UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from to
Commission file number: 0-21459
AMERUS LIFE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-1459712
State of other jurisdiction of incorporation (I.R.S. Employer
or organization Identification Number)
699 Walnut Street, Des Moines, Iowa 50309-2407
------------------------------------------------
(Address of principal executive offices)
Telephone number: (515) 362-3600
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on Which Registered
- -------------- ------------------------------------
Class A Common Stock (no par value) New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
Title of each class
8.85% Capital Securities, Series A issued by
AmerUs Capital I, a subsidiary trust
Class A Common Stock Warrants
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./x/ yes / / no
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /x/
The aggregate market value of voting stock held by
Non-affiliates of the Company on February 28, 1998 was $566,194,000
The number of shares outstanding of each of the registrant's classes of
common stock on February 28, 1998 was as follows:
Class A, Common Stock 29,734,918 shares
Class B, Common Stock 5,000,000 shares
Documents incorporated by reference
Notice of 1998 Annual Meeting of Shareholders and Proxy Statement
(incorporated into Part III)
<PAGE>
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A SAFE HARBOR
FOR FORWARD-LOOKING STATEMENTS. A NUMBER OF MATTERS AND SUBJECT AREAS DISCUSSED
IN THE SECTIONS ENTITLED "BUSINESS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION" AND ELSEWHERE IN THIS REPORT ARE
NOT LIMITED TO HISTORICAL OR CURRENT FACTS AND DEAL WITH POTENTIAL FUTURE
CIRCUMSTANCES AND DEVELOPMENTS. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED OR PROJECTED IN SUCH FORWARD-LOOKING
STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (I) HEIGHTENED
COMPETITION, INCLUDING THE ENTRY OF NEW COMPETITORS AND THE DEVELOPMENT OF NEW
PRODUCTS BY COMPETITORS; (II) ADVERSE STATE AND FEDERAL LEGISLATION AND
REGULATION, INCLUDING INCREASES IN MINIMUM CAPITAL AND RESERVES, AND OTHER
FINANCIAL VIABILITY REQUIREMENTS AND ADDITIONAL REGULATIONS OF INSURANCE MUTUAL
HOLDING COMPANIES; (III) FAILURE TO MAINTAIN EFFECTIVE DISTRIBUTION CHANNELS IN
ORDER TO OBTAIN NEW CUSTOMERS OR FAILURE TO RETAIN EXISTING CUSTOMERS; (IV)
INABILITY TO CARRY OUT MARKETING AND SALES PLANS, INCLUDING, AMONG OTHERS,
CHANGES TO CERTAIN PRODUCTS AND ACCEPTANCE OF THE REVISED PRODUCTS IN THE
MARKET; (V) LOSS OF KEY EXECUTIVES; (VI) CHANGES IN INTEREST RATES CAUSING A
REDUCTION OF INVESTMENT INCOME OR A REDUCTION IN DEMAND FOR CERTAIN OF THE
COMPANY'S PRODUCTS; (VII) GENERAL ECONOMIC AND BUSINESS CONDITIONS WHICH ARE
LESS FAVORABLE THAN EXPECTED; (VIII) UNANTICIPATED CHANGES IN INDUSTRY TRENDS;
(IX) INACCURACIES IN ASSUMPTIONS REGARDING FUTURE MORBIDITY, PERSISTENCY,
MORTALITY AND INTEREST RATES USED IN CALCULATING RESERVE AMOUNTS; (X) ADVERSE
CHANGES IN RATINGS ASSIGNED BY RATING AGENCIES; (XI) CHANGES IN TAX LAWS WHICH
NEGATIVELY AFFECT DEMAND FOR THE COMPANY'S PRODUCTS OR THE APPLICABILITY OF
CERTAIN TAXES TO THE COMPANY (INCLUDING 1998 TAX PROPOSALS OF THE CLINTON
ADMINISTRATION RELATING TO ANNUITIES); (XII) WITH RESPECT TO COST SAVINGS THAT
ARE EXPECTED TO BE REALIZED FROM, AND COSTS ASSOCIATED WITH THE RECENT
ACQUISITIONS OF DELTA LIFE CORPORATION ("DELTA") AND AMVESTORS FINANCIAL
CORPORATION ("AMVESTORS"), THE FOLLOWING POSSIBILITIES: (A) THE ESTIMATED COST
SAVINGS TO BE REALIZED THROUGH COMBINING CERTAIN FUNCTIONS OF THE COMPANY, DELTA
AND AMVESTORS TO ELIMINATE REDUNDANCIES AND BETTER SERVE THE COMBINED COMPANY'S
CUSTOMERS, AND REDUCTIONS IN STAFF CANNOT BE FULLY REALIZED BECAUSE THE CHANGES
ARE NOT MADE OR UNANTICIPATED ADDED COSTS ARE INCURRED; AND (B) COSTS OR
DIFFICULTIES RELATED TO THE INTEGRATION OF THE BUSINESSES OF DELTA AND AMVESTORS
WITH THE COMPANY'S OTHER BUSINESSES ARE GREATER THAN EXPECTED. A VARIETY OF
FACTORS COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
EXPECTED RESULTS EXPRESSED IN THE COMPANY'S FORWARD-LOOKING STATEMENTS,
INCLUDING THOSE SET FORTH ELSEWHERE IN THIS REPORT AND IN THE COMPANY'S OTHER
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION").<PAGE>
PART I
Item 1. Business.
General
The Company is an insurance holding company engaged through its
subsidiaries in the business of marketing, underwriting and distributing a broad
range of individual life insurance and annuity products to individuals and
businesses in 49 states, the District of Columbia and the U.S. Virgin Islands.
The Company's primary product offerings consist of whole life, universal life
and term life insurance policies and fixed annuities. In addition, through a
joint venture (the "Ameritas Joint Venture") with Ameritas Life Insurance Corp.
("Ameritas"), the Company's subsidiary, the distribution force of AmerUs Life
Insurance Company ("AmerUs Life"), markets fixed annuities issued by Ameritas
Variable Life Insurance Company ("AVLIC") and sells AVLIC's variable life
insurance and variable annuity products. As of December 31, 1997, the Company
had approximately 573,000 life insurance policies and annuity contracts
outstanding and individual life insurance in force, net of reinsurance, of
approximately $26.7 billion with life insurance reserves of $2.4 billion and
annuity reserves of $6.1 billion. As of December 31, 1997, the Company had
total assets of $10.3 billion and total shareholders' equity of $928.0 million.
The Company was formed in 1996 as a result of the creation of the first
mutual insurance holding company in the United States, the American Mutual
Holding Company ("AMHC"). AMHC owns 100% of AmerUs Group Co. ("AmerUs Group"),
the Company's controlling shareholder. On February 3, 1997, the Company received
$56.7 million in gross proceeds from a subscription offering and initial public
offering of 3,655,989 shares of Class A Common Stock.
The Company's principal subsidiaries are AmerUs Life, Delta Life
Corporation ("Delta") and AmVestors Financial Corporation ("AmVestors"). AmerUs
Life was originally incorporated in 1896 as a mutual insurance company under the
name Central Life Assurance Society of the United States. Its name was changed
to American Mutual Life Insurance Company in 1994 following the merger of
American Mutual Life Insurance Company into Central Life Assurance Company. On
June 30, 1996, American Mutual Life Insurance Company was converted into a stock
life insurance company pursuant to a plan of reorganization involving the
formation of AMHC (the "Reorganization") and its name was changed to AmerUs
Life.
AmerUs Life's target customers are individuals in the middle and upper
income brackets and small businesses. Its geographic focus is national in scope
(except for Connecticut, Maine, New Hampshire, New York and Vermont, in which
AmerUs Life is not licensed to do business), and it primarily serves suburban
and rural areas. Efforts are currently underway to expand AmerUs Life's
territory into the states of Connecticut, Maine, New Hampshire and Vermont.
