<PAGE>
As filed with the Securities and Exchange Commission on December 24, 1997
Registration Nos. 333-05955 and 333-____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 2
TO FORM S-1
REGISTRATION STATEMENT
AND
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GRAND COURT LIFESTYLES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 8059 22-3423087
- ------------------------------- ---------------------------- ----------------
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
</TABLE>
------------------------
2650 N. Military Trail
Suite 350
Boca Raton, Florida 33431
(561) 997-0323
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
------------------------
John W. Luciani, III, Executive Vice President
Grand Court Lifestyles, Inc.
2650 N. Military Trail
Suite 350
Boca Raton, Florida 33431
(561) 997-0323
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
Copies to:
John T. Hood, Esq. Stephen A. Weiss, Esq.
Reid & Priest LLP Greenberg Traurig Hoffman
40 West 57th Street Lipoff Rosen & Quentel
New York, New York 10019 153 East 53rd Street
(212) 603-2000 New York, New York 10022
(212) 801-9200
Approximate date of commencement of proposed distribution to the public: As
promptly as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering: |_| _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: |_| ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class Amount to Be Offering Price Per Aggregate Offering Registration
of Securities to Be Registered Registered(1) Share(2) Price(2) Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share 287,500 shares $11.00 $ 3,162,500 932.94
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value per share 25,000 shares(3) $13.20 $ 330,000 97.35
====================================================================================================================================
</TABLE>
(1) Excludes a total of 3,437,500 shares of Common Stock previously registered
on Registration No. 333-05955 for which an aggregate registration fee of
$32,374.71 has previously been paid.
(2) Estimated solely for the purpose of computing the registration fee.
(3) Represents shares of Common Stock issuable on exercise Warrants.
----------------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
================================================================================
Pursuant to Rule 429 under the Securities Act of 1933, the combined Prospectus
filed herewith also relates to 3,437,500 shares of Common Stock registered
pursuant to Registration No. 333-05955.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated , 1997
3,000,000 Shares of Common Stock
GRAND COURT LIFESTYLES, INC.
This Prospectus relates to an offering (the "Offering") of 3,000,000
shares of Common Stock, $.01 par value per share ("Common Stock") of Grand Court
Lifestyles, Inc. (the "Company"). Prior to this Offering, there has been no
market for the Common Stock and there can be no assurance that such a market
will develop after the completion of this Offering or, if developed, that it
will be sustained. It is currently anticipated that the initial offering price
of the Common Stock will be between $9.00 and $11.00 per share. For information
regarding the factors considered in determining the initial public offering
price of the Common Stock, see "Risk Factors" and "Underwriting." The Company
intends to apply for the Common Stock to be listed on the American Stock
Exchange.
An investment in the Common Stock involves substantial risks. See
"Risk Factors" beginning on page 10 for a discussion of certain
matters that should be considered by prospective investors.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Proceeds to
Public Discounts(1) Company(2)(3)
- --------------------------------------------------------------------------------
Per Share $ $ $
- --------------------------------------------------------------------------------
Total $ $ $
================================================================================
------------------------
<PAGE>
(1) Does not include additional compensation payable to Royce Investment Group,
Inc., the representative of the several Underwriters (the
"Representative"), in the form of (i) a non-accountable expense allowance
of 3% of the gross proceeds of the Offering, (ii) Warrants to purchase from
the Company up to 300,000 shares of Common Stock at a price equal to 120%
of the per share price to the public of the Common Stock ("Representative's
Warrants"), exercisable over a period of four years commencing one year
after the date of this Prospectus, and (iii) a consulting fee equal to 1%
of the gross proceeds of the Offering. In addition, the Company and the
principal stockholders of the Company (the "Principal Stockholders') have
agreed to indemnify the Underwriters for certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company and the Principal
Stockholders (which include, but are not limited to, the 3% non-accountable
expense allowance and the 1% consulting fee payable to the Representative)
estimated at approximately $4,570,000. All expenses of the Offering will be
paid by the Company, except that the Principal Stockholders will pay
underwriting discounts, the consulting fee and the non-accountable expense
allowance with respect to shares to be sold by them if the Over-allotment
Option (as defined below) is exercised. See "Underwriting."
(3) The Principal Stockholders have granted to the Underwriters an option
exercisable within 45 days after the date of this Prospectus to purchase up
to 450,000 additional shares of Common Stock, upon the same terms and
conditions as set forth above, solely to cover over-allotments, if any (the
"Over-allotment Option"). If such Over-allotment Option is exercised in
full, proceeds to the Company will be unchanged and the total Price to
Public, and Underwriting Discounts will be $ , $ , and $ , respectively.
The Common Stock is being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this Offering and to reject any order in whole or in part. It is expected
that delivery of the Common Stock will be made in New York, New York, on or
about ______________, 1998.
------------------------
ROYCE INVESTMENT GROUP, INC.
The date of this Prospectus is , 1997
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING SYNDICATE COVERING TRANSACTIONS, PENALTY BIDS AND
SHORT SALES. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless the context otherwise
requires, (i) all references herein to the "Company" include the Company, its
subsidiaries and its predecessors taken as a whole, (ii) all references herein
to a "fiscal" year refer to the fiscal year beginning on February 1 of that year
(for example, "fiscal 1995" refers to the fiscal year beginning on February 1,
1995) and (iii) all information in this Prospectus assumes an initial offering
price of $10 per share of Common Stock and no exercise of the Over-allotment
Option. All share and per share data has been restated to give effect to a
1,626.19-for-1 stock split and reduction in par value per share of Common Stock
from $.10 to $.01 which occurred after the beginning of the current fiscal year.
This Prospectus contains certain forward-looking statements which involve
certain risks and uncertainties. The Company's actual results could differ
materially from the results anticipated in these forward-looking statements as a
result of the factors set forth under "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
General
Grand Court Lifestyles, Inc. (the "Company"), a fully integrated
provider of adult living accommodations and services, acquires, finances,
develops and manages adult living communities. The Company's revenues have been,
and are expected to continue to be, primarily derived from sales of partnership
interests ("Syndications") of partnerships it organizes to finance the
acquisition of existing adult living communities. The Company manages adult
living communities which have been financed utilizing Syndications. According to
a study conducted by the American Senior Housing Association based on the number
of apartment units under management, as of October, 1997, the Company operates
the seventh largest portfolio of adult living communities in the United States,
operating communities offering both independent and assisted-living services.
The Company currently operates 36 adult living communities containing 5,192
apartment units in 12 states in the Sun Belt and the Midwest. The Company also
operates one nursing home and one residential apartment complex. To the extent
that the development plan to construct new adult living communities, as
described below, is successfully implemented, the Company anticipates that the
percentage of its revenues derived from Syndications would decrease and the
percentage of its revenues derived from newly constructed communities would
increase and, the Company believes, over time, become the primary source of the
Company's revenues. As a result of anticipated start-up losses from the
Company's newly developed adult living communities and the Company's operating
expenses, the Company anticipates that it will incur operating losses for fiscal
1998.
Business Development Strategy
Senior management formed the first predecessor of the Company over 25
years ago and, in the aggregate, have over 80 years of experience in the
acquisition, financing, development and management of residential property.
Prior to 1986, the Company acquired, developed, arranged for the Syndication of,
and in most cases managed, multi-family properties containing approximately
20,000 apartment units, primarily in the Sun Belt and the Midwest. The Company
has not been engaged in the acquisition or Syndication of multi-family
properties since 1986 and the Company does not presently intend to do so in the
future. Beginning in 1986, the Company has focused primarily on adult living
communities. The Company has become an experienced provider of both independent
and assisted-living services. The Company operates 36 adult living communities
containing 5,192 apartment units. The Company also operates one nursing home and
one residential apartment complex. The Company believes that its experience in
the acquisition, development and management of adult living communities
positions it to take advantage of social and economic trends that are projected
to increase demand for adult living services. The Company's operating objective
is to provide high-quality, personalized living services to senior residents,
primarily persons over the age of 75.
The Company has financed the acquisition and development of the 36
adult living communities and other properties that it operates by utilizing
mortgage financing and by arranging Syndications of 40 limited partnerships
("Investing Partnerships") formed to acquire interests in the 36 other
partnerships that own adult living communities and other properties ("Owning
Partnerships"). The Company plans to continue to acquire existing adult living
communities, and currently plans to acquire between six and twelve existing
communities over the next two years. The Company intends to continue to finance
its future acquisitions of existing adult living communities by utilizing
mortgage financing and Syndications. It is anticipated that the Company will be
the managing general partner of the new Owning Partnerships that own adult
living communities acquired in the future. In September and October, 1997, the
Company acquired and Syndicated one adult living community in Albuquerque, New
Mexico containing 140 apartment units and one adult living community in Garland,
Texas containing 112 apartment units and has entered into a contract to acquire
one adult living community in Adrian, Michigan containing 73 apartment units. In
addition, the Company has acquired two adult living communities (the
"Resyndicated Communities")
1
<PAGE>
from existing Owning Partnerships which it financed by utilizing mortgage
financing and by again arranging for Syndications of interests in new Investing
Partnerships (the "Resyndications"). The Company recently acquired a third
property from an Owning Partnership and is in the process of arranging for a
Resyndication of an interest in such adult living community. The Company may
engage in other similar transactions in the future.
The Company has instituted a development plan pursuant to which it has
completed construction of one adult living community, is nearing completion of
the construction of six additional communities and intends to commence
construction on between 30 and 34 additional new adult living communities over
the next two years. The Company expects to complete the construction of two of
the six communities currently under construction by January 31, 1998 and expects
to complete the construction of the remaining four communities currently under
construction by the end of the first quarter of fiscal 1998. These six adult
living communities, along with the one community already completed pursuant to
the development plan, contain an aggregate of approximately 1,000 apartment
units and the 30 to 34 additional new communities which the Company intends to
commence construction on over the next two years will contain between 4,260 and
4,828 addtional apartment units. The Company plans to own or operate pursuant to
long-term leases or similar arrangements the adult living communities that will
be developed under the plan. The first new communities being constructed
pursuant to the Company's development plan are in Texas. The Company has
obtained development financing from Capstone Capital Corporation ("Capstone")
pursuant to which Capstone is providing up to $39 million for development of
four new adult living communities that will be operated by the Company pursuant
to long-term leases with Capstone. The Company is nearing completion of
construction on these four communities which are located in San Angelo, Wichita
Falls, El Paso and Abilene, Texas, respectively. The Company has completed
construction, with mortgage financing for up to $7 million, on an adult living
community in Corpus Christi, Texas, and is nearing completion of construction
with mortgage financing for up to $7.3 million, on an adult living community in
Temple, Texas. The Company is also nearing completion of construction, with
mortgage financing for up to $7.6 million, of an adult living community in Round
Rock, Texas. The Company has acquired one additional site in Tyler, Texas and
has obtained mortgage financing of $7.1 million to develop this site. When
developed, the Corpus Christi, Temple, Round Rock and Tyler facilities will be
owned directly by the Company. The Company also holds options to acquire three
additional sites in Texas and is negotiating with several additional lenders to
obtain financing to develop these sites. The Company generally plans to
concentrate on developing projects in only a limited number of states at any
given time. The Company believes that this focus will allow it to realize
certain efficiencies in the development and management of communities. The
effectuation of the development plan will expose the Company to additional risk.
These risks include, but are not limited to, the Company's anticipation that the
construction of each community will require approximately 12 months and that
each newly constructed community will incur start-up losses for at least nine
months after commencing operations. In addition, there can be no assurance that
newly constructed communities will generate positive cash flow or that the
Company will not suffer delays or cost overruns in instituting its development
plan.
<PAGE>
The Company's development plan is based upon a "prototype" adult living
community that it has designed. The prototype incorporates attributes of the
various facilities managed by the Company and contains certain design features
that the Company believes are innovative and will appeal to the elderly. The
prototype contains 142 apartment units and will be located on sites of up to
seven acres. The Company believes that its development prototype is larger than
most assisted-living facilities, which typically range from 40 to 80 units. The
Company believes that the greater number of units will allow the Company to
achieve economies of scale in operations, resulting in lower operating costs per
unit, without sacrificing quality of service. Each such community will offer
residents a choice between independent-living and assisted-living services. As a
result, the market for each facility will be broader than for facilities that
offer only either independent-living or assisted-living services. Due to
licensing requirements and the expense and difficulty of converting existing
independent-living units to assisted-living units, independent-living and
assisted-living units generally are not interchangeable. However, the Company's
prototype is designed to allow, at any time, for conversion of units, at minimum
expense, for use as either independent-living or assisted-living units. Each
community therefore may adjust its mix of independent-living and assisted-living
units as the market or existing residents demand. The Company believes that part
of the appeal of this type of community is that residents will be able to "age
in place" with the knowledge that they need not move to another facility if they
require assistance with "activities of daily living." The Company believes that
the ability to retain residents by offering them higher levels of services will
result in stable occupancy with enhanced revenue streams. The Company believes
that the common areas and amenities offered by its prototype represent the state
of the art for independent-living facilities and are superior to those offered
by smaller independent-living facilities or by most assisted-living facilities.
The Company believes that this will make its prototype adult living communities
attractive to both independent-living residents who foresee their future need
for assisted-living services and residents who initially seek assisted-living
services.
The Company believes that management and marketing are critical to the
success of an adult living community. In order to attain high occupancy rates at
newly developed properties, the Company plans to continue its marketing program
which has resulted in an average occupancy rate at November 21, 1997 of
approximately 93.9%. In addition, the Company plans to use the common facility
design of its prototype and its "The Grand Court"(R) trademarked name to promote
recognition of its properties nationally. The Company focuses exclusively on
"private-pay" residents who pay for housing or related services out of their own
funds, rather than relying on the few states that have enacted legislation which
enables
2
<PAGE>
assisted-living facilities to receive Medicare funding similar to funding
generally provided to skilled nursing facilities. The Company believes this
"private-pay" focus will allow the Company to increase rental revenues as
demographic pressure increases demand for adult living facilities and to avoid
potential financial difficulties it might encounter if it were primarily
dependent on Medicare or other reimbursement programs that may be scaled back as
a result of health care reform, budget deficit reduction or other pending or
future state or Federal government initiatives.
Partnership Offerings
The Company has derived, and it expects to continue to derive, a
substantial portion of its revenues from Syndications of partnerships it
organizes to finance the acquisition of existing adult living communities. The
Company is the managing general partner of all but one of the Owning
Partnerships and manages all of the adult living communities, the one nursing
home and the one residential apartment complex in its portfolio. The Company is
also the general partner of 30 of the 40 Investing Partnerships. As a result of
its Syndications, the Company retains a participation in the cash flow, sale
proceeds and refinancing proceeds of the properties after certain priority
payments to the limited partners.
The limited partners typically agree to pay their capital contributions
over a five-year period. Past offerings have provided, and it is anticipated
that future offerings will provide, that the limited partners will receive
guaranteed distributions during each of the first five years of their investment
equal to between 11% to 12% of their then paid-in scheduled capital
contributions. Pursuant to the management contracts with the Owning
Partnerships, for such five-year period, the Company is required to pay to the
Owning Partnerships, amounts sufficient to fund (i) any operating cash
deficiencies of such Owning Partnerships and (ii) any part of such guaranteed
return not paid from cash flow from the related property (which the Owning
Partnerships distribute to the Investing Partnerships for distribution to
limited partners) (collectively, the "Management Contract Obligations"). During
the fiscal year ended January 31, 1997 and the nine months ended October 31,
1997, the Company paid approximately $5.6 million and $5.2 million, respectively
with respect to such Management Contract Obligations. The Company anticipates
that for at least the next two years, the aggregate Management Contract
Obligations with respect to existing and future Investing Partnerships will
exceed the aggregate cash flow generated by the related properties, which will
result in the need to utilize cash generated by the Company to meet its
Management Contract Obligations. In general, the accrual of expenses arising
from obligations of the Company, including Management Contract Obligations,
reduces the amount of earnings that might otherwise be available for
distribution to stockholders. The aggregate amount of such Management Contract
Obligations relating solely to guaranteed return obligations for the remaining
portion of fiscal 1997 and for each of the fiscal years 1998 through 2002 based
on existing management contracts is $3.9 million, $15.4 million, $17.4 million,
$16.4 million, $11.2 million and $2.4 million, respectively. Such amounts of
Management Contract Obligations are calculated based upon paid-in capital
contributions of limited partners as of October 31, 1997 with respect to fiscal
1997 and remaining scheduled capital contributions with respect to fiscal years
1998 through 2002. Actual amounts of Management Contract Obligations in respect
of such contracts will vary based upon the timing and amount of such capital
contributions. Furthermore, such amounts of Management Contract Obligations are
calculated without regard to the cash flow the related properties will generate,
which cash flow would reduce such obligations.
<PAGE>
In the past, limited partners have been allowed to prepay capital
contributions. The percentage of the prepayments received upon the closings of
the sales of limited partnership interests in Investing Partnerships averaged
71.7% in fiscal 1994, 60.9% in fiscal 1995, 65.7% in fiscal 1996 and 64.4% for
the nine months ended October 31, 1997. Prepayments of capital contributions do
not result in the prepayment of the related purchase notes held by the Company.
Instead, such amounts are loaned to the Company by the Investing Partnership. As
a result of such loans and crediting provisions of the related purchase
agreements, the Company records the purchase notes net of such loans. Therefore,
these prepayments act to reduce the recorded value of the Company's note
receivables and reduce interest income received by the Company. Pursuant to the
terms of the offerings, the Company has the option not to accept future
prepayments by limited partners of capital contributions. The Company has not
determined whether it will continue to accept prepayments by limited partners of
capital contributions.
The 36 Syndicated adult living communities and other properties managed
by the Company are owned by the Owning Partnerships and not by the Company.
Future revenues, if any, of the Company relating to such communities would
primarily arise in the form of (i) deferred income earned on sales of interests
in the Owning Partnership for such communities, (ii) management fees, (iii)
amounts payable by the Investing Partnerships to the Company in the event of the
subsequent sale or refinancing of such communities, and (iv) interest income on
purchase notes receivable.
At October 31, 1997, the Company had approximately $29.1 million
principal amount of debt ("Investor Note Debt") secured by notes from investors
in offerings of limited partnership interests, which debt has an average
interest rate of 10.9% per annum. The average collection rate with respect to
such investor notes in the last five years was in excess of 99% of the principal
amount thereof that became due and such collections have been sufficient to pay
interest and principal with respect to the Company's related Investor Note Debt.
There can be no assurance that future collections will continue
3
<PAGE>
at such rate. In the event that future collections are not sufficient to pay
interest and principal with respect to the Company's related Investor Note Debt,
the Company would need to pay the shortfall from cash generated by its
operations.
Although the Company is no longer either a general or limited partner
in the partnerships relating to multi-family properties, the Company holds
promissory notes from Investing Partnerships which were formed to acquire
interests in Owning Partnerships which own multi-family properties
("Multi-Family Owning Partnerships"). As of October 31, 1997, the recorded
value, net of deferred income, of multi-family notes was $107.1 million. All but
approximately $1.2 million of the $56.0 million of "Other Partnership
Receivables" recorded on the Company's Consolidated Balance Sheet as of October
31, 1997 relate to multi-family notes. Certain of the Multi-Family Owning
Partnerships are presently in default on their respective mortgages. Nine
Multi-Family Owning Partnerships previously filed bankruptcy petitions seeking
protection from foreclosure actions. One additional Multi-Family Owning
Partnership surrendered its property pursuant to an uncontested foreclosure sale
of such property (such Multi-Family Owning Partnership, together with the nine
Multi-Family Owning Partnerships that filed bankruptcy petitions, are referred
to herein as the "Protected Partnerships"). The Company neither owns nor manages
these properties, nor is it the general partner of these Multi-Family Owning
Partnerships, but rather merely holds the related multi-family notes as
receivables. The Company, therefore, has no liability in connection with these
mortgage defaults or bankruptcy proceedings.
The Principal Stockholders and one of their affiliates assigned certain
partnership interests in various partnerships that own multi-family properties
(the "Assigned Interests") to the Investing Partnerships which own interests in
the Protected Partnerships, which Assigned Interests were owned personally by
the Principal Stockholders and their affiliate, and provided additional security
for the multi-family notes issued to the Company by such Investing Partnerships.
In that the Principal Stockholders transferred the Assigned Interests in July,
1996, the Company recorded a $21.3 million capital contribution in fiscal 1996.
The bankruptcy petitions and risk of loss faced by the Protected Partnerships
resulted in the Company recording a non-cash loss for the year ending January
31, 1997 in the amount of $18.4 million (representing the recorded value of
these multi-family notes, net of deferred income and net of any previously
established reserves) due to the deemed full impairment of these multi-family
notes. As a result of the transfers by the Principal Stockholders and their
affiliate of the Assigned Interests and the additional security provided
thereby, the Company believes that the outcome of the bankruptcy proceedings
will not affect its ability to collect on these multi-family notes.
Seven of the multi-family bankruptcy proceedings resulted in the
respective Protected Partnerships losing their properties through foreclosure or
voluntary conveyances of their properties. Pursuant to an agreement between two
of the Protected Partnerships and their mortgage holders, the Company
anticipates that the remaining two bankruptcy proceedings will result in the
respective Protected Partnerships paying off their mortgages at a discount with
the proceeds of new mortgage financings, resulting in these properties having
current, fully performing mortgages. These two Protected Partnerships have
obtained commitments for such new mortgage financings and anticipate closing
said financings in January, 1998. The two Investing Partnerships related to
these Protected Partnerships have agreed to transfer the respective Assigned
Interests back to the Principal Stockholders and their affiliate if the
applicable Protected Partnership emerges from its bankruptcy proceeding with
possession of its real property improvements which it owned at the time of its
Chapter 11 Petition.
<PAGE>
Aside from the two Protected Partnerships that have an agreement to
purchase their mortgages at a discount, there are 17 remaining Multi-Family
Owning Partnerships which are in default of their mortgages. As of October 31,
1997, the recorded value, net of deferred income, of the multi-family notes and
"Other Partnership Receivables" held by the Company relating to these 17
Multi-Family Owning Partnerships was $35.1 million. Two of such 17 Multi-Family
Owning Partnerships have agreed with their mortgage lenders to pay off their
mortgages, in one case at a discount and in the other case in full, with the
proceeds of anticipated new mortgage financings, which would result in the
related properties having current, fully performing mortgages. These two
Multi-Family Owning Partnerships have obtained commitments for such new mortgage
financings and also anticipate closing such financings in January, 1998. As of
October 31, 1997, the recorded value, net of deferred income, of the
multi-family notes and "Other Partnership Receivables" relating to these two
MultiFamily Owning Partnerships was $3.2 million, and the recorded value, net of
deferred income, of the multi-family notes and "Other Partnership Receivables"
relating to the 15 remaining Multi-Family Owning Partnerships whose mortgages
are in default was $31.9 million. The Company has established reserves of $10.1
million to address the possibility that these notes may not be collected in
full. It is possible that other Multi-Family Owning Partnerships which are in
default of their mortgages will file bankruptcy petitions or take similar
actions seeking protection from their creditors.
In addition, many of the multi-family properties are dependent to
varying degrees on housing assistance payment contracts with the United States
government, most of which will expire over the next few years. In view of the
foregoing, there can be no assurance that other Multi-Family Owning Partnerships
will not default on their mortgages, file bankruptcy petitions, and/or lose
their properties through foreclosure. The Company neither owns nor manages these
properties, nor is it the general partner of these Multi-Family Owning
Partnerships, but, rather, holds the related multi-family notes as receivables.
The Company, therefore, would have no liability in connection with any such
mortgage defaults or possible
4
<PAGE>
bankruptcy proceedings. The Company, however, could be required to realize a
loss if any such property is considered impaired under applicable accounting
rules, which loss would be reduced by any deferred income recorded for the
related note and any reserve for said note previously established by the
Company. Such losses, if any, while non-cash in nature, could adversely affect
the Company's business, operating results and financial condition.
Grand Court Lifestyles, Inc. is a Delaware corporation formed in 1996
to consolidate substantially all of the assets of its predecessors, J&B
Management Company, Leisure Centers, Inc., and their affiliates. Unless the
context otherwise indicates, all references to the Company include Grand Court
Lifestyles Inc., its subsidiaries and predecessors. The Company's principal
executive offices are located at 2650 N. Military Trail, Suite 350, Boca Raton,
Florida 33431 and its telephone number is (561) 997-0323.
5
<PAGE>
The following diagram illustrates the typical relationship among the
Company, the Owning Partnerships and the Investing Partnerships.
(Diagram illustrating the relationship among the Company, the Owning
Partnerships and the investing Partnerships appears here. At the top of the
diagram is a box containing the name "Grand Court Lifestyles, Inc." (the
"Company box"). An arrow with the words "Manager of Adult Living Community" is
drawn to the left of the diagram from the Company box to a box appearing at the
bottom of the page entitled "Adult Living Community" (the "Adult Living
Community box"). An arrow with the words "Sale of a General Partnership Interest
in Owning Partnership" is drawn from the Company box to a box below it entitled
"Investing Partnership" (the "Investing Partnership box"). In return, an arrow
with the words "Cash, Purchase Note and Investor Notes as Consideration for
Sale" is drawn from the Investing Partnership box to the Company box. An arrow
with the words "Sale of Limited Partnership Interest" is drawn from the
Investing Partnership box to a box appearing to its left entitled "Limited
Partners" (the "Limited Partners box"). In return, an arrow with the words "Cash
and Investor Notes as consideration for Sale" is drawn from the Limited Partners
box to the Investing Partnership box. An arrow with the words "General Partner"
is drawn from the Investing Partnership box to a box below entitled "Owning
Partnership" (the "Owning Partnership box"). An arrow with the words "Owner of
Adult Living Community" is drawn from the Owning Partnership box to the Adult
Living Community box appearing directly below the Owning Partnership box. Arrows
with the words "Directly or Through A Wholly-Owned Subsidiary - General Partner"
is drawn to the right of the diagram from the Company box to the Investing
Partnership box and the Owning Partnership box.)
6
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock to be sold by
the Company(1)............................ 3,000,000 shares
Common Stock outstanding before
this Offering............................. 15,000,000 shares of Common Stock
Common Stock to be outstanding
after this Offering(1)(2): 18,000,000 shares of Common Stock
Use of proceeds............................. The Company intends to use (i) approximately $3 million of its net
proceeds from the Offering for working capital and general
corporate purposes and (ii) the balance of approximately $20.6
million to finance development of new adult living communities.
</TABLE>
- -------------
(1) Excludes up to 450,000 additional shares of Common Stock to be sold by the
Principal Stockholders upon exercise of the Over-allotment Option and up
to 300,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants. See "Underwriting".
(2) Excludes 2,500,000 shares of Common Stock reserved for issuance pursuant
to the Company's stock option plans. As of the date hereof, there were not
any options granted under the Company's stock option plans. See
"Management -- Stock Plans".
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data and other data)
The summary consolidated financial data have been taken or derived
from, and should be read in conjunction with, the Company's consolidated
financial statements and the related notes thereto, and the capitalization data
included elsewhere in this Prospectus. The results of operations for an interim
period have been prepared on the same basis as the year end financial statements
and, in the opinion of management, contain all adjustments, consisting of only
normally recurring adjustments, necessary for a fair presentation of the results
for the full year. The results of operations for the nine months ended October
31, 1996 and 1997 may not give a true indication of results for the full year.
All references herein to a "fiscal" year refer to the fiscal year beginning on
February 1 of that year (for example, "fiscal 1995" refers to the fiscal year
beginning on February 1, 1995). See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine-months-ended
Years Ended January 31, (5) October 31, (5)
------------------------------------------------------ ---------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Sales........................ $ 18,170 $ 20,973 $ 22,532 $ 31,973 $ 36,021 $ 21,524 $ 31,401
Syndication fee income....... 6,484 7,654 5,587 8,603 7,690 4,976 6,529
Deferred income earned....... 792 7,502 4,399 9,971 5,037 708 4,246
Interest income.............. 13,209 13,315 9,503 12,689 13,773 11,043 8,081
Property management fees from
related parties .......... 560 3,854 4,351 4,057 2,093 1,604 3,250
Equity in earnings from
partnership............... 129 206 276 356 423 250 357
Other income................. -- -- -- 1,013 -- -- 751
-------- -------- -------- -------- -------- -------- --------
Total Revenues 39,344 53,504 46,648 68,662 65,037 40,105 54,615
======= ======= ======= ====== ====== ====== ======
Costs and expenses:
Cost of sales................ 14,411 26,876 21,743 27,688 34,019 19,468 25,947
Selling...................... 7,027 6,706 6,002 7,664 7,176 4,603 6,186
Interest..................... 11,874 10,991 13,610 15,808 16,394 12,017 13,991
General and administrative... 5,617 5,226 6,450 7,871 7,796 5,687 6,415
Loss on impairment of notes
and receivables............. -- -- -- -- 18,442 18,442 __
Officers' compensation(1).... 1,200 1,200 1,200 1,200 1,200 900 900
Depreciation and amortization 975 1,433 2,290 2,620 3,331 2,539 2,650
-------- -------- -------- -------- -------- -------- --------
Total Cost and Expenses 41,104 52,432 51,295 62,851 88,358 63,656 56,089
======= ======= ======= ====== ======= ====== ======
Income (loss) before provision
for income taxes (benefit) ... (1,760) 1,072 (4,647) 5,811 (23,321) (23,551) (1,474)
Provision for income taxes..... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).............. (1,760) 1,072 (4,647) 5,811 (23,321) (23,551) (1,474)
Pro-forma income tax provision
(benefit)(2)................. (704) 429 (1,859) 2,324 -- -- --
-------- -------- -------- -------- -------- -------- --------
Pro-forma net income (loss)(2). $ (1,056) $ 643 $ (2,788) $ 3,487 $(23,321) $(23,551) $ (1,474)
======== ======== ======== ======== ======== ======== ========
Pro-forma earnings (loss) per
common share(2).............. $ ( .07) $ .04 $ (.19) $ .23 $ (1.55) $ (1.57) $ (.10)
======== ======== ======== ======== ======== ======== ========
Pro-forma weighted average
common shares used........... 15,000 15,000 15,000 15,000 15,000 15,000 15,000
======== ======== ======== ======== ======== ======== ========
Other Data:
Adult living communities
operated (end of period)... 14 18 24 28 31 29 36
======== ======== ======== ======== ======== ======== ========
Number of units (end of
period).................... 2,336 2,834 3,683 4,164 4,480 4,119 5,192
======== ======== ======== ======== ======== ======== ===========
Average occupancy
percentage (3)............. 90.6% 90.4% 89.3% 94.7% 91.3% 93.4% 93.1%
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
As of January 31, As of October 31, 1997
---------------------------------------------- -------------------------
1993 1994 1995 1996 1997 Actual Adjusted(4)
---- ---- ---- ---- ---- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 6,455 $ 9,335 $ 10,950 $ 17,961 $ 14,111 $ 9,679 $ 33,279
Notes and receivables-net 234,115 227,411 220,014 223,736 221,931 238,128 238,128
Total assets........... 250,648 248,386 248,085 259,555 261,193 291,181 314,781
Total liabilities...... 203,990 211,647 217,879 225,238 229,658 261,120 261,120
Stockholders' equity... 46,658 36,739 30,206 34,317 31,535 30,061 53,661
</TABLE>
(1) John Luciani and Bernard M. Rodin, the Chairman of the Board and President,
respectively, of the Company received dividends and distributions from the
Company's predecessors but did not receive compensation. Officers'
Compensation is based upon the aggregate compensation currently received by
such officers, $600,000 a year for each such officer. Amounts received by
such officers in excess of such amount are treated as dividends for
purposes of the Company's financial statements. In fiscal 1992 through
fiscal 1996, such officers also received $360,000; $5,496,000; $943,000;
$850,000; and $397,000 each as a dividend. See "Management."
(2) The Company's predecessors were Sub-chapter S corporations and a
partnership. The pro forma statement of operations data reflects provisions
for federal and state income taxes as if the Company had been subject to
federal and state income taxation as a C corporation during the years ended
January 31, 1993 through January 31, 1996.
(3) Average occupancy percentages were determined by adding all of the
occupancy percentages of the individual communities and dividing that
number by the total number of communities. The average occupancy percentage
for each particular community was determined by dividing the number of
occupied apartment units in the particular community on the given date by
the total number of apartment units in the particular community.
(4) "Adjusted" amounts give effect to the application by the Company of its net
proceeds of this Offering (based upon an assumed initial public offering
price of $10 per share of Common Stock, after deducting underwriting
discounts and other offering expenses payable by the Company). See
"Capitalization."
(5) Reclassification - Certain amounts in prior years have been reclassified to
conform with current period presentation.
9
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should
consider carefully the factors set forth below, as well as other information
contained in this Prospectus, before making a decision to purchase the Common
Stock offered hereby.
Recent Net Losses and Anticipated Operating Losses
The Company incurred net losses of approximately $1.8 million, $4.6
million, $23.3 million and $1.5 million for the fiscal years ended January 31,
1993, 1995 and 1997, and the nine months ended October 31, 1997, respectively.
As a result of start-up losses anticipated to result from the implementation of
the Company's development plan for the construction of new adult living
communities and the Company's operating expenses, the Company anticipates that
it will incur operating losses for fiscal 1998.
The Company began construction of the first of its new adult living
communities in November, 1996. The Company anticipates that the construction of
each community will take approximately 12 months and expects each newly
constructed community to incur start-up losses for at least nine months after
commencing operations. During the past ten years the Company's revenues have
been derived principally from Syndications to finance the acquisition of
existing adult living communities. Factors that have impacted earnings related
to existing adult living communities during a particular period have included
(i) the amount of partnership interests sold, (ii) the terms of the Syndications
and (iii) the amount of deferred income recognized. Competition to acquire
existing adult living communities has intensified, and the Company anticipates
that, for at least the next year, it will not be able to arrange for the
acquisition of such communities on terms favorable enough to offset both the
anticipated start-up losses associated with newly developed communities and the
costs and cash requirements arising from the Company's existing and expected
additional overhead and debt and Management Contract Obligations. As a result
the Company expects to incur operating losses until its newly constructed
communities are completed, leased up and begin generating positive cash flow.
There can be no assurance that the Company will be able to complete its
development plan as expected. In addition, there can be no assurance that such
newly constructed communities will generate positive cash flow at any time, and
the resulting operating losses could have a material adverse effect on the
Company's business, operating results and financial condition. See "-- Need for
Additional Financing", "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" and "--Liquidity
and Capital Resources" and "Business -- Partnership Offerings" and "--
Strategy."
Substantial Debt Obligations of the Company
At October 31, 1997 the Company had approximately $156.2 million
principal amount of debt, excluding accrued interest of $900,000 ("Total Debt"),
at an average interest rate of 12.2% per annum. Of the principal amount of Total
Debt, $2.9 million becomes due in the fiscal year ending January 31, 1998; $35.5
million becomes due in the fiscal year ending January 31, 1999; $35.3 million
becomes due in the fiscal year ending January 31, 2000; $23.7 million becomes
due in the fiscal year ending January 31, 2001; $28.9 becomes due in the fiscal
year ending January 31, 2002, and the balance of $29.9 million becomes due
thereafter.
Of the Total Debt, $72.4 million principal amount were debentures
("Debenture Debt") issued in twelve separate series, secured by notes (the
"Multi-Family Notes") owed to the Company by partnerships, investor notes and
limited partnership interests arising from Syndications to finance acquisitions
of multi-family housing (the "Purchase Note Collateral"). The Debenture Debt has
an average interest rate of 12.05% per annum and has maturities ranging from
1997 through 2004. During the fiscal year ended January 31, 1997 and the nine
months ended October 31, 1997, total interest expense with respect to Debenture
Debt was approximately $9.2 million and $6.2 million, respectively. The Purchase
Note Collateral produced approximately $2.3 million and $1.5 million of interest
and related payments to the Company, which was approximately $6.9 million and
$4.7 million less than the amount required to pay interest on the Debenture
Debt. The Company paid the shortfall from cash generated by its operations.
Debenture Debt in the aggregate principal amount of
10
<PAGE>
approximately $1.3 million, $12.4 million, $17.1 million, $15.1 million and
$17.8 million will mature in the respective fiscal years 1997 through 2001.
There can be no assurance that amounts received with respect to the Purchase
Note Collateral will be sufficient to pay the Company's future debt service
obligations with respect to the Debenture Debt. Fifty-one of the 169
Multi-Family Notes have reached their final maturity dates and, due to the
inability, in view of the current cash flows of the properties, to maximize the
value of the underlying property at such maturity dates, either through a sale
or refinancing, these final maturity dates have been extended by the Company.
The underlying property relating to one extended MultiFamily Note was refinanced
in Fiscal 1996 and such refinancing generated an approximate $800,000 payment to
the Company under such Multi-Family Note. In addition, the Company anticipates
that two more multi-family properties relating to two other extended
Multi-Family Notes will be refinanced in the remaining portion of Fiscal 1997.
There can be no assurance that such refinancings will actually close. During the
period such notes are extended, the Company will continue to receive the cash
flow and sale or refinancing proceeds, if any, generated by the underlying
properties. The Company expects to extend maturities of other Multi-Family
Notes.
Of the Company's Total Debt, an additional $49.7 million principal
amount was unsecured, having an average interest rate of 13.3% per annum
("Unsecured Debt") and an additional $5.0 million of such debt is mortgage debt
("Mortgage Debt") with an average interest rate of 12% per annum. The Company
incurred the Mortgage Debt, which is secured by an adult living community, in
order to facilitate the acquisition financing for such community. At October 31,
1997, the Company had approximately $29.1 million principal amount of debt
("Investor Note Debt") secured by promissory notes from investors in offerings
of limited partnership interests, which debt has an average interest rate of
10.9% per annum. The average collection rate with respect to such investor notes
in the last 5 years was in excess of 99% of the principal amount thereof that
became due and such collections have been sufficient to pay interest and
principal with respect to the Company's related Investor Note Debt. There can be
no assurance that future collections will continue at such rate. In the event
that future collections are not sufficient to pay interest and principal with
respect to the Company's related Investor Note Debt, the Company would need to
pay the shortfall from cash generated by its operations and, as a result, the
Company's business, operating results and financial condition could be adversely
affected. The Company intends to continue to incur Investor Note Debt, utilizing
as collateral investor notes generated by future Syndications of existing adult
living communities. The Company is in the process of issuing up to $6 million of
Unsecured Debt and up to $8 million of Debenture Debt both of which will be used
in part to retire existing Unsecured Debt and Debenture Debt. The Company
intends to incur additional Debenture Debt or Unsecured Debt as a means of
refinancing existing debt, and may incur additional debt to finance a portion of
costs associated with the Company's development plan for new adult living
communities or for working capital purposes; provided, however, that any such
issuances will be subject to market conditions and the availability of funds
generated by the Company's operations. Neither the Company nor the Owning
Partnerships have policies limiting the amount or proportion of indebtedness
incurred.
The Company's debt obligations contain various covenants and default
provisions, including provisions relating to, in some obligations, certain
Investing Partnerships, Owning Partnerships or affiliates of the Company.
Certain obligations contain provisions requiring the Company to maintain a net
worth of, in the most restrictive case, $30,000,000, except that, under the
Capstone agreements the Company will be required to maintain a net worth in an
amount no less than 75% of the net worth of the Company immediately after the
closing of this Offering. On a pro forma basis, after giving effect to this
Offering, the Company would have had a net worth of $53.7 million at October 31,
1997. Therefore, the Company would be required, pursuant to the Capstone
Agreement to maintain a net worth of no less than $40.3 million. Certain
obligations of the Company contain covenants requiring the Company to maintain a
debt for borrowed money to consolidated net worth ratio of, in the most
restrictive case, no more than 6 to 1. At January 31, 1997 and at October 31,
1997 the Company's debt for borrowed money to consolidated net worth ratio was
4.6 to 1 and 5.2 to 1, respectively and would have been 2.9 to 1 on a pro forma
basis at October 31, 1997, after giving effect to this Offering. In addition,
certain obligations of the Company provide that an event of default will arise
upon the occurrence of a material adverse change in the financial condition of
the Company or upon a default in other obligations of the Company.
11
<PAGE>
Management Contract Obligations and Prepayment Rights of Limited Partners
The Company has financed the acquisition of existing adult living
communities it operates through Syndications of Investing Partnerships and
intends to continue this practice for future acquisitions of existing adult
living communities. The limited partners typically agree to pay their capital
contributions over a five-year period. Past Syndications have provided, and it
is anticipated that future Syndications will provide, that the limited partners
will receive guaranteed distributions during each of the first five years of
their investment equal to between 11% to 12% of their then paid-in scheduled
capital contributions. Pursuant to the management contracts with the Owning
Partnerships, for such five-year period, the Company is required to pay to the
Owning Partnerships, amounts sufficient to fund the Management Contract
Obligations. During the fiscal year ended January 31, 1997 and the nine months
ended October 31, 1997, the Company paid approximately $5.6 million and $5.2
million,respectively with respect to Management Contract Obligations. The amount
the Company paid with respect to Management Contract Obligations for fiscal 1996
and the nine months ended October 31, 1997 was attributable to the increase in
the amount of capital contributions from limited partners which were subject to
Management Contract Obligations along with (i) operating expenses (including
maintenance and repair costs) increasing at a greater rate than historically, as
partially offset by increases in rental revenues, (ii) a decrease in the average
occupancy of the Company's portfolio of adult living communities, (iii) the
increased debt service on various adult living communities due to the
refinancing of such adult living communities (which include the initial mortgage
financing of certain adult living communities that had been previously acquired
without a mortgage), which reduced the cash flow generated by such adult living
communities to a greater extent than the resulting reduction of the Company's
Management Contract Obligations, (iv) difficulties encountered by the Company in
attempting to convert two multi-family properties to adult living communities,
and (v) the establishment of capital improvement reserves pursuant to the terms
of the refinanced mortgages. The refinancings resulted in the return of over $43
million to limited partners, which reduced the amount of capital upon which the
Company is obligated to make payments in respect of Management Contract
Obligations. The aggregate amount which the Company will be required to pay with
respect to such Management Contract Obligations will depend upon a number of
factors, including, among others, the expiration of such obligations for certain
partnerships, the cash flow generated by the properties the Company currently
operates, the terms of future Syndications and the cash flow to be generated by
the related properties. Based upon its estimates of these factors, which
estimates may vary materially from actual results, the Company anticipates that
for at least the next two years, the aggregate Management Contract Obligations
with respect to existing and future Investing Partnerships will exceed the
aggregate cash flow generated by the related properties, which will result in
the need to utilize cash generated by the Company to meet such obligations. The
aggregate amount of Management Contract Obligations relating solely to
guaranteed return obligations for the remaining portion of fiscal 1997 and for
each of the fiscal years 1998 through 2002 based on existing management
contracts is $3.9 million, $15.4 million, $17.4 million, $16.4 million, $11.2
million and $2.4 million, respectively. Such amounts of Management Contract
Obligations are calculated based upon paid-in capital contributions of limited
partners as of October 31, 1997 with respect to the remaining portion of fiscal
1997 and remaining scheduled capital contributions with respect to fiscal years
1998 through 2002. Actual amounts of Management Contract Obligations in respect
of such contracts will vary based upon the timing and amount of such capital
contributions. Furthermore, such amounts of Management Contract Obligations are
calculated without regard to the cash flow the related properties will generate,
which cash flow would reduce such obligations, and are calculated without regard
to the Management Contract Obligations relating to future syndications.
To the extent that the Company must expend funds to meet its Management
Contract Obligations, the Company will have fewer funds available to utilize for
other business purposes, including funds for application to its new development
plan, and to meet other liquidity and capital resource commitments. The Company
will attempt to structure future Syndications to minimize the likelihood that it
will be required to utilize the cash it generates to pay the Management Contract
Obligations, but there can be no assurance that this will be the case.
In the past, limited partners have been allowed to prepay capital
contributions. The percentage of these prepayments received upon the closings of
the Syndications averaged 71.7% in fiscal 1994, 60.9% in fiscal 1995 and 65.7%
in fiscal 1996 and 64.4% for the nine months ended October 31, 1997. Prepayments
of capital contributions do not result in the prepayment of the related purchase
notes. Instead, such amounts are loaned to the Company by the Investing
Partnership. As a result of such loans and crediting provisions of the related
purchase agreements, the Company records the notes receivable corresponding to
the purchase notes net of such loans. Therefore, these prepayments act to reduce
the
12
<PAGE>
recorded value of the Company's notes receivable and reduce interest income
received by the Company. Pursuant to the terms of the typical Syndication, the
Company, as the general partner of the Investing Partnership, has the option not
to accept future prepayments by limited partners of capital contributions. The
Company has not determined whether it will continue to accept prepayments by
limited partners of capital contributions. In addition, by financing the
acquisition of existing adult living communities through, and acting as the
general partner of, partnerships, the potential exists for claims by limited
partners for violations of the terms of the partnership agreements or management
contracts and of applicable federal and state securities and blue sky laws and
regulations.
The Company's Management Contract Obligations are contractual
obligations of the Company to make payments under the management contracts to
the Owning Partnerships. In general, the accrual of expenses arising from
obligations of the Company, including Management Contract Obligations, reduces
the amount of earnings that might otherwise be available for distribution to
stockholders. Payments in respect of Management Contract Obligations are
recorded as a cost of sales expense in the period such amounts are paid. As
described under "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview -- Deferred Income Earned", the Company has
deferred income on sales of interests in Owning Partnerships in respect of such
Management Contract Obligations. As a result of such deferrals, the revenues
relating to sales are reduced and actual payments of such Management Contract
Obligations will generally not result in the recognition of expense unless the
underlying property's cash flows are less than anticipated and, as a result
thereof, the amount paid by the Company in respect of the Management Contract
Obligations is greater than the amount assumed in establishing the amount of
such deferred income. If the underlying property's cash flow is greater than the
amount utilized in determining deferred income, the Company's earnings will be
enhanced by the recognition of deferred income earned and, to the extent cash
flow exceeds the Management Contract Obligations, incentive management fees. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Revenues," "-- Liquidity and Capital Resources" and "Business --
Partnership Offerings."
Need for Additional Financing
The Company has instituted a development plan pursuant to which it has
completed construction of one adult living community, is nearing completion of
the construction of six additional communities and intends to commence
construction of between 30 and 34 additional new adult living communities over
the next two years. The Company expects to complete the construction of two of
the six communities currently under construction by January 31, 1998 and expects
to complete the constructioin of the remaining four communities currently under
construction by the end of the first quarter of fiscal 1998. These six adult
living communities, along with the one community already completed pursuant to
the development plan, contain an aggregate of approximately 1,000 apartment
units and the 30 to 34 additional new communities which the Company intends to
commence construction on over the next two years will contain between 4,260 and
4,828 apartment units. The Company intends to use approximately $20.6 million of
its net proceeds of this Offering to fund a portion of development costs not
provided by mortgage loans, which is currently anticipated to be sufficient to
permit the development of approximately 11 new adult living communities, if such
proceeds funded approximately 20% of the development costs. The Company will
also utilize funds generated from its business operations to fund development
costs not provided by construction financing for the development of additional
communities. The Company anticipates that these funding sources will provide the
Company with sufficient equity capital to pursue its development plan for at
least 12 months at the projected rate of development. There can be no assurance
that the Company will generate sufficient funds from its business operations to
satisfy its projected equity investment requirements for this period. The
Company will use the proceeds of anticipated refinancings of construction
financing on, and/or sale-leasebacks of, stabilized, newly constructed
communities at higher principal amounts than the original construction
financing, may complete additional equity or debt offerings, and/or utilize long
term leases or similar forms of financing which require the investment of little
or no capital on the part of the Company, to proceed with its development plan
past this 12 month period at the projected rate of development. There can be no
assurance that the Company will be able to successfully complete such future
refinancings, offerings or obtain such long term lease or similar financing. The
Company currently has a commitment for construction financing for only one of
the additional 30 to 34 adult living communities it intends to construct over
the next two years. In addition, the Company intends to repay from cash from its
business operations and/or refinance the approximately $2.9 million and $35.5
million in principal amount of indebtedness that becomes due in the remainder
fiscal 1997 and fiscal 1998, respectively. There can be no assurance that the
Company will be able to refinance such obligations in a timely manner or on
acceptable terms. In addition, there are a
13
<PAGE>
number of circumstances beyond the Company's control and which the Company
cannot predict that may result in the Company's financial resources being
inadequate to meet its needs. The Company may need to seek additional funding
through public or private financing, including equity financing, to satisfy
these obligations. If additional funds are raised by issuing equity securities,
the Company's shareholders may experience dilution. There can be no assurance,
however, that adequate financing will be available as needed or on terms
acceptable to the Company. A lack of available funds may require the Company to
delay, scale back or eliminate development of some of the adult living
communities that are currently contemplated in its development plan. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Development Delays and Cost Overruns
The Company has instituted a development plan pursuant to which it has
completed construction of one adult living community, is nearing completion of
the construction of six additional communities and intends to commence
construction of between 30 and 34 additional new adult living communities over
the next two years. The Company expects to complete the construction of two of
the six communities currently under construction by January 31, 1998 and expects
to complete the construction of the remaining four communities currently under
construction by the end of the first quarter of fiscal 1998. These six adult
living communities, along with the one community already completed pursuant to
the development plan, contain an aggregate of approximately 1,000 apartment
units and the 30 to 34 additional new communities which the Company intends to
commence construction on over the next two years will contain betwen 4,260 and
4,828 apartment units. Although the seven adult living communities already
completed or currently under construction are being completed according to their
respective construction schedules, there can be no assurance that the Company
will not suffer future delays in its development program, which could adversely
affect the Company's growth. Development of adult living communities can be
delayed or precluded by various zoning, healthcare licensing and other
applicable governmental regulations and restrictions. Real estate development
projects generally are subject to various risks, including permitting, licensing
and construction delays, that may result in construction cost overruns and
longer periods of operating losses. The Company intends to rely on third-party
general contractors to construct new communities. There can be no assurance that
the Company will not experience difficulties in working with general contractors
and subcontractors, any of which difficulties also could result in increased
construction costs and delays. Furthermore, project development is subject to a
number of contingencies over which the Company will have little control and that
may adversely affect project cost and completion time, including inability to
obtain financing, shortages of or the inability to obtain labor or materials,
the inability of the general contractors or subcontractors to perform under
their contracts, strikes, adverse weather conditions, delays in property
lease-ups and changes in applicable laws or regulations or in the method of
applying such laws and regulations. If the Company's development schedule is
delayed or scaled back, the Company's business, operating results and financial
condition could be adversely affected. See " -- Need for Additional Financing",
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources," "Business -- Strategy" and "--
Operations."
Property Encumbered with Mortgage Financing
The adult living communities currently operated by the Company are
generally encumbered with mortgage financing. While these mortgage loans are
obligations of the Owning Partnerships rather than direct obligations of the
Company, the Company typically provides a guaranty of certain obligations under
the mortgages including, for example, any costs incurred for the correction of
hazardous environmental conditions. To date, the Company has incurred no
material costs or expenses relating to the correction of hazardous environmental
conditions. As of October 31, 1997, the aggregate principal amount of the
mortgage debt of the Owning Partnerships was approximately $192.8 million and
the aggregate annual debt service obligations, excluding any balloon amounts
payable at maturity, was approximately $18.0 million. Most of this debt contains
provisions which limit the ability of the respective Owning Partnerships to
further encumber the property. Through January 31, 2002, approximately $178.7
million of balloon payments under the mortgages will become due and payable. The
Company anticipates that the Owning Partnerships will make these balloon
payments by refinancing the mortgages on their respective properties. The debt
service payments on such mortgage debt reduces the cash flow available for
distribution by partnerships to limited partners who are typically guaranteed an
annual distribution of between 11% and 12% of their paid-in capital during the
first five years of any partnership, to the extent not paid from cash flow from
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the related property. The Company anticipates that it will continue to finance
its future acquisitions of existing adult living communities through mortgage
financing and Syndications.
The Company intends to finance its future development of new adult
living communities primarily through mortgage financing and other types of
financing, including long-term operating leases arising through sale/leaseback
transactions and may issue additional debt or equity securities, to the extent
necessary. The financing of Company-developed communities will be direct
obligations of the Company and, accordingly, the amount of mortgage indebtedness
is expected to increase and the Company expects to have substantial debt
service, and may have substantial annual lease payment, requirements in the
future as the Company pursues its growth strategy. As a result, a substantial
portion of the Company's revenues is expected to be devoted to debt service
payments and may be devoted to fixed lease payments. There can be no assurance
that the Company will generate sufficient revenues to pay its interest and
principal obligations on its mortgage debt or to make any potential lease
payments. In addition, the Company arranged for the sale of limited partnership
interests in two partnerships organized to make second mortgage loans to the
Company to fund approximately 20% of the costs of developing three new adult
living communities.
Existing Defaults and Bankruptcies of Owning Partnerships Owning Multi-Family
Properties
The Company holds promissory notes ("Adult Living Notes", and, together
with the Multi-Family Notes, "Purchase Notes") from Investing Partnerships which
were formed to acquire controlling interests in Owning Partnerships which own
adult living communities and Multi-Family Notes from Investing Partnerships
which were formed to acquire controlling interests in Multi-Family Owning
Partnerships which own multi-family properties ("Multi-Family Properties"). As
of October 31, 1997, the recorded value, net of deferred income, of Multi-Family
Notes was $107.1 million. All but approximately $1.2 million of the $56.0
million of "Other Partnership Receivables" recorded on the Company's
Consolidated Balance Sheet as of October 31, 1997 relate to Multi-Family Notes.
(See Note 4 of Notes to the Company's Consolidated Financial Statements.) The
Company holds 169 Multi-Family Notes which are secured by controlling interests
in 126 Multi-Family Properties. As a result of the Company not being the sole
payee with regard to 28 of the 169 Multi-Family Notes, the values reflected on
the Company's Consolidated Financial Statements relate to only the Company's
proportionate interests in these 28 Multi-Family Notes, which is typically a 50%
interest. Due to the interests of third parties in these 28 Multi-Family Notes,
the Company will not have sole discretion as to certain actions taken with
regard to said notes, as it would if it were the only payee on the notes. The
Company is not a partner in any of the Owning Partnerships which own
Multi-Family Properties or in any of the corresponding Investing Partnerships.
Certain Multi-Family Owning Partnerships are presently in default on
their respective mortgages. These MultiFamily Owning Partnerships have been
negotiating with the respective mortgage lenders and, in some cases, have
obtained workout agreements pursuant to which the lenders generally agree during
the term of the agreement not to take any action regarding the mortgage default
and to accept reduced debt service payments for a period of time, with the goal
of increasing property cash flow to enable the property to fully service its
mortgage. Nine Multi-Family Owning Partnerships previously filed petitions
seeking protection from foreclosure actions under Chapter 11 of the U.S.
Bankruptcy Code ("Chapter 11 Petitions") and one additional Multi-Family Owning
Partnership has surrendered its property pursuant to an uncontested foreclosure
sale of such property (said ten Multi-Family Owning Partnerships are,
collectively, the "Protected Partnerships"). The Company neither owns nor
manages, nor is the general partner of these Multi-Family Owning Partnerships,
but, rather, holds the related Multi-Family Notes as receivables. The Company,
therefore, has no liability in connection with these mortgage defaults or
bankruptcy proceedings.
The Principal Stockholders and one of their affiliates assigned certain
partnership interests in various partnerships that own Multi-Family Properties
(the "Assigned Interests") to the Investing Partnerships that own interests in
the Protected Partnerships, which Assigned Interests were owned personally by
the Principal Stockholders and their affiliate, and provided additional assets
at the Investing Partnership level and, as a result, additional security for the
related Multi-Family Notes. In that the Principal Stockholders transferred the
Assigned Interests in July 1996, the Company recorded a $21.3 million capital
contribution in fiscal 1996. The bankruptcy petitions and risk of loss faced by
the Protected Partnerships resulted in the Company recording a non-cash loss for
the year ended January 31, 1997 in the amount of $18.4 million (representing the
recorded value of those Multi-Family Notes, net of deferred income and net of
any previously established reserves) due
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to the deemed full impairment of these Multi-Family Notes. As a result of the
transfers by the Principal Stockholders and their affiliates of the Assigned
Interest and the addtional security provided thereby, the Company believes that
the outcome of the bankruptcy proceedings will not affect its ability to collect
on these Multi-Family Notes.
Seven of the multi-family bankruptcy proceedings resulted in the
respective Protected Partnerships losing their properties through foreclosure or
voluntary conveyance of their properties. Pursuant to an agreement between two
of the Protected Partnerships and their mortgage holders, the Company
anticipates that the two remaining bankruptcy proceedings will result in the
respective Protected Partnerships paying off their mortgages at a discount with
the proceeds of new mortgage financing, resulting in these properties having
current, fully performing mortgages. These two Protected Partnerships have
obtained commitments for such new mortgage financings and anticipate closing
such financings in January, 1998. The two Investing Partnerships related to
these Protected Partnerships have agreed to transfer the specific Assigned
Interest back to the Principal Stockholders and their affiliate if the
applicable Protected Partnership emerges from its bankruptcy proceeding with
possession of the real property and improvements which it owned at the time of
its Chapter 11 Petition.
Aside from the two Protected Partnerships that have agreed to purchase
their mortgages at a discount, there are 17 remaining Multi-Family Owning
Partnerships which are in default of their mortgages. As of October 31, 1997,
the recorded value, net of deferred income of the Multi-Family Notes and "Other
Partnership Receivables" held by the Company relating to these 17 Multi-Family
Owning Partnerships was $35.1 million. Two of such 17 Multi-Family Owning
Partnerships have agreed with their mortgage lenders to pay off their mortgages,
in one case at a discount and in the other case in full, with the proceeds of
anticipated new mortgage financing, which would result in the related properties
having current, fully performing mortgages. These two Multi-Family Owning
Partnerships have obtained commitments for such new mortgage financing and also
anticipate closing such financing in January, 1998. As of October 31, 1997, the
recorded value, net of deferred income, of the Multi-Family Notes and "Other
Partnership Receivables" relating to these two Owning Partnerships was $3.2
million, and the recorded value, net of deferred income, of the Multi-Family
Notes and "Other Partnership Receivables" relating to the 15 remaining
Multi-Family Owning Partnerships whose mortgages are in default was $31.9
million. The Company has established reserves of $10.1 million to address the
possibility that these notes may not be collected in full. It is possible that
other Multi-Family Owning Partnerships that are in default of their mortgages
will file bankruptcy petitions or take similar actions seeking protection from
their creditors. The Company neither owns nor manages these properties, nor is
it the general partner of these Multi-Family Owning Partnerships, but, rather,
holds the related Multi-Family Notes as receivables. The Company, therefore,
would have no liability in connection with any such mortgage defaults or
possible bankruptcy proceedings.
The Multi-Family Properties were typically built or acquired with the
assistance of programs administered by the United States Department of Housing
and Urban Development ("HUD") that provide mortgage insurance, favorable
financing terms and/or rental assistance payments to the owners. As a condition
to the receipt of assistance under these and other HUD programs, the properties
must comply with various HUD requirements, including limiting rents on these
properties to amounts approved by HUD. Most of the rental assistance payment
contracts relating to the Multi-Family Properties will expire over the next few
years. HUD has introduced various initiatives to restructure its housing subsidy
programs by increasing reliance on prevailing market rents, and by reducing
spending on future rental assistance payment contracts by, among other things,
not renewing expiring contracts and by restructuring mortgage debt on those
properties where a decline in rental revenues is anticipated. Due to uncertainty
regarding the final policies that will result from these initiatives and
numerous other factors that affect each property which can change over time
(including the local real estate market, the provisions of the mortgage debt
encumbering the property, prevailing interest rates and the general state of the
economy) it is impossible for the Company to determine whether these initiatives
will have an impact on the Multi-Family Properties and, if there is an impact,
whether the impact will be positive or negative.
Certain of the Multi-Family Owning Partnerships intend to take
advantage of the new HUD initiatives and/or improving market conditions to
either refinance their HUD-insured mortgages with conventional mortgage
financing or restructure their HUD-insured mortgage debt. In some cases, the
Multi-Family Owning Partnerships may not renew rental assistance contracts as
part of a strategy to reposition those Multi-Family Properties as market-rate,
non-subsidized properties. Four of such Multi-Family Owning Partnerships have
received commitments for conventional mortgage
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financing and a number of other Multi-Family Owning Partnerships have
applications for such commitments pending. To the extent that any of these
Multi-Family Owning Partnerships complete such actions, the Company believes
this will enhance and accelerate the ability of the Multi-Family Owning
Partnerships to make payments to the Company on their respective Multi-Family
Notes. However, there can be no assurance that the Multi-Family Owning
Partnerships will be able to refinance additional mortgages or will be able to
successfully reposition any of the Multi-Family Properties.
In view of the foregoing, there can be no assurance that other Owning
Partnerships that own Multi-Family Properties will not default on their
mortgages, file Chapter 11 Petitions, and/or lose their properties through
foreclosure. Although the Company would have no liability in connection
therewith, any such future mortgage defaults could, and, any such future filings
of Chapter 11 petitions or losses of any such property through foreclosure
would, cause the Company to realize a non-cash loss equal to the recorded value
of the applicable Multi-Family Note plus any related advances, net of any
deferred income recorded for such Multi-Family Note and any reserves for such
note previously established by the Company, which would reduce such loss. In
addition, the Company could be required to realize such a non-cash loss even in
the absence of mortgage defaults, Chapter 11 Petitions or the loss of any such
property through foreclosure if, at any time in which the Company's financial
statements are issued, such property is considered impaired. Such impairment
would be measured under applicable accounting rules. Such losses could result in
a default by the Company in its covenants under various debt obligations to
maintain a specified net worth or debt-to-net worth ratio and could adversely
affect the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources".
