies) will
sell and Buyer will purchase certain of the Projects to be leased to Seller.
D. Seller and Buyer may have multiple closings under this Agreement
through December 31, 1999.
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
ARTICLE I
1.1 Defined Terms. When used in this Agreement, the following terms shall
have the following meanings:
"Accounts Receivable" means all accounts receivable, including, without
limitation, all accounts receivable, loans receivable, any other receivables of
Seller with respect to the Facilities as determined in accordance with GAAP.
"Adjustment Date" means 11:59 p.m. on the date immediately prior to the
Closing Date.
"Agreement" means this Master Purchase Agreement, together with the
Exhibits attached hereto, as the same shall be amended from time to time in
accordance with the terms hereof.
"Approvals" has the meaning set forth in Article IV hereof.
"Closing" has the meaning set forth in Section 3.1 hereof.
"Closing Date" has the meaning set forth in Section 3.1 hereof.
<PAGE> 2
"Closing Documents" has the meaning set forth in Section 3.1 hereof.
"Contracts" means collectively those agreements (other than the Operating
Leases and Operating Permits) under which Seller conducts the business of the
Facilities.
"Environmental Assessments" has the meaning set forth in Section 7.3
hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Loss" means any loss or taking by condemnation, damage,
destruction or otherwise of or to any of the Purchased Assets.
"Facilities" and "Facility" have the meanings set forth in Section 2.3
hereof.
"Facility Leases" means collectively the leases of the Facilities executed
by an authorized representative of Buyer as landlord and an authorized
representative of Seller as tenant, as they may be amended from time to time in
accordance with the terms thereof, which Facility Leases shall be executed from
time to time simultaneously with the Closing Documents relating to the same
Facilities on one or more of the Closing Dates and shall be in a form
reasonably acceptable to Buyer, Seller and their respective counsel.
"Financial Statements" means the financial statements of the Facility
described in Section 5.6 hereof.
"GAAP" means generally accepted accounting principles consistently applied
(but for financial information prepared by Seller's management, such
information will not include footnotes required by GAAP).
"Hazardous Material" has the meaning set forth in Section 5.5(j) hereof.
"Indemnified Party" has the meaning set forth in Section 11.3(a) hereof.
"Indemnifying Party" has the meaning set forth in Section 11.3(a) hereof.
"Inspection Period" means the period set forth in Section 8.1(d) hereof.
"Inspection Reports" means the reports issued by governmental regulatory
bodies regarding the Facilities' compliance with regulations applicable
thereto.
"Inventory" means the operating supply of consumable supplies, including
drugs, medicines, materials and other supplies used in connection with the
operation of the Facilities.
"Limited Warranty Deeds" means collectively the limited warranty deeds by
which the Real Property is conveyed by Seller to Buyer by Facility, which deeds
are in the form of Exhibit A attached hereto and incorporated herein by this
reference.
"Operating Leases" means collectively those leases of Personal Property
used for the operations of any of the Facilities.
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"Operating Permits" means collectively those instruments issued by
appropriate governmental bodies that authorize Seller to engage in the
activities listed in such instruments.
"Permitted Exceptions" has the meaning set forth in Section 7.1 hereof.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint stock company, trust,
unincorporated organization, securities exchange, government or any agency or
political subdivision thereof or any other form of entity.
"Personal Property" with respect to a specific Facility means all
machinery, equipment (but not including computers, peripherals and other
computer hardware), furniture, fixtures, furnishings, linens, parts, Inventory
and other items of tangible personal property owned by Seller that are
necessary for the operation and/or maintenance of that Facility at the
expiration or earlier termination of the Facility Lease. All other personal
property owned by Seller at such time shall be excluded from the definition of
"Personal Property."
"Purchased Assets" means all of Seller's right, title and interest in and
to the Real Property and, to be effective only at the expiration, in and to the
following: (a) the Contracts, (b) the Inventory, (c) the Personal Property, (d)
the Operating Leases, (e) the Resident Agreements, (f) the Records, and (g) to
the extent (and only to the extent) permitted by applicable law or regulations,
the Operating Permits, but excluding the Retained Assets.
"Purchase Price" has the meaning set forth in Section 3.4 hereof.
"Real Property" means the tracts or parcels of real property more
particularly described on Exhibit B attached hereto and incorporated herein by
this reference, and all buildings, improvements and fixtures thereon, including
without limitation the Facilities, together with all strips and gores, rights
of way, easements, privileges and appurtenances pertaining thereto, including
any right, title and interest of Seller in and to any street adjoining any
portion of the Real Property.
"Records" means with respect to any specific Facility files and records,
including correspondence with Residents and suppliers, books of account,
employment records, Resident files, records pertaining to supplies, advertising
records, files and literature and other written materials of that Facility, but
subject to all patient confidentiality requirements.
"Resident" means a Person occupying a Unit pursuant to a Resident
Agreement.
"Resident Agreements" means with respect to any specific Facility
collectively all written and oral leases, occupancy agreements and other
agreements granting any Person the right to occupy certain portions of the Real
Property where that Facility is located existing at the termination of the
Facility Lease for that Facility.
"Retained Assets" means collectively those assets used by Seller in the
operation and/or maintenance of the Facilities, which assets are retained by
Seller and listed by Facility with specificity on Exhibit C attached hereto and
incorporated herein by this reference.
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<PAGE> 4
"Retained Liabilities" means collectively all of the obligations and
liabilities of Seller.
"Seller's Closing Certificate" means the certificate of Seller in the form
of Exhibit D attached hereto and incorporated herein by this reference.
"Seller's Opinion of Counsel" means the opinion of Seller's counsel in the
form of Exhibit E attached hereto and incorporated herein by this reference.
"Subtenant" means with respect to any Facility, the affiliate of Seller
which will sublease that Facility from Seller.
"Surveys" has the meaning set forth in Section 7.2 hereof.
"Title Company" means Chicago Title Insurance Company, National Business
Unit, , Atlanta, Georgia .
------------------------------------------ ----------
"Title Policies" has the meaning set forth in Section 7.1(a) hereof.
"Transfer Date" means the date Seller's rights to continue possession of
the Facilities is terminated, whether upon the expiration of the Facility
Leases or otherwise.
"Unit" means the licensed residential units at the Facilities.
ARTICLE II
2.1 Commitment Amount. Buyer will provide up to $100,000,000.00 to
purchase certain Projects from Seller for leaseback to Seller subject to the
terms and provision of this Agreement. The $100,000,000.00 amount shall
include the purchase price of the Facilities (as hereinafter defined) and such
transaction costs as Seller and Buyer may agree to be paid out of the
$100,000,000.00 Commitment. The Commitment is subject to being reduced if not
used by Seller as set forth in Section 2.2 hereof.
2.2 Reduction in Commitment Amount. To the extent that the amount of the
commitment funds used for closings under this Agreement through the end of the
calendar quarters shown below are less than the minimum aggregate amounts shown
below, the remaining unused commitment amount shall be reduced by the amount of
such short fall.
<TABLE>
<CAPTION>
Minimum amount of
Aggregate Closings to
Time Period avoid reduction
- ----------- ---------------------
<S> <C>
December , 1998 through
March 31, 1999 $25,000,000.00
December , 1998 through
June 30, 1999 $50,000,000.00
December , 1998 through
September 30, 1999 $75,000,000.00
</TABLE>
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<PAGE> 5
The reduction in the commitment as determined above is the cumulative
reduction.
2.3 Approval of Projects. Seller shall designate from time to time
specific Projects for Buyer's review and inspection and shall propose a
purchase price for such Project. Seller shall provide to Buyer plans and
specifications for construction, pro forma projections for each Project and
such other financial, marketing and feasibility information relating to such
Project, the Seller or the proposed Subtenant for that Project as Buyer shall
reasonably request. Buyer shall have the right to accept or reject any Project
for purchase under this Agreement and the proposed purchase price for that
Project. Those Projects which Buyer agrees to purchase hereunder are referred
to as the "Facilities" and each a "Facility". Buyer and Seller shall from time
to time prepare a schedule of the Facilities and the purchase price for such
Facility. If Buyer has closed its purchase hereunder of any Facility, Buyer
shall have no right to rescind or reverse that action at a later time based
upon any default by Buyer or Seller relating to other Facilities. Buyer and
Seller acknowledge and agree that notwithstanding anything set forth in this
Agreement to the contrary, a Facility or Facilities shall not be deemed to be
subject to this Agreement unless and until the conveyance thereof and
simultaneous leaseback actually closes.
2.4 Multiple Closings. Buyer shall purchase the Facilities from Seller in
one or more closings but not later than December 31, 1999.
2.5 Governing Agreement. The closing or closings of the Facilities shall
be subject to the terms, conditions and provisions of this Agreement.
2.6 Rate on Facility Leases. For Facilities conveyed to Buyer under this
Agreement and closed by April 16, 1999, the rate used to determine the Base
Rate under the Facility Lease for any such Facility shall be 9.5% per annum.
For Facilities conveyed to Buyer under this Agreement after April 16, 1999, the
Base Rent on the Facility Leases for those Facilities shall be calculated at
such rate as may be mutually agreed upon by Buyer and Seller.
2.7 Term of Facility Leases. The Facility Leases shall have an Initial
Term which expires December 31, 2012. The Facility Leases will grant to the
Tenant thereunder three renewal options of ten years each.
ARTICLE III
PURCHASE AND SALE
3.1 Closing. The closing of the purchase and sale of the Purchased Assets
relating to any specific Facility as described in this Agreement (each a
"Closing") shall be at such time and place and on such dates as may from time
to time be agreed upon by Buyer and Seller (the "Closing Date"); provided,
however, that each Closing Date shall be on or before thirty (30) days after
the expiration of the Inspection Period for any group of Facilities. This
Agreement and such other agreements or instruments as may be reasonably
necessary to consummate the transaction contemplated hereby with respect to any
specific Facility shall be collectively referred to as the "Closing Documents."
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<PAGE> 6
3.2 Purchase, Sale and Lease. On the Closing Date and pursuant to all of
the terms and subject to all of the conditions of this Agreement, including
but not limited to Section 3.3 below, Seller shall sell, assign, convey,
transfer and deliver to Buyer, and Buyer shall purchase the Purchased Assets
relating to the Facilities then being sold subject only to the Permitted
Exceptions. No sale or other transfer of the Retained Assets shall occur.
Simultaneously with the Closing, Buyer, as landlord, and Seller, as tenant,
shall enter into the Facility Leases.
3.3 Seller's Continuing Interest in Certain Purchased Assets. The sale and
transfer to Buyer of the Contracts, the Inventory, the Personal Property, the
Operating Leases, the Resident Agreements, the Records, and the Operating
Permits is the sale of a future interest to become effective only upon the
expiration or termination of the Facility Lease. Seller shall retain at the
Closing Date all rights of ownership to the Purchased Assets except the Real
Property until the expiration or termination of the Facility Lease.
3.4 Payment on Closing. At the Closing, Buyer shall pay Seller the amount
set forth from time to time in a Schedule 3.4 to be prepared and signed by
Seller and Buyer (the "Purchase Price") for the Facilities listed thereon
either by (i) certified check drawn upon, or cashier's check of, a national
bank (or other banking institution as Seller may approve in writing) or (ii)
wire delivery of funds through the Federal Reserve System to an account
designated in writing by Seller, subject to any adjustments and prorations
provided for in this Agreement. The Purchase Price shall be allocated entirely
to the Real Property.
3.5 Closing Date Deliveries. On the Closing Date, the Closing for those
Facilities being sold shall take place as follows:
(a) Seller's Obligations. Seller shall deliver or cause to be
delivered to Buyer properly executed and dated as of the Closing Date:
(i) Limited Warranty Deeds for the Facilities being conveyed
at that Closing;
(ii) Seller's Closing Certificate;
(iii) Seller's Opinion of Counsel;
(iv) evidence that any notice that is required to be delivered
to the appropriate licensing and/or regulatory agency of any federal,
state or local government in connection with the sale of the
Facilities to Buyer has been given;
(v) all notices, agreements and/or consents, if any, that are
required to be given to or obtained from the appropriate licensing
and/or regulatory agency of any federal, state or local government in
connection with the sale of the Facilities to Buyer including without
limitation any Approvals;
(vi) if required by law, notice addressed to each Resident and
other tenant at the Facilities informing them of the sale of the
Facilities to Buyer as of the Closing Date and directing such
Resident and tenant to make all future payments under such Resident's
and tenant's lease to the Tenant in accordance with the terms of the
Facility Leases;
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<PAGE> 7
(vii) owner's affidavits, as may be required by the Title
Company, executed and sworn to by an authorized representative of
Seller together with such other statements and instruments as may be
required by the Title Company insuring title to the Real Property in
order for the Title Company to issue the Title Policies subject only
to the applicable Permitted Exceptions;
(viii) possession and occupancy of the Real Property (subject
to the rights of Seller as tenant under the Facility Leases);
(ix) a written statement of an authorized representative of
Seller dated as of the Closing Date reaffirming that all
representations and warranties of Seller made in this Agreement are
true and correct in all material respects;
(x) payment, satisfaction and discharge of any and all
outstanding liens, mortgages, security interest and other
encumbrances securing the payment of any indebtedness affecting any
of the Purchased Assets;
(xi) a certification complying with the requirements of
Sections 1445 of the Internal Revenue Code of 1986, as amended, by
Seller that Seller is not a foreign person within meaning of such
section;
(xii) evidence reasonably satisfactory to Buyer and the Title
Company insuring title to the Real Property that Seller has a
requisite authority to perform its obligations under this Agreement
and the parties executing the Closing Documents on behalf of Seller
are incumbent and duly authorized to execute such closing
documentation on behalf of Seller;
(xiii) the Facility Leases;
(xiv) all other documents reasonably necessary or appropriate to
complete the transaction contemplated by this Agreement, including
without limitation the documents provided for in Article IX hereof.
(b) Buyer's Obligations. Buyer shall deliver or cause to be delivered
to Seller properly executed and dated as of the Closing Date:
(i) the Purchase Price for those Facilities;
(ii) the Facility Leases; and
(iii) all other documents reasonably necessary or appropriate to
complete the transaction contemplated by this Agreement.
3.6 Prorations and Adjustments.
(a) Other. All real property taxes and assessments, all personal
property taxes and assessments, all utility charges, wages, and other
costs and charges relating to the Facilities whether accruing before the
Closing Date or after shall be paid by Seller. All income from
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<PAGE> 8
Seller's operation of the Facilities whether accruing for periods prior to
or after the Closing Date shall be retained by Seller.
(b) Use of Escrow. Seller and Buyer agree that the Closing shall be
effected through the escrow closing services of Chicago Title Insurance
Company, Atlanta, Georgia, Attention Chris Valentine. Buyer and Seller
shall provide an instruction letter to Chicago Title Insurance Company for
the Closing.
3.7 Costs and Attorney's Fees. Seller shall pay all legal fees, costs and
expenses of Seller relating to the negotiation and preparation of this
Agreement, any of the Closing Documents and the costs and expenses described in
Section 7.7.
3.8 Sale and Use Taxes. All federal, state, local and other transfer or
sales and use taxes applicable to, imposed upon or arising out of the transfer
to Buyer of the Purchased Assets as contemplated by this Agreement shall be
paid by Seller.
ARTICLE IV
GOVERNMENTAL APPROVALS
It is specifically understood and agreed by Seller and Buyer that the
Closing shall be in all respects subject to Buyer's ascertaining to Buyer's
reasonable satisfaction that all applications and procedures, if any, necessary
to obtain approvals (collectively the "Approvals") from all necessary
government agencies in connection with the sale of the Purchased Assets from
Seller to Buyer have been properly executed and filed by Buyer and such other
entities, as necessary.
ARTICLE V
REPRESENTATION AND WARRANTIES OF SELLER
Seller, for itself, and on behalf of any wholly owned subsidiary or other
affiliate of Seller holding title to any of the Facilities that Seller now or
hereafter designates under Section 2.3 and which is accepted by Buyer, hereby
represents and warrants the following:
5.1 Organization. Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Seller has the
power to own, lease and operate its properties and to carry on its business in
the places where such properties are now owned, leased or operated and such
business is now conducted. Complete and correct copies of Seller's Articles of
Incorporation and Bylaws in effect on the date hereof have been provided to
Buyer.
5.2 Authorization; Enforceability. The execution, delivery and performance
of this Agreement and the other Closing Documents required hereby to be
executed and delivered by Seller are within the corporate power of Seller and
have been duly authorized by all necessary corporate action by Seller. All
Persons executing this Agreement on behalf of Seller and to execute the other
Closing Documents on behalf of Seller are incumbent in the offices that such
officers purport to hold.
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<PAGE> 9
The performance of this Agreement is, and of the other Closing Documents will
be, when executed and delivered to Buyer, the valid and binding obligations of
Seller enforceable against Seller in accordance with their respective terms
subject only to bankruptcy, insolvency, reorganization, moratoriums or similar
laws at the time in effect affecting the enforceability or rights of creditors
generally and by general equitable principles that may limit the right to
obtain equitable relief.
5.3 Absence of Conflicting Agreements. Except as set forth in Exhibit 5.3
attached hereto and incorporated herein by this reference, neither the
execution, delivery or performance of this Agreement by Seller nor the
consummation of the sale and purchase of the Purchased Assets or any other
transaction contemplated by this Agreement by Seller, does or will, after the
giving of notice, or the lapse of time, or otherwise:
(a) conflict with, result in a breach of, or constitute a default
under any Contract, Operating Lease, Resident Agreement or other
agreement, arrangement, commitment or plan to which Seller is party or by
which Seller is bound that relates to the ownership and/or operation of
any Purchased Asset;
(b) result in the creation of any mortgage, pledge, lien, claim,
charge or encumbrance upon any of the Purchased Assets;
(c) terminate, amend or modify, or give any party the right to
terminate, amend, modify, abandon or refuse to perform any Contract,
Operating Lease, Resident Agreement or other agreement, arrangement,
commitment or plan to which Seller is a party that relates to the
ownership and/or operation of any Purchased Asset;
(d) accelerate or modify, or give any party the right to accelerate
or modify, the time within which, or the terms under which, any duties or
obligations are to be performed, or any rights or benefits are to be
received, under any Contract, Operating Lease, Resident Agreement or other
agreement, arrangement, commitment or plan to which Seller is a party that
relates to the ownership and/or operation of any Purchased Asset; or
(e) require the consent of any other Person.
5.4 Title to Purchased Assets; Liens and Encumbrances. Seller owns good and
marketable title to all of the Purchased Assets free and clear of any and all
mortgages, liens, encumbrances, charges, claims, restrictions, pledges,
security interests or impositions except as otherwise permitted by the Facility
Leases.
5.5 Real Property. (a) The Real Property listed by Facility on Exhibit B
hereto includes all the Real Property used or usable in the operation of the
Facilities. Except as set forth on Exhibit 5.5(a) attached hereto and
incorporated herein by this reference, there are no liens, covenants,
restrictions or encumbrances on or against the Real Property or Seller's
interest therein;
(b) Seller has not received written notice of any default or breach
by Seller under any covenants, conditions, restrictions, rights-of-way or
easements affecting the Real Property or any portion thereof, and to
Seller's knowledge, no such default or breach now exists, nor has any
event occurred that, with the giving of notice, the passage to time, or
both, would constitute such a breach or default;
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<PAGE> 10
(c) Seller has not received notice nor has any knowledge that either
the whole or any portion of the Real Property, including access thereto
or any easement benefiting the Real Property, is subject to temporary
requisition of use by any governmental authority or has been condemned or
taken in any proceeding similar to a condemnation proceeding, nor is there
now pending any condemnation, expropriation, requisition or similar
proceeding against the Real Property or any portion thereof;
(d) Seller has not received any written notices from any insurance
company of any defects of inadequacies in the Real Property or any part
thereof that would adversely affect the insurability of the Real Property
or the premiums for the insurance thereof. Seller has not received any
written notice requesting the performance of any repairs, alterations or
other work with which compliance has not been made from (i) any insurance
company that has issued a policy with respect to any portion of the Real
Property, (ii) any board of fire underwriters (or other body exercising
similar functions) or (iii) any other governmental body or agency;
(e) Except for Residents occupying the Facilities pursuant to the
Resident Agreements, there are no parties in possession of any portion of
the Real Property other than Seller and any subtenant;
(f) Except as may be shown on any survey provided to Buyer, Seller
has no knowledge that any portion of the Real Property is within any areas
determined to be flood prone under the Federal Flood Protection Act of
1973;
(g) The parcels constituting Real Property are respectively presently
zoned as set out on Exhibit 5.5(g) which zoning classification permits the
uses shown on Exhibit 5.5(g). To Seller's knowledge no zoning, building,
fire, air pollution or other federal, state or municipal law, ordinance,
regulation or restriction currently applicable to the Real Property is, or
as of the Closing Date will be, violated by the continued maintenance,
operation and/or use of the Real Property or any tract or portion thereof
or interest therein in its present manner;
(h) To Seller's knowledge neither the sewage nor any waste water
systems, life safety systems, nor the heating or air conditioning
equipment, incinerators, or other burning devices located on the Real
Property violate, or as of the Closing Date will violate, any applicable
federal, state or municipal laws, ordinances, orders, regulations or
requirements;
(i) The Real Property may be used and occupied for long term care,
assisted living, dementia care and related purposes and Seller knows of no
laws that prohibit the occupancy of any of the Real Property by a long
term care and an assisted living facility; other than the conditions or
stipulations imposed as a part of the land use or zoning approvals, which
conditions and stipulations remain as public records on file in the
offices of the applicable authority, there are no commitments or
agreements with any governmental authorities or agencies affecting the
Real Property of which Seller is aware that have not been disclosed in
writing to Buyer; all necessary licenses, certificates of occupancy and
permits have been obtained and are in full force and effect; and the
improvements located on the Real Property
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<PAGE> 11
or the use thereof do not constitute non-conforming or disallowed uses
under any applicable law, ordinance or regulation;
(j) To Seller's knowledge and in reliance upon the environmental
assessment reports provided to Buyer (the "Environmental Reports"),
neither Seller, any Resident of the Facilities nor the Real Property is in
violation of any federal, state or local law, ordinance or regulation
relating to the environmental conditions on, under or about the Real
Property, or any adjacent properties, including, without limitation, soil
and ground water conditions. The Real Property is not now, nor to the best
knowledge of Seller has the Real Property ever been, used for the
generation, storage or disposal of, on, under or about the Real Property
of any Hazardous Materials except as may be allowed by applicable
governmental laws, rules and regulations governing the use of Hazardous
Materials at the Real Property. There is not now, nor to the best
knowledge of Seller and based on the information set forth in the
Environmental Reports has there been in the past, a release or threatened
release of Hazardous Materials from the Real Property (or, to the
knowledge of Seller, any adjacent property) into the environment. Seller
has not received, nor has knowledge that any prior owner has received,
written notice from any federal, state, county or municipal authority as
to the existence of Hazardous Materials or other environmental problems
at, or relating to, the Real Property. For purposes hereof, "Hazardous
Materials" shall include those materials regulated by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, U.S.C. 9016, et seq., Superfund Amendment and Reauthorization Act
of 1986 (SARA), 42 U.S.C. 9601 et seq., The Resource Conservation and
Recovery Act, U.S.C. 6901, et seq., Occupational Safety and Health Act of
1970, the Toxic Substance Control Act, the Solid Waste Disposal Act, the
Clear Air Act, the Clean Water Act, and the regulations promulgated
pursuant to the above laws and in any comparable state, county and city
laws or ordinances and regulations. Seller hereby indemnifies, defends by
counsel reasonably acceptable to Buyer and holds harmless Buyer from and
against any and all claims, suits, causes of action, costs, expenses,
damages, fees, penalties and other liabilities, including all foreseeable
and unforeseeable consequential damages, directly or indirectly arising
out of the use, generation, storage and disposal of Hazardous Materials on
the Real Property, including without limitation, the cost of any required
or necessary repair, clean-up or other detoxification and the presentation
of any closure or other required plans, whether such action is
attributable directly or indirectly to the use, generation, storage or
disposal of Hazardous Materials on the Real Property during the period of
ownership of the Real Property by Seller or otherwise and except where
such matter arises out of the negligence or willful misconduct of Buyer.
Seller's obligations pursuant to the foregoing indemnity shall survive the
Closing;
(k) Seller has no knowledge of, nor has Seller received written
notice from any Resident of any Facility of, any defects in the structure,
roofs, mechanical, plumbing, electrical, heating, ventilating or air
conditioning systems on the Real Property; and
(l) All utilities, including without limitation, power, gas,
electricity, sewer, water and telephone, enter the Real Property upon and
are operated through valid public or private easements and rights-of-way
and all excess surface water runoff or drainage from the Real Property
flows or runs off the Real Property through valid public or private
easements and
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rights-of-way; all installation, connection and hook up charges for such
utilities have been paid in full; all permits and approvals for use of
such utilities have been obtained from all governmental agencies or
authorities or other entities regulating the use thereof; and there is
sufficient water, sewer, gas and electricity available to the Real
Property to properly service the intended use thereof.
5.6 Financial Statements etc. The financial statements of Seller previously
provided to Buyer have been prepared in accordance with GAAP and present fairly
the financial condition of Seller as of the dates indicated and the results of
their operation for the periods stated therein. The information regarding the
Facilities provided to Buyer pursuant to Section 2.3 remains true and correct
as of the date of closing.
5.7 No Changes. Except as disclosed in Exhibit 5.7 attached hereto and
incorporated herein by this reference or in the Financial Statements, there has
been no:
(a) transaction by Seller with respect to the Facilities except in
the ordinary course of business as conducted as of the date of this
Agreement;
(b) material adverse change in the financial condition, liabilities,
assets or business of the Facilities;
(c) to Seller's knowledge, default under any indebtedness of Seller
related to or affecting the Facilities or any event that with the lapse of
time or the giving of notice, or both, would constitute such a default;
(d) amendment or termination of any Contract, Operating Lease,
Operating Permit, Resident Agreement or other agreement to which Seller is
a party and related to the Facilities, except in the ordinary course of
business; or
(e) any other event or condition of any character that, to Seller's
knowledge, has or might reasonably have a material adverse effect on
Seller and/or the Purchased Assets.
5.8 No Litigation, Compliance with Laws. Except as set forth in Exhibit 5.8
attached hereto and incorporated herein by this reference,
(a) there is no judgment, litigation at law or in equity, arbitration
proceeding or proceeding before or by any commission, agency or other
administrative or regulatory body, authority or bankruptcy court, pending
or to Seller's knowledge threatened, to which Seller is a party or to
which Seller or the Purchased Assets are subject and would have a material
adverse effect on Seller and/or the Purchased Assets. There is no
investigation of which Seller has been made aware by any commission,
agency or other administrative or regulatory body or authority pending or
threatened that is concerned with the operations, business or affairs of
Seller that, if adversely determined would have a material adverse effect
on Seller; and
(b) the business and affairs of the Facilities have been carried on
by Seller in material compliance with all applicable federal, foreign,
state and local laws, statutes, ordinances, rules and regulations, and any
applicable court or administrative order.
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5.9 Taxes. Seller has properly filed all federal, state and local income
and other tax returns and reports that are required to be filed by it with
respect to each Facility with any governmental authority. Each such return and
report is true and correct in all material respects and all taxes, fees
and other governmental charges that are due have been paid or appropriate
extensions have been applied for. Seller shall furnish to Buyer, upon request,
copies of all such returns and reports, or such portion thereof as pertain to
the Purchased Assets.
5.10 Inventory. Seller will retain all Inventory and continue to use the
same in its operation of the Facilities under the Facility Leases.
5.11 Insurance. Seller has in full force and effect liability and casualty
insurance insuring the business, properties and assets of the Purchased Assets
as described by Facility in Exhibit 5.11 attached hereto and incorporated
herein by this reference. There have been in force since the acquisition of the
Facilities by Seller policies of insurance protecting the Purchased Assets
against all such losses and claims evidenced on Exhibit 5.11 hereof, and there
have been no gaps or lapses in such insurance coverage for such period.
5.12 No Brokers. Neither this Agreement nor the sale and purchase of the
Purchased Assets or any other transaction contemplated by this Agreement was
induced or procured through any Person acting on behalf of or representing
Seller as broker, finder, investment banker, financial advisor or in any
similar capacity.
5.13 Representations as of the Closing Date. Seller's representations and
warranties set forth in this Agreement shall be true and correct on the date of
this Agreement and as of each Closing Date, as though such representations and
warranties were made on and as of such time.
5.14 Disclosure. No statement of fact by Seller contained in this Agreement
and no written statement of fact furnished or to be furnished by Seller to
Buyer pursuant to this Agreement contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary in
order to make the statements herein or therein contained not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
6.1 Organization. Buyer is a corporation duly organized and validly
existing under the laws of the State of Maryland and by the Closing Date will
be duly qualified to do business in the states in which the Facilities are
located. Buyer has full corporate power to purchase the Purchased Assets
pursuant to this Agreement and Buyer has the power to own, lease and operate
its properties and to carry on its business in the places where such properties
are now owned, leased or operated and where such businesses are now conducted.
6.2 Authorization; Enforceability. The execution, delivery and performance
of this Agreement and the other Closing Documents required hereby to be
executed and delivered by Buyer are within the corporate power of Buyer and
have been duly authorized by all necessary corporate
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action by Buyer. All Persons executing this Agreement on behalf of Buyer and to
execute the other Closing Documents on behalf of Buyer are incumbent in the
offices that such officers purport to hold. This Agreement is, and the other
Closing Documents will be, when executed and delivered by Buyer, the valid and
binding obligations of Buyer enforceable against Buyer in accordance with their
respective terms subject only to bankruptcy, insolvency, reorganization,
moratoriums or similar laws at the time in effect affecting the enforceability
or right of creditors generally and by general equitable principles that may
limit the right to obtain equitable relief.
6.3 No Brokers. Neither this Agreement nor the sale and purchase of the
Purchased Assets or any other transaction contemplated by this Agreement was
induced or procured through any Person acting on behalf of or representing
Buyer as broker, finder, investment banker, financial advisor or in any similar
capacity.
ARTICLE VII
DUE DILIGENCE
7.1 Title. (a) For the purposes of this Agreement, "good and marketable fee
simple title" shall mean fee simple ownership that is: (i) free of all claims,
liens and encumbrances of any kind or nature whatsoever other than the
applicable Permitted Exceptions, and (ii) insurable by the Title Company at the
then current standard rates under the standard form of ALTA owner's policy of
title insurance (ALTA Form B or equivalent), with the standard printed
exceptions therein deleted, without exception other than for the applicable
Permitted Exceptions and containing such coverages and endorsements as shall be
reasonably required by Buyer's counsel (collectively the "Title Policies"). For
the purposes of this Agreement, the term "Permitted Exceptions" shall mean: (A)
current taxes not yet delinquent; (B) the rights of Residents under Resident
Agreements;, and (C) such other matters not objected to in writing by Buyer
during the Inspection Period.
Buyer acknowledges and agrees that in each instance hereunder where Seller
represents and warrants or otherwise states that Seller's title to the Real
Property is "good and marketable fee simple title" that Seller is relying upon
the title insurance issued to Seller upon its purchase of the Real Property.
Seller is not acting as a title insuror with respect to the Real Property.
(b) During the Inspection Period, Buyer shall obtain a title insurance
commitment from the Title Company, examine title to the Real Property, and
give Seller written notice of objections that render Seller's title to the
Real Property less than good and marketable fee simple title. Thereafter,
Buyer shall have until the Closing Date in which to reexamine title to the
Real Property and in which to give Seller written notice of any additional
objections for matters not existing during the Inspection Period and
disclosed by such reexamination. Seller shall have until the Closing Date
in which to attempt to satisfy all objections specified in Buyer's initial
notice of title objections, and until the Closing Date in which to satisfy
the additional objections specified in the subsequent notice by Buyer of
title objections first disclosed during the re-examination provided for in
the second sentence of this Section 7.1(b). If Seller fails to satisfy any
such objections, then, at the option of Buyer, Buyer may:
(i) accept the Real Property with such defects and Buyer may
satisfy and discharge any lien, mortgage, or other security interest
encumbering the Real Property and deduct such payment therefor from
the Purchase Price; or
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(ii) postpone Closing for thirty (30) days, or such longer
period as Buyer may designate, during which time Seller shall attempt
to correct the defects or objections, and if not then corrected,
Buyer may elect to act under Section 7.1(b)(i) hereof or Section
7.1(b)(iii) hereof; or
(iii) elect to terminate this Agreement by notice to Seller and
thereupon, except as otherwise noted herein, Buyer and Seller shall
be released and relieved of all further rights, liabilities and
obligations hereunder, except if such defect results from an act of
Seller after the date hereof, then Seller shall be in default
hereunder and Buyer shall have Buyer's rights and remedies under
Article XIII hereof.
7.2 Surveys. During the Inspection Period, Seller shall have the Seller's
existing as-built surveys of the Real Property recertified to Buyer by
surveyors registered and licensed in the State where the Facilities are
located, as applicable (collectively the "Surveys"). The Surveys shall depict
such information as Buyer shall reasonably require. If requested by Buyer, the
Surveys shall be used as the basis for the preparation of a legal descriptions
to be included in the Limited Warranty Deeds to be delivered by Seller to Buyer
at Closing.
7.3 Environmental Assessments. During the Inspection Period, Seller shall
have provided to Buyer the Phase I environmental site assessments of the Real
Property previously prepared for Seller (collectively the "Environmental
Assessments"). The Environmental Assessments shall contain such information as
Buyer shall reasonably require.
7.4 UCC Searches. During the Inspection Period, Buyer shall obtain with
regard to the Purchased Assets a UCC search certificate from such jurisdictions
as shall reasonably be determined by Buyer, and Seller shall deliver or cause
to be delivered any UCC-3 termination statements or other similar statements
required to deliver title to the Purchased Assets to Buyer subject only to the
Permitted Exceptions.
7.5 Financial Information, Pro Forma Statements. During the Inspection
Period, Seller shall provide to Buyer such additional financial information,
pro forma projections and the like regarding the Seller, the Facilities and the
Tenant(s) as Buyer may reasonably request. It is a condition to Buyer's
obligation to purchase any Facility that Buyer is satisfied with the financial
prospects of Seller and the Facilities.
7.6 Working Capital. During the Inspection Period, Buyer shall determine
what amount of working capital is needed for the operation and start up costs
of any specific Facility. Buyer shall designate for each Facility the amount
of working capital required by Buyer as a condition to purchasing that Facility
and how that working capital is to be provided by the Tenant or Seller. For
the Facilities conveyed in December 1998, Seller will execute a Working Capital
Reserve Agreement and deposit $ for working capital as listed in Schedule 3.4
hereto.
7.7 Expenses. Seller shall pay all costs, fees and charges incurred in
connection with the Closing Documents and any items required under the Closing
Documents, including any expenses incurred under Section 7.1, Section 7.2,
Section 7.3, Section 7.4 and Section 7.5 hereof together with
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all transfer and conveyance taxes, if any, relating to the transfer of the
Purchased Assets. Seller agrees to pay on demand all out-of-pocket costs and
expenses of Buyer (including the reasonable fees and out-of-pocket expenses of
counsel for Buyer and of local counsel, if any, whom Buyer's counsel
may retain) in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Closing Documents, even in the event
the subject transaction fails to close. Upon the occurrence of a default by
Seller under this Agreement, Seller shall pay all out-of-pocket costs and
expenses (including attorney's fees and legal expenses) incurred by Buyer in
connection with the enforcement of this Agreement and the other Closing
Documents. Seller, upon request, promptly will reimburse Buyer for all amounts
expended, advanced or incurred by Buyer to satisfy any obligation of Seller
under this Agreement or any other Closing Document which Seller has failed to
perform within a reasonable period following written notice from Buyer, or to
enforce the rights of Buyer under this Agreement or any other Closing Document,
which amounts will include all court costs, reasonable attorney's fees, fees of
auditors and accountants, and investigation expenses incurred by Buyer in
connection with any such matters. The provisions of this Section 7.8 shall
survive the termination, cancellation, rescission or closing of this Agreement.
ARTICLES VIII
CERTAIN MATTERS PENDING THE CLOSING
From and after the date of this Agreement and until the Closing Date:
8.1 Access and Inspection Period.
(a) Upon reasonable advance notice, Buyer and its authorized agents,
officers and representatives shall have access to the Purchased Assets to
conduct such examinations and investigations of the business of Seller and
the Purchased Assets as Buyer deems necessary, provided that such
examinations shall not unreasonably interfere with the operations and
activities of the Facilities.
(b) In addition to the information set forth on the Exhibits attached
hereto, within five (5) days following the date hereof, Seller shall
deliver to Buyer the following documents and items, which shall be true
and correct in all material respects at the time such documents and items
shall be delivered:
(i) Copies of the bills for 1998 Ad Valorem Taxes for the
Real Property;
(ii) A copy of Seller's existing title insurance policies;
(iii) Copies of all existing surveys of the Real Property in
Seller's possession;
(iv) Copies of the form of Resident Agreements used for the
Facilities and copies of all Operating Permits;
(v) Copies of the plans and specifications for the
improvements located on the Real Property in Seller's possession;
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(vi) Copies of all maintenance records, if any, for the period
of Seller's ownership and, to the extent in Seller's possession or
control, but not limited to, all records with respect to all
maintenance, repair or replacement regarding the roof on any
improvements on the Real Property, the parking lots and drainage,
mechanical systems or other repair or improvements regarding the
Real Property;
(vii) Copies of certificates of occupancy for the improvements
located on the Real Property;
(viii) Current letters from appropriate governmental authority
setting forth the type of zoning of the Real Property and a copy of
the ordinance describing the permitted uses, setbacks and other
conditions of such zoning;
(ix) Copies of all existing studies and reports in Seller's
possession relating to asbestos and hazardous materials, substances
and toxins performed at or relating to the Real Property; and
(x) Copies of any reports, letters or other documentation
received by Seller during its period of ownership from any
governmental authority, insurance company, engineer or other Person
requiring or recommending any repairs or work be done to the Real
Property.
(c) In addition, Seller agrees to promptly provide to Buyer on a
continuing basis through the Closing Date information with respect to any
changes or additions or corrections to the information and/or documents
delivered to Buyer in connection with this Agreement or the Exhibits
attached hereto. For the purposes of this Agreement, Buyer shall be deemed
only to have received all such information, documents and Exhibits upon
the date that all such information, documents and/or Exhibits shall be
delivered to Buyer and Seller shall have sent to Buyer a written notice
pursuant to Section 14.5 hereof, which notice shall certify that all the
information, documents and Exhibits required by this Agreement have been
delivered to Buyer.
(d) Buyer shall have ten (10) days from the later of: (i) the date
hereof, or (ii) the date of receipt of all of the documents and items set
forth in Section 8.1(b) hereof with respect to specific Facilities, in
which to review the Exhibits and other documents and items required to be
delivered hereby, and to determine, in Buyer's sole discretion, whether to
proceed with the transaction contemplated herein (the "Inspection
Period"). If Buyer, in its sole discretion, is not satisfied with the
transaction contemplated by this Agreement for any reason, Buyer shall
send a notice to Seller on or before the expiration of the Inspection
Period rejecting that specific Facility and if such notice is given, the
rejected Facility shall no longer be subject to the provisions of this
Agreement.
8.2 Notice of Adverse Changes. Prior to the Closing Date, Seller shall give
Buyer prompt notice of the occurrence of any of the following of which Seller
becomes aware:
(a) an Event of Loss;
(b) the commencement of any proceeding or litigation at law or in
equity or before any commission, agency or administrative or regulatory
body of authority that involves any Operating Permit or that could have a
material adverse effect on any of the Purchased Assets;
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(c) any organized grievance, strike or dispute materially adversely
affecting the business or operation of any of the Facilities;
(d) any material violation by Seller or any of the Purchased Assets of
any federal, state or local law, statute, ordinance, rule or regulation;
(e) any event that would cause the representations and/or warranties
made by Seller herein to be untrue or inaccurate in any material respect.
8.3 Operations Pending Closing. From the date hereof through the Closing
Date, Seller shall:
(a) operate the Facilities in the ordinary course of business in
accordance with good practices and maintain supplies of Inventories at
normal levels in accordance with industry practices;
(b) operate the Facilities in accordance with applicable laws,
requirements, rules and regulations;
(c) maintain the Personal Property in its current condition, wear and
tear and ordinary usage excepted, and replace any of the Personal Property
that shall be worn out, lost, stolen or destroyed;
(d) not purchase, sell, lease, mortgage, pledge or otherwise acquire
or dispose of any properties or assets relating to or comprising the
Purchased Assets, except in the ordinary and regular course of the
operation of the Facilities or as otherwise permitted in this Agreement;
(e) maintain in full force and effect policies of liability and
casualty insurance of the same type, character and coverage as the
policies currently carried with respect to the business, operations and
assets of the Facilities;
(f) use its best efforts to maintain and preserve the business
organization of the Facilities intact, maintain the relationships of the
Facilities with their suppliers and Residents.
8.4 Financial and Other Reports. Upon receipt, Seller promptly will furnish
Buyer with a copy of Seller's monthly financial reports for each Facility
prepared after the date of this Agreement and all reports filed with
governmental entities with respect to each Facility after the date hereof. In
addition, Seller will furnish Buyer with copies of any Inspection Reports
received by Seller after the date hereof.
8.5 Publicity. After the date of this Agreement and prior to the Closing
Date, except as otherwise required by law, applicable rules and regulations
promulgated thereunder or the rules of the National Association of Securities
Dealers, Inc., any notices, releases, statements and communications to
employees, suppliers, distributors, Residents and customers of Seller and to
the
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general public and the press relating to the transactions covered by this
Agreement shall be made only at such times and in such manner as may be
mutually agreed upon by Buyer and Seller.
8.6 Cooperation. Seller, with Buyer's cooperation, will: (a) secure the
consents of third parties necessary for the transfer of the Purchased Assets
from Seller to Buyer; and (b) give notices to any governmental authority, and
secure the permission, approval, determination, consent or waiver of any
governmental authority, required by law in connection with the transfer of the
Purchased Assets from Seller to Buyer.
ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the
following express conditions precedent.
9.1 Compliance with Agreement. Seller shall have performed and complied in
all respects with all of its obligations under this Agreement, which
obligations are to be performed or complied with by it prior to or on the
Closing Date.
9.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
and other, to be taken by Seller in connection with the performance of this
Agreement and all Closing Documents shall be complete and Seller shall have
made available to Buyer for examination the originals or true and correct
copies of all documents that Buyer may reasonably request in connection with
the transactions contemplated by this Agreement.
9.3 Representations and Warranties. The representations and warranties made
by Seller in this Agreement shall be true and correct as of the Closing Date
with the same force and effect as though such representations and warranties
has been made on the Closing Date.
9.4 No Adverse Change. Between the date of this Agreement and the Closing
Date, there shall have been no material adverse change in the financial
condition or results or operation of the Facilities nor any material adverse
change in the condition of the Purchased Assets.
9.5 Deliveries at Closing. Seller shall have delivered or cause to be
delivered to Buyer the Closing Documents, each properly executed and dated as
of the Closing Date, as required by this Agreement.
9.6 Approvals and Consent. There shall have been secured such permissions,
approvals, determinations, consents and waivers, if any, as may be required by
law, regulatory authorities, the Contracts, Operating Leases, Resident
Agreements and Operating Permits.
9.7 Due Diligence. The terms and conditions of Article IV, Article VII and
Article VIII shall have been satisfied in full.
9.8 Absence of Investigations and Proceedings. Except as may be disclosed
in writing to Buyer and accepted by Buyer, there shall be no decree, judgment,
order or litigation at law or in equity, arbitration proceedings, or proceeding
before or by any commission, agency or other
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administrative or regulatory body or authority pending which would result
in a violation of Section 9.4 above, including any with respect to
condemnation, zoning, use or occupancy. Without limiting the generality of the
foregoing, no proceeding or formal investigation by any governmental agency
shall be pending with the object of challenging or preventing the Closing and
no other proceedings shall be pending with such object or to collect damages
from Buyer on account thereof. No action or proceeding shall be pending before
any governmental body to revoke, refuse to review or to modify in any material
respect the Operating Permits.
9.9 Operating Permits. The Operating Permits shall not have been modified
in any way that materially and adversely affects the Facilities or the conduct
of the business operations thereof. The Facilities shall be operating in
material compliance with all applicable laws, requirements, rules and
regulations.
9.10 No Mortgage or Liens. On the Closing Date and simultaneously with the
Closing, the Real Property will be free of any and all liens, mortgages,
encumbrances or other claims of any nature whatsoever except for the Permitted
Exceptions.
9.11 Working Capital. The working capital required for each Facility shall
have been provided in a form acceptable to Buyer.
9.12 Failure to Satisfy Conditions Precedent. In the event any or all of
the above conditions precedent have not been satisfied on or before the Closing,
Buyer shall have the right to exercise Buyer's rights and remedies under
Article XII hereof.
ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
Each and every obligation of Seller to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the
following express conditions precedent.
10.1 Compliance with Agreement. Buyer shall have performed and complied in
all respects with all of its obligations under this Agreement, which
obligations are to be performed or complied with by it prior to or on the
Closing Date.
10.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
and other, to be taken by Buyer in connection with the transactions
contemplated by this Agreement and all Closing Documents shall be complete and
Buyer shall have made available to Seller for examination the originals or true
and correct copies of all documents that Seller may reasonably request in
connection with the transactions contemplated by this Agreement.
10.3 Representations and Warranties. The representations and warranties by
Buyer shall be true and correct as of the Closing Date with the same force and
effect as though said representations and warranties have been made on the
Closing Date.
10.4 Deliveries at Closing. Buyer shall have delivered or cause to be
delivered to Seller the Closing Documents, each properly executed and dated as
of the Closing Date, and Buyer shall have made the payments described in
Section 3.4 hereof, all as required by this Agreement.
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10.5 Failure to Satisfy Conditions Precedent. In the event any or all of
the above conditions precedent have not been satisfied on or before the Closing,
Seller shall have the right either to (a) waive such condition and proceed to
close in accordance with the terms of this Agreement, or (b) exercise Seller's
rights and remedies under Article XIII hereof.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by Seller.
(a) If the transactions contemplated herein shall close, Seller shall
indemnify and hold harmless Buyer, its successors and assigns and all
directors, officers, employees and representatives of each of the
foregoing and promptly defend such Persons from and against, and reimburse
such Persons for, any and all losses, damages, costs, expenses,
liabilities, obligations and claims of any kind (including, without
limitation, reasonable attorney's fees and other legal costs and expenses)
that such Persons may at any time suffer or incur, or become subject to,
as a result of or in connection with:
(i) any breach or inaccuracy of any of the representations and
warranties made by Seller in or pursuant to this Agreement, or in any
instrument, certificate or affidavit delivered by Seller at the
Closing in accordance with the provisions of this Agreement;
(ii) any failure by Seller to carry out, perform, satisfy and
discharge any of its covenants, agreements, undertakings, liabilities
or obligations under this Agreement or under any of the documents and
materials delivered by Seller pursuant to this Agreement;
(iii) the Retained Liabilities;
(iv) the operation of the business of the Purchased Assets prior
to the Closing Date; or
(v) any suit, action or other proceeding brought by any
governmental authority or Person arising out of, or in any way
related to, any of the matters referred to in this Section 11.1.
11.2 Indemnification by Buyer.
(a) If the transactions contemplated herein shall close, Buyer (or its
successor(s) in title) shall indemnify and hold harmless Seller, its
successors and all assigns and all directors, officers, employees and
representatives of each of the foregoing and promptly defend such Persons
from and against, and reimburse such Persons for, any and all losses,
damages, costs, expenses, liabilities, obligations and claims of any kind
(including, without limitation, attorney's fees and other legal costs and
expenses) that such Persons may at any time suffer or incur, or become
subject to, as a result of or in connection with:
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(i) any breach or inaccuracy of any representations and
warranties made by Buyer in or pursuant to this Agreement, or in any
instrument, certificate or affidavit delivered by Buyer at the
Closing in accordance with the provisions of this Agreement;
(ii) any failure by Buyer to carry out, perform, satisfy and
discharge any of its covenants, agreements, undertakings, liabilities
or obligations under this Agreement or under any of the documents and
materials delivered by Buyer pursuant to this Agreement;
(iii) any suit, action or other proceeding brought by any
governmental authority or Person arising out of, or in any way
related to, any of the matters referred to in this Section 11.2.
11.3 Notification of Claims.
(a) A party entitled to be indemnified pursuant to Section 11.1 or
Section 11.2 hereof (the "Indemnified Party") shall notify the party
liable for such indemnification (the "Indemnifying Party") in writing of
any claim or demand that the Indemnified Party has determined has given or
could give rise to a right of indemnification under this Agreement.
Subject to the Indemnifying Party's right to defend in good faith third
party claims as hereinafter provided, the Indemnifying Party shall satisfy
its obligations under this Article XI within thirty (30) days after the
receipt of written notice thereof from the Indemnified Party.
(b) If the Indemnified Party shall notify the Indemnifying Party of
any claim or demand pursuant to Section 11.3(a), and if such claim or
demand relates to a claim or demand asserted by a third party against the
Indemnified Party that the Indemnifying Party acknowledges is a claim or
demand for which the Indemnifying Party must indemnify or hold harmless
the Indemnified Party under Section 11.1 or Section 11.2 hereof, the
Indemnifying Party may elect to defend any such claim or demand asserted
against the Indemnified Party. The Indemnified Party shall cooperate in
the defense of any such claim or demand. The Indemnifying Party shall
notify the Indemnified Party in writing within fifteen (15) days after the
date of the notice of claim given by the Indemnified Party to the
Indemnifying Party under Section 11.3(a) of the Indemnifying Party's
election to defend in good faith any such third party claim or demand. So
long as the Indemnifying Party is defending in good faith any such claim
or demand asserted by a third party against the Indemnified Party, the
Indemnified Party shall not settle or compromise such claim or demand. The
Indemnified Party shall make available to the Indemnifying Party or its
agents all records and other materials in the Indemnified Party's
possession reasonably required by the Indemnifying Party for its use in
contesting any third party claim or demand. In the event that the
Indemnifying Party shall acknowledge that such claim is one for which the
Indemnifying Party must indemnify or hold harmless the Indemnified Party
but elects not to defend, the Indemnified Party may, but shall not be
obligated to, assume the defense of such claim at the cost and expense of
the Indemnifying Party, subject to the right of the Indemnifying Party to
assume the defense of such claim at any time prior to settlement,
compromise or final determination thereof. Anything in this Section 11.3
to the contrary notwithstanding, (i) if there is a reasonable
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probability that a claim may materially and adversely affect the
Indemnified Party other than as a result of money damages or other money
payments, the Indemnified Party shall have the right, at its own cost and
expense, to defend, compromise or settle such claim, and (ii) the
Indemnifying Party shall not, without the Indemnified Party's written
consent, settle or compromise any claim or consent to entry of any
judgment that does not include an unconditional release from all liability
in respect to such claim given by the claimant or the plaintiff to the
Indemnified Party.
ARTICLE XII
EVENT OF LOSS
12.1 Event of Loss. Risk of loss resulting from any Event of Loss occurring
prior to Closing remains with Seller until Closing. If, prior to the Closing,
an Event of Loss occurs, Seller shall so notify Buyer, and Buyer may elect to
(a) cancel this Agreement, in which event all parties shall be relieved and
released of and from any further duties, obligations, rights or liabilities
hereunder except as otherwise provided for herein, or (b) Buyer may declare
this Agreement to remain in full force and effect and the purchase contemplated
herein, subject to such damage, shall be closed in accordance with the terms of
this Agreement, and at the Closing, Seller shall assign, transfer and set over
to Buyer all of the right, title and interest of Seller in and to any awards
and insurance proceeds or claims that have been or that may thereafter be made
for such Event of Loss, plus the amount of any insurance deductible
attributable thereto, if any.
ARTICLE XIII
RIGHTS AND REMEDIES
13.1 Seller's Remedies. With respect to those Facilities designated by
Seller under Section 2.3 and approved by Buyer, if Buyer breaches this
Agreement or any of the provisions herein, or if any representation or warranty
made by Buyer in this Agreement is untrue, false or incorrect, or if Buyer
shall not have performed Buyer's obligations herein set forth, then Seller may
terminate this Agreement with no liability on the part of any party to any
other party except as otherwise set forth in this Agreement and may seek such
damages and other remedies as are allowed under applicable law.
13.2 Buyer's Remedies. With respect to those Facilities designated by
Seller under Section 2.3 and approved by Buyer, if Seller breaches this
Agreement or any of the provisions herein, or if any representation or warranty
made by Seller in this Agreement is untrue, false or incorrect, or if Seller
shall not have performed Seller's obligations herein set forth, then Buyer
shall be entitled to:
(a) close the transaction contemplated by this Agreement, thereby
waiving such breach, default or failure, provided, however, Buyer may cure
any breach, default or failure that is susceptible to cure by the payment
of money and deduct from the Purchase Price all sums so paid by Buyer,
together with all costs and expenses incurred by of Buyer in affecting
such cure;
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(b) postpone the Closing hereunder for thirty (30) days, or such
longer period of time as Buyer may designate during which time any such
breach, default or failure shall be cured by Seller and if not then cured,
Buyer may elect to act under Section 11.2(a) hereof or Section 11.2(c)
hereof; or
(c) seek all of Buyer's rights and remedies at law or equity
including, but not limited to, specific performance of this Agreement and
of Seller's obligations, duties and covenants hereunder or termination of
this Agreement and recovery of all of Buyer's damages, including all
attorney's fees and court costs. The termination of this Agreement shall
have no effect upon Facilities previously conveyed to Buyer under this
Agreement.
ARTICLE XIV
FACILITY LEASE
For each Facility purchased by Buyer under this Agreement, Buyer shall
simultaneously enter into a Facility Lease for such Facility with Seller
pursuant to a Lease in substantially the form attached hereto as Exhibit F.
ARTICLE XV
MISCELLANEOUS
15.1 Further Assurances. From time to time after the Closing Date, upon the
reasonable request of Buyer, Seller shall execute and deliver or cause to be
executed and delivered such further instruments of conveyance, assignment and
transfer and take such further action as Buyer may reasonably request in order
to more effectively perfect the sale, assignment, conveyance and transfer, and
to record title to any of the Purchased Assets. Seller agrees to cooperate with
Buyer in all reasonable respects to assure to Buyer the continued title to and
possession of the Purchased Assets in the condition and manner contemplated by
this Agreement.
15.2 Survival. The obligations to indemnify contained in Article X hereof
and elsewhere in this Agreement, the agreements contained herein and the
representations and warranties made in this Agreement or made pursuant hereto
shall (a) survive the Closing and the consummation of the transactions
contemplated by this Agreement (except as otherwise provided herein), (b)
survive any independent investigation by Buyer or Seller (except as otherwise
provided herein), (c) survive any dissolution, merger or consolidation of Buyer
or Seller, and (d) bind the legal representatives, assigns and successors of
Buyer and Seller.
15.3 Entire Agreement, Amendment. This Agreement and the Closing Documents
to be delivered pursuant hereto constitute the entire agreement between the
parties pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, and there are no warranties, representations
or other agreements between the parties in connection with the subject matter
hereof, except as specifically set forth herein. No amendment, supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by both parties hereto. No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other
provision of this Agreement, whether or not similar, unless otherwise expressly
provided.
24
<PAGE> 25
15.4. Confidentiality.
(a) Buyer agrees that prior to the Closing Buyer, its agents,
representatives and assignees shall not use for its or their own benefit
(except when required by law and for use in connection with Buyer's
investigation of the Purchased Assets in connection with this Agreement)
and shall hold in strict confidence and not disclose (i) any data
or information relating to Seller, its affiliates or the Purchased Assets
obtained from Seller or any of its directors, officers, employees, agents
or representatives in connection with this Agreement, or (ii) any data
and/or information relating to the business, customers, financial
statements, conditions and/or operations of the Purchased Assets that is
confidential in nature and not generally known to the public (collectively
the "Seller's Information"). If the transactions contemplated in this
Agreement are not consummated for any reason, Buyer shall return to Seller
all data, information and any other written material obtained by Buyer
from Seller in connection with the transactions contemplated by this
Agreement and any copies, summaries or extracts thereof, and except as
noted herein, shall refrain from disclosing any of Seller's Information to
any third party or using any of Seller's Information for its own benefit
or that of any other Person.
(b) Seller agrees that prior to the Closing Seller, its agents and
representatives shall not use for their own benefit (except when required
by law and for use in connection with their respective investigations and
reviews of Buyer in connection with this Agreement) and shall hold in
strict confidence and not disclose (i) any data or information relating to
Buyer or its affiliates obtained from Buyer or any of its directors,
officers, employees, agents or representatives or assignees in connection
with this Agreement, or (ii) any data and/or information relating to the
business, customers, financial statements, conditions and/or operations of
Buyer that is confidential in nature and not generally known to the public
(collectively the "Buyer's Information"). If the transactions contemplated
in this Agreement are not consummated for any reason, Seller shall return
to Buyer all data, information and any other written material obtained by
Seller from Buyer in connection with the transactions contemplated by this
Agreement and any copies, summaries or extracts thereof, and except as
noted herein, shall refrain from disclosing any of Buyer's Information to
any third party or using any of the Buyer's Information for its own
benefit or that of any other Person.
(c) Buyer agrees not to communicate with employees of Seller without
the consent of Seller; provided, however, upon reasonable advance notice
and in the presence of an authorized representative of Seller, Seller
shall allow Buyer to conduct such interviews of Seller's employees as are
necessary for Buyer to complete transactions contemplated by this
Agreement.
15.5 Notices. All notices shall be in writing and shall be deemed to have
been properly given on the earlier of (a) when delivered in person, (b) within
three business days of its being deposited in the United States Mail, with
adequate postage, and sent by registered or certified mail with return receipt
requested, to the appropriate party at the address set out below, or (c) within
one business day when deposited with Federal Express, Express Mail or other
reputable overnight delivery service for next day delivery, addressed to the
appropriate party at the address set out below.
25
<PAGE> 26
If to Buyer: National Health Investors, Inc.
100 Vine Street
Murfreesboro, Tennessee 37130
Attention: Kenneth D. DenBesten
Telephone: 615/890-2020
Fax: 615/890-0123
With copy to (which shall not
constitute notice):
Farris, Warfield & Kanaday
424 Church Street
Suite 1800
Nashville, Tennessee 37219
Attention: Robert N. Buchanan III, Esq.
Telephone: 615/782-2220
Fax: 615/726-3185
If to Seller: Alternative Living Services, Inc.
450 Sunnyslope Road, Suite 300
Brookfield, Wisconsin 53005
Attn: Mark W. Ohlendorf
Telephone: 414/789-9565
Telecopy No.: 414/789-6182
with a copy to: Rogers & Hardin
2700 International Tower
Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303-1601
Attn: Miriam J. Dent
Telephone: 404/420-4608
Telecopy No.: 404/525-2224
Rejection or other refusal by the addressee to accept or the inability of
the courier service or the United States Postal Service to deliver because of a
changed address of which no notice was given shall be deemed to be receipt of
the notice sent. Any party shall have the right, from time to time, to change
the address to which notices to it shall be sent by giving to the other party
or parties at least ten (10) days prior written notice of the changed address
in the manner provided herein.
15.6 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement. Article and Section
headings in this Agreement are inserted for convenience of reference only and
shall not constitute a part hereof.
26
<PAGE> 27
15.7 Income Tax Position. Neither Buyer nor Seller shall take a position for
income tax purposes that is inconsistent with this Agreement.
15.8 Severability. If any provision, clause or part of this Agreement or the
application thereof under certain circumstances is held invalid, the remainder
of this Agreement or the application of such provision, clause or part under
other circumstances shall not be affected thereby.
15.9 No Reliance. Except for any assignees permitted by Section 13.10
hereof:
(a) no third party is entitled to rely on any of the representations,
warranties and agreements of Buyer and Seller contained in this Agreement;
and
(b) Buyer and Seller assume no liability to any third party because of
any reliance on the representations, warranties and agreements of Buyer
and Seller contained in this Agreement.
15.10 Assignment. Buyer shall have the right at any time to assign this
Agreement in whole or in part to any Person. If such an assignment is made, the
sale made pursuant to this Agreement shall be consummated in the name of such
assignee, which shall succeed to all of the rights, obligations and liabilities
of Buyer hereunder, however Buyer shall not thereby be released and relieved of
all obligation and liability hereunder.
15.11 Time of Essence. Time if of the essence in connection with this
Agreement.
15.12 Singular/Plural; Gender. Where the context so requires or permits,
the singular form includes the plural, the use of the plural form includes the
singular and the use of any gender includes any and all genders. As used
herein "Seller" shall mean and refer to Alternative Living Services, Inc., a
Delaware corporation and shall also include any wholly owned subsidiaries or
other affiliate of Seller holding title to any of the Facilities that Seller
now or hereafter designates under Section 2.3 and which Facility is thereafter
accepted by Buyer.
15.13 Governing Law. This Agreement is to be governed by and construed in
accordance with the laws of the State of Tennessee except to the extent that
the laws of the state in which the Real Property is located require such law to
govern the enforcement of this Agreement.
15.14 Jury Trial. SELLER AND BUYER HEREBY KNOWINGLY, WILLINGLY AND
IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO DEMAND A JURY TRIAL IN ANY ACTION
OR PROCEEDING INVOLVING THIS AGREEMENT OR ANY OF THE OTHER CLOSING DOCUMENTS OR
ANY RELATIONSHIP BETWEEN SELLER AND BUYER. SELLER AND BUYER WARRANT AND
REPRESENT THAT EACH HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL
AND EACH HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS SECTION 15.14
MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
27
<PAGE> 28
SELLER:
ALTERNATIVE LIVING SERVICES, INC., a
Delaware corporation
By: /S/ Mark W. Ohlendorf
--------------------------------
Print Name: Mark W Ohlendorf
------------------------
Title: Senior Vice President
-----------------------------
[signature page for master purchase agreement.
remainder of page is blank]
28
<PAGE> 29
BUYER:
NATIONAL HEALTH INVESTORS, INC.,
a Maryland corporation
By: /s/ Richard F. LaRoche, Jr.
-----------------------------------
Richard F. LaRoche, Jr., Vice
President
[signature page for master purchase agreement.
remainder of page is blank]
29
<PAGE> 1
EXHIBIT 10.57
LEASE
between
NATIONAL HEALTH INVESTORS, INC.,
a Maryland corporation
"Landlord"
and
ALTERNATIVE LIVING SERVICES, INC.
a Delaware corporation
"Tenant"
for Sterling House of Kingsport
Kingsport, Tennessee
Dated as of December 22, 1998
CERTAIN PROVISIONS OF THIS AGREEMENT ARE
SUBJECT TO ARBITRATION
<PAGE> 2
LEASE
THIS LEASE is executed as of December 22, 1998, by and between NATIONAL
HEALTH INVESTORS, INC., a Maryland corporation, having its principal office at
100 Vine Street, Murfreesboro, Tennessee 37130, as Landlord, and ALTERNATIVE
LIVING SERVICES, INC., a Delaware corporation, having its principal office at
450 N. Sunnyslope Road, Suite 300, Brookfield, Wisconsin 53005, as Tenant.
R E C I T A L S
A. Landlord has offered to Tenant and Tenant's Affiliates and Tenant
has accepted a proposal for Landlord to acquire from Tenant or Affiliates of
Tenant certain real estate and lease the same to Tenant on the terms set forth
herein.
B. It is anticipated that subsequent to the execution of this Lease
Landlord and Tenant will enter into other leases (collectively the "Other ALS
Leases" and individually a "Related ALS Lease").
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
ARTICLE 1. DEFINITIONS
For all purposes of this Lease, unless otherwise expressly provided in
this Lease or unless the context in which such term is used indicates a contrary
intent, (a) the terms defined in the Recitals shall have the meanings ascribed
to them in the Recitals, the terms defined in this Article shall have the
meanings ascribed to them in this Article, and the terms defined elsewhere in
this Lease shall have the meanings ascribed to them herein, (b) all accounting
terms not otherwise defined in this Article shall have the meanings ascribed to
them in accordance with generally accepted accounting principles at the time
applicable to the accrual method of accounting, applied on a consistent basis,
(c) all references in this Lease to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease, and (d) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision:
"ADDITIONAL CHARGES" shall have the meaning ascribed to such term in
Section 4.7.
"AFFILIATE" shall mean (a) with respect to Tenant, any corporation,
business trust, association, company, partnership, joint venture, or other
entity which, directly or indirectly, controls, or is controlled by, or is under
common control with, Tenant, and (b) with respect to Landlord, any corporation,
business trust, association, company, partnership, joint venture, or other
entity which, directly or indirectly, controls, or is
<PAGE> 3
controlled by, or is under common control with, Landlord. As used in this
definition, "control", (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
entity, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such entity,
through the ownership of voting securities, partnership interests or other
equity interests, or through any other means.
"ASSIGNMENT OF CONTRACTS AND OPERATING LEASES" means the Assignment and
Assumption of Contracts and Operating Leases in the form of Exhibit A attached
hereto and incorporated herein by this reference pursuant to which Tenant shall
assign all of its right, title and interest in the Contracts and Operating
Leases to Landlord effective upon the termination of this Lease.
"ASSIGNMENT OF RESIDENT AGREEMENTS" means the Assignment and Assumption
of Resident Agreements in the form of Exhibit B attached hereto and incorporated
herein by this reference pursuant to which Tenant shall assign all of its right,
title and interest in the Resident Agreements to Landlord effective upon the
termination of this Lease.
"AWARD" shall have the meaning ascribed to such term in Section
16.1(c).
"BASE RENT" shall mean the monthly installments of Base Rent payable
under this Lease in the amounts set forth in Section 4.2.
"BILL OF SALE" means the instrument in the form of Exhibit C attached
hereto and incorporated herein by this reference, pursuant to which Tenant will
convey to Landlord, effective upon the termination of this Lease, all of
Tenant's right, title and interest in the Personal Property, Inventory and
Records.
"CALCULATION PERIOD" shall mean the successive twelve month periods
commencing January 1, 1999 and ending December 31, 1999 and each anniversary
thereof during the Term and any Extended Term for which Percentage Rent due
under this Lease shall be calculated.
"CAPITAL ADDITIONS" shall mean (a) any expansion of the Facility, (b)
the renovation of any portion of the Property or the Facility in order to
provide services not previously offered on the Property, or (c) any expansion,
construction, renovation or conversion of the Property to (i) increase the bed
or service capacity of the Property, or (ii) improve, add or change any material
services, both medical and non-medical not previously offered at the Facility,
or (iii) subject to the provisions of Section 8.2(b), change the purpose for
which the Property is utilized.
"COMMENCEMENT DATE" shall have the meaning ascribed to such term in
Section 3.1.
"COMPETING FACILITY" shall mean any facility operated, constructed
and/or expanded during the Term, which facility (a) is located within a radius
of five miles
2
<PAGE> 4
from the Property, (b) is used or to be used for use(s) which are substantially
similar to the Permitted Use(s) or any other use(s) then permitted to be made
and being actually made of the Property pursuant to Section 8.2, and (c) was not
a facility in existence or under construction or in Tenant's development plans
as of the date this Lease is executed.
"CONDEMNATION" shall have the meaning ascribed to such term in Section
16.1(a).
"CONDEMNOR" shall have the meaning ascribed to such term in Section
16.1(d).
"CONTRACTS" means collectively those agreements (other than the
Operating Leases and Operating Permits) under which Tenant conducts the business
of the Facilities.
"DATE OF TAKING" shall have the meaning ascribed to such term in
Section 16.1(b).
"ENCUMBRANCE" shall have the meaning ascribed to such term in Article
23.
"EVENT OF DEFAULT" shall have the meaning ascribed to such term in
Section 17.1 and elsewhere throughout this Lease.
"EBITDA" means with respect to the Facility, Tenant's (or Subtenant's)
net earnings from the Facility plus any amount (as allocated to the Facility, if
appropriate) claimed as an expense for that period for interest paid, Rent,
income taxes paid, depreciation expense or amortization expense.
"EXTENDED TERM" shall have the meaning ascribed to such term in Section
3.2.
"FACILITY" shall mean the assisted living facility and all other
improvements or structures now existing or hereafter erected upon, over or under
the Land.
"FACILITY MORTGAGE" shall have the meaning ascribed to such term in
Section 14.1.
"FAIR MARKET RENT" shall mean with respect to the Property the fixed
monthly rent that a willing landlord not compelled to lease the Property would
change to lease the Property to a willing tenant not compelled to lease the
Property with the credit standing of Tenant at the time of determination, for a
ten year term on a triple net basis. Fair Market Rent shall be determined as
provided in Section 4.3 hereof.
"FAIR MARKET VALUE" shall mean, with respect to the Property, the price
that a willing Landlord not compelled to buy would pay to a willing Tenant not
compelled to sell for the Property assuming that (a) this Lease is not in effect
with respect to the Property, (b) the Property had been exposed for sale on the
market for a reasonable period of time, (c) any closing costs shall be allocated
to the Landlord, (d) the Property will be used for the Permitted Use(s), and (e)
there are no Major Casualties with
3
<PAGE> 5
respect to which repairs have not been fully completed. Fair Market Value shall
be determined as provided in Section 25.16 hereof.
"FFF&E" shall mean all furniture, furnishings, fixtures; equipment
(including non-movable medical equipment), machinery, and other items of
property, including all components thereof, now and hereafter located in, on or
used and incorporated into the Property, including, without limitation, any and
all furnaces, boilers, heaters, electrical equipment, heating, plumbing,
lighting, ventilating, refrigerating, incineration, air and water pollution
control, waste disposal, air-cooling and air conditioning systems, equipment and
apparatus, sprinkler systems and fire and theft protection equipment, built-in
oxygen and vacuum systems, wiring, tubing, central clock systems, elevators,
dumb waiters, intercom systems, nurse call systems, affixed cabinetry and
counters, pneumatic tube systems, vacuum cleaning systems, conveyor systems,
paging systems, mill work, x-ray protection, pass-through boxes, exhaust
systems, laboratory plumbing and piping, medical gas systems, nurse station
counters, emergency generators and similar items incorporated into and made a
part of the Property, together with all replacements, modifications, alterations
and additions thereto. FFF&E shall not be deemed to include Tenant's Property.
"FFF&E ACCOUNT" shall have the meaning ascribed to such term in Section
7.3.
"FISCAL YEAR" shall mean Tenant's Fiscal Year, which now ends December
31 in each calendar year, with the new Fiscal Year beginning on the following
January 1. For purposes of this Lease, (a) the partial Fiscal Year between the
Commencement Date and January 1 of the next Fiscal Year shall constitute a
separate Fiscal Year, and (b) any partial Fiscal Year between the end of the
last full Fiscal Year and the expiration of the Term or any termination of this
Lease shall constitute a separate Fiscal Year. If Tenant changes its Fiscal Year
at any time during the Term, Tenant shall promptly give Landlord Notice
specifying such change. If any such change is made, all reporting and accounting
procedures set forth in this Lease shall continue to be made in accordance with
generally accepted accounting principles, consistently applied. Any appropriate
adjustments to such procedures as a result of such change shall be made upon the
mutual consent of Landlord and Tenant. No such change or adjustment shall alter
the Term, and Tenant shall bear any accounting costs reasonably incurred by
Landlord as a result of any such change or adjustment.
"GROSS REVENUES" shall mean all revenues received or receivable, from
whatever source, without duplication, in connection with, incidental to or by
reason of the use, occupancy and/or operation of any and all of the Facility by
Tenant, Subtenant or any Affiliate of Tenant which Affiliate is at least 50%
owned by or under common control with the Tenant (herein a "50% Affiliate"),
including, without limitation, all room or suite rentals and resident revenues
received or receivable from, in connection with, or incidental to, the use of or
otherwise by reason of all suites, apartments, rooms, beds, therapy space and
facilities and other facilities provided, meals served, services performed
(whether medical or non-medical), space or facilities subleased or goods sold on
the Facility, including, without limitation (except as provided below) , any
other arrangements with third parties relating to the possession or use of any
portion of the
4
<PAGE> 6
Property; provided, however, that Gross Revenues shall not include:
(i) non-operating revenues such as interest income or
income from the sale of assets not sold in the ordinary course
of business;
(ii) contractual allowances or reserves (relating to
any period during the Term of this Lease) for billings not
paid by or received from the applicable governmental agencies
or third party providers;
(iii) allowances according to generally accepted
accounting principles, consistently applied, for uncollectible
accounts, including credit card accounts, uncompensated care,
charity care or other administrative discounts and collection
expenses;
(iv) all resident billing credits and adjustments
that are appropriate according to generally accepted
accounting principles relating to health care accounting;
(v) all federal, state or local sales or excise taxes
and any tax based upon or measured by Gross Revenues which is
added to or made a part of the amount billed to the residents,
occupants, patients or other recipients of such services or
goods, whether included in the bill or stated separately; and
(vi) compensation received for services rendered or
products sold by those rendering such services and vendors
selling such products (e.g., barber or beautician services or
therapists) provided that (a) the vendors of such products or
those rendering such services are not Tenant or a 50%
Affiliate of Tenant, and (b) the funds received for such
products or services are not paid to Tenant or a 50% Affiliate
of Tenant.
"HAZARDOUS SUBSTANCES" shall mean any hazardous or toxic substances,
materials or wastes listed in the United States Department of Transportation
Table (49 CFR 172.101) or by the Environmental Protection Agency as hazardous
substances (40 CFR Part 302) and amendments thereto, or such substances,
materials and wastes which are or become regulated under any applicable local,
state or federal law, including any materials, wastes or substances which are
(a) hydrocarbons, petroleum and petroleum products, (b) asbestos, (c)
polychlorinated biphenyls, (d) formaldehyde, (e) radioactive substances, (f)
flammables and explosives, (g) described as a "hazardous substance" pursuant to
Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 et seq., 33 U.S.C.
Section 1321 or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C.
Section 1317), (h) defined as a "hazardous waste" pursuant to Section 1004 of
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et sea. (42
U.S.C. Section 6903), or (i) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et sea. (42 U.S.C. Section 9601), as the
same may be amended from time to time.
5
<PAGE> 7
"IMPOSITIONS" shall mean all taxes (including, without limitation, (a)
all real property taxes imposed upon the Land, the Facility or any of the FFF&E,
(b) all other real property taxes and personal property taxes imposed upon the
Property, and (c) all ad valorem, sales, use, single business, gross receipts,
transaction privilege, rent or similar taxes relating to or imposed upon Tenant
or its business conducted upon any portion of the Land or the Property or from
within the Facility), assessments (including, without limitation, all
supplemental real property tax assessments or assessments for public
improvements or benefit, whether or not commenced or completed prior to the date
hereof and whether or not to be completed within the Term), any other covenants,
conditions or restrictions of record with respect to the Property, water, sewer
or other rents and charges, excises, tax levies, fees (including, without
limitation, license, permit, franchise, inspection, authorization and similar
fees and any and all connection charges, guaranteed revenues,
contributions-in-aid of construction or other charges under any developer
agreement or other agreement of record) and all other governmental charges, in
each case whether general or special, ordinary or extraordinary, foreseen or
unforeseen, of every character or nature whatsoever imposed with respect to or
connected with the Property or the business thereon or therein by Tenant
(including all interest and penalties thereon due to any failure or delay in
payment thereof) which at any time prior to, during or with respect to the Term
hereof may be assessed or imposed on or with respect to, or may be a lien upon
(i) Landlord's interest in the Property, (ii) the Property or any part thereof
or any Rent therefrom or any estate, right, title or interest therein or (iii)
any occupancy, operation, use or possession of, or sales from, or activity
conducted on or in connection with the Property or the leasing or use of the
Property or any part thereof by Tenant. For the purposes of this definition, the
term "real property tax" shall mean all taxes which are imposed, levied or
assessed upon or with respect to the Property, the Facility, the Land, or any
portion thereof (including increases in real property taxes which are imposed as
a result of a transfer, either partial or total, of Landlord's interest in the
Property or which are added to a tax or charge hereinbefore included within the
definition of real property tax by reason of such transfer or which are imposed
by reason of this transaction, any modifications hereto, or any transfers hereof
or which are caused by reason of any new construction in or to the Property).
Impositions shall not include (1) any tax based on net income (whether
denominated as a franchise, capital stock or other tax) imposed upon Landlord or
any other person, (2) any transfer or net revenue tax imposed upon Landlord or
any other person or (3) any tax imposed with respect to the sale, exchange,
mortgage or other disposition by Landlord of any property (including the
Property) or the proceeds thereof, nor any tax, assessment, tax levy or charge
described in the first sentence of this paragraph which is in effect at any time
during the Term hereof to the extent (and for the period of time) such tax,
assessment, tax levy or charge is totally or partially repealed, unless a tax,
assessment, tax levy or charge set forth in clause (1) or (2) is levied,
assessed or imposed expressly in lieu thereof, in which case the substitute tax,
assessment, tax levy or charge shall be deemed to be an Imposition.
"INCREMENTAL REVENUES" shall mean the amount by which the Gross
Revenues for any Calculation Period exceed the Gross Revenues for the prior
Calculation Period.
6
<PAGE> 8
Quarterly installments of Incremental Revenues shall be based upon cumulative
year-to-date comparison between successive Calculation Periods. If Gross
Revenues decline from one Lease Year to the next, Incremental Revenues for such
later Lease Year shall be zero.
"INITIAL TERM" means the period from the Commencement Date through
December 31, 2012.
"INSURANCE REQUIREMENTS" shall mean all terms and conditions of any
insurance policy required by this Lease and all requirements of the issuer of
any such insurance policy.
"INVENTORY" means the operating supply of consumable supplies,
including drugs, medicines, materials and other supplies used in connection with
the operation of the Facility.
"LAND" shall mean the real property described on the attached Exhibit
D, and any other land acquired or leased and made subject to this Lease in
connection with any Capital Addition.
"LEASE" shall mean this document, as the same may be amended from time
to time in accordance herewith.
"LEASE YEAR" shall mean the period from the Commencement Date to
December 31, 1999 and the successive twelve-month (12) periods commencing each
January 1 thereafter.
"LEGAL REQUIREMENTS" shall mean all federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, common law, decrees and injunctions affecting the Property or the
maintenance, construction, use, alteration, occupancy or operation thereof,
whether now or hereafter enacted and in force (including any of the foregoing
which may require repairs, modifications or alterations in or to the Property) ,
all Licenses, land use entitlements, zoning and regulations relating thereto,
and all covenants, conditions, agreements, restrictions, obligations and
encumbrances contained in any instruments, either of record or known to Tenant.
"LICENSES" shall mean the license for Assisted-Care Living Facility
issued by the Tennessee Department of Health and all other permits (including
building permits), licenses, franchises, certificates (including certificates of
occupancy), letters of non-reviewability, provider agreements or other
governmental approvals and similar authorizations and entitlements applicable to
the Property or otherwise required under any and all Legal Requirements to
perform any and all of Tenant's obligations under this Lease, and to operate the
Property for (a) the Permitted Use(s), or (b) if Tenant has been permitted to
change the use(s) of the Property pursuant to Section 8.2(b) or 8.2(h) the
use(s) which Tenant is then permitted to make of the Property.
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"NOTICE" shall mean any notice required under this Lease, all of which
shall be given pursuant to Section 25.8.
"OFFICER'S CERTIFICATE" shall mean a certificate of Tenant signed by
the chief financial officer or chief accounting officer authorized so to sign by
resolutions adopted by the Board of Directors or by the articles of
incorporation or the bylaws of Tenant.
"OPERATING LEASES" means collectively those leases of Personal Property
used for the operations of the Facility.
"OTHER ALS LEASES" shall mean the other lease agreements which Landlord
may enter into with Tenant or Tenant's Affiliates pursuant to the Master
Purchase Agreement and are listed from time to time on Exhibit E hereto.
"OTHER PROPERTIES" shall mean the other properties or facilities leased
pursuant to the Other ALS Leases, as more particularly described therein.
"OVERDUE RATE" shall mean a rate of interest equal to eighteen percent
(18%) per annum, but in no event greater than the maximum rate of interest then
permitted under applicable law.
"PERCENTAGE RENT" shall mean the contingent rent to be paid as
described in Section 4.4 and 4.5 hereof.
"PERCENTAGE RENT MAXIMUM AMOUNT" shall mean for any Lease Year other
than the first Lease Year and the first Lease Year of the second and third
Extended Terms, if applicable, the maximum amount of Percentage Rent due with
respect to that Lease Year as shown on Schedule 1 hereto.
"PERMITTED ENCUMBRANCES" shall mean the matters, if any, set forth in
Exhibit F, attached hereto and incorporated herein by this reference.
"PERMITTED USE(S)" shall mean the use and operation of the Property for
the provision of independent living, assisted living and/or dementia care
services to the elderly and/or other health care oriented residential
accommodations for the elderly (specifically excluding any use as a condominium,
cooperative or similar arrangement or regime), and, in connection therewith, the
provision of food services, recreational services, rehabilitative and/or health
care services, all in full compliance with all applicable Legal Requirements.
"PERSONAL PROPERTY" means all machinery, equipment (other than motor
vehicles, computers, peripherals and other computer hardware), furniture,
fixtures, furnishings, linens, parts, Inventory and other items of tangible
personal property owned by Tenant that are necessary for the operation and/or
maintenance of the Facilities at the time immediately prior to the termination
or expiration of this Lease, Tenant's Property and all other personal property
owned by Tenant on the Transfer Date shall be excluded from the definition of
"Personal Property."
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"PROPERTY" shall have the meaning ascribed to such term in Section 2.1.
"PURCHASE PRICE" means $2,921,736.00.
"RECORDS" means files and records, including correspondence with
Residents and suppliers, books of account, employment records, resident files,
records pertaining to supplies, advertising records, files and literature and
other written materials of Tenant relating to the Facility.
"RENT" shall mean the Base Rent, Percentage Rent, and Additional
Charges.
"RENT RESERVE" means the reserve amount deposited with Landlord under
the Rent Reserve Agreement as provided in Section 11.1.
"RESIDENT AGREEMENTS" means collectively all written and oral leases,
occupancy agreements and other agreements granting any Person the right to
occupy certain portions of the Facility existing at the Transfer Date.
"RESTORATION COSTS" shall mean any amount equal to the actual costs
which Tenant is required to incur in connection with: (a) the provisions of
Section 8.4(c) (which relate to obligations of Tenant to perform Remedial Work
or make corrections with respect to Hazardous Substances); (b) the provisions of
Section 10.1 (which relate to obligations of Tenant to make repairs and
modifications necessary to comply with all licensing, safety and other
requirements as more specifically set forth therein); and (c) the provisions of
Sections 15.2 and 15.3 (which relate to obligations to make repairs and
modifications in the event of damage or destruction of the Property).
"STATE" shall mean the State of Tennessee.
"SUBTENANT" means any person, direct or remote, who holds a sublease
(of whatever degree) under Tenant.
"TAKING" shall mean a taking or voluntary conveyance during the Term
hereof of all or any part of the Property, or any interest therein, right with
respect thereto or use thereof, as a result of, incidental to, or in settlement
of any condemnation or other eminent domain proceedings affecting such Property,
regardless of whether such proceedings shall have actually been commenced.
"TENANT'S PROPERTY" shall mean printed materials (such as operating
manuals, policies, procedures, training manuals, and the like), computers,
peripherals and other computer hardware, computer software developed by or for
the use of Tenant and/or its Affiliates, and trade names, trademarks and service
marks of Tenant and/or its Affiliates and all motor vehicles.
"TERM" shall mean the Initial Term and the Extended Term, as the
context may require, unless earlier terminated pursuant to the provisions of
this Lease.
"TRANSFER DATE" means the date this Lease expires or is terminated and
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Landlord (or Landlord's successors) becomes licensed to operate the Facility for
its Permitted Use(s).
"UNAVOIDABLE DELAYS" shall mean delays due to strikes, lockouts,
inability to procure materials, power failures, acts of God, governmental
restrictions, enemy action, civil commotion, unavoidable casualty and other
causes beyond the control of the party responsible for performing an obligation
hereunder, provided that lack of funds shall not be deemed a cause beyond the
control of either party hereto.
ARTICLE 2. LEASE OF PROPERTY
2.1 PROPERTY. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, subject to the terms, covenants, conditions and provisions
hereinafter set forth, all of Landlord's right, title and interest in and to all
the Land, the Facility and the FFF&E (collectively, the "Property"). Fee simple
title to all of the Property shall be and remain in Landlord subject to Tenant's
leasehold estate and interest under this Lease.