AmerUs Life distributes its products primarily through a combination of career
general agency and personal producing general agency ("PPGA") distribution
systems, as well as a network of independent brokers. The career general agency
system consists of a network of 35 career general agencies, with approximately
570 career agents. The PPGA system is comprised of approximately 425 PPGA's,
with approximately 1,100 agents. Variable life insurance products and the fixed
and variable annuities offered by the Ameritas Joint Venture are marketed
through AmerUs Life's distribution systems and the distribution systems of
Ameritas and AVLIC, which consist of approximately 160 agents and 540
independent broker-dealers (with approximately 9,000 registered
representatives), respectively. As of December 31, 1997, AmerUs Life had
approximately 408,000 life insurance policies and annuity contracts outstanding
and individual life insurance in force, net of reinsurance, of approximately
$26.6 billion.
On October 23, 1997, the Company acquired all of the outstanding capital
stock of Delta for approximately $165 million in cash (the "Delta Acquisition").
The principal asset of Delta is its wholly-owned subsidiary, Delta Life and
Annuity Company ("Delta Life"), an Iowa domiciled life insurance company formed
in 1955. Delta Life is licensed in the District of Columbia and in all states
except New York, and specializes in the sale of individual single and flexible
premium deferred annuities, primarily in the southeastern, western, southwestern
and midwestern regions of the United States. Sales are made primarily through a
network of over 3,300 independent agents. Delta Life's strategy is to target the
conservative saver by offering conservative asset management and an innovative
product design. Approximately 58% of Delta's 1997 direct collected premiums were
derived from retirement-oriented tax-qualified annuities. As of December 31,
1997, Delta Life had approximately 52,000 annuity contracts outstanding.
On December 19, 1997, the Company acquired AmVestors in a stock exchange
valued at approximately $350 million (the "AmVestors Acquisition"). AmVestors'
principal operating subsidiaries are American Investors Life Insurance Company,
Inc. ("American"), a Kansas domiciled life insurance company licensed in 48
states and the District of Columbia; and Financial Benefit Life Insurance
Company ("FBL"), a Kansas domiciled life insurance company doing business in 40
states, the District of Columbia and the U.S. Virgin Islands. AmVestors
specializes in the sale of annuity products, further strengthening the
Company's presence in the rapidly growing asset accumulation and retirement and
savings markets. AmVestors distributes its products through a national network
of approximately 7,800 licensed independent agents. As of December 31, 1997,
AmVestors had approximately 104,000 annuity contracts outstanding.
The Delta and AmVestors acquisitions, along with the growth of AmerUs Life,
increased the Company's assets from $4.4 billion at December 31, 1996 to $10.3
billion at December 31, 1997.
As of December 31, 1997, AmerUs Life's claims-paying ability was rated
"AA-" (Very high) by Duff & Phelps and "A" (Good) by Standard & Poor's. AmerUs
Life is rated "A" (Excellent) by A.M. Best and "A2" (Good) by Moody's. Delta
Life's claims-paying ability is rated "AA-" (Very High) by Duff & Phelps and
Delta Life is rated "A" (Excellent) by A.M. Best. American's claims-paying
ability is rated "A+" (High) by Duff & Phelps and American is rated "A-"
(Excellent) by A.M. Best. FBL is rated "B+" (Very good) by A.M. Best and "BBBq"
(Adequate) by Standard & Poor's.
Following the announcement of the acquisition of Delta, Moody's indicated
that AmerUs Life, rated "A2" (Good) for financial strength, was under review for
possible downgrade. As of March 20, 1998, Moody's has not issued any further
statement with respect to AmerUs Life's financial strength rating. Following
the announcement of the acquisition of AmVestors, Standard & Poor's placed
AmerUs Life's claims-paying ability rating, currently rated "A" (Good), on
Credit Watch with negative implications. Standard & Poor's stated that its
action was the result of several operational uncertainties. As of March 20,
1998, Standard & Poor's has not issued any further statement with respect to
AmerUs Life's claims-paying ability.
The Company participates in the Ameritas Joint Venture through AmerUs
Life's 34% ownership interest in AMAL Corporation, a Nebraska corporation
("AMAL"). AMAL's operations are conducted through AVLIC and Ameritas Investment
Corp., a registered broker-dealer ("AIC"), its two wholly-owned subsidiaries,
which have been in business since 1983. AVLIC is licensed to conduct business in
46 states and the District of Columbia. AIC is a registered broker-dealer which
is licensed to do business in all states except New York. As of December 31,
1997, AMAL had total consolidated assets of $1.5 billion and total consolidated
shareholder's equity of $72.0 million on a GAAP basis. AVLIC had $3.8 billion of
insurance in force and $45.3 million in surplus as of December 31, 1997, on a
statutory basis. AmerUs Life's partner in the Ameritas Joint Venture,
Ameritas, is a Nebraska mutual life insurance company which has been in
existence for more than 100 years.
AmerUs Life's investment in the Ameritas Joint Venture affords AmerUs Life
access to a line of existing variable life insurance and annuity products while
providing a lower-cost entry into an established business, thereby eliminating
significant start-up costs and allowing for immediate potential earnings. Under
the terms of the Joint Venture Agreement, AmerUs Life has an option to purchase
an additional 5% to 15% of AMAL (the "Option") if certain premium growth targets
are met. AmerUs Life and Ameritas each have guaranteed the obligations of AVLIC.
The guarantee of each party is joint and several, and will remain in effect
until certain financial conditions are met.
PRODUCTS
AMERUS LIFE PRODUCTS
Traditional life insurance and universal life insurance have accounted for
approximately 70% and 30%, respectively, of AmerUs Life's total individual life
insurance premiums over the last three years. In addition, AmerUs Life has
historically offered a broad line of fixed annuity products.
The following table sets forth information regarding AmerUs Life's sales
activity by product:
<TABLE>
Sales Activity by Product
For the Year Ended
December 31,
-------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
(In thousands)
Individual life insurance:
Participating whole life $16,843 $18,253 $20,857
Universal life 8,916 7,533 8,047
Term life 4,751 2,565 2,717
------- ------- -------
Total life insurance (A) $30,510 $28,351 $31,621
======= ======= =======
Individual annuities (B)(C) $42,528 $72,797 $191,474
======= ======= ========
- -------------------------------
(A) Direct first year annualized premiums.
(B) Direct first year and single collected premiums.
(C) Effective May, 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture.
</TABLE>
TRADITIONAL LIFE INSURANCE PRODUCTS. AmerUs Life's traditional life
insurance products have a long history of being highly competitive within the
industry. Traditional life insurance products include participating whole life
and term life insurance products. Participating whole life insurance is designed
to provide benefits for the life of the insured. This product generally provides
for level premiums and a level death benefit and requires payments in excess of
the mortality cost in earlier years to offset increasing mortality costs in
later years. AmerUs Life also offers a second to die whole life insurance
product which insures two lives and provides benefits upon the death of the
second insured. AmerUs Life targets its second to die products primarily to
potential customers seeking to achieve estate planning goals.
AmerUs Life also offers a portfolio of term insurance policies that provide
life insurance protection for a specific time period (which generally can be
renewed at an increased premium). Such policies are mortality-based and offer no
cash accumulation feature. Term life insurance is a highly competitive and
quickly changing market. During 1997, AmerUs Life introduced new 10 and 20 year
term products. As a result, AmerUs Life's first year annualized premiums for
term insurance sales increased 85% from 1996 to 1997.
Since 1989, AmerUs Life has offered a flexible life insurance product,
which is a combination of permanent participating whole life insurance,
increasing paid-up additions and decreasing term insurance coverage. These
products give policyowners additional flexibility in designing an appropriate
combination of permanent and term life insurance coverages to meet their
specific needs at varying premium levels.
For the year ended December 31, 1997, sales of participating whole life and
term life insurance products represented 55% and 16%, respectively, of first
year annualized premiums for all individual life insurance products sold by
AmerUs Life.
UNIVERSAL LIFE INSURANCE PRODUCTS. AmerUs Life offers universal life
insurance products, pursuant to which an insurance account is maintained for
each insurance policy. Premiums, net of specified expenses, are credited to the
account, as is interest, generally at a rate determined from time to time by
AmerUs Life. Specific charges are made against the account for the cost of
insurance and for expenses. The universal life policy provides flexibility as to
the amount and timing of premium payments and the level of death benefits
provided.