Fifty-one of the 169 Multi-Family Notes have reached their final
maturity dates, and, due to the inability, in view of the current cash flows of
the properties, to maximize the value of the underlying property at such
maturity dates, either through a sale or refinancing, these final maturity dates
have been extended by the Company. The Multi-Family Property relating to one
extended Multi-Family Note was refinanced in Fiscal 1996 and such refinancing
generated an approximate $800,000 payment to the Company under such Multi-Family
Note. In addition, the Company anticipates that two more Multi-Family Properties
relating to two other extended Multi-Family Notes will be refinanced in the
remaining portion of Fiscal 1997. There can be no assurance that such
refinancings will actually close. During the period such notes are extended, the
Company will continue to receive the cash flow and sale or refinancing proceeds,
if any, generated by the underlying properties. The Company expects to extend
maturities of other Multi-Family Notes.
Liabilities Arising From General Partner Status
The Company is a general partner of all but one of the Adult Living
Owning Partnerships and the general partner of 30 of 40 adult living Investing
Partnerships. The mortgage financing of the Syndicated adult living communities
and other Syndicated properties are generally without recourse to the general
credit or assets of the Company except with respect to certain specified
obligations, including, for example, costs incurred for the correction of
hazardous environmental conditions. However, except for such non-recourse
obligations, as a general partner, the Company is fully liable for all
partnership obligations, including those presently unknown or unobserved, and
unknown or future environmental liabilities. The cost of any such obligations or
claims, if partially or wholly borne by the Company, could adversely affect the
Company's business, operating results and financial condition.
Difficulties of Managing Rapid Expansion
The Company will pursue an aggressive expansion program, and it expects
that its rate of growth will increase as it implements its development program
for new adult living communities. The Company's success will depend in large
part on identifying suitable development opportunities, and its ability to
pursue such opportunities, complete development, and lease up and effectively
operate its adult-living communities. The Company's growth has placed a
significant burden on the Company's management and operating personnel. The
Company's ability to manage its growth effectively will require it to continue
to attract, train, motivate, manage and retain key employees. If the Company is
unable to manage its growth effectively, its business, operating results and
financial condition could be adversely affected. See "Business -- Strategy" and
"Management -- Directors and Executive Officers."
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Potential Increases in Debt Service Obligations Relating to Variable Rate Debt
The Investor Note Debt, which totaled $29.1 million in aggregate
principal amount at October 31, 1997, bears interest at variable rates
determined by reference to the prime rate of the lending banks. Each 1% increase
or decrease of the interest rate on such debt would result in an increase or
decrease in the annual debt service obligation of the Company of approximately
$291,000. Therefore, increases in interest rates could adversely affect the
operating results and financial condition of the Company.
Right of Partnerships to Terminate Management Contracts
All of the adult living communities, the nursing home and the
residential apartment complex currently operated by the Company are managed by
the Company pursuant to written management contracts, which generally have a
five year term coterminous with the Company's Management Contract Obligations
under such contracts The five-year Management Contract Obligations period has
terminated for seven of the 40 Investing Partnerships. The five year Management
Contract Obligations period will terminate on December 31, 1997 for an
additional seven Investing Partnerships. After the initial five year term, the
Management Contract Obligations terminate and the management contracts are
automatically renewed each year, but are cancelable on 30 to 60 days notice at
the election of either the Company or the Owning Partnership. In general, under
the terms of the Investing Partnership's partnership agreement, limited partners
have only limited rights to take part in the conduct or operation of the
partnership. The Company is the general partner of 35 of the 36 Owning
Partnerships that own the adult living communities, the nursing home and the
residential apartment complex operated by the Company. The Company is also the
general partner of 30 of the 40 Investing Partnerships formed to acquire equity
interests in said Owning Partnerships. The termination of any management
contracts would result in the loss of fee income, if any, under those contracts.
However, the new adult living communities being developed by the Company will be
owned and operated directly by the Company or operated pursuant to long-term
leases and, therefore, will not be subject to such management contracts. See "--
Conflicts of Interest" and "Business -- Partnership Offerings."
Right to Remove General Partner
The partnership agreements for the 30 adult living Investing
Partnerships where the Company is the general partner provide that a majority in
ownership interests of the limited partners can remove the Company as the
general partner at any time. It is anticipated that all future Investing
Partnership agreements will contain the same right to remove the Company as the
general partner. The Investing Partnerships, acting through their general
partners, have various rights relating to matters affecting the business and
affairs of the Owning Partnerships. In addition, the partnership agreements for
two Owning Partnerships which are limited partnerships and for which the Company
is the managing general partner provide that a majority in interest of the
limited partners of the Investing Partnership and the general partner of the
Investing Partnership can remove the Company as the managing general partner of
the Owning Partnership. The removal of the Company as the general partner of an
Investing Partnership or as the managing general partner of such an Owning
Partnership could have adverse effects on the business, operating results and
financial condition of the Company, especially if such removal occurs during the
five-year Management Contract Obligations period for the respective Investing
Partnership. Such period has expired with respect to the Investing Partnerships
related to such two Owning Partnerships and such period has not expired with
respect to any of the 30 Investing Partnerships for which the Company is the
general partner.
Conflicts of Interest
Messrs. Luciani and Rodin, the Chairman of the Board and President of
the Company, respectively, and entities controlled by them serve as general
partners of certain partnerships directly and indirectly owning Multi-Family
Properties. As a result of their general partner status, such persons have
personal liability for recourse partnership obligations and own small equity
ownership interests in such partnerships. The Company held (i) notes,
aggregating $107.1 million, net of deferred income, at October 31, 1997 that
were secured by the limited partnership interests in such partnerships and (ii)
other partnership receivables of $54.8 million from such partnerships at October
31, 1997. These individuals have provided personal guarantees in certain
circumstances to obtain mortgage financing for certain adult living communities
operated by
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the Company and for certain of the Company's Investor Note Debt, and the
obligations thereunder may continue. In addition, Messrs. Luciani and Rodin and
certain employees will devote a limited portion of their time to overseeing the
third-party managers of Multi-Family Properties and one adult living community
in which the Company has financial interests in that it holds the related
Multi-Family Notes, but in which Messrs. Luciani and Rodin have equity interests
and the Company does not. Mr. Luciani devotes approximately 20% of his time to
such activities and Mr. Rodin devotes approximately 5% of his time to such
activities, although these amounts can vary from year to year. These activities,
ownership interests and general partner interests create actual or potential
conflicts of interest on the part of these officers. See "Certain Transactions"
and Note 11 of Notes to the Company's Consolidated Financial Statements.
The Company is the managing general partner for 35 of the 36 Owning
Partnerships which own the 36 Syndicated adult living communities, one nursing
home and the one residential apartment complex which the Company operates. The
general partner of the remaining partnership is Terrace Lion Corp., a Missouri
corporation whose sole officer, director and shareholder is Maurice Barksdale, a
consultant to the Company. The Company also is the general partner for 30 of the
40 adult living Investing Partnerships that own equity interests in these 36
Owning Partnerships. In addition, the Company is the managing agent for the 36
Syndicated adult living communities, one nursing home and one residential
apartment complex that the Company operates. The Company has financed the
acquisition of adult living communities through mortgage financings and
Syndications. By serving in all of these capacities, the Company may have
conflicts of interest in that it has both a duty to act in the best interests of
partners of various partnerships, including the limited partners of the
Investing Partnerships, and the desire to maximize earnings for the Company's
stockholders in the operation of such adult living communities and other
properties. See "Business -- Partnership Offerings" and Note 11 of Notes to the
Company's Consolidated Financial Statements.
The Company has acquired two adult living communities (the
"Resyndicated Communities") from existing Owning Partnerships and financed the
acquisitions using mortgage financing and Resyndications. The Company has
acquired a third adult living community from an existing Owning Partnership, and
is in the process of arranging for a Resyndication of an interest in such
community. The Company has obtained the consent to these transactions of the
limited partners in the Investing Partnerships that owned interests in the
Owning Partnerships from which the communities were acquired. The Company may
engage in similar transactions in the future. Potential conflicts of interest
regarding Resyndications may exist because of the Company's roles as general
partner of each of the selling and acquiring Owning Partnerships and of each of
the acquiring Investing Partnerships and, in some cases, the selling Investing
Partnerships.
The Company also may have a conflict of interest in that certain of the
adult living communities operated by the Company may face direct competition
from other communities operated by the Company. Decisions made by the Company to
benefit one such community may not be beneficial to the other, thus exposing the
Company to a claim of a breach of fiduciary duty. See "Business -- Communities."
Dependence on Senior Management and Skilled Personnel
The Company depends, and will continue to depend, on the services of
its principal executive officers. The loss of the services of one or more of
them could have a material adverse effect on the Company's operating results and
financial condition. Certain of the Company's officers or entities controlled by
them are general partners of partnerships that own or invest in real property
and they may be required to devote time to such partnerships. The Company also
depends on its ability to attract and retain management personnel who will be
responsible for the day-to-day operations of each of its adult living
communities. If the Company is unable to hire qualified management personnel to
operate such communities, the Company's business, operating results and
financial condition could be adversely affected. See "-- Conflicts of Interest"
and "Management."
Competition
The long-term care industry is highly competitive, and the Company
believes that the assisted-living segment, in particular, will become even more
competitive in the future. The Company will be competing with numerous other
companies providing similar long-term care alternatives such as home healthcare
agencies, community-based service
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programs, adult living communities and convalescent centers. The Company expects
that, as the provision of assisted-living services receives increased attention
and the number of states providing reimbursement for assisted-living rises,
competition will intensify as a result of new market entrants. The Company also
faces potential competition from skilled-nursing facilities that provide
long-term care services. Moreover, in implementing its growth strategy, the
Company expects to face competition in its efforts to develop and acquire adult
living communities. Some of the Company's present and potential competitors are
significantly larger and have, or may obtain, 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 that could limit its
ability to attract residents or expand its business and therefore have a
material adverse effect on its business, operating results and financial
condition. Moreover, if the development of new adult living communities outpaces
demand for those facilities in certain markets, such markets may become
saturated. Such an oversupply of such communities could cause the Company to
experience decreased occupancy and depressed cash flows and operating results.
See "Business -- Competition."
Staffing and Labor Costs
The Company competes with other providers of independent- and
assisted-living services with respect to attracting and retaining qualified
personnel. The Company also is dependent upon the available labor pool of
employees. A shortage of trained or other personnel may require the Company to
enhance its wage and benefits package in order to compete. 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 rental or management
revenue. Any significant failure by the Company to attract and retain qualified
employees, to control its labor costs or to match increases in its labor
expenses with corresponding increases in revenues could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business -- Employees."
Dependence on Attracting Seniors With Sufficient Resources to Pay
The Company currently, and for the foreseeable future, expects to rely
primarily on its residents' ability to pay the Company's fees from their own or
familial financial resources. Inflation or other circumstances that adversely
affect the ability of seniors to pay for the Company's services could have an
adverse effect on the Company. If the Company encounters difficulty in
attracting seniors with adequate resources to pay for its services, its
business, operating results and financial condition could be adversely affected.
See "Business -- Operations."
Government Regulation
Healthcare is heavily regulated at the Federal, state and local levels
and represents an area of extensive and frequent regulatory change. Currently no
federal rules explicitly define or regulate independent- or assisted-living
communities. A number of legislative and regulatory initiatives relating to
long-term care are proposed or under study at both the federal and state levels
that, if enacted or adopted, could have an adverse effect on the Company's
business and operating results. The Company cannot predict whether and to what
extent any such legislative or regulatory initiative will be enacted or adopted,
and therefore cannot assess what effect any current or future initiative would
have on the Company's business and operating results. Changes in applicable laws
and new interpretations of existing laws can significantly affect the Company's
operations, as well as its revenues and expenses. The Company's adult living
communities are subject to varying degrees of regulation and licensing by local
and state health and social service agencies and other regulatory authorities
specific to their location. While regulations and licensing requirements often
vary significantly from state to state, they typically relate to fire safety,
sanitation, staff training, staffing levels and living accommodations such as
room size, number of bathrooms and ventilation, as well as regulatory
requirements relating specifically to certain of the Company's health-related
services. The Company's success will depend in part on its ability to satisfy
such regulations and requirements and to acquire and maintain any required
licenses. Federal, state and local governments occasionally conduct unannounced
investigations, audits and reviews to determine whether violations of applicable
rules and regulations exist. Devoting management and staff time and legal
resources to such investigations, as well as any material violation by the
Company that is discovered in any such investigation, audit or review, could
have a material adverse effect on the Company's business and operating results.
See "Business -- Strategy" and "--Governmental Regulation."
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Control by Certain Stockholders
Each share of Common Stock is entitled to one vote on all matters
submitted to a vote of the holders of the Common Stock. After giving effect to
this Offering, the Principal Stockholders, John Luciani and Bernard M. Rodin,
will collectively beneficially own shares of Common Stock representing
approximately 83.34% of the Company's Common Stock, excluding any shares of
Common Stock sold pursuant to the Over-allotment Option. If the Over-allotment
Option is exercised in full, the Principal Stockholders will beneficially own
shares representing 80.83% of the Company's Common Stock. As a result, they will
maintain control over the election of a majority of the Company's Board of
Directors ("Board of Directors") and, thus, over the operations and business of
the Company as a whole. In addition, such stockholders will have the ability to
prevent certain types of material transactions, including a change of control of
the Company. The control by John Luciani and Bernard M. Rodin over a substantial
majority of the Company's Common Stock may make the Company a less attractive
target for a takeover than it otherwise might be, or render more difficult or
discourage a merger proposal or a tender offer. See "Principal and Selling
Stockholders."
Possible Environmental Liabilities
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may be
held liable for the costs of removal or remediation of certain hazardous or
toxic substances, including, without limitation, asbestos-containing materials,
that could be located on, in or under such property. Such laws and regulations
often impose liability whether or not the owner or operator knows of, or was
responsible for, the presence of the hazardous or toxic substances. The costs of
any required remediation or removal of these substances could be substantial and
the liability of an owner or operator as to any property is generally not
limited under such laws and regulations, and could exceed the property's value
and the aggregate assets of the owner or operator. The presence of these
substances or failure to remediate such substances properly may also adversely
affect the owner's ability to sell or rent the property, or to borrow using the
property as collateral. Under these laws and regulations, an owner, operator or
any entity who arranges for the disposal of hazardous or toxic substances, such
as asbestos-containing materials, at a disposal site may also be liable for
these costs, as well as certain other costs, including governmental fines and
injuries to persons or properties. To date, the Company has not incurred any
material costs of removal or remediation of such hazardous or toxic substances.
However, the presence, with or without the Company's knowledge, of hazardous or
toxic substances at any property held or operated by the Company could have an
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Government Regulation."
General Real Estate Risks
The performance of the Company's adult living communities is influenced
by factors affecting real estate investments, including the general economic
climate and local conditions, such as an oversupply of, or a reduction in demand
for, adult living communities. Other factors include the attractiveness of
properties to tenants, zoning, rent control, environmental quality regulations
or other regulatory restrictions, competition from other forms of housing and
the ability of the Company to provide adequate maintenance and insurance and to
control operating costs, including maintenance, insurance premiums and real
estate taxes. Real estate investments also are affected by such factors as
applicable laws, including tax laws, interest rates and the availability of
financing. The performance of the Company's adult living communities also may be
adversely affected by energy shortages and the costs attributable thereto,
strikes and other work stoppages by employees of the adult living communities,
damage to or destruction of the adult living communities, various catastrophic
or other uninsurable losses and defaults by a substantial number of tenants
under their leases. The potential for operating losses and the risk of
development delays and cost overruns have been previously described. In
addition, real estate investments are relatively illiquid and, therefore, limit
the ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions.
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Restrictions Imposed by Laws Benefiting Disabled Persons
Under the Americans with Disabilities Act of 1990 (the "ADA"), all
places of public accommodation are required to meet certain federal requirements
related to access and use by disabled persons. A number of additional Federal,
state and local laws exist which also may require modifications to existing and
planned properties to create access to the properties by disabled persons. While
the Company believes that its existing properties and its prototype for new
development are substantially in compliance with present requirements or are
exempt therefrom, if required changes involve a greater expenditure than
anticipated or must be made on a more accelerated basis than anticipated,
additional costs would be incurred by the Company. Further legislation may
impose additional burdens or restrictions with respect to access by disabled
persons, the costs of compliance with which could be substantial. See "Business
- -- Government Regulation."
Liability and Insurance Risk
The Company's business 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 claims, many
of which seek large amounts and result in significant legal costs. The Company
expects that from time to time it may be subject to such suits as a result of
the nature of its business. The Company currently maintains insurance policies
in amounts and with such coverage and deductibles as it deems appropriate, based
on the nature and risks of its business, historical experience and industry
standards. There can be no assurance, however, that claims in excess of the
Company's insurance coverage or claims not covered by the Company's insurance
coverage will not arise. A successful claim against the Company not covered by,
or in excess of, the Company's insurance could have a material adverse effect on
the Company's operating results and financial condition. Claims against the
Company, regardless of their merit or eventual outcome, may also have a material
adverse effect on the Company's ability to attract residents or expand its
business and would require management to devote time to matters unrelated to the
operation of the Company's business. In addition, the Company's insurance
policies must be renewed annually, and there can be no assurance that the
Company will be able to obtain liability insurance coverage in the future or, if
available, that such coverage will be on acceptable terms. See "Business --
Legal Proceedings."
Absence of Public Market; Possible Volatility of Market Price of Securities
Prior to the Offering, there have been no public markets for the Common
Stock and there can be no assurance that active trading markets will develop or,
if developed, be sustained after the Offering. The Company intends to apply for
the Common Stock to be listed on the American Stock Exchange. After completion
of the Offering, the market price of the Common Stock could be subject to
significant fluctuations in response to various factors and events, including
the liquidity of the markets for the shares of Common Stock, market sales of
shares of Common Stock, variations in the Company's operating results, new
statutes or regulations or changes in the interpretation of existing statutes or
regulations affecting the healthcare industry in general or the independent or
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 shares of Common
Stock. See "Shares Eligible for Future Sale" and "Underwriting."
Negotiated Offering Price
The initial public offering price of the Common Stock was determined
based upon negotiations between the Company and the Representative and do not
necessarily bear any relationship to the Company's assets, book value, results
of operations or any other generally accepted criteria. The factors considered
in determining the price included, but were not limited to, the history of, and
the prospects for, the Company and the industry in which it competes, its past
and present operations, its past and present earnings and the trend of such
earnings, the present state of the Company's development, the general condition
of the securities markets at the time of this offering and the recent market
prices of publicly traded securities of comparable companies. There can be no
assurance that the Common Stock can be resold at the initial offering price, if
at all. Purchasers of the Common Stock will be exposed to a substantial risk of
a decline in the market price of the Common Stock after the Offering, if a
market develops. See "Underwriting."
22
<PAGE>
Policy Not to Pay Dividends on Common Stock and Potential Limitations on Ability
to Pay Dividends
The Company does not anticipate paying future dividends on its Common
Stock. It is the present policy of the Board of Directors to finance the
expansion of the Company's business. The payment of dividends on its Common
Stock in the future will depend on the results of operations, financial
condition, capital expenditure plans and other cash obligations of the Company
and will be at the sole discretion of the Board of Directors. In addition,
certain provisions of future indebtedness of the Company may prohibit or limit
the Company's ability to pay dividends. See "Dividend Policy" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
Discretionary Use of Proceeds
The Company intends to use all of its net proceeds from the Offering to
finance the development of new adult living communities except for approximately
$3 million which the Company intends to use for working capital and general
corporate purposes. However, delays or difficulties in obtaining financing or in
project development could cause the Company to use such net proceeds to acquire
existing adult living communities and for general corporate purposes. The
Company's management will, therefore, retain broad discretion in allocating all
of the net proceeds of the Offering. See "Use of Proceeds."
Anti-takeover Considerations
The Company's Board of Directors has the authority to issue up to
15,000,000 additional shares of Preferred Stock, par value $.0001 per share and
to fix the rights and preferences of such shares. Such issuance could occur
without action by the holders of the Common Stock. Such preferred stock could
have voting and conversion rights that adversely affect the voting power of the
holders of Common Stock, or could result in one or more classes of outstanding
securities that would have dividend, liquidation or other rights superior to
those of the Common Stock. Issuance of such preferred stock may have an adverse
effect on the then prevailing market price of the Common Stock. This authority,
together with certain provisions in the Company's Restated Certificate of
Incorporation (the "Certificate") and By-Laws (including provisions that limit
stockholder ability to call a stockholders meeting or to remove directors and
require a two-thirds vote of stockholders for amendment of certain provisions of
the Certificate or approval of certain business combinations), may delay, deter
or prevent a change in control of the Company, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock, and may
adversely affect the market price of, and the voting and other rights of the
holders of, the Common Stock. Additionally, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. Section 203 could have
the effect of delaying or preventing a change of control of the Company. See
"Description of Capital Stock."
Immediate and Substantial Dilution
Purchasers of Common Stock in the Offering will experience immediate
and substantial dilution, which, assuming an initial public offering price of
$10.00 per share, will be $7.66 per share. Additional dilution may occur if the
Company issues additional equity securities in the future. See "Dilution."
Shares Eligible for Future Sale
Sales of substantial amounts of shares of Common Stock in the public
market after the Offering or the perception that such sales could occur could
adversely affect the market price of the Common Stock and the Company's ability
to raise equity. Upon completion of the Offering, the Company will have
18,000,000 shares of Common Stock outstanding (excluding the exercise of the
Representative's Warrants). Of the shares of Common Stock outstanding after this
Offering, all shares sold in the Offering will be freely tradable without
restriction or limitation under the Securities Act of 1933, as amended (the
"Securities Act"), except for any shares purchased by "affiliates" of the
Company, as such term is defined in
23
<PAGE>
Rule 144 promulgated under the Securities Act. The remaining shares of Common
Stock are "restricted securities" within the meaning of Rule 144. Such
restricted securities may be sold subject to the limitations of Rule 144.
Furthermore, the Company intends to register approximately 2,500,000 shares of
Common Stock reserved for issuance pursuant to the Company's stock option plan.
The Company, the Principal Stockholders and the Company's officers and directors
have agreed not to, directly or indirectly, offer, sell, transfer, pledge,
assign, hypothecate or otherwise encumber any shares of Common Stock or
securities convertible into Common Stock, whether or not owned, or dispose of
any interest therein under Rule 144 or otherwise for a period of 13 months
following the date of this Prospectus, and may not do so for an additional six
month period without the prior written consent of the Representative (the
"Transfer Restrictions"). However, the issuances of shares of Common Stock,
whether directly or upon the exercise or conversion of exchangeable or
convertible securities (including options granted under the Company's stock
option plan), and the transfers of shares of Common Stock by the Principal
Stockholders to effectuate estate planning, are exempted from the Transfer
Restrictions to the extent that the recipients of shares of Common Stock in any
such transactions agree to be bound by the Transfer Restrictions.
Notwithstanding the foregoing, the Transfer Restrictions do not apply to the
issuance of the Company's securities in connection with mergers or acquisitions,
the sale of Common Stock in connection with the exercise of the Over-allotment
Option or shares of Common Stock, or securities convertible or exchangeable for
shares of Common Stock, which are publically offered by the Company. In
addition, the Underwriters hold Representative's Warrants which entitle them to
purchase an aggregate of up to 300,000 shares of the Company's Common Stock at a
price equal to 120% of the per share price to the public of the Common Stock.
The Representative's Warrants are exercisable for a period of four years,
commencing one year after their issuance. The Company has agreed that, under
certain circumstances, it will use its best efforts to register the
Representative's Warrants and/or the underlying Common Stock for sale in the
public market. See "Shares Eligible for Future Sale" and "Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the Offering (excluding the
exercise of the Representative's Warrants), after deducting estimated
underwriting discounts and offering expenses payable by the Company, are
estimated to be approximately $23.6 million. The Company intends to use (i)
approximately $3 million of such proceeds for working capital and general
corporate purposes and (ii) the balance of approximately $20.6 million to
finance the development of new adult living communities. However, delays or
difficulties in project development could cause the Company to use the portion
of such net proceeds intended for development to acquire additional existing
adult living communities and for general corporate purposes. The Company
anticipates that most of the construction loans it obtains to finance the
development and lease-up costs of the new adult living communities will fund
approximately 80% of such costs, requiring the Company to contribute
approximately 20% of such costs. The Company estimates that the cost of
developing each new adult living community utilizing construction financing
(including reserves necessary to carry the community through its lease-up
period) will be approximately $9.5 million. The Company will use approximately
$20.6 million of its net proceeds of this Offering to fund the portion of
development costs not provided by construction financing, which is currently
anticipated to be sufficient to permit the development of approximately 11 of
the 30 to 34 new adult living communities on which the Company plans to commence
construction over the next two years if such proceeds funded approximately 20%
of the development costs. The Company anticipates that the proceeds of this
Offering and funds generated by its business operations will be sufficient to
fund approximately 20% of these development costs for a period of at least 12
months at the anticipated rate of development. In order to maintain its
development program at its projected level beyond this 12-month period, the
Company will utilize the proceeds of anticipated refinancings of construction
financing on, and/or sale-leasebacks of, stabilized, newly constructed
communities at higher principal amounts than the original construction
financing, or raise additional funds through the issuance of additional debt or
equity securities to fund the development costs not provided by construction
financing and/or utilize long term leases or similar forms of financings which
require the investment of little or no capital on the part of the Company. The
Company has a commitment for construction financing for only one of the 30 to 34
new adult living communities on which the Company plans to commence construction
over the next two years. There can be no assurance that the Company will be able
to obtain the financing and/or sale-leasebacks, or complete any additional debt
or equity offerings, necessary to complete its development plan. See "Risk
Factors -- Need for Additional Financing," "-- Discretionary Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Strategy".
24
<PAGE>
Pending the uses outlined above, funds will be placed into short term
investments such as governmental obligations, bank certificates of deposit,
banker's acceptances, repurchase agreements, short term debt obligations, money
market funds, and interest bearing accounts.
DIVIDEND POLICY
The Company does not anticipate paying future dividends on its Common
Stock. It is the present policy of the Board of Directors to retain earnings, if
any, to finance the expansion of the Company's business. The payment of
dividends on its Common Stock in the future will depend on the results of
operations, financial condition, capital expenditure plans and other cash
obligations of the Company and will be at the sole discretion of the Board of
Directors. In addition, certain provisions of future indebtedness of the Company
may prohibit or limit the Company's ability to pay dividends. During fiscal 1995
and fiscal 1996, the Company and its predecessors paid dividends and other
distributions of $1,700,000, and $794,000, respectively, exclusive of amounts
reflected as officers' compensation. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Certain Transactions."
25
<PAGE>
CAPITALIZATION
The following table sets forth the actual consolidated capitalization
of the Company at October 31, 1997, and as adjusted to reflect (i) the sale of
the Common Stock by the Company in this Offering and (ii) the application of the
estimated net proceeds thereof. The table should be read in conjunction with the
Company's Consolidated Financial Statements and the related notes thereto
included elsewhere in this Prospectus. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
As of October 31, 1997
Actual As Adjusted
------ -----------
(in thousands)
<S> <C> <C>
Bank Debt................................................ $ 40,123 $ 40,123
Other debt, principally debentures....................... 117,017 117,017
Construction Loan Payable ............................... 16,755 16,755
Stockholders' equity:
Preferred Stock, $.0001 par value; 15,000,000
shares authorized; none issued and outstanding....... -- --
Common Stock, $.01 par value;
40,000,000 shares authorized; 15,000,000
shares issued and outstanding;
18,000,000 shares issued
and outstanding as adjusted(1)....................... 150 180
Additional paid-in capital (1)......................... 53,853 77,423
Accumulated deficit.................................... (23,942) (23,942)
--------
Total stockholders' equity......................... 30,061 53,661
-------- --------
Total capitalization............................. $203,956 $227,556
======== ========
</TABLE>
(1) Does not include 2,500,000 shares reserved for issuance under the Company's
stock option plan and 300,000 shares issuable upon exercise of the
Representative's Warrants.
26
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock at October
31, 1997 was approximately $18,449,000, or $1.23 per share of Common Stock. Net
tangible book value per share of Common Stock is determined by dividing the
number of outstanding shares of Common Stock into the net tangible book value of
the Company (total net assets of $30,061,000 less intangible assets of
$11,612,000). After giving effect to the sale of the Common Stock offered hereby
(based upon an assumed initial public offering price of $10 per share of Common
Stock, and after deduction of underwriting discounts and estimated offering
expenses payable by the Company), pro forma net tangible book value of the
Common Stock as of October 31, 1997 would have been $42,079,000 or $2.34 per
share, representing an immediate increase in pro forma net tangible book value
of $1.11 per share to existing shareholders and an immediate dilution of $7.66
per share to new investors purchasing Common Stock. The following table
illustrates the immediate per share dilution:
Assumed initial public offering price per share............... $10.00
Net tangible book value per share as of
October 31, 1997.......................................... 1.23
Increase per share attributable to new investors............ 1.11
------
Pro forma net tangible book value per share
after offering.............................................. 2.34
------
Net tangible book value dilution per share to new investors... $ 7.66
======
The following tables summarize, on a pro forma basis at October 31,
1997, the difference between the number of shares purchased from the Company,
total consideration paid and the average price paid per share by existing
stockholders (based upon Total Stockholders' Equity at October 31, 1997) and new
investors after giving effect to the Offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Paid
---------------- ------------------------
Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Principal Stockholders(1)............... 15,000,000 83.34% 30,061,000 50.05% 2.00
New investors(1) ....................... 3,000,000 16.66% 30,000,000 49.95% 10.00
---------- ----- ---------- -----
Total.......................... 18,000,000 100.0% 60,061,000 100.0%
========== ===== ========== =====
</TABLE>
(1) Upon completion of the Offering (excluding the Over-allotment Option), the
Principal Stockholders will own 15,000,000 shares of Common Stock, and the
new investors will own 3,000,000 shares of Common Stock, representing 100%
of the outstanding shares of Common Stock.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data and other data)
The following selected consolidated financial data, except as noted herein,
have been taken or derived from the Company's consolidated financial statements
and should be read in conjunction with the consolidated financial statements and
the related notes thereto included herein. The results of operations for the
nine months ended October 31, 1996 and 1997 have been prepared on the same basis
as the year end financial statements and, in the opinion of management, contain
all adjustments, consisting of only normally recurring adjustments, necessary
for a fair presentation of the results for the full year. The results of
operations for an interim period may not give a true indication of results for
the full year. All references herein to a "fiscal" year refer to the fiscal year
beginning on February 1 of that year (for example, "fiscal 1995" refers to the
fiscal year beginning on February 1, 1995). See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Nine months ended
Years Ended January 31, (4) October 31, (4)
--------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Sales........................... $ 18,170 $ 20,973 $ 22,532 $ 31,973 $ 36,021 $ 21,524 $ 31,401
Syndication fee income.......... 6,484 7,654 5,587 8,603 7,690 4,976 6,529
Deferred income earned.......... 792 7,502 4,399 9,971 5,037 708 4,246
Interest income................. 13,209 13,315 9,503 12,689 13,773 11,043 8,081
Property management fees from
related parties ............. 560 3,854 4,351 4,057 2,093 1,604 3,250
Equity in earnings from
partnership.................. 129 206 276 356 423 250 357
Other income.................... -- -- -- 1,013 -- -- 751
-------- -------- -------- -------- -------- -------- --------
Total Revenues 39,344 53,504 46,648 68,662 65,037 40,105 54,615
======= ======= ======= ====== ====== ====== ======
Costs and expenses:
Cost of sales................... 14,411 26,876 21,743 27,688 34,019 19,468 25,947
Selling......................... 7,027 6,706 6,002 7,664 7,176 4,603 6,186
Interest........................ 11,874 10,991 13,610 15,808 16,394 12,017 13,991
General and administrative...... 5,617 5,226 6,450 7,871 7,796 5,687 6,415
Loss on impairment of notes
and receivables................ -- -- -- -- 18,442 18,442 --
Officers' compensation(1)....... 1,200 1,200 1,200 1,200 1,200 900 900
Depreciation and amortization... 975 1,433 2,290 2,620 3,331 2,539 2,650
-------- -------- -------- -------- -------- -------- --------
Total Costs and Expense 41,104 52,432 51,295 62,851 88,358 63,656 56,089
====== ====== ====== ====== ====== ====== ======
Income (loss) before provision for
income taxes.................... (1,760) 1,072 (4,647) 5,811 (23,321) (23,551) (1,474)
Provision for income taxes........ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................. (1,760) 1,072 (4,647) 5,811 (23,321) (23,551) (1,474)
Pro-forma income tax provision
(benefit)(2).................... (704) 429 (1,859) 2,324 -- -- --
-------- -------- -------- -------- -------- -------- --------
Pro-forma net income (loss)(2).... $ (1,056) $ 643 $ (2,788) $ 3,487 $(23,321) $(23,551) $ (1,474)
======== ======== ======== ======== ======== ======== ========
Pro-forma earnings (loss) per
common share(2)................. $ (.07) $ .04 $ (.19) $ .23 $ (1.55) $ (1.57) $ (.10)
======== ======== ======== ======== ======== ========= ========
Pro-forma weighted average
common shares used.............. 15,000 15,000 15,000 15,000 15,000 15,000 15,000
======== ======== ======== ======== ======== ========= ========
Other Data:
Adult living communities
operated (end of period)...... 14 18 24 28 31 29 36
======== ======== ======== ======== ======== ======== ========
Number of units (end of
period)....................... 2,336 2,834 3,683 4,164 4,480 4,119 5,192
======== ======== ======== ======== ======== ======== ========
Average occupancy
percentage (3)................ 90.6% 90.4% 89.3% 94.7% 91.3% 93.4% 93.1%
======== ======== ======== ======== ======== ======== ========
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
As of
As of January 31, October 31,
------------------------------------------------- -----------
1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 6,455 $ 9,335 $ 10,950 $ 17,961 $ 14,111 $ 9,679
Notes and receivables-net 234,115 227,411 220,014 223,736 221,931 238,128
Total assets........... 250,648 248,386 248,085 259,555 261,193 291,181
Total liabilities...... 203,990 211,647 217,879 225,238 229,658 261,120
Stockholders' equity... 46,658 36,739 30,206 34,317 31,535 30,061
</TABLE>
(1) John Luciani and Bernard M. Rodin, the Chairman of the Board and President,
respectively, of the Company received dividends and distributions from the
Company's predecessors but did not receive compensation. Officers'
Compensation is based upon the aggregate compensation currently received by
such officers, $600,000 a year for each such officer. Amounts received by
such officers in excess of such amounts are treated as dividends for
purposes of the Company's financial statements. In fiscal 1992 through
fiscal 1996, such officers also received $360,000; $5,496,000; $943,000;
$850,000 and $397,000 each as a dividend. See "Management."
(2) The Company's predecessors were Sub-chapter S corporations and a
partnership. The pro forma statement of operations data reflects provisions
for federal and state income taxes as if the Company had been subject to
federal and state income taxation as a C corporation during the years ended
January 31, 1993 through January 31, 1996.
(3) Average occupancy percentages were determined by adding all of the
occupancy percentages of the individual communities and dividing that
number by the total number of communities. The average occupancy percentage
for each particular community was determined by dividing the number of
occupied apartment units in the particular community on the given date by
the total number of apartment units in the particular community.
(4) Reclassification - Certain amounts in prior years have been reclassified to
conform with current period presentation.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a fully integrated provider of adult living
accommodations and services which acquires, finances, develops and manages adult
living communities. The Company's revenues have been, and pending substantial
completion of its development plan as described below, are expected to continue
to be, primarily derived from Syndications of partnerships it organizes to
finance the acquisition of existing adult living communities. The Company
manages adult living communities which have been financed utilizing Syndications
and, is one of the largest operators of adult living communities in the United
States, operating communities offering both independent and assisted living
services. The Company currently operates 36 adult living communities, containing
5,192 apartment units in 12 states in the Sun Belt and the Mid-West. The Company
also operates one 57-bed skilled nursing facility and one 237-unit residential
apartment complex. To the extent that the development plan described below is
successfully implemented, the Company anticipates that the percentage of its
revenues derived from Syndications would decrease and that the percentage of
revenues derived from newly constructed communities would increase and, the
Company believes, over time, become the primary source of the Company's
revenues.
The Company was formed pursuant to the merger of various Sub-Chapter S
corporations which were wholly owned by the Principal Stockholders and the
transfer of certain assets by and assumption of certain liabilities of (i) a
partnership that was wholly owned by the Principal Stockholders and (ii) the
Principal Stockholders individually. In exchange for the transfer of such stock
and assets, the Principal Stockholders received shares of the Company's Common
Stock. These transactions are collectively called the "reorganization". All of
the assets and liabilities of the reorganization were transferred at historical
cost. The reorganization was effective as of April 1, 1996. Prior to the
reorganization, the various Sub-chapter S corporations and the partnership,
which were wholly-owned by the Principal Stockholders, were historically
reported on a combined basis.
Historically, the Company has financed the acquisition and development
of adult living and Multi-family communities by utilizing mortgage financing and
Syndications. The Company is the general partner of all but one of the
partnerships that own the Syndicated adult living communities in the Company's
portfolio and the Company manages all of the adult living communities in its
portfolio. The Company has a participation in the cash flow, sale proceeds and
refinancing proceeds of the properties after certain priority payments to the
limited partners. The Syndicated adult living communities managed by the Company
are not owned by the Company. Future revenues, if any, of the Company relating
to such communities would primarily arise in the form of (i) deferred income
earned on sales of interests in the Owning Partnerships for such communities,
(ii) management fees, (iii) amounts payable by the Investing Partnerships to the
Company in the event of the subsequent sale or refinancing of such communities
and (iv) interest income on Adult Living Notes. The Company intends to continue
to finance its future acquisitions of existing adult living communities by
utilizing mortgage financing and Syndications, and anticipates acquiring between
six and twelve communities during the next two years. In September and October,
1997, respectively, the Company acquired and Syndicated one adult living
community in Albuquerque, New Mexico containing 140 apartment units and one
adult living community in Garland, Texas containing 112 apartment units. The
Company has entered into a contract to acquire one adult living community in
Adrian, Michigan containing 73 apartment units. In addition, the Company has
acquired two adult living communities from existing Owning Partnerships, which
were financed by utilizing mortgage financing and Resyndications. The Company
has acquired another adult living community from an existing Owning Partnership
and is in the process of Resyndicating such community. The Company may engage in
similar transactions in the future.
The Company has adopted a development plan pursuant to which it has
completed construction of one adult living community, is nearing the completion
of the construction of six additional communities and intends to commence
construction of between 30 and 34 additional new adult living communities during
the next two years. The Company expects to complete the construction of two of
the six communities currently under construction by January 31, 1998 and expects
to complete the construction of the remaining four communities currently under
construction by the end of the first quarter of fiscal 1998. These six adult
living communities, along with the one community already completed pursuant to
the development plan, contain an aggregate of approximately 1,000 apartment
units and the 30 to 34 additional new communities which the Company intends to
commence construction on during the next two years will contain between 4,260
and 4,828 apartment units. The Company plans to own and operate or operate
pursuant to long-term leases all of the adult living
30
<PAGE>
communities that will be developed under the plan. The Company will use a
substantial portion of the proceeds of this Offering, funds generated by its
business operations, mortgage construction financing, the proceeds of
anticipated refinancings of construction financing on, and/or sale-leasebacks
of, stabilized, newly constructed communities, and may complete additional
issuances of debt or equity securities to finance the development, construction
and initial operating costs of additional new adult living communities. Four of
the adult living communities currently under construction are being financed,
and will be operated, by the Company pursuant to long-term leases. The Company
may use additional long-term leases or similar arrangements which require the
investment of little or no capital on the part of the Company, to the extent
necessary to proceed with this development plan.
The Company derives its revenues from sales of general partnership
interests in Owning Partnerships to Investing Partnerships, recognition of
deferred income with respect to such sales of general partnerships interests,
interest on notes received by the Company from such Investing Partnerships as
part of the purchase price for the sale of such general partnership interests,
and property management fees received by the Company:
o Sales. Income from sales of general partnership interests in Owning
Partnerships is recognized when the profit on the transaction is determinable,
that is, the collectibility of the sales price is reasonably assured and the
earnings process is virtually complete. The Company determines the
collectibility of the sales price by evidence supporting the buyers' substantial
initial and continuing investment in the adult living communities as well as
other factors such as age, location and cash flow of the underlying property.
o Syndication Fee Income. The Company earns syndication fee income equal to the
expenses of the syndication which include commissions.
o Deferred Income Earned. The Company has deferred income on sales to Investing
Partnerships of interests in Owning Partnerships. The Company has arranged for
the Syndications of Investing Partnerships which were formed to acquire
controlling interests in Owning Partnerships which own adult living properties
("Adult Living Owning Partnerships"). In a typical Syndication, the Company
enters into a management contract with the Adult Living Owning Partnership,
pursuant to which the Company is required to pay, for a five-year period, any
Management Contract Obligations not paid from cash flow from the related
property. The amount of deferred income for each property is calculated in a
multi-step process. First, based on the property's cash flow in the previous
fiscal year, the probable cash flow for the property for the current fiscal year
is determined and that amount is initially assumed to be constant for each
remaining year of the Management Contract Obligations period (the "Initial Cash
Flow"). The Initial Cash Flow is then compared to the Management Contract
Obligations for the property for each remaining year of the five-year period. If
the Initial Cash Flow exceeds the Management Contract Obligations for any fiscal
year, the excess Initial Cash Flow is added to the assumed Initial Cash Flow for
the following fiscal year and this adjusted Initial Cash Flow is then compared
to the Management Contract Obligations for said following fiscal year. If the
Initial Cash Flow is less than the Managment Contract Obligations for any fiscal
year, a deferred income liability is created in an amount equal to such
shortfall and no adjustment is made to the Initial Cash Flow for the following
year. As this process is performed for each property on a quarterly basis,
changes in a property's actual cash flow will result in changes to the assumed
Initial Cash Flow utilized in this process and will result in increases or
decreases to the deferred income liability for the property. Any deferred income
liability created in the year the interest in the Owning Partnership is sold
increases the cost of sales for that period. The payment of the Management
Contract Obligations, however, will generally not result in the recognition of
expense unless the property's actual cash flow for the year is less than the
Initial Cash Flow for the year, as adjusted, and as a result thereof, the amount
paid by the Company in respect of the Management Contract Obligations is greater
than the amount assumed in establishing the deferred income liability (such
excess amount is included as a component of cost of sales). If, however, the
property's actual cash flow is greater than the Initial Cash Flow for the year,
as adjusted, the Company's earnings will be enhanced by the recognition of
deferred income earned and, to the extent cash flow exceeds Management Contract
Obligations, incentive management fees. The Company recognized such incentive
management fees in the amount of $3.9 million, $3.3 million, $1.2 million and
$2.6 million for the years ended January 31, 1995, 1996 and 1997 and the nine
months ended October 31, 1997, respectively. The Company accounts for the
Syndication of Investing Partnerships which were formed to acquire controlling
interests in Owning Partnerships which own Multi-Family Properties
("Multi-Family Owning Partnerships") under the installment method. Under the
installment method the gross profit is determined at the time of sale. The
revenue recorded in any given year would equal the cash collections multiplied
by the gross profit percentage. At the time of the sale, the Company
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deferred all future income to be recognized on each of these transactions.
Losses on these properties are recognized immediately upon sale. Syndications
relating to Multi-Family Owning Partnerships account for 87% of the Company's
deferred income.
o Interest Income. The Company has notes receivable with respect to Adult Living
Notes. Such Adult Living Notes have stated interest rates ranging from 11% to
13.875% per annum and are due in installments over five years from the date the
Investing Partnership acquired its interest in the Adult Living Owning
Partnership. Each Adult Living Note represents senior indebtedness of the
related Investing Partnership and is collateralized by the Investing
Partnership's interest in the Adult Living Owning Partnership that owns the
related adult living community. These properties generally are encumbered by
mortgages. The mortgages generally bear interest at rates ranging from 8% to
9.5% per annum. The mortgages generally are collateralized by a mortgage lien on
the related adult living communities. Principal and interest payments on each
Adult Living Note also are collateralized by the investor notes payable to the
Investing Partnership to which the limited partners are admitted.
The Company also has notes receivable with respect to the Multi-Family
Notes. Such Multi-Family Notes have maturity dates ranging from ten to fifteen
years from the date the partnership interests were sold. Fifty-one of the 169
MultiFamily Notes have reached their final maturity dates and, due to the
inability, in view of the current cash flows of the properties, to maximize the
value of the underlying property at such maturity dates, either through a sale
or refinancing, these final maturity dates have been extended by the Company.
The underlying property relating to one extended Multi-Family Note was
refinanced in Fiscal 1996 and such refinancing generated an approximate $800,000
payment to the Company under such Multi-Family Note. In addition, the Company
anticipates that two more Multi-Family properties relating to two other extended
Multi-Family Notes will be refinanced in the remaining portion of Fiscal 1997.
There can be no assurance that such refinancings will actually close. During the
period such notes are extended, the Company will continue to receive the cash
flow and sale or refinancing proceeds, if any, generated by the underlying
properties. The Company expects that it may need to extend maturities of other
Multi-Family Notes. The notes represent senior indebtedness of the related
Investing Partnership and typically are collateralized by a 99% partnership
interest in the Multi-Family Owning Partnership that owns the related
Multi-Family Property. These properties are encumbered by mortgages, which
generally bear interest at rates ranging from 7% to 12% per annum. The mortgages
are typically collateralized by a mortgage lien on the related Multi-Family
Property. Interest payments on each Multi-Family Note also are collateralized by
the related investor notes.
o Property Management Fees. Property management fees earned for services
provided to related parties are recognized as revenue when related services have
been performed.
o Equity in Earnings from Partnerships. The Company accounts for its interest in
limited partnerships under the equity method of accounting. Under this method
the Company records its share of income and loss of the entity based upon its
general partnership interest.
o Existing Defaults and Bankruptcies of Owning Partnerships. As described in
"Liquidity and Capital Resources", nineteen of the Multi-Family Owning
Partnerships are currently in default on their mortgages. Seven other
Multi-Family Owning Partnerships, as well as two of the nineteen Multi-Family
Owning Partnerships which are currently in default previously filed petitions
seeking protection from foreclosure under Chapter 11 of the U.S. Bankruptcy
Code. In addition, one Multi-Family Owning Partnership surrendered its property
pursuant to an uncontested foreclosure sale of such property. It is possible
that the other Multi-Family Owning Partnerships are in default on their
mortgages will also file Chapter 11 Petitions. In addition, there can be no
assurance that other Multi-Family Owning Partnerships will not default on their
mortgages, file Chapter 11 Petitions, and/or lose their properties through
foreclosure. The Company neither owns, nor manages these properties, nor is it
the general partner of these Multi-Family Owning Partnerships. Rather, the
Company holds the related Multi-Family Notes as receivables. The Company,
therefore, would have no liability in connection with any such mortgage defaults
or bankruptcy proceedings. Any such future mortgage defaults, however, could,
and any such future filings of Chapter 11 Petitions or the loss of any such
property through foreclosure would, cause the Company to realize a non-cash loss
of up to the recorded value for such Multi-Family Note plus any related
advances, net of any deferred income recorded for such Multi-Family Note and any
reserve for said note previously established by the Company (which would reduce
such loss).
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Results of Operation
o Revenues
Total revenues for the three months ended October 31, 1997 were $21.3
million compared to $12.7 million for the three months ended October 31, 1996,
representing an increase of $8.6 million or 67.7%. Total revenues for the nine
months ended October 31, 1997 were $54.6 million compared to $40.1 million for
the nine months ended October 31, 1996, representing an increase of $14.5
million or 36.2%. Total revenues for the year ended January 31, 1997 ("Fiscal
1996") were $65.0 million compared to $68.7 million for the year ending January
31, 1996 ("Fiscal 1995"), representing a decrease of 3.7 million or 5.4%. Total
revenues for Fiscal 1995 were $68.7 million compared to $46.6 million for year
ended January 31, 1995, ("Fiscal 1994"), representing an increase of $22.1
million or 47.4%.
Sales (income from the sale of partnership interests) for the three
months ended October 31, 1997 were $10.5 million compared to $6.9 million for
the three months ended October 31, 1996, representing an increase of $3.6
million or 52.2%. Sales for the nine months ended October 31, 1997 were $31.4
million compared to $21.5 million for the nine months ended October 31, 1996,
representing an increase of $9.9 million or 46.0%. Sales for Fiscal 1996 were
$36.0 million compared to $32.0 million for Fiscal 1995, representing an
increase of $4.0 million or 12.5%. The increases in sales were attributable to
(i) more favorable Syndication terms (in view of the relationship between the
initial cash flow generated by such communities and the purchase price paid by
the purchasers of the partnership interests) as compared to the Syndications
completed in the prior periods, and (ii) the acquisition and Syndication of
larger properites with greater initial cash flows as compared to the property
acquisitions and Syndications in the prior periods. Sales for Fiscal 1995 were
$32.0 million compared to $22.5 million for Fiscal 1994, representing an
increase of $9.5 million or 42.2%. The increase is attributable to greater
aggregate sales prices obtained from six Syndications in Fiscal 1995 compared to
four Syndications in Fiscal 1994 and the more favorable Syndication terms
obtained (in view of the relationship between the initial cash flow generated by
such communities and the prices paid by the purchasers of the partnership
interests) in Fiscal 1995 as compared to Fiscal 1994.
Syndication fee income for the three months ended October 31, 1997 was
$1.9 million compared to $1.5 million for the three months ended October 31,
1996, representing an increase of $400,000 or 26.7%. Syndication fee income for
the nine months ended October 31, 1997 was $6.5 million compared to $5.0 million
for the nine months ended October 31, 1996, representing an increase of $1.5
million or 30%. The increases are attributable to higher total professional fees
and commissions paid relating to the greater sales revenues generated in the
three and nine months ended October 31, 1997 as compared to the three and nine
months ended October 31, 1996. Syndication fee income for Fiscal 1996 was $7.7
million compared to $8.6 million for Fiscal 1995, a decrease of $900,000 or
10.5%. The decrease is attributable to a slightly lower commission rate for the
Syndication of six Investing Partnerships during Fiscal 1996 as compared to the
commission rate for the Syndication of six Investing Partnerships during Fiscal
1995. Syndication fee income for Fiscal 1995 was $8.6 million as compared to
$5.6 million for Fiscal 1994, an increase of $3.0 million or 53.6%. The increase
is attributable to higher total commissions paid for the Syndication of six
Investing Partnerships in Fiscal 1995 as compared to the total commissions paid
for the Syndication of four Investing Partnerships in Fiscal 1994.
Deferred income earned for the three months ended October 31, 1997 was
$3.8 million as compared to $200,000 for the three months ended October 31,
1996, representing an increase of $3.6 million or 1,800%. Deferred income earned
for the nine months ended October 31, 1997 was $4.2 million as compared to
$700,000 for the nine months ended October 31, 1996, representing an increase of
$3.5 million or 500%. The increases are attributable to the cash flows generated
by adult living communities in the three and nine months ended October 31, 1997
exceeding the estimates used to establish deferred income liabilities in the
three and nine months ended October 31, 1997 to a greater degree than such cash
flow exceeded estimates in the three and nine months ended October 31, 1996.
Deferred income realized for Fiscal 1996 was $5.0 million as compared to $10.0
million for the Fiscal 1995, representing a decrease of $5.0 million or 50.0%.
The decrease is attributable to (i) the cash flows generated by adult living
communities in Fiscal 1995 exceeding the estimates used to establish deferred
income liabilities for Fiscal 1995 to a greater degree than such cash flow in
Fiscal 1996 exceeded estimates used to establish deferred income liabilities for
Fiscal 1996; and (ii) the refinancing of a number of adult living communities
during March 1996 which resulted in additional deferred income being earned in
Fiscal 1995. In March 1996, the Company arranged for the refinancing of existing
mortgages on seven adult living communities and initial mortgage financing on
four adult living communities which had previously been acquired on an all cash
basis, which resulted in the
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return of over $43.0 million of capital to limited partners and which reduced
the Company's Management Contract Obligations with respect to such limited
partners. Because the refinancings were committed to in Fiscal 1995 and closed
before the completion of the Company's financial statements for Fiscal 1995, the
Company recognized the effect on deferred income with respect to such refinanced
properties in Fiscal 1995 rather than Fiscal 1996. Deferred income earned
increased to $10.0 million in Fiscal 1995 from $4.4 million in Fiscal 1994,
representing an increase of $5.6 million or 127.3%. The increase in the
recognition of deferred income earned is primarily as a result of increased cash
flows from adult living communities and the refinancing of a number of adult
living communities in March 1996, as described above.
Interest income for the three months ended October 31, 1997 was $2.5
million as compared to $3.2 million for the three months ended October 31, 1996,
representing a decrease of $700,000 or 21.9%. The decrease is primarily
attributable to an interest payment realized on a mortgage debt restructuring
for a Multi-Family Property in the three months ended October 31, 1996. Interest
income for the nine months ended October 31, 1997 was $8.1 million as compared
to $11.0 million for the nine months ended October 31, 1996, representing a
decrease of $2.9 million or 26.4%. The decrease is primarily attributable to (i)
the accelerated receipt of interest payments in the three months ended April 30,
1996 due to the refinancing of a number of adult living communities (which
includes the initial mortgage financing of certain adult living communities that
had been previously acquired without a mortgage) in March 1996 which reduced
interest payments that otherwise would have been received in the three months
ended April 30, 1997, (ii) an interest payment realized on a mortgage debt
restructuring for a Multi-Family Property in the nine months ended October 31,
1996, and (iii) a reduction of interest income due to the refinancings of the
adult living communities which resulted in the prepayment of mortgages which
were assets of the Company. Interest income for Fiscal 1996 was $13.8 million
compared to $12.7 million for Fiscal 1995, an increase of $1.1 million or 8.7%.
The refinancing of a number of adult living communities in March 1996 resulted
in the return of over $43.0 million of capital to limited partners, thereby
accelerating the receipt of scheduled interest payments received by the Company
in the three months ending April 30, 1996. This accelerated receipt of scheduled
interest payments in the three months ended April 30, 1996 caused interest
income for Fiscal 1996 to be greater than interest income for Fiscal 1995, but
was partially offset by (a) a reduction of the scheduled interest payments and
(b) a reduction of interest income due to the prepayment of mortgages held by
the Company, which resulted from the adult living refinancings. In addition,
this increase in interest income was partially offset by a decrease in Fiscal
1996 of the cash flow generated by various Multi-Family Properties, which the
Company receives as interest income, as compared to such cash flows generated in
Fiscal 1995. Interest income for Fiscal 1995 was $12.7 million compared to $9.5
million for Fiscal 1994, representing an increase of $3.2 million or 33.7%. Such
increase reflects the increased aggregate interest received on notes from
limited partnerships as a result of an increase in the aggregate principal
amount of such notes. The increase in aggregate principal amount reflects an
increase in the number of Syndicated adult living communities operated by the
Company and in the six Syndications completed in Fiscal 1995, compared to the
four Syndications completed in Fiscal 1994. The increase in interest income in
Fiscal 1995 also reflects an interest payment realized in connection with a
mortgage debt restructuring for a Multi-Family Property. The revenues of the
Company in the periods covered in the Consolidated Financial Statements reflect
little or no cash flow throughout such periods (which the Company would receive
as interest income on Multi-Family Notes) from those Multi-Family Properties
with respect to which there are existing mortgage defaults.
Property management fees from related parties for the three months
ended October 31, 1997 was $2.1 million compared to $800,000 for the three
months ended October 31, 1996, representing an increase of $1.3 million or
162.5%. The increase is primarily attributable to increased incentive management
fees generated by the adult living communities during the three months ended
October 31, 1997 as compared to the incentive management fees generated by the
adult living communities during the three months ended October 31, 1996.
Property management fees from related parties for the nine months ended October
31, 1997 was $3.3 million compared to $1.6 million for the nine months ended
October 31, 1996, representing an increase of $1.7 million or 106.3%. The
increase is primarily attributable to increased incentive management fees
generated by the adult living communities during the nine months ended October
31, 1997 as compared to the incentive management fees generated by the adult
living communities during the nine months ended October 31, 1996. Property
management fees from related parties was $2.1 million in Fiscal 1996 as compared
to $4.1 million in Fiscal 1995, representing a decrease of $2.0 million or
48.8%. This decrease is attributable to (i) operating expenses (including
maintenance and repair expenses) increasing at a rate greater than historically,
as partially offset by increases in rental revenues, (ii) a decrease in the
average occupancy of the Company's portfolio of adult living communities, (iii)
the increased debt service on various adult living communities due to the
refinancing of such properties (which include the initial mortgage financing of
certain properties that had been previously acquired without mortgage financing)
in March 1996, which reduced the cash flow produced by such properties and the
incentive management fees these properties generate to a greater extent
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than the resulting reduction of the Company's Management Contract Obligations in
Fiscal 1996 due to said refinancing, and (iv) the establishment of capital
improvement reserves pursuant to the terms of the newly refinanced loans, which
reserves reduce the cash flow and incentive management fees these properties
generate. Property management fees from related parties was $4.1 million in
Fiscal 1995 as compared to $4.4 million in Fiscal 1994, representing a decrease
of $300,000 or 6.8%. The decrease is attributable to a decrease in incentive
management fees generated by the adult living communities during Fiscal 1995.
Equity in earnings from partnerships was $100,000 for the three months
ended October 31, 1997 as compared to $100,000 for the three months ended
October 31, 1996, representing no change. Equity in earnings from partnerships
was $400,000 for the nine months ended October 31, 1997 as compared to $300,000
for the nine months ended October 31, 1996, representing an increase of $100,000
or 33.3%. The increase is attributable to the Syndication of additional
properties in which the Company retains a general partnership interest. Equity
in earnings from partnerships was $400,000 for Fiscal 1996 and Fiscal 1995,
representing no change. Equity in earnings from partnerships was $400,000 in
Fiscal 1995 as compared to $300,000 in Fiscal 1994, representing an increase of
$100,000 or 33.3%. The increase is attributable to the Syndication of additional
properties in which the Company retains a general partnership interest.
The Company realized other income for the three months ended October
31, 1997 of approximately $500,000 due to the recognition of an asset relating
to the Company's mortgage payable. The Company realized other income of
approximately $800,000 in the nine months ended October 31, 1997 due to the
recognition of an asset relating to the Company's mortgage payable and the
write-off of a liability. There was no other income earned for the three months
and the nine months ended October 31, 1996. The Company recognized other income
for Fiscal 1995 of $1.0 million which resulted from the restructuring and
reduction of a development fee obligation of the Company. There was no other
income in either Fiscal 1996 or Fiscal 1994.
o Cost of Sales
Cost of sales (which includes (i) the cash portion of the purchase
price for properties plus related transaction costs and expenses and (ii) any
payments by the Company in respect of Management Contract Obligations) for the
three months ended October 31, 1997 was $10.9 million compared to $8.7 million
for the three months ended October 31, 1996, representing an increase of $2.2
million or 25.3%. The increase is attributable to (i) increased funding due to
Management Contract Obligations and (ii) greater aggregate purchase prices of
the adult living communities in the three months ended October 31, 1997 as
compared to the three months ended October 31, 1996. Cost of sales as a
percentage of sales and syndication fee income was 88.0% in the three months
ended October 31, 1997 as compared to 103.5% in the three months ended October
31, 1996. The decrease is attributable to the ability to obtain more favorable
mortgage financings for the acquisitions as partially offset by (i) less
favorable terms when acquiring adult living communities (in view of the
relationship between the initial cash flow generated by the properties and their
purchase prices), and (ii) increased funding due to the Management Contract
Obligations in three months ended October 31, 1997 as compared to the three
months ended October 31, 1996. Cost of sales for the nine months ended October
31, 1997 was $25.9 million compared to $19.5 million for the nine months ended
October 31, 1996, representing an increase of $6.4 million or 32.8%. The
increase is attributable to (i) greater purchase prices of the adult living
communities, and (ii) increased funding due to Management Contract Obligations
in the nine months ended October 31, 1997 as compared to the nine months ended
October 31, 1996. Cost of sales as a percentage of sales and syndication fee
income was 68.4% in the nine months ended October 31, 1997 as compared to 73.5%
in the nine months ended October 31, 1996. The decrease is attributable to the
ability to obtain more favorable mortgage financings for the acquisitions as
partially offset by (i) less favorable terms when acquiring adult living
communities (in view of the relationship between the initial cash flow generated
by the properties and their purchase prices), and (ii) increased funding due to
Management Contract Obligations in the nine months ended October 31, 1997 as
compared to the nine months ended October 31, 1996. Cost of sales for Fiscal
1996 was $34.0 million as compared to $27.7 million for Fiscal 1995,
representing an increase of $6.3 million or 22.7%. The increase is attributable
to increased funding due to Management Contract Obligations in Fiscal 1996 as
compared to Fiscal 1995. Cost of sales as a percentage of sales and syndication
fee income was 77.8% in Fiscal 1996 as compared to 68.2% in Fiscal 1995. The
increase is attributable to increased funding due to Management Contract
Obligations, as partially offset by the Company's ability to acquire properties
on more favorable terms and to obtain more favorable mortgage financings for its
acquisitions (i.e.-higher-loan-to-value ratios which reduces the cash portion of
the purchase prices and preferred interest rates) in Fiscal 1996 as compared to
Fiscal 1995. Cost of sales for Fiscal 1995 was $27.7 million compared to $21.7
million in Fiscal 1994, representing an increase
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of $6.0 million or 27.6%. The increase can be primarily attributed to the
acquisition by the Company of six properties in Fiscal 1995 with combined
purchase prices of $35.0 million as compared to the acquisition of four
properties in Fiscal 1994 with combined purchase prices of $22.3 million. The
increase in the aggregate purchase price of properties acquired was partially
offset by an increased use of mortgage financing for acquisitions in Fiscal 1995
from levels of mortgage financing for Fiscal 1994, which reduced the cash
expenditures by the Company for such acquisitions. Cost of sales as a percentage
of sales and syndication fee income decreased from 77.3% in Fiscal 1994 to 68.2%
in Fiscal 1995. The decrease can be attributed principally to the Company's
ability to obtain more favorable mortgage financing for its acquisitions (i.e.
higher loan-to-value ratios and preferred interest rates), which has contributed
to the decrease in the cost of sales, and has enabled the Company also to obtain
more favorable terms for Syndications which has contributed to the increase in
sales, thus creating larger gross margins.
