FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission file number: 0-21249
GRAND COURT LIFESTYLES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3423087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2650 North Military Trail, Suite 350, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (561) 997-0323
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____.
At June 7, 1999, the Company had 17,684,000 shares of Common Stock,
$.01 par value, outstanding.
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GRAND COURT LIFESTYLES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED APRIL 30, 1999
PAGE
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements and Supplementary Data.................... 2
Consolidated Balance Sheets as of January 31, 1999 and April 30, 1999
Consolidated Statements of Operations for the three months
ended April 30, 1998 and 1999 Consolidated Statements of Cash
Flows for the three months ended April 30, 1998 and 1999
Notes to Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 10
Item 3: Quantitative and Qualitative Disclosures about Market Risk...... 25
PART II - OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds............. 26
Item 6: Exhibits and Reports on Form 8-K...................... 26
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except per share data)
- --------------------------------------------------------------------------------
April 30,
January 31, (Unaudited)
-------------- ---------
1999 1999
-------------- ----------
ASSETS
Cash and cash equivalents......................... $ 22,784 $ 19,125
Notes and receivables - net....................... 227,104 232,677
Investments in partnerships....................... 4,945 8,038
Construction in progress.......................... 11,617 9,184
Property, buildings and equipment - net........... 35,294 25,090
Other assets - net................................ 17,570 20,134
---------- ----------
Total assets...................................... $319,314 $314,248
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Loans and accrued interest payable................ $169,781 $170,854
Construction and mortgage loans payable........... 35,286 25,870
Notes and commissions payable..................... 4,158 4,397
Other liabilities................................. 5,767 7,667
Deferred income................................... 68,596 68,264
--------- ----------
Total liabilities................................. 283,588 277,052
--------- ----------
Commitments and contingencies.....................
Stockholders' equity..............................
Preferred Stock, $.001 par value - authorized,
15,000 shares; none issued and outstanding........ -- --
Common Stock, $.01 par value - shares authorized
40,000 ; shares issued 17,800 .................... 178 178
Paid-in capital................................... 73,451 73,451
Treasury Stock - 20 shares at cost -- (138)
Accumulated deficit............................... (37,903) (36,295)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY........................ 35,726 37,196
---------- ----------
Total liabilities and stockholders' equity........ $319,314 $314,248
========== ==========
See Notes to Consolidated Financial Statements.
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GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share data)
- --------------------------------------------------------------------------------
Three months ended
April 30,
(unaudited)
------------------------------
1998 1999
--------------- -------------
Revenues:
Sales.................................... $10,480 $18,215
Syndication fee income................... 2,175 1,854
Deferred income earned................... 208 155
Interest income.......................... 3,889 2,826
Property management fees from related
parties.................................. 988 1,083
Equity in earnings from partnerships..... 158 171
Senior living revenues.................. 418 2,562
Other income 685 --
-------- --------
19,001 26,866
-------- --------
Cost and Expenses:
Cost of sales............................ 8,366 10,144
Selling.................................. 2,110 1,556
Interest................................. 5,470 5,711
General and administrative............... 2,524 2,991
Senior living operating expenses......... 946 2,943
Officers' compensation................... 300 300
Depreciation and amortization............ 1,087 1,613
-------- --------
20,803 25,258
-------- --------
Net (loss) income........................... (1,802) 1,608
======== ========
(Loss) income per common share (basic and
diluted).................................... (.11) .09
======== ========
Weighted average common shares.............. $16,384 $17,796
======== ========
See Notes to Consolidated Financial Statements.
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GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
- --------------------------------------------------------------------------------
Three months ended April 30,
(unaudited)
----------------------------
1998 1999
------------- -------------
Cash flows used from operating activities:
Net (loss) income.................................. $ (1,802) $ 1,608
--------- --------
Adjustments to reconcile net (loss) income to
net cash used by
operating activities:
Depreciation and amortization................... 1,087 1,613
Deferred income earned.......................... (208) (155)
Changes in operating assets and liabilities:
Accrued interest on notes and receivables ...... 7,587 9,900
Notes and receivables........................... (24,496) (15,472)
Commissions payable............................. 1,637 333
Other liabilities............................... 11,440 1,900
Deferred income................................. (240) (177)
--------- -------
(3,193) (2,058)
--------- -------
Net cash used by operating activities......... (4,995) (450)
--------- -------
Cash flows used from investing activities:
Increase in investments............................ (339) (318)
Cost of investment sold .......................... -- 2,429
Building, furniture and equipment.................. (2,798) (496)
Construction in progress........................... (1,259) (4,052)
-------- -------
Net cash used by investing activities........... (4,396) (2,437)
-------- -------
Cash flows provided (used) by financing
activities:
Payments on loans payable.......................... (5,351) (23,719)
Proceeds from loans payable ....................... 10,779 24,792
Proceeds from construction loan payable............ 2,469 2,320
(Increase) in other assets......................... (168) (3,933)
Payments of notes payable.......................... (205) (94)
Purchase for treasury stock....................... -- (138)
Net proceeds from initial public offering ......... 22,414 --
-------- --------
Net cash provided (used) by financing
activities......................................... 29,938 (772)
-------- --------
(Decrease) increase in cash and cash equivalents...... 20,547 (3,659)
Cash and cash equivalents, beginning of period........ 11,964 22,784
-------- --------
Cash and cash equivalents, end of period.............. 32,511 19,125
======== ========
Supplemental information:
Interest paid......................................... $ 5,266 $ 6,132
======== ========
See Notes to Consolidated Financial Statements.
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GRAND COURT LIFESTYLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 30, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying consolidated financial statements of Grand Court
Lifestyles, Inc. and its wholly-owned subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The consolidated financial statements as of and for the periods
ended April 30, 1998 and 1999 are unaudited. The results of operations for the
interim periods are not necessarily indicative of the results of operations for
the fiscal year. Certain amounts in the prior period have been reclassified to
conform with current year presentation. These consolidated financial statements
should be read in connection with the financial statements and notes included
thereto in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1999. The Company has no items of comprehensive income.
Unless the context otherwise requires, (i) all references herein to a
"Fiscal" year refer to the fiscal year beginning on February 1 of that year (for
example, "Fiscal 1998" refers to the fiscal year beginning on February 1, 1998)
and (ii) all references to the Company, include the Company, its subsidiaries
and its predecessors taken as a whole.
1. NEWLY DEVELOPED COMMUNITIES
The Company completed construction of seven senior living communities
(each a "Development Community"), all of which are in their initial
lease-up phase. Four of these Development Communities were developed as
part of its development financing arrangement with Capstone Capital
Corporation ("Capstone") and are leased to and operated by the Company.
These four communities contain a total of 552 apartment units offering
both independent and assisted living services. The three remaining
completed Development Communities contain a total of 410 apartment
units offering both independent and assisted living services.
In April 1999, the Company entered into joint venture arrangements
regarding three completed and one substantially completed
Development Communities, two of such joint venture arrangements being
effective as of April 1, 1999 and the other two being effective as of
May 1, 1999. Pursuant to each joint venture arrangement, the Company
sold a 50% interest in the Development Communities to a third party.
The Company realized a profit from each of the sales and earns
management fees for managing each of the communities. The third party
has the right to terminate the Company's management upon thirty days
written notice. The third party receives a cumulative priority return
on its investment from all cash flow generated by the community and any
excess cash flow is shared 50% by the Company and 50% by the third
party. For future periods, the Company will no longer consolidate into
its consolidated financial statements the Development Communities that
are subject to joint venture arrangements but will recognize its
investment in these Development Communities under the equity basis of
accounting.
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In addition, the Company has commenced construction on three additional
Development Communities and has substantially completed construction on
a fourth senior living community, which substantially completed
community was the subject of the above-mentioned joint venture
arrangements.
2. CAPITALIZATION
In March 1998, in an initial public offering of its common stock, the
Company sold 2,800 shares of its common stock at a price of $9.50 per
share. The net proceeds, after deducting for all offering expenses,
that the Company received as a result of this offering was $22,300. The
Company intends to use approximately $19,300 of the net proceeds to
finance the development of new senior living communities and the
remaining $3,000 for working capital. As of April 30, 1999, $10,200 has
been used to finance the development of new senior living communities
and $1,600 has been used for working capital. The Company purchased a
series of treasury bills with the remaining net proceeds pending
application of such funds to the intended uses.
In March 1999, the Board of Directors authorized the Company to
purchase up to 300 shares of the Company's common stock at prevailing
rates. As of April 30, 1999, the Company purchased 20 of such shares.
3. COMMITMENTS AND CONTINGENCIES
The Company rents office space under a lease expiring February 2000.
Annual rent under such lease is approximately $206. The Company entered
into a ten year lease for additional office space, commencing September
1, 1991. The annual rent is approximately $330.
The Company's revenues have been, and are expected to continue to be,
primarily derived from the sales of partnership interests
("Syndications") of partnerships it organizes to acquire existing
senior living communities (each, an "Owning Partnership"). In a typical
Syndication, the Company identifies a senior living community suitable
for acquisition and forms an Owning Partnership (in which it is the
managing general partner and initially owns all of the partnership
interests) to acquire the property. Another partnership (the "Investing
Partnership") is also formed (in which the Company is also the general
partner with a 1% interest) to purchase from the Company a 99%
partnership interest in the Owning Partnership (the "Purchased
Interest"), leaving the Company with a 1% interest in the Owning
Partnership and a 1% interest in the Investing Partnership. The
purchase price for the Purchased Interest is paid in part in cash and
in part by a note from the Investing Partnership with a term of
approximately five years ( a "Purchase Note"). Limited partners
purchase partnership interests in the Investing Partnership by agreeing
to make capital contributions over approximately five years to the
Investing Partnership, which allows the Investing Partnership to pay
the purchase price for the Purchased Interest, including the Purchase
Note. The limited partnership agreement of the Investing Partnership
provides that the limited partners are entitled to receive, for a
period not to exceed five years, distributions equal to between 11% and
12% per annum of their then paid-in scheduled capital contributions.
Although the Company incurs certain costs in connection with acquiring
a community and arranging for the Syndication of partnership interests,
the Company makes a profit on the sale of the Purchased Interest. In
addition, as part of the purchase price for the Purchased Interest paid
by the Investing Partnership, the Company receives a 40% interest in
sale and refinancing proceeds after certain priority payments to the
limited partners. The Company also enters into a management contract
with the Owning Partnership pursuant to which the Company agrees to
manage the senior living community. As part of the management fee
arrangements, the management contract requires the Company, for a
period not to exceed five years, to pay to the Owning Partnership (to
the extent that cash flows generated by the property are insufficient)
amounts sufficient to fund (i) any operating cash deficiencies of such
Owning Partnership and (ii) any part of such 11% to 12% 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"). The
Company, therefore, has no direct obligation to pay specified returns
to limited partners. Rather, the Company is obligated pursuant to the
management contract to pay to the Owning Partnership amounts sufficient
to make the specified returns to the limited partners, to the extent
the cash flows generated by the property are
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insufficient to do so. The Owning Partnership then distributes these
amounts to the Investing Partnership which, in turn, distributes these
amounts to the limited partners. As a result of the Management Contract
Obligations, the Company and its stockholders bear the risks of
operations and financial viability of the related property for such
five-year period. The management contract, however, rewards the Company
for successful management of the property by allowing the Company to
retain any cash flow generated by the property in excess of the amount
needed to satisfy the Management Contract Obligations as an incentive
management fee. After the initial five-year period, the limited
partners are entitled to the same specified rate of return, but only to
the extent there is sufficient cash flow from the property, and any
amounts of cash flow available after payment of the specified return to
limited partners are shared as follows: 40% to the Company as an
incentive management fee and 60% for distribution to the limited
partners. The management contract is not terminable during this initial
five-year period and is terminable thereafter by either party upon
thirty to sixty days notice. The Company has arranged for the
acquisition of the Syndicated senior living communities that it manages
by utilizing mortgage financing and by arranging for Syndications of
Investing Partnerships formed to acquire interests in the Owning
Partnerships that own the senior living communities. The Syndicated
senior living communities managed by the Company are owned by the
respective Owning Partnerships and not by the Company. The Company is
the managing general partner of all but one of the Owning Partnerships
and manages all of the senior living communities in its portfolio. The
Company is the general partner of most of the senior living Investing
Partnerships. The mortgage financing of the Syndicated Communities and
Syndicated Multi-Family 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, or a wholly-owned entity formed solely to be the general
partner, 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. Although
most of the mortgage loans are non-recourse, (i) the Company is liable
as a general partner for approximately $12,738 in principal amount of
mortgage debt relating to six Syndicated Communities and (ii)
wholly-owned entities (whose only asset is a specific general partner
interest) are liable as general partners for approximately $39,063 in
principal amount of mortgage debt relating to eight Syndicated
Communities managed by the Company as of April 30, 1999. In the case of
the general partner liabilities of the wholly-owned entities (whose
only asset is a specific general partner interest), the only assets of
the Company at risk of loss are the interests in the wholly-owned
entities.
In addition, five of the Syndications have involved the construction
of additional apartment units and common space at the existing senior
living communities. The Owning Partnerships hire independent third
party contractors to do the construction pursuant to guaranteed maximum
price contracts. The new construction generates additional risks, such
as increased costs due to change orders, which the Company believes are
not material.
As part of the Company's development program, on September 18, 1996 the
Company entered into a master development agreement with Capstone
pursuant to which Capstone funded 100% of the development cost of four
Development Communities. The Capstone arrangement provides that the
Company will operate these four Development Communities pursuant to
long-term operating leases with Capstone, which leases were entered
into upon the completion of construction and the satisfaction of
certain other conditions. The initial term of each lease is 15 years
with five-year extension options. The cumulative annual rent which the
Company is obligated to pay to Capstone for the four Development
Communities placed in service is $3,792.
The Company has guaranteed the mortgages on the Development Communities
subject to joint venture arrangements and such guarantees remain in
effect.
The Company is involved in legal proceedings which have arisen in the
ordinary course of business.
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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.
4. NEW ACCOUNTING PRONOUNCEMENTS
In June of 1998, the Financial Accounting Standards Board ("FASB")
issued Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement established accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company's use of derivative
instruments has consisted of a treasury bill lock related to two
specific debt financings. While the Company has not completed its
analysis of Statement No. 133 and has not made a decision regarding the
timing of adoption, it does not believe that adoption will have a
material effect on its financial position and results of operations
based on its current use of derivative instruments.
5. SEGMENT REPORTING
The Company views its business in the following three segments:
1. Syndication - Revenues are comprised of sales, syndication fee
income, property management fees, interest income, deferred
income earned and equity in earnings from partnerships
relating to the Syndicated Communities.
2. Multi-Family - Revenues are comprised of interest income and
recognition of deferred income from Syndicated Multi-Family
properties, which income is being recognized on the
installment method.
3. New Development - Revenues are derived from senior living
rental revenues from the Development Communities and from
sales and management fees from Development Communities subject
to joint venture arrangements.
April 30,
-------------------
1998 1999
---- ----
(unaudited) (unaudited)
Revenues
Syndication (a) $ 13,801 $ 11,323
Multi-family (b) 208 155
New Development 1,103 12,562
--------- ---------
Combined Segments $ 15,112 $ 24,040
========= =========
Interest Income
Syndication $ 1,688 $ 1,366
Multi-family 1,742 1,407
New Development 459 53
--------- ---------
Combined Segments $ 3,889 $ 2,826
========= =========
Operating Profit
(Loss)(c)
Syndication $ 1,616 $ 1,386
Multi-family (3,023) (3,592)
New Development (395) 3,814
--------- ---------
Combined Segments $ (1,802) $ 1,608
========= =========
April 30,
-------------------
1998 1999
---- ----
(unaudited) (unaudited)
Interest Expense
Syndication $1,284 $ 896
Multi-family 3,570 3,817
New Development 616 998
------ -------
Combined Segments $5,470 $ 5,711
====== =======
Depreciation and Amortization
Syndication $ 120 $ 173
Multi-family 804 1,036
New Development 163 404
------ -------
Combined Segments $1,087 $ 1,613
====== =======
Capital
Expenditures
Syndication $ -- $ --
Multi-family -- --
New Development 2,798 11,585
------ -------
Combined Segments $2,798 $11,585
====== =======
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Gross Assets
Syndication $ 41,944 $ 31,886
Multi-family 237,210 231,487
New Development 57,578 50,875
--------- ---------
Combined Segments $ 336,732 $ 314,248
========= =========
(a) Includes non-cash income comprised of equity in earnings from
unconsolidated affiliates.
(b) Includes non-cash income comprised of deferred income earned.
(c) Includes the allocation of certain expenses based upon either gross
revenues or gross assets to the individual segments.
6. SUMMARY INFORMATION
The Company entered into four joint venture arrangements regarding three
completed Development Communities and one substantially completed Development
Community two of such joint venture arrangements were effective on April 1, 1999
and the other two arrangements were effective as of May 1, 1999. Pursuant to
the joint venture arrangements, the Company sold a 50% interest in the
Development Communities. For future periods, the Company will record, and in
the consolidated balance sheet as of April 30, 1999 the Company has recorded,
its retained interest in the joint venture arrangements under the equity method
of accounting. The following sets forth the combined financial information of
the joint ventures as of April 30, 1999.
ASSETS ACTUAL PRO-FORMA(1)
------ ------------
Cash $ 373 $ 1,139
Property, building and equipment-net 10,615 31,264
Construction in progress 7,549 7,549
Other assets 37 90
------- -------
$ 18,574 $ 40,042
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Construction and mortgage loans payable $ 12,681 $ 26,980
Notes payable 34 96
Other liabilities 172 518
Stockholders' equity 5,687 12,448
------- -------
$ 18,574 $ 40,042
======= =======
REVENUES
Senior living revenues $ 451 $ 1,218
------- -------
EXPENSES
Senior living operating expenses 371 1,011
Interest 213 616
Depreciation 55 175
------- -------
639 1,802
------- -------
Net loss $ (188) $ (584)
======= =======
(1) Pro-forma information assumes all four joint venture arrangements were
effective April 30, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Unless the context otherwise requires, (i) all references herein to a
"Fiscal" year refer to the fiscal year beginning on February 1 of that year (for
example, "Fiscal 1998" refers to the fiscal year beginning on February 1, 1998)
and (ii) all references to the Company, include the Company, its subsidiaries
and its predecessors taken as a whole. Capitalized terms used but not defined
herein shall have the same meanings as set forth in the Company's annual report
on Form 10-K for the Fiscal Year ending January 31, 1999.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statements to make
applicable and take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf, of the Company in this Quarterly Report on Form 10-Q.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements which are other than statements of historical facts. Such
forward-looking statements may be identified, without limitation, by the use of
the words "anticipates", "estimates", "expects", "intends", "believes" and
similar expressions. From time to time, the Company or one of its subsidiaries
individually may publish or otherwise make available forward-looking statements
of this nature. All such forward-looking statements, whether written or oral,
and whether made by or on behalf of the Company or its subsidiaries, are
expressly qualified by these cautionary statements and any other cautionary
statements which may accompany the forward-looking statements. In addition, the
Company disclaims any obligation to update any forward-looking statements to
reflect events or circumstances after the date hereof.
Forward-looking statements made by the Company are subject to risks and
uncertainties that could cause actual results or events to differ materially
from those expressed in, or implied by, the forward-looking statements. These
forward-looking statements include, among others, statements concerning the
Company's revenue and cost and expense trends, the number and economic impact of
anticipated acquisitions and new developments, planned capital expenditures and
financing needs and availability. Investors or other users of the
forward-looking statements are cautioned that such statements are not a
guarantee of future performance by the Company and that such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in, or implied by, such
statements. In addition to other factors and matters discussed elsewhere herein,
the following are some, but not all, of the important factors that, in the view
of the Company, could cause actual results to differ materially from those
discussed in the forward looking statements:
1. The ability of the Company to service its substantial debt
obligations.
2. The ability of the Company to pay Management Contract
Obligations from the cash flow generated by the Syndicated
Communities and the impact of the terms of future
Syndications.
3. The need for the Company to utilize cash from operations and
obtain additional financing to pursue its Development Plan.
4. The Company's ability to identify and Syndicate suitable
acquisition opportunities, a significant source of revenues
for the Company.
5. The Company's ability to identify suitable development
opportunities, pursue such opportunities, complete
development, lease-up and effectively operate the Development
Communities.
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6. The ability of the Company to obtain sufficient joint venture
capital for its Development Program on favorable terms,
anticipated to be a significant source of revenues for the
Company.
7. The impact of mortgage defaults and/or foreclosures relating
to Multi-Family Properties (as defined below) on the Company's
ability to collect on its Multi-Family Notes (as defined
below).
8. Governmental regulatory actions and initiatives, including
without limitation, those relating to healthcare laws,
benefitting disabled persons, government mortgage insurance
and subsidy programs, environmental requirements and safety
requirements.
9. The ability to attract seniors with sufficient resources to
pay for the Company's services.
10. Changes in anticipated construction costs, operating expenses
and start-up losses relating to the Company's new Development
Plan.
11. Unanticipated delays in the Company's Development Plan
including, without limitation, permitting, licensing and
construction delays.
12. Changes in general economic conditions, including, but not
limited to, factors particularly affecting real estate and the
capital markets including, but not limited to, changes in
interest rates.
13. Changes in operating costs of senior living communities,
including without limitation, staffing and labor costs.
14. The Company's ability to attract and retain qualified
personnel.
15. Competitive factors affecting the long-term care services
industry.
16. The potential recourse and guarantee obligations of the
Company, including, without limitation, the correction of
hazardous environmental conditions relating to the mortgage
financing of the senior living communities.
17. The potential liabilities arising from the Company's status as
the general partner of Syndicated Communities.
18. The potential impact of recent net losses.
19. The potential impact of computer related Year 2000 problems on
the Company's operations, including the ability of the Company
and material third parties to identify and/or address all
material Year 2000 issues and implement contingency plans.
OVERVIEW
The Company is a fully-integrated provider of senior living
accommodations and services which acquires, develops and manages senior living
communities which provide independent and assisted-living services. The
Company's revenues have been, and are expected to continue to be, primarily
derived from the sales of partnership interests ("Syndications") of partnerships
it organizes to acquire existing senior living communities ("Syndicated
Communities"). The Company has established a new development program (the
"Development Plan") pursuant to which it is building new senior living
communities which offer independent and assisted living services ("Development
Communities"). The Company currently owns the Development Communities pursuant
to joint venture arrangements or operates such communities pursuant to long-term
leases. To the extent that the Company's Development Plan is successfully
implemented, the Company anticipates that the percentage of its revenues derived
from Syndications would decrease and
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the percentage of its revenues derived from the Development Communities would
increase and, the Company believes, over time, become the primary source of the
Company's revenues.
Historically, the Company has arranged for the acquisition and
development of senior living communities and multi-family properties by
utilizing mortgage financing and Syndications. The multi-family properties,
which were Syndicated by the Company prior to 1986, are not owned or managed by
the Company. Such properties are owned by their respective Owning Partnerships
and are managed by third party managing agents. The senior living communities
Syndicated by the Company since 1986 are managed by the Company but are owned by
the respective Owning Partnerships and not by the Company.
Future revenues, if any, of the Company relating to previously
Syndicated Communities would primarily arise in the form of (i) deferred income
earned on the sale of the Purchased Interests in the related Owning
Partnerships, (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, (iv) interest income on purchase notes receivable, and (v)
earnings derived from the Company's equity interests in Owning Partnerships and
Investing Partnerships. Future revenues, if any, of the Company relating to
future Syndicated Communities would primarily arise from any initial profit
recognized upon completion of the Syndication and from the same items listed in
the previous sentence.
The Company intends to continue to arrange for future acquisitions of
existing senior living communities by utilizing mortgage financing and by
arranging Syndications, and anticipates that between six and twelve communities
will be acquired and Syndicated in this manner during the next two years. Future
Syndications will require the allocation of funds generated by the Company to
cover the Company's initial costs relating to the Syndication transactions
(primarily any funds required to acquire the property above the amounts received
from the mortgage financing obtained, the costs of any improvements to the
property deemed necessary and the costs associated with arranging for the sale
of the partnership interests). The Company typically pays these costs from the
proceeds it receives from its sale of the Purchased Interests to the Investing
Partnership. In addition, future Syndications may require the allocation of the
Company's funds to satisfy any associated Management Contract Obligations
(including payment of required returns for distribution to limited partners)
that are not funded from the respective property's operations.
The Company has instituted a Development Plan pursuant to which it has
completed construction of seven Development Communities and substantially
completed an eighth Development Community as of April 30, 1999, and has
commenced construction on three additional communities. During the next two
years of the plan, the Company intends to commence construction on between 24
and 28 additional new Development Communities. The Company plans to own pursuant
to joint venture arrangements or lease pursuant to long-term operating leases or
similar arrangements the Development Communities that are being developed under
the plan. The Company will manage and operate each of the Development
Communities. The Company estimates that the cost of developing each of the new
Development Communities (including reserves necessary to carry the community
through its lease-up period) utilizing mortgage financing will be approximately
$10.5 million and utilizing long-term lease financing will be approximately $11
million. The Company expects to complete the construction of the substantially
complete Development Community by the end of the second quarter of Fiscal 1999
and expects to complete the construction of the remaining three Development
Communities under construction by the end of Fiscal 1999. These four Development
Communities, along with the seven communities already completed pursuant to the
Development Plan, contain an aggregate of 1,488 senior living apartment units.
The 24 to 28 additional new communities which the Company intends to commence
construction on over the next two years will contain between 3,024 and 3,528
additional senior living apartment units. The Company will use a substantial
portion of the proceeds of the Company's initial public offering which occurred
in March, 1998, funds generated by its business operations, mortgage
construction financing, the proceeds of joint venture arrangements for,
anticipated refinancings of construction financing on, and/or sale-leasebacks
of, completed Development Communities, and may complete additional new issuances
of debt or equity securities to finance the development, construction and
initial operating costs of additional Development Communities. Four of the
completed Development Communities are being 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. In
April 1999, the Company entered into joint venture arrangements regarding three
completed and one substantially completed Development Communities, two of such
joint venture arrangements being effective as of April 1, 1999 and the other two
being effective May 1, 1999.
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Pursuant to each joint venture arrangement, the Company sold a 50% interest in a
Development Community to a third party. The Company realized a profit from each
of the sales and earns management fees for managing each of the communities. The
third party has the right to terminate the Company's management upon thirty days
written notice. The third party receives a cumulative priority return on its
investment from all cash flow generated by the community and any excess cash
flow is shared 50% by the Company and 50% by the third party. For future
periods, the Company will no longer consolidate these Development Communities
into its consolidated financial statements but will recognize its investment in
these Development Communities under the equity basis of accounting.
EARNINGS
The Company recorded net income of $1.6 million for the three months ended April
30, 1999, compared to a net loss of $1.8 million for the three months ended
April 30, 1998.
RESULTS OF OPERATION
() Revenues - Overview
Total revenues for the three months ended April 30, 1999 were $26.9
million as compared to $19.0 million for the three months ended April 30, 1998
representing an increase of $7.9 million or 41.6%.
() Syndication Communities
Revenues from this segment are derived from sales of general
partnership interests in Owning Partnerships to Investing Partnerships,
recognition of deferred income with respect to previous sales of general
partnership interests, interest on Purchase Notes received by the Company from
such Investing Partnerships as part of the purchase price paid for such general
partnership interests, property management fees received by the Company and the
Company's share of income and loss of the entities based upon its retained
general partnership interests.
APRIL 30,
-----------------------------------------
1998 1999
---- ----
Sales............................... $10,480 $ 8,215
Syndication fee income.............. 2,175 1,854
Interest income..................... 1,688 1,366
Property management fees from
related parties.................. 988 1,083
Equity in earnings from
partnerships..................... 158 171
------- -------
Total revenues...................... 15,489 12,689
======= =======
Cost of sales....................... 8,366 7,233
Selling............................. 1,801 1,446
Interest expense.................... 1,284 896
General and administrative.......... 2,057 1,413
Officers' compensation.............. 245 142
Depreciation and amortization....... 120 173
------- -------
Total costs and expenses............ 13,873 11,303
------- -------
Net income ......................... $ 1,616 $ 1,386
======= =======
Sales for the three months ended April 30, 1999 were $8.2 million as
compared to $10.5 million for the three months ended April 30, 1998,
representing a decrease of $2.3 million, or 21.9%. The decrease was attributable
to the sale of fewer partnership units in the three months ended April 30, 1999
as compared to the three months ended April 30, 1998.
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The primary factors that affect the number of partnership units
available for sale are ( i) the availability of senior living communities for
Syndication, (ii) the terms of the Syndications and (iii) the initial cash flow
of the senior living communities being Syndicated. More favorable Syndication
terms along with a greater initial cash flow of the Syndicated Communities will
yield a greater number of units available to be sold. Syndication terms become
more favorable for the Company if there is an increase in the ratio of (a) the
purchase price paid to the Company by the Investing Partnership for its interest
in the Operating Partnership, to (b) the initial cash flow of the Syndicated
Community. The Syndications completed in the three months ended April 30, 1999
involved communities with lower initial cash flows , as partially offset by more
favorable Syndication terms, than the Syndications completed in the three months
ended April 30, 1998.