2.2 WARRANTY BY LANDLORD. Landlord warrants that the Property is free
and unencumbered by any lien or encumbrance arising by, through or under
Landlord which lien or encumbrance would have priority over the leasehold estate
granted to Tenant by this Lease.
2.3 AS IS/WHERE IS. Tenant hereby acknowledges that Landlord has
acquired title to the Property solely to be able to enter into this Lease with
Tenant. Tenant or Tenant's Affiliate has been responsible for the construction
of the Facility. Accordingly, Tenant is familiar with each and every aspect of
the Property, including the condition of the Property, and hereby accepts same
on an AS IS/WHERE IS BASIS WITH ALL FAULTS and without reliance upon any
representations or warranties of Landlord of any kind or nature whatsoever
except as set out in Section 2.2 above, whether express or implied, and subject
to all matters of every kind and description including, without limitation, (a)
the existing state of title, including all covenants, conditions, restrictions,
ground leases, easements, Legal Requirements, mortgages, deeds of trust,
assignments of leases, fixture filings, security agreements, financing
statements and other financing instruments and any and all other matters,
including matters known to Tenant, all matters of record and other matters, and
(b) matters which would be disclosed by an inspection of the Property or by an
accurate survey of the Land and (c) all other matters which should reasonably
have been known to Tenant (but excluding any matters created or caused by any
acts of Landlord, it being understood, however, that at no time prior to the
commencement of the Term has Landlord operated or been in possession of the
Property). Except for matters arising by, through or under Landlord, Tenant
waives any and all claims, demands and cause or causes of action heretofore or
hereafter arising against Landlord with respect to the condition of the Property
or the ability of Tenant to conduct any business from the Property. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, LANDLORD MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY OR ANY PART
THEREOF,
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EITHER AS TO ITS DESIGN, CONDITION, HABITABILITY, MERCHANTABILITY OR FITNESS FOR
ANY PARTICULAR USE OR PURPOSE (INCLUDING, WITHOUT LIMITATION, THE PERMITTED
USES) OR AS TO THE QUALITY THEREOF OR THE PRESENCE OR ABSENCE OF DEFECTS IN THE
MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT. TENANT ACKNOWLEDGES AND
AGREES THAT, AS OF THE COMMENCEMENT DATE, THE PROPERTY SHALL BE CONCLUSIVELY
DEEMED TO HAVE BEEN INSPECTED BY TENANT AND SHALL BE CONCLUSIVELY DEEMED TO BE
SATISFACTORY TO IT IN ALL RESPECTS.
2.4 TRANSFER OF BUSINESS OPERATIONS OF THE FACILITY. Tenant
acknowledges that for the periods immediately prior to the Commencement Date,
the Facility has either (i) been licensed to and operated by Tenant or (ii) has
been under construction and has no prior operating history. In recognition of
the absence of Landlord's historic operation or management of the Facility,
Landlord and Tenant agree as follows:
(a) Landlord makes no warranty or representation to Tenant, express or
implied, and shall be subject to no liability with respect to the past operation
or management of the Facility, or any part thereof, including, but not limited
to, any matter relating to any of the following:
(i) the availability of any licenses or permits needed to
operate the Facility or any part thereof;
(ii) the enforceability of any residency agreement with any
resident of the Facility;
(iii) the status of any account of any resident of the
Facility including, but not limited to, the status of any security
deposits, trust accounts, prepayments for services or the like;
(iv) the availability of service from or the status of any
existing account with other persons, including utility providers, which
provide services necessary or useful to the operation of the Facility
as an assisted living facility;
(v) the status of any health care regulatory issues relating
to the Facility;
(vi) the status of any reports, cost reports or reimbursement
issues relating to the Facility;
(vii) the status of any deficiency reports or certifications
relating to the operation of the Facility; or
(viii) any matter relating to any past or present employee or
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independent contractor who worked at the Facility including but not
limited to issues concerning wages, employer contributions and
withholdings, employment benefits, accrued benefits, workmen's
compensation claims or unemployment insurance contributions or
premiums.
The validity of this Lease shall not be affected by any claim, demand
or cause of action regarding the past or future operation of the Facility as an
assisted living facility.
ARTICLE 3. TERM OF LEASE
3.1 TERM OF LEASE. The initial term of this Lease shall commence on
December , 1998 (the "Commencement Date"), and, unless extended or terminated
earlier in accordance with the provisions of this Lease, shall remain in effect
through December 31, 2012.
3.2 OPTION TO EXTEND TERM OF LEASE. Subject to the provisions of this
Section 3.2, Landlord hereby grants to Tenant an option to extend the term of
this Lease for three additional ten (10) year extension terms (each, an
"Extended Term"). The first Extended Term shall be on the same terms and
conditions as those set forth for the Initial Term with Percentage Rent
continuing to be calculated on the Incremental Revenues. Rent for the second
Extended Term and for the third Extended Term shall be at the Fair Market Rent
as established pursuant to Section 4.3 for the second or third Extended Term as
applicable. Such option shall be exercised by Tenant by delivery of Notice to
that effect to Landlord not less than one (1) year prior to the date upon which
this Lease otherwise would terminate. Such option may be exercised by Tenant
only if (a) at the time such Notice is given, this Lease has not expired or been
sooner terminated, (b) the applicable tenant on each Related ALS Lease has
exercised its option to renew that Related ALS Lease, and (c) at the time such
Notice is given and on the expiration date of the Initial Term, an Event of
Default (under this Lease and/or any or all of the Other ALS Leases) is not
continuing. With respect to Tenant's election to extend this Lease for the
Second and Third Extended Term, upon receipt from Tenant of Tenant's notice that
Tenant elects to extend the Lease, Landlord and Tenant shall endeavor to
establish the Fair Market Rent for such Extended Term as provided in Section 4.3
hereof. Unless Tenant gives notice to Landlord pursuant to the last sentence of
Section 4.3, Tenant's exercise of any option to extend the term of this Lease
for an Extended Term pursuant to this Section 3.2 shall constitute Tenant's
irrevocable and binding commitment to lease the Property on the terms stated in
this Lease for the whole of the applicable Extended Term. If Tenant is unable to
exercise such option due to the foregoing provisions, the time during which such
option may be exercised shall not be extended or enlarged. Time is strictly of
the essence with respect to the requirement that Tenant give timely Notice of
its exercise of such option hereunder, and Tenant's failure timely to exercise
any option strictly in accordance with its terms shall constitute a material,
irredeemable and uncurable failure to satisfy a condition precedent to the
vesting of any rights in Tenant pursuant to the option, and Tenant hereby
expressly waives any right to claim relief from forfeiture, or any other
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form of equitable relief from consequences of an untimely exercise of any such
option strictly in accordance with its terms. The implied covenant of good faith
and fair dealing under this Lease shall not be construed to impose upon Landlord
any obligation to notify Tenant in advance of the impending deadline for the
exercise of any option hereunder, nor shall it obligate Landlord to excuse the
tardy exercise of any option, however slight. The failure of Tenant to exercise
the option for any Extended Term within the times specified in this Section
shall thereby terminate such option.
ARTICLE 4. RENT
During the Term, Tenant shall pay the Rent, including the Transaction
Fees, Base Rent, the Percentage Rent for the Property, and all Additional
Charges due hereunder, together with applicable State sales tax thereon, to
Landlord, in lawful money of the United States of America, in immediately
available funds, without right of offset, by wire transfer in accordance with
the following instructions:
NationsBank, N.A.
Dallas, Texas
ABA #111000012
to credit National Heath Investors, Inc.
Account #3750779853
or to such other account, address, place, or person or entity, or by such other
method of payment, as Landlord may designate from time to time in a Notice. The
Base Rent, Percentage Rent for the Property and Additional Charges shall be paid
in accordance with this Article.
4.1 TRANSACTION FEE. On the Commencement Date, Tenant shall pay to
Landlord a one time lease fee of $29,217.36.
4.2 BASE RENT. During the Term, Tenant will pay the Base Rent to
Landlord in monthly payments in advance. Base Rent during the Initial Term and
the first Extended Term shall be in the amount described in this Section 4.2.
Base Rent during any Extended Term shall be in the amount described in Section
4.3 hereof.
(a) During the Initial Term Base Rent is $277,564.92 per annum
or $23,130.41 per month.
4.3 EXTENDED TERM BASE RENT. Base Rent for the first Extended Term
shall continue to be $277,564.92 per annum or $23,130.41 per month. For each of
the second Extended Term and the third Extended Term, the Base Rent shall be the
Fair Market Rent as determined for such Extended Term in accordance with the
terms hereof. Landlord and Tenant will sign a Memorandum for each of the second
Extended Term and the third Extended Term stating the amount of Fair Market Rent
for the applicable Extended Term. For the purpose of implementing this Section
4.3, Fair Market Rent shall be determined by the following procedure:
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Landlord and Tenant shall attempt to agree upon the amount of
Fair Market Rent for the Extended Term in question. Landlord agrees to
accept as Fair Market Rent the same return as Landlord is then offering
to other assisted living industry customers of Landlord on comparable
lease transactions based upon the then current value of the Property.
If Landlord and Tenant cannot reach agreement as to Fair Market Rent
within thirty (30) days of Landlord's receipt of Tenant's Notice that
it elects to extend this Lease for the second or third Extended Term as
applicable, Tenant, at Tenant's expense shall select an MIA designated
appraiser in the community where the Property is located (the "Tenant's
Appraisor") to determine the Fair Market Rent. If the Fair Market Rent
as determined by Tenant's Appraiser is acceptable to Landlord, such
determination shall be binding upon Landlord and Tenant. If Tenant's
Appraiser's determination of Fair Market Rent is not acceptable to
Landlord, Landlord, at Landlord's expense, shall select an MIA
designated appraiser in the community where the Property is located
(the "Landlord's Appraiser") to determine Fair Market Rent. If the Fair
Market Rent as determined by Landlord's Appraiser is acceptable to
Tenant, such determination shall be binding upon Landlord and Tenant.
If Landlord's Appraiser's determination of Fair Market Rent is not
acceptable to Tenant, Tenant may elect to obtain, at Tenant's expense,
a third appraisal by an MIA designated appraisal in the community where
the Property is located selected by the president of the American
Arbitration Association Chapter located in the capital city of the
State where the Property is located (the "Arbitrator's Appraiser") to
determine Fair Market Rent. In such event the Fair Market Rent for the
purpose of this Section 4.3 shall be that amount determined by
disregarding either or both of the amounts determined by the Tenant's
Appraiser or the Landlord's Appraiser if such amount differs from the
amount determined by the Arbitrator's Appraiser by more than 10%, and
then averaging the amounts not disregarded, with the amount determined
by the Arbitrator's Appraiser. If such determination is not acceptable
to Tenant, Tenant shall give Notice to Landlord whereupon this Lease
shall expire at the end of the then current term, and Tenant shall have
no right to further extend the Term of this Lease.
4.4 PERCENTAGE RENT. Commencing with respect to the second Lease Year
and for each succeeding Lease Year during the remainder of the Initial Term and
the first Extended Term, Tenant shall pay to Landlord, in addition to the Base
Rent, the Percentage Rent as described herein. Percentage Rent shall be paid to
Landlord in arrears in quarterly installments, said installments commencing May
15, 2000 (with respect to the first fiscal quarter of the second Lease Year) and
on the fifteenth day of each succeeding August, November, February and May (with
respect to the next succeeding fiscal quarters). Percentage Rent is the lesser
of (x) the sum of (i) the Percentage Rent paid with respect to the prior Lease
Year, if any, plus (ii) an amount equal to seven percent (7%) of the Incremental
Revenue, or (y) the Percentage Rent Maximum Amount set out for the Lease Year in
question on the attached Schedule 1. Quarterly installments shall be made based
upon Tenant's good faith estimate of the Incremental Revenues but subject to the
Percentage Rent Maximum Amount.
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The obligation to pay Percentage Rent with respect to any Lease Year
during the Initial Term or the First Extended Term shall survive the expiration
of any Initial Term or the first Extended Term.
For the second and third Extended Terms, Percentage Rent shall be paid
to Landlord only to the extent agreed upon by Landlord and Tenant in determining
Fair Market Rent for the second and third Extended Terms.
4.5 RECORDS CONCERNING GROSS REVENUES. If so requested by Landlord each
payment of Percentage Rent shall be accompanied by an Officer's Certificate
setting forth the calculation of Gross Revenues and Percentage Rent for the
quarter and the Fiscal Year to date, and certifying that the Gross Revenues used
to calculate Percentage Rent were stated in accordance with generally accepted
accounting principles consistently applied. Tenant shall utilize, or cause to be
utilized, an accounting system for the Facility, in accordance with generally
accepted accounting principles, consistently applied, which will accurately
record and reflect all Gross Revenues for each Fiscal Year and each quarter of
such Fiscal Year. Tenant shall retain, for at least six Fiscal Years following
the end of each Fiscal Year (and in all events until the adjustment described in
Section 4.6 for such Fiscal Year has been made), reasonably adequate records
conforming to the aforementioned accounting system showing all Gross Revenues
for such Fiscal Year. Landlord, at its own expense, except as provided
hereinbelow, shall have the right, upon reasonable Notice and during reasonable
business hours, from time to time, to audit or cause to be audited by its
accountants or other authorized representatives the information set forth in the
Officer's Certificate regarding Percentage Rent for the Property. In connection
with such audits, Landlord (or its accountants or authorized representatives, as
the case may be) may examine, audit and copy Tenant's records with respect
thereto (including supporting data and sales and excise tax returns), subject to
any prohibitions or limitations on disclosure of any such data under applicable
law or regulations, including, without limitation, any duly enacted "Patients'
Bill of Rights" or similar legislation and such reasonable limitations as may be
necessary to preserve the confidentiality of the Facility-patient relationship
and any applicable physician-patient privilege. If any such audit discloses a
deficiency in the payment of Percentage Rent for the Property, Tenant shall
forthwith pay to Landlord the amount of the deficiency, together with interest
at the Overdue Rate, for the period from the date when such payment should have
been made to the date when such payment is made. If such audit discloses that
Tenant has overpaid Percentage Rent to Landlord, Landlord shall promptly refund
such excess amount to Tenant. If any such audit discloses that Gross Revenues
actually received by Tenant for the Calculation Period to which such audit
relates exceed those reported by Tenant by more than five percent (5%), Tenant
shall pay all of Landlord's costs, charges, fees and expenses related to such
audit. Any proprietary information obtained by Landlord pursuant to the
provisions of this Section shall be treated as confidential, except that,
subject to appropriate confidentiality safeguards, such information may be used
in any litigation between Landlord and Tenant and may be disclosed by Landlord
to Landlord's lenders or prospective lenders. The obligations of Tenant
contained in this Section shall survive the expiration or
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earlier termination of this Lease.
4.6 ADJUSTMENT OF PERCENTAGE RENT. For each Lease Year, payments of
Percentage Rent shall be adjusted based on the amount of Gross Revenues shown in
the statement of Gross Revenues delivered pursuant to Section 22.2(a) and
payments on account of Percentage Rent made pursuant to Section 4.4. Such
statement of Gross Revenues shall be binding upon Landlord and Tenant absent
fraud. If the Percentage Rent payable for any Fiscal Year, as shown in such
statement, exceeds the sum of the installments of Percentage Rent previously
paid by Tenant with respect to such Fiscal Year, Tenant promptly shall remit to
Landlord by the 90th day following the end of the Fiscal Year the amount of such
deficit. If the Percentage Rent for such Fiscal Year, as shown in such audited
statement, is less than the sum of the quarterly installments of Percentage Rent
previously paid by Tenant with respect to such Fiscal Year, Landlord shall
credit such sum to the payment of Percentage Rent next due. The obligation of
Tenant to pay to Landlord Percentage Rent shall survive the expiration or
earlier termination of the Term, and a final adjustment (taking into account,
among other relevant adjustments, any contractual allowances which are accrued
after such expiration or termination date but which relate to Gross Revenues
accrued prior to such expiration or termination date and Tenant's good faith
best estimate of the amount of any unresolved contractual allowances) shall be
made not later than one year after expiration or termination. Tenant shall
advise Landlord within 60 days after such expiration or termination date of
Tenant's best estimate at that time of the approximate amount of such
adjustments, which estimate shall not be binding on Tenant.
4.7 ADDITIONAL CHARGES/LATE PAYMENTS. Tenant shall pay and discharge
prior to delinquency all Impositions directly to the persons to whom such
Impositions are owed. If Tenant fails or refuses to pay any Impositions, Tenant
shall promptly pay and discharge every fine, penalty, interest and cost which
may arise or accrue for the non-payment or late payment of such items. The
aforementioned amounts, liabilities, obligations, Impositions, fines, penalties,
interest and costs and any and all other amounts which Tenant may owe to
Landlord or any other party pursuant to the terms of this Lease are referred to
herein as "Additional Charges". The Additional Charges shall constitute rent
hereunder. Tenant hereby acknowledges that late payment by Tenant to Landlord of
any Rent due under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Landlord by the
terms of any Encumbrance covering the Property. Accordingly, if any Rent (but as
to Additional Charges, only those which are payable directly to Landlord) shall
not be paid within five (5) days of its due date, Tenant shall pay Landlord on
demand, as an Additional Charge, a late charge (to the extent permitted by law)
equal to four percent (4%) of the amount of such Overdue Rent and, in such
event, the parties hereby agree that such late charge will represent a fair and
reasonable estimate of the costs Landlord will incur by reason of the late
payment by Tenant. No late charge may be imposed more than once for the same
late payment nor for any late payment of Percentage Rent for the Property for
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which Landlord has received all interest thereon (at the Overdue Rate) as
required pursuant to Section 4.5. 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 other rights and
remedies to which it may be entitled hereunder. If Tenant fails to pay any Rent
within five (5) days after the same shall become due, such Rent and any late
charge applicable thereto shall thereafter bear interest at the Overdue Rate
until paid. Any payment by Tenant of Additional Charges to Landlord pursuant to
any requirement of this Lease shall relieve Tenant of its obligation to pay such
Additional Charges to the entity to which they would otherwise be paid.
4.8 TRIPLE NET LEASE; NO SET-OFF; BANKRUPTCY. It is the purpose and
intent of Landlord and Tenant that the Rent shall be absolutely net to Landlord
so that Tenant shall pay or discharge, as additional rent hereunder, any and all
Impositions, charges, costs, interest, reimbursements, liabilities, expenses and
obligations of any nature whatsoever in connection with the ownership, operation
and maintenance of the Property, excepting only (a) any payments for principal,
interest, and premiums under any mortgage, security agreement, deed of trust or
other Encumbrance Landlord may place upon all or any portion of the Property,
and (b) any costs actually incurred by Landlord for its own benefit with respect
to the Property, such as costs for consultants or advisers retained by Landlord
in connection with a proposed sale or refinancing of the Property, provided that
such costs (i) are not otherwise payable by Tenant hereunder, and (ii) do not,
directly or indirectly, arise or grow out of or in connection with Tenant's
non-performance and/or non-compliance with any obligation, covenant, term or
provision of this Lease.
(a) NO SET-OFF OF RENT. Landlord shall receive all Rent due
hereunder and Rent shall be due and payable by Tenant in all events,
without notice or demand and without any set-off (except as otherwise
specifically provided in this Lease), counterclaim, abatement,
suspension, deduction or defense whatsoever. In addition to the Rent
reserved by this Article, Tenant shall pay to the parties respectively
entitled thereto all Impositions, insurance premiums (as provided in
Article 14), operating charges, maintenance charges, construction costs
and any other charges, costs, interest (except as set forth in the
foregoing paragraph), reimbursements, liabilities (except as set forth
in the foregoing paragraph), expenses and obligations which arise with
respect to the Property or which otherwise may be contemplated under
any provisions of this Lease during the Term hereof. All of such
charges, costs, interest, reimbursements, liabilities, expenses and
obligations shall constitute additional rent, and upon the failure of
Tenant to pay any such costs, charges, interest, reimbursements,
liabilities, expenses or obligations and if such failure is not cured
within the applicable cure period described in Section 17.1 hereof,
Landlord shall have the same rights and remedies as otherwise provided
in this Lease, for the failure of Tenant to pay Rent. It is the
intention of the parties hereto that, except as herein expressly
provided, this Lease shall not be terminable for any reason by Tenant.
Any present or future law to the contrary shall not alter this
agreement of the
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parties.
(B) BANKRUPTCY. Tenant covenants and agrees that it will
remain obligated under this Lease in accordance with its terms, and
that Tenant will not take any action to terminate, rescind, or avoid
this Lease, notwithstanding the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding-up or
other proceeding affecting Landlord or any assignee of Landlord in any
such proceeding and notwithstanding any action with respect to this
Lease which may be taken by any trustee or receiver of Landlord or any
such assignee in any such proceeding or by any court in any such
proceeding.
(1) In the event that Tenant shall file a petition,
or an order for relief is entered against the Tenant, under
Chapter 7, 9, 11 or 13 of the Bankruptcy Code 11 U.S.C. ss.
101 et seq. (the "Bankruptcy Code"), and the trustee of Tenant
shall elect to assume this Lease for the purpose of assigning
the same, such assumption and/or assignment may only be made
if all of the terms and conditions of subsections (2) and (3)
hereof are satisfied. If such trustee or debtor-in-possession,
as the case may require, shall fail to elect to assume this
Lease within sixty (60) days after such trustee of Tenant
shall have been appointed, or the date of filing of the
petition, as the case may be, at Landlord's election (and in
Landlord's sole and absolute discretion) this Lease shall be
deemed to have been rejected and, in such event, Landlord
shall thereupon immediately be entitled to possession of the
Property without further obligation to the Tenant or Tenant's
trustee in bankruptcy, and this Lease shall be canceled, but
Landlord's right to be compensated for damages in such
bankruptcy proceeding shall survive such cancellation.
(2) No election to assume this Lease shall be
effective unless in writing and addressed to Landlord and
unless, in the Landlord's business judgment, all of the
following conditions, which Landlord and Tenant acknowledge to
be commercially reasonable, have been satisfied.
(A) The trustee or the debtor-in-possession
has cured or has provided Landlord "adequate
assurance" (as defined hereunder) that:
(i) within ten (10) days from the
date of such assumption, the trustee (or
debtor-in-possession) will cure all monetary
defaults under this Lease; and
(ii) within thirty (30) days from
the date of such assumption, the trustee (or
debtor-in possession) will cure all
non-monetary defaults under this Lease.
(B) The trustee or the debtor-in-possession
has
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compensated, or has provided to Landlord adequate
assurance that within ten (10) days from the date of
assumption Landlord will be compensated, for any
pecuniary loss incurred by Landlord arising from the
default of the Tenant, the trustee, or the debtor-in
possession, as recited in Landlord's written
statement of pecuniary loss sent to the trustee or
debtor-in-possession;
(C) The trustee or the debtor-in-possession
has provided Landlord with "adequate assurance" of
the future performance of each of Tenant's
obligations under the Lease; provided, however, that:
(i) the trustee or
debtor-in-possession shall also deposit with
Landlord, as security for the timely payment
of Rent, an amount equal to three (3) months
of the then current Base Rent, an amount
equal to the last quarterly payment of
Percentage Rent for the Property and other
monetary charges accruing under this Lease;
and
(ii) the obligations imposed upon
the trustee or debtor-in-possession shall
continue with respect to Tenant after the
completion of bankruptcy Proceedings.
(D) Landlord has determined that the
assumption of the Lease will not:
(i) breach any provision in any
agreement by which Landlord is bound
relating to the Property; or
(ii) disrupt, in Landlord's
judgment, the reputation and profitability
of the Property.
(E) For purposes of this subsection,
"adequate assurance" shall mean:
(i) Landlord shall determine that
the trustee or the debtor-in-possession has
and will continue to have sufficient
unencumbered assets (other than by liens in
favor of Landlord) after the payment of all
secured obligations and administrative
expenses to assure Landlord that the trustee
or debtor-in possession will have sufficient
funds to fulfill the obligations of Tenant
under this Lease; and
(ii) an order shall have been
entered segregating sufficient cash payable
to Landlord and/or there shall have been
granted a valid and perfected first lien and
security interest in property of the Tenant,
trustee or debtor-in-
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possession, acceptable as to value and kind
to Landlord, to secure to Landlord the
obligation of the Trustee or
debtor-in-possession to cure the monetary
and/or non-monetary defaults under this
Lease within the time periods set forth
above.
(3) If the trustee or debtor-in-possession has
assumed the Lease pursuant to the terms and provisions of
subsections (1) and (2) herein, for the purpose of assigning
(or election to assign) the Tenant's interest under this Lease
or the estate created thereby, to any other person, such
interest or estate may be so assigned only if Landlord shall
acknowledge in writing that the intended assignee has provided
"adequate assurance" (as defined in this subsection 4.8(b)(3))
of future performance of all of the terms, covenants and
conditions of this Lease to be performed by Tenant. For
purposes of this subsection 4.8(b)(3), adequate assurance of
future performance shall mean that Landlord shall have
ascertained that each of the following conditions has been
satisfied:
(A) The assignee has submitted a current
financial statement audited by a Certified Public
Accountant which shows a net worth and working
capital in amounts determined to be sufficient by
Landlord to assure the future performance by such
assignee of the Tenant's obligations under this
Lease;
(B) If requested by Landlord, the assignee
shall have obtained guarantees in form and substance
satisfactory to Landlord from one or more persons who
satisfy Landlord's standards of creditworthiness;
(C) Landlord has obtained all consents to
waivers from any third parties required under any
lease, mortgage, financing arrangement or other
agreement by which Landlord is bound to enable
Landlord to permit such assignment;
(D) The assignee has deposited an adequate
security deposit with Landlord; and
(E) The assignee has demonstrated that its
intended use of the Property is consistent with the
terms of this Lease and will not diminish the
reputation of the Facility.
(4) When, pursuant to the Bankruptcy Code, the
trustee or debtor-in-possession shall be obligated to pay
reasonable use and occupancy charges for the use of the
Property or any portion thereof, such charges shall not be
less than the then current Base Rent and Percentage Rent for
the Property as defined in this Lease and other monetary
obligations of Tenant.
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(5) Neither Tenant's interest in the Lease, nor any
lesser interest of Tenant herein, nor any estate of Tenant
hereby created, shall pass to any trustee, receiver, assignee
for the benefit of creditors, or any other person or entity,
or otherwise by operation of law under the laws of any state
having jurisdiction of the person or property of the Tenant
("state law") unless Landlord shall consent to such transfer
in writing. No acceptance by Landlord of rent or any other
payments from any such trustee, receiver, assignee, person or
other entity shall be deemed to have waived, nor shall it
waive the need to obtain Landlord's consent or Landlord's
right to terminate this Lease for any transfer of Tenant's
interest under this Lease without such consent.
(6) Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code
shall be deemed without further act or deed to have assumed
all of the obligations arising under this Lease on or after
the date of such assignment. Any such assignee shall, upon
demand, execute and deliver to Landlord an instrument
confirming such assumption.
ARTICLE 5 - IMPOSITIONS
5.1 PAYMENT OF IMPOSITIONS. Subject to Tenant's rights of contest
pursuant to the provisions of Article 13, Tenant shall pay, or cause to be paid,
all Impositions as and when such Impositions become due and payable and directly
to the parties to whom such Impositions are payable, and in no event less than
five (5) business days prior to the date on which any fine, penalty, interest or
cost may be added for non-payment. Upon request by Landlord, Tenant shall
furnish to Landlord, not less than five (5) business days prior to the date on
which any such fine, penalty, interest or cost may be added for non-payment,
copies of receipts or other reasonably satisfactory evidence of such payments.
Such payments shall be made directly to the authorities levying or to the other
persons entitled to such Impositions, if possible. Tenant's obligation to pay
Impositions shall be deemed absolutely fixed upon the date such Impositions
become due to the authority or person entitled thereto. If any such Imposition
may, at the option of the payor, lawfully be paid in installments (whether or
not interest shall accrue on the unpaid balance of such Imposition), Tenant may
pay the same (and shall pay any accrued interest on the unpaid balance of such
Imposition) in installments, and in such event shall pay such installments
(subject to Tenant's right of contest pursuant to the provisions of Article 13)
as the same become due and before any fine, penalty, premium, further interest
or cost is added thereto. Landlord shall, at its expense and to the extent
required or permitted by applicable laws and regulations, prepare and file all
returns with respect to Landlord's net income, gross receipts, sales, use,
single business, transaction privilege, rent, ad valorem and franchise taxes,
and with respect to taxes on Landlord's capital stock. Tenant shall, at its
expense, and to the extent required or permitted by applicable laws and
regulations, prepare and file all other tax returns and reports with respect to
any Imposition as may be required by governmental agencies, authorities or other
persons entitled to the receipt of the
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<PAGE> 23
Impositions. If any refund shall be due from any taxing authority or other
persons entitled to the receipt of the Impositions with respect to any
Imposition paid by Tenant, the same shall be paid over to and retained by Tenant
unless an Event of Default shall have occurred hereunder and be continuing, in
which case such refund shall be paid over to and retained by Landlord. Any such
funds retained by Landlord due to an Event of Default shall be applied as
provided in Article 17. Landlord and Tenant shall, each upon a request by the
other, provide such information as is maintained by the party to whom the
request is made with respect to the Property as may be reasonably necessary to
prepare any required returns or reports. If any governmental agency or authority
classifies any property covered by this Lease as personal property, Tenant shall
file all personal property tax returns in such jurisdictions where it may
legally so file. Landlord, to the extent it possesses the same, and Tenant, to
the extent it possesses the same, will provide to the other party, promptly upon
request, cost and depreciation records reasonably necessary for filing returns
for any property so classified as personal property. If Landlord is legally
required to file any personal property tax returns, Landlord shall provide
Tenant with copies of any assessment notices with respect thereto in sufficient
time for Tenant to file a protest with respect thereto if it so elects pursuant
to Article 13. If no monetary Event of Default is then continuing, Tenant may at
its option and sole cost and expense, upon Notice to Landlord, protest, appeal
or institute such other proceedings as Tenant reasonably may deem appropriate to
effect a reduction of any Imposition so long as such action is conducted in good
faith and with due diligence. In such event, Landlord, at Tenant's sole cost and
expense, shall fully cooperate with Tenant in such protest, appeal, or other
action, provided that Landlord incurs no liability thereby. Tenant hereby agrees
to indemnify, defend, protect, save and hold Landlord harmless from and against
any and all losses, demands, claims, obligations and liabilities against or
incurred by Landlord in connection with such protest, appeal or other
proceeding. Billings by Landlord to Tenant for reimbursement of personal
property taxes shall be accompanied by copies of a bill therefor and evidence of
payment thereof which identify the personal property with respect to which such
payment has been made.
5.2 NOTICE OF IMPOSITIONS. Landlord shall give prompt Notice to Tenant
of all Impositions payable by Tenant hereunder of which Landlord at any time has
knowledge. Notwithstanding the foregoing, however, Landlord's failure to give
any such Notice shall in no way diminish Tenant's obligations hereunder to pay
such Impositions, but Landlord shall be responsible for any fine, penalty or
interest resulting from its failure to give such Notice and any default by
Tenant hereunder shall be obviated for a reasonable time after Tenant receives
Notice of any Imposition which it is obligated to pay.
5.3 ADJUSTMENT OF IMPOSITIONS. Impositions imposed with respect to the
tax period during which the Term expires or terminates shall be adjusted and
prorated between Landlord and Tenant, whether or not such Imposition is imposed
before or after such expiration or termination, so that Tenant is only obligated
to pay that portion of such Imposition(s) pertaining to the tax period within
the Term. The obligation of Tenant to pay its prorated share of Impositions
shall survive expiration or
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<PAGE> 24
earlier termination of this Lease. Likewise any refund of any Imposition paid
with respect to any tax period within the Term which refund is received by
Landlord after the expiration or termination of this Lease shall be prorated and
shared with Tenant.
5.4 UTILITY CHARGES. Tenant shall pay or cause to be paid all charges
(including any connection charges and deposits) for all utilities, including,
but not limited to, electricity, power, gas, oil and water, used in the Property
during the Term.
5.5 INSURANCE PREMIUMS. Tenant shall pay or cause to be paid all
premiums for insurance coverage required to be maintained pursuant to Article
14.
ARTICLE 6 - TERMINATION OR ABATEMENT OF LEASE
6.1 NO TERMINATION OR ABATEMENT. Without limiting the generality of
Section 4.8 hereof, Tenant, to the fullest extent permitted by law, shall remain
bound by this Lease in accordance with its terms in all events. Tenant shall not
take any action without the prior written consent of Landlord to modify,
surrender or terminate this Lease. The obligations of Landlord and Tenant
hereunder shall be separate and independent covenants and agreements, and Rent
and all other sums shall continue to be payable by Tenant hereunder in any event
unless (i) the obligation of Tenant to pay the same abates or terminates
pursuant to the express provisions of this Lease (other than by reason of an
Event of Default by Tenant) or (ii) Rent and such other sums abate as provided
in Section 6.2. Without limiting the generality of the immediately preceding
sentence Tenant shall not seek or be entitled to any abatement (other than as
provided in Section 6.2 or as otherwise specifically provided by this Lease),
deduction, deferment or reduction of Rent, or set-off against Rent, nor shall
the respective obligations of Landlord and Tenant be otherwise affected by
reason of (a) any damage to, or destruction of, all or any portion of the
Property from whatever cause or any Taking of all or any portion of the
Property; (b) the lawful or unlawful prohibition of, or restriction upon,
Tenant's use of all or any portion of the Property or the interference with such
use or with Tenant's quiet enjoyment of the Property by any person or entity;
(c) the eviction of Tenant from the Property or any portion thereof by any
person whose rights or interest arise other than by, through or under Landlord,
whether by paramount title or otherwise; (d) any claim which Tenant has or may
have against Landlord by reason of any default or breach of any warranty by
Landlord under this Lease or any other agreement between Landlord and Tenant or
to which Landlord and Tenant are parties; (e) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceeding affecting Landlord or any assignee or transferee of
Landlord; or (f) any other cause, whether similar or dissimilar to any of the
foregoing. Tenant hereby specifically waives all rights, arising from any
occurrence whatsoever, which (i) may now or hereafter be conferred upon it by
law or otherwise to modify, surrender or terminate this Lease or quit or
surrender all or any portion of the Property or (ii) entitle Tenant to any
abatement, reduction, suspension or deferment of Rent or other sums payable by
Tenant hereunder except to the extent expressly provided in Section 6.2 or as
otherwise specifically provided by this Lease.
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<PAGE> 25
6.2 LIMITED ABATEMENT. In the event of any damage or destruction of the
Property as contemplated in Section 15.2, the Base Rent shall be abated solely
to the extent that Landlord actually receives proceeds of insurance under the
insurance policy described in Section 14.1(d) equal to the Rent otherwise due
under this Lease. In no other event shall the Rent hereunder abate in any manner
whatsoever prior to the termination of this Lease in accordance with its terms,
except as otherwise specifically provided by this Lease.
ARTICLE 7 - FFF&E AND OTHER CAPITAL IMPROVEMENTS
7.1 FFF&E. During the Term Tenant shall maintain, replace, restore and
repair the FFF&E from time to time as shall be necessary to operate the Property
in compliance with all License and certification requirements, other Legal
Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the assisted living industry with respect to the Permitted
Use(s) or other uses then conducted on the Property by Tenant and permitted
hereunder. Tenant shall from time to time at Landlord's request provide an
itemized schedule listing the FFF&E.
7.2 MINIMUM CAPITAL EXPENDITURES. Beginning with the 2001 Lease Year
and during the remainder of the Initial Term and any and all Extended Terms,
Tenant agrees that during each Lease Year it will on average incur repair and
maintenance costs for the Facility ("Capital Expenditures") (exclusive of the
categories of costs set out below) which must be accounted for as capitalized
expenditures under generally accepted accounting principles in the minimum
amount of $300.00 per unit per year. In meeting the required amount of Capital
Expenditures, Tenant shall not include amounts incurred for any of the following
purposes:
(i) amounts spent on the Facility's heating,
ventilation and air conditioning systems
(ii) amounts spent to repair, replace, alter or add
to the Facility's roof or other structural features of the
Property
Compliance with the provisions of this Section 7.2 shall be measured on
a rolling three year basis. Amounts used from FFF&E Account shall not be counted
in measuring compliance with requirements of this Section 7.2.
Within ninety (90) days after the end of each Fiscal Year of Tenant,
Tenant shall provide to Landlord a certificate signed by Tenant's duly
authorized officer, certifying the amount of Capital Expenditures that were
incurred by Tenant for the year then ended exclusive of the excluded categories
of costs.
7.3 FFF&E ACCOUNT. If the report furnished to Landlord under Section
7.2 above shows that Tenant failed to make the required Capital Improvements,
Tenant shall at such time fund an account therefor (the "FFF&E Account") in the
amount of such shortfall. Provided that no Event of Default is occurring, Tenant
shall have the right during the Term to make withdrawals from the FFF&E Account
from time to
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time solely for the purpose of replacing, restoring and repairing the FFF&E for
the Property (other than the use categories excluded under Section 7.2 above)
and for no other purpose. Tenant shall give Notice to Landlord each time a
deposit or withdrawal is made from the FFF&E Account, together with an Officer's
Certificate confirming the amounts so deposited and withdrawn (and, in the case
of a withdrawal, the specific purpose of the withdrawal, specifically
identifying the items, of FFF&E replaced and the respective cost of such
replacement item, restored or repaired and any replacement items of FFF&E). From
time to time upon Landlord's request, Tenant shall furnish such additional
documentation, including bank statements, invoices and purchase orders, as
Landlord may request concerning the FFF&E Account and all items of FFF&E. The
mere use of the funds in the FFF&E Account shall not be evidence of Tenant's
compliance with its obligations under Section 7.2.
7.4 FFF&E WITHDRAWALS. Upon expiration or termination of the Lease or
termination of Tenant's right to possession of the Property, the funds in the
FFF&E Account shall automatically and immediately become the property of
Landlord, and Tenant shall not thereafter be permitted to make any further
withdrawals from the FFF&E Account. Within thirty (30) days after the
establishment of the FFF&E Account, Tenant shall obtain and deliver to Landlord
a letter or other written acknowledgment from the commercial bank(s) at which
the FFF&E Account is established, whereby such bank(s) acknowledge and agree
that upon receipt by such bank(s) of a certificate executed by an officer of
Landlord stating, in substance, that this Lease has expired or been terminated,
or that Tenant's right to possession of the Property has been terminated, such
bank(s) (i) shall not permit any further withdrawals by Tenant of any funds in
the FFF&E Account, and (ii) shall deliver all funds in the FFF&E Account to
Landlord within thirty (30) days thereafter. Tenant agrees that Tenant shall not
object to such delivery of such funds to Landlord.
ARTICLE 8 - OWNERSHIP AND USE OF PROPERTY
8.1 OWNERSHIP OF THE PROPERTY. The Property, including the FFF&E, is,
and throughout the Term shall continue to be, the property of Landlord. Tenant
has only the right to the exclusive possession and use of the Property, upon the
terms and subject to the conditions set forth in this Lease. Tenant shall not
permit the Property to become subject to any liens or encumbrances of any kind
without Landlord's prior written consent, which may be granted or withheld in
Landlord's sole discretion.
8.2 USE OF THE PROPERTY.
(a) Tenant will be responsible for acquiring any and all
Licenses necessary for its current use and operation of the Property in
full force and effect during the Term, and will keep and maintain such
Licenses as are, from time to time, required for the uses conducted by
Tenant on the Property, in accordance with all Legal Requirements.
(b) Throughout the entire Term, Tenant shall use the Property
or cause the Property to be used solely in accordance with its
Permitted Use(s) and
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for such other uses as may be necessary in connection with or
incidental to such use; provided, however, that so long as no Event of
Default then exists, Tenant may request, by Notice to Landlord, that
Landlord give its prior written consent to Tenant to permit Tenant to
use the Premises, in addition to and/or in substitution for the
Permitted Use(s), for non-health care oriented residential
accommodations for the elderly (specifically excluding any use as a
condominium, cooperative or similar arrangement or regime), and, in
connection therewith, the provision of food services and recreational
services, all in full compliance with all applicable Legal Requirements
and all other terms, covenants, provisions and conditions of this
Lease. Landlord shall not unreasonably withhold such consent.
Notwithstanding any such consent, Tenant shall not permit or consent to
the cancellation, lapse or amendment of any license or permit required
to operate the Facility for its Permitted Use, except to the extent
that the use of the Premises to which Landlord so consents renders it
impossible to maintain such license or permit in full force and effect.
(c) If Landlord elects to permit Tenant's proposed use of the
Property, then Tenant may make such use of the Property, subject to and
in accordance with all the terms and conditions of this Lease.
(d) Except as otherwise provided by subparagraph (b) above,
Tenant shall not use any portion of the Property for any other purpose
whatsoever without Landlord's written consent, which may be granted or
withheld in Landlord's sole and absolute discretion.
(e) Tenant shall not commit or suffer to be committed any
waste nor shall Tenant cause or permit any nuisance on the Property.
(f) Tenant shall neither suffer nor permit all or any portion
of the Property, including any Capital Addition, whether or not
financed or paid for by Landlord, to be used in such a manner as (i)
may impair the Landlord's title to the Property or to any portion
thereof or (ii) may make possible a claim or claims of adverse use,
adverse possession or implied dedication of all or any portion of the
Property to the public.
8.3 CONTINUOUS OPERATIONS. Tenant shall maintain continuous operations
on the Property in accordance with the provisions of this Lease and shall not
cease such operations.
8.4 HAZARDOUS SUBSTANCES.
(a) Tenant will keep the Property free and clear of all
Hazardous Substances other than those Hazardous Substances which are
required for the operation of the Property (which Hazardous Substances
shall be handled, used and disposed of in strict compliance with the
Legal Requirements and Insurance Requirements) and Tenant shall pay all
costs required to properly use, handle and dispose of all Hazardous
Substances as and when due and Tenant will keep
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the Property free and clear of any lien relating to Hazardous
Substances which may be imposed pursuant to the Legal Requirements. For
the purposes of this Article, the term "Property" shall also include,
in addition to the items specified in Section 2.1, all air, soil,
groundwater, surface water or soils vapor at, on, about, under or
within the Land. All operations or activities upon, or any use or
occupancy of the Property, or any portion thereof, by Tenant, or any
agent, contractor or employee, or subtenant of Tenant shall at all
times during the Term be in all respects in strict compliance with any
and all Legal Requirements relating to Hazardous Substances, including,
but not limited to, the discharge and removal of Hazardous Substances.
Neither Tenant, nor any agent, contractor or employee, nor any
subtenant of Tenant will allow the manufacture, storage, voluntary
transmission or presence of any Hazardous Substances over or upon the
Property (except in strict compliance with the Legal Requirements).
Landlord shall have the right at any time to conduct, at its cost, an
environmental audit of the Property and Tenant shall cooperate in the
conduct of such environmental audit. Furthermore, neither Tenant, nor
any agent, contractor or employee, nor any subtenant of Tenant will
install or permit to be installed (except in strict compliance with
applicable Legal Requirements), in or on the Property friable asbestos
or any substance containing asbestos or similarly deemed hazardous by
governmental authorities or the Legal Requirements respecting such
materials, and with respect to any such materials currently present in
the Property, shall promptly either (a) remove any material which such
Legal Requirements deem hazardous and require be removed, at its sole
cost and expense, or (b) otherwise comply with the Legal Requirements.
Tenant shall promptly notify Landlord in writing of any order, receipt
of any notice of violation or noncompliance with any applicable law,
rule, regulation, standard or order, any threatened or pending action
by any regulatory agency or their governmental authority, or any claims
made by any third party relating to Hazardous Substances on, emanations
on or from, releases on or from, or threats of releases on or from any
of the Property; and shall promptly furnish the Landlord with copies of
any correspondence, notices, or legal pleadings 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 Hazardous Substances on, released
from or emanating from any part of the Property which Landlord
reasonably believes may cause harm to any persons or property.
(b) Without limiting Section 20.1, Tenant agrees, with the
right to participate in the applicable proceedings, to indemnify,
protect, defend (with counsel reasonably approved by Landlord) and hold
Landlord, and the directors, officers, shareholders, employees and
agents of Landlord, harmless from any claims (including, without
limitation, third party claims for personal injury or real or personal
property damage, or natural resources damage), actions, administrative
proceedings (including informal proceedings), judgments, damages,
punitive damages, penalties, fines, costs, liabilities (including sums
paid in settlements of claims), interest or losses, including
reasonable attorneys'
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and paralegals, fees and expenses (including any such fees and expenses
incurred in enforcing the covenants and obligations of Tenant under
this Lease or collecting any sums due hereunder), consultant fees, and
expert fees, together with all other costs and expenses of any kind or
nature (collectively, the "Costs") that arise directly or indirectly
from or in connection with the presence, suspected presence, release or
threatened release of any Hazardous Substance in or into or at, on,
about, under or within the Property, or any portion thereof, to the
extent that such Costs are not attributable to the negligence or
willful misconduct of Landlord, whether sole or contributory. The
indemnification provided in this subsection (b) shall specifically
apply to and include claims or actions brought by or on behalf of
employees of Tenant, or contractors, or employees of contractors of
Tenant and Tenant hereby expressly waives any immunity to which Tenant
may otherwise be entitled under any industrial or worker's compensation
laws. In the event Landlord shall suffer or incur any such Costs,
Tenant shall pay to Landlord the total of all such Costs suffered or
incurred by Landlord upon demand therefor by Landlord. Without limiting
the generality of the foregoing, the indemnification provided by this
subsection (b) shall specifically cover Costs, including capital,
operating and maintenance costs, incurred in connection with any
investigation or monitoring of site conditions, any clean-up,
containment, remedial, removal or restoration work required or
performed by any Federal, state or local governmental agency or
political subdivision or performed by any non-governmental entity or
person because of the presence, suspected presence, release or
suspected release of any Hazardous Substance in or into the air, soil,
groundwater, surface water or soil vapor at, on, about, under or within
the Property (or any portion thereof), and any claims of third parties
for loss or damage due to such Hazardous Substance, to the extent that
such Costs are not attributable to the negligence or willful misconduct
of Landlord, whether sole or contributory. In addition, the
indemnification provided by this subsection (b) shall include, without
limitation, all loss or damage sustained by Landlord or any third party
due to any Hazardous Substance (i) that is present or suspected to be
present in the air, soil, groundwater, surface water or soil vapor at,
on, about, under or within the Property (or any portion thereof) on or
before the Commencement Date, or (ii) that migrates, flows, percolates,
diffuses or in any way moves onto, into or under the air, soil,
groundwater, surface water or soil vapor at, on, about, under or within
the Property (or any portion thereof) after the Commencement Date,
irrespective of whether such Hazardous Substance shall be present or
suspected to be present in the air, soil, groundwater, surface water or
soil vapor at, on, about, under or within the Property (or any portion
thereof) as a result of any release, discharge, disposal, dumping,
spilling, or leaking (accidental or otherwise) onto the Property (or
any portion thereof) occurring before, on or after the Commencement
Date or caused by any person or entity: provided, however, that the
indemnification obligation under clauses (i) and (ii) above shall apply
solely to the extent that such loss or damage is not attributable to
the negligence or willful misconduct of Landlord.
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(c) In the event any investigation or monitoring of site
conditions or any clean-up, containment, restoration, removal or other
remedial work (collectively, the "Remedial Work") is required under any
applicable Legal Requirement including, without limitation, any
judicial order, or any order of any governmental entity, or in order to
comply with any agreements affecting the Property because of, or in
connection with, any occurrence or event described in subsection (b)
above, Tenant shall perform or cause to be performed the Remedial Work
in compliance with such law, regulation, order or agreement and subject
to the final review and approval of Landlord for compliance with Legal
Requirements; provided, that Tenant may withhold such compliance
pursuant to a good faith dispute regarding the application,
interpretation or validity of the law, regulation, order, or agreement,
subject to the requirements of subsection (d) below; provided, however,
that Landlord shall reasonably cooperate with Tenant to the extent
necessary to deliver such authorization as may be required in order for
Tenant to perform its obligations under this subsection (c). All
Remedial Work shall be performed by one or more contractors, selected
by Tenant and approved in advance in writing by Landlord in its
reasonable discretion, and under the supervision of a consulting
engineer, selected by Tenant and approved in advance in writing by
Landlord in its reasonable discretion. All costs and expenses of such
Remedial Work shall be paid by Tenant, including, without limitation,
the charges of such contractor(s) and/or the consulting engineer and
costs incurred by Landlord "in house", (such as photocopying charges
and travel costs for Landlord's employees) in connection with
monitoring or review of such Remedial Work. In the event Tenant shall
fail timely to commence, or cause to be commenced, or fail diligently
to prosecute to completion, or fail to complete to Landlord's
reasonable satisfaction, such Remedial Work in compliance with Legal
Requirements, Landlord may, but shall not be required, to cause such
Remedial Work to be performed, and all costs and expenses thereof, or
incurred in connection therewith, shall be Costs within the meaning of
subsection (b) above. All such Costs shall be due and payable upon
demand therefor by Landlord. If Tenant fails to perform its obligations
hereunder, Landlord shall be subrogated to any rights Tenant may have
under any indemnifications from any present, future or former owners,
tenants or other occupants or users of the Property (or any portion
thereof), relating to the matters covered by this Section 8.4.
(d) Notwithstanding any provision of this Section 8.4 to the
contrary, but without limiting the provisions of Article 13 or Tenant's
obligations of protection, defense and indemnification under Section
8.4(b), Tenant will be permitted to contest or cause to be contested,
subject to compliance with the requirements of this subsection (d) and
Article 13, by appropriate action any Remedial Work requirement, and
Landlord shall not perform such requirement on its behalf, so long as
Tenant has given Landlord Notice that Tenant is contesting or shall
contest or cause to be contested the same, and Tenant actually contests
or causes to be contested the application, interpretation or validity
of the governmental law, regulation, order or agreement pertaining to
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the Remedial Work by appropriate proceedings conducted in good faith
with due diligence; provided, such contest shall not subject Landlord
to civil liability and does not jeopardize Landlord's interest in the
Property or affect in any way the payment of any sums to be paid under
this Lease. Tenant shall give such security or assurances as may be
reasonably required by Landlord to insure compliance with the legal
requirements pertaining to the Remedial Work (and payment of all costs,
expenses, interest and penalties in connection therewith) and to
prevent any sale, forfeiture or loss by reason of such nonpayment or
noncompliance.
(e) The obligations of Tenant under this Section 8.4 shall
survive expiration or earlier termination of this Lease, subject in all
respects to the provisions of Section 24.2. Any costs and other
payments required to be paid by Tenant to Landlord under this Section
8.4 which are not paid on demand therefor, shall thereupon be
considered delinquent, Tenant shall pay to Landlord immediately upon
demand therefor interest on such overdue amounts, from the date when
due until paid, at the Overdue Rate.
ARTICLE 9 - LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS
9.1 COMPLIANCE WITH LEGAL REQUIREMENTS, INSURANCE REQUIREMENTS AND
INSTRUMENTS. Subject to the rights of Tenant as provided in Article 13 relating
to permitted contests, Tenant, at its sole cost and expense, shall promptly (a)
comply with all applicable Legal Requirements and Insurance Requirements with
respect to the use, operation, maintenance, repair and restoration of the
Property, whether or not compliance therewith shall require structural change in
the Property or interfere with the use and enjoyment of the Property, and (b)
procure, maintain and comply with all appropriate Licenses necessary for any use
of the Property then being made, and for the proper erection, installation,
operation and maintenance of the Property or any part thereof, including,
without limitation, any Capital Additions. Tenant shall notify Landlord
immediately upon obtaining knowledge of facts which are reasonably likely to
result in an action by any federal, state or local agency (or the staff thereof)
to revoke, withdraw or suspend any License, or an action of any other type,
which would have a materially adverse effect on Tenant or the operations of the
Property.
9.2 COVENANTS REGARDING LEGAL REQUIREMENTS. Tenant covenants and agrees
that it shall not use the Property for any purpose which violates the Legal
Requirements. Tenant shall acquire and maintain all appropriate Licenses
necessary to operate the Property in its customary manner for the Permitted
Use(s), and any other use conducted on the Property by Tenant and permitted by
Landlord hereunder. If no monetary Event of Default has occurred and is then
continuing, Tenant may, however, upon prior Notice to Landlord, contest the
legality or applicability of any such Legal Requirement or any licensure or
certification decision if Tenant maintains such action in accordance with the
provisions of Article 13 hereof and otherwise conducts such action in good
faith, with due diligence, without prejudice to Landlord's rights or entitlement
to the Property or Landlord's rights hereunder and at Tenant's sole cost and
expense. If by the terms of any such Legal Requirement, compliance therewith,
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pending the prosecution of any such proceeding, may legally be delayed without
the occurrence of any lien, charge, fine, penalty or other liability of any kind
against the Property or Landlord's fee interest or Tenant's leasehold interest
therein and without subjecting Tenant or Landlord to any liability, civil or
criminal, for failure so to comply therewith, Tenant may delay compliance
therewith until the final determination of such proceeding. If any lien, charge
or civil or criminal liability would be incurred by reason of any such delay,
Tenant, subject to the prior written consent of Landlord (which consent shall
not be unreasonably withheld), may nonetheless contest and/or delay as aforesaid
provided that such contest or delay, as the case may be, will not affect
Landlord's entitlement to the Property or subject Landlord or Tenant to criminal
liability and Tenant (a) furnishes to Landlord security reasonably satisfactory
to Landlord, in Landlord's sole and absolute discretion, against any loss or
injury by reason of such contest or delay, and (b) prosecutes the contest with
due diligence and in good faith. The parties understand and agree that certain
deficiencies or situations of non-compliance with various Legal Requirements are
likely to occur from time to time in the normal course of business operations on
the Property. Such occurrences will not constitute a breach or default by Tenant
under this Lease, provided that (a) they are not materially beyond the general
experience of comparable retirement community operations in the State (not just
of Tenant or any Affiliate of Tenant) in terms of scope, seriousness or
frequency, (b) no material decrease in Gross Revenues from the Property results
from any such occurrence(s), and (c) Tenant diligently takes all reasonable
actions in a timely manner to cure such deficiencies or situations of
non-compliance and effectuates such cure to the extent same can be practicably
accomplished.
9.3 LANDLORD'S COOPERATION. Landlord shall cooperate, as reasonably
necessary or required, with Tenant in applying for and maintaining all
appropriate Licenses necessary to operate the Property for the Permitted Use(s)
in accordance with the provisions of this Lease and to otherwise comply with
applicable Legal Requirements, provided that such cooperation is in conformance
with all Legal Requirements. Tenant shall promptly advance to Landlord such
amounts as are reasonably necessary to pay for all costs and expenses incident
to such cooperation. Tenant agrees to indemnify, defend, protect, save and hold
Landlord harmless from and against any and all costs, expenses, losses, demands,
claims, obligations and liabilities against or incurred by Landlord in
connection with such cooperation, except in any cases of fraud,
misrepresentation or intentional non-compliance with Legal Requirements on the
part of Landlord. Such indemnity shall survive the expiration or termination of
this Lease.
ARTICLE 10 - CONDITION OF THE PROPERTY
10.1 MAINTENANCE AND REPAIR.
(a) Tenant recognizes that the Property is recently
constructed and that "Punch List" items may remain to be completed.
Tenant, at its sole cost and expense, shall keep the Property and all
private roadways, sidewalks and curbs appurtenant thereto in good
order, condition and repair and, except as may otherwise be expressly
provided to the contrary in Article 14, 15, or 16, with
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reasonable promptness, shall, at Tenant's sole cost and expense, make
all necessary and appropriate repairs and replacements thereto of every
kind and nature, whether interior or exterior, structural or
nonstructural, ordinary or extraordinary, patent or latent, foreseen or
unforeseen, or arising by reason of a condition existing prior to the
commencement of the Term of this Lease and regardless of the cause
necessitating repair. Tenant shall also be obligated at its expense to
make all repairs, modifications and renovations necessary to comply
with all licensing, safety and health and building codes and
regulations applicable to the Property so that it can be legally
operated for its Permitted Use(s) or the use(s) then permitted and
actually utilized by Tenant hereunder. All repairs by Tenant shall be
made in a good and workmanlike manner using materials of good quality.
Tenant shall not take or omit to take any action, the taking or
omission of which might materially impair the value or the usefulness
of all or any portion of the Property for the Permitted Use(s) or the
use(s) then permitted and actually utilized by Tenant hereunder. Tenant
shall give Landlord ten days prior Notice of any repair, replacement,
modification or renovation pursuant to this Section which is reasonably
expected to cost in excess of $10,000.
(b) Landlord shall not under any circumstances be required to
build or rebuild the Facility, or to make any repairs, replacements,
alterations, restorations or renewals of any nature or description to
the Property, whether interior or exterior, structural or
nonstructural, ordinary or extraordinary, patent or latent, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto,
in connection with this Lease, nor shall Landlord under any
circumstances be required to maintain the Property in any way or manner
whatsoever. Tenant hereby waives, to the fullest extent permitted by
law, the right to make repairs at the expense of Landlord pursuant to
any law or equitable principle in effect at the time of the execution
of this Lease or hereafter enacted. Landlord shall have the right to
give, record and post, on the Property and otherwise, as appropriate,
notices of non-responsibility under any construction or mechanic's lien
laws now or hereafter existing, and any other notices of a similar
nature that Landlord may reasonably elect to give, record or post from
time to time during the Term.
(c) Nothing contained in this Lease, and no action or inaction
by Landlord, shall be deemed or construed in any manner as (i)
constituting the consent or request of Landlord, expressed or implied,
to any contractor, subcontractor, laborer, materialman or vendor to or
for the performance of any labor or services or the furnishing of any
materials or other property for the construction, alteration, addition,
repair or demolition of or to all or any portion of the Property or
(ii) giving Tenant any right, power or permission to contract for or
permit the performance of any labor or services or the furnishing of
any materials or other property in such a manner as would permit the
making of any claim against Landlord or any portion of the Property
with respect thereto, or to make any agreement that may create, or in
any way may be the basis for the
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assertion of any right, title, interest, lien, claim or other
encumbrance upon the estate of Landlord in all or any portion of the
Property.
(d) Tenant shall, upon the expiration or earlier termination
of this Lease, vacate and surrender the Property to Landlord in the
condition on which the Property was originally received from Landlord,
except as repaired, rebuilt, restored, altered or added to as permitted
or required by the provisions of this Lease, and except for casualty,
condemnation or ordinary wear and tear (but subject to the obligation
of Tenant under this Section to maintain the Property in good order,
condition and repair during the entire Term of this Lease) and subject
to the provisions of this Lease with respect to casualties, insurance
proceeds and condemnation.
(e) The maintenance and repair obligations of Tenant under
this Section 10.1 shall survive the expiration or earlier termination
of this Lease as regards any condition requiring repair which existed
as of the date of such expiration or termination notwithstanding that
such condition is not discovered by Landlord until after the date of
such expiration or termination.
10.2 ENCROACHMENTS. If any portion of the Property shall at any time
during the Term impair the rights of others under any easement or right-of-way
burdening the Land, provided that such restriction or easement has not been
created by Landlord subsequent to the Commencement Date and without the consent
of Tenant in violation of this Lease, then promptly upon the request of
Landlord, or at the behest of any person affected by violation or impairment and
in such case, in the event of an adverse final determination, Tenant shall, at
Tenant's sole cost and expense, but in conjunction with Landlord, obtain valid
and effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, whether the same
shall affect Landlord or Tenant, subject to Landlord's consent to all such
settlements or waivers. In any event Tenant shall, subject to Landlord's
consent, take all such actions as may be necessary in order to be able to
continue the operation of the Property for the then existing use substantially
in the manner and to the extent the Property was operated prior to the assertion
of such violation or impairment. Notwithstanding the provisions of this Section
10.2 to the contrary, Tenant shall not be responsible for any claims to the
extent such claims are covered by Landlord's or Tenant's title insurance policy,
and Landlord agrees that any proceeds recovered under such title insurance
policy shall be made available to remedy the claimed violation or restriction.
ARTICLE 11 - RENT RESERVE
11.1 RESERVE FOR RENT PAYMENTS. On the Commencement Date Tenant shall
deposit with Landlord a Rent Reserve in an initial amount of $69,391.23, that
being three months Base Rent. Such deposit shall be held by Landlord pursuant to
the terms of a Rent Reserve Agreement executed by Landlord and Tenant, the terms
of which are incorporated herein by reference. The Rent Reserve may be decreased
to two months Base Rent if the Rent Reserve Reduction Conditions as defined in
Section 11.2
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are maintained for two consecutive years. The Rent Reserve may be further
decreased to one month Base Rent if the Rent Reserve Reduction Conditions are
maintained for three consecutive years. The Rent Reserve may be fully released
to Tenant if the Rent Reserve Reduction Conditions are maintained for four
consecutive years.
11.2 RENT RESERVE REDUCTION CONDITIONS. As used in Section 11.1 the
Rent Reserve Reduction Conditions are satisfied when all of the following
conditions exist for any given Lease Year:
(a) The Tenant has maintained at all times during that Lease
Year shareholders' equity of not less than $100,000,000.00;
(b) The Facility has maintained for each Fiscal Quarter an
average occupancy rate of not less than 80%; and
(c) The EBITDA determined for the Facility for each Fiscal
Quarter is not less than 1.25 times the amount of Base Rent and
Percentage Rent due to Landlord during that same Fiscal Quarter.
Any request by Tenant for a release from the Rent Reserve shall be
accompanied by a letter from Tenant's auditors certifying that the Rent Reserve
Reduction Conditions have been satisfied for the required period of time.
ARTICLE 12 - LIENS
12.1 NO LIENS ON PROPERTY. Subject to the provisions of Article 13
relating to permitted contests, Tenant shall not directly or indirectly create
or allow to remain and shall promptly discharge at its expense any lien,
encumbrance, attachment, title retention agreement or claim upon any portion of
the Property or any attachment, levy, claim or encumbrance in respect of Rent,
not including, however, (a) this Lease, (b) Permitted Encumbrances, if any, (c)
restrictions, liens and other encumbrances which do not arise by, through or
under Landlord or are otherwise consented to in writing by Landlord, including,
without limitation, Encumbrances, (d) liens for those taxes of Landlord which
Tenant is not then currently required to pay hereunder, (e) subleases permitted
by Article 21, (f) liens for Impositions or for sums resulting from
noncompliance with Legal Requirements so long as the same are not yet payable or
are payable without the addition of any fine or penalty or are in the process of
being contested as permitted by Article 13, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums either disputed or not yet due,
provided that, notwithstanding the provisions of Article 13, at Landlord's
request, Tenant shall remove any such lien from record title to any interest in
the Property (including, without limitation, Tenant's interest under this
Lease), at Tenant's sole cost and expense, by depositing with the appropriate
public authority a sum of money, or filing in such forum a bond executed as
surety by a surety insurer licensed to do business in the State of Tennessee, in
the amount and in the manner required by applicable law of the State and
otherwise in a manner sufficient to effectively remove such lien from record
title to the Property; provided, further (i) the payment of such sums shall not
be
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postponed for more than seven days after the completion of the action giving
rise to such lien (but in no event in excess of any period of redemption) and
such reserve or other appropriate provisions as shall be required by law or
generally accepted accounting principles shall have been made therefor and/or
(ii) any such liens are in the process of being contested as permitted by
Article 13, and (h) any Encumbrances which are the responsibility of Landlord
pursuant to the provisions of Article 23.
12.2 NO LIENS ON LANDLORD'S INTEREST. In no event shall the interest of
Landlord be subject to liens for improvements made by Tenant, whether under
Article 10, Article 11 or otherwise, and Tenant shall notify any and all
contractors making any improvements, repairs or additions to any portion of the
Property that any lien to which such contractor may be entitled pursuant to the
laws of the State shall not, to the maximum extent permitted by the laws of the
State, extend to the interest of Landlord in the Property.
ARTICLE 13 - CONTESTS
Tenant, on its own or on Landlord's behalf (or in Landlord's name), but
at Tenant's sole cost and expense, may contest, by appropriate legal proceedings
conducted in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any Imposition, Legal Requirement,
Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim not
otherwise permitted by Article 12, provided that (a) in the case of an unpaid
Imposition, lien, attachment, levy, encumbrance, charge or claim, the
commencement and continuation of such proceedings shall suspend the collection
thereof from Landlord and from the Property, (b) neither the Property nor any
Rent therefrom nor any part thereof nor interest therein would be subject to any
risk of being sold, forfeited, attached, foreclosed, or lost, (c) in the case of
a Legal Requirement, Landlord would not be in any danger of civil or criminal
liability for failure to comply therewith pending the outcome of such
proceedings, (d) in the event that any such contest shall involve a sum of money
or potential loss in excess of $100,000 then, in any such event, Tenant shall
deliver to Landlord an Officer's Certificate and opinion of counsel to the
effect set forth in clauses (a), (b) and (c), to the extent applicable, (e) in
the case of a Legal Requirement or an Imposition, lien, encumbrance or charge,
Tenant shall give such reasonable security as may be demanded by Landlord to
insure ultimate payment of the same and to prevent any sale or forfeiture of the
affected portion of the Property or the Rent by reason of such non-payment or
noncompliance, including, without limitation, a guaranty in form and substance
acceptable to Landlord and executed by a guarantor acceptable to Landlord, (f)
in the case of an Insurance Requirement, the coverage required by Article 14
shall be maintained, and (g) if such contest be finally resolved against
Landlord or Tenant, Tenant shall, as Additional Charges due hereunder, promptly
pay the amount required to be paid, together with all interest and penalties
accrued thereon, or comply with the applicable Legal Requirement or Insurance
Requirement. Notwithstanding any express or implied provision of this Article to
the contrary, the provisions of this Article shall not be construed to permit
Tenant to contest the payment of Rent (except as to contests concerning the
method of computation or the basis of levy of an
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Imposition) or any other sums payable by Tenant to Landlord hereunder. Landlord,
at Tenant's expense, shall execute and deliver to Tenant such authorizations and
other documents as may reasonably be required in any such contest and, if
reasonably requested by Tenant or if Landlord so desires, Landlord shall join as
a party therein. Tenant shall indemnify, defend and save Landlord harmless
against any liability, cost or expense of any kind that may be imposed upon
Landlord in connection with any such contest and any loss resulting therefrom.
ARTICLE 14 - INSURANCE
14.1 GENERAL INSURANCE REQUIREMENTS. Tenant shall at all times maintain
policies of insurance insuring the Property, and all property located in or on
the Property, and shall insure the Property, against the kinds of risks and in
the amounts of coverage described below. Tenant shall, at its sole cost, comply
with all of the requirements pertaining to the Property of any insurance board,
association, organization or company necessary for the maintenance of the
insurance required pursuant to this Lease. All such insurance shall name Tenant
as the insured and Landlord as an additional insured. Proceeds of insurance
policies payable to compensate any loss shall be payable to Landlord and Tenant
as provided in Article 15. All such insurance shall name as an additional
insured or loss payee, as appropriate, the holder (a "Facility Mortgagee") of
any mortgage, deed of trust or other security agreement securing any Encumbrance
placed on the Property in accordance with the provisions of Article 23
("Facility Mortgages") by way of a standard form of mortgagee's loss payable
endorsement. Any loss adjustment or other settlement in excess of $100,000 shall
require the written consent of Tenant, Landlord and each Facility Mortgagee and
any other lender of Landlord or its Affiliates ("Landlord Lender") having any
contractual insurance requirements which would have an impact on the insurance
requirements of this Lease to the extent so required and Landlord has given
Tenant Notice thereof. Originals or certified copies of all insurance policies
obtained pursuant to this Article, or certificates of insurance, shall be
deposited with Landlord and, if requested, with any Facility Mortgagee(s) or
Landlord Lender(s). The policies on the Property shall insure against the
following risks:
(a) loss or damage by fire, windstorm, vandalism and malicious
mischief, extended coverage perils ("all risk" as such term is used in
the insurance industry), and all physical loss perils insurance,
including, but not limited to, sprinkler leakage, in an amount not less
than 100% of the then full replacement cost thereof excluding
foundation and excavation costs (as defined below in Section 14.2) or
such lesser amount as is approved by Landlord in writing which coverage
shall include an "increased cost of construction" endorsement;
(b) loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed on the
Property in such amounts with respect to any one accident as may be
reasonably requested by Landlord from time to time;
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(c) Tenant's business interruption under a policy covering
risk of loss and extra expenses during the lesser of the first 12
months of reconstruction or the actual reconstruction period
necessitated by the occurrence of any of the hazards described in
Sections 14.1(a) or 14.1(b) or 14.1(g), if and to the extent available
and economically feasible, in an amount sufficient to prevent Landlord
from becoming a co-insurer;
(d) Landlord's loss of rental, under a rental value insurance
policy (or rental insurance endorsement to the policy) for not less
than twelve (12) months of scheduled Base Rent;
(e) claims for personal injury or property damage under a
policy of Comprehensive General Public Liability insurance or
Commercial General Liability insurance applying to the use and
occupancy of the Property, or any part thereof, or any areas adjacent
thereto which are under Tenant' s control, and the business operated by
Tenant. Such insurance shall include Broad Form Contractual Liability
insurance coverage insuring all of Tenant's indemnity obligations
pursuant to Section 20.1 of this Lease (except for those items
customarily excluded in a standard commercial general liability
policy). Such coverage shall have a minimum combined single limit of
liability of at least $5,000,000 and a general aggregate limit of at
least $5,000,000. Any such policy shall be written to apply to all
bodily injury, property damage, personal injury and other covered
losses occurring during the policy term, and shall be endorsed to
provide that such coverage shall be primary and that any insurance
maintained by Landlord shall be excess insurance only. Such coverage
shall also contain the following endorsements to the extent the same
are available at a commercially reasonable cost: (i) including
employees as additional insureds; and (ii) deleting any liquor
liability exclusion. All such insurance shall provide for severability
of interests, and shall afford coverage for all claims based on acts,
omissions, injury and damage, which claims occurred or arose (or the
onset of which occurred or arose) in whole or in part during the policy
period. Tenant shall also maintain employers liability insurance with a
limit of no less than $1,000,000 per employee and $1,000,000 per
occurrence;
(f) claims arising out of incidental medical malpractice in an
amount not less than $1,000,000 for each person and $5,000,000 for each
occurrence;
(g) flood (when the Property is located in whole or in part
within an area designated by an appropriate agency or authority of the
United States as a flood plain to the extent such insurance is
available under the National Flood Insurance Program), coverage for
property damage and casualty caused by hurricane or other storm and
such other hazards as may be customary for comparable properties in the
county in which the Property is located, in such amounts as may be
customary for such properties, and as may be available from insurance
companies, insurance pools, or other appropriate companies authorized
to do business in the State at rates which are economically practicable
in relation to the risks covered. Tenant shall give prompt Notice to
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Landlord if Tenant does not at any time carry such coverage because the
rates for same are not economically practicable in relation to the
risks covered, and Landlord may, at its option, obtain same at its
cost;
(h) during any period during which any Capital Addition is
under construction, course of construction (builder's risk) insurance
and all risks insurance in such amounts as Landlord shall reasonably
require; and
(i) automobile liability insurance on vehicles operated in
conjunction with the Property, with a combined single limit for each
occurrence of not less than $5,000,000.
14.2 REPLACEMENT COST. The term "full replacement cost" as used herein
shall mean the actual replacement cost of the Property requiring replacement
from time to time, less the standard printed exclusions provided in a normal
fire insurance policy. The amount of the insurance coverage shall be sufficient
to preclude either Landlord or Tenant from becoming a co-insurer under the
provisions of the policy. Landlord may require Tenant to procure a "stipulated
value" or "agreed amount" endorsement deleting the co-insurance provision of any
insurance policy required hereunder, so long as coverage remains available and
is customarily carried by owners/operators of similar facilities. If either
party believes that full replacement cost (the then replacement cost less such
exclusions) has increased or decreased at any time during the Term, it may have
such full replacement cost re-determined by the insurer then providing the
largest amount of fire insurance coverage carried on the Property.
14.3 ADDITIONAL INSURANCE. In addition to the insurance described in
Section 14.1, throughout the Term Tenant shall maintain such additional
insurance as may be reasonably required from time to time by Landlord provided
that the types and amounts of any such additional insurance required by Landlord
is then customarily maintained by the operators of similar facilities in the
county in which the Property is located. Tenant shall further maintain adequate
workers' compensation insurance coverage for persons employed by Tenant on the
Property. Such workers' compensation insurance shall be in accordance with the
requirements of applicable local, state and federal law.
14.4 WAIVER OF SUBROGATION. All insurance policies carried by Landlord
or Tenant covering the Property, the FFF&E or the Facility shall expressly waive
any right of subrogation on the part of the insurer against the other party.
Landlord and Tenant agree that the respective policies of insurance carried by
them will include such waiver clauses or endorsements so long as the same are
obtainable without extra cost. If such clauses and endorsements are only
available upon the payment of an extra charge, the other party, at its election,
may pay the same, but shall not be obligated to do so; provided that the Tenant
shall at all times be obligated to carry the policies of insurance required
under this Article regardless of whether the waiver of subrogation required
under this Section 14.4 is available.
14.5 FORM OF INSURANCE. All of the policies of insurance referred to in
this
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Article shall be written in a form reasonably satisfactory to Landlord, and
issued by insurance companies reasonably acceptable to Landlord which are
licensed to conduct an insurance business and issue the insurance policy in
question in the State. Landlord agrees that it will not unreasonably withhold or
delay its approval as to the form of the policies or the insurance companies
selected by Tenant. Tenant shall pay all of the premiums therefor, and shall
deliver an original or certified copy of any policy or a certificate of
insurance, and each renewal thereof, to Landlord, any Facility Mortgagee and any
Landlord Lender at least 10 days prior to the expiration of the existing policy
to which such renewal policy relates. If Tenant either fails to effect such
insurance as herein required or to pay the premiums therefor, or to deliver such
policies or certified copies thereof or certificates of insurance to Landlord at
the times required, Landlord shall be entitled, but shall have no obligation, to
effect such insurance and pay the premiums therefor, which premiums shall be
repayable to Landlord as rent upon demand therefor in a Notice, and failure by
Tenant to repay the same shall constitute an Event of Default within the meaning
of Section 17.1(b). Each insurer mentioned in this Article shall agree, on the
certificate or policies issued by it, or by independent instrument furnished to
Landlord, that it will give to Landlord (and to any Facility Mortgagee and
Landlord Lender of which Tenant has notice, if required) thirty (30) days' prior
written notice before such policy or policies expire, are materially changed or
are canceled.
14.6 CHANGE IN LIMITS. If either party shall at any time deem the
limits of the personal injury or property damage public liability insurance or
incidental malpractice insurance then carried by Tenant to be insufficient or
excessive (based upon the limits customarily carried by operators/owners of
facilities which are similar to the facility on the Property), the parties shall
endeavor in good faith to agree promptly upon the proper and reasonable limits
for such insurance to be carried. Such insurance shall thereafter be carried
with the limits thus agreed upon until further change pursuant to the provisions
of this Section.
14.7 BLANKET POLICY. Notwithstanding anything to the contrary contained
in this Article, Tenant's obligations to carry the insurance provided for herein
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant so long as the requirements of this
Article, including the coverages to be afforded, are otherwise satisfied.
14.8 NO SEPARATE INSURANCE. Tenant shall not obtain separate insurance
concurrent in form or contributing in the event of loss with that required in
this Article 14 to be furnished by, or which may reasonably be required to be
furnished by Tenant, nor shall Tenant increase the amount of any then existing
insurance by securing an additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the insurance,
including in all cases Landlord and all Facility Mortgagees, are named therein
as additional insureds, and the loss is payable under such insurance in the same
manner as losses are payable under this Lease. Tenant shall immediately notify
Landlord of the obtaining of any such separate insurance or of the increasing of
any of the amounts of the then existing insurance, except when such
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additional insurance or increases limits are made by Tenant at all or most other
similar facilities operated or managed by Tenant or any Affiliate of Tenant.
ARTICLE 15 - INSURANCE PROCEEDS
15.1 HANDLING OF INSURANCE PROCEEDS. Provided that no Event of Default
in the payment of Base Rent and Percentage Rent then exists, all proceeds not in
excess of $100,000.00 from any policy of property damage insurance required by
Article 14 of this Lease shall be paid to Tenant. All payments in excess of
$100,000.00 shall be paid to and held in trust by Landlord; provided, however,
that if Landlord is not then National Health Investors, Inc. or any Affiliate of
National Health Investors, Inc. or a corporate or other successor to either of
them, such payments in excess of $100,000.00 shall be paid to and held by a
reputable insurance trustee having substantial experience operating in such
capacity, which trustee shall be mutually acceptable to Landlord and Tenant and
shall hold and disburse such funds in accordance with written instructions
mutually acceptable to Landlord and Tenant. Provided that no Event of Default in
the payment of Base Rent and Percentage Rent then exists, such payments in
excess of $100,000.00 shall be made available by Landlord, its Affiliate or the
trustee for reconstruction or repair, as the case may be, of any damage to or
destruction of all or any portion of the Property to which such proceeds relate,
and shall be paid out by Landlord, its Affiliates (or such insurance trustee)
from time to time in accordance with and subject to the provisions hereof for
the cost of such reconstruction or repair, subject to reasonable and customary
controls to ensure funds disbursed by Landlord, its Affiliates (or such
insurance trustee) are in fact used for such purpose. Any unused portion shall
be retained by Landlord upon completion of such repair and restoration to be
held in reserve by Landlord and disbursed by Landlord to Tenant for further
maintenance or repair of the Property as requested by Tenant and reasonably
approved by Landlord. All salvage resulting from any risk covered by insurance
shall belong to Landlord.
15.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION COVERED BY
INSURANCE.
(a) If during the Term the Property is totally or
substantially destroyed by a risk covered by the insurance described in
Article 14 so that the Property thereby is rendered unsuitable for its
Permitted Use(s) or the use(s) then permitted hereunder (taking into
account all relevant factors, including, but not limited to, the number
of useable suites and beds and the amount of square footage reasonably
available for use by Tenant and the type and amount of Gross Revenues
lost), Tenant shall use insurance proceeds hereunder to restore the
destroyed Property to substantially the same condition as existed
immediately before the damage or destruction, and this Lease shall
continue in full force and effect. The insurance proceeds shall be paid
to Tenant or its designee in accordance with Section 15.1 from time to
time as necessary to pay for the costs of such restoration.
(b) If the cost of any such repair or restoration exceeds the
amount of
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proceeds received by Landlord (or the insurance trustee described in
Section 15.1) and paid over to Tenant from the insurance required under
Article 14, Tenant shall contribute any and all excess amounts
necessary to repair or restore the Property.
15.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION NOT COVERED
BY INSURANCE. If during the Term the Property is totally destroyed or materially
damaged (i) from a risk not covered by insurance described in Article 14, (ii)
from a risk for which insurance coverage is voided due to any act or omission by
Tenant, or (iii) as result of an earthquake or hurricane, whether or not the
Property is thereby rendered unsuitable for its Permitted Use(s) or the use(s)
then permitted hereunder, Tenant shall restore the destroyed Property to
substantially the same condition as existed immediately prior to such damage or
destruction, this Lease shall continue in full force and effect, and Tenant
shall continue to pay Rent, in the manner and at the times herein specified,
including the full amounts of Base Rent, Percentage Rent for the Property, and
Additional Charges, provided that during the period of restoration when the
Property is not suitable for its Permitted Use(s) or the use(s) then permitted
hereunder, Tenant shall pay Percentage Rent for the Property at a rate equal to
the Percentage Rent for the Property for the immediately preceding full Fiscal
Year during which Percentage Rent for the Property accrued.
15.4 RESTORATION OF CAPITAL ADDITIONS PAID BY TENANT. All insurance
proceeds payable solely by reason of any loss of or damage to any Capital
Additions fully paid for by Tenant in their entirety shall be paid to Tenant and
Tenant shall hold such insurance in trust to pay the cost of repairing or
replacing damaged Capital Additions fully paid for by Tenant in their entirety;
provided, however, that if the damaged Capital Additions fully paid for by
Tenant in their entirety were no longer useful to Tenant's operations prior to
their destruction, Tenant shall not be obligated to repair or replace them.
15.5 NO ABATEMENT OF RENT. Except as expressly otherwise provided in
Section 6.2, in the event of any damage or destruction of the Property, this
Lease shall remain in full force and effect and Tenant's obligation to make
rental payments and to pay all other charges required by this Lease shall not be
abated by reason of any damage or destruction to the Property or the subsequent
loss of Landlord's entitlement to the Property.
15.6 WAIVER. Tenant hereby waives any rights at law or in equity and
any statutory rights of termination which may arise by reason of any damage or
destruction of the Property which Landlord is obligated to restore or may
restore under any of the provisions of this Lease.
ARTICLE 16 - CONDEMNATION
16.1 DEFINITIONS.
(a) "Condemnation" means (a) the exercise of any governmental
power,
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whether by legal proceedings or otherwise, by a Condemnor, or (b) a
voluntary sale or transfer by Landlord with Tenant's consent (provided
that such consent shall be required only if no Event of Default has
occurred and is continuing at such time) to any Condemnor, either under
threat of condemnation or while legal proceedings for condemnation are
pending.
(b) "Date of Taking" means the first date the Condemnor has
the right to immediate possession of the property being condemned.
(c) "Award" means all compensation, sums and any other value
awarded, paid or received on a total or partial condemnation of the
Property.
(d) "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of condemnation.
16.2 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is any
Taking of all or any part of the Property or of any interest in this Lease by
Condemnation, the rights and obligations of the parties shall be determined by
this Article.
16.3 TOTAL TAKING. If title to the fee of the whole of the Property
shall be the subject of any Taking or Condemnation by any Condemnor, this Lease
shall cease and terminate as of the Date of Taking. If title to the fee of less
than the whole of the Property shall be so taken or condemned, which
nevertheless renders the Property unsuitable for its Permitted Use(s) or the
use(s) then permitted and being then actually used hereunder (taking into
account all relevant factors, including, but not limited to, the number of
useable suites and beds, the amount of square footage reasonably available for
use by Tenant, and the type and amount of Gross Revenues lost), Tenant and
Landlord each shall have the option by Notice to the other, to terminate this
Lease as of the date the Condemnor first takes title to or possession of the
Property. In either of such events, all Rent paid or payable by Tenant hereunder
shall be apportioned as of the date the Lease shall have been so terminated.
16.4 ALLOCATION OF AWARD. In the event of a Taking as described in
Section 16.3, Landlord and Tenant shall cooperate with each other in order to
maximize the amount of the Award. Subject to the rights of any Facility
Mortgagee, all of the Award shall be the sole and exclusive property of Landlord
and shall be payable to Landlord. Tenant shall have the right to seek damages or
a separate condemnation award for Tenant's loss of any Capital Additions and
other improvements paid for by Tenant and relocation expenses.
16.5 PARTIAL TAKING. If title to the fee of less than the whole of the
Property shall be the subject of a Taking or Condemnation, and the Property is
still suitable for its then existing use, or if Tenant or Landlord shall be
entitled but shall elect to terminate this Lease as provided in Section 16.3
hereof, Tenant at its own cost and expense shall with all reasonable diligence
restore the untaken portion of then Property so that the Property shall
constitute a complete architectural unit of the same
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general character and condition (as nearly as may be possible under the
circumstances) as existing immediately prior to such Condemnation or Taking.
Landlord and Tenant shall cooperate with each other to maximize the amount of
any Award. Landlord and Tenant shall together contribute the entire amount of
the Award to the cost of restoration. The proceeds of any Award shall be held
and distributed in the same manner as provided by Section 15.1 for insurance
proceeds. Any remaining balance of such proceeds after such restoration is
completed shall be retained by or paid to Landlord.
16.6 TEMPORARY TAKING. If the whole or any part of the Property or of
Tenant's interest under this Lease shall be the subject of a Taking or
Condemnation by any Condemnor for its temporary use or occupancy, this Lease
shall not terminate, and Tenant shall continue to pay, in the manner and at the
times herein specified, the full amounts of Rent. Except to the extent Tenant
may be prevented from so doing pursuant to the terms of any order for the
benefit of the Condemnor, Tenant shall continue to perform and observe all of
the other terms, covenants, conditions and obligations hereof on the part of the
Tenant to be performed and observed as though such Taking or Condemnation had
not occurred. Upon any such Taking or Condemnation described in this Section,
the entire amount of any such Award made for such Taking or Condemnation
allocable to the Term of this Lease, whether paid by way of damages, Rent or
otherwise, shall be paid to Tenant. If any part of such Award is allocable for a
period beyond the term of this Lease, that part shall be paid to Landlord.