AmerUs Life's universal life insurance products provide benefits for the
life of the insured. Within limits established by AmerUs Life and state
regulations, policyowners may vary the premiums and the amount of the policy's
death benefit as long as there are sufficient policy funds available to cover
all policy charges for the coming period. Interest is credited to the policy at
a rate determined from time to time by AmerUs Life. During 1997, AmerUs Life
introduced a new second to die universal life product for the estate planning
market, enhancing universal life production for the year. The weighted average
crediting rate for AmerUs Life's universal life insurance liabilities was 6.23%
for the year 1997, 6.27% for the year 1996 and 6.46% for the year 1995. For the
year ended December 31, 1997, sales of universal life insurance products
represented 29% of first year annualized premiums for all individual life
insurance products sold by AmerUs Life.
FIXED ANNUITY PRODUCTS. Historically, AmerUs Life has offered a broad
portfolio of fixed annuity products. Annuities provide for the payment of
periodic benefits over a specified time period. Benefits may commence
immediately or may be deferred to a future date. Fixed annuities generally are
backed by a general investment account and credited with a rate of return that
is periodically reset.
Since the formation of the Ameritas Joint Venture in May 1996, the recorded
sales of fixed annuity products by AmerUs Life have declined signficantly.
However, the majority of AmerUs Life's fixed annuity sales still consist of its
Advantage Series of deferred annuities, as was the case prior to the formation
of the Ameritas Joint Venture. The Advantage Series consists of three products
comprised of two book value annuities, which are fixed annuities, and one market
value adjusted annuity, which is a fixed annuity with a market value adjustment
feature. Both book value annuities have a first year interest rate guarantee.
One of the book value annuities also provides a bonus interest rate for the
first year. The market value adjusted annuity has a first year interest
guarantee and also provides a bonus interest rate for the first year. In 1997,
the Advantage Series accounted for $24 million in first year premiums which
represented 56% of AmerUs Life's total fixed annuity production for the year.
The following table sets forth AmerUs Life's collected premiums for the
periods indicated:
<TABLE>
Collected Premiums by Product
For the Year Ended December 31,
--------------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Direct individual life premiums
collected:
Traditional life:
First year & single $ 74,132 $ 70,621 $ 70,786
Renewal 166,847 162,168 153,299
--------- --------- ---------
Total 240,979 232,789 224,085
Universal life:
First year & single 14,089 14,667 15,451
Renewal 73,779 75,632 77,151
--------- --------- ---------
Total 87,868 90,299 92,602
Total direct life 328,847 323,088 316,687
Reinsurance assumed 1,502 1,425 1,337
Reinsurance ceded (13,133) (12,974) (13,795)
--------- -------- --------
Total individual life, net of
reinsurance 317,216 311,539 304,229
Direct annuity premiums
collected:
Individual (A) 49,706 81,942 197,959
Group - 50 (665)
-------- -------- --------
Total annuities 49,706 81,992 197,294
Reinsurance ceded (373) (544) (853)
-------- -------- --------
Total annuities, net of
reinsurance 49,333 81,448 196,441
Total group life, net of
reinsurance (B) (107) 2,182 6,634
Total accident & health, net
of reinsurance (C) 167 211 264
-------- -------- --------
Total collected premiums,
net of reinsurance $366,609 $395,380 $507,568
======== ======== ========
- -----------------
(A) Effective May 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture.
(B) AmerUs Life sold substantially all of its group life business as of
July 1, 1996 and is no longer actively marketing this line of business.
(C) AmerUs Life sold substantially all of its accident and health business
in 1991 and is no longer actively marketing this line of business.
</TABLE>
The following table sets forth information regarding AmerUs Life's life
insurance and annuities in force for each date presented:
<TABLE>
Life Insurance and Annuities in Force
As of December 31,
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Individual life insurance:
Traditional
Number of policies 250,253 255,441 261,224
GAAP life reserves $1,305,858 $1,207,656 $1,120,799
Face amounts $17,807,000 $16,882,000 $16,600,000
Universal life
Number of policies 117,394 120,277 121,619
GAAP life reserves $851,841 $820,250 $784,363
Face amounts $12,097,000 $12,206,000 $12,211,000
Total life insurance
Number of policies 367,647 375,718 382,843
GAAP life reserves $2,157,699 $2,027,906 $1,905,162
Face amounts $29,904,000 $29,088,000 $28,811,000
Annuities (A):
Number of policies 40,256 56,467 56,054
GAAP reserves $1,245,259 $1,363,484 $1,466,752
Group life insurance (B):
Number of lives 20,974 29,801 32,724
Face amounts $602,000 $815,000 $829,000
(A) Effective May 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture.
(B) AmerUs Life sold substantially all of its group life business as of July 1,
1996 and is no longer actively marketing this line of business.
</TABLE>
SPONSORED PRODUCTS. AmerUs Life also derives fee income from the sale of
various sponsored products through its career general agency and PPGA
distribution systems under co-marketing arrangements with leading insurance
providers for such products. Such sponsored products include individual long-
term disability and group life, health and dental insurance products.
DELTA PRODUCTS
Delta specializes in the sale of deferred fixed and equity index annuities
to individuals.
The following table sets forth information regarding Delta's sales activity
by product:
<TABLE>
Direct First Year and Single Collected Premiums
For the Year Ended December 31,
--------------------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Deferred fixed annuity $120,172 $147,917 $270,337
Equity index annuity 41,939 98,612 -
Immediate annuity 4,833 8,037 6,675
-------- -------- --------
$166,944 $254,566 $277,012
======== ======== ========
</TABLE>
Delta's product offerings differ from those of many of its competitors in
two ways. First, Delta offers an interest rate crediting strategy on almost all
of its single and flexible premium deferred annuities that credits the policy
with a return generally based upon the interest rates it earns on assets
supporting the respective policies less management fees. In addition, these
policies offer a lifetime guaranteed minimum interest crediting rate and an
annual guaranteed interest crediting rate. Second, Delta's current investment
policy provides for no less than 70% of policyowners' assets be invested in
securities issued, secured or guaranteed by the U.S. Government, government
agencies or government instrumentalities. The balance of these funds is invested
primarily in investment grade corporate bonds and commercial mortgages.
In 1996, Delta introduced and commenced marketing two single premium equity
index annuity products that are based either on Standard & Poor's 500 Composite
Stock Price Index -Registered Trademark- or a basket of five international stock
market indices from France, Germany, Japan, Switzerland and the United Kingdom.
Earnings credited to these products are linked to increases in the anniversary
date values of the applicable index, less management fees. The policyowner is
guaranteed to receive at least 110% of the original premium at the end of the
seven year term of the policy, assuming no withdrawals.
The following table sets forth information regarding Delta's annuities in
force for each date presented:
<TABLE>
Annuities in Force
As of December 31,
---------------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Deferred fixed annuities
Number of policies 46,144 47,275 48,824
GAAP reserves $1,608,105 $1,611,219 $1,536,911
Equity index annuities
Number of policies 4,862 3,226 -
GAAP reserves $153,121 $99,612 $ -
Immediate annuities
Number of policies 1,396 1,267 1,120
GAAP reserves $47,697 $43,469 $35,323
</TABLE>
AMVESTORS PRODUCTS
AmVestors specializes in the sale of fixed deferred annuity products to
individuals.
The following table sets forth information regarding AmVestors' annuity
sales activity by product:
<PAGE>
<TABLE>
Annuity Premiums
For the Year Ended December 31,
------------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Deferred fixed annuity $567,340 $411,880 $338,835
Immediate annuity $15,064 $11,845 $10,765
-------- -------- --------
$582,404 $423,725 $349,600
======== ======== ========
</TABLE>
During each of the past three years, sales of deferred annuities have
accounted for approximately 97% of AmVestors' premiums received, while sales of
single premium immediate annuities and flexible premium universal life insurance
have accounted for virtually all remaining premiums received. As of December 31,
1997, AmVestors had total annuity reserves of $3.1 billion.
AmVestors' deferred annuities have an initial credited interest rate
guaranteed for a period of one to five years. Following the initial guarantee
period, AmVestors may adjust the credited interest rate annually, subject to the
guaranteed minimum interest rates specified in the contracts. Such minimum
guaranteed rates currently range from 3% to 6%.