Syndication fee income for the three months ended April 30, 1999 was
$1.9 million as compared to $2.2 million for the three months ended April 30,
1998 representing a decrease of $300,000 or 13.6%. The decrease was attributable
to less commissions and professional fees paid on a lower sales volume in the
three months ended April 30, 1999 as compared to the three months ended April
30, 1998.
Interest income for the three months ended April 30, 1999 was $1.4
million as compared to $1.7 million in the three months ended April 30, 1998,
representing a decrease of $300,000, or 17.6%. The decrease is attributable to
less interest recognized on Senior Living Notes in the three months ended April
30, 1999 as compared to the three months ended April 30, 1998 due to sale of
fewer partnership units during the last twelve months as compared to prior
periods.
Cost of sales (which includes (i) the cash portion of the purchase
price for Syndicated Communities plus related transaction costs and expenses,
(ii) any payments with respect to Management Contract Obligations other than
payments relating to previously established deferred income liabilities and
(iii) any increases in deferred income liabilities established in the relevant
periods) for the three months ended April 30, 1999 was $7.2 million as compared
to $8.4 million for the three months ended April 30, 1998, representing a
decrease of $1.2 million, or 14.3%. The decrease is attributable to a reduction
in the aggregate cash portion of the purchase price plus related transaction
costs and expenses paid for the Syndicated Communities as partially offset by
increased funding of Management Contract Obligations in the three months ended
April 30, 1999 as compared to the three months ended April 30, 1998. Cost of
Sales and selling expenses (as described below) as a percentage of sales and
syndication fee income was 86.2% in the three months ended April 30, 1999 as
compared to 80.3% in the three months ended April 30, 1998. The increase is
attributable to sales and syndication fee income decreasing more than the
decrease in cost of sales and selling expenses.
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 senior 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. Several factors have contributed towards a trend to less favorable terms
for acquisitions of senior living communities, including a recovery in the
market for senior living communities and increased competition from other
prospective purchasers of senior living communities. The Company acquired senior
living communities on less favorable terms in the three months ended April 30,
1999 as compared to the three months ended April 30, 1998 and the Company
believes that the general trend towards less favorable acquisition terms
experienced in the past will continue in the future. In recent years, however,
the Company has been able to obtain mortgage financing for a greater percentage
of the purchase price and with more favorable terms (i.e., lower interest rates
and longer amortization periods) than in previous years. This factor, combined
with an overall reduction of interest rates, has 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 and Syndicating senior living
communities on terms favorable enough to offset the start-up losses of the
Development Communities as well as the Company's debt service obligations,
Management Contract Obligations and overhead expenses.
Selling expenses for the three months ended April 30, 1999 was $1.4
million as compared to $1.8 million for the three months ended April 30, 1998,
representing a decrease of $400,000 or 22.2%. The decrease is attributable to
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lower commissions paid on a lower sales volume for Syndications completed in the
three months ended April 30, 1999 as compared to the three months ended April
30, 1998.
() Multi-Family Properties
Revenues from this segment are comprised of interest income on the
Multi-Family Notes and recognition of deferred income from such Syndications,
which income is being recognized on the installment method.
APRIL 30,
----------------------------------
1998 1999
---- ----
Deferred income earned...................... $ 208 $155
Interest income............................. 1,742 1,407
------- -------
Total Revenues.............................. 1,950 1,562
======= =======
Selling..................................... 309 110
Interest expense............................ 3,570 3,817
General and administrative.................. 259 174
Officers compensation....................... 31 17
Depreciation and amortization............... 804 1,036
------- -------
Total costs and expenses.................... 4,973 5,154
------- -------
Net loss.................................... $(3,023) $(3,592)
======= =======
Interest income in the three months ended April 30, 1999 was $1.4
million as compared to $1.7 million in the three months ended April 30, 1998
representing a decrease of $300,000, or 17.6%. The decrease is primarily
attributable to the decrease in the remaining amount of investor notes, the
payment of which generates interest on the related Multi-Family Purchase Notes
as partially offset by an increase in the cashflow received by the underlying
MultiFamily Properties which also generates interest on the related Multi-Family
Purchase Notes.
15
<PAGE>
() DEVELOPMENT COMMUNITIES
APRIL 30,
--------------
1998 1999
-------- --------
Sales......................................... $ -- $10,000
Senior living revenues........................ 418 2,562
Other income.................................. 685 --
Interest income............................... 459 53
------- -------
Total revenues................................ 1,562 12,615
======= =======
Costs of sales................................ -- 2,911
Senior living operating expenses.............. 946 2,943
Interest expense.............................. 616 998
General and administrative.................... 207 1,404
Officers compensation......................... 25 141
Depreciation and amortization................. 163 404
------- -------
Total costs and expenses...................... 1,957 8,801
------- -------
Net loss...................................... $ (395) $ 3,814
======= =======
In April 1999, the Company entered into joint venture arrangements
regarding three completed and one substantially completed Development
Communities, two of such joint venture arrangements were effective as of April
1, 1999 and the other two arrangements were effective as of May 1, 1999.
Pursuant to each joint venture arrangement, the Company sold a 50% interest in
the Development Communities to a single unrelated third party, resulting in the
Company recognizing sales of $10.0 million for the two Development Communities
where joint venture arrangements were effective as of April 1, 1999. The
Company's cost of such interests was $2.9 million.
The Company realized senior living revenues of $2.6 million in the
three months ended April 30, 1999 as compared to $400,000 in the three months
ended April 30, 1998, representing an increase of $2.2 million or 550%. The
senior living operating expenses were $2.9 million in the three months ended
April 30, 1999 as compared to $900,000 for the three month ended April 30, 1998,
representing an increase of $2.0 million or $222.2%. The increase in senior
living revenues and expenses is attributable to seven Development Communities
being in service during the three months ended April 30, 1999, as opposed to
there being three Development Communities in service in the three months ended
April 30, 1998. The seven Development Communities are in their initial lease-up
period and had an average occupancy of 61% during the three months ended April
30, 1999.
Other income was $685,000 in the three months ended April 30, 1998. The
Company earned developer's fees in connection with the four Development
Communities which are owned by a third party and which the Company operates
pursuant to long-term leases. There was no other income in the three months
ended April 30, 1999.
Expenses-Overview
The following expenses were allocated to each segment for reporting
purposes based upon either gross revenues or gross assets. The Company, however,
does not view these expenses as segment related but rather on a Company wide
basis.
General and administrative expenses for the three months ended April
30, 1999 was $3.0 million as compared to $2.5 million for the three months ended
April 30, 1998, representing an increase of $500,000 or 20%. The increase is
primarily attributable to increases in salary costs and other office costs in
arranging for the acquisition of the Company's portfolio of Syndicated
Communities, in managing the Company's portfolio of Syndicated Communities and
in developing and managing the Company's portfolio of Development Communities
which portfolios, in the aggregate, were larger in the three months ended April
30, 1999 than in the three months ended April 30, 1998.
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<PAGE>
Interest expenses was $5.7 million in the three months ended April 30,
1999 as compared to $5.5 million in the three months ended April 30, 1998,
representing an increase of $200,000 or 3.6%. The increase is primarily
attributable to (i) the increase in principal amount of debt, as offset by a
decrease in the interest rates related to such debt in the three months ended
April 30, 1999 as compared to the three months ended April 30, 1998, and (ii)
interest on construction loans payable on the three completed Development
Communities which the Company now owns pursuant to joint venture arrangements,
which a portion of the construction loan interest was capitalized in the three
months ended April 30, 1998 as these communities were then under construction.
Interest expense includes interest on debentures ("Debenture Debt") which are
secured by Multi-Family Notes (the "Purchase Note Collateral"). During the three
months ended April 30, 1999 and the three months ended April 30, 1998, the
Debenture Debt had an average interest rate of 11.8% and 12.05%, respectively.
Interest expense with respect to such debt for the three months ended April 30,
1999 and the three months ended April 30, 1998 was $2.3 million and $1.9
million, respectively. When the Debenture Debt was structured, cash flow
generated by the Purchase Note Collateral was not expected to fully fund the
amount necessary to pay interest on the Debenture Debt. As expected, for the
three months ended April 30, 1999 and the three months ended April 30, 1998 the
cash flow generated by the Purchase Note Collateral was less than the amount
required to pay interest on the Debenture Debt.
Depreciation and amortization consists of (i) amortization of deferred
loan costs incurred in connection with debt issuances, (ii) amortization of
leasehold costs incurred in connection with four Development Communities which
the Company operates pursuant to long-term leases, and (iii) depreciation of
building, furniture and equipment of Development Communities which the
Company owns directly or pursuant to joint venture arrangements. Depreciation
and amortization was $1.6 million as compared to $1.1 million in the three
months ended April 30,1999 representing an increase of $500,000 or 45.5%.
The increase is attributable to (i) the increase in amortization of
deferred loan costs due to additional debt incurred by the Company, (ii) the
amortization of leasehold costs associated with the four Development Communities
operated by the Company pursuant to long-term leases as compared to only two
Development Communities being so operated in the same period of the prior year,
and (iii) the depreciation of buildings, furniture and equipment associated with
the Development Communities which the Company owns directly or pursuant to
joint venture arrangements.
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. Now that the Company has
completed development of seven Development Communities, the ownership through
joint venture arrangements and/or operation of these communities is an
additional source of cash flow. The Company's principal liquidity requirements
are for payment of operating expenses, costs associated with development of
Development Communities, debt service obligations, and Management Contract
Obligations.
Cash flows used by operating activities for the three months
ended April 30, 1999 were $500,000 and were comprised of (i) net income of $1.6
million plus (ii) adjustments for non-cash items of $1.4 million less (iii) the
net change in operating assets and liabilities of $3.5 million. The adjustments
for non-cash items is comprised of depreciation and amortization of $1.6
million, offset by deferred income earned of $200,000. Cash flows used by
operating activities for the three months ended April 30, 1998 were $5.0
million and were comprised of (i) net loss of $1.8 million plus (ii) adjustments
for non-cash items of $900,000 less (iii) the net change in operating assets and
liabilities of $4.1 million. The adjustments for non-cash items is comprised of
depreciation and amortization of $1.1 million, offset by deferred income earned
of $200,000.
Net cash used by investing activities for the three months ended April
30, 1999 of $2.4 million was comprised of an increase of building, furniture and
equipment of $500,000, an increase in the cost of the Development Communities of
$4.1 million, an increase in investments in general partner interest in senior
living communities of $300,000 less the recovery on cost of investment of $2.5
million. Net cash used by investing activities for the three months ended April
30, 1998 of $4.4 million was comprised of an increase in building, furniture and
equipment of $2.8 million, an increase in the cost of the senior living
communities the Company is constructing of $1.3 million, and an increase in
investments in general partner interests in senior living communities of
$300,000.
17
<PAGE>
Net cash used by financing activities for the three months ended
April 30, 1999 of $800,000 was comprised of (i) proceeds from the issuance of
new debt of $24.8 million less debt repayments of $23.7 million plus (ii)
proceeds from construction mortgage financing of $2.3 million, less (iii)
payments of notes payable of $100,000 less (iv) the increase in other assets of
$3.9 million less (v) the purchase of treasury stock of $200,000. Net cash
provided by financing activities for the three months ended April 30, 1998 of
$29.9 million was comprised of (i) proceeds from the issuance of new debt of
$10.8 million less debt repayments of $5.4 million plus (ii) proceeds from
construction mortgage financings of $2.5 million, less (iii) payments of notes
payable of $200,000 less (iv) the increase in other assets of $200,000 plus (v)
the net proceeds of the initial public offering of $22.4 million.
At January 31, 1999, the Company had total indebtedness, excluding
accrued interest and construction mortgage indebtedness on the Development
Communities, of $168.8 million, consisting of $69.8 million of Debenture Debt,
$72.5 million of Unsecured Debt, $5.0 million of Mortgage Debt and $21.5 million
of Investor Note Debt, and the Company had cash and cash equivalents at January
31, 1999 of $22.8 million. As of April 30, 1999, the Company decreased Investor
Note Debt from $21.5 million to $19.7 million, decreased Unsecured Debt from
$72.5 to $56.7 million and increased Debenture Debt from $69.8 million to $88.6
million. As a result, the total indebtedness increased from $168.8 million to
$170.0 million and the Company had cash and cash equivalents at April 30, 1999
of $19.1 million.
Of the principal amount of total indebtedness at January 31, 1999
described above, $29.4 million becomes due in the fiscal year ending January 31,
2000; $35.3 million becomes due in the fiscal year ending January 31, 2001;
$38.3 million becomes due in the fiscal year ending January 31, 2002; $22.1
million becomes due in the fiscal year ending January 31, 2003; $10.1 million
becomes due in the fiscal year ending January 31, 2004, and the balance of $33.6
million becomes due thereafter. Of the amount maturing in the fiscal year ending
January 31, 2000, $1.9 million is Investor Note Debt of which the Company repaid
$1.5 million through the collection of investor notes and intends to repay the
balance through the collection of investor notes. The balance, approximately
$27.5 million, includes $7.9 million of Debenture Debt and $19.6 million of
Unsecured Debt of which $18.7 has been repaid through the issuance of new
Debenture Debt. The Company expects to repay a portion of the remaining debt
maturing in the current year with funds generated by the Company's business
operations and the balance of the indebtedness through the issuance of new debt.
First mortgage loans were obtained to finance approximately 80% of the
cost of developing seven Development Communities. The interest rate on four of
the loans equals the 30-day LIBOR plus 2 3/4% per annum. The fifth loan bears
interest at the lender's prime rate plus 1.5% per annum. The sixth and seventh
loans bear interest at the lender's prime rate for the first fifteen months and
then converts to LIBOR plus 2 3/4% per annum for the following twenty-four
months. These loans mature between November, 1999 and February, 2001. As of
April 30, 1999, total funding under such first mortgage loans amounted to $38.6
million. In April, 1999, the Company entered into joint venture arrangements
regarding three completed and one substantially completed Development
Communities, two of such joint venture arrangements being effective as of April
1, 1999 and the other two being effective as of May 1, 1999. As a result, the
Company did not reflect the mortgages relating to the Development Communities
whose joint venture arrangements were effective April 1, 1999 on its
consolidated financial statements as of April 30, 1999. At April 30, 1999, the
total mortgages reflected in the Company's consolidated financial statements was
$25.9 million. The Company will not reflect the mortgages on the Development
Communities whose joint venture arrangements have been entered into effective
May 1, 1999 on its consolidated financial statements in future periods. The
Company has guaranteed the mortgages on the Development Communities subject to
joint venture arrangements and such guarantees remain in effect. The Company
intends to pursue similar joint venture arrangements regarding the additional
Development Communities to be developed. The Company intends to increase its
construction loans payable as it pursues its Development Plan.
Pursuant to the Company's Development Plan, two limited partnerships,
in each of which the Company holds a 1% general partnership interest, have
issued limited partnership interests for aggregate capital contributions of $9.3
million, the net proceeds of which have been used to make second mortgage loans
to the Company to fund approximately 20% of the cost of developing three
Development Communities. Such second mortgage loans were entered into in 1996
and bear interest at the rate of 13.125%. These second mortgage loans mature
between November 2001 and March 2002. The Company repaid these second mortgage
loans in May, 1999 from a portion of the proceeds
18
<PAGE>
from three of the four joint venture arrangements which the Company recently
entered into regarding four Development Communities.
The Company's debt obligations contain various covenants and default
provisions, including provisions relating to, in some obligations, certain
Partnerships, Owning Partnerships or affiliates of the Company. At April 30,
1999, the Company had a net worth of $37.2 million. Pursuant to one obligation,
the Company is required to maintain a net worth of no less than $35.3 million.
Certain obligations of the Company contain covenants requiring the Company to
maintain maximum ratios of the Company's liabilities to its net worth. At April
30, 1999, the most restrictive covenant requires that the Company maintain a
ratio of liabilities to consolidated net worth of no more than 10 to 1. At April
30, 1999, the Company's ratio was 7.6 to 1. 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 mortgage financing and Syndications to arrange
for the acquisitions of the Syndicated Communities which it operates. It intends
to continue this practice for future acquisitions of Syndicated Communities. The
limited partnership agreements of the Investing Partnerships provide that the
limited partners are entitled to receive for a period not to exceed five-years
specified distributions equal to 11% to 12% per annum 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 the three months ended April 30, 1999, the
Syndicated Communities with respect to which the Company had such Management
Contract Obligations distributed to the Company, after payment of all operating
expenses and debt service, an aggregate of $2.1 million, for application to the
Company's Management Contract Obligations. During such period, the Company's
Management Contract Obligations exceeded such distributions by an aggregate of
$3.7 million. The $3.7 million of funding that was required in respect to
Management Contract Obligations in the three months ended April 30, 1999 was
primarily attributable to (i) an increase in the scheduled capital contributions
by the limited partners on which the Company is required to pay the specified
rate of return, (ii) a decrease in the average occupancy of certain Syndicated
Communities in the Company's portfolio, and (iii) an increase in operating
expenses of the same Syndicated Communities.
The aggregate gross amount (before considering the cash flow from the
properties) of Management Contract Obligations relating solely to returns to
limited partners based on existing management contracts is $14.7 million for the
remaining portion of Fiscal 1999, which will increase to $20.5 million in Fiscal
2000, and decrease to $16.7 million in Fiscal 2001, decrease to $9.2 million in
Fiscal 2002, decrease to $3.4 million in Fiscal 2003 and decrease to $300,000 in
Fiscal 2004. Such amounts of Management Contract Obligations are calculated
based upon all remaining scheduled capital contributions with respect to fiscal
years 1999 through 2004. 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 Management Contract Obligations
relating to future Syndications.
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
Syndicated Communities 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 Syndications will exceed the cash flow generated
by the related Syndicated Communities, which will result in the need to utilize
funds generated by the Company from sources other than the operations of the
Syndicated Communities to make Management Contract Obligations payments. In
general, the payment of expenses arising from obligations of the Company,
including Management Contract Obligations, have priority over earnings that
might otherwise be available for distribution to shareholders. The Company
intends to structure future Syndications to minimize the likelihood that it will
be required to utilize the cash it generates to pay Management Contract
Obligations, but there can be no assurance that this will be the case.
The initial five-year term of the management contracts and the related
Management Contract Obligations have expired for 13 Owning Partnerships and
their seventeen related Investing Partnerships. Although the Company has no
obligation to fund operating shortfalls after the five-year term of the
management contracts, as of April 30, 1999, the Company had advanced an
aggregate of approximately $2.7 million to nine of these Owning Partnerships to
fund
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<PAGE>
operating shortfalls. All such advances are recorded in the "notes and
receivables" on the Company's Consolidated Balance Sheet. Although the
Company did not do so in the three months ended April 30, 1999,
from time to time, the Company has also made discretionary payments to Owning
Partnerships beyond the Management Contract Obligations period for the purpose
of making distributions to limited partners.
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 was 75.4%
for Fiscal 1998 and 54.6% for the three months ended April 30, 1999. 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 the 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 Syndication offerings, the Company has
the option not to accept future prepayments by limited partners of capital
contributions. The Company has not determined to what extent it will continue to
accept prepayments by limited partners of capital contributions.
As of April 30, 1999, the Company holds 157 Purchase Notes
("Multi-Family Notes") which are secured by controlling interests in
Multi-Family Owning Partnerships which own 118 multi-family properties that were
Syndicated by the Company prior to 1986 (the "Multi-Family Properties").
Although it has no obligation to do so, the Company has also made advances to
various Multi-Family Owning Partnerships to support the operation of their
properties, which advances are included in the "notes and receivables" recorded
on the Company's Consolidated Balance Sheet. The Multi-Family Notes and related
advances entitle the Company to receive all cash flow and sale or refinancing
proceeds generated by the respective Multi-Family Property until the
Multi-Family Note and related advances are satisfied. As of April 30, 1999, the
recorded value, net of deferred income, of Multi-Family Notes was $100.9
million. All but approximately $3.9 million of the $64.6 million of advances
included in the "notes and receivable" recorded on the Company's Consolidated
Balance Sheet as of April 30, 1999 relate to advances to Multi-Family Owning
Partnerships.
Fourteen of the Multi-Family Owning Partnerships are in default on
their respective mortgages. The Company neither owns nor manages these
properties, nor is it the general partner of any Multi-Family Owning
Partnerships, but rather, merely holds the related Multi-Family Notes and
related advances as receivables. The Company, therefore, has no liability in
connection with these mortgage defaults. In that these mortgages were insured by
the United States Department of Housing and Urban Development ("HUD"), HUD
became the holder of these mortgages after they went into default. In the past,
HUD has instituted initiatives to deal with its portfolio of defaulted
mortgages, such as selling such mortgages at auction. Although HUD has
discontinued this auction program, these auctions resulted in one of the
fourteen defaulted mortgages being sold to a third party, subject to an existing
workout agreement. The remaining thirteen defaulted mortgages are held by HUD,
with workout agreements in place regarding six of them with terms of from one to
nine years. HUD's policies regarding the granting of workout agreements have
become more restrictive in recent years and there can be no assurance that HUD
will renew these workout agreements or restructure the related mortgage debt
when these workout agreements expire. Similarly, there can be no assurance that
the related MultiFamily Owning Partnerships can obtain workout agreements or
restructure the related mortgage debt for the seven defaulted mortgages without
workout agreements currently in place. HUD has recently taken steps to foreclose
on four of the defaulted mortgages without workouts. Notwithstanding these
steps, the relevant Multi-Family Owning Partnerships are negotiating with HUD to
obtain workout agreements or mortgage restructurings (which are now possible
pursuant to new HUD policies) to cure the defaults. In view of the foregoing, it
is possible that the fourteen MultiFamily Owning Partnerships which are in
default of their mortgages will file bankruptcy petitions or take similar
actions seeking protection from the creditors and/or lose their properties
through foreclosure. As of April 30, 1999, the recorded value, net of deferred
income, of the Multi-Family Notes and the related advances held by the Company
relating to these fourteen Multi-Family Owning Partnerships was $29.9 million.
The Company has established reserves of $10.1 million to address the possibility
that these Multi-Family Notes and related advances may not be collected in full.
One of these fourteen remaining Multi-Family Owning Partnerships whose mortgage
is in default has had its application to refinance its mortgage loan accepted
and believes that the refinancing will close. Other Multi-Family Owning
Partnerships intend to cure their mortgage defaults by refinancing their
mortgages in the future, although there can be no assurance that this will be
the case. It should be noted, however, that in Fiscal 1998 and previous years,
six Multi-Family Owning
20
<PAGE>
Partnerships whose mortgages had been in default cured those defaults by
refinancing their mortgages with new mortgage financings and now have fully
performing mortgages.
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. 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 any Multi-Family Owning Partnerships, but rather, holds the MultiFamily Notes
and related advances as receivables. Any such future mortgage defaults could,
and any such future filings of bankruptcy 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 and any reserves for such
Multi-Family Note and advances 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, bankruptcy
petitions or the loss of any such property through foreclosure if such note is
considered impaired. Such impairment would be measured under applicable
accounting rules. Such losses, if any, while non-cash in nature, could adversely
affect the Company's business, operating results and financial condition.
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, limiting the term and rent levels when 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), the Company cannot
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 (i)
either refinance their HUD-insured mortgages with conventional mortgage
financing or restructure their HUD-insured mortgage debt, or (ii) sell their
Multi-Family Properties. In some cases, the MultiFamily Owning Partnerships will
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. Seventeen of such Multi-Family Owning
Partnerships have refinanced their HUD-insured mortgages with conventional
mortgage financing, one Multi-Family Owning Partnerhship has received a
refinancing commitment 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 Investing
Partnerships relating to the Multi-Family Properties (the "Multi-Family
Investing Partnerships") to make payments to the Company on their respective
MultiFamily Notes will be enhanced and accelerated. In Fiscal 1998, the Company
received $2.6 million of excess refinancing proceeds as holder of the related
Multi-Family Notes and expects to receive excess refinancing proceeds from the
refinancing of other Multi-Family Properties in Fiscal 1999. However, there can
be no assurance that these additional Multi-Family Owning Partnerships will be
able to refinance their mortgages or will be able to successfully reposition any
of the Multi-Family Properties.
In addition, one Multi-Family Property and controlling interests in
eight Multi-Family Owning Partnerships were sold to third parties in Fiscal
1998. The Company succeeded to these controlling interests by acquiring the
collateral securing the related Multi-Family Notes upon such Notes becoming due
without being paid and concurrently selling such collateral to third parties.
The Company recognized $26.4 million in sale proceeds as a result of these sales
in Fiscal 1998. A significant portion of sales proceeds were generated from
sales to a single unrelated third party. Due to the fact that a Contract of Sale
has been entered into regarding one additional Multi-Family Property, a letter
of intent has been executed for the sale of one additional Multi-Family
Property, and other Multi-Family Owning Partnerships are currently negotiating
the terms of offers to purchase their properties, the Company expects to receive
additional sale
21
<PAGE>
proceeds from any such transactions which occur in Fiscal 1999. There can be no
assurance, however, that additional sale transactions will actually close.
The future growth of the Company will be based upon the continued
acquisition and Syndication of existing senior living communities and the
construction of Development Communities, which the Company presently does not
intend to Syndicate, but which may be owned pursuant to joint venture
arrangements. The Company anticipates that it will acquire between six
and twelve existing senior living communities over the next two years. It is
anticipated that acquisitions of existing senior living communities will be
arranged by utilizing a combination of mortgage financing and Syndications. The
Company holds contracts to acquire senior living communities in Radcliff,
Kentucky and Denver, Colorado respectively. The Company regularly obtains
acquisition mortgage financing from two 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
arrange for acquisitions of existing senior living communities in part by
Syndications.
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 limited partners to generate cash
when needed, including to pursue its Development Plan and to repay debt.
The Company anticipates that the proceeds of the Company's initial
public offering, funds generated by its business operations and construction
mortgage financing will provide sufficient funds to pursue its Development Plan
(as described above) for at least 6 months at the projected rate of development.
The Company will use the proceeds of (i) anticipated joint venture arrangements
of Development Communities, (ii) refinancings or sale-leasebacks of stabilized
Development Communities at higher principal amounts than the original
construction financing, (iii) additional long-term leases or similar forms of
financing which require the investment of little or no capital on the part of
the Company, and/or (iv) funds which may be raised through the issuance of
securities, to continue with its Development Plan for more than the next 6
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 Development Communities that are currently
contemplated in its Development Plan.
The first new Development Communities developed pursuant to the
Company's Development Plan are in Texas. The Company has completed construction
with mortgage financing on three Development Communities in Texas. The Company
has commenced construction with mortgage financing on four Development
Communities in Texas. The Company has options to acquire sites in Knoxville,
Tennessee, Jackson, Tennessee, Evansville, Indiana and South Bend, Indiana, and
is actively negotiating to obtain control of additional sites in the Southeast
and Midwest. The Company is negotiating with several lenders to obtain financing
to develop these sites. The Company has entered into joint venture arrangements
with a third party pursuant to which it has sold 50% interests in four
Development Communities located in Texas. The Company intends to enter into
similar joint venture arrangements with regard to future Development Communities
it develops with mortgage financing.
The Company has, and may in the future, utilize long-term lease
financing arrangements to develop and operate new Development Communities. The
Company has obtained financing of $37.7 million from Capstone for 100% of the
development cost of four Development Communities that are being operated by the
Company pursuant to long-term leases with Capstone.
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 Development Communities will
contain terms where the lender will fund at least 80% of such costs, requiring
the Company to contribute approximately 20% of such costs.
22
<PAGE>
STOCK BUYBACK
On March 22, 1999, the Board of Directors authorized the Company to
purchase up to 300,000 shares of the Company's common stock. As of June 7, 1999,
the Company had purchased 116,000 shares at an average price of $6.07 per share.
Other than as described herein, management is not aware of any other
trends, events, commitments or uncertainties that will, or are likely to,
materially impact the Company's liquidity.
YEAR 2000 UPDATE
Year 2000 Overview - The Year 2000 issue is the result of many computer
systems and non-information technology systems which rely upon embedded computer
technology using only the last two digits to refer to a year and therefore being
unable to distinguish between the years 1900 and 2000. If not corrected, many
computer applications that are date sensitive could fail or create erroneous
results. As part of the process of upgrading its internal computer hardware and
software and in anticipation of the Year 2000 issue, the Company began to audit,
inventory, modify and replace its mission critical software and hardware
(including personal computers, spread sheets, and word processing) in its Fort
Lee, New Jersey and Boca Raton, Florida corporate offices in 1997 ("Year 2000
Project"). During 1998, the Company's Year 2000 Project was extended to include
software and hardware located at the Syndicated Communities and the Development
Communities, "embedded technology" (such as telephones, fax machines, copiers
and postage machines), property and corporate facilities (such as security/fire
systems, emergency call systems, elevators, and HVAC systems) and business
relationships with governmental agencies, utilities and material third party
vendors, and service providers.