Tenant covenants that upon the termination of any such period of temporary use
or occupancy as set forth in this Section, Tenant will, at its sole cost and
expense (subject to any contribution by Landlord as set forth in Section 16.5),
restore the Property as nearly as may be reasonably possible to the condition in
which the same was immediately prior to such Taking or Condemnation, unless such
period of temporary use or occupancy shall extend beyond the expiration of the
Term, in which case Tenant shall not be required to make such restoration but
shall pay to Landlord from the Award received by Tenant the costs of such
restoration work.
ARTICLE 17 - DEFAULTS AND REMEDIES
17.1 EVENTS OF DEFAULT. Any one or more of the following events shall
be deemed an "Event of Default" hereunder:
(a) Tenant shall fail to pay Rent payable by Tenant under this
Lease as and when the same becomes due and payable and such non-payment
shall remain uncured for five or more days beyond the due date;
(b) Tenant shall fail to observe or perform any other material
term, covenant or condition of this Lease and such failure is not cured
by Tenant within a period of 30 days after Notice thereof from
Landlord, unless such failure cannot with due diligence be cured within
a period of thirty (30) days, in which case such failure shall not be
deemed to continue if Tenant proceeds promptly and with due diligence
to cure the failure and diligently completes the curing thereof;
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(c) Any representation or warranty made by the Tenant in
connection with this Lease, or in any report, certificate, financial
statement or other instrument furnished in connection herewith or
therewith, from time to time, whether under Article 22 of this Lease or
otherwise, shall prove to be false or misleading in any material
respect;
(d) Tenant shall (i) admit in writing its inability to pay its
debts generally as they become due, (ii) file a petition in bankruptcy
or a petition to take advantage of any insolvency law, (iii) make a
general assignment for the benefit of its creditors, (iv) consent to
the appointment of a receiver of itself or of the whole or any
substantial part of its property, or (v) file a petition or answer
seeking reorganization or arrangement under the Federal bankruptcy laws
or any other applicable law or statute of the United States of America
or any State thereof;
(e) Tenant shall, on a petition in bankruptcy filed against
it, be adjudicated bankrupt or have an order for relief thereunder
entered against it or a court of competent jurisdiction shall enter an
order or decree appointing, without the consent of Tenant, a receiver
of Tenant or of the whole or substantially all of its property, or
approving a petition filed against Tenant seeking reorganization or
arrangement of Tenant under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any state
thereof, and such judgment, order or decree shall not be vacated or set
aside or stayed within ninety (90) days from the date of the entry
thereof;
(f) Tenant shall be liquidated or dissolved (except for an
involuntary dissolution due to a failure to file an annual report with
the Secretary of State or other applicable officer or department of the
State so long as such failure is cured within 10 days of any notice
thereof to Tenant, whether from the State or otherwise), or shall begin
proceedings toward such liquidation or dissolution, or shall, in any
manner, permit the sale or divestiture of substantially all of its
assets other than in connection with a merger or consolidation of
Tenant into, or a sale of substantially all of Tenant's assets to,
another corporation;
(g) the estate or interest of Tenant in the Property or any
part thereof shall be levied upon or attached in any proceeding and the
same shall not be vacated or discharged within the later of sixty (60)
days after commencement thereof or thirty (30) days after Notice
thereof from Landlord (unless Tenant shall be contesting such lien or
attachment in good faith in accordance with Article 13 hereof);
(h) except as a result of damage, destruction or a partial,
temporary or complete Condemnation and except as otherwise permitted by
Section 8.3, Tenant voluntarily ceases operations on the Property;
(i) Tenant shall be in default with respect to any of the
Other ALS Leases, which default remains uncured beyond any applicable
notice and/or cure
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periods. An Event of Default under this Lease shall, at Landlord's
option, constitute an Event of Default under each of the Other ALS
Leases, and an Event of Default under any of the Other ALS Leases
shall, at Landlord's option, constitute an Event of Default under this
Lease.
No Event of Default (other than a failure to make a payment of money)
shall be deemed to exist under clause (b) above during, any time the curing
thereof is prevented by an Unavoidable Delay, provided that upon the cessation
of such Unavoidable Delay, Tenant immediately shall remedy such default.
Tenant shall immediately notify Landlord of the occurrence of any event
set forth in Subsections 17.1(b) through (i) and the failure to do so shall
constitute an immediate Event of Default.
17.2 CERTAIN REMEDIES. Upon any Event of Default, Landlord shall have
all legal, equitable and contractual rights, powers and remedies provided either
in this Lease or by common law, statute or otherwise. Without limiting the
foregoing, if an Event of Default occurs, whether or not this Lease has been
terminated pursuant to Section 17.3, Tenant shall, to the extent permitted by
law and if required by Landlord so to do, immediately surrender to Landlord the
Property and quit the same. To the extent permitted by law, Landlord may enter
upon and repossess the Property by reasonable force, summary proceedings,
ejectment or otherwise, and may remove Tenant and all other persons and any and
all personal property from the Property.
17.3 DAMAGES.
(a) Upon the occurrence of any Event of Default, Landlord
shall have the right (i) to terminate this Lease and Tenant's right to
possession of the Property by any lawful means, upon ten (10) days'
Notice of such termination (during which time Tenant shall have the
opportunity to cure any such Event of Default) in which case, if Tenant
shall fail to cure all Events of Default within the foregoing ten (10)
day period, this Lease shall terminate and all of Tenant's rights
hereunder shall cease and Tenant shall immediately surrender possession
of the Property to Landlord and, in such event, Landlord shall be
entitled to recover from Tenant all damages incurred by reason of
Tenant's default, (ii) to terminate Tenant's right to possession of the
Property without thereby terminating this Lease and/or relet the
Property for Tenant's account, and (iii) to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover
the Rent and other sums owed as such become due hereunder together with
interest on such overdue Rent and any other overdue amount owed by
Tenant, from the date when due until paid, at the lesser of the Overdue
Rate or the maximum rate permitted by applicable law, and Tenant
further covenants, as an additional and cumulative obligation after any
termination by reason of any Event of Default, to pay punctually to
Landlord (or such other person entitled thereto) all Rent and
punctually to perform all of the obligations which Tenant covenants in
this Lease to pay and perform in the same manner and to the same extent
and at the same time as if this Lease had not been
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terminated; provided, however, that in calculating the amounts so to be
paid by Tenant, Tenant shall be credited with any amount actually paid
to Landlord as damages pursuant to clause (i) above and also with any
rent actually obtained by Landlord by re-letting the Property, after
deducting all reasonable expenses of such re-letting and of collecting
such rent, with the exception that Tenant shall in no event be entitled
to receive any such credit in excess of the amount otherwise payable to
Landlord pursuant to this Section. Furthermore, Landlord shall also
have all rights at law and in equity available to Landlord as a result
of Tenant's breach of this Lease. If any litigation is commenced with
respect to any alleged default under this Lease, the prevailing party
in such litigation shall receive, in addition to its damages incurred,
its reasonable attorneys' fees, and all costs and expenses incurred in
connection therewith. Neither the termination of this Lease or of
Tenant's right to possession of the Premises pursuant to this Section
17.3, the repossession of the Property, the failure of Landlord,
notwithstanding reasonable good faith efforts, to relet the Property,
nor the reletting of all or any portion of the Property, shall relieve
Tenant of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. Upon any such
termination, Tenant shall, forthwith pay to Landlord the full amount of
Landlord's damages suffered by reason of Tenant's breach of this Lease,
which damages shall include, but are not limited to, the sum of:
(i) the worth at the time of the award of the unpaid
Rent due and payable to and including the date of such
termination, repossession or reletting;
(ii) the worth at the time of the award, of the
amount by which the unpaid Rent which would have been earned
after termination until the time of award exceeds the amount
of such rental loss that could have been reasonably avoided;
(iii) the worth at the time of the award of the
amount by which the unpaid Rent for the balance of the Term
after the time of the award exceeds the amount of such rental
loss that could be reasonably avoided; and
(iv) any other amount reasonably necessary to
compensate Landlord for the reasonable costs incurred in
regaining possession and reletting the Property, including,
but not limited to, brokerage fees and commissions,
construction costs, rent concessions, and all legal costs and
expenses.
(a) The "worth at the time of the award" of the amounts
referred to in subparagraphs (i) and (ii) above shall be computed by
allowing interest at the Overdue Rate. The "worth at the time of the
award" of the amount referred to in subparagraph (iii) shall be
determined by a Court having jurisdiction thereof using the lowest rate
of capitalization (highest present worth) reasonably
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applicable at the time of such determination and allowed by applicable
law.
(b) Percentage Rent for the Property, for the purposes of this
Section 17.3, shall be determined in the same manner as provided by
Section 17.5.
17.4 APPLICATION OF FUNDS. Any payments normally made to Tenant
hereunder which are made to and received by Landlord under any of the provisions
of this Lease during the continuance of any Event of Default shall be applied to
Tenant's obligations in the order which Landlord may determine or as may be
prescribed by applicable laws.
17.5 PERCENTAGE RENT WHEN TENANT CEASES OPERATIONS. For the purpose of
determining Percentage Rent for the Property if Tenant ceases operations on the
Property and thereby causes the exact amount of Percentage Rent for the Property
to be unascertainable:
(a) Percentage Rent for the Property for the balance of the
Lease Year from and after the date on which Tenant so ceases operations
shall be deemed to be the Percentage Rent for the Property for the full
Lease Year immediately preceding the Lease Year in which Tenant ceased
operations on the Property;
(b) Percentage Rent for the Property for each Lease Year
thereafter shall be an amount equal to Percentage Rent for the prior
year plus $5,483.47.
17.6 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. If an Event of Default
occurs under this Lease and is not cured within the time provided under this
Lease with respect to such Event of Default, Landlord, without waiving or
releasing any obligation of Tenant, and without waiving any such Event of
Default, may (but shall be under no obligation to) at any time thereafter cure
such default for the account and at the expense of Tenant, and may, to the
extent permitted by law, enter upon the Property for such purpose and take all
such action thereon as, in Landlord's sole judgment, may be necessary or
appropriate with respect thereto. No such entry by Landlord on the Property
shall be deemed an eviction of Tenant. All sums so paid by Landlord and all
costs and expenses (including, without limitation, reasonable attorneys' fees
and expenses, in each case to the extent permitted by law) so incurred, together
with a late charge thereon (to the extent permitted by law) at the Overdue Rate
from the date on which such sums or expenses are paid or incurred by Landlord
until paid, shall be paid by Tenant to Landlord on demand. The obligations of
Tenant and rights of Landlord contained in this Article shall survive the
expiration or earlier termination of this Lease.
17.7 WAIVER. If this Lease is terminated pursuant to the provisions of
this Article, Tenant waives, to the extent permitted by applicable law, (a) any
right of redemption, re-entry or repossession, (b) any right to trial by jury in
the event of summary proceedings to enforce the remedies set forth in this
Article, and (c) the benefit of any laws now or hereafter in force exempting
Tenant's property from liability for rent or for debt.
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ARTICLE 18 - CURE BY TENANT OF LANDLORD DEFAULTS
18.1 LANDLORD DEFAULT. Landlord shall be in default of its obligations
under this Lease if Landlord shall fail to observe or perform any term, covenant
or condition of this Lease on its part to be performed, and such failure shall
continue for a period of 30 days after Notice thereof from Tenant (or such
shorter time as may be necessary in order to cure or correct any condition, the
presence of which substantially or materially interferes with Tenant's conduct
of its usual business or the Permitted Use or to protect the health or welfare
of any patient or other resident of the Property), unless such failure cannot be
cured with due diligence within a period of thirty (30) days (or the
above-described shorter time period) , in which case such failure shall not be
deemed to continue if Landlord, within such thirty (30) days (or the
above-described shorter time period), promptly commences its attempt to cure the
failure and diligently attempts to complete the curing thereof. The time within
which Landlord shall be obligated to cure any such failure shall also be subject
to extension of time due to the occurrence of any Unavoidable Delay. If Landlord
fails to commence such cure as provided herein, Tenant may cure such default,
and so long as Tenant continues to pay Rent, Tenant shall have the right
(subject to Section 6.1), as Tenant's sole remedy (except as otherwise provided
in this Section 18.1), by separate and independent action to pursue any claim it
may have against Landlord for monetary damages caused by Landlord's failure to
cure such default.
18.2 MORTGAGEE CURE. Should Landlord fail to observe or perform any of
the covenants or conditions contained in this Lease, before taking any action,
Tenant shall give written notice to all beneficiaries of Facility Mortgages of
which Tenant has notice setting forth the nature of Landlord's default. Such
lenders shall have a reasonable period of time to cure the default not to exceed
the time allowed herein for Landlord to cure such breach. All payments made, and
all acts performed by such lenders in order to cure shall be effective to
prevent a forfeiture of the rights of Landlord under this Lease and a
termination of this Lease as if the payments and acts were performed by Landlord
instead of by the lenders.
ARTICLE 19 - HOLDING OVER
If Tenant for any reason remains in possession of any portion of the
Property after the expiration of the Term or earlier termination of the Term,
such possession shall be a tenancy at sufferance during which time Tenant shall
pay to Landlord as rental each month two (2) times the aggregate of (i)
one-twelfth of the aggregate Base Rent and Percentage Rent for the Property
payable with respect to the last 12 calendar months of the Term just expired,
(ii) all Additional Charges accruing during the month with respect to which such
payment relates, and (iii) all other sums, if any, payable by Tenant pursuant to
the provisions of this Lease with respect to the Property. During such period of
month-to-month tenancy at sufferance, Tenant shall be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall have
no rights hereunder other than the right, to the extent mandated by law
applicable to tenancies at sufferance, to continue its occupancy and use of the
Property. Nothing contained herein shall constitute the consent, express or
implied, of Landlord
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to the holding over of Tenant after the expiration or earlier termination of
this Lease.
ARTICLE 20 - LIABILITY OF PARTIES
20.1 INDEMNIFICATION BY TENANT. Notwithstanding the existence of any
insurance provided for in Article 14, and notwithstanding the policy limits of
any such insurance, but subject to the waiver of the right of subrogation set
forth in Section 14.4 hereof, Tenant shall indemnify, defend, protect, save and
hold Landlord harmless from and against any and all liabilities, losses,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) imposed
upon, incurred by or asserted against Landlord arising out of, connected with or
incidental to the following:
(a) any Hazardous Substance located in, on or under the
Property, the Land or the Facility due to the act or omission of Tenant
or otherwise during the Term hereof, including any improvements,
repairs, handling, removal or other actions taken by Landlord in order
to comply with all Legal Requirements, rules and regulations
promulgated by any applicable federal, state, or local government rule
and regulation with respect to any such Hazardous Substance or related
problems of which Landlord becomes aware;
(b) any accident, injury to or death of persons, or loss of or
damage to property, occurring on or about the Property including,
without limitation, any claims of malpractice, except for any such
accident, injury, death, loss or damage proximately caused by
Landlord's negligence and not resulting from Tenant's failure to
perform and comply with the terms, covenants, conditions and provisions
of this Lease;
(c) any past, present or future use, misuse, non-use,
condition, management, maintenance or repair by Tenant or any subtenant
of Tenant or their respective contractors, licensees, invitees, agents,
servants or employees of the Property, wheresoever the same may occur
and any litigation, proceeding or claim by governmental entities or
other third parties to which Landlord is made a party;
(d) any Impositions which are the obligations of Tenant to pay
pursuant to the applicable provisions of this Lease;
(e) any failure on the part of Tenant to perform or comply
with any of the terms of this Lease; and
(f) the non-performance of any of the terms and provisions of
any and all existing and future subleases of the Property to be
performed by Tenant thereunder.
Any amounts payable by Tenant under this Section shall be paid within ten days
after Tenant's liability therefor is determined by litigation or otherwise. If
such amounts are
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not timely paid, they shall bear a late charge at the Overdue Rate from the date
of such determination to the date paid. Tenant, at its expense, shall contest,
resist and defend any such claim, action or proceeding asserted or instituted
against Landlord, or may, with Landlord's prior written consent, compromise or
otherwise dispose of the same as Tenant sees fit. Nothing herein shall be
construed as indemnifying Landlord against its own sole gross negligence or
willful misconduct.
20.2 INDEMNIFICATION BY LANDLORD. Landlord shall indemnify, defend,
save and hold Tenant harmless from and against any and all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys, fees and expenses) imposed
upon, incurred by or asserted against Tenant arising out of, connected with or
incidental to the gross negligence or willful misconduct of Landlord; provided,
however, that Tenant's right to indemnification as provided herein shall be
subject to the limitation set forth in Article 24.
20.3 CONTINUING LIABILITY. Tenant's and Landlord's liability for a
breach of the provisions of this Article arising during the Term hereof shall
survive any termination of this Lease or of Tenant's right to possession of the
Property.
ARTICLE 21 - ASSIGNMENT AND SUBLETTING
21.1 ASSIGNMENT. Landlord's consent shall not be required for an
assignment of all (but not a portion) of Tenant's right, title and interest in
and to this Lease to an Affiliate of Tenant (a "Permitted Assignment"), provided
that (i) contemporaneously with such assignment, all of Tenant's right, title
and interest in and to all of the Other ALS Leases is also assigned to the same
Affiliate, (ii) Tenant gives Landlord not less than thirty (30) days' prior
Notice of its intent to make such assignments, (iii) at the time that such
Notice is given and at the time that such assignments become effective, no Event
of Default then exists under this Lease and/or any or all of the Other ALS
Leases, (iv) such assignment is made by a written assignment and assumption
agreement in form satisfactory to Landlord, and (v) Tenant shall not be released
from its obligations under this Lease and the Other ALS Leases by virtue of such
assignment. Except for a Permitted Assignment, Tenant shall not, without
Landlord's prior written consent in each instance, allow, cause, permit or
suffer, whether by operation of law or otherwise, any assignment, conveyance or
transfer of, or any lien, mortgage, pledge, charge, security interest or other
encumbrance (including conditional sales or other title retention agreements)
upon: (x) all or any portion of the Property; or (y) any right, title, interest
or estate of Tenant in this Lease. Landlord may, in Landlord's sole and absolute
discretion, grant, withhold or place conditions upon such consent. If Tenant so
allows, causes, permits or suffers any such assignment, conveyance, transfer,
lien, mortgage, pledge, charge, security interest or other encumbrance without
Landlord's prior written consent, same shall constitute an Event of Default by
Tenant under this Lease.
21.2 MERGERS, BUSINESS COMBINATIONS, ETC. Except as provided in this
Section 21.2, Landlord's prior written consent shall be required if Tenant shall
be merged with another corporation or be involved in any business combination if
Tenant
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is not the surviving entity. In the event of such merger, business combination
or reorganization which does not receive Landlord's consent, Landlord shall have
the option upon thirty (30) days Notice to Tenant to terminate this Lease.
Landlord's consent hereunder shall not be required if Tenant survives any such
merger or business combination or if Tenant's obligations under this Lease are
assumed by the surviving entity or Tenant's parent, by operation of law or
otherwise, and such entity has a net worth equal to or in excess of the greater
of (i) $100,000,000 or (ii) the net worth of Tenant prior to such merger,
business combination or reorganization.
21.3 SUBLETTING. Tenant shall not, without Landlord's prior written
consent in each instance, allow, cause, permit or suffer all or any portion of
the Property to be leased, subleased or licensed to, or used or occupied by, any
other party or parties, other than (a) residents of the Property, and (b)
persons permitted to temporarily enter upon the Property from time to time for
the sole purpose of rendering services or providing products (e.g., barber or
beautician services or therapists) to such residents. Landlord may, in
Landlord's sole and absolute discretion, grant, withhold or place conditions
upon such consent. If Tenant so allows, causes, permits or suffers any such
lease, sublease or occupancy without Landlord's prior written consent, same
shall constitute an Event of Default by Tenant under this Lease.
21.4 ATTORNMENT. Tenant shall insert in any sublease to which Landlord
may consent (without obligation for Landlord to do so) provisions satisfactory
to Landlord which provide for the benefit of Landlord that (a) such sublease is
subject and subordinate to all of the terms and provisions of this Lease (b) in
the event this Lease shall terminate before the expiration of such sublease, the
sublessee thereunder will attorn to Landlord and waive any right the sublessee
may have to terminate the sublease or surrender possession under such sublease,
and (c) in the event the sublessee receives a Notice from Landlord or Landlord's
assignees, if any, stating that Tenant is in default under this Lease, the
sublessee shall thereafter be obligated to pay all rentals accruing under such
sublease directly to the party giving such Notice, or as such party may
otherwise direct. All rentals received from the sublessee by Landlord or
Landlord's assignees, if any, as the case may be, shall be credited against the
amounts owed to Landlord under this Lease.
ARTICLE 22 - INFORMATION FROM TENANT
22.1 Estoppel Certificates.
(A) TENANT CERTIFICATES. At any time and from time to time,
upon not less than twenty (20) days Notice by Landlord which notice
shall make specific reference to this Section 22.1, Tenant shall
furnish to Landlord an estoppel certificate (which shall be an
Officer's Certificate) certifying that this Lease is unmodified and in
full force and effect (or that this Lease is in full force and effect
as modified and setting forth the modifications), the date to which the
Rent has been paid, whether, to Tenant's actual knowledge and belief,
there exists any Event of Default or any situation which, with the
giving of notice, passage of time, or both, would constitute an Event
of Default hereunder,
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whether Tenant contends that Landlord is in default hereunder, and if
Tenant so contends, the basis for such contention, the date upon which
the Term terminates, and such other information (which can be provided
within twenty (20) days) as Landlord reasonably may request. The
failure by Tenant to deliver such estoppel certificate to Landlord
within twenty (20) days of Landlord's request therefor shall constitute
an Event of Default hereunder and shall be conclusively deemed to be
Tenant's certification (i) that this Lease is in full force and effect,
without modification except as represented by Landlord; (ii) that there
are no uncured defaults in Landlord's performance hereunder, and (iii)
that not more than one month's rent has been paid in advance. Any such
certificate furnished pursuant to this Section 22.1 shall be addressed
to Landlord and to any prospective purchaser of the Property, any
Facility Mortgagee and/or Landlord Lender as Landlord may request, and
may be relied upon by the parties to whom such certificate is
addressed.
(b) LANDLORD CERTIFICATES. At any time and from time to time,
upon not less than twenty (20) days Notice by Tenant, Landlord shall
furnish to Tenant an estoppel certificate certifying that this Lease is
unmodified and in full force and effect (or that this Lease is in full
force and effect as modified and setting forth the modifications), the
date to which the Base Rent has been paid, and whether to Landlord's
actual knowledge and belief (without any duty of inquiry) there exists
any Event of Default or any situation which with the giving of notice,
passage of time, or both, would constitute an Event of Default
hereunder. Any such certificate furnished pursuant to this Section
22.1(b) may be relied upon by Tenant and any assignee (so long as such
assignee is approved and consented to by Landlord in accordance with
Article 21) or lender of Tenant to whom such certificate is addressed.
22.2 FINANCIAL INFORMATION. Tenant shall furnish within the time
periods specified with respect thereto, the following statements to Landlord:
(a) For so long as Tenant is a public company required to file
its quarterly and annual financial statements with the Securities and
Exchange Commission, Tenant shall provide to Landlord concurrently with
their filing, copies of all Form 10-Q and 10-K filings. In the event
that Tenant is no longer a reporting company pursuant to Securities and
Exchange Commission requirements, Tenant shall, as soon as available
and in any event within one hundred (100) days after the end of each
Fiscal Year, provide to Landlord a copy of the annual audit report for
such Fiscal Year of Tenant, including therein the balance sheets of
Tenant as of the end of such Fiscal Year, statements of earnings and
statements of cash flow of Tenant for such Fiscal Year, in each case
certified in a manner acceptable to Landlord by independent certified
public accountants of recognized national standing selected by Tenant
and reasonably acceptable to Landlord (the form of such certification
to be reasonably satisfactory to Landlord), prepared in accordance with
generally accepted accounting principles applied, except as otherwise
noted therein, on a basis
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consistent with prior periods and fairly presenting the financial
condition of Tenant at the end of such Fiscal Year and the immediately
preceding Fiscal Year and in comparative columnar form. If Tenant is no
longer a reporting company, Tenant shall also provide the same
information quarterly (including the fourth quarter of each Fiscal
Year) prepared by Tenant and certified by Tenant's chief accounting
officer as being prepared in accordance with generally accepted
accounting principles, consistently applied, except as otherwise noted
therein, and that such quarterly statements fairly present the
financial condition of Tenant as of the end of that quarter and year to
date;
(b) within 45 days after the end of each quarter of each
Fiscal Year (including the fourth quarter of each Fiscal Year), a
"Facility balance sheet" and statements of revenues and expenses for
the Facility, all prepared by Tenant's management in accordance with
generally accepted accounting principles applied, but without
footnotes, except as otherwise noted therein, on a basis consistent
with prior periods, and fairly presenting the financial condition of
the Facility's operation;
(c) with the statements submitted pursuant to subsections (a)
and (b) of this Section, a certificate signed on behalf of Tenant by
the principal financial or accounting officer of Tenant to the effect
that no Event of Default specified herein nor any event which, upon
notice or with the passage of time or both, would constitute such an
Event of Default has occurred and is continuing, or, in each case, if
any such Event of Default or event has occurred and is continuing,
specifying the nature and extent thereof; and
(d) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of
Tenant as Landlord may reasonably request, including, without
limitation, prompt Notice of any Event of Default or any event which,
with the passage of time or the giving of notice, or both, would
constitute an Event of Default and prompt Notice of any action, suit or
proceeding at law or in equity or by or before any governmental
instrumentality or other agency which, if adversely determined, would
materially adversely affect Tenant's or the Facility's business,
operations, properties, assets or condition, financial or otherwise.
(e) Tenant shall provide to Landlord within one hundred (100)
days after the end of each Fiscal year, a statement of the Gross
Revenues from the Facility for that Fiscal Year and a letter from
Tenant's chief accounting officer or chief financial officer stating
that the Gross Revenues and the Percentage Rent paid thereon under this
Lease were calculated in accordance with generally accepted accounting
principles consistently applied.
22.3 LICENSING INFORMATION. Tenant shall promptly furnish to Landlord
complete copies of all surveys, examinations, inspections, compliance
certificates and similar reports of any kind issued to Tenant by any
governmental agencies or authorities having jurisdiction over the licensing of
the operation of the Property which
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are material to the Property or the Facility or their ownership or operation.
ARTICLE 23 - FACILITY MORTGAGES
Without the consent of Tenant, Landlord may, subject to the terms and
conditions set forth below in this Section, from time to time, directly or
indirectly, create or otherwise cause to exist any lien, encumbrance or title
retention agreement ("Encumbrance") upon the Property, or any portion thereof or
interest therein, whether to secure any borrowing or other means of financing or
refinancing. Any such Encumbrance (i) shall contain the right to prepay (whether
or not subject to a prepayment penalty) and (ii) shall provide that it is
subject to the rights of Tenant under this Lease (including Tenant's rights to
insurance proceeds and condemnation awards as provided in this Lease); provided,
however, that Tenant agrees that it will subordinate this Lease to any mortgage
or deed of trust that may hereafter from time to time be recorded on the
Property, and to any and all advances made or to be made thereunder, and to
renewals, replacements and extensions thereof, except Tenant shall not be
required to subordinate its rights hereunder to insurance proceeds and
condemnation awards. Tenant's failure to deliver any reasonable written
subordination document requested by Landlord in accordance with the preceding
sentence within twenty-five days of Landlord's demand therefor shall constitute
an Event of Default hereunder. Any such subordination, however, shall be subject
to the condition precedent that the mortgagee under such mortgage or the
beneficiary under such deed of trust enter into a written non-disturbance and
attornment agreement with Tenant, in form and content reasonably satisfactory to
Tenant, whereunder it is agreed that in the event of a sale or foreclosure under
such mortgage or deed of trust, the purchaser of the Property (including the
mortgagee or beneficiary under such mortgage or deed of trust) , shall acquire
or hold the Property subject to this Lease so long as no Event of Default
exists. Tenant hereby agrees to recognize such purchaser as the landlord under
this Lease and agrees to attorn to such purchaser and, if instructed to do so by
such purchaser, to make rental payments directly to it. Such subordination
agreement may also include an acknowledgment by Tenant that any purported
cancellation of this Lease, reduction in its effective rate of rent, shortening
of its term or extension of its term at a reduced effective rate of rent, shall
not be binding upon any encumbrancer or any other person, firm or corporation
acquiring the Property at any sale or other proceedings, or pursuant to the
exercise of any rights, powers or remedies under any Encumbrance, without such
encumbrancer's prior written consent.
ARTICLE 24 - LIMITATION OF LANDLORD'S LIABILITY
24.1 LANDLORD'S LIABILITY. Tenant specifically agrees that neither
Landlord, nor any officer, shareholder, employee or agent of Landlord, shall be
held to any personal liability, jointly or severally, for any obligation of, or
claims against Landlord. Notwithstanding any other provisions of this Lease
which may be to the contrary, Tenant agrees to look solely to Landlord's equity
interest in the Property for recovery of any judgment under this Lease. The
provisions of this Section shall limit any right that Tenant might otherwise
have under this Lease for specific performance or other injunctive relief
against Landlord, and Tenant shall have no such right. In no event
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shall Landlord (original or successor) or any Affiliate of Landlord be required
to respond in monetary damages from Landlord's assets other than Landlord's
equity interest in the Property. Furthermore, except as otherwise expressly
provided herein, in no event shall Landlord or any Affiliate of Landlord
(original or successor) ever be liable to Tenant for any indirect or
consequential damages suffered by Tenant from whatever cause.
ARTICLE 25 - MISCELLANEOUS.
25.1 LANDLORD'S RIGHT TO INSPECT. Landlord and its authorized
representatives may, at any time and from time to time, upon reasonable notice
to Tenant, inspect the Property during usual business hours subject to any
security, health, safety or patient business confidentiality requirements of
Tenant or any governmental agency, or created by any Insurance Requirement or
Legal Requirement relating to the Property.
25.2 NO WAIVER. No failure by Landlord or Tenant to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
provided hereunder, and no acceptance of full or partial payment of Rent during
the continuance of any such breach, shall constitute a waiver of any such breach
or of any such term. To the extent permitted by applicable law, no waiver of any
breach shall affect or alter this Lease, which shall continue in full force and
effect with respect to any other then existing or subsequent breach.
25.3 REMEDIES CUMULATIVE. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Landlord or Tenant now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy. The exercise or beginning of the exercise by Landlord or Tenant of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Landlord or Tenant of any or all of such
other rights, powers and remedies. The provisions of this Section are subject in
all respects to the provisions of Article 24.
25.4 ACCEPTANCE OF SURRENDER. No surrender to Landlord of this Lease or
of all or any portion of or interest in the Property shall be valid or effective
unless agreed to and accepted in writing by Landlord, and no act by Landlord or
any representative or agent of Landlord, other than such a written acceptance by
Landlord, shall constitute an acceptance of any such surrender by Tenant.
25.5 NO MERGER OF TITLE. There shall be no merger of this Lease or of
the leasehold estate created hereby if the same person, firm, corporation or
other entity acquires, owns or holds, directly or indirectly, this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate, and the fee estate in the Property.
25.6 CONVEYANCE BY LANDLORD. If Landlord or any successor owner of the
Property conveys the Property in accordance with the terms hereof (other than as
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security for a debt), and the grantee or transferee of the Property expressly
assumes all obligations of Landlord hereunder arising or accruing from and after
the date of such conveyance or transfer, Landlord or such successor owner, as
the case may be, thereupon shall be released from all liabilities and
obligations of Landlord under this Lease arising after such conveyance or
transfer.
25.7 QUIET ENJOYMENT. So long as Tenant pays all Rent as the same
becomes due and fully complies with all of the terms of this Lease and fully
performs its obligations hereunder, Tenant shall peaceably and quietly have,
hold and enjoy the Property for the Term hereof, free of any claim or other
action by Landlord or anyone claiming by, through or under Landlord, but subject
to all liens and encumbrances of record prior to the date hereof or hereafter
consented to by Tenant. Except as otherwise provided in this Lease, no failure
by Landlord to comply with the foregoing covenant shall give Tenant any right to
cancel or terminate this Lease or abate, reduce or make a deduction from or
offset against the Rent or any other sum payable under this Lease, or to fail or
refuse to perform any other obligation of Tenant hereunder. Notwithstanding the
foregoing, Tenant shall have the right, by separate and independent action, to
pursue any claim it may have against Landlord as a result of a breach by
Landlord of the covenant of quiet enjoyment contained in this Section.
25.8 NOTICES. All notices, demands, requests, consents, approvals and
other communications ("Notice" or "Notices") hereunder shall be in writing and
shall be deemed to have been duly given when delivered in person or received by
telegraphic or other electronic means (including telecopy and telex) or, if
mailed, five days after being deposited in the United States mail, certified or
registered mail, postage prepaid, or if sent via Federal Express or similar
courier service via overnight delivery, the next business day following receipt,
addressed to the respective parties as follows (or to such other address as a
party may hereafter designate):
If to Tenant: Alternative Living Services, Inc.
450 Sunnyslope Road, Suite 300
Brookfield, Wisconsin 53005
Attn: Mark W. Ohlendorf
Telecopy No.: 414/789-6182
with a copy to: Rogers & Hardin
2700 International Tower
Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303-1601
Attn: Miriam J. Dent
Telecopy No.: 404/525-2224
If to Landlord: National Health Investors, Inc.
100 Vine Street
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Murfreesboro, TN 37130
Attention: Chief financial officer
Telecopy No.: 615-890-0123
and a copy to: Farris, Warfield & Kanaday, PLC
424 Church Street
Suite 1800
Nashville, TN 37219
Attention: Robert N. Buchanan III
Telecopy No.: 615/782-2371
25.9 SURVIVAL OF TERMS; APPLICABLE LAW. Anything contained in this
Lease to the contrary notwithstanding, all claims against, and liabilities of,
Tenant or Landlord arising prior to any date of termination of this Lease shall
survive such termination. If any term or provision of this Lease or any
application thereof shall be invalid or unenforceable for any reason whatsoever,
the remainder of this Lease and any other application of such term or provisions
shall not be affected thereby. If any late charge or any interest rate provided
for in any provision of this Lease based upon a rate in excess of the maximum
rate permitted by applicable law, such charges shall be fixed at the maximum
permissible rate. Neither this Lease nor any provision hereof may be changed,
waived, discharged, modified or terminated except by an instrument in writing
and on recordable form, signed by Landlord and Tenant. Subject to any
limitations on assignment contained in this Lease, all the terms and provisions
of this Lease shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. The headings in this Lease
are for convenience of reference only and shall not limit or otherwise affect
the meaning hereof. The Recitals to this Lease are incorporated herein by this
reference. This Lease shall be governed by and construed in accordance with the
laws of the State of Tennessee, but not including its conflicts of laws rules.
25.10 EXCULPATION OF OFFICERS AND AGENTS. This Lease is made on behalf
of Landlord by an officer of Landlord, not individually, but solely in his
capacity in such office as authorized by the directors of Landlord, pursuant to
its bylaws. This Lease is made on behalf of Tenant by an officer of the Tenant,
not individually, but solely in his capacity in such office as authorized by the
directors of Tenant, pursuant to its bylaws. The obligations of this Lease are
not binding upon, nor shall resort be had to the private property of, any of the
directors, shareholders, officers, members, employees or agents of Landlord or
Tenant. In no event shall Landlord ever be liable to Tenant for any indirect or
consequential damages suffered by Tenant from whatever cause.
25.11 LICENSES FOLLOWING TERMINATION; TENANT'S COOPERATION.
(a) To the extent not then prohibited by applicable Legal
Requirements, unless otherwise directed by Landlord, prior to the
expiration or earlier termination of the Term, and if required in order
to secure such Licenses, after the expiration or termination of the
Term, Tenant shall use reasonable
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good faith efforts to (i) transfer to Landlord or Landlord's nominee
(or to cooperate with Landlord or Landlord's nominee in connection with
the processing by Landlord or Landlord's nominee of any applications
for) all Licenses then in effect which relate to the operation of the
Property, or licenses for which Landlord or its nominee wishes to apply
and which may be required by Landlord or Landlord's nominee relating to
the ownership and operation of the Property (provided, however, that
the costs and expenses of any such transfer or the processing of any
such application shall be paid by Landlord or Landlord's nominee), and
(ii) at Landlord's election, to terminate or transfer to Landlord or
Landlord's nominee, all agreements and contracts (including contracts
with governmental or quasi-governmental entities) then in effect which
relate to the then current operation of the Property.
(b) Tenant acknowledges and agrees that to the extent and only
to the extent permitted by law, title to (i) any zoning or building
approvals, or other governmental approvals (the "Approvals") which, by
their nature, pertain to the Property, its ownership and its use and
occupancy and (ii) all licenses and permits which, by their nature,
pertain specifically to the Property, its ownership and its use and
occupancy shall, in every respect, be and remain with the Property or
Landlord, as the case may be, and are not and shall not be the property
of Tenant. Tenant shall take no action and shall have no right, power
or authority to encumber same or to sell, assign or transfer same to
any third person or other property, either during the Term or upon any
termination of this Lease, or to use, in any manner which would impair
or adversely affect the use of such Approvals with respect to the
Property, such Approvals at any other location.
(c) Upon the expiration or earlier termination of the Term,
Tenant shall execute in favor of the Landlord the Assignment of
Resident Agreements, to the extent and only to the extent permitted by
law, and the Assignment of Contracts and Operating Leases. In addition,
Tenant shall cooperate with Landlord in order to ensure a smooth
transfer without interruption of the operation of the Facility from
Tenant to Landlord or Landlord's nominee. Such cooperation shall
include, without limitation, turning over (i) all Records and other
information with respect to residents and patients of the Facility
which are in the possession of Tenant or any Affiliate of Tenant
(subject to applicable Legal Requirements governing confidentiality of
patient records, Tenant agreeing, however, that Tenant's cooperation
under this subparagraph (c) shall include cooperation in facilitating
requests to the residents and patients of the Property to consent to
the transfer of such patient records) , and (ii) a cash amount equal to
all prepaid income, rents, and revenues of any kind with respect to the
Property, including, but not limited to, security deposits, rents and
other sums paid by residents covering any period from and after the
date of such expiration or termination, but reduced to the extent and
amount any such prepaid items must be, and are, refunded to the
payor(s) by Tenant.
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(d) Upon such expiration or termination, Tenant shall also
turn over to Landlord any and all Personal Property and Inventory,
other than Tenant's Property, then located on or used in connection
with the Property and/or the Facility. Upon Landlord's request, Tenant
shall, without any charge or cost to Landlord, execute the Bill of Sale
to Landlord conveying such property to Landlord.
25.12 MEMORANDUM OF LEASE. Landlord and Tenant shall, concurrently with
the execution of this Lease, enter into a short form memorandum of this Lease in
form suitable for recording under the laws of the State. Landlord and Tenant
shall equally share all costs and expenses of recording such memorandum of this
Lease.
25.13 ENTIRE AGREEMENT; MODIFICATIONS. This Lease contains the entire
agreement between the parties regarding the subject matter hereof and supersedes
any and all other prior oral or written agreements, communications, covenants,
representations or warranties between the parties regarding the subject matter
hereof. No provision of this Lease may be amended, supplemented or otherwise
modified except by an agreement in writing signed by the parties hereto or their
respective successors in interest.
25.14 ATTORNEYS' FEES. During the Term Tenant shall pay all reasonable
legal fees and other out-of-pocket costs of Landlord incurred in connection with
(i) any request made by Tenant to Landlord for Landlord's consent under this
Lease or any document described herein or (ii) any event which would after due
notice and the passage of time would constitute an Event of Default if not
cured; and in the event either party brings an action to enforce any of the
terms hereof or in connection herewith, the prevailing party in such action
shall be entitled to and the losing party agrees to pay the reasonable
attorneys' fees and expenses, including attorneys' fees and expenses of
appellate proceedings, of the prevailing party.
25.15 TIME IS OF THE ESSENCE. Time is hereby expressly made of the
essence with respect to each and every term and provision of this Lease,
including, but in no way limiting the generality of the foregoing, with respect
to each and every time constraint and deadline imposed by the terms of this
Lease. The parties intend that they be strictly bound by the provisions
concerning the timing performance of their respective obligations contained in
this Lease. Further, if any attempt is made by either party to perform an
obligation required by it to be performed or comply with a provision of this
Lease required by it to be complied with, in any manner, other than in strict
compliance with the time constraints applicable thereto, even if such purported
attempt is but one day late, then such purported attempt at performance or
compliance shall be deemed (i) violative of this "Time is of the Essence"
clause, (ii) in contravention of the intent of the parties thereto and (iii)
null and void and of no force and effect.
25.16 COMPETING FACILITIES.
(a) Tenant, for itself and its Affiliates, agrees that except
as otherwise specifically permitted by this Section 25.16, neither
Tenant nor any of its
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Affiliates shall at any time during the Term construct, own, operate,
control, and/or expand, or participate in the construction, ownership,
operation, control and/or expansion of, any Competing Facility.
(b) Except during the last two (2) years of the Initial Term
(or, if Tenant has previously exercised its option to extend the
Initial Term pursuant to Section 3.2, the during the last two (2) years
of the Extended Term), Tenant shall have the right, upon sending Notice
to Landlord, to construct, own, operate, control and/or expand a
Competing Facility, provided that:
(i) at the time that such Notice is given, no uncured
Event of Default under this Lease then exists;
(ii) at the time such Notice is given, the average
occupancy rate of the Facility during both the six (6) month
period and one (1) month period preceding the date on which
such Notice is given has been not less than 85%; and
(iii) Tenant, subject to Unavoidable Delays, shall
complete construction of the Competing Facility or expansion
area, as applicable, and open same for business not later than
two (2) years prior to the end of the Term of the Lease.
(c) If Tenant or an Affiliate of Tenant at any time during the
Term constructs, owns, operates, controls and/or expands any Competing
Facility pursuant to and in accordance with the provisions of other
than Section 25.16(b), Landlord may, upon sending Notice to Tenant,
require Tenant to purchase the Property, subject to and in accordance
with the provisions of this subparagraph (c) and subparagraph (d)
below. If Landlord sends such Notice, the parties shall attempt for a
thirty (30) day period to agree upon the Fair Market Value of the
Property. If they are unable to do so, then the matter of the Fair
Market Value of the Property shall be determined by arbitration under
the Real Estate Valuation Rules of the American Arbitration Association
in Nashville, Tennessee, which determination shall be binding upon
Landlord and Tenant, and, to the extent required, judgment upon such
determination may be entered by any court having jurisdiction thereof.
Each of Landlord and Tenant shall cooperate and take such actions as
may be necessary to enable such arbitration to take place, and shall be
responsible for the costs of its attorneys, but all other costs of the
arbitration, including any appraisals each party shall have prepared,
shall be paid for by Tenant.
(d) After the Fair Market Value of the Property has been
determined, Landlord shall have right, but not the obligation, to elect
to require Tenant to purchase the Property, by sending Notice to Tenant
of such election, within ninety (90) days after it has received the
final decision as to the Fair Market Value of the Property. If Landlord
elects to require Tenant to purchase the Property, then Tenant agrees
to purchase the Property, pursuant to the
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Purchase Terms at a purchase price equal to the greater of
$2,921,736.00 or the Fair Market Value of the Property as determined by
such arbitration, and to close title pursuant to the provisions of the
Purchase Terms; provided, however, that if the closing date pursuant to
the Purchase Terms would occur prior to the date which is forty-eight
(48) months after the Commencement Date, Landlord shall have the right,
upon sending Notice to Tenant, to postpone the closing until a mutually
convenient date in the forty-ninth (49th) month after such date. In
determining the Fair Market Value of the Property, the arbitrators
shall use the definition of Fair Market Value of the Property as
defined in this Lease. This Lease shall terminate as of the date of
such closing, and all Rent shall be apportioned as of such date. Upon
such termination, Landlord and Tenant shall be released of all further
obligations and liabilities under this Lease, except for such
provisions that by their terms are to survive expiration or termination
of this Lease. Tenant's failure to close title and otherwise perform
all of its obligations under this Section 25.16 and all of its
obligations under the Purchase Terms attached hereto as Exhibit G
(herein the "Purchase Terms") shall constitute an Event of Default
under this Lease.
(e) Tenant, for itself and its Affiliates, acknowledges and
agrees that: (i) the foregoing restrictions on Competing Facilities are
reasonable in duration, scope and area and otherwise; (ii) in the event
a court of competent jurisdiction determines such covenant to be
unreasonable in duration, scope and/or area or otherwise, such court
shall have the power to reduce the duration, scope and/or area of such
covenant and, in its reduced form, such covenant shall then be
enforceable. The provisions of this Section 25.16 shall survive the
expiration or sooner termination of this Lease.
25.17 SUBMISSION TO JURISDICTION. Landlord and Tenant each hereby
irrevocably:
(i) submits, in any legal proceeding related to this
Lease, to the non-exclusive in personam jurisdiction of
Tennessee or United States court of competent jurisdiction
sitting in Tennessee and agree to suit being brought in any
such court;
(ii) waives any objection that it may now or
hereafter have to the venue of such proceeding in any such
court located in Sullivan County, Tennessee, Davidson County,
Tennessee or Rutherford County, Tennessee or that such
proceeding was brought in any inconvenient court; and
(iii) agrees that nothing herein shall affect the
right of either party to bring any legal proceedings
(including a proceeding for enforcement of a judgment entered
by any of the aforementioned courts) against the other party
in any other court or jurisdiction in accordance with
applicable law.
61
<PAGE> 63
25.18 WAIVER OF JURY TRIAL. EACH OF LANDLORD AND TENANT HEREBY
SEVERALLY, VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES ANY AND ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF OR IN
CONNECTION WITH, OR IN ANY WAY RELATED TO, DIRECTLY OR INDIRECTLY, THIS LEASE,
ANY OF THE OTHER ALS LEASES, AND/OR ANY RELATIONSHIP, COURSE OF CONDUCT OR
DEALINGS OR NEGOTIATIONS PERTAINING TO ANY OF THE FOREGOING. EACH OF LANDLORD
AND TENANT SEVERALLY ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL
INDUCEMENT TO LANDLORD TO ENTER INTO THIS LEASE, AND THAT EACH OF LANDLORD AND
TENANT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL, SELECTED BY SUCH
PARTY'S OWN FREE WILL, AND HAS HAD AN OPPORTUNITY TO CONSULT WITH SUCH
INDEPENDENT LEGAL COUNSEL CONCERNING THE LEGAL EFFECT OF THIS WAIVER.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the date first above written.
"LANDLORD"
NATIONAL HEALTH INVESTORS,
INC., a Maryland corporation
By: /S/ Richard F. Laroche, Jr.
--------------------------------
Name: Richard F. Laroche, Jr.
------------------------------
Title: Vice President
-----------------------------
[SIGNATURE PAGE FOR LEASE/STERLING HOUSE OF KINGSPORT.
REMAINDER OF PAGE IS BLANK]
62
<PAGE> 64
"TENANT"
ALTERNATIVE LIVING SERVICES,
INC., a Delaware corporation
By: /s/ Mark Ohlendorf
--------------------------------
Name: Mark Ohlendorf
------------------------------
Title: Senior Vice President
-----------------------------
[SIGNATURE PAGE FOR LEASE/STERLING HOUSE OF KINGSPORT.
REMAINDER OF PAGE IS BLANK]
63
<PAGE> 65
STATE OF TENNESSEE )
COUNTY OF DAVIDSON )
Before me, Allison Greer, a Notary Public of said County and State,
personally appeared Richard F. LaRoche Jr., with whom I am personally acquainted
(or proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged himself to be Vice President (or other officer authorized to
execute the instrument) of NATIONAL HEALTH INVESTORS, INC., the within named
bargainor, a corporation, and that he as such Vice President executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by himself as Vice President.
Witness my hand and seal, at Office, this 18th day of December, 1998.
/s/ Allison Greer
-------------------------------------
Notary Public
My Commission Expires: 5/27/01
64
<PAGE> 66
STATE OF WISCONSIN )
COUNTY OF MILWAUKEE )
Before me, Amy J. Neitzke, a Notary Public of said County and State,
personally appeared Mark Ohlendorf, with whom I am personally acquainted (or
proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged ______ to be Senior Vice President (or other officer authorized to
execute the instrument) of , the within named bargainor, a corporation, and that
__ as such Senior Vice President executed the foregoing instrument for the
purposes therein contained, by signing the name of the corporation by him as
Senior Vice President.
Witness my hand and seal, at Office, this 16th day of December, 1998.
/s/ Amy J. Neitzke
-------------------------------------
Notary Public
My Commission Expires: 12/3/00
65
<PAGE> 1
EXHIBIT 10.58
SCHEDULE OF NHI LEASES
WHICH ARE SUBSTANTIALLY IN THE FORM OF LEASE
ATTACHED AS EXHIBIT 10.57
<TABLE>
<CAPTION>
LEASING ORIGINAL NHI
FACILITY NAME LOCATION COMMITMENT FEE INVESTMENT ANNUAL BASE RENT
------------- -------- -------------- ---------- ----------------
<S> <C> <C> <C> <C>
Sterling House of Gilbert 845 N. El Dorado Dr. $ 35,926.80 $ 3,592,680.00 $ 341,304.60
Gilbert, AZ 85233
Clare Bridge of Glendale 6735 W. Hillcrest Blvd. 42,108.62 4,210,862.00 400,031.89
Glendale, AZ 85310
Sterling House of Tuscon (West) 2650 W. Ina Road 33,566.17 3,356,617.00 318,878.61
Tuscon, AZ 85741
Sterling Cottage of Daytona Beach 570 National Healthcare Blvd. 29,886.15 2,988,615.00 283,918.42
Daytona Beach, FL 32114
Clare Bridge of Maitland 760 N. Wymore Road 113,372.54 11,337,254.00 1,077,039.10*
Wynwood of Maitland Maitland, FL 32751
Sterling House of Conway 872 Singleton Ridge Road 32,206.37 3,220,637.00 305,960.51
Conway, SC 29526
Sterling House of Kingsport 2424 N. John B. Dennis Hwy. 29,217.36 2,921,736.00 277,564.92
Kingsport, TN 37660
</TABLE>
* Clare Bridge of Maitland - $418,976.03; Wynwood of Maitland - $658,063.10.
<PAGE> 1
EXHIBIT 10.59
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of October 6, 1998 between
ALTERNATIVE LIVING SERVICES, INC., a Delaware corporation (the "COMPANY"), and
DEUTSCHE BANK AG, a bank chartered under the laws of the Federal Republic of
Germany, acting by and through its New York Branch, (together with its
successors and assigns,"LENDER").
PRELIMINARY STATEMENTS:
(1) The Company intends to develop, through its
Affiliates, assisted living facilities, including Alzheimers and other dementia
care facilities, each to be owned by a Borrower and shall be leased to and
operated by the Operating Lessee.
(2) The Company has requested that Lender lend to the
respective Borrowers an aggregate principal amount of up to One Hundred Fifty
Million Dollars ($150,000,000.00) in order to repay and refinance the
construction financing provided by Construction Lenders with respect to each
such facility. Lender has indicated its willingness to agree to lend such amount
on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"AFFILIATE" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling," "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote ten percent (10%) or more of the Voting Stock of such Person or to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of Voting Stock, by contract or
otherwise.
<PAGE> 2
2
"APPLICABLE LENDING OFFICE" means Lender's Eurodollar Lending
Office during any period in which a Loan is maintained as a Eurodollar
Rate Loan and Lender's Domestic Lending Office during any period in
which such Loan is maintained as a Base Rate Loan.
"APPRAISAL" means an appraisal of one or more of the Projects
prepared by an Appraiser in accordance with the Uniform Standards of
Appraisal Practice of the Appraisal Foundation and complying with the
requirements of Title 11 of the Federal Financial Institutions Reform,
Recovery and Enforcement Act of 1989 and otherwise in form and
substance acceptable to Lender, as may be updated by recertification
from time to time.
"APPRAISER" means an Independent appraiser approved by Lender.
"ASSIGNEE" means any assignee of Lender pursuant to SECTION
7.01.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
entered into by Lender and an Assignee, and accepted by Lender, in
accordance with SECTION 7.01 and in substantially the form of EXHIBIT
B.
"BASE RATE" means a fluctuating interest rate per annum in
effect from time to time, which rate per annum shall be equal to the
lesser of (i) the maximum nonusurious rate permitted by Law or (ii) the
greater of (A) the rate of interest announced publicly by Deutsche Bank
AG, New York Branch, in New York, from time to time, as its "Prime
Rate" and (B) one percent (1%) above the Federal Funds Rate.
"BASE RATE LOAN" means any Interim Loan which bears interest
in accordance with SECTION 2.06(A)(I).
"BORROWER" except as otherwise limited herein, means each of
the wholly owned Subsidiaries of the Company designated by the Company
to receive the Loans in accordance with the terms of this Agreement.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized by law to close in New York City, the city in
which the principal office of the Loan Servicer is located and, if the
applicable Business Day relates to any Determination Date during any
period in which any Loan is maintained as a Eurodollar Rate Loan, a
Business Day on which commercial banks are open for international
business (including dealings in dollar deposits in the London interbank
market).
<PAGE> 3
3
"CAPITALIZED LEASES" means, with respect to any Person, any
lease of any property by such Person, as lessee, which, in accordance
with GAAP, is required to be accounted for as a capital lease on the
balance sheet of such Person.
"CHANGE OF CONTROL" shall mean and include any of the
following:
(i) any person or group (as such term is defined
in Section 13(d)(3) of the 1934 Act), other than the Company,
any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, and any member of the
Current Holder Group, shall acquire, other than in a Merger
Transaction which itself does not result in a Change of
Control under clause (iii) below, directly or indirectly,
beneficial ownership (within the meaning of Rule 13d-3 and
13d-5 of the 1934 Act) of more than 50%, on a fully diluted
basis, of the economic or voting interest in the Company's
capital stock;
(ii) the shareholders of the Company approve a
plan of complete liquidation of the Company or an agreement or
agreements for the sale or disposition by the Company of all
or substantially all of the Company's assets; and/or
(iii) the shareholders of the Company approve a
merger, business combination or consolidation of the Company
with any other person, including a triangular merger involving
the Company (any such transaction, a "MERGER TRANSACTION"),
other than a Merger Transaction which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted or exchanged for voting
securities of the surviving or resulting entity) more than 50%
of the combined voting power of the voting securities of the
Company or such surviving or resulting entity outstanding (on
a fully diluted basis) after such Merger Transaction.
As used in this definition, "CURRENT HOLDER GROUP" shall mean (i) those
persons who are officers and directors of the Company at the Effective
Date, (ii) the spouses, heirs, legatees, descendants and blood
relatives to the third degree of consanguinity of any such person,
(iii) the executors and administrators of the estate of any such
person, and any court appointed guardian of any such person, and (iv)
any trust,
<PAGE> 4
4
family partnership or other investment entity for the benefit of any
such person referred to in the foregoing clauses (i) and (ii) or any
other persons or charitable purposes, so long as one or more members of
the Current Holder Group has the exclusive or joint right to control
the voting and disposition of securities held by such trust.
"CLOSING DATE" means, with respect to any Loan, the date on
which the applicable Borrower shall execute and deliver the Project
Loan Documents and Lender shall disburse the proceeds of such Loan.
"COLLATERAL" means all "Collateral" referred to in the
Collateral Documents and all other property that is or is intended to
be subject to any Lien in favor of Lender.
"COLLATERAL DOCUMENTS" means, with respect to each Loan, the
Mortgage, the Security Agreement and any other agreement that creates
or purports to create a Lien in favor of Lender to secure such Loan
and, collectively, all such agreements for all the Loans.
"COMMITMENT" means, Lender's commitment to lend an aggregate
principal amount of up to One Hundred Fifty Million and No/100 Dollars
($150,000,000.00) on the terms and conditions of this Agreement.
"COMMITMENT DATE" has the meaning specified in SECTION 3.02.
"COMMITMENT TERMINATION DATE" has the meaning specified in
SECTION 2.01.
"COMPANY" has the meaning specified in the Preliminary
Statements.
"CONSTRUCTION LENDER" means the lender providing Construction
Loan financing with respect to any Project.
"CONSTRUCTION LOAN" means the loan provided by the
Construction Lender with respect to any Project.
"DEBT" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all Obligations of
such Person for the deferred
<PAGE> 5
5
purchase price of property or services, (c) all Obligations of such
Person evidenced by notes, bonds, debentures or other similar
instruments, (d) all Obligations of such Person created or arising
under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
Obligations of such Person as lessee under Capitalized Leases, (f) all
Obligations, contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, (g) all Obligations of such
Person to purchase, redeem, retire, defease or otherwise make any
payment in respect of any capital stock of or other ownership or profit
interest in such Person or any other Person, valued, in the case of
redeemable preferred stock, at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends,
(h) all Debt of others referred to in clauses (a) through (g) above or
clause (i) below guaranteed directly or indirectly in any manner by
such Person, or in effect guaranteed directly or indirectly by such
Person through an agreement (i) to pay or purchase such Debt or to
advance or supply funds for the payment or purchase of such Debt, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling the
debtor to make payment of such Debt or to assure the holder of such
Debt against loss, (iii) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property or
services irrespective of whether such property is received or such
services are rendered) or (iv) otherwise to assure a creditor against
loss, and (i) all Debt referred to in clauses (a) through (h) above of
another Person secured by (or for which the holder of such Debt has an
existing right, contingent or otherwise, to be secured by) any Lien on
property (including, without limitation, accounts and contract rights)
owned by such Person, even though such Person has not assumed or become
liable for the payment of such Debt.
"DEFAULT" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"DEFAULT INTEREST RATE" has the meaning specified in SECTION
2.06(B).
"DETERMINATION DATE" means, with respect to each Interest
Period, the second Business Day prior to the Interest Reset Date.
"DOMESTIC LENDING OFFICE" means the office of Lender specified
as its "Domestic Lending Office" on SCHEDULE 1 or in the Assignment and
Acceptance pursuant to which it became a Lender Party, as the case may
be, or such other office of such Lender Party as such Lender Party may
from time to time specify to the Company and Lender.
<PAGE> 6
6
"EFFECTIVE DATE" has the meaning specified in SECTION 3.01.
"ENVIRONMENTAL ACTION" means any action, suit, demand, demand
letter, claim, notice of noncompliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any Environmental
Law, any Environmental Permit or Hazardous Material or arising from
alleged injury or threat to health, safety or the environment,
including, without limitation, (a) by any governmental or regulatory
authority for enforcement, cleanup, removal, response, remedial or
other actions or damages and (b) by any governmental or regulatory
authority or third party for damages, contribution, indemnification,
cost recovery, compensation or injunctive relief.
"ENVIRONMENTAL LAW" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, writ, judgment,
injunction, decree or judicial or agency interpretation, policy or
guidance relating to pollution or protection of the environment,
health, safety or natural resources, including, without limitation,
those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Materials.
"ENVIRONMENTAL PERMIT" means any permit, approval,
identification number, license or other authorization required under
any Environmental Law.
"EQUIPMENT" means all equipment referred to in SECTION 1(A) of
the Security Agreement.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"EUROCURRENCY LIABILITIES" has the meaning specified in
Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time.
"EURODOLLAR LENDING OFFICE" means the office of Lender
specified as its "Eurodollar Lending Office" opposite its name on
SCHEDULE 1 or in the Assignment and Acceptance pursuant to which it
became a Lender Party, as the case may be, or such other office of
Lender Party as such Lender Party may from time to time specify to the
Company and Lender.
<PAGE> 7
7
"EURODOLLAR MARGIN" has the meaning specified in that certain
Side Letter by and between the Company and Lender, dated as of the date
hereof.
"EURODOLLAR RATE" means, for any Interest Period, the lesser
of (i) the maximum nonusurious rate permitted by Law or (ii) (A) either
(a) the quotation (expressed as percentage per annum) appearing on
Telerate Page 3750 as of 11:00 a.m., New York time, on the relevant
Determination Date for such Interest Period for U.S. Dollar deposits
for the relevant Interest Period in the London interbank market
(rounded upward, if necessary, to the nearest one hundred-thousandth of
a percentage point) or, if no such rate appears on Telerate Page 3750,
(b) the arithmetic mean (rounded upward, if necessary, to the nearest
one hundred-thousandth of a percentage point) of the rates quoted at
approximately 11:00 a.m., London time, on such Determination Date, by
four (4) major banks in the London interbank market, selected by
Lender, to prime banks in the London interbank market for U.S. Dollar
deposits for the relevant Interest Period commencing on the first day
of the applicable Interest Period and in a principal amount equal to an
amount of not less than $250,000.00 that is representative for a single
transaction in such market at such time, provided that, if fewer than
four (4) such quotations are provided as requested, the rate of
interest that is in effect on such Determination Date will be the
Eurodollar Rate for the immediately preceding Interest Period divided
by (B) one (1) minus the Eurodollar Rate Reserve Percentage. The
foregoing notwithstanding, the Eurodollar Rate for any Stub Interest
Period shall be determined on the basis of a one-month Interest Period
commencing on the applicable Closing Date.
"EURODOLLAR RATE LOAN" means any Loan during any period in
which such Loan bears interest in accordance with SECTION 2.06(A)(II).
"EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period
for all Eurodollar Rate Loans means the reserve percentage applicable
two (2) Business Days before the first day of such Interest Period
under regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for a
member bank of the Federal Reserve System in New York City with respect
to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that
includes deposits by reference to which the interest rate on Eurodollar
Rate Loans is determined) having a term equal to such Interest Period.
<PAGE> 8
8
"EVENTS OF DEFAULT" has the meaning specified in SECTION 6.01.
"EXCLUDED TAXES" has the meaning specified in SECTION 2.11(A).
"FEDERAL FUNDS RATE" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day for such
transactions received by Lender from three Federal funds brokers of
recognized standing selected by it.
"FISCAL YEAR" means a fiscal year of the Company and its
consolidated Subsidiaries or each Borrower ending on December 31 in any
calendar year or such other fiscal year as the Company may select from
time to time in accordance with the terms of this Agreement.
"GAAP" means generally accepted accounting principles
consistently applied and consistent with those applied in the
preparation of the financial statements referred to in SECTION 5.03.
"GUARANTOR" means the Company.
"GUARANTY" means the Guaranty in the form of EXHIBIT E.
"HAZARDOUS MATERIALS" means (a) refined petroleum products,
by-products or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"IMPOSITIONS" has the meaning specified in the Mortgages.
"INDEMNIFIED PARTY" has the meaning specified in SECTION
8.04(B).
<PAGE> 9
9
"INDEPENDENT" means, with respect to any specified Person,
such a Person who (a) does not have any direct financial interest or
any material indirect financial interest in the Company, any Borrower
or in any of their respective Affiliates, (b) is not connected with the
Company or any Borrower as an officer, employee, promoter, underwriter,
trustee, partner or director and (c) is not controlled by or under
common control with the Company, or any Borrower.
"INTEREST PAYMENT DATE" means, with respect to any Loan, the
first (1st) day of each calendar month while any portion of such Loan
remains unpaid; provided, however, that if such Interest Payment Date
is not a Business Day, such Interest Payment Date shall be the
immediately succeeding Business Day.
"INTEREST PERIOD" means with respect to any Loan (a) the
period beginning on (and including) the applicable Closing Date and
ending on (but excluding) the first Interest Payment Date and (b) each
successive period beginning on (and including) an Interest Payment Date
and ending on (but excluding) the next succeeding Interest Payment Date
provided, however, that no Interest Period shall extend beyond the
applicable Loan Maturity Date.
"INTEREST RESET DATE" means, with respect to any Eurodollar
Rate Loan, the first day of the applicable Interest Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"LAWS" means all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, injunctions, rules,
regulations, determinations, awards and court orders of any federal,
state, municipal or local government, governmental authority,
regulatory agency or authority.
"LENDER" has the meaning specified in the Preliminary
Statement.
"LENDER PARTY" means, collectively, Lender and any assignee of
all or a portion of Lender's interests in this Agreement or any Loan
and any subsequent assignee of any Lender Party.
"LENDER'S ACCOUNT" means an account of Lender or the Loan
Servicer designated in writing by Lender or the Loan Servicer to the
applicable Borrower.
<PAGE> 10
10
"LIABILITIES" has the meaning specified in SECTION 7.02.
"LIBOR BREAKAGE COSTS" means the amount of all losses, costs,
charges and damages which are actually incurred or which would be
incurred by Lender through the end of an Interest Period as a result of
any early termination of any arrangement, or the entering into a new
arrangement, with any member of the London interbank market for the
funding of the aggregate outstanding principal amount of the Loan
(determined as though Lender had funded one hundred percent (100%) of
such outstanding principal amount in the London interbank market and
calculated as of the date of any applicable early termination, in the
same manner as the Eurodollar Rate).
"LIEN" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance
on title to real property.
"LOAN" has the meaning set forth in SECTION 2.01.
"LOAN MATURITY DATE" means, with respect to each Loan, the
second anniversary of the Closing Date of such Loan.
"LOAN DOCUMENTS" means collectively (i) this Agreement, (ii)
the Guaranty and (iii) the Project Loan Documents for each Loan, in
each case as amended or otherwise modified from time to time.
"LOAN PARTIES" means, collectively, each Borrower and the
Company, in its capacity as Guarantor.
"LOAN SERVICER" has the meaning specified in the related
Mortgage.
"LOAN-TO-VALUE RATIO" means the ratio, as of the applicable
date of determination, of (a) the outstanding principal amount of such
Loan to (b) the fair market value of the related Project as determined
by the Appraisal.
"MANAGER" means the Company, or any successor appointed in
accordance with the terms of the Loan Documents.
<PAGE> 11
11
"MANAGEMENT AGREEMENT" means a management agreement or
sublease between the Borrower or Operating Lessee and the Manager in
substantially the form of EXHIBIT I hereto with respect to the
management and operation of the applicable Project.
"MARGIN STOCK" has the meaning specified in Regulation U.
"MATERIAL ADVERSE CHANGE" means a change which results in a
Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, condition (financial or otherwise), operations,
performance, properties or prospects of the applicable Borrower or the
Company, (b) the rights and remedies of Lender under any Loan Document
or (c) the ability of any applicable Borrower or the Company to perform
its Obligations under any Loan Document to which it is or is to be a
party.
"MOODY'S" means Moody's Investors Service, Inc.
"MORTGAGE" means a Mortgage or Deed of Trust, as the case may
be, Assignment of Leases and Rents, Security Agreement and Financing
Statement from the applicable Borrower to Lender, in substantially the
form attached as EXHIBIT D to the applicable Project Commitment.
"NET PROCEEDS", with respect to any Loan, has the meaning
specified in the related Mortgage.
"NOTE" means a promissory note of a Borrower payable to the
order of Lender, in substantially the form attached as EXHIBIT C to the
related Project Commitment evidencing the indebtedness of such Borrower
to Lender resulting from the Loan made by Lender to such Borrower,
together with any amendment, modification, consolidation or replacement
thereof.
"NOTICE OF BORROWING" has the meaning specified in SECTION
2.02.
"OBLIGATION" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability
<PAGE> 12
12
of such Person on any claim, whether or not the right of any creditor
to payment in respect of such claim is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, disputed, undisputed, legal,
equitable, secured or unsecured, and whether or not such claim is
discharged, stayed or otherwise affected by any proceeding referred to
in SECTION 6.01(F). Without limiting the generality of the foregoing,
the Obligations of any Borrower under the Loan Documents include (a)
the obligation to pay principal, interest, charges, expenses, fees,
attorneys' fees and disbursements, indemnities and other amounts
payable by such Borrower under any Loan Document and (b) the obligation
of such Borrower to reimburse any amount in respect of any of the
foregoing that Lender, in its sole discretion, may elect to pay or
advance on behalf of such Borrower.
"OPERATING LEASE" means the applicable lease for each of the
Projects between the related Borrower, as Lessor, and the applicable
joint venture entity identified in the Notice of Borrowing or the
Company, as applicable, as Lessee, in a form reasonably acceptable to
Lender.
"OPERATING LESSEE" means the lessee under the applicable
Operating Lease.
"ORGANIZATIONAL DOCUMENTS" means, (i) with respect to any
Person that is a corporation, the certificate of incorporation or
charter and by-laws of such Person, (ii) with respect to any Person
that is a partnership, the partnership agreement and, if a limited
partnership, certificate of limited partnership of such person, and
(iii) with respect to any Person that is a limited liability company,
the articles of organization and the operating agreement of such
Person.
"ORIGINATION FEE" has the meaning specified in SECTION
2.08(A).
"OTHER TAXES" has the meaning specified in SECTION 2.11(B).
"PERMITTED CHANGE OF CONTROL" shall mean any transaction in
which either the Company or the entity exerting effective control over
the Company (A) has a consolidated net worth (determined in accordance
with GAAP) equal to or greater than One Hundred Fifty Million and
No/100 Dollars ($150,000,000.00), and (B) is publicly traded on the New
York Stock Exchange ("NYSE"), American Stock Exchange ("AMEX"), or the
National Association of Securities Dealers ("NASDAQ").
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"PERSON" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency thereof.
"PREMISES" has the meaning specified in the related Mortgage.
"PRINCIPAL LIMITED PARTNERS" means any limited partner or
member of a Borrower that owns directly or indirectly, greater than a
49% beneficial interest in such Borrower.
"PROJECT" means the land, improvements and personal property
comprising one of the assisted living facilities (including Alzheimers
and other dementia care facilities) owned by the applicable Borrower
and with respect to which a Loan is made by Lender in accordance with
the terms of this Agreement.
"PROJECT COMMITMENT" means a written loan commitment in the
form of EXHIBIT F hereto pursuant to which Lender confirms its
obligation under and subject to the terms of this Agreement to fund a
Loan with respect to a particular Project.
"PROJECT COSTS" means, the sum, for each Project, of (i) the
total actual costs of development and construction of the Project,
including (A) land acquisition costs, (B) site improvement and
development costs, (C) all direct costs of construction, bricks,
mortar, painting, carpeting, HVAC systems, sprinkler systems, other
building mechanical, electrical and plumbing systems and other costs
generally considered "hard" costs under construction industry practice,
(D) the purchase price of fixed, moveable or mobile fixtures,
furnishings and equipment located on or used in connection with the
Project, (E) architectural and engineering fees, permit fees, financing
fees and other costs generally considered "soft" costs under
construction industry practice and (F) construction period interest and
Impositions.
"PROJECT LOAN DOCUMENTS" means with respect to each Loan, (i)
the Note, (ii) the Collateral Documents and (iii) any other written
agreement or instruction evidencing, securing or otherwise related to
such Loan.
"RATING AGENCY" means any of Fitch Investors Service, L.P.,
Moody's, Duff & Phelps Credit Rating Co. and S&P and "RATING AGENCIES"
means at least two of the foregoing.
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"REGISTER" has the meaning specified in SECTION 7.01(C).
"REGULATION U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"REMIC" means a "real estate mortgage investment conduit"
within the meaning of SECTION 860D of the Internal Revenue Code.
"RESERVES" has the meaning specified in the Mortgages.
"RESPONSIBLE OFFICER" means any officer of any Loan Party or
any of its Subsidiaries.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies.
"SECURITIES" has the meaning specified in SECTION 7.02.
"SECURITIZATION" has the meaning specified in SECTION 7.02.
"SECURITY AGREEMENT" means a Security Agreement from the
Borrower to Lender in substantially the form attached as EXHIBIT E to
the applicable Project Commitment.
"SOLVENT" and "SOLVENCY" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property
of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person,
(b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person's ability to pay
such debts and liabilities as they mature and (d) such Person is not
engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person's property would
constitute an unreasonably small capital. The amount of contingent
liabilities at any time shall be computed as the amount that, in the
light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an
actual or matured liability.
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"SPECIAL PURPOSE ENTITY" means a corporation, limited
partnership or limited liability company which complies (and whose
general partners, managing members and Principal Limited Partners, as
applicable, comply) with the provisions of EXHIBIT G (including any
representations and warranties contained therein) and the
Organizational Documents of which (and of its general partners,
managing members and Principal Limited Partners, as the case may be)
include provisions and restrictions that will insure continued
compliance with such EXHIBIT G, in each case, such that such Person
would satisfy the criteria adopted from time to time by any Rating
Agency rating any Securities issued with respect to the Loans of a
special purpose entity.
"SUBSIDIARY" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or
in which) more than fifty percent (50%) of (a) the issued and
outstanding capital stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such
partnership, joint venture or limited liability company or (c) the
beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one
or more of its other Subsidiaries or by one or more of such Person's
other Subsidiaries.
"SUCCESSOR BORROWER" has the meaning specified in SECTION
2.05(B).
"TAKE-OUT AGREEMENT" means an agreement in substantially the
form of EXHIBIT H attached hereto among Lender, the applicable
Construction Lender and the applicable Borrower.
"UNITED STATES" has the meaning specified in SECTION 2.11(D).
"UNITED STATES PERSON" has the meaning specified in SECTION
2.11(D).
"TAXES" has the meaning specified in SECTION 2.11(A).
"TREASURY RATE" means, as of the applicable date of
determination, the annualized yield on securities issued by the United
States Treasury having a ten (10) year maturity, as quoted in Federal
Reserve Statistical Release [H. 15 (519)] under the heading "U.S.
Government Securities - Treasury Constant Maturities" for the date most
nearly two (2) weeks before the date of determination (or a comparable
rate if this rate is no longer published).
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"U.S. GOVERNMENT SECURITIES" means securities that are (i)
direct obligations of the United States of America for the payment of
which its full faith and credit is pledged or (ii) obligations of a
Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or
redeemable at the option of the issuer thereof at any time prior to the
stated maturity of the Securities, and shall also include a depository
receipt issued by a bank or trust company as custodian with respect to
any such U.S. Government Security or a specific payment of interest on
or principal of any such U.S. Government Security held by such
custodian for the account of the holder of a depository receipt;
provided, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder
of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Security or the specific payment of
interest on or principal of the U.S. Government Security evidenced by
such depository receipt.
"VOTING STOCK" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the
happening of such a contingency.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding".
SECTION 1.03. ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP.
<PAGE> 17
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ARTICLE II
AMOUNT AND TERMS OF THE LOANS
SECTION 2.01. THE LOANS. Subject to the terms and conditions
set forth in this Agreement, Lender agrees to make advances (the "LOANS") to the
respective Borrowers from time to time pursuant to Project Commitments issued
during the period from the Effective Date until the date which is the
twenty-fourth (24th) month anniversary of the Effective Date (such date, or the
earlier date of termination of the Commitment pursuant to SECTION 2.16 or
SECTION 6.01, being the "COMMITMENT TERMINATION DATE") in accordance with
SECTION 2.02, in an aggregate amount not to exceed One Hundred Fifty Million
Dollars ($150,000,000.00). Amounts borrowed hereunder and repaid or prepaid may
not be reborrowed.
SECTION 2.02. MAKING THE LOANS. (a) From and after the
Effective Date, at the written request of the Company and upon the satisfaction
of the conditions precedent set forth in SECTION 3.02, Lender shall issue,
execute and deliver (i) to the applicable Borrower a Project Commitment and (ii)
to the applicable Construction Lender and such Borrower a Take-Out Agreement,
pursuant to which agreements, Lender shall confirm its commitment to make the
applicable Loan with respect to the related Project.
(b) Each Loan shall be made in accordance with the terms
of the applicable Project Commitment upon delivery of a Notice of Borrowing not
later than 11:00 A.M. (New York City time) on the third (3rd) Business Day prior
to the date of the proposed Loan, by the applicable Borrower to Lender. Such
notice (the "NOTICE OF BORROWING") shall be substantially in the form of EXHIBIT
A attached hereto and shall specify therein the requested date of the Loan. Upon
satisfaction of the conditions precedent to Lender's obligations to make such
Loan set forth in ARTICLE III and the applicable Project Commitment, the Lender
shall make such Loan available, before 11:00 A.M. (New York City time) on the
applicable Closing Date, to such Borrower in accordance with the terms of the
related Project Commitment and Take-Out Agreement.
(c) Each Loan shall be in a principal amount equal to the
least of (i) the outstanding principal amount of and accrued and unpaid interest
on the related Construction Loan; (ii) eighty percent (80%) of the fair market
value (determined without any reduction on account of (i) any special,
extraordinary or other non-recurring charges or expenses associated with a new
opening or the initial 12 months of lease-up or (ii) operating deficits during
the initial 12 months of operation) of the applicable Project (as determined by
the Appraisal delivered to Lender pursuant to SECTION 3.02); and (iii) ninety
percent (90%) of the
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Project Costs of the applicable Project; provided, however, that no such Loan
shall be in an amount less than One Million and No/100 Dollars ($1,000,000.00),
except that the final Loan may be in an amount equal to the then entire unused
Commitment.
(d) Each Notice of Borrowing from a Borrower to Lender
shall be irrevocable and binding on such Borrower. In the case of any Notice of
Borrowing delivered by a Borrower, the Company and such Borrower shall indemnify
and hold harmless Lender against any loss, cost or expense incurred by Lender as
a result of any failure to fulfill on or before the date specified in such
Notice of Borrowing the applicable conditions set forth in ARTICLE III,
including, without limitation, any loss (including loss of anticipated profits)
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by Lender to fund the Loan when the Loan, as a
result of such failure, is not made on such date.
(e) The Company shall have the right to designate a
single Borrower to receive all Loans to be funded in accordance herewith within
any sixty (60) day period; provided, however, that no single Borrower shall be
designated to receive Loans in an aggregate principal amount exceeding Thirty
Million and No/100 Dollars ($30,000,000). Each such Borrower shall be a
corporation, limited partnership or limited liability company that is organized
(and, in the case of a limited partnership or limited liability company, whose
general partner or managing member is organized) as a Special Purpose Entity;
provided, however, that, subject to SECTION 7.02, such Person shall not be
required to comply with CLAUSE (Y) of EXHIBIT G.
SECTION 2.03. REPAYMENT OF THE LOAN. (a) On each Interest
Payment Date occurring after the Closing Date with respect to each Loan, the
related Borrower shall pay such portion of the principal of such Loan as shall
be calculated based upon a twenty-five (25) year, constant-payment amortization
schedule commencing on such Closing Date.
(b) Subject to the provisions of SECTION 2.04 and SECTION
2.07, the applicable Borrower shall repay to Lender the aggregate outstanding
principal amount of its related Loan on the applicable Loan Maturity Date.
SECTION 2.04. PREPAYMENTS. (a) VOLUNTARY. Any Borrower may
prepay its related Loan, in whole or in part, upon at least thirty (30) days'
prior notice to Lender stating the proposed prepayment date and aggregate
principal amount of the prepayment. If such notice is given, such Borrower
shall, consistent with such notice, prepay the outstanding aggregate principal
amount of the applicable Loan in whole or in part, together with accrued
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interest to the date of such prepayment on the aggregate principal amount
prepaid, provided, however, that (1) each partial prepayment shall be in an
aggregate principal amount of One Hundred Thousand and No/100 Dollars
($100,000.00) or an integral multiple of One Thousand and No/100 Dollars
($1,000.00) in excess thereof and (2) no prepayment of a Loan shall be made
other than on an Interest Payment Date.
(b) ACCELERATION. If an Event of Default occurs, and any
Loan is declared to be immediately due and payable, then Lender will be entitled
to add to the outstanding principal of the applicable Loan, plus any LIBOR
Breakage Costs.
(c) PREPAYMENT ON CASUALTY OR CONDEMNATION. Each Loan
shall be prepayable, in whole or in part, without premium, upon any application
by Lender of any Net Proceeds in accordance with ARTICLE IV of the related
Mortgage.
SECTION 2.05. [RESERVED].
SECTION 2.06. INTEREST. (a) SCHEDULED INTEREST. Each Borrower
shall pay interest on the unpaid principal amount of its related Loan owing to
Lender from the date of disbursement of such Loan until such principal amount
shall be paid in full, at the following rates per annum:
(i) BASE RATE. During the periods, if any, during which
SECTION 2.09 provides that the applicable Loan shall accrue interest
based upon the Base Rate, a rate per annum equal to the Base Rate in
effect from time to time, payable in arrears on each applicable
Interest Payment Date.
(ii) EURODOLLAR RATE. Except as otherwise provided in
clause (i) above, a rate per annum equal at all times during each
Interest Period to the sum of (A) the Eurodollar Rate for such Interest
Period plus (B) the Eurodollar Margin, payable in arrears on each
applicable Interest Payment Date.
(b) DEFAULT INTEREST. Upon the occurrence and during the
continuance of a Default, the applicable Borrower shall pay interest on (i) the
unpaid principal amount of its related Loan, payable in arrears on each Interest
Payment Date and on demand, at a rate (the "DEFAULT INTEREST RATE") per annum
equal at all times to the lesser of (x) the maximum nonusurious rate permitted
by Law or (y) five percent (5%) per annum above the rate per annum required to
be paid on such Loan pursuant to CLAUSE (A)(I) or (A)(II) above, as the case may
be, and (ii) to the fullest extent permitted by Law, the amount of any interest,
fee or other
<PAGE> 20
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amount payable hereunder that is not paid when due, from the date such amount
shall be due until such amount shall be paid in full, payable in arrears on the
date such amount shall be paid in full and on demand, at a rate per annum equal
at all times to the lesser of (x) the maximum nonusurious rate permitted by Law
or (y) five percent (5%) per annum above the rate per annum required to be paid,
in the case of interest, on its related Loan pursuant to CLAUSE (A)(I) or
(A)(II) above, as the case may be.
(c) NOTICE OF INTEREST RATE. (i) Promptly after receipt
of a Notice of Borrowing pursuant to SECTION 2.02, Lender shall give notice to
the Company and any Loan Servicer of the applicable interest rate determined by
Lender for purposes of CLAUSE (A)(I) or (II).
(ii) Lender (or a Loan Servicer on behalf of Lender)
shall, on each Determination Date, determine and provide each applicable
Borrower with a statement of the Eurodollar Rate applicable for the related
Interest Period and the applicable interest rate for the related Interest
Period. After determining the applicable interest rate, Lender (or a Loan
Servicer on behalf of Lender) shall calculate the aggregate interest payment
payable on the applicable Loan on the relevant Interest Payment Date and shall,
as soon as practicable, notify the related Borrower of such rates and the amount
of the applicable interest installments. The determination of the interest rate
payable on each Loan and the calculation of each interest installment by Lender
(or a Loan Servicer on behalf of Lender) shall, in the absence of manifest
error, be final and binding; provided, however, that any error in the
determination of such interest rates and the calculation of each interest
installment made by Lender (or a Loan Servicer on behalf of Lender) shall not
relieve any Borrower from its obligations hereunder.
SECTION 2.07. [RESERVED].
SECTION 2.08. FEES. (a) ORIGINATION FEE. On the Effective
Date, the Company shall pay to Lender a nonrefundable origination fee in the
amount of Three Million and 00/100 Dollars ($3,000,000.00)
SECTION 2.09. INCREASED COSTS, ETC. (a) If, due to either (i)
the introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to Lender of agreeing to make or of
making, funding or maintaining any Loan as a Eurodollar Rate Loan (excluding for
purposes of this SECTION 2.09 any such increased costs resulting from (i) Taxes
or Other Taxes (as to which SECTION 2.11 shall govern) and (ii) changes in the
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basis of taxation of overall net income or overall gross income by the United
States or by the foreign jurisdiction or state under the laws of which Lender is
organized or has its Applicable Lending Office or any political subdivision
thereof), then the related Borrower shall from time to time, upon notice thereof
and demand by Lender therefor, pay to Lender additional amounts sufficient to
compensate Lender for such increased cost. A certificate as to the amount of
such increased cost, submitted to such Borrower by Lender, shall be conclusive
and binding for all purposes, absent manifest error.
(b) If, due to either (i) the introduction of or any
change in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the amount of capital required or expected to be maintained by
Lender or any corporation controlling Lender as a result of or based upon the
existence of Lender's commitment to lend hereunder and other commitments of such
type, then, upon demand by Lender, applicable Borrower shall pay to Lender, from
time to time as specified by Lender, additional amounts sufficient to compensate
Lender in the light of such circumstances, to the extent that Lender reasonably
determines such increase in capital to be allocable to the existence of Lender's
commitment to lend hereunder. A certificate as to such amounts submitted to the
Company by Lender shall be conclusive and binding for all purposes, absent
manifest error.