AmVestors designs its products and directs its marketing efforts towards
the savings and retirement market. Historically, the 50 and older age group has
accounted for over 86% of all annuity premiums received by AmVestors. AmVestors
continues to target this age group because management believes that as this
group ages, it will have an increasing interest in saving for retirement,
nursing home care and unanticipated medical costs. The portfolio of products is
continuously reviewed with new plans added and others discontinued in an effort
to remain competitive.
The following table sets forth information regarding AmVestors' annuities
in force for each date presented:
<PAGE>
<TABLE>
Annuities in Force
As of December 31,
----------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Deferred fixed annuities
Number of policies 100,159 100,672 100,744
GAAP reserves $2,993,245 $2,773,036 $2,026,337
Immediate annuities
Number of policies 4,066 4,048 3,963
GAAP reserves $86,793 $86,020 $55,679
</TABLE>
AMERITAS JOINT VENTURE PRODUCTS
The Ameritas Joint Venture offers fixed annuity products which are
substantially similar to AmerUs Life's Advantage Series products. In addition,
the Ameritas Joint Venture offers, through AVLIC, flexible premium and single
premium variable universal life insurance products and variable annuities.
Variable products provide for allocation of funds to a general account or to one
or more separate accounts under which the owner bears the investment risk.
Through AVLIC's fund managers, owners of variable annuities and life insurance
policies are able to choose from a range of investment funds offered by each
manager.
Under the terms of the Joint Venture Agreement governing the Ameritas Joint
Venture, AmerUs Life and Ameritas write their new single and flexible premium
deferred fixed annuities and variable annuities and variable life insurance
through the Ameritas Joint Venture. AmerUs Life has retained the right to
continue to issue replacement business to its fixed annuity customers in
existence prior to the effective date of the Joint Venture Agreement.
The variable life insurance products and the fixed and variable annuities
offered by the Ameritas Joint Venture are distributed through AmerUs Life's
career general agency and PPGA distribution systems, as well as through the
distribution systems of Ameritas and AVLIC.
In response to customer demand, AmerUs Life developed an equity index
annuity which it began offering through the Ameritas Joint Venture in the fourth
quarter of 1996. An equity index annuity provides a baseline fixed rate of
return in addition to the possibility of sharing in a portion of the
appreciation realized from an investment in an indexed investment fund, such as
the S&P 500 stock index. AmerUs Life retained the right to issue this type of
contract to certain of its customers in existence prior to the effective date of
the Joint Venture Agreement and through certain other distribution systems.
Sales of such products amounted to 15% of AmerUs Life's total fixed annuity
production in 1997.
DISTRIBUTION SYSTEMS
AMERUS LIFE
AmerUs Life markets its insurance products on a national basis primarily
through a career general agency system, a PPGA system, independent insurance
brokers and certain of AmerUs Life's affiliates. AmerUs Life currently employs
ten regional vice presidents who are responsible for supervising the career
general agencies and/or PPGA agents within their assigned geographic regions.
Under the career general agency system, AmerUs Life enters into a
contractual arrangement with the career general agent for the sale of insurance
products by the career agents and brokers assigned to the career general agent's
agency. The career general agents are primarily compensated by receiving a
percentage of the first year commissions paid to career agents and brokers in
the career general agent's agency and by renewal commissions on premiums
subsequently collected on that business.
The career general agents are independent contractors and are generally
responsible for the expenses of operating their agencies, including office and
overhead expenses and the recruiting, selection, contracting, training and
development of career agents and brokers in their agency. Currently, AmerUs Life
has 35 career general agents in 23 states, through which approximately 570
career agents sell AmerUs Life's products. While career agents in the career
general agency system are non-exclusive, AmerUs Life believes most agents use
AmerUs Life's products for a majority of their new business of the type of
products offered by AmerUs Life. No single career general agency accounts for
more than 10% of the total first year commissions paid by AmerUs Life.
Career agents are also independent contractors and are primarily
compensated by commissions on first year and renewal premiums collected on
business written by them. In addition, career agents can earn bonus commissions,
graded by production and persistency on their business.
AmerUs Life also sells its products through a network of approximately
1,900 insurance brokers in all jurisdictions in which AmerUs Life is licensed to
sell insurance. Brokers are independent contractors who sell a variety of
insurance products issued by various companies. Brokers operate through the
career general agency system but are compensated under a commission structure
which is separate from those used for career agents and in the PPGA system.
Under the PPGA system, AmerUs Life contracts primarily with individuals who
are experienced individual agents or head a small group of experienced
individual agents. These individuals are independent contractors and are
responsible for all of their own expenses. These individuals often sell products
for other insurance companies, and may offer selected products of AmerUs Life
rather than AmerUs Life's full line of insurance products. The PPGA system is
comprised of approximately 425 PPGA's, with approximately 1,100 agents.
PPGAs are compensated by commissions on first year and renewal premiums
collected on business written by themselves and the agents in their units. In
addition to a base commission, PPGAs may earn bonus commissions on their
business, graded by production and persistency.
DELTA
Delta's annuity products are sold through independent agents who are
supervised by regional vice presidents and regional directors with specified
geographic supervisory responsibilities. The regional vice presidents and
regional directors are primarily responsible for recruiting agents and servicing
those agents in an effort to promote Delta's products. The regional vice
presidents' and regional directors' marketing support activities include
informational mailings, seminars, and case consultations, all of which are
designed to educate agents about annuities in general and Delta in particular.
Regional vice presidents and regional directors are paid a base salary plus
incentive compensation based on the business produced by agents within their
territory. There are currently ten regional vice presidents and regional
directors covering the southeastern, western, southwestern, midwestern,
mountain, great lakes, deep south and northeastern regions of the United States.
The regional vice presidents and regional directors are responsible for
over 3,300 licensed, independent agents, who may also sell insurance products
for other companies. Of these agents, approximately 1,400 wrote annuity business
for Delta in 1997. No single agent was responsible for more than 1.6% of Delta's
1997 annuity premiums. No significant amount of Delta's business is produced by
stock brokerage firms, banks or large national insurance brokerage agencies.
AMVESTORS
AmVestors endeavors to attract agents to sell its products by offering a
broad selection of fixed annuity products and by providing timely, comprehensive
services to agents and customers. AmVestors markets its products through
independent agents. AmVestors currently has approximately 7,800 independent
agents licensed to sell its products. AmVestors also maintains contact with
approximately 50,000 agents that are not currently licensed, but have either
sold the company's annuities in the past or have expressed an interest in doing
so. These agents continue to receive periodic mailings related to interest rate
and commission changes, and new product introductions, and are reappointed as
required in order to represent AmVestors in selling its products. However, in
order to save costs associated with reappointing agents, AmVestors does not
automatically relicense an agent that has not written business for twelve
months.
No single agent accounted for more than 1.2% of American's annuity sales in
1997, and no single agent accounted for more than 3.0% of FBL's annuity sales in
1997. AmVestors does not have exclusive agency agreements with its agents and
management believes most of these agents sell products, similar to those sold by
American and FBL, for other insurance companies.
INSURANCE UNDERWRITING
AmerUs Life follows detailed, uniform underwriting practices and procedures
in its insurance business which are designed to assess risks before issuing
coverage to qualified applicants. AmerUs Life has professional underwriters who
evaluate policy applications on the basis of information provided by applicants
and others.
REINSURANCE
In accordance with industry practices, AmerUs Life reinsures portions of
its life insurance and disability income exposure with unaffiliated insurance
companies under traditional indemnity reinsurance arrangements. Such reinsurance
arrangements entered into with unaffiliated insurance companies are in
accordance with standard reinsurance practices within the industry. As of
December 31, 1997, AmerUs Life had reinsurance arrangements in place for life
insurance having a face amount of approximately $3.9 billion with 19
unaffiliated reinsurers. All of the companies with which AmerUs Life had life
reinsurance arrangements as of such date were rated "A" or better by A.M. Best.
As of December 31, 1997, AmerUs Life's top five reinsurers (by face amount
reinsured) constituted approximately 76% of the total face amount reinsured by
AmerUs Life as of such date. Of these top five reinsurers, four are rated "A+"
and the other "A++" by A.M. Best.