The Company has separate computer hardware and software systems at each
of its Fort Lee, New Jersey and Boca Raton, Florida offices. Each office has an
intra-office network. None of the Syndicated Communities or Development
Communities are part of a computer network. The Company is using a multi-step
approach in conducting its Year 2000 Project. These steps are: inventory,
assessment, remediation and testing, and contingency planning. The first step,
an inventory of all systems and devices with potential year 2000 problems has
been completed. The next step, an assessment of such inventory to determine the
state of year 2000 readiness for material systems and devices has also been
completed for the Company's two offices and it has been completed at the
majority of the Syndicated Communities and Development Communities. A majority
of the remediation and testing of the Company's software and hardware has
already been completed and full completion is anticipated to occur by July 31,
1999. To date, the Company has updated or replaced the following financial and
accounting systems with Year 2000 compliant systems: accounting servers and
related hardware, accounts payable systems, accounts receivable systems, general
ledgers, cash management programs and payroll systems. In addition, the Company
has updated its construction server and data base as well as the network
software located in the Company's two offices and replaced substantially all of
the desk-top personal computers located therein.
However, even if the Company is successful in becoming year 2000
compliant, the Company remains at risk from year 2000 failures caused by key
third parties. The Company has therefore initiated efforts with key third
parties to assess and wherever possible remediate Year 2000 issues. In most
cases, the Company will be relying upon statements from such entities as to the
Year 2000 readiness of their systems and will not attempt any independent
verification. To date, the Company has not received sufficient information from
such entities to complete its assessment of their year 2000 compliance. In
addition, the Company cannot predict the outcome of other companies' remediation
efforts.
Year 2000 Costs - The total cost associated with the Year 2000 Project
to become Year 2000 compliant is not expected to be material to the Company's
financial position. The Company currently plans to complete the Year 2000
Project by July 31, 1999. The cost of the Company's total Year 2000 Project is
based on presently available information. The Company does not separately track
the internal costs incurred for the Year 2000 Project. Such costs are
principally the related payroll costs for its information systems group. The
total remaining cost of the year 2000 Project is estimated at approximately
$50,000. Substantially all of this $50,000 is related to the cost to replace
software and computers. To date, the Company incurred approximately $25,000
related to the Year 2000 Project.
23
<PAGE>
Substantially all of this $25,000 is related to the cost to replace software and
computers. The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third parties' Year 2000
preparedness and other factors.
Risks - The failure to correct a material Year 2000 problem could
result in an interruption in, or a failure of, certain normal business
activities or operations. The Company believes that all material Year 2000
problems which are within its control will be corrected by July 31, 1999 and
therefore such problems are not anticipated to have a material adverse affect on
the Company's financial position and results of operations. Even if the Company
successfully remediates its year 2000 issues, it can be materially and adversely
affected by failures of third parties to remediate their own Year 2000 issues.
The Company believes that the most reasonably likely worst case scenario is the
loss of utility service (telecommunications and power) at the Company's
corporate offices, and all or some of the senior living communities it operates.
Based upon procedures which are currently in place and the contingency plans
which are being prepared and anticipated to be put in place, such a scenario is
not expected to have a material adverse affect on the Company's financial
position and results of operations.
Contingency Plans - Contingency plans are anticipated to be prepared so
that the Company's critical business processes can be expected to continue to
function on January 1, 2000 and beyond. Such plans are anticipated to be
developed by July 31, 1999. These plans will attempt to mitigate both internal
risks as well as potential risks due to business relationships with third
parties.
NEW ACCOUNTING PRONOUNCEMENTS
In June of 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. The Company's use of derivative instruments has consisted of treasury
bill locks related to two specific mortgage debt financings. While the Company
has not completed its analysis of Statement No. 133 and has not made a decision
regarding the timing of adoption, it does not believe that adoption will have a
material effect on its financial position and results of operations based on its
current use of derivative instruments.
24
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of market risk sensitive instruments, see the Company's Form
10-K for the fiscal year ended January 31, 1999. There has been no subsequent
material change to the Company's exposure to market risk.
25
<PAGE>
PART II - OTHER INFORMATION.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The effective date of the registration statements (Nos. 333-05955 and 333-43331)
for the Company's initial public offering of its common stock, $.01 par value,
was March 13, 1998. The offering commenced on March 16, 1998. The managing
underwriter of the offering was Royce Investment Group, Inc. ("Royce"). Pursuant
to the offering, the Company sold to the public 2,800,000 shares of its common
stock at an initial offering price of $9.50 per share. The aggregate price of
the offering registered by the Company was $26.6 million. On April 29, 1998,
pursuant to an over-allotment option granted to the underwriters, John Luciani
and Bernard M. Rodin (the "Selling Shareholders") each sold 173,030 shares of
the Company's common stock to the public at a price of $9.50 per share. The
aggregate price of the shares offered by and registered on behalf of the Selling
Shareholders was $3,287,600. Under the terms of the offering, the Company
incurred underwriting discounts of $1.6 million, and the Selling Shareholders
incurred aggregate underwriting discounts of $197,250. The Company incurred the
following expenses in connection with the offering: (i) a non-accountable
expense allowance paid to Royce in the amount of $798,000, (ii) a consulting fee
paid to Royce in the amount of $266,000, and (iii) other expenses related to the
offering in the amount of $1.5 million.
The net proceeds that the Company received as a result of the offering were
$22.3 million. As of April 30, 1999, the Company's net proceeds have been used
as follows: $10.2 million has been used for the purchase of land and towards the
construction of plant, building and facilities and $1.6 million has been used
for working capital and the remainder has been used to purchase treasury bills
pending application of the funds.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Number Description of Exhibit
-------------- ----------------------
4.0(c) First Supplemental Indenture, dated as of May 3,
1999, of 11% Series A Notes, due December 15,
2005, between the Company and The Bank of
New York (the "First Supplemental Indenture").
4.0(d) Supplemental Officers Certificate No. 2, dated
May 3, 1999, under Sections 102, 301, 1201 and
1207 of the Indenture of 11% Series A Notes,
due December 15, 2005.
10.14 Line of Credit Agreement from Key Corporate
Capital, Inc. to Grand Court - Greatwood, L.P.,
dated as of October 30, 1998.
10.14(a) Transaction Guarantee by the Company to Grand
Court - Greatwood, L.P., dated as of October 30,
1998.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
26
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRAND COURT LIFESTYLES, INC.
(Registrant)
/s/ Bernard M. Rodin
--------------------
Bernard M. Rodin
President
and Principal Financial Officer
Dated: June 14, 1999
27
<PAGE>
EXHIBIT INDEX
-------------
4.0(c) First Supplemental Indenture, dated as of May 3, 1999, of 11% Series
A Notes, due December 15, 2005, between the Company and The Bank of
New York (the "First Supplemental Indenture").
4.0(d) Supplemental Officers Certificate No. 2, dated May 3, 1999, under
Sections 102, 301, 1201 and 1207 of the Indenture of 11% Series A
Notes, due December 15, 2005.
10.14 Line of Credit Agreement from Key Corporate Capital, Inc. to Grand
Court - Greatwood, L.P., dated as of October 30, 1998.
10.14(a) Transaction Guarantee by the Company to Grand Court - Greatwood,
L.P., dated as of October 30, 1998.
27 Financial Data Schedule.
28
EXHIBIT 4.0(c)
------------------------------------------
GRAND COURT LIFESTYLES, INC.,
ISSUER
TO
THE BANK OF NEW YORK,
TRUSTEE
---------
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF MAY 3, 1999
TO
INDENTURE
DATED AS OF OCTOBER 1, 1998
------------------------------------------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of May 3, 1999 between GRAND COURT
LIFESTYLES, INC., a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), having its principal office
at 2650 North Military Trail, Suite 350, Boca Raton, Florida 33431, and THE BANK
OF NEW YORK, a New York banking corporation, having its principal corporate
trust office at 101 Barclay Street, New York, New York 10286, as Trustee (herein
called the "Trustee"), as Trustee under the Indenture dated as of October 1,
1998 (hereinafter called the Indenture);
WHEREAS, Section 1201 of the Indenture provides, among other things, that
the Company and the Trustee may enter into one or more supplemental indentures,
without consent of any Holders, to cure any ambiguity, to correct or supplement
any provision of the Indenture which may be defective or inconsistent with any
other provision thereof, or to make any other changes to the provisions hereof
or to add other provisions with respect to matters or questions arising under
this Indenture, provided that such other changes or additions shall not
adversely affect the interests of the Holders of Securities of any series or
Tranche in any material respect;
WHEREAS, the Company determined to amend Sections 801, 802 and 807 of the
Indenture, as permitted by said Section 1201 of the Indenture.
NOW, THEREFORE, for and in consideration of the premises, it
is mutually covenanted and agreed, for the equal and proportionate benefit of
all Holders of the Securities or of series thereof, as follows:
ARTICLE ONE
AMENDMENTS TO THE INDENTURE
SECTION 101. The Company hereby amends Subsection (b) of Section 801 of the
Indenture to read in its entirety as follows:
"(b) default in the performance of, or breach of, any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in the performance of which or breach of which is
elsewhere in this Section specifically dealt with or which has
expressly been included in this Indenture solely for the benefit of one
or more series of Securities other than such series) and continuance of
such default or breach for a period of 90 days after there has been
given, by registered or certified mail, to the Company by the Trustee,
or to the Company and the Trustee by the Holders of a majority in
principal amount of the Outstanding Securities of such series, a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder, unless the Trustee, or the Trustee and the Holders of a
principal amount of Securities of such series not less than the
principal amount of Securities the Holders of which gave such notice,
as the case may be, shall agree in writing to an extension of such
period prior to its expiration; provided, however, that the Trustee, or
the Trustee and the Holders of such principal amount of Securities of
such series, as the case may be, shall be deemed to have agreed to an
extension of such period if corrective action is initiated by the
Company within such period and is being diligently pursued; or"
<PAGE>
SECTION 102. The Company hereby amends the first paragraph of Section 802 of the
Indenture to read in its entirety as follows:
"If an Event of Default shall have occurred and be continuing with
respect to Securities of any series at the time Outstanding, then in
every such case the Holders of a majority in principal amount of the
Outstanding Securities of such series may declare the principal amount
(or, if any of the Securities of such series are Discount Securities,
such portion of the principal amount of such Securities as may be
specified in the terms thereof as contemplated by Section 301) of all
of the Securities of such series to be due and payable immediately, by
a notice in writing to the Company (and to the Trustee if given by
Holders), and upon receipt by the Company of notice of such declaration
such principal amount (or specified amount) shall become immediately
due and payable; provided, however, that if an Event of Default shall
have occurred and be continuing with respect to more than one series of
Securities, the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all such series, considered as one class,
may make such declaration of acceleration, and not the Holders of the
Securities of any one of such series."
SECTION 103. The Company hereby amends the Subsection (b) of Section 807 of the
Indenture to read in its entirety as follows:
"(b) the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all series in respect of which an Event of
Default shall have occurred and be continuing, considered as one class,
shall have made written request to the Trustee to institute proceedings
in respect of such Event of Default in its own name as Trustee
hereunder;"
ARTICLE TWO
MISCELLANEOUS PROVISIONS
SECTION 201. Subject to the amendments provided for in this First Supplemental
Indenture, the terms defined in the Indenture shall, for all purposes of this
First Supplemental Indenture, have the meanings specified in the Indenture.
SECTION 202. This First Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, all as of the day and year first above written.
GRAND COURT LIFESTYLES, INC.
By: /s/ Catherine Merlino
----------------------
THE BANK OF NEW YORK,
as Trustee
By: /s/Lucille Firrincieli
-----------------------
EXHIBIT 4.0(d)
GRAND COURT LIFESTYLES, INC.
SUPPLEMENTAL OFFICER'S CERTIFICATE NO. 2
Catherine Merlino, a Vice President of GRAND COURT LIFESTYLES, INC. (the
"Company"), pursuant to the authority granted in the Board Resolutions of the
Company dated April 19, 1999, and Sections 102, 301, 1201 and 1207 of the
Indenture defined herein, does hereby certify to The Bank of New York (the
"Trustee"), as Trustee under the Indenture of the Company (For Unsecured Debt
Securities) dated as of October 1, 1998 (the "Indenture") that:
1. The securities of the first series issued under the Indenture are
designated "11% Series Notes due December 15, 2005" (the "Notes of the
First Series"). The terms of the Notes of the First Series are set
forth in the Officer's Certificate dated November 24, 1998 and in
Exhibit A thereto, previously delivered to the Trustee. All
capitalized terms used in this certificate which are not defined
herein but are defined in such Exhibit A shall have the meanings set
forth in such Exhibit A; all capitalized terms used in this
certificate which are not defined herein or in such Exhibit A hereto
but are defined in the Indenture shall have the meanings set forth in
the Indenture;
2. On the date hereof, the Company and the Trustee entered into the First
Supplemental Indenture, dated as of May 3, 1999 (the "First
Supplemental Indenture") amending Sections 801, 802 and 807 of the
Indenture, as described in the First Supplemental Indenture;
3. This Supplemental Officer's Certificate No. 2 is being delivered
pursuant to Sections 1201 and 1207 of the Indenture to effect the
following changes to the terms of the Notes of the First Series:
(a) the aggregate principal amount of the Notes of the First Series
which may be authenticated and delivered under the Indenture
shall be limited to $15,000,000, except as contemplated in
Section 301(b) of the Indenture;
4. In the opinion of the undersigned the amendments to the Indenture
referred to in item 2 above and the change referred to in item 3(a)
above, do not adversely affect the interests of the Holders of the
Notes in any material respect;
5. The undersigned has read the accompanying Company Order No. 3, dated
the date hereof, for the authentication and delivery of the Notes, the
First Supplemental Indenture, all of the covenants and conditions
contained in the
<PAGE>
Indenture relating to the issuance of the Notes of the First Series,
the execution and delivery of the First Supplemental Indenture and the
definitions in the Indenture relating thereto;
6. The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents
accompanying this certificate, and upon discussions by the undersigned
with officers and employees of the Company familiar with the matters
set forth herein;
7. In the opinion of the undersigned, she has made such examination or
investigation as is necessary to enable her to express an informed
opinion whether or not such covenants and conditions have been
complied with; and
8. In the opinion of the undersigned, such conditions and covenants and
conditions precedent, if any (including any covenants compliance with
which constitutes a condition precedent) to the authentication and
delivery of the Notes of the First Series requested in the
accompanying Company Order No. 3 and the execution and delivery of the
First Supplemental Indenture have been complied with.
IN WITNESS WHEREOF, I have executed this Officer's Certificate this 3rd
day of May, 1999.
GRAND COURT LIFESTYLES, INC.
By: /s/Catherine Merlino
---------------------
Catherine Merlino
Vice President
EXHIBIT 10.14
LINE OF CREDIT AGREEMENT
$25,000,000
LINE OF CREDIT
from
KEY CORPORATE CAPITAL INC., Lender
to
GRAND COURT-GREATWOOD, L.P.
and Additional Future Borrowers (collectively, the "Borrower")
Dated as of October 30, 1998
<PAGE>
LINE OF CREDIT AGREEMENT
GRAND COURT-GREATWOOD, L.P. and such other Persons who become a Borrower
hereunder by execution of a Borrower Addition Amendment, and KEY CORPORATE
CAPITAL INC. ("Lender"), hereby agree as follows:
1. Definitions.
1.1 Defined Terms. For purposes of this Agreement the following terms will
have the following meanings:
1.1.1 "Advance(s)" will mean disbursements of each of the
Non-Revolving Loans made pursuant to this Agreement.
1.1.2 "Affiliate(s)" will mean, with respect to any Person (i) any
other Person directly or indirectly controlling, controlled
by or under common control with such Person, or (ii) any
Person who is a member, director or officer of such Person
or any Subsidiary thereof. A Person will be deemed to
control another Person if such Person possesses, directly or
indirectly, the power to (a) vote ten percent (10%) or more
of the voting equity of such other Person, or (b) direct or
cause the direction of the management and policies of such
other Person, whether through voting securities, by contract
or otherwise.
1.1.3 " "Aggregate Outstanding Non-Revolving Credit" will mean an
amount equal to the aggregate unpaid principal amount of all
Non-Revolving Loans.
1.1.4 "Agreement" will mean this Line of Credit Agreement
and any amendments, supplements or modifications
thereto made from time to time in accordance with the
terms of this Agreement.
1.1.5 "Applicable Margin" will mean two and three quarters
of one percent (2.75%) per annum.
1.1.6 "Appraisal" will mean, for each Project, an appraisal
of the Project as described in Section 7.8.5 below in
-------------
form and substance acceptable to Lender and completed
in accordance with the terms hereof.
1.1.7 "Attorneys Fees" will mean the reasonable value of the
services (and all costs and expenses related thereto) of the
attorneys (and all paralegals and other staff employed by
such attorneys) employed by Lender from time to time to: (i)
take any action, following an Event of Default (after
expiration of any applicable cure period), in or with
respect to any suit or proceedings (bankruptcy or otherwise)
relating to an Event of Default; (ii) enforce any of
Lender's rights to collect any of the Obligations; (iii)
give Lender advice with respect to this Agreement, including
but not limited to advice
<PAGE>
in connection with any Event of Default (after
expiration of any applicable cure period), workout or
bankruptcy of Borrower or Guarantor; and (iv) prepare
any amendments, restatements, or waivers to this
Agreement or any of the documents executed in
connection with any of the Obligations, provided that
Borrower or Affiliate of Borrower is a party to such
amendments, restatements, or waivers.
1.1.8 "Base Rate" will mean that interest rate established
by Lender as Lender's prime rate, whether or not such
rate is publicly announced. The Base Rate may not be
the lowest interest rate charged by Lender for
commercial or other extensions of credit.
1.1.9 "Base Rate Advance" will mean any Advance that bears
interest at the Base Rate.
1.1.10 "Borrower(s)" will mean Grand Court-Greatwood, L.P.,
and any other Person added to this Agreement and
certain other Loan Documents by Borrowers' Designated
Officer pursuant to the execution of a document
substantially in the form of the Borrower Addition
Amendment attached hereto as Exhibit A, jointly and
---------
severally.
1.1.11 "Borrower's Account" will mean the account of
Borrower at Lender's Affiliate designated by Lender
for use hereunder.
1.1.12 "Borrowers' Designated Officer" will mean Keith
Marlowe, secretary of the general partner of each
Borrower, in his/her capacity as an officer or
manager of each Borrower, and/or any other Person
designated by Grand Court-Greatwood, L.P. on behalf
of any one or more Borrowers in a writing addressed
to Lender.
1.1.13 "Borrowing" will mean an Advance made on a given
Borrowing Date.
1.1.14 "Borrowing Date" will mean the date on which an Advance is
made.
1.1.15 "Budget" will mean, for each Project, a cost
breakdown and itemization of all hard and soft costs
for such Project as described in Section 7.8.3 below
-------------
in form and substance acceptable to Lender.
1.1.16 "Business Day" will mean a day of the year on which
banks are not required or authorized to close in
Cleveland, Ohio and, if the applicable Business Day
relates to any LIBOR Rate Advance, on which dealings
are carried on in the London interbank eurodollar
market.
1.1.17 "Capital Expenditure Reserve" will mean, for each
Borrower, the sum of $250 for each unit constructed
in a Project deposited with Lender's Affiliate in
accordance with Section 7.2.18 below.
--------------
<PAGE>
1.1.18 "CERCLA" will mean the Comprehensive Environmental
Response, Compensation, and Liability Act as found in
42 U.S.C. ss. 9601 et seq.
1.1.19 "Closing" will mean, for each Non-Revolving Loan, the
execution and delivery of the documents listed on the
related Closing Memo.
1.1.20 "Closing Date" will mean, for each Non-Revolving
Loan, the date on which the Loan Documents in
connection therewith are executed and delivered to
Lender.
1.1.21 "Closing Memo" will mean, for each Non-Revolving
Loan, the Closing Memorandum between Borrower and
Lender in connection with the transactions
represented by such Loan, which will be substantially
in the form delivered by Borrower to Lender at the
Line of Credit Closing.
1.1.22 "Code" will mean the Internal Revenue Code of 1986,
as amended or supplemented from time to time.
1.1.23 "Collateral" will mean any property, real or
personal, tangible or intangible, referred to in this
Agreement or the Loan Documents or now or in the
future securing any of the Obligations.
1.1.24 "Commitment Fee" will mean the sum of $250,000
payable as follows: (i) $150,000 payable in
accordance with Section 2.12.2.5 below; and (ii)
----------------
$100,000, the receipt of which is acknowledged by
Lender.
1.1.25 "Completion" will mean, for each Project, the
issuance of a final certificate of occupancy for the
Project, or similar evidence of completion from the
Governmental Authority having jurisdiction over the
Project if such a certificate is not available under
the laws of the jurisdiction in which the Project is
located.
1.1.26 "Completion Date" will mean, for each Project, the
date 15 months after the Closing Date.
1.1.27 "Compliance Certificate(s)" will mean the Compliance
Certification delivered by Borrower to Lender from
time to time in the form delivered to Borrower by
Lender.
1.1.28 "Consolidated Indebtedness" will mean, at any date,
the Indebtedness of the Consolidated Entities,
determined on a consolidated basis as of such date.
1.1.29 "Consolidated Entities" will mean at any date all
Borrowers and Grand Court and excluding any direct or
indirect Affiliate of Grand Court that would be
consolidated into Grand Court in accordance with
GAAP.
<PAGE>
1.1.30 "Construction Contract" will mean, for each Project,
the construction contract entered into between
Borrower and General Contractor for the construction,
and, if applicable, the design of such Project.
1.1.31 "Construction Period" will mean, for each
Non-Revolving Loan, a period beginning on the Closing
Date for such Loan and ending on the Mini-Perm
Conversion Date for such Loan.
1.1.32 "Conversion" or "Converted" will mean the switching
from one rate mode to another for a particular
Advance or Converted Advance in accordance with the
terms of this Agreement.
1.1.33 "Converted Advance" will mean an Advance where the
rate of interest originally elected has been
converted by means of a Conversion.
1.1.34 "Corporate Checking Account" will mean an account
maintained by Borrower at Lender or any Affiliate of
Lender.
1.1.35 "Current Audited Financial Statements" will mean
Grand Court's audited consolidated balance sheet
dated July 31, 1998.
1.1.36 "Current Financial Statements" will mean the Current Audited
Financial Statements and Grand Court's unaudited
consolidated balance sheet dated July 31, 1998 (subject to
normal year-end adjustments). For the purposes of any future
date on which the representations and warranties contained
in Section 4 hereof are deemed to be remade, the most
---------
current financial statements, tax returns or other documents
with respect to Borrower or Guarantor delivered to Lender
pursuant to Section 5 hereof will be deemed to be the
---------
Current Financial Statements.
1.1.37 "Debt Service Reserve" will mean an amount equal to
the projected debt service set forth on the Budget to
become due and payable during the six-month period
following the Mini-Perm Conversion Date for each
Non-Revolving Loan which is to be deposited with
Lender or Lender's Affiliate pursuant to and at the
time set forth in Section 7.2.16, below.
--------------
1.1.38 "Default" will mean any event or condition which,
with the passage of time, the giving of notice or
both, if applicable, would constitute an Event of
Default.
1.1.39 "Default Rate" will mean the greater of the three
percent (3%) in excess of the highest applicable
interest rate provided for herein, or sixteen percent
(16%).
1.1.40 "Disclosure Schedules" will mean the schedules to be
provided by Borrower to Lender on the Line of Credit
Closing Date and each Closing Date.
<PAGE>
1.1.41 "Dollars" will mean lawful money of the United States
of America.
1.1.42 "Environmental Laws" will mean any and all federal, state,
local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees,
injunctions, permits, concessions, grants, and other
governmental restrictions relating to the environment, the
effect of the environment on human health or to the
emission, discharge or release of pollutants, contaminants,
Hazardous Wastes or substances into the environment
including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Wastes or substances or the clean-up
or other remediation thereof.
1.1.43 "Environmental Report" will mean, for each Project,
the environmental site assessment of the Property in
form and substance acceptable to and delivered to
Lender in connection with the Closing.
1.1.44 "ERISA" will mean the Employee Retirement Income
Security Act of 1974, or any successor statute, as
amended or supplemented from time to time.
1.1.45 "ERISA Affiliate" will mean any person (as defined in
Section 3(a) of ERISA) including each trade or
------------
business (whether or not incorporated) that together
with Borrower, or any Subsidiary thereof, would be
deemed to be a "single employer" or member of the
same "controlled group" within the meaning of ss. 414
of the Code.
1.1.46 "Event of Default" will mean any of the events listed
in Section 8.
---------
1.1.47 "Eurocurrency Liabilities" will have the meaning
assigned to that term in Regulation D of the Board of
Governors of the Federal Reserve System, as in effect
from time to time.
1.1.48 "Facility Fee" will have the meaning given to that
term in Section 2.12.2.1, below.
----------------
1.1.49 Intentionally Omitted.
1.1.50 "Force Majeure" will mean any strikes, lockouts,
shortages of labor, fuel or materials, acts of God,
significant adverse weather conditions not reasonably
anticipated, any enemy act, riot, insurrection or
other civil commotion, fire or other casualty or any
other cause or circumstance beyond the reasonable
control of the affected party.
<PAGE>
1.1.51 "GAAP" will mean generally accepted accounting
principles.
1.1.52 "General Contractor" will mean, for each Project, the
design-build contractor selected by Borrower which
Borrower has contracted with to design and construct
such Project pursuant to a Construction Contract.
1.1.53 "Governmental Authority" will mean any nation or
government, any state or other political subdivision
thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative
functions of or pertaining to government, including,
without limitation, any department, commission,
board, bureau, agency, administration, service or
other instrumentality of the United States of
America, of any state, the District of Columbia,
municipality or any other governmental entity having
jurisdiction.
1.1.54 "Grand Court" will mean Grand Court Lifestyles, Inc.
1.1.55 "Guarantees" will mean the guarantees of the
completion of any Project or of all or any part of
the Obligations, now existing or hereafter arising,
whether on a full, limited or non-recourse basis, and
will include any amendments thereto and restatements
thereof.
1.1.56 "Guarantor(s)" will mean any persons or entities that
now or in the future that deliver one or more
Guarantees to Lender. Initially, Guarantor will mean
Grand Court and Borrower.
1.1.57 "Hazardous Wastes," "hazardous substances" and
"pollutants or contaminants" will mean any
substances, waste, pollutant or contaminant now or
hereafter designated as such under any now existing
or hereinafter enacted or amended federal, state or
local statute, ordinance, code or regulation designed
to protect the environment, including but not limited
to CERCLA.
1.1.58 "Improvements" will mean, for each Project, the
structures to be constructed on the Property.
1.1.59 "Indebtedness" will mean, for any Person at any date,
without duplication: (i) all obligations of such Person for
borrowed money, (ii) all obligations of such Person
evidenced by bond, debentures, notes or other similar
instruments, (iii) all obligations of such Person to pay the
deferred purchase price of property or services, except
trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee that
are capitalized in accordance with generally accepted
accounting principles, (v) all Indebtedness of others
guaranteed by such Person and (vi) all contingent or
non-contingent obligations of such Person to reimburse any
bank or other Person in respect of amounts paid or payable
(currently or in the future, on a contingent or
non-contingent basis)
<PAGE>
under a letter of credit or similar instrument.
1.1.60 "Indemnity" will mean, for each Project, the
environmental indemnity agreement to be executed and
delivered by Borrower and Grand Court in favor of
Lender in form and substance acceptable to Lender.
1.1.61 "Inspector" will mean, for each Project, the
inspector hired by Lender to inspect and monitor the
construction of the Project.
1.1.62 "Interest Period" will mean, for each Advance or
Converted Advance bearing interest at the LIBOR Rate
under a Note, the thirty-day period commencing on the
date of such Advance or Converted Advance; provided,
--------
however, that:
-------
1.1.62.1 Borrower may not select the LIBOR Rate for
any Advance where the Interest Period for
any such Advance would end after the
Maturity Date of such Note;
1.1.62.2 whenever the last day of any Interest
Period would otherwise occur on a day other
than a Business Day, the last day of such
Interest Period shall occur on the next
succeeding Business Day, provided that if
such extension of time would cause the last
day of such Interest Period for a LIBOR Rate
Advance to occur in the next following
calendar month, the last day of such
Interest Period shall occur on the next
preceding Business Day; and
1.1.62.3 Borrower may not select as to the amount
of any principal payment due hereunder or
under a Note, any Interest Period which both
begins before and ends after any principal
installment payment date set forth herein.
1.1.63 "Lease Reserve" will mean, for each Project, a lease
reserve described in Section 7.2.17 below deposited
--------------
with Lender's Affiliate in the amount set forth in
the Budget approved by Lender.
1.1.64 "Legal Requirements" will mean all applicable laws,
statutes, ordinances, rules, regulations and
restrictive covenants.
1.1.65 "Levies" will have the meaning given that term in
Section 2.13 of this Agreement.