Several factors, including the decline of the real estate market in the
late 1980's and early 1990's, which resulted in a number of distressed property
sales and limited competition from other prospective purchasers, allowed the
Company to acquire existing adult living communities at such time on relatively
favorable terms. Mortgage financing, however, was generally either not available
or available only on relatively unattractive terms during this period, which
made acquisitions more difficult because they either required large outlays of
cash or the use of mortgage financing on relatively unfavorable terms. During
the last several years, several factors have contributed towards a trend to less
favorable terms for acquisitions of adult living communities, including a
recovery in the market for adult living communities and increased competition
from other prospective purchasers of adult living communities. The Company,
however, has been able to obtain mortgage financing on increasingly favorable
terms (i.e. the Company has obtained mortgages for a greater percentage of the
purchase price and at preferred interest rates). These factors, combined with an
overall reduction of interest rates, have partially offset the factors that have
led to more unfavorable acquisition terms. A significant change in these or
other factors (including, in particular, a significant rise in interest rates)
could prevent the Company from acquiring communities on terms favorable enough
to offset the start-up losses of newly-developed communities as well as the
Company's debt service obligations, Management Contract Obligations and the
Company's selling, and general and administrative expenses.
o Selling Expenses
Selling expenses for the three months ended October 31, 1997 was $1.8
million as compared to $1.1 million in the three months ended October 31, 1996,
representing an increase of $700,000 or 63.6%. Selling expenses for the nine
months ended October 31, 1997 was $6.2 million as compared to $4.6 million for
the nine months ended October 31, 1996, representing an increase of $1.6 million
or 34.8%. The increases are attributable to higher commissions paid on a greater
sales volume for Syndications completed in the three and nine months ended
October 31, 1997 as compared to the commissions paid on a lower sales volume for
Syndications completed in the three and nine months ended October 31, 1996.
Selling expenses for Fiscal 1996 was $7.2 million as compared to $7.7 million
for Fiscal 1995, representing a decrease of $500,000 or 6.5%. The decrease is
attributable to a lower commission rate paid on a higher sales volume for
Syndications completed in Fiscal 1996 as compared to the commission rate and
sales volume for Syndications completed in Fiscal 1995.
Selling expenses for Fiscal 1995 were $7.7 million compared to $6.0 million in
Fiscal 1994, representing an increase of $1.7 million or 28.3%. The increase was
attributable to higher commissions paid on greater sales volume for Syndications
completed in Fiscal 1995 as compared to commissions paid for Syndications
completed in Fiscal 1994.
o Interest Expense
Interest expense for the three months ended October 31, 1997 was $5.2
million as compared to $4.2 million for the three months ended October 31, 1996,
representing an increase of $1.0 million or 23.8%. Interest expense for the nine
months ended October 31, 1997 was $14.0 million as compared to $12.0 million for
the nine months ended October 31, 1996, representing an increase of $2.0 million
or 16.7%. The increases are attributable to increases in the principal amount of
debt and an increase in interest rates for such debt during the three and nine
months ended October 31, 1997 as compared to the three and nine months ended
October 31, 1996, as partially offset by the elimination of certain of the
Company's mortgage debt due to the refinancing of two adult living communities
in March 1996 and the refinancing of a third adult living community in July
1996. Interest expense for Fiscal 1996 was $16.4 million as compared to $15.8
million in Fiscal 1995, representing an increase of $600,000 or 3.8%. The
increase can be primarily attributed to increases in debt and related interest
rates on such debt during the period as partially offset by decreases in debt
due to the refinancing of two adult living communities in March 1996. Until the
refinancings, the mortgages on the two communities were direct obligations
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of the Company and the corresponding interest payments were included in the
Company's interest expense. These mortgages are now direct obligations of the
Owning Partnerships that own these properties and the corresponding interest
payments are no longer included in the Company's interest expense. Interest
Expense included interest payments on Debenture Debt which had an average
interest rate of 12.05% per annum in Fiscal 1996 and the nine months ended
October 31, 1997 and was secured by the Purchase Note Collateral. During Fiscal
1996 and the nine months ended October 31, 1997, total interest expense with
respect to Debenture Debt was approximately $9.2 million and $6.2 million
respectively and the Purchase Note Collateral produced approximately $2.3
million and $1.5 million respectively of interest and related payments to the
Company, which was $6.9 million and $4.7 million respectively less than the
amount required to pay interest on the Debenture Debt. Interest expense for
Fiscal 1995 was $15.8 million compared to $13.6 million for Fiscal 1994,
representing an increase of $2.2 million or 16.2%. Interest expense included
interest payments on Debenture Debt which had an average interest rate of 11.95%
per annum in Fiscal 1995 and was secured by the Purchase Note Collateral. During
Fiscal 1995, total interest expense with respect to Debenture Debt was
approximately $8.7 million and the Purchase Note Collateral produced
approximately $2.0 million of interest and related payments to the Company,
which was $6.7 million less than the amount required to pay interest on the
Debenture Debt.
o General and Administrative Expenses
General and administrative expenses for the three months ended October
31, 1997 was $2.4 million as compared to $2.0 million in the three months ended
October 31, 1996 representing an increase of $400,000 or 20%. General and
administrative expenses for the nine months ended October 31, 1997 was $6.4
million as compared to $5.7 million for the nine months ended October 31, 1996,
representing as increase of $700,000 or 12.3%. The increases are attributable to
increases in professional fees, salary costs and other office expenses in
managing and financing the Comany's portfolio of adult living communities which
increased by five adult living communities during the nine months ended October
31, 1997, as partially offset by the capitalization of expenses relating to the
implementation of the Company's development program. General and administrative
expenses for Fiscal 1996 was $7.8 million as compared to $7.9 million in Fiscal
1995, representing a decrease of $100,000 or 1.3%. The decrease is attributable
to the capitalization of expenses relating to the implementation of the
Company's development program, which became significant during the year, as
partially offset by increases in salary costs and other office expenses in
implementing the Company's development program and in managing and financing the
Company's adult living communities portfolio which increased by four adult
living communities in Fiscal 1996. General and administrative expenses were $7.9
million in Fiscal 1995 compared to $6.5 million in Fiscal 1994, representing an
increase of $1.4 million or 21.5%. The increase primarily reflects additional
salary costs incurred in instituting the Company's new development program and
in managing and financing the Company's portfolio of adult living communities,
which increased by six adult living communities in Fiscal 1995, and also
reflects increases in various office expenses.
o Loss on Impairment of Notes and Receivables
The Company realized no loss on impairment of notes and receivables for
the three months ended October 31, 1997 as compared to a non-cash loss of $1.6
million for the three months ended October 31, 1996, representing a decrease of
$1.6 million or 100%. The Company recognized no loss on impairment of notes and
receivables for the nine months ended October 31, 1997 as compared to a $18.4
million non-cash loss for the nine months ended October 31, 1996, representing a
decrease of $18.4 million or 100%. The Company realized a non-cash loss on
impairment of notes and receivables of $18.4 million in Fiscal 1996 as compared
to no such loss for Fiscal 1995 or Fiscal 1994. These losses equal the recorded
value, net of deferred income and reserves, of Multi-Family Notes and the
related "Other Partnership Receivables" relating to nine Multi-Family Owning
Partnerships which filed petitions under Chapter 11 of the U.S. Bankruptcy Code
seeking protection from foreclosure actions and one Multi-Family Owning
Partnership that surrendered its property pursuant to an uncontested foreclosure
sale of such property. As a result of the related transfers by the Principal
Stockholders and one of their affiliates of additional assets to the Investing
Partnerships which issued such Multi-Family Notes, the Company recorded a
contribution to capital of $21.3 million. See --"Liquidity and Capital
Resources."
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o Officers' Compensation
Officers' Compensation was $300,000 for the three months ended October
31, 1997 and October 31, 1996, respectively and $900,000 for the nine months
ended October 31, 1997 and October 31, 1996, respectively. Officers'
compensation was $1.2 million for Fiscal 1996, Fiscal 1995 and Fiscal 1994.
o Depreciation and Amortization
Depreciation and amortization consists of amortization of deferred debt
expense incurred in connection with debt issuance. Depreciation and amortization
for the three months ended October 31, 1997 was $1.1 million as compared to
$800,000 for the three months ended October 31, 1996, representing an increase
of $300,000 or 37.5%. Depreciation and amortization for the nine months ended
October 31, 1997 was $2.7 million as compared to $2.5 million for the nine
months ended October 31, 1996, representing an increase of $200,000 or 8.0%. The
increases are attributable to the increased amortization of deferred loan costs
due to the issuance of additional debenture debt and unsecured debt during the
three and nine months ended October 31, 1997 as compared to the three and nine
months ended October 31, 1996. Depreciation and amortization was $3.3 million in
Fiscal 1996 as compared to $2.6 million in Fiscal 1995, representing an increase
of $700,000 or 26.9%. The increase is attributable primarily to the prepayment
of debt which resulted in the acceleration of the unamortized portion of the
related costs and also to the issuance of additional Debenture Debt and
Unsecured Debt in Fiscal 1995 which had its full amortization impact in Fiscal
1996. Depreciation and amortization for Fiscal 1995 was $2.6 million compared to
$2.3 million for Fiscal 1994, representing an increase of $300,000 or 13.0%. The
increase is attributable to the issuance of additional Debenture Debt in Fiscal
1994, which had its full amortization impact in Fiscal 1995.
Liquidity and Capital Resources
The Company historically has financed operations through cash flow
generated by operations, Syndications and borrowings consisting of Investor Note
Debt, Unsecured Debt, Mortgage Debt and Debenture Debt. The Company's principal
liquidity requirements are for payment of operating expenses, costs associated
with development of new adult living communities, debt service obligations, and
Management Contract Obligations.
Cash flows used by operating activities for the nine months ended
October 31, 1997 were $13.9 million and were comprised of (i) net loss of $1.5
million less (ii) adjustments for non-cash items of $1.5 million less (iii) the
net change in operating assets and liabilities of $10.9 million. The adjustments
for non-cash items is comprised of depreciation and amortization of $2.7 million
offset by deferred income earned of $4.2 million. Cash flows used by operating
activities for the nine months ended October 31, 1996 were $200,000 and were
comprised of (i) net loss of $23.6 million plus (ii) adjustments for non-cash
items of $20.3 million plus (iii) the net change in operating assets and
liabilities of $3.1 million. The adjustments for non-cash items is comprised of
depreciation and amortization of $2.6 million and loss on impairment of
receivables of $18.4 million offsest by deferred income earned of $700,000. Cash
flows provided by operating activities for Fiscal 1996 were $2.5 million and
were comprised of: (i) net loss of $23.3 million plus (ii) adjustments for
non-cash items of $16.7 million plus (iii) the net change in operating assets
and liabilities of $9.1 million. The adjustments for non-cash items is comprised
of depreciation and amortization of $3.3 million and loss on impairment of
receivables of $18.4 million less deferred income earned of $5.0 million. Cash
flows provided by operating activities for Fiscal 1995 were $1.0 million and
were comprised of: (i) net income of $5.8 million less (ii) adjustments for
non-cash items of $7.4 million plus (iii) the net change in operating assets and
liabilities of $2.6 million. The adjustments for non-cash items is comprised of
depreciation and amortization of $2.6 million offset by deferred income earned
of $10.0 million. Cash flows provided by operating activities for Fiscal 1994
were $1.1 million and were comprised of: (i) net loss of $4.6 million less (ii)
adjustments for non-cash items of $2.1 million plus (iii) the net change in
operating assets and liabilities of $7.8 million. The adjustments for non-cash
items is comprised of depreciation and amortization of $2.3 million offset by
deferred income earned of $4.4 million.
Net cash used by investing activities for the nine months ended October
31, 1997 of $13.8 million was comprised of the increase in the investment in the
adult living communities the Company is currently constructing and the increase
in investments in general partner interests in Syndicated adult living
communities. Net cash used by investing activities for the nine months ended
October 31, 1996 of $5.7 million was comprised of the increase in the investment
in the adult living
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communities the Company is currently constructing and the increase in
investments in general partner interests in adult living communities as offset
by the distribution of refinancing proceeds due to the Company's portion of
general partner interests in adult living communities. Net cash used by
investing activities for Fiscal 1996 of $7.2 million was comprised of the
increase in the investment in the adult living communities the Company is
currently constructing and the increase in investments and general partner
interests in Syndicated adult living communities for the period offset by a
decrease in investments due to the distribution of refinancing proceeds due to
the Company's portion of general partner interests in adult living communities.
Net cash used by investing activities for Fiscal 1995 of $567,000 was comprised
of the increase in investments in general partner interests in adult living
communities. Net cash used by investing activities for Fiscal 1994 of $591,000
was comprised of the increase in investments in general partner interests in
adult living communities.
Net cash provided by financing activities for the nine months ended
October 31, 1997 of $23.3 million was comprised of (i) proceeds from the
issuance of new debt of $36.3 million less debt repayments of $21.8 million plus
(ii) proceeds from construction mortgage financing of $14.0 million less (iii)
payments of notes payable of $100,000 plus (iv) increase in notes payable of 2.0
million less (v) the increase in other assets of $7.1 million. Net cash used by
financing activities for the nine months ended October 31, 1996 of $3.2 million
was comprised of (i) proceeds from the issuance of new debt of $38.2 million
less debt repayments of $39.4 million less (ii) payments of notes payable of
$100,000 less (iii) an increase in other assets of $1.1 million less (iv)
dividends paid of $800,000. Net cash used by financing activities for Fiscal
1996 of $900,000 was comprised of: (i) proceeds from the issuance of new debt of
$57.8 million less debt repayments of $55.3 million plus (ii) proceeds from
construction mortgage financing of $2.8 million less (iii) payments of notes
payable of $200,000 less (iv) dividends paid of $800,000 and less (v) the
increase in other assets of $3.4 million due to the capitalization of costs
relating to the development and construction of new properties and the issuance
of new debt offset by the amortization of loan costs primarily in connection
with Debenture Debt. Net cash provided by financing activities for Fiscal 1995
of $6.6 million was comprised of: (i) proceeds from the issuance of new debt of
$52.0 million less debt repayments of $39.3 million less (ii) payments of notes
payable of $1.6 million less (iii) dividends paid of $1.7 million and less (iv)
the increase in other assets of $2.8 million due to the capitalization of loan
costs primarily in connection with Debenture Debt. Net cash provided by
financing activities for Fiscal 1994 of $1.1 million was comprised of: (i) debt
repayments of $31.3 million less proceeds from the issuance of new debt of $44.0
million less (ii) payments of notes payable of $2.6 million less (iii) dividends
paid of $1.9 million less (iv) the increase in other assets of $7.1 million due
to the capitalization of loan costs primarily in connection with Debenture Debt.
At January 31, 1997, the Company had total indebtedness, excluding
accrued interest, of $141.8 million, consisting of $69.9 million of Debenture
Debt, $46.1 million of Unsecured Debt, $5.0 million of Mortgage Debt and $20.8
million of Investor Note Debt. As of October 31, 1997, the Company has increased
Investor Note Debt from $20.8 million to $29.1 million, increased Unsecured Debt
from $46.1 million to $49.7 million and increased Debenture Debt from $69.9
million to $72.4 million. As a result, total indebtedness increased from $141.8
million to $156.2 million and the Company had cash and cash equivalents at
October 31, 1997 of $9.7 million.
Of the principal amount of total indebtedness at January 31, 1997,
$21.4 million becomes due in the fiscal year ending January 31, 1998; $33.6
million becomes due in the fiscal year ending January 31, 1999; $20.9 million
becomes due in the fiscal year ending January 31, 2000; $21.1 million becomes
due in the fiscal year ending January 31, 2001; $25.6 million becomes due in the
fiscal year ending January 31, 2002, and the balance of $19.2 million becomes
due thereafter. Of the amount maturing in the fiscal year ending January 31,
1998, $900,000 is Investor Note Debt which the Company repaid as of October 31,
1997 through the collection of investor notes. The balance, approximately $20.5
million, includes $2.7 million of Debenture Debt, and $17.8 million of Unsecured
Debt. During the nine months ended October 31, 1997, the Company extended
approximately $300,000 of Debenture Debt and repaid approximately $1.1 million
of Debenture Debt and approximately $16.2 million of Unsecured Debt. The Company
anticipates that the balance of $1.6 million of Unsecured Debt and $1.3 million
of Debenture Debt that matures during the current fiscal year, together with
interest on outstanding debt, will be repaid from a portion of the proceeds of
the $6.0 million of new Unsecured Debt and $ 8.0 million of new Debenture Debt
which the Company is in the process of issuing, the issuance of additional debt
securities and funds generated by the Company's operations.
The Company's debt obligations contain various covenants and default
provisions, including provisions relating to, in some obligations, certain
Investing Partnerships, Owning Partnerships or affiliates of the Company.
Certain obligations contain provisions requiring the Company to maintain a net
worth of, in the most restrictive case, $30,000,000, except that,
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under the Capstone agreements the Company will be required to maintain a net
worth in an amount no less than 75% of the net worth of the Company immediately
after the closing of this Offering. The Company has experienced fluctuations in
its net worth over the last several years. At January 31, 1995, the Company had
a net worth of $30.2 million, at January 31, 1996, the Company had a net worth
of $34.3 million, at January 31, 1997, the Company had a net worth of $31.5
million, and at October 31, 1997, the Company had a net worth of $30.1 million.
On a pro forma basis, after giving effect to this Offering, the Company would
have had a net worth of $53.7 million at October 31, 1997. Pursuant to the
Capstone Agreement, the Company would be required to maintain a net worth of no
less than $40.3 million. Certain obligations of the Company contain covenants
requiring the Company to maintain a debt for borrowed money to net worth ratio
of, in the most restrictive case, no more than 6 to 1. At January 31, 1997 and
October 31, 1997, the Company's debt for borrowed money to consolidated net
worth ratio was 4.6 to 1 and 5.2 to 1, respectively and would have been 2.9 to 1
on October 31, 1997 on a pro forma basis, after giving effect to this Offering.
In addition, certain obligations of the Company provide that an event of default
will arise upon the occurrence of a material adverse change in the financial
condition of the Company or upon a default in other obligations of the Company.
The Company has utilized Syndications to finance the acquisitions of
the adult living communities it operates and intends to continue this practice
for future acquisitions of existing adult living communities. The Company does
not intend to Syndicate its newly developed communities. Past Syndications have
provided, and it is anticipated that future Syndications will provide, that the
limited partners will receive guaranteed distributions during each of the first
five years of their investment equal to 11% to 12% of their then paid-in
scheduled capital contributions. Pursuant to the management contracts with the
Owning Partnerships, for such five-year period, the Company has Management
Contract Obligations. During Fiscal 1996 and the nine months ended October 31,
1997, the properties with respect to which the Company had such Management
Contract Obligations distributed to the Company, after payment of all operating
expenses and debt service, $9.7 million and $7.9 million, respectively, for
application to the Company's Management Contract Obligations. During such
periods, the Company funded $5.6 million and $5.2 million, respectively, to
cover Managment Contract Obligations. The funding was attributable to (i) the
increase in the amount of capital contributions from limited partners which were
subject to such Management Contract Obligations, as partially offset by the
expiration of Management Contract Obligations relating to two Owning
Partnerships, (ii) operating expenses (including maintenance and repair costs)
increasing at a greater rate than historically, as partially offset by increases
in rental revenues, (iii) a decrease in the average occupancy of the Company's
portfolio of adult living communities for a portion of these periods, (iv) the
increased debt service on various adult living communities due to the
refinancing of such adult living communities (which include the initial mortgage
financing of certain adult living communities that had been previously acquired
without a mortgage), which reduced the cash flow generated by such adult living
communities to a greater extent than the resulting reduction of the Company's
Management Contract Obligations during these periods, (v) difficulties
encountered by the Company in attempting to convert two multi-family properties
to adult living communities, and (vi) the establishment of capital improvement
reserves pursuant to the terms of the newly refinanced mortgages. The aggregate
amount of Management Contract Obligations relating solely to guaranteed return
obligations based on existing management contracts is $3.9 million for the
remaining portion of Fiscal year 1997, $15.4 million for Fiscal 1998, which will
increase to $17.4 in Fiscal 1999, and decrease to $16.4 million in Fiscal 2000,
decrease to $11.2 million in Fiscal 2001 and decrease to $2.4 million in Fiscal
2002. Such amounts of Management Contract Obligations are calculated based upon
paid-in contributions of limited partners as of October 31, 1997 with respect to
Fiscal 1997 and remaining scheduled capital contributions with respect to fiscal
years 1998 through 2002. Actual amounts of Management Contract Obligations in
respect of such contracts will vary based upon the timing and amount of such
capital contributions. Furthermore, these amounts are calculated without regard
to the cash flow the related properties will generate, which would reduce such
obligations, and are calculated without regard to the Management Contract
Obligations relating to future Syndications.
The refinancings of a number of adult living communities in Fiscal 1996
resulted in over $43 million being returned to limited partners, which reduced
the amount of capital upon which the Company is obligated to make payments in
respect of the Management Contract Obligations. The amount paid by the Company
with respect to its Management Contract Obligations for Fiscal 1996 was
partially offset by an increase in interest income received by the Company for
Fiscal 1996, which was also the result of the refinancings. While the
refinancings increased the Company's funding of Management Contract Obligations
in the short term, the long term effect will be a reduction of the Company's
Management Contract Obligations relating to the refinanced properties. The
capital that was returned to the limited partners (which causes the reduction in
the Company's Management Contract Obligations) was applied first to the later
years in which their capital contributions are due and then to the earlier
years. The refinancings, therefore, reduce the Company's Management Contract
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Obligations more in future years than in the current year and the following
year. The aggregate amount of the Company's Management Contract Obligations will
depend upon a number of factors, including, among others, the expiration of such
obligations for certain partnerships, the cash flow generated by the properties
and the terms of future Syndications. The Company anticipates that for at least
two years the Management Contract Obligations with respect to existing and
future Investing Partnerships will exceed the cash flow generated by the related
properties, which will result in the need to utilize funds generated by the
Company's operations to make Management Contract Obligations payments. The
Company intends to structure future Syndications to minimize the likelihood that
it will be required to utilize the cash it generates to pay amounts utilized to
pay Management Contract Obligations, but there can be no assurance that this
will be the case.
In the past, limited partners have been allowed to prepay capital
contributions. The percentage of these prepayments received upon the closings of
the Syndications averaged 71.7% in Fiscal 1994, 60.9% in Fiscal 1995, 65.7% in
Fiscal 1996 and 64.4% for the nine months ended October 31, 1997. Prepayments of
capital contributions do not result in the prepayment of the related purchase
notes. Instead, such amounts are loaned to the Company by the Investing
Partnership. As a result of such loans and crediting provisions of the related
purchase agreements, the Company records the notes receivable corresponding to
the purchase notes net of such loans. Therefore, these prepayments act to reduce
the recorded value of the Company's notes receivable and reduce interest income
received by the Company. Pursuant to the terms of the typical Syndication, the
Company, as the general partner of the Investing Partnership, has the option not
to accept future prepayments by limited partners of capital contributions. The
Company has not determined whether it will continue to accept prepayments by
limited partners of capital contributions.
As of October 31, 1997, the recorded value, net of deferred income, of
Multi-Family Notes was $107.1 million. All but approximately $1.2 million of the
$56.0 million of "Other Partnership Receivables" recorded on the Company's
Consolidated Financial Statements as of October 31, 1997 relate to Multi-Family
Notes. (See Note 4 of Notes to the Company's Consolidated Financial Statements.)
The Company holds 169 Multi-Family Notes which are secured by controlling
interests in 126 Multi-Family Properties.
Certain Multi-Family Owning Partnerships are presently in default on
their respective mortgages. The Multi-Family Notes relating to the Protected
Partnerships were first deemed impaired when the mortgages on their respective
properties went into default, which defaults occurred between August 1989 and
June 1994. Once in default, the holders of these mortgages assigned them to the
United States Department of Housing and Urban Development ("HUD"). The Protected
Partnerships then attempted to negotiate, and in some cases obtained, workout
agreements with HUD. Although it could temporarily lower or suspend debt service
payments during the term of a workout agreement, HUD, unlike a conventional
lender, did not have the legal authority to restructure the defaulted mortgages
it holds by permanently lowering interest rates or reducing the principal amount
of such mortgages. HUD then sold the mortgages (subject to those workout
agreements which were in place) at auctions in September 1995 and June 1996.
Since the new mortgage holders did not have HUD's legal constraints as to the
restructuring of mortgages they hold, the Protected Partnerships began
negotiations with the new holders to restructure their mortgages or purchase
them at a discount. The Protected Partnerships could not reach agreement with
the new mortgage holders and such new mortgage holders began to threaten and
institute foreclosure proceedings. In July 1996, the Principal Stockholders and
one of their affiliates assigned partnership interests in 12 partnerships that
own 12 multi-family properties located in various towns and cities in Georgia
and South Carolina (the "Assigned Interests") to the Investing Partnerships that
own interests in the Protected Partnerships, which Assigned Interests were owned
personally by the Principal Stockholders and their affiliate and provided
additional assets at the Investing Partnership level and, as a result,
additional security for the related Multi-Family Notes. Seven of the Protected
Partnerships filed Chapter 11 Petitions in August 1996, two of the Protected
Partnerships filed Chapter 11 Petitions in February 1997, and one of the
Protected Partnerships did not file a Chapter 11 Petition and allowed the holder
of the mortgage to foreclose on its property due to the unlikelihood of
confirming a plan of reorganization. The Company neither owns nor manages these
properties, nor is it the general partner of these Multi-Family Owning
Partnerships, but, rather, holds the related Multi-Family Notes as receivables.
The Company, therefore, has no liability in connection with these mortgage
defaults or bankruptcy proceedings.
The Company established appropriate reserves during these time periods
to reflect the varying extent of impairment of the applicable Multi-Family Notes
in view of the state of facts at such time. In that the Principal Stockholders
transferred the Assigned Interests in July 1996, the Company recorded a $21.3
million capital contribution in Fiscal 1996. The bankruptcy petitions and risk
of loss faced by the Protected Partnerships resulted in the Company recording a
non-cash loss
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for fiscal 1996 in the amount of $18.4 million (representing the recorded value
of these Multi-Family Notes, net of deferred income and net of any previously
established reserves) due to the deemed full impairment of these Multi-Family
Notes. Due to the additional collateral provided by the Assigned Interests, the
Company anticipates that the outcome of the bankruptcy proceedings will not
affect its ability to collect on those Multi-Family Notes. Seven of the
bankruptcy proceedings resulted in the respective Protected Partnerships losing
their properties through foreclosure or voluntary conveyance of their
properties. Pursuant to an agreement between two of the Protected Partnerships
and their mortgage holders, the Company anticipates that two of the bankruptcy
proceedings will result in the respective Protected Partnerships paying off
their mortgages at a discount with the proceeds of new mortgage financing,
resulting in these properties having current, fully performing mortgages. These
two Protected Partnerships have obtained commitments for such new mortgage
financings and anticipate closing such financings in January, 1998. The two
Investing Partnerships related to these two Protected Partnerships have agreed
to transfer the respective Assigned Interests back to the Principal Stockholders
and their affiliate if the applicable Protected Partnership emerges from its
bankruptcy proceeding with possession of the real property and improvements
which it owned at the time of its Chapter 11 Petition.
Aside from the two Protected Partnerships that have agreements to
purchase their mortgages at a discount, there are 17 remaining Multi-Family
Owning Partnerships which are in default of their mortgages. As of October 31,
1997, the recorded value, net of deferred income, of the Multi-Family Notes and
"Other Partnership Receivables" relating to these 17 Owning Partnerships was
$35.1 million. Two of such 17 Multi-Family Owning Partnerships have agreed with
their mortgage lenders to pay off their mortgages, in one case at a discount and
in the other case in full, with the proceeds of anticipated new mortgage
financings, which would result in the related properties having current, fully
performing mortgages. These two Multi-Family Owning Partnerships have obtained
commitments for such new mortgage financings and also anticipate closing such
financings in January, 1998. As of October 31, 1997, the recorded value, net of
deferred income, of the Multi-Family Notes and "Other Partnership Receivables"
relating to these two Multi-Family Owning Partnerships was $3.2 million, and the
recorded value, net of deferred income of the Multi-Family Notes and "Other
Partnership Receivables" relating to the 15 remaining Multi-Family Owning
Partnerships whose mortgages are in default was $31.9 million. The Company has
established reserves of $10.1 million to address the possibility that these
Multi-Family Notes and "Other Partnership Receivables" may not be collected in
full. It is possible that the 15 remaining Multi-Family Owning Partnerships
which are in default on their mortgages will file Chapter 11 Petitions or take
similar actions seeking protection from their creditors. The Company neither
owns nor manages these properties, nor is it the general partner of these
Multi-Family Owning Partnerships, but, rather, holds the related Multi-Family
Notes as receivables. The Company, therefore, would have no liability in
connection with any such mortgage defaults or bankruptcy proceedings.
The Multi-Family Properties were typically built or acquired with the
assistance of programs administered by HUD that provide mortgage insurance,
favorable financing terms and/or rental assistance payments to the owners. As a
condition to the receipt of assistance under these and other HUD programs, the
properties must comply with various HUD requirements, including limiting rents
on these properties to amounts approved by HUD. Most of the rental assistance
payment contracts relating to the Multi-Family Properties will expire over the
next few years. HUD has introduced various initiatives to restructure its
housing subsidy programs by increasing reliance on prevailing market rents, and
by reducing spending on future rental assistance payment contracts by, among
other things, not renewing expiring contracts and by restructuring mortgage debt
on those properties where a decline in rental revenues is anticipated. Due to
uncertainty regarding the final policies that will result from these initiatives
and numerous other factors that affect each property which can change over time
(including the local real estate market, the provisions of the mortgage debt
encumbering the property, prevailing interest rates and the general state of the
economy) it is impossible for the Company to determine whether these initiatives
will have an impact on the Multi-Family Properties and, if there is an impact,
whether the impact will be positive or negative.
Certain of the Multi-Family Owning Partnerships intend to take
advantage of the new HUD initiatives and/or improving market conditions to
either refinance their HUD-insured mortgages with conventional mortgage
financing or restructure their HUD-insured mortgage debt. In some cases, the
Multi-Family Owning Partnerships may make certain improvements to the properties
and may not renew rental assistance contracts as part of a strategy to
reposition those Multi-Family Properties as market-rate, non-subsidized
properties. Four of such Multi-Family Owning Partnerships have received
commitments for conventional mortgage financings and a number of others have
applications for commitments pending. To the extent that any of these
Multi-Family Owning Partnerships complete such actions, the Company believes
that the ability of the multi-family Investing Partnerships to make payments to
the Company on their respective Multi-Family Notes
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will be enhanced and accelerated. However, there can be no assurance that the
Multi-Family Owning Partnership will be able to refinance their mortgages or
will be able to successfully reposition any of the Multi-Family Properties.
In view of the foregoing, there can be no assurance that other
Multi-Family Owning Partnerships will not default on their mortgages, file
Chapter 11 Petitions, and/or lose their properties through foreclosure. The
Company neither owns nor manages these properties, nor is it the general partner
of these Multi-Family Owning Partnerships, but, rather, holds the related
Multi-Family Notes as receivables. The Company, therefore, would have no
liability in connection with any such mortgage defaults or bankruptcy
proceedings. Any such future mortgage defaults could, and any such future
filings of Chapter 11 petitions or the loss of any such property through
foreclosure would, cause the Company to realize a non-cash loss equal to the
recorded value of the applicable Multi-Family Note plus any related advances,
net of any deferred income recorded for such Multi-Family Note and any reserves
for such note previously established by the Company which would reduce such
loss. In addition, the Company could be required to realize such a non-cash loss
even in the absence of mortgage defaults, Chapter 11 Petitions or the loss of
any such property through foreclosure if, at any time in which the Company's
financial statements are issued, such property is considered impaired. Such
impairment would be measured under applicable accounting rules.
As previously described, the Protected Partnerships (and the other
defaulting Multi-Family Owning Partnerships) have generated little or no cash
flow and, therefore, the related Multi-Family Notes have contributed little or
no interest income in the periods covered in the Consolidated Financial
Statements of the Company. The Assigned Interests have, prior to their
assignment to the Investing Partnerships, generated positive cash flows. To the
extent the Assigned Interests continue to generate positive cash flows, the
Company will be entitled to receive such amounts as interest income on the
related Multi-Family Notes.
The future growth of the Company will be based upon the continued
acquisition of existing adult living communities and the development of
newly-constructed adult living communities. The Company anticipates that it will
acquire between six and twelve existing adult living communities over the next
two years. It is anticipated that acquisitions of existing adult living
communities will be financed by a combination of mortgage financing and
Syndications. In September and October, 1997, respectively, the Company acquired
and Syndicated one adult living community in Albuquerque, New Mexico containing
140 apartment units and one adult living community in Garland, Texas containing
112 apartment units. The Company recently entered into a contract to acquire one
adult living community in Adrian, Michigan containing 73 apartment units. The
Company intends to construct an addition to this property containing
approximately 30 apartment units. The purchase price of this community is
approximately $4.5 million and the estimated cost of construction of the
addition is approximately $1.4 million. The Company intends to finance
approximately $4.1 million of the purchase price and cost of construction for
this acquisition through mortgage financing with the remainder of the purchase
price financed by a Syndication. The Company regularly obtains such acquisition
mortgage financing from three different commercial mortgage lenders and, in view
of its ready access to such mortgage financing, has not sought any specific
commitments or letters of intent with regard to future, unidentified
acquisitions. Similarly, the Company believes that it has sufficient ability to
finance its acquisitions of existing adult living communities in part by
Syndications. In addition, the Company has acquired two existing adult living
communities from existing Owning Partnerships. These acquisitions were financed
by utilizing mortgage financing and Resyndications and the communities are now
owned by new Owning Partnerships. The Company has recently acquired a third
adult living community from an existing Owning Partnership. This acquisition was
financed by the assumption of the existing mortgage financing and the Company is
in the process of Resyndicating an interest in the community. The Company may
engage in other similar transactions.
In a typical Syndication, limited partners agree to pay their capital
contributions over a five-year period, and deliver notes representing the
portion of their capital contribution that has not been paid in cash. The
Company borrows against the notes delivered by investors to generate cash when
needed, including to pursue its plan for the development of new adult living
communities and to repay debt. The Company's present Investor Note Debt lenders
do not have sufficient lending capacity to meet all of the Company's future
requirements. However, the Company currently is negotiating with several new
Investor Note Debt lenders which the Company believes will have sufficient
lending capacity to meet all of the Company's foreseeable Investor Note Debt
borrowing requirements on acceptable terms.
The Company also has instituted a development plan pursuant to which it
has completed construction of one adult living community, is nearing completion
of the construction of six additional communities and intends to commence
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construction of between 30 and 34 additional new adult living communities over
the next two years. The Company expects to complete the construction of two of
the six communities currently under construction by January 31, 1998 and expects
to complete the construction of the remaining four communities currently under
construction by the end of the first quarter of fiscal 1998. These six adult
living communities, along with the one community already completed pursuant to
the development plan, contain an aggregate of approximately 1,000 apartment
units and the 30 to 34 additional new communities which the Company intends to
commence construction on over the next two years will contain between 4,260 and
4,828 apartment units. The Company estimates that the cost of developing and
leasing each new adult living community financed with mortgage financing will be
approximately $9.5 million. With respect to four of the six adult living
communities currently under construction, the Company has entered into long-term
leases to finance these developments. The Company anticipates that the proceeds
of this Offering, funds generated by its business operations and construction
mortgage financing will provide sufficient fund to pursue its development plan
for at least 12 months at the projected rate of development. The Company will
use the proceeds of anticipated refinancings of construction financing on,
and/or sale-leasebacks of, stabilized, newly constructed communities at higher
principal amounts than the original construction financing, additional long-term
leases or similar forms of financing which require the investment of little or
no capital on the part of the Company, or may use funds raised through the
issuance of additional debt or equity securities, to continue with its
development plan for more than the next 12 months at its projected rate of
development. There can be no assurance that funds generated by these potential
sources will be available or sufficient to complete the Company's development
plan. In addition, there are a number of circumstances beyond the Company's
control and which the Company cannot predict that may result in the Company's
financial resources being inadequate to meet its needs. A lack of available
funds may require the Company to delay, scale back or eliminate some of the
adult living communities that are currently contemplated in its development
plan. See "Risk Factors -- Need for Additional Financing" and "Use of Proceeds."
The first new communities being constructed pursuant to the Company's
development plan are in Texas. The Company completed construction with mortgage
financing for up to $7.0 million on an adult living community in Corpus Christi,
Texas, and is nearing the completion of construction on sites in Round Rock, and
Temple, Texas, with mortgage financing for up to $7.6 million and $7.3 million,
respectively. The Company has obtained construction financing for $7.1 million
to develop a site it acquired in Tyler, Texas. The Company holds options to
acquire three additional sites in Texas and is negotiating with several
additional lenders to obtain financing to develop these sites.
The Company has, and may in the future, utilize long-term lease
financing arrangements to develop and operate new communities. The Company has
obtained up to $39 million of financing from Capstone for 100% of the
development cost of four adult living communities that will be operated by the
Company pursuant to long-term leases with Capstone. The Company is nearing
completion of construction on these four communities which are located in San
Angelo, Wichita Falls, El Paso and Abilene, Texas. Pursuant to this financing
arrangement, Capstone acquired the properties and entered into a development
agreement and a lease agreement with the Company with respect to each property.
Each development agreement required that construction commence within 30 days
after the acquisition of the property and be complete within 15 months of
commencement. Each lease agreement will have a term of 15 years with three
optional five-year renewal periods. The agreement requires a covenant that each
community financed by Capstone maintain annualized earnings before certain
deductions of at least 1.25 times the rent from the respective adult living
community. The obligations under the development agreements are, and the
obligations under the leases will be, direct obligations of the Company. The
Company will be granted a right of first refusal and an option to purchase the
properties. The Company will be required to maintain a net worth in an amount no
less than 75% of the net worth of the Company immediately after the closing of
this Offering. On a pro forma basis, after giving effect to this Offering, the
Company would have had a net worth of $53.7 million at October 31, 1997.
Therefore, the Company would be required, pursuant to the Capstone Agreement to
maintain a net worth of no less than $40.3 million.
The Company is actively engaged in negotiations with other mortgage and
long-term lease lenders to provide additional construction financing. The
Company anticipates that most of the construction mortgage loans it obtains to
finance the development and lease-up costs of new adult living communities will
contain terms where the lender will fund approximately 80% of such costs,
requiring the Company to contribute approximately 20% of such costs. The Company
arranged for the sale of limited partnership interests in two partnerships
organized to make second mortgage loans to the Company to fund approximately 20%
of the costs of developing three new adult living communities.
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New Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements. Statement No. 128, "Earnings per Share"
establishes standards for computing and presenting earnings per share, and is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Statement No. 129, "Disclosure of Information about
Capital Structure" establishes standards for disclosing information about an
entity's capital structure, and is effective for financial statements for
periods ending after December 15, 1997. Statement No. 130, "Reporting
Comprehensive Income" establishes standards for reporting and display of
comprehensive income and its components, and is effective for fiscal years
beginning after December 15, 1997. Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers, and is
effective for financial statements for periods beginning after December 15,
1997. The Company believes that its future adoption of these standards will not
have a material effect on the Companys financial position or results of
operations.
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BUSINESS
General
The Company is a fully integrated provider of adult living
accommodations and services which acquires, finances, develops and manages adult
living communities. Although, the Company's revenues have been and are expected
to continue to be, primarily derived from Syndications, to the extent the
Company implements its new development program, it anticipates that the revenues
derived therefrom will increase. The Company manages adult living communities
which have been financed utilizing Syndications. The Company is one of the
largest operators of adult living communities in the United States, operating
communities offering both independent- and assisted-living services. The
American Seniors Housing Association ranks the Company as the seventh largest
operator of adult living communities as of October, 1997, based upon the number
of units under management. The Company currently operates 36 adult living
communities containing 5,192 apartment units in 12 states in the Sun Belt and
the Midwest. The Company also operates one skilled nursing facility containing
57 beds and one residential apartment complex containing 237 units. One of the
adult living communities the Company operates contains 70 skilled nursing beds.
At November 21, 1997, the communities operated by the Company had an average
occupancy rate of approximately 93.9%. The Company's operating objective is to
provide high-quality, personalized living services to senior residents,
primarily persons over the age of 75. To the extent that the development plan
described below is successfully implemented, the Company anticipates that the
percentage of its revenues derived from Syndications would decrease and the
percentage of revenues derived from newly constructed communities would increase
and, the Company believes, over time, become the primary source of the Company's
revenues.
Historically, the Company has financed the acquisition and development
of multi-family and adult living properties by utilizing mortgage financing and
Syndications. The Company is the general partner of all but one of the
partnerships that owns the adult living communities in the Company's portfolio
and the Company manages all of the adult living communities in its portfolio.
The Company has a participation in the cash flow, sale proceeds and refinancing
proceeds of the Syndicated properties after certain priority payments to the
limited partners. The Syndicated adult living communities managed by the Company
are not owned by the Company. Future revenues of the Company relating to such
communities would primarily arise in the form of (i) deferred income on sales of
interests in the Owning Partnerships for such communities, (ii) management fees,
(iii) amounts payable by the Investing Partnerships to the Company in the event
of the subsequent sale or refinancing of such communities, and (iv) interest
income from Adult Living Notes. The Company intends to continue to finance its
future acquisitions of existing adult living communities by utilizing mortgage
financing and Syndications, and anticipates acquiring between six and twelve
communities during the next two years. The Company does not intend to Syndicate
it's newly developed adult living communities, which it will own and operate or
operate pursuant to long-term leases.
Current demographic trends suggest that demand for both
independent-living and assisted-living services will continue to grow. According
to U.S. Bureau of Census data, the Company's target market, people over age 75,
is one of the fastest growing segments of the U.S. population and is projected
to increase by more than 24% to 16.3 million between 1990 and 2000. While the
population of seniors grows, other demographic trends suggest that an increasing
number of them will choose adult living centers as their residences. According
to U.S. Bureau of Census data, the median net worth of householders over age 75
has increased to over $75,000. At the same time, the Census shows that the
number of seniors living alone has increased, while women, who have been the
traditional care-givers, are more likely to be working and unable to provide
care in the home. The Company believes that many seniors find that adult living
centers provide them with a number of services and features that increasingly
they are unable to find at home, including security, good nutritious food and
companionship. Furthermore, the National Long Term Care Surveys, a Federal study
that regularly surveys close to 20,000 people aged 65 and older, indicate that,
despite the growth in the elderly population, the percentage of elderly that are
disabled and need assistance with activities of daily living ("ADLs") has
decreased substantially and is expected to continue to decrease. This suggests
that demand for independent living communities will increase in the future.
Assisted-living supplements independent-living services with assistance
with ADLs in a cost effective manner while maintaining residents' independence,
dignity and quality of life. Such assistance consists of personalized support
services and health care in a non-institutional setting designed to respond to
the individual needs of the elderly who need assistance but who do not need the
level of health care provided in a skilled nursing facility.
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The Company has instituted a development plan pursuant to which it has
completed construction of one adult living community, is nearing the completion
of construction on six additional communites and intends to commence
construction of between 30 and 34 additioinal new adult living communities over
the next two years. The Company expects to complete the construction of two of
the six communities currently under construction by January 31, 1998 and expects
to complete the construction of the remaining four communities currently under
construction by the end of the first quarter of fiscal 1998. These six adult
living communities, along with the one community already completed pursuant to
the development plan, contain an aggregate of approximately 1,000 apartment
units and the 30 to 34 additional new communities which the Company intends to
commence construction on over the next two years will contain between 4,260 and
4,828 apartment units. Each new community to be developed by the Company will
offer both independent and assisted-living services. The first communities being
constructed pursuant to the Company's development plan are in Texas. The Company
has acquired one site on which it expects construction to commence shortly and
holds options to acquire three additional sites. The Company generally plans to
concentrate on developing projects in only a limited number of states at any
given time. The Company believes that this focus will allow it to realize
certain efficiencies in the development and management of communities. The
Company also plans to expand its portfolio of adult living communities by
acquiring between six and twelve communities during the next two years and to
finance the acquisitions by utilizing mortgage financing and Syndications. The
Company is the managing general partner of the partnerships that own all but one
of the 36 Syndicated adult living communities, the nursing home and the
residential apartment complex in its current portfolio and will continue to act
in this capacity for all future properties which it acquires. All of the 36
Syndicated adult living communities and other properties are managed by the
Company pursuant to written management contracts.
The Company's adult living communities offer personalized assistance,
supportive services and selected health care services in a professionally
managed group living environment. Residents may receive individualized
assistance which is available 24 hours a day, and is designed to meet their
scheduled and unscheduled needs. The services for independent-living generally
include three restaurant-style meals per day served in a common dining room,
weekly housekeeping and flat linen service, social and recreational activities,
transportation to shopping and medical appointments, 24-hour security and
emergency call systems in each unit. The services for assisted-living residents
generally include those provided to independent-living residents, as
supplemented by assistance with ADLs including eating, bathing, dressing,
grooming, personal hygiene and ambulating; health monitoring; medication
management; personal laundry services; and daily housekeeping services.
The Company focuses exclusively on "private-pay" residents, who pay for
housing or related services out of their own funds or through private insurance,
rather than relying on the few states that have enacted legislation enabling
assisted-living facilities to receive Medicare funding similar to funding
generally provided to skilled nursing facilities. The Company intends to
continue its "private-pay" focus as it believes this market segment is, and will
continue to be, the most profitable. This focus will enable the Company to
increase rental revenues as demographic pressure increases demand for adult
living communities and avoid potential financial difficulties it might encounter
if it were dependent on Medicare or other government reimbursement programs that
may suffer from health care reform, budget deficit reduction or other pending or
future government initiatives.
Partnership Offerings
Historically, the Company has financed the acquisition and development
of adult living properties by utilizing mortgage financing and Syndications. The
Company is the managing general partner of all but one of the Owning
Partnerships that own the adult living communities currently included in the
Company's portfolio and the Company manages all of the 36 Syndicated adult
living communities in its portfolio. The Company is also the general partner of
30 of the 40 adult living Investing Partnerships. As a general partner of such
partnerships, the Company has a participation in the cash flow, sale proceeds
and refinancing proceeds of the properties after certain priority payments to
the limited partners. In a typical Syndication, an Owning Partnership is
organized by the Company to acquire a property which the Company has identified
and selected based on a broad range of factors. Generally, 99% to 100% of the
partnership interests in an Owning Partnership initially are owned by the
Company. An Investing Partnership is formed as a limited partnership for the
purpose of acquiring all or substantially all of the total partnership interests
owned by the Company. Limited partnership interests in the Investing Partnership
are sold to investors in exchange for (i) all cash or (ii) a cash down payment
and full recourse promissory notes (an "Investor Note"). In the case of an
investor that does not purchase a limited partnership interest for all cash, the
investor's limited partnership interest (a "Limited Partnership Interest")
serves as collateral security for that
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investor's Investor Note. Under the terms of an agreement (a "Purchase
Agreement"), the Investing Partnership purchases from the Company the
partnership interests in the Owning Partnership partially with cash raised from
the cash down payment made by its investors and the balance by the delivery of
the Investing Partnership's promissory note (a "Purchase Note"). The Purchase
Notes executed by Investing Partnerships prior to 1986 have balloon payments of
principal due on maturity. The Purchase Notes executed since January 1, 1987 are
self-liquidating (without balloon payments). The Investing Partnership, as
collateral security for its Purchase Note, pledges to the Company the Investor
Notes received from its investors, its interest in the Limited Partnership
Interests securing the Investor Notes, as well as the entire partnership
interest it holds in the Owning Partnership which it purchased from the Company.
In addition, each Purchase Agreement provides that the Investing Partnership
shall pay the Company an amount equal to a specified percentage of the Investing
Partnership's share of the net proceeds from capital transactions (such as the
sale or refinancing of the underlying property) in excess of certain amounts.
The limited partners in Investing Partnerships typically agree to pay
their capital contributions over a five-year period. Past offerings have
provided, and it is anticipated that future offerings will provide, that the
limited partners will receive guaranteed distributions during each of first five
years of their investment equal to between 11% to 12% of their then paid-in
scheduled capital contributions. Pursuant to the management contracts with the
Owning Partnerships, the Company is required to pay the Management Contract
Obligations. During Fiscal 1996 and the nine months ended October 31, 1997, the
Company paid approximately $5.6 million and $5.2 million, respectively with
respect to the Management Contract Obligations. The aggregate amount which the
Company will be required to pay with respect to the Management Contract
Obligations will depend upon a number of factors, including, among others, the
expiration of such obligations for certain partnerships, the cash flow generated
by the properties the Company currently operates, the terms of future
Syndications and the cash flow to be generated by the related properties. Based
upon its estimates of these factors, which estimates may vary materially from
actual results, the Company anticipates that for at least the next two years,
the Management Contract Obligations with respect to existing and future
Investing Partnerships will exceed the cash flow generated by the related
properties, which will result in the need to utilize cash generated by the
Company to make payments pursuant to the terms of the management contracts. To
the extent that the Company must expend funds to meet its Management Contract
Obligations, the Company will have fewer funds available to utilize for other
business purposes, including funds for application to the new development plan,
to meet other liquidity and capital resource commitments and for dividends. The
Company intends to structure future Syndications to minimize the likelihood that
it will be required to utilize the cash it generates to make payments pursuant
to the management contracts.
The Company's Management Contract Obligations are contractual
obligations. In general, the accrual of expenses arising from obligations of the
Company, including such Management Contract Obligations, reduces the amount of
earnings that might otherwise be available for distribution to stockholders.
In the past, limited partners have been allowed to prepay capital
contributions. Prepayments of capital contributions do not result in the
prepayment of the related Purchase Notes. Instead, such amounts are loaned to
the Company by the Investing Partnership. Loans made prior to the reorganization
of the Company in 1996 were made to J&B Management Company and, as part of the
reorganization, were assumed by the Company. The purchase agreements provide
that, should any failure to repay any such loan occur, the Company must credit
to the Investing Partnership the amounts loaned at the time such amount would be
required to be paid by the Investing Partnership to meet its obligations then
due under the Purchase Note. As a result of such loans and such provisions of
the purchase agreements, the Company records the notes receivable corresponding
to the Purchase Notes net of such loans. Therefore, these prepayments act to
reduce the recorded value of the Company's notes receivable and reduce interest
income received by the Company. Pursuant to the terms of its Syndications, the
Company has the option not to accept future prepayments by limited partners of
capital contributions. The Company has not determined whether it will continue
to accept prepayments by limited partners of capital contributions.
After the initial five-year period, the limited partners are still
entitled to the same specified rate of return on their investment, but only to
the extent there are sufficient cash flows from the related adult living
communities. To the extent property cash flows are not sufficient to pay the
limited partners their specified return, the right to receive this shortfall
accrues until proceeds are available from a sale or refinancing of the property.
Under the management contracts, during the initial five-year period, the Company
is entitled to retain all cash flows in excess of the Management Contract
Obligations as an incentive management fee. Thereafter, the Company's incentive
management fee is 40% of the excess of cash flow
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over the amount necessary to make the Management Contract Obligations. The
remaining 60% of cash flows are to be distributed by the Owning Partnerships to
the Investing Partnerships for distribution to limited partners.
All of the Syndicated adult living communities, the nursing home and
the residential apartment complex operated by the Company are managed by the
Company pursuant to written management contracts, which generally have a five
year term coterminous with the Company's Management Contract Obligations. These
five-year obligations have terminated for seven of the 40 Investing
Partnerships. In addition, the five year obligations will terminate on December
31, 1997 for an additional seven Investing Partnerships. After the initial
five-year term, the Management Contract Obligations terminate and the management
contracts are automatically renewed each year, but are cancelable on 30 to 60
days notice at the election of either the Company or the related Owning
Partnership. The termination of any management contracts would result in the
loss of fee income, if any, under those contracts. The Company is the managing
general partner of 35 of the 36 Owning Partnerships that own the Syndicated
adult living communities, the nursing home and the residential apartment complex
operated by the Company. The Company also is the general partner of 30 of the 40
adult living Investing Partnerships formed to acquire equity interests in 36 of
said Owning Partnerships. In general, under the terms of the Investing
Partnerships' partnership agreements, limited partners have only limited rights
to take part in the conduct or operation of the partnerships. The partnership
agreements for the 30 Investing Partnerships for which the Company is the
general partner provide that a majority in ownership interests of the limited
partners can remove the Company as the general partner at any time. It is
anticipated that all future Investing Partnership agreements will contain the
same right to remove the Company as a general partner. In addition, the consent
of a majority in ownership interests of limited partners in such Investing
Partnerships is required to be obtained in connection with any sale or
disposition of the underlying property.
The Company intends to continue to finance its acquisitions of existing
adult living communities by utilizing mortgage financing and Syndications. The
Company plans to acquire between six and twelve existing adult living
communities over the next two years. However, competition to acquire such
communities has intensified, and there can be no assurance that the Company will
be able to acquire such communities on terms favorable enough to offset the
start-up losses associated with newly developed communities and the costs and
cash requirements arising from the Company's overhead and existing debt and
Management Contract Obligations. The Company is, and will continue to be, the
managing general partner of the partnerships that own acquired communities.
In addition, the Company arranged for the sale of limited partnership
interests in two partnerships organized to make second mortgage loans to the
Company to fund approximately 20% of the costs of developing three new adult
living communities.
The Long-Term Care Market
The long-term care services industry encompasses a broad range of
accommodations and healthcare services that are provided primarily to seniors.
Independent-living communities attract seniors who desire to be freed from the
burdens and expense of home ownership, food shopping and meal preparation and
who are interested in the companionship and social and recreational
opportunities offered by such communities. As a senior's need for assistance
increases, the provision of assisted-living services in a community setting is
more cost-effective than care in a nursing home. A community which offers its
residents assisted-living services can provide assistance with various ADLs
(such as bathing, dressing, personal hygiene, grooming, ambulating and eating),
support services (such as housekeeping and laundry services) and health-related
services (such as medication supervision and health monitoring), while allowing
seniors to preserve a high degree of autonomy. Generally, residents of
assisted-living communities require higher levels of care than residents of
independent-living facilities, but require lower levels of care than residents
of skilled-nursing facilities.
Industry Trends
The Company believes its business benefits from significant trends
affecting the long-term care industry. The first is an increase in the demand
for elder care resulting from the continued aging of the U.S. population. U.S.
Bureau of Census shows that the average age of the Company's residents (83 years
old) places them within one of the fastest growing segments of the U.S.
population. While increasing numbers of Americans are living longer and
healthier lives, many choose community living as a cost-effective method of
obtaining the services and life-style they desire. Adult living facilities that
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offer both independent and assisted-living services give seniors the comfort of
knowing that they will be able to "age in place" -- something they are
increasingly unable to do at home.
The primary consumers of long-term care services are persons over the
age of 65. This group represents one of the fastest growing segments of the
population. According to U.S. Bureau of the Census data, the number of people in
the U.S. age 65 and older increased by more than 27% from 1981 to 1994, growing
from 26.2 million to 33.2 million. Such census data also shows that the segment
of the population over 85 years of age, which comprises the largest percentage
of residents at long-term care facilities, is projected to increase by more than
37% between the years 1990 and 2000, growing from 3.0 million to 4.1 million.
The Company believes that these trends depicted in the graph below will
contribute to continued strong demand for adult living communities.
Projected Percentage Change in the Elderly Population of the U.S.
1981 1990 1995 2000 2005 2010
---- ---- ---- ---- ---- ----
65-84 0 17.5% 25.2% 26.2% 27.3% 34.6%
85- 0 28.4% 54.3% 76.3% 94.1% 112.7%
SOURCE: U.S. BUREAU OF THE CENSUS
A trend benefiting the Company, and especially its provision of
independent-living services, is that as the population of seniors swells, the
percentage of seniors that are disabled and need assistance with ADLs has
steadily declined. According to the National Long Term Care Surveys, a federal
study, disability rates for persons aged 65 and older have declined by 1 to 2
percent each year since 1982, the year the study was commenced. In 1982,
approximately 21% of the 65 and over population was disabled and in 1995 only
10% was disabled. This trend suggests that demand for independent living
services will increase in the future.
Other trends benefiting the Company include the increased financial net
worth of the elderly population, the changing role of women and the increase in
the population of individuals living alone. As the number of elderly in need of
assistance has increased, so too has the number of the elderly able to afford
residences in communities which offer independent and/or assisted-living
services. According to U.S. Bureau of the Census data, the median net worth of
householders age 75 or older has increased from $55,178 in 1984 and $61,491 in
1988 to $76,541 in 1991. Furthermore, according to the same source, the
percentage of people 65 years and older below the poverty line has decreased
from 24.6% in 1970 to 15.7% in 1980 to 12.2% in 1990. Historically, unpaid women
(mostly daughters or daughters-in-law) represented a large portion of the care
givers of the non-institutionalized elderly. The increased number of women in
the labor force, however, has reduced the supply of care givers, and led many
seniors to choose adult living communities as an alternative. Since 1970, the
population of individuals living alone has increased significantly as a
percentage of the total elderly population. This increase has been the result of
an aging population in which women outlive men by an average of 6.9 years,
rising divorce rates, and an increase in the number of unmarried individuals.
The increase in the number of the elderly living alone has also led many seniors
to choose to live in adult living communities.
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The increased financial net worth of the elderly population is
illustrated by the following chart:
Median Net Worth
1990 1991
---- ----
45-54 57,466 58,250
55-64 80,032 83,043
65- 73,471 88,192
SOURCE: U.S. BUREAU OF THE CENSUS
Another trend benefiting the Company, and especially its provision of
assisted-living services, is the effort by the government, private insurers and
managed care organizations to contain health care costs by limiting lengths of
stay, services, and reimbursement amounts. This has resulted in hospitals
discharging patients earlier and referring them to nursing homes. At the same
time, nursing home operators continue to focus on providing services to
sub-acute patients requiring significantly higher levels of skilled nursing
care. The Company believes that this "push down" effect has and will continue to
increase demand for assisted-living facilities that offer the appropriate levels
of care in a non-institutional setting in a more cost-effective manner. The
Company believes that all of these trends have, and will continue to, result in
an increasing demand for adult living facilities which provide both independent
and assisted-living services.
Strategy
Growth. The Company's growth strategy focuses on the development of
communities offering both independent and assisted-living apartment units and on
continued intensive communities management. The Company believes that there are
numerous markets that are not served or are underserved by existing adult living
communities and intends to take advantage of these circumstances, plus the
present availability of construction financing on favorable terms, to develop
new communities of its own design in desirable markets. Historically, the
Company has expanded by acquisition of existing communities. The Company has
taken advantage of the inexperience and operating inefficiencies of the previous
owners of these communities and has improved the financial performance of these
properties by implementing its own management and marketing techniques. The
Company's sophistication in management and marketing is evidenced by its
approximate 93.9% occupancy rate at November 21, 1997 at the existing adult
living communities managed by the Company.
The Company will continue to acquire existing communities and intends
to finance these acquisitions, in part, by Syndications. The Company believes
that its continuing the practice of financing the acquisition of adult living
communities through Syndications will provide additional cash flow to help the
Company pursue its development program. Competition to acquire existing adult
living communities has intensified, and the Company anticipates that, for at
least the next two years, it will not be able to acquire such communities on
terms favorable enough to offset the startup losses associated with newly
developed communities and the costs and cash requirements arising from the
Company's overhead and existing debt and Management Contract Obligations. The
Company also believes its established ability to privately place equity and debt
securities could enhance its ability to pursue its development plan.
New Development. While the acquisition of existing adult living
communities utilizing Syndications will continue to play a significant role in
the Company's expansion program, the primary focus of the expansion program is
the
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development of new adult living communities. The Company's development plan
emphasizes a "prototype" adult living community that it has designed. The
Company designed the prototype based upon its experience operating its existing
portfolio of communities. Because each of its adult living communities has a
different design, and due to the Company's experience in operating such
communities, the Company believes it has been able to identify certain
characteristics of the communities it operates which are beneficial. In addition
to incorporating the characteristics which the Company believes are beneficial,
the Company has incorporated the following features into the prototype which it
believes are innovative and make the prototype a "state of the art" community.