As of December 31, 1997, Delta Life, American and FBL had reinsurance
agreements in place for life reinsurance having face amounts of $19.2 million,
$197.3 million and $1.5 million, respectively, all with unaffiliated reinsurers.
In addition, Delta Life reinsures 50% of its equity index annuity reserves with
an unaffiliated reinsurer.
The Company's subsidiaries enter into indemnity reinsurance arrangements to
assist in diversifying their risks and to limit the maximum loss on risks that
exceed policy retention limits. AmerUs Life's present maximum retention limit
for life insurance policies is $1,000,000 per life insured. Indemnity
reinsurance does not fully discharge the Company's obligation to pay claims on
business it reinsures. The Company, as the ceding company, remains responsible
for policy claims to the extent the reinsurer fails to pay such claims. The
Company annually monitors the creditworthiness of its primary reinsurers, and
has experienced no material reinsurance recoverability problems in recent years.
COMPETITION
The Company operates in a highly competitive industry. Numerous life
insurance companies and other entities, including banks and other financial
institutions, compete with the Company, many of which have greater financial and
other resources as compared to the Company. The Company believes that the
principal competitive factors in the sale of insurance products are product
features, price, commission structure, perceived stability of the insurer,
claims-paying ratings, value-added service and name recognition. Many other
companies are capable of competing for sales in the Company's target markets
(including companies that do not presently compete in such markets). The
Company's ability to compete for sales is dependent upon its ability to address
the competitive factors described above.
In addition to competing for sales, the Company competes for qualified
agents and brokers to distribute its products. Strong competition exists among
insurance companies for agents and brokers with demonstrated ability. Management
believes that the bases of competition for the services of such agents and
brokers are commission structure, support services, prior relationships and the
strength of an insurer's products. Although the Company believes that it has
good relationships with its agents and brokers, its ability to compete will
depend on its continued ability to attract and retain qualified persons.
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company had 692 full-time employees. None of
these employees are covered by a collective bargaining agreement and the Company
believes that its relations with employees are satisfactory.
SUBSIDIARIES
The Company was formed in August, 1996 in connection with the creation of
the first mutual insurance holding company in the United States. The Company has
four wholly-owned subsidiaries: AmerUs Life, an Iowa life insurance company;
Delta, a Tennessee corporation; AmVestors, a Kansas corporation; and AmerUs
Capital I, a Delaware business trust. AmerUs Life has two wholly-owned
subsidiaries: CLA Assurance Company, an Iowa life insurance company; and
American Vanguard Life Insurance Company, an Iowa life insurance company. In
addition, AmerUs Life currently owns a 34% interest in AMAL Corporation, through
whose wholly-owned subsidiaries the Ameritas Joint Venture operates. Delta has
one primary wholly-owned subsidiary, Delta Life, an Iowa life insurance company.
AmVestors has two primary wholly-owned subsidiaries: American, a Kansas life
insurance company; and FBL, a Kansas life insurance company.
REGULATION
The Company is indirectly controlled by a mutual insurance holding
company, AMHC. Mutual insurance holding companies are subject to regulation by
the Iowa Insurance Division. This includes compliance with the Iowa Insurance
Holding Company Systems Act. The Iowa Commissioner of Insurance also has
jurisdiction over an intermediate holding company, such as the Company, as if it
were a mutual insurance holding company.
AMHC and the Company are also each subject to the Iowa Insurer Supervision,
Rehabilitation and Liquidation Act, Iowa Code Chapter 507C. In addition, the
assets of AMHC and the Company are available to satisfy claims of AmerUs Life in
the event the Iowa Commissioner initiates a proceeding under Chapter 507C. AMHC
and the Company may not merge with or be acquired by another entity without
approval of the Iowa Commissioner. In addition, in the case of a merger of AMHC
with another mutual company, separate approval by the Iowa Attorney General is
required.
In addition to rules establishing the terms and conditions pursuant to
which the Iowa Commissioner will approve the sale of stock of an intermediate
insurance holding company or a subsidiary stock insurance company resulting from
a reorganization pursuant to Iowa law, the Iowa Commissioner has adopted rules
that limit the activities and affiliations that are permissible for a mutual
insurance holding company. The Iowa Commissioner also has issued rules which,
under certain circumstances, require prior approval by the Iowa Commissioner of
the issuance of stock by the Company.
Shares of the capital stock of the Company which carry the right to cast a
majority of the votes entitled to be cast by all of the outstanding shares of
the Company are required by Iowa law to at all times be owned, directly or
indirectly, by AMHC and may not be conveyed, transferred, assigned, pledged,
subjected to a security interest or lien, encumbered, or otherwise hypothecated
or alienated by AMHC or any intermediate holding company.
AmerUs Life, Delta Life, American and FBL are subject to regulation and
supervision by the states in which they transact business. State insurance laws
generally establish supervisory agencies with broad administrative and
supervisory powers related to granting and revoking licenses, transacting
business, establishing guaranty fund associations, licensing agents, approving
policy forms, regulating sales practices, regulating premium rates for some
lines of business, establishing reserve requirements, prescribing the form and
content of required financial statements and reports, determining the
reasonableness and adequacy of statutory capital and surplus, and regulating the
type and amount of investments permitted.
Every state in which the Company's insurance companies are licensed
administers a guaranty fund, which provides for assessments of licensed insurers
for the protection of policyowners of insolvent insurance companies. There has
been an increase in the number of insurance companies that are under supervision
which has resulted in an increase in the amount of assessments to cover losses
to policyowners of such companies. Assessments can be partially recovered
through a reduction in future premium taxes in some states.
Risk-based capital ("RBC") standards for life insurance companies were
adopted by the National Association of Insurance Commissioners ("NAIC") in 1992
and require insurance companies to calculate and report for statutory basis
financial statements information under a risk-based capital formula. The formula
is embodied in the NAIC Model Act, which has been adopted by many states,
including Iowa and Kansas. RBC requirements are intended to allow insurance
regulators to identify at an early stage inadequately capitalized insurance
companies based upon the types and mixtures of risks inherent in such companies'
operations. The formula includes components for asset risk, liability risk,
interest rate exposure and other factors. As of December 31, 1997, AmerUs
Life's, Delta Life's, American's and FBL's RBC levels were 779%, 471%, 448% and
577%, respectively, of each of their respective authorized control level RBC
thresholds.
Approximately once every three to five years, as part of their routine
regulatory oversight process, state insurance departments conduct detailed
examinations of the books, records and accounts of insurance companies domiciled
in their states. Such examinations are generally conducted in cooperation with
the departments of two or three other states, under guidelines promulgated by
the NAIC.
Item 2. PROPERTIES
The Company's executive offices consist of approximately 33,000 square feet
of leased space located at 699 Walnut Street, Des Moines, Iowa. AmerUs Life and
Delta share executive offices consisting of approximately 103,000 square feet
located at 611 Fifth Avenue, Des Moines, Iowa. AmerUs Life also leases
approximately 56,000 square feet of additional office space in Des Moines. The
Company, AmerUs Life and Delta lease their executive offices from AmerUs
Properties, Inc., an affiliate. AmVestors occupies approximately 60,000 square
feet in a building owned by AmVestors with approximately 105,000 square feet,
the remainder of which is leased to third parties.
Item 3. LEGAL PROCEEDINGS
AmerUs Life is a defendant in a class action lawsuit, Bhat V. Amerus Life
Insurance Company, which was filed in December 1996 in the United States
District Court for the Northern District of California. The complaint alleges
that AmerUs Life breached the terms of certain life and annuity policies,
breached certain other duties owed to policyowners and violated RICO when it
allegedly passed an increase in its corporate income taxes (known as the
deferred acquisition costs, or DAC, tax) through to owners of those policies.
The plaintiff, an insured under a universal life policy issued by Central Life
(the predecessor of AmerUs Life), seeks unspecified actual and punitive damages
and injunctive relief on behalf of himself and all policyowners of AmerUs Life
with universal life, term and "blended" life insurance policies and annuities.
AmerUs Life denies the allegations contained in the complaint, including the
existence of a legitimate class. The litigation is in the discovery stage and
is being vigorously defended by AmerUs Life. A hearing on certification of the
class has not yet been scheduled. An earlier companion case filed in the same
court in June 1996 was dismissed in October 1997.