(c) If Lender notifies any Borrower that the Eurodollar
Rate for any Interest Period for any Loan will not adequately reflect the cost
to Lender of making, funding or maintaining its related Loan for such Interest
Period, (i) such Loan will automatically, on the last day of the then existing
Interest Period therefor, convert from a Eurodollar Rate Loan into a Base Rate
Loan and (ii) the obligation of Lender to maintain such Loan as a Eurodollar
Rate Loan shall be suspended until Lender shall notify such Borrower that it has
determined that the circumstances causing such suspension no longer exist.
(d) Notwithstanding any other provision of this
Agreement, if the introduction of or any change in or in the interpretation of
any law or regulation shall make it unlawful, or any central bank or other
governmental authority shall assert that it is unlawful, for Lender or its
Eurodollar Lending Office to perform its obligations hereunder to fund or
maintain any Loan as a Eurodollar Rate Loan hereunder, then, on notice thereof
and demand therefor by Lender to any applicable Borrower (i) such Loan will
automatically, upon such demand, convert into a Base Rate Loan and (ii) the
obligation of Lender to make or maintain such Loan as a Eurodollar Rate Loan
shall be suspended until Lender shall notify each such Borrower that it has
determined that the circumstances causing such suspension no longer exist.
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SECTION 2.10. PAYMENTS AND COMPUTATIONS. (a) Each Borrower
shall make each payment hereunder and under its related Note, irrespective of
any right of counterclaim or set-off, not later than 11:00 A.M. (New York City
time) on each Interest Payment Date in U.S. dollars to Lender at Lender's
Account in same day funds.
(b) All computations of interest and fees with respect to
the Loans shall be made by Lender (or any Loan Servicer on behalf of Lender) on
the basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest, fees or commissions are payable. Each determination by
Lender (or any Loan Servicer on behalf of Lender) of an interest rate or fee
hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(c) Whenever any payment hereunder or under any Note
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest; provided,
however, that, if such extension would cause payment of interest on or principal
of any Loan (at any time during which such Loan is a Eurodollar Rate Loan) to be
made in the next following calendar month, such payment shall be made on the
next preceding Business Day.
SECTION 2.11. TAXES. (a) Any and all payments by each Borrower
under its related Note shall be made, in accordance with SECTION 2.10 and the
terms of such Note, free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding taxes that are imposed on
Lender's overall net income by the United States and taxes that are imposed on
Lender's overall net income (and franchise taxes imposed in lieu thereof) by the
state or foreign jurisdiction under the laws of which Lender is organized or any
political subdivision thereof and taxes that are imposed on Lender's overall net
income (and franchise taxes imposed in lieu thereof) by the state or foreign
jurisdiction of Lender's Applicable Lending Office or any political subdivision
thereof (all such excluded taxes being hereafter referred to as "EXCLUDED TAXES"
and all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities in respect of payments hereunder or under the Notes
being hereinafter referred to as "TAXES"). If any Borrower shall be required by
law to deduct any Taxes from or in respect of any sum payable under its related
Note to Lender (i) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this
<PAGE> 23
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SECTION 2.11) Lender receives an amount equal to the sum it would have received
had no such deductions been made, (ii) such Borrower shall make such deductions
and (iii) such Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law.
(b) In addition, each Borrower shall pay any present or
future stamp, documentary, excise, property or similar taxes, charges or levies
that arise from any payment made hereunder or under its related Note or from the
execution, delivery or registration of, performance under, or otherwise with
respect to, this Agreement or its related Note or any related Project Loan
Document other than Excluded Taxes (hereinafter referred to as "OTHER TAXES").
(c) Each Borrower shall indemnify Lender for and hold it
harmless against the full amount of Taxes and Other Taxes, and for the full
amount of taxes of any kind imposed by any jurisdiction on amounts payable under
this SECTION 2.11, imposed on or paid by Lender and any liability (including
penalties, additions to tax, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be made within thirty (30) days from
the date Lender makes written demand therefor.
(d) Within thirty (30) days after the date of any payment
of Taxes, each applicable Borrower shall furnish to Lender, at its address
referred to in SECTION 8.02, the original or a certified copy of a receipt
evidencing such payment. In the case of any payment hereunder or under any Note
by or on behalf of any Borrower through an account or branch outside the United
States or by or on behalf of any Borrower by a payor that is not a United States
person, if such Borrower determines that no Taxes are payable in respect
thereof, such Borrower shall furnish, or shall cause such payor to furnish, to
Lender, at such address, an opinion of counsel acceptable to Lender stating that
such payment is exempt from Taxes. For purposes of this SUBSECTION (D) and
SUBSECTION (E), the terms "UNITED STATES" and "UNITED STATES PERSON" shall have
the meanings specified in SECTION 7701 of the Internal Revenue Code.
(e) Lender shall, on or prior to the date of its
execution and delivery of this Agreement, and from time to time thereafter as
requested in writing by any Borrower (but only so long thereafter as Lender
remains lawfully able to do so), provide such Borrower with two (2) original
Internal Revenue Service forms 1001 or 4224, as appropriate, or any successor or
other form prescribed by the Internal Revenue Service, certifying that Lender is
exempt from or entitled to a reduced rate of United States withholding tax on
payments pursuant to this Agreement or the Notes. If any form or document
referred to in this
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SUBSECTION (E) requires the disclosure of information, other than information
necessary to compute the tax payable and information required on the date hereof
by Internal Revenue Service form 1001 or 4224 that Lender reasonably considers
to be confidential, Lender shall give notice thereof to such Borrower and shall
not be obligated to include in such form or document such confidential
information.
(f) For any period with respect to which Lender has
failed to provide any Borrower with the appropriate form described in SUBSECTION
(E) above (other than if such failure is due to a change in law occurring after
the date on which a form originally was required to be provided or if such form
otherwise is not required under SUBSECTION (E) above), Lender shall not be
entitled to indemnification under subsection (a) or (c) with respect to Taxes
imposed by the United States by reason of such failure; provided, however, that
should Lender become subject to Taxes because of its failure to deliver a form
required hereunder, such Borrower shall take such steps as Lender Party shall
reasonably request to assist Lender to recover such Taxes.
SECTION 2.12. USE OF PROCEEDS. The proceeds of the Loans shall
be available (and the Company shall cause the applicable Borrower to use such
proceeds) solely to repay the related Construction Loan with respect to the
related Project and pay and reimburse the Company and others for transaction
fees and expenses.
SECTION 2.13. LATE CHARGE. Subject to SECTION 8.12, in the
event that any installment of interest or principal with respect to any Loan
shall become overdue for a period in excess of five (5) days, a "late charge" in
an amount equal to five percent (5%) of the amount so overdue may be charged to
the applicable Borrower by Lender for the purpose of defraying the expenses
incident to handling such delinquent payments. Subject to SECTION 8.12, such
late charge shall be in addition to, and not in lieu of, any other remedy Lender
may have and is in addition to Lender's right to collect reasonable fees and
charges of any agents or attorneys which Lender may employ in connection with
any Default.
SECTION 2.14. SECURITY FOR THE LOANS. Each Loan shall
constitute one general obligation of the applicable Borrower to Lender and each
Borrower's obligations hereunder and under the other Loan Documents shall be
secured by the applicable (a) Mortgage, (b) Security Agreement, (c) other
Collateral Documents and (d) the security interests and Liens granted in this
Agreement and in the other Loan Documents with respect to such Loan. Each Loan
shall be cross-collateralized with each other Loan made pursuant to this
Agreement and any Default or Event of Default under one of the Loans shall
constitute a Default or Event of Default of all the Loans.
<PAGE> 25
25
SECTION 2.15. THE NOTES. The obligation of each Borrower to
pay the principal of and interest on each Loan shall be evidenced by a Note,
duly executed and delivered by the applicable Borrower on the applicable Closing
Date. Each Note shall be payable as to principal, interest and all other amounts
due under the Loan Documents, as specified in this agreement, the applicable
Note and the other applicable Loan Documents.
SECTION 2.16. TERMINATION OF COMMITMENT. Anything to the
contrary provided in this Agreement notwithstanding, the Commitment of Lender
hereunder shall automatically terminate if the Effective Date has not occurred
on or prior to October __, 1998.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO EFFECTIVE DATE. The
obligations of Lender under this Agreement, including the obligation to make any
Loans hereunder, shall become effective on the date (the "EFFECTIVE DATE") upon
which the following conditions precedent have been satisfied:
(a) There shall have occurred no Material Adverse Change
with respect to the Company since March 17, 1998.
(b) Lender shall have received the following, each in
form and substance satisfactory to Lender (unless otherwise specified):
(i) Certified copies of the resolutions of the
Board of Directors of the Company approving this Agreement and
each other Loan Document to which it is or is to be a party,
and of all documents evidencing other necessary corporate
action and governmental and other third party approvals and
consents, if any, with respect to this Agreement and each
other Loan Document.
(ii) A copy of the Organizational Documents of
the Company, together with each amendment thereto, and, in the
case of the certificate of incorporation of the Company,
certified by the Secretary of State of the jurisdiction of its
formation or incorporation as being a true and correct copy
thereof.
<PAGE> 26
26
(iii) A copy of a certificate of the Secretary of
State of the jurisdiction of its incorporation, dated
reasonably near the Effective Date, certifying that (A) the
Company has paid all franchise taxes to the date of such
certificate and (B) the Company is duly incorporated or formed
and in good standing under the laws of the State of the
jurisdiction of its organization.
(iv) A certificate of the Company, signed on
behalf of the Company by its President or a Vice President and
its Secretary or any Assistant Secretary, dated the Effective
Date (the statements made in which certificate shall be true
on and as of the Effective Date), certifying as to (A) the
truth of the representations and warranties contained in the
Loan Documents as though made on and as of the Effective Date
and (B) the absence of any event occurring and continuing that
constitutes a Default.
(v) A certificate of the Secretary or an
Assistant Secretary of the Company certifying the names and
true signatures of the officers of the Company authorized to
sign this Agreement and each other Loan Document to which the
company is or is to be a party and the other documents to be
delivered hereunder and thereunder.
(vi) The Guaranty executed by the Guarantor.
(vii) A favorable opinion of counsel for the
Company acceptable to Lender, as to the enforceability of this
Agreement and the Guaranty, in form and substance satisfactory
to Lender.
SECTION 3.02. CONDITIONS PRECEDENT TO ISSUANCE OF A PROJECT
COMMITMENT. The obligation of Lender to issue each Project Commitment and
Take-Out Agreement with respect to a Loan hereunder is subject to the
satisfaction of the following conditions precedent before or concurrently with
the issuance of the applicable Project Commitment (the "COMMITMENT DATE"):
(a Lender shall have completed a due diligence
investigation of the applicable Project and determined, in its sole
discretion, that such Project meets Lender's underwriting standards,
which due diligence investigation may include, without limitation:
<PAGE> 27
27
(i) review of environmental reports,
architectural and engineering reports, management, title
reports, surveys, insurance policies and other information and
materials requested by Lender with respect to issues affecting
or potentially affecting (A) the feasibility, viability and
quality of the applicable Project and (B) the ability of the
applicable Project to generate stabilized cashflows, net
operating income and net operating cash flow;
(ii) review of such projected financial
information and references with respect to such Project as
Lender deems necessary; and
(iii) a site inspection of the Project; and
(iv) an Appraisal of the Project performed by an
Appraiser.
(b) The representations and warranties of the Company
contained in each Loan Document to which the Company is a party shall
be true and correct on and as of the applicable Commitment Date, before
and after giving effect to the making of the applicable Loan by Lender
and to the application of the proceeds therefrom, as though made on and
as of such date.
(c) No event shall have occurred and be continuing, or
would result from the making of the applicable Loan by Lender or from
the application of the proceeds therefrom, that constitutes a Default.
(d) Before giving effect to the transactions contemplated
by the applicable Project Commitment, there shall have occurred no
Material Adverse Change.
(e) There shall exist no action, suit, investigation,
litigation or proceeding affecting the Company pending or threatened
before any court, governmental agency or arbitrator that (i) would be
reasonably likely to have a Material Adverse Change or (ii) purports to
affect the legality, validity or enforceability of this Agreement, any
Note, any other Loan Document or the consummation of the transactions
contemplated hereby.
(f) The Company shall have paid all accrued fees and
expenses of Lender which each such Loan Party is required to pay under
the Loan Documents (including the accrued fees and expenses of counsel
to Lender and local counsel to Lender).
<PAGE> 28
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(g) The Company shall not have been involved in any
merger as a result of which the Company is not the surviving entity and
no other Change or Control of the Company shall have occurred other
than a Permitted Change of Control.
(h) The issuance of such Project Commitment to the
applicable Borrower and the funding of the related Loan shall not
exceed the limitations set forth in SECTION 2.02(E).
SECTION 3.03. CONDITIONS PRECEDENT TO FUNDING EACH LOAN. The
obligation of Lender to fund each Loan hereunder is subject to the satisfaction
of the conditions precedent set forth in the applicable Project Commitment
issued with respect to such Loan.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants as follows:
(a) The Company (i) is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) is duly qualified and in good
standing in each other jurisdiction in which it owns or leases property
or in which the conduct of its business requires it to so qualify or be
licensed except where the failure to so qualify or be licensed would
not have a Material Adverse Effect and (iii) has all requisite power
and authority (including, without limitation, all governmental
licenses, permits and other approvals) to own or lease and operate its
properties and to carry on its business as now conducted and as
proposed to be conducted.
(b) The execution, delivery and performance by the
Company of this Agreement and each other Loan Document to which it is
or is to be a party, and the consummation of the transactions
contemplated hereby, are within the Company's corporate powers, have
been duly authorized by all necessary corporate action, and do not (i)
contravene the Company's certificate of incorporation or by-laws, (ii)
violate
<PAGE> 29
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any law (including, without limitation, the Securities Exchange Act of
1934 and the Racketeer Influenced and Corrupt Organizations Chapter of
the Organized Crime Control Act of 1970), rule, regulation (including,
without limitation, Regulation X of the Board of Governors of the
Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award, (iii) conflict with or result in the breach of,
or constitute a default under, any contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument binding on or
affecting the Company, any of its Subsidiaries or any of their
properties or (iv) except for the Liens created under the Loan
Documents, result in or require the creation or imposition of any Lien
upon or with respect to any of the properties of the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries is in
violation of any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or in breach of any such
contract, loan agreement, indenture, mortgage, deed of trust, lease or
other instrument, the violation or breach of which is reasonably likely
to have a Material Adverse Effect.
(c) No authorization or approval or other action by, and
no notice to or filing with, any governmental authority or regulatory
body or any other third party is required for (i) the due execution,
delivery, recordation, filing or performance by the Company of this
Agreement or any other Loan Document to which it is or is to be a
party, or for the consummation of the transactions contemplated hereby,
(ii) the grant by the Borrower of the Liens granted by it pursuant to
the Collateral Documents, (iii) the perfection or maintenance of the
Liens created by the Collateral Documents (including the first priority
nature thereof) or (iv) the exercise by Lender of its rights under the
Loan Documents or the remedies in respect of the Collateral pursuant to
the Collateral Documents.
(d) This Agreement has been, and each other Loan Document
to which the Company is or is to be a party when delivered hereunder
will have been, duly executed and delivered by the Company. This
Agreement is, and each other Loan Document to which the Company is a
party when delivered hereunder will be, the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms.
(e) The consolidated balance sheet of the Company as of
March 31, 1998 and the related consolidated statement[s] of income and
Consolidated statement of cash flows of the Company and its
Subsidiaries for the fiscal year then ended, copies of which have been
furnished to Lender, fairly present the consolidated financial
condition of the Company and its Subsidiaries as at such date and the
consolidated
<PAGE> 30
30
results of the operations of the Company and its Subsidiaries for the
period ended on such date, all in accordance with generally accepted
accounting principles applied on a consistent basis, and since March
31, 1998 there has been no Material Adverse Change.
(f) No information, exhibit or report furnished by the
Company or any of its Affiliates or shareholders to Lender in
connection with the negotiation of the Loan Documents or pursuant to
the terms of the Loan Documents contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements made therein not misleading.
(g) There is no action, suit, investigation, litigation
or proceeding affecting the Company or any of its Subsidiaries,
including any Environmental Action, pending or threatened before any
court, governmental agency or arbitrator that (i) would be reasonably
likely to have a Material Adverse Effect or (ii) purports to affect the
legality, validity or enforceability of this Agreement or any other
Loan Document or the consummation of the transactions contemplated
hereby.
(h) No proceeds of any Loan will be used to acquire any
equity security of a class that is registered pursuant to Section 12 of
the Securities Exchange Act of 1934.
(i) The Company is not engaged in the business of
extending credit for the purpose of purchasing or carrying Margin
Stock, and no proceeds of any Loan will be used to purchase or carry
any Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock.
(j) The Company is not and will not be an "employee
benefit plan" as defined in Section 3(3) of ERISA, which is subject to
Title I of ERISA, and the assets of the Company do not and will not
constitute "plan assets" of one or more such plans for purposes of
Title I of ERISA.
(k) The Company (1) is not and will not be a
"governmental plan" within the meaning of Section 3(32) of ERISA and
transactions by or with the Company are not and will not be subject to
state statutes applicable to the Company regulating investments of and
fiduciary obligations with respect to governmental plans and (2) one or
more of the following circumstances is true:
<PAGE> 31
31
(A) equity interests in the Company or publicly
offered securities within the meaning of 29 C.F.R. ss.
2510.3-101(b)(2);
(B) less than twenty-five percent (25%) of each
outstanding class of equity interests in the Company are held
by "benefit plan investors" within the meaning of 29 C.F.R.
ss.2510.3-101(f)(2); or (C) the Company qualifies as an
"operating company" or a "real estate operating company"
within the meaning of 29 C.F.R. ss. 2510.3-101(c) or (e) or an
investment company registered under the Investment Company Act
of 1940.
(l) The Company is not (i) an "investment company" or a
company "controlled" by an "investment company", within the meaning of
the Investment Company Act of 1940, as amended, (ii) a "holding
company" or a "subsidiary company" of a "holding company" or an
"affiliate" of either a "holding company" or a "subsidiary company"
within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or (iii) subject to any other Law that purports to restrict
or regulate its ability to borrow money.
(m) The Company and each of its Subsidiaries and
Affiliates has filed, has caused to be filed or has been included in
all tax returns (Federal, state, local and foreign) required to be
filed (or has obtained valid extensions of the deadlines to file) and
has paid all taxes shown thereon to be due, together with applicable
interest and penalties.
(n) The Company is, individually and together with its
Subsidiaries, Solvent.
(o) The location of the Company's principal place of
business and chief executive office is as set forth in SECTION 8.02.
(p) The Company is not a "foreign person" within the
meaning of ss.1445(f)(3) of the Internal Revenue Code.
(q) The Company is not a party to any collective
bargaining agreements.
<PAGE> 32
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ARTICLE V
COVENANTS OF COMPANY
SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any portion of
any Loan shall remain unpaid, the Company will:
(a) Payment of Taxes, Etc. Pay and discharge, before the
same shall become delinquent, (i) all taxes, assessments and
governmental charges or levies imposed upon it or upon its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien upon
any of the Projects; provided, however, that the Company shall not be
required to pay or discharge any such tax, assessment, charge or claim
that is being contested in good faith and by proper proceedings and as
to which appropriate reserves are being maintained, unless and until
any Lien resulting therefrom attaches to its property and becomes
enforceable against its other creditors;
(b) Preservation of Existence, Etc. Preserve and maintain
its existence, legal structure, legal name, rights (charter and
statutory), permits, licenses, approvals, privileges and franchises;
provided, however, that the Company shall not be required to preserve
any right, permit, license, approval, privilege or franchise if the
Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the
Company, as the case may be, and that the loss thereof would not result
in a Material Adverse Effect;
(c) Keeping of Books. Keep proper books of record and
account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company in
accordance with generally accepted accounting principles in effect from
time to time; and
(d) ERISA. Deliver to Lender such certifications or other
evidence from time to time throughout the term of the Loan, as
reasonably requested by Lender, that (i) the Company is not an
"employee benefit plan" as defined in Section 3(3) of ERISA, which is
subject to Title I of ERISA, or a "governmental plan" within the
meaning of Section 3(32) of ERISA; (ii) the Company is not subject to
state statutes regulating investments and fiduciary obligations with
respect to governmental plans; and (iii) one or more of the following
circumstances is true:
(A) equity interests in the Company are publicly
offered securities, within the meaning of 29 C.F.R. ss.
2510.3-101(b)(2);
33
<PAGE> 33
33
(B) less than twenty-five percent (25%) of each
outstanding class of equity interests in the Company are held
by "benefit plan investors" within the meaning of 29 C.F.R.
ss. 2510.3-101(f)(2); or
(C) the Company qualifies as an "operating
company" or a "real estate operating company" within the
meaning of 29 C.F.R. ss. 2510.3-101(c) or (e) or an investment
company registered under The Investment Company Act of 1940.
(e) Net Worth. From and after any Permitted Change of
Control, maintain a net worth (determined in accordance with GAAP) of
at least One Hundred Fifty Million and 00/100 Dollars
($150,000,000.00).
SECTION 5.02. NEGATIVE COVENANTS. So long as any portion of
any Loan shall remain unpaid, the Company will not, at any time:
(a) Change in Nature of Business. Make, or permit any of
its Subsidiaries to make, any material change in the nature of its
business as carried on at the date hereof;
(b) Accounting Changes. Make or permit, or permit any of
its Subsidiaries to make or permit, any change in accounting policies
or reporting practices, except as required by GAAP; or
(c) ERISA. Engage in any transaction which would cause
any obligation, or action taken or to be taken, hereunder (or the
exercise by Lender of any of its rights under this Agreement and the
Loan Documents) to be a nonexempt (under a statutory or administrative
class exemption) prohibited transaction under ERISA.
SECTION 5.03. REPORTING REQUIREMENTS. So long as any portion
of the Loan shall remain unpaid, the Company will furnish to Lender:
(a) [Reserved]
(b) Quarterly Financials. As soon as available, and in
any event within forty-five (45) days after the end of each quarter, a
balance sheet of the Company as of the end of such month and a
statement of income and a statement of cash
<PAGE> 34
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flows of the Company for such quarter and a statement of income and a
statement of cash flows of the Company for such quarter, in each case
in comparative form the corresponding figures (i) set forth in the
applicable budget for such Fiscal Year and (ii) for the corresponding
quarter of the preceding Fiscal Year, all in reasonable detail and duly
certified by the Company.
(c) Annual Financials. As soon as available, and in any
event within ninety (90) days after the end of each Fiscal Year, a
balance sheet of the Company as of the end of such Fiscal Year and a
statement of income and a statement of cash flows of the Company for
such Fiscal Year, in each case accompanied by an unqualified opinion of
independent public accountants of nationally recognized standing
acceptable to the Lender.
(d) [Reserved]
(e) Litigation. Promptly after the commencement thereof,
notice of all actions, suits, investigations, litigation and
proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign,
affecting any Loan Party or any of its Subsidiaries of the type
described in SECTION 4.01(G);
(f) Environmental Conditions. Promptly after the
assertion or occurrence thereof, notice of any Environmental Action
against or of any material noncompliance by any of the Projects with
any Environmental Law or Environmental Permit;
(g) Other Information. Such other information respecting
the business, condition (financial or otherwise), operations,
performance, properties or prospects of any Loan Party as Lender may
from time to time reasonably request.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following
events ("EVENTS OF DEFAULT") shall occur and be continuing:
(a) the Company shall fail to make any payment required
hereunder or under any related Loan Documents, within five (5) days
after the same becomes due and payable; or
<PAGE> 35
35
(b) any representation or warranty made by the Company
(or any of its officers) under or in connection with any Loan Document
shall prove to have been incorrect in any material respect when made;
or
(c) [Reserved];
(d) if a Change of Control has occurred with respect to
the Company or the Guaranty, other than (i) a Permitted Change of
Control or (ii) Change of Control resulting from the death or
incapacity of any natural person; or
(e) [Reserved]; or
(f) [Reserved]; or
(g) if the Company shall violate or fail to comply with
any of the provisions of SECTION 5.02; or
(h) [Reserved]; or
(i) if the Company or Guarantor shall fail to perform any
other term, covenant or agreement contained in any Loan Document on its
part to be performed or observed if such failure shall remain
unremedied for thirty (30) days after the earlier of the date on which
(A) a Responsible Officer becomes aware of such failure or (B) written
notice thereof shall have been given to the Company by Lender, provided
that if such failure is susceptible to cure but cannot be cured within
such thirty (30) day period and such Loan Party commences action to
cure such failure within such thirty (30) day period and diligently and
continuously prosecutes such cure to completion, such thirty (30) day
period shall be extended for up to an additional sixty (60) days; or
(j) the Company or Guarantor shall admit in writing its
inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by or against the Company or Guarantor seeking to adjudicate
it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of
<PAGE> 36
36
debtors, or seeking the entry of an order for relief or the appointment
of a receiver, trustee or other similar official for it or for any
substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it) that is
being diligently contested by it in good faith, either such proceeding
shall remain undismissed or unstayed for a period of sixty (60) days or
any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official
for, it or any substantial part of its property) shall occur; or the
Company or Guarantor shall take any corporate action to authorize any
of the actions set forth above in this SUBSECTION (J); or
(k) [Reserved]; or
(l) any nonmonetary judgment or order shall be rendered
against the Company or Guarantor that is reasonably likely to have a
Material Adverse Effect, and there shall be any period of ten (10)
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(m) any material provision of any Loan Document after
delivery thereof shall for any reason cease to be valid and binding on
or enforceable against the Company or Guarantor to it, or the Company
or Guarantor shall so state in writing; or
then, and in any such event, Lender (i) may by notice to the Company or each of
the Borrowers, declare each of the Notes, all interest thereon and all other
amounts payable under this Agreement and the other Loan Documents to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Company and (ii) immediately terminate any unadvanced portion of
the Commitment; provided, however, that Lender agrees to fund any and all
amounts of any existing Project Commitments; and provided further that, in the
event of an actual or deemed entry of an order for relief with respect to any
Loan Party under the Federal Bankruptcy Code, all of the Notes, all such
interest and all such amounts shall automatically become and be due and payable,
without presentment, demand, protest or any notice of any kind, all of which are
hereby expressly waived by each Borrower, and any unadvanced portion of the
Commitment shall be immediately and automatically terminated.
<PAGE> 37
37
ARTICLE VII
SECONDARY MARKET; SERVICING
SECTION 7.01. ASSIGNMENTS AND PARTICIPATIONS. (a) Lender may
assign to one or more Persons all or a portion of its rights and obligations
under this Agreement or any Loan (including, without limitation, all or a
portion of any Note); provided that the parties to each such assignment shall
execute and deliver to Lender, for its acceptance and recording in the Register,
an Assignment and Acceptance.
(b) Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in such Assignment and
Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, have the rights and obligations of a Lender,
as the case may be, hereunder and (y) Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement or with respect to a particular Loan, such
Lender shall cease to be a party hereto or to such Loan Documents, as the case
may be). The foregoing notwithstanding, Lender shall not be released from its
obligations hereunder to issue Project Commitments or fund Loans thereunder
unless the applicable Assignee shall be approved by the Company and any
Construction Lender.
(c) Lender shall maintain at its address referred to in
SECTION 8.02 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for the recordation of the names and addresses of Lender
Parties and the principal amount of the Loan owing to each Lender from time to
time (the "REGISTER"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the applicable Borrower,
Lender and Lender Parties shall treat each Person whose name is recorded in the
Register as a Lender Party hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the applicable Borrower or any
Lender Party at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of an Assignment and Acceptance
executed by an assigning Lender Party and an assignee, together with any Note or
Notes subject to such assignment, Lender shall, if such Assignment and
Acceptance has been completed and is in
<PAGE> 38
38
substantially the form of EXHIBIT B hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the applicable Borrower and the Company. In
the case of any assignment by a Lender, within five (5) Business Days after its
receipt of such notice, the applicable Borrower, at its own expense, shall
execute and deliver to Lender in exchange for the surrendered Note or Notes a
new Note to the order of such Assignee in an amount equal to the portion of the
applicable Loan(s) assigned to it and a new Note to the order of the assigning
Lender in an amount equal to the portion of the applicable Loan(s) retained by
it hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note or Notes, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of the Note.
(e) Each Lender Party may sell participations to one or
more Persons (other than any Loan Party or any of its Affiliates) in or to all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of the Notes held by it); provided,
however, that (i) such Lender Party's obligations under this Agreement shall
remain unchanged, (ii) such Lender Party shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) such Lender
Party shall remain the holder of any such Notes for all purposes of this
Agreement and (iv) the applicable Borrower, Lender and the other Lender Parties
shall continue to deal solely and directly with such Lender Party in connection
with such Lender Party's rights and obligations under this Agreement.
(f) Any Lender Party may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this SECTION 7.01, disclose to the assignee or participant or proposed assignee
or participant, any information relating to the applicable Borrower furnished to
such Lender Party by or on behalf of such Borrower.
(g) Notwithstanding any other provision set forth in this
Agreement, any Lender Party may at any time create a security interest in all or
any portion of its rights under this Agreement (including, without limitation,
the Loans owing to it and the Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System.
SECTION 7.02. SECURITIZATION. Lender may elect to effect a
securitization of any of the Loans by means of the issuance of certificates of
interest therein or notes secured thereby (the "SECURITIES") rated by one or
more Rating Agencies (the
<PAGE> 39
39
"SECURITIZATION"). In such event and upon request by Lender, the Company and
each applicable Borrower shall cooperate in all reasonable respects with Lender
in the Securitization, including, but not limited to, (i) amending this
Agreement and the other Loan Documents, and executing and delivering such
additional documents, as may be requested by a Rating Agency; (ii) providing
such information as may be requested in connection with the preparation of a
private placement memorandum or registration statement required to privately
place or publicly distribute the Securities in a manner which does not conflict
with federal or state securities laws; (iii) providing in connection with such
information an indemnification certificate (A) certifying that such Borrower has
carefully examined such private placement memorandum or registration statement,
as applicable, including, without limitation, the sections entitled "Special
Considerations", "Description of the Mortgage Loan and the Underlying Mortgaged
Properties", "Operator", "The Mortgagor" and "Certain Legal Aspects of the
Mortgage Loan" (or similarly titled sections), and that such Sections (and any
other sections reasonably requested), insofar as they relate to the applicable
Borrower, the Company, the applicable Loan or related Project, do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, (B) indemnifying
Lender, the underwriter or placement agent and any of their Affiliates for any
losses, claims, damages or liabilities (the "LIABILITIES") to which such parties
may become subject insofar as the Liabilities arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact relating to
such Borrower, the Company, the applicable Loan or the related Project to which
the Company and Borrower has certified to pursuant to CLAUSE (A) above or arise
out of or are based upon the omission or alleged omission to state therein a
material fact relating to such Borrower, the Company, the applicable Loan or the
related Project required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (C) agreeing to reimburse such parties for any legal or other
expenses reasonably incurred by such parties in connection with investigating or
defending the Liabilities; (iv) causing to be rendered such customary opinion
letters as may be requested by and satisfactory to any Rating Agency including,
without limitation, substantive nonconsolidation opinion letters and an opinion
letter from each local real estate counsel to such Borrower stating that the
assignment of the applicable Loan and the Loan Documents to a trustee in
connection with the Securitization is enforceable; (v) making such customary
representations, warranties and covenants with respect to such Borrower and the
related Project as may be requested by any Rating Agency, (vi) providing such
information regarding the related Project and such Borrower as may be requested
by a Rating Agency or potential investors in certificates or otherwise required
in connection with an election of REMIC or other tax status and ongoing
administration and reporting by any trust formed in connection with the
Securitization; and (vii) amending the related Borrower's or any partner
<PAGE> 40
40
or member of such Borrower's Organizational Documents to comply with CLAUSE (Y)
of EXHIBIT G or making such other changes to the structure of such Borrower or
such partners required by any Rating Agency to conform to requirements
customarily imposed in similar transactions. Notwithstanding any of the
Company's or the applicable Borrower's obligations under this SECTION 7.02,
neither the company nor any Borrower shall be obligated to pay any Rating Agency
fees or other of Lender's costs in connection with the Securitization, other
than any amounts payable by the Company or any applicable Borrower with respect
to the indemnity provided for in CLAUSE (B) of the preceding sentence.
SECTION 7.03. [RESERVED].
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Agreement, the Notes or any other Loan Document, nor consent
to any departure by any Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed (or, in the case of the
Collateral Documents, consented to) by Lender, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
SECTION 8.02. NOTICES, ETC. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, telecopy or telex communication) and mailed, telegraphed,
telecopied, telexed or delivered, if to the Company or any Borrower, at 450 N.
Sunnyslope Road, Suite 300, Brookfield, Wisconsin 53005, Attention: Mark
Ohlendorf, Senior Vice President and at 1201 Pacific Avenue, Suite 1800, Tacoma,
Washington 98402, Attention: Mr David Boitano, Vice President, with a copy to
Rogers & Hardin, 299 Peachtree Street, N.E., Atlanta, Georgia 30303, Attention:
Carolyn B. Dobbins, Esq.; and if to Lender, at its address at 31 West 52nd
Street, New York, New York 10019, Attention: General Counsel, Real Estate
Finance, with a copy to the Loan Servicer; or as to each other party, at such
other address as shall be designated by such party in a written notice to any
Borrower and Lender. All such notices and communications shall, when mailed,
telegraphed, telecopied or telexed, be effective when deposited in the mails,
delivered to the telegraph company, transmitted by telecopier or confirmed by
telex answerback, respectively, except that notices and communications to Lender
pursuant to ARTICLE II, III or VII shall not be effective until received by
Lender. Delivery by telecopier of an executed counterpart of any amendment or
waiver of any provision of this Agreement,
<PAGE> 41
41
the Note or of any Exhibit hereto to be executed and delivered hereunder shall
be effective as delivery of a manually executed counterpart thereof. Any notice
delivered by Lender (or a Loan Servicer on behalf of Lender) shall be effective
if it (a) complies with this SECTION 8.02 and (b) identifies the applicable
Project with respect to the notice that is being delivered.
SECTION 8.03. NO WAIVER; REMEDIES. No failure on the part of
any Lender Party or Lender to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. COSTS, EXPENSES. (a) The Company agrees to pay
or cause each Borrower to pay on demand (i) all reasonable costs and expenses of
Lender or the Loan Servicer in connection with the preparation, execution,
delivery, administration, modification and amendment of the Loan Documents
(including, without limitation, (A) all due diligence, collateral review,
transportation, computer, duplication, appraisal, Lender audit, insurance,
consultant, search, filing and recording fees and expenses and (B) the
reasonable fees and expenses of counsel for Lender or the Loan Servicer with
respect thereto, with respect to advising Lender or the Loan Servicer as to its
rights and responsibilities, or the perfection, protection or preservation of
rights or interests, under the Loan Documents, with respect to negotiations with
any Loan Party or with other creditors of any Loan Party or any of its
Subsidiaries arising out of any Default or any events or circumstances that may
give rise to a Default and with respect to presenting claims in or otherwise
participating in or monitoring any bankruptcy, insolvency or other similar
proceeding involving creditors' rights generally and any proceeding ancillary
thereto) and (ii) all costs and expenses of Lender or the Loan Servicer in
connection with the enforcement of the Loan Documents, whether in any action,
suit or litigation, any bankruptcy, insolvency or other similar proceeding
affecting creditors' rights generally (including, without limitation, the
reasonable fees and expenses of counsel for Lender and with respect thereto).
(b) The Company agrees to indemnify and hold harmless
Lender, the Loan Servicer and each of their respective Affiliates and their
officers, directors, employees, agents and advisors (each, an "INDEMNIFIED
PARTY") from and against any and all claims, damages, losses, liabilities and
expenses (including, without limitation, reasonable fees and expenses of
counsel) that may be incurred by or asserted or awarded against any Indemnified
Party, in each case arising out of or in connection with or by reason of
(including, without limitation, in connection with any investigation, litigation
or proceeding or preparation of a defense in connection therewith) (i) the
Loans, the actual or proposed use of the proceeds of
<PAGE> 42
42
the Loans, the Loan Documents or any of the transactions contemplated thereby,
or (ii) the actual or alleged presence of Hazardous Materials on any Project or
any Environmental Action relating in any way to any Project, except to the
extent such claim, damage, loss, liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct. In the
case of an investigation, litigation or other proceeding to which the indemnity
in this SECTION 8.04(B) applies, such indemnity shall be effective whether or
not such investigation, litigation or proceeding is brought by any Loan Party,
its directors, shareholders or creditors or an Indemnified Party or any
Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated. The Company also agrees not to
assert any claim against Lender or any of its Affiliates, or any of their
respective officers, directors, employees, attorneys and agents, on any theory
of liability, for special, indirect, consequential or punitive damages arising
out of or otherwise relating to the Loans, the actual or proposed use of the
proceeds of the Loans, the Loan Documents or any of the transactions
contemplated thereby. THE FOREGOING INDEMNITY AND AGREEMENT NOT TO ASSERT CLAIMS
EXPRESSLY APPLIES, WITHOUT LIMITATION, TO THE NEGLIGENCE (BUT NOT GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT) OF THE INDEMNIFIED PARTIES.
(c) [Reserved]
(d) If any Loan Party fails to pay when due any costs,
expenses or other amounts payable by it under any Loan Document, including,
without limitation, fees and expenses of counsel and indemnities, such amount
may be paid on behalf of such Loan Party by Lender, in its sole discretion.
(e) Without prejudice to the survival of any other
agreement of any Loan Party hereunder or under any other Loan Document, the
agreements and obligations of each Borrower and the Company contained in
SECTIONS 2.11 and 2.13 and this SECTION 8.04 shall survive the payment in full
of principal, interest and all other amounts payable hereunder and under any of
the other Loan Documents.
SECTION 8.05. RIGHT OF SET-OFF. Upon the occurrence and during
the continuance of any Event of Default, Lender and each of its respective
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and otherwise apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by Lender or such Affiliate
<PAGE> 43
43
to or for the credit or the account of any Borrower against any and all of the
Obligations of the applicable Borrower now or hereafter existing under this
Agreement and the related Note, irrespective of whether Lender shall have made
any demand under this Agreement or such Note and although such obligations may
be unmatured. Lender agrees promptly to notify such Borrower after any such
set-off and application; provided, however, that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of
Lender and its respective Affiliates under this SECTION 8.05 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) that Lender and its respective Affiliates may have.
SECTION 8.06. BINDING EFFECT. This Agreement shall become
effective when it shall have been executed by the Company and Lender and
thereafter shall be binding upon and inure to the benefit of the Company and
Lender and their respective successors and assigns, except that the Company
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of Lender.
SECTION 8.07. [RESERVED]
SECTION 8.08. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.09. JURISDICTION, ETC. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York state court or
federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or any of the other Loan Documents to which it is a
party, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York state court or, to the extent permitted by law, in such federal court.
Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or any of the other Loan
Documents in the courts of any jurisdiction.
<PAGE> 44
44
(b) Each of the parties hereto irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any of the other Loan Documents to which it is a party in any New York state or
federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
SECTION 8.10. GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York
applicable to contracts made and to be performed entirely within such State.
SECTION 8.11. WAIVER OF JURY TRIAL. To the maximum extent
permitted by law, each of the Company, and Lender and Lender Parties irrevocably
waive all right to trial by jury in any action, proceeding or counterclaim
(whether based on contract, tort or otherwise) arising out of or relating to any
of the Loan Documents, the Advances or the actions of Lender or any Lender Party
in the negotiation, administration, performance or enforcement thereof.
SECTION 8.12. COMPLIANCE WITH USURY LAWS. It is expressly
stipulated and agreed to be the intent of Company and Lender that each Loan made
hereunder comply with the usury and other laws relating to the Loan Documents
now or hereafter in effect in the state in which the applicable Project is
located, to the extent any of the same are applicable thereto. If any such
applicable laws render usurious any amount called for under any of the Loan
Documents, or contracted for, charged or received with respect to any Loan, or
if the acceleration of the maturity of any Loan or if any prepayment by the
applicable Borrower results in such Borrower having paid any interest in excess
of that permitted by law, then it is the express intent of the parties that all
excess amounts theretofore collected by Lender be credited on the principal
balance of the applicable Note (or, if such Note has been paid in full, refunded
to such Borrower), and the provisions of the applicable Loan Documents
immediately be deemed reformed and the amounts thereafter collected under such
Loan Documents reduced, without the necessity of the execution of any new
document, so as to comply with the then applicable law, but so as to permit the
recovery of the fullest amount otherwise called for under the applicable Loan
Documents.
* * *
[SIGNATURES ON NEXT PAGE]
<PAGE> 45
45
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
THE COMPANY
ALTERNATIVE LIVING SERVICES, INC.
By /s/ David M. Boitano
--------------------
Name: David M. Boitano
Title: Senior Vice President
LENDER:
DEUTSCHE BANK, AG
NEW YORK BRANCH
By /s/ Steven Stuart
-----------------
Name: Steven Stuart
Title: Attorney-in-Fact
By /s/ Allisson Michaels
---------------------
Name: Allisson Michaels
Title: Attorney-in-Fact
<PAGE> 1
EXHIBIT 10.60
================================================================================
$200,000,000
MASTER CONSTRUCTION LINE OF CREDIT AGREEMENT
DATED AS OF
OCTOBER 6, 1998
AMONG
ALTERNATIVE LIVING SERVICES, INC.
AS THE MAKER OF THE NOTES
AND AS GUARANTOR
OF OBLIGATIONS OF ITS SUBSIDIARIES AND AFFILIATES
WHICH ARE BORROWERS
EACH OF THE BORROWERS
WHICH BECOMES A PARTY HERETO
PURSUANT TO A JOINDER SUPPLEMENT
AS BORROWERS
THE LENDING INSTITUTIONS NAMED HEREIN
AS LENDERS
THE CO-AGENTS NAMED HEREIN
AS CO-AGENTS
AND
KEY CORPORATE CAPITAL INC.
AS ADMINISTRATIVE AGENT
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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SECTION 1. DEFINITIONS AND TERMS...........................................................................2
1.1. CERTAIN DEFINED TERMS...........................................................................2
1.2. COMPUTATION OF TIME PERIODS....................................................................19
1.3. ACCOUNTING TERMS...............................................................................19
1.4. TERMS GENERALLY................................................................................19
SECTION 2. AMOUNT AND TERMS OF LOANS......................................................................19
2.1. COMMITMENTS FOR LOANS; COMPANY TO ACT ON BEHALF OF ALL BORROWERS;
MINIMUM BORROWING AMOUNTS, ETC.................................................................19
2.2. PROJECT QUALIFICATION; APPROVAL OF PROJECT PACKAGES BY REQUIRED LENDERS, ETC...................22
2.3. DRAW REQUESTS AND PROCEDURES...................................................................25
2.4. NOTICE OF BORROWING............................................................................27
2.5. DISBURSEMENT OF FUNDS..........................................................................28
2.6. NOTES; AND LOAN ACCOUNTS.......................................................................28
2.7. MATURITY.......................................................................................29
2.8. CONVERSIONS....................................................................................31
2.9. INTEREST.......................................................................................32
2.10. INTEREST PERIODS...............................................................................32
2.11. INCREASED COSTS, ILLEGALITY, ETC...............................................................33
2.12. BREAKAGE COMPENSATION..........................................................................35
2.13. CHANGE OF LENDING OFFICE; REPLACEMENT OF LENDERS...............................................35
SECTION 3. FEES...........................................................................................36
3.1. TRANCHE B COMMITMENT FEE.......................................................................36
3.2. OTHER FEES.....................................................................................36
SECTION 4. COMMITMENTS....................................................................................36
4.1. VOLUNTARY TERMINATION/REDUCTION OF COMMITMENTS.................................................36
4.2. MANDATORY ADJUSTMENTS OF COMMITMENTS, ETC......................................................36
4.3. EXTENSION OF COMMITMENT PERIOD TERMINATION DATES...............................................37
4.4. SYNTHETIC LEASING PROPOSALS....................................................................38
SECTION 5. PAYMENTS.......................................................................................38
5.1. VOLUNTARY PREPAYMENTS..........................................................................38
5.2. MANDATORY PREPAYMENTS..........................................................................39
5.3. METHOD AND PLACE OF PAYMENT....................................................................40
5.4. NET PAYMENTS...................................................................................40
SECTION 6. CONDITIONS PRECEDENT...........................................................................42
6.1. CONDITIONS PRECEDENT AT EFFECTIVE DATE.........................................................42
6.2. CONDITIONS PRECEDENT AT CLOSING DATE OF INITIAL BORROWING BY ANY BORROWER......................43
6.3. CONDITIONS PRECEDENT FOR SUBSEQUENT BORROWINGS BY ANY BORROWER FOR A PROJECT...................50
6.4. CONDITIONS PRECEDENT TO ALL LOANS..............................................................51
SECTION 7. REPRESENTATIONS AND WARRANTIES.................................................................52
7.1. CORPORATE STATUS, ETC..........................................................................52
7.2. SUBSIDIARIES...................................................................................52
7.3. CORPORATE POWER AND AUTHORITY, ETC.............................................................52
7.4. NO VIOLATION...................................................................................52
7.5. GOVERNMENTAL APPROVALS.........................................................................52
7.6. LITIGATION.....................................................................................53
7.7. USE OF PROCEEDS; MARGIN REGULATIONS............................................................53
</TABLE>
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<TABLE>
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7.8. FINANCIAL STATEMENTS, ETC......................................................................53
7.9. NO MATERIAL ADVERSE CHANGE.....................................................................54
7.10. TAX RETURNS AND PAYMENTS.......................................................................54
7.11. TITLE TO PROPERTIES, ETC.......................................................................54
7.12. LAWFUL OPERATIONS, ETC.........................................................................54
7.13. ENVIRONMENTAL MATTERS..........................................................................54
7.14. COMPLIANCE WITH ERISA..........................................................................55
7.15. INTELLECTUAL PROPERTY, ETC.....................................................................55
7.16. INVESTMENT COMPANY.............................................................................55
7.17. BURDENSOME CONTRACTS; LABOR RELATIONS..........................................................55
7.18. YEAR 2000 COMPUTER MATTERS.....................................................................56
7.19. SECURITY INTERESTS.............................................................................56
7.20. TRUE AND COMPLETE DISCLOSURE...................................................................56
SECTION 8. AFFIRMATIVE COVENANTS..........................................................................57
8.1. REPORTING REQUIREMENTS.........................................................................57
8.2. BOOKS, RECORDS AND INSPECTIONS.................................................................60
8.3. INSURANCE......................................................................................60
8.4. PAYMENT OF TAXES AND CLAIMS....................................................................60
8.5. CORPORATE FRANCHISES...........................................................................61
8.6. GOOD REPAIR....................................................................................61
8.7. COMPLIANCE WITH STATUTES, ETC..................................................................61
8.8. COMPLIANCE WITH ENVIRONMENTAL LAWS.............................................................61
8.9. CORPORATE FORMALITIES..........................................................................62
8.10. CASUALTY AND CONDEMNATION......................................................................62
8.11. HEDGE AGREEMENTS, ETC..........................................................................63
8.12. JOINT VENTURE ARRANGEMENTS INVOLVING BORROWERS OR PROJECTS.....................................63
8.13. CERTAIN LEASES AFFECTING A PROJECT.............................................................65
8.14. PERFORMANCE OF PERMANENT CREDIT AGREEMENT, ETC.................................................65
8.15. SENIOR DEBT....................................................................................66
SECTION 9. NEGATIVE COVENANTS.............................................................................66
9.1. CHANGES IN BUSINESS............................................................................66
9.2. CONSOLIDATION, MERGER OR SALE OF ASSETS, ETC...................................................66
9.3. LIENS..........................................................................................68
9.4. INDEBTEDNESS...................................................................................69
9.5. MINIMUM CONSOLIDATED NET WORTH.................................................................69
9.6. RATIO OF CONSOLIDATED SENIOR INDEBTEDNESS TO CONSOLIDATED TOTAL CAPITALIZATION.................70
9.7. INTEREST COVERAGE RATIO........................................................................70
9.8. TRANSACTIONS WITH AFFILIATES...................................................................70
9.9. MODIFICATIONS, ETC. OF PERMANENT CREDIT AGREEMENT, ETC.........................................70
SECTION 10. EVENTS OF DEFAULT..............................................................................70
10.1. EVENTS OF DEFAULT..............................................................................70
10.2. ACCELERATION, ETC..............................................................................73
10.3. APPLICATION OF LIQUIDATION PROCEEDS............................................................74
SECTION 11. THE ADMINISTRATIVE AGENT.......................................................................75
11.1. APPOINTMENT....................................................................................75
11.2. DELEGATION OF DUTIES...........................................................................75
11.3. EXCULPATORY PROVISIONS.........................................................................75
11.4. RELIANCE BY ADMINISTRATIVE AGENT...............................................................75
11.5. NOTICE OF DEFAULT..............................................................................76
11.6. NON-RELIANCE...................................................................................76
11.7. INDEMNIFICATION................................................................................76
11.8. THE ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY................................................77
11.9. SUCCESSOR ADMINISTRATIVE AGENT.................................................................77
</TABLE>
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<TABLE>
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11.10. OTHER AGENTS...................................................................................77
SECTION 12. GUARANTY OF OBLIGATIONS AND COMPLETION;
OBLIGATION TO COVER OPERATING DEFICITS
AND SHORTAGES OF WORKING CAPITAL.............................................................77
12.1. UNDERTAKING OF COMPANY.........................................................................77
12.2. BANKRUPTCY.....................................................................................78
12.3. NATURE OF LIABILITY. ..........................................................................78
12.4. INDEPENDENT OBLIGATION.........................................................................79
12.5. AUTHORIZATION..................................................................................79
12.6. RELIANCE.......................................................................................79
12.7. SUBORDINATION..................................................................................79
12.8. WAIVER.........................................................................................79
12.9. LIMITATION ON ENFORCEMENT......................................................................80
SECTION 13. MISCELLANEOUS..................................................................................80
13.1. PAYMENT OF EXPENSES ETC........................................................................80
13.2. RIGHT OF SETOFF................................................................................81
13.3. NOTICES........................................................................................82
13.4. BENEFIT OF AGREEMENT...........................................................................82
13.5. NO WAIVER: REMEDIES CUMULATIVE.................................................................84
13.6. PAYMENTS PRO RATA..............................................................................84
13.7. CALCULATIONS: COMPUTATIONS.....................................................................84
13.8. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL.........................85
13.9. RELEASE OF A BORROWER AND ITS PROJECT UPON REFINANCING OR OTHER PREPAYMENT, ETC................85
13.10. COUNTERPARTS...................................................................................86
13.11. EFFECTIVENESS..................................................................................86
13.12. HEADINGS DESCRIPTIVE...........................................................................86
13.13. AMENDMENT OR WAIVER............................................................................86
13.14. SURVIVAL OF INDEMNITIES........................................................................87
13.15. DOMICILE OF LOANS..............................................................................87
13.16. CONFIDENTIALITY................................................................................87
13.17. LENDER REGISTER................................................................................87
13.18. GENERAL LIMITATION OF LIABILITY................................................................88
13.19. NO DUTY........................................................................................88
13.20. LENDERS AND AGENT NOT FIDUCIARY TO COMPANY, ETC................................................88
13.21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.....................................................88
13.22. INTEREST/USURY.................................................................................88
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
ANNEX I - INFORMATION AS TO LENDERS
ANNEX II - INFORMATION AS TO SUBSIDIARIES
ANNEX III - REQUIREMENTS FOR A TITLE COMMITMENT
ANNEX IV - REQUIREMENTS FOR A PROPERTY SURVEY
ANNEX V - REQUIREMENTS FOR A SURVEYOR'S CERTIFICATE
ANNEX VI - QUALIFIED PROJECT CONSTRUCTION LOAN CHECKLIST
EXHIBIT A-1 - FORM OF NOTE
EXHIBIT A-2 - FORM OF JOINDER SUPPLEMENT
EXHIBIT B-1 - FORM OF NOTICE OF BORROWING
EXHIBIT B-2 - FORM OF NOTICE OF CONVERSION
EXHIBIT B-3 - FORM OF ROLL UP REPORT
EXHIBIT C-1 - FORM OF MORTGAGE
EXHIBIT C-2 - FORM OF ASSIGNMENT OF LEASES
EXHIBIT C-3 - FORM OF COLLATERAL ASSIGNMENT OF CONTRACTS AND PLANS
EXHIBIT C-4 - FORM OF COLLATERAL ASSIGNMENT OF LICENSES AND PERMITS
EXHIBIT C-5 - FORM OF ENVIRONMENTAL INDEMNITY AGREEMENT
EXHIBIT D - FORM OF SUPPLEMENTAL RESERVE PLEDGE AGREEMENT
EXHIBIT E - FORM OF PLEDGE AGREEMENT
EXHIBIT F-1 - FORM OF OPINION OF SPECIAL COUNSEL
TO THE ADMINISTRATIVE AGENT
EXHIBIT F-2 - FORM OF OPINION OF SPECIAL COUNSEL TO THE COMPANY
EXHIBIT G - FORM OF PROJECT TAKE-OUT AGREEMENT
EXHIBIT H - FORM OF ASSIGNMENT AGREEMENT
EXHIBIT I - FORM OF PRELIMINARY INDICATION OF INCLUSION
TO BE ISSUED BY THE PERMANENT LENDER
EXHIBIT J - FORM OF APPROVAL OR DISAPPROVAL BY LENDERS
EXHIBIT K - FORM OF SECTION 5.4(B)(II) CERTIFICATE
EXHIBIT L-1 - FORM OF MANAGEMENT CONTRACT
EXHIBIT L-2 - FORM OF COMPANY LEASE
EXHIBIT L-3 - FORM OF AFFILIATE LEASE
EXHIBIT L-4 - FORM OF COMPANY SUBLEASE
</TABLE>
<PAGE> 6
MASTER CONSTRUCTION LINE OF CREDIT AGREEMENT, dated as of October 6,
1998, among the following:
(i) ALTERNATIVE LIVING SERVICES, INC., a Delaware
corporation (herein, together with its successors and assigns, the
"COMPANY");
(ii) each of the Borrowers which becomes a party hereto
pursuant to a Joinder Supplement;
(iii) the lending institutions listed in Annex I hereto
(each a "LENDER" and collectively, the "LENDERS");
(iv) BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a
national banking association, and SOUTHTRUST BANK, NATIONAL
ASSOCIATION, a national banking association, as Co-Agents; and
(v) KEY CORPORATE CAPITAL INC., a Michigan corporation,
as administrative agent (the "ADMINISTRATIVE AGENT"):
PRELIMINARY STATEMENTS:
(1) Unless otherwise defined herein, all capitalized terms used
herein and defined in section 1 are used herein as so defined.
(2) The Company has applied to the Lenders for credit facilities
to be made available to Subsidiaries and Affiliates of the Company (each of
which will be a Borrower) to finance the construction by such Subsidiaries and
Affiliates of Projects. While this Agreement contemplates that there may be
multiple Borrowers hereunder, the Company's present intention is that there will
be only a single Borrower hereunder and that any joint venture arrangements for
a particular Project will not be reflected by means of the ownership of a
Borrower but rather by means of an Affiliate Lease and other documentation
entered into as contemplated by section 8.12 hereof. The Company contemplates
that the number of Projects which may be financed hereunder could exceed 50
separate Projects. The Company has substantial experience in the development and
construction of projects similar to the Projects to be financed hereunder,
having constructed and developed over 180 such projects.
(3) The Company will issue Notes to the Lenders hereunder,
evidencing the Loans made to the Borrowers. Whenever a Subsidiary or Affiliate
of the Company first becomes a Borrower hereunder, such Subsidiary or Affiliate
shall execute and deliver to the Administrative Agent a Joinder Supplement (a
"JOINDER SUPPLEMENT"), substantially in the form attached hereto as Exhibit A-2,
evidencing, among other things, (i) its primary obligation in respect of all
Loans made to it hereunder, and (ii) its assumption of all of the obligations of
a Borrower hereunder.
(4) As contemplated by the Joinder Supplement to which a Borrower
is a party, such Borrower may, if requested by the Administrative Agent at any
time, be required to execute and deliver to the Administrative Agent one or more
Project Promissory Notes evidencing its obligations in respect of the Loans made
to finance one or more of its Projects.
(5) It is contemplated that (i) the Tranche A Loans will be
refinanced by the Permanent Lender pursuant to the Permanent Credit Agreement
and the applicable Project Take-Out Agreements to which the Permanent Lender is
a party, and (ii) if the Tranche B Activation Date occurs and Tranche B Loans
are made, the Tranche B Loans will be refinanced by the Permanent Lender
(through an increase in its commitment under the Permanent Credit Agreement), or
by the Supplemental Permanent Lender pursuant to the Supplemental Permanent
Credit Agreement, and the applicable Project Take-Out Agreements to which the
Permanent Lender or the Supplemental Permanent Lender, as applicable, is a
party.
(6) The Lenders are willing to make Loans to the Borrowers, all
subject to and upon the terms and conditions set forth herein and in the other
Credit Documents.
NOW, THEREFORE, it is agreed:
SECTION 1. DEFINITIONS AND TERMS
1.1. CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires:
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"ACQUISITION" shall mean and include (i) any acquisition on a going
concern basis (whether by purchase, lease or otherwise) of any facility and/or
business operated by any person who is not a Subsidiary of the Company, and (ii)
acquisitions of a majority of the outstanding equity or other similar interests
in any such person (whether by merger, stock purchase or otherwise).
"ADMINISTRATIVE AGENT" shall have the meaning provided in the first
paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to section 11.9.
"AFFILIATE" shall mean, with respect to any person, any other person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such person. A person shall be deemed to control a second
person if such first person possesses, directly or indirectly, the power (i) to
vote 10% or more of the securities having ordinary voting power for the election
of directors or managers of such second person or (ii) to direct or cause the
direction of the management and policies of such second person, whether through
the ownership of voting securities, by contract or otherwise. Notwithstanding
the foregoing, (x) a director, officer or employee of a person shall not, solely
by reason of such status, be considered an Affiliate of such person; and (y)
neither the Administrative Agent nor any Lender shall in any event be considered
an Affiliate of the Company or any other Credit Party or any of their respective
Subsidiaries.
"AFFILIATE LEASE" shall have the meaning provided in section 6.2(d).
"AGREEMENT" shall mean this Master Construction Line of Credit
Agreement, as the same may be from time to time further modified, amended and/or
supplemented.
"APPLICABLE LENDING OFFICE" shall mean, with respect to each Lender,
(i) such Lender's Domestic Lending Office in the case of Borrowings consisting
of Prime Rate Loans and (ii) such Lender's Eurodollar Lending Office in the case
of Borrowings consisting of Eurodollar Loans.
"APPRAISAL REPORT" shall have the meaning provided in section 2.2(a).
"APPRAISED FAIR MARKET VALUE" shall mean, when used with reference to a
Project, the fair market value thereof, as determined by the Appraisal Report
with respect thereto which has been approved by the Administrative Agent and the
Lenders as provided in section 2.2(a).
"APPRAISED STABILIZED VALUE" shall mean, when used with reference to a
Project, the estimated fair market value thereof on a going concern basis upon
completion and achievement of at least 95% occupancy (or such lesser percentage
as may be acceptable to the Required Lenders, in the exercise of their
reasonable discretion). The Appraised Stabilized Value of a Project shall be
determined without any reduction on account of any (i) special, extraordinary or
other non-recurring charges or expenses associated with a new opening or
lease-up, or (ii) operating deficits prior to full occupancy.
"ASSIGNMENT AGREEMENT" shall mean an Assignment Agreement substantially
in the form of Exhibit H hereto.
"ASSIGNMENT OF LEASES" shall have the meaning provided in section 6.2.
"AUTHORIZED OFFICER" shall mean with respect to any Credit Party any
officer or employee of such Credit Party designated by such Credit Party as such
in writing to the Administrative Agent.
"BANKRUPTCY CODE" shall have the meaning provided in section 10.1(h).
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<PAGE> 8
"BORROWER" shall mean each Subsidiary or Affiliate of the Company which
becomes a party hereto by virtue of the execution and delivery of a Joinder
Supplement which is accepted by the Administrative Agent.
"BORROWING" shall mean the incurrence of Loans under a Facility by one
or more Borrowers from all of the Lenders with Commitments under such Facility
on a PRO RATA basis on a given date (or resulting from conversions on a given
date), all of which Loans shall be the same Type of Loan, and in the case of
Eurodollar Loans, all of which Loans shall have the same Interest Period.
"BUSINESS DAY" shall mean (i) for all purposes other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which shall be
in the city in which the Payment Office is located a legal holiday or a day on
which banking institutions are authorized by law or other governmental actions
to close and (ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, any day which
is a Business Day described in clause (i) and which is also a day for trading by
and between banks in London, England, in U.S. dollar deposits in the interbank
Eurodollar market.
"CAPITAL LEASE" as applied to any person shall mean any lease of any
property (whether real, personal or mixed) by that person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that person.
"CAPITALIZED LEASE OBLIGATIONS" shall mean all obligations under
Capital Leases of the Company or any of its Subsidiaries in each case taken at
the amount thereof accounted for as liabilities identified as "capital lease
obligations" (or any similar words) on a consolidated balance sheet of the
Company and its Subsidiaries prepared in accordance with GAAP.
"CASH EQUIVALENTS" shall mean any of the following: (i) securities
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (PROVIDED that the full faith
and credit of the United States of America is pledged in support thereof) having
maturities of not more than one year from the date of acquisition; (ii) U.S.
dollar denominated time deposits, certificates of deposit and bankers'
acceptances of (x) any Lender or (y) any bank whose short-term commercial paper
rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at
least P-1 or the equivalent thereof (any such bank, an "APPROVED BANK"), in each
case with maturities of not more than one year from the date of acquisition; and
(iii) investments in money market funds access to which is provided as part of
"sweep" accounts maintained with a Lender or an Approved Bank.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. ss. 9601 ET SEQ.
"CERTIFICATE OF OCCUPANCY" shall mean when used with reference to a
Project a final certificate of occupancy issued by a state or local governmental
authority allowing for the occupancy of all of the units of such Project.
"CHANGE OF CONTROL" shall mean and include any of the following:
(i) any person or group (as such term is defined in section
13(d)(3) of the 1934 Act), other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, and any member of the Current Holder Group, shall acquire,
other than in a Merger Transaction which itself does not result in a
Change of Control under clause (iii) below, directly or indirectly,
beneficial ownership (within the meaning of Rule 13d-3 and 13d-5 of
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<PAGE> 9
the 1934 Act) of more than 50%, on a fully diluted basis, of the
economic or voting interest in the Company's capital stock;
(ii) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement or agreements for
the sale or disposition by the Company of all or substantially all of
the Company's assets; and/or
(iii) the shareholders of the Company approve a merger,
business combination or consolidation of the Company with any other
person, including a triangular merger involving the Company (any such
transaction, a "MERGER TRANSACTION"), OTHER than a Merger Transaction
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted or exchanged for voting securities of
the surviving or resulting entity) more than 50% of the combined voting
power of the voting securities of the Company or such surviving or
resulting entity outstanding (on a fully diluted basis) after such
Merger Transaction.
As used in this definition, "CURRENT HOLDER GROUP" shall mean (i) those persons
who are officers and directors of the Company at the Effective Date, (ii) the
spouses, heirs, legatees, descendants and blood relatives to the third degree of
consanguinity of any such person, (iii) the executors and administrators of the
estate of any such person, and any court appointed guardian of any such person,
and (iv) any trust, family partnership, or other investment entity for the
benefit of any such person referred to in the foregoing clauses (i) and (ii) or
any other persons or charitable purposes, so long as one or more members of the
Current Holder Group has the exclusive or joint right to control the voting and
disposition of securities held by such trust.
"CHANGE OF CONTROL PREPAYMENT EVENT" shall mean (i) the occurrence of a
Change of Control and (ii) the delivery to the Company of written notice from
the Administrative Agent (acting on instructions from the Required Lenders) to
the effect that the Required Lenders have determined in good faith that the
occurrence of such Change in Control makes it unlikely that the conditions to
the obligations of the Permanent Lender or the Supplemental Permanent Lender, as
applicable, under the then effective Project Take-Out Agreements (and Project
Commitments referred to therein) will be satisfied at the times the Projects
being financed hereunder are expected to be refinanced pursuant to such Project
Take-Out Agreements.
"CLOSING DATE" shall have the meaning provided in section 6.2.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the Effective
Date and any subsequent provisions of the Code, amendatory thereof, supplemental
thereto or substituted therefor.
"COLLATERAL" shall mean any collateral covered by any Security
Document.
"COLLATERAL AGENT" shall mean the Administrative Agent acting as
Collateral Agent for the Lenders pursuant to the Security Documents.
"COLLATERAL ASSIGNMENT OF CONTRACTS AND PLANS" shall have the meaning
provided in section 6.2.
"COLLATERAL ASSIGNMENT OF LICENSES AND PERMITS" shall have the meaning
provided in section 6.2.
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<PAGE> 10
"COMMITMENT" shall mean a Tranche A Commitment or a Tranche B
Commitment, or both, as applicable.
"COMPANY" shall have the meaning provided in the first paragraph of
this Agreement.
"COMPANY LEASE" shall have the meaning provided in section 8.12(a).
"COMPANY SUBLEASE" shall have the meaning provided in section 8.12(a).
"CONSOLIDATED EBIT" shall mean, for any period, Consolidated Net Income
for such period; PLUS (A) the sum of the amounts for such period included in
determining such Consolidated Net Income of (i) Consolidated Interest Expense,
(ii) Consolidated Income Tax Expense, (iii) amortization or write-off of
deferred financing costs, and (iv) extraordinary and other non-recurring
non-cash losses and charges; LESS (B) gains on sales of assets and other
extraordinary gains and other non-recurring non-cash gains; all as determined
for the Company and its Subsidiaries on a consolidated basis in accordance with
GAAP.
"CONSOLIDATED INCOME TAX EXPENSE" shall mean, for any period, all
provisions for taxes based on the net income of the Company or any of its
Subsidiaries (including, without limitation, any additions to such taxes, and
any penalties and interest with respect thereto), all as determined for the
Company and its Subsidiaries on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" shall mean, for any period, total
interest expense (including that which is attributable to Capital Leases, in
accordance with GAAP) of the Company and its Subsidiaries on a consolidated
basis with respect to all outstanding Indebtedness of the Company and its
Subsidiaries, all as determined in accordance with GAAP, but (i) including in
any event net costs under Hedge Agreements, and (ii) excluding in any event (x)
any amortization of deferred financing costs, and (y) any interest during
construction which is capitalized in accordance with GAAP. If the Company uses
the net interest method of accounting, in which interest expense is determined
net of interest income, in accordance with GAAP, then Consolidated Interest
Expense may be determined on such basis.
"CONSOLIDATED NET INCOME" shall mean for any period, the net income (or
loss) of the Company and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with GAAP.
"CONSOLIDATED NET WORTH" shall mean at any time for the determination
thereof all amounts which, in conformity with GAAP, would be included under the
caption "total stockholders' equity" (or any like caption) on a consolidated
balance sheet of the Company as at such date, PROVIDED that in no event shall
Consolidated Net Worth include any amounts in respect of Redeemable Stock.
"CONSOLIDATED SENIOR INDEBTEDNESS" shall mean Consolidated Total
Indebtedness, exclusive of the portion thereof, if any, which constitutes the
outstanding principal amount of Subordinated Indebtedness of the Company.
"CONSOLIDATED TOTAL ASSETS" shall mean with respect to any person at
any date of determination the net book value of all assets which would appear on
a consolidated balance sheet of such person and its consolidated Subsidiaries at
such date which is prepared in accordance with GAAP.
"CONSOLIDATED TOTAL CAPITALIZATION" shall mean at any date the sum of
(i) the Consolidated Net Worth at such date (or if such date is not the end of a
fiscal quarter, as of the end of the then most recently completed fiscal
quarter), PLUS (ii) the principal amount (or the equivalent amount of
Capitalized Lease Obligations) of Consolidated Total Indebtedness at such date
which would be shown as a liability
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<PAGE> 11
on a consolidated balance sheet of the Company and its Subsidiaries prepared in
accordance with GAAP.
"CONSOLIDATED TOTAL INDEBTEDNESS" shall mean the sum (without
duplication) of all Indebtedness of the Company and of each of its Subsidiaries,
all as determined on a consolidated basis.
"CREDIT DOCUMENTS" shall mean this Agreement, the Notes, each Joinder
Supplement, any Project Promissory Notes, each Environmental Indemnity
Agreement, the Security Documents and any Designated Hedge Agreement. When used
with reference to a Credit Party, the term Credit Documents refers only to those
Credit Documents to which such Credit Party is a party.
"CREDIT PARTY" shall mean the Company and each of its Subsidiaries and
Affiliates which is a Borrower or otherwise is a party to any Credit Document.
"DEFAULT" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"DEFAULTING LENDER" shall mean any Lender with respect to which a
Lender Default is in effect.
"DESIGNATED HEDGE AGREEMENT" shall mean any Hedge Agreement to which
the Company or any Borrower is a party which is made with reference to some or
all of the Obligations and, pursuant to a written instrument signed by the
Administrative Agent, has been designated as a Designated Hedge Agreement so
that the Company's or such Borrower's counterparty's credit exposure thereunder
will be entitled to share in the benefits of the Collateral, the Security
Documents and the Company's guaranty obligations under section 12 of this
Agreement to the extent the Credit Documents provide guarantees or security for
creditors of the Company or any Borrower under Designated Hedge Agreements. The
Administrative Agent may, without the approval or consent of the Lenders,
designate a Hedge Agreement as a Designated Hedge Agreement if (i) the Hedge
Agreement is made with reference to all or any portion of the Obligations, and
(ii) the counterparty is a Lender or an Affiliate of a Lender; PROVIDED,
HOWEVER, that if (x) the counterparty is not a Lender or an Affiliate of a
Lender, or (y) the Administrative Agent reasonably determines that after giving
effect to such designation the aggregate credit exposure of all counterparties
under all Designated Hedge Agreements, determined in accordance with standard
industry practice, would exceed $28,000,000, the Administrative Agent shall not
designate the Hedge Agreement involving such counterparty as a Designated Hedge
Agreement unless such designation is approved by the Required Lenders, and
PROVIDED, FURTHER, that in no event shall the Administrative Agent approve any
such Hedge Agreement which is unrelated to the Obligations unless all of the
Lenders consent to the designation of such Hedge Agreement as a Designated Hedge
Agreement. The Administrative Agent may impose as a condition to any designation
of a Hedge Agreement as a Designated Hedge Agreement a requirement that the
counterparty (x) enter into an intercreditor or similar agreement with the
Administrative Agent to the effect that, or (y) otherwise expressly agree with
the Administrative Agent that, recoveries from the Company and the Borrowers
with respect to such Designated Hedge Agreement will be shared in accordance
with, or otherwise in a manner consistent with, the provisions of section 10.3
hereof.
"DOLLARS", "U.S. DOLLARS" and the sign "$" each means lawful money of
the United States.
"DOMESTIC LENDING OFFICE" shall mean, with respect to any Lender, the
office of such Lender specified as its Domestic Lending Office in Annex I or in
the Assignment Agreement pursuant to which it became a Lender, or such other
office of such Lender as such Lender may from time to time specify to the
Company and the Administrative Agent.
"DRAW REQUEST" shall have the meaning provided in section 2.3(c).
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"EFFECTIVE DATE" shall have the meaning provided in section 13.11.
"ELIGIBLE TRANSFEREE" shall mean and include a commercial bank,
financial institution or other "accredited investor" (as defined in SEC
Regulation D), in each case which:
(i) is not disapproved in writing by the Company in a notice
given to a requesting Lender and the Administrative Agent, specifying
the reasons for such disapproval, within five Business Days following
the giving of notice to the Company of the identity of any proposed
transferee (any such disapproval by the Company must be reasonable),
PROVIDED that the Company shall not be entitled to exercise the
foregoing right of disapproval if and so long as any Event of Default
shall have occurred and be continuing;
(ii) is not a direct competitor of the Company or engaged in
the same or similar business as the Company, or any of its respective
Subsidiaries or is not an Affiliate of any such competitors of the
Company or any of its respective Subsidiaries; and
(iii) has total assets of at least $10 billion and combined
capital and surplus of at least $1 billion, as reflected on its most
recent financial statements.
"ENVIRONMENTAL CLAIMS" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any Environmental Law or any permit issued under any such law
(hereafter "CLAIMS"), including, without limitation, (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the storage, treatment or Release (as defined
in CERCLA) of any Hazardous Materials or arising from alleged injury or threat
of injury to health, safety or the environment.
"ENVIRONMENTAL LAW" shall mean any applicable Federal, state, foreign
or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy and rule of common
law now or hereafter in effect and in each case as amended, and any binding and
enforceable judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment issued to or
rendered against the Company or any of its Subsidiaries relating to the
environment, employee health and safety or Hazardous Materials, including,
without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33
U.S.C. ss. 2601 ET SEQ.; the Clean Air Act, 42 U.S.C. ss. 7401 ET SEQ.; the Safe
Drinking Water Act, 42 U.S.C. ss. 3803 ET SEQ.; the Oil Pollution Act of 1990,
33 U.S.C. ss. 2701 ET SEQ.; the Emergency Planning and the Community
Right-to-Know Act of 1986, 42 U.S.C. ss. 11001 ET SEQ., the Hazardous Material
Transportation Act, 49 U.S.C. ss. 1801 ET SEQ. and the Occupational Safety and
Health Act, 29 U.S.C. ss. 651 ET SEQ. (to the extent it regulates occupational
exposure to Hazardous Materials); and any state and local or foreign
counterparts or equivalents, in each case as amended from time to time.
"ENVIRONMENTAL REPORT" shall have the meaning provided in section
2.2(a).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA, as in effect at the
Effective Date and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"ERISA AFFILIATE" shall mean each person (as defined in section 3(9) of
ERISA) which together
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with the Company or a Subsidiary of the Company would be deemed to be a "single
employer" (i) within the meaning of section 414(b),(c), (m) or (o) of the Code
or (ii) as a result of the Company or a Subsidiary of the Company being or
having been a general partner of such person.
"EURODOLLAR LENDING OFFICE" shall mean, with respect to any Lender, the
office of such Lender specified as its Eurodollar Lending Office in Annex I or
in the Assignment Agreement pursuant to which it became a Lender, or such other
office or offices for Eurodollar Loans of such Lender as such Lender may from
time to time specify to the Company and the Administrative Agent.
"EURODOLLAR LOANS" shall mean each Loan bearing interest at the rates
provided in section 2.9(b).
"EURODOLLAR RATE" shall mean with respect to each Interest Period for a
Eurodollar Loan, (A) either (i) the rate per annum for deposits in Dollars of
amounts in same day funds comparable to the outstanding principal amount of the
Eurodollar Loan for which an interest rate is then being determined for a
maturity most nearly comparable to such Interest Period which appears on page
3750 of the Dow Jones Telerate Screen as of 11:00 A.M. (local time at the Notice
Office) on the date which is two Business Days prior to the commencement of such
Interest Period, or (ii) if such a rate does not appear on such page, an
interest rate per annum equal to the average (rounded upward to the nearest
whole multiple of 1/16 of 1% per annum, if such average is not such a multiple)
of the rate per annum at which deposits in Dollars are offered to each of the
Reference Banks by prime banks in the London interbank Eurodollar market for
deposits of amounts in Dollars in same day funds comparable to the outstanding
principal amount of the Eurodollar Loan for which an interest rate is then being
determined with maturities comparable to the Interest Period to be applicable to
such Eurodollar Loan, determined as of 11:00 A.M. (London time) on the date
which is two Business Days prior to the commencement of such Interest Period, in
each case divided (and rounded upward to the nearest whole multiple of 1/16th of
1%) by (B) a percentage equal to 100% minus the then stated maximum rate of all
reserve requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves and without benefit of credits for
proration, exceptions or offsets which may be available from time to time)
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency liabilities as defined in Regulation D (or any successor category
of liabilities under Regulation D).
"EVENT OF DEFAULT" shall have the meaning provided in section 10.1.
"EVENT OF LOSS" shall mean, with respect to any Project, (i) the actual
or constructive total loss of such Project or the use thereof, resulting from
destruction, damage beyond repair, or the rendition of such Project permanently
unfit for normal use from any casualty or similar occurrence whatsoever, (ii)
the destruction or damage of a portion of such Project from any casualty or
similar occurrence whatsoever under circumstances in which such damage cannot
reasonably be expected to be repaired, or such Project cannot reasonably be
expected to be restored to its condition immediately prior to such destruction
or damage, within 120 days after the occurrence of such destruction or damage,
(iii) the condemnation, confiscation or seizure of, or requisition of title to
or use of, any substantial portion of such Project, or the Real Property upon
which such Project is located, or (iv) in the case of any Project of a Borrower
which is located on Real Property which is leased by such Borrower, the
termination or expiration of such Borrower's leasehold rights to such Real
Property.
"FACILITY" shall mean the Tranche A Facility or the Tranche B Facility,
or both, as applicable.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the
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Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"FEES" shall mean all amounts payable pursuant to, or referred to in,
section 3.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time; it being understood and
agreed that determinations in accordance with GAAP for purposes of section 9,
including defined terms as used therein, are subject to sections 1.3 and
13.7(a).
"GUARANTY OBLIGATIONS" shall mean as to any person (without
duplication) any obligation of such person guaranteeing any Indebtedness
("PRIMARY INDEBTEDNESS") of any other person (the "PRIMARY OBLIGOR") in any
manner, whether directly or indirectly, including, without limitation, any
obligation of such person, whether or not contingent, (a) to purchase any such
primary Indebtedness or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or payment of any
such primary Indebtedness or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary Indebtedness of the
ability of the primary obligor to make payment of such primary Indebtedness, or
(d) otherwise to assure or hold harmless the owner of such primary Indebtedness
against loss in respect thereof, PROVIDED, HOWEVER, that the term Guaranty
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Guaranty
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary Indebtedness in respect of which such Guaranty Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such person is required to perform
thereunder) as determined by such person in good faith.
"HEDGE AGREEMENT" shall mean (i) any interest rate swap agreement, any
interest rate cap agreement, any interest rate collar agreement or other similar
agreement or arrangement designed to protect against fluctuations in interest
rates, and (ii) any currency swap agreement, forward currency purchase agreement
or similar agreement or arrangement designed to protect against fluctuations in
currency exchange rates.
"HAZARDOUS MATERIALS" shall mean (i) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; and (ii) any chemicals, materials or substances defined as or
included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "restricted hazardous materials", "extremely hazardous
wastes", "restrictive hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants" or "pollutants", or words of similar meaning and regulatory
effect, under any applicable Environmental Law.
"HIGHEST LAWFUL RATE" shall mean as to any Lender and with reference to
the Loans made by such Lender to finance a particular Project of a Borrower, the
maximum nonusurious interest rate, if any, that at any time or from time to time
may be contracted for, taken, reserved, charged or received by such Lender with
respect to such Loans under the law applicable to the extensions of credit
represented by such Loans; PROVIDED, that if there is no such maximum rate for
such Lender or for such extensions of credit by such Lender, or if such Lender
is exempt from any such maximum rate, then the provisions of section 13.22 shall
be inapplicable to such Lender and such Loans made by it.
"IMPROVEMENTS" shall mean the residence units and other improvements to
be constructed by a
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<PAGE> 15
Borrower as part of a Project.
"INDEBTEDNESS" of any person shall mean without duplication:
(i) all indebtedness of such person for borrowed money;
(ii) all bonds, notes, debentures and similar debt securities
of such person;
(iii) the deferred purchase price of capital assets or
services which in accordance with GAAP would be shown on the liability
side of the balance sheet of such person;
(iv) the face amount of all letters of credit issued for the
account of such person and, without duplication, all drafts drawn
thereunder;
(v) all Indebtedness of a second person secured by any Lien
on any property owned by such first person, whether or not such
indebtedness has been assumed, up to the greater of (A) the portion of
such Indebtedness equivalent to the fair market value of such property,
and (B) if such Indebtedness has been assumed by such first person, the
amount thereof so assumed;
(vi) all Capitalized Lease Obligations of such person;
(vii) the present value, determined on the basis of the
implicit interest rate, of all basic rental obligations under all
"synthetic" leases (I.E. leases accounted for by the lessee as
operating leases under which the lessee is the "owner" of the leased
property for Federal income tax purposes);
(viii) all obligations of such person to pay a specified
purchase price for goods or services whether or not delivered or
accepted, I.E., take-or-pay and similar obligations;
(ix) all net obligations of such person under Hedge
Agreements;
(x) the full outstanding balance of trade receivables,
notes or other instruments sold with full or limited recourse, other
than solely for purposes of collection of delinquent accounts;
(xi) the stated value, or liquidation value if higher, of
all Redeemable Stock of such person; and
(xii) all Guaranty Obligations of such person;
PROVIDED that (x) neither trade payables and accrued expenses, in each case
arising in the ordinary course of business, nor obligations in respect of
insurance policies or performance or surety bonds which themselves are not
guarantees of Indebtedness (nor drafts, acceptances or similar instruments
evidencing the same nor obligations in respect of letters of credit supporting
the payment of the same), shall constitute Indebtedness; and (y) the
Indebtedness of any person shall in any event include (without duplication) the
Indebtedness of any other entity (including any general partnership in which
such person is a general partner) to the extent such person is liable thereon as
a result of such person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide expressly
that such person is not liable thereon.
"INSPECTING CONSULTANT" shall mean, with reference to any Project or
Projects, the architect and/or engineer or other construction consultant, or
firm of architects and/or engineers or other
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<PAGE> 16
construction consultants, engaged by the Administrative Agent to review the
Master Plans and Specifications, the particular Plans and Specifications for a
Project which is not one of the types of projects covered by the Master Plans
and Specifications, or any deviations from the Master Plans and Specifications,
to consult with the Administrative Agent concerning the construction of such
Project, and/or conduct inspections of such Project.
"INTEREST PERIOD" with respect to any Eurodollar Loan shall mean the
interest period applicable thereto, as determined pursuant to section 2.10.
"JOINDER SUPPLEMENT" shall have the meaning provided in the Preliminary
Statements of this Agreement.
"KCCI" shall mean Key Corporate Capital Inc., a Michigan corporation,
together with its successors and assigns.
"LAND" shall mean the Real Property upon which the Improvements of a
Borrower's Project are located, and any additional Real Property and Leaseholds
of such Borrower related thereto.
"LEASEHOLDS" of any person means all the right, title and interest of
such person as lessee or licensee in, to and under leases or licenses of land,
improvements and/or fixtures.
"LEGAL REQUIREMENTS" shall mean all laws, statutes, ordinances, rules,
regulations and restrictive covenants affecting any person, its business, its
Real Property, or any of its other properties or assets.
"LENDER" shall have the meaning provided in the first paragraph of this
Agreement.
"LENDER DEFAULT" shall mean (i) the refusal (which has not been
retracted) of a Lender in violation of the requirements of this Agreement to
make available its portion of any incurrence of Loans or (ii) a Lender having
notified the Administrative Agent and/or the Company that it does not intend to
comply with the obligations under section 2.1, in the case of either (i) or (ii)
as a result of the appointment of a receiver or conservator with respect to such
Lender at the direction or request of any regulatory agency or authority.
"LENDER REGISTER" shall have the meaning provided in section 13.17.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).
"LOAN" shall have the meaning provided in section 2.1.
"MANAGEMENT CONTRACT" shall have the meaning provided in section
8.12(a).
"MARGIN STOCK" shall have the meaning provided in Regulation U.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of, (i) when used with reference to the Company or any
of its Subsidiaries, the Company and its Subsidiaries, taken as a whole, or (ii)
when used with reference to any other person, such person and its Subsidiaries,
taken as a whole, as the case may be.
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<PAGE> 17
"MATERIAL SUBSIDIARY" shall mean, at any time, with reference to any
person, any Subsidiary of such person that (i) has assets at such time
comprising 5% or more of the consolidated assets of such person and its
Subsidiaries or (y) had net income before interest, taxes, depreciation and
amortization in the most recently ended fiscal year of such person comprising 5%
or more of the consolidated net income before interest, taxes, depreciation and
amortization of such person and its Subsidiaries for such fiscal year.