The prototype contains 142 apartment units and will be located on sites
of up to seven acres. The Company believes that its development prototype is
larger than many independent-living and most assisted-living communities, which
typically range from 40 to 80 units. The Company believes that the greater
number of units will allow the Company to achieve economies of scale in
operations, resulting in lower operating costs per unit, without sacrificing
quality of service. These savings primarily are achieved through lower staffing,
maintenance and food preparation costs per unit, without sacrificing quality of
service. In that the time and effort required to develop a community (including
site selection, land acquisition, zoning approvals, financing, and construction)
do not vary materially for a larger community than for a smaller one,
developmental economies of scale also are realized in that more apartment units
are being produced for each community that is developed.
Common areas will include recreation areas, dining rooms, a kitchen,
administrative offices, an arts and crafts room, a multi-purpose room, laundry
rooms for each floor, a beauty salon/barber shop, a library reading area, card
rooms, a billiards room, a health center to monitor residents' medical needs and
assigned parking. The Company believes that the common areas and amenities
offered by its prototype represent the state of the art for independent-living
communities and are superior to those offered by smaller independent-living
communities or by most communities that offer only assisted living services. The
Company believes that such substantial common areas, which would often be
unaffordable in smaller communities, will provide the Company's prototype
communities with a competitive advantage over smaller communities. The Company
believes that these common areas will attract residents and promote continued
stable occupancy of its prototype communities. Unit sizes range from 368 square
feet for a studio to 871 square feet for a two bedroom/two bath unit. The
Company's prototype contains 46 studio apartments, 92 one bedroom/one bathroom
apartments and 4 two bedroom/two bathroom apartments, encompassing approximately
108,000 square feet. Each apartment unit will be a full apartment, including a
kitchen or kitchenette.
The Company anticipates that it will rent apartment units in its
prototype communities pursuant to annual leases on a strictly "private pay"
basis. The Company believes this "private pay" focus will allow it to increase
rental revenues as demographic pressure increases demand for adult living
communities and avoid potential financial difficulties it might encounter if it
were dependent on Medicare or other government reimbursement programs that may
suffer from health care reform, budget deficit reduction or other pending or
future government initiatives. The prototype community is targeted to the
"middle to upper-middle income" segment of the elderly population, which is the
broadest segment of the elderly population, and will allow the Company to
provide a high-quality level of service.
Each community will offer residents a choice between independent-living
and assisted-living services. As a result, the market for each community will be
broader than for communities that offer only either independent-living or
assisted-living services. Due to licensing requirements and the expense and
difficulty of converting existing independent-living units to assisted-living
units, independent-living and assisted-living units in many communities
generally are not interchangeable. However, the prototype is designed to allow,
at any time, for conversion of units, at minimum expense, for use as either
independent-living or assisted-living units. Each community therefore may adjust
its mix of independent-living and assisted-living units as the market or
existing residents demand. The Company believes that this innovative feature
distinguishes its prototype community. The Company believes that part of the
appeal of this type of community is that residents will be able to "age in
place" with the knowledge that they need not move to another community if they
require assistance with ADLs. The Company believes that the ability to retain
residents by offering them higher levels of services will result in stable
occupancy with enhanced revenue streams.
The Company's prototype also incorporates two interior courtyards, from
which the Company's "Grand Court"(R) name originates. These courtyards allow
residents to enjoy the outdoors while remaining in a secure environment. The
Company believes that this feature distinguishes its prototype community.
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<PAGE>
In summary, the Company believes that the size, design and target
markets of its prototype and the convertability of its apartments to either
independent or assisted-living units will result in "state of the art"
communities that will provide an excellent vehicle for economic growth.
Market Selection Process. In selecting geographic markets for potential
expansion, the Company considers such factors as a potential market's
population, demographics and income levels, including the existing and
anticipated future population of seniors who may benefit from the Company's
services, the number of existing and anticipated long-term care communities in
the market area and the income level of the target population. While the Company
does not apply its market selection criteria mechanically or inflexibly, it
generally seeks to select adult living community locations that are non-urban
with populations of no more than 100,000 people and containing 3,000 elderly
households within a 20-mile radius with an annual income of at least $35,000,
and have a regulatory climate that the Company considers favorable toward
development. The Company has found that communities with these characteristics,
so-called "secondary markets," generally have a receptive population of seniors
who desire and can afford the services offered in the Company's adult living
communities. The Company believes that it can obtain zoning and other necessary
approvals in secondary markets more quickly and easily than would be the case in
primary markets. In focusing on secondary markets, the Company believes it will
avoid overdevelopment to which primary markets are prone and obtain the benefit
of demographic concentrations that do not exist in yet smaller markets. The
Company believes that high-quality, affordable employees are easier to attract
and retain in secondary markets than in primary markets.
Centralized Management. The adult living business is highly management
intensive. While the location of a community and its physical layout are
extremely important, another key to the success of an adult living community
lies in the ability to maximize its financial potential through sophisticated,
experienced management. Such success requires the establishment and supervision
of programs involving the numerous facets of an adult living community,
including menu planning, food and supply purchasing, meal preparation and
service, assistance with "activities of daily living," recreational activities,
social events, health care services, housekeeping, maintenance and security. The
Company's strategy emphasizes centralized management in order to achieve
operational efficiencies and ensure consistent quality of services. The Company
has established standardized policies and procedures governing, among other
things, social activities, maintenance and housekeeping, health care services,
and food services. An annual budget is established by the Company for each
community against which performance is tested each month.
Marketing. Marketing is critical to the rent up and continued high
occupancy of a community. The Company's marketing strategy focuses on enhancing
the reputation of the Company's communities and creating awareness of the
Company and its services among potential referral sources. The Company's
experience is that satisfied residents and their families are an important
source of referrals for the Company. In addition, the Company plans to use its
common community design and its "The Grand Court"(R) trademarked name to promote
national brand-name recognition. The Company has adopted the trademarked name.
Historically, adult living communities have generally been independently owned
and operated and there has been little national brand-name recognition. The
Company believes that national recognition will be increasingly important in the
adult living business. The Company intends to continuously use its trademarked
name in its business activities, and the life of this trademark will extend for
the duration of its use. The Company considers this trademark to be a valuable
intangible intellectual property asset.
Services
It is important to identify the specific tastes and needs of the
residents of an adult living community, which can vary from region to region and
from one age group to the next. Residents who are 70 years old have different
needs than those who are 85. The Company has retained a gerontologist to insure
that programs and activities are suitable for all of the residents in a
community and that they are adjusted as these residents "age in place". Both
independent and assisted-living services will be offered at all of the Company's
newly, developed communities.
Basic Service and Care Package. The Company provides three levels of
service at its adult-living communities:
Level I, Independent Living, includes three meals per day, weekly
housekeeping, activities program, 24-hour security and transportation for
shopping and medical appointments.
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<PAGE>
Level II, Catered Living, offers all of the amenities of Level I in
addition to all utilities, personal laundry and daily housekeeping.
Level III, Assisted Living, provides three meals per day, daily
housekeeping, 24-hour security, all utilities, medication management, activities
and nurse's aides to assist the residents with any ADLs which they might
require. Rehabilitative services such as physical and speech therapy are also
provided by licensed third party home health care providers. Each resident can
design a package of services that will be monitored by his or her own physician.
Several of the Company's Syndicated communities are designed to meet the needs
of assisted living residents who suffer from the early stages of alzheimer's or
dementia.
The Company charges an average fee of $1,400 per month for Level I
services, $1,700 per month for Level II services, and $2,000 per month for Level
III services, but the fee levels vary from community to community. Residents at
the communities which offer services for early stages of Alzheimer's or dementia
pay an average of an additional $500 per month for such services. As the
residents of the communities managed by the Company continue to age, the Company
expects that an increasing number of residents will utilize Level III services.
The Company's internal growth plan is focused on increasing revenue by
continuing to expand the number and diversity of its tiered additional
assisted-living services and the number of residents using these services.
Communities
The Company currently operates 36 adult living communities containing
5,192 units, one nursing home containing 57 beds and one residential apartment
complex containing 237 units. One of the Company's adult living communities
contains 70 nursing home beds. The following chart sets forth information
regarding the communities operated by the Company:
<TABLE>
<CAPTION>
Number of Year Occupancy % at
Community(1) State Units Acquired(2) November 21, 1997
- ---------------------------------- ------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
The Grand Court Mesa Arizona 174 1997 100%
The Grand Court Phoenix Arizona 136 1991 99%
The Grand Court Fort Myers Florida 184 1989 97%
The Grand Court Lakeland Florida 126 1996 79%
The Grand Court Lake Worth Florida 170 1992 84%
The Grand Court North Miami Florida 189 1995 73%
The Grand Court Pensacola Florida 60 1993 98%
The Grand Court I Pompano Florida 72 1994 95%
Beach(3)
The Grand Court II Pompano Florida 42 1994 73%(8)
Beach(3)
The Grand Court Tampa Florida 164 1997 100%
The Grand Court Tavares Florida 94 1995 97%
The Grand Court Winterhaven Florida 133 1997 95%
The Grand Court Belleville Illinois 76 1993 100%
The Grand Court II Kansas City Kansas 127 1994 100%
The Grand Court Overland Park Kansas 275 1997 100%(8)
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Number of Year Occupancy % at
Community(1) State Units Acquired(2) November 21, 1997
- ---------------------------------- ------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
The Grand Court Farmington Hills Michigan 164 1993 100%
The Grand Court Novi Michigan 114 1994 100%
The Grand Court Westland Michigan 153 1997 100%
The Grand Court I Kansas City Missouri 173 1989 100%
The Grand Court III Kansas Missouri 217 1989 83%(8)
City(4)
600 E. 8th St. Missouri 237(5) 1990 97%
The Grand Court Las Vegas Nevada 152 1991 100%
The Grand Court Albuquerque New Mexico 140 1997 96%
The Grand Court Columbus Ohio 120 1994 94%
The Grand Court Dayton Ohio 185 1994 100%
The Grand Court Findlay Ohio 73 1992 96%
The Grand Court Springfield Ohio 77 1992 95%
The Grand Court I Chattanooga Tennessee 143(6) 1995 86%
The Grand Court II Chattanooga Tennessee 146 1995 99%
The Grand Court Memphis Tennessee 197 1992 97%
The Grand Court Morristown Tennessee 197 1996 73%(8)
The Grand Court Bryan Texas 180 1992 96%
The Grand Court Garland Texas 112 1997 85%(8)
The Grand Court Longview Texas 132 1990 95%
The Grand Court Lubbock Texas 139 1991 96%
The Grand Court I San Antonio Texas 198 1993 98%
The Grand Court II San Antonio Texas 57(7) 1995 77%
The Grand Court Weatherford Texas 60 1996 94%
The Grand Court Bristol Virginia 98 1995 100%
</TABLE>
- ------------------
(1) In certain cases, more than one Investing Partnership owns an interest in
one Owning Partnership. There are therefore, more Investing Partnerships
than there are Owning Partnership. One of the Owning Partnerships owns two
adult living communities and another Owning Partnership owns one adult
living community and one nursing home. In addition, the Company's
communities in Pompano Beach, Florida are adjacent to one another and are
counted as one property. As a result, there are 39 properties listed, but
only 36 Owning Partnerships. In addition, the Company has entered into a
contract to acquire one adult living community in Adrian, Michigan
containing 73 apartment units.
(2) Represents year in which the Company or an affiliate of the Company
acquired the community.
55
<PAGE>
(3) These are adjacent properties and are counted as one adult living
community.
(4) A portion of the units at The Grand Court III Kansas City are rented, from
time to time, as residential apartment units.
(5) 600 E. 8th St. is a 237-unit residential apartment complex.
(6) Grand Court I Chattanooga's unit count includes a 70-bed nursing wing.
(7) Grand Court II San Antonio is a 57-bed licensed nursing facility.
(8) Occupancy percentage includes 1-2 units occupied by staff.
All 36 Syndicated adult living communities, the nursing home and the
residential apartment complex are managed by the Company in its capacity as
property manager and, for all but one of the related Owning Partnerships, as
managing general partner. Because the Company serves as both the managing
general partner and the property manager, it receives partnership administration
fees and property management fees. As the managing general partner of these
partnerships, the Company generally has full authority and power to act for the
partnerships as if it were the sole general partner. The Company has fiduciary
responsibility for the management and administration of these partnerships and,
subject to certain matters requiring the consent of the other partners such as a
sale of the related property, may generally, on behalf of the partnerships,
borrow money, execute contracts, employ persons and services, compromise and
settle claims, determine and pay distributions, prepare and distribute reports,
and take such other actions which are necessary or desirable with respect to
matters affecting the partnerships or individual partners.
Operations
Corporate. Over the past ten years the Company has developed extensive
policies, procedures and systems for the operation of its adult-living
communities. The Company also has adopted a formal quality assurance program. In
connection with this program the Company conducts a minimum of two full-day
annual quality assurance reviews at each community. The entire regional staff
team participates in the review which thoroughly examines all aspects of the
long-term care community from the provision of services to the maintenance of
the physical buildings. The reports generated from these quality assurance
reviews are then implemented by the community administrator. Corporate
headquarters also provides human resources services, a licensing facilitator,
and in-house accounting and legal support systems.
Regional. The Company has ten regional administrators: three
responsible for nine Florida communities, and one community in Texas; one
responsible for three communities in Tennessee; one responsible for two
communities in Arizona, and one community in each of Nevada, and New Mexico; one
responsible for two communities in Kansas, two communities in Missouri, and
three communities in Michigan; one responsible for four communities in Ohio and
one communitiy in Illinois and one community in Virginia; one responsible for
one community in Tennessee and six communities in Texas, including the nursing
home operated by the company; and one responsible for the one residential
apartment complex operated by the company. The Company also has a regional
administrator and a registered dietician who oversee the food division. Each
regional administrator is reported to by the manager of those communities he
oversees.
Community. The management team at each community consists of an
administrator, who has overall responsibility for the operation of the
community, an activity director, a marketing director and, at certain larger
communities, one or two assistant administrators. Each community which offers
assisted-living services has a staff responsible for the assisted-living care
giving services. This staff consists of a lead resident aide, a medication room
aide, certified nurse aides and trained aides, and, in those states which so
require, registered nurses. At least one staff member is on duty 24 hours per
day to respond to the emergency or scheduled 24-hour assisted-living services
available to the residents. Each community has a kitchen staff, a housekeeping
staff and a maintenance staff. The average community currently operated by the
Company has 40 to 50 full-time employees depending on the size of the community
and the extent of services provided in that community. Based upon its experience
in operating adult living communities in both primary and secondary markets, the
Company believes that its secondary market focus will make it easier for the
Company to attract and retain high-quality, affordable staff.
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<PAGE>
The Company places emphasis on diet and nutrition, as well as preparing
attractively presented healthy meals which can be enjoyed by the residents. The
Company's in-house food service program is led by a regional administrator who
reviews all menus and recipes for each community. The menus and recipes are
reviewed and changed based on consultation with the food director and input from
the residents. The Company provides special meals for residents who require
special diets.
Employees. The Company emphasizes maximizing each employee's potential
through support and training. The Company's training program is conducted on
three levels. Approximately six times per year, corporate headquarters staff
conduct training sessions for the management staff in the areas of supervision
and management skills, and caring for the needs of an aging population. At the
regional level, regional staff train the community staff on issues such as
policies, procedures and systems, activities for the elderly, the administration
and provision of specific services, food service, maintenance, reporting systems
and other operational areas of the business. At the community level, the
administrators of each community conduct training sessions on at least a monthly
basis relating to various practical areas of care-giving at the community. These
monthly sessions cover, on an annual basis, all phases of the community's
operations, including special areas such as safety, fire and disaster
procedures, resident care, and policies and procedures.
Competition
The senior housing and health care industries are highly competitive
and the Company expects that both the independent-living business, and
assisted-living businesses in particular, will become more competitive in the
future. The Company will continue to face competition from numerous local,
regional and national providers of long-term care whose communities and services
are on either end of the senior care continuum. The Company will compete in
providing independent-living services with home health care providers and other
providers of independent-living services, primarily on the basis of quality and
cost of communities and services offered. The Company will compete in providing
assisted-living with other providers of assisted-living services, skilled
nursing communities and acute care hospitals primarily on the bases of cost,
quality of care, array of services provided and physician referrals. The Company
also will compete with companies providing home based health care, and even
family members, based on those factors as well as the reputation, geographic
location, physical appearance of communities and family preferences. In
addition, the Company expects that as the provision of long-term care receives
increased attention, competition from new market entrants, including, in
particular, companies focused on independent and assisted-living, will grow.
Some of the Company's competitors operate on a not-for-profit basis or as
charitable organizations, while others have, or may obtain, greater financial
resources than those of the Company. However, the Company anticipates that its
most significant competition will come from other adult living communities
within the same geographic area as the Company's communities because
management's experience indicates that senior citizens frequently elect to move
into communities near their homes.
Moreover, in the implementation of the Company's expansion program, the
Company expects to face competition for the development of adult living
communities. Some of the Company's present and potential competitors are
significantly larger or have, or may obtain, 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 residents or expand its business and could have a material
adverse effect on the Company's financial condition, results of operations and
prospects. In addition, if the development of new adult living communities
outpaces demand for those communities in certain markets, such markets may
become saturated. Such an oversupply of facilities could cause the Company to
experience decreased occupancy, depressed margins and lower operating results.
Company History
In April, 1996, the Principal Stockholders reorganized their businesses
by consolidating them into the Company. Pursuant to the reorganization,
substantially all of the assets and liabilities of such businesses were
transferred to the Company in exchange for shares of the Company's Common Stock.
See "Certain Transactions". The primary predecessors of Grand Court Lifestyles,
Inc. are J&B Management Company, and Leisure Centers, Inc. J&B Management
Company is a private partnership founded in 1969 with a successful history in
the development and management of multi-family real estate and adult living
communities. J&B is located at the Company's offices in Fort Lee, New Jersey.
Prior to the formation of the Company in April, 1996, the Company's property
development and management operations were conducted through its affiliate,
Leisure Centers, Inc., located in Boca Raton, Florida. Leisure Centers, Inc. was
merged with and into the
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Company. Grand Court Lifestyles, Inc., its subsidiaries, J&B Management Company
and Leisure Centers, Inc. and their affiliates are collectively referred to as
the "Company".
Through the 1970's and early 1980's, the Company's primary focus was on
the acquisition, development, finance and management of multi-family properties.
Senior management, collectively, has over 80 years of experience in multi-family
housing, having had interests in properties containing approximately 20,000
apartment units located in 22 states, primarily in the sun-belt. Beginning in
the mid-1980's, the Company's sole focus has been on the acquisition, finance
and management of adult living communities building one of the largest operating
portfolios of adult living communities in the nation, encompassing the entire
spectrum of the long-term care industry, from independent-living to
assisted-living, with a limited involvement in nursing homes. Senior management,
collectively, has over 40 years of experience in the adult living field. As of
October, 1997, the Company was ranked by the American Seniors Housing
Association as the seventh largest operator of adult living properties based
upon units under management. The Company currently has ownership interests in
and manages properties in 12 states including 36 adult living communities
containing 5,192 apartment units (including 70 skilled nursing beds), one
nursing home containing 57 skilled nursing beds and one residential apartment
complex containing 237 apartment units.
Government Regulation
Regulations applicable to the Company's operations vary among the types
of communities operated by the Company and from state to state.
Independent-living communities generally do not have any licensing requirements.
Assisted-living communities are subject to less regulation than other licensed
health care providers but more regulation than independent-living communities.
However, the Company anticipates that additional regulations and licensing
requirements will likely be imposed by the states and the federal government.
Currently, California, New Jersey, Ohio, Massachusetts, Texas and Florida
require licenses to provide the assisted-living services provided by the
Company. The licensing statutes typically establish physical plant
specifications, resident care policies and services, administration and staffing
requirements, financial requirements and emergency service procedures. The
licensing process can take from two months to one year. New Jersey requires
Certificates of Need for assisted-living communities. The Company's communities
also must comply with the requirements of the ADA and are subject to various
local building codes and other ordinances, including fire safety codes. While
the Company relies almost exclusively on private pay residents, the Company
operates a nursing home containing 57 beds and one adult living community
operated by the Company contains 70 nursing home beds in which some residents
rely on Medicare. As a provider of services under the Medicare program, the
Company is subject to Medicare regulations designed to limit fraud and abuse,
violations of which could result in civil and criminal penalties and exclusion
from participation in the Medicare program. Revenues derived from Medicare
comprise less than 1% of the revenues of the communities operated by the
Company. The Company does not intend to expand its nursing home activities and
intends to pursue an exclusively "private-pay" clientele. The Company believes
it is in substantial compliance with all applicable regulatory requirements. No
actions are pending against the Company for non-compliance with any regulatory
requirement.
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may be
held liable for the costs of removal or remediation of certain hazardous or
toxic substances, including, without limitation, asbestos-containing materials,
that could be located on, in or under such property. Such laws and regulations
often impose liability whether or not the owner or operator knows of, or was
responsible for, the presence of the hazardous or toxic substances. The costs of
any required remediation or removal of these substances could be substantial and
the liability of an owner or operator as to any property is generally not
limited under such laws and regulations, and could exceed the property's value
and the aggregate assets of the owner or operator. The presence of these
substances or failure to remediate such substances properly may also adversely
affect the owner's ability to sell or rent the property, or to borrow using the
property as collateral. Under these laws and regulations, an owner, operator or
any entity who arranges for the disposal of hazardous or toxic substances, such
as asbestos-containing materials, at a disposal site may also be liable for
these costs, as well as certain other costs, including governmental fines and
injuries to persons or properties. As a result, the presence, with or without
the Company's knowledge, of hazardous or toxic substances at any property held
or operated by the Company could have an adverse effect on the Company's
business, operating results and financial condition. Although the Company has
not incurred any material costs for removal or remediation of hazardous or toxic
substances, there can be no assurance that this will remain the case in the
future.
Under the ADA, all places of public accommodation are required to meet
certain federal requirements related to access and use by disabled persons. A
number of additional federal, state and local laws exist which also may require
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modifications to existing and planned properties to create access to the
properties by disabled persons. While the Company believes that its properties
are substantially in compliance with present requirements or are exempt
therefrom, if required changes involve a greater expenditure than anticipated or
must be made on a more accelerated basis than anticipated, additional costs
would be incurred by the Company. Further legislation may impose additional
burdens or restrictions with respect to access by disabled persons, the costs of
compliance with which could be substantial.
Employees
As of the date hereof, the Company employs approximately 1,600 persons,
including 38 in the Company's principal executive offices. None of the Company's
employees is covered by collective bargaining agreements. The Company believes
its employee relations are good.
Legal Proceedings
J&B Management Company, a predecessor of the Company ("J&B Management
Company") that managed certain multi-family properties for which the United
States Department of Housing and Urban Development ("HUD") provided mortgage
insurance, was the subject of an audit and investigation by HUD during 1990 and
1991. Pending the conclusion of the inquiry, J&B Management Company, its
partners and key employees were suspended by HUD from the management of such
multi-family properties. On April 10, 1991, HUD and J&B Management Company
entered into a Settlement Agreement which provided, among other things, that HUD
vacate the suspension retroactively. Certain conditions were imposed in the
Settlement Agreement, including that J&B Management Company and such principals
and employees not engage in the management of HUD-insured properties for an
indefinite period of time. Pursuant to a letter agreement dated January 11,
1994, (i) J & B Management Company agreed to reimburse various properties for
certain expenses, aggregating approximately $445,000, deemed not eligible by
HUD, (ii) J & B Management Company agreed to pay HUD's costs for the audit, and
to reimburse HUD for certain subsidy overpayments, aggregating approximately
$861,000, and (iii) all issues relating to the audit and investigation were
concluded and fully resolved.
On November 14, 1997, an investor in a limited partnership (the "First
Partnership") which was formed to invest in a second partnership which was
formed to develop and own an adult living community (the "Second Partnership"),
filed a lawsuit, Palmer v. Country Estates Associates Limited Partnership,
et.al., in the United States District Court, District of New Jersey. The Company
has never managed the property owned by the Second Partnership and is not a
general partner in the Second Partnership or the First Partnership. A
predecessor of the Company was a general partner of the Second Partnership. The
Company has never been a general partner of the First Partnership. The
defendants in the suits are the First Partnership, the general partners of the
First Partnership, the Second Partnership, two affiliates of the Company, and
the Company (collectively the "Defendants"). The Plaintiff is alleging a breach
of the First Partnership's partnership agreement, negligent misrepresentation,
fraud, negligence, breach of guarantee and mail fraud. The plaintiff is seeking
(i) the return of his original investment ($100,000), (ii) market interest on
such investment for the period 1987-1997 and (iii) unspecified damages. The
Company believes the lawsuit is without merit and intends to vigorously contest
the case.
The Company is involved in various lawsuits and other matters arising
in the normal course of business, including employment-related claims. In the
opinion of management of the Company, although the outcomes of these claims and
suits are uncertain, in the aggregate they should not have a material adverse
effect on the Company's financial position or results of operations. The Company
business 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 claims, many of which seek large
amounts and result in significant legal costs. The Company expects that from
time to time it may be subject to such suits as a result of the nature of its
business. The Company currently maintains insurance policies in amounts and with
such coverage and deductibles as it deems appropriate, based on the nature and
risks of its business, historical experience and industry standards. There can
be no assurance, however, that claims in excess of the Company's insurance
coverage or claims not covered by the Company's insurance coverage will not
arise. A successful claim against the Company not covered by, or in excess of,
the Company's insurance could have a material adverse effect on the Company's
operating results and financial condition. Claims against the Company,
regardless of their merit or eventual outcome, may also have a material adverse
effect on the Company's ability to attract residents or expand its business and
would require management to devote time to matters unrelated to the operation of
the Company's business. In addition, the Company's insurance policies must be
renewed annually, and there can be no assurance that the Company will be able to
obtain liability insurance coverage in the future or, if available, that such
coverage will be on acceptable terms.
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MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John Luciani(1) 65 Chairman of the Board and Chief Executive Officer
Bernard M. Rodin(2) 67 Chief Operating Officer, President and Director
John W. Luciani III 45 Executive Vice President and Director
Paul Jawin 42 General Counsel and Senior Vice President
Dorian Luciani 42 Senior Vice President - Acquisition and Construction
Deborah Luciani 41 Vice President - New Business Development and Acquisitions
Catherine V. Merlino 32 Chief Financial Officer and Vice President
Edward J. Glatz 55 Vice President - Construction
Keith Marlowe 35 Secretary
Walter Feldesman(1)(2) 80 Director
Leslie E. Goodman(1)(2) 53 Director
</TABLE>
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
JOHN LUCIANI, Chief Executive Officer and Chairman of the Board of
Directors, founded the earliest predecessor of the Company in 1969 and has been
engaged in a number of business activities and investments since 1952.
Commencing in 1960, he entered into the real estate development and construction
business, concentrating initially on the development, construction and sale of
residential high-rise apartment buildings and single-family homes and
subsequently on the acquisition and development of multi-family rental housing
complexes. Since 1986, he has concentrated on the acquisition, development and
financing of adult living communities for the elderly. Mr. Luciani founded the
earliest predecessor of the Company with Bernard M. Rodin in 1969. Mr. Luciani
was a general partner of three Protected Partnerships, but withdrew as a general
partner prior to their filing the respective Chapter 11 Petitions.
BERNARD M. RODIN, Chief Operating Officer, President and Director, has
been engaged, since the formation of the earliest predecessor of the Company in
1969, in the financing of property acquisitions by arranging for the sale of
partnership interests and in property management. This activity initially
focused on the Company's multi-family housing portfolio and, since 1986, on the
Company's adult living communities. Mr. Rodin has a bachelor of science degree
from the City University of New York. Mr. Rodin is a certified public accountant
and was actively engaged in the practice of public accounting prior to founding
the earliest predecessor of the Company with John Luciani in 1969. Mr. Rodin was
a general partner of three Protected Partnerships, but withdrew as a general
partner prior to their filing the respective Chapter 11 Petitions.
JOHN W. LUCIANI III, Executive Vice President and Director, a son of
John Luciani, joined the Company in 1975 and has since been actively involved in
the management and operation of the Company's property portfolios, initially
focusing on multi-family housing and later on the Company's adult-living
communities. Mr. Luciani graduated from Fairleigh Dickinson University with both
a bachelor of science and a master of business administration degree.
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<PAGE>
PAUL JAWIN, General Counsel and Senior Vice President, a son-in-law of
Bernard M. Rodin, joined the Company in May 1991. His activities primarily
involve the various legal and financial aspects of the Company's business
including its debt financing and matters involving the Company's equity and debt
securities. Mr. Jawin is an attorney and was actively engaged in a real
estate/corporate practice prior to joining the Company. Mr. Jawin graduated from
Ithaca College with a bachelor of science degree in history and earned a juris
doctor degree from Syracuse University School of Law.
DORIAN LUCIANI, Senior Vice President - Acquisition and Construction, a
son of John Luciani, joined the Company in 1977 and was initially involved in
the acquisition, development and management of the Company's multi-family
housing portfolio. Later, Mr. Luciani focused exclusively on the acquisition and
development of the Company's adult living communities. Mr. Luciani graduated
from Fairleigh Dickinson University with a bachelor of science degree in
business.
DEBORAH LUCIANI, Vice President - New Business Development and
Acquisitions, a daughter of John Luciani, joined the Company in January 1992.
Ms. Luciani is primarily involved in new business development, acquisitions,
obtaining financing and various marketing responsibilities for the Company's
existing and new adult living communities. Prior to joining the Company, Ms.
Luciani worked for Prudential Bache Securities as an oil futures trader from
November 1988 to December 1991. Ms. Luciani graduated from Boston University
with a bachelor of science degree, a master of political science degree and a
master of economics degree.
CATHERINE V. MERLINO, Chief Financial Officer and Vice President,
joined the Company in September 1993, and has since been actively involved in
the financial reporting and analysis needs of the Company. Prior to joining the
Company, Mrs. Merlino was a Senior Accountant from June 1989 through June 1993
and a Supervisor from June 1993 through September 1993 at Feldman Radin & Co.,
P.C., a public accounting firm located in New York City. Mrs. Merlino graduated
from Long Island University in May 1987 with a bachelor of science degree in
Accounting and became a certified public accountant in February 1992.
EDWARD J. GLATZ, Vice President - Construction, joined the Company in
September 1992 and has been actively involved in the design, site selection and
construction for the new "Grand Court" adult living communities. Additionally,
Mr. Glatz supervises the capital improvements of the Company's real estate
holdings. Prior to joining the Company, Mr. Glatz performed asset management
duties for Kovens Enterprises, a real estate development company, from June 1988
until September 1992.
KEITH MARLOWE, Secretary of the Company, joined the Company in August
1994. From 1987 through August 1994, Mr. Marlowe, an attorney, was an associate
in the tax department at the law firm of Reid & Priest LLP where he was involved
in a general transactional tax practice. His activities primarily involve the
various legal and financial aspects of the Company's business. Mr. Marlowe
graduated from the University of Virginia with a bachelor of science degree in
economics. Mr. Marlowe earned a juris doctor degree from University of
California Los Angeles School of Law and an LLM in Taxation from New York
University School of Law.
WALTER FELDESMAN, Director, has been Of Counsel to the law firm of Baer
Marks & Upham LLP since March 1993 and for more than five years prior thereto
was a partner of Summit, Rovins and Feldesman. Mr. Feldesman is currently a
Director and Chairman of the Audit Committee of Sterling Bancorp and a Director
of its subsidiary, Sterling National Bank & Trust Co. Mr. Feldesman is a member
of the Board of Advisors of the National Institute on Financial Services for
Elders, the National Academy of Elder Law Attorneys, the American Association of
Homes for the Aging, the National Council on the Aging and American Society on
Aging. Mr. Feldesman is also special counsel on elderlaw to United Senior Health
Cooperative. He has authored an article entitled "Long-Term Care Insurance Helps
Preserve an Estate," and a recently published work entitled the Eldercare Primer
Series. Mr. Feldesman has also authored a recently published book entitled
"Dictionary of Eldercare Terminology". He has written another book
"Medicare-Medicaid-Medicap under the Balanced Budget Act of 1997" which is
expected to be published in February, 1998. Mr. Feldesman has a bachelor's
degree in economics from New York University. Mr. Feldesman earned an LLB from
Harvard Law School.
LESLIE E. GOODMAN, Director, has been the Chairman of CREOL Inc.,
Commercial Real Estate On-line, which provides information over the Internet to
real estate professionals, since January 1997. Until December 1996 Mr. Goodman
was the Area President for the North Jersey Region for First Union National Bank
and a Senior Executive Vice President of First Union Corporation. From September
1990 through January 1994, he served as President and Chief Executive
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Officer of First Fidelity Bank, N.A., New Jersey. From January 1994 to December
1995, Mr. Goodman served as a Senior Executive Vice President and a Director of
First Fidelity Bank, National Association until it was merged into First Union.
From January 1990 until December 1995, he also served as Senior Executive Vice
President, member of the Office of the Chairman and a Director of First Fidelity
Bancorporation. Mr. Goodman served as the Chairman of the New Jersey Bankers
Association from March 1995 to March 1996. He is a member of the Board of
Directors and Chairman of the Audit Committee of Wawa Inc. and a member of the
Board of Directors of Tear Drop Golf Company, Inc.
Director Compensation
The Company will pay each Director who is not an employee of the
Company $1,000 per Board meeting attended and $500 per Committee meeting
attended. All Directors are reimbursed by the Company for their out-of-pocket
expenses incurred in connection with attendance at meetings of, and other
activities related to service on, the Board of Directors or any Board Committee.
Audit Committee
The Board of Directors established an Audit Committee in June 1996. The
Audit Committee is currently composed of Messrs. Rodin, Feldesman and Goodman.
The Audit Committee's duties include reviewing internal financial information,
monitoring cash flow, budget variances and credit arrangements, reviewing the
audit program of the Company, reviewing with the Company's independent
accountants the results of all audits upon their completion, annually selecting
and recommending independent accountants, overseeing the quarterly unaudited
reporting process and taking such other action as may be necessary to assure the
adequacy and integrity of all financial information distributed by the Company.
Compensation Committee
The Board of Directors established a Compensation Committee in June
1996. The Compensation Committee is currently composed of Messrs. John Luciani,
Feldesman and Goodman. The Compensation Committee recommends compensation levels
of senior management and works with senior management on benefit and
compensation programs for Company employees.
Executive Compensation
The following table shows, as to the Chief Executive Officer and each
of the four other most highly compensated executive officers information
concerning compensation accrued for services to the Company in all capacities
during the fiscal years ended January 31, 1996 and 1997, respectively.
Summary Compensation Table
<TABLE>
<CAPTION>
Other All
Annual Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Compensation($)
- ------------------------------------------------ ---------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
John Luciani, Chairman of the Board and Chief fiscal
Executive Officer(1)............................. 1995 -- -- -- $1,450,000
fiscal
1996 $500,000 -- -- $497,000
Bernard M. Rodin, Chief Operating Officer, fiscal
President and Director(1)........................ 1995 -- -- -- $1,450,000
fiscal
1996 $500,000 -- -- $497,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------
Other All
Annual Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Compensation($)
- ------------------------------------------------ ---------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
John W. Luciani, III, Executive Vice President and fiscal
Director......................................... 1995 $315,000 -- -- --
fiscal
1996 $350,000 -- -- --
fiscal
Dorian Luciani, Senior Vice President............ 1995 $315,000 -- -- --
fiscal
1996 $350,000 -- -- --
fiscal
Paul Jawin, General Counsel and Senior 1995 $289,050 -- -- --
fiscal
Vice President 1996 $325,000 -- -- --
</TABLE>
- -------------------
(1) Messrs. Luciani and Rodin received dividends and distributions from the
Company's predecessors but did not receive salaries. As of April 1, 1996 a
salary for each of Messrs. Luciani and Rodin was established at the rate of
$600,000 per year. In fiscal 1995 and 1996, such officers also received
$850,000 and $397,000 each as a dividend and $100,000 each for the period
from February 1, 1996 until April 1, 1996, which was in the form of a
dividend but which is classified as officers' compensation for financial
statement purposes.
Compensation Committee Interlocks and Insider Participation
The Board of Directors established a Compensation Committee in June
1996. The Compensation Committee currently consists of Messrs. John Luciani,
Feldesman and Goodman. None of the executive officers of the Company currently
serves on the compensation committee of another entity or on any other committee
of the board of directors of another entity performing similar functions. For a
description of transactions between the Company and members of the Compensation
Committee or their affiliates, see "Certain Transactions."
Stock Plans
1996 Stock Option and Performance Award Plan
The Company has adopted the 1996 Stock Option and Performance Award
Plan (the "Plan"), which authorizes the grant to officers, key employees and
directors of the Company and any parent or subsidiary of the Company of
incentive or non-qualified stock options, stock appreciation rights, performance
shares, restricted shares and performance units. Under the Plan, directors who
are not employees of the Company may not be granted incentive stock options. The
Company plans to reserve 2,500,000 shares of Common Stock for issuance pursuant
to the Plan. Shares issued pursuant to the Plan will be subject to the Transfer
Restrictions. As of the date hereof, no options had been granted under the Plan.
The Plan will be administered by the Board of Directors. The Board of
Directors will determine the prices and terms at which options may be granted.
Options may be exercisable in installments over the option period, but no
options may be exercised after ten years from the date of grant. Stock
appreciation rights may be granted in tandem with options or separately.
The exercise price of any incentive stock option granted to an eligible
employee may not be less than 100% of the fair market value of the shares
underlying such option on the date of grant, unless such employee owns more than
10% of
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the outstanding Common Stock or stock of any subsidiary or parent of the
Company, in which case the exercise price of any incentive stock option may not
be less than 110% of such fair market value. No option may be exercisable more
than ten years after the date of grant and, in the case of an incentive stock
option granted to an eligible employee owning more than 10% of the outstanding
Common Stock or stock of any subsidiary or parent of the Company, no more than
five years from its date of grant. Incentive stock options are not transferable,
except upon the death of the optionee. In general, upon termination of
employment of an optionee (other than due to death or disability), all options
granted to such person which are not exercisable on the date of such termination
immediately expire, and any options that are so exercisable will expire three
months following termination of employment in the case of incentive stock
options, but not until the date the options otherwise would expire in the case
of non-qualified stock options. However, all options will be forfeited
immediately upon an optionee's termination of employment for good cause and upon
an optionee's voluntary termination of employment without the consent of the
Board of Directors.
Upon an optionee's death or termination of employment due to
disability, all options will become 100% vested and will be exercisable (i) in
the case of death, by the estate or other beneficiary of the optionee at any
time prior to the date the option otherwise would expire and (ii) in the case of
the disability of the optionee, by the optionee within one year of the date of
such termination of employment in the case of incentive stock options, or at any
time prior to the date the option otherwise would expire in the case of
non-qualified stock options.
At the time each grant of restricted shares or performance shares or
units or stock appreciation rights is made, the Board of Directors will
determine the duration of the performance or restriction period, if any, the
performance targets, if any, for earning performance shares or units, and the
times at which restrictions placed on restricted shares shall lapse.
CERTAIN TRANSACTIONS
In the first quarter of 1996, the Principal Stockholders reorganized
their businesses by consolidating them into the Company. The Principal
Stockholders transferred all of the issued and outstanding stock of each of 16
Sub-chapter S corporations along with various other assets and liabilities to
the Company in exchange for 3,252,380 shares of the Company's Common Stock. A
partnership in which the Principal Stockholders are the sole partners
transferred to the Company substantially all of its assets, subject to
substantially all of its liabilities, in exchange for 1,626,190 shares of the
Company's Common Stock. The partnership distributed the shares received to the
Principal Stockholders. Six Sub-chapter S corporations which were wholly-owned
by the Principal Stockholders were merged into the Company. Pursuant to the
mergers the shares of the six merged companies were converted into an aggregate
of 10,121,430 shares of the Company's Common Stock. After the reorganization was
complete, the Principal Stockholders owned an aggregate of 15,000,000 shares of
the Company's Common Stock.
Prior to the reorganization discussed above, the business of the
Principal Stockholders was conducted through a partnership and various
Sub-chapter S corporations. These entities and the Company paid dividends and
other distributions to each of the Principal Stockholders of $943,000, $850,000
and $397,000 in Fiscal 1994, 1995 and 1996, respectively, exclusive of amounts
reflected as officers' compensation.
Messrs. Luciani and Rodin, the Chairman of the Board and President of
the Company, respectively, and entities controlled by them serve as general
partners (with interests ranging between 1% and 2%) of partnerships directly and
indirectly owning Multi-Family Properties and on account of such general partner
status have personal liability for recourse partnership obligations and own
small equity ownership interests in the partnerships. The Company holds (i)
notes, aggregating $107.1 million, net of deferred income, as of October 31,
1997, that are secured by the limited partnership interests in such partnerships
and (ii) other partnership receivables aggregating $54.8 million from such
partnerships at October 31, 1997. Messrs. Luciani and Rodin have provided
personal guarantees in certain circumstances to obtain mortgage financing for
certain adult living communities operated by the Company and for certain of the
Company's Investor Note Debt and Unsecured Debt, and the obligations thereunder
may continue. The aggregate amount of such debt personally guaranteed by each of
Messrs. Luciani and Rodin is approximately $47.2 million. In addition, Messrs.
Luciani and Rodin and certain employees will devote a limited portion of their
time to overseeing the third-party managers of Multi-Family Properties and one
adult living community in which the Company has financial interests in that it
holds the related Multi-Family Notes, but in which Messrs. Luciani and Rodin
have equity interests and the Company does not.
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<PAGE>
Subsequent to the reorganization, the Principal Stockholders and one of
their affiliates transfered the Assigned Interests to the Investing Partnerships
that own interests in the Protected Partnerships. The Assigned Interests were
owned personally by the Principal Stockholders and their affiliate and provide
additional assets at the Investing Partnership level and, as a result,
additional security for the related Multi-Family Notes. Two Investing
Partnerships related to these Protected Partnerships have agreed to transfer the
respective Assigned Interests back to the Principal Stockholders and their
affiliate if the applicable Protected Partnership emerges from its bankruptcy
proceeding with possession of its real property and improvements which it owned
at the time of its Chapter 11 Petition. In that the Principal Stockholders
transferred the Assigned Interests in July 1996, the Company recorded a $21.3
million capital contribution in fiscal 1996. The bankruptcy petitions and risk
of loss faced by the Protected Partnerships resulted in the Company recording a
non-cash loss for fiscal 1996 in the amount of $18.4 million (representing the
recorded value of these Multi-Family Notes, net of deferred income and net of
any previously established reserves) due to the deemed full impairment of the
Multi-Family Notes. Each of the Principal Stockholders was a general partner of
three of the Protected Partnerships, but withdrew as a general partner prior to
such partnerships' filings of the respective Chapter 11 Petitions.
During Fiscal 1996 and the nine months ended October 31,1997 the
Company paid to Francine Rodin, the wife of Bernard M. Rodin, the Company's
Chief Operating Officer, President and a Director, $154,875 and $79,000,
respectively, as fees for introducing to the Company broker/dealers that have
assisted the Company in its Syndications of partnership interests and in placing
other securities offered by the Company. Mrs. Rodin will receive a fee with
respect to any future sales through such broker/dealers of such Syndicated
partnership interests and other securities offered by the Company, excluding
shares of Common Stock offered hereby. During Fiscal 1996, Mrs. Rodin received
consulting fees of $49,435 in connection with coordinating the Company's
marketing efforts and travel arrangements. Mrs. Rodin has been an employee of
the Company for the nine months ended October 31, 1997 and performs similar
services.
Walter Feldesman, a Director of the Company, is Of Counsel to the law
firm of Baer Marks & Upham LLP, which acts as counsel to the Company from time
to time. In addition, Mr. Feldesman is a director of Sterling National Bank &
Trust Co. which has entered into a revolving credit agreement with the Company
which permits the Company to borrow up to $8,000,000, of which $4,898,023 was
outstanding at October 31, 1997.
Michele R. Jawin, the daughter of Mr. Rodin and wife of Paul Jawin, the
Company's General Counsel and a Senior Vice President, is Of Counsel to Reid &
Priest LLP, which acts as securities counsel to the Company, including in
connection with this Offering.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of October 31,
1997, before and after giving effect to the Offering, regarding the beneficial
ownership of the Company's Common Stock by (i) each executive officer and
director of the Company, (ii) each stockholder known by the Company to
beneficially own 5% or more of such Common Stock, (iii) each Principal
Stockholder and (iv) all directors and officers as a group. Except as otherwise
indicated, the address of each beneficial holder of 5% or more of such Common
Stock is the same as the Company.
<TABLE>
<CAPTION>
Before Offering After Offering
----------------------- -------------------------
Shares
Beneficial Owner Number % Offered(1) Number %(1)
- ---------------- ------ ---- ---------- ------ ----
<S> <C> <C> <C> <C> <C>
John Luciani....................... 7,500,000 50 0 7,500,000 41.67
Bernard M. Rodin................... 7,500,000 50 0 7,500,000 41.67
All directors and officers 15,000,000 100 0 15,000,000 83.34
as a group......................
</TABLE>
- ------------------------------
(1) Excluding any additional shares of Common Stock sold pursuant to the
Over-allotment Option. Each of the Principal Stockholders has granted to
the Underwriters an Over-allotment Option exercisable within 45 days after
the date of this Prospectus to purchase up to 225,000 shares of Common
Stock. Assuming the full exercise of the Over-allotment Option, the
Principal Stockholders collectively would beneficially own 14,550,000
shares or 80.83% of the Common Stock.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate provides for 40,000,000 authorized shares of
Common Stock. The Certificate also provides for 15,000,000 authorized shares of
Preferred Stock, par value $.0001 per share (the "Preferred Stock"). Upon
completion of the Offering (excluding any Common Stock sold pursuant to the
Over-allotment Option or the exercise of the Representative's Warrants or any
Common Stock issued pursuant to the Plan), there will be outstanding: (a)
18,000,000 shares of Common Stock, consisting of (i) 15,000,000 shares currently
owned by the Principal Stockholders and not offered hereby; and (ii) 3,000,000
shares to be sold by the Company hereby.
The following summary description relating to the Common Stock, and the
Preferred Stock does not purport to be complete. A description of the Company's
capital stock is contained in the Certificate, which is filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. Reference is
made to such exhibit for a detailed description of the provisions thereof
summarized below.
Common Stock
Holders of the Common Stock are entitled to one vote per share and,
subject to the rights of the holders of the Preferred Stock (discussed below),
to receive dividends when and as declared by the Board of Directors, and to
share ratably in the assets of the Company legally available for distribution in
the event of the liquidation, dissolution or winding up of the Company. Holders
of the Common Stock do not have subscription, redemption or conversion rights,
nor do they have any preemptive rights. In the event the Company were to elect
to sell additional shares of its Common Stock following this Offering, investors
in this Offering would have no right to purchase such additional shares. As a
result, their percentage equity interest in the Company would be diluted. The
shares of Common Stock offered hereby will be, when issued and paid for,
fully-paid and not liable for further call or assessment. Holders of the Common
Stock do not have cumulative voting rights, which means that the holders of more
than half of the outstanding shares of Common Stock (subject to the rights of
the holders of the Preferred Stock) can elect all of the Company's directors, if
they choose to do so. In such event, the holders of the remaining shares would
not be able to elect any directors. The Board is empowered to fill any vacancies
on the Board. Except as otherwise required by the Delaware Law, all stockholder
action is taken by vote of a majority of the outstanding shares of Common Stock
voting as a single class present at a meeting of stockholders at which a quorum
(consisting of a majority of the outstanding shares of the Company's Common
Stock) is present in person or by proxy.
Preferred Stock
The Company is authorized by the Certificate to issue a maximum of
15,000,000 shares of Preferred Stock, in one or more series and containing such
rights, privileges and limitations, including voting rights, conversion
privileges and/or redemption rights, as may, from time to time, be determined by
the Board of Directors. Preferred Stock may be issued in the future in
connection with acquisitions, financings or such other matters as the Board of
Directors deems to be appropriate. In the event that any such shares of
Preferred Stock shall be issued, a Certificate of Designation, setting forth the
series of such Preferred Stock and the relative rights, privileges and
limitations with respect thereto, shall be filed with the Secretary of State of
the State of Delaware. The effect of such Preferred Stock is that the Company's
Board of Directors alone, within the bounds and subject to the federal
securities laws and the Delaware Law, may be able to authorize the issuance of
Preferred Stock which could have the effect of delaying, deferring or preventing
a change in control of the Company without further action by the stockholders
and may adversely affect the voting and other rights of holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may also
adversely affect the voting power of the holders of Common Stock, including the
loss of voting control to others.
Section 203 of Delaware Law
Section 203 of the Delaware Law prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date, the business combination is approved by the board of directors
and by the affirmative vote of at least 66-2/3%
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<PAGE>
of the outstanding voting stock that is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person, who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock. Section 203 may
have a depressive effect on the market price of the Common Stock.
Anti-Takeover Effects of Provisions of the Company's Certificate of
Incorporation and By-Laws
Certain provisions of the Certificate and By-Laws of the Company
summarized in the following paragraphs will become operative immediately prior
to closing of this Offering and may be deemed to have an anti-takeover effect
and may delay or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders. These
provisions may have a depressive effect on the market price of the Common Stock.
Special Meeting of Stockholders. The Certificate provides that special
meetings of stockholders of the Company may be called only by the Board of
Directors. This provision will make it more difficult for stockholders to take
action opposed by the Board of Directors. This provision of the Certificate may
not be amended or repealed by the stockholders of the Company, except with the
approval of the holders of two-thirds of the Company's outstanding Common Stock.
No Stockholder Action by Written Consent. The Certificate provides that
no action required or permitted to be taken at any annual or special meeting of
the stockholders of the Company may be taken without a meeting, and the power of
stockholders of the Company to consent in writing, without a meeting, to the
taking of any action is specifically denied. Such provision limits the ability
of any stockholders to take action immediately and without prior notice to the
Board of Directors. Such a limitation on a majority stockholder's ability to act
might impact such person's or entity's decision to purchase voting securities of
the Company. This provision of the Certificate may not be amended or repealed by
the stockholders of the Company, except with the approval of the holders of
two-thirds of the Company's outstanding Common Stock.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The By-Laws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company (a) in the case of an annual meeting that is called for a date that is
within 30 days before or after the anniversary date of the immediately preceding
annual meeting of stockholders, not fewer than 60 days nor more than 90 days
prior to such anniversary date and (b) in the case of the annual meeting to be
held during the first complete fiscal year following the date of this Prospectus
and in the case of an annual meeting that is called for a date that is not
within 30 days before or after the anniversary date of the immediately preceding
annual meeting, or in the case of a special meeting of stockholders called for
the purpose of electing directors, not later than the close of business on the
tenth day following the day on which notice of the date of the meeting was
mailed or public disclosure of the date of the meeting was made, whichever
occurs first. The By-Laws also will specify certain requirements for a
stockholder's notice to be in proper written form. These provisions may preclude
some stockholders from bringing matters before the stockholders at an annual or
special meeting or from making nominations for directors at an annual or special
meeting. As set forth below, the By-Laws may not be amended or repealed by the
stockholders of the Company, except with the approval of holders of two-thirds
of the Company's outstanding Common Stock.
Adjournment of Meetings of Stockholders. The By-Laws provide that when
a meeting of stockholders of the Company is convened, the presiding officer, if
directed by the Board of Directors, may adjourn the meeting, if no quorum is
present for the transaction of business or if the Board of Directors determines
that adjournment is necessary or appropriate to enable the stockholders to
consider fully information the Board of Directors determines has not been made
sufficiently or timely available to stockholders or to otherwise effectively
exercise their voting rights. This provision will, under certain circumstances,
make more difficult or delay actions by the stockholders opposed by the Board of
Directors. The effect of such provision could be to delay the timing of a
stockholders' meeting, including in cases where stockholders have brought
proposals before the stockholders that are in opposition to those brought by the
Board of Directors and therefore may provide the Board of Directors with
additional flexibility in responding to such stockholder proposals. As set forth
below, the By-
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Laws may not be amended or repealed by the stockholders of the Company, except
with the approval of holders of two-thirds of the Company's outstanding Common
Stock.
Amendment of the By-Laws. The Certificate provides that the By-Laws may
be amended or repealed by the Board of Directors and may not be amended or
repealed by the stockholders of the Company, except with the consent of holders
of two-thirds of the Company's outstanding Common Stock. This provision will
make it more difficult for stockholders to make changes to the By-Laws that are
opposed by the Board of Directors. This provision of the Certificate may not be
amended or repealed by the stockholders of the Company, except with the approval
of the holders of two-thirds of the Company's outstanding Common Stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is First Union
National Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for Common
Stock of the Company. No prediction can be made as to the effect, if any, that
market sales of Common Stock or the availability of Common Stock for sale will
have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock of the Company, or
the perception that such sales could occur, in the public market after the lapse
of the restrictions described below could adversely affect the prevailing market
price and the ability of the Company to raise equity capital in the future at a
time and price it deems appropriate.
Upon completion of the Offering, the Company will have outstanding
18,000,000 shares of Common Stock. Of these shares, 3,000,000 shares of Common
Stock, representing all of the shares sold in the Offering, will be freely
tradeable without restriction or limitation under the Securities Act, except for
shares, if any, purchased by an "affiliate" of the Company (as defined in the
rules and regulations of the Commission under the Securities Act) which shares
will be subject to the resale limitations of Rule 144 under the Securities Act.
The remaining 15,000,000 outstanding shares are "restricted" shares within the
meaning of Rule 144 (the "Restricted Shares"). The Restricted Shares outstanding
on the date hereof were issued and exchanged by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act and may be sold only if they are registered under the Securities Act or
unless an exemption from registration, such as the exemption provided by Rule
144 under the Securities Act, is available.
In general, under Rule 144, as currently in effect, any person (or
persons whose shares are aggregated), including an affiliate, who has
beneficially owned Restricted Shares for at least a one-year period (as computed
under Rule 144) is entitled to sell within any three-month period a number of
such shares that does not exceed the greater of (i) 1% of the then outstanding
shares of Common Stock (approximately 180,000 shares after giving effect to the
Offering) and (ii) the average weekly trading volume in the Company's Common
Stock during the four calendar weeks immediately preceding such sale. Sales
under Rule 144 are also subject to certain provisions relating to the manner and
notice of sale and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not deemed an
affiliate of the Company at any time during the 90 days immediately preceding a
sale, and who has beneficially owned Restricted Shares for at least a two-year
period (as computed under Rule 144), would be entitled to sell such shares under
Rule 144(k) without regard to the volume limitation and other conditions
described above.
The Company, the Principal Stockholders and the Company's officers and
directors have agreed not to, directly or indirectly, offer, sell, transfer,
pledge, assign, hypothecate or otherwise encumber any shares of Common Stock or
securities convertible into Common Stock, whether or not owned, or dispose of
any interest therein under Rule 144 or otherwise for a period of 13 months
following the date of this Prospectus, and may not do so for an additional six
month period without the prior written consent of the Representative (the
"Transfer Restrictions"). However, the issuances of shares of Common Stock,
whether directly or upon the exercise or conversion of exchangeable or
convertible securities (including options granted under the Plan), and the
transfers of shares of Common Stock by the Principal Stockholders to effectuate
estate planning, are exempted from the Transfer Restrictions to the extent that
the recipients of shares of Common Stock in any such transactions agree to be
bound by the Transfer Restrictions. Notwithstanding the foregoing, the Transfer
Restrictions do not apply to the issuance of the Company's securities in
connection with mergers or acquisitions, the sale
69
<PAGE>
of Common Stock in connection with the exercise of the Over-allotment Option or
shares of Common Stock, or securities convertible or exchangeable for shares of
Common Stock, which are publically offered by the Company. The Company intends
to register approximately 2,500,000 shares of Common Stock reserved for issuance
pursuant to the Plan and has issued the Representative's Warrants which entitles
the holders to purchase up to 300,000 shares of Common Stock. The
Representative's Warrants are issuable for a period of four years commencing one
year from the date of this Prospectus. The sale or issuance, or the potential
for sale or issuance, of Common Stock during or after such 13-month or 19-month
periods could have an adverse impact on the market price of the Common Stock
offered hereby. See "Underwriting".
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Royce
Investment Group, Inc. is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the
Company , and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the number of shares of Common Stock set forth opposit their
names:
Number of Shares
Underwriters of Common Stock
Royce Investment Group, Inc.
Total........................................................ 3,000,000
The Underwriters are committed to purchase all the shares of Common
Stock offered hereby, if any of such Shares are purchased. Under certain
circumstances, the commitments of non-defaulting Underwriters may be increased.
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to conditions precedent specified therein.
The Company has been advised by the Representative that the
Underwriters propose initially to offer the Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less concessions not in excess of $ per share
of Common Stock. Such dealers may reallow a concession not in excess of $ per
share of Common Stock to certain other dealers. After the commencement of the
Offering, the public offering price, concession and reallowance may be changed
by the Representative. The Representative has informed the Company that it does
not expect sales to discretionary accounts by the Underwriters to exceed five
percent of the Common Stock offered hereby.
The Company and the Principal Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof. The Company has also agreed to pay to the
Representative a non-accountable expense allowance and a consulting fee equal to
3% and 1%, respectively, of the gross proceeds derived from the sale of the
Common Stock offered hereby, of which $50,000 has been paid to date. The
Principal Stockholders will pay the non-accountable expense allowance and
consulting fee with respect to shares sold by them if the Over-allotment Option
is exercised. The Company will pay all other expenses relating to the Offering
and the Over-allotment Option, if exercised.
The Principal Stockholders have granted to the Underwriters the
Over-allotment Option, exercisable during the 45-day period from the date of
this Prospectus, to purchase up to an additional 450,000 shares of Common Stock
at the initial public offering price per share offered hereby, less underwriting
discounts and commissions set forth on the cover page of this Prospectus. Such
option may be exercised only for the purpose of covering over-allotments, if
any, incurred in the sale of the Common Stock offered hereby. To the extent such
option is exercised in whole or in part, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase the number of the
additional shares of Common Stock proportionate to its initial commitment. The
Company will not receive any of the proceeds from such sale of shares of Common
Stock by the Principal Stockholders.
70
<PAGE>
In connection with this Offering, the Company has agreed to issue
Representative's Warrants to purchase up to 300,000 shares of Common Stock at an
exercise price equal to 120% of the initial public offering price. The
Representative's Warrants are exercisable for a period of four years, commencing
one year from the date of this Prospectus.
The Company, the Principal Stockholders and the Company's officers and
directors have agreed not to, directly or indirectly, offer, sell, transfer,
pledge, assign, hypothecate or otherwise encumber any shares of Common Stock or
securities convertible into Common Stock, whether or not owned, or dispose of
any interest therein under Rule 144 or otherwise for a period of 13 months
following the date of this Prospectus, and may not do so for an additional six
month period without the prior written consent of the Representative (the
"Transfer Restrictions"). However, the issuances of shares of Common Stock,
whether directly or upon the exercise or conversion of exchangeable or
convertible securities (including options granted under the Plan), and the
transfers of shares of Common Stock by the Principal Stockholders to effectuate
estate planning, are exempted from the Transfer Restrictions to the extent that
the recipients of shares of Common Stock in any such transactions agree to be
bound by the Transfer Restrictions. Notwithstanding the foregoing, the Transfer
Restrictions do not apply to the issuance of the Company's securities in
connection with mergers or acquisitions, the sale of Common Stock in connection
with the exercise of the Over-allotment Option or shares of Common Stock, or
securities convertible or exchangeable for shares of Common Stock, which are
publically offered by the Company. An appropriate legend shall be marked on the
face of certificates representing all such securities.
In connection with this Offering, the Company has agreed to sell to the
Representative, at a price of $.0001 per warrant, the Representative's Warrants
to purchase from the Company up to 300,000 shares of Common Stock. The
Representative's Warrants are initially exercisable at a price of $12.00 per
share (120% of the initial public offering price per share of Common Stock) for
a period of four years, commencing one year after the date of this Prospectus
and are restricted from sale, transfer, assignment or hypothecation for a period
of 12 months from the date of this Prospectus, except to officers of the
Representative. The Representative's Warrants provide for adjustment in the
number of securities issuable upon the exercise thereof as a result of certain
subdivisions and combinations of the Common Stock. The Representative's Warrants
contain anti-dilution provisions providing for the adjustment of the exercise
price and the number of shares of Common Stock issuable upon exercise of the
Representative's Warrants upon the occurrence of certain events. The
Representative's Warrants grant to the holders thereof certain rights of
registration under the Securities Act with respect to the Representative's
Warrants and the securities issuable upon exercise thereof.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the public offering prices of the Common Stock was
determined based upon negotiations between the Company and the Representative
and does not necessarily bear any relationship to the Company's asset value, net
worth, or other established criteria of value. The factors considered in
determining the price include, but were not limited to, the history of, and the
prospects for, the Company and the industry in which it competes, its past and
present operations, its past and present earnings and the trend of such
earnings, the present state of the Company's development, the general condition
of the securities markets at the time of this Offering and the recent market
prices of publicly traded common stocks of comparable companies. There can be no
assurance that the Common Stock can be resold at its offering price, if at all.