------------
1.1.66 "LIBOR Rate" will mean, for any Interest Period with
respect to a LIBOR Rate Advance, the quotient
(rounded upwards, if necessary, to the nearest one
sixteenth of one percent (1/16th of 1%) of: (x) the
per annum rate of interest, determined by the Lender
in accordance with its usual procedures (which
determination shall be conclusive absent manifest
error) as of
<PAGE>
approximately 11:00 a.m. (London time) two Business
Days prior to the beginning of such Interest Period
pertaining to such LIBOR Rate Advance, appearing on
Page 3750 of the Telerate Service (or any successor
or substitute page of such Service, or any successor
to or substitute for such Service providing rate
quotations comparable to those currently provided on
such page of such Service, as determined by the
Lender from time to time for purposes of providing
quotations of interest rates applicable to dollar
deposits in the London interbank market) as the rate
in the London interbank market for dollar deposits in
immediately available funds with a maturity
comparable to such Interest Period divided by (y) a
----------
number equal to 1.00 minus the LIBOR Rate Reserve
-----
Percentage. In the event that such rate quotation is
not available for any reason, then the rate (for
purposes of clause (x) hereof) shall be the rate,
determined by the Lender as of approximately 11:00
a.m. (London time) two Business Days prior to the
beginning of such Interest Period pertaining to such
LIBOR Rate Advance, to be the average (rounded
upwards, if necessary, to the nearest one sixteenth
of one percent (1/16th of 1%) of the per annum rates
at which dollar deposits in immediately available
funds in an amount comparable to such LIBOR Rate
Advance and with a maturity comparable to such
Interest Period are offered to the prime banks by
leading banks in the London interbank market. The
LIBOR Rate shall be adjusted automatically on and as
of the effective date of any change in the LIBOR Rate
Reserve Percentage.
1.1.67 "LIBOR Rate Advance(s)" will mean any Advance or
Converted Advance that bears interest based upon the
LIBOR Rate.
1.1.68 "LIBOR Rate Reserve Percentage" will mean, for any
Interest Period in respect of any LIBOR Rate Advance, as of
any date of determination, the aggregate of the then stated
maximum reserve percentages (including any marginal,
special, emergency or supplemental reserves), expressed as a
decimal, applicable to such Interest Period (if more than
one such percentage is applicable, the daily average of such
percentages for those days in such Interest Period during
which any such percentage shall be so applicable) by the
Board of Governors of the Federal Reserve System, any
successor thereto, or any other banking authority, domestic
or foreign, to which the Lender may be subject in respect to
eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Federal Reserve Board)
or in respect of any other category of liabilities including
deposits by reference to which the interest rate on LIBOR
Rate Advances is determined or any category of extension of
credit or other assets that include the LIBOR Rate Advances.
For purposes hereof, such reserve requirements shall
include, without limitation, those imposed under Regulation
D of the Federal Reserve Board and the LIBOR Rate Advances
shall be deemed to constitute Eurocurrency Liabilities
subject to such
<PAGE>
reserve requirements without benefit of credits for
proration, exceptions or offsets which may be
available from time to time to any Bank under said
Regulation D.
1.1.69 "Lien" will mean any mortgage, pledge, lien, charge,
security or other encumbrance of any kind whatsoever
on any property, including but not limited to, the
Property and Collateral, belonging to Borrower.
1.1.70 "Line of Credit" will mean the Non-Revolving Line of
Credit as described in Section 2, below.
---------
1.1.71 "Line of Credit Closing" will mean the execution and
delivery of the documents listed on the Line of
Credit Closing Memo.
1.1.72 "Line of Credit Closing Date" will mean the date on
which this Agreement and the other Loan Documents
listed on the Line of Credit Closing Memo are
executed.
1.1.73 "Line of Credit Closing Memo" will mean the Closing
Memorandum between Borrower and Lender in connection
with the transactions represented by this Agreement.
1.1.74 "Liquidity" will mean the total of all cash and cash
equivalents held by the Consolidated Entities.
1.1.75 "Loan Documents" will mean this Agreement, the Notes,
and the documents listed on the Line of Credit
Closing Memo and each Closing Memo.
1.1.76 "Loan(s)" will mean any and all advances of funds
under this Agreement or any of the Notes.
1.1.77 "Management Contract" will mean, for each Project,
the contract for the management and operation of the
Project between Grand Court and Borrower.
1.1.78 "Material Adverse Effect" will mean an effect on the
business, financial condition, assets or liabilities of
Borrower and its Consolidated Entities, considered on a
consolidated basis, which, when combined on a cumulative
basis with other changes in the business, financial
condition, assets and liabilities of Borrower and its
Consolidated Entities, considered on a consolidated basis:
(i) would have a material adverse effect on the ability
of Borrower to perform its obligations under the Loan
Documents or (ii) would result in a material adverse change
in the financial condition of Borrower and its
Consolidated Entities, considered on a consolidated basis.
<PAGE>
1.1.79 "Maturity Date" will mean the maturity date specified
in each of the Notes, including all amendments,
extensions, and renewals made thereto from time to
time.
1.1.80 "Mini-Perm Conversion Date" will mean, for each
Non-Revolving Loan, the earlier of: (i) the first day
of the month in the fifteenth month after the month
of the Closing Date of such Loan, or (ii) the first
day of the month in the month after the Completion
Date for the Project funded by such Loan.
1.1.81 "Mini-Perm Period" will mean, for each Non-Revolving
Loan, the twenty four (24) month period following the
Mini-Perm Conversion Date.
1.1.82 "Mortgage" will mean the mortgage or deed of trust
securing the applicable Note for each Project.
1.1.83 "Multiemployer Plan" will mean a multiemployer plan
as defined in ss. 4001(a)(3) of ERISA to which
Borrower or any ERISA Affiliate (other than one
considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Code ss. 414) is making or
accruing an obligation to make contributions, or has
within any of the preceding five plan years made or
accrued an obligation to make contributions.
1.1.84 "Net Worth," at any particular time, will mean the
shareholders equity as determined in accordance with
GAAP. Unless otherwise specified herein, Net Worth
will be calculated in a consolidated basis for the
Consolidated Entities, excluding any items for direct
or indirect Affiliates of Grand Court that would be
consolidated into Grand Court in accordance with
GAAP.
1.1.85 "Non-Revolving Conditions" will mean the conditions
set forth in Section 2.1.2.
-------------
1.1.86 "Non-Revolving Line of Credit" will mean the credit
line described in Section 2.1.
-----------
1.1.87 "Non-Revolving Loans" will mean each of the Loans
described in Section 2.1 and represented by a Note.
-----------
1.1.88 Intentionally Omitted.
1.1.89 "Note(s)" will mean collectively the promissory notes
of Borrowers to the Lender evidencing the
Non-Revolving Loans, and will include any amendments,
extensions and renewals made thereto from time to
time.
1.1.90 "Notice(s) of Pricing Election" will mean the notice required
<PAGE>
under Section 2.4.2, below, in the form attached to the
-------------
Notes.
1.1.91 "Notice(s) of Prepayment" will mean the notice
required under Section 2.8.2, below, in connection
-----
with a prepayment of any of the Loans.
1.1.92 "Notices" will mean all Notices of Pricing Election,
Notices of Prepayment, any notice of termination or
reduction of the Total Commitment, and any other
notices under this Agreement.
1.1.93 "Obligations" will mean and include all loans, advances,
debts, liabilities, obligations, covenants and duties owing
to Lender from Borrower of any kind or nature arising under
this Agreement, the Notes or any of the Loan Documents,
whether direct or indirect, absolute or contingent, joint or
several, due or to become due, now existing or hereafter
arising, and all charges, expenses, fees, including but not
limited to reasonable Attorneys' Fees, and any other sums
chargeable to Borrower under any of the Obligations.
1.1.94 "Operating Cash Flow" will mean: (i) net income, as
determined in accordance with generally accepted accounting
principles; plus (ii) income taxes; plus (iii) depreciation
---- ----
and amortization; plus (iv) interest; plus (v) other items
---- ----
which would be classified as non-cash charges; plus (vi)
----
management fees; minus (vii) 5% of gross revenues; minus
----- -----
(viii) current contributions to the Capital Expenditure
Reserve; and excluding extraordinary items including but not
limited to gain or loss from the sale or disposition of
capital assets. Operating Cash Flow will be determined in
accordance with generally accepted accounting principles
applied on a consistent basis.
1.1.95 "PBGC" will mean the Pension Benefit Guaranty
Corporation referred to and defined in ERISA.
1.1.96 "Permitted Liens" will mean:
1.1.96.1 liens securing the payment of taxes,
either not yet due or the validity of which
is being contested by the Person being
charged in good faith by appropriate
proceedings, and as to which it has set
aside on its books adequate reserves to the
extent required by GAAP;
1.1.96.2 deposits under workers' compensation,
unemployment insurance and social security
laws, or to secure the performance of bids,
tenders, contracts (other than for the
repayment of borrowed money) or leases, or
to secure statutory obligations or surety or
appeal bonds, or to secure indemnity,
performance or other similar bonds in the
ordinary course of business;
<PAGE>
1.1.96.3 liens imposed by law, such as carriers',
warehousemen's or mechanics' liens, incurred
by it in good faith in the ordinary course
of business;
1.1.96.4 liens in favor of Lender under this Agreement or
the Loan Documents;
1.1.96.5 purchase money liens incurred in the
connection with the acquisition of capital
assets limited to the specific assets
acquired with such financing (subject to the
acquisition of such assets and incurrence of
such debt being otherwise permitted by the
terms of this Agreement);
1.1.96.6 any lien existing on any asset of any
corporation at the time such corporation
becomes a Subsidiary and not created in
contemplation of such event;
1.1.96.7 any lien on any asset of any corporation
existing at the time such corporation is
merged or consolidated with or into Borrower
or a Subsidiary and not created in
contemplation of such event;
1.1.96.8 any lien existing on any asset prior to
the acquisition thereof by Borrower or a
Consolidated Entity and not created in
contemplation of such event;
1.1.96.9 any lien arising out of the refinancing,
extension, renewal or refunding of any
Indebtedness secured by any lien permitted
by any of the foregoing clauses (4)-(8) of
this Section 1.1.96, provided that such
---------------
Indebtedness is not increased and is not
secured by any additional Collateral;
1.1.96.10 any attachment lien being contested in
good faith and by proceedings promptly
initiated and diligently conducted, unless
the attachment giving rise thereto will not,
within sixty days after the entry thereof,
have been discharged or fully bonded or will
not have been discharged within sixty days
after the termination of any such bond;
1.1.96.11 any judgment lien, unless the judgment it
secures will not, within sixty days after
the entry thereof, have been discharged or
execution thereof stayed pending appeal, or
will not have been discharged within sixty
days after the expiration of any such stay;
and
1.1.96.12 easements, rights-of-way, zoning restrictions and
other restrictions, charges or encumbrances
existing on the Closing Date
<PAGE>
or otherwise incurred in the ordinary course of
business and not materially interfering with the
ordinary conduct of the business.
1.1.97 "Person" will mean an individual, partnership,
corporation (including a business trust), joint stock
company, trust, unincorporated association, joint
venture or other entity, or a government or any
political subdivision or agency thereof.
1.1.98 "Plan(s)" will mean any pension plan subject to the
provisions of Title IV of ERISA or ss. 412 of the
Code and which is maintained for employees of
Borrower or any ERISA Affiliate.
1.1.99 "Plans and Specifications" will mean, for each
Project, the architectural, structural, mechanical,
and electrical plans and specifications for the
Improvements.
1.1.100 "Prepayment Premium" will mean the following and will
be applicable regardless of whether or not such
prepayment is in full or in part, or voluntary or on
default or otherwise:
1.1.100.1 as to LIBOR Rate Advances, three percent
(3%) of the portion of each Non-Revolving
Loan prepaid (unless prepayment occurs
within 60 days prior to the last day of the
Mini-Perm Period for such Loan), plus, in
the case of any LIBOR Rate Advances prepaid
prior to the last day of its Interest
Period, an amount equal to the excess of the
interest that would have been received from
Borrower by Lender for the account of Lender
at the rate applicable to the portion of the
Advance prepaid during the remaining portion
of the relevant Interest Period, over the
return which Lender could have obtained if
it invested the amount of such prepayment at
the LIBOR Rate that would have been in
effect if an Interest Period began on the
date of such prepayment; and such funds had
remained invested until the expiration of
the relevant Interest Period; and
1.1.100.2 as to Base Rate Advances, three percent
(3%) of the portion of each Non-Revolving
Loan prepaid, unless prepayment occurs
within 60 days prior to the last day of the
Mini-Perm Period for such Loan.
1.1.101 "Project" will mean, for each Non-Revolving Loan, the
construction of an independent and/or assisted living
facility on the Property with Advances of such Loan.
1.1.102 "Project Architect" will mean, for each Project,
either the architect hired by Borrower to complete
the Plans and Specifications for the Project,
<PAGE>
or the architect hired by the General Contractor for the
same purpose.
1.1.103 "Property" will mean, for each Project, the real
estate encumbered by and defined in the Mortgage
securing the Note for such Project.
1.1.104 "Reportable Event" will mean any reportable event as
defined in ss. 4043(b) of ERISA or the regulations
issued thereunder with respect to a Plan (other than
a Plan maintained by an ERISA Affiliate which is
considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Code ss. 414).
1.1.105 "Responsible Officer" will mean, with respect to any
Person its chairman, chief executive officer,
president, chief financial officer, controller,
treasurer or an assistant treasurer with respect to
Compliance Certificates and notices of termination or
reduction of the Total Commitment and with respect to
any other Notices hereunder, any officers or
employees authorized by resolutions delivered by
Borrower to Lender from time to time.
1.1.106 "Retainage" will mean, for each Project, ten percent
(10%) of the "hard costs" of each requested Advance,
as adjusted pursuant to Section 7.6.2 below.
-------------
.1.107 "Subsidiary" will mean, any corporation or other
entity whose securities or other ownership interests
having ordinary voting power to elect a majority of
the board of directors or other persons performing
similar functions are at the time directly or
indirectly owned by Borrower.
1.1.108 "Taxes" will have the meaning given that term in
Section 2.13 of this Agreement.
------------
1.1.109 "Tenant Improvements" will mean (i) for those
portions of the Project for which Tenant leases have
been executed and delivered, the work and
improvements required to be performed by Borrower as
landlord thereunder; and (ii) for those portions of
the Project which are to be leased but for which
leases have not yet been obtained, Borrower's
standard landlord finish work in such areas.
1.1.110 "Termination Date" will mean October 30, 1999.
1.1.111 "Total Commitment" will mean $25,000,000 as such
amount may be reduced, from time to time, in
accordance with the terms of this Agreement.
1.1.112 "UCC" will mean the Uniform Commercial Code as
adopted by the applicable state or states.
<PAGE>
1.1.113 "Withdrawal Liability" will mean liability to a
Multiemployer Plan as a result of a complete or
partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of
Title IV of ERISA.
1.2 Other Definitional Provisions. Capitalized terms used herein
and not otherwise defined herein will have the meanings given
such terms in the Notes. Unless otherwise specified, all
accounting terms used herein will be interpreted, all
accounting determinations hereunder will be made, and all
financial statements required to be delivered hereunder will
be prepared in accordance with GAAP as in effect from time to
time, applied on a basis consistent (except for changes
concurred in by Borrower's independent public accountants)
with the Current Audited Financial Statements; provided that,
if Borrower notifies the Lender that Borrower wishes to amend
any covenant in Section 6 to eliminate a material variation in
---------
the operation of such covenant by virtue of a change in GAAP,
then Borrower's compliance with such covenant will be
determined on the basis of GAAP in effect immediately before
the relevant change in GAAP became effective, until either
such notice is withdrawn or such covenant is amended in a
manner satisfactory to Borrower and Lender.
1.3 Additional Definitional Provisions. All terms defined in this
Agreement in the singular will have comparable meanings when
used in the plural and vice-versa. The words "hereof,"
"herein" and "hereunder" and words of similar import when used
in this Agreement will mean this Agreement as a whole and not
any particular provision of this Agreement.
2. Line of Credit.
2.1 The Non-Revolving Line of Credit.
2.1.1 Individual Notes. Each Non-Revolving Loan under the Line of
Credit shall be represented by a separate Note for each Project.
A maximum of three Notes shall be delivered under the Line of
Credit. The principal amount of any one Note shall not exceed the
lesser of: (i) $10,000,000; (ii) 85% of the cost of the Project
to be constructed with the Non-Revolving Loan under the Note;
(iii) 75% of the stabilized appraised value of such Project; and
(iv) the Total Commitment minus the aggregate amount of Notes
-----
then issued under the Line of Credit (regardless of the amount
advanced thereunder). The Termination Date of the Line of Credit
shall have no effect on the Maturity Date of each of the Notes.
2.1.2 Borrowings. Lender agrees to make subject to the terms and
conditions of this Agreement and each Note, Non-Revolving Loans
to Borrower on any Business Day during the period from the date
hereof through the Termination Date upon the request of Borrower
in an amount not to exceed the Total Commitment; provided that:
<PAGE>
2.1.2.1 the Aggregate Outstanding Non-Revolving Credit will
not exceed at any time the Total Commitment;
2.1.2.2 Advances will be made as specified in this Agreement
and each Note;
2.1.2.3 each Non-Revolving Loan will be evidenced by
a Note executed and delivered by Borrower to
Lender on or prior to the Termination Date
and will bear interest and be payable in the
manner set forth herein and therein; and
2.1.2.4 no Borrower or Guarantor has suffered a
Material Adverse Effect (in which event
Lender may elect not to make any new
Non-Revolving Loans to Borrower not
theretofore closed, but Lender shall in any
event continue to make Advances of all
Non-Revolving Loans theretofore closed,
provided all other conditions to such
Advances shall have been satisfied, unless
Borrower knew of the existence of the event
or condition that has a Material Adverse
Effect at the time of the Closing of such
Non-Revolving Loans and failed to disclose
the same to Lender).
2.2 Intentionally Omitted.
2.3 Intentionally Omitted.
2.4 Rates of Interest.
2.4.1 Construction Periods. During any Construction Period,
Borrower will pay Lender interest on the outstanding
principal balance of each Advance under each
Non-Revolving Loan from the date of each such Advance
at a rate of interest equal to the Base Rate.
2.4.2 Mini-Perm Periods. During any Mini-Perm Period, Borrower
will pay Lender interest on the outstanding principal
balance of each Advance or Converted Advance of each
Non-Revolving Loan from the date of each such Advance or
Converted Advance at a rate of interest equal to: (i) the
Base Rate or (ii) the Applicable Margin plus the LIBOR Rate,
as such rate may be selected by Borrower in each Notice of
Pricing Election. Notwithstanding any of the foregoing to
the contrary, for each Non- Revolving Loan, in the event
that: (i) no interest rate is selected, or (ii) an Interest
Period expires and no new interest rate is selected in a
Notice of Pricing Election with respect to an Advance or
Converted Advance, the rate of interest payable on such
Advance or Converted Advance under the applicable
Non-Revolving Loan will be the rate for Base Rate Advances
until otherwise elected in connection with a Conversion.
<PAGE>
2.5 Conversions. During any Mini-Perm Period, Borrower may on any
Business Day, upon delivering to Lender a Notice of Pricing
Election specifying a "Conversion" not later than 11:00 a.m.
(Cleveland time) on the third Business Day prior to the
proposed conversion, convert all or any portion of LIBOR Rate
Advances or Base Rate Advances under any Non-Revolving Loan
into an Advance or Advances in a different rate mode;
provided, however, that: (i) any conversion of any Advances
will be in a minimum amount of $3,000,000 and integral
multiples of $500,000 or greater in excess thereof or will be
a Conversion of the entire outstanding principal amount of the
Loan; (ii) any conversion of any Advances will be made
effective only on the last day of the Interest Period for such
Advances; (iii) no more than one (1) LIBOR Rate Advance may be
outstanding with respect to each Non-Revolving Loan at any one
time (however, Borrower may aggregate multiple Advances of a
Non-Revolving Loan into a single LIBOR Rate Advance on the
first day of any Interest Period). No conversion will be
effective unless a proper, timely and fully completed Notice
of Pricing Election specifying a Conversion is delivered to
Lender. Notwithstanding the foregoing provisions of this
Section, if Borrower elects a Conversion to a LIBOR Rate
Advance, only so much of the outstanding principal amount of
the Loan as would not become due and payable during the
Interest period shall be designated as a LIBOR Rate Advance.
2.6 Interest Payments. Interest will accrue from the date of each
Advance or Converted Advance of each Loan. Accrued interest on
each Advance or Converted Advance will be due and payable
monthly commencing on the first day of each calendar month
following such Advance or Converted Advance; provided,
however, that interest on Advances or Converted Advances will
be due and payable upon payment in full of all such Advances
or Converted Advances.
2.7 Intentionally Omitted.
2.8 Principal Payments.
2.8.1 Loans. Borrower will pay: (i) to Lender the outstanding
principal amount of, and all accrued and unpaid interest on,
each Loan on its Maturity Date; (ii) to Lender, during the
final twelve months of each Mini-Perm Period, monthly
principal payments on the first day of each calendar month
on each Non-Revolving Loan in an amount specified on a
schedule attached to the each Note which amount will be
calculated by Lender (which calculation, absent manifest
error, will be conclusive) as follows: 1/12th of the
aggregate payment of principal which would be made by
Borrower during the final twelve months of such Mini-Perm
Period (assuming approximately level monthly principal
payments) if the maximum amount of such Non-Revolving Loan,
including principal, interest, late charges, and all other
sums due under the applicable Note were to accrue interest
at an assumed fixed rate equal to the rate fixed by the
Interest Rate Hedge Agreement executed in connection with
the Closing and such balance were
<PAGE>
amortized over an assumed 20-year period beginning on such
date.
2.8.2 Optional Prepayment. Subject to the terms and conditions of
Agreement, Borrower may elect to prepay all or any part of
an Advance during any Mini-Perm Period by delivering to
Lender a Notice of Prepayment, at least one (1) Business Day
prior to the proposed prepayment date in the case of a Base
Rate Advance, and at least three (3) Business Days prior to
the proposed date of prepayment in the case of any LIBOR
Rate Advance, provided that each partial prepayment of any
Advance will be in an aggregate principal amount of
$3,000,000 or in multiples of $500,000 or greater in excess
thereof or (that such prepayment will be of the entire
outstanding principal amount of the applicable Non-
Revolving Loan) and provided further that each prepayment of
any LIBOR Rate Advance will be accompanied by payment of the
accrued interest to the date of prepayment on the principal
amount prepaid and all prepayment amounts will be
accompanied by any applicable Prepayment Premium. Each
Notice of Prepayment must specify, as to each Advance being
prepaid, the proposed prepayment date, the Advance being
prepaid and the aggregate principal amount of the
prepayment. No optional prepayment shall be permitted during
any Construction Period. Upon any optional prepayment, a
termination event shall occur under any agreement entered
into pursuant to Section 3.3.4 below. Except as specifically
-------------
provided for in the Loan Documents, no prepayment charges or
premiums shall be payable by Borrower.
2.9 Interest on the Advances.
2.9.1 Interest Rates on Non-Revolving Loans. Each
Non-Revolving Loan will bear interest from the
Borrowing Date thereof on the principal amount
thereof from time to time outstanding until due and
payable (whether at the stated maturity, by
acceleration or otherwise) as set forth in Section
-------
2.4.
----
2.9.2 Interest Payment Dates. Accrued interest will be
payable (a) monthly on the first day of each month
commencing on the first day of the month following
the first disbursement under the Non-Revolving Loan
for interest accrued for the prior month or any part
thereof, as the case may be, (b) on the Maturity
Date, and (c) to the extent any of the Obligations
remain unpaid after the Maturity Date, on demand.
2.9.3 Default Rate. At the option of the Lender, upon the
occurrence of any Event of Default, the unpaid
principal amount of each Advance, and to the extent
not paid when due, the unpaid amount of all interest,
fees, expenses and other amounts payable hereunder,
will bear interest at the Default Rate in effect from
time to time until such Event of Default is cured.
After maturity (whether by acceleration or
otherwise), the principal of the Loan
<PAGE>
and the unpaid interest and fees thereon shall bear interest
at the Default Rate.
2.10 Records. Lender is hereby authorized by Borrower to record in
its books and records, the date, amount, Interest Rate, and
applicable Interest Period, if any, of each Advance made to
Borrower, the date and amount of each payment of principal or
interest thereon, which books and records will constitute
prima facie evidence of the accuracy of the information so
-----------
recorded, provided, however, that failure of Lender to record,
--------
or any error in recording, any such information will not
relieve Borrower of its obligations to repay the outstanding
principal amount of the Advances, all accrued interest
thereon, and other amounts payable with respect thereto in
accordance with the terms of the Notes and this Agreement. The
information as reflected by records maintained by Lender
related to Advances will prevail, absent manifest error, in
the event that the information as reflected by the records
maintained by Borrower differs from Lender's records in any
respect.
2.11 Assumptions Regarding Notices.
2.11.1 Responsible Officers. Any Responsible Officer of Borrower
may submit a Notice on behalf of Borrower. Lender will be
entitled to rely conclusively on each Responsible Officer's
authority to submit a Notice on behalf of Borrower until
Lender receives written notice from Borrower to the
contrary. Except in the case where Lender has reasonable
cause to believe a written or oral notice is unauthorized,
Lender will have no duty to verify the authenticity of the
signature appearing on any written Notice and, with respect
to an oral Notice, Lender will have no duty to verify the
identity of any Person representing himself as one of the
Responsible Officers entitled to make such a request on
behalf of Borrower. 2.11.2 No Liability. Lender will not
incur any liability to Borrower in acting upon any Notice
which Lender believes in good faith to have been given by a
Responsible Officer or for otherwise acting in good faith in
accordance with this Section 2 and, upon Lender's accepting
---------
any Notice in accordance with this Section 2 pursuant to any
--------
such Notice, Borrower will have effectively elected the
Borrowing, conversion, continuation, prepayment, reduction
or termination thereunder.
2.11.3 Notice Irrevocable. Any Notice (whether telephonic,
telecopy, or facsimile or otherwise) given or deemed
to have been given pursuant to this Section will be
irrevocable, provided that any refinancing
transaction related to a Notice of Prepayment may be
delayed or rescheduled for a reasonable period of
time notwithstanding the date proposed for such
prepayment in the Notice of Prepayment.
2.12 Computations, Fees, Payments, Etc.
<PAGE>
2.12.1 Computations. All computations of interest and of fees
hereunder will be made by Lender, on the basis of: (i) for
Base Rate Advances, and fees and expenses due hereunder, a
360 day year, and (ii) in the case of LIBOR Rate Advances a
360 day year, in each case for the actual number of days
(including the first day but excluding the last day)
occurring in the period for which such interest or fees are
payable. Each determination by Lender of an Interest Rate or
fee hereunder will be conclusive and binding for all
purposes, absent manifest error. Whenever any payment to be
made by Borrower hereunder or under any of the other Loan
Documents is stated to be due on a day other than a Business
Day, such payment will be made on the next succeeding
Business Day, and such extension of time will in such case
be included in the computation of payment of interest or
fees, as the case may be.
2.12.2 Fees. The fees described in this subsection represent
compensation for services rendered and to be rendered
separate and apart from the lending of money or the
provision of credit and do not constitute compensation for
the use or forbearance of money, and the obligation of
Borrower to pay such fees will be in addition to and not in
lieu of the obligation of Borrower to pay interest, other
fees and expenses otherwise described herein or in the other
Loan Documents. The following fees will be paid
by Borrower:
2.12.2.1 Facility Fee. Borrower will pay to Lender
a Facility Fee equal to one-half of one
percent (0.5%) of the maximum principal
amount of each of the Non-Revolving Loans on
the first Business Day after the date 12
months from the Closing Date for each
Non-Revolving Loan.
2.12.2.2 Lender Closing Expenses. All out-of-pocket
expenses, plus reasonable legal expenses not
to exceed $8000 for each Closing, incurred
by Lender in connection with the
preparation, negotiation, execution and
delivery of this Agreement and the other
Loan Documents will be paid by Borrower to
Lender on each Closing Date.
2.12.2.3 Construction Montitoring Fee. Borrower
will pay to Lender, for its own account, on
demand, a Construction Monitoring Fee of
$10,000 for each Note on each Closing Date.
<PAGE>
2.12.2.4 Late Fee. Following Notice of non-payment
of any obligation due hereunder given by
Lender and the expiration of any applicable
cure period, Borrower will pay a late fee
equal to the greater of $25.00 or ten
percent (10%) of the amount of principal and
interest not timely paid by Borrower.
2.12.2.5 Commitment Fee. Borrower will pay to Lender any
unpaid portion of the Commitment Fee on the earlier
of: (i) the first Closing Date; or (ii) November
30, 1998.
2.12.3 Payments. Borrower will make each payment hereunder and
under the Notes, as the case may be, not later than 11:00
a.m. (Cleveland time) on the day when due by deposit,
including electronic transfers, to Lender's Account for
Non-Revolving Loans, in same day funds. Amounts received by
Lender, as the case may be, after 11:00 a.m. (Cleveland
time) on any Business Day will be deemed to have been
received on the next Business Day. Subject to the foregoing,
Lender will apply payments in the following order: (i) to
charges, fees and expenses (including Attorneys' Fees)
payable to Lender which are payable by Borrower as provided
in this Agreement or the Loan Documents, (ii) to accrued
interest, and (iii) to principal.
2.12.4 Charge to Accounts. Lender is hereby authorized to make any
payment of principal, interest, fees, expenses or other
Obligations specified or referred to in this Agreement or
the Loan Documents to Lender when due, on Borrower's behalf
by charging any Corporate Checking Account, and/or drawing a
Non-Revolving Loan, in the appropriate amount and each such
draw will constitute a Non-Revolving Loan and a Borrowing
hereunder and part of the Obligations, secured by all of the
Collateral; provided, however, that Lender will not be
obligated to make any such charge or draw. Lender may, in
Lender's discretion, either (a) so charge the Corporate
Checking Account for such amount and/or draw an Advance or
(b) require Borrower to pay such amount; provided that if
--------
Borrower does not pay such amount upon demand therefor by
Lender, such amount will bear interest at the Default Rate.