Despite the Company's vigorous defense of this class action lawsuit and its
denial of any wrongdoing, there can be no assurance that the outcome of this
type of lawsuit will not have a material adverse effect on the Company's results
of operations.
In the ordinary course of business, the Company and its subsidiaries are
also engaged in certain other litigation, none of which management believes is
material to the Company's results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A Special Meeting was held on December 18, 1997 to consider and vote upon
the proposal to issue shares of Class A Common Stock of the Company pursuant to
the Amended and Restated Agreement and Plan of Merger among AmVestors, the
Company and a wholly-owned subsidiary of the Company, as described in the Proxy
Statement/Prospectus dated November 12, 1997. The total vote was as follows:
<TABLE>
<S> <C>
Number of votes for 21,347,766
Number of votes against 15,645
Number of votes abstaining 7,766
----------
Total votes 21,371,177
==========
</TABLE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On February 20, 1998, the AmerUs Class A Common Stock was listed and
trading began on the New York Stock Exchange under the symbol "AMH." Prior to
such listing, the Company's Class A Common Stock was listed and traded on the
Nasdaq National Market System (the "Nasdaq") under the symbol "AMRS." The
following table sets forth, for the periods indicated, the high and low sales
prices per share of AmerUs Class A Common Stock as quoted on Nasdaq and the
quarterly dividends per share declared during such quarter.
<TABLE>
AmerUs
Class A Common Stock (A)
-------------------------------------
High Low Dividends
---- ---- ----------
<S> <C> <C> <C>
1997
First Quarter 24 1/4 19 1/8 none
Second Quarter 28 1/8 21 1/8 .10
Third Quarter 33 7/8 27 1/2 .10
Fourth Quarter 36 7/8 29 3/4 .10
(A) The closing of the initial public offering of the Company occurred on
February 3, 1997.
</TABLE>
HOLDERS
As of February 28, 1998, the number of holders of record of each class of
common equity of the Company was as follows:
<TABLE>
Number of
Holders
----------
<S> <C>
Class A Common stock 2,364
Class B Common Stock 1
</TABLE>
DIVIDENDS
The Company's Board of Directors has declared and paid a quarterly dividend
of $0.10 per share of Common Stock, beginning in the second quarter of 1997.
The declaration and payment of dividends in the future is subject to the
discretion of the Company's Board of Directors and will be dependent upon the
Company's financial condition, results of operations, cash requirements, future
prospects, regulatory restrictions on the payment of dividends by the Company's
life insurance subsidiaries and other factors deemed relevant by the Company's
Board of Directors.
The Company is an insurance holding company whose principal assets consist
of all of the outstanding shares of the common stock of its life insurance
subsidiaries. The Company's ongoing ability to pay dividends to its
shareholders and meet its other obligations, including operating expenses and
any debt service, primarily depends upon the receipt of sufficient funds from
its life insurance subsidiaries in the form of dividends, interest payments or
loans. As of February 28, 1998, the Company's life insurance subsidiaries could
pay approximately $75 million in dividends without prior regulatory approval.
Under its bank credit facility, the Company is prohibited from paying
dividends on its Common Stock in excess of an amount equal to 3% of the
Company's consolidated net worth as of the last day of the preceding fiscal
year.
<PAGE>
In connection with the 8.85% Capital Securities, Series A (the "Capital
Securities"), issued in 1997 by AmerUs Capital I, the Company's subsidiary
trust, the Company has agreed not to declare or pay any dividends on the
Company's capital stock (including the Class A Common Stock) during any period
for which the Company elects to extend interest payments on its junior
subordinated debentures, except for stock dividends paid by the Company where
the dividend stock is the same stock as that on which the dividend is being
paid. Dividends on the Company's capital stock cannot be paid until all accrued
interest on the Capital Securities has been paid.
Item 6. SELECTED FINANCIAL DATA.
The following table sets forth certain financial and operating data of the
Company. The selected consolidated financial data below for each of the five
years ending December 31, 1997 are derived from the Consolidated Financial
Statements of the Company, which financial statements have been audited by KPMG
Peat Marwick LLP, independent auditors. During 1997, the Company acquired Delta
and AmVestors in transactions that were accounted for using the purchase method
of accounting. As a result, the Consolidated Income Statement Data includes the
results of Delta and AmVestors from their respective acquisition dates and the
Consolidated Balance Sheet Data includes year-end data for Delta and AmVestors.
<TABLE>
As of or for the Year Ended
December 31,
------------------------------------------
1997(A)(B) 1996(B) 1995 1994(C) 1993(C)
---- ---- ---- ---- ----
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Income Statement Data:
Revenues:
Insurance premiums $48.1 $138.5 $244.1 $237.9 $226.4
Product charges 43.4 49.3 57.3 56.3 57.4
Net investment income 224.4 228.7 285.2 275.7 269.9
Realized gains (losses) on
investments 13.8 66.0 51.4 (19.9) 15.5
Contribution from the Closed
Block 31.1 19.9 - - -
----- ----- ----- ----- ------
Total revenues 360.8 502.4 638.0 550.0 569.2
Benefits and expenses:
Total policyowner benefits 193.2 261.9 374.6 369.9 364.3
Total expenses 72.6 95.1 101.1 103.5 96.6
Dividends to policyowners 1.6 26.3 49.4 45.0 45.5
----- ----- ----- ---- -----
Total benefits and expenses 267.4 383.3 525.1 518.4 506.4
---- ---- ----- ---- -----
Income from operations 93.4 119.1 112.9 31.6 62.8
Interest expense 15.0 2.1 2.4 5.5 7.0
----- ----- ----- ---- -----
Income before tax expense and equity
in earnings of unconsolidated
subsidiary 78.4 117.0 110.5 26.1 55.8
Income tax expense 22.0 43.8 41.2 19.4 21.4
Income before equity in earnings
of unconsolidated subsidiary 56.4 73.2 69.3 6.7 34.4
Equity in earnings of unconsolidated
subsidiary 1.7 1.0 - - -
----- ----- ----- ----- -----
Cumulative effect of a change in
accounting principle, net
of tax - - - - (3.2)
----- ----- ----- ---- ----
Net income $58.1 $74.2 $69.3 $6.7 $31.2
===== ===== ===== ==== =====
Earnings per common share:
Basic (D) $2.47 $3.20 $2.99 - -
Diluted (E) $2.46 $3.20 $2.99 - -
Dividends declared per common share $0.30 - - - -
Ratio of earnings to
fixed charges (F) 2.07 2.73 2.37 1.31 1.62
Consolidated Balance Sheet Data:
Total invested assets $7,695.5 $2,880.8$3,965.0 $3,491.7$3,639.3
Total assets 10,254.0 4,384.2 4,371.9 4,036.9 4,030.7
Total liabilities 9,240.0 3,926.7 3,832.0 3,618.6 3,524.8
Company-obligated mandatorily
redeemable preferred
securities 86.0 - - - -
Total stockholders' equity (G) 928.0 457.5 539.9 418.3 505.9
Other Operating Data:
Adjusted operating income (H) $49.1 $37.6 $38.5 $27.5 $24.2
Adjusted operating income
per common share (basic
and diluted) $2.08 $1.62 $1.66 - -
Individual life insurance in
force, net of reinsurance $26,703 $25,725 $25,157 $25,282 $24,698
Annuity account balances (I) 6,134 1,363 1,467 1,473 1,410
Number of employees 692 412 406 457 489
Statutory Data:
Premiums and deposits:
Individual life $319.1 $312.7 $307.1 $296.4 $286.3
Annuities (I) $75.5 $81.4 $197.1 $187.8 $90.4
- -------------
(A) Consolidated Income Statement Data includes the results for Delta,
subsequent to October 23, 1997 and the results for AmVestors subsequent to
December 19, 1997, and Consolidated Balance Sheet Data includes year-end
data for Delta and AmVestors.