Purchasers of the Common Stock will be exposed to a substantial risk of a
decline in the market prices of the Common Stock after the Offering, if a market
develops.
The Underwriters may engage in transactions that stabilize, maintain,
or otherwise affect the price of the Common Stock, including (i) syndicate
covering transactions, which consist of the placing of any bid or the effecting
of any purchase on behalf of the Underwriters to reduce a short position created
in connection with the Offering; (ii) penalty bids, which permit the
Representative to reclaim from an Underwriter or selling group member a selling
concession accruing to such Underwriter or selling group member in connection
with the Offering when securities originally sold by such Underwriter are
purchased in syndicate covering transactions; and (iii) short sales, by which
the Underwriters sell securities which they do not own at the time that the sale
transaction becomes a binding obligation.
The foregoing is a summary of the principal terms of the Underwriting
Agreement described above. Reference is made to a copy of such agreement which
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part for a more complete description thereof. See "Available Information."
71
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by the law firm of Reid & Priest LLP, New York, New
York, as counsel to the Company in connection with this Offering. Certain legal
matters relating to the sale of the Common Stock will be passed upon for the
Underwriters by Greenberg Traurig Hoffman Lipoff Rosen & Quentel New York, New
York.
EXPERTS
The consolidated financial statements of the Company as of January 31,
1996 and 1997 and for each of the three years in the period ended January 31,
1997, included in this Prospectus and Registration Statement have been audited
by Deloitte & Touche LLP, independent accountants, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington D.C., a Registration Statement under the Securities
Act with respect to the Securities offered hereby. This prospectus, filed as a
part of the Registration Statement, does not contain certain information set
forth in or annexed as exhibits to the Registration Statement. For further
information regarding the Company and the Common Stock offered hereby, reference
is made to the Registration Statement and to the exhibits filed as a part
thereof, which may be inspected at the office of the Commission without charge
or copies of which may be obtained therefrom upon request to the Commission and
payment of the prescribed fee. With respect to each contract, agreement or other
document referred to in this Prospectus and filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matter involved.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, will file reports and other information with the Commission. Reports,
proxy statements and other information filed by the Company, including the
Registration Statement and the exhibits filed as a part thereof, can be
inspected and copied at the public reference facilities of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549, at the
following regional offices: New York Regional Office, Seven World Trade Center,
Suite 1300, New York, New York 10048, and Chicago Regional Office, 500 West
Madison Street, Suite 1400, Chicago Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site (http://www.sec.gov) that contains reports,
proxy statements and other information filed electronically by the Company,
including the Registration Statement.
72
<PAGE>
GRAND COURT LIFESTYLES, INC. and SUBSIDIARIES
----------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Independent Auditors' Report F-2
Consolidated Balance Sheets as of January 31, 1996 and 1997 and (unaudited)
October 31, 1997 F-3
Consolidated Statements of Operations for the Years Ended January 31, 1995,
1996 and 1997, (unaudited) the Three Months Ended October 31, 1996 and
1997 and (unaudited) the Nine Months Ended October 31, 1996 and 1997 F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended January 31, 1995, 1996 and 1997 and (unaudited) the Nine Months
Ended October 31, 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended January 31, 1995,
1996 and 1997 and (unaudited) the Nine Months ended October 31, 1996
and 1997. F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Grand Court Lifestyles, Inc.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Grand Court
Lifestyles, Inc. and subsidiaries as of January 31, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended January 31, 1997. 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 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 financial position of Grand Court
Lifestyles, Inc. and subsidiaries as of January 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 1997 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
April 28, 1997
F-2
<PAGE>
GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 31, October 31
------------------------------ ------------
(unaudited)
1996 1997 1997
-------- --------- ---------
<S> <C> <C> <C>
Assets
Cash and cash equivalents........................ $ 17,961 $ 14,111 $ 9,679
Notes and receivables - net...................... 223,736 221,931 238,128
Investments in partnerships...................... 2,607 3,056 3,700
Other assets - net............................... 15,251 22,095 39,674
-------- -------- --------
Total assets..................................... $259,555 $261,193 $291,181
======== ======== ========
Liabilities and Stockholders' Equity
Loans and accrued interest payable............... $140,094 $142,628 $157,140
Construction loan payable........................ -- 2,750 16,755
Notes and commissions payable.................... 1,684 1,716 4,012
Other liabilities................................ 4,018 4,393 6,685
Deferred income.................................. 79,442 78,171 76,528
-------- -------- --------
Total liabilities................................ 225,238 229,658 261,120
-------- -------- --------
Commitments and contingencies
Stockholders' equity
Preferred Stock, $.001 par value - authorized,
15,000,000 shares; none issued and
outstanding .................................... -- -- --
Common Stock, $.01 par value - authorized,
40,000,000 shares; issued and outstanding,
15,000,000 shares................................ 150 150 150
Paid-in capital 34,167 53,853 53,853
Accumulated deficit -- (22,468) (23,942)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY....................... 34,317 31,535 30,061
-------- -------- --------
Total liabilities and stockholders' equity....... $259,555 $261,193 $291,181
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
Years ended October 31, October 31,
January 31, (unaudited) (unaudited)
------------------------------------- --------------------- ----------------------
1995 1996 1997 1996 1997 1996 1997
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Sales............................. $22,532 $31,973 $36,021 $6,897 $10,483 $21,524 $31,401
Syndication fee income............ 5,587 8,603 7,690 1,494 1,886 4,976 6,529
Deferred income earned............ 4,399 9,971 5,037 236 3,785 708 4,246
Interest income................... 9,503 12,689 13,773 3,157 2,467 11,043 8,081
Property management fees from
related parties................... 4,351 4,057 2,093 755 2,073 1,604 3,250
Equity in earnings from
partnerships.................... 276 356 423 136 125 250 357
Other income...................... -- 1,013 -- -- 468 -- 751
------- ------ -------- ------- ------- -------- -------
46,648 68,662 65,037 12,675 21,287 40,105 54,615
------- ------ -------- ------- ------- -------- -------
Cost and Expenses:
Cost of sales..................... 21,743 27,688 34,019 8,688 10,879 19,468 25,947
Selling........................... 6,002 7,664 7,176 1,114 1,803 4,603 6,186
Interest.......................... 13,610 15,808 16,394 4,215 5,203 12,017 13,991
General and administrative........ 6,450 7,871 7,796 1,998 2,352 5,687 6,415
Loss on impairment of
notes and receivables........... -- -- 18,442 1,589 -- 18,442 --
Officers' compensation............ 1,200 1,200 1,200 300 300 900 900
Depreciation and ---
amortization.................... 2,290 2,620 3,331 809 1,054 2,539 2,650
------- ------ -------- ------- ------- -------- -------
51,295 62,851 88,358 18,713 21,591 63,656 56,089
------- ------ -------- ------- ------- -------- -------
Income (loss) before
provision (benefit) for
income taxes...................... (4,647) 5,811 (23,321) (6,038) (304) (23,551) (1,474)
Provision (benefit) for
income taxes...................... -- -- -- -- -- -- --
------- ------ -------- ------- ------- -------- -------
Net income (loss)................... (4,647) 5,811 (23,321) (6,038) (304) (23,551) (1,474)
Pro forma income tax
provision (benefit)............... (1,859) 2,324 -- -- -- -- --
------- ------ -------- ------- ------- -------- -------
Pro forma net income (loss)......... $(2,788) $3,487 $(23,321) $(6,038) $ (304) $(23,551) $(1,474)
======= ====== ======== ======= ======= ======== =======
Pro forma earnings (loss)
per common share.................. $ (0.19) $ 0.23 $ (1.55) $ (0.40) $ (0.02) $ (1.57) $( 0.10)
======= ====== ======== ======= ======= ======== =======
Pro forma weighted average 15,000 15,000 15,000 15,000 15,000 15,000 15,000
common shares used................ ======= ====== ======== ======= ======= ======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1995, 1996 AND 1997 AND (UNAUDITED) NINE MONTHS ENDED
OCTOBER 31, 1997
(In Thousands)
- --------------------------------------------------------------------------------
Stockholders' equity, February 1, 1994.................... $36,739
Net loss ............................................... (4,647)
Dividends............................................... (1,886)
-------
Stockholders' equity, January 31, 1995.................... 30,206
Net income.............................................. 5,811
Dividends............................................... (1,700)
-------
Stockholders' equity, January 31, 1996.................... 34,317
Net loss ............................................... (23,321)
Capital Contribution ................................... 21,333
Dividends .............................................. (794)
-------
Stockholders' equity, January 31, 1997 ................... 31,535
Net loss (unaudited).................................... (1,474)
-------
Stockholders' equity, October 31, 1997 (unaudited)........ $30,061
=======
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months ended
October 31,
Years ended January 31, (unaudited)
----------------------------------- --------------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows provided (used) from operating activities:
Net income (loss)............................ $(4,647) $ 5,811 $(23,321) $(23,551) $(1,474)
------- ------- -------- -------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 2,290 2,620 3,331 2,539 2,650
Loss on impairment of notes and
receivables................................ -- -- 18,442 18,442 --
Deferred income earned..................... (4,399) (9,971) (5,037) (708) (4,246)
Adjustment for changes in assets and liabilities:
Notes and receivables ...................... 174 (2,560) 1,530 118 (234)
(Increase) decrease in notes and
receivables............................... 7,223 (1,162) 3,166 2,132 (15,963)
Increase (decrease) in commissions
payable................................... (501) (244) 211 574 427
Increase (decrease) in other liabilities... (506) 2,018 375 346 2,292
Increase (decrease) in deferred income..... 1,513 4,458 3,766 (70) 2,603
------- ------- -------- -------- -------
5,794 (4,841) 25,784 23,373 (12,471)
------- ------- -------- -------- -------
Net cash provided (used) by operating
activities............................. 1,147 970 2,463 (178) (13,945)
------- ------- -------- -------- -------
Cash flows from investing activities:
Increase in investments...................... (591) (567) (449) (36) (644)
Increase in Construction in Progress -- -- (6,742) (5,653) (13,121)
Net cash used by investing
activities.............................. (591) (567) (7,191) (5,689) (13,765)
------- ------- -------- -------- -------
Cash flows from financing activities:
Payments on loans payable.................... (31,311) (39,326) (55,340) (39,450) (21,778)
Increase in loans ........................... 44,014 52,065 57,874 38,204 36,290
Increase in construction loan payable........ -- -- 2,750 -- 14,005
Increase in other assets..................... (7,180) (2,790) (3,433) (1,070) (7,108)
Payments of notes payable.................... (2,578) (1,641) (179) (124) (131)
Proceeds from notes payable -- -- -- -- 2,000
Dividends.................................... (1,886) (1,700) (794) (794) --
------- ------- -------- -------- -------
Net cash provided (used) in financing
activities.............................. 1,059 6,608 878 (3,234) 23,278
------- ------- -------- -------- -------
</TABLE>
F-6
<PAGE>
GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Increase (decrease) in cash and cash
equivalents.................................... 1,615 7,011 (3,850) (9,101) (4,432)
Cash and cash equivalents, beginning of period. 9,335 10,950 17,961 17,961 14,111
------- ------- ------- ------- -------
Cash and cash equivalents, end of period....... $10,950 $17,961 $14,111 $ 8,860 $ 9,679
======= ======= ======= ======= =======
Supplemental information:
Interest paid................................ $12,914 $16,922 $16,739 $11,587 $9,015
======= ======= ======= ======= =======
Non cash capital contribution................ -- -- $21,333 $21,333 --
======= ======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1995, 1996, and 1997
(In Thousands)
- --------------------------------------------------------------------------------
(Information as of and for the nine months ended October 31, 1997 is unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Grand Court Lifestyles, Inc. (the "Company") was formed pursuant to the
merger of various Sub-chapter S corporations which were wholly-owned by
certain principal stockholders of the Company (the "Principal
Stockholders") and the transfer of certain assets by and assumption of
certain liabilities of (i) a partnership that was wholly-owned by the
Principal Stockholders and (ii) the Principal Stockholders
individually. In exchange for the transfer of such stock, assets and
liabilities, the Principal Stockholders received shares of the
Company's common stock. These transactions are collectively called the
"reorganization". All of the assets and liabilities were transferred at
historical cost. The reorganization was effective as of April 1, 1996
and accordingly, accumulated deficit represents results of operations
subsequent to that date. Prior to the reorganization, the various
Sub-chapter S corporations and the partnership, which were wholly-owned
by the Principal Stockholders, were historically reported on a combined
basis.
The Company (i) filed a Restated Certificate of Incorporation on March
13, 1997 that provides for, among other things, the authorization of
40,000,000 shares of Common Stock and 15,000,000 shares of Preferred
Stock, (ii) on March 13, 1997 effected an approximate 1,626.19-for-1
stock split of the issued and outstanding Common Stock (all shares have
been restated for prior periods) and (iii) adopted a Stock Option Plan
reserving for issuance up to 2,500,000 shares of Common Stock pursuant
to stock options and other stock awards. No stock options have been
granted to date.
Line of Business - The Company, a fully integrated provider of adult
living accommodations and services, acquires, finances, develops and
manages adult living communities. The Company's revenues have been and
are expected to continue to be primarily derived from sales of
partnership interests in partnerships it organizes to finance the
acquisition of existing adult living communities. As a result of the
Company's financing activities, limited partnerships ("Investing
Partnerships") are formed whereby the Company retains a 1% to 1.5%
general partnership interest. Investing Partnerships generally own a
98.5% to 99% interest in partnerships that own adult living communities
("Owning Partnerships"). The Company also arranges for the mortgage
financing of the adult living communities and is involved in the
development and management of adult living communities. Another source
of income is interest income on notes receivable.
Unaudited Interim Financial Statements - The results of operations for
an interim period have been prepared on the same basis as the year end
financial statements and, in the opinion of management contain all
adjustments, consisting of only normally recurring adjustments,
necessary for a fair presentation of the results for the full year. The
results of operations for an interim period may not give a true
indication of results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - The Company considers cash and cash
equivalents to include cash on hand, demand deposits and highly liquid
investments with maturities of three months or less.
Revenue Recognition - Revenue from sales of interests in partnerships,
is recognized under the full accrual method of accounting when the
profit on the transaction is determinable, that is, the collectibility
of the sales price is reasonably assured and the earnings process is
virtually complete. The profit recognized has been reduced by the
estimated maximum reasonably possible exposure to loss. Revenue from
sales of interests in partnerships includes any syndication fees earned
by the Company. The Company determines the collectibility of the sales
price by evidence supporting the buyers' substantial initial and
continuing investment in the adult living communities as well as other
factors such as age, location and cash flow of the underlying property.
F-8
<PAGE>
The Company has deferred income on sales to Investing Partnerships of
interests in Owning Partnerships. The Company has arranged for the
private placement of limited partnership interests in Investing
Partnerships. Offerings of interests in Investing Partnerships which
were formed to acquire controlling interests in Owning Partnerships
which own adult living properties ("Adult Living Owning Partnerships")
provide that the limited partners will receive guaranteed distributions
during each of the first five years of their investment equal to
between 11% to 12% of their then paid-in capital contributions.
Pursuant to management contracts with the Adult Living Owning
Partnerships, for such five-year period, the Company is required to pay
to the Adult Living Owning Partnerships, amounts sufficient to fund (i)
any operating cash deficiencies and (ii) any part of such guaranteed
return not paid from cash flow from the related property (which the
Adult Living Owning Partnerships distribute to the Investing
Partnerships for distribution to limited partners) (collectively,
"Management Contract Obligations"). The amount of deferred income for
each property is calculated in a multi-step process. First, based on
the property's cash flow in the previous fiscal year, the probable cash
flow for the property for the current fiscal year is determined and
that amount is initially assumed to be constant for each remaining year
of the Management Contract Obligations period (the "Initial Cash
Flow"). The Initial Cash Flow is then compared to the Management
Contract Obligations for the property for each remaining year of the
five-year period. If the Initial Cash Flow exceeds the Management
Contract Obligations for any fiscal year, the excess Initial Cash Flow
is added to the assumed Initial Cash Flow for the following fiscal year
and this adjusted Initial Cash Flow is then compared to the Management
Contract Obligations for said following fiscal year. If the Initial
Cash Flow is less than the Management Contract Obligations for any
fiscal year, a deferred income liability is created in an amount equal
to such shortfall and no adjustment is made to the Initial Cash Flow
for the following year. Such deferred income liability represents the
estimated maximum reasonably possible exposure to loss as discussed
above. As this process is performed for each property on a quarterly
basis, changes in a property's actual cash flow will result in changes
to the assumed Initial Cash Flow utilized in this process and will
result in increases or decreases to the deferred income liability for
an individual property. Any deferred income liability created in the
year the interest in the Owning Partnership is sold reduces revenues
relating to the sale. The payment of the Management Contract
Obligations, however, will generally not result in the recognition of
expense unless the property's actual cash flow for the year is less
than the expected Initial Cash Flow for that year, as adjusted, and as
a result thereof, the amount paid by the Company in respect of the
Management Contract Obligations is greater than the amount assumed in
establishing the deferred income liability. Such expense amounted to
$229,000, $282,000, $2.5 million and $4.6 million for the years ended
January 31, 1995, 1996, 1997 and the nine months ended October 31,
1997, respectively, and such expense is included as a component of cost
of sales. If, however, the property's actual cash flow is greater than
the Initial Cash Flow for the year, as adjusted, the Company's earnings
will be enhanced by the recognition of deferred income earned and, to
the extent cash flow exceeds Management Contract Obligations, incentive
management fees. The Company recognized such incentive management fees
in the amount of $3.9 million, $3.3 million, $1.2 million and $2.6
million for the years ended January 31, 1995, 1996 and 1997 and the
nine months ended October 31, 1997, respectively.
The Company accounted for the sales of interests in Owning Partnerships
which own multi-family properties ("Multi-Family Owning Partnerships")
under the installment method. Under the installment method the gross
profit is determined at the time of sale. The revenue recorded in any
given year would equal the cash collections multiplied by the gross
profit percentage. At the time of sale, the Company deferred all future
income to be recognized on these transactions until cash is received.
Losses on these projects were recognized immediately upon sale.
Allowance on Notes Receivable - In the event that the facts and
circumstances indicate that the collectibility of a note may be
impaired, an evaluation of recoverability is performed. If an
evaluation is performed, the Company compares the recorded value of the
note and other partnership receivables, if any, to the value of the
underlying property less any encumbrances to determine if an allowance
is required for impairment. A significant portion of the interest
income on multi-family notes is recognized as cash is collected.
Accounting Estimates - The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make significant estimates and assumptions that affect
the reported amount of assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
Principles of Consolidation - The consolidated financial statements
include those of the Company and its subsidiaries. The effects of all
significant intercompany transactions have been eliminated.
F-9
<PAGE>
Deferred Loan Costs - Costs incurred in connection with obtaining
long-term financing have been deferred and are amortized over the term
of the financing.
Construction in Progress - Costs incurred in connection with the
construction and development of adult living communities the Company
intends to build are capitalized. Such costs include the capitalization
of interest during the construction period. If a project is
discontinued or capitalized costs are deemed not recoverable, the
applicable capitalized project costs are expensed.
Investments - The Company accounts for its interests in adult living
limited partnerships under the equity method of accounting. The Company
uses this method because as the general partner it can exercise
significant influence over the operating and financial policies of such
partnerships. Under this method the Company records its share of income
and loss of the entity as well as any distributions or contributions as
an increase or decrease to the investment account. The carrying amount
of the investments in limited partnerships differs from the Company's
underlying equity interest based upon its stated ownership percentages.
Such differences are attributable to the disproportionate amount of
money and notes invested in the entities by the Company for its equity
interest as compared to the other investors. This difference is being
amortized over the estimated life of the underlying partnership.
Property Management Fees - Property management fees earned for services
provided to related parties are recognized as revenue when related
services have been performed.
Pro Forma Income Taxes - Income tax provisions at a combined Federal
and state tax rate of 40% have been provided on a pro forma basis. The
various Sub-chapter S corporations which were either merged into or
acquired by the Company and the partnership which transferred assets to
the Company were not required to pay taxes because any taxes were the
responsibility of the Principal Stockholders who were the sole
shareholders and partners of those entities.
Earnings per Share - The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" in February 1997. This pronouncement establishes standards for
computing and presenting earnings per share and is effective for the
Company's Fiscal 1997 year-end financial statements. The Company's
management has determined that this standard will not have a
significant impact on the Company's computation or presentation of net
income per common share.
New Accounting Pronouncements - The Financial Accounting Standards
Board has recently issued several new accounting pronouncements.
Statement No. 129, "Disclosure of Information about Capital Structure"
establishes standards for disclosing information about an entity's
capital structure, and is effective for financial statements for
periods ending after December 15, 1997. Statement No. 130, "Reporting
Comprehensive Income" establishes standards for reporting and display
of comprehensive income and its components, and is effective for fiscal
years beginning after December 15, 1997. Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers, and is effective for financial statements for periods
beginning after December 15, 1997. The Company believes that its future
adoption of these standards will not have a material effect on the
Company's financial position or results of operations.
Reclassification - Certain amounts in prior years have been
reclassified to conform with current period presentation.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is unable to determine the fair value of its notes and
receivables as such instruments do not have a ready market. Other
financial instruments are believed to be stated at approximately their
fair value.
F-10
<PAGE>
4. NOTES AND RECEIVABLES
Notes and other receivables are from related parties and consist of the
following:
<TABLE>
<CAPTION>
January 31, October 31,
--------------------------------- ---------------
1996 1997 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
Notes receivable-- multi-family (a)(f).................. $174,025 $174,164 $173,911
Notes and accrued interest receivable
-- adult living (b).................................... 3,228 3,906 14,735
Other partnership receivables (c)(f).................... 52,295 53,154 56,029
Mortgages (d)........................................... 7,188 -- --
Accrued interest receivable............................. -- 816 3,562
-------- -------- --------
236,736 232,040 248,237
Less allowance for uncollectible receivables (e)........ 13,000 10,109 10,109
-------- -------- --------
$223,736 $221,931 $238,128
======== ======== ========
</TABLE>
At January 31, 1996 and 1997 and at October 31, 1997 the carrying value
of impaired notes receivable, net of related deferred income, were
approximately $48,900, $34,742 and $35,116, respectively. Interest
income on impaired notes is recognized on the cash basis. Such income
recognized was $2,272, $1,926 and $743 for the years ended January 31,
1996 and 1997 and for the nine months ended October 31, 1997,
respectively.
(a) The Company has notes receivable from the Investing Partnerships which
were formed to acquire controlling interests in Owning Partnerships
which own multi-family properties. The notes have maturity dates
ranging from ten to fifteen years from the date of the acquisition of
the respective partnership interests. At October 31, 1997, 51 of the
169 notes (approximate face value $29,600) have reached their final
maturity dates and these final maturity dates have been extended by
the Company. The underlying property relating to one extended Multi-
Family Note was refinanced in Fiscal 1996 and such refinancing
generated an approximate $800 payment to the Company under such
Multi-Family Note. In addition, the Company anticipates that two more
multi-family properties relating to two other extended Multi-Family
Notes will be refinanced in the remaining portion of Fiscal 1997.
There can be no assurance that such refinancings will actually close.
It is the Company's intention to collect the principal and interest
payments on the aforementioned notes from the cash flows distributed
by the related multi-family properties and the proceeds in the event
of a sale or refinancing. The Company expects to extend maturities of
other multi-family notes. Interest income on all of the Multi-Family
Notes amounted to $6,764, $6,949, and $4,827 for the years ended
January 31, 1996 and 1997, and the nine months ended October 31, 1997,
respectively.
(b) The Company has notes receivable from the Investing Partnerships which
were formed to acquire controlling interests in Owning Partnerships
which own adult living communities. Such notes generally have interest
rates ranging from 11% to 13.875% and are due in installments over
five years from the date of acquisition of the respective partnership
interests. The notes represent senior indebtedness of the related
Investing Partnerships, and are collateralized by the respective
interests in the Owning Partnerships. Principal and interest payments
on each note are also collateralized by the investor notes payable to
the Investing Partnerships to which the investors are admitted.
Limited Partners are allowed to prepay their capital contributions.
These prepayments of capital contributions do not result in the
prepayment of the related purchase notes held by the Company. Instead,
such amounts are loaned to the Company at a rate of between 11% and
12% by the Investing Partnerships. As a result of such loans and the
crediting provisions of the related purchase agreements, the Company
records the notes
F-11
<PAGE>
receivable corresponding to the purchase notes net of such
loans. Therefore, these prepayments act to reduce the recorded
value of the Company's notes receivable.
(c) Other partnership receivables substantially represent
reimbursable expenses and advances made to the multi-family
partnerships. These amounts do not bear interest and have no
specific repayment date. It is the Company's intention to
collect these notes from the excess cash flows distributed by
the related multi-family properties and the proceeds in the
event of a sale or refinancing.
(d) The mortgages bore interest at rates ranging from 8% to 9%.
The mortgages were generally collateralized by a mortgage lien
on the related adult living communities. As of January 31,
1997 all mortgage receivables were paid in full.
(e) Allowance of Uncollectible Receivables:
<TABLE>
<CAPTION>
Balance at Charged to Costs Deductions to Balance at End of
Beginning of Period and Expenses Allowance Period
------------------- ------------ --------- ------
<S> <C> <C>
Year Ended January 31, 1996
Allowance for notes receivable $13,000 ___ ___ $13,000
Year Ended January 31, 1997
Allowance for notes receivable $13,000 18,442 21,333 $10,109
Nine Months Ended October 31, 1997
Allowance for notes receivable $10,109 ___ ___ $10,109
</TABLE>
The multi-family notes receivable relating to the nine Owning
Partnerships that filed petitions under Chapter 11 of the U.S.
Bankruptcy Code (the "Chapter 11 Petitions") and the one Owning
Partnership which lost its property pursuant to an uncontested
foreclosure sale of its property (said ten Owning Partnerships
are, collectively, the "Protected Partnerships") were first
deemed impaired when the mortgages on their respective properties
went into default, which defaults occurred between August 1989
and June 1994. Once in default, the holders of these mortgages
assigned them to the United States Department of Housing and
Urban Development ("HUD"). The Protected Partnerships then
attempted to negotiate, and in some cases obtained, workout
agreements with HUD. Although it could temporarily lower or
suspend debt service payments during the term of a workout
agreement, HUD, unlike a conventional lender, did not have the
legal authority to restructure the defaulted mortgages it holds
by permanently lowering interest rates or reducing the principal
amount of such mortgages. HUD then sold the mortgages (subject to
those workout agreements which were in place) at auctions in
September 1995 and June 1996. Since the new mortgage holders did
not have HUD's legal constraints as to the restructuring of
mortgages they hold, the Protected Partnerships began
negotiations with the new holders to restructure their mortgages
or purchase them at a discount. The Protected Partnerships could
not reach an agreement with the new mortgage holders and the new
mortgage holders began to threaten and institute foreclosure
proceedings. The Principal Stockholders and one of their
affiliates transferred the partnership interests they owned
personally in various partnerships that own multi-family
properties (the "Assigned Interests") to the Investing
<PAGE>
Partnerships that owned interests in the Protected Partnerships
in July 1996. Seven of the Protected Partnerships filed Chapter
11 Petitions in August 1996, two of the Protected Partnerships
filed Chapter 11 Petitions in February 1997, and one of the
Protected Partnerships did not file a Chapter 11 Petition and
allowed the holder of the mortgage to foreclose on its property
due to the unlikelihood of confirming a plan of reorganization.
The Company established appropriate reserves during these time
periods to reflect the varying extent of impairment of these
Multi-Family Notes in view of the state of facts at such time. In
that the Principal Stockholders transferred the Assigned
Interests in July 1996, the Company recorded a $21.3 million
capital contribution in Fiscal 1996. The bankruptcy petitions and
risk of loss faced by the Protected Partnerships resulted in the
Company recording a non-cash loss of $18.4 million in the year
ending January 31, 1997 (representing the recorded value of the
notes receivable relating to the Protected Partnerships, net of
deferred income and net of any previously established reserves)
due to the deemed full impairment of these notes receivable.
Seven of the multi-family bankruptcy proceedings resulted in the
respective Protected Partnerships losing their properties through
foreclosure or voluntary conveyances of their properties.
Pursuant to an agreement between two of the Protected
Partnerships and their mortgage holders, the Company anticipates
that the remaining two bankruptcy proceedings will result in the
respective Protected Partnerships paying off their mortgages at a
discount with the proceeds of new mortgage financings, resulting
in these properties having current, fully performing mortgages.
These two Protected Partnerships have obtained commitments for
such new mortgage financings and anticipate closing said
financings in January, 1998. The two Investing Partnerships
related to these Protected Partnerships have agreed to transfer
the
F-12
<PAGE>
respective Assigned Interests back to the Principal Stockholders and
their affiliate if the applicable Protected Partnership emerges from
its bankruptcy proceeding with possession of its real property
improvements which it owned at the time of its Chapter 11 Petition.
The Company neither owns nor manages these properties, nor is it the
general partner of these Owning Partnerships, but, rather, holds the
related Multi-Family Notes as receivables. The Company, therefore, has
no liability in connection with these mortgage defaults or bankruptcy
proceedings. As a result of the transfers by the Principal
Stockholders and their affiliate of the Assigned Interests and the
additional security provided thereby, the Company believes that the
outcome of the bankruptcy proceedings will not affect its ability to
collect on these Multi-Family Notes.
(f) The Multi-Family properties were typically built or acquired with the
assistance of programs administered by HUD that provide mortgage
insurance, favorable financing terms and/or rental assistance payments
to the owners. As a condition to the receipt of assistance under these
and other HUD programs, the properties must comply with various HUD
requirements including limiting rents on these properties to amounts
approved by HUD. Various proposals are pending before Congress
proposing reorganization of HUD and a restructuring of certain of its
housing assistance programs. It is too early in the legislative
process to predict which, if any, changes might be implemented.
Further, there can be no assurance that changes in federal subsidies
will not be more restrictive than those currently proposed or that
other changes in policy will not occur. Any such changes could have an
adverse effect on the Company's ability to collect its receivables
from the partnerships owning multi-family properties.
5. OTHER ASSETS
Other assets are comprised as follows:
<TABLE>
<CAPTION>
January 31, October 31,
---------------------------- -------------
1996 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
Deferred loan costs (a)................................... $ 7,994 $ 7,452 $ 8,311
Investment in cooperative apartment building (b).......... 1,854 1,782 1,782
Unsold subscription units (c)............................. 595 1,176 1,530
Deferred registration costs (d)........................... 833 2,357 3,301
Construction in progress (e).............................. -- 6,742 19,863
Other assets.............................................. 3,975 2,586 4,887
------- ------- -------
$15,251 $22,095 $39,674
======= ======= =======
</TABLE>
(a) Financing costs of $3,578, $2,588 and $3,330 were deferred during the
years ended January 31, 1996 and 1997 and the nine months ended October
31, 1997, respectively. These costs are being amortized over the term
of the related debt using the straight-line method over periods ranging
from one to ten years.
(b) The Company owns shares in a cooperative apartment building and owns
interests in a second mortgage collateralized by such cooperative
apartment building.
(c) The Company has deferred $595, $1,176 and $1,530 of remaining costs
associated with the financing of the acquisition of adult living
communities by arranging for the sale of partnership interests, which
were substantially sold at January 31, 1996 and 1997 and October 31,
1997, respectively. Upon completion of these transactions such costs
will be charged to cost of sales.
(d) The Company has capitalized costs relating to the initial public
offering. Upon the closing of the public offering, these costs will be
charged against additional paid-in capital. However, in the event the
public offering does not close these costs will be charged against
operations.
(e) The Company has capitalized costs which include interest associated
with its construction and development of properties it intends to
build. If a project is discontinued, all capitalized project costs are
expensed. Such interest capitalized for year ended January 31, 1997 and
the nine months ended October 31, 1997 was $1.2 million and $1.6
million, respectively.
F-13
<PAGE>
6. LOANS AND ACCRUED INTEREST PAYABLE
Loans payable consists of the following:
<TABLE>
<CAPTION>
January 31, October 31,
------------------------------ ----------------
1996 1997 1997
---- ---- ----
<S> <C> <C> <C>
Banks (including mortgages) (a) (b) (c)..... $ 41,361 $ 32,044 $ 40,123
Other, principally debentures (d)...........
98,733 110,584 117,017
-------- -------- --------
$140,094 $142,628 $157,140
======== ======== ========
</TABLE>
(a) The bank loans bear interest per annum at the banks' prime rate plus 1% to
3%. The bank loans generally have terms of at least one year, but in the
event a particular bank elects not to renew or extend the credit, the
entire unpaid balance is converted to a term loan which is payable in four
to five years. Generally the bank loans are collateralized by the Company's
entitlement to the assigned limited partner investor notes which serve as
collateral for the respective purchase notes. The prime interest rate at
January 31, 1996 and 1997 and October 31, 1997 was 8.5%, 8.25% and 8.5%,
respectively.
(b) In addition to the aforementioned bank loans, the Company had three
additional loans from banks. Each of the loans were collateralized by an
assignment of the first mortgage loans payable to the Company. Two of the
loans bore interest at rates varying from 8% to 9% per annum and were
scheduled to mature on various dates through 1996. In March 1996, the
partnerships that own these properties refinanced two of these mortgages,
which eliminated them as obligations of the Company. The third loan bore
interest at the rate of 9.5% per annum and was scheduled to mature on March
31, 1997. The remaining loan has been paid in full as of January 31, 1997.
(c) The Company's debt obligations contain various covenants and default
provisions, including provisions relating to, in the case of certain of
such obligations, certain Investing Partnerships, Owning Partnerships or
affiliates of the Company. Certain obligations contain provisions requiring
the Company to maintain a net worth of, in the most restrictive case,
$30,000,000, except that, under the Capstone agreements the Company will be
required to maintain a net worth in an amount no less than 75% of the net
worth of the Company immediately after the closing of the public offering.
Certain obligations of the Company contain covenants requiring the Company
to maintain a debt for borrowed money to consolidated net worth ratio of,
in the most restrictive case, no more than 6 to 1.
(d) Debentures are collateralized by various purchase notes and investor notes
related to multi-family property financing. All loans mature in 1997
through 2004 and bear interest rates of 11% to 15% per annum.
Future annual maturities, excluding interest, over the next five years and
thereafter, are as follows:
Year Ending
January 31
- ----------
1998............................................. $21,372
1999............................................. 33,602
2000............................................. 20,872
2001............................................. 21,110
2002............................................. 25,612
Thereafter....................................... 19,221
--------
$141,789
Accrued interest................................. 839
--------
$142,628
========
F-14
<PAGE>
7. CONSTRUCTION LOAN PAYABLE
During the nine month period ended October 31, 1997, pursuant to the
Company's development program, first mortgage loans were obtained to
finance approximately 80% of the costs of developing three new adult
living communities. The interest rate on two of the loans equals the
30 day LIBOR plus 2 3/4% per annum. The third loan bears interest at
the rate of the prime rate plus 1.5% per annum. These loans mature
between November, 1999 and June, 2000. As of October 31, 1997, total
funding under such first mortgage loans amounted to $7,505.
Pursuant to the Company's development program, two limited partnerships
have issued limited partnership interests for aggregate capital
contributions of $9,250, the net proceeds of which have been used to
make second mortgage loans to the Company to fund approximately 20% of
the costs of developing three new adult living communities. Such second
mortgage loans bear interest at the rate of 13.125% per annum. These
second mortgage loans mature between November 2001 and March 2002.
8. OTHER LIABILITIES
Other liabilities include unearned income of $963, $1,888 and $3,196
was recorded for the amount of unsubscribed partnership interests in
adult living communities financed during the year ended January 31,
1996 and 1997 and October 31, 1997, respectively. Upon full
subscription these amounts will be recognized as income.
9. DEFERRED INCOME
Deferred income is comprised of:
<TABLE>
<CAPTION>
January 31, October 31,
------------------------------ ----------------
1996 1997 1997
-------- -------- --------
<S> <C> <C> <C>
Multi-family................................. $ 68,447 $ 67,453 $ 66,763
Adult living(a).............................. 10,995 10,718 9,765
-------- -------- --------
$ 79,442 $ 78,171 $ 76,528
======== ======== ========
</TABLE>
a. The aggregate amount of Management Contract Obligations relating
solely to guaranteed return obligations for the remaining portion
of fiscal 1997 and for each of the fiscal years 1998 through 2002
based on existing management contracts is $3.9 million, $15.4
million, $17.4 million, $16.4 million, $11.2 million and $2.4
million, respectively. Such amounts of Management Contract
Obligations are calculated based upon paid-in capital
contributions of limited partners as of October 31, 1997 with
respect to fiscal 1997 and remaining scheduled capital
contributions with respect to fiscal years 1998 through 2002.
Actual amounts of Management Contract Obligations in respect of
such contracts will vary based upon the timing and amount of such
capital contributions. Furthermore, such amounts of Management
Contract Obligations are calculated without regard to the cash
flow the related properties will generate, which will reduce such
obligations.
<PAGE>
10. INCOME TAXES
The Company became a taxable entity as of April 1, 1996, therefore the
prior years tax provisions (benefit) is presented on a pro forma basis
at an effective tax rate of approximately 40%. The Company has
increased the valuation allowance from $3,214 to $4,540, because it was
more likely than not that such deferred tax assets in excess of
deferred tax liabilities would be realizable in future years. Deferred
income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amount used for income taxes purposes. The
tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
January 31,
------------------------------
Deferred tax assets: 1996 1997
------ ------
Notes and receivables.......................... $ 8,920 $ 8,904
Accrued expenses and other liabilities......... 1,257 89
Investment in partnerships..................... 89 1,337
Net operating loss carryforward................ -- 1,339
------ ------
Total gross deferred tax assets................ 10,266 11,669
====== ======
F-15
<PAGE>
Less valuation allowance....................... 3,214 4,540
----- ------
Deferred tax assets net of valuation allowance... 7,052 7,129
----- ------
Deferred tax liabilities:
Deferred income................................ 4,560 4,272
Other assets................................... 2,492 2,857
----- ------
Total gross deferred tax liabilities............. 7,052 7,129
----- ------
Net deferred tax assets (liabilities)............ $ -- $ --
===== ======
The net operating loss carry forward as of January 31, 1997 was $8,777. Such
loss carryforward expires January 31, 2012.
11. COMMITMENTS AND CONTINGENCIES
The Company rents office space under a lease expiring February 1998.
Annual base rent under such lease is approximately $197. The Company
entered into a ten year lease for additional office space, commencing
September 1, 1991. The annual base rent is approximately $150 and will
increase 5% each year for ten years.
The litigation of February 16, 1995 in which the Company was a
defendant, due to the alleged actions of a sales representative of a
broker/dealer unaffiliated with the Company, has been settled for an
immaterial amount. The plaintiffs in such suit had not alleged that the
Company, or its officers, directors or employees engaged in any
improper practices or made any misrepresentations.
On November 14, 1997, an investor in a limited partnership (the "First
Partnership") which was formed to invest in a second partnership which
was formed to develop and own an adult living community (the "Second
Partnership"), filed a lawsuit, Palmer v. Country Estates Associates
Limited Partnership, et.al., in the United States District Court,
District of New Jersey. The Company has never managed the property
owned by the Second Partnership and is not a general partner in the
Second Partnership or the First Partnership. A predecessor of the
Company was a general partner of the Second Partnership. The Company
has never been a general partner of the First Partnership. The
defendants in the suits are the First Partnership, the general partners
of the First Partnership, the Second Partnership, two affiliates of the
Company, and the Company (collectively the "Defendants"). The Plaintiff
is alleging a breach of the First Partnership's partnership agreement,
negligent misrepresentation, fraud, negligence, breach of guarantee and
mail fraud. The plaintiff is seeking (i) the return of his original
investment ($100,000), (ii) market interest on such investment for the
period 1987-1997 and (iii) unspecified damages. The Company believes
the lawsuit is without merit and intends to vigorously contest the
case. It is anticipated that the outcome of the lawsuit will not have a
material effect on the Financial Statements.
The Company is involved in other legal proceedings which have arisen in
the ordinary course of business. The Company intends to vigorously
defend itself in these matters and does not believe that the outcome of
these matters will have a material effect on its financial statements.
Pursuant to the Company's development program, the Company has entered
into a development agreement with Capstone for 100% of the development
cost of four adult living communities. The maximum amount Capstone will
fund per such agreement is approximately $37,764 of which $20,208 has
been funded as of October 31, 1997. The interest rate during the
construction period is 1% above the prime rate.
12. RELATED PARTY TRANSACTIONS
The Company has transactions with related parties that are
unconsolidated affiliates of the Company. The Company provides
management, accounting and bookkeeping services to such affiliates. The
Company receives a monthly fee in return for such management services
rendered on behalf of its affiliates for each of their adult living
communities.
In addition, the Company has amounts due from unconsolidated affiliates
of $248, $262 and $1.2 million as of January 31, 1996 and 1997, and
October 31, 1997, respectively.
The Chairman of the Board and President of the Company and entities
controlled by them serve as general partners of partnerships directly
and indirectly owning multi-family properties and on account of such
general partner status have personal liability for recourse partnership
obligations and own small equity ownership interests in the
partnerships. The Company held notes receivable, aggregating $107.1
million
F-16
<PAGE>
net of deferred income, at October 31, 1997 that were collateralized by
the equity interests in such partnerships. These individuals have
provided personal guarantees in certain circumstances to obtain
mortgage financing for certain adult living properties operated by the
Company and for certain of the Company's Investor Note Debt, and the
obligations thereunder may continue. In addition, such officers and
certain employees will devote a portion of their time to overseeing the
third-party managers of multi-family properties and one adult living
community in which the Company has financial interests in that it holds
the related Multi-Family Notes, but in which such officers have equity
interests and the Company does not. These activities, ownership
interests and general partner interests create actual or potential
conflicts of interest on the part of these officers.
The Company is the managing general partner for 35 of the 36 Owning
Partnerships which own the 36 adult living communities, one nursing
home and one residential apartment complex which the Company operates.
The Company also is the general partner for 30 of the 40 adult living
Investing Partnerships that own equity interests in these 36 Owning
Partnerships. In addition, the Company was the managing agent for all
of the 36 adult living communities, one nursing home and one
residential apartment complex in the Company's portfolio. The Company
has financed the acquisition of adult living communities and other
properties through the sales of limited partnership interests in the
Investing Partnerships. By serving in all of these capacities, the
Company may have conflicts of interest in that it has both a duty to
act in the best interests of partners of various partnerships,
including the limited partners of the Investing Partnerships, and the
desire to maximize earnings for the Company's stockholders in the
operation of such adult living communities, nursing home and
residential apartment complex.
During Fiscal 1996 and the nine months ended October 31, 1997, the
Company paid to Francine Rodin, the wife of Bernard M. Rodin, the
Company's Chief Operating Officer, President and a Director, $154 and
$79, respectively, as fees for introducing to the Company
broker/dealers that have assisted the Company in its Syndications of
partnership interests and in placing other securities offered by the
Company. Mrs. Rodin will receive a fee with respect to any future sales
through such broker/dealers of such Syndicated partnership interests
and other securities offered by the Company, excluding shares of Common
Stock offered hereby. During Fiscal 1996, Mrs. Rodin received
consulting fees of $49 in connection with coordinating the Company's
marketing efforts and travel arrangementss. Mrs. Rodin has been an
employee of the Company for the nine months ended October 31, 1997 and
performs similar services.
F-17
<PAGE>
==============================================================
Until , 1997 (25 days after the
commencement of this offering), all dealers effecting
transactions in the registered securities, whether or not
participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the obligation
of dealers to deliver a Prospectus when acting as Underwriters
and with respect to their unsold allotments or
subscriptions.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUMMARY.................................................... 1
RISK FACTORS.......................................................... 10
USE OF PROCEEDS....................................................... 24
DIVIDEND POLICY....................................................... 25
CAPITALIZATION........................................................ 27
DILUTION.............................................................. 28
SELECTED CONSOLIDATED FINANCIAL DATA.................................. 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 30
BUSINESS.............................................................. 46
MANAGEMENT............................................................ 60
CERTAIN TRANSACTIONS.................................................. 64
PRINCIPAL AND SELLING STOCKHOLDERS.................................... 66
DESCRIPTION OF CAPITAL STOCK.......................................... 67
SHARES ELIGIBLE FOR FUTURE SALE....................................... 69
UNDERWRITING.......................................................... 70
LEGAL MATTERS......................................................... 72
EXPERTS............................................................... 72
AVAILABLE INFORMATION................................................. 72
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS..................................................... F-1
------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information and representations must not
be relied upon as having been authorized by the Company or any of the Principal
Stockholders. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy the shares by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making the offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation. Under no circumstances
shall the delivery of this Prospectus, or any sale made pursuant to this
Prospectus, create any implication that the information contained in this
Prospectus is correct as of any time subsequent to the date of this Prospectus.
================================================================================
<PAGE>
================================================================================
GRAND COURT
LIFESTYLES, INC.
3,000,000 Shares of
Common Stock
----------
PROSPECTUS
----------
ROYCE INVESTMENT
GROUP, INC.
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Offering
The following table sets forth the estimated expenses to be incurred
in connection with the issuance and distribution of the Common Stock being
registered. All expenses will be borne by the Company, except that the Principal
Stockholders will pay a non-accountable expense allowance equal to 3%, and a
consulting fee equal to 1%, of the proceeds from their sale of shares pursuant
to the Over-allotment Option, if exercised.
Amount
------
Securities and Exchange Commission
registration fee................................... $ 33,405
American Stock Exchange listing fee.................. 50,000
Accounting fees and expenses......................... 1,650,000*
Legal fees and expenses.............................. 1,500,000*
Printing and engraving expenses...................... 100,000*
Non-accountable expense allowance.................... 900,000
Consulting fee....................................... 300,000
Blue Sky fees and expenses........................... 21,000*
Transfer agent and registrar fees
and expenses...................................... 3,000*
Miscellaneous........................................ 12,595*
-------------
Total.......................................... $4,570,000.00
=============
- ------------------------------
* estimated
Item 14. Indemnification of Directors and Officers
Article IX of the Company's Restated Certificate of Incorporation will
provide that:
"The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or complete
action, suit or proceeding, whether civil, criminal, administrative or
investigative, or by or in the right of the Corporation to procure judgment in
its favor, by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, in accordance
with and to the full extent permitted by statute. Expenses incurred in defending
a civil or criminal action, suit or proceeding shall be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this section. The
indemnification provided by this section shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under this
Restated Certificate of Incorporation or any agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person."
Article X of the Company's By-Laws provide that:
"Any person made or threatened to be made a party to or
involved in any action, suit or proceeding, whether civil or criminal,
administrative or investigative (hereinafter, "proceeding") by reason of the
fact that he, his testator
II-1
<PAGE>
or intestate, is or was a director, officer or employee of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the General Corporation Law of the State of Delaware as the
same exists or may hereafter be amended (but in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment) against all expense, loss and liability
(including, without limitation, judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees), actually and necessarily
incurred or suffered by him in connection with the defense of or as a result of
such proceeding, or in connection with any appeal therein. The Corporation shall
have the power to purchase and maintain insurance for the indemnification of
such directors, officers and employees to the full extent permitted under the
laws of the State of Delaware from time to time in effect. Such right of
indemnification shall not be deemed exclusive of any other rights of
indemnification to which such director, officer or employee may be entitled.
The right to indemnification conferred in this By-Law shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that if the General Corporation Law of the State
of Delaware requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which services were or are rendered by such person while a director
or officer, including, without limitation, service to an employee benefit plan)
in advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this By-Law or otherwise."
Statutory
Generally, Section 145 of the General Corporation Law of the
State of Delaware authorizes Delaware corporations, under certain circumstances,
to indemnify their officers and directors against all expenses and liabilities
(including attorneys' fees) incurred by them as a result of any suit brought
against them in their capacity as a director or an officer, if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A director or officer may also be indemnified against expenses
incurred in connection with a suit by or in the right of the corporation if such
director or officer acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interests of the corporation, except that no
indemnification may be made without court approval if such person was adjudged
liable to the corporation.
Item 15. Recent Sales of Unregistered Securities
Since January 31, 1994, the Company issued Debentures
in four series, bonds in two series and notes in four series, with interest
rates ranging from 11% to 13.125%, and maturity dates from 1997 to 2004 in an
aggregate principal amount of $63,118,502. Each series was issued in reliance on
exemptions from the registration requirements under the Securities Act of 1933,
as amended (the "1933 Act") under Sections 3(b) and 4(2) of such act and
Regulation D promulgated thereunder to accredited investors and up to 35
non-accredited investors. In connection with such issuances, the Company paid
commissions to qualified broker dealers.
In connection with offerings of limited partnership interests
in limited partnerships organized to invest in adult living communities and for
which the Company has acted as general partner, the terms of the partnership
offerings provide that limited partners will receive distributions during each
of the first five years equal to between 11% and 12% of their paid-in capital.
Pursuant to the management contracts with the partnerships which own such
communities, the Company is required to pay such Owning Partnerships, and the
Owning Partnerships distribute to the Investing Partnerships for distribution to
limited partners, amounts sufficient to fund any part of such return not paid
from cash flow from the related property. Since January 31, 1994, there were 22
such limited partnership offerings for an aggregate of $213,075,000. Each such
offering was issued in reliance on exemptions from the registration requirements
under the 1933 Act under Sections 3(b) and 4(2) of such act and Regulation D
promulgated thereunder to accredited investors and up to 35 non-accredited
investors. In connection with such issuances, the Company paid commissions to
qualified brokers and dealers.
II-2
<PAGE>
Two limited partnerships for which the Company is general
partner have issued limited partnership interests for, in the aggregate,
$9,250,000, the net proceeds of which have been used to make second mortgage
loans to the Company to fund approximately 20% of the costs of developing three
new adult living communities. Each such offering was issued in reliance on
exemptions from the registration requirements under the 1933 Act under Sections
3(b) and 4(2) of such act and Regulation D promulgated thereunder to accredited
investors and up to 35 non-accredited investors. In connection with such
issuances, the Company paid commissions to qualified brokers and dealers.
In connection with the reorganization of the Company's
businesses, the Company issued 15,000,000 shares of Common Stock to Messrs.
Luciani and Rodin in exchange for assets having an aggregate value of
$33,273,000. This offering was issued in reliance on exemptions from the
registration requirements under the 1933 Act under Section 4(2) of such act.
In connection with the Offering contemplated by this
Registration Statement, as additional compensation to the Representative, the
Company intends to issue warrants to the Representative to purchase from the
Company up to 300,000 shares of Common Stock at a price equal to 120% of the per
share price to the public of the Common Stock, exercisable over a period of four
years commencing one year after the effective date of this Registration
Statement. These warrants will be issued in reliance on exemptions from the
registration requirements under the 1933 Act under Section 4(2) of such act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
**1.1 -- Form of Underwriting Agreement.
**1.2 -- Form of Warrant Agreement
**1.3 -- Form of Agreement Among Underwriters
**1.4 -- Form of Selected Dealer Agreement
*2.1 -- Consolidation Agreement dated as of April 1, 1996 among John
Luciani, Bernard M. Rodin, J&B Management Company and the
Company.
*2.1(a) -- First Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.1(b) -- Second Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.1(c) -- Third Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.1(d) -- Fourth Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.1(e) -- Fifth Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.1(f) -- Sixth Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.2(a) -- Merger Agreement dated as of April 1, 1996 between Leisure
Centers, Inc. and the Company.
*2.2(b) -- Merger Agreement dated as of April 1, 1996 between Leisure
Centers Development, Inc. and the Company.
*2.2(c) -- Merger Agreement dated as of April 1, 1996 between J&B
Management Corp. and the Company.
*2.2(d) -- Merger Agreement dated as of April 1, 1996 between Wilmart
Development Corp. and the Company.
*2.2(e) -- Merger Agreement dated as of April 1, 1996 between Sulgrave
Realty Corporation and the Company.
*2.2(f) -- Merger Agreement dated as of April 1, 1996 between Riv
Development Inc. and the Company.
3.1 -- Restated Certificate of Incorporation of the Company.
*3.2 -- By-Laws of the Company.
**5 (a) -- Opinion of Reid & Priest LLP.
*10.1 -- 1996 Stock Option and Performance Award Plan.
*10.2(a) -- Loan Agreements dated as of November 25, 1996, by and between
Leisure Centers LLC-1 and Bank United relating to financing of
the Corpus Christi, Texas property.
II-3
<PAGE>
*10.2(b) -- Guaranty Agreement, dated as of November 25, 1996, between the
Company and Bank United relating to financing of the Corpus
Christi, Texas property.
*10.2(c) -- Loan Agreement, dated as of January 29, 1997, by and between
Leisure Centers LLC-1 and Bank United relating to financing of
the Temple, Texas property.
*10.2(d) -- Guaranty Agreement, dated as of January 29, 1997, between the
Company and Bank United relating to the financing of the
Temple, Texas property.
*10.3 -- Master Development Agreement dated September 18, 1996 between
Capstone Capital Corp. and the Company.
*10.4(a) -- Form of 12% Debenture due June 16, 2000 - Series 1.
*10.4(b) -- Form of 12% Debenture due April 15, 1999 - Series 2.
*10.4(c) -- Form of 11% Debenture due December 31, 1996 - Series 3.
*10.4(d) -- Form of 11.5% Debenture due April 15, 2000 - Series 4.
*10.4(e) -- Form of 12% Debenture due January 15, 2003 - Series 5.
*10.4(f) -- Form of 12% Debenture due April 15, 2003 - Series 6.
*10.4(g) -- Form of 11% Debenture due January 15, 2002 - Series 7.
*10.4(h) -- Form of 11% Debenture due January 15, 2002 - Series 8.
*10.4(i) -- Form of 12% Debenture due September 15, 2001 - Series 9.
*10.4(j) -- Form of 12% Debenture due January 15, 2004 - Series 10.
10.4(k) -- Form of 12% Debenture due June 30, 2004 - Series 11.
*10.5(a) -- Bank Agreement dated August 14, 1990 between The Bank of New
York and the Company with respect to 12% Debentures, Series 1.
*10.5(b) -- First Amendment dated as of August 21, 1992 to Bank Agreement
dated August 14, 1990 between The Bank of New York and the
Company with respect to 12% Debentures, Series 1.
*10.5(c) -- Bank Agreement dated October 11, 1991 between The Bank of New
York and the Company with respect to 12% Debentures, Series 2.
*10.5(d) -- Bank Agreement dated October 17, 1991 between The Bank of New
York and the Company with respect to 11% Debentures, Series 3.
*10.5(e) -- Bank Agreement dated April 1, 1992 between The Bank of New
York and the Company with respect to 11.5% Debentures,
Series 4.
*10.5(f) -- Bank Agreement dated October 30, 1992 between The Bank of New
York and the Company with respect to 12% Debentures, Series 5.
*10.5(g) -- Bank Agreement dated May 24, 1993 between The Bank of New York
and the Company with respect to 12% Debentures, Series 6.
*10.5(h) -- Bank Agreement dated October 27, 1993 between The Bank of New
York and the Company with respect to 11% Debentures, Series 7.
*10.5(i) -- First Amendment dated November 29, 1993 to Bank Agreement
dated October 27, 1993 between The Bank of New York and the
Company with respect to 11% Debentures,Series 7.
*10.5(j) -- Bank Agreement dated November 29, 1993 between The Bank of New
York and the Company with respect to 11% Debentures, Series 8.
*10.5(k) -- Bank Agreement dated September 12, 1994 between The Bank of
New York and the Company with respect to 12% Debentures,
Series 9.
*10.5(l) -- Bank Agreement dated July 12, 1995 between The Bank of New
York and the Company with respect to 12% Debentures,
Series 10.
10.5(m) -- Bank Agreement dated July 25, 1997 between the Bank of New
York and the Company with respect to 12% Debentures,
Series 11.
*10.6(a) -- Form of Short-term Step-up Bond due March 15, 2001 - Series 1.
*10.6(b) -- Form of 12.375% Bond due April 15, 2003 - Series 2.
*10.7(a) -- Bank Agreement between The Bank of New York and the Company
with respect to Short-term Step-up Bonds - Series 1.
*10.7(b) -- Bank Agreement between The Bank of New York and the Company
with respect to 12.375% Bonds - Series 2.
*10.8 -- Revolving Credit Agreement dated as of May 7, 1985 between
Sterling National Bank & Trust Company and the Company.
II-4
<PAGE>
*10.9 -- Assumption Agreement dated as of September 10, 1996 among
Sterling National Bank & Trust, the Company, Bernard M. Rodin
and John Luciani.
*10.9(a) -- First Amendment to Assumption Agreement dated as of September
10, 1996 among Sterling National Bank & Trust, the Company,
Bernard M. Rodin and John Luciani.
10.9(b) -- Second Amendment to Assumption Agreement among Sterling
National Bank, formerly known as Sterling National Bank &
Trust Company, the Company, Bernard M. Rodin and John Luciani
*10.10(a) -- Form of 13.125% Retirement Financing Notes - III, due October
31, 2001.
*10.10(b) -- Form of 13.125% Retirement Financing Notes - IV, due March 31,
2002.
10.10(c) -- Form of 13.125% Retirement Financing Notes - V, due June 30,
2003.
10.10(d) -- Form of 13.125% Retirement Financing Notes - VI, due April 15,
2001.
*10.11(a) -- Bank Agreement dated as of September 6, 1996 between the Bank
of New York and the Company with respect to 13.125% Retirement
Financing Notes - III.
*10.11(b) -- Bank Agreement dated as of October 22, 1996 between the Bank
of New York and the Company with respect to 13.125% Retirement
Financing Notes - IV.
10.11(c) -- Bank Agreement dated as of May 14, 1997 between the Bank of
New York and the Company with respect to 13.125% Retirement
Financing Notes - V.
10.11(d) -- Bank Agreement dated as of November 6, 1997 between the Bank
of New York and the Company with respect to 13.125% Retirmeent
Financing Notes - VI.
21 -- List of Subsidiaries of the Company.
**23.1 -- Consent of Reid & Priest LLP (included in Exhibit 5(a) and 8
hereto).
23.2 -- Consent of Deloitte & Touche LLP
24 -- Power of Attorney is contained on the signature page of this
Registration Statement.
27.1 -- Financial Data Schedule for the periods ended October 31,
1997.
- ---------------
* Previously filed in Registration Statement No. 333-05955.
** To be filed by amendment.
II-5
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the estimated maximum
offering may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) The undersigned registrant hereby undertakes to provide to
the Representative, at the closing specified in the Underwriting
Agreement, certificates in such denominations and registered in such
names as required by the Representative to permit prompt delivery to
each purchaser.
(5) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this post-effective amendment and this registration
statement each to be signed on its behalf by the undersigned, thereunto duly
authorized, in the town of Fort Lee, the State of New Jersey, on , 1997.
GRAND COURT LIFESTYLES, Inc.
By: /s/ Catherine V. Merlino
-----------------------------------------
Catherine V. Merlino
Chief Financial Officer and Vice President
KNOW ALL MEN BY THESE PRESENTS that each person whose
signature appears below constitutes and appoints Catherine V. Merlino and Paul
Jawin, and each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act, without the other, for
him and in his name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments) to this post-effective
amendment and this Registration Statement, as the case may be, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact or
agents, or any of them, their substitute or substitutes may lawfully do or cause
to be done by virture hereof.
Pursuant to the requirements of the Securities Act of 1933,
this post-effective amendment and this registration statement each has been
signed by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------- ----------------------------- --------------------------
<S> <C> <C>
/s/ John Luciani
- ------------------------------------ Chairman of the Board December 24, 1997
John Luciani of Directors and
Chief Executive Officer
(Principal Executive
Officer)
/s/ Bernard M. Rodin
- ------------------------------------ President and Chief Oper- December 24, 1997
Bernard M. Rodin ating Officer and Director
(Principal Executive Offi
cer)
/s/ John W. Luciani, III
- ------------------------------------ Executive Vice President December 24, 1997
John W. Luciani, III and Director
/s/ Catherine V. Merlino
- ------------------------------------ Chief Financial Officer and December 24, 1997
Catherine V. Merlino Vice President (Principal
Financial Officer and Prin
cipal Accounting Officer)
/s/ Walter Feldesman
- ------------------------------------ Director December 24, 1997
Walter Feldesman
/s/ Leslie E. Goodman
- ------------------------------------ Director December 24, 1997
Leslie E. Goodman
</TABLE>
<PAGE>
EXHIBIT INDEX
**1.1 -- Form of Underwriting Agreement.
**1.2 -- Form of Warrant Agreement
**1.3 -- Form of Agreement Among Underwriters
**1.4 -- Form of Selected Dealer Agreement
*2.1 -- Consolidation Agreement dated as of April 1, 1996 among John
Luciani, Bernard M. Rodin, J&B Management Company and the
Company.
*2.1(a) -- First Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.1(b) -- Second Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.1(c) -- Third Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.1(d) -- Fourth Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.1(e) -- Fifth Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.1(f) -- Sixth Amendment dated as of April 1, 1996 to Consolidation
Agreement dated as of April 1, 1996 among John Luciani,
Bernard M. Rodin, J&B Management Company and the Company.
*2.2(a) -- Merger Agreement dated as of April 1, 1996 between Leisure
Centers, Inc. and the Company.