Borrower also does hereby authorize Lender, if and to the
extent payment of any of the Obligations owed such by
Borrower is not made when due hereunder, to charge any
amount so due from time to time against any or all accounts
of Borrower with Lender. Lender shall provide the applicable
Borrower with 5 days prior Notice of any payment or charge
to be made pursuant to this Section 2.12.4.
--------------
2.13 Taxes. Any and all payments by Borrower hereunder or under
the Loan Documents will be made free and clear of and
without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, other than any tax on
or measured by the net
<PAGE>
income of Lender pursuant to the income tax laws of the United
States or any state or political subdivisions thereof (all
such non-excluded items being hereinafter referred to as the
"Taxes"). Borrower agrees to pay any future stamp, recording
or documentary taxes or similar levies which arise from any
payment made hereunder or under the Loan Documents or from the
execution, delivery or registration of, or otherwise with
respect to, this Agreement or the Loan Documents (hereinafter
referred to as the "Levies"). Borrower will indemnify Lender
for the full amount of Taxes or Levies paid by Lender (as the
case may be) and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Levies were
correctly or legally asserted. A certificate of Lender as to
any additional amounts payable to Lender under this Section
submitted to Borrower will be conclusive absent manifest
error. Borrower will pay to Lender for the account of Lender
the amount shown as due on any such certificate within five
(5) days after receipt of the same. The agreements and
obligations contained in this Section will survive the payment
in full of the Obligations and any termination of this
Agreement.
2.14 Additional Costs.
2.14.1 Taxes, Reserve Requirements, Etc. In the event that any
applicable law, rule or regulation first in effect after the
date hereof, or any interpretation or administration thereof
of an applicable law, rule or regulation by any Governmental
Authority charged with the interpretation or administration
thereof, or compliance by Lender with any guideline, request
or directive of any such authority (whether or not having
the force of law), will (i) subject Lender to any tax or
affect the basis of taxation of payments to Lender of any
amounts payable by Borrower under this Agreement (other than
taxes imposed on the overall net income of Lender, by the
jurisdiction, or by any political subdivision or taxing
authority of any such jurisdiction, in which Lender has its
principal office), or (ii) will impose, modify or deem
applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the
account of, or credit extended by Lender (including but not
limited to a request or requirement which affects the manner
in which Lender allocates capital resources to its
commitments or obligations, including without limitation its
obligations under this Agreement, the Loans, and other
obligations) or (iii) will impose any other condition
affecting this Agreement, any of the Obligations or any of
the Loan Documents, and the result of any of the foregoing
is to increase the direct or indirect cost of making,
funding or maintaining the Loans or other Obligations or to
reduce the amount of any sum received or receivable by
Lender thereon, calculated on a net basis for any one or
related series of the foregoing events, then Borrower will
pay to Lender from time to time, upon request by Lender,
with a copy of such request to be provided to Lender,
additional amounts sufficient to compensate Lender
<PAGE>
for such increased cost or reduced sum receivable.
2.14.2 Capital Adequacy. If either: (i) the introduction, after the
date hereof, of, or any change after the date hereof in, or
in the interpretation or administration of, any United
States or foreign law, rule or regulation, or (ii)
compliance with any directive, guidelines or request from
any central bank or other Governmental Authority (whether or
not having the force of law), promulgated, or made after the
date hereof requiring that the amount of capital required or
expected to be maintained by Lender or any corporation
directly or indirectly owning or controlling Lender be
materially altered and Lender determines that such
introduction, change or compliance has or would have the
effect of reducing the rate of return on Lender's capital or
on the capital of such owning or controlling corporation as
a consequence of its obligations hereunder or under any of
the Loans or other Obligations or any commitment to lend
thereunder or relating thereto, calculated on a net basis
for any one or related series of the foregoing events, to a
level below that which Lender or such owning or controlling
corporation could have achieved but for such introduction,
change or compliance by an amount deemed by Lender (in its
sole discretion) to be material, then, from time to time,
Borrower will pay to Lender such additional amount or
amounts as will compensate Lender for such reduction. In the
event that Borrower is required by Lender to pay such
additional amounts pursuant to this Section, Borrower shall
be entitled to prepay the outstanding principal balance and
all accrued but unpaid interest thereon without a Prepayment
Premium, provided that Borrower shall make such prepayment
within 90 days following Lender's first request for such
additional amounts pursuant to this Section.
2.14.3 Certificate of Lender. To the extent reasonably practicable,
Lender will give Borrower prompt written notice of any claim
under this Section and will take steps to minimize the
impact of any of the events described in Sections 2.14.1
---------------
and/or 2.14.2, above, by transferring the Non-Revolving
--------------
Loans outstanding hereunder to another office, branch,
subsidiary or affiliate of Lender, so long as such action is
not disadvantageous to Lender. A certificate of a Lender
setting forth such amount or amounts as will be necessary to
compensate Lender as specified in Sections 2.14.1 and/or
-----------------------
2.14.2, above which will include detailed explanations and
------
calculations, will be delivered to Borrower and will be
conclusive absent manifest error. Borrower will pay Lender
for the account of Lender the amount shown as due on any
such certificate within five (5) days after its receipt of
the same. Failure on the part of Lender to deliver any such
certificate will not constitute a waiver of Lender's rights
to demand compensation for any particular period or any
future period. The protection of this Section will be
available to Lender regardless of any possible contention of
invalidity or inapplicability of the law, regulation,
<PAGE>
etc., that results in the claim for compensation under this
Section, but if any law, regulation, etc., is later found to
be invalid or inapplicable, Lender promptly will return to
Borrower any sums received under this Section. The
agreements and obligations contained in this Section will
survive the payment in full of the Obligations and any
termination of this Agreement.
2.15 Obligation to Indemnity.
2.15.1 Events. In the event of Borrower's failure to
accept the proceeds from an Advance after making a
request therefor, Lender will, following Notice to
Borrower and expiration of 5 Business Days: (i) at
the request of Borrower, deposit such funds into a
reserve account; or (ii) immediately prepay such
Advance and Borrower will pay to Lender on written
demand an amount equal to the interest that would
have accrued on such Advance plus any applicable
Prepayment Premium calculated through the date of
such prepayment by Lender of such amounts. The
obligations of Borrower under this Section will
survive the payment in full of the Obligations and
any termination of this Agreement.
3. Conditions Precedent.
3.1 Line of Credit Closing. Lender's obligation to close this
Agreement are subject to the fulfillment of each of the
following conditions:
3.1.1 Line of Credit Closing Memo. Lender has received each of the
documents listed on the Line of Credit Closing Memo, all in
form and substance reasonably satisfactory to Lender.
3.1.2 Other Conditions. The conditions set forth in
Sections 3.2.2, 3.2.3, and 3.2.5, below, will have
--------------------------------
been fully satisfied whether or not a Closing occurs
or an initial Advance is taken.
3.2 Closing. Lender's obligations to close any Non-Revolving Loan
are subject to the fulfillment of each of the following conditions:
3.2.1 Closing Memo. Lender has received each of the documents
listed on the Closing Memo, all in form and substance
reasonably satisfactory to Lender.
3.2.2 No Defaults. No Default or Event of Default, or any event or
condition which with the lapse of time or giving of notice
or both would constitute an Event of Default exists on the
Closing Date.
3.2.3 Accuracy. The representations and warranties contained in
this Agreement and in the other Loan Documents are true,
correct and complete in all material respects on and as of
the day hereof and of any Closing.
<PAGE>
3.2.4 Intentionally Omitted.
3.2.5 Material Adverse Effect. No Borrower or Guarantor has
suffered a Material Adverse Effect to its business or
financial condition.
3.2.6 Construction Items. Lender has received the items identified
in Sections 7.3 and 7.8 below.
--------------------
3.3 Each Advance. The obligation of Lender to make any Advance
under a Note is subject to the fulfillment of each of the
following conditions to the reasonable satisfaction of
Lender:
3.3.1 No Defaults. No Default or Event of Default, or any event or
condition which with the lapse of time or giving of notice
or both would constitute an Event of Default exists on the
date of each Advance, except that the occurrence of an event
or the existence of a condition that has a Material Adverse
Effect shall not entitle Lender to refuse to make Advances
of an existing Non-Revolving Loan provided that all of the
other conditions to such Advances pursuant to this Agreement
and the Loan Documents shall have been satisfied.
3.3.2 Accuracy. The representations and warranties contained in
this Agreement and in the other Loan Documents are true,
correct and complete in all respects on the date of each
Advance, except that an inaccuracy in any representation or
warranty that relates to the occurrence of an event or
existence of a condition that has a Material Adverse Effect
shall not entitle Lender to refuse to make Advances of an
existing Non-Revolving Loan provided that all of the other
conditions to such Advances pursuant to this Agreement and
the Loan Documents shall have been satisfied, unless
Borrower knew of the existence of the event or condition
that has a Material Adverse Effect at the time of the
Closing of such Non-Revolving Loans and failed to disclose
the same to Lender.
3.3.3 Notices. Lender will have received all required Notices.
3.3.4 Fixed Rate. Within 14 days after each Closing, the Borrower
will have entered into an Interest Rate Swap Agreement or
Treasury Rate Lock Agreement.
3.3.5 Mortgage. The Mortgage securing the applicable Note
will have been filed for record with the appropriate
county recorder or clerk.
3.3.6 Construction Items. Lender has received the items identified
in Section 7.4 below with respect to each Advance, and
-----------
Section 7.5 below with respect to the final Advance of each
-----------
Loan.
<PAGE>
4. Representations and Warranties. To induce Lender to extend the Line of
Credit and Loans and make the Advances herein contemplated, Borrower
hereby represents and warrants as to itself, themselves and Grand
Court as follows:
4.1 Organization. It is duly organized, and in good standing under
the laws of the state of its organization, is duly qualified
in all jurisdictions where required by the conduct of its
business or ownership of its assets, except where the failure
to so qualify would not have a Material Adverse Effect on its
condition, financial or otherwise, and has the power and
authority to own and operate its assets and to conduct its
business as is now done.
4.2 Latest Financials. The Current Financial Statements as
delivered to Lender are true, complete and accurate in all
material respects and fairly present its financial condition,
assets and liabilities, whether accrued, absolute, contingent
or otherwise and the results of its operations for the periods
specified therein. The annual financial statements of all
business entities included in the Current Financial Statements
have been prepared in accordance with generally accepted
accounting principles applied consistently with preceding
periods subject to any comments and notes contained therein.
4.3 Recent Adverse Changes. Except as specifically disclosed in the
Disclosure Schedule or disclosed to Lender in writing, since the dates
of its Current Financial Statements, to its knowledge, it has not
suffered an event or condition that has a Material Adverse Effect, and
it has no knowledge of any event or condition which may have a
Material Adverse Effect, provided that no such Material Adverse
Effect, in and of itself, shall entitle the Lender to refuse to make
Advances under an existing Non-Revolving Loan unless Borrower knew of
the existence of such event or condition that has a Material Adverse
Effect at the time of the Closing of such Non-Revolving Loan and
failed to disclose the same to Lender.
4.4 Recent Actions. Except as disclosed in the Disclosure Schedule, since
the dates of its Current Financial Statements, its business has been
conducted in the ordinary course and it has not: (a) incurred any
obligations or liabilities, whether accrued, absolute, contingent or
otherwise, other than liabilities incurred and obligations under
contracts entered into in the ordinary course of business and other
than liabilities to Lender; (b) as to Borrower only, discharged or
satisfied any lien or encumbrance or paid any obligations, absolute or
contingent, other than current liabilities, in the ordinary course of
business; (c) mortgaged, pledged or subjected to lien or any other
encumbrance any of its assets, tangible or intangible, or cancelled
any debts or claims except in the ordinary course of business; or (d)
made any loans or otherwise conducted its business other than in the
ordinary course of business. For the purposes of this Section 4, the
---------
"ordinary course of business" shall be deemed to include Guarantor's
syndication business.
4.5 Title. It has good and marketable title to the assets reflected on its
Current
<PAGE>
Financial Statements, free and clear from all liens and encumbrances
except for: (i) current taxes and assessments not yet due and payable,
(ii) liens and encumbrances, if any, reflected or noted on said
balance sheet or notes, (iii) any security interests, pledges or
mortgages to Lender in connection with the closing of this Agreement,
(d) assets disposed of in the ordinary course of business, and (e)
Permitted Liens.
4.6 Litigation, Etc. Except as disclosed on the Disclosure Schedule, as of
the date hereof, there are no actions, suits, proceedings or
governmental investigations pending or, to its knowledge, threatened
against it which, if adversely determined could result in a Material
Adverse Effect; and there is no basis known to it for any such
actions, suits, proceedings or investigations, provided that no such
Material Adverse Effect shall entitle Lender not to make Advances of
an existing Non-Revolving Loan.
4.7 Taxes. Except as to taxes not yet due and payable, it has filed all
returns and reports that are now required to be filed by it in
connection with any federal, state or local tax, duty or charge
levied, assessed or imposed upon it or its property, including
unemployment, social security and similar taxes; and all of such taxes
have been either paid or adequate reserve or other provision has been
made therefor. It has filed for no extension of time for the payment
of any tax or for the filing of any tax return.
4.8 Authority. It has full power and authority to enter into the
transactions provided for in this Agreement. The documents to be
executed by it in connection with this Agreement, when executed and
delivered by it will constitute the legal, valid and binding
obligations of it enforceable in accordance with their respective
terms except as such enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws in
effect from time to time affecting the rights of creditors generally
and except as such enforceability may be subject to general principles
of equity (regardless of whether such enforceability is considered in
a proceeding in law or in equity).
4.9 Other Defaults. There does not now exist any material default or
material violation by it of or under any of the terms, conditions or
obligations of: (i) its Articles or Certificate of Incorporation and
Regulations or Bylaws or Articles of Organization and Operating
Agreement, as applicable; (ii) any indenture, mortgage, deed of trust,
franchise, permit, contract, agreement, or other instrument to which
it is a party or by which it is bound; or (iii) any law, regulation,
ruling, order, injunction, decree, condition or other requirement
applicable to or imposed upon it by any law or by any Governmental
Authority, court or agency; and the transactions contemplated by this
Agreement and the Loan Documents will not result in any such default
or violation.
4.10 Conflicts. Neither the execution, delivery and performance of this
Agreement nor the
<PAGE>
consummation and any of the transactions herein contemplated will: (i)
result in any default or violation by Borrower of or under any of the
terms, conditions or obligation of (a) its respective articles or
certificates of Incorporation or ByLaws/Regulations, Articles or
Certificates of Organization or Operating Agreement, as applicable;
(b) any indenture, or deed of trust or mortgage to which it is a party
or by which it is bound; (c) any agreement or instrument evidencing
debt to which it is a party or by which it is bound; (d) any other
franchise, permit, contract, agreement or other instrument to which it
is a party or by which it is bound; or (e) any law, regulation,
ruling, order, injunction, decree, condition or other requirement
applicable to or imposed upon it or affecting any of its assets by any
law or by any Governmental Authority, court or agency or (ii) result
in or require the creation of any Lien (except for a Permitted Lien)
upon any of the assets of Borrower.
4.11 Investment Company Act. It is not, nor is it directly or
indirectly controlled by, or acting on behalf of, a person
which is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
4.12 Membership Interests of Borrower. If it is not a publicly traded
entity, all of the issued and outstanding equity interests of Borrower
are owned by the parties listed on the Disclosure Schedule in the
amount specified by the name of each such equity holder, and, except
as listed on the Disclosure Schedule, Borrower has no outstanding
options, warrants or contracts to issue additional equity interests of
any kind.
4.13 Subsidiaries, Partnerships and Joint Ventures. Except as listed on the
Disclosure Schedule, Borrower has no Subsidiaries and is not a party
to any partnership agreement or joint venture agreement.
4.14 Licenses, Etc. It has obtained or will obtain any and all licenses,
permits, franchises or other governmental authorizations necessary for
the ownership of its properties and the conduct of its business. It
possesses or will possess adequate licenses, patents, patent
applications, copyrights, trademarks, trademark applications, and
trade names to continue to conduct its business as heretofore
conducted by it, without any conflict with the rights of any other
person or entity.
4.15 Name, Places of Business and Location of Collateral. The address of
its principal place of business and every other place from which it
conducts business is as specified in the Disclosure Schedule. The
Collateral and all books and records pertaining to the Collateral are
and will be located at the addresses indicated on the Disclosure
Schedule. In the five years preceding the date hereof, it has not
conducted business under any name other than its current name nor
maintained any place of business or any assets in any jurisdiction
other than those disclosed on the Disclosure Schedule.
4.16 ERISA. It and each of its ERISA Affiliates are in compliance in all
material
<PAGE>
respects with the applicable provisions of ERISA and the regulations
and published interpretations thereunder. No Reportable
Event has occurred as to which it or any such ERISA
Affiliate was required to file a report with the PBGC, and,
as of the Line of Credit Closing Date and each Closing Date,
the present value of all benefit liabilities under all the
Plans (based on those assumptions used to fund such Plans)
did not, as of the last annual valuation date applicable
thereto, exceed by more than $25,000 the aggregate value of
the assets of such Plans. Neither it nor any such ERISA
Affiliate has incurred any Withdrawal Liability that
materially adversely affects the financial condition of it
and its ERISA Affiliates taken as a whole. Neither it nor
any such ERISA Affiliate has received any notification that
any Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and no
Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated, where such
reorganization has resulted or can reasonably be expected to
result in an increase in the contributions required to be
made to such Plan that would materially and adversely affect
the financial condition of it and its ERISA Affiliates taken
as a whole.
4.17 Regulation U. No part of the proceeds of any Loans will be used to
purchase or carry any margin stock (as such term is defined in
Regulation U of the Board of Governors of the Federal Reserve System).
4.18 Closing Memos. The information contained in each of the documents
listed on the Line of Credit, Closing Memo, and each Closing Memo to
be executed or delivered by it or relating to it is complete and
correct in all material respects.
4.19 Environmental Matters. Qualified, however, as to Section 4.19.3,
--------------
below, by those matters, if any, set forth in the Environmental
Report:
4.19.1 The activities or operations on the Property are in
compliance in all material respects with all Environmental
Laws.
4.19.2 Borrower has obtained or will obtain all approvals, permits,
licenses, certificates, or satisfactory clearances from all
governmental authorities required under Environmental Laws
with respect to the Property and any activities or
operations at the Property.
4.19.3 To the best of Borrower's knowledge, after and based solely
upon an investigation meeting the standard set forth at 42
U.S.C. Section 9601 (35)(B)(1986) and any similar standards
for environmental investigations under state Environmental
Laws ("Due Investigation"), there have not been and are not
now any solid waste, hazardous waste, hazardous or toxic
substances, pollutants, contaminants, or petroleum in, on,
under or about the Property. The use which Borrower makes
and intends to make of the Property will not result in the
deposit or other release of any hazardous or toxic
substances, solid waste, pollutants, contaminants or
petroleum on, to or from the Property.
<PAGE>
4.19.4 To the best of Borrower's knowledge, after and based solely
upon Due Investigation, there have been no complaints,
citations, claims, notices, information requests, orders or
directives on environmental grounds or under Environmental
Laws (collectively "Environmental Claims") made or delivered
to, pending or served on, or anticipated by Borrower or its
agents, or of which Borrower or its agents, are aware or
should be aware (i) issued by any governmental department or
agency having jurisdiction over the Property or the
activities or operations at the Property, or (ii) issued or
claimed by any third party relating to the Property or the
activities or operations at the Property.
4.19.5 To the best of Borrower's knowledge, after and based solely
upon Due Investigation, no asbestos-containing materials are
installed, used or incorporated into the Property, and no
asbestos-containing materials have been disposed of on the
Property.
4.19.6 To the best of Borrower's knowledge, after and based solely
upon Due Investigation, no polychlorinated biphenyls
("PCBs") are located at, on or in the Property in the form
of electrical equipment or devices, including, but not
limited to, transformers, capacitors, fluorescent light
fixtures with ballasts, cooling oils or any other device or
form.
4.19.7 To the best of Borrower's knowledge, after and based
solely upon Due Investigation, there have not been
and are not now any underground storage tanks located
within or about the Property.
4.19.8 The Property does not contain any wetlands as that
term is defined by relevant governmental agencies
under Environmental Laws and, to the best of
Borrower's knowledge, after and based solely upon Due
Investigation, there has been no filling of wetlands
on the Property in violation of Environmental Laws.
4.19.9 Borrower has provided or will provide the Lender with copies
of all environmental reports, studies and audits relating to
the Property of which Borrower is aware and to which
Borrower has access.
4.20 Labor Matters. There are no material strikes or other
material labor disputes against it pending or, to its
knowledge, threatened. The hours worked and payment made to
its employees in all material respects have not been in
violation of the Fair Labor Standards Act or any other
applicable law dealing with such matters. All payments due
from it, or for which any claim may be made against it, on
account of wages and employee health and welfare insurance
and other benefits, have been paid or accrued as a liability
on its books. The consummation of the transactions
contemplated herein will not give rise to a right of
termination or
<PAGE>
right of renegotiation on the part of any union under any collective
bargaining agreement to which it is a party or by which it is bound.
4.21 Year 2000. It has reviewed the areas within each of its
businesses and operations that could be adversely affected
by, and have developed or are developing a detailed plan and
timeline to address in a timely manner the risk that certain
computer applications used by it may be unable to recognize
and perform properly date sensitive functions involving
dates prior to and after December 31, 1999 (the "Year 2000
Problem"). The Year 2000 Problem will not result in any
Material Adverse Effect to it.
5. Affirmative Covenants. From the date of execution of this Agreement
until all Obligations to Lender have been fully paid, Borrower will
and will cause Guarantor:
5.1 Books, Records and Access to the Collateral. Maintain proper books of
account and other records in the form currently maintained by Borrower
and previously furnished to Lender and enter therein complete and
accurate entries and records of all of its transactions and give
representatives of Lender access thereto at all reasonable times,
including permission to examine, copy and make abstracts from any of
such books and records and such other information as it may from time
to time reasonably request. It will give Lender reasonable access to
the Collateral for the purposes of examining the Collateral and
verifying its existence. It will make available to Lender for
examination copies of any reports, statements or returns which it may
make to or file with any governmental department, bureau or agency,
federal or state and will furnish to Lender copies of any reports,
statements or returns and exhibits thereto that Borrower may make to
or file with the Securities Exchange Commission. In addition, it will
be available to Lender, or cause its officers or general partners, as
applicable, to be available from time to time upon reasonable notice
to discuss the status of the Loans, its business and any statements,
records or documents furnished or made available to Lender in
connection with this Agreement.
5.2 SEC Filings and Shareholders Reports. Deliver to Lender within 14 days
of the filing or distribution thereof: (i) copies of all periodic
reports on Forms 10-K, 10-Q and 8-K which it may make to or file with
the Securities Exchange Commission, and with its 10-K and 10-Q
filings, a Compliance Certificate and (ii) its quarterly and annual
reports to its shareholders.
5.3 Monthly Statements. Furnish Lender within 45 days after the end of
each calendar month internally prepared financial statements of
Borrower in the form currently maintained by Borrower and previously
furnished to Lender with respect to such calendar month, which
financial statements will: (i) be in reasonable detail and in form
reasonably satisfactory to Lender; (ii) include profit and loss and
surplus statements for such period, a statement of cash flows for such
period, and an occupancy report for Borrower's Project; (iii) include
prior year comparisons;
<PAGE>
and (iv) be on a consolidating and consolidated basis for Borrower and
its Subsidiaries, if any.
5.4 Quarterly Statements. Furnish Lender within 45 days after the end of
each fiscal quarter internally prepared financial statements of the
Consolidated Entities in the form currently maintained by Borrower and
previously furnished to Lender with respect to such fiscal quarter,
which financial statements will: (i) be in reasonable detail and in
form reasonably satisfactory to Lender; (ii) be accompanied by a
Compliance Certificate; (iii) include a balance sheet as of the end of
such period, profit and loss and surplus statements for such period
and a statement of cash flows for such period; and (iv) include prior
year comparisons. To the extent that the documents identified in
Section 5.2 above are not provided to Lender, Borrower will cause to
-----------
be delivered to Lender quarterly consolidated financial statements of
Grand Court which will: (i) include, as of the end of each fiscal
quarter, a balance sheet, and earnings, shareholders' equity and cash
flow statements for such quarter, and profit and loss statements; and
(ii) include prior year comparisons.
5.5 Annual Statements. Furnish Lender within 120 days after the end of
each fiscal year of Borrower annual audited financial statements of
the Consolidated Entities which will: (i) include, as of the end of
such period, a balance sheet, and earnings, shareholders' equity and
cash flow statements for such year, profit and loss statements, and an
unaudited occupancy report for any Borrower's Project; and (ii) be
accompanied by a Compliance Certificate, and (iii) contain the
unqualified opinion of an independent certified public accountant
acceptable to Lender and its examination will have been made in
accordance with generally accepted auditing standards and such opinion
will contain a report reasonably satisfactory to Lender of any
inconsistency in the application of generally accepted accounting
principles with the preceding years' statements, if any. To the extent
that the documents identified in Section 5.2 above are not provided to
-----------
Lender, Borrower will cause to be delivered to Lender annual audited
consolidated financial statements of Grand Court which will: (i)
include, as of the end of each fiscal year, a balance sheet, and
earnings, shareholders' equity and cash flow statements for such year,
and profit and loss statements; and (ii) contain the unqualified
opinion of an independent certified public accountant acceptable to
Lender and its examination will have been made in accordance with
generally accepted auditing standards and such opinion will contain a
report reasonably satisfactory to Lender of any inconsistency in the
application of generally accepted accounting principles with the
preceding years' statements, if any.
5.6 Auditor's Letters, Etc. Furnish any letter, other than routine
correspondence, directed to it by its auditors or independent
accountants, relating to its financial statements, accounting
procedures, financial condition, tax returns or the like since the
date of the Current Financial Statements to Lender.
<PAGE>
5.7 Taxes. Pay and discharge prior to the imposition of penalties for late
payments, all indebtedness and all taxes, assessments, charges, levies
and other liabilities imposed upon it, its income, profits, property
or business, except those which currently are being contested in good
faith by appropriate proceedings and for which it has set aside
adequate reserves or made other adequate provision with respect
thereto, but any such disputed item will be paid forthwith upon the
commencement of any proceeding for the foreclosure of any lien which
may have attached with respect thereto, unless Lender has received an
opinion in form and substance and from legal counsel acceptable to it
that such proceeding is without merit. Borrower shall submit to Lender
annual Federal Income Tax Returns for Borrower and Guarantor within 30
days of filing same
5.8 Operations. Operate its business in substantially the same manner as
presently operated or intended to be operated, except where such
operations are rendered impossible by a fire, strike or other events
beyond its control; keep its real and personal properties in good
operating condition and repair; make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto and comply
with the provisions of all leases to which it is or will be a party or
under which it occupies or holds real or personal property so as to
prevent any loss or forfeiture thereof or thereunder.
5.9 Insurance. At all times, comply with the insurance requirements of the
Loan Documents. Prior to the Completion Date, maintain builders' risk
insurance for each Project in an amount greater than or equal to
amount of the Obligations. On and after the Completion Date, keep its
insurable real and personal property insured with responsible
insurance companies against loss or damage by fire, windstorm and
other hazards which are commonly insured against in an extended
coverage endorsement in an amount equal to not less than 80% of the
insurable value thereof on a replacement cost basis. At all times,
maintain public liability insurance coverage (including "umbrella
coverage") of $5,000,000 per occurrence and $10,000,000 in the
aggregate. All insurance policies shall be issued by carriers with a
Best's Insurance Reports policy holder's rating of A and a financial
size category of Class VII. The current insurer of Guarantor, Alliance
Insurance is acceptable to Lender. In addition, the parties delivering
to Lender insurance certificates as listed on each Closing Memo will
maintain extended liability insurance and property insurance of at
least the amounts and coverages listed on such certificates delivered
in connection with each Closing and in a form and with companies
reasonably satisfactory to Lender. Notwithstanding the foregoing, such
property insurance will at all times be in an amount so that such
party will not be deemed a "co-insurer" under any co-insurance
provisions of such policies. It shall also deposit all renewal
policies with Lender as evidence of coverage. Borrower shall obtain
flood hazard insurance for any Project located in an area identified
by the federal government as a flood hazard area. Borrower shall
obtain rent loss or business interruption insurance coverage in a
minimum amount of not less than the appraised rentals of each Project
for a minimum of six (6) months. All insurance
<PAGE>
policies will name Lender as an additional insured and, where
applicable, as lender's loss payee under a loss payable
endorsement satisfactory to Lender. All such policies will
provide that thirty (30) days prior written notice must be
given to Lender before such policy is cancelled or coverage
thereunder reduced in any way. Schedules of all insurance
will be submitted to Lender upon request. Such schedules
will contain a description of the risks covered, the amounts
of insurance carried on each risk, the name of the insurer
and the cost of such insurance. Such schedules will be
supplemented from time to time promptly to reflect any
change in insurance coverage.