"MINIMUM BORROWING AMOUNT" shall mean (i) for Prime Rate Loans,
$100,000, with increments above such amount to be in whole Dollar amounts, and
(ii) for Eurodollar Loans, $2,000,000, with increments above such amount to be
in whole Dollar amounts. The Minimum Borrowing Amount shall be determined with
reference to each Borrowing under a Facility, and if such Borrowing consists of
Loans incurred by more than one Borrower, the principal amount of Loans so
incurred shall be aggregated for purposes of applying the Minimum Borrowing
Amount thereto.
"MOODY'S" shall mean Moody's Investors Service, Inc. and its
successors.
"MORTGAGED PROPERTY" shall have the meaning provided in section 6.2(n).
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan, as defined in
section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate is
making or accruing an obligation to make contributions or has within any of the
preceding three plan years made or accrued an obligation to make contributions.
"MULTIPLE EMPLOYER PLAN" shall mean an employee benefit plan, other
than a Multiemployer Plan, to which the Company or any ERISA Affiliate, and one
or more employers other than the Company or an ERISA Affiliate, is making or
accruing an obligation to make contributions or, in the event that any such plan
has been terminated, to which the Company or an ERISA Affiliate made or accrued
an obligation to make contributions during any of the five plan years preceding
the date of termination of such plan.
"NET PROCEEDS" shall mean, with respect to any disposition (whether
voluntary or as a result of casualty or other occurrence) of any property, the
aggregate cash proceeds resulting therefrom net of (i) reasonable and customary
expenses of sale incurred in connection with such disposition, and other
reasonable and customary fees and expenses incurred, and all state, and local
taxes paid or reasonably estimated to be payable by such person, as a
consequence of such disposition and the payment of principal, premium and
interest of Indebtedness secured by the asset which is the subject of the
disposition and required to be, and which is, repaid under the terms thereof as
a result of such disposition, (ii) amounts of any distributions payable to
holders of minority interests in the relevant person or in the relevant property
or assets and (iii) incremental income taxes paid or payable as a result
thereof.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
"NON-DEFAULTING LENDER" shall mean each Lender other than a Defaulting
Lender.
"NOTE" shall have the meaning provided in section 2.6(a).
"NOTICE OF BORROWING" shall have the meaning provided in section
2.4(a).
"NOTICE OF CONVERSION" shall have the meaning provided in section 2.8.
"NOTICE OFFICE" shall mean the office of the Administrative Agent at
700 Fifth Avenue, 52nd Floor, Seattle, Washington 98104-5099, Attention:
Commercial Real Estate Services Group (telephone: (206)
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<PAGE> 18
684-6160; facsimile: (206) 689-5464), or such other office, located in a city in
the United States Pacific, Midwest or Eastern Time Zone, as the Administrative
Agent may designate to the Company from time to time.
"OBLIGATIONS" shall mean all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing to (i)
the Administrative Agent or any Lender pursuant to the terms of this Agreement
or any other Credit Document, and (ii) any other counterparty creditor of the
Company and/or the Borrowers under any Designated Hedge Agreement.
"PAYMENT OFFICE" shall mean the office of the Administrative Agent at
700 Fifth Avenue, 52nd Floor, Seattle, Washington 98104-5099, Attention:
Commercial Real Estate Services Group (telephone: (206) 684-6160; facsimile:
(206) 689-5464), or such other office, located in a city in the United States
Pacific, Midwest or Eastern Time Zone, as the Administrative Agent may designate
to the Company from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to section 4002 of ERISA, or any successor thereto.
"PERCENTAGE" shall mean at any time, with reference to the Total
Commitment, for any Lender with a Commitment, the percentage obtained by
dividing such Lender's Commitments by the Total Commitment, PROVIDED, that if
the Total Commitment has been terminated, the Percentage for each Lender shall
be determined by dividing such Lender's Commitments immediately prior to such
termination by the Total Commitment immediately prior to such termination.
"PERMANENT CREDIT AGREEMENT" shall mean the Credit Agreement among the
Company and the Permanent Lender, providing for credit facilities in the
aggregate amount of $150,000,000, to be used to refinance Loans made hereunder.
"PERMANENT LENDER" shall mean (i) Deutsche Bank AG, (ii) if Deutsche
Bank AG remains at least secondarily liable, its successors and assigns which
succeed to its rights and obligations under the Project Take-Out Agreements in
accordance with the terms and provisions thereof, and (iii) otherwise, only its
successors and assigns which are acceptable to all of the Lenders (other than a
Defaulting Lender) from the standpoint of credit quality.
"PERMITTED LIENS" shall mean Liens described in section 9.3.
"PERSON" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any government or political subdivision or any agency, department or
instrumentality thereof.
"PLAN" shall mean any multiemployer or single-employer plan as defined
in section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute by) the Company or a Subsidiary of the
Company or an ERISA Affiliate, and each such plan for the five year period
immediately following the latest date on which the Company, or a Subsidiary of
the Company or an ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such plan.
"PLANS AND SPECIFICATIONS" shall mean detailed architectural,
structural, mechanical and electrical plans and specifications for the
Improvements on any particular Project.
"PLEDGE AGREEMENT" shall have the meaning provided in section 6.2.
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<PAGE> 19
"PREMISES" shall mean, for any Project, the "Premises", as defined in
the Mortgage for such Project.
"PRIME RATE" shall mean, for any period, a fluctuating interest rate
per annum as shall be in effect from time to time which rate per annum shall at
all times be equal to the greater of (i) the rate of interest established by
KeyBank National Association in Cleveland, Ohio, from time to time, as its prime
rate, whether or not publicly announced, which interest rate may or may not be
the lowest rate charged by it for commercial loans or other extensions of
credit; and (ii) the Federal Funds Effective Rate in effect from time to time
PLUS 1/2 of 1% per annum.
"PRIME RATE LOAN" shall mean each Loan bearing interest at the rate
provided in section 2.9(a).
"PROHIBITED TRANSACTION" shall mean a transaction with respect to a
Plan that is prohibited under section 4975 of the Code or section 406 of ERISA
and not exempt under section 4975 of the Code or section 408 of ERISA.
"PROJECT" shall mean an assisted living facility, dementia care
facility and/or Alzheimer's care facility which is owned by a Borrower, located
within the continental United States and has at least 20 residence units. Such
term includes, without limitation, the Land and the Improvements to be
constructed thereon.
"PROJECT ARCHITECT" shall mean, for any Borrower's Project, the
architect or firm of architects, engaged by such Borrower (or by the Company on
its behalf) for such Project.
"PROJECT PACKAGE" shall have the meaning provided in section 2.2(c).
"PROJECT PROMISSORY NOTES" shall have the meaning provided in the
Joinder Supplements.
"PROJECT SUMMARY & FEASIBILITY REPORT" shall have the meaning provided
in section 2.2(a).
"PROJECT TAKE-OUT AGREEMENT" shall have the meaning provided in section
6.2(e).
"RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C.ss. 6901 ET SEQ.
"REAL PROPERTY" of any person shall mean all of the right, title and
interest of such person in and to land, improvements and fixtures, including
Leaseholds.
"REDEEMABLE STOCK" shall mean with respect to any person which is a
corporation, any capital stock of such corporation, and with respect to any
person which is not a corporation, any equity interests of such person which are
similar to capital stock, in each case that (i) is by its terms subject to
mandatory redemption, in whole or in part, pursuant to a sinking fund, scheduled
redemption or similar provisions, at any time prior to the latest date when any
Loans could mature under section 2.7 hereof; or (ii) otherwise is required to be
repurchased or retired on a scheduled date or dates, upon the occurrence of any
event or circumstance, at the option of the holder or holders thereof, or
otherwise, at any time prior to the latest date when any Loans could mature
under section 2.7 hereof, other than any such repurchase or retirement
occasioned by a "change of control" or similar event.
"REFERENCE BANKS" shall mean (i) KeyBank National Association, so long
as KCCI is the Administrative Agent, and (ii) any other Lender or Lenders
selected as a Reference Bank by the Administrative Agent and the Required
Lenders, PROVIDED that if KCCI is no longer the Administrative
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<PAGE> 20
Agent or any Reference Bank is no longer a Lender, KeyBank National Association
or such other Reference Bank, as the case may be, shall be replaced by such
other Lender or Lenders as may be selected by the Administrative Agent acting on
instructions from the Required Lenders.
"REGULATION D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
"REGULATION U" shall mean Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"REPORTABLE EVENT" shall mean an event described in section 4043 of
ERISA or the regulations thereunder with respect to a Plan, other than those
events as to which the notice requirement is waived under subsections .22, .23,
.25, .27, .28, .30, .31, .32, .34, .35, .63, .64, .65 or .67 of PBGC Regulation
section 4043.
"REQUIRED LENDERS" shall mean Non-Defaulting Lenders whose outstanding
Loans and Unutilized Commitments constitute at least 66+2/3% of the sum of the
total outstanding Loans and Unutilized Commitments of Non-Defaulting Lenders
(PROVIDED that, for purposes hereof, neither the Company, nor any of its
Affiliates, shall be included in (i) the Lenders holding such amount of the
Loans or having such amount of the Unutilized Commitments, or (ii) determining
the aggregate unpaid principal amount of the Loans or Unutilized Commitments).
"REQUIRED TRANCHE A LENDERS" shall mean Non-Defaulting Lenders whose
outstanding Tranche A Loans and Unutilized Tranche A Commitments constitute at
least 66+2/3% of the sum of the total outstanding Tranche A Loans and Unutilized
Tranche A Commitments of Non-Defaulting Lenders (PROVIDED that, for purposes
hereof, neither the Company, nor any of its Affiliates, shall be included in (i)
the Lenders holding such amount of the Tranche A Loans or having such amount of
the Unutilized Tranche A Commitments, or (ii) determining the aggregate unpaid
principal amount of the Tranche A Loans or Unutilized Tranche A Commitments).
"REQUIRED TRANCHE B LENDERS" shall mean Non-Defaulting Lenders whose
outstanding Tranche B Loans and Unutilized Tranche B Commitments constitute at
least 66+2/3% of the sum of the total outstanding Tranche B Loans and Unutilized
Tranche B Commitments of Non-Defaulting Lenders (PROVIDED that, for purposes
hereof, neither the Company, nor any of its Affiliates, shall be included in (i)
the Lenders holding such amount of the Tranche B Loans or having such amount of
the Unutilized Tranche B Commitments, or (ii) determining the aggregate unpaid
principal amount of the Tranche B Loans or Unutilized Tranche B Commitments).
"RESERVED PORTION OF THE TOTAL TRANCHE A COMMITMENT" shall mean the
amount, determined by the Administrative Agent from time to time and notified in
writing to the Company and the Lenders with Tranche A Commitments, as being
equal to the anticipated maximum aggregate principal amount of Tranche A Loans
thereafter to be made to all Borrowers to finance Projects then being financed
hereunder.
"RESERVED PORTION OF THE TOTAL TRANCHE B COMMITMENT" shall mean the
amount, determined by the Administrative Agent from time to time and notified in
writing to the Company and the Lenders with Tranche B Commitments, as being
equal to the anticipated maximum aggregate principal amount of Tranche B Loans
thereafter to be made to all Borrowers to finance Projects then being financed
hereunder.
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<PAGE> 21
"RETAINAGE AMOUNT" shall have the meaning provided in section 2.3(e).
"ROLL UP REPORT" shall have the meaning provided in section 2.3(b).
"SALE AND LEASE-BACK TRANSACTION" shall mean any arrangement with any
person providing for the leasing by the Company or any Subsidiary of the Company
of any property (except for temporary leases for a term, including any renewal
thereof, of not more than one year and except for leases between the Company and
a Subsidiary or between Subsidiaries), which property has been or is to be sold
or transferred by the Company or such Subsidiary to such person.
"S&P" shall mean Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., and its successors.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC REGULATION D" shall mean Regulation D as promulgated under the
Securities Act of 1933, as amended, as the same may be in effect from time to
time.
"SECTION 5.4(B)(II) CERTIFICATE" shall have the meaning provided in
section 5.4(b)(ii).
"SECURITY DOCUMENTS" shall mean each document pursuant to which any
Lien or security interest is granted by any Credit Party to the Collateral Agent
as security for any of the Obligations.
"STANDARD PERMITTED LIENS" shall mean:
(i) Liens for taxes not yet delinquent or Liens for taxes
being contested in good faith and by appropriate proceedings for which
adequate reserves (in the good faith judgment of the management of the
Company) have been established;
(ii) Liens in respect of property or assets imposed by law
which were incurred in the ordinary course of business, such as
carriers', warehousemen's, materialmen's and mechanics' Liens and other
similar Liens arising in the ordinary course of business, which do not
in the aggregate materially detract from the value of such property or
assets or materially impair the use thereof in the operation of the
business of the Company or any Subsidiary;
(iii) Liens created by this Agreement or the other Credit
Documents;
(iv) Liens (A) in existence on the Effective Date which
secure Indebtedness permitted by section 9.4(b), or (B) arising out of
the refinancing, extension, renewal or refunding of any such
Indebtedness, PROVIDED that the principal amount of such Indebtedness
is not increased and such Indebtedness is not secured by any additional
assets;
(v) Liens arising from judgments, decrees or attachments
in circumstances not constituting an Event of Default under section
10.1(g);
(vi) Liens (other than any Lien imposed by ERISA) incurred
or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; and mechanic's Liens, carrier's Liens, and other Liens to
secure the performance of tenders, statutory obligations, contract
bids, government contracts, performance and return-of-money bonds and
other similar obligations, incurred in the ordinary course of business
(exclusive of obligations in respect of the payment for borrowed
money), whether pursuant to statutory requirements, common law or
consensual arrangements;
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<PAGE> 22
(vii) Leases or subleases granted to others not interfering
in any material respect with the business of the Company or any of its
Subsidiaries and any interest or title of a lessor under any lease not
in violation of this Agreement;
(viii) easements, rights-of-way, zoning or deed
restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect
with the ordinary conduct of the business of the Company or any of its
Subsidiaries considered as an entirety;
(ix) Liens arising from financing statements regarding
property subject to leases not in violation of the requirements of this
Agreement, PROVIDED that such Liens are only in respect of the property
subject to, and secure only, the respective lease (and any other lease
with the same or an affiliated lessor); and
(x) any Lien specifically permitted by the terms of any
Security Document.
"SUBORDINATED INDEBTEDNESS" shall mean
(i) the Company's $143,750,000 aggregate original
principal amount of 5.25% convertible subordinated debentures due
December 15, 2002;
(ii) the Company's $50,000,000 aggregate original
principal amount of 7.00% convertible subordinated debentures due June
1, 2004;
(iii) the Company's $35,000,000 aggregate original
principal amount of 6.75% convertible subordinated debentures due June
30, 2006;
(iv) any other Indebtedness which (x) matures on a date
later than the latest maturity date of any Loans which could be made
hereunder (assuming exercise of the extension options provided in
sections 2.7(a) and (b)), (y) does not provide for a sinking fund or
mandatory prepayment on any specified date or dates prior to such
latest maturity date, and (z) is subject to subordination provisions no
less favorable to the Lenders than those contained in any of the
indentures related to the Subordinated Indebtedness described in the
foregoing clauses (i), (ii) and (iii); and
(v) any other Indebtedness which has been subordinated to
the Obligations in such manner and to such extent as the Administrative
Agent (acting on instructions from the Required Lenders) may require.
"SUBSIDIARY" of any person shall mean and include (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of the Company.
"SUPPLEMENTAL PERMANENT CREDIT AGREEMENT" shall mean a credit agreement
between a Supplemental Permanent Lender and the Company and/or the Borrowers
providing for at least $50,000,000 of permanent loans to the Borrowers on terms
reasonably acceptable to the Required Lenders
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<PAGE> 23
"SUPPLEMENTAL PERMANENT LENDER" shall mean a financial institution
whose credit quality is acceptable to all of the Lenders with Tranche B
Commitments (other than a Defaulting Lender), acting in their reasonable
discretion.
"SUPPLEMENTAL PROJECT PACKAGE" shall have the meaning provided in
section 2.2(d).
"SUPPLEMENTAL RESERVE PLEDGE AGREEMENT" shall have the meaning provided
in section 6.1(c).
"TAXES" shall have the meaning provided in section 5.4.
"TESTING PERIOD" shall mean for any determination a single period
consisting of the four consecutive fiscal quarters of the Company then last
ended (whether or not such quarters are all within the same fiscal year), EXCEPT
that if a particular provision of this Agreement indicates that a Testing Period
shall be of a different specified duration, such Testing Period shall consist of
the particular fiscal quarter or quarters of the Company then last ended
(whether or not such quarters are all within the same fiscal year) which are so
indicated in such provision.
"TITLE COMPANY" shall have the meaning provided in section 6.2(n).
"TITLE POLICY" shall have the meaning provided in section 6.2(n).
"TOTAL COMMITMENT" shall mean the sum of the Total Tranche A Commitment
and the Total Tranche B Commitment.
"TOTAL TRANCHE A COMMITMENT" shall mean the sum of the Tranche A
Commitments of the Lenders.
"TOTAL TRANCHE B COMMITMENT" shall mean the sum of the Tranche B
Commitments of the Lenders.
"TRANCHE A COMMITMENT" shall mean, with respect to each Lender, the
amount, if any, set forth opposite such Lender's name in Annex I as its "Tranche
A Commitment" as the same may be reduced from time to time pursuant to section
4.1, 4.2 and/or 10.2 or adjusted from time to time as a result of assignments to
or from such Lender pursuant to section 13.4.
"TRANCHE A COMMITMENT PERIOD TERMINATION DATE" shall mean the date
which is the 18th monthly anniversary of the date hereof, unless earlier
terminated, or extended in accordance with section 4.3.
"TRANCHE A FACILITY" means the credit facility evidenced by the Total
Tranche A Commitment.
"TRANCHE A LOAN" shall have the meaning provided in section 2.1.
"TRANCHE A PERCENTAGE" shall mean at any time for any Lender with a
Tranche A Commitment, the percentage obtained by dividing such Lender's Tranche
A Commitment by the Total Tranche A Commitment, PROVIDED, that if the Total
Tranche A Commitment has been terminated, the Tranche A Percentage for each
Lender with a Tranche A Commitment shall be determined by dividing such Lender's
Tranche A Commitment immediately prior to such termination by the Total Tranche
A Commitment immediately prior to such termination.
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"TRANCHE B ACTIVATION DATE" shall mean the date, if any, after the
Effective Date, on which the following conditions shall be satisfied:
(i) no Default under section 10.1(a) or Event of Default
shall have occurred and be continuing;
(ii) no Change of Control shall have occurred;
(iii) the Total Tranche A Commitment shall not have been
terminated;
(iv) the Permanent Lender shall have increased the
principal amount of its commitment under the Permanent Credit Agreement
from $150,000,000 to at least $200,000,000 in a manner satisfactory to
the Required Tranche B Lenders, or a Supplemental Permanent Lender
shall have entered into a definitive Supplemental Permanent Credit
Agreement satisfactory to the Required Tranche B Lenders;
(v) the Company shall have paid to the Administrative
Agent the activation fee in the amount previously agreed with the
Administrative Agent, out of which activation fee the Administrative
Agent shall have distributed to the other Lenders with Tranche B
Commitments, an activation fee in the amount previously agreed with the
Administrative Agent; and
(vi) the Administrative Agent shall have notified the
Company and the Lenders in writing that such conditions have been
satisfied and of the specific Tranche B Activation Date.
"TRANCHE B COMMITMENT" shall mean, with respect to each Lender, the
amount, if any, set forth opposite such Lender's name in Annex I as its "Tranche
B Commitment" as the same may be reduced from time to time pursuant to section
4.1, 4.2 and/or 10.2 or adjusted from time to time as a result of assignments to
or from such Lender pursuant to section 13.4.
"TRANCHE B COMMITMENT PERIOD TERMINATION DATE" shall mean the date
which is 364 days from the date hereof, unless earlier terminated, or extended
in accordance with section 4.3.
"TRANCHE B FACILITY" means the credit facility evidenced by the Total
Tranche B Commitment.
"TRANCHE B LOAN" shall have the meaning provided in section 2.1.
"TRANCHE B PERCENTAGE" shall mean at any time for any Lender with a
Tranche B Commitment, the percentage obtained by dividing such Lender's Tranche
B Commitment by the Total Tranche B Commitment, PROVIDED, that if the Total
Tranche B Commitment has been terminated, the Tranche B Percentage for each
Lender with a Tranche B Commitment shall be determined by dividing such Lender's
Tranche B Commitment immediately prior to such termination by the Total Tranche
B Commitment immediately prior to such termination.
"TYPE" shall mean any type of Loan determined with respect to the
interest option applicable thereto, I.E., a Prime Rate Loan or Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code.
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"UNFUNDED CURRENT LIABILITY" of any Plan shall mean the amount, if any,
by which the actuarial present value of the accumulated plan benefits under the
Plan as of the close of its most recent plan year exceeds the fair market value
of the assets allocable thereto, each determined in accordance with Statement of
Financial Accounting Standards No. 87, based upon the actuarial assumptions used
by the Plan's actuary in the most recent annual valuation of the Plan.
"UNITED STATES" and "U.S." each means United States of America.
"UNUTILIZED COMMITMENT" shall mean an Unutilized Tranche A Commitment
or an Unutilized Tranche B Commitment, or both, as applicable.
"UNUTILIZED TRANCHE A COMMITMENT" for any Lender with a Tranche A
Commitment at any time shall mean the excess of (i) such Lender's Tranche A
Commitment at such time over (ii) the aggregate principal amount of Tranche A
Loans made by such Lender and outstanding at such time.
"UNUTILIZED TRANCHE B COMMITMENT" for any Lender with a Tranche B
Commitment at any time shall mean the excess of (i) such Lender's Tranche B
Commitment at such time over (ii) the aggregate principal amount of Tranche B
Loans made by such Lender and outstanding at such time.
"UNUTILIZED TOTAL COMMITMENT" shall mean, at any time, the excess of
(i) the Total Commitment at such time over (ii) the aggregate principal amount
of all Loans outstanding at such time.
"UNUTILIZED TOTAL TRANCHE A COMMITMENT" shall mean, at any time, the
excess of (i) the Total Tranche A Commitment at such time over (ii) the
aggregate principal amount of all Tranche A Loans outstanding at such time.
"UNUTILIZED TOTAL TRANCHE B COMMITMENT" shall mean, at any time, the
excess of (i) the Total Tranche B Commitment at such time over (ii) the
aggregate principal amount of all Tranche B Loans outstanding at such time.
"WHOLLY-OWNED SUBSIDIARY" shall mean each Subsidiary of the Company all
of whose capital stock of every class (or other equity interests) are owned
directly or indirectly by the Company.
"WRITTEN", "WRITTEN" or "IN WRITING" shall mean any form of written
communication or a communication by means of telex, facsimile transmission,
telegraph or cable.
1.2. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".
1.3. ACCOUNTING TERMS. Except as otherwise specifically provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time; PROVIDED that, if the
Company notifies the Administrative Agent that the Company requests an amendment
to any provision of section 8 or 9 hereof to eliminate the effect of any change
occurring after the Effective Date in GAAP or in the application thereof to such
provision (or if the Administrative Agent notifies the Company that the Required
Lenders request an amendment to any such provision hereof for such purposes),
regardless of whether any such notice is given before or after such change in
GAAP or in the application thereof, then such provision shall be interpreted on
the basis of GAAP as in effect and applied immediately before such change shall
have become effective until such notice shall have been withdrawn or such
provision amended in accordance with the requirements of this Agreement.
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1.4. TERMS GENERALLY. The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise, (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any person shall be construed to include such person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to sections, Annexes
and Exhibits shall be construed to refer to sections of, and Annexes and
Exhibits to, this Agreement, and (e) the words "asset" and "property" shall be
construed to have the same meaning and effect and to refer to any and all real
property, tangible and intangible assets and properties, including cash,
securities, accounts and contract rights, and interests in any of the foregoing.
SECTION 2. AMOUNT AND TERMS OF LOANS.
2.1. COMMITMENTS FOR LOANS; COMPANY TO ACT ON BEHALF OF ALL
BORROWERS; MINIMUM BORROWING AMOUNTS, ETC. (a) Subject to and upon the terms and
conditions set forth in this Agreement, each Lender severally agrees to make
loans (each a "LOAN" and, collectively, the "LOANS") to each Subsidiary or
Affiliate of the Company which becomes a Borrower hereunder, to finance one or
more Projects of any such Borrower which are qualified hereunder in accordance
with section 2.2, which Loans shall be drawn, to the extent such Lender has a
Commitment under a Facility, under the applicable Facility, as follows:
(i) TRANCHE A FACILITY. Loans to the Borrowers under the
Tranche A Facility (each a "TRANCHE A LOAN" and, collectively for any
Borrower and/or all Borrowers, the "TRANCHE A LOANS") (A) may be made
at any time and from time to time on and after the Effective Date; and
(B) shall not exceed for any Lender with a Tranche A Commitment at any
time outstanding the Tranche A Commitment of such Lender at such time.
(ii) TRANCHE B FACILITY. Loans to the Borrowers under the
Tranche B Facility (each a "TRANCHE B LOAN" and, collectively for any
Borrower and/or all Borrowers, the "TRANCHE B LOANS") (A) may be made
at any time and from time to time on and after the Tranche B Activation
Date; and (B) shall not exceed for any Lender with a Tranche B
Commitment at any time outstanding the Tranche B Commitment of such
Lender at such time.
A Borrower may obtain Loans to finance a particular Project only under a single
Facility, and not under both the Tranche A Facility and the Tranche B Facility.
(b) Notwithstanding anything to the contrary contained in this
Agreement or any other Credit Document:
(A) Loans shall be made and denominated only in United
States Dollars;
(B) the aggregate principal amount of Loans made to any
Borrower to finance any particular Project shall not exceed
$15,000,000;
(C) the aggregate principal amount of Loans made to any
Borrower to finance a particular Project of such Borrower shall not
exceed the lowest of the following:
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(1) 90% of the aggregate budgeted costs and
expenses of the acquisition and construction of such Project
and operation thereof for a period of 12 complete calendar
months following completion and issuance of a Certificate of
Occupancy with respect thereto, including "soft costs", as
reflected in the Project Summary & Feasibility Report for such
Project (including any amendments thereto or modifications
thereof), which has been approved by the Administrative Agent
and the Required Lenders,
(2) 90% of the aggregate amount of such costs
and expenses which are actually incurred,
(3) 80% of the Appraised Stabilized Value of
such Project, and
(4) the maximum amount of loans to be made by
the Permanent Lender or Supplemental Permanent Lender, as
applicable, for such Project, pursuant to its Project
Commitment referred to in the Project Take-Out Agreement
related to such Project;
(D) no Loans may be incurred by a Borrower to finance a
particular Project of such Borrower after the maturity date of the
Loans of such Borrower for such Project, as established or extended
pursuant to section 2.7 hereof;
(E) no Loans may be incurred by a Borrower for a Project
(1) under the Tranche A Facility after the Tranche A Commitment Period
Termination Date, UNLESS the initial Borrowing by such Borrower for
such Project has occurred prior thereto; or (2) under the Tranche B
Facility after the Tranche B Commitment Period Termination Date, UNLESS
the initial Borrowing by such Borrower for such Project has occurred
prior thereto;
(F) no Loans may be incurred under a Facility after the
Commitments in respect of such Facility have been terminated in
accordance with section 4 or section 10.2;
(G) if at the time any Loans are to be made to a Borrower
to finance a Project, the Administrative Agent determines, in its
discretion, that (x) the amount required to pay all costs and expenses
which the Administrative Agent reasonably estimates remain to be
incurred and/or paid in connection with the construction and completion
of such Project and the operation thereof for a period of 12 complete
calendar months after a Certificate of Occupancy is issued with respect
thereto, EXCEEDS (y) the remaining Reserved Portion of the Total
Tranche A Commitment (or the Reserved Portion of the Total Tranche B
Commitment, as applicable) allocated by the Administrative Agent for
such Project, THEN no additional Loans shall be made to such Borrower
for such Project, UNLESS (1) the Company shall have made a cash equity
contribution to such Borrower in an amount at least equal to such
excess, (2) such cash shall have been applied to pay costs and expenses
incident to construction, completion and operation of such Project
prior to the time any additional Loans are made to such Borrower to
finance such Project, and (3) the Administrative Agent shall have been
provided with evidence, satisfactory to it, that such cash amount has
been so contributed and applied;
(H) if at the time any Loans are to be made to a
Borrower, the Administrative Agent determines, in its discretion, that
(x) the amount required to pay all costs and expenses which the
Administrative Agent reasonably estimates remain to be incurred and/or
paid in connection with the construction and completion, and operation
for a period of 12 complete calendar months after a Certificate of
Occupancy is issued with respect thereto, of such Project and all other
Projects of all of the Borrowers, EXCEEDS (y) the remaining aggregate
of the Reserved Portion of the Total Tranche A Commitment and the
Reserved Portion of the Total Tranche B Commitment, which
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has been allocated by the Administrative Agent for such Projects, THEN
no additional Loans shall be made to any particular Borrower or
Borrowers as the Administrative Agent may designate in its discretion,
taking into account the relative stage of completion of the various
Projects and the Unutilized Total Tranche A Commitment and the
Unutilized Total Tranche B Commitment then in effect, with a view
towards maximizing the use of proceeds of Loans to achieve completion
and operation for a period of 12 complete calendar months after
Certificates of Occupancy are issued, of as many Projects as possible
(or those Projects with the best economic prospects), UNLESS (1) the
Company shall have made cash equity contributions to such Borrowers as
the Administrative Agent may designate in an amount at least equal to
such excess, (2) such cash shall have been applied to pay costs and
expenses incident to construction, completion and operation of their
Projects prior to the time any additional Loans are made to any such
Borrower or Borrowers, and (3) the Administrative Agent shall have been
provided with evidence, satisfactory to it, that such cash amount has
been so contributed and applied;
(I) except as otherwise provided, all Loans made to all
Borrowers pursuant to a Borrowing under a Facility may, at the option
of the Company (acting on behalf of all applicable Borrowers), be
incurred and maintained as, or converted into, Loans which are Prime
Rate Loans or Eurodollar Loans, PROVIDED that all Loans made by all
Borrowers as part of the same Borrowing by such Borrowers under a
single Facility shall, unless otherwise specifically provided herein,
consist of Loans of the same Type; and
(J) once prepaid or repaid, or purchased or otherwise
refinanced pursuant to a Project Take-Out Agreement, Loans may not be
reborrowed by the same or any other Borrower.
The Administrative Agent may determine from time to time, in the exercise of its
reasonable discretion, upon the basis of the above provisions, the Project
Summary & Feasibility Reports provided for the Projects being financed
hereunder, and such other information as it considers relevant and reliable, (x)
the Reserved Portion of the Total Tranche A Commitment, (y) the Reserved Portion
of the Total Tranche B Commitment, and (z) whether any portion of the Unutilized
Total Tranche A Commitment or the Unutilized Total Tranche B Commitment remains
available for lending by the Lenders for any additional Projects hereunder. The
Administrative Agent shall advise the Lenders and the Company of any such
determination. Such determinations shall be final and conclusive as to the
matters so determined.
(c) Each Borrower hereby irrevocably authorizes the Company to
give all notices, make all elections and otherwise take all actions on its
behalf under the provisions of this Agreement and the other Credit Documents as
fully as if such Borrower had itself done the same, with all such notices,
elections and other actions by the Company which purport to be on behalf of any
Borrower being sufficient, without any further action or authorization by such
Borrower or any other Borrowers, to bind such Borrower and all other Borrowers.
All actions of the Company taken in connection with the Credit Documents which
purport to be on behalf of one or more of the Borrowers, whether so expressed or
not, shall be deemed to be on behalf of, and shall bind, all Borrowers, unless
in taking any such particular action the Company expressly indicates in writing
that such action is intended to bind only a particular specified Borrower or
Borrowers, in which case such action shall be deemed to be on behalf of, and
shall bind, only those Borrowers so specified. The Company shall have
responsibility for general cash management matters of all Borrowers, including
the making of Borrowings, the making of all payments with respect thereto, and
the disbursement and allocation of portions of the proceeds of Loans among the
Borrowers.
(d) The Company will coordinate Borrowings by the Borrowers of
additional Loans so that, unless the Required Lenders otherwise agree, all
Borrowings by the Borrowers of additional Loans during a calendar month shall be
made on the same day, and except for Borrowings of additional Loans made to pay
interest or Fees hereunder, there shall not be more than one day during a
calendar month on which there are any Borrowings of additional Loans made
hereunder. The aggregate principal amount of all
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Borrowings by all Borrowers on any date under a Facility shall not be less than
the Minimum Borrowing Amount, UNLESS the proceeds of such Borrowings are to be
used solely to pay accrued interest and/or Fees hereunder. More than one
Borrowing may be incurred by the same or different Borrowers on any day,
PROVIDED that if there are two or more Borrowings on a single day by the same or
different Borrowers under the same Facility which consist of Eurodollar Loans,
each such Borrowing shall have a different initial Interest Period. At no time
shall there be more than 4 Borrowings of Eurodollar Loans outstanding under any
Facility for all Borrowers with Borrowings under such Facility.
(e) All Borrowings from the Lenders under a Facility shall be made
by the Lenders PRO RATA on the basis of their respective Commitments under such
Facility. It is understood that no Lender shall be responsible for any default
by any other Lender in its obligation to make Loans hereunder and that each
Lender shall be obligated to make the Loans provided to be made by it hereunder,
regardless of the failure of any other Lender to fulfill its Commitment
hereunder.
(f) The Company will confirm in writing to the Administrative
Agent from time to time upon request (i the date and principal amount of each
Loan incurred by each Borrower hereunder, (ii) the particular Project to which
such Loan relates, and (iii) the Facility under which such Loan is incurred.
2.2. PROJECT QUALIFICATION; APPROVAL OF PROJECT PACKAGES BY
REQUIRED LENDERS, ETC.
(a) CONDITIONS TO PROJECT QUALIFICATION. Prior to any Subsidiary
or Affiliate of the Company becoming a Borrower hereunder and obtaining any
financing hereunder for a Project, the Project which the Company proposes such
Borrower will finance hereunder shall be subject to qualification hereunder.
While it is anticipated that the financing hereunder of most of the Projects
will be commenced prior to the start of construction of any such Project, under
appropriate circumstances some of such Projects may be qualified and financed
hereunder after construction has begun, in which case, subject to the approval
of the Required Lenders, appropriate modifications may be made to any of the
Credit Documents to which the applicable Borrower is a party with respect to the
financing of such a Project, and to the qualification and other conditions and
requirements of this Agreement relating thereto, to take into account the fact
that such construction has already commenced.
Qualification of a Project hereunder will occur only if no Default
under section 10.1(a) or Event of Default shall have occurred and be continuing
and the following further conditions shall be satisfied (as such conditions may
be modified, as provided above, with the approval of the Required Lenders, in
the case of any Project the construction of which has already commenced):
(i) MASTER PLANS AND SPECIFICATIONS, FOR STANDARD
PROJECTS ALREADY APPROVED, ETC. The Company has previously submitted to
the Lenders and the Administrative Agent Master Plans and
Specifications covering the approximately 8 different types of project
improvements typically constructed by its Subsidiaries and Affiliates.
Such Master Plans and Specifications have been approved by an
Inspecting Consultant and are acceptable to the Administrative Agent
and the Lenders.
(ii) DELIVERY AND APPROVAL OF SPECIFIC PLANS AND
SPECIFICATIONS FOR NON-STANDARD PROJECTS, ETC. If the Improvements for
a particular Project which the Company proposes be financed hereunder
are not one of the types of project improvements covered by the Master
Plans and Specifications, or involve any material design or
construction deviations (e.g., siding, roofing, foundation, unit mix,
etc., exclusive of adaptions to meet local building codes or other
requirements) from the Master Plans and Specifications which are
anticipated for such proposed Project,
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(A) the Company shall have submitted to the
Administrative Agent and the Inspecting Consultant (1) copies
of either (x) the proposed Plans and Specifications for the
Improvements on such specific Project, or (y) an
identification of the particular Master Plans and
Specifications which will be used for such specific Project,
and a reasonably detailed description of the material
deviations, if any, from such Master Plans and Specifications
which will be involved for such Project, in either case which
shall be satisfactory to the Administrative Agent and the
Inspecting Consultant, in their reasonable discretion,
together with (2) evidence satisfactory to the Administrative
Agent that such Plans and Specifications (or the Master Plans
and Specifications with such material deviations) have been
approved by (or will in the normal course of business, without
undue difficulty, be approved by) all Governmental Authorities
in accordance with all applicable Legal Requirements, and
(B) the Administrative Agent shall have received
from the Inspecting Consultant a favorable report with respect
to such Plans and Specifications or such deviations from the
Master Plans and Specifications, as the case may be, and such
report shall be satisfactory in all respects to the Required
Lenders, in their reasonable discretion.
(iii) ALS PROJECT SUMMARY & FEASIBILITY REPORT. The Company
shall have submitted to the Lenders and the Administrative Agent a
written report (a "PROJECT SUMMARY & FEASIBILITY REPORT"), prepared by
the Company in a standardized format acceptable to the Administrative
Agent, concerning the proposed Project, (A) describing such proposed
Project in reasonable detail, (B) indicating whether or not such
Project is one of the types of projects covered by the Master Plans and
Specifications, and if such Project involves any material deviations
from the Master Plans and Specifications, describing such deviations in
reasonable detail, (C) containing a detailed construction cost estimate
and a 2-year estimated cash flow analysis (or such longer period as is
necessary to include at least 12 complete calendar months of commercial
operation following achievement of lease-up to approximately 95% of
maximum occupancy), and (D) containing other cost, feasibility,
demographic, and competition, absorption and other marketing
information and analysis (including vacancies and rates of any existing
competing facilities), with respect to such Project; and all such
materials shall be satisfactory in all respects to the Required
Lenders, in their reasonable discretion.
(iv) ENGINEERING REPORT. At the Company's or any
applicable Borrower's expense, there shall have been submitted to the
Lenders and the Administrative Agent a written report (an "ENGINEERING
REPORT") prepared by the Inspecting Consultant concerning the
construction of the Improvements for such Project at a total cost not
to exceed the cost estimate contained in the Project Summary &
Feasibility Report, and covering any material deviations from the
Master Plans and Specifications; and such Engineering Report shall be
satisfactory in all respects to the Required Lenders, in their
reasonable discretion.
(v) ENVIRONMENTAL REPORT. The Company shall, at its or
any applicable Borrower's expense, have caused to be delivered to the
Lenders and the Collateral Agent a "Phase I" (or if required by any
Lender or the Collateral Agent, a "Phase II") environmental report (an
"ENVIRONMENTAL REPORT"), satisfactory in form and substance to the
Required Lenders and the Collateral Agent, dated as of a recent date
and addressed to the Lenders and the Collateral Agent or accompanied by
separate letter indicating that the Collateral Agent and the Lenders
may rely thereon, from a nationally recognized environmental consultant
acceptable to the Required Lenders and the Collateral Agent, covering
the Real Property associated with such Project and the operations and
activities to be conducted thereon, and including the opinion of such
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consultant to the effect that (A) such Real Property is currently in
compliance with Environmental Laws, (B) there are no known or
reasonably foreseeable risks of liability for costs or expenses of
remediation, or for liability to others, under or in connection with
any Environmental Laws, for any pre-existing conditions or events
associated with such Real Property, or if any such risks are identified
by such consultant in its Environmental Report, they are, as to amount
and degree of risk, acceptable to the Required Lenders, (C)
construction and operation of the proposed Project thereon, as proposed
by the Company, does not appear to involve any unusual risks of
liability for violations of Environmental Laws, and (D) such consultant
does not recommend any further investigation or study of such Real
Property with respect to environmental matters which may be associated
therewith.
(vi) APPRAISAL. At the Company's or any applicable
Borrower's expense, the Administrative Agent shall have commissioned,
and there shall have been delivered to the Lenders and the Collateral
Agent, a written appraisal report (an "APPRAISAL REPORT") establishing
(x) the estimated fair market value of the Land and Improvements
included in the Project, and (y) the estimated Appraised Stabilized
Value of the Project, satisfactory in form and substance to all of the
Lenders and the Collateral Agent, dated as of a recent date (and in any
event within 6 months) and addressed to the Lenders and the Collateral
Agent or accompanied by separate letter indicating that the Collateral
Agent and the Lenders may rely thereon, from a nationally recognized
appraisal firm which is a Member of the American Institute of Real
Estate Appraisers (or has a corresponding professional designation) and
is acceptable to the Required Lenders and the Collateral Agent. Such
appraisal report shall be prepared in accordance with the Uniform
Standards of Professional Appraisal Practice applicable to Federally
Related Transactions as set out in Appendix A to the real estate
appraisal regulations adopted by the Office of the Comptroller of the
Currency pursuant to the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") (Sub-part C of 12 C.F.R. 34) and
shall also be prepared in response to an engagement letter to be issued
by the Administrative Agent or the Collateral Agent.
(vii) QUALIFICATION FOR INCLUSION UNDER A PROJECT TAKE-OUT
AGREEMENT. Copies of the documentation referred to above shall have
been provided by the Company to the Permanent Lender or the
Supplemental Permanent Lender, as applicable, and the Permanent Lender
or the Supplemental Permanent Lender, as applicable, shall have
delivered to the Administrative Agent a letter, substantially in the
form attached as Exhibit I hereto, pursuant to which the Permanent
Lender or the Supplemental Permanent Lender, as applicable, shall have
indicated on a preliminary basis that such documentation is
satisfactory to it, and there shall be no reason to believe that the
Permanent Lender or the Supplemental Permanent Lender, as applicable,
will not execute a Project Take-Out Agreement with respect to such
Project as contemplated by section 6.2(e).
(viii) SUFFICIENT UNUTILIZED COMMITMENTS. The Administrative
Agent shall have determined, in its reasonable discretion, that the
aggregate principal amount of Loans to be made under a Facility
hereunder to finance such Project through construction, completion and
full commercial operation for a period of at least 12 full calendar
months, together with the aggregate principal amount of Loans
thereafter to be made under the same Facility to finance all other
Projects of all other Borrowers through construction, completion and
full commercial operation for a period of at least 12 full calendar
months, will not exceed the Unutilized Total Tranche A Commitment or
the Unutilized Total Tranche B Commitment, as applicable, in effect at
such time.
(ix) NO CHANGE OF CONTROL. No Change of Control shall have
occurred, unless all of the Lenders (other than any Defaulting Lender)
shall have waived this condition in writing.
The Administrative Agent will notify the Company and the Lenders whenever a
Project becomes a qualified Project eligible for financing hereunder.
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(b) COMPANY TO SUPPLY DOCUMENTATION IN ANTICIPATION OF
QUALIFICATION OF A PROJECT AND INITIAL BORROWING FOR SUCH PROJECT. The Company
will, or will cause the applicable Borrower to, deliver to the Administrative
Agent, the information and documentation referred to in clauses (ii) through
(vi) of section 2.2(a) to be provided by or on behalf of a Borrower sufficiently
in advance of the dates that the Company desires a particular Project to be
qualified hereunder and for a Borrower to incur Loans hereunder to finance such
Project, in order that the Administrative Agent may distribute a Project Package
and any Supplemental Project Package to the Lenders, and the Lenders may respond
thereto, as contemplated hereby, on a timely basis.
(c) SUBMISSION OF PROJECT PACKAGES TO LENDERS. Promptly after the
Administrative Agent receives for a proposed Project all of the applicable items
specified in clauses (ii)(B), (iii), (iv), (v) and (vi) of section 2.2(a),
namely,
(1) the report of the Inspecting Consultant referred to
in clause (ii)(B) of section 2.2(a), if such Project is not a standard
type of Project which is covered by the Master Plans and
Specifications, or there are material deviations from the Master Plans
and Specifications,
(2) the Project Summary & Feasibility Report,
(3) the Engineering Report,
(4) the Environmental Report, and
(5) the Appraisal Report,
which are in form and substance satisfactory to it, the Administrative Agent
will assemble and furnish to the Lenders a package (a "PROJECT PACKAGE")
consisting of copies of such items. Each Lender shall advise the Administrative
Agent in writing within 10 Business Days after its receipt of a Project Package
whether it approves or disapproves of the items included in the Project Package.
Any such approval or disapproval shall be communicated by a letter or other
communication substantially in the form attached as Exhibit J hereto. Failure of
a Lender to so communicate its approval or disapproval within such time period
shall be deemed an approval of all such items by such Lender.
(d) SUBMISSION OF ADDITIONAL PROJECT MATERIALS AND CERTAIN
PROPOSED CLOSING DOCUMENTS TO LENDERS. Promptly after the Administrative Agent
shall have received for a Project copies of any of the items referred to in
section 6.2 hereof as to which the approval of the Required Lenders is required,
or any other proposed closing documents referred to in section 6.2 hereof which
contain any material variations from the documentation contemplated by section
6.2, in each case which are in form and substance satisfactory to it, the
Administrative Agent will assemble and furnish to the Lenders a package (a
"SUPPLEMENTAL PROJECT PACKAGE") consisting of copies of such item or items. Each
Lender shall advise the Administrative Agent in writing within 10 Business Days
after its receipt of a Supplemental Project Package whether it approves or
disapproves of the item or items included in the Supplemental Project Package.
Any such approval or disapproval shall be communicated by a letter or other
communication substantially in the form attached as Exhibit J hereto. Failure of
a Lender to so communicate its approval or disapproval within such time period
shall be deemed an approval of all such items by such Lender.
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2.3. DRAW REQUESTS AND PROCEDURES. Subject to the terms and
conditions hereof, a Borrower may obtain proceeds of Loans made to it hereunder,
from time to time, only for payment of construction costs of the Improvements to
such Borrower's Project, as such construction occurs, for payment of other costs
incurred as contemplated by the Project Summary & Feasibility Report, and for
interest and other amounts payable by such Borrower hereunder and under the
other Credit Documents to which such Borrower is a party. The Company and any
applicable Borrower will comply with the following procedures and requirements
in connection with any Notice of Borrowing relating to Loans to be used as
contemplated hereby:
(a) Draw Requests shall be submitted by the Company, on
behalf of all Borrowers, to the Administrative Agent not more
frequently than monthly, and on a single day, as opposed to one or more
Draw Requests being submitted over the course of several days during a
month, EXCEPT that, notwithstanding the foregoing, a Draw Request and
related Notice of Borrowing of Loans shall be deemed to have been
submitted on behalf of any Borrower, resulting in the incurrence of
Loans which are Prime Rate Loans (unless the Company shall have made
arrangements with the Administrative Agent for such Loans to be
Eurodollar Loans and for the initial Interest Period for such
Eurodollar Loans), at such times and in such amounts as are necessary
to pay interest on the Loans of such Borrower and any other amounts
payable by such Borrower under the Credit Documents. .
(b) At least 10 Business Days before the date on which
the Company (on behalf of the applicable Borrowers) desires
disbursements to the Borrowers of Loan proceeds, the Company (on behalf
of all Borrowers) shall submit to the Administrative Agent (i) a series
of Draw Requests, one for each Project, (ii) a monthly progress report
for each Project, and (iii) a consolidating "roll up" report (a "ROLL
UP REPORT") for all Projects, substantially in the form attached hereto
as Exhibit B-3, containing, among other things, Project progress and
costs versus the budget amounts reflected in the Project Summary &
Feasibility Report for each Project covered by the Roll Up Report.
(c) Any requisition for disbursement of Loan proceeds (a
"DRAW REQUEST") using (x) as to "hard costs", AIA Form G702 , or such
other standardized forms or formats for information typically used by
the Company as shall be reasonably acceptable to the Administrative
Agent, accompanied by a cost breakdown, the accuracy of which shall be
certified by the Company on behalf of such Borrower, and (y) as to
"soft costs", a standardized request form, containing such information
and/or documentation, certified by the Company on behalf of the
applicable Borrower, as the Administrative Agent may reasonably require
hereunder.
(d) The Administrative Agent's "Use of Proceeds" form
shall serve as the disbursement control for each line item. Borrowings
shall not be made or Loan proceeds disbursed for any line item in
excess of the amount shown for such item in such "Use of Proceeds"
form. No disbursement of Loan proceeds shall be made by the
Administrative Agent hereunder for any material additions to or
increases in any identifiable portion of the cost of construction of
the Improvements as reflected in the Master Plans and Specifications
(with such deviations as shall be applicable to the particular
Project), or specific Plans and Specifications for a particular
Project, or Project Summary & Feasibility Report, UNLESS either (x)
such additions and/or increases have been reflected in a modification
of the Plans and Specifications or Project Summary & Feasibility Report
delivered to and satisfactory in all respects to the Administrative
Agent and the Required Lenders, in their reasonable discretion, or (y)
the increases do not exceed $50,000 as to any particular item or
$100,000 in the aggregate for a particular Project.
(e) The aggregate principal amount of Loan proceeds used
as construction disbursements for a Project shall not at any time
exceed an amount equal to (i) the percentage of completion, as
determined by the Administrative Agent as provided below, TIMES (ii)
the
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estimated total Project costs included in the Project Summary &
Feasibility Report, as modified from time to time, for such Project,
MINUS (iii) an amount (the "RETAINAGE AMOUNT") equal to the greater of
(x) 5% of the value of all construction work on such Project which has
been completed, or (y) such greater percentage of work completed as to
which such Borrower is entitled to withhold payment as a retainage
under the principal construction contract for such Project.
In determining the percentage of completion, the
Administrative Agent shall primarily utilize the information contained
in the Draw Requests and the supporting materials provided in
connection therewith. In addition, from time to time, at intervals
which approximate 1/3 completion, 2/3 completion and 100% completion,
or more frequently if reasonably required by the Administrative Agent,
the Administrative Agent will cause the Inspecting Consultant to make
physical inspections of the Improvements to such Project and to issue a
report with respect thereto. The Administrative Agent shall use the
information so provided by the Inspecting Consultant to verify that the
construction disbursements which have theretofore been made on the
basis of the Draw Requests accurately reflected the amount of
construction completed at such times. It shall not be a condition to
construction disbursements reflecting any particular percentage of
completion of construction that the Administrative Agent shall have
actually received a report of the Inspecting Consultant verifying that
the actual construction completed conforms to the percentage completion
reflected in the Draw Requests. Rather, it is anticipated that the
Administrative Agent will use reasonable discretion in scheduling the
physical inspections and reports by the Inspecting Consultant so that
such reports may be used by the Administrative Agent as a periodic
verification of the information contained in the Draw Requests. The
Company or the applicable Borrower shall make arrangements for advance
payment or reimbursement by the Company or such Borrower of the fees
and expenses of the Inspecting Consultant in making any such physical
inspections.
(f) Following completion of construction of a Project,
the aggregate principal amount of Loan proceeds used as disbursements
for operating deficits of such Project shall not at any time exceed the
amount of operating deficits identified as part of the estimated total
Project costs included in the Project Summary & Feasibility Report, as
modified from time to time, for such Project. Draw Requests covering
such operating deficits may be submitted by the Company on behalf of a
Borrower on an estimated basis. If the Administrative Agent determines
at any time on the basis of detailed financial information for a
Project delivered pursuant to section 8.1 hereof that the disbursements
of Loan proceeds for operating deficits for any month or other period
have exceeded the actual operating deficit for such month or other
period by more that $50,000, further disbursements of Loan proceeds to
cover operating deficits for such Project shall be reduced to such
levels as the Administrative Agent reasonably determines is necessary
to avoid an imbalance between actual operating deficits and the
operating deficits covered by and funded pursuant to Draw Requests. If
at any time after the Administrative Agent determines that no
additional disbursements to cover operating deficits of a Project are
anticipated hereunder, the Administrative Agent determines on the basis
of detailed financial information for a Project delivered pursuant to
section 8.1 hereof that the disbursements of Loan proceeds for
operating deficits of a Project have exceeded the actual operating
deficits of such Project, the Administrative Agent may, upon not less
than two Business Days' prior written notice to the Company, require
the applicable Borrower to prepay its Loans for such Project, on a date
reasonably selected by the Administrative Agent so as to minimize any
breakage compensation payable under section 2.12 and notified to the
Company, in an aggregate principal amount at least sufficient to
eliminate such excess.
(g) The Company on behalf of a Borrower shall furnish the
Administrative Agent, the Collateral Agent and the Title Company with
any evidence, lien waivers, or affidavits required by
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the Title Company if any liens of contractors, subcontractors or
materialmen would appear on the endorsement to be issued with respect
to the applicable Title Policy covering any disbursement of Loan
proceeds.
(h) The Administrative Agent may, at its election,
disburse the proceeds of Loans made to a Borrower (i) to the Company
(on behalf of such Borrower), (ii) to such Borrower, (iii) directly to
the persons furnishing labor or materials who have furnished bills for
labor or materials (which bills have been approved for payment by the
Borrower (or by the Company on its behalf), if no Event of Default is
in existence), or (iv) as otherwise requested by the Company on behalf
of an applicable Borrower), in any such case to be used for the
purposes covered by the applicable Draw Request.
(i) Disbursement of Loan proceeds to or on behalf of a
Borrower to finance a Project may be made to cover the cost of
materials stored on the Premises of such Project for a time period of
not more than 180 days, PROVIDED the same are adequately secured and
insured. No disbursement of Loan proceeds will be made to or on behalf
of a Borrower based on the cost of materials not stored on the Premises
of such Project, unless such materials are stored in licensed and
bonded warehouses and the Collateral Agent shall have received such
documentation as is necessary to perfect its lien and security interest
in such materials.
2.4. NOTICE OF BORROWING. (a) Whenever the Company desires that a
Borrower or Borrowers incur Loans to cover disbursements which are covered by a
Draw Request or Draw Requests and may otherwise be incurred by such Borrower or
Borrowers as contemplated by sections 2.1 and 2.3, the Company shall give the
Administrative Agent at its Notice Office, prior to 10:00 A.M. (local time at
its Notice Office), at least three Business Days' prior written notice of each
Borrowing to be made hereunder. Each such notice (each such notice, a "NOTICE OF
BORROWING") shall be substantially in the form of Exhibit B-1, and in any event
shall be irrevocable and shall specify: (i) the name of the Borrower or
Borrowers which is to incur such Loans, the Facility under which such Loans are
to be made and the aggregate principal amount of the Loans to be made by each
such Borrower for each Project pursuant to any such Borrowing; (ii) the date of
the Borrowing (which shall be a Business Day); (iii) whether any such Borrowing
shall consist of Prime Rate Loans or Eurodollar Loans; and (iv) if any requested
Borrowing consists of Eurodollar Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall promptly give each Lender
written notice (or telephonic notice promptly confirmed in writing) of each
proposed Borrowing, of such Lender's proportionate indirect share thereof and of
the other matters covered by the Notice of Borrowing relating thereto.
(b) The Administrative Agent may act prior to receipt of a written
Notice of Borrowing without liability upon the basis of telephonic notice
believed by the Administrative Agent in good faith to be from an Authorized
Officer of the Company entitled to give telephonic notices under this Agreement
on behalf of the Company and any applicable Borrower. In each such case, the
Administrative Agent's record of the terms of such telephonic notice shall be
conclusive absent manifest error.
2.5. DISBURSEMENT OF FUNDS. (a) No later than 12:00 noon (local
time at the Payment Office) on the date specified in each Notice of Borrowing
relating to Eurodollar Loans, and no later than 12:00 noon (local time at the
Payment Office) on the date specified in each Notice of Borrowing relating to
Prime Rate Loans, each Lender will make available its PRO RATA share, if any, of
each Borrowing of Loans requested to be made on such date in the manner provided
below. All amounts shall be made available to the Administrative Agent in U.S.
dollars and immediately available funds at the Payment Office. The
Administrative Agent promptly will either (x) make such amounts available to the
applicable Borrower by (x) depositing to the Company's account at the Payment
Office (for disbursement by the Company to the applicable Borrower) the
aggregate of the amounts so made available in the type of funds received, (y) if
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the Company so elects on behalf of any Borrower and the Administrative Agent is
willing to accommodate such request, wire transferring such amount to such
account of such Borrower (or of the Company, to be disbursed by it for the
benefit of such Borrower) at a financial institution located in the continental
United States, or (z) as to all or any portion of such amounts, applying such
amounts to the direct payment of bills for materials and labor as contemplated
by section 2.3. Unless the Administrative Agent shall have been notified by any
Lender prior to the date of Borrowing that such Lender does not intend to make
available to the Administrative Agent its portion of the Borrowing or Borrowings
to be made on such date, the Administrative Agent may assume that such Lender
has made such amount available to the Administrative Agent on such date of
Borrowing, and the Administrative Agent, in reliance upon such assumption, may
(in its sole discretion and without any obligation to do so) make available to
the applicable Borrower (and/or so apply) a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Agent
by such Lender and the Administrative Agent has made available same to the
applicable Borrower, the Administrative Agent shall be entitled to recover such
corresponding amount from such Lender. If such Lender does not pay such
corresponding amount forthwith upon the Administrative Agent's demand therefor,
the Administrative Agent shall promptly notify the Company (on behalf of the
applicable Borrower), and the applicable Borrower shall immediately pay such
corresponding amount to the Administrative Agent. The Administrative Agent shall
also be entitled to recover from such Lender or the applicable Borrower, as the
case may be, interest on such corresponding amount in respect of each day from
the date such corresponding amount was made available by the Administrative
Agent to the Company to the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (x) if paid by such Lender,
the overnight Federal Funds Effective Rate or (y) if paid by the applicable
Borrower, the then applicable rate of interest, calculated in accordance with
section 2.9, for the respective Loans (but without any requirement to pay any
amounts in respect thereof pursuant to section 2.12).
(b) Nothing herein and no subsequent termination of the
Commitments pursuant to section 4.1 or 4.2 shall be deemed to relieve any Lender
from its obligation to fulfill its commitments hereunder and in existence from
time to time or to prejudice any rights which the Company or any applicable
Borrower may have against any Lender as a result of any default by such Lender
hereunder.
2.6. NOTES; AND LOAN ACCOUNTS. (a) FORMS OF NOTES. The Company's
and the Borrowers' obligations to pay the principal of, and interest on, the
Loans made to the Borrowers by a Lender shall be evidenced by (i) a promissory
note of the Company substantially in the form of Exhibit A-1 (each such
promissory note of the Company, a "NOTE" and all such promissory notes of the
Company, collectively, the "NOTES"), (ii) the Company's guaranty obligations
contained in section 12 of this Agreement, and (iii) the respective agreements
of the Borrowers contained in the Joinder Supplements.
(b) NOTES. The Note issued by the Company to a Lender shall: (i)
be executed by the Company; (ii) be payable to the order of such Lender and be
dated on or prior to the date the first Loan outstanding thereunder is made;
(iii) cover all Projects of all Borrowers financed hereunder; (iv) be payable in
the principal amount of Loans evidenced thereby; (v) mature as to any Loans for
any Project evidenced thereby on the date or dates provided for in section 2.7;
(vi) bear interest as provided in section 2.9 in respect of the Prime Rate Loans
or Eurodollar Loans, as the case may be, evidenced thereby; (vii) be subject to
mandatory prepayment as provided in section 5.2; and (viii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(c) PROJECT PROMISSORY NOTES. Recognizing that it may be necessary
or appropriate for a Borrower to execute and deliver one or more Project
Promissory Notes evidencing its obligations in respect of the Loans made to it
for any particular Project or Project, the Administrative Agent may require any
Borrower to execute and deliver such Project Promissory Notes as provided in the
Joinder Supplement to which such Borrower is a party. Payments by a Borrower
under any such Project Promissory Notes are to be applied against such
Borrower's obligations under the Notes as provided in the Notes.
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(d) LOAN ACCOUNTS OF LENDERS. Each Lender shall maintain in
accordance with its usual practice an account or accounts evidencing the
indebtedness of each Borrower to such Lender resulting from each Loan made by
such Lender for a particular Project, including the amounts of principal and
interest payable and paid to such Lender from time to time hereunder.
(e) LOAN ACCOUNTS OF ADMINISTRATIVE AGENT. The Administrative
Agent shall maintain accounts in which it shall record (i) the amount of each
Loan made to each Borrower hereunder, the Type thereof, the particular Facility
under which such Loan was made, the particular Project for which such Loan was
made, and the Interest Period (if such Loan is a Eurodollar Loan), (ii) the
amount of any principal due and payable or to become due and payable from the
applicable Borrower to each Lender hereunder in respect of such Loan, and (iii)
the amount of any sum received by the Administrative Agent hereunder for the
account of the Lenders and each Lender's share thereof.
(f) EFFECT OF LOAN ACCOUNTS, ETC. The entries made in the accounts
maintained pursuant to section 2.6(d) and (e) shall be PRIMA FACIE evidence of
the existence and amounts of the obligations recorded therein; PROVIDED, that
the failure of any Lender or the Administrative Agent to maintain such accounts
or any error therein shall not in any manner affect the obligation of the
Borrowers to repay or prepay the Loans in accordance with the terms of this
Agreement.
(g) ENDORSEMENTS OF AMOUNTS ON NOTES PRIOR TO TRANSFER. Each
Lender will, prior to any transfer of any of the Notes issued to it, endorse on
the reverse side thereof or the grid attached thereto the outstanding principal
amount of Loans evidenced thereby. Failure to make any such notation or any
error in any such notation shall not affect any Borrower's obligations in
respect of such Loans.
2.7. MATURITY. The Loans to any Borrower for a Project shall mature
and shall be repaid in full, together with accrued interest thereon, on the 15th
monthly anniversary of the date of the initial Borrowing by such Borrower
hereunder for such Project, SUBJECT to the following:
(a) 3-MONTH CONSTRUCTION EXTENSION OPTION. The Company
may elect on behalf of any Borrower which has incurred Loans to finance
a Project hereunder to extend the maturity date of such Borrower's
Loans for such Project for a period expiring on the three month
anniversary of the date such Loans otherwise would have matured as
provided above, by giving the Administrative Agent written notice of
such election, PROVIDED that no such election or extension of the
maturity date of any Loans for a Project shall be or become effective
unless at the time thereof all of the conditions specified in section
2.7(d) have been satisfied.
(b) 12-MONTH MINI-PERM EXTENSION OPTION. If (1)
construction of a Project of a Borrower shall have been completed, (2)
such Borrower shall have received a Certificate of Occupancy for such
Project, together with any required governmental licenses and permits
necessary for such Borrower to commence commercial operation of such
Project, and (3) the Administrative Agent shall have received evidence,
satisfactory to it, of satisfaction of the foregoing conditions, the
Company may elect on behalf of such Borrower to extend the maturity
date of such Borrower's Loans for such Project for a period expiring on
the first anniversary of the date such Loans otherwise would have
matured as provided above (taking into account any extension of such
maturity under section 2.7(a) above), by giving the Administrative
Agent written notice of such election, PROVIDED that no such election
or extension of the maturity date of any Loans for a Project shall be
or become effective unless at the time thereof all of the conditions
specified in section 2.7(d) have been satisfied.
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(c) 45-DAY FURTHER EXTENSION OPTION TO COORDINATE
TAKE-OUT. If the maturity of the Loans of a Borrower for a Project has
been extended as provided in section 2.7(b) and such Borrower requires
additional time to prepare financial statements for a full 12 months of
operations for such Project, and/or to otherwise coordinate the
satisfaction of the conditions to the obligations of the Permanent
Lender or Supplemental Permanent Lender, as applicable, under its
Project Commitment (as defined in the Project Take-Out Agreement for
such Project), the Company may elect on behalf of such Borrower to
extend the maturity date of such Borrower's Loans for such Project for
a period expiring on 45th day following the date such Loans otherwise
would have matured as provided above (taking into account any
extensions of such maturity under section 2.7(a) and (b) above), by
giving the Administrative Agent written notice of such election,
PROVIDED that no such election or extension of the maturity date of any
Loans for a Project shall be or become effective unless at the time
thereof all of the conditions specified in section 2.7(d) have been
satisfied.
(d) CONDITIONS TO EXTENSIONS. The conditions to any
extension of the maturity of any Loans for a Project pursuant to
section 2.7(a), (b) or (c) above are:
(i) no Default under section 10.1(a) or Event of
Default shall have occurred and be continuing,
(ii) no Change of Control Prepayment Event shall
have occurred;
(iii) the Administrative Agent shall have
determined (in the exercise of reasonable judgment) that is
highly probable that such Project will have been completed, a
Certificate of Occupancy issued with respect thereto, and a
full 12 calendar months of operation of such Project will have
been completed, prior to the expiration of the then term of
the commitment of the Permanent Lender or Supplemental
Permanent Lender, as the case may be, under its Project
Commitment (as such term is defined in the Project Take-Out
Agreement for such Project) with respect to such Project, and
(iv) the Administrative Agent shall have
determined (in the exercise of reasonable judgment) that there
is no credible reason to believe that any conditions to the
obligations of the Permanent Lender or Supplemental Permanent
Lender, as the case may be, under the Project Take-Out
Agreement applicable to such Loans will not be satisfied at
the time by which the Administrative Agent reasonably
estimates such Project will have been completed, a Certificate
of Occupancy issued with respect thereto, and such Project
shall have been operated for a full 12 full calendar month
period.
The Administrative Agent shall promptly (x) furnish to the Lenders copies of any
elections by the Company pursuant to this section 2.7, and (y) notify the
Company (acting on behalf of any applicable Borrower) and the Lenders in writing
of any extension of the maturity of any Loans of a Borrower for a Project which
becomes effective under this section 2.7. In determining whether a Certificate
of Occupancy has been issued for a Project which consists of separate buildings,
a Certificate of Occupancy for such Project shall only be considered to have
been issued when one or more Certificates of Occupancy covering all of such
buildings have been issued.
2.8. CONVERSIONS. The Company (on behalf of all applicable Borrowers)
shall have the option to convert on any Business Day all or a portion at least
equal to the applicable Minimum Borrowing Amount of the outstanding principal
amount of the Loans of one Type owing by a Borrower pursuant to a Borrowing
under a Facility into a Borrowing by such Borrower under the same Facility of
the other Type of Loans which can be made hereunder, PROVIDED that:
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(a) either
(i) all Loans made by all Borrowers pursuant to
a Borrowing under the same Facility shall be converted into a
Borrowing of the other Type of Loans which can be made
pursuant to such Facility, and if such Loans are converted
into Eurodollar Loans there shall be a single Interest Period
applicable to such Loans; or
(ii) a fixed proportion of all Loans made by all
Borrowers pursuant to a Borrowing under the same Facility,
conforming to the Minimum Borrowing Amount, shall be converted
into a Borrowing of the other Type of Loans which can be made
pursuant to such Facility, and if such Loans are converted
into Eurodollar Loans there shall be a single Interest Period
applicable to such Loans; or
(iii) if permitted by the Administrative Agent,
acting in the exercise of its reasonable discretion and taking
into account the number of Borrowings consisting of Eurodollar
Loans which will be outstanding hereunder, a fixed proportion
or Dollar amount of any Loans made by a Borrower pursuant to a
Borrowing under the same Facility, conforming to the Minimum
Borrowing Amount, shall be converted into a Borrowing of the
other Type of Loans which can be made pursuant to such
Facility, and if such Loans are converted into Eurodollar
Loans there shall be a single Interest Period applicable to
such Loans;
(b) no partial conversion of a Borrowing of Eurodollar
Loans shall reduce the outstanding principal amount of the Eurodollar
Loans made pursuant to such Borrowing to less than the Minimum
Borrowing Amount applicable thereto;
(c) any conversion of Eurodollar Loans into Prime Rate
Loans shall be made on, and only on, the last day of an Interest Period
for such Eurodollar Loans;
(d) Prime Rate Loans may only be converted into
Eurodollar Loans if no Default under section 10.1(a) or Event of
Default is in existence on the date of the conversion unless the
Required Tranche A Lenders, in the case of Tranche A Loans, or the
Required Tranche B Lenders, in the case of Tranche B Loans, otherwise
agree; and
(e) Borrowings of Eurodollar Loans resulting from this
section 2.8 shall conform to the requirements of section 2.1(d).
Each such conversion shall be effected by the Company (on behalf of any
applicable Borrower) giving the Administrative Agent at its Notice Office, prior
to 11:00 A.M. (local time at such Notice Office), at least three Business Days'
(or prior to 11:00 A.M. (local time at such Notice Office) same Business Day's,
in the case of a conversion into Prime Rate Loans) prior written notice (or
telephonic notice promptly confirmed in writing if so requested by the
Administrative Agent) (each a "NOTICE OF CONVERSION"), substantially in the form
of Exhibit B-2, specifying the name of the applicable Borrower, the Loans to be
so converted and the Facility under which such Loans were incurred, the Type of
Loans to be converted into and, if to be converted into a Borrowing of
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall give each Lender prompt notice of any such proposed
conversion affecting any of its Loans. For the avoidance of doubt, the
prepayment or repayment of any Loans out of the proceeds of other Loans by a
Borrower is not considered a conversion of Loans into other Loans.
2.9. INTEREST. (a) The unpaid principal amount of each Loan which
is a Prime Rate Loan shall bear interest from the date of the Borrowing thereof
until maturity (whether by acceleration or otherwise) at a fluctuating rate per
annum which shall at all times be equal to the Prime Rate in effect from time to
time.
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(b) The unpaid principal amount of each Loan which is a Eurodollar
Loan shall bear interest from the date of the Borrowing thereof until maturity
(whether by acceleration or otherwise) at a rate per annum which shall at all
times be the relevant Eurodollar Rate for such Loan PLUS 200 basis points per
annum.
(c) Notwithstanding the above provisions:
(i) if a Default under section 10.1(a) or Event of
Default is in existence, all outstanding amounts of principal and, to
the extent permitted by law, all overdue interest, in respect of each
Loan of each Borrower shall bear interest, payable on demand, at a rate
per annum equal to the lesser of (x) 2% per annum above the rate in
effect for such Loan from time to time pursuant to section 2.9(a) or
(b), as applicable, and (y) the Highest Lawful Rate; and
(ii) if any amount (other than the principal of and
interest on the Loans) payable by the Company or any Borrower under the
Credit Documents is not paid when due, such amount shall bear interest,
payable on demand, at the lesser of (x) a fluctuating rate per annum
equal to 2% per annum above the rate in effect from time to time
pursuant to section 2.9(a), and (y) the Highest Lawful Rate.
(d) Interest shall accrue from and including the date of any
Borrowing by a Borrower to but excluding the date of any prepayment or repayment
thereof and shall be payable in respect of each Loan (i) on the first Business
Day of each calendar month, and (ii) on any prepayment or conversion (on the
amount prepaid or converted), at maturity (whether by acceleration or otherwise)
and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in
accordance with section 13.7(b).
(f) Each Reference Bank agrees to furnish the Administrative Agent
timely information for the purpose of determining the Eurodollar Rate for any
Borrowing consisting of Eurodollar Loans. If any one or more of the Reference
Banks shall not timely furnish such information, the Administrative Agent shall
determine the Eurodollar Rate on the basis of timely information furnished by
the remaining Reference Banks. The Administrative Agent upon determining the
interest rate for any Borrowing shall promptly notify the Company (which shall
in turn transmit notice thereof to any applicable Borrower) and the Lenders
thereof.
2.10. INTEREST PERIODS. (a) At the time the Company (on behalf of
all applicable Borrowers) gives a Notice of Borrowing or Notice of Conversion in
respect of the making of, or conversion into, a Borrowing of Eurodollar Loans
(in the case of the initial Interest Period applicable thereto) or prior to
11:00 A.M. (local time at the applicable Notice Office) on the third Business
Day prior to the expiration of an Interest Period applicable to a Borrowing of
Eurodollar Loans, the Company (on behalf of all applicable Borrowers) shall have
the right to elect by giving the Administrative Agent written or telephonic
notice (in the case of telephonic notice, promptly confirmed in writing if so
requested by the Administrative Agent) of the Interest Period applicable to such
Borrowing, which Interest Period shall, at the option of the Company (on behalf
of all applicable Borrowers), be a one, two, three or six month period.
Notwithstanding anything to the contrary contained above:
(i) all Eurodollar Loans made by all Borrowers pursuant
to a Borrowing under the same Facility shall have a single Interest
Period (it being understood that, subject to the limitation of section
2.1(d) hereof on the maximum number of Borrowings of Eurodollar Loans
which may be outstanding hereunder, there may be more than one
Borrowing by one or more Borrowers under the same Facility which
consist of Eurodollar Loans);
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(ii) the initial Interest Period for any Borrowing of
Eurodollar Loans shall commence on the date of such Borrowing
(including the date of any conversion from a Borrowing of Prime Rate
Loans) and each Interest Period occurring thereafter in respect of such
Borrowing shall commence on the day on which the next preceding
Interest Period expires;
(iii) if any Interest Period begins on a day for which
there is no numerically corresponding day in the calendar month at the
end of such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a
day which is not a Business Day, such Interest Period shall expire on
the next succeeding Business Day, PROVIDED that if any Interest Period
would otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding Business
Day;
(v) no Interest Period for any Loan may be selected which
would end after the maturity date for such Loan as provided in section
2.7; and
(vi) no Interest Period may be elected at any time when a
Default under section 10.1(a) or an Event of Default is then in
existence unless the Required Tranche A Lenders, in the case of Tranche
A Loans, or the Required Tranche B Lenders, in the case of Tranche B
Loans, otherwise agree.
(b) If in accordance with the above provisions the Company (on
behalf of any applicable Borrower) is entitled to elect a new Interest Period to
be applicable to the respective Borrowing of Eurodollar Loans, but fails to do
so in a timely manner as provided above, the Company (on behalf of the
applicable Borrower) shall be deemed to have elected an Interest Period of one
month.
(c) If upon the expiration of any Interest Period the Company (on
behalf of any applicable Borrower) is not entitled to elect a new Interest
Period to be applicable to the respective Borrowing of Eurodollar Loans as
provided above, the Company (on behalf of the applicable Borrower) shall be
deemed to have elected to convert such Borrowing to Prime Rate Loans effective
as of the expiration date of such current Interest Period.
2.11. INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that (x) in
the case of clause (i) below, the Administrative Agent or (y) in the case of
clauses (ii) and (iii) below, any Lender, shall have determined on a reasonable
basis (which determination shall, absent manifest error, be final and conclusive
and binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for
any Interest Period that, by reason of any changes arising after the
Effective Date affecting the interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Lender shall incur increased
costs or reductions in the amounts received or receivable hereunder in
an amount which such Lender deems material with respect to any
Eurodollar Loans (other than any increased cost or reduction in the
amount received or receivable resulting from the imposition of or a
change in the rate of taxes or similar
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charges) because of (x) any change since the Effective Date in any
applicable law, governmental rule, regulation, guideline, order or
request (whether or not having the force of law), or in the
interpretation or administration thereof and including the introduction
of any new law or governmental rule, regulation, guideline, order or
request (such as, for example, but not limited to, a change in official
reserve requirements, but, in all events, excluding reserves includable
in the Eurodollar Rate pursuant to the definition thereof) and/or (y)
other circumstances adversely affecting the interbank Eurodollar market
or the position of such Lender in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has become unlawful by compliance by such Lender in
good faith with any change since the Effective Date in any law,
governmental rule, regulation, guideline or order, or the official
interpretation or application thereof, or would conflict with any
thereof not having the force of law but with which such Lender
customarily complies or has become impracticable as a result of a
contingency occurring after the Effective Date which materially
adversely affects the interbank Eurodollar market;
THEN, and in any such event, such Lender (or the Administrative Agent in the
case of clause (i) above) shall (x) on or promptly following such date or time
and (y) within 10 Business Days of the date on which such event no longer exists
give notice (by telephone confirmed in writing) to the Company (on behalf of any
applicable Borrower) and to the Administrative Agent of such determination
(which notice the Administrative Agent shall promptly transmit to each of the
other Lenders). Thereafter (x) in the case of clause (i) above, Eurodollar Loans
shall no longer be available until such time as the Administrative Agent
notifies the Company (on behalf of any applicable Borrower) and the Lenders that
the circumstances giving rise to such notice by the Administrative Agent no
longer exist, and any Notice of Borrowing or Notice of Conversion given by the
Company (on behalf of any applicable Borrower) with respect to Eurodollar Loans
which have not yet been incurred or converted shall be deemed rescinded by the
Company (on behalf of any applicable Borrower) or, in the case of a Notice of
Borrowing, shall, at the option of the Company (on behalf of any applicable
Borrower), be deemed converted into a Notice of Borrowing for Prime Rate Loans
to be made on the date of Borrowing contained in such Notice of Borrowing, (y)
in the case of clause (ii) above, the applicable Borrower shall pay to such
Lender, upon written demand therefor, such additional amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as such Lender shall determine) as shall be required to compensate such Lender,
for such increased costs or reductions in amounts receivable hereunder (a
written notice as to the additional amounts owed to such Lender, showing the
basis for the calculation thereof, which basis must be reasonable, submitted to
the Company (on behalf of any applicable Borrower) by such Lender shall, absent
manifest error, be final and conclusive and binding upon all parties hereto) and
(z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in section 2.11(b) as promptly as possible and, in any event,
within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in section 2.11(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected pursuant to section 2.11(a)(iii) the
applicable Borrower shall) either (i) if the affected Eurodollar Loan is then
being made pursuant to a Borrowing, by giving the Administrative Agent
telephonic notice (confirmed promptly in writing) thereof on the same date that
the Company (on behalf of any applicable Borrower) was notified by a Lender
pursuant to section 2.11(a)(ii) or (iii), cancel said Borrowing, convert the
related Notice of Borrowing into one requesting a Borrowing of Prime Rate Loans
or require the affected Lender to make its requested Loan as a Prime Rate Loan,
or (ii) if the affected Eurodollar Loan is then outstanding, upon at least one
Business Day's notice to the Administrative Agent, require the affected Lender
to convert each such Eurodollar Loan into a Prime Rate Loan, PROVIDED that if
more than one Lender is affected at any time, then all affected Lenders must be
treated the same pursuant to this section 2.11(b).
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(c) If any Lender shall have determined that after the Effective
Date, the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged by law with the interpretation or administration thereof, or
compliance by such Lender or its parent corporation with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank, or comparable agency, in each case made
subsequent to the Effective Date, has or would have the effect of reducing by an
amount reasonably deemed by such Lender to be material the rate of return on
such Lender's or its parent corporation's capital or assets as a consequence of
such Lender's commitments or obligations hereunder to a level below that which
such Lender or its parent corporation could have achieved but for such adoption,
effectiveness, change or compliance (taking into consideration such Lender's or
its parent corporation's policies with respect to capital adequacy), then from
time to time, within 15 days after demand by such Lender (with a copy to the
Administrative Agent), the applicable Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender or its parent
corporation for such reduction. Each Lender, upon determining in good faith that
any additional amounts will be payable pursuant to this section 2.11(c), will
give prompt written notice thereof to the Company (on behalf of any applicable
Borrower), which notice shall set forth, in reasonable detail, the basis of the
calculation of such additional amounts, which basis must be reasonable, although
the failure to give any such notice shall not release or diminish any of the
applicable Borrower's obligations to pay additional amounts pursuant to this
section 2.11(c) upon the subsequent receipt of such notice.
(d) Notwithstanding anything in this Agreement to the contrary,
(i) no Lender shall be entitled to compensation or payment or reimbursement of
other amounts under section 2.11 or 5.4 for any amounts incurred or accruing
more than 90 days prior to the giving of notice to the Company (on behalf of any
applicable Borrower) of additional costs or other amounts of the nature
described in such sections, and (ii) no Lender shall demand compensation for any
reduction referred to in section 2.11(c) if it shall not at the time be the
general policy or practice of such Lender to demand such compensation, payment
or reimbursement in similar circumstances under comparable provisions of other
credit agreements.
2.12. BREAKAGE COMPENSATION. Each applicable Borrower shall
compensate each applicable Lender, upon its written request (which request shall
set forth the detailed basis for requesting and the method of calculating such
compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such Lender
to fund its Eurodollar Loans) which such Lender may sustain: (i) if for any
reason (other than a default by such Lender or the Administrative Agent) a
Borrowing of Eurodollar Loans does not occur on a date specified therefor in a
Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the
Company (on behalf of any applicable Borrower) or deemed withdrawn pursuant to
section 2.11(a)); (ii) if any repayment, prepayment or conversion of any of its
Eurodollar Loans occurs on a date which is not the last day of an Interest
Period applicable thereto; (iii) if any prepayment of any of its Eurodollar
Loans is not made on any date specified in a notice of prepayment given by the
Company (on behalf of any applicable Borrower); (iv) as a consequence of a
forced assignment of its loans pursuant to section 2.13(b) hereof; or (v) as a
consequence of (x) any other default by such Borrower to repay its Eurodollar
Loans when required by the terms of this Agreement or (y) an election made
pursuant to section 2.11(b).
2.13. CHANGE OF LENDING OFFICE; REPLACEMENT OF LENDERS. (a) Each
Lender agrees that, upon the occurrence of any event giving rise to the
operation of section 2.11(a)(ii) or (iii) or 2.11(c) with respect to such
Lender, it will, if requested by the Company (on behalf of any applicable
Borrower), use reasonable efforts (subject to overall policy considerations of
such Lender) to designate another Applicable Lending Office for any Loans or
Commitment affected by such event, PROVIDED that such
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designation is made on such terms that such Lender and its Applicable Lending
Office suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of any such
section.
(b) If any Lender requests any compensation, reimbursement or
other payment under section 2.11(a)(ii) or (iii) or 2.11(c) with respect to such
Lender, or if any Lender is a Defaulting Lender, then the Company (on behalf of
any applicable Borrower) may, at its sole expense and effort, upon notice to
such Lender and the Administrative Agent, require such Lender to assign and
delegate, without recourse (in accordance with the restrictions contained in
section 13.4(b)), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); PROVIDED that (i) the Company
shall have received the prior written consent of the Administrative Agent, which
consent shall not be unreasonably withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
including amounts payable under section 2.10, from the assignee (to the extent
of such outstanding principal and accrued interest and fees) or the applicable
Borrower (in the case of all other amounts), and (iii) in the case of any such
assignment resulting from a claim for compensation, reimbursement or other
payments required to be made under section 2.11(a)(ii) or (iii) or 2.11(c) with
respect to such Lender, such assignment will result in a reduction in such
compensation, reimbursement or payments. A Lender shall not be required to make
any such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Company to require
such assignment and delegation cease to apply.
(c) Nothing in this section 2.13 shall affect or postpone any of
the obligations of any Borrower or the right of any Lender provided in section
2.11.
SECTION 3. FEES.
3.1. TRANCHE B COMMITMENT FEE. The Company agrees to pay to the
Administrative Agent a commitment fee ("TRANCHE B COMMITMENT FEE") for the PRO
RATA account of each Non-Defaulting Lender which has a Tranche B Commitment, for
the period from and including the Effective Date to but not including the
earlier of (x) the Tranche B Activation Date or (y) the date the Total Tranche B
Commitment has been terminated, on the average daily amount of the Unutilized
Total Tranche B Commitment, at the rate of 12.5 basis points per annum, payable
quarterly in arrears on the last Business Day of each March, June, September and
December and the Tranche B Activation Date, or such earlier date on which the
Total Tranche B Commitment is terminated.
3.2. OTHER FEES. The Company shall pay to the Administrative Agent
on the Effective Date and thereafter for its own account and/or for distribution
to the Lenders such fees as heretofore agreed by the Company and the
Administrative Agent.
SECTION 4. COMMITMENTS.
4.1. VOLUNTARY TERMINATION/REDUCTION OF COMMITMENTS. Upon at least
three Business Days' prior written notice (or telephonic notice confirmed in
writing) to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Lenders), the
Company shall have the right (on its own behalf and on behalf of all Borrowers),
without premium or penalty, to:
(a) terminate the Total Commitment, PROVIDED that all
outstanding Loans of all Borrowers are contemporaneously prepaid in
full;
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(b) terminate the Total Tranche A Commitment, PROVIDED
that (i) all outstanding Tranche A Loans of all Borrowers are
contemporaneously prepaid in full, and (ii) the Total Tranche B
Commitment has been terminated, or is contemporaneously being
terminated, in accordance with this section 4.1;
(c) terminate the Total Tranche B Commitment, PROVIDED
that all outstanding Tranche B Loans of all Borrowers are
contemporaneously prepaid in full;
(d) partially and permanently reduce the Unutilized Total
Tranche A Commitment, PROVIDED that (i) after giving effect thereto,
the remaining Unutilized Total Tranche A Commitment exceeds the
Reserved Portion of the Total Tranche A Commitment then in effect by at
least $5,000,000, (ii) any such reduction shall apply to
proportionately and permanently reduce the Tranche A Commitment of each
of the Lenders, in accordance with their respective Tranche A
Percentages; and (iii) any partial reduction of the Unutilized Total
Tranche A Commitment pursuant to this section 4.1 shall be in the
amount of at least $5,000,000 (or, if greater, in integral multiples of
$1,000,000); and/or
(e) partially and permanently reduce the Unutilized Total
Tranche B Commitment, PROVIDED that (i) no partial reduction of the
Total Tranche B Commitment may be made prior to the Tranche B
Activation Date without the consent of all of the Lenders with Tranche
B Commitments, (ii) after giving effect thereto, the remaining
Unutilized Total Tranche B Commitment exceeds the Reserved Portion of
the Total Tranche B Commitment then in effect by at least $5,000,000,
(iii) any such reduction shall apply to proportionately and permanently
reduce the Tranche B Commitment of each of the Lenders, in accordance
with their respective Tranche B Percentages; and (iv) any partial
reduction of the Unutilized Total Tranche B Commitment pursuant to this
section 4.1 shall be in the amount of at least $5,000,000 (or, if
greater, in integral multiples of $1,000,000).