*2.2(b) -- Merger Agreement dated as of April 1, 1996 between Leisure
Centers Development, Inc. and the Company.
*2.2(c) -- Merger Agreement dated as of April 1, 1996 between J&B
Management Corp. and the Company.
*2.2(d) -- Merger Agreement dated as of April 1, 1996 between Wilmart
Development Corp. and the Company.
*2.2(e) -- Merger Agreement dated as of April 1, 1996 between Sulgrave
Realty Corporation and the Company.
*2.2(f) -- Merger Agreement dated as of April 1, 1996 between Riv
Development Inc. and the Company.
3.1 -- Restated Certificate of Incorporation of the Company.
*3.2 -- By-Laws of the Company.
**5(a) -- Opinion of Reid & Priest LLP.
*10.1 -- 1996 Stock Option and Performance Award Plan.
*10.2(a) -- Loan Agreements dated as of November 25, 1996, by and between
Leisure Centers LLC-1 and Bank United relating to financing of
the Corpus Christi, Texas property.
<PAGE>
*10.2(b) -- Guaranty Agreement, dated as of November 25, 1996, between the
Company and Bank United relating to financing of the Corpus
Christi, Texas property.
*10.2(c) -- Loan Agreement, dated as of January 29, 1997, by and between
Leisure Centers LLC-1 and Bank United relating to financing of
the Temple, Texas property.
*10.2(d) -- Guaranty Agreement, dated as of January 29, 1997, between the
Company and Bank United relating to the financing of the
Temple, Texas property.
*10.3 -- Master Development Agreement dated September 18, 1996 between
Capstone Capital Corp. and the Company.
*10.4(a) -- Form of 12% Debenture due June 16, 2000 - Series 1.
*10.4(b) -- Form of 12% Debenture due April 15, 1999 - Series 2.
*10.4(c) -- Form of 11% Debenture due December 31, 1996 - Series 3.
*10.4(d) -- Form of 11.5% Debenture due April 15, 2000 - Series 4.
*10.4(e) -- Form of 12% Debenture due January 15, 2003 - Series 5.
*10.4(f) -- Form of 12% Debenture due April 15, 2003 - Series 6.
*10.4(g) -- Form of 11% Debenture due January 15, 2002 - Series 7.
*10.4(h) -- Form of 11% Debenture due January 15, 2002 - Series 8.
*10.4(i) -- Form of 12% Debenture due September 15, 2001 - Series 9.
*10.4(j) -- Form of 12% Debenture due January 15, 2004 - Series 10.
10.4(k) -- Form of 12% Debenture due June 30, 2004 - Series 11.
*10.5(a) -- Bank Agreement dated August 14, 1990 between The Bank of New
York and the Company with respect to 12% Debentures, Series 1.
*10.5(b) -- First Amendment dated as of August 21, 1992 to Bank Agreement
dated August 14, 1990 between The Bank of New York and the
Company with respect to 12% Debentures, Series 1.
*10.5(c) -- Bank Agreement dated October 11, 1991 between The Bank of New
York and the Company with respect to 12% Debentures, Series 2.
*10.5(d) -- Bank Agreement dated October 17, 1991 between The Bank of New
York and the Company with respect to 11% Debentures, Series 3.
*10.5(e) -- Bank Agreement dated April 1, 1992 between The Bank of New
York and the Company with respect to 11.5% Debentures,
Series 4.
*10.5(f) -- Bank Agreement dated October 30, 1992 between The Bank of New
York and the Company with respect to 12% Debentures, Series 5.
*10.5(g) -- Bank Agreement dated May 24, 1993 between The Bank of New York
and the Company with respect to 12% Debentures, Series 6.
*10.5(h) -- Bank Agreement dated October 27, 1993 between The Bank of New
York and the Company with respect to 11% Debentures, Series 7.
*10.5(i) -- First Amendment dated November 29, 1993 to Bank Agreement
dated October 27, 1993 between The Bank of New York and the
Company with respect to 11% Debentures,Series 7.
*10.5(j) -- Bank Agreement dated November 29, 1993 between The Bank of New
York and the Company with respect to 11% Debentures, Series 8.
*10.5(k) -- Bank Agreement dated September 12, 1994 between The Bank of
New York and the Company with respect to 12% Debentures,
Series 9.
*10.5(l) -- Bank Agreement dated July 12, 1995 between The Bank of New
York and the Company with respect to 12% Debentures,
Series 10.
10.5(m) -- Bank Agreement dated July 25, 1997 between the Bank of New
York and the Company with respect to 12% Debentures,
Series 11.
*10.6(a) -- Form of Short-term Step-up Bond due March 15, 2001 - Series 1.
*10.6(b) -- Form of 12.375% Bond due April 15, 2003 - Series 2.
*10.7(a) -- Bank Agreement between The Bank of New York and the Company
with respect to Short-term Step-up Bonds - Series 1.
*10.7(b) -- Bank Agreement between The Bank of New York and the Company
with respect to 12.375% Bonds - Series 2.
*10.8 -- Revolving Credit Agreement dated as of May 7, 1985 between
Sterling National Bank & Trust Company and the Company.
<PAGE>
*10.9 -- Assumption Agreement dated as of September 10, 1996 among
Sterling National Bank & Trust, the Company, Bernard M. Rodin
and John Luciani.
*10.9(a) -- First Amendment to Assumption Agreement dated as of September
10, 1996 among Sterling National Bank & Trust, the Company,
Bernard M. Rodin and John Luciani.
10.9(b) -- Second Amendment to Assumption Agreement among Sterling
National Bank, formerly known as Sterling National Bank &
Trust Company, the Company, Bernard M. Rodin and John Luciani
*10.10(a) -- Form of 13.125% Retirement Financing Notes - III, due October
31, 2001.
*10.10(b) -- Form of 13.125% Retirement Financing Notes - IV, due March 31,
2002.
10.10(c) -- Form of 13.125% Retirement Financing Notes - V, due June 30,
2003.
10.10(d) -- Form of 13.125% Retirement Financing Notes - VI, due April 15,
2001.
*10.11(a) -- Bank Agreement dated as of September 6, 1996 between the Bank
of New York and the Company with respect to 13.125% Retirement
Financing Notes - III.
*10.11(b) -- Bank Agreement dated as of October 22, 1996 between the Bank
of New York and the Company with respect to 13.125% Retirement
Financing Notes - IV.
10.11(c) -- Bank Agreement dated as of May 14, 1997 between the Bank of
New York and the Company with respect to 13.125% Retirement
Financing Notes - V.
10.11(d) -- Bank Agreement dated as of November 6, 1997 between the Bank
of New York and the Company with respect to 13.125% Retirmeent
Financing Notes - VI.
21 -- List of Subsidiaries of the Company.
**23.1 -- Consent of Reid & Priest LLP (included in Exhibit 5(a) and 8
hereto).
23.2 -- Consent of Deloitte & Touche LLP
24 -- Power of Attorney is contained on the signature page of this
Registration Statement.
27.1 -- Financial Data Schedule for the periods ended October 31,
1997.
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* Previously filed in Registration Statment No. 333-05955.
** To be filed by amendment.
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
GRAND COURT LIFESTYLES, INC.
(Pursuant to Section 245 of the General
Corporation Law of the State of Delaware)
GRAND COURT LIFESTYLES, INC., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
January 25, 1996, under the name of GRAND COURT, INC.
2. The original Certificate of Incorporation of the
Corporation was amended by a Certificate of Amendment filed with the Secretary
of State of the State of Delaware on February 20, 1996.
3. The original Certificate of Incorporation of the
Corporation was further amended by a Certificate of Amendment filed with the
Secretary of State of Delaware on May 21, 1996.
4. This Restated Certificate of Incorporation amends,
restates and integrates the provisions of the original Certificate of
Incorporation of the Corporation as amended to the date hereof, and was duly
adopted in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware.
5. The text of the Certificate of Incorporation is hereby
restated to read in its entirety as follows:
<PAGE>
ARTICLE I
The name of the Corporation is Grand Court Lifestyles, Inc.
ARTICLE II
The address of the Corporation's registered office in the
State of Delaware is 9 East Loockerman Street, City of Dover, County of Kent,
Delaware 19901. The name of its registered agent at such address is National
Corporate Research, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted by the Corporation are to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
Section 4.1. Authorized Capital. The total number of shares
of all classes of stock which the Corporation shall have authority to issue
Fifty-Five Million (55,000,000) shares, consisting of:
(a) Fifteen Million (15,000,000) shares of preferred
stock, $.0001 par value (the "Preferred Stock") and
(b) Forty Million (40,000,000) share of common stock,
$.01 par value ("Common Stock").
Section 4.2. Preferred Stock. Shares of the preferred stock
of the Corporation may be issued by the Board of Directors, without
stockholder approval, from time to time in one or more classes or series, each
of which class or series shall have such distinctive designation or title as
shall be fixed by the Board of Directors of the Corporation prior to the
issuance of any shares thereof. Each such class or series of preferred stock
shall have such voting powers, full or limited, or no
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<PAGE>
voting powers, and such other relative rights, powers and preferences,
including, without limitation, the dividend rate, conversion rights, if any,
redemption price and liquidation preference, and such qualifications,
limitations or restrictions thereof, as shall be stated in such resolution or
resolutions providing for the issuance of such class or series of preferred
stock as may be adopted from time to time by the Board of Directors or a
committee thereof prior to the issuance of any shares thereof pursuant to the
authority hereby expressly vested in it, all in accordance with the laws of
the State of Delaware.
Section 4.3. Common Stock. The powers, rights and other
matters relating to the Common Stock are as follows:
(a) Dividends. Subject to the limitations set forth
in this Article IV, dividends may be paid on Common Stock out of any funds
legally available for that purpose, when, as and if declared by the Board of
Directors.
(b) Liquidation Rights. In the event of any
liquidation, dissolution or winding up of the Corporation, after there shall
have been paid to or set aside for the holders of outstanding shares having
superior liquidation preferences to Common Stock the full preferential amounts
to which they are respectively entitled, the holders of outstanding shares of
all classes of Common Stock shall be entitled to receive pro rata, according
to the number of shares held by them, the remaining assets of the Corporation
legally available for distribution to the stockholders.
(c) Voting Rights. (1) Except as set forth or
provided for in this Article IV or as by statute or otherwise mandatorily
provided, the holders of the outstanding shares of Common Stock shall
exclusively possess full voting powers for the election of directors of the
Corporation and for all other corporate purposes.
-3-
<PAGE>
(2) Any action required or permitted to be taken at
any annual or special meeting of stockholders may be taken only upon the vote
of the stockholders at an annual or special meeting duly noticed and called,
as provided in the By-Laws of the Corporation, and may not be taken by a
written consent of the stockholders pursuant to the General Corporation Law of
the State of Delaware.
(3) Special meetings of the stockholders of the
Corporation for any purpose or purposes may be called at any time by the Board
of Directors or the Chairman of the Board of Directors. Special meetings of
the stockholders of the Corporation may not be called by any other Person or
Persons.
(d) Definitions. For purposes of Article IV of this
Restated Certificate of Incorporation:
"Person" means an individual, a partnership, a
joint venture, a corporation, an association, a trust, or
any other entity or organization.
ARTICLE V
In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors of the Corporation is expressly authorized
to adopt, alter or repeal its By-Laws. In addition, the By-Laws may be made,
altered, amended, changed or repealed by the stockholders of the Corporation
upon the affirmative vote of the holders of at least 66-2/3% of the
outstanding Common Stock entitled to vote thereon.
ARTICLE VI
Election of directors need not be by written ballot
unless the By-Laws of the Corporation shall so provide.
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<PAGE>
ARTICLE VII
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of Title 8
of the Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
ARTICLE VIII
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for injury
resulting from a breach of his fiduciary duty as a director, except for
liability (i) for injury resulting from a breach of his duty of loyalty to
the Corporation and its stockholders, (ii) for injury resulting from acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or (iv) for
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<PAGE>
injury resulting from any transaction from which the director derives an
improper personal benefit. If the Delaware General Corporation Law hereafter
is amended so as to authorize the further elimination or limitation of the
liability of directors to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, then the liability of a
director of the Corporation for monetary damages, in addition to the
limitation on personal liability provided in the preceding sentence, shall
automatically, by virtue hereof and without any further action on the part of
the Corporation or its stockholders, be further limited so as to be limited to
the fullest extent permitted by the Delaware General Corporation Law. Any
repeal or modification of this Section by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on
the personal liability of a director of the Corporation with regard to actions
taken or omitted before such repeal or modification.
ARTICLE IX
The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
complete action, suit or proceeding, whether civil, criminal, administrative
or investigative, or by or in the right of the Corporation to procure judgment
in its favor, by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts
-6-
<PAGE>
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, in accordance with and to the full extent permitted by statute.
Expenses incurred in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Corporation as
authorized in this section. The indemnification provided by this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under this Restated Certificate of
Incorporation or any agreement or vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE X
Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 66-2/3% of the outstanding shares of Common Stock shall be
required to amend, repeal, or adopt any provision inconsistent with Sections
4.3(c)(2) or 4.3(c)(3) of Article IV, Article V or this Article X of this
Restated Certificate of Incorporation.
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<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of
Incorporation has been executed on behalf of the Corporation this 13th day of
March, 1997.
GRAND COURT LIFESTYLES, INC.
By: /s/ Bernard M. Rodin
------------------------------
Bernard M. Rodin, President
Attest:
/s/ Keith Marlowe
- ----------------------------
Keith E. Marlowe, Secretary
-8-
<PAGE>
EX 10.4(k)
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED
AND SOLD OR OTHERWISE TRANSFERRED ONLY IF REGISTERED
PURSUANT TO THE PROVISIONS OF THAT ACT OR IF
AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
GRAND COURT LIFESTYLES, INC.
12% DEBENTURES DUE JUNE 30, 2004
SERIES 11
$__________________ _____________________________, 199_
Registered Owner: _______________________________________________
Certificate Number: 0000____
FOR VALUE RECEIVED, the undersigned, Grand Court Lifestyles,
Inc., a Delaware corporation (the "Company"), hereby promises to pay to the
registered owner specified above or registered assigns, the principal amount
specified above on June 30, 2004, together with accrued but unpaid interest.
Interest on the unpaid balance of this Debenture from the date hereof, shall
be payable monthly on the 15th day of each month hereafter if such day is a
Business Day (as hereinafter defined), at the rate of 12% per annum until the
entire principal amount of this Debenture shall have been paid. If such day is
not a Business Day, the next Business Day shall be the date interest on this
Debenture is payable. For the purposes herein, "Business Day" shall mean any
day other than a day on which The Bank of New York is authorized to remain
closed in New York City. Interest on any overdue principal (including any
overdue prepayment of principal) and (to the extent permitted under applicable
law) on any overdue installment of interest, at the rate of 12% per annum
until paid, shall be payable monthly as aforesaid or, at the option of the
holder hereof, on demand. Interest shall be computed on the basis of a year of
360 days.
Payments of principal and interest shall be made in lawful
money of the United States of America by check mailed to the address of the
registered owner of this Debenture at the registered owner's address as it
appears in the register.
This Debenture is one of the 12% Debentures Due June 30,
2004 of the Company (the "Debentures"), originally issued in the principal
amount of $__________________ pursuant to the Subscription Agreement, dated as
of ________________, 1997 (the "Subscription Agreement"), between the Company
and the purchaser named therein, and the Bank Agreement, dated as of July 25,
1997 (the "Bank Agreement") between the Company and The Bank of New York (the
"Bank"). Reference is hereby made to the Subscription Agreement and the Bank
Agreement and to all amendments and supplements thereto for a description of
the terms and conditions upon which this Debenture is issued and the rights,
duties and obligations of the Company, the Bank and the holder of this
Debenture. Copies of the Subscription Agreement and the Bank Agreement are on
file in the principal corporate trust office of the Bank.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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This Debenture will be without recourse to the officers,
directors, and shareholders of Grand Court Lifestyles, Inc.
This Debenture shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the Company has caused this Debenture to
be executed by its officer thereunto duly authorized, the day and year first
above written.
GRAND COURT LIFESTYLES, INC.
By:________________________________
Name:
Title:
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
CERTIFICATE OF AUTHENTICATION
This Debenture is one of the Debentures of the issue
described in the within mentioned Bank Agreement.
THE BANK OF NEW YORK
By:____________________________
Authorized Signatory
Date of Authentication: ________________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned sells, assigns and
transfers unto __________________________ the within Debenture and does hereby
irrevocably constitute and appoint __________________________ attorney to
transfer the said Debenture on the books kept for registration thereof, with
full power of substitution in the premises.
Date:________________ ____________________________
Signature Guaranteed:
- ---------------------
NOTICE: The signature to this assignment must correspond with the name of the
registered owner as it appears upon the face of the within Debenture
in every particular, without alteration or enlargement or any change
whatever.
- --------------------------------------------------------------------------------
<PAGE>
BANK AGREEMENT
THIS BANK AGREEMENT, dated as of July 25, 1997 (as amended,
modified or supplemented from time to time, the "Bank Agreement"), is by and
among Grand Court Lifestyles, Inc., a corporation organized and existing under
the laws of the State of Delaware, (the "Company"), and The Bank of New York
(the "Bank").
W I T N E S S E T H:
WHEREAS, the Company is issuing its Series 11, 12%
Debentures due June 30, 2004 (the "Debentures") pursuant to the Company's
Confidential Private Placement Memorandum, as the same may be from time to
time amended (the "Memorandum");
WHEREAS, the Company's private placement of the Debentures
(the "Offering") will terminate on the earlier of (i) the date on which all
the Debentures are sold or (ii) July 31, 1998 (the "Offering Termination
Date");
WHEREAS, subscribers will purchase Debentures at a closing
(the "Initial Closing") to be held at such time as the Company may determine
in its discretion and, thereafter, from time to time (each, singly, an
"Additional Closing," and, collectively, the "Additional Closings"), at the
discretion of the Company, on such day or days as may be determined by the
Company, as subscriptions are received and accepted (hereinafter the date of
the Initial Closing and the date of any Additional Closing are each referred
to as a "Closing Date");
WHEREAS, the Company desires to deliver to the Bank amounts
received by the Company from subscribers for Debentures (each, singly, a
"Purchaser," and, collectively, the "Purchasers"), in payment for the
Debentures, which amounts shall be released to the Company at the Initial
Closing and at each Additional Closing;
WHEREAS, each Purchaser shall be entitled to receive, on a
monthly basis prior to the Closing Date with respect to that Purchaser's
Debentures, distributions representing interest accrued on that Purchaser's
subscription payment at a rate of 12% per annum;
WHEREAS, the Company desires to establish an interest bearing
escrow fund to be called Grand Court Lifestyles, Inc. Series 11 Escrow Fund
Account (the "Fund") with the Bank;
WHEREAS, the Company, for the benefit of the Bank and the
Purchasers, wishes to assign to, and to grant the Bank a security interest in,
certain notes, instruments and
<PAGE>
-2-
documents as more fully described below and the Bank is willing to accept such
security interest and assignment upon the terms and conditions hereinafter set
forth; and
WHEREAS, the Company wishes to appoint the Bank as Escrow
Agent, Authenticating Agent, Custodian, Paying Agent, Registrar and Transfer
Agent with respect to the Debentures and the above-mentioned notes,
instruments and documents and the Bank is willing to accept such appointments
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises
and the mutual covenants herein contained and other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto
hereby agree as follows:
Section 1. Escrow Agent.
Section 1.1 Appointment. The Company hereby appoints and
designates the Bank as Escrow Agent for the purposes set forth in this Section
1, and the Bank hereby accepts such appointment.
Section 1.2 Escrow. The Company shall from time to time
deliver amounts received from Purchasers in payment for the Debentures
("Subscription Payments") to the Bank. The Bank shall deposit the Subscription
Payments in the Fund to be established in the Company's name for this purpose
by the Bank. Subscription Payments delivered for deposit in the Fund shall be
invested in short term certificates of deposit (including certificates of
deposit issued by the Bank), A-1 commercial paper, P-1 commercial paper,
interest bearing money market accounts, all as specified in writing by the
Company and held in trust for the benefit of the Purchasers. In the event the
Company should fail to so specify, Subscription Payments delivered for deposit
in the Fund shall be invested in the Bank's Deposit Reserve, an
interest-bearing account, for the benefit of the Purchasers. The Bank is not
responsible for interest, losses, taxes or other charges on investments. All
checks delivered to the Bank for deposit in the Fund shall be payable to the
order of "Grand Court Lifestyles, Inc. - Escrow Account." Concurrently with
such delivery, the Company shall deliver to the Bank a statement of the name,
mailing address and tax identification number of each Purchaser whose
Subscription Payment is being delivered, and a schedule listing the aggregate
Debentures and aggregate cumulative Subscription Payments to date delivered
for deposit in the Fund. For the purposes of this Bank Agreement, the Company
is authorized to make deposits and give instructions as to investments of
deposits and otherwise, as contemplated in this Bank Agreement, to the Bank.
Section 1.3 Interest. During the period (the "Escrow
Period") commencing upon the date that any Purchaser's Subscription Payment
constitutes Cleared Funds (as defined in Section 1.11 hereof) and ending on
the day immediately preceding the Closing Date with respect
<PAGE>
-3-
to that Purchaser's Debentures, interest will accrue on that Purchaser's
Subscription Payment at a rate of 12% per annum, computed on the basis of a
year of 360 days consisting of 12 thirty day months. Interest shall be payable
on the fifteenth day of each month if such day is a Business Day. If such day
is not a Business Day, then the next Business Day shall be deemed the Interest
Payment Date (each, an "Interest Payment Date"). Four Business Days prior to
each such Interest Payment Date, the Bank shall give the Company written
notice of the difference between the amount of interest which will be payable
on Subscription Payments on such Interest Payment Date and the amount of
interest accruing on the Fund which will be available for such payment on such
Interest Payment Date. Not later than 11:30 a.m. (New York time) on such
Interest Payment Date, the Company shall deposit with the Bank the amount of
such difference. On each Interest Payment Date, the Bank shall pay interest
which is due and payable to the respective Purchasers by mailing its check in
the appropriate amount to each Purchaser by first class mail at the
Purchaser's mailing address provided to the Bank pursuant to Section 1.2
hereof. In the event that the Company shall default in its payment obligations
to the Bank under this Section 1.3, the Bank shall mail its check in the
amount of each Purchaser's pro rata share of interest earned and paid on the
Fund as provided in this Section 1.3. For purposes of this Bank Agreement,
"Business Day" shall mean any day other than a day on which the Bank is
authorized to remain closed in New York City.
Section 1.4 Conditions of Initial Closing and Additional
Closings. Notwithstanding anything to the contrary in this Bank Agreement, it
is a condition precedent to the Initial Closing and to each Additional Closing
that the Company shall deliver to the Bank Set Aside Purchase Notes in such an
amount, as calculated by the Company, that 80% of the aggregate principal
balance outstanding at maturity of the Set Aside Purchase Notes equals the
principal amount of the Debentures which will be sold at that Initial Closing
or Additional Closing, together with the related Consent and Agreement
pertaining to each such Set Aside Purchase Note and the related Consent,
Assignment and Agreement pertaining to the Purchased Partnership Interest and
the related Financing Statements (as such terms are defined in Section 7
hereof), as provided in Section 7 hereof. Upon the scheduling of the Initial
Closing and each Additional Closing, the Company shall give written notice
thereof to the Bank not less than one (1) Business Day prior to the date
scheduled for each such closing. As used in this Section 1.4 and elsewhere in
this Bank Agreement, a statement concerning the outstanding principal amount
at maturity of a Set Aside Purchase Note refers to the amount of principal
that would be due at maturity on that Set Aside Purchase Note if all payments
of principal on that Set Aside Purchase Note scheduled to be made prior to
maturity were made when due and none of such payments were deferred by the
obligor thereof with the consent of the Company.
Section 1.5 Cancellation. The Company shall give the Bank
notice of any Purchaser who cancels his Subscription prior to his Closing Date
or whose Subscription Payment was deposited pursuant to Section 1.2 but whose
Subscription is rejected, setting forth the name
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and mailing address of the Purchaser and the amount of the rejected or
cancelled subscription. As promptly as practicable thereafter, the Bank shall
pay the amount of the cancelled or rejected subscription from the Fund to the
Purchaser whose Subscription was cancelled or rejected as directed by the
Company. Any interest earned thereon and not theretofore distributed pursuant
to Section 1.3 hereof shall be paid to the Purchaser in accordance with
Section 1.3 hereof. Payment shall be made by check payable to the Purchaser
mailed by the Bank by first class mail directly to the Purchaser at the
mailing address of the Purchaser.
Section 1.6 Payment. (a) The Bank, at the Initial Closing
and each Additional Closing, upon written instruction from either Mr. John
Luciani and Mr. Bernard M. Rodin, as the designated officers of the Company,
shall transfer to the Company or to such third party or parties as may be
directed by Mr. Luciani or Mr. Rodin the Cleared Funds then held in the Fund
by the Bank. Any interest earned thereon and not theretofore distributed in
accordance with Section 1.3 hereof shall be paid to the Purchasers in
accordance with Section 1.3 hereof.
(b) In the event that the Bank should receive written
instructions as contemplated in subparagraph (a) above from any one other than
Mr. Luciani or Mr. Rodin, regardless of whether that person is an officer,
director, employee, agent or representative of the Company, those instructions
are to be deemed to be invalid and contrary to the intent of this Bank
Agreement.
Section 1.7 Fees and Expenses. In addition to the fees set
forth in Section 7.10 hereof, the Bank shall be entitled to an administration
fee as compensation for its services under this Section 1 in the amount of
$5,000 payable (i) upon the execution and delivery of this Bank Agreement and
(ii) subject to an adjustment as provided in the next succeeding sentence of
this Section 1.7, on the first anniversary date of this Bank Agreement,
provided however, that the Bank shall not be entitled to payment of an
administration fee on such first anniversary date if all of the Debentures
have been sold prior thereto. In the event the Offering terminates prior to
July 31, 1998, the Company shall be entitled to a refund payable ten days
after the Offering Termination Date, of that portion of the administration fee
paid to the Bank on the first anniversary date of this Bank Agreement, in an
amount calculated as the difference between (a) $5,000 and (b) the product of
(x) $5,000 and (y) a fraction, the numerator of which is the number of days
between the first anniversary date of this Bank Agreement and the Offering
Termination Date, inclusive, and the denominator of which is 365. In no event
shall the Bank be entitled to payment of an administration fee, as provided
for in this Section 1.7, following the Offering Termination Date. The Company
shall also pay the Bank $5 for the preparation and execution of each
Purchaser's account including the calculation of interest accrued; $1 for the
preparation of each Purchaser's 1099 tax form; $25 for each investment
transaction in the Fund; $25 for each returned "bounced" check of a Purchaser;
and $500 for each Additional Closing, payable within ten (10) days after the
Bank gives the Company notice that any such
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amounts are due and payable. Notwithstanding anything herein to the contrary,
the Bank shall not charge the Company for the issuance of checks or wire
transfers to make monthly payments of accrued interest on Subscription
Payments. No additional fee will be payable with respect to wire transfers of
and unreturned checks for Subscription Payments. In addition, the Company
shall reimburse the Bank for other actual out-of-pocket expenses incurred in
connection with its obligations pursuant to this Section 1 (including, but not
limited to, actual expenses for stationery, postage, telephone, telex, wire
transfers, telecopy and retention of records, and reasonable fees and expenses
of counsel), payable within ten (10) days after the Bank gives notice to the
Company that it has incurred such expenses. The obligation to pay such
compensation and reimburse such expenses shall be borne solely by the Company.
Amounts held in the Fund shall not be available to satisfy this obligation or
any other obligation of the Company to the Bank. The provisions of this
Section 1.7 shall survive the termination of this Bank Agreement.
Section 1.8 Termination of Offering. If the Offering should
be terminated, the Company shall promptly so advise the Bank in writing, and
shall authorize and direct the Bank to return the Subscription Payments to the
Purchasers. The Bank thereupon shall return those Subscription Payments to the
extent they have not been distributed per Section 1.6 to the Purchasers from
whom they were received. Any interest earned on the Subscription Payments and
not theretofore distributed pursuant to Section 1.3 hereof shall be paid in
accordance with Section 1.3 hereof. Upon paying such disbursements to the
Purchasers and the Company, the Bank shall be relieved of all of its
obligations and liabilities under this Bank Agreement.
Section 1.9 Form 1099, etc. In compliance with the Internal
Revenue Code of 1986, as amended, the Company shall request that each
Purchaser furnish to the Bank such Purchaser's taxpayer identification number
and a statement certified under penalties of perjury that (a) such taxpayer
identification number is true and correct and (b) the Purchaser is not subject
to withholding of 31% of reportable interest, dividends or other payments.
Section 1.10 Uncollected Funds. In the event that any funds,
including Cleared Funds, deposited in the Fund prove uncollectible after the
funds represented thereby have been released by the Bank pursuant to this Bank
Agreement, the Company shall reimburse the Bank upon request for the face
amount of such check or checks; and the Bank shall, upon instruction from the
Company, deliver the returned checks or other instruments to the Company. This
section shall survive the termination of this Bank Agreement.
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Section 1.11 Cleared Funds. For the purpose of this Bank
Agreement, Subscription Payments shall constitute "Cleared Funds" in
accordance with the following:
(a) if paid by wire transfer, such funds shall constitute
Cleared Funds on the date received by the Bank;
(b) if paid by check drawn on a New York Clearing House
Bank, such funds shall constitute Cleared Funds on the second Business Day
following the date received by the Bank; and
(c) if paid by check drawn on any bank other than a New York
Clearing House Bank, such funds shall constitute Cleared Funds on the third
Business Day following the date received by the Bank.
Section 2. Execution. The Debentures shall be executed on
behalf of the Company by the manual or facsimile signature of an officer of
the Company. All such facsimile signatures shall have the same force and
effect as if the officer had manually signed the Debentures. In case any
officer of the Company whose signature shall appear on a Debenture shall cease
to be such officer before the delivery of such Debenture or the issuance of a
new Debenture following a transfer or exchange, such signature or such
facsimile shall nevertheless be valid and sufficient for all purposes, the
same as if such officer had remained an officer until delivery.
Section 3. Authenticating Agent.
Section 3.1 Appointment. The Company hereby appoints and
designates the Bank as Authenticating Agent for the purposes set forth in this
Section 3, and the Bank hereby accepts such appointment.
Section 3.2 Authentication. Only such Debentures as shall
have the Certificate of Authentication endorsed thereon in substantially the
form set forth in the form of Debenture attached to the Memorandum, duly
executed by the manual signature of an authorized signatory of the Bank, shall
be entitled to any right or benefit under this Bank Agreement. No Debentures
shall be valid or obligatory for any purpose unless and until such Certificate
of Authentication shall have been duly executed by the Bank; and such executed
certificate upon any such Debenture shall be conclusive evidence that such
Debenture has been authenticated and delivered under this Bank Agreement. The
Certificate of Authentication on any Debenture shall be deemed to have been
executed by the Bank if signed by an authorized signatory of the Bank, but it
shall not be necessary that the same person sign the Certificate of
Authentication on all of the Debentures.
<PAGE>
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Section 4. Mutilated, Lost, Stolen or Destroyed Debentures.
Subject to applicable law, in the event any Debenture is mutilated, lost,
stolen or destroyed, the Company may authorize the execution and delivery of a
new Debenture of like date, number, maturity and denomination as that
mutilated, lost, stolen or destroyed, provided, however, that in the case of
any mutilated Debenture, such mutilated Debenture shall first be surrendered
to the Company, and in the case of any lost, stolen or destroyed Debenture,
there shall be first furnished to the Company and the Bank, evidence of the
ownership thereof and of such loss, theft or destruction satisfactory to the
Company and the Bank, together with indemnification through a bond of
indemnity or otherwise as shall be satisfactory to the Company and the Bank.
The Company may charge the Purchaser of such Debenture with any amounts
satisfactory to the Company and the Bank and permitted by applicable law.
Section 5. Registrar and Transfer Agent.
Section 5.1 Appointment. The Company hereby appoints and
designates the Bank as Registrar and Transfer Agent for the purposes set forth
in this Section 5, and the Bank hereby accepts such appointment.
Section 5.2 Registration, Transfer and Exchange of
Debentures. The Debentures are issuable only as registered Debentures without
coupons in the denomination of $100,000 or any multiple or any fraction
thereof at the sole discretion of the Company. Each Debenture shall bear the
following restrictive legend: "These securities have not been registered under
the Securities Act of 1933, as amended, and may be offered and sold or
otherwise transferred only if registered pursuant to the provisions of that
Act or if an exemption from registration is available." The Bank shall keep at
its principal corporate trust office a register in which the Bank shall
provide for the registration and transfer of Debentures. Upon surrender for
registration of transfer of any Debenture at such office of the Bank, the
Company shall execute, pursuant to Section 2 hereof, and mail by first class
mail to the Bank, and the Bank shall authenticate, pursuant to Section 3
hereof, and mail by first class mail to the designated transferee, or
transferees, one or more new Debentures in an aggregate principal amount equal
to the unpaid principal amount of such surrendered Debenture, registered in
the name of the designated transferee or transferees. Every Debenture
presented or surrendered for registration of transfer shall be duly endorsed,
or be accompanied by a written instrument of transfer duly executed, by the
holder of such Debenture or his attorney duly authorized in writing.
Notwithstanding the preceding, the Debentures may not be transferred without
an effective registration statement under the Securities Act of 1933 covering
the Debentures or an opinion of counsel satisfactory to the Company and its
counsel that such registration is not necessary under the Securities Act of
1933 (the "Securities Act"). At the option of the owner of any Debenture, such
Debenture may be exchanged for other Debentures of any authorized
denominations, in an aggregate principal amount equal to the unpaid principal
amount of such
<PAGE>
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surrendered Debenture, upon surrender of the Debenture to be exchanged at the
principal corporate trust office of the Bank; provided, however, that any
exchange for denominations other than $100,000 or an integral multiple thereof
shall be at the sole discretion of the Company. Whenever any Debenture is so
surrendered for exchange, the Company shall execute, pursuant to Section 2
hereof, and deliver to the Bank, and the Bank shall authenticate, pursuant to
Section 3 hereof, and mail by first class mail to the designated transferee,
or transferees, the Debenture or Debentures which the Debenture owner making
the exchange is entitled to receive. Any Debenture or Debentures issued in
exchange for any Debenture or upon transfer thereof shall be dated the date to
which interest has been paid on such Debenture surrendered for exchange or
transfer, and neither gain nor loss of interest shall result from any such
exchange or transfer. In addition, each Debenture issued upon such exchange or
transfer shall bear the restrictive legend set forth above unless in the
opinion of counsel to the Company, such legend is not required to ensure
compliance with the Securities Act.
Section 5.3 Owner. The person in whose name any Debenture
shall be registered shall be deemed and regarded as the absolute owner thereof
for all purposes, and payment of or on account of the principal of or interest
on such Debenture shall be made only to or upon the order of the registered
owner thereof or his duly authorized legal representative. Such registration
may be changed only as provided in this Section 5, and no other notice to the
Company or the Bank shall affect the rights or obligations with respect to the
transfer of a Debenture or be effective to transfer any Debenture. All
payments to the person in whose name any Debenture shall be registered shall
be valid and effectual to satisfy and discharge the liability upon such
Debenture to the extent of the sum or sums to be paid.
Section 5.4 Transfer Agent. The Bank shall send executed,
authenticated Debentures to Purchasers on Closing Dates and to subsequent
owners and transferees who are entitled to receive Debentures pursuant to the
terms of this Bank Agreement, by first class mail.
Section 5.5 Charges and Expenses. No service charge shall be
made for any transfer or exchange of Debentures, but in all cases in which
Debentures shall be transferred or exchanged hereunder, as a condition to any
such transfer or exchange, the owner of the Debenture shall, prior to the
delivery of any new Debenture pursuant to such transfer or exchange, reimburse
the Company and the Bank for their respective actual out-of-pocket expenses
incurred in connection therewith (including, but not limited to, any tax, fee
or other governmental charge required to be paid with respect to such transfer
or exchange, actual expenses for stationery, postage, telephone, telex, wire
transfers, telecopy and retention of records, and reasonable fees and expenses
of their respective counsel). The provisions of this Section 5.5 shall survive
the termination of this Bank Agreement.
<PAGE>
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Section 5.6 Redemption at the Option of the Company.
(a) Whenever the Company shall effect a redemption at the
option of the Company, at any time in its sole and absolute discretion, of
part or all of the Debentures, which shall be without premium or penalty, the
Company shall give written notice thereof to the Bank at least forty (40) days
prior to the date set forth for redemption, the manner in which redemption
shall be effected and all the relevant details thereof. The Bank shall give
written notice to the Purchasers in the form included herewith as Exhibit D of
that redemption at least thirty (30) days prior to the date set forth for
redemption. The Bank shall register the cancellation of the whole or a portion
of the redeemed Debentures, as appropriate. In any event, new debentures will
not be issued to reflect the non-redeemed portion of the Debentures. No
interest shall be payable on the redeemed portion of a Debenture from and
after the date of redemption.
(b) In the event the Company should effect a partial
redemption at the option of the Company of the Debentures, the Bank shall (i)
return to the Company Set Aside Purchase Notes selected by the Company in such
an amount that 80% of the aggregate principal balance outstanding at maturity
of such Set Aside Purchase Notes equals the principal amount of the redeemed
portion of the Debentures, (ii) execute and deliver to the Company an
instrument prepared by the Company effecting a release by the Bank of the
existing assignment of the security interest and Purchase Agreement covering
the related Purchased Partnership Interest (as such terms are defined in
Section 7.3(a) hereof), (iii) file with the appropriate governmental
authorities indicated by the Company to the Bank, Financing Statements
delivered by the Company to the Bank recording the termination of the Bank's
security interest and assignment granted under this Bank Agreement, and (iv)
return to the Company the Consent and Agreement described in Section 7.2(c)
hereof, the Consent, Assignment and Agreement described in Section 7.3(c)
hereof relating to such returned Set Aside Purchase Notes and the Purchased
Partnership Interest, respectively. In no event, however, will the Bank
release Set Aside Purchase Notes if the sum of 80% of the aggregate principal
balance outstanding of the Set Aside Purchase Notes would be less than the
principal amount of the Debentures that remain outstanding.
Section 5.7 Mandatory Redemption. The Company shall be
obligated to redeem 100% of the Debentures due June 30, 2004. When the Company
shall effect the mandatory redemption, the Company shall give written notice
thereof to the Bank at least forty (40) days prior to the date set forth for
redemption, the manner in which redemption shall be effected and all relevant
details thereof. The Bank shall give written notice to the Purchasers of that
redemption at least thirty (30) days prior to the date set forth for
redemption in the form included herewith as Exhibit B. The Bank shall register
the cancellation of the whole of the redeemed Debentures.
<PAGE>
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Section 6. Paying Agent.
Section 6.1 Appointment. The Company hereby appoints and
designates the Bank as Paying Agent for the purposes set forth in this Section
6, and the Bank hereby accepts such appointment.
(a) Section 6.2 Payment Provisions. The Bank shall pay
interest on Subscription Payments and principal of and interest on the
Debentures to the persons in whose names the Debentures are registered,
subject to the limitations contained in Section 5.6(a) and in accordance with
the terms and provisions of this Bank Agreement and the Debentures, by check
mailed by first class mail to the registered owner of a Debenture at his
address as it appears in the register; provided that not later than 11:30 a.m.
(New York time) on the Interest Payment Date or date on which principal of any
Debenture is due and payable, the Company shall provide the Bank with
sufficient funds to make those payments.
(b) Each Purchaser shall be entitled to receive with respect
to that Purchaser's Debentures, interest from the Closing Date through June
30, 2004 on that portion of the Purchaser's Debentures which have not been
redeemed pursuant to Section 5.6 hereof.
Section 6.3 Expenses. The Company shall reimburse the Bank
for its actual out-of-pocket expenses incurred in connection with its
obligations pursuant to this Section 6 (including, but not limited to, actual
expenses for stationery, postage, telephone, telex, wire transfers, telecopy
and retention of records), payable within ten (10) days after the Bank gives
notice to the Company that it has incurred such expenses. The obligation to
pay such compensation and reimburse such expenses shall be borne solely by the
Company. Notwithstanding anything herein to the contrary, the Bank shall not
charge the Company any fees for the issuance of checks or wire transfers to
make payments of interest on or repayments of principal of the Debentures. The
provisions of this Section 6.3 shall survive the termination of this Bank
Agreement.
Section 7. The Custodian.
Section 7.1 Appointment. The Company hereby appoints and
designates the Bank as Custodian for the purposes set forth in this Section 7,
and the Bank hereby accepts such appointment.
Section 7.2 Set Aside Purchase Notes.
(a) The Company is the holder of certain Purchase Notes
entered into pursuant to a Purchaser Agreement executed by the respective
Investing Partnership. Under the terms
<PAGE>
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of each such Purchase Note and Purchase Agreement, the Company is entitled to
assign each Purchase Note and the Company's right to payments of interest
thereon and the principal amount thereof. Interest and scheduled payments of
principal, where required, shall be paid by the Investing Partnership out of
cash flow received from distributions, if any, from the Operating Partnership.
Any interest and, where required, scheduled payments of principal payable
prior to maturity that are due but unpaid on Purchase Notes shall be deferred
until the maturity of that Purchase Note.
(b) In order to secure the payment of the Bank's fees and
expenses under this Section 7 and the payment of principal of and interest on
the Debentures, subject to the terms and conditions of Section 7.6 hereof, the
Company hereby grants the Bank a security interest in and assigns to the Bank,
for the benefit of the Bank and the owners of Debentures from time to time,
all of the Purchase Notes, having an aggregate face value of $12,675,000 and
an aggregate balance of principal due at maturity equal to $11,066,000, listed
in Exhibit A hereto (the "Set Aside Purchase Notes") issued by the Investing
Partnerships listed in Exhibit A hereto, and the proceeds thereof. In order to
perfect such security interests, the Company shall deliver to the Bank the Set
Aside Purchase Notes. Upon receipt of each Set Aside Purchase Note, the Bank
shall execute and deliver to the Company a receipt therefor. Notwithstanding
the assignment of the Set Aside Purchase Notes to the Bank, the scheduled
payments of principal payable prior to maturity on certain Set Aside Purchase
Notes so providing and interest payments on all of the Set Aside Purchase
Notes shall be payable directly to the Company until such time as an Event of
Default (as defined in Section 7.6 hereof) shall occur and be continuing. The
parties hereto confirm that payment of interest under a Set Aside Purchase
Note or scheduled payments of principal payable prior to maturity made under
the Set Aside Purchase Notes listed in Exhibit A hereto, as requiring such
scheduled principal payment, will belong to the Company until such time as an
Event of Default shall occur and be continuing. The parties hereto further
confirm that (i) any interest and principal on a Set Aside Purchase Note paid
at the maturity thereof shall belong to the Company so long as an Event of
Default shall not have occurred and be continuing and (ii) any amounts
received by the Company from an Operating Partnership or an Investing
Partnership as repayment of loans or advances made by the Company shall belong
to the Company and will not be used to redeem any portion of the Debentures.
(c) The Company shall deliver to the Bank a Consent and
Agreement in the form of Exhibit B hereto, executed by each Investing
Partnership listed in Exhibit A hereto, under which the Investing Partnership
shall (i) consent to the Company's assignment to the Bank of the Investing
Partnership's Set Aside Purchase Note, (ii) consent to the Company's delivery
of the Investing Partnership's Set Aside Purchase Note to the Bank, and (iii)
agree that upon receiving the Bank's notice of an Event of Default that is
continuing, the Investing Partnership shall pay all sums due under its Set
Aside Purchase Note directly to the Bank. Upon receipt of
<PAGE>
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each such Consent and Agreement, the Bank shall execute and deliver to the
Company a receipt therefor.
Section 7.3 Purchased Partnership Interests.
(a) Each Investing Partnership listed in Exhibit A hereto,
in order to secure its payment of the principal of and interest on its Set
Aside Purchase Note, has entered into a Purchase Agreement under which the
Investing Partnership has granted a security interest in that Investing
Partnership's limited partnership interest listed in Exhibit A hereto (a
"Purchased Partnership Interest") in a respective Operating Partnership listed
in Exhibit A hereto (an "Operating Partnership").
(b) In order to secure the payment of the Bank's fees and
expenses under this Section 7 and the payment of principal of and interest on
the Debentures, subject to the terms and conditions of Section 7.6 hereof, the
Company hereby grants the Bank a security interest in and assigns to the Bank,
for the benefit of the Bank and the owners of the Debentures from time to
time, all of the Company's rights, title and interest in and to each Purchase
Agreement listed in Exhibit A hereto, each security interest in a Purchased
Partnership Interest created under any such Purchase Agreement, each such
Purchased Partnership Interest, each allocation and distribution due and
payable or to be made from time to time on such Purchased Partnership
Interest, and the proceeds thereof. In order to perfect such security
interest, the Company shall deliver to the Bank Financing Statements
("Financing Statements") for execution by the Bank. The Bank shall return
promptly those executed Financing Statements for filing by the Company with
the appropriate governmental authorities. the Company hereby agrees to deliver
to the Bank for execution, from time to time, such additional Financing
Statements as must be filed by the Company with such appropriate governmental
authorities in order to continue the perfection of such security interest.
Notwithstanding the assignments, pursuant to this Section 7.3(b), of the
above-mentioned Purchase Agreements, security interests, Purchased Partnership
Interests, and due and payable allocations and distributions on Purchased
Partnership Interests to the Bank, all allocations and distributions on such
Purchased Partnership Interests, if any, in excess of the amounts due and
payable by the Investing Partnership on account of principal and interest on
their respective Purchase Notes shall be payable directly to the respective
Investing Partnership if an event of default shall not have occurred and be
continuing under that Investing Partnership's Set Aside Purchase Note and
shall be payable directly to the Bank for the benefit of the Bank, subject to
Section 7.5(g) and the owners of the Debentures only if the Bank shall
foreclose on the security interest granted pursuant to this Section 7.3(b)
pursuant to Section 7.5(e) hereof.
<PAGE>
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(c) The Company shall deliver to the Bank a Consent,
Assignment and Agreement in the form of Exhibit C hereto, executed by each
Investing Partnership and Operating Partnership listed in Exhibit A hereto,
under which the Investing Partnership and Operating Partnership shall (i)
consent to the Company's assignment to the Bank, pursuant to Section 7.3(b)
hereof, of the Purchase Agreement, security interest in the Purchased
Partnership Interest, Purchased Partnership Interest, each allocation and
distribution due and payable or to be made from time to time on the Purchased
Partnership Interest, and the proceeds thereof; (ii) consent to the Company's
delivery of the above-mentioned Financing Statements and the Bank's filing of
the Financing Statements from time to time with the appropriate governmental
authorities; (iii) assign to the Bank all allocations and distributions which
may be due and payable or made from time to time on the Purchased Partnership
Interest (subject to the terms and conditions set forth in this Bank
Agreement) until all outstanding obligations under the Set Aside Purchase Note
which is in default shall have been paid in full (including, without
limitation, all costs of collection, reasonable attorney fees and other fees
and expenses); and (iv) agree that upon foreclosure of the security interest
granted pursuant to Section 7.3(b) hereof, pursuant to Section 7.5(e) hereof,
all allocations and distributions on the Purchased Partnership Interest shall
be paid directly to the Bank, as the assignee of the Company, regardless of
whether the Bank becomes a substituted limited partner in place of the
Investing Partnership in the Operating Partnership but subject to the
limitations in subparagraph (iii) above. Upon receipt of each such Consent,
Assignment and Agreement, the Bank shall execute and deliver to the Company a
receipt therefor.
Section 7.4 Attachment of Security Interests.
Notwithstanding anything to the contrary in this Bank
Agreement, each security interest granted by the Company to the Bank under
this Section 7 shall become effective and shall attach only upon the Company's
delivery to the Bank of the respective Set Aside Purchase Note, and the
related Consent and Agreement and Financing Statements pertaining to that Set
Aside Purchase Note, the related Consent, Assignment and Agreement and related
Financing Statements pertaining to the Purchased Partnership Interest. The
Company shall be obligated to deliver to the Bank only those Set Aside
Purchase Notes selected by the Company, in its sole discretion, in such an
amount that 80% of the aggregate principal balance outstanding at maturity of
the Set Aside Purchase Notes equals the principal amount of the Debentures
which will be sold at the respective Initial Closing or Additional Closing,
together with the Consent and Agreement and Financing Statements pertaining to
that Set Aside Purchase Note, the Consent, Assignment and Agreement and
related Financing Statements pertaining to the Purchased Partnership Interest.
<PAGE>
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Section 7.5 Duties of the Bank.
(a) The Bank shall hold the notes, Agreements and
instruments deposited with it for the purposes of this Bank Agreement and for
the benefit of the Bank and of the owners of the Debentures from time to time,
and shall perform all duties imposed upon it by this Bank Agreement until this
Bank Agreement is terminated. The security interests and assignments created
by this Bank Agreement and by each Consent, Assignment and Agreement shall
automatically terminate when all of the Debentures and all amounts payable to
the Bank under this Bank Agreement have been paid in full. Thereupon, the Bank
shall return to the Company the Set Aside Purchase Notes deposited with it
pursuant to Section 7.2(b) hereof and not previously returned to the Company
pursuant to the terms of this Agreement, and shall file with the appropriate
governmental authorities indicated by the Company to the Bank Financing
Statements delivered by the Company to the Bank recording the termination of
the Bank's security interests and assignments granted under this Bank
Agreement and each Consent, Assignment and Agreement.
(b) Upon the occurrence and continuation of an Event of
Default, the Bank shall declare the entire outstanding aggregate principal
balance of all the Debentures plus all accrued interest due and immediately
payable. In addition, the Bank shall promptly notify each Investing
Partnership in writing of the occurrence of such Event of Default in the form
included herewith as Exhibit F. Upon receipt of such notice, each Investing
Partnership shall (i) make all payments of principal and interest on its
respective Set Aside Purchase Note to the Bank.
The Bank shall collect all payments received under the
foregoing security interests and assignments and apply them for the benefit of
the Bank and of the owners of the Debentures firstly to the payment of all
costs of collection, secondly to the payment of the Bank's fees and expenses,
thirdly to the payment of all accrued interest (including, without limitation,
interest accrued after the date of the Event of Default) and next to the
repayment of principal of the Debentures, until all amounts due under the
Debentures shall have been paid in full together with all costs of collection,
fees and expenses.
(c) Upon the occurrence and continuation of an Event of
Default, the Bank shall be entitled to institute action against the Company to
collect payment under the Debentures without any prior requirement to attempt
to collect any funds under the Set Aside Purchase Notes or the related
Purchased Partnership Interests. In the event that the Company shall default
on its payment obligations to the Bank under this Bank Agreement, the Bank
shall be entitled to institute action against the Company to collect payment
under this Bank Agreement, without any prior requirement to attempt to collect
any funds under the Set Aside Purchase Notes or the related Purchased
Partnership Interests.
<PAGE>
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(d) Upon the occurrence and continuation of an Event of
Default, the Bank, in its discretion, is authorized to, but shall not be
required to, proceed in any way legally available to it to liquidate the Set
Aside Purchase Notes and the Purchased Partnership Interests (if the Bank
shall have foreclosed on such Set Aside Purchase Note pursuant to Section
7.5(e) hereof), in each case, but not limited to, the public or private sale
of all or any part thereof upon three (3) days' prior notice to the Company,
free and clear of any claim, lien, charge or encumbrance including, without
limitation, any right of equity of redemption. The Bank shall apply the
proceeds of any such sale firstly to the payment of the expenses of the sale,
secondly to the payment of the Bank's fees and expenses, thirdly to the
payment of accrued interest including accrued interest from and after the
Event of Default, and next to the payment of principal of the Debentures. The
Bank shall not be liable to the Company or its affiliates because of any sale
or the consequences thereof.
(e) While an Event of Default is continuing, if there shall
occur or if there shall have occurred and be continuing an event of default
under any Set Aside Purchase Note, the Bank shall immediately send written
notice of that event of default under that Set Aside Purchase Note to the
maker of that Set Aside Purchase Note. If that event of default is continuing
after the expiration of the grace period, if any, contained in that Set Aside
Purchase Note, the Bank shall immediately foreclose on the security interest
in the related Purchased Partnership Interest by notifying the general partner
of the related Operating Partnership of the foreclosure. The Bank shall send a
notice to the Investing Partnership stating that it is retaining the Purchased
Partnership Interest in discharge of the defaulted Set Aside Purchase Note
pursuant to Section 9-505 of the Uniform Commercial Code and shall request
admission as a substituted limited partner in place of the related Investing
Partnership in that Operating Partnership, subject to the limitations set
forth in Section 7.3(c)(iii) hereof, and to obtaining previous Multi-family
Participation Clearance from the United States Department of Housing and Urban
Development ("HUD 2530 Clearance") with respect to that Operating Partnership,
if required, in satisfaction of that Set Aside Purchase Note (but not of any
Debenture); provided, that during any time period pending obtaining HUD 2530
Clearance, if required, or if HUD 2530 Clearance is required for that
Operating Partnership but cannot be obtained, or if the Bank may not be
admitted as a substituted limited partner in the Operating Partnership for any
reason, the Bank shall nevertheless be entitled to receive all allocations and
distributions from that Operating Partnership as the assignee of the Company
and this Bank Agreement shall operate as an assignment of such allocations and
distributions by the Investing Partnership subject to the limitations set
forth in Section 7.3(c)(iii) hereof. In addition, while an Event of Default is
continuing, if there shall occur or if there shall have occurred and be
continuing an event of default under any Set Aside Purchase Note or under any
Partnership Agreement governing the Operating Partnership related to the
Purchased Partnership Interest, the Bank shall be authorized to exercise any
and all rights and remedies available to it as the holder of the respective
Set Aside Purchase Note, the substituted partner or assignee with respect to
the Purchased
<PAGE>
-16-
Partnership Interest in the related Operating Partnership, as well as any
other remedy available under law or equity. The Bank shall apply the proceeds
of its exercise of the above-mentioned rights and remedies firstly to the
payment of all costs of collection, secondly to the payment of the Bank's fees
and expenses, thirdly to the payment of all accrued interest (including,
without limitation, interest accrued after the date of the Event of Default)
and next to repayment of principal of the Debentures, until all amounts due
under the Debentures shall have been paid in full together with all costs of
collection, fees and expenses.
(f) If a default on any payment of principal or interest on
a Set Aside Purchase Note shall occur when no Event of Default is continuing,
then the Company shall immediately give the Bank notice thereof and upon
receiving such notice the Bank shall immediately send written notice of that
event of default under that Set Aside Purchase Note to the maker of that Set
Aside Purchase Note.
(g) If that event of default is continuing after the
expiration of the grace period, if any, contained in that Set Aside Purchase
Note, the Bank shall immediately foreclose on the security interest in the
related Purchased Partnership Interest by notifying the general partner of the
related Operating Partnership of such foreclosure. The Bank shall send a
notice to the Investing Partnership stating that it is retaining the Purchased
Partnership Interest in discharge of the defaulted Set Aside Purchase Note
pursuant to Section 9-505 of the Uniform Commercial Code and shall request
admission as a substituted limited partner in place of the related Investing
Partnership in that Operating Partnership, subject to obtaining HUD 2530
Clearance, if required, in satisfaction of that Set Aside Purchase Note (but
not of any Debenture); provided that during any time period pending obtaining
HUD 2530 Clearance, if required, or if HUD 2530 Clearance is required for that
Operating Partnership but cannot be obtained, the Bank may not be admitted as
a substituted limited partner in the Operating Partnership for any reason, the
Bank shall be entitled nevertheless to receive all allocations and
distributions from that Operating Partnership as the assignee of the Company
and this Bank Agreement shall operate as an assignment of such allocations and
distributions by the Operating Partnership, subject to the limitations in
Section 7.3(c)(iii) hereof. The Bank shall pay over to the Company any amounts
received from the Operating Partnership unless and until an Event of Default
shall occur and be continuing. If and when such Event of Default shall occur
and be continuing, the Bank shall follow the proceedings specified in this
Section 7.5.
(h) The rights and remedies enumerated herein are in
addition to and not in lieu of any other right or remedy available to the Bank
under law or equity, including, without limitation, rights and remedies
available to a secured party under the Uniform Commercial Code; provided,
however, that the Bank shall not be entitled to apply the proceeds of the
foreclosure of any Set Aside Purchase Note or Purchased Partnership Interest
to amounts owing to the Bank or the owners of the Debentures under this Bank
Agreement unless an Event of
<PAGE>
-17-
Default shall occur and be continuing. The Bank shall be entitled to exercise
one or more remedies at the same time, all such rights and remedies being
cumulative and not mutually exclusive.
(i) The Company shall remain liable for any deficiency
remaining after the application of proceeds of the foreclosure of any Set
Aside Purchase Note or Purchased Partnership Interest collected by the Bank
including, but not limited to, all actual costs and expenses of collection
(including, without limitation, reasonable attorneys' fees and expenses). If
any funds shall remain in the possession of the Bank after the payment of all
amounts due under the Debentures, all such costs of collection thereof and all
other actual fees and expenses (including without limitation reasonable
attorneys' fees and expenses) of the Bank, the Bank shall deliver such
remaining funds to the Company. The provisions of this Section 7.5(i) shall
survive the termination of this Bank Agreement.
Section 7.6 Events of Default.
If any of the following events (an "Event of Default") shall
occur and be continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or otherwise):
(i) the Company defaults in the payment of any part of
the principal of any Debenture when the same shall become
due and payable on June 30, 2004, and such default shall
have continued for more than thirty (30) days; or
(ii) the Company defaults in the payment of any part of
the interest on any Debenture when the same shall become due
and payable, and such default shall have continued for more
than fifteen (15) days;
then, the Bank, upon instruction by the owners of at least 50% of the
principal amount of the Debentures, by notice to the Company, or the owners of
at least 75% of the principal amount of the Debentures, by notice to the
Company and to the Bank, may declare the entire principal of and accrued
interest on all Debentures to become immediately due and payable at par
without presentment, demand, protest or other notice of any kind, all of which
are waived by the Company.
Section 7.7 Sale of Set Aside Purchase Notes.
The Company may from time to time while no Event of Default
shall have occurred and be continuing arrange the sale of one of more Set
Aside Purchase Notes to a third party, subject to the following conditions:
<PAGE>
-18-
(i) The Company shall give prompt written notice
thereof to the Bank together with all relevant details of
the proposed transaction.
(ii) Except as provided herein, the Bank shall receive
cash in the amount equal to (x) the sum of 80% of the
principal balance due at maturity of the Set Aside Purchase
Note being sold and (y) an amount sufficient to pay accrued
interest on the pro rata portion of Debentures to be prepaid
pursuant to subparagraph (iv) below.
(iii) Upon receipt of cash as provided in subparagraph
(ii) above, the Bank will apply the proceeds to the pro rata
redemption of the Debentures at par plus payment of accrued
interest thereon. Thereafter, the Bank shall deliver each
Set Aside Purchase Note then sold to the Company, or at the
written request of the Company, to the purchaser, together
with an assignment of security interest and Purchase
Agreement covering the related Purchased Partnership
Interest. Subject to Section 8(b) hereof the Bank shall have
no liability whatsoever to the purchaser or any party hereto
for its actions pursuant to this Section 7.7.
(iv) Notwithstanding the above, the first $1,066,000 of
proceeds received from the sale of one or more of the Set
Aside Purchase Notes or from any other capital transactions
effecting one or more Set Aside Purchase Notes, shall belong
to the Company and shall not be used to redeem any portion
of the Debentures unless so determined by the Company. Upon
receiving notice from the Company of such proposed
transaction, the Bank shall deliver, if requested by the
Company, each Set Aside Purchase Note to be effected by such
transaction to the Company, or at the written request of the
Company, to the purchaser, together with an assignment of
security interest and Purchase Agreement covering the
related Purchased Partnership Interest. Subject to Section
8(b) hereof the Bank shall have no liability whatsoever to
the purchaser or any party hereto for its actions pursuant
to this Section 7.7.
Section 7.8 Fees and Expenses. In addition to the
administration fee set forth in Section 1.7 hereof, the Bank shall be entitled
to compensation for its services under this Section 7 in the amount of $2,500
as an acceptance fee, payable upon execution and delivery of this Bank
Agreement; and administrative fees, payable annually on the anniversary date
of this Bank Agreement, based upon the aggregate principal amount of
outstanding Debentures ten (10) days prior to the anniversary date, in the
following amounts:
<PAGE>
-19-
$ 500,000 to $1,000,000 outstanding................. $ 2,500
$ 1,000,001 to $ 2,000,000 outstanding................ $ 3,000
$ 2,000,001 to $ 3,000,000 outstanding................ $ 4,000
$ 3,000,001 to $ 4,000,000 outstanding................ $ 5,000
$ 4,000,001 to $ 5,000,000 outstanding................ $ 6,000
$ 5,000,001 to $ 6,000,000 outstanding................ $ 7,000
$ 6,000,001,to $ 7,000,000 outstanding................ $ 8,000
$ 7,000,001 to $ 8,000,000 outstanding................ $ 9,000
The Company shall reimburse the Bank for its actual out-of-pocket expenses
incurred in connection with its obligations pursuant to this Section 7
(including, but not limited to, actual expenses for stationery, postage,
telephone, telex, wire transfers, telecopy, retention of records, and the
filing of Financing Statements, and reasonable fees and expenses of counsel),
payable within ten (10) days after the Bank gives notice to the Company that
it incurred such expenses. The obligation to pay such compensation and
reimburse such expenses shall be borne solely by the Company. The Set Aside
Purchase Notes and the related Purchased Partnership Interests in which the
Bank has a security interest will be available to satisfy the Company's
payment obligations to the Bank under this Section 7.8 only when an Event of
Default has occurred and is continuing. The provisions of this Section 7.8
shall survive the termination of this Bank Agreement.