5.10 Compliance with Laws. Except for those laws or regulations, the
application of which are being diligently contested by Borrower and/or
Guarantor in good faith, comply with all laws and regulations
applicable to it and to the operation of its business, including
without limitation those relating to environmental and health matters,
and do all things necessary to maintain, renew and keep in full force
and effect all rights, permits, licenses, certificates, satisfactory
clearances and franchises necessary to enable it to continue its
business.
5.11 Environmental Violations.
5.11.1 In the event that any hazardous or toxic substances,
pollutants, contaminants, solid waste or hazardous waste, or
petroleum are released (as that term is defined under
Environmental Laws) at or from the Property, or are
otherwise found to be in, on, under, about or migrating to
or from the Property in violation of Environmental Laws or
in excess of cleanup levels established under Environmental
Laws applicable to the Property, immediately upon becoming
aware of same will notify Lender in writing and will
promptly commence such action as may be appropriate or
required with respect to such conditions, including, but not
limited to, investigation, removal and cleanup thereof, and
upon failure to commence such actions or to diligently
prosecute same, deposit with Lender cash collateral, letter
of credit, bond or other assurance of performance in form,
substance and amount reasonably acceptable to Lender to
cover the cost of such action. Upon request, it will provide
Lender with updates on the status of Borrower's actions to
resolve or otherwise address such conditions, until such
time as the Property is in compliance with all Environmental
Laws as determined by Lender.
5.11.2 In the event it receives notice of an Environmental Claim
from any governmental agency or other third party alleging a
violation of or liability under Environmental Laws with
respect to the Property or Borrower's activities or
operations at the Property, immediately notify Lender in
writing and will commence such action as may be appropriate
or required with respect to such Environmental Claim. Upon
request, Borrower will provide Lender with updates on the
status of Borrower's actions to resolve
<PAGE>
or otherwise address such Environmental Claim until
such claim has been fully resolved as determined
by Lender in the exercise of its reasonable
discretion.
5.12 Environmental Audit and Other Environmental Information. Provide
copies of all environmental reports, audits and studies obtained by it
from work conducted by it or any other person or entity on its
Property or property adjacent thereto as soon as such reports, audits
and studies become available to it. If the submissions are considered
inadequate or insufficient in order for Lender to adequately consider
the environmental condition of the Property or the status of
Borrower's environmental compliance or if the submissions are in
error, then Lender may require it, at its sole expense, at any time
after an Event of Default, and not more than 2 times per calendar year
at any other time, to engage an independent engineering firm
acceptable to Lender to conduct a complete environmental report,
study, or audit in as timely as fashion as is reasonably possible. In
addition, it will provide Lender with information related to remedial
action at its Property or adjacent to its Property as soon as such
information becomes available to it.
5.13 Business Names and Locations. Immediately notify Lender of any change
in the name under which it conducts its business and, unless Lender
otherwise consents in writing, keep and maintain all of the Collateral
supplied by it only at its addresses listed in the Disclosure
Schedule, keep its principal place of business at the address
specified in the Disclosure Schedule and notify Lender immediately
upon the opening or closing of any of Guarantor's principal offices.
5.14 Acquisition of Assets. Borrower will not acquire any assets, real or
personal, unless such assets are automatically covered perfected liens
granted by the existing Loan Documents or within 10 days of such
acquisition, Borrower delivers to Lender a mortgage, pledge or
security agreement to encumber such asset in favor of Lender.
5.15 ERISA Compliance. Comply in all material respects with the applicable
provisions of ERISA and furnish to Lender: (i) as soon as possible,
and in any event within 30 days after any officer of it or any ERISA
Affiliate knows or has reason to know that any Reportable Event has
occurred that alone or together with any other Reportable Event could
reasonably be expected to result in liability of it to the PBGC in an
aggregate amount exceeding $25,000, a statement of a financial officer
setting forth details as to such Reportable Event and the action that
it proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event, if any, given to the PBGC, (ii)
promptly after receipt thereof, a copy of any notice it or any ERISA
Affiliate may receive from the PBGC relating to the intention of the
PBGC to terminate any Plan or Plans (other than a Plan maintained by
an ERISA Affiliate which is considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Code Section 414) or to appoint a
<PAGE>
trustee to administer any such Plan, (iii) within 10 days after the
due date for filing with the PBGC pursuant to Section 412(n) of the
-------------
Code of a notice of failure to make a required installment or other
payment with respect to a Plan, a statement of its financial officer
setting forth details as to such failure and the action that it
proposes to take with respect thereto together with a copy of any such
notice given to the PBGC and (iv) promptly and in any event within 30
days after receipt thereof by it or any ERISA Affiliate from the
sponsor of a Multiemployer Plan, a copy of each notice received by
Borrower or any ERISA Affiliate concerning (A) the imposition of
Withdrawal Liability in an amount exceeding $25,000, or (B) a
determination that a Multiemployer Plan is, or is expected to be,
terminated or in reorganization, both within the meaning of Title IV
of ERISA, and which, in each case, is expected to result in an
increase in annual contributions of it or an ERISA Affiliate to such
Multiemployer Plan in an amount exceeding $25,000.
5.16 Notice of Default. Notify Lender in writing within five days after it
knows of the occurrence of an Event of Default.
5.17 Sale and Leaseback. Not directly or indirectly enter into any
arrangement to sell or transfer all or any part of the
Collateral then owned by it and thereupon or within one year
thereafter rent or lease any of the Collateral so sold or
transferred.
5.18 Line of Business. Not enter into any lines or areas of business
substantially different from the business or activities in which it is
presently engaged.
5.19 Business Opportunities. Except for the Consolidated Entities, not
divert (or permit anyone to divert) any of its business or
opportunities to any other corporate or business entity in which it or
its Subsidiaries may hold a direct or indirect interest.
5.20 Waivers. Not waive any right or rights of substantial value which,
singly or in the aggregate, is or are material to its condition
(financial or other), properties or business.
5.21 Use of Proceeds. Use the proceeds of each Non-Revolving Loan for the
construction of a Project.
6. Negative Covenants. From the date of execution of this Agreement until
all of the Obligations have been fully paid and this Agreement
terminated, each Borrower will not:
6.1 Debt. Incur any Indebtedness other than: (a) the Loans and
any subsequent Indebtedness to Lender; (b) open account
obligations incurred in the ordinary course of business
having maturities of less than 90 days; (c) rental and lease
payments for real or personal property whose aggregate
annual rental payments would exceed $25,000 when added to
Borrower's rental or lease agreements existing on the date
hereof.
<PAGE>
6.2 Liens. Incur, create, assume, become or be liable in any
way, or suffer to exist any Lien on any of its assets, now
or hereafter owned, other than Permitted Liens.
6.3 Guarantees. Guarantee, endorse or become contingently liable for the
obligations of any person, firm or corporation, except in connection
with the endorsement and deposit of checks in the ordinary course of
business for collection.
6.4 Ownership and Management. Fail to give Lender notice within five (5)
days and pay to Lender upon Lender's written demand given within sixty
(60) days after receipt of notice and payable 90 days after such
demand without any other grace period or notice, the entire unpaid
balance of all of the Obligations, if: Grand Court ceases to own 100%
of the membership interest of each Borrower.
6.5 Project Debt Service Coverage. Permit the ratio of Operating
Cash Flow of Borrower to the sum of: (i) current period
required principal payments of long-term debt by Borrower
(which will include capitalized lease payments) plus (ii)
interest expense of Borrower, each to be calculated for the
same fiscal quarter to be less than:
6.5.1 1.0 to 1.0 at the end of both the 5th and 6th quarters
following the quarter of the Completion Date;
6.5.2 1.2 to 1.0 at the end of both the 7th and 8th quarters
following the quarter of the Completion Date.
and, if any Borrower permits this ratio to fall below 1.0 to
1.0 for a full fiscal quarter at any time after the end of
the 6th quarter following the Completion Date of its
Project, then Lender shall have the right to replace the
Manager of such Project, in addition to the rights granted
to Lender under Section 8 below upon the occurrence of such
---------
an Event of Default.
6.6 Total Liabilities to Net Worth. Permit the ratio of the
total liabilities of the Consolidated Entities to Net Worth
at any time to be greater than or equal to 10 to 1, tested
quarterly.
6.7 Net Worth. Permit the Consolidated Entities to have a minimum
Net Worth of less than $20,000,000, plus 100% of all net cash
proceeds of future equity issues of such Consolidated
Entities, plus 50% of positive net income of such Consolidated
Entities (with no deductions for net losses), calculated in
accordance with generally accepted accounting principles, on a
cumulative basis for all periods since July 31, 1998.
6.8 Distributions. Declare or pay any payment or distributions of
any kind to any Affiliate except distributions of net cash
flow to Grand Court.
6.9 Additional Securities. Issue any additional membership interests of
any
<PAGE>
description or issue warrants, options or rights to purchase its
interests.
6.10 Liquidity. Permit the minimum Liquidity of the Consolidated Entities
at any time to be less than $5,000,000.00.
6.11 Redemptions. Purchase, retire, redeem or otherwise acquire for
value, directly or indirectly, any membership interest now or
hereafter outstanding.
6.12 Investments. Purchase or hold beneficially any stock, other securities
or evidences of indebtedness of, or make any investment or acquire any
interest whatsoever in, any other person, firm or corporation other
than short term investments of excess working capital invested in one
or more of the following: (a) investments (of one year or less) in
direct or guaranteed obligations of the United States, or any agencies
thereof; (b) investments (of one year or less) in certificates of
deposit of banks or trust companies organized under the laws of the
United States or any jurisdiction thereof, provided that such banks or
trust companies are insured by the Federal Deposit Insurance
Corporation and have capital in excess of $25,000,000; and (c) money
market mutual funds with average maturities of less than 90 days.
6.13 Merger, Acquisition or Sale of Assets. Merge or consolidate
with or into any other entity or acquire all or substantially
all the assets of any person, firm, partnership, joint venture
or corporation, or sell, lease or otherwise dispose of any of
its assets except for dispositions in the ordinary course of
business.
6.14 Advances and Loans. Lend or commit to lend money, give credit or make
advances (other than advances not to exceed $1,000.00 for any one
employee and other reasonable and ordinary advances to cover
reasonable expenses of employees, such as travel expenses) to any
Person, including, without limitation, Affiliates.
6.15 Subsidiaries. Acquire any Subsidiaries, create any Subsidiaries or
enter into any partnership or joint venture agreements.
6.16 Transactions with Affiliates. Except for each Management Contract,
enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of property or the rendering of any
service, with any Affiliate unless such transaction is otherwise
permitted under this Agreement, is in the ordinary course of its
business, and is on fair and reasonable terms no less favorable to it
than it would obtain in a comparable arm's length transaction with a
non-Affiliate.
6.17 Transfer of Collateral. Transfer, or permit the transfer, to another
location of any of the Collateral or the books and records related to
any of the Collateral outside of the counties of the addresses listed
on the Disclosure Schedule; provided, however, that Borrower may
--------
transfer Collateral or the books and records related thereto to
another county with the prior written consent of Lender and if
<PAGE>
Borrower has provided to Lender prior to such transfer an opinion
addressed to Lender in the form and substance and written by counsel
acceptable to Lender to the effect that the perfection and priority of
Lender's security interest in the Collateral will not be affected by
such move or if it will be affected, setting forth the steps necessary
to continue the perfection and priority of Lender's security interest
together with the commencement of such steps by Borrower at its
expense.
6.18 Excess Borrowing. Permit the Advances or Non-Revolving Loans
to violate any of the applicable Non-Revolving Conditions.
7. CONSTRUCTION.
7.1 Construction of Project. Borrower will cause construction of
each Project to be carried on continuously and to reach
Completion, be lien free and ready for occupancy not later
than the Completion Date, subject to Force Majeure, time
being of the essence in this Agreement. The Project will be
constructed substantially in accordance with the Plans and
Specifications, and all Legal Requirements. The Project will
be constructed entirely on the Property and the Improvements
will not encroach upon or overhang any easement, building
line or right of way and, when erected, will not violate
applicable use or other restrictions of record. If, in
Lender's reasonable judgment, the Project is not in
substantial conformity with the foregoing, Lender shall have
the right to stop the work and order repair or
reconstruction in accordance therewith and to withhold its
consent to all further Advances, in accordance with the
terms hereof, until the work is in satisfactory compliance
with the Plans and Specifications and all Legal
Requirements. Upon Notice from Lender to Borrower, or
Borrower's discovery irrespective of such Notice, that the
work is not in substantial conformity with the Plans and
Specifications and/or all Legal Requirements, Borrower shall
commence correcting the deviation, as promptly as is
practicable, and in any event within ten (10) days after the
Notice or discovery and shall prosecute such work diligently
to completion. No other Notice shall be required to render
such deviation an Event of Default under Section 8 hereof.
---------
All materials incorporated in the construction of a Project
will be purchased so that absolute ownership and title vest
in Borrower upon payment for such materials.
7.2 Covenants. Borrower covenants as follows:
7.2.1 Each request by Borrower to Lender for an Advance
shall constitute Borrower's representation and
warranty to Lender that: (i) all completed
construction is substantially in accordance with
the Plans and Specifications, and (ii) all
construction and other costs and expenses for the
payment of which Lender has previously advanced
funds have in fact been paid.
7.2.2 For each Project, Borrower will comply with the
requirement of filing a Notice of Commencement or
similar requirement, if any, of the state in
<PAGE>
which the Project is located. Borrower shall not
file a Notice of Commencement with the Recorder of
the county in which the Project is located prior
to the recording of the Mortgage. Borrower shall
indemnify and hold Lender harmless from any and
all claims for unpaid amounts due for work or
labor performed, or materials furnished, to the
Project prior to the filing of the Notice of
Commencement.
7.2.3 No material change will be made in the Plans and
Specifications for the Improvements, the terms and
conditions of the Construction Contract for the
Improvements previously delivered to and approved
by Lender, or the identity of the General
Contractor without the prior written consent of
Lender, which will not be unreasonably withheld or
delayed; provided, that changes in the Plans and
Specifications and the Construction Contract
(including change orders thereunder) which do not
materially modify the scope or use of the
Improvements contemplated by the Plans and
Specifications and which do not result in an
increase or decrease in the aggregate cost of the
Improvements by more than $100,000 in any twelve
(12) month period shall be permitted hereunder
without the prior written consent of Lender;
7.2.4 The construction of the Improvements shall
commence within ninety (90) days of the Closing
Date and shall be carried forward with reasonable
diligence and, subject to Force Majeure, will be
completed on or before the Completion Date; title
to said Property and Improvements will, during the
entire Construction Period and upon the Completion
Date, be free from all filed liens, claims, and
encumbrances, except for Permitted Liens, taxes
and assessments which are a lien but not yet due
and payable, and any other liens or exceptions
which are approved in writing by Lender;
7.2.5 Borrower will make available for inspection by a
duly authorized representative of Lender, upon
reasonable prior written notice from Lender, any
of Borrower's contracts, books and records insofar
as they relate to the Project when requested by
Lender and will furnish to Lender any information
regarding Borrower's business affairs and
financial condition as Lender may, from time to
time, reasonably request;
7.2.6 Borrower will reimburse Lender promptly following
written notice from Lender for all reasonable out
of pocket costs and expenses of Lender incidental
to the Loans, including but not limited to the
costs of title insurance policies, title
examinations, recording fees, surveys, appraisal
fees, fees of any professionals hired by Lender
for review of Plans and Specifications, including
engineers and architects, attorneys' fees (subject
to a maximum of $8000 for attorneys' fees for each
Closing), and out-of- pocket expenses, all of
which Lender is authorized to deduct as an Advance
under the Note of Borrower;
<PAGE>
7.2.7 Following an Event of Default, in the event
extraordinary services are required by Lender for
inspections, appraisals, or for securing estimates
of costs which, in Lender's reasonable judgment
are not regular or routine, Lender may deduct the
reasonable expense of such extraordinary services
as an Advance under the Note of Borrower;
7.2.8 Borrower will immediately upon demand reimburse
Lender for the cost and expense of any Appraisal
of the Project obtained by Lender prior to, on, or
after the date hereof;
7.2.9 No materials, equipment, personal property, or
fixtures of any kind will be purchased or acquired
by Borrower for installation or use in or about
the Improvements under any conditional sales
contract or security agreement or any lease
agreement, and, provided Lender makes Advances
when due, all such materials, equipment, personal
property, and fixtures will be fully paid for
before payment therefor becomes past due or in any
event within fifty (50) days after delivery
thereof; provided, however, that the foregoing
shall not apply to an amount withheld and unpaid
on account of a bona fide dispute with a supplier;
7.2.10 Borrower will furnish or cause to be furnished to
the Title Company, approved by Lender, which
issues a loan policy hereunder and Lender any
affidavits, lien waivers, releases, or other
evidences requested by the Title Company, from
time to time, to establish that all bills then due
and payable for labor and materials entering into
said construction and all bills then due and
payable of the General Contractor, subcontractors,
laborers, and materialmen in said construction
have been paid in full except for those bills
which have become due and payable since the next
preceding Advance by Lender hereunder;
7.2.11 Borrower will not without the prior written
consent of Lender materially modify or amend any
contract of Borrower for which Lender's approval
is required relating to the development or
financing of the Improvements, including any such
contracts described herein, except as set
specifically set forth herein;
7.2.12 Borrower will allow Lender and its agents, until
the Obligations are fully paid: (i) the right of
entry and access to the site of the Improvements
upon reasonable prior notice; (ii) the right to
inspect all work done, labor performed and
materials furnished in and about the Improvements
upon reasonable prior notice; and (iii) to require
to be replaced or otherwise corrected any material
or work that does not materially comply with the
Plans and Specifications in the reasonable opinion
of the Inspector;
7.2.13 Borrower shall maintain with Lender or Lender's
Affiliate throughout the term of the Loans, and
any extension thereof, a Commercial Checking
<PAGE>
Account for each Loan. All Advances of Loans shall
be made by Lender crediting Advances directly into
such a Commercial Checking Account;
7.2.14 Borrower authorizes Lender to automatically make
Advances of Loans by debiting each Commercial
Checking Account to pay any principal or interest
upon the Notes when and as same shall become due
under the terms thereof;
7.2.15 Borrower shall permit Lender on or after the
Closing
Date to erect on the Property a temporary Project
sign, stating that financing for the Project is being
provided by Lender (but not stating the amount of the
Loan). Borrower hereby agrees that Lender may release
written publicity or advertisements concerning the
financing of the Project.
7.2.16 Borrower shall, on or before the Mini-Perm
Conversion Date, deposit in an interest-bearing
account at Lender's Affiliate, the Debt Service
Reserve. Borrower shall pledge the Debt Service
Reserve as Collateral and it shall not be released
unless and until: (1) the related Project achieves
50% occupancy during the first six months after
Completion; or (2) the related Project achieves,
at any time, a Project Debt Service Coverage
Ratio, as defined in Section 6.5, based upon the
-----------
amortization of principal in the manner set forth
in Section 2.8.1, equal to or greater than 1:1 for
-------------
any two consecutive calendar months.
7.2.17 Borrower shall, on or before the Mini-Perm
Conversion Date, deposit in an interest-bearing
account at Lender's Affiliate, the Lease Reserve.
Borrower shall pledge the Lease Reserve as
Collateral and shall only be entitled to withdraw
any portion of the Lease Reserve at Borrower's
discretion for the purpose of funding Project
costs set forth on the applicable Budget.
7.2.18 Borrower shall, on or before the end of the
twelfth month following the Mini-Perm Conversion
Date, deposit in an interest-bearing account at
Lender's Affiliate, the Capital Expenditure
Reserve. Borrower shall pledge the Capital
Expenditure Reserve as Collateral and shall only
be entitled to withdraw any portion of the Capital
Expenditure Reserve at Borrower's discretion for
the purpose of funding capital expenditures
approved by Lender.
7.3 Construction Related Items Prior to Closing. Borrower will,
at least five (5) days prior to the Closing Date, deliver or
cause to be delivered to Lender the following, all in form
and substance satisfactory to Lender for each Project:
7.3.1 Intentionally Omitted.
7.3.2 Evidence which may be in the form of a
certification from the Project
4/CRED-AGR/374817.1
<PAGE>
Architect that the Project will comply with the
Americans with Disabilities Act;
7.3.3 Intentionally Omitted.
7.3.4 Evidence that Borrower has met the insurance
requirements of Lender set forth in Section 5.9
-----------
hereof and in the Loan Documents;
7.3.5 A current survey and site plan showing the outline
of the Property and meeting all of the
requirements of the "Property Survey" set forth in
Exhibit C attached hereto. Said survey shall be
---------
currently dated and shall be prepared in
accordance with (A) the Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys (the
"Minimum Requirements"), as jointly adopted by the
American Land Title Association and the American
Congress on Surveying and Mapping in 1992 (or as
amended); (B) requirements of the statutes of the
state in which the Project is located; and (C)
standards of the Society of Professional Land
Surveyors for the state in which the Project is
located, bearing a proper certificate by the
surveyor, which certificate shall include the
legal description of the Property, shall be made
in favor of Lender and the Title Company, be
substantially in the form of Exhibit D attached
---------
hereto, and contain such other certifications as
are contemplated by the Minimum Requirements and
applicable state statutes. The survey shall also
contain such additional information as may
reasonably be required by Lender or the Title
Company. The survey shall be subject to the
approval of Lender and certified by a registered
land surveyor approved by Lender;
7.3.6 A fixed-price, Construction Contract, including
payment and performance bonds with dual obligee
riders, with the General Contractor acceptable to
Lender;
7.3.7 A list of all known and proposed contractors to be
used for development of the Project and copies of
any of Borrower's contracts with same;
7.3.8 Intentionally Omitted.
7.3.9 A letter from the Project Architect or an
appropriate officer of the municipality in which
the Project is located regarding zoning and
building code compliance or Borrower's attorney's
certification of same;
7.3.10 Evidence that all utility services necessary for
construction and use of the Improvements
(including without limitation, electric, gas,
telephone, water and sewer service) are available
to the Property, and Borrower has the right to
connect into and use all utility services without
restriction; and that all necessary easements to
provide such utility services to the Property have
been obtained;
<PAGE>
7.3.11 A Notice of Commencement, or similar notice
required, if any, by the state in which the
project is located, which shall be recorded
immediately following the recording of the
Mortgage;
7.3.12 A certified statement of the General Contractor
confirming itemized and estimated costs of the
entire Project consistent with the Budget approved
by Lender and certifying that the Project complies
with the Legal Requirements;
7.3.13 Intentionally Omitted.
7.3.14 Certified copy of Borrower's Articles of
Organization, Certificate of Existence of Borrower
and certified resolutions of Borrower authorizing
the Non-Revolving Loan;
7.3.15 The Federal Tax Identification number of Borrower
and Guarantor;
7.3.16 A commitment or proforma policy for an ALTA
mortgagee's policy of title insurance (the "Title
Commitment") issued by the Title Company for the
full aggregate amount of the Non-Revolving Loan
with a pending disbursements endorsement
establishing that the Title Company is prepared to
insure the related Mortgage as of the time of its
filing for record as a first and prior lien upon
the Property and on the Improvements to be erected
thereon, subject only to the Permitted Liens and
pending actual disbursements. Each Title
Commitment shall meet the requirements set forth
in Exhibit B attached hereto to the extent that
---------
the compliance with such requirements is possible
under the law of the state in which the Project is
located. Contemporaneously with the delivery to
Lender of a Title Commitment, Borrower shall also
deliver to Lender copies of all documents
constituting the Permitted Liens. Borrower shall
deliver to Lender a final policy of title
insurance (the "Title Policy") within a reasonable
period of time after each Closing;
7.3.17 A development schedule for the Project setting
forth the approximate start and finish dates of
all major stages of the Project;
7.3.18 Evidence of building, zoning, and other permits
covering construction of the proposed Improvements
to the extent such items are available under the
laws of the jurisdiction in which the Project is
located. Lender shall also have been furnished
with evidence satisfactory to Lender that the
Property is not included in a special flood hazard
area as designated by the Federal Emergency
Management Agency ("FEMA") as Flood Zone C or
worse or in the 100-year flood plan on its Flood
Hazard Boundary Map ("FHBMs") and Flood Insurance
Rate Maps ("FIRMs"), and the Department of Housing
and Urban Development, Federal Insurance
Administration, Special Flood Hazard Area Maps;
<PAGE>
7.3.19 A copy of the Current Financial Statements of
Borrower and Guarantor, indicating no Material
Adverse Effect upon Borrower or Guarantor since
January 31, 1998;
7.3.20 A copy of the Management Contract;
7.3.21 A certification from the Inspector to the effect
that the construction of the Improvements in
accordance with the Plans and Specifications and
the intended use of the Improvements complies with
all Legal Requirements, and a certification of
Borrower reasonably satisfactory to Lender that
there is no pending proceeding, either
administrative, legislative or judicial, which
would in any manner adversely affect the status of
the zoning with respect to the Project;
7.3.22 Borrower's estimated schedule for Advances of the
applicable Non- Revolving Loan;
7.3.23 Borrower's equity contribution to the Project
either deposited with Lender's Affiliate and
disbursed by Lender according to the terms of this
Agreement or used to acquire the Property or other
Project costs approved by Lender and included in
the Budget with evidence of payment delivered to
Lender;
7.3.24 Intentionally Omitted.
7.3.25 All other documents set forth on the Closing Memo.
7.4 Construction Related Items Prior to Advances. On or prior to
the date of an Advance of a Non-Revolving Loan hereunder,
Lender shall have received the following for each Project:
7.4.1 A Collateral Assignment of Agreements and Plans
(the "Contract Assignment") to Lender of (A) the
Plans and Specifications; (B) Borrower's
agreements with the General Contractor, with the
Project Architect, in any, and with mechanical and
structural engineers, if any, retained by Borrower
in connection with the construction of the
Improvements duly executed by Borrower, and (C)
consents to any of the assignments referred to in
items (A) and (B) above by the other parties to
the contracts and agreements being assigned,
together with the confirmation by such other
parties that they will continue to perform under
contracts and agreements, as the same may be,
after enforcement of and realization of such
assignment by Lender, subject to the terms of the
Contract Assignment;
7.4.2 An Assignment of the Management Contract,
including a subordination of the applicable
management/operator fee if an Event of Default
occurs;
<PAGE>
7.4.3 An Assignment of Licenses and Permits duly
executed by Borrower to Lender of all licenses,
permits, certificates of occupancy and similar
documents or instruments relating to the Project;
7.4.4 An Assignment of all present and future rents,
leases and profits relating to the Project;
7.4.5 Guaranties of the Obligations and Completion of
the Project by Grand Court, such Guaranties being
supported by certified copies of Articles of
Incorporation, a Certificate of Good Standing, and
certified resolutions of Grand Court authorizing
the Guaranties;
7.4.6 The Indemnity duly executed by Borrower and
Guarantor;
7.4.7 A written opinion of Borrower's counsel and a
written opinion of Guarantor's counsel, both in
form and substance satisfactory to Lender;
7.4.8 An interest rate hedge agreement for the
applicable Non-Revolving Loan, both in form and
substance reasonably satisfactory to Lender;
7.4.9 Plans and Specifications for the Improvements to
the extent not already delivered to Lender. No
Advance shall be made by Lender hereunder for any
portion of construction of the Improvements until
the Plans and Specifications for such Improvements
shall have been delivered to and approved by
Lender;
7.4.10 With respect to Advances after foundation and site
work for the Project have been substantially
completed, Borrower will furnish to Lender and to
the Title Company, a Survey showing the location
of the actual in-place foundations;
7.4.11 A certificate from the Inspector certifying (A)
that the construction of the Improvements
theretofore completed, if any, has been performed
substantially in accordance with the Plans and
Specifications; (B) that the quality of
construction of the Improvements theretofore
completed is in accordance with generally accepted
standards in the construction industry for the
construction of similar improvements, (C) the
estimated total cost of the construction of the
Improvements; (D) that the nondisbursed portion of
the applicable Non-Revolving Loan as shown on the
Budget plus any equity contribution made or to be
made by Borrower is adequate to complete the
construction of the Improvements pursuant to the
Plans and Specifications; and (E) that the
completion of the Improvements will occur on or
before the Completion Date;
7.4.12 Receipt by Lender of an endorsement to the Title
Policy indicating that since the last preceding
Advance of the Loan there has been no change in
<PAGE>
the state of title and no survey exceptions not
theretofore approved by Lender and increasing the
coverage of the Title Policy by an amount equal to
the Advance then being made so that the total
amount insured equals the total amount disbursed
by Lender under the terms hereof and changing the
effective date of the Title Policy to the date of
the Advance;
7.4.13 Receipt by Lender of evidence of the payment of
all insurance premiums and real estate taxes for
the Project at least five (5) days prior to last
date for payment of such amounts without a penalty
or charging of interest thereon or the termination
of the applicable insurance policy;
7.4.14 A copy of each primary subcontract between the
General Contractor and any third parties related
to the Project if requested by Lender;
7.4.15 All expenses and fees due and payable by Borrower
as of the Closing Date including but not limited
to the Construction Monitoring Fee and Attorneys
Fees; and
7.4.16 All other items set forth on the Closing Memo.
7.5 Construction Related Items Prior to Final Advance. Borrower
will, on or prior to the date of the final Advance of a
Non-Revolving Loan hereunder, deliver or cause to be
delivered to Lender the following for the related Project:
7.5.1 Evidence satisfactory to Lender of the issuance by
all appropriate Governmental Authorities of
certificates of use and occupancy for the
Improvements;
7.5.2 A final as-built ALTA/ACSM survey satisfactory to
Lender, bearing a proper certificate by the
surveyor, showing the completed Improvements and
all easements and right-of-ways;
7.5.3 An additional endorsement to the Title Policy
insuring the priority of the Mortgage in the full
amount of the applicable Non-Revolving Loan
against mechanic's and materialmen's liens
(including inchoate liens) arising by reason of
unpaid labor and materials supplied in connection
with the construction and development of the
Project;
7.5.4 A certificate by the Inspector or other person
satisfactory to Lender stating that the
Improvements have been completed substantially in
accordance with the Plans and Specifications;
7.5.5 An affidavit of Borrower stating that each person
providing any material or performing any work in
connection with the Project has been (or will be,
with the proceeds of and immediately following
receipt by Borrower of such final Advance) paid in
full or bonded or insured to the reasonable
<PAGE>
satisfaction of Lender;
7.5.6 A rent roll and copies of all leases for the
Project; and
7.5.7 A Certificate of Substantial Completion AIA Form
G704 from the Project Architect and General
Contractor certifying that the Project has been
completed substantially in accordance with the
Plans and Specifications.