4.2. MANDATORY ADJUSTMENTS OF COMMITMENTS, ETC. (a) The Total
Commitment (and the Commitment of each Lender) shall terminate on the three
month anniversary of the Effective Date, unless a Borrowing of Loans has
occurred on or prior to such date.
(b) The Total Tranche A Commitment shall terminate (and the
Tranche A Commitment of each Lender shall terminate) on the earlier of (i) the
date when no additional Tranche A Loans may be incurred hereunder, (ii) the date
when the commitment of the Permanent Lender under the Permanent Credit Agreement
is terminated, and (iii) the date on which a Change of Control Prepayment Event
occurs.
(c) The Total Tranche B Commitment shall terminate (and the
Tranche B Commitment of each Lender shall terminate) on the earlier of (i) the
date when no additional Tranche B Loans may be incurred hereunder, (ii) the date
when either the commitment of the Permanent Lender under the Permanent Credit
Agreement, or the commitment of the Supplemental Permanent Lender under the
Supplemental Permanent Credit Agreement, is terminated, and (iii) the date on
which a Change of Control Prepayment Event occurs.
(d) Whenever additional Tranche A Loans are incurred, such Tranche
A Loans shall be considered a utilization of the Total Tranche A Commitment in
an amount equal to the aggregate principal amount of the Tranche A Loans so
incurred. Whenever a principal amount of Tranche A Loans is repaid or prepaid,
such amount shall not be available for reborrowing by the same or any other
Borrower, and the principal amount so repaid or prepaid shall be applied to
permanently reduce the Total Tranche A Commitment (and to proportionately and
permanently reduce the Tranche A Commitment of each of the Lenders).
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(e) Whenever additional Tranche B Loans are incurred, such Tranche
B Loans shall be considered a utilization of the Total Tranche B Commitment in
an amount equal to the aggregate principal amount of the Tranche B Loans so
incurred. Whenever a principal amount of Tranche B Loans is repaid or prepaid,
such amount shall not be available for reborrowing by the same or any other
Borrower, and the principal amount so repaid or prepaid shall be applied to
permanently reduce the Total Tranche B Commitment (and to proportionately and
permanently reduce the Tranche B Commitment of each of the Lenders).
(f) If the Company shall at any time voluntarily reduce the
unutilized commitment of the Permanent Lender or the Supplemental Permanent
Lender under the Permanent Credit Agreement or the Supplemental Permanent Credit
Agreement, as applicable, the Company will contemporaneously make a
proportionate permanent reduction in the Unutilized Total Tranche A Commitment
or the Unutilized Total Tranche B Commitment, as applicable, pursuant to section
4.1.
(g) If a Change of Control occurs, and the effect thereof under
this section 4.2(g) is not waived in writing by all of the Lenders (other than
any Defaulting Lender), (i) the then Unutilized Total Tranche A Commitment shall
be automatically, immediately and permanently reduced to the then Reserved
Portion of the Total Tranche A Commitment, and (ii) the then Unutilized Total
Tranche B Commitment shall be automatically, immediately and permanently reduced
to the then Reserved Portion of the Total Tranche B Commitment. The
Administrative Agent will give the Company and the Lenders written notice of any
such reduction, but no delay in giving, or failure to give, such notice shall
postpone or otherwise impair the occurrence of such reduction.
4.3. EXTENSION OF COMMITMENT PERIOD TERMINATION DATES. (a) At any
time during the period commencing 90 days prior to the Tranche A Commitment
Period Termination Date and ending 60 days prior to the Tranche A Commitment
Period Termination Date, the Company may request the Administrative Agent to
determine if all of the Lenders with Tranche A Commitments are then willing to
extend the Tranche A Commitment Period Termination Date for a single additional
year. If the Company so requests, the Administrative Agent will so advise the
Lenders with Tranche A Commitments. If all of the Lenders with Tranche A
Commitments in their sole discretion are all willing to so extend the Tranche A
Commitment Period Termination Date, after taking into account such
considerations (including, without limitation, the contemporaneous or prior
extension by the Permanent Lender and any Supplemental Permanent Lender of the
commitment period under the Permanent Credit Agreement or the Supplemental
Permanent Credit Agreement, as applicable, to a date which is expected to be
sufficient to permit the Permanent Lender and (if applicable) the Supplemental
Permanent Lender to execute a Project Take-Out Agreement for any Project whose
financing hereunder commenced prior to the date to which the Tranche A
Commitment Period Termination Date is proposed to be extended) as any such
Lender may deem relevant, the Company (on behalf of itself and all Borrowers),
the Administrative Agent and all of the Lenders with Tranche A Commitments shall
execute and deliver a definitive written instrument so extending the Tranche A
Commitment Period Termination Date. No such extension of the Tranche A
Commitment Period Termination Date shall be valid or effective for any purpose
UNLESS (x) such definitive written instrument is so signed and delivered within
45 days following the giving by the Administrative Agent of notice to the
Lenders with Tranche A Commitments that the Company has requested such an
extension, and (y) the Company has paid to the Administrative Agent, for the PRO
RATA account of the Lenders with Tranche A Commitments, such extension fees as
may be agreed upon by the Company and the Lenders with Tranche A Commitments.
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(b) At any time during the period commencing 90 days prior to the
Tranche B Commitment Period Termination Date and ending 60 days prior to the
Tranche B Commitment Period Termination Date, the Company may request the
Administrative Agent to determine if all of the Lenders with Tranche B
Commitments are then willing to extend the Tranche B Commitment Period
Termination Date for a single additional year. If the Company so requests, the
Administrative Agent will so advise the Lenders with Tranche B Commitments. If
all of the Lenders with Tranche B Commitments in their sole discretion are all
willing to so extend the Tranche B Commitment Period Termination Date, after
taking into account such considerations (including, without limitation, the
contemporaneous or prior extension by the Permanent Lender and any Supplemental
Permanent Lender of the commitment period under the Permanent Credit Agreement
or the Supplemental Permanent Credit Agreement, as applicable, to a date which
is expected to be sufficient to permit the Permanent Lender and (if applicable)
the Supplemental Permanent Lender to execute a Project Take-Out Agreement for
any Project whose financing hereunder commenced prior to the date to which the
Tranche B Commitment Period Termination Date is proposed to be extended) as any
such Lender may deem relevant, the Company (on behalf of itself and all
Borrowers), the Administrative Agent and all of the Lenders with Tranche B
Commitments shall execute and deliver a definitive written instrument so
extending the Tranche B Commitment Period Termination Date. No such extension of
the Tranche B Commitment Period Termination Date shall be valid or effective for
any purpose UNLESS (x) such definitive written instrument is so signed and
delivered within 45 days following the giving by the Administrative Agent of
notice to the Lenders with Tranche B Commitments that the Company has requested
such an extension, and (y) the Company has paid to the Administrative Agent, for
the PRO RATA account of the Lenders with Tranche B Commitments, such extension
fees as may be agreed upon by the Company and the Lenders with Tranche B
Commitments.
4.4. SYNTHETIC LEASING PROPOSALS. In the event that at any time
prior to the expiration or termination of the Total Commitment the Company
proposes to the Administrative Agent or any Lender that a project which could
have been financed as a Project hereunder be financed by means of a synthetic
lease financing transaction, (i) the Administrative Agent or such Lender, as the
case may be, shall so advise the Lenders, (ii) if the Administrative Agent or
such Lender, as the case may be, has an interest in developing a synthetic lease
financing proposal for such project, it shall do so, and if such proposal is
acceptable to the Company, the Administrative Agent or such Lender, as the case
may be, shall offer the Lenders the opportunity to participate in the financing
contemplated thereby on a pro rata basis consistent with their respective
Percentages of the Total Commitment hereunder, and (iii) if such proposal is
implemented, the Company will, if requested by the Administrative Agent,
permanently reduce the Unutilized Total Commitment by an amount necessary to
enable the Lenders to participate in such financing without additional credit
exposure to the Company or any of its Affiliates. The Lenders and the Credit
Parties hereby consent to any cross collateralization arrangements which may be
effected between the Collateral and the property subject to any such financing.
SECTION 5. PAYMENTS.
5.1. VOLUNTARY PREPAYMENTS. Any Borrower shall have the right to
prepay any of its Loans, in whole or in part, without premium or penalty, from
time to time, but only on the following terms and conditions:
(a) the Company (on behalf of such Borrower) shall give
the Administrative Agent at the Notice Office written or telephonic
notice (in the case of telephonic notice, promptly confirmed in writing
if so requested by the Administrative Agent) of such Borrower's intent
to prepay any of its Loans, the amount of such prepayment and (in the
case of Eurodollar Loans) the specific Borrowing(s) pursuant to which
made, which notice shall be received by the Administrative Agent by
(x) 11:00 A.M. (local time at the Notice Office)
three Business Days prior to the date of such prepayment, in
the case of any prepayment of Eurodollar Loans, or
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(y) 12:00 noon (local time at the Notice Office)
on the date of such prepayment, in the case of any prepayment
of Prime Rate Loans,
and which notice shall promptly be transmitted by the Administrative
Agent to each of the affected Lenders;
(b) each partial prepayment by a Borrower of any
Borrowing shall be in an aggregate principal amount of (i) at least
$100,000, or a whole Dollar amount in excess thereof, in the case of
Loans which are Prime Rate Loans, or (ii) at least $1,000,000, or a
whole Dollar amount in excess thereof, in the case of Loans which are
Eurodollar Loans;
(c) no partial prepayment of Eurodollar Loans of a
Borrower made pursuant to a Borrowing shall reduce the aggregate
principal amount of the Eurodollar Loans outstanding pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount
applicable thereto;
(d) each prepayment in respect of any Loans made pursuant
to a Borrowing shall be applied PRO RATA among such Loans; and
(e) each prepayment of Eurodollar Loans pursuant to this
section 5.1 on any date other than the last day of the Interest Period
applicable thereto shall be accompanied by any amounts payable in
respect thereof under section 2.12.
5.2. MANDATORY PREPAYMENTS. The Loans shall be subject to mandatory
prepayment in accordance with the following provisions:
(a) IF OUTSTANDING LOANS EXCEED APPLICABLE TOTAL
COMMITMENT. If on any date (after giving effect to any other payments
on such date) either (i) the aggregate outstanding principal amount of
Tranche A Loans exceeds the Total Tranche A Commitment as then in
effect, or (ii) the aggregate outstanding principal amount of Tranche B
Loans exceeds the Total Tranche B Commitment as then in effect, then
the Company shall cause the Borrowers to, and the Borrowers shall,
prepay on such date an aggregate principal amount of Tranche A Loans
and/or Tranche B Loans, as applicable, at least sufficient to eliminate
such excess, and conforming in the case of partial prepayments of Loans
to the requirements as to the amounts of partial prepayments of Loans
which are contained in section 5.1.
(b) MANDATORY PREPAYMENT UPON CHANGE OF CONTROL
PREPAYMENT EVENT. On the date on which a Change of Control Prepayment
Event occurs, notwithstanding anything to the contrary contained in
this Agreement or any of the other Credit Documents, no further
Borrowings shall be made and the then outstanding principal amount of
all Loans of all Borrowers, if any, shall become due and payable and
the Company shall cause each applicable Borrower to, and each
applicable Borrower shall, prepay its Loans in full.
(c) MANDATORY PREPAYMENT UPON TRANSFER OF BENEFICIAL
OWNERSHIP. On the date on which:
(i) any Borrower sells, transfers or otherwise
disposes of all or substantially all of its assets, or all or
any portion of its Project (or any interest therein) to any
person other than the Company or an Affiliate of the Company;
(ii) any Borrower acquires any substantial assets
or properties not directly involved in the ownership and
operation of a Project which is or has been financed
hereunder;
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(iii) any Borrower becomes a party to an agreement
of merger or consolidation with any person other than the
Company or an Affiliate of the Company providing for any
transaction as a result of which such Borrower will no longer
be an Affiliate of the Company; and/or
(iv) any Borrower ceases, for any reason, to be a
Subsidiary or Affiliate of the Company;
notwithstanding anything to the contrary contained in this Agreement or
any of the other Credit Documents, no further Borrowings shall be made
by such Borrower and the then outstanding principal amount of all Loans
of such Borrower, if any, shall become due and payable and the Company
shall cause each applicable Borrower to, and each applicable Borrower
shall, prepay its Loans in full.
(d) MANDATORY PREPAYMENT UPON EVENT OF LOSS. In the event
any Project suffers an Event of Loss:
(i) the Company shall notify the Administrative
Agent thereof within 30 days following the occurrence thereof;
(ii) notwithstanding anything to the contrary
contained in this Agreement or any of the other Credit
Documents, no further Borrowings shall be made by the
applicable Borrower in respect of the Project which suffered
such Event of Loss; and
(iii) the then outstanding principal amount of all
Loans of such Borrower in respect of such Project, if any,
shall become due and payable on the date 30 days following the
occurrence of such Event of Loss, and the Company shall cause
such Borrower to, and such Borrower shall, prepay such Loans
in full on such date.
(e) IF OPERATING DEFICITS OF A PROJECT HAVE BEEN
OVERFUNDED. If the Administrative Agent shall have given the Borrower
written notice as contemplated by section 2.3(f) that any portion of
the Loans made to a Borrower for operating deficits of a Project exceed
the actual operating deficits of such Project, then the Company shall
cause the applicable Borrower to, and the applicable Borrower shall,
prepay on such date specified by the Administrative Agent in such
notice an aggregate principal amount of Tranche A Loans and/or Tranche
B Loans, as applicable, relating to such Project, at least sufficient
to eliminate such excess.
(f) APPLICATION OF PREPAYMENTS, ETC. Each repayment and
prepayment of any Loans of a Borrower made pursuant to a Borrowing
shall be applied PRO RATA among such Loans. Any repayment or prepayment
of Eurodollar Loans pursuant to this section 5.2 shall in all events be
accompanied by such compensation as is required by section 2.12.
5.3. METHOD AND PLACE OF PAYMENT. Except as otherwise specifically
provided herein, all payments under this Agreement and the Notes shall be made
to the Administrative Agent for the ratable (based on its PRO RATA share)
account of the Lenders entitled thereto, not later than 11:00 A.M. (local time
at the Payment Office) on the date when due and shall be made in immediately
available funds and in lawful money of the United States of America at the
Payment Office, it being understood that written notice by the Company to the
Administrative Agent to make a payment from the funds in the Company's
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account or any Borrower's account at the Payment Office shall constitute the
making of such payment to the extent of such funds held in such account. Any
payments under this Agreement which are made later than 11:00 A.M. (local time
at the Payment Office) shall be deemed to have been made on the next succeeding
Business Day.
5.4. NET PAYMENTS. (a) All payments made by the Company or a
Borrower hereunder, under any Note or any other Credit Document, will be made
without setoff, counterclaim or other defense. Except as provided for in section
5.4(b), all such payments will be made free and clear of, and without deduction
or withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein with respect to such payments (but excluding, except as provided in the
second succeeding sentence, any tax, imposed on or measured by the net income or
net profits of a Lender pursuant to the laws of the jurisdiction under which
such Lender is organized or the jurisdiction in which the principal office or
Applicable Lending Office of such Lender is located or any subdivision thereof
or therein) and all interest, penalties or similar liabilities with respect to
such non excluded taxes, levies imposts, duties, fees, assessments or other
charges (all such nonexcluded taxes levies, imposts, duties, fees assessments or
other charges being referred to collectively as "TAXES"). If any Taxes are so
levied or imposed, the Company and each applicable Borrower agrees to pay the
full amount of such Taxes and such additional amounts as may be necessary so
that every payment by it of all amounts due hereunder, under any Note or under
any other Credit Document, after withholding or deduction for or on account of
any Taxes will not be less than the amount provided for herein or in such Note
or in such other Credit Document. If any amounts are payable in respect of Taxes
pursuant to the preceding sentence, the Company and each applicable Borrower
agrees to reimburse each Lender, upon the written request of such Lender for
taxes imposed on or measured by the net income or profits of such Lender
pursuant to the laws of the jurisdiction in which such Lender is organized or in
which the principal office or Applicable Lending Office of such Lender is
located or under the laws of any political subdivision or taxing authority of
any such jurisdiction in which the principal office or Applicable Lending Office
of such Lender is located and for any withholding of income or similar taxes
imposed by the United States of America as such Lender shall determine are
payable by, or withheld from, such Lender in respect of such amounts so paid to
or on behalf of such Lender pursuant to the preceding sentence and in respect of
any amounts paid to or on behalf of such Lender pursuant to this sentence, which
request shall be accompanied by a statement from such Lender setting forth, in
reasonable detail, the computations used in determining such amounts. The
Borrower will furnish to the Administrative Agent within 45 days after the date
the payment of any Taxes, or any withholding or deduction on account thereof, is
due pursuant to applicable law certified copies of tax receipts, or other
evidence satisfactory to the Lender, evidencing such payment by the Borrower.
The Company and each applicable Borrower will indemnify and hold harmless the
Administrative Agent and each Lender, and reimburse the Administrative Agent or
such Lender upon its written request, for the amount of any Taxes so levied or
imposed and paid or withheld by such Lender.
(b) Each Lender that is not a United States person (as such term
is defined in section 7701(a)(30) of the Code) for Federal income tax purposes
agrees to provide to the Company, any applicable Borrower and the Administrative
Agent on or prior to the Effective Date, or in the cases of a Lender that is an
assignee or transferee of an interest under this Agreement pursuant to section
13.4 (unless the respective Lender was already a Lender hereunder immediately
prior to such assignment or transfer and such Lender is in compliance with the
provisions of this section 5.4(b)), on the date of such assignment or transfer
to such Lender, (i) two accurate and complete original signed copies of Internal
Revenue Service Form 4224 or 1001 (or successor forms) certifying to such
Lender's entitlement to a complete exemption from United States withholding tax
with respect to payments to be made under this Agreement, any Note or any other
Credit Document, or (ii) if the Lender is not a "bank" within the meaning
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of section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit K (any such certificate, a "SECTION
5.4(B)(II) CERTIFICATE") and (y) two accurate and complete original signed
copies of Internal Revenue Service Form W-8 (or successor form) certifying to
such Lender's entitlement to a complete exemption from United States withholding
tax with respect to payments of interest to be made under this Agreement, any
Note or any other Credit Document. In addition, each Lender agrees that from
time to time after the Effective Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, it will deliver to the Company, any applicable Borrower and
the Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section 5.4(b)(ii)
Certificate, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Lender to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement, any Note or any other Credit Document, or it
shall immediately notify the Company , any applicable Borrower and the
Administrative Agent of its inability to deliver any such Form or Certificate,
in which case such Lender shall not be required to deliver any such Form or
Certificate pursuant to this section 5.4(b). Notwithstanding anything to the
contrary contained in section 5.4(a), but subject to section 13.4(b) and the
immediately succeeding sentence, (x) the Company and any applicable Borrower
shall be entitled, to the extent it is required to do so by law, to deduct or
withhold income or other similar taxes imposed by the United States (or any
political subdivision or taxing authority thereof or therein) from interest,
fees or other amounts payable hereunder for the account of any Lender which is
not a United States person (as such term is defined in section 7701(a)(30) of
the Code) for United States federal income tax purposes and which has not
provided to the Borrower such forms that establish a complete exemption from
such deduction or withholding and (y) the Company and any applicable Borrower
shall not be obligated pursuant to section 5.4(a) hereof to gross-up payments to
be made to a Lender in respect of income or similar taxes imposed by the United
States or any additional amounts with respect thereto (I) if such Lender has not
provided to the Company and any applicable Borrower the Internal Revenue Service
forms required to be provided to the Company and any applicable Borrower
pursuant to this section 5.4(b) or (II) in the case of a payment other than
interest, to a Lender described in clause (ii) above, to the extent that such
forms do not establish a complete exemption from withholding of such taxes.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this section 5.4 and except as specifically provided for in section
13.4(b), the Company and each applicable Borrower agrees to pay additional
amounts and indemnify each Lender in the manner set forth in section 5.4(a)
(without regard to the identity of the jurisdiction requiring the deduction or
withholding) in respect of any Taxes deducted or withheld by it as described in
the previous sentence as a result of any changes after the Effective Date in any
applicable law, treaty, governmental rule, regulation, guideline or order, or in
the interpretation thereof, relating to the deducting or withholding of income
or similar Taxes.
(c) If any Lender, in its sole opinion, determines that it has
finally and irrevocably received or been granted a refund in respect of any
Taxes paid as to which indemnification has been paid by the Company or any
applicable Borrower pursuant to this section, it shall promptly remit such
refund (including any interest received in respect thereof), net of all
out-of-pocket costs and expenses; PROVIDED, that the Company and/or the
applicable Borrower agrees to promptly return any such refund (plus interest) to
such Lender in the event such Lender is required to repay such refund to the
relevant taxing authority. Any such Lender shall provide the Company and any
applicable Borrower with a copy of any notice of assessment from the relevant
taxing authority (redacting any unrelated confidential information contained
therein) requiring repayment of such refund. Nothing contained herein shall
impose an obligation on any Lender to apply for any such refund.
(d) Reference is hereby made to the provisions of section 2.11(d)
for certain limitations upon the rights of a Lender under this section.
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SECTION 6. CONDITIONS PRECEDENT.
6.1. CONDITIONS PRECEDENT AT EFFECTIVE DATE. The obligations of the
Lenders to make Loans are subject to the satisfaction of each of the following
conditions on the Effective Date:
(a) EFFECTIVENESS; FEES, ETC. The Effective Date shall
have occurred and the Company shall have paid or caused to be paid all
fees required to be paid by it on or prior to such date pursuant to
section 3 hereof and all reasonable fees and expenses of the
Administrative Agent and of special counsel to the Administrative Agent
which have been invoiced on or prior to such date in connection with
the preparation, execution and delivery of this Agreement and the other
Credit Documents and the consummation of the transactions contemplated
hereby and thereby.
(b) PERMANENT CREDIT AGREEMENT, ETC. The Company and the
Permanent Lender shall have entered into the Permanent Credit
Agreement, the Permanent Credit Agreement shall be satisfactory in form
and substance to the Administrative Agent and each of the Lenders, the
Permanent Credit Agreement shall be in full force and effect, and true
and complete copies thereof (including all Exhibits and related
documentation) shall have been delivered to the Administrative Agent,
in sufficient quantities for the Administrative Agent and the Lenders.
(c) SUPPLEMENTAL RESERVE PLEDGE AGREEMENT. The Company
shall have duly executed and delivered the Supplemental Reserve Pledge
Agreement (as modified, amended or supplemented from time to time in
accordance with the terms thereof and hereof, the "SUPPLEMENTAL RESERVE
PLEDGE AGREEMENT"), substantially in the form attached hereto as
Exhibit D; and such Credit Document shall be in full force and effect,
and original counterparts thereof shall have been delivered to the
Administrative Agent, in sufficient quantities for the Administrative
Agent and the Lenders.
(d) CORPORATE RESOLUTIONS AND APPROVALS. The
Administrative Agent shall have received, in sufficient quantity for
the Administrative Agent and the Lenders, certified copies of the
resolutions of the Board of Directors of the Company, approving the
Credit Documents to which the Company is a party, and of all documents
evidencing other necessary corporate action and governmental approvals,
if any, with respect to the execution, delivery and performance by the
Company of the Credit Documents to which it is a party.
(e) INCUMBENCY CERTIFICATE. The Administrative Agent
shall have received, in sufficient quantity for the Administrative
Agent and the Lenders, a certificate of the Secretary or an Assistant
Secretary of the Company, certifying the names and true signatures of
the officers of the Company authorized to sign the Credit Documents to
which the Company is a party and any other documents to which the
Company is a party which may be executed and delivered in connection
herewith.
(f) OPINIONS OF COUNSEL. On the Effective Date, the
Administrative Agent shall have received an opinion, addressed to the
Administrative Agent and each of the Lenders and dated the Effective
Date, from (i) Jones, Day, Reavis & Pogue, special counsel to the
Administrative Agent, substantially in the form of Exhibit F-1; and
(ii) Rogers & Hardin, special counsel to the Company, substantially in
the form of Exhibit F-2 hereto. Such opinions of counsel shall also
cover such other matters incident to the transactions contemplated
hereby as the Administrative Agent may reasonably request, and shall be
in form and substance satisfactory to the Administrative Agent.
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(g) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings and all documents incidental to the transactions
contemplated hereby shall be satisfactory in substance and form to the
Administrative Agent and the Lenders and the Administrative Agent and
its special counsel and the Lenders shall have received all such
counterpart originals or certified or other copies of such documents as
the Administrative Agent or its special counsel or any Lender may
reasonably request.
6.2. CONDITIONS PRECEDENT AT CLOSING DATE OF INITIAL BORROWING BY
ANY BORROWER FOR A PROJECT. The obligation of any Lender to make any Loans to
any Borrower with respect to any Project is subject to the satisfaction of each
of the following conditions on the date (for any Borrower with respect to a
particular Project, such Borrower's "CLOSING DATE") of the initial Borrowing by
such Borrower for such Project:
(a) FEES. The Company shall have paid or caused to be
paid all fees required to be paid by it on or prior to such date
pursuant to section 3 hereof and all reasonable fees and expenses of
the Administrative Agent and of special counsel to the Administrative
Agent which have been invoiced on or prior to such date in connection
with the preparation, execution and delivery of this Agreement and the
other Credit Documents and the consummation of the transactions
contemplated hereby and thereby.
(b) QUALIFICATION OF PROJECT. All conditions to the
qualification of such Project contained in section 2.2 hereof shall
have been satisfied.
(c) GENERAL CONTRACT, ETC. The Company shall have
delivered to the Administrative Agent:
(i) if the Company or one of its established
Wholly-Owned Subsidiaries is acting as the general contractor
for the Project, a copy, certified as true, correct, complete
and in full force and effect, of a general construction
contract for the construction of such Borrower's Project,
which contract shall be reasonably satisfactory to the
Administrative Agent;
(ii) unless the Company or one of its established
Wholly-Owned Subsidiaries is acting as the general contractor
for the Project as contemplated by clause (i) above, a copy,
certified as true, correct, complete and in full force and
effect, of a general construction contract for the
construction of such Borrower's Project, which contract shall
be
(A) if it is not clearly on a fixed
maximum guaranteed cost basis in an amount sufficient
to complete the Project within the cost estimate
contained in the applicable Project Summary &
Feasibility Report , satisfactory in form and
substance to the Administrative Agent, acting in its
reasonable discretion, and
(B) with a general contractor whose
financial condition (if bonding is not required as
provided below), reputation and experience (including
experience on prior Company projects) are acceptable
to the Administrative Agent, acting in its reasonable
discretion, after the Administrative Agent shall have
undertaken and completed a customary "due diligence"
investigation with respect thereto;
(iii) if required by the Administrative Agent in
instances where the Administrative Agent has determined in the
exercise of reasonable discretion that the reputation or
credit standing of a general contractor referred to in the
preceding clause (ii)
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are not adequate, based on a "due diligence" review of
financial and other information with respect to the general
contractor supplied by the Company, a copy, certified as true,
correct, complete and in full force and effect, of a
performance or similar bond, covering the contractor's
performance of such contract, issued by an insurance company
or bonding company whose financial condition and claims paying
ability are satisfactory to the Administrative Agent in its
sole discretion, and otherwise satisfactory in form and
substance to the Administrative Agent in its sole discretion;
(iv) if required by the Administrative Agent in
cases where the general construction contract is not on a
guaranteed fixed price basis, a certified list of all proposed
subcontractors to be used in connection with the construction
of such Project whose work in the case of any individual
subcontractor is reasonably expected to exceed $500,000, and,
to the extent that the same have been entered into, certified
copies of all contracts with such subcontractors;
(v) if required by the Administrative Agent,
such general contractor's license or other authorization to
act as a contractor in the jurisdiction in which the Project
is located; and
(vi) a copy, certified as true, correct, complete
and in full force and effect, of the contract with the
architect retained in connection with the construction of such
Borrower's Project, satisfactory in form and substance to the
Administrative Agent in its reasonable discretion;
(d) MANAGEMENT CONTRACT/COMPANY LEASE ARRANGEMENTS. The
Company shall have delivered to the Administrative Agent a copy,
certified as true, correct, complete and in full force and effect, of
any of the following:
(i) a Management Contract between the Company
and such Borrower for such Project,
(ii) a Company Lease of such Borrower's Project
to the Company, or
(iii) an Affiliate Lease of such Borrower's
Project to an Affiliate of the Company and either (x) a
Company Sublease of such Project to the Company, or (y) a
Management Contract for such Project between such Affiliate
and the Company,
in any such case entered into in compliance with section 8.12
(e) PROJECT TAKE-OUT AGREEMENT. The Administrative Agent,
the Lenders, the Company and the Permanent Lender (or the Supplemental
Permanent Lender) shall have duly executed and delivered a Project
Take-Out Agreement related to such Project (as modified, amended or
supplemented from time to time in accordance with the terms thereof and
hereof, a "PROJECT TAKE-OUT AGREEMENT"), substantially in the form
attached hereto as Exhibit G, with the information included therein or
attached thereto being completed in a manner acceptable to the
Administrative Agent, the Project Take-Out Agreement shall be in full
force and effect, and original counterparts thereof shall have been
delivered to the Administrative Agent, in sufficient quantities for the
Administrative Agent and the Lenders.
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(f) ORGANIZATION OF BORROWER, ETC. Such Borrower shall
(i) be a corporation, limited liability company or partnership, (ii) be
solvent, (iii) not be a party to any contract or arrangement which
would prohibit or restrict its participation in the transactions
contemplated hereby, (iv) not have outstanding any Indebtedness other
than Obligations incurred hereunder, any Indebtedness incurred pursuant
to the Permanent Credit Agreement or the Supplemental Credit Agreement,
and any other Indebtedness which would be permitted by section 16(c) of
the Mortgage to which such Borrower is to be a party covering its
interests in its Project, (v) be either a Subsidiary or an Affiliate of
the Company, and if such Borrower is not a Subsidiary of the Company,
there shall be in existence contractual arrangements pursuant to which
the Company or a Subsidiary of the Company may at its option,
exercisable at any time, or exercisable following completion of
improvements and/or achievement of specified occupancy levels, or
exercisable at such other time or times or under such other
circumstances as are acceptable to the Required Lenders, acquire a
majority of the outstanding equity interests in such Borrower, and (vi)
have delivered to the Administrative Agent (x) a copy, certified as of
a recent date by the Secretary of State of the jurisdiction in which
such Borrower is organized or formed (or other appropriate governmental
official), of the organizational documents of such Borrower, and a
certificate dated as of a recent date as to good standing or other
authorization of such Borrower to do business, issued by the Secretary
of State (or other appropriate governmental official) of the
jurisdiction in which the Project is located, and (y) if such Borrower
is not a Wholly-Owned Subsidiary of the Company, copies of all
documents relating to the ownership, management and transfer of equity
interests in such Borrower.
(g) DEPOSIT OF COLLATERAL UNDER SUPPLEMENTAL RESERVE
PLEDGE AGREEMENT, ETC. Either (i) Cash and/or Cash Equivalents in an
amount at least equal to 10% of all costs and expenses of the
acquisition and construction of such Project (including soft costs) and
anticipated operating deficits through a full 12 months of full
operation, as reflected in the Project Summary & Feasibility Report for
such Project, shall have been pledged and deposited by the Company with
the Collateral Agent under the Supplemental Reserve Pledge Agreement;
or (ii) the Company shall have made arrangements, satisfactory to the
Administrative Agent and all of the Lenders, for the pledging or
mortgaging to the Collateral Agent, as security for the Obligations, of
other property or collateral which in the judgment of the
Administrative Agent and all of the Lenders, taking into account
customary loan to value and collateral valuation practices of the
respective Lenders, has at least an equivalent collateral value to the
cash or Cash Equivalents which would have been pledged pursuant to the
preceding clause (i), and such other arrangements shall have been
completed in a manner and in accordance with documentation satisfactory
to the Administrative Agent and all of the Lenders.
(h) CORPORATE RESOLUTIONS AND APPROVALS. The
Administrative Agent shall have received, in sufficient quantity for
the Administrative Agent and the Lenders, certified copies of the
resolutions of the Board of Directors (or other governing body) of such
Borrower, approving the Credit Documents to which such Borrower is to
be a party, and of all documents evidencing other necessary corporate
or other organizational action and governmental approvals, if any, with
respect to the execution, delivery and performance by such Borrower of
the Credit Documents to which it is to be a party.
(i) INCUMBENCY CERTIFICATE. The Administrative Agent
shall have received, in sufficient quantity for the Administrative
Agent and the Lenders, a certificate of the Secretary or an Assistant
Secretary of such Borrower or any other entity executing any documents
on behalf of such Borrower, certifying the names and true signatures of
the officers of such person authorized to sign the Credit Documents to
which such Borrower is to be a party and any other documents to which
such Borrower is or is to be a party which may be executed and
delivered in connection herewith.
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(j) CREDIT DOCUMENTS RELATED TO SUCH PROJECT. The
following documents shall be delivered and conditions shall be
satisfied:
(i) JOINDER SUPPLEMENT; PROJECT PROMISSORY
NOTES. If such Borrower shall not previously have executed and
delivered a Joinder Supplement, such Borrower shall have
contemporaneously entered into a Joinder Supplement, and in
either case such Joinder Supplement shall be in full force and
effect. If required by the Administrative Agent, such Borrower
shall have delivered to the Administrative Agent the
appropriate Project Promissory Notes executed by such Borrower
for such Project, in each case in the amount, maturity and as
otherwise provided for in the request of the Administrative
Agent made pursuant to the Joinder Supplement to which such
Borrower is a party.
(ii) MORTGAGE. Such Borrower shall have duly
executed, acknowledged and delivered a mortgage, deed of
trust, deed to secure debt or similar instrument relating to
such Project (as modified, amended or supplemented from time
to time in accordance with the terms thereof and hereof, a
"MORTGAGE"), substantially in the form attached hereto as
Exhibit C-1, such Mortgage shall be in full force and effect,
and original or photocopy counterparts thereof shall have been
delivered to the Administrative Agent, in sufficient
quantities for the Administrative Agent and the Lenders.
(iii) ASSIGNMENT OF LEASES. Such Borrower shall
have duly executed, acknowledged and delivered an Assignment
of Leases and Rents (as modified, amended or supplemented from
time to time in accordance with the terms thereof and hereof,
an "ASSIGNMENT OF LEASES"), substantially in the form attached
hereto as Exhibit C-2, for such Project, such Assignment of
Leases shall be in full force and effect, and original or
photocopy counterparts thereof shall have been delivered to
the Administrative Agent, in sufficient quantities for the
Administrative Agent and the Lenders.
(iv) COLLATERAL ASSIGNMENT OF CONTRACTS AND
PLANS. The Company and such Borrower shall have duly executed
and delivered a Collateral Assignment of Contracts and Plans
(as modified, amended or supplemented from time to time in
accordance with the terms thereof and hereof, a "COLLATERAL
ASSIGNMENT OF CONTRACTS AND PLANS"), substantially in the form
attached hereto as Exhibit C-3, for such Project, covering (i)
the Plans and Specifications for such Project, (ii) such
Borrower's interests in the Management Contract/Company Lease
for such Project with the Company, (iii) such Borrower's
rights to obtain loans from the Permanent Lender or
Supplemental Permanent Lender for such Project and related
rights under the Project Take-Out Agreement for such Project,
and (iv) the Company's or such Borrower's contracts with the
general contractor or any other contractors, architects and
mechanical and structural engineers, if any, retained by the
Company or such Borrower in connection with the construction
of the Improvements for such Project, together with consents
of the general contractor, the architect, and any other
parties to the contracts and agreements being assigned which
are valued in excess of $500,000 and required by the
Administrative Agent, in form and substance satisfactory to
the Collateral Agent, containing the confirmation by such
other parties that they will continue to perform under such
contracts and agreements, as the same may be, after
enforcement of and realization of such assignment by the
Collateral Agent. Such Collateral Assignment of Contracts and
Plans shall be in full force and effect, and original or
photocopy counterparts thereof and of such consents shall have
been delivered to the Administrative Agent, in sufficient
quantities for the Administrative Agent and the Lenders.
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(v) COLLATERAL ASSIGNMENT OF LICENSES AND
PERMITS. The Company and such Borrower shall have duly
executed and delivered a Collateral Assignment of Licenses and
Permits (as modified, amended or supplemented from time to
time in accordance with the terms thereof and hereof, a
"COLLATERAL ASSIGNMENT OF LICENSES AND PERMITS"),
substantially in the form attached hereto as Exhibit C-4, for
such Project, covering all licenses and permits required for
the ownership, construction and operation of such Project,
such Collateral Assignment of Licenses and Permits shall be in
full force and effect, and original or photocopy counterparts
thereof shall have been delivered to the Administrative Agent,
in sufficient quantities for the Administrative Agent and the
Lenders.
(vi) ENVIRONMENTAL INDEMNITY AGREEMENT. The
Administrative Agent and such Borrower shall have duly
executed and delivered an Environmental Indemnity Agreement
(as modified, amended or supplemented from time to time in
accordance with the terms thereof and hereof, an
"ENVIRONMENTAL INDEMNITY AGREEMENT"), substantially in the
form attached hereto as Exhibit C-5, for such Project, such
Environmental Indemnity Agreement shall be in full force and
effect, and original or photocopy counterparts thereof shall
have been delivered to the Administrative Agent, in sufficient
quantities for the Administrative Agent and the Lenders.
(vii) PLEDGE AGREEMENT. The Collateral Agent and
the Company (or another Subsidiary which is the owner of any
of the outstanding capital stock or other equity interests of
such Borrower) shall have duly executed and delivered a Pledge
Agreement (as modified, amended or supplemented from time to
time in accordance with the terms thereof and hereof, a
"PLEDGE AGREEMENT"), substantially in the form attached hereto
as Exhibit E, pursuant to which the Company (and or such
Subsidiary) pledges to the Collateral Agent, as security for
the Obligations, all of the outstanding capital stock or other
equity interests of all classes of such Borrower which are
owned by it, certificates for all such shares, if any, duly
endorsed in blank or accompanied by undated stock powers duly
signed in blank, shall have been delivered to the Collateral
Agent, such Pledge Agreement shall be in full force and
effect, and original or photocopy counterparts thereof shall
have been delivered to the Administrative Agent, in sufficient
quantities for the Administrative Agent and the Lenders.
(k) RECORDATION OF SECURITY DOCUMENTS, PAYMENT OF TAXES,
ETC. Such Mortgage and such Collateral Assignment of Leases shall have
been duly recorded, published and filed in such manner and in such
places as is required by law to establish, perfect, preserve and
protect the rights and security interests of the parties thereto and
their respective successors and assigns, all notices or UCC financing
statements in respect of any liens and security interests purported to
be granted by any of the Security Documents executed by such Borrower
or otherwise related to such Borrower's Project shall have been duly
executed, recorded, published and filed in such manner and in such
places as is required by law to establish, perfect, preserve and
protect the rights and security interests of the parties thereto and
their respective successors and assigns, and all taxes, fees and other
charges then due and payable in connection with the execution,
delivery, recording, publishing and filing of such instruments and the
issue and delivery of the Notes of such Borrower shall have been paid
in full.
(l) EVIDENCE OF INSURANCE. The Collateral Agent shall
have received certificates of insurance and other evidence,
satisfactory to it, of compliance with the insurance requirements of
this Agreement and the Credit Documents to which such Borrower is a
party, and copies of all certificates of insurance or endorsements to
policies related to such compliance shall have been delivered to the
Administrative Agent in sufficient quantities for the Lenders.
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(m) SEARCH REPORTS. The Administrative Agent shall have
received completed requests for information from filing officers on an
appropriate UCC form, or search reports from one or more commercial
search firms acceptable to the Administrative Agent, listing all of the
effective financing statements filed against such Borrower in any
jurisdiction in which such Borrower maintains an office or in which any
Collateral of such Borrower is or is to be located, together with
copies of such financing statements. No such financing statements shall
reflect any security interests which encumber or conflict with the
first priority of any security interests purported to be granted by
such Borrower to the Collateral Agent.
(n) TITLE COMMITMENT, ETC. As to each Real Property
subjected to the Lien of a Mortgage of a Borrower (a "MORTGAGED
PROPERTY"), the Collateral Agent shall have received a commitment or
proforma policy for an ALTA mortgagee's policy of title insurance (the
"TITLE COMMITMENT") issued by a title insurance company satisfactory to
the Collateral Agent (a "TITLE COMPANY") for the full aggregate amount
of the Loans to be made to such Borrower establishing that the Title
Company is prepared to insure the Mortgage of such Borrower as of the
time of its filing for record as a first and prior lien upon the
Premises and on the Improvements to be erected by the Borrower thereon,
subject only to the Permitted Exceptions. The Title Commitment shall
meet the requirements set forth in Annex III attached hereto. Not less
than five Business days prior to the Closing Date there shall be
delivered to the Collateral Agent copies of all documents constituting
the Permitted Exceptions. Contemporaneously with the Closing Date, such
Borrower shall instruct the Title Company to deliver to the Collateral
Agent a final policy of title insurance (a "TITLE POLICY") reflecting
the Title Commitment, the requirements of the Credit Documents
applicable thereto, and the recording of the Borrower's Mortgage, as
soon as possible after closing. In addition, the Company shall have
paid or caused to be paid all costs and expenses payable in connection
with all of such actions, including but not limited to (x) all
mortgage, intangibles or similar taxes or fees, however characterized,
payable in respect of this Agreement and the execution and delivery of
the Notes, such Mortgage or any of the other Credit Documents or the
recording of any of the same; and (y) all expenses and premiums of the
Title Company in connection with the issuance of such policy or
policies of title insurance and to all costs and expenses required for
the recording of the Mortgage or any other Credit Documents in the
appropriate public records.
(o) SURVEY, ETC. As to each Mortgaged Property of a
Borrower, the Collateral Agent shall have received a current survey and
site plan showing the outline of the Premises and all matters shown in
Schedule B, Section 2 of the Title Commitment and meeting all of the
requirements of the "Property Survey" set forth in Annex IV attached
hereto. Said survey shall be currently dated and shall be prepared in
accordance with (A) the Minimum Standard Detail Requirements for
ALTA/ACSM Land Title Surveys (the "MINIMUM REQUIREMENTS"), as jointly
adopted by the American Land Title Association and the American
Congress on Surveying and Mapping in 1997 (or as amended); (B)
requirements of applicable statutes of the jurisdiction in which the
Premises are located; and (C) standards of the state society of
professional land surveyors of such jurisdiction, if any, bearing a
proper certificate by the surveyor, which certificate shall include the
legal description of the Premises, shall be made in favor of the
Collateral Agent and the Title Company, be substantially in the form of
Annex V attached hereto, and contain such other certifications as are
contemplated by the Minimum Requirements and applicable state statutes.
The survey shall also contain such additional information as may
reasonably be required by the Collateral Agent or the Title Company.
The survey shall be subject to the approval of the Collateral Agent and
certified by a land surveyor registered as such in the applicable
jurisdiction and approved by the Collateral Agent.
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(p) LEASES; SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
AGREEMENTS. If any leases or subordination, non disturbance and
attornment agreements have been entered into with respect to such
Project as contemplated by section 8.13, the Administrative Agent and
the Lenders shall have received true and complete copies thereof.
(q) OPINIONS OF COUNSEL. The Collateral Agent shall have
received (i) an opinion of counsel to such Borrower as to the due
authorization, execution and delivery by such Borrower of the Credit
Documents referred to in section 6.2(j) and covering such other matters
incident to the transactions contemplated hereby as the Collateral
Agent may reasonably request, and (ii) if requested by the Collateral
Agent (it being understood that the Collateral Agent is authorized to
refrain from making such request if it recently shall have received an
opinion of local counsel in the same jurisdiction as to the mortgaging
by the same Borrower of a different Mortgaged Property as part of the
Collateral), an opinion of local counsel in the jurisdiction in which
the Mortgaged Property is located, covering such matters incident to
the transactions contemplated hereby as the Collateral Agent may
reasonably request, all such opinions to be in form and substance
reasonably satisfactory to the Collateral Agent.
(r) PERMITS AND AUTHORIZATIONS; LEGAL REQUIREMENTS, ETC.
The Administrative Agent shall have received:
(i) copies of all permits and authorizations
covering the grading and excavation of the Project, and
(ii) either (x) copies of all other required
building permits, and zoning, site and other governmental
approvals, for the construction of the Improvements approvals,
or (y) certification or opinion from the Borrower's
independent architect or construction engineer, substantially
to the effect that the construction of the Improvements in
accordance with the Plans and Specifications and the intended
use of the Improvements appears to comply with all applicable
material Legal Requirements which are applicable to the
Premises;
and the Administrative Agent shall be satisfied that (A) any required
zoning or site plan approvals for the Improvements have been obtained
from all applicable governmental authorities and are in full force and
effect, or that any such approvals can be obtained in the ordinary
course of business without undue difficulty at or prior to the time so
required, and (B) there is no pending proceeding, either
administrative, legislative or judicial, which would in any manner
adversely affect the status of the zoning with respect to the
Improvements or the Premises; and all such matters and documents shall
be satisfactory in form and substance to the Administrative Agent.
(s) FLOOD MAPS, ETC. The Collateral Agent and the Lenders
shall have received evidence satisfactory to the Collateral Agent and
each Lender that the Premises are not included in a special flood
hazard area as designated by the Federal Emergency Management Agency
("FEMA") on its Flood Hazard Boundary Map ("FHBMS") and Flood Insurance
Rate Maps ("FIRMS"), and the Department of Housing and Urban
Development, Federal Insurance Administration, Special Flood Hazard
Area Maps.
(t) SOIL REPORT. The Administrative Agent shall have
received a soil report, prepared by an engineering or similar firm
acceptable to the Administrative Agent, satisfactory in form and
substance to it, demonstrating to the satisfaction of the
Administrative Agent that the soil underlying such Borrower's Project
will adequately support the Improvements of such Project when
constructed in accordance with the Plans and Specifications applicable
thereto.
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(u) ESTIMATED COSTS AND DISBURSEMENTS. If in addition to
the Project Summary & Feasibility Report for such Project, the
Administrative Agent has requested more detailed information as to the
estimated costs of such Project, the Administrative Agent shall have
received (i) an itemized, certified statement of the Company or such
Borrower giving estimated costs of the entire Project; and (ii) a
certificate of the Company or such Borrower as to such Borrower's
estimated schedule for disbursements of the Loan proceeds for such
Project.
(v) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings and all documents incidental to the transactions
contemplated hereby shall be satisfactory in substance and form to the
Administrative Agent and the Lenders and the Administrative Agent and
its special counsel and the Lenders shall have received all such
counterpart originals or certified or other copies of such documents as
the Administrative Agent or its special counsel or any Lender may
reasonably request.
The Lenders agree that the Administrative Agent and the Collateral Agent may, in
their discretion, without the approval or consent of, or any liability to, any
of the Lenders, (i) cause a particular Mortgage (and any other Security
Documents related thereto) to be limited so that it secures only the Loans made
to finance the Project covered thereby, and accept corresponding changes in the
coverage of the Title Policy applicable thereto, in order to avoid burdensome
recording taxes or charges which would be imposed if such Mortgage secured
instead some greater amount (or all) of the Obligations, (ii) shorten the
maturity of any Project Promissory Notes, if requested by any applicable
Borrower in order to avoid burdensome recording or intangibles taxes or similar
charges, (iii) accept and agree to modifications of the forms of Security
Documents executed in connection with a particular Project which are considered
necessary or desirable to reflect local legal requirements and/or the particular
circumstances of a Borrower's interests in a Project (such as the existence of
minority interests), including, without limitation, modifications which, as to
any Borrower which is not a Wholly-Owned Subsidiary of the Company, eliminate
cross-collateralization and cross-default aspects of such Security Documents and
any other Credit Documents insofar as they are related thereto, (iv) accept and
approve the forms of Company Lease, Affiliate Lease, Company Sublease,
Management Contract and/or subordination, non-disturbance and attornment
agreement for a particular Project, as referred to in sections 6.2(d) and 8.12,
if in the Administrative Agent's reasonable opinion such forms are not
inconsistent with the requirements of section 8.12, (v) approve and accept
minimum rental obligations and other terms and provisions of an Affiliate Lease,
as contemplated by section 8.12(b) hereof, (vi) approve the form and terms of
Tenant Leases involving more than 5,000 square feet or involving annual rental
greater than $50,000 and affecting any Mortgaged Property, as contemplated by
section 8.13, and/or (vii) approve any grants of licenses or easements affecting
any Mortgaged Property which, in the reasonable opinion of the Administrative
Agent, do not materially adversely affect the value of such Mortgaged Property.
6.3. CONDITIONS PRECEDENT FOR SUBSEQUENT BORROWINGS BY ANY BORROWER
FOR A PROJECT. The obligation of any Lender to make any Loans to any Borrower
for a Project is subject to the satisfaction of each of the following conditions
on the date of any Borrowing by such Borrower for a Project after the date of
the initial Borrowing by such Borrower for such Project:
(a) PLANS AND SPECIFICATIONS. The Administrative Agent
shall have received the Plans and Specifications for the Improvements
to such Project to the extent not already delivered to the
Administrative Agent, and if such Plans and Specifications reflect any
modifications or additional items not previously approved by the
Administrative Agent and the Inspecting Consultant, or otherwise
permitted under section 2.3(d), such modifications and/or additional
items shall be satisfactory in form and substance to the Administrative
Agent and the Inspecting Consultant, in their reasonable discretion,
and copies of any report thereon of the Inspecting Consultant shall
have been delivered to the Administrative Agent and the Lenders.
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(b) CERTIFICATE OR REPORT OF INSPECTING CONSULTANT.
Within a reasonable time following the approximately 1/3, the
approximately 2/3 and the approximately 100% stages of completion of
construction, the Administrative Agent shall have received a
certificate or report from the Inspecting Consultant (a copy of which
shall be promptly distributed by the Administrative Agent to the
Lenders) certifying (A) that the construction of the Improvements
theretofore completed, if any, has been performed substantially in
accordance with the Plans and Specifications; (B) that the quality of
construction of the Improvements theretofore completed is in accordance
with generally accepted standards in the construction industry for the
construction of similar improvements, (C) the estimated total cost of
the construction of the Improvements; (D) that the nondisbursed portion
of the Loans as shown on the budget plus any equity contribution made
or to be made by Borrower is adequate to complete the construction of
the Improvements pursuant to the Plans and Specifications; and (E) that
the completion of the Improvements will reasonably occur within 18
months of commencement of construction.
(c) TITLE POLICY ENDORSEMENT. The Collateral Agent shall
have received an endorsement to the Title Policy indicating that since
the last preceding disbursement of the Loans to such Borrower for such
Project there has been no change in the state of title and no survey
exceptions not theretofore approved by the Collateral Agent and
increasing the coverage of the Title Policy by an amount equal to the
disbursement then being made so that the total amount insured equals
the total amount of Loan proceeds disbursed by the Administrative Agent
to such Borrower under the terms hereof and changing the effective date
of the Title Policy to the date of the disbursement.
(d) LOAN PROCEEDS FIRST USED TO PAY FOR FOUNDATION OR
BUILDING COSTS. Prior to the first advance to a Borrower of Loan
proceeds to be used for the payment or financing of foundation or
building costs for a Project, the Administrative Agent shall have
received, if not previously delivered, a copy of the applicable
building permit or similar governmental approval for the construction
of the Improvements.
(e) FINAL LOANS BY A BORROWER FOR A PROJECT. In the case
of Loans to be incurred by a Borrower for a Project after completion of
the Improvements to such Project any portion of the proceeds of which
is to be used to pay any Retainage Amount, the Administrative Agent
shall have received the following, each of which shall be satisfactory
in form and substance to it:
(i) evidence of the issuance by all appropriate
governmental authorities of the Certificate of Occupancy and
any other material permits or authorizations related to the
construction, occupancy or operation of the Improvements;
(ii) a final as-built survey, bearing a proper
certificate by the surveyor, showing the completed
Improvements and all easements and right-of-ways;
(iii) an additional endorsement to the Title
Policy insuring the priority of the Mortgage in the full
amount of the Loans to such Borrower against mechanic's and
materialmen's liens (including inchoate liens) arising by
reason of unpaid labor and materials supplied in connection
with the construction and development of the Project;
(iv) a certificate by the Inspecting Consultant
or other person satisfactory to the Administrative Agent
stating that the Improvements have been 100% completed
substantially in accordance with the Plans and Specifications;
and
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(v) an affidavit of such Borrower stating that
each person providing any material or performing any work in
connection with the Premises has been (or will be, with the
proceeds of and immediately following receipt by such Borrower
of such final Loan disbursement) paid in full or bonded or
insured to the reasonable satisfaction of the Administrative
Agent.
6.4. CONDITIONS PRECEDENT TO ALL LOANS. The obligation of any
Lender to make any Loan is subject, at the time thereof, to the satisfaction of
the following conditions:
(a) DRAW REQUEST; NOTICE OF BORROWING, ETC. The
Administrative Agent shall have received a Draw Request and a Notice of
Borrowing meeting the requirements of sections 2.3 and 2.4 with respect
to the incurrence of such Loan.
(b) NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the
time of such Loan and also after giving effect thereto, (i) there shall
exist no Default or Event of Default and (ii) all representations and
warranties of the Credit Parties contained herein or in the other
Credit Documents shall be true and correct in all respects with the
same effect as though such representations and warranties had been made
on and as of the date of such Loan, except to the extent that such
representations and warranties expressly relate to an earlier specified
date, in which case such representations and warranties shall have been
true and correct in all material respects as of the date when made.
The acceptance of the benefits of each Loan shall constitute a representation
and warranty by the Company to each of the Lenders that all of the applicable
conditions specified in sections 6.1, 6.2, 6.3 and/or 6.4, as the case may be,
exist as of that time. Those certificates, legal opinions and other documents
and papers referred to in this section 6 as being deliverable only to the
Administrative Agent or the Collateral Agent need not be delivered to the
Lenders. Those certificates, legal opinions and other documents and papers
referred to in this section 6 as being deliverable to the Lenders or to the
Administrative Agent for the account of the Lenders shall be delivered to the
Administrative Agent for the account of each of the Lenders and, except for the
Notes, in sufficient counterparts for each of the Lenders, and the
Administrative Agent will promptly distribute to the Lenders their respective
Notes and the copies of such other certificates, legal opinions and documents.
For the convenience of the parties hereto, Annex VI to this Agreement
contains a Qualified Project Construction Loan Checklist which is intended to be
used by the parties in satisfying the requirements of this Agreement with
respect to the qualification and financing of Projects hereunder. In the event
of any inconsistency between the terms of Annex VI and any of the terms or
conditions of this Agreement or the other Credit Documents, the terms and
conditions of this Agreement and the other Credit Documents shall control.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lenders to enter into this Agreement and to make
the Loans provided for herein, the Company makes the following representations
and warranties to, and agreements with, the Lenders, all of which shall survive
the execution and delivery of this Agreement and the making of any Loans:
7.1. CORPORATE STATUS, ETC. Each of the Company, its
Subsidiaries and each other Credit Party (i) is a duly organized or formed and
validly existing corporation, partnership or limited liability company, as the
case may be, in good standing under the laws of the jurisdiction of its
formation and has
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the corporate, partnership or limited liability company power and authority, as
applicable, to own its property and assets and to transact the business in which
it is engaged and presently proposes to engage, and (ii) has duly qualified and
is authorized to do business in all jurisdictions where it is required to be so
qualified except where the failure to be so qualified would not have a Material
Adverse Effect.
7.2. SUBSIDIARIES. Annex II hereto lists, as of the date hereof,
each Subsidiary of the Company (and the direct and indirect ownership interest
of the Company therein).
7.3. CORPORATE POWER AND AUTHORITY, ETC. Each Credit Party has the
corporate or other organizational power and authority to execute, deliver and
carry out the terms and provisions of the Credit Documents to which it is party
and has taken all necessary corporate or other organizational action to
authorize the execution, delivery and performance of the Credit Documents to
which it is party. Each Credit Party has duly executed and delivered each Credit
Document to which it is party and each Credit Document to which it is party
constitutes the legal, valid and binding agreement or obligation of such Credit
Party enforceable in accordance with its terms, except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law).
7.4. NO VIOLATION. Neither the execution, delivery and performance
by any Credit Party of the Credit Documents to which it is party nor compliance
with the terms and provisions thereof (i) will contravene any provision of any
law, statute, rule, regulation, order, writ, injunction or decree of any court
or governmental instrumentality applicable to such Credit Party or its
properties and assets, (ii) will conflict with or result in any breach of, any
of the terms, covenants, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of such Credit Party
pursuant to the terms of any promissory note, bond, debenture, indenture,
mortgage, deed of trust, credit or loan agreement, or any other material
agreement or other instrument, to which such Credit Party is a party or by which
it or any of its property or assets are bound or to which it may be subject, or
(iii) will violate any provision of the certificate or articles of
incorporation, code of regulations or by-laws, or other charter documents of
such Credit Party.
7.5. GOVERNMENTAL APPROVALS. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any foreign or domestic governmental or public body or authority,
or any subdivision thereof, is required to authorize or is required as a
condition to (i) the execution, delivery and performance by any Credit Party of
any Credit Document to which it is a party, or (ii) the legality, validity,
binding effect or enforceability of any Credit Document to which any Credit
Party is a party, other than filing and recordings required to establish and
perfect any Liens purported to be granted by any of the Credit Documents.
7.6. LITIGATION. There are no actions, suits or proceedings pending
or, to, the knowledge of the Company, threatened with respect to the Company,
any of its Subsidiaries or any other Credit Party (i) that have, or could
reasonably be expected to have, a Material Adverse Effect, or (ii) which
question the validity or enforceability of any of the Credit Documents, or of
any action to be taken by the Company or any other Credit Party pursuant to any
of the Credit Documents.
7.7. USE OF PROCEEDS; MARGIN REGULATIONS. (a) The proceeds of all
Loans to any Borrower for a Project of such Borrower shall be used solely to
finance costs and expenses incurred in connection with the acquisition,
construction and development of such Project, as more particularly specified in
the Project Summary & Feasibility Report for such Project.
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(b) No part of the proceeds of any Loans will be used directly or
indirectly to purchase or carry Margin Stock, or to extend credit to others for
the purpose of purchasing or carrying any Margin Stock. Neither any Loans, nor
the use of the proceeds thereof, will violate or be inconsistent with the
provisions of Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System. No Credit Party is engaged in the business of extending credit
for the purpose of purchasing or carrying any Margin Stock. At no time would
more than 25% of the value of the assets of the Company or of the Company and
its consolidated Subsidiaries that are subject to any "arrangement" (as such
term is used in section 221.2(g) of such Regulation U) hereunder be represented
by Margin Stock.
7.8. FINANCIAL STATEMENTS, ETC. (a) The Company has furnished to
the Lenders and the Administrative Agent complete and correct copies of (i) the
audited consolidated balance sheet of the Company and its consolidated
subsidiaries as of December 31, 1997 and December 31, 1996, and the related
audited consolidated statements of income, shareholders' equity, and cash flows
for the fiscal years then ended, accompanied by the unqualified report thereon
of the Company's independent accountants; and (ii) the unaudited condensed
consolidated balance sheets of the Company and its consolidated subsidiaries as
of March 31, 1998, and the related unaudited condensed consolidated statements
of income and of cash flows of the Company and its consolidated subsidiaries for
the fiscal quarter or quarters then ended, as contained in the Form 10-Q
Quarterly Report of the Company filed with the SEC. All such financial
statements have been prepared in accordance with GAAP, consistently applied
(except as stated therein), and fairly present the financial position of the
Company and its consolidated subsidiaries as of the respective dates indicated
and the consolidated results of their operations and cash flows for the
respective periods indicated, subject in the case of any such financial
statements which are unaudited, to the absence of footnotes and to normal
year-end or audit adjustments which the Company reasonably believes will not
involve a Material Adverse Effect.
(b) Each Credit Party (i) has received consideration which is the
reasonable equivalent value of the obligations and liabilities that such Credit
Party has incurred to the Administrative Agent and the Lenders, (ii) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage, (iii) is solvent and able to pay
its debts as they mature, and (iv) owns property having a value, both at fair
valuation and at present fair salable value, greater than the amount required to
pay its debts. No Credit Party is entering into the Credit Documents with the
intent to hinder, delay or defraud its creditors.
(c) The Company has delivered or caused to be delivered to the
Lenders prior to the execution and delivery of this Agreement (i) a confidential
information brochure dated May 1998 prepared by the Administrative Agent or one
of its Affiliates (with assistance from the Company) which contains information
with respect to the business, properties and operations of the Company and its
Subsidiaries (the "CONFIDENTIAL INFORMATION MEMORANDUM"), and (ii) financial
projections prepared by management of the Company for the Company and its
Subsidiaries for the fiscal years 1998-1999, which are included as Part VII of
the Confidential Information Memorandum (the "FINANCIAL PROJECTIONS"). The
Financial Projections were prepared on behalf of the Company in good faith after
taking into account the existing and historical levels of business activity of
the Company and its Subsidiaries, known trends, including general economic
trends, and all other information, assumptions and estimates considered by
management of the Company and its Subsidiaries to be pertinent thereto. The
Financial Projections were considered by management of the Company, as of such
date of preparation, to be realistically achievable; PROVIDED, that no
representation or warranty is made as to the impact of future general economic
conditions or as to whether the Company's projected consolidated results as set
forth in the Financial Projections will actually be realized. No facts are known
to the Company at the date hereof which, if reflected in the Financial
Projections, would result in a material adverse change in the assets,
liabilities, results of operations or cash flows reflected therein.
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7.9. NO MATERIAL ADVERSE CHANGE. Since December 31, 1997, there has
been no change in the condition, business or affairs of the Company and its
Subsidiaries taken as a whole, or their properties and assets considered as an
entirety, except for changes, none of which, individually or in the aggregate,
has had or could reasonably be expected to have, a Material Adverse Effect.
7.10. TAX RETURNS AND PAYMENTS. Each of the Company and each of its
Subsidiaries has filed all federal income tax returns and all other material tax
returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it which have become due, other than
those not yet delinquent and except for those contested in good faith. The
Company and each of its Subsidiaries has established on its books such charges,
accruals and reserves in respect of taxes, assessments, fees and other
governmental charges for all fiscal periods as are required by GAAP. The Company
knows of no proposed assessment for additional federal, foreign or state taxes
for any period, or of any basis therefor, which, individually or in the
aggregate, taking into account such charges, accruals and reserves in respect
thereof as the Company and its Subsidiaries have made, could reasonably be
expected to have a Material Adverse Effect.
7.11. TITLE TO PROPERTIES, ETC. The Company and each of its
Subsidiaries has good and marketable title, in the case of real property, and
good title (or valid leasehold interests, in the case of any leased property),
in the case of all other property, to all of its properties and assets free and
clear of Liens other than Liens permitted by section 9.3. The interests of the
Company and each of its Subsidiaries in the properties reflected in the most
recent balance sheet referred to in section 7.8, taken as a whole, were
sufficient, in the judgment of the Company, as of the date of such balance sheet
for purposes of the ownership and operation of the businesses conducted by the
Company and such Subsidiaries.
7.12. LAWFUL OPERATIONS, ETC. The Company and each of its
Subsidiaries (i) holds all necessary federal, state and local governmental
licenses, registrations, certifications, permits and authorizations necessary to
conduct its business, and (ii) is in full compliance with all material
requirements imposed by law, regulation or rule, whether federal, state or
local, which are applicable to it, its operations, or its properties and assets,
including without limitation, applicable requirements of Environmental Laws,
except for any failure to obtain and maintain in effect, or noncompliance,
which, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
7.13. ENVIRONMENTAL MATTERS. (a) The Company and each of its
Subsidiaries is in compliance with all Environmental Laws governing its business
except to the extent that any such failure to comply (together with any
resulting penalties, fines or forfeitures) would not reasonably be expected to
have a Material Adverse Effect. All licenses, permits, registrations or
approvals required for the business of the Company and each of its Subsidiaries
under any Environmental Law have been secured and the Company and each of its
Subsidiaries is in substantial compliance therewith, except for such licenses,
permits, registrations or approvals the failure to secure or to comply therewith
is not reasonably likely to have a Material Adverse Effect. Neither the Company
nor any of its Subsidiaries has received written notice, or otherwise knows,
that it is in any respect in noncompliance with, breach of or default under any
applicable writ, order, judgment, injunction, or decree to which the Company or
such Subsidiary is a party or which would affect the ability of the Company or
such Subsidiary to operate any Real Property and no event has occurred and is
continuing which, with the passage of time or the giving of notice or both,
would constitute noncompliance, breach of or default thereunder, except in each
such case, such noncompliance, breaches or defaults as would not reasonably be
expected to, in the aggregate, have a Material Adverse Effect. There are no
Environmental Claims pending or, to the best knowledge of the Company,
threatened wherein an unfavorable decision, ruling or finding would reasonably
be expected to have a Material Adverse Effect. There are no facts,
circumstances, conditions or occurrences on any Real Property now or at any time
owned, leased or operated by the Company or any of its Subsidiaries or on any
property adjacent to any such Real Property, which are known by the Company or
as to which the Company or any such Subsidiary has received written notice, that
could reasonably be expected (i) to
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form the basis of an Environmental Claim against the Company or any of its
Subsidiaries or any Real Property of the Company or any of its Subsidiaries, or
(ii) to cause such Real Property to be subject to any restrictions on the
ownership, occupancy, use or transferability of such Real Property under any
Environmental Law, except in each such case, such Environmental Claims or
restrictions that individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect.
(b) Hazardous Materials have not at any time been (i) generated,
used, treated or stored on, or transported to or from, any Real Property of the
Company or any of its Subsidiaries or (ii) released on any such Real Property,
in each case where such occurrence or event is not in compliance with
Environmental Laws and is reasonably likely to have a Material Adverse Effect.
7.14. COMPLIANCE WITH ERISA. Compliance by the Company with the
provisions hereof and the making of the Loans contemplated hereby will not
involve any prohibited transaction within the meaning of ERISA or section 4975
of the Code. The Company and each of its Subsidiaries, (i) has fulfilled all
obligations under minimum funding standards of ERISA and the Code with respect
to each Plan that is not a Multiemployer Plan or a Multiple Employer Plan, (ii)
has satisfied all respective contribution obligations in respect of each
Multiemployer Plan and each Multiple Employer Plan, (iii) is in compliance in
all material respects with all other applicable provisions of ERISA and the Code
with respect to each Plan, each Multiemployer Plan and each Multiple Employer
Plan, and (iv) has not incurred any liability under the Title IV of ERISA to the
PBGC with respect to any Plan, any Multiemployer Plan, any Multiple Employer
Plan, or any trust established thereunder. No Plan or trust created thereunder
has been terminated, and there have been no Reportable Events, with respect to
any Plan or trust created thereunder or with respect to any Multiemployer Plan
or Multiple Employer Plan, which termination or Reportable Event will or could
result in the termination of such Plan, Multiemployer Plan or Multiple Employer
Plan and give rise to a material liability of the Company or any ERISA Affiliate
in respect thereof. Neither the Company nor any ERISA Affiliate is at the date
hereof, or has been at any time within the two years preceding the date hereof,
an employer required to contribute to any Multiemployer Plan or Multiple
Employer Plan, or a "contributing sponsor" (as such term is defined in section
4001 of ERISA) in any Multiemployer Plan or Multiple Employer Plan. Neither the
Company nor any ERISA Affiliate has any contingent liability with respect to any
post-retirement "welfare benefit plan" (as such term is defined in ERISA) except
as has been disclosed to the Lenders in writing.
7.15. INTELLECTUAL PROPERTY, ETC. The Company and each of its
Subsidiaries has obtained or has the right to use all material patents,
trademarks, servicemarks, trade names, copyrights, licenses and other rights
with respect to the foregoing necessary for the present and planned future
conduct of its business, without any known conflict with the rights of others,
EXCEPT for such patents, trademarks, servicemarks, trade names, copyrights,
licenses and rights, the loss of which, and such conflicts, which in any such
case individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect.
7.16. INVESTMENT COMPANY ACT, ETC. Neither the Company nor any of
its Subsidiaries is subject to regulation with respect to the creation or
incurrence of Indebtedness under the Investment Company Act of 1940, as amended,
the Interstate Commerce Act, as amended, the Federal Power Act, as amended, the
Public Utility Holding Company Act of 1935, as amended, or any applicable state
public utility law.
7.17. BURDENSOME CONTRACTS; LABOR RELATIONS. Neither the Company nor
any of its Subsidiaries (i) is subject to any burdensome contract, agreement,
corporate restriction, judgment, decree or order, (ii) is a party to any labor
dispute affecting any bargaining unit or other group of employees generally,
(iii) is subject to any material strike, slow down, workout or other concerted
interruptions of operations by employees of the Company or any Subsidiary,
whether or not relating to any labor
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contracts, (iv) is subject to any significant pending or, to the knowledge of
the Company, threatened, unfair labor practice complaint, before the National
Labor Relations Board, and (v) is subject to any significant pending or, to the
knowledge of the Company, threatened, grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement, (vi) is
subject to any significant pending or, to the knowledge of the Company,
threatened, significant strike, labor dispute, slowdown or stoppage, or (vii)
is, to the knowledge of the Company, involved or subject to any union
representation organizing or certification matter with respect to the employees
of the Company or any of its Subsidiaries, EXCEPT (with respect to any matter
specified in any of the above clauses), for such matters as, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
7.18. YEAR 2000 COMPUTER MATTERS. (a) The Company and its
Subsidiaries have (i) conducted a comprehensive review and assessment of all
areas of their business that could be adversely affected by the "Y2K ISSUE"
(that is, the risk that computer applications used by the Company and its
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), which review and assessment has included, without limitation written
inquiry of each of the Company's and its Subsidiaries' key suppliers, vendors
and customers with whom there is regular electronic communication via access to
computer networks or systems, (ii) developed a detailed plan and timeline for
addressing the Y2K issue, including linkages with, and programming changes to be
made by, key suppliers, vendors and customers, on a timely basis, and (iii) to
date, implemented that plan in accordance with that timetable.
(b) Based on such review and program, (i) the Company reasonably
believes that the Y2K issue is not reasonably likely to have a Material Adverse
Effect, (ii) the Company reasonably anticipates that all computer applications
that are material to its business and the business of its Subsidiaries will on a
timely basis be able to perform properly date-sensitive functions for all dates
before and after January 1, 2000 (I.E., be "Y2K COMPLIANT"), and (iii) the
Company reasonably believes that each of such key suppliers, vendors and
customers will on a timely basis be Y2K compliant in all material respects which
affect the Company or any of its Subsidiaries.
7.19. SECURITY INTERESTS. Once executed and delivered, and until
terminated in accordance with the terms thereof, each of the Security Documents
creates, as security for the obligations purported to be secured thereby, a
valid and enforceable perfected security interest in and Lien on all of the
Collateral subject thereto from time to time, in favor of the Collateral Agent
for the benefit of the Secured Creditors referred to in the Security Documents,
superior to and prior to the rights of all third persons and subject to no other
Liens, other than Permitted Liens. No filings or recordings are required in
order to perfect the security interests created under any Security Document
except for filings or recordings required in connection with any such Security
Document which shall have been made, or for which satisfactory arrangements have
been made, upon or prior to the execution and delivery thereof. All recording,
stamp, intangible or other similar taxes required to be paid by any person under
applicable legal requirements or other laws applicable to the property
encumbered by the Security Documents in connection with the execution, delivery,
recordation, filing, registration, perfection or enforcement thereof have been
paid, or arrangements for such payment made which are satisfactory to the
Administrative Agent.
7.20. TRUE AND COMPLETE DISCLOSURE. All factual information (taken
as a whole) heretofore or contemporaneously furnished by or on behalf of the
Company or any of its Subsidiaries in writing to the Administrative Agent or any
Lender for purposes of or in connection with this Agreement or any transaction
contemplated herein, other than the Financial Projections (as to which
representations are made only as provided in section 7.8), is, and all other
such factual information (taken as a whole) hereafter furnished by or on behalf
of such person in writing to any Lender will be, true and accurate in all
material respects on the date as of which such information is dated or certified
and not incomplete by omitting to state any material fact necessary to make such
information (taken as a whole) not misleading
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at such time in light of the circumstances under which such information was
provided, except that any such future information consisting of financial
projections prepared by management of the Company is only represented herein as
being based on good faith estimates and assumptions believed by such persons to
be reasonable at the time made, it being recognized by the Lenders that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
materially from the projected results. As of the Effective Date, there is no
fact known to the Company or any of its Subsidiaries which has, or could
reasonably be expected to have, a Material Adverse Effect which has not
theretofore been disclosed in writing to the Lenders.
SECTION 8. AFFIRMATIVE COVENANTS.
The Company hereby covenants and agrees that so long as this Agreement
is in effect and until such time as the Total Commitment has been terminated, no
Notes are outstanding and the Loans, together with interest, Fees and all other
Obligations hereunder, have been paid in full:
8.1. REPORTING REQUIREMENTS. The Company will furnish to each
Lender and the Administrative Agent:
(a) ANNUAL CONSOLIDATED FINANCIAL STATEMENTS. As soon as
available and in any event within 90 days after the close of each
fiscal year of the Company, the consolidated balance sheets of the
Company and its consolidated Subsidiaries as at the end of such fiscal
year and the related consolidated statements of income, of
stockholder's equity and of cash flows for such fiscal year, in each
case setting forth comparative figures for the preceding fiscal year,
all in reasonable detail and accompanied by the opinion with respect to
such consolidated financial statements of independent public
accountants of recognized national standing selected by the Company,
which opinion shall be unqualified and shall (i) state that such
accountants audited such consolidated financial statements in
accordance with generally accepted auditing standards, that such
accountants believe that such audit provides a reasonable basis for
their opinion, and that in their opinion such consolidated financial
statements present fairly, in all material respects, the consolidated
financial position of the Company and its consolidated subsidiaries as
at the end of such fiscal year and the consolidated results of their
operations and cash flows for such fiscal year in conformity with
generally accepted accounting principles, or (ii) contain such
statements as are customarily included in unqualified reports of
independent accountants in conformity with the recommendations and
requirements of the American Institute of Certified Public Accountants
(or any successor organization).
(b) QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS. As soon
as available and in any event within 45 days after the close of each of
the quarterly accounting periods in each fiscal year of the Company,
the unaudited condensed consolidated balance sheets of the Company and
its consolidated Subsidiaries as at the end of such quarterly period
and the related unaudited condensed consolidated and consolidating
statements of income and of cash flows for such quarterly period and
for the fiscal year to date, and setting forth, in the case of such
unaudited consolidated statements of income and of cash flows,
comparative figures for the related periods in the prior fiscal year,
and which consolidated financial statements shall be certified on
behalf of the Company by the Chief Financial Officer or other
Authorized Officer of the Company, subject to changes resulting from
normal year-end or audit adjustments.
(c) OFFICER'S COMPLIANCE CERTIFICATES. At the time of the
delivery of the financial statements provided for in sections 8.1(a)
and (b), a certificate on behalf of the Company of the Chief Financial
Officer or other Authorized Officer of the Company to the effect that,
to the best knowledge of the Company, no Default or Event of Default
exists or, if any Default or Event of
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Default does exist, specifying the nature and extent thereof, which
certificate shall set forth the calculations required to establish
compliance with the provisions of sections 9.5, 9.6 and 9.7 of this
Agreement.
(d) ANNUAL BORROWER AND PROJECT FINANCIAL STATEMENTS. In
the case of any Borrower which has any Project which is at the time
being financed hereunder, as soon as available and in any event within
90 days after the close of each fiscal year of each Borrower,
commencing with the first fiscal year in which such Borrower has a
Project being financed hereunder, (i) the unaudited balance sheet of
such Borrower as at the end of such fiscal year and the related
unaudited statements of income, of stockholder's equity and of cash
flows for such fiscal year, in each case setting forth comparative
figures for the preceding fiscal year, if any, and (ii) financial
statements and other financial information for each Project of such
Borrower for such fiscal year, including comparisons of actual
financial information with the budgeted and projected financial
information included in the Project Summary & Feasibility Report for
such Project, all in reasonable detail and certified on behalf of such
Borrower by the Chief Financial Officer or other Authorized Officer of
the Company.
(e) QUARTERLY BORROWER INCOME STATEMENTS. In the case of
any Borrower which has any Project which is at the time being financed
hereunder, as soon as available and in any event within 45 days after
the close of each of the first three fiscal quarters of such Borrower,
and within 90 days after the close of the fourth fiscal quarter of such
Borrower's fiscal year, commencing with the first fiscal quarter after
a Project of such Borrower is first financed hereunder, the unaudited
statement of income for such fiscal quarter or for the fiscal year to
date through such fiscal quarter, setting forth comparative figures for
the preceding fiscal year, if any, all in reasonable detail and
certified on behalf of such Borrower by the Chief Financial Officer or
other Authorized Officer of the Company.
(f) MONTHLY PROJECT FINANCIAL STATEMENTS. As soon as
available and in any event within 30 days after the close of each of
the monthly accounting periods in each fiscal year of a Borrower which
has completed a Project being financed hereunder for which a
Certificate of Occupancy has been issued, the unaudited financial
statements and other financial information for such Project, in the
form regularly prepared for internal review by senior financial
officers of the Company, in each case setting forth comparisons of
actual financial information with the budgeted and projected financial
information included in the Project Summary & Feasibility Reports for
such Projects, and occupancy statistics, all in reasonable detail and
certified on behalf of such Borrower by the Chief Financial Officer or
other Authorized Officer of the Company.
(g) BUDGET. Not later than 90 days after the commencement
of any fiscal year of the Company and its Subsidiaries, a consolidated
budget in reasonable detail for each of the four fiscal quarters of
such fiscal year, and (if and to the extent prepared by management of
the Company) for any subsequent fiscal years, as customarily prepared
by management for its internal use, setting forth, with appropriate
discussion, the forecasted balance sheet, income statement, operating
cash flows and capital expenditures of the Company and its Subsidiaries
for the period covered thereby, and the principal assumptions upon
which forecasts and budget are based.
(h) NOTICE OF DEFAULT, CERTAIN EVENTS UNDER THE PERMANENT
CREDIT AGREEMENT, OR LITIGATION, ETC. Promptly, and in any event within
three Business Days, in the case of clause (i) or (ii) below, or five
Business Days, in the case of clause (iii) below, after the Company or
any of its Subsidiaries obtains knowledge thereof, notice of
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(i) the occurrence of any event which
constitutes a Default or Event of Default, which notice shall
specify the nature thereof, the period of existence thereof
and what action the Company proposes to take with respect
thereto,
(ii) any written communication from the Permanent
Lender or the Supplemental Permanent Lender, as applicable,
asserting that (A) a default or event of default has occurred
under the Permanent Credit Agreement, the Supplemental
Permanent Credit Agreement, or any Project Commitment issued
thereunder, (B) any condition to the obligations of the
Permanent Lender or the Supplemental Permanent Lender, as
applicable, under any of such documents which is required to
be satisfied by a specified date has not been satisfied by
such date, or (C) all or any portion of the commitment of the
Permanent Lender or the Supplemental Permanent Lender, as
applicable, under the Permanent Credit Agreement, the
Supplemental Permanent Credit Agreement, or any Project
Commitment issued thereunder, has been or is being terminated
or permanently reduced; and
(iii) any litigation or governmental or regulatory
proceeding pending against the Company, or any of its Material
Subsidiaries, or any Borrower, which is likely to have a
Material Adverse Effect, or a material adverse effect on the
ability of the Company or any Borrower to perform its
obligations hereunder or under any other Credit Document.
(i) ERISA. Promptly, and in any event within 10 days
after the Company, any Subsidiary of the Company or any ERISA Affiliate
knows of the occurrence of any of the following, the Company will
deliver to each of the Lenders a certificate on behalf of the Company
of an Authorized Officer of the Company setting forth the full details
as to such occurrence and the action, if any, that the Company, such
Subsidiary or such ERISA Affiliate is required or proposes to take,
together with any notices required or proposed to be given to or filed
with or by the Company, the Subsidiary, the ERISA Affiliate, the PBGC,
a Plan participant or the Plan administrator with respect thereto:
(i) that a Reportable Event has occurred with
respect to any Plan;
(ii) the institution of any steps by the Company,
any ERISA Affiliate, the PBGC or any other person to terminate
any Plan;
(iii) the institution of any steps by the Company
or any ERISA Affiliate to withdraw from any Plan;
(iv) the institution of any steps by the Company
or any Subsidiary to withdraw from any Multiemployer Plan or
Multiple Employer Plan, if such withdrawal could result in
withdrawal liability (as described in Part 1 of Subtitle E of
Title IV of ERISA) in excess of $1,000,000;
(v) a non-exempt "prohibited transaction" within
the meaning of section 406 of ERISA in connection with any
Plan;
(vi) that a Plan has an Unfunded Current
Liability exceeding $1,000,000;
(vii) any material increase in the contingent
liability of the Company or any Subsidiary with respect to any
post-retirement welfare liability; or
(viii) the taking of any action by, or the
threatening of the taking of any action by, the Internal
Revenue Service, the Department of Labor or the PBGC with
respect to any of the foregoing.
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(j) ENVIRONMENTAL MATTERS. Promptly upon, and in any
event within 10 Business Days after, an officer of the Company obtains
actual knowledge thereof, notice of any of the following environmental
matters which involves any reasonable likelihood (in the Company's
reasonable judgment) of resulting in a Material Adverse Effect: (i) any
pending or threatened (in writing) Environmental Claim against the
Company or any of its Subsidiaries or any Real Property owned or
operated by the Company or any of its Subsidiaries; (ii) any condition
or occurrence on or arising from any Real Property owned or operated by
the Company or any of its Subsidiaries that (A) results in
noncompliance by the Company or any of its Subsidiaries with any
applicable Environmental Law or (B) would reasonably be expected to
form the basis of an Environmental Claim against the Company or any of
its Subsidiaries or any such Real Property; (iii) any condition or
occurrence on any Real Property owned, leased or operated by the
Company or any of its Subsidiaries that could reasonably be expected to
cause such Real Property to be subject to any restrictions on the
ownership, occupancy, use or transferability by the Company or any of
its Subsidiaries of such Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in response to the
actual or alleged presence of any Hazardous Material on any Real
Property owned, leased or operated by the Company or any of its
Subsidiaries as required by any Environmental Law or any governmental
or other administrative agency. All such notices shall describe in
reasonable detail the nature of the Environmental Claim and the
Company's or such Subsidiary's response thereto.
(k) AUDITORS' INTERNAL CONTROL COMMENT LETTERS, ETC.
Promptly upon receipt thereof, a copy of each letter or memorandum
commenting on internal accounting controls or financial reporting
practices or policies which is submitted to the Company by its
independent accountants in connection with any annual audit made by
them of the books of the Company.
(l) SEC REPORTS AND REGISTRATION STATEMENTS. Promptly
upon transmission thereof or other filing with the SEC, copies of all
registration statements (other than the exhibits thereto and any
registration statement on Form S-8 or its equivalent) and annual,
quarterly or current reports that the Company or any of its
Subsidiaries files with the SEC.
(m) OTHER INFORMATION. With reasonable promptness, such other
information or documents (financial or otherwise) relating to the
Company or any of its Subsidiaries as any Lender may reasonably request
from time to time.