Section 7.9 Substitution of Set Aside Purchase Notes.
(a) The Company may from time to time withdraw any one or
more of the Set Aside Purchase Notes (a withdrawn Set Aside Purchase Note
shall be defined for the purposes herein as the "Withdrawn Set Aside Purchase
Note") and replace the Withdrawn Set Aside Purchase Note with any one or more
Purchase Notes of which it is the holder (any such Purchase Note shall be
defined for the purposes herein as the "New Set Aside Purchase Note") so long
as (i) no Event of Default has occurred and is continuing and (ii) the sum of
80% of the aggregate principal balances of the Set Aside Purchase Notes held
by the Bank after the Withdrawn Set Aside Purchase Note is withdrawn and the
New Set Aside Purchase Note is equal to the principal amount of the Debentures
that remain outstanding.
(b) In order to effect the substitution described in Section
7.9(a) hereof, the Company shall deliver to the Bank the New Set Aside
Purchase Note along with the Consent and Agreement as described in Section
7.2(c) hereof, the Financing Statements pertaining to the New Set Aside
Purchase Note, the Consent, Assignment and Agreement as described in Section
7.3(c) hereof, and the related Financing Statements pertaining to the
Purchased Partnership Interest that secures such New Set Aside Purchase Note.
Upon receiving the New Set Aside Purchase Note,
<PAGE>
-20-
and the related documents described in the preceding sentence, the security
interest and assignment created by this Bank Agreement, each Consent and
Agreement described in Section 7.2(c) and each Consent, Assignment and
Agreement described in Section 7.3(c) hereof each as relates to the Withdrawn
Set Aside Purchase Note, shall automatically terminate and shall have no
further force or effect. Thereupon, the Bank shall (i) return the Withdrawn
Set Aside Purchase Note to the Company, (ii) execute and deliver to the
Company an instrument prepared by the Company effecting a release by the Bank
of the existing assignment of the security interest and Purchase Agreement
covering the related Purchased Partnership Interest, (iii) file with the
appropriate governmental authorities indicated by the Company to the Bank,
Financing Statements delivered by the Company to the Bank recording the
termination of the Bank's security interest and assignment granted under this
Bank Agreement, and (iv) return to the Company the Consent and Agreement
described in Section 7.2(c) hereof and the Consent, Assignment and Agreement
described in Section 7.3(c) hereof, each as relates to such Withdrawn Set
Aside Purchase Note. The Company will notify the Debenture holders of the
substitution of the Withdrawn Set Aside Purchase Note with the New Set Aside
Purchase Note within sixty (60) days thereof and provide those Debenture
holders with the information pertaining to the New Set Aside Purchase Note
that would have been contained in the Memorandum if the New Set Aside Purchase
Note had been included with the Set Aside Purchase Notes described therein.
(c) After the substitution of the New Set Aside Purchase
Note for the Withdrawn Set Aside Purchase Note, the New Set Aside Purchase
Note shall be deemed to be a Set Aside Purchase Note for all purposes as set
forth in this Bank Agreement.
Section 7.10 Delivery of Set Aside Purchase Notes. The
Company shall deliver the Set Aside Purchase Notes together with the Consent,
Assignment and Agreement required by Section 7.3(c) hereof, and the Consent
and Agreement required by Section 7.2(c) hereof, and the related Financing
Statements as follows:
(a) Original Set Aside Purchase Notes and related original Set
Aside Investor Notes shall be delivered to:
The Bank of New York
1 Wall Street
New York, New York 10286
Attention: Mr. Vincent Nardone,
A.V.P., Security Operation
Free Receive Area, 5th Floor.
<PAGE>
-21-
No less than ten (10) days prior to the delivery by the
Company to the Bank of the first Set Aside Purchase
Note, the Company shall deliver a schedule in duplicate
form of all Set Aside Purchase Notes and Set Aside
Investor Notes to the Bank at the address set forth in
Section 12 hereof.
(b) Copies of each Set Aside Purchase Note together with the
Consent, Assignment and Agreement required by Section
7.3(c) hereof, and the Consent and Agreement required by
Section 7.2(c) hereof, and the related Financing
Statements shall be delivered by the Company to the Bank
for execution at the address set forth in Section 12
hereof and promptly returned to Company's counsel at the
address as set forth in Section 12 hereof.
Section 7.11 Matured Set Aside Purchase Notes. The Bank
shall return promptly to the Company matured Set Aside Purchase Notes (the
"Matured Set Aside Purchase Notes") after delivery by the Company to the Bank
of sufficient funds to make payment of all principal and interest on the
Debentures being redeemed pursuant to Section 5.6 hereof. In addition to the
return of those Matured Set Aside Purchase Notes, the Bank shall (i) execute
and deliver to the Company an instrument prepared by the Company effecting a
release by the Bank of the existing assignment of the security interest and
Purchase Agreement covering the related Purchased Partnership Interest, (ii)
file with the appropriate governmental authorities indicated by the Company,
financing statements delivered by the Company to the Bank recording the
termination of the Bank's security interest and assignment granted under this
Bank Agreement and (iii) return to the Company the Consent and Agreement
described in Section 7.2(c) hereof and the Consent, Assignment and Agreement
described in Section 7.3(c) hereof, each as relates to such Matured Set Aside
Purchase Note.
Section 8. Other Rights and Duties of Bank.
(a) The Bank need exercise only those rights and need
perform only those duties that are contemplated or specifically set forth in
this Bank Agreement and no others.
(b) Notwithstanding anything herein to the contrary, the
Bank may not be relieved from liability for its own grossly negligent action,
its own grossly negligent failure to act, or its own willful misconduct except
that
(i) This paragraph does not limit the effect of
paragraph (a) of this Section.
<PAGE>
-22-
(ii) The Bank shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
notice received by it pursuant to the subscription agreements
executed by the Purchasers in connection with the purchase of the
Debentures.
(c) The Bank may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Bank
need not investigate any fact or matter stated in the document.
(d) Before the Bank acts or refrains from acting, it may
require an officer's certificate or an opinion of counsel. The Bank shall not
be liable for any action it takes or omits to take in good faith in reliance
on the certificate or opinion.
(e) The Bank may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
Section 9. No Representations. The Bank makes no
representation as to the validity or adequacy of this Bank Agreement or the
Debentures, or any Set Aside Purchase Note or Purchased Partnership Interest,
in which the Bank has a security interest, or any Financing Statement
delivered to it by the Company or the Bank's filing of any such Financing
Statement with any governmental authority; it shall not be accountable for the
Company's use of the proceeds from the Debentures and it shall not be
responsible for any statement in the Memorandum or in the Debentures other
than its authentication.
Section 10. Indemnification. The Company shall indemnify,
defend and hold the Bank harmless from and against any and all loss, damage,
liability, claim and expense, including taxes (other than taxes based on the
income of the Bank) incurred by the Bank arising out of or in connection with
its acceptance or performance of its obligations under this Bank Agreement,
including the legal costs and expenses of defending itself against any claim
or liability in connection with its performance under this Bank Agreement. The
Bank shall notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Bank shall cooperate in
the defense. The Bank may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not reimburse
any expense or indemnify against any loss or liability incurred by the Bank
through gross negligence or bad faith. The provisions of this Section 10 shall
survive the termination of this Bank Agreement.
<PAGE>
-23-
Section 11. Replacement of Bank.
(a) A resignation or removal of the Bank and appointment of
a successor bank shall become effective only upon the successor bank's
acceptance of appointment as provided in this Section 11.
(b) The Bank may resign by so notifying the Company. The
Company may remove the Bank if:
(i) the Bank is adjudged a bankrupt or an insolvent;
(ii) a receiver or public officer takes charge of the
Bank or its property; or
(iii) the Bank becomes incapable of acting.
(c) (i) If the Bank resigns or is removed, the Company shall
promptly appoint a successor bank.
(ii) A successor bank shall deliver a written
acceptance of its appointment to the retiring Bank and the
Company. Thereupon the resignation or removal of the
retiring Bank shall become effective and the successor bank
shall have all the rights, powers and duties of the Bank
under this Bank Agreement. The successor bank shall mail a
notice of its succession to Debenture owners. Upon payment
to the retiring Bank of all amounts owed to it under this
Bank Agreement, the retiring Bank shall promptly transfer
all property held by it under the terms of this Bank
Agreement.
(d) If the Bank consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor bank.
Section 12. Notices. All notices and other communications
pursuant to this Bank Agreement shall be in writing, subject to the terms of
Section 1.6 hereof, and shall be delivered by hand or sent by registered,
certified, return receipt requested, or first class mail, or by facsimile,
confirmed by writing, delivered by hand or sent by registered or certified
mail, return receipt requested, delivered or sent on the date of the
facsimile, addressed as follows:
<PAGE>
-24-
(a) If to the Company:
Grand Court Lifestyles, Inc.
One Executive Drive
Fort Lee, New Jersey 07024
Facsimile Number: (201) 947-6663
Attention: Keith E. Marlowe
With a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Facsimile Number: (212) 603-2298
Attention: Michele R. Jawin, Esq.
(b) If to Debenture owners:
At the addresses of the registered owners appearing
in the register maintained by the Bank.
(c) If to Bank:
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile Number: (212) 815-5999
Attention: Mark Walsh,
Trustee Administration
or at such other address as a party shall have last furnished to the other
parties hereto in writing. Any notice provided for herein shall be deemed to
have been given on the date of the receipt of the notice by hand delivery or
of the facsimile or the third Business Day after the date of mailing,
certified mail, return receipt requested.
Section 13. Choice of Law. This Bank Agreement shall be
governed by the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
Section 14. Prior Agreements; Amendment. This Bank Agreement,
together with each Consent and Agreement and each Consent, Assignment and
Agreement referred to in Section 7 hereof, sets forth the entire agreement of
the parties hereto with respect to the subject
<PAGE>
-25-
matter hereof and supersedes all prior agreements, contracts, promises,
representations, warranties, statements, arrangements and understandings, if
any, among the parties hereto or their representatives with respect to the
subject matter hereof. No waiver, modification or amendment of any provision,
term or condition hereto shall be valid unless in writing and signed by all
parties hereto, and any such waiver, modification or amendment shall be valid
only to the extent therein set forth.
Section 15. Successors. This Bank Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
Section 16. Enforceability. Any provision of this Bank
Agreement which may by determined by competent authority to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 17. Counterparts. This Bank Agreement may be
executed in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument.
Section 18. Use of The Bank of New York Name.
(a) No printed or other material in any language, including
prospectuses, notices, reports, and promotional materials which mentions The
Bank of New York by name or the rights, powers, or duties of the Bank under
this Bank Agreement shall be issued by any of the other parties hereto, or on
such party's behalf, without the prior written consent of The Bank of New
York.
(b) Notwithstanding the above, the Bank hereby consents to
the use of its name and its rights, powers and duties under this Bank
Agreement in the Memorandum and any notices and reports required under
applicable Federal and state securities laws in connection therewith. In
addition, the Bank hereby consents to the use of its name and its rights,
powers, and duties under this Bank Agreement in the promotional material
included herewith as Exhibit F.
<PAGE>
-26-
Section 19. Definitions. All terms used in this Bank
Agreement and not otherwise defined herein shall have the meanings ascribed to
them in the Memorandum.
IN WITNESS WHEREOF, the parties hereto have executed this
Bank Agreement as of the date first above written.
GRAND COURT LIFESTYLES, INC.
By: /s/ Lisa Bertschinger
-----------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Mark G. Walsh
-----------------------------------
Title: Assistant Vice President
<PAGE>
EXHIBIT A
to Bank Agreement
1. (a) Investing Partnership: Troost Associates, a New Jersey limited
partnership
(b) Operating Partnership: Eleanor Apts., Ltd., a Missouri limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $62,500
(ii) Date of Issue: September 30, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to
Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $62,500
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(d) Security Agreement: Purchase Agreement, dated September 30, 1982, by
and among John Luciani, Bernard M. Rodin, Woodlands Associates and
Realty Executive Associates ("Sellers") and Troost Associates, Center
Associates, Grand Associates, and Missouri Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-2-
2. (a) Investing Partnership: Center Associates, a New Jersey limited
partnership
(b) Operating Partnership: Eleanor Apts., Ltd., a Missouri limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $62,500
(ii) Date of Issue: September 30, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $62,500
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(d) Security Agreement: Purchase Agreement, dated September 30, 1982, by
and among John Luciani, Bernard M. Rodin, Woodlands Associates and
Realty Executive Associates ("Sellers" and Troost Associates, Center
Associates, Grand Associates, and Missouri Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-3-
3. (a) Investing Partnership: Grand Associates,, a New Jersey limited
partnership
(b) Operating Partnership: Eleanor Apts., Ltd., a Missouri limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $62,500
(ii) Date of Issue: September 30, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $62,500
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(d) Security Agreement: Purchase Agreement, dated September 30, 1982, by
and among John Luciani, Bernard M. Rodin, Woodlands Associates and
Realty Executive Associates ( "Sellers" ) and Troost Associates,
Center Associates, Grand Associates and Missouri Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-4-
4. (a) Investing Partnership: Missouri Associates, a New Jersey limited
partnership
(b) Operating Partnership: Eleanor Apts., Ltd., a Missouri limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $62,500
(ii) Date of Issue: September 30, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal Due
at Maturity: $62,500
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(d) Security Agreement: Purchase Agreement, dated September 30,
1982, by and among John Luciani, Bernard M. Rodin, Woodlands
Associates and Realty Executive Associates ("Sellers") and
Troost Associates, Center Associates, Grand Associates and
Missouri Associates (Sellers' respective rights and
interests under the Security Agreement have been transferred
and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-5-
5. (a) Investing Partnership: Brushcreek Associates, a New Jersey limited
partnership
(b) Operating Partnership: Sunny Slope Apartments, Ltd., a Missouri limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $72,500
(ii) Date of Issue: July 30, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $72,500
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(d) Security Agreement: Purchase Agreement, dated July 30, 1982, by and
among John Luciani, Bernard M. Rodin, Woodlands Associates and Realty
Executive Associates ("Sellers") and Brushcreek Associates, Llewellyn
Associates, Logan Place Associates and Jason Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-6-
6. (a) Investing Partnership: Llewellyn Associates, a New Jersey limited
partnership
(b) Operating Partnership: Sunny Slope Apartments, Ltd., a Missouri
limited partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $72,500
(ii) Date of Issue: July 30, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $72,500
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(d) Security Agreement: Purchase Agreement, dated July 30, 1982, by and
among John Luciani, Bernard M. Rodin, Woodlands Associates and Realty
Executive Associates ("Sellers") and Brushcreek Associates, Llewellyn
Associates, Logan Place Associates and Jason Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-7-
7. (a) Investing Partnership: Logan Place Associates, a New Jersey limited
partnership
(b) Operating Partnership: Sunny Slope Apartments, Ltd., a Missouri limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $72,500
(ii) Date of Issue: July 30, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $72,500
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(d) Security Agreement: Purchase Agreement, dated July 30, 1982, by and
among John Luciani, Bernard M. Rodin, Woodlands Associates and Realty
Executive Associates ("Sellers") and Brushcreek Associates, Llewellyn
Associates, Logan Place Associates and Jason Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-8-
8. (a) Investing Partnership: Jason Associates, a New Jersey limited
partnership
(b) Operating Partnership: Sunny Slope Apartments, Ltd., a Missouri limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $72,500
(ii) Date of Issue: July 30, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $72,500
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(b) Security Agreement: Purchase Agreement, dated July 30, 1982, by and
among John Luciani, Bernard M. Rodin, Woodlands Associates and Realty
Executive Associates ("Sellers") and Brushcreek Associates, Llewellyn
Associates, Logan Place Associates and Jason Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(c) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-9-
9. (a) Investing Partnership: Kansas Associates, a New Jersey limited
partnership
(b) Operating Partnership: Jewel Crest, Ltd., a Kansas limited partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $100,000
(ii) Date of Issue: November 3, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $100,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(d) Security Agreement: Purchase Agreement, dated November 3, 1982, by and
among John Luciani, Bernard M. Rodin, Woodlands Associates and Realty
Executive Associates ("Sellers") and Kansas Associates, Wyandotte
Associates, Worth Associates and Cipal Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-10-
10. (a) Investing Partnership: Wyandotte Associates, a New Jersey limited
partnership
(b) Operating Partnership: Jewel Crest, Ltd., a Kansas limited partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $100,000
(ii) Date of Issue: November 3, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $100,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(d) Security Agreement: Purchase Agreement, dated November 3, 1982, by and
among John Luciani, Bernard M. Rodin, Woodlands Associates and Realty
Executive Associates ("Sellers") and Kansas Associates, Wyandotte
Associates, Worth Associates and Cipal Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-11-
11. (a) Investing Partnership: Worth Associates, a New Jersey limited
partnership
(b) Operating Partnership: Jewel Crest, Ltd., a Kansas limited partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $100,000
(ii) Date of Issue: November 3, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $100,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(d) Security Agreement: Purchase Agreement, dated November 3, 1982, by and
among John Luciani, Bernard M. Rodin, Woodlands Associates and Realty
Executive Associates ("Sellers") and Kansas Associates, Wyandotte
Associates, Worth Associates and Cipal Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-12-
12. (a) Investing Partnership: Cipal Associates, a New Jersey limited
partnership
(b) Operating Partnership: Jewel Crest, Ltd., a Kansas limited partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $100,000
(ii) Date of Issue: November 3, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $100,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: 0
(d) Security Agreement: Purchase Agreement, dated November 3, 1982, by and
among John Luciani, Bernard M. Rodin, Woodlands Associates and Realty
Executive Associates ("Sellers") and Kansas Associates, Wyandotte
Associates, Worth Associates and Cipal Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.25% limited partnership interest in
the Operating Partnership
<PAGE>
-13-
13. (a) Investing Partnership: Millville Associates-I, a New Jersey limited
partnership
(b) Operating Partnership: BOS Associates, a New Jersey limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $495,000
(ii) Date of Issue: May 12, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: $95,000
(vii) Total Scheduled Principal
Payments Prior to Maturity: $95,000
(viii) Balance of Principal
Due at Maturity: $400,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: $285,171
(d) Security Agreement: Purchase Agreement, dated May 12, 1982, by and
among John Luciani, Bernard M. Rodin, Harold Bobroff, Alfred Olonoff
and Herbert L. Scharf ("Sellers"), and BOS Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.75% limited partnership interest in
the Operating Partnership
<PAGE>
-14-
14. (a) Investing Partnership: Millville Associates-II, a New Jersey limited
partnership
(b) Operating Partnership: BOS Associates, a New Jersey limited partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $495,000
(ii) Date of Issue: May 12, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: $95,000
(vii) Total Scheduled Principal
Payments Prior to Maturity $95,000
(viii) Balance of Principal
Due at Maturity: $400,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: $285,171
(d) Security Agreement: Purchase Agreement, dated May 12, 1982, by and
among John Luciani, Bernard M. Rodin, Harold Bobroff, Alfred Olonoff
and Herbert L. Scharf ("Sellers"), and BOS Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.75% limited partnership interest in
the Operating Partnership
<PAGE>
-15-
15. (a) Investing Partnership: Millville Associates-III, a New Jersey limited
partnership
(b) Operating Partnership BOS Associates, a New Jersey limited partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $495,000
(ii) Date of Issue: May 12, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: $95,000
(vii) Total Scheduled Principal
Payments Prior to Maturity: $95,000
(viii) Balance of Principal
Due at Maturity: $400,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: $285,171
(d) Security Agreement: Purchase Agreement, dated May 12, 1982, by and
among John Luciani, Bernard M. Rodin, Harold Bobroff, Alfred Olonoff
and Herbert L. Scharf ("Sellers"), and BOS Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.75% limited partnership interest in
the Operating Partnership
<PAGE>
-16-
16. (a) Investing Partnership: Millville Associates-IV, a New Jersey limited
partnership
(b) Operating Partnership: BOS Associates, a New Jersey limited partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $495,000
(ii) Date of Issue: May 12, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: $95,000
(vii) Total Scheduled Principal
Payments Prior to Maturity: $95,000
(viii) Balance of Principal
Due at Maturity: $400,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: $285,171
(d) Security Agreement: Purchase Agreement, dated May 12, 1982, by and
among John Luciani, Bernard M. Rodin, Harold Bobroff, Alfred Olonoff
and Herbert L. Scharf ("Sellers"), and BOS Associates (Sellers'
respective rights and interests under the Security Agreement have
been transferred and assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 24.75% limited partnership interest in
the Operating Partnership
<PAGE>
-17-
17. (a) Investing Partnership: Vine Hill Associates, a New Jersey limited
partnership
(b) Operating Partnership: Walnut Associates, a New Jersey limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $1,920,000
(ii) Date of Issue: December 29, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: $20,000
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: $48,000
(vii) Total Scheduled Principal
Payments Prior to Maturity: $260,000
(viii) Balance of Principal
Due at Maturity: $1,660,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: $2,448,566
(d) Security Agreement: Purchase Agreement, dated December 29, 1982, by and
among John Luciani, Bernard M. Rodin, Robert Brodsky, Peter Hopf,
Richard Adler, Arthur Barchenko, Robert Frankel and Donald Gillin
("Sellers") and Walnut Associates (Sellers respective rights and
interests under the Security Agreement have been transferred and
assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 99% limited partnership interest in the
Operating Partnership
<PAGE>
-18-
18. (a) Investing Partnership: Delaware River Associates, a New Jersey limited
partnership
(b) Operating Partnership: Bethlehem Associates, a New Jersey limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $2,200,000
(ii) Date of Issue: October 25, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: $420,000
(vii) Total Scheduled Principal
Payments Prior to Maturity: $420,000
(viii) Balance of Principal
Due at Maturity: $1,780,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: $1,292,267
(d) Security Agreement: Purchase Agreement, dated October 25, 1982, by and
among John luciani, Bernard M. Rodin, William Goldberg, Irving Weis,
Jack Ortman, Jerry Blickman, William Nelkin and Robert Nelson
("Sellers") and Delaware Associates (Sellers' respective rights and
interests under the Security Agreement have been transferred and
assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 99% limited partnership interest in the
Operating Partnership
<PAGE>
-19-
19. (a) Investing Partnership Woodlands Associates, a New Jersey limited
partnership
(b) Operating Partnership: Fawn Ridge Apts., Ltd., a Texas limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $2,785,000
(ii) Date of Issue: December 21, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: NOT APPLICABLE
(vii) Total Scheduled Principal
Payments Prior to Maturity: NOT APPLICABLE
(viii) Balance of Principal
Due at Maturity: $2,785,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: $2,849,207
(d) Security Agreement: Purchase Agreement, dated December 21, 1982, by and
among John Luciani, Bernard M. Rodin, John Luciani III, J&B
Management Corp., Barbara H. Freitag, Harvey Realty Company, Harvey
R. Heller, James Heller, Seymour A. Heller and Tangelo Associates
("Sellers") and Woodlands Associates (Sellers' respective rights and
interests under the Security Agreement have been transferred and
assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 99% limited partnership interest in the
Operating Partnership
<PAGE>
-20-
20. (a) Investing Partnership: Wilkes Barre Associates, a New Jersey limited
partnership
(b) Operating Partnership: Hanover Associates, Ltd., a New York limited
partnership
(c) Set Aside Purchase Note:
(i) Principal Amount: $2,850,000
(ii) Date of Issue: December 29, 1982
(iii) Original Maturity Date: December 31, 1996
(iv) Extended Maturity
Date: May 31, 2004
(v) Annual Payment of
Principal: NOT REQUIRED
(vi) Total Payments of Principal
deemed made as of
June 30, 1997: $550,000
(vii) Total Scheduled Principal
Payments Prior to Maturity: $550,000
(viii) Balance of Principal
Due at Maturity: $2,300,000
(ix) Accrued and Unpaid Interest
as of December 31, 1996: $1,660,241
(d) Security Agreement: Purchase Agreement, dated October 29, 1982, by and
among John Luciani, Bernard M. Rodin, Alan Underberg, Manuel Goldman,
Andrew Greenstein, Irving Kessler, Bradley Schwartz, Herman Schwartz,
Theodore Ellenoff, Charles August, Harry Goldman and Lois Ellenoff
("Sellers") and Hanover Associates (Sellers' respective rights and
interests under the Security Agreement have been transferred and
assigned to Grand Court Lifestyles, Inc.).
(e) Purchased Partnership Interest: 99% limited partnership interest in the
Operating Partnership
<PAGE>
EXHIBIT B
TO BANK AGREEMENT
[Form of Consent and Agreement]
CONSENT AND AGREEMENT
[pursuant to Section 7.2(c)]
THIS CONSENT AND AGREEMENT, dated as of ______________, 19__,
is by and between [name of Investing Partnership] (the "Investing Partnership"),
Grand Court Lifestyles, Inc. (the "Company"), and The Bank of New York (the
"Bank").
W I T N E S S E T H:
WHEREAS, the Company and the Bank have entered into that
certain Bank Agreement of even date herewith (the "Bank Agreement"); and
WHEREAS, Section 7.2(c) of the Bank Agreement provides for
the execution of this Consent and Agreement by the parties hereto;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto hereby convent and
agree as follows:
Section 1. Consents. The Investing Partnership hereby
consents to (i) the Company's assignment to the Bank, pursuant to Section
7.2(c) of the Bank Agreement, of the Investing Partnership's Set Aside
Purchase Note; and (ii) The Company's delivery of the Investing Partnership's
Set Aside Purchase Note to the Bank. The Bank hereby acknowledges that
interest may be deferred until the maturity of that Set Aside Purchase Note.
Section 2. Agreements. The Investing Partnership hereby
agrees that upon receiving the Bank's notice of an Event of Default, the
Investing Partnership shall pay all sums due under its Set Aside Purchase Note
directly to the Bank.
Section 3. Notices. All notices and other communications
pursuant or relating to this Consent and Agreement shall be in writing and
shall be delivered by hand or sent by registered or certified mail, return
receipt requested, or by facsimile, confirmed by writing delivered by hand or
sent by registered or certified mail, return receipt requested, delivered or
sent on the date of the facsimile, addressed as follows:
<PAGE>
-2-
(a) If to the Investing Partnership:
_______________________________
_______________________________
_______________________________
(b) If to the Company:
Grand Court Lifestyles, Inc.
One Executive Drive
Fort Lee, New Jersey 07024
Facsimile Number: (201) 947-6663
Attention: Keith E. Marlowe
With a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Facsimile Number: (212) 603-2298
Attention: Michele R. Jawin, Esq.
If to Bank:
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile Number: (212) 815-5999
Attention: Mark Walsh,
Trustee Administration
or at such other address as a party shall have last furnished to the other
parties hereto in writing. Any notice provided for herein shall be deemed to
have been given on the date of the receipt of the notice by hand delivery or
of the facsimile or the third Business Day after the date of mailing,
certified mail, return receipt requested.
Section 4. Choice of Law. This Consent and Agreement shall
be governed by the laws of the State of New York without giving effect to the
principles of conflicts of law thereof.
Section 5. Successors. This Consent and Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
<PAGE>
-3-
Section 6. Counterparts. This Consent and Agreement may be
executed in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument.
Section 7. Definitions. All terms used in this Consent and
Agreement and not otherwise defined herein shall have the meanings ascribed to
them in the Bank Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Consent and Agreement as of the date first above written.
[Name of Investing Partnership]
By:
-------------------------------------
GRAND COURT LIFESTYLES, INC.
By:
-------------------------------------
Title:
THE BANK OF NEW YORK
By:
-------------------------------------
Title:
<PAGE>
EXHIBIT C
TO BANK AGREEMENT
[Form of Consent, Assignment and Agreement]
CONSENT, ASSIGNMENT AND AGREEMENT
[pursuant to Section 7.3(c)
THIS CONSENT, ASSIGNMENT AND AGREEMENT, dated as of
___________, 19__, is by and among [name of Investing Partnership] (the
"Investing Partnership") [name of Operating Partnership] (the "Operating
Partnership"), Grand Court Lifestyles, Inc. ("The Company"), and The Bank of
New York (the "Bank")
W I T N E S S E T H:
WHEREAS, the Company and the Bank have entered into that
certain Bank Agreement of even date herewith (the "Bank Agreement"); and
WHEREAS, Section 7.3(c) of the Bank Agreement provides for
the execution of this Consent, Assignment and Agreement by the parties hereto;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto hereby consent and
agree as follows:
Section 1. Consents, Assignments and Agreements with Respect
to Purchased Partnership Interests. The Investing Partnership and the
Operating Partnership in which the Investing Partnership owns a Purchased
Partnership interest hereby (i) consent to the Company's assignment to the
Bank of the Purchase Agreement, security interest in the Purchased Partnership
Interest, Purchased Partnership Interest, all allocations and distributions
which may be due and payable or made from time to time on such Purchased
Partnership Interest, and the proceeds thereof, relating to the Investing
Partnership's Set Aside Purchase Note; (ii) consent to the Company's delivery
to the Bank of Financing Statements and to the Bank's filing of such Financing
Statements with the appropriate governmental authorities in order to perfect
and to continue the perfection of the Bank's security interest in the Purchase
Agreement, security interest in the Purchased Partnership Interest, Purchased
Partnership Interest allocations and distributions which may be due and
payable from time to time on the Purchased Partnership Interest; (iii) subject
to the terms and conditions of the Bank Agreement, assign to the Bank all
allocations and distributions which shall be due and payable or made from time
to time on the Purchased Partnership Interest, and the proceeds thereof, until
all outstanding obligations under the Set Aside Purchase Note, if such be in
default, have been paid in full (including, without limitation, all costs of
collection, reasonable attorneys' fees and other fees and expenses); and (iv)
subject to the terms and conditions of the Bank Agreement, agree that upon
foreclosure of the security interest in the Purchased Partnership Interest all
allocations and distributions made on the Purchased Partnership Interest shall
by paid directly to the Bank, as the assignee of the
<PAGE>
-2-
Company, regardless of whether the Bank becomes a substituted limited partner
in the Operating Partnership in place of the Investing Partnership.
Section 2. Representations of the Operating Partnership. The
Operating Partnership hereby agrees to keep a copy of this Consent, Assignment
and Agreement with its business records.
Section 3. Agreement of the Operating Partnership. The
Operating Partnership hereby agrees to admit the Bank as a substituted limited
partner in place of the Investing Partnership in the Operating Partnership
upon the Bank's foreclosure on the security interest in the Purchased
Partnership Interest and written request, subject to the limitations in
Section 1(iii) hereof, the Bank's obtaining HUD 2530 Clearance and the rights
of the Investing Partnership under Section 9.505 of the Uniform Commercial
Code.
Section 4. Amendment to Operating Partnership Agreement.
Upon substitution of the Bank for the Investing Partnership as a limited
partner in the Operating Partnership pursuant to the Bank Agreement and this
Consent, Assignment and Agreement, this Consent, Assignment and Agreement
shall constitute an amendment to the partnership agreement of the Operating
Partnership, and the Bank shall not be liable for the obligations of any
predecessor which has assigned the Purchased Partnership Interest to make any
contributions to the Operating Partnership.
Section 5. Further Assurances and Power of Attorney. Each of
the parties hereto shall, from time to time, upon request of a party hereto,
duly execute, acknowledge and deliver or cause to be duly executed,
acknowledged and delivered, all such further instruments and documents
reasonably requested by a party to effectuate the intent and purposes of this
Consent, Assignment and Agreement. Notwithstanding the foregoing, this
Consent, Assignment and Agreement shall constitute an irrevocable power of
attorney coupled with an interest for the Bank to execute and file a
certificate of amendment to the certificate of limited partnership of the
Operating Partnership or any other document or instrument in order to
effectuate the intent and purposes of this Consent, Assignment and Agreement;
provided, however, that the Bank may not be substituted as a partner of the
Operating Partnership unless such substitution is permitted under the Uniform
Commercial Code and HUD 2530 Clearance, if required, has been obtained.
Section 6. Notices. All notices and other communications
pursuant or relating to this Consent, Assignment and Agreement shall be in
writing and shall be delivered by hand or sent by registered or certified
mail, return receipt requested, or by facsimile, confirmed by writing
delivered by hand or sent by registered or certified mail, return receipt
requested, delivered or sent on the date of the facsimile, addressed as
follows:
<PAGE>
-3-
(a) If to the Investing Partnership:
--------------------------------
--------------------------------
--------------------------------
(b) If to the Operating Partnership:
--------------------------------
--------------------------------
--------------------------------
(c) If to The Company:
Grand Court Lifestyles, Inc.
One Executive Drive
Fort Lee, New Jersey 07024
Facsimile Number: (201) 947-6663
Attention: Keith E. Marlowe
With a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Facsimile Number: (212) 603-2298
Attention: Michele R. Jawin, Esq.
If to Bank:
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile Number: (212) 815-5999
Attention: Mark Walsh,
Trustee Administration
or at such other address as a party shall have last furnished to the other
parties hereto in writing. Any notice provided for herein shall be deemed to
have been given on the date of the receipt of the notice by hand delivery or
of the facsimile or the third Business Day after the date of mailing,
certified mail, return receipt requested.
<PAGE>
-4-
Section 7. Choice of Law. This Consent, Assignment and
Agreement shall be governed by the laws of the State of New York, without
giving effect to the principles of conflicts of law thereof.
Section 8. Successors. This Consent, Assignment and
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
Section 9. Counterparts. This Consent, Assignment and
Agreement may be executed in any number of counterparts, each of which shall
be an original, but all of which together shall constitute one instrument.
Section 10. Definitions. All terms used in this Consent,
Assignment and Agreement and not otherwise defined herein shall have the
meanings ascribed to them in the Bank Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Consent, Assignment and Agreement as of the date first above written.
[Name of Investing Partnership]
By:___________________________
[Name Of Operating Partnership]
By:__________________________
GRAND COURT LIFESTYLES, INC.
By:__________________________
Title:
THE BANK OF NEW YORK
By:__________________________
Title:
<PAGE>
EXHIBIT D
TO BANK AGREEMENT
[FORM OF NOTICE]
Notice of Voluntary Redemption
of
Grand Court Lifestyles, Inc.
12% Debentures -- Series 11
To holders of Grand Court Lifestyles, Inc. (the "Company")
12% Debentures due June 30, 2004 -- Series 11 (the "Debentures"):
Notice is hereby given by The Bank of New York (the "Bank"),
as paying agent for the Debentures, that, pursuant to the voluntary redemption
provision of Section 5.6 of the Bank Agreement between the Company and the
Bank, dated [month] [day], [year], the Company has elected to redeem and pay
off on [month] [day], [year] (the "Redemption Date") [all] [a portion of] the
above mentioned Debentures then outstanding, in accordance with the terms of
the Debentures, and that [all] [a portion of] the Debentures are called for
redemption on the Redemption Date.
The redemption price on the Redemption Date shall be
$_______. Interest on the Debentures so redeemed shall cease from and after
the Redemption Date.
Dated: [month] [day], [year]
The Bank of New York
<PAGE>
[FORM OF NOTICE]
Notice of Mandatory Redemption
of
Grand Court Lifestyles, Inc.
12% Debentures -- Series 11
To holders of Grand Court Lifestyles, Inc. (the "Company")
12% Debentures due June 30, 2004 -- Series 11 (the "Debentures"):
Notice is hereby given by The Bank of New York (the "Bank"),
as paying agent for the Debentures, that, pursuant to the mandatory redemption
provision of Section 5.7 of the Bank Agreement between the Company and the
Bank, dated [month] [day], [year], the Company will redeem and pay off on June
30, 2004 (the "Redemption Date") 100% of the above mentioned Debentures, in
accordance with the terms of the Debentures, and that 100% of the Debentures
are called for redemption on the Redemption Date.
Interest on the Debentures so redeemed shall cease from and
after the Redemption Date.
Dated: [month] [day], [year]
The Bank of New York
<PAGE>
EXHIBIT E
TO BANK AGREEMENT
[FORM OF NOTICE]
Notice of Event of Default
by
Grand Court Lifestyles, Inc.
on payment of principal on
12% Debentures -- Series 11
To ________________ Associates (the "Partnership"):
Notice is hereby given that when payment of principal came
due and payable on Grand Court Lifestyles, Inc. (the "Company") 12% Debentures
due June 30, 2004 -- Series 11 (the "Debentures") the Company defaulted in the
payment of such principal and such default has continued for more than thirty
(30) days (the "Default"). The Default qualifies as an Event of Default under
the Bank Agreement between the Company and The Bank of New York (the "Bank"),
dated [month] [day], [year] (the "Bank Agreement"). Pursuant to Section 2 of
the Consent and Agreement between the Partnership, the Company and the Bank,
dated the same date as the Bank Agreement, an Event of Default requires the
Partnership to make all payments of principal and interest on its purchase
note, executed in connection with its acquisition of its interest in
[operating partnership] and pledged to the Bank by the Company as collateral
for the Debentures, directly to the Bank.
Dated: [month] [day], [year]
The Bank of New York
<PAGE>
EXHIBIT F
TO BANK AGREEMENT
GRAND COURT LIFESTYLES, INC.
DEBENTURES SERIES XI SUMMARY
OFFERING $8,000,000 12% DEBENTURES DUE JUNE 30, 2004
COLLATERALIZATION
Purchase Notes in the principal amount of up to $11,066,000 will be
set aside as collateral. The Company shall deliver to the Bank of New York as
collateral Purchase Notes in such an amount that the sum of 80% of the
principal amount of such Purchase Notes equals or exceeds the principal amount
of the Debentures sold and outstanding.
INVESTMENT OBJECTIVE
12% Paid Monthly on the 15th of each month backed by the full faith
and credit of Grand Court Lifestyles, Inc.
RETURN OF PRINCIPAL
100% on June 30, 2004
The Debentures may be redeemed by the Company, in whole or in part,
in its sole discretion, without penalty or premium at any time prior to
maturity.
THE INVESTMENTS
Denominations of $100,000 or any multiple or fraction thereof at the
discretion of the Company. All investors must be accredited investors.
PAYING AGENT & CUSTODIAN
The Bank of New York is authenticating agent, registrar, transfer
agent and paying agent of the Debentures and it is custodian of the Purchase
Notes and documents governing the Partnership interests which secure the
Purchase Notes. The Bank of New York does not guarantee or otherwise provide
credit support for the Debentures.
TAX IMPLICATIONS
All income is considered portfolio income; can be used for employee
benefit plans, IRAs and Keoghs.
<PAGE>
GRAND COURT LIFESTYLES, INC.
DEBENTURE SERIES XI SUMMARY
================================================================================
GRAND COURT LIFESTYLES, INC.
27 Continuous Years of Successful Operation
Developed Partnerships Which Own and Operate Over 20,000 Apartments
Average Occupancy Rate of Over 90%
A Certified Net Worth in Excess of $30 Million
RISKS
INVESTORS SHOULD BE AWARE OF RISK FACTORS WHICH MAY AFFECT THE COMPANY'S
ABILITY TO SERVICE THE DEBT ON THE DEBENTURES, INCLUDING BUT NOT LIMITED TO, A
DEFAULT ON THE PURCHASE NOTES BY THE MAKERS THEREOF THAT SERVE AS COLLATERAL
FOR THE DEBENTURES, AND MARKET CONDITIONS WHICH MAY REDUCE THE COMPANY'S CASH
FLOW, THEREBY ADVERSELY AFFECTING THE COMPANY'S ABILITY TO MAKE INTEREST AND
PRINCIPAL PAYMENTS.
RISKS AFFECTING AN INVESTMENT IN THE DEBENTURES ARE
MORE FULLY DESCRIBED IN THE "RISK FACTORS" SECTION
OF THE PRIVATE PLACEMENT MEMORANDUM.
The offering will be made in compliance with relevant state
securities laws and Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
Interested persons should be informed that there are significant
risks in this transaction and that they should review the private
placement memorandum prior to making a decision to invest. This
material is for use by broker-dealers, attorneys, accountants,
investment counsel and qualified prospective investors. This material
may not be reproduced or recirculated. THIS SUMMARY DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY A
SECURITY, WHICH MAY BE MADE ONLY BY DELIVERY OF THE PRIVATE PLACEMENT
MEMORANDUM.
GRAND COURT LIFESTYLES, INC.
ONE EXECUTIVE DRIVE
FORT LEE, NEW JERSEY 07024
(201) 947-7322 or (212) 472-1920
<PAGE>
SECOND AMENDMENT TO ASSUMPTION AGREEMENT
SECOND AMENDMENT TO ASSUMPTION AGREEMENT dated as of the 31st day of
October, 1997 between GRAND COURT LIFESTYLES, INC., a Delaware corporation,
having an office at One Executive Drive, Fort Lee, New Jersey 07024 ("Grand"),
Sterling National Bank, formerly known as Sterling National Bank & Trust
Company of New York, having an office at 430 Park Avenue, New York, New York
10022 ("Sterling"), John Luciani and Bernard M. Rodin.
W I T N E S S E T H:
WHEREAS, J&B Management Company ("J&B") executed and delivered that
certain Loan Agreement dated May 7, 1985 (the "Loan Agreement"), between J&B
and Sterling; and
WHEREAS, Sterling, Grand, John Luciani and Bernard M. Rodin entered
into that certain Assumption Agreement dated September 10, 1996, which
agreement was amended as of September 10, 1996 (the "Assumption Agreement");
and
WHEREAS, the parties hereto desire to amend paragraph 2 of the
Assumption Agreement as amended;
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt of sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. The third sentence of Section 2 of the Assumption Agreement as
amended is deleted and replaced with the following:
Section 3.15(a) of the Loan Agreement is amended to (i)
delete the phrase "150%" and insert, in lieu thereof, the phrase
"600%" and (ii) delete the reference to "for the semi-annual period
ended December 31, 1984".
2. To the extent that any of the terms, covenants and provisions of
this Amendment shall be inconsistent with the provisions contained in the
Assumption Agreement as amended or Loan Documents, then the provisions hereof
shall govern and control.
3. The Assumption Agreement as amended may not be terminated or
modified, except by an instrument in writing subscribed by the party against
whom enforcement of such modification, change, waiver, discharge or
termination is sought.
4. All of the terms, conditions, warranties, representations and
covenants of this Amendment shall apply and be binding upon, and shall inure
to the benefit of, each party, and their respective successors and assigns.
<PAGE>
5. The Assumption Agreement as amended may be executed in any number
of counterparts and each counterpart will, for all purposes, be deemed to be
an original, and all counterparts will together constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Assumption Agreement as of the date and year first above written.
GRAND COURT LIFESTYLES, INC.
By: /s/ Bernard M. Rodin
-----------------------------------
Bernard M. Rodin, President
/s/ John Luciani
-----------------------------------
John Luciani
/s/ Bernard M. Rodin
-----------------------------------
Bernard M. Rodin
STERLING NATIONAL BANK
By: /s/ Sal Colonna
-----------------------------------
Executive Vice President
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED
AND SOLD OR OTHERWISE TRANSFERRED ONLY IF REGISTERED
PURSUANT TO THE PROVISIONS OF THAT ACT OR IF
AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
GRAND COURT LIFESTYLES, INC.
13.125% RETIREMENT FINANCING NOTES-V DUE JUNE 30, 2003
$______________________________ _____________________________, 199_
Registered Owner: _______________________________________________
Certificate Number: 0000____
FOR VALUE RECEIVED, the undersigned, Grand Court Lifestyles,
Inc., a Delaware corporation (the "Company"), hereby promises to pay to the
registered owner specified above or registered assigns, the principal amount
specified above on June 30, 2003, together with accrued but unpaid interest.
Interest on the unpaid balance of this Note from the date hereof, shall be
payable monthly on the 15th day of each month hereafter if such day is a
Business Day (as hereinafter defined), at the rate of 13.125% per annum until
the entire principal amount of this Note shall have been paid. If such day is
not a Business Day, the next Business Day shall be the date interest on this
Note is payable. For the purposes herein, "Business Day" shall mean any day
other than a day on which The Bank of New York is authorized to remain closed
in New York City. Interest on any overdue principal (including any overdue
prepayment of principal) and (to the extent permitted under applicable law) on
any overdue installment of interest, at the rate of 13.125% per annum until
paid, shall be payable monthly as aforesaid or, at the option of the holder
hereof, on demand. Interest shall be computed on the basis of a year of 360
days.
Payments of principal and interest shall be made in lawful
money of the United States of America by check mailed to the address of the
registered owner of this Note at the registered owner's address as it appears
in the register.
This Note is one of the 13.125% Retirement Financing Notes-V
due June 30, 2003 of the Company (the "Notes"), originally issued in the
principal amount of $__________________ pursuant to the Subscription
Agreement, dated as of ________________, 1997 (the "Subscription Agreement"),
between the Company and the purchaser named therein, and the Bank Agreement,
dated as of May 14, 1997 (the "Bank Agreement") between the Company and The
Bank of New York (the "Bank"). Reference is hereby made to the Subscription
Agreement and the Bank Agreement and to all amendments and supplements thereto
for a description of the terms and conditions upon which this Note is issued
and the rights, duties and obligations of the Company, the Bank and the holder
of this Note. Copies of the Subscription Agreement and the Bank Agreement are
on file in the principal corporate trust office of the Bank.
<PAGE>
-2-
This Note will be without recourse to the officers,
directors, and shareholders of Grand Court Lifestyles, Inc.
This Note shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the Company has caused this Note to be
executed by its officer thereunto duly authorized, the day and year first
above written.
GRAND COURT LIFESTYLES, INC.
By:
----------------------------------
Name:
Title:
<PAGE>
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes of the issue described in the
within mentioned Bank Agreement.
THE BANK OF NEW YORK
By:
----------------------------------
Authorized Signatory
Date of Authentication: _______________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned sells, assigns and
transfers unto __________________________ the within Note and does hereby
irrevocably constitute and appoint __________________________ attorney to
transfer the said Note on the books kept for registration thereof, with full
power of substitution in the premises.
Date: ________________ ____________________________
Signature Guaranteed:
- ---------------------
NOTICE: The signature to this assignment must correspond with the
name of the registered owner as it appears upon the face of
the within Note in every particular, without alteration or
enlargement or any change whatever.
<PAGE>
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED
AND SOLD OR OTHERWISE TRANSFERRED ONLY IF REGISTERED
PURSUANT TO THE PROVISIONS OF THAT ACT OR IF
AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
GRAND COURT LIFESTYLES, INC.
13.125% RETIREMENT FINANCING NOTES-VI DUE APRIL 15, 2001
$________________________________________ ____________________________, 199_
Registered Owner: _______________________________________________
Certificate Number: 0000____
FOR VALUE RECEIVED, the undersigned, Grand Court Lifestyles,
Inc., a Delaware corporation (the "Company"), hereby promises to pay to the
registered owner specified above or registered assigns, the principal amount
specified above on April 15, 2001, together with accrued but unpaid interest.
Interest on the unpaid balance of this Note from the date hereof, shall be
payable monthly on the 15th day of each month hereafter if such day is a
Business Day (as hereinafter defined), at the rate of 13.125% per annum until
the entire principal amount of this Note shall have been paid. If such day is
not a Business Day, the next Business Day shall be the date interest on this
Note is payable. For the purposes herein, "Business Day" shall mean any day
other than a day on which The Bank of New York is authorized to remain closed
in New York City. Interest on any overdue principal (including any overdue
prepayment of principal) and (to the extent permitted under applicable law) on
any overdue installment of interest, at the rate of 13.125% per annum until
paid, shall be payable monthly as aforesaid or, at the option of the holder
hereof, on demand. Interest shall be computed on the basis of a year of 360
days.
Payments of principal and interest shall be made in lawful
money of the United States of America by check mailed to the address of the
registered owner of this Note at the registered owner's address as it appears
in the register.
This Note is one of the 13.125% Retirement Financing
Notes-VI due April 15, 2001 of the Company (the "Notes"), originally issued in
the principal amount of $__________________ pursuant to the Subscription
Agreement, dated as of ________________, 1997 (the "Subscription Agreement"),
between the Company and the purchaser named therein, and the Bank Agreement,
dated as of November 6, 1997 (the "Bank Agreement") between the Company and
The Bank of New York (the "Bank"). Reference is hereby made to the
Subscription Agreement and the Bank Agreement and to all amendments and
supplements thereto for a description of the terms and conditions upon which
this Note is issued and the rights, duties and obligations of the Company, the
Bank and the holder of this Note. Copies of the Subscription Agreement and the
Bank Agreement are on file in the principal corporate trust office of the
Bank.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
-2-
This Note will be without recourse to the officers,
directors, and shareholders of Grand Court Lifestyles, Inc.
This Note shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the Company has caused this Note to be
executed by its officer thereunto duly authorized, the day and year first
above written.
GRAND COURT LIFESTYLES, INC.
By:__________________________________
Name:
Title:
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes of the issue described in the
within mentioned Bank Agreement.
THE BANK OF NEW YORK
By:____________________________
Authorized Signatory
Date of Authentication: _____________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned sells, assigns and
transfers unto __________________________ the within Note and does hereby
irrevocably constitute and appoint __________________________ attorney to
transfer the said Note on the books kept for registration thereof, with full
power of substitution in the premises.
Date:________________ ____________________________
Signature Guaranteed:
_____________________
NOTICE: The signature to this assignment must correspond with the name of
the registered owner as it appears upon the face of the within
Note in every particular, without alteration or enlargement or any
change whatever.
- -------------------------------------------------------------------------------
<PAGE>
BANK AGREEMENT
THIS BANK AGREEMENT, dated as of May 14, 1997 (as amended,
modified or supplemented from time to time, the "Bank Agreement"), is by and
among Grand Court Lifestyles, Inc., a Delaware corporation (the "Company") and
The Bank of New York (the "Bank").
W I T N E S S E T H:
WHEREAS, the Company is issuing its Retirement Financing
Notes-V due June 30, 2003 (the "Notes") pursuant to the Company's Confidential
Private Placement Memorandum, as the same may be from time to time amended
(the "Memorandum"); and
WHEREAS, the Company's private placement of the Notes (the
"Offering") will terminate on the earlier of (i) the date on which all the
Notes are sold or (ii) May 31, 1998 (the "Offering Termination Date"); and
WHEREAS, subscribers will purchase Notes at a closing (the
"Initial Closing") to be held at such time as the Company may determine in its
discretion and, thereafter, from time to time (each, singly, an "Additional
Closing," and, collectively, the "Additional Closings"), at the discretion of
the Company, on such day or days as may be determined by the Company, as
subscriptions are received and accepted (hereinafter the date of the Initial
Closing and the date of any Additional Closing are each referred to as a
"Closing Date"); and
WHEREAS, the Company desires to deliver to the Bank amounts
received by the Company from subscribers for Notes (each, singly, a
"Purchaser," and, collectively, the "Purchasers"), in payment for the Notes,
which amounts shall be released to the Company at the Initial Closing and at
each Additional Closing; and
WHEREAS, each Purchaser shall be entitled to receive, on a
monthly basis prior to the Closing Date with respect to that Purchaser's
Notes, distributions representing interest accrued on that Purchaser's
subscription payment at a rate of 13.125% per annum; and
WHEREAS, the Company desires to establish an interest
bearing escrow fund to be called the Retirement Financing Notes-V Escrow Fund
Account (the "Fund") with the Bank; and
WHEREAS, each Purchaser shall be entitled to receive, on a
monthly basis after the Closing Date with respect to that Purchaser's Notes,
interest on his Note at the rate of 13.125% per annum; and
<PAGE>
-2-
WHEREAS, the Company wishes to appoint the Bank as Escrow
Agent, Authenticating Agent, Paying Agent, Registrar and Transfer Agent with
respect to the Notes and the Bank is willing to accept such appointments upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises
and the mutual covenants herein contained and other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto
hereby agree as follows:
Section 1. Escrow Agent.
Section 1.1 Appointment. The Company hereby appoints and
designates the Bank as Escrow Agent for the purposes set forth in this Section
1, and the Bank hereby accepts such appointment.
Section 1.2 Escrow. The Company shall from time to time
deliver amounts received from Purchasers in payment for the Notes
("Subscription Payments") to the Bank. The Bank shall deposit the Subscription
Payments in the Fund to be established in the Company's name for this purpose
by the Bank. Subscription Payments delivered for deposit in the Fund shall be
invested in short term certificates of deposit (including certificates of
deposit issued by the Bank), A-1 commercial paper, P-1 commercial paper,
interest bearing money market accounts, all as specified in writing by the
Company and held in trust for the benefit of Purchasers. In the event the
Company should fail to so specify, Subscription Payments delivered for deposit
in the Fund shall be invested in the Bank's Deposit Reserve, an
interest-bearing account, for the benefit of the Purchasers. The Bank is not
responsible for interest, losses, taxes or other charges on investments. All
checks delivered to the Bank for deposit in the Fund shall be payable to the
order of "Retirement Financing Notes-V - Escrow Account." Concurrently with
such delivery, the Company shall deliver to the Bank a statement of the name,
mailing address and tax identification number of each Purchaser whose
Subscription Payment is being delivered, and a schedule listing the aggregate
Notes and aggregate cumulative Subscription Payments to date delivered for
deposit in the Fund. The Bank shall deposit the Subscription Payments to
reflect multiple beneficiaries in accordance with 12 CFR 330.4, 330.10. For
the purposes of this Bank Agreement, the Company is authorized to make
deposits and give instructions as to investments of deposits and otherwise, as
contemplated in this Bank Agreement, to the Bank.
Section 1.3 Interest. During the period (the "Escrow
Period") commencing upon the date that any Purchaser's Subscription Payment
constitutes Cleared Funds (as defined in Section 1.11 hereof) and ending on
the day immediately preceding the Closing Date with respect to that
Purchaser's Notes, interest will accrue on that Purchaser's Subscription
Payment at a rate
<PAGE>
-3-
of 13.125% per annum, computed on the basis of a year of 360 days consisting
of 12 thirty day months. Interest shall be payable on the fifteenth day of
each month if such day is a Business Day. If such day is not a Business Day,
then the next Business Day shall be deemed the Interest Payment Date (each, an
"Interest Payment Date"). Four Business Days prior to each such Interest
Payment Date, the Bank shall give the Company written notice of the difference
between the amount of interest which will be payable on Subscription Payments
on such Interest Payment Date and the amount of interest accruing on the Fund
which will be available for such payment on such Interest Payment Date. Not
later than 11:30 a.m. (New York time) on such Interest Payment Date, the
Company shall deposit with the Bank the amount of such difference. On each
Interest Payment Date, the Bank shall pay interest which is due and payable to
the respective Purchasers by mailing its check in the appropriate amount to
each Purchaser by first class mail to the Purchaser's mailing address provided
to the Bank pursuant to Section 1.2 hereof. In the event that the Company
shall default in its payment obligations to the Bank under this Section 1.3,
the Bank shall mail its check in the amount of each Purchaser's pro rata share
of interest earned and paid on the Fund's assets as provided in this Section
1.3. For purposes of this Bank Agreement, "Business Day" shall mean any day
other than a day on which the Bank is authorized to remain closed in New York
City.
Section 1.4 The Initial Closing and Additional Closings.
Upon the scheduling of the Initial Closing and each Additional Closing, the
Company shall give written notice thereof to the Bank not less than one (1)
Business Day prior to the date scheduled for each such closing.
Section 1.5 Cancellation. The Company shall give the Bank
notice of any Purchaser who cancels his Subscription prior to his Closing Date
or whose Subscription Payment was deposited pursuant to Section 1.2 but whose
Subscription is rejected, setting forth the name and mailing address of the
Purchaser and the amount of the rejected or cancelled subscription. As
promptly as practicable thereafter, the Bank shall pay the amount of the
cancelled or rejected subscription from the Fund to the Purchaser whose
Subscription was cancelled or rejected as directed by the Company. Any
interest earned thereon and not theretofore distributed pursuant to Section
1.3 hereof shall be paid to the Purchaser in accordance with Section 1.3
hereof. Payment shall be made by check payable to the Purchaser mailed by the
Bank by first class mail directly to the Purchaser at the mailing address of
the Purchaser.
Section 1.6 Payment. (a) The Bank, at the Initial Closing
and each Additional Closing, upon written instruction from either Mr. John
Luciani and Mr. Bernard M. Rodin, as the designated officers of the Company,
shall transfer to the Company or to such third party or parties as may be
directed by Mr. Luciani or Mr. Rodin the Cleared Funds then held in the Fund
by the Bank. Any interest earned thereon and not theretofore distributed in
accordance with Section 1.3 hereof shall be paid to the Purchasers in
accordance with Section 1.3 hereof.
<PAGE>
-4-
(b) In the event that the Bank should receive written
instructions, as contemplated in subparagraph (a) above, from any one other
than Mr. Luciani or Mr. Rodin, regardless of whether that person is an
officer, director, employee, agent or representative of the Company, those
instructions are to be deemed to be invalid and contrary to the intent of this
Bank Agreement.
Section 1.7 Fees and Expenses. In addition to the fees set
forth in Section 7.3 hereof, the Bank shall be entitled to an administration
fee as compensation for its services under this Section 1 in the amount of
$5,000 payable (i) upon the execution and delivery of this Bank Agreement and
(ii) subject to an adjustment as provided in the next succeeding sentence of
this Section 1.7, on the first anniversary date of this Bank Agreement,
provided however, that the Bank shall not be entitled to payment of an
administration fee on such first anniversary date if all of the Notes have
been sold prior thereto. In the event the Offering terminates prior to May 31,
1998, the Company shall be entitled to a refund payable ten days after the
Offering Termination Date, of that portion of the administration fee paid to
the Bank on the first anniversary date of the Bank Agreement, in an amount
calculated as the difference between (a) $5,000 and (b) the product of (x)
$5,000 and (y) a fraction, the numerator of which is the number of days
between the first anniversary date of this Bank Agreement and the Offering
Termination Date, inclusive, and the denominator of which is 365. In no event
shall the Bank be entitled to payment of an administration fee, as provided
for in this Section 1.7, following the Offering Termination Date. The Company
shall also pay the Bank $5 for the preparation and execution of each
Purchaser's account including the calculation of interest accrued; $1 for the
preparation of each Purchaser's 1099 tax form; $25 for each investment
transaction in the Fund; $25 for each returned "bounced" check of a Purchaser;
and $500 for each Additional Closing, payable within 10 days after the Bank
gives the Company notice that any such amounts are due and payable.
Notwithstanding anything herein to the contrary, the Bank shall not charge the
Company for the issuance of checks or wire transfers to make monthly payments
of accrued interest on Subscription Payments. No additional fee will be
payable with respect to wire transfers of and unreturned checks for
Subscription Payments. In addition, the Company shall reimburse the Bank for
other actual out-of-pocket expenses incurred in connection with its
obligations pursuant to this Section 1 (including, but not limited to, actual
expenses for stationery, postage, telephone, telex, wire transfers, telecopy
and retention of records, and reasonable fees and expenses of counsel),
payable within ten (10) days after the Bank gives notice to the Company that
it has incurred such expenses. The obligation to pay such compensation and
reimburse such expenses shall be borne solely by the Company. Amounts held in
the Fund shall not be available to satisfy this obligation or any other
obligation of the Company to the Bank. The provisions of this Section 1.7
shall survive the termination of this Bank Agreement.
<PAGE>
-5-
Section 1.8 Termination of Offering. If the Offering should
be terminated, the Company shall promptly so advise the Bank in writing, and
shall authorize and direct the Bank to return the Subscription Payments to the
Purchasers. The Bank thereupon shall return those Subscription Payments to the
extent they have not been distributed per Section 1.6 to the Purchasers from
whom they were received. Any interest earned on the Subscription Payments and
not theretofore distributed pursuant to Section 1.3 hereof shall be paid in
accordance with Section 1.3 hereof. Upon paying such disbursements to the
Purchasers and the Company, the Bank shall be relieved of all of its
obligations and liabilities under this Bank Agreement.
Section 1.9 Form 1099, etc. In compliance with the Internal
Revenue Code of 1986, as amended, the Company shall request that each
Purchaser furnish to the Bank such Purchaser's taxpayer identification number
and a statement certified under penalties of perjury that (a) such taxpayer
identification number is true and correct and (b) the Purchaser is not subject
to withholding of 31% of reportable interest, dividends or other payments.
Section 1.10 Uncollected Funds. In the event that any funds,
including Cleared Funds, deposited in the Fund prove uncollectible after the
funds represented thereby have been released by the Bank pursuant to this Bank
Agreement, the Company shall reimburse the Bank upon request for the face
amount of such check or checks; and the Bank shall, upon instruction from the
Company, deliver the returned checks or other instruments to the Company. This
section shall survive the termination of this Bank Agreement.
Section 1.11 Cleared Funds. For the purpose of this Bank
Agreement, Subscription Payments shall constitute "Cleared Funds" in
accordance with the following:
(a) if paid by wire transfer, such funds shall constitute
Cleared Funds on the date received by the Bank;
(b) if paid by check drawn on a New York Clearing House
Bank, such funds shall constitute Cleared Funds on the second Business Day
following the date received by the Bank; and
(c) if paid by check drawn on any bank other than a New York
Clearing House Bank, such funds shall constitute Cleared Funds on the third
Business Day following the date received by the Bank.