7.6 Procedure For Advances. Subject to the terms and conditions
hereof, Lender shall make Advances of each Non-Revolving
Loan to a Corporate Checking Account maintained by Borrower
at Lender's Affiliate, from time to time, for payment of
construction costs of the Improvements, as such construction
occurs as determined by the Inspector. Advances shall be
made upon request of Borrower in the following manner for
each Project:
7.6.1 Not less than ten (10) Business Days before the
date on which Borrower desires an Advance,
Borrower shall submit to Lender a request for an
Advance using AIA Forms G702 and G703, including
any change orders, invoices for soft costs, and
other documents required hereunder, accompanied by
a cost breakdown, the accuracy of which shall be
certified by Borrower and approved in writing by
the Project Architect or the county engineer in
the county in which the Project is located.
Lender's "Hard and Soft Cost Requisition Form"
form shall serve as the disbursement control for
each line item. Lender shall not be required to
make an Advance for any line item in excess of the
amount shown in the "Loan Reserve Category" set
forth in such "Hard and Soft Cost Requisition
Form" form;
7.6.2 Requests for Advances after the first Advance
shall not be made more often than once a month and
the total amount advanced shall not at any time
exceed an amount equal to (i) the percentage of
completion evidenced by the inspections of the
Improvements by the Inspector, times (ii) the
estimated total construction costs filed by
Borrower and General Contractor and approved by
Lender, (minus the Retainage, as set forth in this
-----
Section, and any Advances previously made on
account of the cost of materials stored on the
Property). Prior to each Advance, at Borrower's
expense, an appointed inspector shall inspect the
Improvements to verify that the request for an
Advance accurately reflects the amount of
construction completed to date. Notwithstanding
the foregoing, Lender shall withhold the
Retainage, provided that when the Project is 50%
complete as certified by the Inspector for the
Project and provided no Event of Default has
occurred and is continuing after the giving of any
applicable Notice and the lapse of any applicable
cure periods, the Retainage will be reduced to the
greater of the retainage rate specified in the
General Contractor's contract or five percent
(5%). The Retainage shall be held until
<PAGE>
Completion, provided, however, that if: (i) no
Event of Default has occurred and is continuing
after the giving of any applicable notice and the
lapse of any applicable cure periods, (ii) Lender
receives certification from the Inspector that all
such work is complete; and (iii) Lender receives
appropriate lien waivers, the Retainage for up to
three trades (selected by Borrower and approved by
Lender, which approval will not be unreasonably
withheld) will be released upon full completion of
all work on the Project for each particular trade
selected;
7.6.3 Borrower shall furnish Lender and the Title
Company with any evidence, lien waivers, or
affidavits required by the Title Company at the
time of each request for an Advance to insure that
all bills then due and payable for labor and
materials used in constructing the Improvements
and all bills due and payable to contractors,
subcontractors, laborers, and materialmen have
been paid in full, except those bills to be paid
with such Advance. With each request for an
Advance to be used for contract payments of at
least $50,000, Borrower shall deliver to Lender
and the Title Company waivers of liens from
contractors in the respective sum received by each
such contractor for all of Borrower's preceding
requests for Advances.
7.6.4 Borrower will have the right to reallocate line
items in the Budget, subject to the following: (i)
proper substantiation for adjustments is delivered
to Lender, (ii) no adjustments may be made between
hard and soft costs until after Completion of the
Project, at which time savings in hard cost line
items may be reallocated to soft cost line items,
(iii) no adjustments shall be permitted to the
equity or interest reserve line items; and (iv)
any reallocation must involve at least $10,000 in
total adjustments;
7.6.5 Following an Event of Default and with the consent
of the surety issuing the payment and performance
bonds for the applicable Project, Lender may, at
Lender's election, pay all bills for labor or
materials, directly to the Persons furnishing such
labor or materials. Lender will only make Advances
for the cost of materials stored on the Property
limited to three percent (3%) of the hard costs
for such materials, provided the same are
adequately secured and insured. Advances
previously made on account of stored materials
shall not be included in this three percent (3%)
limit once such materials have been integrated
into the Project. Lender will not make Advances
based on the cost of materials not stored on the
Property except for Advances to be made on account
of costs associated with the line item for FF&E on
the Budget which shall be made for 100% of the
costs thereof up to a maximum of $300,000 upon
evidence acceptable to Lender of insurance,
bonding and an effective first-priority security
interest thereon in favor of Lender. Lender will
make Advances approximately 10 days after
satisfaction of all conditions applicable to such
Advances.
<PAGE>
7.7 Sufficiency of Loan To Complete Construction. Anything
contained in this Agreement to the contrary notwithstanding,
it is expressly understood and agreed that the Loan shall at
all times be "in balance." The Loan shall be deemed to be
"in balance" only at such time and from time to time, as
Lender may determine in Lender's reasonable discretion that
the then undisbursed portion of the applicable Non-Revolving
Loan equals or exceeds the amount necessary for the timely
and full payment of (i) all work done and not theretofore
paid for or to be done in connection with the completion of
the construction of the Project in accordance with the Plans
and Specifications, including completion of all Tenant
Improvements and the installation of all fixtures and
equipment required for operation of the Project, and (ii)
all other costs and expenses incurred and not theretofore
paid for, or to be incurred in connection with the Project
(to the extent revenues will not, in Lender's sole
reasonable judgment, be sufficient for the timely and full
payment of such costs and expenses). Borrower agrees that if
the Loan is deemed not to be "in balance", Borrower shall,
within thirty (30) days after written request by Lender,
deposit the deficiency into its Corporate Checking Account,
which deposit shall first be exhausted before any further
Advances are made (or at Borrower's option, provide Lender
with reasonable assurances (as determined by Lender in
Lender's sole discretion) that such funds are or will be
available). Lender shall not be obligated to make any
Advance if the applicable Non-Revolving Loan is not in
balance.
7.8 Additional Construction Items to be Submitted to Lender.
Borrower will, at least twenty-one (21) days prior to any
Closing Date, deliver or cause to be delivered to Lender the
following, all in form and substance satisfactory to Lender
for each Project:
7.8.1 A detailed market study, the Budget, the Plans and
Specifications, all approved in writing by Lender
and, if required, by the applicable Governmental
Authorities having jurisdiction thereof;
7.8.2 Soil reports of the Property, showing that the
soil will adequately support the Improvements when
constructed in accordance with the Plans and
Specifications;
7.8.3 The Budget, including: (i) a summary page
indicating costs of land, site work, construction
and soft costs on an AIA G703 form and (ii)
detailed schedules supporting the site work and
construction costs shown on the AIA G703 form
according to the Construction Standards Institute
Division. The Budget will include a minimum
contingency line item for hard costs of at least
5% of total hard costs. Provided no Event of
Default exists after the giving of applicable
notices and the lapse of applicable cure periods,
if any, fifty (50%) percent of a developer's fee
included in the Budget will be paid pro rata as
construction is completed and fifty (50%) percent
will be paid upon the issuance of a certificate of
substantial
<PAGE>
completion. The unused hard cost contingency may
be applied by Borrower to the Lease Reserve;
7.8.4 An Environmental Audit, including a Phase I
Environmental Site Assessment Report with wetlands
certification, certified to and satisfactory to
Lender; and
7.8.5 The Appraisal in a form reasonably satisfactory to
Lender in all respects including, but not limited
to, a loan to value ratio for the Project of not
more than 75% after stabilization. The appraiser
will be selected and directly engaged by Lender.
The cost of the Appraisal will be charged to the
Borrower at the Closing. Each appraisal report
shall be prepared in accordance with the Uniform
Standards of Professional Appraisal Practice
applicable to Federally Related Transactions as
set out in Appendix A to the real estate appraisal
regulations adopted by the Office of the
Comptroller of the Currency pursuant to the
Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") (Sub-part C of
12 C.F.R. 34) and shall be prepared in response to
an engagement letter to be issued by Lender.
Borrower shall, at the option of Lender, be
required to deposit into Borrower's Account, funds
adequate to pay for an appraisal on or before the
date of such appraisal.
8. Events of Default. Upon the occurrence of any of the following events
and after expiration of applicable cure periods, if any, with respect
to Borrower or any Guarantor:
8.1 Payment. The non-payment of: (i) any principal amount of any
of the Advances, whether by acceleration or otherwise within
5 Business Days of when the same is due, or (ii) the
non-payment of any interest upon any Note or any other
amounts owing under any of the other Loan Documents due
Lender pursuant to this Agreement within 5 Business Days of
when the same is due;
8.2 Covenants. The default in the due observance of any affirmative
covenant or agreement to be kept or performed by it under the terms of
this Agreement or any of the Loan Documents and the failure or
inability of it to cure such default within thirty (30) days of the
occurrence thereof; provided that such thirty (30) day grace period
will not apply to: (i) any default which in Lender's good faith
determination is incapable of cure, (ii) any default that has
previously occurred, (iii) any default in any negative covenants, or
(iv) any failure to maintain insurance or to permit inspection of the
Collateral or of its books and records;
8.3 Representations and Warranties. Any representation or warranty made by
it in this Agreement, in any of the Loan Documents or in any report,
certificate, opinion, financial statement or other document furnished
in connection with the Obligations is false or erroneous in any
material respect or any material breach thereof has been committed
such that Borrower's ability to fulfill its obligations under any of
the Loan Documents shall be materially and aversely affected;
<PAGE>
8.4 Obligations. Except as provided in Sections 8.1, 8.2 and 8.3 above,
-------------------------
the default by it in the due observance of any covenant, negative
covenant or agreement to be kept or performed by it under the terms of
this Agreement, the Loan Documents or any document now or in the
future executed in connection with any of the Obligations and the
lapse of any applicable cure period provided herein or therein with
respect to such default, or, if so defined therein, the occurrence of
any Event of Default or Default (as such terms are defined therein);
8.5 Bankruptcy, Etc. It: (i) dissolves or is the subject of any
dissolution, a winding up or liquidation; (ii) makes a general
assignment for the benefit of creditors; or (iii) files or has filed
against it a petition in bankruptcy, for a reorganization or an
arrangement, or for a receiver, trustee or similar creditors'
representative for its property or assets or any part thereof, or any
other proceeding under any federal or state insolvency law, and if
filed against it, the same has not been dismissed or discharged within
sixty (60) days thereof;
8.6 Execution, Attachment, Etc. The commencement of any foreclosure
proceedings, proceedings in aid of execution, attachment actions,
levies against, or the filing by any taxing authority of a lien
against it or against any of the Collateral, except those liens being
diligently contested in good faith which in the aggregate do not
exceed $250,000 for any Guarantor or $50,000 for any Borrower;
8.7 Loss, Theft or Substantial Damage to the Collateral. In addition to
the rights of Lender to deal with proceeds of insurance as provided in
the Loan Documents, the uninsured loss, theft or substantial damage to
the Collateral if the result of such occurrence (singly or in the
aggregate) is the failure or inability to resume substantially normal
operation of its business within thirty (30) days of the date of such
occurrence; however, Borrower shall be granted 180 days to resume
substantially normal operation of its business if Borrower fulfills
all of its other obligations under the Loan Documents, including
without limitation, the payment of any amounts due under the Loan
Documents and compliance with the insurance requirements under the
Loan Documents;
8.8 Judgments. Unless in the opinion of Lender adequately insured or
bonded, the entry of a final judgment for the payment of money which
is in excess of $250,000 for any Guarantor or $50,000 for any Borrower
against Guarantor or Borrower and the failure: (i) to discharge the
same, or cause it to be discharged, within sixty (60) days from the
date of the order, decree or process under which or pursuant to which
such judgment was entered, or (ii) to secure a stay of execution
pending appeal of such judgment; or (iii) the entry of one or more
final monetary or non-monetary judgments or order which, singly or in
the aggregate is in excess of $250,000 for any Guarantor or $50,000
for any Borrower, does or could reasonably be expected to cause or
have a Material Adverse Effect: (a) in the value of the Collateral or
its condition (financial or otherwise), operations, properties or
prospects, (b) on its ability to perform its obligations under this
<PAGE>
Agreement or the Loan Documents, or (c) on the rights and remedies of
Lender under this Agreement, any Note, or any Loan Document;
8.9 Revocation of Guarantee. The revocation by Guarantor or attempted
revocation by Guarantor or limitation by Guarantor in whole or in part
of any Guarantee;
8.10 Impairment of Security. (a) The validity or effectiveness of any Loan
Document or its transfer, grant, pledge, mortgage or assignment by the
party executing it in favor of Lender is determined by a court of
competent jurisdiction to be invalid; (b) any party, other than
Lender, to a Loan Document asserts in any legal proceeding that any
Loan Document is not a legal, valid and binding obligation of it
enforceable in accordance with its terms; (c) the security interest or
lien purporting to be created by any of the Loan Documents ceases to
be or is asserted in any legal proceeding by any party to any Loan
Document (other than Lender) not to be a valid, perfected lien subject
to no liens other than liens not prohibited by this Agreement or any
Loan Document; or (d) any Loan Document is amended, subordinated,
terminated or discharged, or any person is released from any of its
covenants or obligations except to the extent that Lender expressly
consents in writing thereto; and
8.11 Other Indebtedness. A default after any applicable notice and cure
period with respect to any evidence of Indebtedness in excess of
$250,000 by any Guarantor or $50,000 by any Borrower (other than to
Lender under the Loan Documents), if the effect of such default is to
accelerate the maturity of such Indebtedness or to permit the holder
thereof to cause such Indebtedness to become due prior to the stated
maturity thereof, or if any Indebtedness of any of them in excess of
$250,000 by any Guarantor or $50,000 by any Borrower (other than to
Lender under the Loan Documents) is not paid when due and payable,
whether at the due date thereof or a date fixed for prepayment or
otherwise (after the expiration of any applicable grace period);
8.12 Title Insurance. Failure or refusal by the Title Company, by reason of
any matter affecting title to the Property or Improvements, to insure
any Advance as giving rise to a valid first lien, subject only to
Permitted Liens or those exceptions previously approved by Lender
pursuant to this Agreement, provided that Borrower shall have 30 days
from the date of such failure or refusal to cure any such matter
affecting title and to obtain such insurance;
then in any such event ("Event of Default"), Lender may take any or
all of the following actions (provided that if any Event of Default
specified in Section 8.5, above, as to Borrower occurs, the results
-----------
described in clauses (i) and (ii), below, will occur automatically,
except in the case of a filing of a proceeding identified in Section
-------
8.5 against Borrower, unless such proceeding is not dismissed or
----
discharged within 60 days of the filing thereof): (i) declare the
Total Commitment terminated, (ii) declare all principal, interest and
other amounts due
<PAGE>
and payable hereunder and under the Loan Documents, to be immediately
due and payable whereupon all such amounts will immediately be due
payable, without presentment, demand, protest or notice of any kind,
all of which hereby are waived by Borrower, and (iii) exercise any
other rights and remedies provided hereunder, under any of the Loan
Documents and/or by applicable law. After the occurrence of any Event
of Default, Lender is authorized at any time and from time to time
without notice to Borrower to offset, appropriate and apply to all or
any part of the Obligations all moneys, credits, deposits (general or
special, demand or time, provisional or final) and other property of
any nature whatsoever of Borrower now or at any time hereafter in the
possession of, in transit to or from, under the control or custody of,
or on deposit with (whether held by Borrower individually or jointly
with another party) Lender any or all indebtedness at any time owing
by Lender to or for the credit or account of Borrower. The rights and
remedies of Lender upon the occurrence of any Event of Default will
include but not be limited to all rights and remedies provided in the
Loan Documents and all rights and remedies provided under applicable
law. Borrower irrevocably waives (a) any requirement of marshalling of
the Collateral upon the occurrence of any Event of Default and (b) any
right to direct the application of any payments received by Lender
from or on behalf of Borrower after the occurrence of any Event of
Default. Lender, at its option, may apply any or all funds not
previously disbursed to payment of outstanding invoices and to
completion of the Improvements, with the right and power in such event
to enter upon and take possession of the Project and the Improvements,
to make such changes in the Plans and Specifications as may seem
desirable, and to do all things reasonably necessary in Lender's
opinion to complete or partially complete the Improvements. Lender
shall not be responsible for the workmanship and materials in such
completion or partial completion of construction, with the single
exception that Lender shall be required to use reasonable care in the
selection of the contractor or contractors used by it in such
completion or partial completion.
9. Representations and Warranties to Survive. All representations,
warranties, covenants and agreements made by Borrower herein and in
the other Loan Documents will survive the execution and delivery of
this Agreement, the Loan Documents and the issuance of the Notes.
10. Environmental Indemnification. Lender will not be deemed to assume any
liability or obligation for loss, damage, fines, penalties, claims or
duties to clean-up or dispose of wastes or materials on or relating to
the Property merely by conducting any inspections of the Property or
by obtaining title to the Property by foreclosure, deed in lieu of
foreclosure or otherwise. Borrower, including its successors and
assigns, agrees to remain fully liable and will indemnify, defend and
hold harmless Lender, its respective directors, officers, employees,
agents, contractors, subcontractors, licensees, invitees, successors
and assigns, from and against any claims, demands, judgments, damages,
actions, causes of action, injuries, administrative orders,
liabilities, costs, expenses, clean-up costs, waste
<PAGE>
disposal costs, litigation costs, fines, penalties, damages and other
related liabilities arising from (i) the failure of Borrower to
perform any obligation herein required to be performed by Borrower,
(ii) the removal or other remediation of hazardous or toxic
substances, hazardous wastes, pollutants or contaminants, solid waste
or petroleum at or from the Property, (iii) any act or omission, event
or circumstance existing or occurring resulting from or in connection
with the ownership, construction, occupancy, operation, use and/or
maintenance of the Property, (iv) any and all claims or proceedings
(whether brought by private party or governmental agency) for bodily
injury, property damage, abatement or remediation, environmental
damage or impairment and any other injury or damage resulting from or
relating to any hazardous or toxic substances, hazardous waste,
pollutants, contaminants, solid waste, or petroleum located upon or
migrating into, from or through the Property (whether or not any or
all of the foregoing was caused by the Borrower or its tenant or
subtenant, or a prior owner of the Property or its tenant or
subtenant, or any third party and whether or not the alleged liability
is attributable to the handling, storage, generation, transportation
or disposal of such material or the mere presence of such material on
the Property), except to the extent caused by or the result of any act
of (a) Lender or its agents, or (b) any owner of the Property after
foreclosure or a deed in lieu of foreclosure, and (v) Borrower's
breach of any representation or warranty contained in this Section.
Without limitation, the foregoing indemnities will apply to Lender
with respect to claims, demands, losses, damages (including
consequential damages), liabilities, causes of action, judgements,
penalties, costs and expenses (including reasonable attorneys' fees
and court costs) which in whole or in part are caused by or arise out
of the negligence of Lender. Such indemnity, however, will not apply
to Lender to the extent the subject of the indemnification is caused
by or arises out of the gross negligence or willful misconduct of
Lender. All environmental representations, warranties, covenants, and
indemnities will continue indefinitely and may not be cancelled or
terminated except by a writing signed by Lender specifically referring
to this Section. Notwithstanding anything contained to the contrary in
the Notes, this Agreement, or other Loan Documents evidencing or
securing the Obligations, the provisions of this Section will survive
the termination or expiration of the Obligations, the full repayment
of the Obligations, or the acquiring of title by Lender or its
respective successors and assigns by foreclosure, deed in lieu of
foreclosure or otherwise, and will be fully enforceable against
Borrower and its successors and assigns. The provisions of this
Section will constitute a separate undertaking by Borrower and will be
an inducement to Lender in extending the Loans evidencing the
Obligations to Borrower. The provisions of this Section will not be
subject to any anti-deficiency or similar laws.
11. Intentionally Omitted.
12. General.
12.1 Waiver. No delay or omission on the part of Lender to
exercise any right or power arising from any Event of
Default will impair any such right or power or be considered
a waiver of any such right or power or a waiver of any such
Event of Default or any acquiescence therein nor will the
action or nonaction of Lender
<PAGE>
in case of such Event of Default impair any right or power arising as
a result thereof or affect any subsequent default or any other default
of the same or a different nature. No disbursement of Advances
hereunder will constitute a waiver of any of the conditions to
Lender's obligation to make further Advances; nor, in the event that
Borrower is unable to satisfy any such condition, will any such
Advance have the effect of precluding Lender from thereafter declaring
such inability to be a Default or an Event of Default. No modification
or waiver of any provision of this Agreement or any of the Loan
Documents, nor consent to any departure by Borrower therefrom, will be
established by conduct, custom or course of dealing; and no
modification, waiver or consent will in any event be effective unless
the same is in writing and specifically refers to this Agreement, and
then such waiver or consent will be effective only in the specific
instance and for the purpose for which given. No notice to or demand
on Borrower in any case will entitle Borrower to any other or further
notice or demand in the same, similar or other circumstance. The
liability of any Borrower will not be affected by any surrender,
exchange, acceptance, or release by Lender of any party or other
person or any other guarantee or any security held by it for any of
the Obligations or by Lender's failure to take any steps to perfect or
maintain its lien or security interest in or to preserve any of its
rights to, any guarantee, security or other collateral for any of the
Obligations, by any delay or omission in exercising any right, remedy
or power with respect to any of the Obligations or any guarantee or
collateral therefor, or by any irregularity, unenforceability or
invalidity of any of the Obligations or any security or guarantee
therefor. Lender at any time and from time to time, and without
impairing, releasing, discharging or modifying the liabilities of any
Borrower under a particular Non-Revolving Loan ("Subject Borrower"),
may, in accordance the terms and conditions of the Loan Documents: (a)
without the consent of or notice to any Borrower or Borrowers under
any other Non-Revolving Loan or Loans (collectively, "Other
Borrowers"), change the manner, amount, place or terms of payment or
performance of or interest rates on, or change or extend the time of
payment of, or other terms relating to the Obligations of the Subject
Borrower, (b) renew, substitute, modify, amend or alter, or grant
consents or waivers relating to, any of the Obligations of the Subject
Borrower without the consent of or notice to the Other Borrowers, (c)
renew, substitute, modify, amend or alter, or grant consents or
waivers relating to, any guarantee or any security for any guarantee,
(d) apply any and all payments received by a Lender by whomever paid
or however realized, including any proceeds of any Collateral, to any
of the Obligations in such order, manner and amount as permitted by
this Agreement, (e) deal with any Person in respect of the Obligations
in such manner as Lender deems appropriate in its sole discretion
and/or (f) substitute any security or guarantee. Irrespective of the
taking or refraining from the taking of any such action, the
obligations of Borrower will remain in full force and effect. Lender
in its sole discretion may determine the reasonableness of the period
which may elapse prior to the making of demand for any payment upon
Borrower and need not pursue any remedy or remedies against Borrower,
any other Person or any Collateral before having recourse against
<PAGE>
Borrower hereunder. Borrower subordinates until the prior payment in
full to Lender of the Obligations and the termination of this
Agreement any and all rights of subrogation, reimbursement or
indemnity whatsoever, and any and all right of recourse to security,
under or out of the property of Borrower or otherwise, for the
Obligations. No set-off, counterclaim, reduction, or diminution of any
obligation, or any defense of any kind or nature that Borrower has or
may have against any other Borrower will be available hereunder to any
Borrower against Lender until the Obligations have been paid in full.
12.2 Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder will be in
writing and will be conclusively deemed to have been received by a
party hereto and to be effective if delivered personally to such
party, or sent by telex, telecopy (followed by written confirmation)
or other telegraphic means, or by overnight courier service, or by
certified or registered mail, return receipt requested, postage
prepaid, addressed to such party at the address set forth below (or to
such other address as any party may give to the other in writing for
such purpose.
To Lender: KEY CORPORATE CAPITAL INC.
525 Vine Street
Cincinnati, Ohio 45202
Attention: Key Health Care Finance -Troy E. Miller
Telecopier No.:513-762-8450
Telephone No.:513-762-8272
To Borrower: GRAND COURT - GREATWOOD, L.P.
c/o Grand Court Lifestyles, Inc.
One Executive Drive
Ft. Lee, New Jersey 07024
Attention: Chief Financial Officer
Telecopier No.: 201-947-6663
Telephone No.: 201-947-7322
All such communications, if personally delivered, will be conclusively deemed to
have been received by a party hereto and to be effective when so delivered, or
if sent by telex, telecopy or telegraphic means, on the day on which
transmitted, or if sent by overnight courier service, on the day after deposit
thereof with such service, or if sent by certified or registered mail, on the
third business day after the day on which deposited in the mail, except that
notices and communications to Lender pursuant to Section 2 above, will not be
---------
effective until received by Lender.
12.3 Successors and Assigns. This Agreement will be binding upon and inure
to the benefit of Borrower and Lender and its respective successors
and assigns,
<PAGE>
provided, however, that Borrower may not assign this Agreement in
whole or in part without the prior written consent of Lender.
12.4 Illegality. If fulfillment of any provision hereof or any transaction
related hereto or of any provision of any of the Loan Documents, at
the time performance of such provision is due, involves transcending
the limit of validity prescribed by law, then ipso facto, the
obligation to be fulfilled will be reduced to the limit of such
validity; and if any clause or provisions herein contained other than
the provisions hereof pertaining to repayment of the Obligations
operates or would prospectively operate to invalidate this Agreement
in whole or in part, then such clause or provision only will be void,
as though not herein contained, and the remainder of this Agreement
will remain operative and in full force and effect; and if such
provision pertains to repayment of the Obligations, then, at the
option of Lender, all of the Obligations will become immediately due
and payable.
12.5 Gender, Etc. Whenever used herein, the singular number will include
the plural, the plural the singular and the use of the masculine,
feminine or neuter gender will include all genders.
12.6 Headings. The headings in this Agreement are for convenience only and
will not limit or otherwise affect any of the terms hereof.
12.7 Liability of Lender. Borrower hereby agrees that Lender will not be
chargeable for any negligence, mistake, act or omission of any
accountant, examiner, agent, Inspector, or attorney selected with
reasonable care and in the exercise of good faith by Lender in making
examinations, investigations or collections, or otherwise in
protecting or realizing upon any lien or security interest or any
other interest in the Collateral or other security for the
Obligations, unless Lender actually knows or, should, using reasonable
care, have known that such mistake, negligence, act or omission is
incorrect at the time committed. Lender makes no representations and
assumes no obligations as to Borrower or third parties concerning the
quality of the construction of the Project or the absence therefrom of
defects. In this connection Borrower agrees to and shall indemnify
Lender from any liability, claims or losses resulting from the
Advances or from the condition of the Project whether related to the
quality of construction or otherwise and whether arising during or
after the term of the Loans except and to the extent that such
construction was performed by, on behalf of, or at the direction of
Lender, its agents, or contractors. This provision shall survive the
repayment of the Obligations and shall continue in full force and
effect so long as the possibility of any such liability, claim or loss
exists. The relationship between Lender and Borrower is solely that of
a lender and borrower, and nothing contained herein or in any of the
Loan Documents shall in any manner be construed as making the parties
hereto principal, Lender, partners, joint venturers or any other
relationship other than lender and borrower.
<PAGE>
12.8 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed will be deemed to be an
original and all of which taken together will constitute one and the
same agreement.
12.9 Remedies Cumulative. No single or partial exercise of any right or
remedy by Lender will preclude any other or further exercise thereof
or the exercise of any other right or remedy. All remedies hereunder
and in any instrument or document evidencing, securing, guaranteeing
or relating to any Loan or now or hereafter existing at law or in
equity or by statute are cumulative and none of them will be exclusive
of the others or any other remedy. All such rights and remedies may be
exercised separately, successively, concurrently, independently or
cumulatively from time to time and as often and in such order as
Lender may deem appropriate.