(B) The Company formed the Closed Block on June 30, 1996 as a part of the
Reorganization. Invested assets allocated to the Closed Block are
classified as Closed Block assets. Revenues and expenses associated with
the Closed Block are shown net as a single line item. Accordingly, the
individual income statement components for 1997 are not fully comparable
with those of 1996 and 1995, due to the establishment of the Closed Block
on June 30, 1996. See "Item 7 - Management's Discussion and Analysis of
Results of Operations and Financial Condition - Combined Results of
Operations."
(C) The merger of the two predecessor entities of the Company, which was
consummated in 1994, has been accounted for as a pooling of interests
transaction.
(D) Retroactively reflects the pro-forma effect of the issuance of 18.16
million shares of the Company's Class A Common Stock and 5.0 million shares
of AmerUs Class B Common Stock at the beginning of 1995. The 1997
calculation reflects 18.54 million weighted average shares of Class A
Common Stock and 5 million shares of Class B Common Stock outstanding,
respectively.
(E) Diluted earnings per common share for 1997 is calculated using 18.57
million weighted average shares of Class A Common Stock and 5 million Class
B Common Stock outstanding.
(F) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income from operations before federal income taxes
and fixed charges. "Fixed charges" consist of interest expense on debt and
capital securities, amortization of debt expense and interest credited on
deferred annuities.
(G) Amounts reported prior to December 31, 1996 reflect policyowners' equity.
(H) Adjusted operating income reflects net income adjusted to eliminate certain
items (net of applicable income taxes) which management believes are not
necessarily indicative of overall operating trends, including net realized
gains or losses on investments. Different items are likely to occur in
each period presented and others may have different opinions as to which
items may warrant adjustment. The adjusted operating income shown does not
constitute net income computed in accordance with GAAP. See "Item 7 -
Management's Discussion and Analysis of Results of Operations and Financial
Condition - Adjusted Operating Income."
(I) Effective May 1996, substantially all individual deferred annuity sales by
AmerUs Life distribution systems are made through the Ameritas Joint
Venture. See "Item 1 - Business - Ameritas Joint Venture Products".
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The following analysis of the consolidated results of operations and
financial condition of the Company should be read in conjunction with the
Selected Consolidated Financial and Operating Data and Consolidated Financial
Statements and related notes.
OVERVIEW
The Company is a holding company engaged through its subsidiaries in the
business of marketing, underwriting and distributing a broad range of individual
life insurance and annuity products to individuals and businesses in 49 states,
the District of Columbia and the U.S. Virgin Islands. The Company's primary
product offerings consist of whole life, universal life and term life insurance
policies and fixed annuities. Since April 1, 1996 the Company has been a party
to the Ameritas Joint Venture with Ameritas, through which it markets fixed
annuities and sells variable annuities and variable life insurance products.
In accordance with GAAP, universal life insurance premiums and annuity
deposits received are reflected as increases in liabilities for policyowner
account balances and not as revenues. Revenues reported for universal life and
annuity products consist of policy charges for the cost of insurance,
administration charges and surrender charges assessed against policyowner
account balances. Surrender benefits paid relating to universal life insurance
policies and annuity products are reflected as decreases in liabilities for
policyowner account balances and not as expenses. Amounts for interest credited
to universal life and annuity policyowner account balances and benefit claims in
excess of policyowner account balances are reported as expenses in the financial
statements. The Company receives investment income earned from the funds
deposited into account balances by universal life and annuity policyowners, the
majority of which is passed through to such policyowners in the form of interest
credited.
Premium revenues reported for traditional life insurance products are
recognized as revenues when due. Future policy benefits and policy acquisition
costs are recognized as expenses over the life of the policy by means of a
provision for future policy benefits and amortization of deferred policy
acquisition costs.
The costs related to acquiring new business, including certain costs of
issuing policies and certain other variable selling expenses (principally
commissions), defined as deferred policy acquisition costs, are capitalized and
amortized as an expense primarily in proportion to expected profits or margins
from such policies. This amortization is adjusted when current or estimated
future gross profits or margins on the underlying policies vary from previous
estimates. For example, the amortization of deferred policy acquisition costs is
accelerated when policy terminations are higher than originally estimated or
when investments supporting the policies are sold at a gain prior to their
anticipated maturity. Death and other policyowner benefits reflect exposure to
mortality risk and fluctuate from period to period based on the level of claims
incurred within insurance retention limits. The profitability of the Company is
primarily affected by expense levels, interest spread results (i.e., the excess
of investment earnings over the interest credited to policyowners) and
fluctuations in mortality, persistency and other policyowner benefits. The
Company has the ability to mitigate adverse experience through adjustments to
credited interest rates, policyowner dividends or cost of insurance charges.
ADJUSTED OPERATING INCOME
The following table reflects net income adjusted to eliminate certain items
(net of applicable income taxes) which management believes are not necessarily
indicative of overall operating trends, including net realized gains or losses
on investments. Different items are likely to occur in each period presented
and others may have different opinions as to which items may warrant adjustment.
The adjusted operating income shown below does not constitute net income
computed in accordance with GAAP.
<PAGE>
<TABLE>
Year Ended December 31,
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net income $58,059 $74,173 $69,348 $6,667 $31,209
Net realized (gains) losses on
investments (A) (9,008) (42,552) (32,244) 11,223 (10,187)
Equity add-on tax (B) - 4,480 - 9,585 -
Reorganization costs (C) - 1,522 1,426 - -
Adoption of SFAS 106(D) - - - - 3,214
------- ------- ------- ------- -------
Adjusted operating income $49,051 $37,623 $38,530 $27,475 $24,236
======= ======= ======= ======= =======
Adjusted operating income
per common share
(basic and diluted) $2.08 $1.62 $1.66 $ - $ -
(A) Represents realized gains or losses on investments less that portion of the
amortization of deferred policy acquisition costs adjusted for income taxes
on such amounts. Realized gains may vary widely between periods. Such
amounts are determined by management's timing of individual transactions
and do not necessarily correspond to the underlying operating trends.
(B) Represents the mutual life insurance company equity add-on tax, which is
applicable only to mutual life insurance companies and which the Company
believes is not applicable to the Company after June 30, 1996 due to AmerUs
Life's conversion into a stock company.
(C) Represents costs directly related to the Reorganization consisting
primarily of printing, postage, legal and consulting costs. These costs
were not of a continuing nature and were not expected to have any effect on
future operations.
(D) As of January 1, 1993, the Company adopted SFAS 106, pursuant to which the
cost of certain post-retirement benefits must be recognized on an accrual
basis as employees perform services to earn such benefits. The Company's
transition obligation as of January 1, 1993 amounted to approximately $3.2
million, net of income tax benefits, and was recorded as a cumulative
effect adjustment to net income.
</TABLE>
RECENT ACQUISITIONS
The Company acquired all of the outstanding stock of Delta in October,
1997, for approximately $165 million in cash. The transaction was accounted for
as a purchase and accordingly, the Company's results of operations include Delta
from the date of purchase. The Company acquired all of the outstanding stock of
AmVestors on December 19, 1997, in a stock exchange valued at approximately $350
million. This transaction was also accounted for as a purchase and the
Company's results of operations include AmVestors from the date of purchase.
(See note 14 to the note to Consolidated Financial Statements for the discussion
of the Company's acquisitions.)
THE CLOSED BLOCK
The Closed Block was established on June 30, 1996. Insurance policies which
had a dividend scale in effect as of June 30, 1996 were included in the Closed
Block. The Closed Block was designed to provide reasonable assurance to owners
of insurance policies included therein that, after the Reorganization of AmerUs
Life, assets would be available to maintain the dividend scales and interest
credits in effect prior to the Reorganization if the experience underlying such
scales and credits continues.
The contribution to the operating income of the Company from the Closed
Block is reported as a single line item in the income statement. Accordingly,
premiums, product charges, investment income, realized gains (losses) on
investments, policyowner benefits and dividends attributable to the Closed
Block, less certain minor expenses including amortization of deferred policy
acquisition costs, are shown as a net number under the caption the "Contribution
from the Closed Block." This results in material reductions in the respective
line items in the income statement while having no effect on net income. The
expenses associated with the administration of the policies included in the
Closed Block and the renewal commissions on these policies are not charged
against the Contribution from the Closed Block, but rather are grouped with
underwriting, acquisition and insurance expenses. Also, all assets allocated to
the Closed Block are grouped together and shown as a separate item entitled
"Closed Block Assets." Likewise, all liabilities attributable to the Closed
Block are combined and disclosed as the "Closed Block Liabilities."