Section 2. Execution. The Notes shall be executed on behalf
of the Company by the manual or facsimile signature of an officer of the
Company. All such facsimile signatures shall have the same force and effect as
if the officer had manually signed the Notes. In case any officer of the
Company whose signature shall appear on a Note shall cease to be such officer
<PAGE>
-6-
before the delivery of such Note or the issuance of a new Note following a
transfer or exchange, such signature or such facsimile shall nevertheless be
valid and sufficient for all purposes, the same as if such officer had
remained an officer until delivery.
Section 3. Authenticating Agent.
Section 3.1 Appointment. The Company hereby appoints and
designates the Bank as Authenticating Agent for the purposes set forth in this
Section 3, and the Bank hereby accepts such appointment.
Section 3.2 Authentication. Only such Notes as shall have
the Certificate of Authentication endorsed thereon in substantially the form
set forth in the form of Note attached to the Memorandum, duly executed by the
manual signature of an authorized signatory of the Bank, shall be entitled to
any right or benefit under this Bank Agreement. No Notes shall be valid or
obligatory for any purpose unless and until such Certificate of Authentication
shall have been duly executed by the Bank; and such executed certificate upon
any such Note shall be conclusive evidence that such Note has been
authenticated and delivered under this Bank Agreement. The Certificate of
Authentication on any Note shall be deemed to have been executed by the Bank
if signed by an authorized signatory of the Bank, but it shall not be
necessary that the same person sign the Certificate of Authentication on all
of the Notes.
Section 4. Mutilated, Lost, Stolen or Destroyed Notes.
Subject to applicable law, in the event any Note is mutilated, lost, stolen or
destroyed, the Company may authorize the execution and delivery of a new Note
of like date, number, maturity and denomination as that mutilated, lost,
stolen or destroyed, provided, however, that in the case of any mutilated
Note, such mutilated Note shall first be surrendered to the Company, and in
the case of any lost, stolen or destroyed Note, there shall be first furnished
to the Company and the Bank, evidence of the ownership thereof and of such
loss, theft or destruction satisfactory to the Company and the Bank, together
with indemnification through a note of indemnity or otherwise as shall be
satisfactory to the Company and the Bank. The Company may charge the Purchaser
of such Note with any amounts satisfactory to the Company and the Bank and
permitted by applicable law.
Section 5. Registrar and Transfer Agent.
Section 5.1 Appointment. The Company hereby appoints and
designates the Bank as Registrar and Transfer Agent for the purposes set forth
in this Section 5, and the Bank hereby accepts such appointment.
Section 5.2 Registration, Transfer and Exchange of Notes.
The Notes are issuable only as registered Notes without coupons in the
denomination of $100,000 or any
<PAGE>
-7-
multiple or any fraction thereof at the sole discretion of the Company. Each
Note shall bear the following restrictive legend: "These securities have not
been registered under the Securities Act of 1933, as amended, and may be
offered and sold or otherwise transferred only if registered pursuant to the
provisions of that Act or if an exemption from registration is available." The
Bank shall keep at its principal corporate trust office a register in which
the Bank shall provide for the registration and transfer of Notes. Upon
surrender for registration of transfer of any Note at such office of the Bank,
the Company shall execute, pursuant to Section 2 hereof, and mail by first
class mail to the Bank, and the Bank shall authenticate, pursuant to Section 3
hereof, and mail by first class mail to the designated transferee, or
transferees, one or more new Notes in an aggregate principal amount equal to
the unpaid principal amount of such surrendered Note, registered in the name
of the designated transferee or transferees. Every Note presented or
surrendered for registration of transfer shall be duly endorsed, or be
accompanied by a written instrument of transfer duly executed, by the holder
of such Note or his attorney duly authorized in writing. Notwithstanding the
preceding, the Notes may not be transferred without an effective registration
statement under the Securities Act of 1933 covering the Notes or an opinion of
counsel satisfactory to the Company and its counsel that such registration is
not necessary under the Securities Act of 1933 (the "Securities Act"). At the
option of the owner of any Note, such Note may be exchanged for other Notes of
any authorized denominations, in an aggregate principal amount equal to the
unpaid principal amount of such surrendered Note, upon surrender of the Note
to be exchanged at the principal corporate trust office of the Bank; provided,
however, that any exchange for denominations other than $100,000 or an
integral multiple thereof shall be at the sole discretion of the Company.
Whenever any Note is so surrendered for exchange, the Company shall execute,
pursuant to Section 2 hereof, and deliver to the Bank, and the Bank shall
authenticate, pursuant to Section 3 hereof, and mail by first class mail to
the designated transferee, or transferees, the Note or Notes which the Note
owner making the exchange is entitled to receive. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall be dated the date to
which interest has been paid on such Note surrendered for exchange or
transfer, and neither gain nor loss of interest shall result from any such
exchange or transfer. In addition, each Note issued upon such exchange or
transfer shall bear the restrictive legend set forth above unless in the
opinion of counsel to the Company, such legend is not required to ensure
compliance with the Securities Act.
Section 5.3 Owner. The person in whose name any Note shall
be registered shall be deemed and regarded as the absolute owner thereof for
all purposes, and payment of or on account of the principal of or interest on
such Note shall be made only to or upon the order of the registered owner
thereof or his duly authorized legal representative. Such registration may be
changed only as provided in this Section 5, and no other notice to the Company
or the Bank shall affect the rights or obligations with respect to the
transfer of a Note or be effective to transfer any Note. All payments to the
person in whose name any Note shall be registered shall
<PAGE>
-8-
be valid and effectual to satisfy and discharge the liability upon such Note
to the extent of the sum or sums to be paid.
Section 5.4 Transfer Agent. The Bank shall send executed,
authenticated Notes to Purchasers on Closing Dates as required and to
subsequent owners and transferees who are entitled to receive Notes pursuant
to the terms of this Bank Agreement, by first class mail.
Section 5.5 Charges and Expenses. No service charge shall be
made for any transfer or exchange of Notes, but in all cases in which Notes
shall be transferred or exchanged hereunder, as a condition to any such
transfer or exchange, the owner of the Note shall, prior to the delivery of
any new Note pursuant to such transfer or exchange, reimburse the Company and
the Bank for their respective actual out-of-pocket expenses incurred in
connection therewith (including, but not limited to, any tax, fee or other
governmental charge required to be paid with respect to such transfer or
exchange, actual expenses for stationery, postage, telephone, telex, wire
transfers, telecopy and retention of records, and reasonable fees and expenses
of their respective counsel). The provisions of this Section 5.5 shall survive
the termination of this Bank Agreement.
Section 5.6 Redemption at the Option of the Company.
(a) Whenever the Company shall effect a redemption at the
option of the Company, at any time in its sole and absolute discretion, of
part or all of the Notes, which shall be without premium or penalty, the
Company shall give written notice thereof to the Bank at least forty (40) days
prior to the date set forth for redemption, the manner in which redemption
shall be effected and all the relevant details thereof. The Bank shall give
written notice to the Purchasers of that redemption at least thirty (30) days
prior to the date set forth for redemption in the form included herewith as
Exhibit A. The Bank shall register the cancellation of the whole or a portion
of the unredeemed Notes, as appropriate. In any event, new Notes will not be
issued to reflect the non-redeemed portion of the Notes. No interest shall be
payable on the redeemed portion of a Note from and after the date of
redemption.
(b) The Bank hereby acknowledges that the Company may effect
a redemption at the option of the Company, at any time in its sole and
absolute discretion, of part or all of the Notes without premium or penalty.
Section 5.7 Mandatory Redemption. The Company shall be
obligated to redeem 100% of the Notes due June 30, 2003. When the Company
shall effect the mandatory redemption, the Company shall give written notice
thereof to the Bank at least forty (40) days prior to the date set forth for
redemption, the manner in which redemption shall be effected and all relevant
details thereof. The Bank shall give written notice to the Purchasers of that
<PAGE>
-9-
redemption at least thirty (30) days prior to the date set forth for
redemption in the form included herewith as Exhibit B. The Bank shall register
the cancellation of the whole of the redeemed Notes.
Section 6. Paying Agent.
Section 6.1 Appointment. The Company hereby appoints and
designates the Bank as Paying Agent for the purposes set forth in this Section
6, and the Bank hereby accepts such appointment.
Section 6.2 Payment Provisions.
(a) The Bank shall pay interest on Subscription Payments and
principal of and interest on the Notes to the persons in whose names the Notes
are registered, subject to the limitations contained in Section 5.6(a),
Section 5.7 and in accordance with the terms and provisions of this Bank
Agreement and the Notes, by check mailed by first class mail to the registered
owner of a Note at his address as it appears in the register; provided that
not later than 11:30 a.m. (New York time) on the Interest Payment Date or date
on which principal of any Note is due and payable, the Company shall provide
the Bank with sufficient funds to make those payments.
(b) Each Purchaser shall be entitled to receive with respect
to that Purchaser's Notes, interest from the Closing Date through June 30,
2003.
Section 6.3 Expenses. The Company shall reimburse the Bank
for its actual out-of-pocket expenses incurred in connection with its
obligations pursuant to this Section 6 (including, but not limited to, actual
expenses for stationery, postage, telephone, telex, wire transfers, telecopy
and retention of records), payable within ten (10) days after the Bank gives
notice to the Company that it has incurred such expenses. The obligation to
pay such compensation and reimburse such expenses shall be borne solely by the
Company. Notwithstanding anything herein to the contrary, the Bank shall not
charge the Company any fees for the issuance of checks or wire transfers to
make payments of interest on or repayments of principal of the Notes. The
provisions of this Section 6.3 shall survive the termination of this Bank
Agreement.
<PAGE>
-10-
Section 7. Rights and Duties of Bank.
Section 7.1 Duties of the Bank.
(a) Upon the occurrence and continuation of an Event of
Default, the Bank shall declare the entire outstanding aggregate principal
balance of all the Notes plus all accrued interest due and immediately
payable.
(b) In the event that the Company shall default on its
payment obligations to the Bank under this Bank Agreement, the Bank shall be
entitled to institute action against the Company, jointly or severally, to
collect payment under this Bank Agreement.
Section 7.2 Events of Default.
If any of the following events (an "Event of Default") shall
occur and be continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or otherwise):
(i) the Company defaults in the payment of any part of
the principal of any Note when the same shall become due and
payable on June 30, 2003, and such default shall have
continued for more than 30 days; or
(ii) the Company defaults in the payment of any part of
the interest on any Note when the same shall become due and
payable, and such default shall have continued for more than
15 days;
then, the Bank, upon instruction by the owners of at least 50% of the
principal amount of the Notes, by notice to the Company, or the owners of at
least 75% of the principal amount of the Notes, by notice to the Company and
to the Bank, may declare the entire principal of and accrued interest on all
Notes to become immediately due and payable at par without presentment,
demand, protest or other notice of any kind, all of which are waived by the
Company.
Section 7.3 Fees and Expenses. In addition to the
administration fee set forth in Section 1.7 hereof, the Bank shall be entitled
to compensation for its services under this Section 7 in the amount of $2,500
as an acceptance fee, payable upon execution and delivery of this Bank
Agreement; and administrative fees, payable annually on the anniversary date
of
<PAGE>
-11-
this Bank Agreement, based upon the aggregate principal amount of outstanding
Notes ten days prior to the anniversary date, in the following amounts:
$ 500,000 to $ 1,000,000 outstanding............. $2,500.00
$ 1,000,001 to $ 2,000,000 outstanding............. $3,000.00
$ 2,000,001 to $ 3,000,000 outstanding............. $4,000.00
$ 3,000,001 to $ 4,000,000 outstanding............. $5,000.00
$ 4,000,001 to $ 5,000,000 outstanding............. $6,000.00
$ 5,000,001 to $ 6,000,000 outstanding............. $7,000.00
$ 6,000,001 to $ 7,000,000 outstanding............. $8,000.00
$ 7,000,001 to $ 7,500,000 outstanding............. $8,500.00
The Company shall reimburse the Bank for its actual out-of-pocket expenses
incurred in connection with its obligations pursuant to this Section 7
(including, but not limited to, actual expenses for stationery, postage,
telephone, telex, wire transfers, telecopy, retention of records, and the
filing of Financing Statements, and reasonable fees and expenses of counsel),
payable within ten (10) days after the Bank gives notice to the Company that
it incurred such expenses. The obligation to pay such compensation and
reimburse such expenses shall be borne solely by the Company. The provisions
of this Section 7.3 shall survive the termination of this Bank Agreement.
Section 7.4 Other Rights and Duties of Bank.
(a) The Bank need exercise only those rights and need
perform only those duties that are contemplated or specifically set forth in
this Bank Agreement and no others.
(b) Notwithstanding anything herein to the contrary, the
Bank may not be relieved from liability for its own grossly negligent action,
its own grossly negligent failure to act, or its own willful misconduct except
that
(i) This paragraph does not limit the effect of
paragraph (a) of this Section.
(ii) The Bank shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
notice received by it pursuant to the subscription agreements
executed by the Purchasers in connection with the purchase of the
Notes.
<PAGE>
-12-
(c) The Bank may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Bank
need not investigate any fact or matter stated in the document.
(d) Before the Bank acts or refrains from acting, it may
require an officer's certificate or an opinion of counsel. The Bank shall not
be liable for any action it takes or omits to take in good faith in reliance
on the certificate or opinion.
(e) The Bank may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
Section 8. No Representations. The Bank makes no
representation as to the validity or adequacy of this Bank Agreement or the
Notes delivered to it by the Company; it shall not be accountable for the
Company's use of the proceeds from the Notes and it shall not be responsible
for any statement in the Memorandum or in the Notes other than its
authentication.
Section 9. Indemnification. The Company shall indemnify,
defend and hold the Bank harmless from and against any and all loss, damage,
liability, claim and expense, including taxes (other than taxes based on the
income of the Bank) incurred by the Bank arising out of or in connection with
its acceptance or performance of its obligations under this Bank Agreement,
including the legal costs and expenses of defending itself against any claim
or liability in connection with its performance under this Bank Agreement. The
Bank shall notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Bank shall cooperate in
the defense. The Bank may have separate counsel and shall pay the fees and
expenses of such counsel. The Company need not reimburse any expense or
indemnify against any loss or liability incurred by the Bank through gross
negligence or bad faith. The provisions of this Section 9 shall survive the
termination of this Bank Agreement.
Section 10. Replacement of Bank.
(a) A resignation or removal of the Bank and appointment of
a successor bank shall become effective only upon the successor bank's
acceptance of appointment as provided in this Section 10.
(b) The Bank may resign by so notifying the Company. The
Company may remove the Bank if:
(i) the Bank is adjudged a bankrupt or an insolvent;
<PAGE>
-13-
(ii) a receiver or public officer takes charge of the
Bank or its property; or
(iii) the Bank becomes incapable of acting.
(c) (i) If the Bank resigns or is removed, the Company shall
promptly appoint a successor bank.
(ii) A successor bank shall deliver a written
acceptance of its appointment to the retiring Bank and the
Company. Thereupon the resignation or removal of the
retiring Bank shall become effective and the successor bank
shall have all the rights, powers and duties of the Bank
under this Bank Agreement. The successor bank shall mail a
notice of its succession to Note owners. Upon payment to the
retiring Bank of all amounts owed to it under this Bank
Agreement, the retiring Bank shall promptly transfer all
property held by it under the terms of this Bank Agreement.
(d) If the Bank consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor bank.
Section 11. Notices. All notices and other communications
pursuant to this Bank Agreement shall be in writing, subject to the terms of
Section 1.6 hereof, and shall be delivered by hand or sent by registered,
certified, return receipt requested, or first class mail, or by facsimile,
confirmed by writing, delivered by hand or sent by registered, certified,
return receipt requested, or first class mail delivered or sent on the date of
the facsimile, addressed as follows:
(a) If to the Company:
Grand Court Lifestyles, Inc.
One Executive Drive
Fort Lee, New Jersey 07024
Facsimile Number: (201) 947-6663
Attention: Keith Marlowe, Esq.
<PAGE>
-14-
With a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Facsimile Number: (212) 603-2298
Attention: Michele R. Jawin, Esq.
(b) If to Note owners:
At the addresses of the registered owners appearing
in the register maintained by the Bank.
(c) If to Bank:
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile Number: (212) 815-5999
or at such other address as a party shall have last furnished to the other
parties hereto in writing. Any notice provided for herein shall be deemed to
have been given on the date of the receipt of the notice by hand delivery or
of the facsimile or the third Business Day after the date of mailing,
certified mail, return receipt requested.
Section 12. Choice of Law. This Bank Agreement shall be
governed by the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
Section 13. Prior Agreements; Amendment. This Bank Agreement
sets forth the entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements, contracts,
promises, representations, warranties, statements, arrangements and
understandings, if any, among the parties hereto or their representatives with
respect to the subject matter hereof. No waiver, modification or amendment of
any provision, term or condition hereto shall be valid unless in writing and
signed by all parties hereto, and any such waiver, modification or amendment
shall be valid only to the extent therein set forth.
Section 14. Successors. This Bank Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
<PAGE>
-15-
Section 15. Enforceability. Any provision of this Bank
Agreement which may by determined by competent authority to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 16. Counterparts. This Bank Agreement may be
executed in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument.
Section 17. Use of The Bank of New York Name.
(a) No printed or other material in any language, including
prospectuses, notices, reports, and promotional materials which mentions the
Bank by name or the rights, powers, or duties of the Bank under this Bank
Agreement shall be issued by any of the other parties hereto, or on such
party's behalf, without the prior written consent of the Bank.
(b) Notwithstanding the above, the Bank hereby consents to
the use of its name and its rights, powers and duties under this Bank
Agreement in the Memorandum and any notices and reports required under
applicable Federal and state securities laws in connection therewith. In
addition, the Bank hereby consents to the use of its name and its rights,
powers, and duties under this Bank Agreement in the promotional material
included herewith as Exhibit C.
[INTENTIONALLY LEFT BLANK]
<PAGE>
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Section 18. Definitions. All terms used in this Bank
Agreement and not otherwise defined herein shall have the meanings ascribed to
them in the Memorandum.
IN WITNESS WHEREOF, the parties hereto have executed this
Bank Agreement as of the date first above written.
GRAND COURT LIFESTYLES, INC. THE BANK OF NEW YORK
By: /s/ Bernard M. Rodin By: /s/ Betty A. Cocozza
----------------------------- -------------------------------
Name: Bernard M. Rodin Name: Betty A. Cocozza
----------------------- -------------------------
Title: President Title: Assistant Vice President
----------------------- -------------------------
<PAGE>
EXHIBIT A
TO BANK AGREEMENT
[FORM OF NOTICE]
Notice of Voluntary Redemption
of
Grand Court Lifestyles, Inc.
Retirement Financing Notes-V
To holders of Grand Court Lifestyles, Inc. (the "Company")
13.125% Retirement Financing Notes-V due June 30, 2003 (the "Notes"):
Notice is hereby given by The Bank of New York (the "Bank"),
as paying agent for the Notes, that, pursuant to the voluntary redemption
provision of Section 5.6 of the Bank Agreement between the Company and the
Bank, dated May 14, 1997, the Company has elected to redeem and pay off on
__________________________________ (the "Redemption Date") [all] [a portion
of] the above mentioned Notes then outstanding, in accordance with the terms
of the Notes, and that [all] [a portion of] the Notes are called for
redemption on the Redemption Date.
The redemption price on the Redemption Date shall be
$_______. Interest on the Notes so redeemed shall cease from and after the
Redemption Date.
Dated: [month] [day], [year]
---------- ----- ------
The Bank of New York
<PAGE>
EXHIBIT B
TO BANK AGREEMENT
[FORM OF NOTICE]
Notice of Mandatory Redemption
of
Grand Court Lifestyles, Inc.
Retirement Financing Notes-V
To holders of Grand Court, Lifestyles, Inc. (the "Company")
13.125% Retirement Financing Notes-V due June 30, 2003 (the "Notes"):
Notice is hereby given by The Bank of New York (the "Bank"),
as paying agent for the Notes, that, pursuant to the mandatory redemption
provision of Section 5.7 of the Bank Agreement between the Company and the
Bank, dated May 14, 1997, the Company will redeem and pay off on June 30, 2003
(the "Redemption Date") 100% of the above mentioned Notes, in accordance with
the terms of the Notes, and that 100% of the Notes are called for redemption
on the Redemption Date.
Interest on the Notes so redeemed shall cease from and after
the Redemption Date.
Dated: [month] [day], [year]
---------- ----- ------
The Bank of New York
<PAGE>
EXHIBIT C
TO BANK AGREEMENT
GRAND COURT LIFESTYLES, INC.
RETIREMENT FINANCING NOTES - V SUMMARY
OFFERING $7,500,000
13.125% NOTES DUE JUNE 30, 2003
INVESTMENT OBJECTIVE
13.125% Paid Monthly on the 15th of each month backed by the full faith and
credit of Grand Court Lifestyles, Inc.
RETURN OF PRINCIPAL
100% on June 30, 2003
THE INVESTMENTS
Denominations of $100,000 or any multiple or fraction thereof at the discretion
of the Company. All investors must be accredited investors.
PAYING AGENT & CUSTODIAN
The Bank of New York is authenticating agent, registrar, transfer
agent and paying agent of the Notes. The Bank of New York does not guarantee
or otherwise provide credit support for the Notes.
TAX IMPLICATIONS
All income is considered portfolio income; can be used for employee
benefit plans, IRAs and Keoghs.
<PAGE>
-2-
GRAND COURT LIFESTYLES, INC.
RETIREMENT FINANCING NOTES - V SUMMARY
===============================================================================
27 Continuous Years of Successful Operation
Developed Partnerships Which Own and/or Operate Over 20,000 Apartments
Average Occupancy Rate of Over 90%
A Certified Net Worth in Excess of $30 Million
RISKS
INVESTORS SHOULD BE AWARE OF RISK FACTORS WHICH MAY AFFECT THE COMPANY'S
ABILITY TO SERVICE THE DEBT ON THE NOTES. THE NOTES WILL BE UNSECURED
OBLIGATIONS OF GRAND COURT LIFESTYLES, INC. THE NOTES ARE EFFECTIVELY
SUBORDINATED TO CERTAIN SECURED INDEBTEDNESS OF THE COMPANY. MARKET CONDITIONS
MAY REDUCE THE COMPANY'S CASH FLOW, THEREBY ADVERSELY AFFECTING GRAND COURT
LIFESTYLES, INC.'S ABILITY TO MAKE INTEREST AND PRINCIPAL PAYMENTS.
RISKS AFFECTING AN INVESTMENT IN THE NOTES ARE MORE FULLY DESCRIBED IN THE
"RISK FACTORS" SECTION OF THE PRIVATE PLACEMENT MEMORANDUM.
The offering will be made in compliance with relevant state
securities laws and Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
Interested persons should be informed that there are significant
risks in this transaction and that they should review the private
placement memorandum prior to making a decision to invest. This
material is for use by broker-dealers, attorneys, accountants,
investment counsel and qualified prospective investors. This material
may not be reproduced or recirculated. THIS SUMMARY DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY A
SECURITY, WHICH MAY BE MADE ONLY BY DELIVERY OF THE PRIVATE PLACEMENT
MEMORANDUM.
GRAND COURT LIFESTYLES, INC.
ONE EXECUTIVE DRIVE
FORT LEE, NEW JERSEY 07024
(201) 947-7322 or (212) 472-1920
<PAGE>
BANK AGREEMENT
THIS BANK AGREEMENT, dated as of November 6, 1997 (as amended,
modified or supplemented from time to time, the "Bank Agreement"), is by and
among Grand Court Lifestyles, Inc., a Delaware corporation (the "Company") and
The Bank or New York (the "Bank").
WITNESSETH:
WHEREAS, the Company is issuing its Retirement Financing Notes-VI due
April 15, 2001 (the "Notes") pursuant to the Company's Confidential Private
Placement Memorandum, as the same may be from time to time amended (the
"Memorandum"); and
WHEREAS, the Company's private placement of the Notes (the "Offering")
will terminate on the earlier of (i) the date on which all the Notes are sold or
(ii) December 31, 1998 (the "Offering Termination Date"); and
WHEREAS, subscribers will purchase Notes at a closing (the "Initial
Closing") to be held at such time as the Company may determine in its
discretion and, thereafter, front time to time (each, singly, an "Additional
Closing," and, collectively, the "Additional Closings"), at the discretion of
the Company, on such day or days as may be determined by the Company, as
subscriptions are received and accepted (hereinafter the date of the Initial
Closing and the date of any Additional Closing are each referred to as a
"Closing Date"); and
WHEREAS, the Company desires to deliver to the Bank amounts received
by the Company from subscribers for Notes (each, singly, a "Purchaser," and,
collectively, the "Purchasers"), in payment for the Notes, which amounts shall
be released to the Company at the Initial Closing and at each Additional
Closing; and
WHEREAS, each Purchaser shall be entitled to receive, on a monthly
basis prior to the Closing Date with respect to that Purchaser's Notes,
distributions representing interest accrued on that Purchaser's subscription
payment at a rate of 13.125% per annum; and
WHEREAS, the Company desires to establish an interest bearing escrow
fund to he called the Retirement Financing Notes-VI Escrow Fund Account (the
"Fund") with the Bank; and
WHEREAS, each Purchaser shall be entitled to receive, on a monthly
basis after the Closing Date with respect to that Purchaser's Notes, interest
on his Note at the rate of 13.125% per annum; and
<PAGE>
-2-
WHEREAS, the Company wishes to appoint the Bank as Escrow Agent,
Authenticating Agent, Paying Agent, Registrar and Transfer Agent with respect
to the Notes and the Bank is willing to accept such appointments upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto hereby agree as
follows:
Section 1. Escrow Agent.
Section 1.1 Appointment. The Company hereby appoints and designates
the Bank as Escrow Agent for the purposes set forth in this Section 1, and the
Bank hereby accepts such appointment.
Section 1.2 Escrow. The Company shall from time to time deliver
amounts received from Purchasers in payment for the Notes ("Subscription
Payments") to the Bank. The Bank shall deposit the Subscription Payments in
the Fund to be established in the Company's name for this purpose by the Bank.
Subscription Payments delivered for deposit in the Fund shall be invested in
short term certificates of deposit (including certificates of deposit issued
by the Bank). A-1 commercial paper. P-1 commercial paper, interest bearing
money market accounts, all as specified in writing by the Company and held in
trust for the benefit of Purchasers. In the event the Company should fail to
so specify, Subscription Payments delivered for deposit in the Fund shall be
invested in the Bank's Deposit Reserve, an interest-bearing account, for the
benefit of the Purchasers. The Bank is not responsible for interest, losses,
taxes or other charges on investments. All checks delivered to the Bank for
deposit in the Fund shall be payable to the order of "Retirement Financing
Notes-VI - Escrow Account." Concurrently with such delivery, the Company shall
deliver to the Bank a statement of the name, mailing address and tax
identification number of each Purchaser whose Subscription Payment is being
delivered, and a schedule listing the aggregate Notes and aggregate cumulative
Subscription Payments to date delivered for deposit in the Fund. For the
purposes of this Bank Agreement, the Company is authorized to make deposits
and give instructions as to investments of deposits and otherwise, as
contemplated in this Bank Agreement, to the Bank.
Section 1.3 Interest. During the period (the "Escrow Period")
commencing upon the date that any Purchaser's Subscription Payment constitutes
Cleared Funds (as defined in Section 1.11 hereof) and ending on the day
immediately preceding the Closing Date with respect to that Purchaser's Notes,
interest will accrue on that Purchaser's Subscription Payment at a rate of
13.125% per annum, computed on the basis of a year of 360 days consisting of
12 thirty day months. Interest shall be payable on the fifteenth day of each
month if such day is a Business
<PAGE>
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Day. If such day is not a Business Day, then the next Business Day shall be
deemed the Interest Payment Date (each, an "Interest Payment Date"). Four
Business Days prior to each such Interest Payment Date, the Bank shall give the
Company written notice of the difference between the amount of interest which
will be payable on Subscription Payments on such Interest Payment Date and the
amount of interest accruing on the Fund which will be available for such payment
on such Interest Payment Date. Not later than 11:30 a.m. (New York time) on such
Interest Payment Date, the Company shall deposit with the Bank the amount of
such difference. On each Interest Payment Date, the Bank shall pay interest
which is due and payable to the respective Purchasers by mailing its check in
the appropriate amount to each Purchaser by first class mail to the Purchaser's
mailing address provided to the Bank Pursuant to Section 1.2 hereof. In the
event that the Company shall default in its payment obligations to the Bank
under this Section 1.3, the Bank shall mail its check in the amount of each
Purchaser's pro rata share of interest earned and paid on the Fund's assets as
provided in this Section 1.3. For purposes of this Bank Agreement, "Business
Day" shall mean any day other than a day on which the Bank is authorized to
remain closed in New York City.
Section 1.4 The Initial Closing and Additional Closings. Upon the
scheduling of the Initial Closing and each Additional Closing, the Company
shall give written notice thereof to the Bank not less than one (1) Business
Day prior to the date scheduled for each such closing.
Section 1.5 Cancellation. The Company shall give the Bank notice of
any Purchaser who cancels his Subscription prior to his Closing Date or whose
Subscription Payment was deposited pursuant to Section 1.2 but whose
Subscription is rejected, setting forth the name and mailing address of the
Purchaser and the amount of the rejected or cancelled subscription. As
promptly as practicable thereafter, the Bank shall pay the amount of the
cancelled or rejected subscription from the Fund to the Purchaser whose
Subscription was cancelled or rejected as directed by the Company. Any
interest earned thereon and not theretofore distributed pursuant to Section
1.3 hereof shall be paid to the Purchaser in accordance with Section 1.3
hereof. Payment shall be made by check payab1e to the Purchaser mailed by the
Bank by first class mail directly to the Purchaser at the mailing address of
the Purchaser.
Section 1.6 Payment. (a) The Bank, at the Initial Closing and each
Additional Closing, upon written instruction from either Mr. John Luciani and
Mr. Bernard M. Rodin, as the designated officers of the Company, shall
transfer to the Company or to such third party or parties as may be directed
by Mr. Luciani or Mr. Rodin the Cleared Funds then held in the Fund by the
Bank. Any interest earned thereon and not theretofore distributed in
accordance with Section 1.3 hereof shall be paid to the Purchasers in
accordance with Section 1.3 hereof.
(b) In the event that the Bank should receive written instructions,
as contemplated in subparagraph (a) above, from any one other than Mr. Luciani
or Mr. Rodin.
<PAGE>
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regardless of whether that person is an officer, director, employee, agent or
representative of the Company, those instructions are to be deemed to be invalid
and contrary to the intent of this Bank Agreement.
Section 1.7 Fees and Expenses. In addition to the fees set forth in
Section 7.3 hereof, the Bank shall be entitled to an administration fee as
compensation for its services under this Section I in the amount of $5,000
payable (i) upon the execution and delivery of this Bank Agreement and (ii)
subject to an adjustment as provided in the next succeeding sentence of this
Section 1.7, on the first anniversary date of this Bank Agreement, provided
however, that the Bank shall not be entitled to payment of an administration
fee on such first anniversary date if all of the Notes have been sold prior
thereto. In the event the Offering terminates prior to December 31, 1998, the
Company shall be entitled to a refund payable ten days after the Offering
Termination Date, of that portion of the administration fee paid to the Bank
on the first anniversary date of the Bank Agreement, in an amount calculated
as the difference between (a) $5,000 and (b) the product of (x) $5,000 and (y)
a fraction the numerator of which is the number of days between the first
anniversary date of this Bank Agreement and the Offering Termination Date,
inclusive, and the denominator of which is 365. In no event shall the Bank be
entitled to payment of an administration fee, as provided for in this Section
1.7, following the Offering Termination Date. The Company shall also pay the
Bank $5 for the preparation and execution of each Purchaser's account
including the calculation of interest accrued; $1 for the preparation of each
Purchaser's 1099 tax form; $25 for each investment transaction in the Fund;
$25 for each returned "bounced" check of a Purchaser; and $500 for each
Additional Closing, payable within 10 days after the Bank gives the Company
notice that any such amounts are due and payable. Notwithstanding anything
herein to the contrary, the Bank shall not charge the Company for the issuance
of checks or wire transfers to make monthly payments of accrued interest on
Subscription Payments. No additional fee will be payable with respect to wire
transfers of and unreturned checks for Subscription Payments. In addition, the
Company shall reimburse the Bank for other actual out-of-pocket expenses
incurred in connection with its, obligations pursuant to this Section 1
(including, but not limited to actual expenses for stationery, postage,
telephone, telex, wire transfers, telecopy and retention of records, and
reasonable fees and expenses of counsel), payable within ten (10) days after
the Bank gives notice to the Company that it has incurred such expenses. The
obligation to pay such compensation and reimburse such expenses shall be borne
solely by the Company. Amounts held in the Fund shall not be available to
satisfy this obligation or any other obligation of the Company to the Bank.
The provisions of this Section 1.7 shall survive the termination of this Bank
Agreement.
Section 1.8 Termination of Offering. If the Offering should be
terminated, the Company shall promptly so advise the Bank in writing, and
shall authorize and direct the Bank to return the Subscription Payments to the
Purchasers. The Bank thereupon shall return those
<PAGE>
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Subscription Payments to the extent they have not been distributed per Section
1.6 to the Purchasers from whom they were received. Any interest earned on the
Subscription Payments and not theretofore distributed pursuant to Section 1.3
hereof shall be paid in accordance with Section 1.3 hereof. Upon paying such
disbursements to the Purchasers and the Company, the Bank shall be relieved of
all of its obligations and liabilities under this Bank Agreement.
Section 1.9 Form 1099, ctc. In compliance with the Internal Revenue
Code of 1986, as amended, the Company shall request that each Purchaser
furnish to the Bank such Purchaser's taxpayer identification number and a
statement certified under penalties of perjury that (a) such taxpayer
identification number is true and correct and (b) the Purchaser is not subject
to withholding of 31% of reportable interest, dividends or other payments.
Section 1.10 Uncollected Funds. In the event that any funds,
including Cleared Funds, deposited in the Fund prove uncollectible after the
funds represented thereby have been released by the Bank pursuant to this Bank
Agreement, the Company shall reimburse the Bank upon request for the face
amount of such check or checks; and the Bank shall, upon instruction from the
Company, deliver the returned checks or other instruments to the Company. This
section shall survive the termination of this Bank Agreement.
Section 1.11 Cleared Funds. For the purpose of this Bank Agreement,
Subscription Payments shall constitute "Cleared Funds" in accordance with the
following:
(a) if paid by wire transfer, such funds shall constitute Cleared
Funds on the date received by the Bank:
(b) if paid by check drawn on a New York Clearing House Bank, such
funds shall constitute Cleared Funds on the second Business Day following the
date received by the Bank; and
(c) if paid by check drawn on any bank other than a New York Clearing
House Bank, such funds shall constitute Cleared Funds on the third Business
Day following the date received by the Bank.
Section 2. Execution. The Notes shall be executed on behalf of the
Company by the manual or facsimile signatures of an officer of the Company.
All such facsimile signatures shall have the same force and effect as if the
officer had manually signed the Notes. In case any officer of the Company
whose signature shall appear on a Note shall cease to be such officer before
the delivery of such Note or the issuance of a new Note following a transfer
or exchange, such signature or such facsimile shall nevertheless be valid and
sufficient for all purposes, the same as if such officer had remained an
officer until delivery.
<PAGE>
-6-
Section 3. Authenticating Agent.
Section 3.1 Appointment. The Company hereby appoints and designates
the Bank as Authenticating Agent for the purposes set forth in this Section 3,
and the Bank hereby accepts such appointment.
Section 3.2 Authentication. Only such Notes as shall have the
Certificate of Authentication endorsed thereon in substantially the form set
forth in the form of Note attached to the Memorandum, duly executed by the
manual signature of an authorized signatory of the Bank, shall be entitled to
any right or benefit under this Bank Agreement. No Notes shall be valid or
obligatory for any purpose unless and until such Certificate of Authentication
shall have been duly executed by the Bank; and such executed certificate upon
any such Note shall be conclusive evidence that such Note has been
authenticated and delivered under this Bank Agreement. The Certificate of
Authentication on any Note shall be deemed to have been executed by the Bank
if signed by an authorized signatory of the Bank, but it shall not be
necessary that the same person sign the Certificate of Authentication on all
of the Notes.
Section 4. Mutilated, Lost, Stolen or Destroyed Notes. Subject to
applicable law, in the event any Note is mutilated, lost, stolen or destroyed,
the Company may authorize the execution and delivery of a new Note of like
date, number, maturity and denomination as that mutilated, lost, stolen or
destroyed, provided, however, that in the case of any mutilated Note, such
mutilated Note shall first be surrendered to the Company, and in the case of
any lost, stolen or destroyed Note, there shall be first furnished to the
Company and the Bank, evidence of the ownership thereof and of such loss,
theft or destruction satisfactory to the Company and the Bank, together with
indemnification through a note of indemnity or otherwise as shall be
satisfactory to the Company and the Bank. The Company may charge the Purchaser
of such Note with any amounts satisfactory to the Company and the Bank and
permitted by applicable law.
Section 5. Registrar ad Transfer Agent.
Section 5.1 Appointment. The Company hereby appoints and designates
the Bank as Registrar and Transfer Agent for the purposes set forth in this
Section 5, and the Bank hereby accepts such appointment.
Section 5.2 Registration, Transfer and Exchange of Notes. The Notes
are issuable only as registered Notes without coupons in the denomination of
$100,000 or any multiple or any fraction thereof at the sole discretion of the
Company. Each Note shall bear the following restrictive legend: "These
securities have not been registered under the Securities Act of 1933, as
amended, and may be offered and sold or otherwise transferred only if
registered pursuant to the provisions of that Act or if an exemption from
registration is available." The
<PAGE>
-7-
Bank shall keep at its principal corporate trust office a register in which the
Bank shall provide for the registration and transfer of Notes. Upon surrender
for registration of transfer of any Note at such office of the Bank, the Company
shall execute, pursuant to Section 2 hereof, and mail by first class mail to the
Bank, and the Bank shall authenticate, pursuant to Section 3 hereof, and mail by
first class mail to the designated transferee, or transferees, one or more new
Notes in an aggregate principal amount equal to the unpaid principal amount of
such surrendered Note, registered in the name of the designated transferee or
transferees. Every Note presented or surrendered for registration of transfer
shall be duly endorsed, or be accompanied by a written instrument of transfer
duly executed, by the holder of such Note or his attorney duly authorized in
writing. Notwithstanding the preceding, the Notes may not be transferred without
an effective registration statement under the Securities Act of 1933 covering
the Notes or an opinion of counsel satisfactory to the Company and its counsel
that such registration is not necessary under the Securities Act of 1933 (the
"Securities Act"). At the option of the owner of any Note, such Note may be
exchanged for other Notes of any authorized denominations, in an aggregate
principal amount equal to the unpaid principal amount of such surrendered Note,
upon surrender of the Note to be exchanged at the principal corporate trust
office of the Bank; provided, however, that any exchange for denominations other
than $100,000 or an integral multiple thereof shall be at the sole discretion of
the Company. Whenever any Note is so surrendered for exchange, the Company shall
execute, pursuant to Section 2 hereof, and deliver to the Bank, and the Bank
shall authenticate, pursuant to Section 3 hereof, and mail by first class mail
to the designated transferee, or transferees, the Note or Notes which the Note
owner making the exchange is entitled to receive. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall be dated the date to which
interest has been paid on such Note surrendered for exchange or transfer, and
neither gain nor loss of interest shall result from any such exchange or
transfer. In addition, each Note issued upon such exchange or transfer shall
bear the restrictive legend set forth above unless in the opinion of counsel to
the Company, such legend is not required to ensure compliance with the
Securities Act.
Section 5.3 Owner. The person in whose name any Note shall be
registered shall be deemed and regarded as the absolute owner thereof for all
purposes, and payment of or on account of the principal of or interest on such
Note shall be made only to or upon the order of the registered owner thereof
or his duly authorized legal representative. Such registration may be
changed only as provided in this Section 5, and no other notice to the Company
or the Bank shall affect the rights or obligations with respect to the
transfer of a Note or be effective to transfer any Note. All payments to the
person in whose name any Note shall be registered shall be valid and effectual
to satisfy and discharge the liability upon such Note to the extent of the sum
or sums to be paid.
<PAGE>
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Section 5.4 Transfer Agent. The Bank shall send executed,
authenticated Notes to Purchasers on Closing Dates as required and to
subsequent owners and transferees who are entitled to receive Notes pursuant
to the terms of this Bank Agreement, by first class mail.
Section 5.5 Charges and Expenses. No service charge shall be made for
any transfer or exchange of Notes, but in all cases in which Notes shall be
transferred or exchanged hereunder, as a condition to any such transfer or
exchange, the owner of the Note shall, prior to the delivery of any new Note
pursuant to such transfer or exchange, reimburse the Company and the Bank for
their respective actual out-of-pocket expenses incurred in connection
therewith (including, but not limited to, any tax, fee or other governmental
charge required to be paid with respect to such transfer or exchange, actual
expenses for stationery, postage, telephone, telex, wire transfers, telecopy
and retention of records, and reasonable fees and expenses of their respective
counsel). The provisions of this Section 5.5 shall survive the termination of
this Bank Agreement.
Section 5.6 Redemption at the Option of the Company.
(a) Whenever the Company shall effect a redemption at the option of
the Company, at any time in its sole and absolute discretion, of part or all
of the Notes, which shall be without premium or penalty, the Company shall
give written notice thereof to the Bank at least forty (40) days prior to the
date set forth for redemption, the manner in which redemption shall be
effected and all the relevant details thereof. The Bank shall give written
notice to the Purchasers of that redemption at least thirty (30) days prior to
the date set forth for redemption in the form included herewith as Exhibit A.
The Bank shall register the cancellation of the whole or a portion of the
unredeemed Notes, as appropriate. In any event, new Notes will not be issued
to reflect the non redeemed portion of the Notes. No interest shall be payable
on the redeemed portion of a Note from and after the date of redemption.
(b) The Bank hereby acknowledges that the Company may effect a
redemption at the option of the Company, at any time in its sole and absolute
discretion, of part or all of the Notes without premium or penalty.
Section 5.7 Mandatory Redemption. The Company shall be obligated to
redeem 100% of the Notes due April 15, 2001. When the Company shall effect the
mandatory redemption, the Company shall give written notice thereof to the
Bank at least forty (40) days prior to the date set forth for redemption, the
manner in which redemption shall be effected and all relevant details thereof.
The Bank shall give written notice to the Purchasers of that redemption at
least thirty (30) days prior to the date set forth for redemption in the form
included herewith as Exhibit B. The Bank shall register the cancellation of
the whole of the redeemed Notes.
<PAGE>
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Section 6. Paying Agent.
Section 6.1 Appointment. The Company hereby appoints and designates
the Bank as Paying Agent for the purposes set forth in this Section 6, and the
Bank hereby accepts such appointment.
Section 6.2 Payment Provisions.
(a) The Bank shall pay interest on Subscription Payments and
principal of and interest on the Notes to the persons in whose names the Notes
are registered, subject to the limitations contained in Section 5.6(a),
Section 5.7 and in accordance with the terms and provisions of this Bank
Agreement and the Notes, by check mailed by first class mail to the registered
owner of a Note at his address as it appears in the register; provided that
not later than 11:30 a.m. (New York time) on the Interest Payment Date or date
on which principal of any Note is due and payable, the Company shall provide
the Bank with sufficient funds to make those payments.
(b) Each Purchaser shall be entitled to receive with respect to that
Purchaser's Notes, interest from the Closing Date through April 15, 2001.
Section 6.3 Expenses. The Company shall reimburse the Bank for its
actual out-of-pocket expenses incurred in connection with its obligations
pursuant to this Section 6 (including, but not limited to, actual expenses for
stationery, postage, telephone, telex, wire transfers, telecopy and retention
of records), payable within ten (10) days after the Bank gives notice to the
Company that it has incurred such expenses. The obligation to pay such
compensation and reimburse such expenses shall be borne solely by the Company.
Notwithstanding anything herein to the contrary, the Bank shall not charge the
Company any fees for the issuance of checks or wire transfers to make payments
of interest on or repayments of principal of the Notes. The provisions of this
Section 6.3 shall survive the termination of this Bank Agreement.
Section 7. Rights and Duties of Bank.
Section 7.1 Duties of the Bank.
(a) Upon the occurrence and continuation of an Event of Default, the
Bank shall declare the entire outstanding aggregate principal balance of all
the Notes plus all accrued interest due and immediately payable.
<PAGE>
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(b) In the event that the Company shall default on its payment
obligations to the Bank under this Bank Agreement, the Bank shall be entitled
to institute action against the Company, jointly or severally, to collect
payment under this Bank Agreement.
Section 7.2 Events of Default.
If any of the following events (an "Event of Default") shall occur
and be continuing for any reason whatsoever (and whether such occurrence shall
be voluntary or involuntary or come about or be effected by operation of law
or otherwise):
(i) the Company defaults in the payment of any part of the
principal of any Note when the same shall become due and payable on
April 15, 2001, and such default shall have continued for more than
30 days: or
(ii) the Company defaults in the payment of any part of the
interest on any Note when the same shall become due and payable, and
such default shall have continued for more than 15 days;
then, the Bank, upon instruction by the owners of at least 50% of the
principal amount of the Notes, by notice to the Company, or the owners of at
least 75% of the principal amount of the Notes, by notice to the Company and
to the Bank, may declare the entire principal of and accrued interest on all
Notes to become immediately due and payable at par without presentment,
demand, protest or other notice of any kind, all of which are waived by the
Company.
Section 7.3 Fees and Expenses. In addition to the administration fee
set forth in Section 1.7 hereof, the Bank shall be entitled to compensation
for its services under this Section 7 in the amount of $2,500 as an acceptance
fee, payable upon execution and delivery of this Bank Agreement; and
administrative fees, payable annually on the anniversary date of this Bank
Agreement, based upon the aggregate principal amount of outstanding Notes ten
days prior to the anniversary date, in the following amounts:
$ 500,000 to $ 1,000,000 outstanding ....$2,500.00
$ 1,000,001 to $ 2,000,000 outstanding ....$3,000.00
$ 2,000,001 to $ 3,000,000 outstanding ....$4,000.00
$ 3,000,001 to $ 4,000,000 outstanding ....$5,000.00
$ 4,000,001 to $ 5,000.000 outstanding ....$6,000.00
$ 5,000,001 to $ 6,000,000 outstanding ....$7,000.00
The Company shall reimburse the Bank for its actual out-of-pocket expenses
incurred in connection with its obligations pursuant to this Section 7
(including, but not limited to actual
<PAGE>
-11-
expenses for stationery, postage, telephone, telex, wire transfers, telecopy,
retention of records, and the filing of Financing Statements, and reasonable
fees and expenses of counsel), payable within ten (10) days after the Bank
gives notice to the Company that it incurred such expenses. The obligation to
pay such compensation and reimburse such expenses shall be borne solely by the
Company. The provisions of this Section 7.3 shall survive the termination of
this Bank Agreement.
Section 7.4 Other Rights and Duties of Bank.
(a) The Bank need exercise only those rights and need perform only
those duties that are contemplated or specifically set forth in this Bank
Agreement and no others.
(b) Notwithstanding anything herein to the contrary, the Bank may not
be relieved from liability for its own grossly negligent action, its own
grossly negligent failure to act, or its own willful misconduct except that
(i) This paragraph does not limit the effect of paragraph
(a) of this Section.
(ii) The Bank shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a notice
received by it pursuant to the subscription agreements executed by
the Purchasers in connection with the purchase of the Notes.
(c) The Bank may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Bank need not
investigate any fact or matter stated in the document.
(d) Before the Bank acts or refrains from acting, it may require an
officer's certificate or an opinion of counsel. The Bank shall not be liable
for any action it takes or omits to take in good faith in reliance on the
certificate or opinion.
(e) The Bank may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
Section 8. No Representations. The Bank makes no representation as
to the validity or adequacy of this Bank Agreement or the Notes delivered to
it by the Company; it shall not be accountable for the Company's use of the
proceeds from the Notes and it shall not be responsible for any statement in
the Memorandum or in the Notes other than its authentication.
<PAGE>
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Section 9. Indemnification. The Company shall indemnify, defend and
hold the Bank harmless from and against any and all loss, damage, liability,
claim and expense, including taxes (other than taxes based on the income of
the Bank) incurred by the Bank arising out of or in connection with its
acceptance or performance of its obligations under this Bank Agreement,
including the legal costs and expenses of defending itself against any claim
or liability in connection with its performance under this Bank Agreement. The
Bank shall notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Bank shall cooperate in
the defense. The Bank may have separate counsel and shall pay the fees and
expenses of such counsel. The Company need not reimburse any expense or
indemnify against any loss or liability incurred by the Bank through gross
negligence or bad faith. The provisions of this Section 9 shall survive the
termination of this Bank Agreement.
Section 10. Replacement of Bank.
(a) A resignation or removal of the Bank and appointment of a
successor bank shall become effective only upon the successor bank's
acceptance of appointment as provided in this Section 10.
(b) The Bank may resign by so notifying the Company. The Company may
remove the Bank if:
(i) the Bank is adjudged a bankrupt or an insolvent;
(ii) a receiver or public officer takes charge of the Bank
or its property; or
(iii) the Bank becomes incapable of acting.
(C) (i) If the Bank resigns or is removed, the Company shall
promptly appoint a successor bank.
(ii) A successor bank shall deliver a written acceptance of
its appointment to the retiring Bank and the Company. Thereupon the
resignation or removal of the retiring Bank shall become effective
and the successor bank shall have all the rights, powers and duties
of the Bank under this Bank Agreement. The successor bank shall mail
a notice of its succession to Note owners. Upon payment to the
retiring Bank of all amounts owed to it under this Bank Agreement,
the retiring Bank shall promptly transfer all property held by it
under the terms of this Bank Agreement.
<PAGE>
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(d) If the Bank consolidates, merges or converts into, or transfers
al1 or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor bank.
Section 11. Notices. All notices and other communications pursuant to
this Bank Agreement shall be in writing, subject to the terms of Section 1.6
hereof, and shall be delivered by hand or sent by registered, certified,
return receipt requested, or first class mail, or by facsimile, confirmed by
writing, delivered by hand or sent by registered, certified, return receipt
requested, or first class mail delivered or sent on the date of the facsimile,
addressed as follows:
(a) If to the Company:
Grand Court Lifestyles, Inc.
One Executive Drive
Fort Lee, New Jersey 07024
Facsimile Number: (201) 947-6663
Attention: Keith Marlowe, Esq.
With a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Facsimile Number: (212) 603-2298
Attention: Michele R. Jawin, Esq.
(b) If to Note owners:
At the addresses of the registered
owners appearing in the register
maintained by the Bank.
(c) If to Bank:
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile Number: (212) 815-5999
or at such other address as a party shall have last furnished to the other
parties hereto in writing. Any notice provided for herein shall be deemed to
have been given on the date of the receipt of
<PAGE>
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the notice by hand delivery or of the facsimile or the third Business Day
after the date of mailing, certified mail, return receipt requested.
Section 12. Choice of Law. This Bank Agreement shall be governed by
the laws of the State of New York, without giving effect to the principles of
conflicts of law thereof.
Section 13. Prior Agreements; Amendment. This Bank Agreement sets
forth the entire agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements, contract, promises,
representations, warranties, statements, arrangements and understandings, if
any, among the parties hereto or their representatives with respect to the
subject matter hereof. No waiver, modification or amendment of any provision,
term or condition hereto shall be valid unless in writing and signed by all
parties hereto and any such waiver, modification or amendment shall be valid
only to the extent therein set forth.
Section 14. Successors. This Bank Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
Section 15. Enforceability. Any provision of this Bank Agreement
which may by determined by competent authority to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 16. Counterparts. This Bank Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
Section 17. Use of The Bank of New York Name.
(a) No printed or other material in any language, including
prospectuses, notices, reports, and promotional materials which mentions the
Bank by name or the rights, powers, or duties of the Bank under this Bank
Agreement shall be issued by any of the other parties hereto, or on such
party's behalf, without the prior written consent of the Bank.
(b) Notwithstanding the above, the Bank hereby consents to the use of
its name and its rights, powers and duties under this Bank Agreement in the
Memorandum and any notices and reports required under applicable Federal and
state securities laws in connection therewith. In addition, the Bank hereby
consents to the use of its name and its rights, powers, and duties under this
Bank Agreement in the promotional material included herewith as Exhibit C.
<PAGE>
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[INTENTIONALLY LEFT BLANK]
<PAGE>
-15-
Section 18. Definitions. All terms used in this Bank Agreement and
not otherwise defined herein shall have the meanings ascribed to them in the
Memorandum.
IN WITNESS WHEREOF, the parties hereto have executed this Bank
Agreement as of the date first above written.
GRAND COURT LIFESTYLES, INC. THE BANK OF NEW YORK
By: /s/ Bernard M. Rodin By: /s/ Mark G. Walsh
--------------------------------- -------------------------------
Name: Bernard M. Rodin Name: Mark G. Walsh
--------------------------- ------------------------
Title: President Title: Assistant Vice President
--------------------------- ------------------------
<PAGE>
EXHIBIT A
TO BANK AGREEMENT
[FORM OF NOTICE]
Notice, of Voluntary Redemption
of
Grand Court Lifestyles, Inc.
Retirement, Financing Notes-VI
To holders of Grand Court Lifestyles, Inc. (the "Company") 13.125%
Retirement Financing Notes-VI due April 15, 2001 (the "Notes"):
Notice is hereby given by The Bank of New York (the "Bank"), as
paying agent for the Notes, that, pursuant to the voluntary redemption
provision of Section 5.6 of the Bank Agreement between the Company and the
Bank, dated __________, 1997, the Company has elected to redeem and pay off
on____________ (the "Redemption Date") [all] [a portion of] the above mentioned
Notes then outstanding, in accordance with the terms of the Notes, and that
[all] [a portion of] the Notes are called for redemption on the Redemption Date.
The redemption price on the Redemption Date shall be $_____________.
Interest on the Notes so redeemed shall cease from and after the Redemption
Date.
Dated: [month] [day], [year]
The Bank of New York
<PAGE>
EXHIBIT B
TO BANK AGREEMENT
[FORM OF NOTICE]
Notice of Mandatory Redemption
of
Grand Court Lifestyles, Inc.
Retirement Financing Notes-VI
To holders of Grand Court, Lifestyles, Inc. (the "Company") 13.125%
Retirement Financing Notes-VI due April 15, 2001 (the "Notes"):
Notice is hereby given by The Bank of New York (the "Bank"), as
paying agent for the Notes, that, pursuant to the mandatory redemption
provision of Section 5.7 of the Bank Agreement between the Company and the
Bank, dated______________________, 1997, the Company will redeem and pay off on
April 15, 2001 (the "Redemption Date") 100% of the above mentioned Notes, in
accordance with the terms of the Notes, and that 100% of the Notes are called
for redemption on the Redemption Date.
Interest on the Notes so redeemed shall cease from and after the
Redemption Date.
Dated: [month] [day], [year]
The Bank of New York
<PAGE>
EXHIBIT C
TO BANK AGREEMENT
GRAND COURT LIFESTYLES, INC.
RETIREMENT FINANCING NOTES - VI SUMMARY
OFFERING $6,000,000
13.125% NOTES DUE APRIL 15, 2001
INVESTMENT OBJECTIVE
13.125% Paid Monthly on the 15th of each month backed by the full faith and
credit of Grand Court Lifestyles, Inc.
RETURN OF PRINCIPAL
100% on April 15, 2001
THE INVESTMENTS
Denominations of $100,000 or any multiple or fraction thereof at the
discretion of the Company. All investors must be accredited investors.
PAYING AGENT & CUSTODIAN
The Bank of New York is authenticating agent, registrar, transfer
agent and paying agent of the Notes. The Bank of New York does not guarantee
or otherwise provide credit support for the Notes.
TAX IMPLICATIONS
All income is considered portfolio income; can be used for employee
benefit plans, IRAs and Keoghs.
<PAGE>
-2-
GRAND COURT LIFESTYLES, INC.
RETIREMENT FINANCING NOTES - VI SUMMARY
28 Continuous Years of Successful Operation
Developed Partnerships Which Own and/or Operate Over 20,000 Apartments
Average Occupancy Rate of Over 90%
A Certified Net Worth in Excess of $30 Million
RISKS
INVESTORS SHOULD BE AWARE OF RISK FACTORS WHICH MAY AFFECT THE COMPANY'S
ABILITY TO SERVICE THE DEBT ON THE NOTES. THE NOTES WILL BE UNSECURED
OBLIGATIONS OF GRAND COURT LIFESTYLES, INC. THE NOTES ARE EFFECTIVELY
SUBORDINATED TO CERTAIN SECURED INDEBTEDNESS OF THE COMPANY. MARKET CONDITIONS
MAY REDUCE THE COMPANY'S CASH FLOW, THEREBY ADVERSELY AFFECTING GRAND COURT
LIFESTYLES, INC.'S ABILITY TO MAKE INTEREST AND PRINCIPAL PAYMENTS.
RISKS AFFECTING AN INVESTMENT IN THE NOTES ARE MORE FULLY DESCRIBED IN THE
"RISK FACTORS" SECTION OF THE PRIVATE PLACEMENT MEMORANDUM.
The offering will be made in compliance with relevant state securities
laws and Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended. Interested
persons should be informed that there are significant risks in this
transaction and that they should review the private placement
memorandum prior to making a decision to invest. This material is for
use by broker-dealers, attorneys, accountants, investment counsel and
qualified prospective investors. This material may not be reproduced or
recirculated. THIS SUMMARY DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY A SECURITY, WHICH MAY BE MADE ONLY BY
DELIVERY OF THE PRIVATE PLACEMENT MEMORANDUM.
GRAND COURT LIFESTYLES, INC.
ONE EXECUTIVE DRIVE
FORT LEE, NEW JERSEY 07024
(201) 947-7322 or (212) 472-1920
<PAGE>
[EXHIBIT 21]
LIST OF SUBSIDIARIES
FOR
GRAND COURT LIFESTYLES, INC.
1. FL Executive Financing Corp., a Delaware Corporation
2. Grand Court Development Corp., a Delaware Corporation
3. Grand Court Facilities, Inc., a Delaware Corporation
4. Grand Court Facilities, Inc., II, a Delaware Corporation
5. Grand Court Facilities, Inc., III, a Delaware Corporation
6. Grand Court Facilities, Inc., IV, a Delaware Corporation
7. Grand Court Facilities, Inc., V, a Delaware Corporation
8. Grand Court Facilities, Inc., VI, a Delaware Corporation
9. Grand Court Facilities, Inc., VII, a Delaware Corporation
10. Grand Court Facilities, Inc., VIII, a Delaware Corporation
11. Grand Court Facilities, Inc., IX, a Delaware Corporation
12. Grand Court Facilities, Inc., X, a Delaware Corporation
13. Grand Court Facilities, Inc., XI, a Delaware Corporation
14. Grand Court Facilities, Inc., XII, a Delaware Corporation
15. Grand Court Facilities, Inc., XIII, a Delaware Corporation
16. Grand Court Facilities, Inc., XIV, a Delaware Corporation
17. Grand Court Facilities, Inc., XV, a Delaware Corporation
18. Grand Court Facilities, Inc., XVI, a Delaware Corporation
19. Grand Court Facilities, Inc., XVII, a Delaware Corporation
<PAGE>
20. Grand Court Facilities, Inc., XVIII, a Delaware Corporation
21. Grand Court Facilities, Inc., XIX, a Delaware Corporation
22. Grand Court Facilities, Inc., XX, a Delaware Corporation
23. Grand Court Lifestyles Payroll Corp., a Delaware Corporation
24. J&B Financing, LLC, a Delaware Limited Liability Company
25. Leisure Centers, LLC-I, a Texas Limited Liability Company
26. Leisure Centers, LLC-II, a Texas Limited Liability Company
27 Leisure Centers, LLC-III, a Texas Limited Liability Company
28. Leisure Centers, LLC-IV, a Texas Limited Liability Company
29. Leisure Facilities, Inc., a Delaware Corporation
30. Leisure Facilities, Inc., II, a Delaware Corporation
31 .Leisure Facilities, Inc., III, a Delaware Corporation
32. Leisure Facilities, Inc., IV, a Delaware Corporation
33. Leisure Facilities, Inc., V, a Delaware Corporation
34. Leisure Facilities, Inc., VI, a Delaware Corporation
35. Leisure Facilities, Inc., VII, a Delaware Corporation
36. Leisure Facilities, Inc., IX, a Delaware Corporation, doing business in
Texas under the Fictitious name of Liberty Place, Inc.
37. Leisure Facilities, Inc., X, a Delaware Corporation
38. Leisure Facilities, Inc., XII, a Delaware Corporation
39. Leisure Facilities, Inc., XV, a Delaware Corporation
40. T Lakes L.C., a Florida Limited Liability Company
41. Grand Court - Overland Park Associates, a Kansas General Partnership
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 2 to the Registration
Statement (No. 333-05955) and this Registration Statement of Grand Court
Lifestyles, Inc., each on Form S-1, of our report dated April 28, 1997,
appearing in the Prospectus, which is part of this Post-Effective Amendment No.
2 to the Registration Statement and this Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
December 23, 1997