12.10 Costs, Expenses and Legal Fees. Borrower will be solely responsible
for all reasonable fees and expenses for appraisals, surveys, title
insurance, lien searches environmental reports, recording fees,
documentary taxes and similar items. Borrower agrees jointly and
severally to reimburse on demand Lender for all reasonable
out-of-pocket costs and expenses, including, without limitation, due
diligence and reasonable fees and expenses of attorneys (which
attorneys may be Lender's employees and including, without limitation,
the reasonable fees and disbursements of Frost & Jacobs, special
counsel for Lender), and other advisors, expended or incurred in
amending, supplementing, waiving or enforcing provisions of this
Agreement and the other Loan Documents; in administering, monitoring
and enforcing of this Agreement and the other Loan Documents (with
respect to the enforcement of this Agreement and other Loan Documents,
Borrower agrees to reimburse on demand the Lender for all reasonable
out-of-pocket costs and expenses incurred in connection with such
enforcement); in monitoring the Collateral; in obtaining advice from
auditors, attorneys and other advisors regarding its rights and
responsibilities under this Agreement and the other Loan Documents, or
the perfection, protection or preservation of rights and interests
hereunder or thereunder; in collecting any sum which is not paid when
due under this Agreement and the other Loan Documents; in negotiations
with respect to any Default or Event of Default or any restructuring
or "working out" the Loans; and/or in the protection, perfection,
preservation and enforcement of any and all rights of Lender in
connection with this Agreement and any of the other Loan Documents,
including, without limitation, the fees and costs incurred in any
out-of-court work-out, any litigation or in any bankruptcy or
reorganization proceeding or similar proceeding.
12.11 Indemnity. Borrower will indemnify, defend and hold harmless Lender,
its respective directors, officers, counsel and employees, from and
against all claims, demands, liabilities, judgments, losses, damages,
costs and expenses, joint or several (including all accounting fees
and Attorneys' Fees reasonably incurred), that any such indemnified
party may incur arising under or by reason of this
<PAGE>
Agreement, any of the Loans, Loan Documents or Collateral, or any act
hereunder or thereunder or with respect hereto or thereto except the
willful misconduct or negligence of such indemnified party. Without
limiting the generality of the foregoing, Borrower agrees that if,
after receipt by Lender of any payment of all or any part of the
Obligations, demand is made at any time upon Lender for the repayment
or recovery of any amount or amounts received by it in payment or on
account of the Obligations and Lender repays all or any part of such
amount or amounts by reason of any judgment, decree or order of any
court or administrative body, or by reason of any settlement or
compromise of any such demand, this Agreement will continue in full
force and effect and Borrower will be liable, and will indemnify,
defend and hold harmless Lender for the amount or amounts so repaid.
The provisions of this Section will be and remain effective
notwithstanding any contrary action which may have been taken by
Borrower in reliance upon such payment, and any such contrary action
so taken will be without prejudice to Lender's rights under this
Agreement and will be deemed to have been conditioned upon such
payment having become final and irrevocable. The provisions of this
Section will survive the termination of this Agreement.
12.12 Continuing Agreement. This Agreement is and is intended to be a
continuing Agreement and will remain in full force and effect until
the Obligations are finally and irrevocably paid in full and the Notes
and Total Commitment are terminated.
12.13 Complete Agreement. This Agreement, together with the exhibits and
schedules hereto, the other Loan Documents and related documents to be
delivered on the Line of Credit Closing Date and each Closing Date
thereafter, constitutes the entire agreement of the parties hereto
regarding the subject matter hereof and thereof and supersedes any
prior or written agreements or understandings regarding such subject
matter.
12.14 No Third Party Beneficiaries. Nothing express or implied herein is
intended or will be construed to confer upon or give any person, firm
or corporation, other than the parties hereto, any right to remedy
hereunder or by reasons hereof.
12.15 No Partnership or Joint Venture. Nothing contained herein or in any of
the agreements or transactions contemplated hereby is intended or will
be constructed to create any relationship other than as expressly
stated herein or therein and will not create any joint venture,
partnership or other relationship.
12.16 Confidentiality. Lender will take all steps reasonably appropriate to
keep all information delivered to them by Borrower hereunder
confidential - except for disclosures: (i) required by any court
order, law, rule or regulation or (ii) to their accountants and
attorneys.
12.17 Governing Law and Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT
WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES
HERETO DETERMINED IN ACCORDANCE WITH THE LAWS
<PAGE>
OF THE STATE OF OHIO WITHOUT REGARD TO ITS CONFLICT OF LAWS
PRINCIPLES, AND BORROWER HEREBY AGREES TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED WITHIN HAMILTON COUNTY, OHIO, AND
CONSENT THAT ANY SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL
DIRECTED TO BORROWER AT THE ADDRESS SET FORTH HEREIN FOR NOTICES AND
SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED FIVE (5) BUSINESS DAYS
AFTER THE SAME HAS BEEN DEPOSITED IN U.S. MAILS, POSTAGE PREPAID;
PROVIDED THAT NOTHING CONTAINED HEREIN WILL PREVENT LENDER FROM
BRINGING ANY ACTION OR EXERCISING ANY RIGHTS AGAINST ANY SECURITY OR
AGAINST BORROWER INDIVIDUALLY OR AGAINST ANY PROPERTY OF BORROWER,
WITHIN ANY OTHER STATE OR NATION TO ENFORCE ANY AWARD OR JUDGMENT
OBTAINED IN THE FEDERAL OR STATE COURT LOCATED IN HAMILTON COUNTY,
OHIO. BORROWER WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS AND
----- --- ----------
ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. BORROWER
AND LENDER EACH UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED IN ANY OF
SUCH AGREEMENTS.
Effective as of October 30, 1998.
BORROWER:
GRAND COURT-GREATWOOD, L.P.
By:
-------------------------------
Print Name:
-----------------------
Title:
----------------------------
LENDER:
KEY CORPORATE CAPITAL INC.
By:
--------------------------------
Troy E. Miller
Vice President
<PAGE>
EXHIBIT A
BORROWER ADDITION AMENDMENT
--------------------------------------------------------------------------
("New Borrower(s)"), and GRAND COURT-GREATWOOD, L.P. (collectively,
"Borrowers"), and KEY CORPORATE CAPITAL INC. ("Lender"), hereby agree as follows
effective as of , 19 ("Effective Date"):
--------------- ------
1. Recitals.
1.1 On October 30, 1998 Borrowers and Lender entered into a Line
of Credit Agreement ("Line of Credit Agreement") and a
Promissory Note (collectively, with any other Note entered
into by any Borrower with Lender, the "Notes"). Capitalized
terms used herein and not otherwise defined will have the
meanings given such terms in the Line of Credit Agreement. As
used herein, "Line of Credit Agreement" and "Notes" will mean
such documents as they may have been amended prior to the
Effective Date.
1.2 New Borrower, Borrowers, and Lender, desire to amend the Line
of Credit Agreement, the Notes, and all other documents
executed in connection therewith (collectively, "Loan
Documents") pursuant to this Borrower Addition Amendment
("Amendment") as set forth herein.
2. Amendment.
2.1 All references in the Loan Documents to "Borrower" or
"Borrowers" will include New Borrower.
2.2 All reference in the Loan Documents to "Debtor" or "Debtors"
will include New Borrower.
2.3 The Transaction Guarantee given by Grand Court to secure the
obligations of the Borrowers is hereby amended to add New
Borrower as a Debtor whose obligations are secured by the
Guarantee.
2.4 The Completion Guarantee given by Guarantor to secure the
Completion of each Project is hereby amended to add New
Borrower as a Debtor whose Project shall be included in the
Guarantee.
3. Representations and Warranties. To induce Lender to enter into this
Amendment, New Borrower represents and warrants as follows:
3.1 The representations and warranties of Borrowers contained in
the Loan Documents are deemed to have been made again by
Borrowers and New Borrower on and as of the date of execution
of this Amendment.
<PAGE>
3.2 No Event of Default (as such term is defined in the Loan
Documents) or event or condition which with the lapse of time
or giving of notice or both would constitute an Event of
Default exists on the date hereof.
3.3 New Borrower has received a complete copy of each of the Loan
Documents, and has reviewed the Loan Documents to the extent
deemed appropriate or necessary by New Borrower.
4. Covenants.
4.1 New Borrower, with the consent of Lender, hereby assumes the
duties and obligations of a Borrower under the Line of Credit
Agreement, and all of the documents executed in connection
therewith (collectively, the "Loan Documents"), including but
not limited to the Notes, and New Borrower agrees to pay the
Notes in accordance with their terms and to keep and perform
all of the covenants, obligations and conditions of the Loan
Documents.
4.2 New Borrower agrees to execute one or more financing
statements pursuant to the Uniform Commercial Code in form
satisfactory to Lender and will pay the cost of filing
financing, continuation and termination statements in all
public offices where filing is deemed necessary or desirable
by Lender. New Borrower will execute and deliver to Lender
from time to time such supplemental assignments or other
instruments as Lender may require for the purpose of
confirming Lender's interest in the Collateral. New Borrower
hereby authorizes Lender to execute and file on behalf of New
Borrower all financing statements, deeds of trust or
mortgages, and documents deemed necessary or appropriate to
perfect Lender's interest in the Collateral.
5. General.
5.1 Except as expressly modified herein, the Loan Documents, as
amended, are and remain in full force and effect.
5.2 Nothing contained herein will be construed as waiving any
default or Event of Default under the Loan Documents or will
affect or impair any right, power or remedy of Lender under or
with respect to the Loan Documents, as amended, or any
agreement or instrument guaranteeing, securing or otherwise
relating to any of the Loans.
5.3 All representations and warranties made by Borrowers and New
Borrower herein will survive the execution and delivery of
this Amendment.
5.4 This Amendment will be binding upon and inure to the benefit
of Borrowers, New Borrower, and Lender and their respective
successors and assigns.
5.5 New Borrower will pay Lender's attorneys fees of $8000 plus
out of pocket expenses incurred in connection with the
preparation of this Amendment and the Loan Documents related
hereto. Such fees may be deducted by Lender from the proceeds
of an Advance.
5.6 This Amendment will in all respects be governed and construed
in accordance with the laws of the State of Ohio.
<PAGE>
5.7 A copy of this Amendment may be attached to the Notes as an
allonge.
<PAGE>
Executed as of the Effective Date.
LENDER:
KEY CORPORATE CAPITAL INC.
By:
------------------------
Troy E. Miller
Vice President
NEW BORROWER:
---------------------------
By:
------------------------
Print Name:
----------------
Title:
---------------------
BORROWERS:
GRAND COURT - GREATWOOD, L.P.
By:
--------------------------
Print Name:
------------------
Borrowers' Designated Officer
<PAGE>
EXHIBIT B
REQUIREMENTS OF TITLE COMMITMENT / POLICY
Title Insurance Company Requirements. The maximum single risk (i.e., the
amount insured under any one policy) by a title insurer may not exceed
25% of that insurer's surplus and statutory reserves. The Policy must
be written by an insurer authorized to do business in the jurisdiction
in which the Property is located.
Loan Policy Forms. Standard 1992 American Land Title Association ("ALTA")
form of loan title insurance policy, or the 1987 or 1970 (amended
October 17, 1970 and October 17, 1984) ALTA loan form policies must be
used (the ALTA 1990 loan policy will not be accepted).
Insurance Amount. The amount insured must equal at least the original principal
amount of the loan.
Named Insured. The named insured under the Policy must be substantially the
same as the following: "Key Corporate Capital Inc., and its respective
successors and assigns."
Creditors' Rights. Any "creditors' rights" exception or other exclusion from
coverage for voidable transactions under bankruptcy, fraudulent
conveyance or other debtor protection laws or equitable principles
must be removed by either an endorsement or a written waiver.
Arbitration. In the event that the form Policy which is utilized includes a
compulsory arbitration provision, the insurer must agree that such
compulsory arbitration provisions do not apply to any claims by or on
behalf of the insured. Please note that the 1987 and 1990 ALTA form
loan policies include such provisions.
Date of Policy. The effective date of the Policy must be as of the date and
time of the closing and shall be authorized by Agent. The Mortgage
shall not be recorded until after the closing. Upon the recording of
the Mortgage the Policy shall be redated as of the date of the
recording of the Mortgage.
Legal Description. The legal description of the Property contained in the
Policy must conform to (i) the legal description shown on the survey of
the Property, and (ii) the legal description contained in the Mortgage.
In any event, the Policy must be endorsed to provide that the insured
legal description is the same as that shown on the survey.
Easements. Each Policy shall insure, as separate parcels: (a) all appurtenant
easements and other estates benefiting the property, and (b) all other
rights, title and interests of the borrower
<PAGE>
in real property under reciprocal easement agreements, access
agreements, operating agreements and agreements containing covenants,
conditions and restrictions relating to the Property.
UCC, Tax, Judgment and Lien Searches. UCC, tax, judgment and lien searches
must be made no earlier than thirty (30) days before the closing of the
loan against the borrower and its principals (identified as such in the
mortgage loan application) in (i) the county where the property is
located, (ii) the Secretary of State's office of the State where the
property is located, (iii) the county where any such party has its
principal place of business or, if an individual, its residence, (iv)
the Secretary of State's office of the state where any such party and
its principal place of business or, if an individual, its residence,
and (v) if not already covered, the Secretary of State's offices of the
state of formation of each of the foregoing entities.
Exceptions to Coverage. With respect to the exceptions, the following applies:
Each Policy shall afford the broadest coverage available in the
state in which the subject property is located.
With respect to the "standard" exceptions (such as for parties in
possession or other matters not shown on public records), such
exceptions must be deleted.
With respect to the "standard" exception regarding tenants in
possession under residential leases, such exception should
also be deleted. In the alternative, the exception should read
as follows: "Rights or claims of parties in possession under
residential leases or occupants of apartment units, as tenants
only, without any right of first refusal to purchase any
portion of the property."
The standard survey exception to the Policy must be deleted.
Instead, a survey reading reflecting the current survey should
be incorporated.
Any exception for taxes, assessments or other lienable items must
expressly insure that such taxes, assessments or other items
are not yet due and payable.
Any lien, encumbrance, condition, restriction or easement of
record must be listed in the Policy, and the Policy must
affirmatively insure that the improvements do not encroach
upon the listed easements or insure against all loss or damage
due to such encroachment.
The Policy may not contain any exception for any filed or unfiled
mechanics' or materialmen's liens.
In the event that a comprehensive endorsement has been issued and
any Schedule B exceptions continue to be excluded from the
coverage provided through that endorsement, then a
determination must be made whether such exceptions would be
acceptable to Agent. In the event that it is determined that
such exception is
<PAGE>
acceptable, a written explanation regarding the acceptability
must be submitted as part of the delivery of the loan
documents.
If Schedule B indicates the presence of any easements that are
not located on the survey, the Policy must provide affirmative
insurance against any loss resulting from the exercise by the
holder of such easement of its right to use or maintain that
easement. CLTA Form 103.1 or an equivalent endorsement is
required for this purpose.
Endorsements. With respect to endorsements, the following applies:
EachPolicy must include an acceptable environmental protection
lien endorsement on ALTA Form 8.1. Please note that Form 8.1
may take exception for an entire statute which contains one or
more specific sections under which environmental protection
liens could take priority over the Mortgage; provided,
however, that such specific sections under which the lien
could arise must also be referenced.
EachPolicy must contain an endorsement which provides that the
insured legal description is the same as shown on the survey.
EachPolicy must contain a comprehensive endorsement (ALTA Form 9)
if a lien, encumbrance, condition, restriction or easement is
listed in Schedule B to the title insurance policy.
The following endorsements shall be included in each Policy
(unless inapplicable given the circumstances of the
transaction):
-access
-zoning (ALTA 3.1)
-assignment of loan documents -contiguity -single tax lot
-doing business -due execution -mortgage tax -usury -address
-assignment of leases and rents -assessments -mineral rights
-reverter -subdivision -leasehold -tie-in -first loss
-lastdollar
<PAGE>
13 Other Coverages. Each Policy shall insure the following by endorsement
or affirmative insurance to the extent such coverage is not afforded by
the ALTA Form 9 or its equivalent in a particular jurisdiction:
a. that no conditions, covenants or restrictions of record
affecting the Property:
(i) have been violated,
(ii) create lien rights which prime the insured
mortgage, contain a right of reverter or
forfeiture, a right of reentry or power of
termination, or
if violated in the future would result in the lien
created by the insured mortgage, or title to the
Property being lost, forfeited or subordinated; and
that except for temporary interference resulting solely from
maintenance, repair, replacement or alteration of lines,
facilities or equipment located in easements and rights of way
taken as certain exceptions to each Policy, such exceptions do
not and shall not prevent the use and operation of the
Property or the improvements as used and operated on the
effective date of the Policy.
Informational Matters. The Policy must include, as an informational note, the
following:
The recorded plat number together with recording information; and
The property parcel number or the tax identification number, as
applicable.
Financing Statements. Any financing statements filed or
recorded showing the Agent as secured party must be shown as
an informational note only. Such financing statements (and
assignments thereof) may not be listed as exceptions on
Schedule B.
Delivery of Copies. All copies of all easements, encumbrances or other
restrictions shown as exceptions on the Policy must be delivered.
<PAGE>
EXHIBIT C
SURVEY REQUIREMENTS
1. Property Survey:
1.1 A survey shall be certified to Key Corporate Capital Inc. and
Borrower and Title Insurance Company by a registered land
surveyor using the attached long-form certification. The
survey is to have the surveyor's seal affixed and shall
reflect a current date. Older surveys are acceptable if
updated and re-certified.
1.2 The full legal description and street address must be shown.
The legal description must be identical to that contained in
the title insurance commitment. If the premises are described
as being on a filed plat or map, the survey should contain a
legend relating the parcel to the map on which it is shown.
1.3 All perimeter property lines must be specifically identified.
Show the location by courses and distances of: (a) the parcel
to be covered by the mortgage; (b) clearly designate the point
of beginning and the relation of the point of beginning of
said parcel to the monument from which it is fixed; (c) all
servient easements; (d) the established building line; (e) all
easements appurtenant to said parcel (f) the line of the
street or streets abutting the parcel and the width of said
streets; (g) the location by courses and distances of the
nearest intersection of two streets to the subject property.
1.4 The number of square feet or acres contained in the parcel
must be specifically identified.
1.5 All streets adjacent to the property and R.O.W. lines must be
specifically identified. The survey must disclose that access
to the adjacent streets exists.
1.6 All exceptions on the title insurance commitment must be
plotted (or, identified on the face of the survey as not
plottable). Indicate the reason that any exceptions (except
liens) are not plottable.
1.7 All easements affecting the property shall be identified by
recording information (book and page or document number of
instrument creating the easement).
1.8 Identify all utility lines as they service the property and
improvements (sewer, water, gas, electric and telephone).
Indicate whether the utility line is above or below grade and
show the sizes of the respective service.
1.9 Show and describe encroachments or make a positive statement
there are not encroachments.
1.10 State whether or not the property appears on any U.S.
Department of H.U.D.
<PAGE>
Flood Insurance Boundary Map and, if so, further state the map
number and whether or not the property appears in the "Flood
Hazard" shown on the map.
1.11 Show the location of railroad tracks and sidings.
1.12 The location of rubbish fills, sloughs, springs, filled-in
wells or cisterns and seep holes should be charted wherever
possible.
1.13 For property on which existing improvements are to remain,
include:
1.13.1 All structures and improvements including sidewalks,
stoops, over-hangs, and parking areas must be shown.
The square footage of all structures must be listed.
Show all structures and improvements on said parcel
with horizontal lengths of all sides and the relation
thereof by distances to (i) all boundary lines of the
parcel; (ii) servient easements; (iii) established
building lines; and (iv) street lines.
1.13.2 Identify parking and paved areas. Identify the number
of vehicles that may be parked in each parking area.
2. Foundation Survey:
2.1 The property survey shall be updated to show the location of
added building foundations. It shall show horizontal lengths
of all sides and the relation thereof by distances to: (a) all
boundary lines of the parcel; (b) servient easements; (c)
established building lines; and (d) street lines.
2.2 Certification shall be updated to the date the foundation
survey was made.
3. Final Survey:
3.1 The property survey shall be updated to show all completed
structures and improvements in the same manner as required in
item 13 (a) above.
3.2 Certification will be updated to the date the final survey
was made.
<PAGE>
EXHIBIT D
LONG-FORM CERTIFICATION FOR SURVEYS
I hereby certify to Key Corporate Capital Inc. and Borrower and Title Insurance
Company that the survey prepared by me entitled "
_________________________________" was actually made upon the ground and that it
and the information, courses and distances shown thereon are correct; that the
title lines and lines of actual possession are the same; that the size, location
and type of buildings and improvements are as shown and all are within the
boundary lines of the property; that there are no violations of zoning
ordinances, restrictions or other rules and regulations with reference to the
location of said building and improvements; that there are no easements,
encroachments or use affecting this property appearing from a careful physical
inspection of the same, other than those shown and depicted thereon; that all
utility services required for the operations of the premises either enter the
premises through adjoining public streets, or the survey shows the point of
entry and location of any utilities which pass through or are located on
adjoining private land; that the survey shows the location and direction of all
storm drainage systems for the collection and disposal of all roof and surface
drainage; that any discharge into streams, rivers or other conveyance system is
shown on the survey; and that the parcels described heron do not lie within
flood hazard areas in accordance with the document entitled "Department of
Housing and Urban Development, Federal Insurance Administration - Special Flood
Hazard Area Maps". This survey is made in accordance with the "Minimum Standard
Detail Requirements for Land Title Surveys" jointly established and adopted by
ALTA and ACSM."
BY: ___________________________
DATE: _________________________
(Seal)
<PAGE>
EXHIBIT 10.14(a)
TRANSACTION GUARANTEE
This Transaction Guarantee ("Guarantee") is made by the undersigned,
GRAND COURT LIFESTYLES, INC. (hereinafter referred to as ("Guarantor"),
in order to induce KEY CORPORATE CAPITAL INC., a Michigan corporation with
its main office at 127 Public Square, Cleveland, Ohio 44114 ("Lender"),
to make Non-Revolving Loans (individually an collectively, the "Loan") in
the amount of up to TWENTY FIVE MILLION DOLLARS ($25,000,000) to GRAND
COURT-GREATWOOD, L.P. and other Persons who become a Borrower under the
Line of Credit Agreement between Lender and Grand Court-Greatwood, L.P.
dated as of even date herewith (the "Line of Credit Agreement")
(individually and collectively, the "Borrower"), to be evidenced by the
Non-Revolving Notes (individually and collectively, the "Note") payable to
the order of Lender according to the terms and conditions of the Line of
Credit Agreement, and in consideration of other good and valuable
consideration, Guarantor hereby unconditionally and absolutely,
guarantees the full and timely performance by Borrower of all of the
Obligations. Capitalized terms used in this Guarantee and not otherwise
defined herein will have the meanings given such terms in the Line of
Credit Agreement.
Guarantor represents and warrants that it has a financial
interest in Borrower and will receive substantial economic benefit by
reason of Lender extending the Loan to Borrower; provided, however, that
such Guarantor's liability hereunder shall not be affected or impaired by
such Guarantor's disposition or loss of its financial interest in Borrower
or by reason of Lender's refusal in accordance with the terms of the Loan
Documents, to make Advances to Borrower.
Guarantor further agrees that:
1. The Loan and/or Note may be renewed, replaced with a new note,
rearranged or the maturity thereof extended, from time to time
and at any rate of interest, without notice to, without the consent
of and without affecting the liability of, the undersigned.
2. This Guarantee is not a Guarantee of collection, but rather this
Guarantee is an irrevocable, absolute, and unconditional guarantee
of payment and performance of the Obligations; and if all or any of
the Obligations become payable or performable and are not paid or
performed by Borrower as and when required by the Loan Documents
beyond the expiration of any grace or cure period provided for
therein, Guarantor shall pay or perform the same within five (5)
Business Days after written demand by Lender to Guarantor provided,
however, that if the guaranteed obligation is not susceptible of
being performed within five (5) Business Days but is susceptible of
being performed within a reasonable period of time, Guarantor shall
be deemed to be complying with its obligations hereunder if Guarantor
commences performance in good faith within such five (5) Business
Day period and thereafter diligently and without interruption
continues to perform such guaranteed obligation. Without limiting the
generality of the foregoing, Guarantor agrees that in no event shall
it be necessary for Lender to resort to or exhaust Lender's remedies
against Borrower or against any other party liable on or in
connection with the Loan, the Note or the Obligations or to resort to
or marshal any property held as security therefor or pertaining
thereto before calling upon Guarantor for performance and/or payment.
If Guarantor shall fail to perform any of the Obligations or any of
Guarantor's obligations hereunder, then
<PAGE>
Lender shall have the right, in addition to and cumulative of any other
remedies Lender may have hereunder, under the Loan Documents or at law or
in equity, at Lender's option and without any obligation to do so, upon
giving prior written notice to Guarantor, to proceed to pay and/or perform
the Obligations on behalf of Guarantor and/or Borrower, and Guarantor
shall, upon demand, pay to Lender all such sums expended by Lender in the
payment and performance of the Obligations with interest thereon at the
Default Rate.
3. Any Collateral may be sold, exchanged, surrendered or otherwise dealt with
by Lender without notice to and without affecting the liability of
Guarantor except and to the extent that Lender shall apply any proceeds of
the sale of any Collateral to the Obligations, Guarantor shall not have any
rights or claims against Lender by reason of any action Lender may take or
fail to take in connection with perfecting Lender's security interest in
property held as collateral for the Obligations or enforcing Lender's
security interest in such property.
4. All settlements, compromises, compositions, accounts stated and agreed
balances with regard to the Loan and/or Note made in good faith between
Lender and Borrower shall be binding upon Guarantor.
5. Lender, without notice to, without the consent of and without affecting the
liability of Guarantor, may modify, waive, supplement or otherwise change
any of the terms, conditions, provisions, restrictions or liabilities
contained in the Loan Documents or in any agreement or other instrument
evidencing, securing or pertaining to the Loan and/or Note.
6. This Guarantee is unconditional, absolute and irrevocable and except as
otherwise provided herein Guarantor hereby waives notice of the acceptance
hereof, waives all notices to which Guarantor might otherwise be entitled
by law, waives all defenses, legal or equitable or otherwise available to a
Guarantor and waives presentment, demand for payment, notice of dishonor,
protest, notice of nonperformance and notice of protest and nonpayment
relative to the Loan and/or Note. If any term or provision of this
Guarantee shall be held to be invalid, illegal or unenforceable, the
remaining provisions hereof shall remain in full force and effect.
7. The obligations of Guarantor under this Guarantee shall be absolute,
unconditional and irrevocable and shall be satisfied strictly in accordance
with the terms of this Guarantee, under all circumstances whatsoever,
including, without limitation, the existence of any claim, setoff, defense
(except payment of the Obligations) or right which Borrower and/or
Guarantor, or any one of them, may have at any time against Lender or any
other person or entity, whether in connection with this Guarantee, the Loan
Documents or the transactions contemplated thereby, hereby or by or in
connection with any unrelated transaction. Borrower and Guarantors further
acknowledge and agree that this Guarantee is not subject to any exculpatory
provision contained in any of the Loan Documents limiting Lender's recourse
to the Collateral or to any other security for the Loan or limiting
Lender's rights to a personal and/or deficiency judgment against Borrower
or the Guarantor. Anything in this Guarantee to the contrary
notwithstanding, Guarantor further agrees to indemnify and hold harmless
Lender against any loss, damage, cost or expense (including reasonable
<PAGE>
attorneys' fees and costs) that Lender may suffer or incur by reason of the
breach or failure of Guarantor's undertakings and agreements pursuant
to this Guarantee.
8. The Loan Documents shall continue to be effective, or be reinstated, as the
case may be, if any amount paid by or on behalf of Borrower to Lender with
regard to such Loan Documents is rescinded, restored to Borrower, or
returned to Borrower in connection with the insolvency, bankruptcy,
dissolution, liquidation, or reorganization of Borrower, or as a result of
the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, Borrower or any part of Borrower's property, or
otherwise, all as though such payment had not been made.
9. Guarantor hereby waives (until the Obligations are paid to Lender) all
rights such Guarantor may have, at law or in equity, including, without
limitation, rights under any law subrogating a Guarantor to the rights of
Lender, to seek contribution, indemnification, or any other form of
reimbursement from Borrower, any other Guarantor or any other person or
entity now or hereafter primarily or secondarily liable for any obligations
of Borrower to Lender, for any payment or disbursement made by a Guarantor
under or in connection with this Guarantee or otherwise.
10. Guarantor agrees to furnish Current Financial Statements and income tax
returns, in form and content acceptable to Lender in accordance with the
terms of Section 5 of the Line of Credit Agreement.
11. Guarantor shall continue to own and control not less than 100% of the
ownership interest of Borrower. Guarantor shall not permit any Person to
own or control more than 49% of any class of voting equity interests in
Guarantor (other than such Persons already holding any such interests).
12. This Guarantee shall be construed in accordance with the laws of the State
of Ohio and shall inure to the benefit of Lender, its successors and
assigns, and to any other holder who derives title to or an interest in
this Guarantee, the Loan and/or the Note.
13. This Guarantee shall be binding upon the heirs, executors, administrators,
successors and assigns of Guarantor.
14. The obligations of Guarantor hereunder shall terminate on the date that all
Obligations of Borrower to Lender have been fully paid.
Executed at Cincinnati, Ohio as of the 30th day of October, 1998.
<PAGE>
Signed in the presence of: GUARANTOR:
GRAND COURT LIFESTYLES, INC.
--------------------------------
By:
--------------------------------
Print Name:
------------------------
-------------------------------- Title:
-----------------------------
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0
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