8.2. BOOKS, RECORDS AND INSPECTIONS. The Company will, and will
cause each of its Subsidiaries to, (i) keep proper books of record and account,
in which full and correct entries shall be made of all financial transactions
and the assets and business of the Company or such Subsidiaries, as the case may
be, in accordance with GAAP; and (ii) permit, upon at least five Business Days'
notice to the Chief Financial Officer or any other Authorized Officer of the
Company, officers and designated representatives of the Administrative Agent or
any of the Lenders to visit and inspect any of the properties or assets of the
Company and any of its Subsidiaries in whomsoever's possession (but only to the
extent the Company or such Subsidiary has the right to do so to the extent in
the possession of another person), to examine the books of account of the
Company and any of its Subsidiaries and to make copies thereof and take extracts
therefrom, and to discuss the affairs, finances and accounts of the Company and
of any of its Subsidiaries with, and be advised as to the same by, its and their
officers and independent accountants and independent actuaries, if any, all at
such reasonable times and intervals and to such reasonable extent as the
Administrative Agent or any of the Lenders may request.
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8.3. INSURANCE. (a) The Company will, and will cause each of its
Subsidiaries to, (i) maintain insurance coverage by such insurers and in such
forms and amounts and against such risks as are generally consistent with the
insurance coverage maintained by the Company and its Subsidiaries at the date
hereof, and (ii) forthwith upon any Lender's written request, furnish to such
Lender such information about such insurance as such Lender may from time to
time reasonably request, which information shall be prepared in form and detail
satisfactory to such Lender and certified by an Authorized Officer of the
Company.
(b) Without limitation of the foregoing, the Company will cause
each of the Borrowers to at all times keep its respective property which is
subject to the Lien of any Security Document insured in favor of the Collateral
Agent in accordance with the requirements of the Credit Documents to which such
Borrower is a party
(c) If the Company or any of its Subsidiaries or any Borrower
shall fail to maintain all insurance in accordance with this section 8.3 or the
corresponding provisions of any of the other Credit Documents, or if the Company
or any of its Subsidiaries or any Borrower shall fail to endorse and deliver or
deposit any endorsements or certificates with respect thereto as required by any
of the Credit Documents, the Administrative Agent and/or the Collateral Agent
shall have the right (but shall be under no obligation), upon prior notice to
the Company, to procure such insurance and the Company agrees to reimburse the
Administrative Agent or the Collateral Agent, as the case may be for all costs
and expenses of procuring such insurance.
8.4. PAYMENT OF TAXES AND CLAIMS. The Company will pay and
discharge, and will cause each of its Subsidiaries to pay and discharge, all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the date
on which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien or charge upon any properties of the Company or any of its
Subsidiaries; PROVIDED that neither the Company nor any of its Subsidiaries
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested in good faith and by proper proceedings if it has maintained
adequate reserves with respect thereto in accordance with GAAP; and PROVIDED,
FURTHER, that the Company will not be considered to be in default of any of the
provisions of this sentence if the Company or any Subsidiary fails to pay any
such amount which, individually or in the aggregate, is immaterial to the
Company and its Subsidiaries considered as an entirety.
8.5. CORPORATE FRANCHISES. The Company will do, and will cause each
of its Subsidiaries to do, or cause to be done, all things necessary to preserve
and keep in full force and effect its corporate or other organizational
existence, rights, authority and franchises, PROVIDED that nothing in this
section 8.5 shall be deemed to prohibit (i) any transaction permitted by section
9.2; (ii) the termination of existence of any Subsidiary if (A) the Company
determines that such termination is in its best interest and (B) such
termination is not adverse in any material respect to the Lenders; or (iii) the
loss of any rights, authorities or franchises if the loss thereof, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
8.6. GOOD REPAIR. The Company will, and will cause each of its
Subsidiaries to, ensure that its material properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept in good
repair, working order and condition, normal wear and tear excepted, and that
from time to time there are made in such properties and equipment all needful
and proper repairs, renewals, replacements, extensions, additions, betterments
and improvements, thereto, to the extent and in the manner customary for
companies in similar businesses.
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8.7. COMPLIANCE WITH STATUTES, ETC. The Company will, and will
cause each of its Subsidiaries to, comply, in all material respects, with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its property, other than those (i)
being contested in good faith by appropriate proceedings, as to which adequate
reserves are established to the extent required under GAAP, and (ii) the
noncompliance with which would not have, and which would not be reasonably
expected to have, a Material Adverse Effect or a material adverse effect on the
ability of the Company to perform its obligations under any Credit Document.
8.8. COMPLIANCE WITH ENVIRONMENTAL LAWS. Without limitation of the
covenants contained in section 8.7 hereof:
(a) The Company will, and will cause each of its
Subsidiaries to, (i) comply, in all material respects, with all
Environmental Laws applicable to the ownership, lease or use of all
Real Property now or hereafter owned, leased or operated by the Company
or any of its Subsidiaries, and promptly pay or cause to be paid all
costs and expenses incurred in connection with such compliance, except
for such noncompliance as would not have, and which would not be
reasonably expected to have, a Material Adverse Effect or a material
adverse effect on the ability of the Company to perform its obligations
under any Credit Document; and (ii) keep or cause to be kept all such
Real Property free and clear of any Liens imposed pursuant to such
Environmental Laws which are not permitted under section 9.3.
(b) Without limitation of the foregoing, if the Company
or any of its Subsidiaries shall generate, use, treat, store, release
or dispose of, or permit the generation, use, treatment, storage,
release or disposal of, Hazardous Materials on any Real Property now or
hereafter owned, leased or operated by the Company or any of its
Subsidiaries, or transport or permit the transportation of Hazardous
Materials to or from any such Real Property, any such action shall be
effected only in the ordinary course of business and in any event in
compliance, in all material respects, with all Environmental Laws
applicable thereto, except for such noncompliance as would not have,
and which would not be reasonably expected to have, a Material Adverse
Effect or a material adverse effect on the ability of the Company to
perform its obligations under any Credit Document.
(c) If required to do so under any applicable order of
any governmental agency, the Company will undertake, and cause each of
its Subsidiaries to undertake, any clean up, removal, remedial or other
action necessary to remove and clean up any Hazardous Materials from
any Real Property owned, leased or operated by the Company or any of
its Subsidiaries in accordance with, in all material respects, the
requirements of all applicable Environmental Laws and in accordance
with, in all material respects, such orders of all governmental
authorities, except (i) to the extent that the Company or such
Subsidiary is contesting such order in good faith and by appropriate
proceedings and for which adequate reserves have been established to
the extent required by GAAP, or (ii) for such noncompliance as would
not have, and which would not be reasonably expected to have, a
Material Adverse Effect or a material adverse effect on the ability of
the Company to perform its obligations under any Credit Document.
(d) At the written request of the Administrative Agent or
the Required Lenders, which request shall specify in reasonable detail
the basis therefor, at any time and from time to time after (x) the
Lenders receive notice under section 8.1(j) for any Environmental Claim
involving potential expenditures by the Company or any of its
Subsidiaries in excess of $50,000 in the aggregate for any Real
Property, or (y) the Administrative Agent or the Required Lenders
otherwise become aware of any circumstances under which the Company or
any of its Subsidiaries may become liable for remedial or similar
expenditures potentially required to be
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made by the Company or any of its Subsidiaries in order for any Real
Property to be brought into compliance with Environmental Laws or to
satisfy an Environmental Claim with respect to such Real Property, the
Company will provide, at its sole cost and expense, an environmental
site assessment report concerning any such Real Property now or
hereafter owned, leased or operated by the Company or any of its
Subsidiaries, prepared by an environmental consulting firm reasonably
acceptable to the Administrative Agent, indicating the presence or
absence of Hazardous Materials and the potential cost of any removal or
a remedial action in connection with any Hazardous Materials on such
Real Property. If the Company fails to provide the same within 90 days
after such request was made, the Administrative Agent may order the
same, and the Company shall grant and hereby grants, to the
Administrative Agent and the Lenders and their agents, access to such
Real Property and specifically grants the Administrative Agent and the
Lenders an irrevocable non-exclusive license, subject to the rights of
tenants, to undertake such an assessment, all at the Company's expense.
8.9. CORPORATE FORMALITIES. The Company will cause each Borrower to
take, and each applicable Borrower will itself take, all such action as is
necessary to ensure that all customary formalities regarding the corporate or
other organizational existence of each Borrower, including holding regular board
of directors' (or members' or partners', as applicable) meetings and maintenance
of corporate or other organizational records, are followed.
8.10. CASUALTY AND CONDEMNATION. (a) The Company will promptly (and
in any event within 30 days) furnish to the Administrative Agent and the Lenders
written notice of any material damage to or loss of any material portion of any
Project occasioned by fire, rain, flood, storm, earthquake or other casualty or
loss of any nature, whether insured or uninsured, and of the commencement of any
action or other proceeding for the taking of any material portion of or interest
in any Project under power of eminent domain or by condemnation or similar
proceeding.
(b) If an event described in paragraph (a) above results in an
Event of Loss with respect to a Project, the applicable Borrower will prepay its
Loans for such Project as provided in section 5.2(d).
(c) If an event described in paragraph (a) above does not
constitute an Event of Loss with respect to a Project, the applicable Borrower
will promptly and diligently, at its expense, commence and carry to completion
the repair and restoration of the damage to the applicable Project, and the
replacement of any portion of the Project which is not susceptible of repair or
restoration; and if such event results in Net Proceeds (whether in the form of
insurance proceeds, a condemnation award or otherwise), the Collateral Agent is
authorized to collect such Net Proceeds and, if received by any Credit Party,
the Company will, or will cause any applicable Credit Party, to pay over such
Net Proceeds to the Collateral Agent; PROVIDED that (i) if the aggregate Net
Proceeds in respect of such event (other than proceeds in respect of business
interruption insurance) are less than $250,000, such Net Proceeds shall be paid
over to or retained by the applicable Credit Party unless a Default under
section 10.1(a) or Event of Default has occurred and is continuing, and shall be
applied by it to the cost of repair or restoration of the Project, and (ii) all
proceeds of business interruption insurance shall be paid over to or retained by
the applicable Credit Party unless a Default under section 10.1(a) or Event of
Default has occurred and is continuing.
(d) All such Net Proceeds retained by or paid over to the
Collateral Agent shall be held by the Collateral Agent as part of the Collateral
and, if no Default under section 10.1(a) or Event of Default shall have occurred
and be continuing, shall be released by the Collateral Agent from time to time
to or at the direction of the Company on behalf of any applicable Borrower to
pay the costs of repairing, restoring or replacing the affected property in
accordance with the original construction requirements or any other applicable
terms of the applicable Security Documents.
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(e) If the Collateral Agent determines at any time that any Net
Proceeds retained by or paid over to the Collateral Agent as provided above (x)
remain after the application thereof to the repair, restoration or replacement
of the affected property, or (y) may not, because a Default under section
10.1(a) or Event of Default has occurred and is continuing, be applied to the
repair or restoration or replacement of any property, then such Net Proceeds
shall be promptly applied to prepay Loans of the applicable Borrower or
otherwise to satisfy Obligations of the applicable Borrower, in accordance with
the provisions of this Agreement, and if any such Net Proceeds remain after such
application, the Collateral Agent shall pay such remaining amount to or as
directed by the applicable Borrower (or the Company on its behalf), or to
whomsoever else shall be lawfully entitled thereto.
8.11. HEDGE AGREEMENTS, ETC. If the Company or any of its
Subsidiaries or any other Credit Party proposes to enter into any Hedge
Agreement, the Company will, and will cause each such Subsidiary or other Credit
Party to, do so (i) only in order to provide protection to the Company or any
such Subsidiary or other Credit Party from fluctuations and other changes in
interest rates and currency exchange rates, as and to the extent considered
reasonably necessary by the Company, but without exposing the Company or its
Subsidiaries or any other Credit Party to predominantly speculative risks
unrelated to the amount of assets, Indebtedness or other liabilities intended to
be subject to coverage on a notional basis under all such Hedge Agreement; and
(ii) only if prior to the Company, any Subsidiary or any other Credit Party
entering into any such Hedge Agreement, the Company notifies the Administrative
Agent thereof in writing, specifying the material terms of such transaction.
8.12. JOINT VENTURE ARRANGEMENTS INVOLVING BORROWERS OR PROJECTS.
(a) In the event that
(i) the Company or any of its Affiliates proposes to
enter into any transaction pursuant to which any Borrower will cease to
be a Wholly-Owned Subsidiary of the Company, but will remain a Borrower
hereunder, or
(ii) any Borrower proposes to enter into (A) a contract
for the management of such Borrower's Project (a "MANAGEMENT
CONTRACT"), between the Company and such Borrower; (B) a lease of such
Borrower's Project to the Company (a "COMPANY LEASE"); or (C) a lease
of such Borrower's Project to an Affiliate of the Company (an
"AFFILIATE LEASE") and either (x) a sublease of such Project by such
Affiliate to the Company (a "COMPANY SUBLEASE"), or (y) a Management
Contract for such Project between such Affiliate and the Company,
it may do so ONLY IF (1) all documents incident thereto shall have been approved
by the Administrative Agent in the exercise of its reasonable discretion, and
(2) in the case of any such document, the Administrative Agent shall have
received written confirmation from the Permanent Lender or the Supplemental
Permanent Lender, as applicable, that the form and economic and other terms of
such document are acceptable to it as satisfying any approvals required of it
under the Project Take-Out Agreement and its related Project Commitment for such
Project.
Without the consent of the Lenders, the Administrative Agent is
authorized in its discretion to approve any Management Contract, Company Lease,
Affiliate Lease and Company Sublease which is substantially in the form attached
hereto as Exhibits L-1, L-2, L-3 and L-4, respectively, with such changes in
such forms as are necessary or desirable to reflect (x) any requirements of
local law (including licensing authorities), or (y) economic or business terms
(consistent with the provisions of this section 8.12(a) as well as section
8.12(b) in the case of an Affiliate Lease) negotiated by the Company or any
Borrower on an arm's-length basis with third parties having an economic interest
in the Affiliate which will be a party to any of such documents.
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(b) The terms of any Affiliate Lease to which a Borrower may be a
party as landlord with respect to a Project shall in any event include
(i) Minimum basic rental obligations, payable monthly,
set at a rate which is acceptable to the Administrative Agent, acting
in its reasonable discretion; PROVIDED, HOWEVER, that such minimum
basic rental obligations will in any event be set at an annual rate
which, in the opinion of the Administrative Agent, will be at least
equal to the greater of:
(A) a rate which would result in pro forma debt
service coverage of at least 1.20 to 1.00, based on the
following assumptions: (1) loan amount equal to 90% of the
maximum budgeted cost of construction for the Project, as
reflected in the Project Summary & Feasibility Report
(including any modifications thereto); and (2) interest rate
and amortization based on an interest rate of 240 basis points
over the then current yield on U.S. treasury debt obligations
with a 10 year maturity, with a 7+1/2% floor, and a 25-year
level payment amortization; or
(B) a rate which would result in a pro forma
debt service coverage ratio consistent with similar ratios for
other projects then being financed in the permanent mortgage
conduit market by major financial institutions for borrowers
of like credit quality and operating breadth and experience.
Additionally, an Affiliate Lease shall also contain provisions (similar
to those contained in Section 3.B. of Exhibit L-3 hereto) under which
the basic rental obligations will always be equal to the greater of (x)
the minimum basic rental referred to above and (y) the allocable debt
service obligations of such Borrower with respect to such Project and
appropriate reserves for taxes, maintenance and other obligations of
the Project.
(ii) Such other provisions, if any, as may be required by
the Permanent Lender or the Supplemental Permanent Lender, as
applicable, and are acceptable to the Administrative Agent, acting in
its reasonable discretion.
The Collateral Agent shall be authorized, in the exercise of its reasonable
discretion, to enter into a subordination, non-disturbance and attornment
agreement with the tenant under any Affiliate Lease.
(c) In the event that a Borrower proposes to enter into an
Affiliate Lease with an Affiliate of the Company, it may do so only if
(i) the Company and/or the Borrower have entered into a
joint venture agreement, partnership agreement, limited liability
company operating agreement, or other agreement (any such agreement, a
"JV AGREEMENT"), with the Affiliate and/or the other holders of equity
interests in the Affiliate, in form and substance satisfactory to the
Administrative Agent, acting in its reasonable discretion, as to the
matters described in clauses (ii), (iii) and (iv) below;
(ii) the terms of the JV Agreement provide for the right
of the Company and/or such Borrower to acquire all of the outstanding
equity interests in such Affiliate not already owned by them (a
"PURCHASE OPTION");
(iii) the purchase price payable upon exercise of the
Purchase Option is (A) a stated fixed amount, or a fixed maximum
amount, which represents the results of good faith arm's-length
negotiations, (B) an amount determined pursuant to a formula or
computation, or a fixed maximum amount determined pursuant to a formula
or computation, which represents the results of good faith arm's-length
negotiations, or (C) an amount based on the fair market value of the
interests purchased, as determined pursuant to an appraisal or similar
procedure; and
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(iv) the Purchase Option is exercisable (A) at any time,
(B) at any time after the Project has been completed (or has been
completed and obtained required licenses), (C) at any time after the
Project has been completed and has achieved positive net income, or (D)
at any time after the Project has been completed and has achieved an
agreed upon level of stabilized occupancy not greater than 90%.
(d) The rights of any Borrower under a Company Lease or an
Affiliate Lease shall be included in the Collateral pursuant to an Assignment of
Leases or a Mortgage, or both, or an additional Security Document acceptable in
form and substance to the Collateral Agent, acting in its reasonable discretion.
The rights of the Company under a Management Contract, as well as the rights of
a Borrower under a Management Contract, shall be included in the Collateral
pursuant to a Collateral Assignment of Contracts and Plans, or an additional
Security Document acceptable in form and substance to the Collateral Agent,
acting in its reasonable discretion.
(e) At or prior to the time a Company Lease or Company Sublease is
entered into, the Company shall cause the rights of the Company in, to and under
such Company Lease or Company Sublease, as applicable, to be included in the
Collateral pursuant to an additional Security Document acceptable in form and
substance to the Collateral Agent, acting in its reasonable discretion.
(f) At or prior to the time a JV Agreement is entered into with
respect to the organization and ownership of an Affiliate which is or will be a
party to an Affiliate Lease, the Company shall cause all rights of the Company
and the applicable Borrower in, to and under such JV Agreement, as well as all
of the equity interests of the Company and such Borrower in such Affiliate, to
be included in the Collateral pursuant to an additional Security Document
acceptable in form and substance to the Collateral Agent, acting in its
reasonable discretion.
8.13. CERTAIN LEASES AFFECTING A PROJECT. In the event that a
Borrower proposes to enter into any lease agreement, other than as contemplated
by section 8.12, affecting any Project (x) under which more than 5,000 square
feet of the Premises of such Borrower's Project may be leased to any other
person, or (y) which involves annual rental greater than $50,000, it may do so
only if (i) such lease agreement shall provide that it is subordinated to the
Lien of the Mortgage covering such Premises in a manner satisfactory to the
Collateral Agent, or the Collateral Agent shall have entered into a
subordination, non-disturbance and attornment agreement, reasonably satisfactory
in form and substance to the Collateral Agent, with the tenant under any such
lease agreement (it being understood that for the convenience of the Company and
the Borrower, the Administrative Agent will promptly upon request provide a form
of such subordination, non-disturbance agreement which will be acceptable to the
Collateral Agent), and (ii) such lease agreement otherwise complies with all
applicable requirements of section 6 of the Mortgage covering such Project.
8.14. PERFORMANCE OF PERMANENT CREDIT AGREEMENT, ETC. (a) The
Company will, and will cause each Borrower or other Affiliate to, (i) duly and
punctually perform and observe, all of the terms and provisions of the Permanent
Credit Agreement and the Supplemental Permanent Credit Agreement, as applicable,
and each of the agreements and instruments referred to therein, which are
applicable to it, including, without limitation, each Project Take-Out Agreement
(and each Project Commitment referred to therein); and (ii) take all such
actions as may be required to be taken by it to timely and fully satisfy all
conditions to the obligations of the Permanent Lender and/or the Supplemental
Permanent Lender under each Project Take-Out Agreement (and each Project
Commitment referred to therein).
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(b) Without limitation of the foregoing, during any period in
which any Project is being financed hereunder, the Company will (i) have caused
to be prepared forms of documentation for the organization of an entity which
could be used as a borrowing entity in satisfaction of the "special purpose
entity" requirements of the Permanent Lender or the Supplemental Permanent
Lender, as applicable, contained in any Project Commitment referred to in a
Project Take-Out Agreement; and (ii) have submitted such forms of documents to
special counsel for the Permanent Lender or the Supplemental Lender, as
applicable, and responded to any comments from such special counsel, so that
such documents (as submitted or as revised in response to such comments) are
satisfactory in form and content to such special counsel. From time to time,
promptly following a request from the Administrative Agent, the Company will
provide to the Administrative Agent such evidence as the Administrative Agent
may reasonably request to establish that the Company is in compliance with this
section 8.14(b).
(c) Unless the Loans for a Project have otherwise been prepaid in
accordance with the terms of this Agreement, the Company will use all reasonable
efforts to ensure that the Loans for such Project are prepaid out of the
proceeds of a refinancing by the Permanent Lender or the Supplemental Permanent
Lender, as applicable, in accordance with the Project Take-Out Agreement related
to such Project, and the Project Commitment referred to therein, at the earliest
time at which the conditions to the obligations of the Permanent Lender or the
Supplemental Permanent Lender, as applicable, under such Project Take-Out
Agreement and such Project Commitment are reasonably capable of being satisfied,
taking into account delays occasioned by the need to prepare financial
statements for a full 12 months of operations, and the normal and customary time
required to prepare, obtain and coordinate closing documentation.
8.15. SENIOR DEBT. The Company will at all times ensure that (a) the
claims of the Lenders in respect of the Obligations of the Company will not be
subordinate to, and will in all respects rank prior to the claims of every
senior unsecured creditor of the Company, and (b) any Indebtedness subordinated
in any manner to the claims of any other senior secured or unsecured creditor of
the Company will be subordinated in like manner to such claims of the Lenders.
SECTION 9. NEGATIVE COVENANTS.
The Company hereby covenants and agrees that on the Effective Date and
thereafter for so long as this Agreement is in effect and until such time as the
Total Commitment has been terminated, no Notes remain outstanding and the Loans,
together with interest, Fees and all other Obligations incurred hereunder are
paid in full:
9.1. CHANGES IN BUSINESS. Neither the Company nor any of its
Subsidiaries will engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be engaged in by
the Company and its Subsidiaries, would be substantially changed from the
general nature of the business engaged in by the Company and its Subsidiaries on
the date hereof.
9.2. CONSOLIDATION, MERGER OR SALE OF ASSETS, ETC. The Company will
not, and will not permit any Subsidiary or other Credit Party to, wind up,
liquidate or dissolve its affairs, or enter into any transaction of merger or
consolidation or sell or otherwise dispose of any of its property or assets or
agree to do any of the foregoing at any future time, EXCEPT that the following
shall be permitted (it being understood that a transaction permitted under any
of the following clauses shall be considered permitted hereby, even if such
transaction would not be permitted under any of the other clauses which follow):
(a) CERTAIN INTERCOMPANY MERGERS AND TRANSFERS, ETC.: if
no Event of Default shall have occurred and be continuing or would
result therefrom: (i) the merger, consolidation or amalgamation of any
Subsidiary which is not a Borrower with or into the Company or another
Subsidiary which is not a Borrower, so long as in any merger,
consolidation or amalgamation in which the Company is a party as one of
the constituent entities, the Company is the surviving or continuing or
resulting corporation; (ii) the liquidation or dissolution of any
Subsidiary which is not
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a Borrower; or (iii) the transfer or other disposition of any property
by the Company to any Wholly-Owned Subsidiary or by any Subsidiary
which is not a Borrower to the Company or to any other Subsidiary of
the Company which is not a Borrower;
(b) OTHER MERGERS, ETC. INVOLVING THE COMPANY: if (x) no
Event of Default shall have occurred and be continuing or would result
therefrom, and (y) no Change of Control Prepayment Event would result
therefrom, the merger, consolidation or amalgamation of the Company
with any other person, or the sale, transfer or other disposition by
the Company of substantially all of its properties, assets and business
as an entirety to any person, shall be permitted, PROVIDED that:
(i) the Company shall have given the Lenders
written notice of such transaction, describing the same and
the persons involved in reasonable detail, at least 5 Business
Days' prior to the consummation of such transaction, and
(ii) the person which is the surviving or
resulting person of any such merger, consolidation or
amalgamation (if other than the Company), or the person so
acquiring such properties, assets and business, shall,
contemporaneously with the consummation of such transaction,
(A) expressly assume all of the obligations of the Company
under the Credit Documents to which the Company is a party by
a written instrument of assumption, satisfactory in form and
substance to the Administrative Agent and the Required
Lenders, and (B) deliver to the Administrative Agent (x)
certified resolutions of its Board of Directors or similar
governing body) authorizing such assumption and (y) a
favorable opinion of counsel, addressed to the Administrative
Agent and the Lenders, of such person's counsel as to the due
authorization, execution and delivery and validity, binding
effect and enforceability of such assumption;
(c) OTHER TRANSACTIONS INVOLVING A BORROWER: any of the
following shall be permitted:
(i) the merger, consolidation or amalgamation of
a Borrower with any other person, or the sale, transfer or
other disposition by a Borrower of substantially all of its
properties, assets and business as an entirety to any person,
shall be permitted if made in compliance with section 6 of
each Mortgage to which such Borrower is a party and, to the
extent applicable, the provisions of section 5.2 of this
Agreement;
(ii) the sale or transfer of any Project by a
Borrower to a Subsidiary of the Company in connection with the
refinancing of the Loans for such Project pursuant to the
Project Take-Out Agreement related thereto;
(iii) the sale or transfer of any Project in
connection with the prepayment of the Loans for such Project
and the release of the Collateral for such Project as provided
in section 13.9; and
(iv) the sale or transfer by a Borrower to a
Subsidiary of the Company of property for which Project
qualification has not been obtained or has been denied;
(d) ORDINARY COURSE AND CERTAIN OTHER DISPOSITIONS;
LEASES: if no Event of Default shall have occurred and be continuing or
would result therefrom,
(i) any sale or disposition of any assets not
subject to the Lien of any Security Document, which in each
case is made in the ordinary course of business,
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(ii) any sale or disposition of any assets not
subject to the Lien of any Security Document, made to any
person in connection with a joint venture or similar
arrangement with such person, if such sale or disposition and
any related sales or dispositions which are part of the same
or a related series of transactions do not represent the
disposition by the Company of substantially all of its
properties, assets and business as an entirety to any person
or related group of persons;
(iii) any sale or disposition of obsolete or
excess furniture, fixtures or equipment constituting a portion
of the Collateral, to the extent permitted by any of the
Security Documents, which in each case is made in the ordinary
course of business,
(iv) in the case of any Project, any Company
Lease, Affiliate Lease or other lease entered into as
contemplated by section 8.12 or 8.13 and the applicable
provisions of the Mortgage for such Project; and
(v) any other lease covering any assets not
subject to the Lien of any Security Document, if such lease
and any related leases which are part of the same or a related
series of transactions do not represent the disposition by the
Company of substantially all of its properties, assets and
business as an entirety to any person or related group of
persons, and
(e) PERMITTED DISPOSITIONS: if no Event of Default shall
have occurred and be continuing or would result therefrom, the Company
or any of its Subsidiaries may (i) sell, exchange or otherwise transfer
any land, building or other real or personal property (including any
related receivables or other intangible assets), which is not subject
to the Lien of any of the Security Documents, to any person which is
not a Subsidiary of the Company, or (ii) sell the entire capital stock
(or other equity interests) and Indebtedness of any Subsidiary owned by
the Company or any other Subsidiary to any person which is not a
Subsidiary of the Company, or (iii) permit any Subsidiary to be merged
or consolidated with a person which is not an Affiliate of the Company;
provided that
(A) the consideration for such transaction
represents fair value (as determined by management of the
Company),
(B) if the aggregate consideration received or
receivable for all such transactions effected pursuant to this
section 9.2(e) [exclusive of any transactions permitted under
other applicable provisions of this section 9.2], which are
consummated during any fiscal year of the Company (with the
value of any consideration other than cash being determined by
management of the Company at its fair value), exceeds the
greater of (x) $50,000,000, and (y) 10% of the Company's
Consolidated Total Assets as of the end of the then most
recent fiscal quarter or fiscal year for which financial
statements have been delivered hereunder, at least 50% of such
aggregate consideration in excess of such amount shall have
been received in the form of cash;
(C) in the case of any such transaction
involving consideration in excess of $25,000,000, other than a
Sale and Lease-Back Transaction, at least two Business Days
prior to the date of completion of such transaction the
Company shall have delivered to the Administrative Agent an
officer's certificate executed on behalf of the Company by an
Authorized Officer of the Company, which certificate shall
contain a description of the
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proposed transaction, the date such transaction is scheduled
to be consummated, the estimated purchase price or other
consideration for such transaction, and financial information
pertaining to compliance with the preceding clause (B); and
(D) if as a result of any such transaction, (x)
any Borrower which was a Subsidiary of the Company ceases to
be a Subsidiary of the Company, or (y) any Borrower which was
an Affiliate of the Company ceases to be an Affiliate of the
Company, the Company contemporaneously causes such Borrower to
prepay its Loans in full.
To the extent the Required Lenders (or all of the Lenders as shall be required
by section 13.13) waive the provisions of this section 9.2 with respect to the
sale, transfer or other disposition of any Collateral, or any Collateral is
sold, transferred or disposed of as permitted by this section 9.2, (i) such
Collateral shall be sold, transferred or disposed of free and clear of the Liens
created by the respective Security Documents; (ii) if such Collateral includes
any of the capital stock of a Subsidiary which is a pledged to the Collateral
Agent under a Pledge Agreement, such capital stock shall be released from the
Pledge Agreement; and (iii) the Administrative Agent and the Collateral Agent
shall be authorized to take actions deemed appropriate by them in order to
effectuate the foregoing.
9.3. LIENS. The Company will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of the Company or any such Subsidiary whether now owned or hereafter
acquired, or sell any such property or assets subject to an understanding or
agreement, contingent or otherwise, to repurchase such property or assets
(including sales of accounts receivable or notes with or without recourse to the
Company or any of its Subsidiaries, other than for purposes of collection of
delinquent accounts in the ordinary course of business) or assign any right to
receive income, or file or permit the filing of any financing statement under
the UCC or any other similar notice of Lien under any similar recording or
notice statute, EXCEPT that the foregoing restrictions shall not apply to:(a)
the Standard Permitted Liens; or (b) Liens on property of any Subsidiary of the
Company, other than any Borrower, which secure Indebtedness permitted hereby.
9.4. INDEBTEDNESS. The Company will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness
of the Company or any of its Subsidiaries, EXCEPT:
(a) Indebtedness incurred under this Agreement and the
other Credit Documents;
(b) Indebtedness incurred under the Permanent Credit
Agreement and the Supplemental Permanent Credit Agreement, and any
other agreement or instrument executed and delivered in connection
therewith, PROVIDED that the aggregate principal amount of such
Indebtedness outstanding at any time, when taken together with the
aggregate principal amount of Loans outstanding hereunder at such time,
is not in excess of $200,000,000;
(c) other Indebtedness and Guaranty Obligations of the
Company and its Subsidiaries in existence at the Effective Date;
(d) in the case of any Subsidiary which is a Borrower,
any Indebtedness of such Borrower permitted under section 16(c) of any
Mortgage to which such Borrower is a party, and any Guaranty
Obligations of the Company in respect thereof;
(e) Indebtedness of the Company or any Subsidiary under
Hedge Agreements entered into in the ordinary course of business;
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(f) Indebtedness of the Company to any of its
Subsidiaries, PROVIDED that such Indebtedness is subordinated to the
Obligations in a manner acceptable to the Required Lenders, acting in
their reasonable discretion; and Indebtedness of any of the Company's
Subsidiaries to the Company or to another Subsidiary of the Company;
and
(g) additional Guaranty Obligations, and other additional
Indebtedness, of the Company or any Subsidiary (including, without
limitation, refinancings and refundings of the Indebtedness referred to
in clause (c) above), not otherwise permitted pursuant to the foregoing
clauses, PROVIDED that at the time of incurrence thereof, and after
giving effect to such incurrence and the application of the proceeds
thereof, (i) no Event of Default shall have occurred and be continuing
or would result therefrom; and (ii) the Company would have been in
compliance, on a pro forma basis, with the covenants contained in
sections 9.6 and 9.7 hereof if such Indebtedness had been incurred at
the beginning of the Testing Period most recently ended for which
financial information has been delivered to the Lenders hereunder and
such Indebtedness had remained outstanding for such entire Testing
Period.
9.5. MINIMUM CONSOLIDATED NET WORTH. The Company will not permit
its Consolidated Net Worth at any time to be less than $105,000,000, EXCEPT that
(i) effective as of the end of the Company's fiscal quarter ended March 31,
1998, and as of the end of each fiscal quarter thereafter, the foregoing amount
(as it may from time to time be increased as herein provided), shall be
increased by 50% of the Consolidated Net Income of the Company for the fiscal
quarter ended on such date, if any (there being no reduction in the case of any
such Consolidated Net Income which reflects a deficit), (ii) the foregoing
amount (as it may from time to time be increased as herein provided), shall be
increased by an amount equal to 75% of the cash proceeds (net of underwriting
discounts and commissions and other customary fees and costs associated
therewith) from any sale or issuance of equity by the Company after March 31,
1998 (other than any sale or issuance to any Subsidiary or to management or
employees pursuant to employee benefit plans of general application), (iii) the
foregoing amount (as it may from time to time be increased as herein provided),
shall be increased by an amount equal to 75% of (x) the principal amount of
Indebtedness or (y) the higher of stated value or liquidation value of
Redeemable Stock, as the case may be, which is converted or exchanged after
March 31, 1998 into common stock of the Company or any of its Subsidiaries, and
(iv) the foregoing amount (as it may from time to time be increased as herein
provided), shall be increased by an amount equal to 75% of the increase in
Consolidated Net Worth attributable to the issuance of common stock or other
equity interests subsequent to March 31, 1998 as consideration in any
Acquisition.
9.6. RATIO OF CONSOLIDATED SENIOR INDEBTEDNESS TO CONSOLIDATED
TOTAL CAPITALIZATION. The Company will not at any time permit the ratio of (i)
its Consolidated Senior Indebtedness at such time, to (ii) its Consolidated
Total Capitalization at such time, expressed as a percentage, to exceed 70.00%.
9.7. INTEREST COVERAGE RATIO. The Company will not permit the ratio
of (i) its Consolidated EBIT for any Testing Period, to (ii) its Consolidated
Interest Expense for such Testing Period, to be less than 1.50 to 1.00 for any
Testing Period ending on or prior to December 31, 1998, or less than 1.75 to
1.00 for any Testing Period ending thereafter.
9.8. TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any Subsidiary to, enter into any transaction or series of
transactions with any Affiliate (other than, in the case of the Company, any
Subsidiary, and in the case of a Subsidiary, the Company or another Subsidiary)
other than in the ordinary course of business of and pursuant to the reasonable
requirements of the Company's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Company or
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such Subsidiary than would obtain in a comparable arm's-length transaction with
a person other than an Affiliate, EXCEPT agreements and transactions with and
payments to officers, directors and shareholders and other Affiliates which are
either (i) entered into in the ordinary course of business and not prohibited by
any of the provisions of this Agreement, or (ii) entered into outside the
ordinary course of business, approved by the directors or shareholders of the
Company, and not prohibited by any of the provisions of this Agreement.
9.9. MODIFICATIONS, ETC. OF PERMANENT CREDIT AGREEMENT, ETC. The
Company will not, and will not permit any Subsidiary or Affiliate to, (i)
terminate or reduce any commitment of the Permanent Lender or the Supplemental
Permanent Lender under the Permanent Credit Agreement or the Supplemental
Permanent Credit Agreement, as the case may be, or any other document related
thereto which is entered into with or for the benefit of the Permanent Lender or
the Supplemental Permanent Lender and which relates in any way to any of the
Projects financed hereunder, or (ii) amend or otherwise modify, or obtain any
consent or waiver relating to its obligations under, the Permanent Credit
Agreement, the Supplemental Permanent Credit Agreement or any such other
document.
SECTION 10. EVENTS OF DEFAULT.
10.1. EVENTS OF DEFAULT. Any of the following specified events (each
an "EVENT OF DEFAULT") shall constitute an Event of Default:
(a) PAYMENTS: the Company or any Borrower shall (i)
default in the payment when due of any principal of the Loans (whether
at maturity, on a required prepayment or otherwise); or (ii) default,
and such default shall continue for five or more days, in the payment
when due of any interest on the Loans or any Fees or any other amounts
owing hereunder or under any other Credit Document; or
(b) REPRESENTATIONS, ETC.: any representation, warranty
or statement made by the Company or any other Credit Party herein or in
any other Credit Document or in any statement or certificate delivered
or required to be delivered pursuant hereto or thereto shall prove to
be untrue in any material respect on the date as of which made or
deemed made; or
(c) CERTAIN NEGATIVE COVENANTS: the Company shall default
in the due performance or observance by it of any term, covenant or
agreement contained in sections 9.3, 9.4, 9.5, 9.6 or 9.7 of this
Agreement; or any Borrower shall default in the due performance or
observance by it of any term, covenant or agreement contained in
sections 5, 10, 16(a)(i) or 16(c) of any Mortgage; or
(d) OTHER COVENANTS: the Company or any other Credit
Party shall default in the due performance or observance by it of any
term, covenant or agreement contained in this Agreement or any other
Credit Document, other than those referred to in section 10.1(a) or (b)
or (c) above, and such default shall not be remedied within 30 days
after the earlier of (i) an officer of the Company or any other
applicable Credit Party obtaining actual knowledge of such default or
(ii) the Company receiving written notice of such default from the
Administrative Agent or the Required Lenders (any such notice to be
identified as a "notice of default " and to refer specifically to this
paragraph); PROVIDED, that in the case of any default referred to in
this paragraph not involving a monetary obligation, the 30-day period
referred to above may be extended by written notice from the Company to
the Administrative Agent delivered not later than 10 days following the
giving of any notice referred to in the preceding clause (ii), for an
additional period of up to 60 days, if (x) such notice from the Company
includes a certification that unavoidable delays or other
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circumstances are such that such default cannot be remedied within such
30-day period, but that such default can be remedied within the time
period specified for such extension, and (y) throughout the period of
such requested extension the Company and/or an applicable Borrower are
diligently and continuously taking all reasonable actions to remedy
such default (it being understood that if the Company or any Borrower
shall cease or abandon such efforts to remedy the default, such
extension period shall immediately and automatically terminate); or
(e) OTHER INDEBTEDNESS: (i) CROSS ACCELERATION: the
Company or any of its Subsidiaries shall (A) default in any payment
with respect to any Indebtedness (other than the Obligations) owed to
any Lender, or having an unpaid principal amount (or Capitalized Lease
Obligation, in the case of any Capital Lease) of $10,000,000 or
greater, or (B) default in the observance or performance of any
agreement, covenant or condition relating to any such Indebtedness or
contained in any instrument or agreement evidencing, securing or
relating thereto (and all grace periods applicable to such observance,
performance or condition shall have expired), and (1) such default
shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Indebtedness, and (2) the
holder or holders of such Indebtedness (or a trustee or agent on behalf
of such holder or holders) shall actually accelerate the maturity of
all or any portion thereof, or shall actually demand payment thereof in
the case of any such Indebtedness which is payable upon demand or after
demand and notice, and such actual acceleration or demand for payment
shall not have been rescinded prior to the acceleration of any of the
Loans or other Obligations pursuant to section 10.2 hereof; or
(ii) CROSS DEFAULT: if:
(A) the Company or any of its Subsidiaries (1)
shall default in any payment with respect to any such
Indebtedness, and such default shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness, or (2) default in
the observance or performance of any agreement, covenant or
condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating
thereto (and all grace periods applicable to such observance,
performance or condition shall have expired); or
(B) any other event shall occur or condition
shall exist which constitutes an "event of default" under any
such agreement or instrument;
and (x) such default, event, condition or "event of default" shall not
have been cured or remedied, or the existence thereof otherwise
eliminated by written amendment or waiver by the holder or holders of
such Indebtedness (or a trustee or agent on behalf of such holder or
holders) prior to the acceleration of any of the Loans or other
Obligations pursuant to section 10.2 hereof, and (y) the effect of
which default or other event, condition or "event of default" is to
cause, or to permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to accelerate or
otherwise cause, any such Indebtedness to become due prior to its
stated maturity, whether or not any such Indebtedness is actually
accelerated or demand for payment thereof is actually made; or
(f) CERTAIN CREDIT DOCUMENTS INEFFECTIVE: any Security
Document (once executed and delivered) shall cease for any reason
(other than termination in accordance with its terms) to be in full
force and effect; or any Credit Party shall (or seek to) disaffirm or
otherwise limit its obligations thereunder otherwise than in strict
compliance with the terms thereof; or
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(g) JUDGMENTS: one or more judgments or decrees shall be
entered against the Company and/or any of its Subsidiaries or any other
Credit Party involving a liability (other than a liability covered by
insurance, as to which the carrier has adequate claims paying ability
and has not reserved its rights or denied the claim) of $20,000,000 or
more in the aggregate for all such judgments and decrees for the
Company, its Subsidiaries and the other Credit Parties) and any such
judgments or decrees shall not have been vacated, discharged or stayed
or bonded pending appeal within 30 days from the entry thereof; or
(h) BANKRUPTCY, ETC.: any of the following shall occur:
(i) the Company, any of its Material
Subsidiaries or any other Credit Party (the Company and each
of such other persons, each a "PRINCIPAL PARTY") shall
commence a voluntary case concerning itself under Title 11 of
the United States Code entitled "Bankruptcy," as now or
hereafter in effect, or any successor thereto (the "BANKRUPTCY
CODE"); or
(ii) an involuntary case is commenced against any
Principal Party and the petition is not controverted within 10
days, or is not dismissed within 60 days, after commencement
of the case; or
(iii) a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or
substantially all of the property of any Principal Party; or
(iv) any Principal Party commences (including by
way of applying for or consenting to the appointment of, or
the taking of possession by, a rehabilitator, receiver,
custodian, trustee, conservator or liquidator (collectively, a
"CONSERVATOR") of itself or all or any substantial portion of
its property) any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency, liquidation, rehabilitation,
conservatorship or similar law of any jurisdiction whether now
or hereafter in effect relating to such Principal Party; or
(v) any such proceeding is commenced against any
Principal Party to the extent such proceeding is consented by
such person or remains undismissed for a period of 60 days; or
(vi) any Principal Party is adjudicated insolvent
or bankrupt; or
(vii) any order of relief or other order approving
any such case or proceeding is entered; or
(viii) any Principal Party suffers any appointment
of any conservator or the like for it or any substantial part
of its property which continues undischarged or unstayed for a
period of 60 days; or
(ix) any Principal Party makes a general
assignment for the benefit of creditors; or
(x) any corporate (or similar organizational)
action is taken by any Principal Party for the purpose of
effecting any of the foregoing; or
(i) ERISA: (i) any of the events described in clauses (i)
through (viii) of section 8.1(i) shall have occurred; or (ii) there
shall result from any such event or events the imposition of a lien,
the granting of a security interest, or a liability or a material risk
of incurring a liability; and
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(iii) any such event or events or any such lien, security interest or
liability, individually, and/or in the aggregate, in the opinion of the
Required Lenders, has had, or could reasonably be expected to have, a
Material Adverse Effect; or
(j) PERMANENT CREDIT AGREEMENT, ETC.: any of the
following events or circumstances shall occur or exist:
(i) the Permanent Credit Agreement or the
Supplemental Permanent Credit Agreement or any Project
Take-Out Agreement shall, for any reason, cease to be in full
force and effect, with availability of unused commitments
under the Permanent Credit Agreement and the Supplemental
Credit Agreement sufficient to enable the Company and the
Borrowers to refinance all Loans which may be made hereunder,
to the extent not previously refinanced pursuant to borrowings
made under the Permanent Credit Agreement or the Supplemental
Credit Agreement and any applicable Project Take-Out
Agreement;
(ii) there shall be any modification of any of
the terms, provisions or conditions of the Permanent Credit
Agreement or the Supplemental Credit Agreement, or any of the
other agreements or instruments executed and delivered in
connection therewith, which the Required Lenders, in their
discretion, regard as materially jeopardizing the ability of
the Company and the Borrowers to refinance Loans which have
been or may be made hereunder;
(iii) any condition to the obligation of the
Permanent Lender or the Supplemental Permanent Lender, as
applicable, under any then existing and effective Project
Take-Out Agreement shall not be satisfied on or prior to the
date such condition is required to be satisfied, unless
satisfaction of such condition has been waived or modified by
the Permanent Lender or the Supplemental Permanent Lender, as
applicable, in a manner satisfactory to the Required Lenders;
(iv) the Permanent Lender or the Supplemental
Permanent Lender shall have refused or declined, for any
reason, including without limitation failure of the Company or
any of the Borrowers to satisfy any applicable conditions, to
refinance any Project following completion of construction
thereof, receipt by the applicable Borrower of a Certificate
of Occupancy and any other required governmental approvals or
licenses with respect thereto, and the completion of 12 full
calendar months of commercial operation, as contemplated by
the Permanent Credit Agreement and/or the Supplemental
Permanent Credit Agreement and the applicable Project Take-Out
Agreement; or
(v) any Event of Default under and as defined in
the Permanent Credit Agreement or the Supplemental Permanent
Credit Agreement shall have occurred and be continuing; or
(k) MATERIAL ADVERSE EFFECT: any event or circumstance
shall occur or exist which has a Material Adverse Effect upon the
Company, as compared to the business, operations, property, assets,
liabilities or condition (financial or otherwise) of the Company and
its Subsidiaries as reflected in the financial statements and the
Financial Projections referred to in section 7.8.
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10.2. ACCELERATION, ETC. Upon the occurrence of any Event of
Default, and at any time thereafter, if any Event of Default shall then be
continuing, the Administrative Agent shall, upon the written request of the
Required Lenders, by written notice to the Company (which shall be authorized to
receive such notice on behalf of all Borrowers), take any or all of the
following actions, without prejudice to the rights of the Administrative Agent
or any Lender to enforce its claims against the Company or any other Credit
Party (PROVIDED that, if an Event of Default specified in section 10.1(h) shall
occur with respect to the Company or any Borrower, the result which would occur
upon the giving of written notice by the Administrative Agent as specified in
clauses (i) and (ii) below shall occur automatically without the giving of any
such notice):
(i) declare the Total Commitment terminated, whereupon
the Commitment of each Lender shall forthwith terminate immediately
without any other notice of any kind;
(ii) declare the principal of and any accrued interest in
respect of any or all Loans and any or all other obligations owing
hereunder and under the other Credit Documents to be, whereupon the
same shall become, forthwith due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby
waived by the Company and have been waived by each Borrower in its
Notes; and
(iii) exercise any other rights or remedies provided for in
any of the Credit Documents or otherwise permitted under applicable
law.
10.3. APPLICATION OF LIQUIDATION PROCEEDS. All monies received by
the Administrative Agent or any Lender from the exercise of remedies hereunder
or under the other Credit Documents or under any other documents relating to
this Agreement, including without limitation any liquidation, sale or other
realization upon any of the Collateral, shall, unless otherwise required by the
terms of the other Credit Documents or by applicable law, be applied as follows:
(i) FIRST, to the payment of all expenses (to the extent
not paid by the Company or any other Credit Party) incurred by the
Administrative Agent and the Lenders in connection with the exercise of
such remedies, including, without limitation, all reasonable costs and
expenses of collection, attorneys' fees, court costs and any
foreclosure expenses;
(ii) SECOND, to the payment PRO RATA of interest then
accrued on the outstanding Loans;
(iii) THIRD, to the payment PRO RATA of (A) the principal
balance then owing on the outstanding Loans, and (B) the amounts then
due under Designated Hedge Agreements to counterparty creditors of the
Company and the Borrowers, SUBJECT to (1) an overall limitation of the
amounts so distributable to the counterparty creditors under Designated
Hedge Agreements which the Administrative Agent reasonably determines
are properly allocable to Projects then being financed hereunder to 5%
of the aggregate principal amount of the Loans for such Projects which
was outstanding at the time of the commencement of the enforcement
actions contemplated hereby, and (2) confirmation by the Administrative
Agent of any calculations of termination or other payment amounts due
under the Designated Hedge Agreements being made in accordance with
normal industry practice;
(iv) FOURTH, to the payment PRO RATA of all other amounts
owed by the Company and the other Credit Parties to the Administrative
Agent or any Lender under this Agreement and the other Credit
Documents;
(v) FIFTH, to the payment PRO RATA to any counterparty
creditors of the Company and the Borrowers of any remaining amounts due
under Designated Hedge Agreements; and
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(vi) FINALLY, any remaining surplus after all of the
Obligations have been paid in full, to the Company or to whomsoever
shall be lawfully entitled thereto.
In applying such amounts to the principal amount of the Loans, accrued interest
thereon and other Obligations, the Administrative Agent may require that amounts
representing recoveries in respect of a particular Project be first applied, in
the order of priority specified above, to the Obligations in respect of such
Project, before any remaining portion of such amounts are applied to Obligations
in respect of other Projects.
SECTION 11. THE ADMINISTRATIVE AGENT.
11.1. APPOINTMENT. Each Lender hereby irrevocably designates and
appoints KCCI as Administrative Agent (such term to include, for the purposes of
this section 11, KCCI acting as Collateral Agent) to act as specified herein and
in the other Credit Documents, and each such Lender hereby irrevocably
authorizes KCCI as the Administrative Agent for such Lender, to take such action
on its behalf under the provisions of this Agreement and the other Credit
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this Agreement and the
other Credit Documents, together with such other powers as are reasonably
incidental thereto. The Administrative Agent agrees to act as such upon the
express conditions contained in this section 11. Notwithstanding any provision
to the contrary elsewhere in this Agreement, the Administrative Agent shall not
have any duties or responsibilities, except those expressly set forth herein or
in the other Credit Documents, nor any fiduciary relationship with any Lender,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Administrative Agent. The provisions of this section 11 are solely for the
benefit of the Administrative Agent, and the Lenders, and the Company and its
Subsidiaries and any other Credit Parties shall not have any rights as a third
party beneficiary of any of the provisions hereof. In performing its functions
and duties under this Agreement, the Administrative Agent shall act solely as
agent of the Lenders and does not assume and shall not be deemed to have assumed
any obligation or relationship of agency or trust with or for the Company or any
of its Subsidiaries or any other Credit Parties.
11.2. DELEGATION OF DUTIES. The Administrative Agent may execute any
of its duties under this Agreement or any other Credit Document by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by section 11.3.
11.3. EXCULPATORY PROVISIONS. Neither the Administrative Agent nor
any of its respective officers, directors, employees, agents, attorneys-in-fact
or affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such person under or in connection with this Agreement (except
for its or such person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Company or any other Credit Parties or
any of their respective officers contained in this Agreement, any other Credit
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Administrative Agent under or in
connection with, this Agreement or any other Credit Document or for any failure
of the Company or any other Credit Party or any of their respective officers to
perform its obligations hereunder or thereunder. The Administrative Agent shall
not be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement, or to inspect the properties, books or records of the
Company or any of its Subsidiaries or any other Credit Party. The Administrative
Agent shall not be responsible to any Lender for the effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of this Agreement or any
Credit Document or for any representations, warranties, recitals or
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statements made herein or therein or made in any written or oral statement or in
any financial or other statements, instruments, reports, certificates or any
other documents in connection herewith or therewith furnished or made by the
Administrative Agent to the Lenders or by or on behalf of the Company or any of
its Subsidiaries or any other Credit Party to the Administrative Agent or any
Lender or be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or agreements
contained herein or therein or as to the use of the proceeds of the Loans or of
the existence or possible existence of any Default or Event of Default.
11.4. RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, facsimile transmission, telex or teletype message,
statement, order or other document or conversation believed by it, in good
faith, to be genuine and correct and to have been signed, sent or made by the
proper person or persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Company or any of its
Subsidiaries), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Credit
Document unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Credit Documents in
accordance with a request of the Required Lenders (or all of the Lenders, as to
any matter which, pursuant to section 13.13, can only be effectuated with the
consent of all Lenders), and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders.
11.5. NOTICE OF DEFAULT. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received notice from a
Lender or the Company referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give prompt notice thereof to the Lenders. The Administrative Agent
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Lenders, PROVIDED that unless and until
the Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
11.6. NON-RELIANCE. Each Lender expressly acknowledges that neither
the Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates have made any representations or warranties to
it and that no act by the Administrative Agent hereinafter taken, including any
review of the affairs of the Company or any of its Subsidiaries, shall be deemed
to constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent, or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Company and its Subsidiaries and the other Credit
Parties and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Administrative Agent, or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement, and to make such investigation as it
deems necessary to inform itself as to the business, assets, operations,
property, financial and other conditions, prospects and creditworthiness of the
Company, its Subsidiaries and the other Credit Parties. The Administrative Agent
shall not have any duty
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or responsibility to provide any Lender with any credit or other information
concerning the business, operations, assets, property, financial and other
conditions, prospects or creditworthiness of the Company or any of its
Subsidiaries or any other Credit Party which may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
11.7. INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent in its capacity as such ratably according to their
respective Loans and Unutilized Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, reasonable expenses or disbursements of any kind whatsoever which may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, incurred by or asserted against the
Administrative Agent in its capacity as such in any way relating to or arising
out of this Agreement or any other Credit Document, or any documents
contemplated by or referred to herein or the transactions contemplated hereby or
any action taken or omitted to be taken by the Administrative Agent under or in
connection with any of the foregoing, but only to the extent that any of the
foregoing is not paid by the Company or any other Credit Party, PROVIDED that no
Lender shall be liable to the Administrative Agent for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements to the extent resulting
solely from the Administrative Agent's gross negligence or willful misconduct.
If any indemnity furnished to the Administrative Agent for any purpose shall, in
the opinion of the Administrative Agent, be insufficient or become impaired, the
Administrative Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished. The agreements in this section 11.7 shall survive the payment of all
Obligations.
11.8. THE ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Company, its Subsidiaries
and their Affiliates as though not acting as Administrative Agent hereunder.
With respect to the Loans made by it and all Obligations owing to it, the
Administrative Agent shall have the same rights and powers under this Agreement
as any Lender and may exercise the same as though it were not the Administrative
Agent, and the terms "Lender" and "Lenders" shall include the Administrative
Agent in its individual capacity.
11.9. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may
resign as the Administrative Agent upon at least 20 days' prior written notice
to the Lenders and the Company. The Required Lenders may also remove the
Administrative Agent upon at least 20 days' prior written notice to the
Administrative Agent and the Company. The Required Lenders shall appoint from
among the Lenders a successor Administrative Agent for the Lenders subject to
prior approval by the Company (such approval not to be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
include such successor agent effective upon its appointment, and the resigning
or removed Administrative Agent's rights, powers and duties as the
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement. After the retiring Administrative Agent's resignation or removal
hereunder as the Administrative Agent, the provisions of this section 11 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement. Any successor Administrative
Agent appointed as herein contemplated shall at the time it becomes the
Administrative Agent hereunder hold Commitments and Loans representing at least
12.50% of the outstanding Commitments and Loans hereunder.
11.10. OTHER AGENTS. Any Lender identified herein as a Co-Agent,
Syndication Agent, Documentation Agent, Managing Agent, Manager or any other
corresponding title, other than "Administrative Agent" or "Collateral Agent",
shall have no right, power, obligation, liability, responsibility
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or duty under this Agreement or any other Credit Document except those
applicable to all Lenders as such. Each Lender acknowledges that it has not
relied, and will not rely, on any Lender so identified in deciding to enter into
this Agreement or in taking or not taking any action hereunder.
SECTION 12. GUARANTY OF OBLIGATIONS AND COMPLETION;
OBLIGATION TO COVER OPERATING DEFICITS
AND SHORTAGES OF WORKING CAPITAL.
12.1. UNDERTAKING OF COMPANY. (a) In order to induce the Lenders to
enter into this Agreement and to extend credit hereunder and in recognition of
the direct and indirect benefits to be received by the Company from the proceeds
of the Loans, the Company hereby, unconditionally and irrevocably, as primary
obligor and not merely as surety:
(i) guarantees the full and prompt payment when due,
whether upon maturity, by acceleration or otherwise, of any and all
Obligations of each of the Borrowers, whether joint, several, joint and
several, fixed or contingent, liquidated or unliquidated, determined or
undetermined, or now existing or hereafter arising;
(ii) undertakes and agrees that if any Borrower at any
time suffers an operating deficit, or a shortage of working capital,
which has not been financed hereunder, the Company will immediately, at
its own initiative or upon demand by the Administrative Agent, make a
cash capital contribution to such Borrower in such amount as is
necessary to cover such operating deficit or to cover such shortage in
working capital, as the case may be; and
(iii) undertakes and agrees that, unless the Obligations of
any Borrower in respect of a Project of such Borrower have already been
paid in full and are no longer outstanding, the construction of such
Project will be completed on or before the Completion Date therefor (as
defined in the Mortgage of such Borrower for such Project) in
accordance with the Plans and Specifications therefor and the
applicable requirements contained in section 16 of such Mortgage of
such Borrower.
(b) If any or all of the Obligations of any Borrower becomes due
and payable and is not indefeasibly paid in full in cash, the Company
unconditionally promises to pay such Obligations to the Administrative Agent,
for the account of the Lenders and the Administrative Agent, on demand, together
with any and all expenses which may be incurred by the Administrative Agent, the
Collateral Agent or the Lenders in collecting any of such Obligations.
(c) Completion of each Project of a Borrower is an essential
inducement to the Lenders to extend credit to or for the benefit of such
Borrower and the other Borrowers hereunder. Accordingly, if construction of any
Project of any Borrower is suspended without reason, or abandoned prior to
completion, or such construction is for any reason not completed on or before
the Completion Date therefor in accordance with the requirements of section
16(a)(i) of the applicable Mortgage of such Borrower, and if all of the
Obligations of such Borrower in respect of such Project have not previously paid
in full, THEN the Company will itself, or will cause such Borrower to, (i)
retain any additional contractors and/or subcontractors, acceptable to the
Collateral Agent, (ii) correct, repair or restore any work undertaken to date,
so that the same conforms to the applicable Plans and Specifications, (iii)
promptly, diligently and continuously construct and complete such Project in
accordance with the applicable Plans and Specifications, the Credit Documents
and all requirements of any governmental authority, without deviation, unless
approved by the Required Lenders, in writing, or specifically permitted by
applicable provisions of the Credit Documents, (iv) pay and discharge, or bond
over in a manner acceptable to the
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Collateral Agent, all Liens not permitted by the terms of the Mortgage covering
such Project, (v) pay when due all costs of constructing and completing such
Project, including, but not limited to, all charges for materials and services,
debt service and all operating deficits, whether or not in excess of the amounts
therefor set forth in the applicable Project Summary & Feasibility Report, and
whether or not resulting from change orders, delays in obtaining any approvals
from any governmental authority that are required for the construction, use, or
occupancy of such Project, any changes in the applicable Plans and
Specifications required as a condition to obtaining any such approval, or
otherwise resulting from any cause whatsoever. The obligations of the Company as
a guarantor of completion of each Project are and shall be absolute and
unconditional, notwithstanding any voluntary or involuntary transfer by a
Borrower of all or any portion of its interests in its Project, that any
subsequent owners of the Project acquire their interests therein by voluntary or
involuntary means, by foreclosure or deed in lieu of foreclosure, or otherwise,
and notwithstanding that other persons or entities may be the subsequent owners
of any Project.
12.2. BANKRUPTCY. Additionally, The Company unconditionally and
irrevocably guarantees the payment of any and all Obligations of each Borrower
to the Lenders and the Administrative Agent whether or not due or payable by any
Borrower upon the occurrence in respect of such Borrower of any of the events
specified in section 10.1(h), and unconditionally promises to pay such
Obligations to the Administrative Agent, for the account of the Lenders and the
Administrative Agent, on demand, in lawful money of the United States.
12.3. NATURE OF LIABILITY. The liability of the Company hereunder is
exclusive and independent of any security for or other guaranty of any of the
Obligations of any Borrower, whether executed by such Borrower, any other
Borrower, any other guarantor or by any other person, and the liability of the
Company hereunder shall not be affected or impaired by (a) any direction as to
application of payment by any Borrower or by any other person, (b) any other
continuing or other guaranty, undertaking or maximum liability of a guarantor or
of any other party as to any Obligations of any Borrower, (c) any payment on or
in reduction of any such other guaranty or undertaking, (d) any dissolution,
termination or increase, decrease or change in personnel by any Borrower, or (e)
any payment made to the Administrative Agent or the Lenders on the Obligations
which the Administrative Agent or such Lenders repay to a Borrower pursuant to
court order in any bankruptcy, reorganization, arrangement moratorium or other
debtor relief proceeding, and the Company waives any right to the deferral or
modification of its obligations hereunder by reason of any such proceeding. The
guaranty of the Company of the Obligations of the Borrowers is a guaranty of
payment and not a guaranty of collectibility.
12.4. INDEPENDENT OBLIGATION. The obligations of the Company
hereunder are independent of the obligations of any other guarantor or any
Borrower, and a separate action or actions may be bought and prosecuted against
the Company whether or not action is brought against any other guarantor or any
Borrower and whether or not any other guarantor or any Borrower be joined in any
such action or actions. The Company waives, to the fullest extent permitted by
law, the benefit of any statute of limitations affecting its liability hereunder
or the enforcement thereof. Any payment by any Borrower or other circumstance
which operates to toll any statute of limitations as to such Borrower shall
operate to toll the statute of limitations as to the Company.
12.5. AUTHORIZATION. The Company authorizes the Administrative Agent
and the Lenders without notice or demand (except as shall be required by
applicable statute and cannot be waived), and without affecting or impairing its
liability hereunder, from time to time to (a) renew, compromise, extend,
increase, accelerate or otherwise change the time for payment of, or otherwise
change the terms of the Obligations or any part thereof in accordance with this
Agreement and the other Credit Documents, including any increase or decrease of
the rate of interest thereon or fees payable with respect thereto, (b) take and
hold security from any guarantor or any other person for the payment of this
guaranty or the Obligations or any portion thereof and exchange, enforce, waive
and release any such security, (c) apply
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such security and direct the order or manner of sale thereof as the
Administrative Agent and the Lenders in their discretion may determine, and (d)
release or substitute any one or more endorsers, guarantors, any of the
Borrowers or any other obligors.
12.6. RELIANCE. It is not necessary for the Administrative Agent or
any Lender to inquire into the capacity or powers of any Borrower or the
officers, directors. partners or agents acting or purporting to act on its
behalf, and any Obligations made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
12.7. SUBORDINATION. Any Indebtedness of any Borrower now or
hereafter held by the Company is hereby subordinated to the Obligations of such
Borrower to the Administrative Agent and the Lenders; and such Obligations of
such Borrower to the Company, if the Administrative Agent, after an Event of
Default has occurred, so requests, shall be collected, enforced and received by
the Company as trustee for the Lenders and the Administrative Agent and be paid
over to the Administrative Agent, for the account of the Lenders and the
Administrative Agent, on account of the Obligations of such Borrower to the
Lenders and the Administrative Agent, but without affecting or impairing in any
manner the liability of the Company under the other provisions of its guaranty
of the Obligations of all Borrowers. Prior to the transfer by the Company of any
note or negotiable instrument evidencing any Indebtedness of any Borrower to the
Company, the Company shall mark such note or negotiable instrument with a legend
that the same is subject to this subordination.
12.8. WAIVER. (a) The Company waives any right (except as shall be
required by applicable statute and cannot be waived) to require the
Administrative Agent or the Lenders to (i) proceed against any Borrower, any
other guarantor or any other person, (ii) proceed against or exhaust any
security held from any Borrower, any other guarantor or any other person, or
(iii) pursue any other remedy in the Administrative Agent's or the Lenders'
power whatsoever. The Company waives any defense based on or arising out of any
defense of any Borrower, any other guarantor or any other person, other than
payment in full of the Obligations, including without limitation any defense
based on or arising out of the disability of any Borrower, any other guarantor
or any other person, or the unenforceability of the Obligations or any part
thereof from any cause, or the cessation from any cause of the liability of any
Borrower, other than payment in full of the Obligations. The Administrative
Agent, the Collateral Agent and the Lenders may, at their election, foreclose on
any security held by the Administrative Agent, the Collateral Agent or the
Lenders by one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable (to the extent such sale is
permitted by applicable law), or exercise any other right or remedy the
Administrative Agent, the Collateral Agent and the Lenders may have against any
Borrower or any other person or any security, without affecting or impairing in
any way the liability of the Company hereunder, except to the extent the
Obligations have been paid in full. The Company waives any defense arising out
of any such election by the Administrative Agent, the Collateral Agent and the
Lenders, even though such election operates to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of the Company against any
Borrower or any other person or any security.
(b) The Company waives all presentments, demands for performance,
protests notices, including without limitation notices of nonperformance, notice
of protest, notices of dishonor, notices of acceptance of its guaranty, and
notices of the existence, creation or incurring of new or additional
Obligations. The Company assumes all responsibility for being and keeping itself
informed of each Borrower's financial condition and assets, and all other
circumstances bearing upon the risk of nonpayment of the Obligations and the
nature, scope and extent of the risks which the Company assumes and incurs
hereunder, and agrees that the Administrative Agent and the Lenders shall have
no duty to advise the Company of Information known to them regarding such
circumstances or risks.
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12.9. LIMITATION ON ENFORCEMENT. The Lenders agree that the guaranty
and undertakings of the Company in this section 12 may be enforced by the action
of the Administrative Agent or the Collateral Agent, in each case acting upon
the instructions of the Required Lenders and that no Lender shall have any right
individually to seek to enforce or to enforce the provisions of this section 12
or to realize upon the security to be granted by any Security Document, it being
understood and agreed that such rights and remedies may be exercised by the
Administrative Agent or the Collateral Agent for the benefit of the Lenders upon
the terms of this Agreement and any Security Document. The Lenders further agree
that this section 12 may not be enforced against any director, officer, employee
or stockholder of the Company, as such.
SECTION 13. MISCELLANEOUS.
13.1. PAYMENT OF EXPENSES ETC. (a) EXPENSES OF THE ADMINISTRATIVE
AGENT AND THE COLLATERAL AGENT. The Company agrees to pay directly, or reimburse
the Administrative Agent and the Collateral Agent for, all reasonable
out-of-pocket costs and expenses incurred in connection with the negotiation,
preparation, execution and delivery of the Credit Documents and the documents
and instruments referred to herein and therein, and the administration of the
credit facilities provided for herein including, without limitation, (A) the
reasonable fees and disbursements of (x) Jones, Day, Reavis & Pogue, special
counsel to the Administrative Agent, and (y) any local counsel retained by the
Administrative Agent or the Collateral Agent in any jurisdiction in which a
proposed or actual Project is located, (B) recording and filing fees, charges
and taxes, (C) the premium for Title Insurance Policies and any endorsements
thereto, and title examination and other charges in connection therewith, (D)
survey fees, (E) appraisal costs, (F) escrow fees, (G) the fees and charges of
any Inspecting Consultant retained by the Administrative Agent, (H) the fees and
charges of any inspecting engineer retained by the Administrative Agent, (I)
environmental auditing and inspection fees and charges of any environmental
engineering or similar firm retained by the Administrative Agent, (J) costs and
expenses incurred by the Administrative Agent in connection with any physical
inspections of any Project or the site of any proposed Project, and (K) costs
and expenses incurred by the Administrative Agent in connection with any annual
or more frequent meeting with the Company's officers to review and discuss the
Company's financial affairs. The Company specifically authorizes the
Administrative Agent to retain an Inspecting Consultant and incur other costs
and expenses referred to above relative to a specific proposed Project prior to
the date such Project becomes a qualified Project as contemplated hereby.
(b) COMPANY NOT LIABLE FOR INDIVIDUAL LENDER'S COSTS IN CONNECTION
WITH PREPARATION OF CREDIT DOCUMENTS OR LOAN CLOSINGS. It is specifically
understood and agreed that the Company shall have no obligation to pay or
reimburse any individual Lender for any costs or expenses of individual counsel
retained by any Lender, allocated internal legal expenses, or other costs or
expenses, which are incurred by such individual Lender in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to herein and therein, the administration of
the credit facilities provided for herein, or the closing of Loans provided for
herein
(c) COSTS AND EXPENSES OF AMENDMENTS, WAIVERS, WORK-OUTS AND
ENFORCEMENT. Notwithstanding the limitation contained in section 13.1(b), the
Company agrees to pay directly, or reimburse the Administrative Agent, the
Collateral Agent and the Lenders for, all reasonable out-of-pocket costs and
expenses (and any allocated costs of internal counsel) incurred in connection
with (i) any actual or proposed amendment, waiver or consent relating to any of
the Credit Documents, (ii) any actual or proposed "work out" arrangements with
respect to the transactions contemplated hereby, and (iii) the enforcement of
any of the Credit Documents. Without limitation of the foregoing, in the event
of the bankruptcy, insolvency, rehabilitation or other similar proceeding in
respect of the Company or any of its Subsidiaries, the Company agrees to pay all
costs of collection and defense, including reasonable attorneys' fees in
connection therewith and in connection with any appellate proceeding or
post-judgment action involved therein, which shall be due and payable together
with all required service or use taxes.
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(d) STAMP AND OTHER TAXES. The Company agrees to pay and hold each
of the Lenders, the Administrative Agent and the Collateral Agent harmless from
and against any and all present and future stamp, intangibles, recording and
other similar taxes with respect to the foregoing matters referred to in this
section 13.1 and save each of the Lenders, the Administrative Agent and the
Collateral Agent harmless from and against any and all liabilities with respect
to or resulting from any delay or omission (other than to the extent
attributable to any such person to be so indemnified) to pay such taxes.
(e) INDEMNIFICATION. The Company agrees to indemnify each Lender,
the Administrative Agent and the Collateral Agent, and their respective
officers, directors, employees, representatives, agents, successors and assigns
(collectively, the "INDEMNITEES") from and hold each of them harmless against
any and all losses, liabilities, claims, damages or expenses reasonably incurred
by any of them as a result of, or arising out of, or in any way related to, or
by reason of
(i) any investigation, litigation or other proceeding
(whether or not any Indemnitee is a party thereto) related to the
entering into and/or performance of any Credit Document or the use of
the proceeds of any Loans hereunder or the consummation of any
transactions contemplated in any Credit Document, other than any such
investigation, litigation or proceeding arising out of transactions
solely between any of the Lenders or the Administrative Agent,
transactions solely involving the assignment by a Lender of all or a
portion of its Loans and Commitment, or the granting of participations
therein, as provided in this Agreement, or arising solely out of any
examination of a Lender by any regulatory authority having jurisdiction
over it;
(ii) the actual or alleged presence of Hazardous Materials
in the air, surface water or groundwater or on the surface or
subsurface of any Real Property owned, leased or at any time operated
by the Company, any of its Subsidiaries or any other Credit Party;
(iii) the release, generation, storage, transportation,
handling or disposal of Hazardous Materials at any location, whether or
not owned or operated by the Company, any of its Subsidiaries or any
other Credit Party, if the Company, any such Subsidiary or any such
other Credit Party could have or is alleged to have any responsibility
in respect thereof;
(iv) the non-compliance of any such Real Property with
foreign, federal, state and local laws, regulations and ordinances
(including applicable permits thereunder) applicable to any such Real
Property; or
(v) any Environmental Claim asserted against the Company,
any of its Subsidiaries, any other Credit Party or any Indemnitee, in
respect of any such Real Property;
including, in each case, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of the gross
negligence or willful misconduct of the person to be indemnified or of any other
Indemnitee who is such person or an Affiliate of such person). To the extent
that the undertaking to indemnify, pay or hold harmless any person set forth in
the preceding sentence may be unenforceable because it is violative of any law
or public policy, the Company shall make the maximum contribution to the payment
and satisfaction of each of the indemnified liabilities which is permissible
under applicable law.
13.2. RIGHT OF SETOFF. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, each Lender is hereby
authorized at any time or from time to time, without presentment, demand,
protest
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or other notice of any kind to the Company, any other Credit Party or to any
other person, any such notice being hereby expressly waived, to set off and to
appropriate and apply any and all deposits (general or special) and any other
Indebtedness at any time held or owing by such Lender (including, without
limitation, by branches and agencies of such Lender wherever located) to or for
the credit or the account of the Company or any Borrower against and on account
of the Obligations and liabilities of the Company and the Borrowers to such
Lender under this Agreement or under any of the other Credit Documents,
including, without limitation, all interests in Obligations of the Borrowers
purchased by such Lender pursuant to section 13.4(b), and all other claims of
any nature or description arising out of or connected with this Agreement or any
other Credit Document, irrespective of whether or not such Lender shall have
made any demand hereunder and although said Obligations, liabilities or claims,
or any of them, shall be contingent or unmatured. EACH LENDER AGREES, SOLELY FOR
THE BENEFIT OF THE ADMINISTRATIVE AGENT AND THE OTHER LENDERS, NOT TO EXERCISE
ANY SET-OFF OR SIMILAR RIGHTS IF BY DOING SO SUCH ACTION COULD, UNDER THE LAW
APPLICABLE TO ANY MORTGAGE COVERING ANY PROJECT, RESULT IN THE LOSS OF THE RIGHT
OF THE COLLATERAL AGENT (OR ANY TRUSTEE THEREFOR UNDER A DEED OF TRUST OR
SIMILAR INSTRUMENT) TO ENFORCE ANY MORTGAGE OR ANY OTHER MATERIAL PORTION OF THE
COLLATERAL.
13.3. NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile transmission or cable communication)
and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to the
Company, at 1142 Broadway Plaza, Suite 300, Tacoma, Washington 98402, attention:
David Boitano, Senior Vice President (telephone: (253) 383-9993; facsimile:
(253) 383-0855), with a copy to the Company at 450 North Sunnyslope Road, Suite
300, Brookfield, Wisconsin 53005, attention Mark Ohlendorf, Senior Vice
President, Finance (telephone: (414) 641-7432; facsimile: (414) 789-6182); if to
any Lender at its address specified for such Lender on Annex I hereto; if to the
Administrative Agent, at its Notice Address; or at such other address as shall
be designated by any party in a written notice to the other parties hereto. All
such notices and communications shall be mailed, telegraphed, telexed,
telecopied, or cabled or sent by overnight courier, and shall be effective when
received.
13.4. BENEFIT OF AGREEMENT. (a) This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, PROVIDED that neither the Company nor any
Borrower may assign or transfer any of its rights or obligations hereunder
without the prior written consent of all the Lenders, and, PROVIDED, FURTHER,
that any assignment by a Lender of its rights and obligations hereunder shall be
effected in accordance with section 13.4(b). Each Lender may at any time grant
participations in any of its rights hereunder or under any of the Notes to (x)
another Lender that is not a Defaulting Lender or to an Affiliate of such Lender
which is a commercial bank, financial institution or other "accredited investor"
(as defined in SEC Regulation D), and (y) one or more Eligible Transferees,
PROVIDED that in the case of any such participation, (i) the participant shall
not have any rights under this Agreement or any of the other Credit Documents,
including rights of consent, approval or waiver (the participant's rights
against such Lender in respect of such participation to be those set forth in
the agreement executed by such Lender in favor of the participant relating
thereto), (ii) such Lender's obligations under this Agreement (including,
without limitation, its Commitment hereunder) shall remain unchanged, (iii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iv) such Lender shall remain the holder of any
Note for all purposes of this Agreement and (v) the Company, the Administrative
Agent, and the other Lenders shall continue to deal solely and directly with the
selling Lender in connection with such Lender's rights and obligations under
this Agreement, and all amounts payable by the Company or any Borrower hereunder
or under the other Credit Documents shall be determined as if such Lender had
not sold such participation, except that the participant shall be entitled to
the benefits of sections 2.11 and 2.12 of this Agreement to the extent that such
Lender would be entitled to such benefits
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if the participation had not been entered into or sold, and, PROVIDED FURTHER,
that no Lender shall transfer, grant or sell any participation under which the
participant shall have rights to approve any amendment to or waiver of this
Agreement or any other Credit Document except to the extent such amendment or
waiver would (A) extend the final scheduled maturity of the Loans in which such
participant is participating (it being understood that any waiver of the making
of, or the application of, any prepayment or the method of any application of
any prepayment to the Loans shall not constitute an extension of the final
maturity date thereof), or reduce the rate or extend the time of payment of
interest or Fees thereon (except in connection with a waiver of the
applicability of any post-default increase in interest rates), or reduce the
principal amount thereof, or increase such participant's participating interest
in any Commitment over the amount thereof then in effect (it being understood
that a waiver of any Default or Event of Default or of any mandatory prepayment
or a mandatory reduction in the Total Commitment, or a mandatory prepayment,
shall not constitute a change in the terms of any Commitment), (B) release all
or any substantial portion of the Collateral, other than in connection with, and
to the extent related to, the prepayment or repayment of the Loans of such
Borrower, (C) release the Company from its obligations under section 12 hereof,
(D) release the Permanent Lender or the Supplemental Permanent Lender, as
applicable, from its obligations under any Project Take-Out Agreement, or amend,
waive or otherwise modify any term or provision of any Project Take-Out
Agreement, or (E) consent to the assignment or transfer by the Company or any
applicable Borrower of any of its rights and obligations under this Agreement.
(b) Notwithstanding the foregoing, (x) any Lender may assign all
or a fixed portion of its Loans and/or Commitments and its rights and
obligations hereunder, which assignment does not have to be PRO RATA among the
Facilities, to another Lender that is not a Defaulting Lender, or to an
Affiliate of any Lender (including itself) and which is not a Defaulting Lender
and which is a commercial bank, financial institution or other "accredited
investor" (as defined in SEC Regulation D), and (y) any Lender may assign all,
or if less than all, a fixed portion, equal to at least $10,000,000 in the
aggregate for the assigning Lender or assigning Lenders of its Loans and/or
Commitments and its rights and obligations hereunder, which assignment does not
have to be PRO RATA among the Facilities, to one or more Eligible Transferees,
each of which assignees shall become a party to this Agreement as a Lender by
execution of an Assignment Agreement, PROVIDED that, (i) in the case of any
assignment of a portion of the Loans and/or Commitments of a Lender, such Lender
shall retain a minimum fixed portion of the then Total Commitment and
outstanding Loans equal to at least $15,000,000 (or if less, 8% of the then
Total Commitment), (ii) in the case of any assignment of a portion of the Loans
and/or Commitments of a Lender which is at the time acting as the Administrative
Agent, such Lender shall retain a minimum fixed portion of the then Total
Commitment and outstanding Loans equal to at least $25,000,000 (or if less,
12.5% of the then Total Commitment), (iii) at the time of any such assignment
Annex I shall be deemed modified to reflect the Commitments of such new Lender
and of the existing Lenders, (iv) upon surrender of the old Notes, new Notes
will be issued to such new Lender and to the assigning Lender, such new Notes to
be in conformity with the requirements of section 2.6 (with appropriate
modifications) to the extent needed to reflect the revised Commitments, (v) in
the case of clause (y) only, the consent of the Administrative Agent shall be
required in connection with any such assignment (which consent shall not be
unreasonably withheld or delayed), and (vi) the Administrative Agent shall
receive at the time of each such assignment, from the assigning or assignee
Lender, the payment of a non-refundable assignment fee of $2,500 and, PROVIDED
FURTHER, that such transfer or assignment will not be effective until the
Assignment Agreement in respect thereof is recorded by the Administrative Agent
on the Lender Register maintained by it as provided herein. At the time of each
assignment pursuant to this section 13.4(b) to a person which is not already a
Lender hereunder and which is not a United States person (as such term is
defined in section 7701(a)(30) of the Code) for Federal income tax purposes, the
respective assignee Lender shall provide to the Company (on behalf of itself and
the Borrowers) and the Administrative Agent the appropriate Internal Revenue
Service Forms (and, if applicable a Section 5.4(b)(ii) Certificate) described in
section 5.4(b). To the extent that an assignment of all or any portion of a
Lender's Commitment and related outstanding Obligations pursuant to this section
13.4(b) would, at the time of such assignment, result in increased costs under
section 2.11 from those being charged by the respective
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assigning Lender prior to such assignment, then the Company and any applicable
Borrower shall not be obligated to pay such increased costs (although the
Company and any applicable Borrower shall be obligated to any other increased
costs of the type described above resulting from changes after the date of the
respective assignment). Nothing in this section 13.4(b) shall prevent or
prohibit any Lender from pledging its Notes or Loans to a Federal Reserve Bank
in support of borrowings made by such Lender from such Federal Reserve Bank.
(c) Notwithstanding any other provisions of this section 13.4, no
transfer or assignment of the interests or obligations of any Lender hereunder
or any grant of participation therein shall be permitted if such transfer,
assignment or grant would require the Company to file a registration statement
with the SEC or to qualify the Loans under the "Blue Sky" laws of any State.
(d) Each Lender initially party to this Agreement hereby
represents, and each person that became a Lender pursuant to an assignment
permitted by this section 13.4 will, upon its becoming party to this Agreement,
represent that it is a commercial lender, other financial institution or other
"accredited" investor (as defined in SEC Regulation D) which makes or acquires
loans in the ordinary course of its business and that it will make or acquire
Loans for its own account in the ordinary course of such business, PROVIDED that
subject to the preceding sections 13.4(a) and (b), the disposition of any
promissory notes or other evidences of or interests in Indebtedness held by such
Lender shall at all times be within its exclusive control.
13.5. NO WAIVER: REMEDIES CUMULATIVE. No failure or delay on the
part of the Administrative Agent or any Lender in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between the Company or any other Credit Party and the Administrative Agent or
any Lender shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which the Administrative Agent or any Lender would otherwise have. No
notice to or demand on the Company or any other Credit Party in any case shall
entitle the Company or any other Credit Party to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
the Administrative Agent or the Lenders to any other or further action in any
circumstances without notice or demand.
13.6. PAYMENTS PRO RATA. (a) The Administrative Agent agrees that
promptly after its receipt of each payment from or on behalf of the Company or
any other Credit Party in respect of any Obligations, it shall distribute such
payment to the Lenders (other than any Lender that has expressly waived in
writing its right to receive its PRO RATA share thereof) PRO RATA based upon
their respective shares, if any, of the Obligations with respect to which such
payment was received. As to any such payment received by the Administrative
Agent prior to 1:00 P.M. (local time at the Payment Office) in funds which are
immediately available on such day, the Administrative Agent will use all
reasonable efforts to distribute such payment in immediately available funds on
the same day to the Lenders as aforesaid.
(b) Each of the Lenders agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
Obligation then owed and due to such Lender bears to the total of such
Obligation then owed and due to all of the Lenders immediately prior to such
receipt, then such Lender receiving such excess payment shall purchase for cash
without recourse or warranty from the other Lenders an interest in the
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Obligations to such Lenders in such amount as shall result in a proportional
participation by all of the Lenders in such amount, PROVIDED that if all or any
portion of such excess amount is thereafter recovered from such Lender, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding sections 13.6(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Lenders which are not Defaulting Lenders, as opposed to
Defaulting Lenders.
13.7. CALCULATIONS: COMPUTATIONS. (a) The financial statements to be
furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by the Company to the Lenders); PROVIDED, that if at any time the computations
determining compliance with section 9 utilize accounting principles different
from those utilized in the financial statements furnished to the Lenders, such
computations shall set forth in reasonable detail a description of the
differences and the effect upon such computations.
(b) All computations of interest on Loans hereunder shall be made
on the actual number of days elapsed over a year of 360 days.
13.8. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
JURY TRIAL. (a) This Agreement contemplates the financing of Projects which may
be located in a number of different jurisdictions, and involves multiple parties
located in a number of different jurisdictions. In light of such factors and the
fact that the principal place of business of the Administrative Agent is
presently located in Cleveland, Ohio, the parties have determined that this
Agreement and (as provided below) certain of the other Credit Documents should
be governed by and construed under the law of the State of Ohio, and that it
would be appropriate for the Company and the Borrowers to expressly submit to
the jurisdiction of certain courts sited in the State of Ohio. Accordingly: THIS
AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF OHIO, EXCEPT TO THE EXTENT THAT THE LAW OF
THE JURISDICTION IN WHICH ANY BORROWER'S PROJECT IS LOCATED MAY GOVERN THE
ENFORCEMENT OF SUCH BORROWER'S MORTGAGE AND ANY OTHER CREDIT DOCUMENTS TO WHICH
SUCH BORROWER IS A PARTY INVOLVING THE CONVEYANCE OR ENCUMBRANCE OF PROPERTY
LOCATED IN SUCH JURISDICTION. TO THE FULLEST EXTENT PERMITTED BY LAW, THE
COMPANY AND EACH BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY
CLAIM TO ASSERT THAT THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF OHIO
GOVERNS THIS AGREEMENT OR (EXCEPT AS AFORESAID) ANY OF THE OTHER CREDIT
DOCUMENTS. Any legal action or proceeding with respect to this Agreement or any
other Credit Document may be brought in the Court of Common Pleas of Cuyahoga
County, Ohio, or of the United States for the Northern District of Ohio, and, by
execution and delivery of this Agreement and any Joinder Supplement, the Company
and each Borrower hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. The Company and each Borrower hereby further irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Company at its address for notices pursuant to section
13.3, or to such Borrower in care of the Company at the Company's aforementioned
address for notices (or as to any Borrower, at such different address as shall
have been furnished to the Administrative Agent in writing), such service to
become effective 30 days after such mailing or at such earlier time as may be
provided under applicable law. Nothing herein shall affect the right of the
Administrative Agent or any Lender to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
the Company or any Borrower in any other jurisdiction.
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(b) The Company and each Borrower hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Credit Document brought in the courts referred to in
section 13.8(a) above and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13.9. RELEASE OF A BORROWER AND ITS PROJECT UPON REFINANCING OR
OTHER PREPAYMENT, ETC. The Administrative Agent and the Collateral Agent are
authorized upon the repayment or prepayment in full of a Borrower's Loans for a
Project, whether out of loans made to such Borrower for such Project by the
Permanent Lender or the Supplemental Permanent Lender as contemplated by the
Project Take-Out Agreement relating to such Borrower's Project, or otherwise, to
(i) release such Borrower from all obligations under any Credit Documents to
which it is a party which relate to such Project, and (ii) release and discharge
the Mortgage for such Project, any additional Security Documents to which such
Borrower is a party which relate to such Project, and any other Collateral which
is directly related to such Project; PROVIDED, that no such release shall be
made if at the time thereof (x) a Default under section 10.1(a) has occurred and
is continuing, or (y) an Event of Default shall have occurred and be continuing
and the Obligations have been accelerated as provided in section 10.2 or the
Administrative Agent and/or the Collateral Agent shall have commenced
foreclosure or other enforcement remedies in respect of any of the Collateral,
UNLESS such release is made in connection with the prepayment of the Loans for
such Project and the consummation of the transactions contemplated by the
Project Take-Out Agreement relating to such Project.
13.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same agreement. A set of counterparts
executed by all the parties hereto shall be lodged with the Company and the
Administrative Agent.
13.11. EFFECTIVENESS. This Agreement shall become effective on the
date (the "EFFECTIVE DATE") on which the Company and each of the Lenders shall
have signed a copy hereof (whether the same or different copies) and shall have
delivered the same to the Administrative Agent at the Notice Office of the
Administrative Agent or, in the case of the Lenders, shall have given to the
Administrative Agent telephonic (confirmed in writing), written telex or
facsimile transmission notice (actually received) at such office that the same
has been signed and mailed to it.
13.12. HEADINGS DESCRIPTIVE. The headings of the several sections and
other portions of this Agreement are inserted for convenience only and shall not
in any way affect the meaning or construction of any provision of this
Agreement.
13.13. AMENDMENT OR WAIVER. Neither this Agreement nor any terms
hereof or thereof may be changed, waived, discharged or terminated UNLESS such
change, waiver, discharge or termination is in writing signed by the Company (on
behalf of itself and on behalf of all Borrowers) and (1) the Required
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Tranche A Lenders, if it affects only the Tranche A Commitments and/or the
Tranche A Loans, (2) the Required Tranche B Lenders, if it affects only the
Tranche B Commitments and/or the Tranche B Loans, (3) all of the Lenders with
Tranche A Commitments (other than a Defaulting Lender), if the consent or
approval of all Lenders with Tranche A Commitments is explicitly required
hereunder, (4) all of the Lenders with Tranche B Commitments (other than a
Defaulting Lender), if the consent or approval of all Lenders with Tranche B
Commitments is explicitly required hereunder, or (5) in all other cases, the
Required Lenders, PROVIDED that no such change, waiver, discharge or termination
shall, without the consent of each Lender (other than a Defaulting Lender)
affected thereby,
(a) extend any interim or final maturity date provided for
herein (including any extension of any interim or final maturity date
to be effected in accordance with section 4.3 hereof) applicable to a
Loan or a Commitment (it being understood that any waiver of the making
or application of any mandatory prepayment of the Loans shall not
constitute an extension of such final maturity thereof),
(b) reduce the rate or extend the time of payment of interest
on any Loans (other than as a result of waiving the applicability of
any post-default increase in interest rates) or Fees thereon or other
amounts payable hereunder with respect thereto, or reduce the principal
amount thereof,
(c) increase the Commitment of any Lender over the amount
thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of any mandatory prepayment of the Loans
shall not constitute a change in the terms of any Commitment of any
Lender),
(d) release the Company from any obligations as a guarantor or
obligor under section 12 hereof, or otherwise modify such section so as
to reduce or limit such obligations,
(e) release any of the Collateral, other than in connection
with the prepayment or repayment of the Loans of such Borrower, as
contemplated by section 13.9 hereof,
(f) release the Permanent Lender or any Supplemental Permanent
Lender from its obligations under any Project Take-Out Agreement, or
amend, waive or otherwise modify any term or provision of any Project
Take-Out Agreement,
(g) change the definition of the term "Change of Control" or
"Change of Control Prepayment Event" or any of the provisions of this
Agreement, including, without limitation, the definition of Tranche B
Activation Date and sections 2.2, 4.2 and 5.2, which involve a Change
of Control or a Change of Control Prepayment Event,
(h) amend, modify or waive any provision of this section
13.13, or section 11.7, 13.1, 13.4, 13.6 or 13.7(b),
(i) amend, modify or waive any other provision of any of the
Credit Documents pursuant to which the consent or approval of all
Lenders, is by the terms of such provision explicitly required,
(j) reduce the percentage specified in, or otherwise modify,
the definitions of Required Tranche A Lenders, Required Tranche B
Lenders or Required Lenders, or
(k) consent to the assignment or transfer by the Company or
any applicable Borrower of any of its rights and obligations under this
Agreement.
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No provision of section 11 may be amended without the consent of the
Administrative Agent.
13.14. SURVIVAL OF INDEMNITIES. All indemnities set forth herein
including, without limitation, in section 2.11, 2.12, and 13.1 shall survive the
execution and delivery of this Agreement and the making and repayment or
prepayment of Loans.
13.15. DOMICILE OF LOANS. Each Lender may transfer and carry its
Loans at, to or for the account of any branch office, subsidiary or affiliate of
such Lender, PROVIDED that the Company shall not be responsible for costs
arising under section 2.11 resulting from any such transfer (other than a
transfer pursuant to section 2.13) to the extent not otherwise applicable to
such Lender prior to such transfer.
13.16. CONFIDENTIALITY. Each Lender shall hold all non-public
information obtained pursuant to the requirements of this Agreement which has
been identified as such by the Company in accordance with its customary
procedure for handling confidential information of this nature and in accordance
with safe and sound banking practices and in any event may make disclosure
reasonably required by any BONA FIDE transferee or participant in connection
with the contemplated transfer of any Loans or Commitment or participation
therein (PROVIDED that each such prospective transferee and/or participant shall
execute an agreement for the benefit of the Company with such prospective
transferor Lender and/or participant containing provisions substantially
identical to those contained in this section 13.16), and to its auditors,
attorneys or as required or requested by any governmental agency or
representative thereof or pursuant to legal process, PROVIDED that, unless
specifically prohibited by applicable law or court order, each Lender shall
notify the Company of any request by any governmental agency or representative
thereof (other than any such request in connection with an examination of the
financial condition of such Lender by such governmental agency) for disclosure
of any such non-public information prior to disclosure of such information, and
PROVIDED FURTHER that in no event shall any Lender be obligated or required to
return any materials furnished by or on behalf of the Company or any of its
Subsidiaries. The Company hereby agrees that the failure of a Lender to comply
with the provisions of this section 13.16 shall not relieve the Company or any
other Credit Party of any of the obligations to such Lender under this Agreement
and the other Credit Documents.
13.17. LENDER REGISTER. The Company hereby designates the
Administrative Agent to serve as its agent, solely for purposes of this section
13.17, to maintain a register (the "LENDER REGISTER") on or in which it will
record the names and addresses of the Lenders, and the Commitments from time to
time of each of the Lenders, the Loans made to the Borrowers by each of the
Lenders and each repayment and prepayment in respect of the principal amount of
such Loans of each such Lender. Failure to make any such recordation, or (absent
manifest error) any error in such recordation, shall not affect the Company's
obligations in respect of such Loans. With respect to any Lender, the transfer
of the Commitment of such Lender and the rights to the principal of, and
interest on, any Loan made pursuant to such Commitment shall not be effective
until such transfer is recorded on the Lender Register maintained by the
Administrative Agent with respect to ownership of such Commitment and Loans and
prior to such recordation all amounts owing to the transferor with respect to
such Commitment and Loans shall remain owing to the transferor. The registration
of assignment or transfer of all or part of any Commitments and Loans shall be
recorded by the Administrative Agent on the Lender Register only upon the
acceptance by the Administrative Agent of a properly executed and delivered
Assignment Agreement pursuant to section 13.4(b). The Company agrees to
indemnify the Administrative Agent from and against any and all losses, claims,
damages and liabilities of whatsoever nature which may be imposed on, asserted
against or incurred by the Administrative Agent in performing its duties under
this section 13.17. The Lender Register shall be available for inspection by any
Company or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
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13.18. GENERAL LIMITATION OF LIABILITY. No claim may be made by the
Company or any other Credit Party, any Lender, the Administrative Agent or any
other person against the Administrative Agent or any other Lender or the
Affiliates, directors, officers, employees, attorneys or agents of any of them
for any damages other than actual compensatory damages in respect of any claim
for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement or any of the other
Credit Documents, or any act, omission or event occurring in connection
therewith; and each of the Company (on its own behalf and on behalf of all
Borrowers and other Credit Parties), each Lender and the Administrative Agent
hereby, to the fullest extent permitted under applicable law, waives, releases
and agrees not to sue or counterclaim upon any such claim for any special,
consequential or punitive damages, whether or not accrued and whether or not
known or suspected to exist in its favor (or in favor of any Borrower or any
other Credit Party, in the case of the Company and the other Credit Parties).
13.19. NO DUTY. All attorneys, accountants, appraisers, consultants
and other professional persons (including the firms or other entities on behalf
of which any such person may act) retained by the Administrative Agent or any
Lender with respect to the transactions contemplated by the Credit Documents
shall have the right to act exclusively in the interest of the Administrative
Agent or such Lender, as the case may be, and shall have no duty of disclosure,
duty of loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to the Company, to any of its Subsidiaries or the other Credit
Parties, or to any other person, with respect to any matters within the scope of
such representation or related to their activities in connection with such
representation.
13.20. LENDERS AND AGENT NOT FIDUCIARY TO COMPANY, ETC. The
relationship among the Company, its Subsidiaries and the other Credit Parties,
on the one hand, and the Administrative Agent and the Lenders, on the other
hand, is solely that of debtor and creditor, and the Administrative Agent and
the Lenders have no fiduciary or other special relationship with the Company,
its Subsidiaries and the other Credit Parties, and no term or provision of any
Credit Document, no course of dealing, no written or oral communication, or
other action, shall be construed so as to deem such relationship to be other
than that of debtor and creditor.
13.21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties herein shall survive the making of Loans
hereunder, the execution and delivery of this Agreement, the Notes and the other
documents the forms of which are attached as Exhibits hereto, the issue and
delivery of the Notes, any disposition thereof by any holder thereof, and any
investigation made by the Administrative Agent or any Lender or any other holder
of any of the Notes or on its behalf. All statements contained in any
certificate or other document delivered to the Administrative Agent or any
Lender or any holder of any Notes by or on behalf of the Company, any of its
Subsidiaries or any other Credit Party pursuant hereto or otherwise specifically
for use in connection with the transactions contemplated hereby shall constitute
representations and warranties by the Company hereunder, made as of the
respective dates specified therein or, if no date is specified, as of the
respective dates furnished to the Administrative Agent or any Lender.
13.22. INTEREST/USURY. It is the intention of the parties hereto that
each Lender shall conform strictly to all usury laws applicable to it in respect
of all Loans and other extensions of credit made by it hereunder. Accordingly,
the parties hereto stipulate and agree that none of the terms and provisions
contained in this Agreement or in any of the other Credit Documents shall ever
be construed to create a contract on the part of any Borrower to pay to any
Lender , for the use, forbearance, or retention of money associated with any
Loans or other extensions of credit for a Project, any amount representing
"interest" (as defined in any applicable law) in excess of the maximum amount of
"interest" (as so defined) which would have accrued if the unpaid principal
amounts of such Lender's Loans to such Borrower for such
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Project outstanding from time to time had borne interest for each day at the
Highest Lawful Rate (such maximum amount for any Loans of a Lender to a Borrower
for a Project, the "MAXIMUM RECOVERABLE AMOUNT OF INTEREST"). Regardless of any
provision in this Agreement or any of the other Credit Documents, no Lender
shall ever be entitled to receive, collect or apply, under this Agreement or any
of the other Credit Documents, as interest on its Loans and other extensions of
credit to a Borrower for a Project, any amount of interest in excess of the
Maximum Recoverable Amount of Interest applicable thereto. If any Lender ever
receives, collects or applies to any such Loans, as interest, any such excess,
such amount which would be excessive interest shall be deemed a partial
repayment or prepayment of principal and treated by the applicable Borrower and
the applicable Lender hereunder and under the other Credit Documents as such;
and if any such principal is paid in full, any remaining excess shall be
refunded by such Lender to the applicable Borrower; PROVIDED, HOWEVER, that in
determining whether or not the interest paid or payable by any Borrower to any
Lender in respect of any Loans, under any specific contingency, exceeds the
Maximum Recoverable Amount of Interest applicable thereto, the applicable
Borrower and the applicable Lender shall, to the maximum extent permitted under
applicable laws, (i) characterize or re-characterize any nonprincipal payment as
an expense, fee, charge or premium, rather than as interest, (ii) exclude
voluntary prepayment and the effect thereof, (iii) amortize, prorate, allocate
and spread in equal parts, among the affected Loans made by such Lender to the
Borrower the total amount of interest on such Loans throughout the entire
contemplated term of this Agreement so that the interest rate is uniform
throughout the entire term of this Agreement, (iv) re-allocate a portion of the
interest payable by such Borrower to the Company as a fee or other charge (the
Company hereby agreeing to pay any such re-allocated amount), and/or (v)
re-allocate on as nearly a uniform basis as is practicable a portion of such
interest to other Loans made by such Lender to such Borrower and the other
Borrowers hereunder in such manner as will not cause the interest paid by such
Borrower and such other Borrowers in respect thereof to exceed the Maximum
Lawful Rate (each Borrower hereby agreeing to any such re-allocation to it of
additional interest amounts and hereby confirming its obligation to pay the
same); and PROVIDED, FURTHER, that if all Loans incurred by any Borrower under
this Agreement for a Project are prepaid in full in accordance with the
provisions of this Agreement prior to the maturity thereof, and if the interest
received by a Lender in respect thereof for the actual period of existence
thereof exceeds the Maximum Recoverable Amount of Interest, such Lender shall
refund to such Borrower the amount of such excess or credit the amount of such
excess against the total principal amount owing on such Loans, and, in such
event, such Lender shall not be subject to any penalties provided by any laws
for contacting for, charging or receiving interest in excess of the Maximum
Recoverable Amount of Interest. This section 13.22 shall control every other
inconsistent provision of all agreements among any or all of the parties
pertaining to the transactions contemplated by or contained in the Credit
Documents.
[The balance of this page is intentionally blank;
the next page is the signature page.]
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Agreement to be duly executed and delivered as of the date first above
written.
<TABLE>
<S> <C>
ALTERNATIVE LIVING SERVICES, INC. BANK ONE, TEXAS, N. A.
BY: /S/ DAVID M. BOITANO BY: /S/ STANLEY W. WILKICKI, JR.
------------------------------------ ------------------------------------
SENIOR VICE PRESIDENT VICE PRESIDENT
KEY CORPORATE CAPITAL INC., COMERICA BANK
INDIVIDUALLY AS A LENDER AND
AS ADMINISTRATIVE AGENT
BY: /S/ DAVID A. MACVICAR BY: /S/ CHARLES L. WEDDELL
------------------------------------ ------------------------------------
VICE PRESIDENT VICE PRESIDENT
BANK OF AMERICA NATIONAL TRUST AND U. S. BANK
SAVINGS ASSOCIATION,
INDIVIDUALLY AS A LENDER AND AS CO-AGENT
BY: /S/ ARNOLD J. CONRAD
------------------------------------
BY: /S/ KIM DAVIS VICE PRESIDENT
------------------------------------
VICE PRESIDENT
SOUTHTRUST BANK, NATIONAL ASSOCIATION,
INDIVIDUALLY AS A LENDER AND AS CO-AGENT
BY: /S/ LANE L. LITTLE
------------------------------------
VICE PRESIDENT
FLEET NATIONAL BANK
BY: /S/ PATRICIA MARINILLI
------------------------------------
VICE PRESIDENT
</TABLE>
<PAGE> 1
EXHIBIT 10.61
DEVELOPMENT JOINT VENTURE AGREEMENT
By and Between
ALTERNATIVE LIVING SERVICES, INC.
and
HCR MANOR CARE, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS 1
ARTICLE 2 FORMATION AND ORGANIZATION OF DEVCO 6
2.1 Formation, Organization and Initial Capitalization of DEVCO 6
2.2 Purpose of DEVCO 7
2.3 Board of Managers of DEVCO 7
ARTICLE 3 ACQUISITION OF INITIAL PROJECTS 7
3.1 Agreement to Transfer Initial Projects 7
3.2 Designation of Acquiring Entity 8
3.3 Initial Closings 9
ARTICLE 4 ACQUISITION OF ADDITIONAL PROJECTS 9
4.1 Right of First Offer 9
4.2 Review of Proposed Projects 10
4.3 Closing of Acquisitions of Additional Projects 11
ARTICLE 5 DEVELOPMENT OF PROJECTS 11
5.1 Project Development 11
5.2 Project Financing 12
ARTICLE 6 MANAGEMENT OF FACILITIES; FACILITY BRANDING 12
6.1 Management 12
ARTICLE 7 ALTERNATIVE OWNERSHIP AND OPERATING STRUCTURES 12
7.1 Determination of Ownership and Operating Structures 12
7.2 Structural Guidelines 12
ARTICLE 8 TRANSFER RESTRICTIONS AND PURCHASE OPTIONS 13
8.1 Restrictions on Transferability of Interests 13
8.2 Facility Call Options 13
ARTICLE 9 REPRESENTATIONS AND WARRANTIES OF ALS 16
9.1 Organization 16
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C>
9.2 Authorization; Enforceability 16
9.3 No Violation or Conflict 16
9.4 Brokers 16
9.5 Litigation 16
9.6 Governmental Approvals 16
9.7 Required Consent 17
9.8 Representations and Warranties True and Correct at Closing 17
ARTICLE 10 REPRESENTATIONS AND WARRANTIES OF HCR 17
10.1 Organization 17
10.2 Authorization; Enforceability 17
10.3 No Violation or Conflict 17
10.4 Brokers 17
10.5 Litigation 17
10.6 Governmental Approvals 18
10.7 Required Consent 18
10.8 Representations and Warranties True and Correct at Closing. 18
ARTICLE 11 INDEMNIFICATION 18
11.1 HCR's Indemnity 18
11.2 ALS's Indemnity 18
11.3 Provisions Regarding Indemnities 19
ARTICLE 12 MISCELLANEOUS 20
12.1 Entire Agreement; Amendment 20
12.2 Fees and Expense 20
12.3 Confidentiality 20
12.4 Further Assurances 21
12.5 No Liens 21
12.6 Public Statement 21
12.7 Applicable Law 21
12.8 Binding Effect; Assignment 21
12.9 Notices 21
12.10 Facsimile Signature; Counterparts 23
12.11 Headings 23
12.12 Construction 23
12.13 Severability 23
12.14 Knowledge 23
12.15 Survival of Representations and Warranties 23
12.16 Arbitration 23
12.17 Waiver of Compliance 24
12.18 Third Parties 24
12.19 Legal Fees 24
12.20 Time of Essence 24
12.21 Exhibits 24
</TABLE>
3
<PAGE> 4
DEVELOPMENT JOINT VENTURE AGREEMENT
THIS DEVELOPMENT JOINT VENTURE AGREEMENT (the "Agreement") is made and
entered into as of the 31st day of December, 1998, by and between ALTERNATIVE
LIVING SERVICES, INC., a Delaware corporation ("ALS") and HCR MANOR CARE, INC.
a Delaware corporation ("HCR").
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions hereof, the parties
desire to organize one or more corporations, limited liability companies,
limited partnerships or other entities for the purpose of jointly constructing,
developing, operating and owning a portfolio of assisted living and/or dementia
care facilities in selected markets located throughout the United States; and
WHEREAS, the parties are entering into this Agreement to set forth
their mutual agreements with respect to this joint venture;
NOW, THEREFORE, in consideration of the premises and of the promises
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, do hereby agree as follows:
ARTICLE 1
DEFINITIONS
In addition to the other definitions contained elsewhere herein, the
following definitions shall apply for purposes of this Agreement:
1.1 Acquiring Entity. "Acquiring Entity" means, with
respect to any Project, the DEVCO Entity that acquired such Project
pursuant to the provisions of Article 3 or Article 4 hereof or, with
respect to any Facility, the DEVCO Entity that acquired the Project
pursuant to the provisions of Article 3 or Article 4 hereof that,
<PAGE> 5
upon completion of such Project, resulted in such Facility.
1.2 Additional Closing. "Additional Closing" means the
closing of an Additional Project in accordance with Section 4.3
hereof.
1.3 Additional Contribution. "Additional Contribution"
means the Total Contribution less the sum of the (i) Initial
Contribution plus any (ii) ALS Initial Adjustments.
1.4 Additional Facility. "Additional Facility" means
those Facilities resulting from the completion of development and
construction of an Additional Project.
1.5 Additional Project. "Additional Project" means each
Project acquired by an Acquiring Entity pursuant to the provisions of
Article 4 hereof.
1.6 Affiliate. "Affiliate" shall have the meaning set
forth in Rule 12b-2 of the Securities Exchange Act of 1934, as
amended.
1.7 ALS Affiliate. "ALS Affiliate" means ALS or any
Affiliate of ALS, excluding any DEVCO Entity owned jointly by ALS and
HCR.
1.8 ALS Ancillary Agreement. "ALS Ancillary Agreement"
means any Ancillary Agreement to which any ALS Affiliate is a party.
1.9 ALS Initial Adjustments. "ALS Initial Adjustments"
shall have the meaning ascribed to it in Section 3.1 hereof.
1.10 ALS Remaining Contribution. "ALS Remaining
Contribution" shall have the meaning ascribed to it in Section 4.1
hereof.
1.11 ALS 2000 Contribution. "ALS 2000 Contribution" means
Thirty Percent (30%) of the Additional Contribution, plus any ALS
Initial Adjustments and ALS shortfall determined in accordance with
Section 3.1 hereof.
1.12 ALS 2001 Contribution. "ALS 2001 Contribution" shall
mean Thirty Percent (30%) of the Additional Contribution, plus the
amount of any ALS shortfall determined in accordance with the first
paragraph of Section 4.1 hereof.
1.13 Ancillary Agreements. "Ancillary Agreements" means
all of the agreements executed and delivered by ALS and HCR, or either
of them (or any of their respective Affiliates), pursuant to this
Agreement or in connection with the transactions contemplated by this
Agreement, including, without limitation,
2
<PAGE> 6
the Confidentiality Agreement between ALS and HCR dated November 27,
1998, the Operating Agreement (DEVCO), all Development Agreements,
Management Agreements and Project Purchase Agreements and the
governing documents of any Project Entity.
1.14 Confidential Information. "Confidential Information"
shall have the meaning given such term in Section 12.3.
1.15 Contributing Party. "Contributing Party" means with
respect to any Project (or Facility), the HCR Affiliate(s) or ALS
Affiliate(s) that was the Project Transferor of such Project (or of
the Project that, upon completion, resulted in such Facility).
1.16 Controlled Affiliate. "Controlled Affiliate" means
with respect to any Person, any Affiliate of such Person that is
controlled by such Person, directly or indirectly.
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1.17 DEVCO Entities. "DEVCO Entities" means DEVCO and the
Project Entities.
1.18 Developing Party. "Developing Party" means the HCR
Affiliate or ALS Affiliate, as the case may be, managing the
development and completion of construction of a Project pursuant to a
Development Agreement in accordance with Section 5.1 hereof.
1.19 Development Agreement. "Development Agreement" means
with respect to a Project the Development Agreement between the
Developing Party thereof and the Acquiring Entity thereof in
substantially the form of Exhibit A attached hereto and incorporated
herein by this reference, together with any changes to properly
reflect the identity of the parties thereto and location of the
Project.
1.20 Disclosing Party. "Disclosing Party" shall have the
meaning given such term in Section 12.3.
1.21 Existing ALS Commitments. "Existing ALS Commitments"
mean those exclusive development rights which ALS has granted or
contractually committed to others in the states of New York,
Connecticut, Rhode Island, Massachusetts, Delaware, Pennsylvania, New
Jersey and Michigan described on Schedule 1 hereto.
1.22 Facility or Facilities. "Facility" or "Facilities"
means the land and any improvements constituting (or intended to
constitute upon the completion of such improvements) an assisted
living or dementia care facility or facilities owned or to be owned by
a DEVCO Entity.
1.23 Facility Call Option. "Facility Call Option" shall
have the meaning given such term in Section 8.2(a).
1.24 Facility Option Period. "Facility Option Period"
shall have the meaning given such term in Section 8.2(a).
1.25 Facility Stabilization. "Facility Stabilization"
means, with respect to a Facility, the achievement by such Facility,
for a period of at least 30 consecutive days, of an average occupancy
rate equal to or in excess of the occupancy rate designated in the
"Development Budget and Facility Pro Forma" prepared pursuant to the
applicable Development Agreement as the "Stabilized Occupancy" for
such Facility.
1.26 HCR Affiliate. "HCR Affiliate" means HCR or any
Affiliate of HCR, excluding any DEVCO Entity owned jointly by ALS and
HCR.
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1.27 HCR Ancillary Agreement. "HCR Ancillary Agreement"
means any Ancillary Agreement to which any HCR Affiliate is a party.
1.28 HCR Remaining Contribution. "HCR Remaining
Contribution" shall have the meaning ascribed to it in Section 4.1
hereof.
1.29 HCR 2000 Contribution. "HCR 2000 Contribution" means
Twenty Percent (20%) of the Additional Contribution, plus any HCR
shortfall determined in accordance with Section 3.1 hereof.
1.30 HCR 2001 Contribution. "HCR 2001 Contribution" means
Twenty Percent (20%) of the Additional Contribution, plus the amount
of any HCR shortfall as determined in accordance with the first
paragraph of Section 4.1 hereof.
1.31 Initial Closings. "Initial Closings" means the
closings of the acquisitions by Acquiring Entities of the Initial
Projects in the manner contemplated by Section 3.3 hereof.
1.32 Initial Contribution. "Initial Contribution" shall
mean the aggregate of the estimated Project Costs of the Initial
Projects.
1.33 Initial Facility. "Initial Facility" means,
collectively, those Facilities resulting from the completion of
development and construction of an Initial Project acquired by an
Acquiring Entity in accordance herewith.
1.34 Initial Projects. "Initial Projects" means the
Projects within the Target Market acquired by DEVCO Entities pursuant
to Section 3.1 hereof.
1.35 Management Agreement. "Management Agreement" means
with respect to a Facility the Assisted Living Consultant and
Management Services Agreement in substantially the form attached
hereto as Exhibit B and incorporated herein by this reference,
together with any changes to properly reflect the identity of the
Acquiring Entity of the Facility and location of the Facility being
managed.
1.36 Offering Party. "Offering Party" means the Party
delivering to DEVCO a Proposal with respect to a Proposed Project
pursuant to Section 3.1 or Section 4.1 hereof.
1.37 Operating Agreement (DEVCO). "Operating Agreement
(DEVCO)" means the Operating Agreement of DEVCO, LLC, in substantially
the form attached hereto as Exhibit C and incorporated herein by this
reference.
1.38 Parties. "Parties" means, collectively, HCR and ALS,
and "Party"
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means either HCR or ALS.
1.39 Percentage Interest. "Percentage Interest" means
with respect to DEVCO, the ownership interest of ALS or HCR therein,
which shall initially be a fifty percent (50%) interest for ALS and a
fifty percent (50%) interest for HCR.
1.40 Person. "Person" means a natural person,
corporation, trust, partnership, limited liability company,
governmental entity (or agency, branch or department thereof) or any
other legal entity.
1.41 Project. "Project" means all contract and property
rights, together with all studies, analyses, market research, permits,
qualifications, files and filings, drawings, plans and other work
product developed or owned by a Project Transferor with respect to the
development, construction, operation and ownership of a Facility (or
prospective Facility hereunder), including, without limitation, plans,
specifications, analyses, approvals, permits and licenses, purchase
contracts and rights, development or construction contracts and title
to real and personal property, as the case may be.
1.42 Project Cost. "Project Cost" means those items that
would normally be capitalized as a component of the cost of a Facility
plus related preopening and start-up operating expenses and losses.
Project Cost shall also include, but not be limited to, all costs
incurred related to the development, construction and leasing up of a
Facility, including direct costs (including applicable costs of
employee benefits) associated with conducting market research,
development and construction management services, professional fees
paid to third parties, amounts paid under construction contracts
(including those costs relating to the general conditions of a
construction project), the imputed cost of construction period
interest, fees and expenses related to debt financing for the
construction and development of the Facility, contingency reserves
plus the development fee to be paid to the Developing Party pursuant
to the terms of the Development Agreement.
1.43 Project Entity. "Project Entity" means DEVCO or any
general or limited partnership, limited liability company or other
entity formed by DEVCO to acquire, develop and construct a Project and
own and operate the resulting Facility as contemplated by Article 7
hereof.
1.44 Project Information. "Project Information" shall
have the meaning ascribed to it in Section 3.1 hereof.
1.45 Project Purchase Agreement. "Project Purchase
Agreement" means with respect to a Project an Agreement for Purchase
and Sale in substantially the form of the Agreement for Purchase and
Sale attached hereto as Exhibit D and incorporated
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herein by this reference, together with changes to properly reflect a
description of such Project and the names of the Project Transferee
and Acquiring Party thereof.
1.46 Project Transferor. "Project Transferor" means, with
respect to any Project, the HCR Affiliate(s) or ALS Affiliate(s) that
has commenced the development effort with respect to any Project and
which holds all right, title and interest in and to the Project.
1.47 Proposal. "Proposal" means a written notice from an
Offering Party delivered to DEVCO pursuant to Section 3.1 or Section
4.1 hereof in respect of a Proposed Project containing reasonably
detailed information regarding the proposed location, the acquisition
cost for real property and the proposed design and service model.
1.48 Proposal Period. "Proposal Period" shall mean the
1999 Proposal Period, 2000 Proposal Period or the 2001 Proposal Period
(each as defined in Section 4.1).
1.49 Proposed Project. "Proposed Project" means, with
respect to either Party, an assisted living or dementia care residence
that such Party or its Controlled Affiliates intend to develop within
the Target Market for which (i) such Party has obtained control of the
real property on which the Facility is to be constructed (whether by
ownership, contract to purchase or option to purchase); (ii) such
Party reasonably expects construction of the Facility to be commenced
(a) in 1999 or 2000 with respect to Proposals required to be made
pursuant to Section 3.1 hereof; or (b) during the period commencing
after the end of the applicable Proposal Period and ending on December
31 of the calendar year following the year in which the Proposal with
respect thereto is required to be made pursuant to Section 4.1 hereof,
and (iii) no Proposal with respect thereto has previously been made to
DEVCO. Proposed Project shall not include any Project for which a
third party has the contractual right to participate in the
construction, development, ownership or financing, if such contract
rights are inconsistent with such Project being an Additional Project
pursuant to the terms hereof.
1.50 Receiving Party. "Receiving Party" shall have the
meaning given such term in Section 12.3.
1.51 Target Market. "Target Market" means the geographic
area falling within a fifty-mile radius surrounding each assisted
living, dementia care or long-term care facility operated by HCR, ALS
or their respective Controlled Affiliates as of the date of such
determination located anywhere in the States of Connecticut, Delaware,
Florida, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey,
New York, Ohio, Pennsylvania, Texas, Virginia and Wisconsin.
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1.52 Total Contribution. "Total Contribution" shall mean
Five Hundred Million Dollars ($500,000,000).
ARTICLE 2
FORMATION AND ORGANIZATION OF DEVCO
2.1 Formation, Organization and Initial Capitalization of DEVCO.
On or before January 31, 1999, ALS and HCR shall form, organize and initially
capitalize DEVCO by (i) filing a certificate of formation with the Secretary of
State of the State of Delaware with respect to DEVCO, (ii) each executing the
Operating Agreement (DEVCO), and (iii) each designating their respective
designees to the Board of Managers (hereinafter defined) and making their
respective initial capital contribution to DEVCO as contemplated by Section 7.1
of the Operating Agreement (DEVCO).
2.2 Purpose of DEVCO. The purpose of DEVCO is to provide the
Parties a jointly-owned platform through which the Parties may jointly develop,
construct, own and operate Facilities, either directly through DEVCO or through
one or more Project Entities designated by DEVCO, in various locations located
within the Target Market.
2.3 Board of Managers of DEVCO. Upon the formation and
organization of DEVCO, DEVCO shall be managed by a Board of Managers (the
"Board of Managers") to be comprised of 6 members, 3 of whom shall be
designated by HCR and 3 of whom shall be designated by ALS. Members of the
Board of Managers shall not be entitled to any compensation or remuneration by
DEVCO except to the extent specifically provided in the Operating Agreement
(DEVCO).
ARTICLE 3
ACQUISITION OF INITIAL PROJECTS
3.1 Agreement to Transfer Initial Projects. During January of
1999, each of HCR and ALS shall provide DEVCO with a Proposal with respect to,
and an opportunity to review, all Proposed Projects of such Party and its
Controlled Affiliates at such time. Such Party (the "Offering Party") shall
provide DEVCO with access to all such information as DEVCO may reasonably
request relating to such Proposed Projects (including, but not limited to, to
the extent available, the projected Project Costs, feasibility studies, revenue
and expense projections and preliminary assessments of zoning and regulatory
approvals necessary to construct and operate such Project) and any other
information known to the Offering Party which the Offering Party reasonably
believes is necessary to enable DEVCO to make an informed decision with respect
thereto (all such information being referred to herein as "Project
Information"). The Proposed Projects submitted by ALS and HCR, respectively,
shall have aggregate estimated Project Costs of at least approximately One
Hundred Twenty-Five Million Dollars ($125,000,000) per Party. DEVCO shall have
until
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February 28, 1999 (the "Initial Period") in which to identify Proposed Projects
which shall become Initial Projects pursuant to this Agreement; provided,
however, that the aggregate estimated Project Cost for Initial Projects
selected by DEVCO from Proposed Projects offered in January of 1999 shall not
exceed (i) One Hundred Twenty-Five Million Dollars ($125,000,000) with respect
to Proposed Projects offered by ALS and (ii) One Hundred Twenty-Five Million
Dollars ($125,000,000) with respect to Proposed Projects offered by HCR. If,
after taking into account the Proposed Projects accepted by DEVCO, the
aggregate estimated Project Costs to be contributed by one party exceeds the
aggregate estimated Project Costs of the Proposed Projects to be contributed by
the other Party by more than Ten Million Dollars ($10,000,000), then the
Parties shall agree to either add additional Proposed Projects or to remove
Proposed Projects to reduce the difference to the extent economically feasible.
Subject to the terms and conditions hereof, each of HCR and ALS hereby agree to
cause each of their respective Controlled Affiliates who are Project
Transferors with respect to any of the Proposed Projects (i) to enter into a
Project Purchase Agreement with the Acquiring Entity designated by DEVCO with
respect to such Initial Project promptly following DEVCO's request with respect
thereto and (ii) to transfer, convey and assign such Initial Project to such
Acquiring Entity pursuant to the terms of such Project Purchase Agreement at
the Initial Closing. In the event that the Initial Closing with respect to any
Initial Project proposed by ALS does not occur on or before March 31, 1999, ALS
shall have the right to substitute such Initial Project with another Project.
If ALS elects to make any substitutions, ALS shall notify HCR of each Initial
Project that it elects to substitute (each a "Removed Project") and shall
provide HCR with a Proposal for another Project (each a "Substitute Project")
to replace the Removed Project. HCR shall have the right to reject a Substitute
Project within fifteen (15) days after receipt of the Proposal relating
thereto. If any Substitute Project is rejected then ALS shall be entitled to
withdraw the Removed Project as an Initial Project and ALS's 2000 Contribution
shall be increased by an amount equal to the estimated Project Cost of the
Removed Project (each an "ALS Initial Adjustment"). If a Substitute Project is
not rejected (i) the Acquiring Entity designated by DEVCO shall promptly enter
into a Project Purchase Agreement with the Project Transferor of the Substitute
Project and (ii) the Project Transferor shall transfer, convey and assign such
Substitute Project to such Acquiring Entity pursuant to the terms of such
Project Purchase Agreement. If DEVCO selects an Initial Project (including any
Substitute Project) from HCR or ALS pursuant to the provisions hereof and
within 180 days thereafter DEVCO determines that such Initial Project is not
feasible, then the HCR 2000 Contribution or the ALS 2000 Contribution, as
applicable, shall be increased by the estimated Project Cost attributable to
such Initial Project. The purchase consideration payable to each Project
Transferor pursuant to any Project Purchase Agreement shall be, in each case,
in an amount equal to such Project Transferor's Project Costs incurred through
the date of transfer with respect to such Project as certified by the Project
Transferor and shall be subject to approval, not to be unreasonably withheld,
of (i) HCR with respect to Initial Projects to be transferred from Project
Transferors who are ALS Affiliates and (ii) ALS with respect to Initial
Projects to be transferred from Project Transferors who are HCR Affiliates. Any
Proposed Project not accepted by DEVCO within the time periods provided herein,
shall be deemed rejected
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and DEVCO shall have no further rights hereunder with respect to such Proposed
Project and, among other things, the Offering Party and its respective
Affiliates shall be entitled to construct, develop, own, operate and/or sell
such Proposed Project in such manner as it may determine in its sole discretion
without any restriction hereunder; provided, however, that if all permits
necessary to complete construction of the Proposed Project have not been issued
within 12 months after the end of the DEVCO review period with respect to such
Proposed Project, then such Proposed Project shall again be subject to the
terms hereof.
3.2 Designation of Acquiring Entity. The determination of DEVCO
with respect to which Proposed Projects shall become Initial Projects shall be
made by the Board of Managers; provided, however, that, in the event a Proposed
Project is not approved as an Initial Project by a majority of the members of
the Board of Managers, but such Proposed Project is approved as an Initial
Project by the unanimous approval of each of the Members of the Board of
Managers designated by the Party not affiliated with the Offering Party, then
such Proposed Project shall be deemed approved as Initial Project. DEVCO shall
give written notice to the Offering Party during the Initial Period (or in the
case of any Substitute Project within fifteen (15) days after receipt of the
Proposal relating thereto) which notice shall designate the Proposed Projects
selected by DEVCO to be Initial Projects. Prior to the Initial Closings, and in
any event on or before March 15, 1999, DEVCO shall notify the Parties of its
determination with respect to each of the Initial Projects of the specific
DEVCO Entity that is to be the Acquiring Entity of such Initial Project, such
determination to be made based upon the Board of Managers assessment of the
appropriate ownership and operating structure for each such Initial Project in
accordance with the guidelines set forth in Article 7 hereof.
3.3 Initial Closings. The Parties hereby agree, subject to the
terms and conditions hereof, to cause all of the Initial Projects to be
transferred by their respective Project Transferors thereof to the applicable
Acquiring Entity or Entities thereof at one or more closings to be held at such
times, places and locations agreed to by the parties, but no later than June
30, 1999; provided, however, that no such closing shall occur unless prior to
such time the aggregate consideration paid to HCR at closings held pursuant to
the Agreement of Purchase and Sale (Operating Residences) or the Agreement of
Purchase of and Sale (Construction Residences), each such agreement dated as of
the date of this Agreement and each by and between HCR, ALS and certain
wholly-owned subsidiaries of HCR, shall have exceeded One Hundred Million
Dollars ($100,000,000). To the extent that any Initial Project is acquired by a
Project Entity, the purchase consideration payable to the applicable Project
Transferor shall be paid in the form of a promissory note of such Project
Entity on such terms (including interest rate) as shall be agreed to by the
parties hereto and payable (together with all accrued interest thereof) upon
the first to occur of (i) the 6 month anniversary of such promissory note or
(ii) the date upon which such Project Entity receives the proceeds from any
construction or permanent financing of the applicable Project, whether in the
form of a construction or permanent loan or in the form of a sale/leaseback
transaction, such note, if requested by the Project Transferor, to be secured
by a mortgage or deed of trust
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on the real property comprising such Project.
ARTICLE 4
ACQUISITION OF ADDITIONAL PROJECTS
4.1 Right of First Offer. During May and November of 1999, each
of HCR and ALS shall provide DEVCO a Proposal with respect to, and an
opportunity to review, all Proposed Projects of such Party and its Controlled
Affiliates at such time(s). Such Party (the "Offering Party") shall provide
DEVCO with access to all Project Information relating to such Proposed Project.
DEVCO shall have 30 days after it has received such Proposal (the "1999
Proposal Period") in which to identify Proposed Projects which shall become
Additional Projects pursuant to this Agreement; provided, however, that the
aggregate estimated Project Cost for Additional Projects selected by DEVCO from
Proposed Projects offered in May and November of 1999 shall not exceed (i) the
ALS 2000 Contribution with respect to Proposed Projects offered by ALS and (ii)
the HCR 2000 Contribution with respect to Proposed Projects offered by HCR. If
DEVCO selects an Additional Project from HCR or ALS in 1999 and within 180 days
thereafter DEVCO determines that such Additional Project is not feasible, then
the HCR 2001 Contribution or the ALS 2001 Contribution, as applicable, shall be
increased by the estimated Project Cost attributable to such Additional
Project. If in 1999 either HCR or ALS fail to offer to DEVCO Proposed Projects
(other than the Initial Projects) with an aggregate total Project Cost equal to
or greater than the HCR 2000 Contribution or the ALS 2000 Contribution,
respectively, then the amount of any such deficiency shall be added to the HCR
2001 Contribution or the ALS 2001 Contribution, as the case may be.
During May and November of 2000, each of HCR and ALS shall provide
DEVCO with a Proposal with respect to, and an opportunity to review, all
Proposed Projects of such Party and its Controlled Affiliates at such time(s).
Such Offering Party shall provide DEVCO with access to all Project Information
relating to the Proposed Projects. DEVCO shall have 30 days after it has
received such Proposal (the "2000 Proposal Period") in which to identify
Proposed Projects which shall become Additional Projects pursuant to this
Agreement; provided, however, that the aggregate estimated Project Cost for
Additional Projects selected by DEVCO from Proposed Projects offered in May and
November of 2000 shall not exceed (i) the ALS 2001 Contribution with respect to
Proposed Projects offered by ALS and (ii) the HCR 2001 Contribution with
respect to Proposed Projects offered by HCR. If in 2000 either HCR or ALS fail
to offer to DEVCO Proposed Projects with an aggregate total Project Cost equal
to or greater than the HCR 2001 Contribution or the ALS 2001 Contribution,
respectively, then the amount of any such deficiency shall become the "HCR
Remaining Contribution" or the "ALS Remaining Contribution", as the case may
be. If DEVCO selects an Additional Project from HCR or ALS in 2000 and within
180 days thereafter DEVCO determines that such Additional Project is not
feasible, then the HCR Remaining Contribution or the ALS Remaining
Contribution, as applicable, shall be
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increased by the estimated Project Cost attributable to such Additional
Project, unless the estimated Project Costs attributable to Additional Projects
selected by DEVCO prior to January 1, 2001 (exclusive of any such Additional
Project deemed not feasible) equal or exceed the ALS 2001 Contribution or the
HCR 2001 Contribution, as applicable.
If, after December 31, 2000 there is any ALS Remaining Contribution or
any HCR Remaining Contribution then ALS, HCR or both, as applicable, shall
during May of 2001, provide DEVCO with a Proposal with respect to, and an
opportunity to review, all Proposed Projects of such Party and its Controlled
Affiliates at such time. Such Offering Party shall provide DEVCO with access to
all applicable Project Information. DEVCO shall have 30 days after it has
received such Proposal (the "2001 Proposal Period") in which to identify
Proposed Projects which shall become Additional Projects pursuant to this
Agreement; provided, however, that the aggregate estimated Project Cost for
Additional Projects selected by DEVCO from Proposed Projects offered in May of
2001 shall not exceed (i) the ALS Remaining Contribution with respect to
Proposed Projects offered by ALS and (ii) the HCR Remaining Contribution with
respect to Proposed Projects offered by HCR.
4.2 Review of Proposed Projects. The determination of DEVCO with
respect to which Proposed Projects shall become Additional Projects shall be
made by the Board of Managers; provided, however, that, in the event a Proposed
Project is not approved as an Additional Project by a majority of the members
of the Board of Managers, but such Proposed Project is approved as an
Additional Project by the unanimous approval of each of the members of the
Board of Managers designated by the Party not affiliated with the Offering
Party, then such Proposed Project shall be deemed approved as an Additional
Project. DEVCO shall give written notice to the Offering Party during the
applicable Proposal Period which notice shall designate the Proposed Projects
selected by DEVCO to be Additional Projects and which notice shall further
designate whether, with respect to each Additional Project, DEVCO or a Project
Entity shall be the Acquiring Party and each such Acquiring Party and the
Offering Party shall promptly (in any event within 30 days after such notice is
given by DEVCO) enter into a Project Purchase Agreement with respect to such
Additional Project. Any Proposed Project not accepted by DEVCO within the
Proposal Period with respect to such Proposed Project, shall be deemed rejected
and DEVCO shall have no further rights hereunder with respect to such Proposed
Project and, among other things, the Offering Party and its respective
Affiliates shall be entitled to construct, develop, own, operate and/or sell
such Proposed Project in such manner as it may determine in its sole discretion
without any restriction hereunder; provided, however, that if all permits
necessary to complete construction of the Proposed Project have not been issued
within 12 months after the end of the Proposal Period, then such Proposed
Project shall again be subject to the terms hereof.
4.3 Closing of Acquisitions of Additional Projects. The Parties
hereby agree, subject to the terms and conditions hereof, to cause all of the
Additional Projects to be transferred by the respective Project Transferors
thereof to the respective Acquiring Entity or
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Entities thereof at closings to be held at such locations as the Parties shall
agree. The Additional Closing with respect to any Additional Project shall be
scheduled within 60 days following DEVCO's election pursuant to Section 4
hereof to accept such Additional Project. The DEVCO Entity shall be responsible
for all closing costs. The purchase consideration for each Additional Project
payable to the applicable Project Transferor, which purchase consideration
shall be such Project Cost incurred by the Project Transferor through the date
of the transfer, shall be paid in the form of a promissory note of such Project
Entity, on such terms (including interest rate) as shall be agreed to by the
parties, together with all accrued interest thereof) upon the first to occur of
(i) the 6 month anniversary of such promissory note or (ii) the date upon which
such Project Entity receives the proceeds from any construction or permanent
financing of the applicable Project, whether in the form of a construction or
permanent loan or in the form of a sale/leaseback transaction such note, if
requested by the Project Transferor, to be secured by a mortgage or deed of
trust on the real property comprising such Project.
ARTICLE 5
DEVELOPMENT OF PROJECTS
5.1 Project Development. At the applicable Initial Closing with
respect to any Initial Projects and at the applicable Additional Closing with
respect to any Additional Projects, the applicable Acquiring Entity will enter
into a Development Agreement with the applicable Contributing Party for the
Project acquired by such Acquiring Party from such Contributing Party in
accordance with Articles 3 or 4 hereof. Notwithstanding the foregoing, the
Parties intend for each of the HCR Affiliates and the ALS Affiliates,
respectively, to have a substantially equal opportunity to serve as the
Developing Party with respect to the development of Projects hereunder (on a
development fee opportunity basis). Accordingly, if during any calendar year
the aggregate development fees paid to one Party and its Affiliates
(collectively, the "Advantaged Party") exceeds the aggregate development fees
paid to the other Party and its Affiliates (collectively, the "Disadvantaged
Party") by an amount in excess of One Million Dollars ($1,000,000) (the amount
of such shortfall, the "Development Shortfall"), then in the following calendar
year the opportunity pursuant to this Section 5.1 to serve as Developer shall
first be allocated to the Disadvantaged Party, and shall not be allocated on
the basis of the Contributing Party, until such time as such Development
Shortfall is substantially eliminated, on a pro forma basis.
5.2 Project Financing. The Developing Party shall arrange the
placement of debt financing for the Acquiring Entity with respect to each
Project to be developed by such Developing Party. Upon the funding of such
financing, the Acquiring Entity shall pay to such Developing Party a placement
fee equal to one percent (1%) of the total amount of the debt placed by such
Developing Party and the Developing Party will be solely responsible for the
fees of any outside brokers up to such one percent (1%) amount. If a guaranty
shall be required, ALS and HCR will jointly and severally guarantee all such
debt, and if either or both of the Parties are called on as guarantors to pay
such obligations pursuant to their
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guaranties, then (subject to Section 8.2(d) hereof) the Parties shall make
payments on such obligations in proportion to their Percentage Interests, so
that at all times neither Party has paid more than its proportionate share of
such obligations based on its Percentage Interest. Any failure by a Party to
pay its proportionate share of such obligations shall entitle the other Party
to indemnification pursuant to Article 11 hereof. All debt and equity financing
for each Project shall be subject to approval by DEVCO.
ARTICLE 6
MANAGEMENT OF FACILITIES; FACILITY BRANDING
6.1 Management. At the Initial Closing with respect to all
Initial Projects and at the applicable Additional Closing with respect to all
Additional Projects, the applicable Acquiring Entity shall enter into a
Management Agreement with ALS, in the form attached hereto as Exhibit B,
pursuant to which ALS shall provide management services with respect to such
Project (and the resulting Facility). During the term of any Management
Agreement, the applicable Facility shall operate under the trade names and
service marks of ALS, based upon the applicable building and service type, in
the manner contemplated by such Management Agreement.
ARTICLE 7
ALTERNATIVE OWNERSHIP AND OPERATING STRUCTURES
7.1 Determination of Ownership and Operating Structures. Prior to
the acquisition of any Project by any Acquiring Entity in accordance herewith,
the Board of Managers, shall determine the optimal ownership and operating
structure with respect to the development, construction, ownership and
operation of such Project (and the resulting Facility).
7.2 Structural Guidelines. Subject to further discussion and
agreement by and among the Parties and subject in each case to DEVCO approval,
it is currently anticipated that in the design of ownership and/or operating
structures for Projects, the following features will be implemented:
(i) Project Entities will generally be conduit entities
managed or controlled by DEVCO;
(ii) DEVCO will generally have an equity ownership
interest in each Project Entity and other investors ("Project
Investors") will acquire the remaining equity ownership interest in
each Project Entity in consideration of an equity contribution payable
in cash to the Project Entity;
(iii) Project Entity will either own a fee interest in a
Project (and the resulting Facility) or will lease a Project (and the
resulting Facility) from DEVCO;
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(iv) Pursuant to the governing documents of each Project
Entity, (a) losses will generally be allocated disproportionately to
Project Investors and (b) DEVCO will generally have a call option
pursuant to which DEVCO may acquire, under certain terms and
conditions, the equity interest held by the Project Investors in such
Project Entity.
ARTICLE 8
TRANSFER RESTRICTIONS AND PURCHASE OPTIONS
8.1 Restrictions on Transferability of Interests. Neither ALS nor
HCR shall transfer its ownership interest in DEVCO except to the other Party or
to one of the transferring party's wholly-owned Affiliates. For purposes of
this Section 8.1, a "transfer" means any disposition of an interest or any
interest therein, including, without limitation, any sale, gift, assignment,
pledge or encumbrance, whether such disposition occurs voluntarily, by
operation of law or otherwise; provided, however, that transfer shall not
include a merger, consolidation or other business combination of a Party with
or into another Person or the sale or disposition of all or substantially all
of the assets of a Party (in one or a series of transactions).
8.2 Facility Call Options.
(a) As to each Facility, DEVCO hereby grants to the
Contributing Party thereof the right to purchase all of DEVCO's
ownership interest in such Facility at the fair market value
(determined as set forth below) pursuant to the terms and conditions
set forth herein (the "Facility Call Option"). The Facility Call
Option shall be first exercisable with respect to a Facility upon the
last to occur of (i) the date upon which such Facility achieves
Facility Stabilization and (ii) the date upon which DEVCO acquires,
directly or indirectly, ownership of 100% of the equity interests in
the Project Entity owning such Facility, and shall be exercisable at
any time during the six (6) months thereafter (the "Facility Option
Period"). As to each Facility, DEVCO shall provide the applicable
Contributing Party notice of the commencement of the applicable
Facility Option Period. The Facility Call Option shall be exercised by
written notice from such Contributing Party to DEVCO during the
Facility Option Period. If a Contributing Party (i) does not exercise
its Facility Call Option with respect to a Facility within the
Facility Option Period relating thereto or (ii) irrevocably notifies
DEVCO and the Parties in writing that it elects not to exercise such
Facility Call Option with respect to such Facility, then the Party
that is not an Affiliate of such Contributing Party (the
"Non-Contributing Party") shall thereafter have the right to exercise
such Facility Call Option with respect to such Facility as if it were
the Contributing Party, provided that such option shall expire on the
date (the "Option Expiration Date") which is the last to occur of (i)
ninety (90) days after the Non-Contributing Party first has the right
to exercise such option or (ii) the end of the Facility Option Period.
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<PAGE> 19
(b) The purchase price to be paid by the Party
exercising the Facility Call Option shall be the fair market value of
DEVCO's ownership interest in each Facility which shall be based upon
the fair market value of such Facility (including all of its assets
and assumed liabilities), determined as of the end of the calendar
month preceding the date on which a Facility Call Option is exercised.
For the purpose of determining fair market value, whether by agreement
of the parties or by appraisal as hereafter provided, (i) the terms of
any debt to be assumed by the Exercising Party shall be taken into
account, (ii) if ALS is the Exercising Party, fair market value shall
be determined as if the management fees to be paid to ALS pursuant to
the applicable Management Agreement were five percent (5%) and (iii)
if HCR is the Exercising Party, the fair market value shall take into
account the management fees to be paid to ALS pursuant to the
applicable Management Agreement. The fair market value of a Facility
shall be as agreed upon by the Parties and, if the Parties are unable
to promptly agree upon such value, such value shall be the fair market
value of such Facility as established by an appraiser designated by
the Parties. If the Parties are unable to agree upon an appraiser,
then each Party will designate an appraiser and the two appraisers
will each determine a fair market value. If the fair market value
amounts determined by the two appraisers are equal to or within 5% of
their average, then the fair market value shall be equal to such
average. Otherwise, the two appraisers will mutually select and
appoint a third appraiser to determine the fair market value of the
Facility; provided, however, that if three appraisals are obtained,
then the fair market value of the Facility shall not be greater than
the higher of the fair market values determined by the first two
appraisals or be less than the lesser of the fair market values
determined by the first two appraisals. Each party will bear equally
the fees and expenses of the appraiser jointly agreed upon or
selected, but each party will be solely responsible for the fees and
expenses of any appraiser selected solely by such Party. Each
appraiser selected hereunder shall be a reputable appraisal firm which
has substantial experience in appraising commercial real estate and
long term care and/or assisted living facilities and each appraisal
shall be in MAI form. All appraisers shall have complete access to the
relevant books and records of the Facility they are appraising during
the conduct of their appraisals.
(c) If a Contributing Party exercises its Facility Call
Option, then it shall pay the purchase price for DEVCO's ownership
interest in the Facility in respect of which such option is exercised
in cash.
(d) At the closing of any Facility Call Option, which
shall occur not later than the date which is 30 days after the
exercise of the Facility Call Option,
(i) DEVCO shall deliver to the party exercising the
Facility Call Option (the "Exercising Party"), at
the Exercising Party's election, either an
instrument evidencing the transfer of (x) the
Facility being purchased
16
<PAGE> 20
and sold or (y) DEVCO's interest in the entity which
owns the Facility, in each case free and clear of
all security interests, liens and restrictions
(other than restrictions imposed by this Agreement
and the Ancillary Agreements and debt to be
expressly assumed by the Exercising Party), together
with such other documents as such Exercising Party
may reasonably request in connection therewith; and
(ii) The Exercising Party shall deliver to DEVCO cash
constituting the purchase price for the Facility,
together with such other documents as DEVCO may
reasonably request.
At the time of the exercise of a Facility Call Option, if either Party
has guaranteed any financing of the Facility subject to such option,
then the Party whose Affiliate is exercising such option shall obtain
a release of the other Party's guaranty as a condition precedent to
its right to close on the Facility which is the subject of the
Facility Call Option.
(e) Notwithstanding any provision contained in this
Section 8.2 to the contrary:
(i) if a Facility Call Option is exercised pursuant to
this Section, then such purchase may be made by an
Affiliate of the Exercising Party, but no such
assignment to such Affiliate shall relieve such
Exercising Party from any obligations hereunder; and
(ii) all closing costs, including any real estate
transfer fee which arises in connection with any
purchase and sale hereunder shall be borne by the
Exercising Party.
(f) If a Facility Call Option with respect to a Facility
is not exercised by the Option Expiration Date, then DEVCO shall
promptly offer (in such commercially reasonable manner as it shall
determine) to sell its interest in such Facility on commercially
reasonable terms and otherwise in compliance with the Operating
Agreement (DEVCO). The proceeds of such sale (after payment of all
costs, debts or other liabilities relating to such Facility or the
sale thereof) shall be distributed by DEVCO to the Parties; provided,
however, that if the purchaser of the Facility takes subject to the
Management Agreement, HCR's share of the sale proceeds, or its
obligation to contribute to any shortfall arising out of the repayment
of indebtedness, shall be increased or reduced, respectively, by an
amount equal to HCR's Percentage Interest (as a fraction of one) times
the product obtained by multiplying two (2%) percent of the previous
years' revenues generated by such Facility by the number of years
remaining in the term of the Management Agreement which product shall
be discounted to present value at seven percent (7%).
17
<PAGE> 21
ARTICLE 9
REPRESENTATIONS AND WARRANTIES OF ALS
ALS hereby represents and warrants to HCR that:
9.1 Organization. ALS is a corporation validly existing and in
good standing under the laws of the State of Delaware and has full corporate
power and authority to conduct its business as presently conducted and to
become an owner of DEVCO.
9.2 Authorization; Enforceability. The execution, delivery and
performance by ALS and the ALS Affiliates of this Agreement and the ALS
Ancillary Agreements to which they are a party are within the corporate power
of ALS and the ALS Affiliates and have been duly authorized by all necessary
corporate action. This Agreement, and the ALS Ancillary Agreements when
executed and delivered by ALS or the applicable ALS Affiliates, will be the
valid and binding obligations of ALS or the applicable ALS Affiliates,
enforceable against ALS or such ALS Affiliates in accordance with the
respective terms of such agreements.
9.3 No Violation or Conflict. The execution, delivery and
performance of this Agreement and the ALS Ancillary Agreements by ALS will not
conflict with or violate any law, judgment, order, decree or regulation, the
Restated Certificate of Incorporation or Restated Bylaws of ALS, each as
amended, or any contract or agreement to which ALS is a party or by which ALS
is bound; provided, however, that while the Existing ALS Commitments as
described in Schedule 1 will impact upon performance herein, such commitments
do not per se conflict with the terms of this Agreement.
9.4 Brokers. Neither ALS nor any ALS Affiliate has incurred any
brokers', finders' or any similar fee in connection with the transactions
contemplated by this Agreement or the ALS Ancillary Agreements.
9.5 Litigation. There is no litigation, arbitration, proceeding,
governmental investigation, citation or action of any kind pending or, to the
knowledge of ALS, proposed or threatened, against ALS or any ALS Affiliate
which could have a material adverse effect on the transactions contemplated
hereby or by the ALS Ancillary Agreements. There is no action, suit or
proceeding against ALS by any person or entity which questions the validity,
legality or propriety of the transactions contemplated by this Agreement or the
ALS Ancillary Agreements.
9.6 Governmental Approvals. No permission, approval,
determination, consent or waiver by, or any declaration, filing or registration
with, any governmental or regulatory authority is required on the part of ALS
or the ALS Affiliates in connection with its
18
<PAGE> 22
execution and delivery of this Agreement and the ALS Ancillary Agreements and
the consummation by ALS or the ALS Affiliates of the transactions contemplated
in this Agreement and the ALS Ancillary Agreements, except requirements under
the Hart-Scott-Rodino Act, if any.
9.7 Required Consent. There are no approvals or consents which
ALS or the ALS Affiliates are required to obtain from any third parties to
enter into this Agreement or the ALS Ancillary Agreements which have not been
obtained.
9.8 Representations and Warranties True and Correct at Closing.
Except as specifically disclosed by ALS to HCR in writing prior to or at the
Initial Closings with respect to matters arising after the date of this
Agreement, the representations and warranties of ALS set forth in this Article
9 will be true and correct in all material respects as of the Initial Closings.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES OF HCR
HCR hereby represents and warrants to ALS that:
10.1 Organization. HCR is a corporation validly existing and in
good standing under the laws of the State of Delaware and has full corporate
power and authority to conduct its business as presently conducted and to
become an owner of DEVCO.
10.2 Authorization; Enforceability. The execution, delivery and
performance by HCR and the HCR Affiliates of this Agreement and the HCR
Ancillary Agreements to which they are a party are within the corporate power
of HCR and the HCR Affiliates and have been duly authorized by all necessary
corporate action. This Agreement, and the HCR Ancillary Agreements when
executed and delivered by HCR, will be the valid and binding obligations of HCR
or the applicable HCR Affiliates, enforceable against HCR or the applicable HCR
Affiliates in accordance with the respective terms of such agreements.
10.3 No Violation or Conflict. The execution, delivery and
performance of this Agreement and the HCR Ancillary Agreements by HCR will not
conflict with or violate any law, judgment, order, decree or regulation, the
Certificate of Incorporation or Bylaws of HCR, each as may have been amended,
or any contract or agreement to which HCR is a party or by which HCR is bound.
10.4 Brokers. Neither HCR nor any HCR Affiliate has incurred any
brokers', finders' or any similar fee in connection with the transactions
contemplated by this Agreement or the HCR Ancillary Agreements.
10.5 Litigation. There is no litigation, arbitration, proceeding,
governmental
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<PAGE> 23
investigation, citation or action of any kind pending or, to the knowledge of
HCR, proposed or threatened, against HCR or any HCR Affiliate which could have
a material adverse effect on the transactions contemplated hereby or by the HCR
Ancillary Agreements. There is no action, suit or proceeding against HCR or any
HCR Affiliate by any Person which questions the validity, legality or propriety
of the transactions contemplated by this Agreement or the HCR Ancillary
Agreements.
10.6 Governmental Approvals. No permission, approval,
determination, consent or waiver by, or any declaration, filing or registration
with, any governmental or regulatory authority is required on the part of HCR
or any HCR Affiliate in connection with its execution and delivery of this
Agreement and the HCR Ancillary Agreements and the consummation by HCR or the
HCR Affiliates of the transactions contemplated in this Agreement and the HCR
Ancillary Agreements, except requirements under the Hart-Scott-Rodino Act, if
any.
10.7 Required Consent. There are no approvals or consents which
HCR is required to obtain from any third parties to enter into this Agreement
or the HCR Ancillary Agreements which have not been obtained.
10.8 Representations and Warranties True and Correct at Closing.
Except as specifically disclosed by HCR to ALS in writing prior to or at the
Initial Closings with respect to matters arising after the date of this
Agreement, the representations and warranties of HCR set forth in this Article
10 will be true and correct in all material respects as of the Initial
Closings.
ARTICLE 11
INDEMNIFICATION
11.1 HCR's Indemnity. HCR hereby agrees to indemnify ALS, DEVCO
and all Project Entities, and each of them, and hold them harmless from and
against any and all losses, damages, costs, expenses, liabilities, obligations
and claims of any kind (including, without limitation, reasonable attorneys'
fees and other reasonable legal costs and expenses) which any of them may at
any time suffer or incur, or become subject to, as a result of or in connection
with:
(a) any material breach or material inaccuracy of any of
the representations and warranties made by HCR or any HCR Affiliate in
this Agreement or in any HCR Ancillary Agreement;
(b) any material failure by HCR or any HCR Affiliate to
carry out, perform, satisfy or discharge any of its covenants,
agreements, undertakings, liabilities or obligations under this
Agreement or under any and all HCR Ancillary Agreement;
20
<PAGE> 24
(c) any payments by ALS with respect to any obligations
of DEVCO which have been jointly guaranteed by ALS and HCR, to the
extent such payments exceed ALS's proportionate share of such
obligations, based on its Percentage Interest; or
(d) any suit, action or other proceeding brought by any
Person against ALS, any ALS Affiliate, DEVCO or any Project Entity
arising out of, or in any way related to, any of the matters referred
to in Section 11.1(a), 11.1(b) or 11.1(c) hereof,
11.2 ALS's Indemnity. ALS hereby agrees to indemnify HCR, DEVCO
and all Project Entities, and each of them, for and hold them harmless from and
against any and all losses, damages, costs, expenses, liabilities, obligations
and claims of any kind (including reasonable attorneys' fees and other
reasonable legal costs and expenses) which either of them may at any time
suffer or incur, or become subject to, as a result of or in connection with:
(a) any material breach or material inaccuracy of any of
the representations and warranties made by ALS or any ALS Affiliate in
this Agreement or in any and all ALS Ancillary Agreements;
(b) any material failure by ALS or any ALS Affiliate to
carry out, perform, satisfy or discharge any of its covenants,
agreements, undertakings, liabilities or obligations under this
Agreement or under any and all ALS Ancillary Agreements;
(c) any payments by HCR with respect to any obligations
of DEVCO which have been jointly guaranteed by HCR and ALS, to the
extent such payments exceed HCR's proportionate share of such
obligations, based on its Percentage Interest; or
(d) any suit, action or other proceeding brought by any
Person against HCR, any HCR Affiliate, DEVCO or any Project Entity
arising out of, or in any way related to, any of the matters referred
to in Section 11.2(a), 11.2(b) or 11.2(c) hereof.
11.3 Provisions Regarding Indemnities.
(a) The obligations of HCR and ALS under Section 11.1
and 11.2, respectively, shall survive for the statute of limitations
period applicable to such rights of indemnification. Delivery of any
written demand for indemnification by an indemnified party shall toll
the survival period for the subject of the particular demand and, once
notice is given, the indemnified party may pursue the particular claim
to its conclusion to the extent permitted by applicable law.
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<PAGE> 25
(b) The indemnified party shall promptly notify the
indemnifying party in writing and in reasonable detail of any claim,
demand, action or proceeding for which indemnification will be sought
under Section 11.1 or Section 11.2 of this Agreement, and if such
claim, demand, action or proceeding is a third party claim, demand,
action or proceeding, the indemnifying party will have the right, at
its expense, to assume the defense thereof using counsel reasonably
acceptable to the indemnified party. The indemnified party shall have
the right to participate, at its own expense, with respect to any such
third party claim, demand, action or proceeding. In connection with
any such third party claim, demand, action or proceeding, the parties
shall cooperate with each other and provide each other with access to
relevant books and records in their possession. No such third party
claim, demand, action or proceeding shall be settled without the prior
written consent of the indemnified party, such consent not to be
unreasonably withheld or delayed.
ARTICLE 12
MISCELLANEOUS
12.1 Entire Agreement; Amendment. This Agreement and the other
agreements and documents executed in connection herewith, constitute the entire
agreement between the parties pertaining to the subject matter of this
Agreement, and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto. No
amendment, supplement, modification or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute
a waiver of any other provision of this Agreement, whether or not similar, nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
12.2 Fees and Expense. Whether or not the transactions
contemplated by this Agreement are consummated, and except as expressly
provided herein or in any Ancillary Agreement, each of the parties hereto shall
pay the fees and expenses of such party's counsel, accountants, brokers,
consultants, investment bankers and other experts incident to the negotiation
and preparation of this Agreement and the consummation of the transactions
contemplated by this Agreement.
12.3 Confidentiality. Except to the extent permitted by this
Section 12.3 hereof, the parties hereto will at all times hold and cause their
consultants and advisors to hold in confidence the information contained in
this Agreement. In addition, each party (the "Receiving Party") who receives
any Confidential Information concerning the other party (the "Disclosing
Party") will at all times hold and cause its advisors and representatives to
hold in strict confidence such Confidential Information which shall have been
or will be furnished by the Disclosing Party to the Receiving Party or its
employees, advisors and representatives in connection with the transactions
contemplated by this Agreement and/or
22
<PAGE> 26
any Ancillary Agreements. All such Confidential Information shall be disclosed
by a Receiving Party only to its employees, advisors, agents, officers,
directors and representatives engaged in the evaluation of such information. If
the transactions contemplated by this Agreement are not consummated, regardless
of the reason therefor, then such confidence will be maintained by the
Receiving Party. The provisions of this Section 12.3 shall not apply to the
extent that such Confidential Information (a) was previously known to the
Receiving Party prior to disclosure by the Disclosing Party, (b) is in the
public domain through no fault of the Receiving Party, (c) is lawfully acquired
by the Receiving Party from a third party under no obligation of confidence to
the Disclosing Party, or (d) is required by any law or by any governmental or
judicial body to be disclosed; provided that upon receiving notice of a
required disclosure under this clause (d), the Receiving Party will promptly so
notify the Disclosing Party in writing. Such Confidential Information may be
used in connection with the business of DEVCO or any DEVCO Entity, but shall
otherwise not be used to the detriment of the Disclosing Party in any manner
and all Confidential Information provided by the Disclosing Party to the
Receiving Party, including all copies and extracts thereof, will be returned to
the Disclosing Party immediately upon such party's written request.
In addition to the above, for purposes of this Section 12.3 the term
"Confidential Information" shall mean any data or information that is
designated as "confidential" by the Disclosing Party, is of value to the
Disclosing Party and is not generally known to competitors of the Disclosing
Party or to the public, and whose confidentiality is maintained. Confidential
Information shall include, but not be limited to, written lists of the
Disclosing Party's current or potential residents or other customers, the
identity of various suppliers, non-public information concerning the Disclosing
Party's executives and employees and its financial affairs, business plans,
services, research, development, purchasing, accounting, engineering and
marketing.
12.4 Further Assurances. Following the Closing, each party will
execute such further documents and perform such further acts as may be
reasonably necessary to consummate the transactions contemplated by this
Agreement and the Ancillary Agreements and in accordance with the terms of this
Agreement and the Ancillary Agreements, to aid the more efficient execution of
the transactions contemplated hereby and thereby.
12.5 No Liens. ALS and HCR, and each one individually, hereby
agrees to keep its ownership interest in DEVCO and any DEVCO Entity free and
clear from any and all security interests, liens, restrictive covenants or
other encumbrances in favor of any and all third parties.
12.6 Public Statement. Each party to this Agreement will consult
with the other party prior to issuing any press release or making any other
public statement with respect to the transactions contemplated in this
Agreement, and will not issue any such release or make any such statement
without the approval of the other party (in its sole discretion), except such
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<PAGE> 27
disclosure as is required or otherwise reasonably appropriate pursuant to any
state or federal securities law or the rules and regulations of any relevant
securities exchange or quotation system upon which ALS's or HCR's securities
are then listed or traded.
12.7 Applicable Law. All questions concerning the construction,
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the law of the
State of Delaware, without giving effect to principles of conflicts of laws.
12.8 Binding Effect; Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
and their respective successors and assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned or
delegated by any of the Parties without the prior written consent of the other
Party, whether by operation of law or otherwise.
12.9 Notices. All notices, consents, approvals and other
communications which may be or are required to be given by either Seller or
Purchaser under this Agreement shall be properly given if made in writing and
sent by (a) hand delivery, or (b) certified mail, return receipt requested, or
(c) nationally recognized overnight delivery service for next business day
delivery (such as Express Mail, Federal Express or Airborne Express), or (d)
facsimile or telecopier, provided a confirming copy thereof is thereafter also
sent via the methods described in (a)-(c), above, with all postage and delivery
charges paid by the sender and addressed to Purchaser or Seller, as applicable,
as follows. Such notices delivered (a) by hand shall be deemed received upon
actual delivery, (b) by overnight delivery service shall be deemed received on
the business day following the date of deposit with such overnight service, (c)
by mail shall be deemed received upon the earlier of actual receipt or two (2)
business days after mailing, and (d) by facsimile or telecopier shall be deemed
received upon the date the sender receives verbal or electronic confirmation of
such transmission, without regard to when the confirming copy is sent or
delivered. Said notice addresses are as follows:
IF TO SELLER:
HCR Manor Care, Inc.
One Seagate, 23rd Floor
Toledo, Ohio 43604-2616
Attn: R. Jeffrey Bixler, Esq.
Telecopier: 419-252-5599
Telephone: 419-252-5770
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with a copy to:
Reed Smith Shaw & McClay LLP
1301 K St., N.W.
East Tower, Suite 1100
Washington, DC 20005
Attn: Robert J. Hill, Esq.
Telecopier: (202) 414-9299
Telephone: (202) 414-9402
IF TO PURCHASER:
Alternative Living Services, Inc.
450 N. Sunnyslope Road, Suite 300
Brookfield, Wisconsin 53005
Attn: William F. Lasky
Telecopier: (414) 641-5100
Telephone: (414) 789-9592
with a copy to:
Rogers & Hardin LLP
2700 International Tower
Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Alan C. Leet, Esq.
Telecopier: (404) 525-2224
Telephone: (404) 420-4616
Either party may change its address for notices hereunder upon not less than
five (5) days notice to the other, and either party's counsel may give notice
on behalf of their respective clients. Inability to give notices due to
incorrect address or due to failure of a party to give notice of a change of
address, refusal to accept notices, and inability to transmit notices due to
mechanical or other difficulties on the recipient's end (including without
limitation a malfunctioning facsimile machine) shall be deemed to be effective
notice hereunder.
12.10 Facsimile Signature; Counterparts. This Agreement may be
executed by facsimile and in several counterparts, each of which shall be
deemed an original, but such counterparts shall together constitute one and the
same Agreement.
12.11 Headings. The Article and Section headings in this Agreement
are inserted for convenience of reference only and shall not constitute a part
hereof.
12.12 Construction. Common nouns and pronouns shall be deemed to
refer to the masculine, feminine, neuter, singular and plural, as the identity
of the person may in the
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context require. References to Sections herein include all subsections which
are subsidiary to the Section referred to. No provision of this Agreement shall
be construed in favor of or against any Party hereto by reason of the extent to
which any such Party or its counsel participated in the drafting thereof.
12.13 Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is held
invalid, then the remainder of this Agreement, or the application of such
provision, clause or part under other circumstances, shall not be affected
thereby unless such invalidity materially impairs the ability of either party
or both parties to consummate the transactions contemplated by this Agreement
or materially deprives either party of the benefits afforded hereby or by any
of the Ancillary Agreements.
12.14 Knowledge. Any representation, warranty, covenant or
statement which is made to the knowledge of any Party shall require that such
Party make reasonable investigation and inquiry with respect thereto to
ascertain the correctness and validity thereof.
12.15 Survival of Representations and Warranties. All
representations and warranties of the parties contained in this Agreement or
made pursuant to this Agreement shall survive the Closing Date and the
consummation of the transactions contemplated by this Agreement.
12.16 Arbitration. The parties hereto agree that any and all
controversies or claims arising out of or relating to this Agreement, any of
the ALS Ancillary Agreements or HCR Ancillary Agreements or the breach of any
of the foregoing, shall be settled by arbitration pursuant to the Federal
Arbitration Act, 9 U.S.C. SS. 1 et seq., in accordance with the Commercial
Arbitration Rules of the American Arbitration Association applicable in
Illinois. The parties hereto further agree that the arbitrators in any such
arbitration shall not be authorized to award any punitive damages in connection
with any controversy or a claim settled by arbitration hereunder. The decision
of the arbitrator in any such arbitration shall be final and binding upon the
parties and judgment upon the award may be entered in any court having
jurisdiction thereof. Any arbitration shall take place in such place as is
agreed on by the parties hereto, or, if they cannot agree, in Chicago,
Illinois, and the expenses of the arbitrators shall be borne by the losing
party. The arbitration shall be conducted before a panel of three (3)
arbitrators, one selected by HCR, one selected by ALS, and one selected by
mutual agreement of the arbitrators selected by HCR and ALS. To the extent that
one or more of the provisions of this Section 12.16 shall be declared invalid,
void or unenforceable, the remainder of the provisions of this Section 12.16
shall remain in full force and effect. All notices in connection with the
arbitration shall be made in the manner set forth in Section 12.9 hereof.
Notwithstanding the foregoing, the provisions of Section 12.16 shall not apply
to any breach of Section 12.13.
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12.17 Waiver of Compliance. Any failure of ALS or HCR to comply
with any obligation, covenant, agreement or condition contained herein may be
expressly waived in writing by HCR or ALS, respectively; provided, however,
that such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure by the other
party.
12.18 Third Parties. Except as specifically set forth or referred
to herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any Person other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
12.19 Legal Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements incurred in
connection therewith in addition to any other relief to which such party may be
entitled.
12.20 Time of Essence. Time is of the essence with respect to this
Agreement.
12.21 Exhibits. To the extent that the terms of any of the Exhibits
hereto conflict with the terms of this Agreement, the terms of this Agreement
shall control. To the extent the Parties determine that it is necessary or
advisable to include any of the terms of this Agreement in any of the Exhibits,
such Exhibit shall be revised to incorporate such terms.
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<PAGE> 31
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the day and year first written above.
HCR MANOR CARE, INC.
By: /s/R. Jeffrey Bixler
--------------------------------------
Its: Vice President
--------------------------------------
ALTERNATIVE LIVING SERVICES, INC.
By: Thomas E. Komula
--------------------------------------
Its: Senior Vice President
--------------------------------------
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LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
A Development Agreement
B Management Agreement
C Operating Agreement (DEVCO)
D Project Purchase Agreement
SCHEDULE
--------
1 Description of Existing ALS Commitments
</TABLE>
<PAGE> 1
EXHIBIT 11.1 COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Basic:
Net income (loss) attributable to common shares $20,552 $(8,263) $(8,796)
============ ============= =============
Weighted average common shares outstanding 21,905 18,651 15,429
============ ============= =============
Per share amount............................. $0.94 $ (0.44) $ (0.57)
============ ============= =============
Diluted:
Net income (loss)............................ $20,552 $(8,263) $(8,796)
Net effect of convertible debentures based
on the if-converted method, assuming
100% conversion:
$35,000,000, 6.75%, due 2006............. 1,563 2,363 1,457
$50,000,000, 7.0%, due 2004.............. 2,349 2,178 --
$125,000,000, 5.25%, due 2002............ 5,180 219 --
============ ============= =============
Net income (loss) attributable to common shares $29,644 $(3,504) $(7,339)
============ ============= =============
Weighted average common shares outstanding 21,905 18,651 15,429
Net effect of convertible debentures based
on the if-converted method,
assuming 100% conversion:
$35,000,000, 6.75%, due 2006............. 1,717 1,561 949
$50,000,000, 7.0%, due 2004.............. 2,469 1,515 --
$125,000,000, 5.25%, due 2002............ 5,000 143 --
Net effect of dilutive stock options based
on the treasury stock method, using
average market price....................... 523 380 314
============ ============= =============
Totals................................... 31,614 22,250 16,692
============ ============= =============
Per share amount............................. $0.94 $(0.16) $(0.44)
============ ============= =============
</TABLE>
54
<PAGE> 1
EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF FORMATION SUBSIDIARY
------------------ ----------------------------------------------
<S> <C>
CO Glenwood Development, LLC
DE ALS - Battle Creek LP
DE ALS - Clare Bridge, Inc. (fka ALS-East, Inc.)
DE ALS - Crossings, Inc. (fka ALS Development Co.)
DE ALS - Olathe I, Inc.
DE ALS - Penn Hills, LP
DE ALS - Silverwood, Inc.
DE ALS - Sparks Holding, Inc.
DE ALS - Stonefield, Inc.
DE ALS - Venture I, Inc.
DE ALS - Venture II, Inc.
DE ALS - Westwood, Inc.
DE ALS - Wovenhearts Minnesota, Inc.
DE ALS - Wovenhearts, Inc.
DE ALS - Wynwood, Inc.
DE ALS - Yakima, LP
DE ALS Canada, Inc.
DE ALS Financing II, Inc.
DE ALS Holdings, Inc.
DE ALS Kenosha, Inc.
DE ALS Leasing, Inc.
DE ALS National, Inc.
DE ALS West, Inc.
DE ALS Wisconsin Holdings, Inc.
DE ALS/Wovenhearts Brown Deer, LLC
DE Alternative Living Services - New York, Inc.
DE Clare Bridge at The Arbors L.P.
DE Clare Bridge of Asheville L.P.
DE Clare Bridge of Charleston LP
DE Clare Bridge of Charlotte LP
DE Clare Bridge of Cheswick LP
DE Clare Bridge of Columbia LP
DE Clare Bridge of Eagan L.P.
DE Clare Bridge of East Hempfield LP
DE Clare Bridge of Eden Prairie L.P.
DE Clare Bridge of Gainesville LLC
DE Clare Bridge of Glendale L.P.
DE Clare Bridge of Greensboro LP
DE Clare Bridge of Hamilton L.P.
DE Clare Bridge of Jacksonville LP
DE Clare Bridge of Maitland L.P.
DE Clare Bridge of Murrysville LP
DE Clare Bridge of North Oaks L.P.
DE Clare Bridge of Oklahoma City LLC
DE Clare Bridge of Olympia L.P.
DE Clare Bridge of Oro Valley L.P.
DE Clare Bridge of Pin Oak L.P.
DE Clare Bridge of Plymouth L.P.
DE Clare Bridge of Puyallup L.P.
DE Clare Bridge of Salem LLC
</TABLE>
55
<PAGE> 1
EXHIBIT 23.1 CONSENT OF KPMG LLP
The Board of Directors
Alternative Living Services, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-32907) on Form S-8, (No. 333-37737) on Form S-3, (No. 333-38595) on Form
S-8, (No. 333-39705) on Form S-3, and (No. 333-45433) on Form S-3 of Alternative
Living Services, Inc. of our report dated February 22, 1999, relating to the
consolidated balance sheets of Alternative Living Services, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998, which report
appears in the December 31, 1998, annual report on Form 10-K of Alternative
Living Services, Inc.
KPMG LLP
Chicago, Illinois
March 29, 1999
56
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated balance sheet and consolidated statement of operations of
Alternative Living Services, Inc., filed with the Company's Form 10-K for the
period ended December 31, 1998 and is qualified in its entirety by reference to
such financial statements and related footnotes.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 49,934
<SECURITIES> 0
<RECEIVABLES> 4,045
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 90,852
<PP&E> 660,756
<DEPRECIATION> (20,545)
<TOTAL-ASSETS> 777,810
<CURRENT-LIABILITIES> 62,547
<BONDS> 515,584
0
0
<COMMON> 178,083
<OTHER-SE> (971)
<TOTAL-LIABILITY-AND-EQUITY> 777,810
<SALES> 244,423
<TOTAL-REVENUES> 244,423
<CGS> 0
<TOTAL-COSTS> 235,035
<OTHER-EXPENSES> 170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,024
<INCOME-PRETAX> 23,688
<INCOME-TAX> 3,136
<INCOME-CONTINUING> 20,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,552
<EPS-PRIMARY> .94
<EPS-DILUTED> .92
</TABLE>