COMBINED RESULTS OF OPERATIONS
Since the operating results from the Closed Block are reported on one line
of the income statement, "Contribution from the Closed Block," individual income
statement components are not fully comparable with those prior to the
establishment of the Closed Block. Management believes that the presentation of
the results of operations on a combined basis as if the Closed Block had not
been formed facilitates comparability with the results of operation for 1996
prior to the formation of the Closed Block and for 1995. Accordingly, the
combined presentation set forth below includes certain revenues and expenses
associated with the policies included in the Closed Block. Such presentation
does not, however, affect the Company's reported net income.
<TABLE>
Year Ended December 31, 1997
-----------------------------------------
As Reported Closed Block Combined
----------------------- --------
(In thousands)
<S> <C> <C> <C>
Revenues
Insurance premiums $ 48,127 $206,145 $254,272
Product charges 43,441 17,464 60,905
Net investment income 224,431 113,759 338,190
Realized gains on investments 13,791 718 14,509
Contribution from the Closed Block 31,045 (31,045) -
-------- -------- --------
Total revenues 360,835 307,041 667,876
Benefits and expenses
Policyowner benefits 193,237 209,377 402,614
Underwriting, acquisition and insurance
expenses 51,663 6,603 58,266
Amortization of deferred policy
acquisition costs 20,987 31,470 52,457
Dividends to policyowners 1,587 59,591 61,178
------- ------- -------
Total benefits and expenses 267,474 307,041 574,515
Income from operations 93,361 - 93,361
Interest expense 14,980 - 14,980
------- ------- -------
Income before income tax expense and equity
in earnings of unconsolidated subsidiary 78,381 - 78,381
Income tax expense 22,022 - 22,022
------- ------- --------
Income before equity in earnings of
unconsolidated subsidiary 56,359 - 56,359
Equity in earnings of unconsolidated
subsidiary 1,700 - 1,700
------- ------- --------
Net income $58,059 $- $58,059
======= ======= =======
</TABLE>
<TABLE>
Year Ended December 31, 1996
-------------------------------------
As Reported Closed Block Combined
--------------------------------
(In thousands)
<S> <C> <C> <C>
Revenues
Insurance premiums $138,476 $108,315 $246,791
Product charges 49,347 9,324 58,671
Net investment income 228,625 56,329 284,954
Realized gains on investments 65,983 481 66,464
Contribution from the Closed Block 19,909 (19,909) -
-------- -------- -------
Total revenues 502,340 154,540 656,880
Benefits and expenses
Policyowner benefits 261,869 103,951 365,820
Underwriting, acquisition and insurance
expenses 54,857 2,969 57,826
Amortization of deferred policy
acquisition costs 40,160 18,412 58,572
Dividends to policyowners 26,324 29,208 55,532
------- ------- -------
Total benefits and expenses 383,210 154,540 537,750
Income from operations 119,130 - 119,130
Interest expense 2,142 - 2,142
------- ------- -------
Income before income tax expense and
equity in earnings of unconsolidated
subsidiary 116,988 - 116,988
Income tax expense 43,859 - 43,859
-------- -------- --------
Income before equity in earnings of
unconsolidated subsidiary 73,129 - 73,129
Equity in earnings of unconsolidated
subsidiary 1,044 - 1,044
------- ------- -------
Net income $74,173 $ - $74,173
======= ======= =======
</TABLE>
A summary of the Company's combined revenues, including revenues associated
with the Closed Block, follows:
<TABLE>
Year Ended December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Insurance premiums
Traditional life insurance premiums $236,878 $228,986 $219,732
Immediate annuity and supplementary
contract premiums 17,238 16,082 17,659
Other premiums 156 1,723 6,696
-------- -------- --------
Total insurance premiums 254,272 246,791 244,087
Universal life product charges 59,236 57,834 56,763
Annuity product charges 1,669 837 607
--------- -------- --------
Total product charges 60,905 58,671 57,370
Net investment income 338,190 284,954 285,244
Realized gains on investments 14,509 66,464 51,387
-------- -------- --------
Total revenues $667,876 $656,880 $638,088
======== ======== ========
</TABLE>
In 1997, individual life and annuity premiums and product charges increased
by $11.2 million to $315.0 million, or 3.7%, from $303.8 million in 1996 and
compared to $294.8 million in 1995. Included in the 1997 increase was $1.2
million of premium and product charges earned in the fourth quarter primarily
from the Delta acquisition. Insurance premiums increased by $7.5 million, to
$254.3 million in 1997 compared to $246.8 million in 1996, and $244.1 million in
1995. Traditional life insurance premiums increased by $7.9 million in 1997,
compared to a $9.3 million increase experienced in 1996. The increase in
traditional life insurance premiums in 1997 and 1996 has primarily been the
result of continued growth in renewal premiums and also the increased sales of
term life insurance products in 1997. Changes in the level of immediate annuity
deposits and supplementary contract premiums have primarily been the result of
fluctuations in immediate annuity and supplementary contract sales. Other
premiums have decreased significantly over the past two years primarily due to
the Company's exit from several group life and long-term disability reinsurance
pools in 1995 and the sale of the Company's remaining group life operation in
1996.
Universal life product charges have increased slightly in each of the past
two years primarily due to increased cost of insurance charges as a result of
the normal aging of the block of business. Annuity product charges for 1997
included $0.7 million earned in the fourth quarter by recently acquired
companies.
Net investment income increased by $53.3 million to $338.2 million in 1997
compared to $284.9 million in 1996, and $285.2 million in 1995. Included in the
1997 increase in net investment income was $30.2 million of net investment
income from recently acquired companies during the fourth quarter. The remaining
$23.1 million increase in 1997 was attributable to an increase in average
invested assets and effective yields on average invested assets. Average
invested assets (excluding market value adjustments and acquisitions) in 1997
increased $111.5 million from 1996, and the effective yield on average invested
assets (excluding market value adjustments and acquisitions) increased to 7.89%
in 1997 from 7.55% in 1996. Contributing to the higher yields in 1997 was
investment income of $10.1 million from equity in earnings of certain investment
partnerships. Average invested assets (excluding market value adjustments)
increased by $171.8 million in 1996, largely as a result of the investment of
$175.0 million in proceeds from bank borrowings late during the year. The
effective yield on average invested assets (excluding market value adjustments)
decreased to 7.55% in 1996 from 7.88% in 1995, primarily as a result of lower
bond yields and the timing of the investment of the proceeds from the bank
borrowing.
Realized gains on investments were $14.5 million in 1997 compared to gains
of $66.4 million and $51.4 million in 1996 and 1995, respectively. Included in
the amounts for 1996 were approximately $51.1 million of gains from the sale of
common stock as a result of the liquidation of the Company's equity portfolio
which commenced in 1995. The increase in gains in 1996 resulted primarily from
increased sales of common stock in the investment portfolio. The sale of common
stock in 1996 and 1995 was a direct result of the Company's decision to reduce
the level of equity securities as a percentage of its investment portfolio on a
long-term basis. Proceeds from these sales were invested primarily in fixed
maturity securities.
A summary of the Company's combined policyowner benefits, including
policyowner benefits associated with the Closed Block, follows:
<TABLE>
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Traditional life insurance
Death benefits $40,821 $32,251 $32,196
Change in liability for future policy
benefits and other policy benefits 170,275 160,036 152,742
------- ------- -------
Total traditional life insurance
benefits 211,096 192,287 184,938
Universal life insurance
Death benefits in excess of
cash value 24,682 23,871 20,802
Interest credited to policyowner
account balances 45,232 43,203 41,532
Other policy benefits 3,453 3,026 5,218
------- ------- -------
Total universal life insurance
benefits 73,367 70,100 67,552
Annuities
Interest credited to deferred annuity
account balances 80,440 66,254 78,120
Other annuity benefits 37,133 34,334 35,582
------- ------- -------
Total annuity benefits 117,573 100,588 113,702
Miscellaneous benefits 578 2,845 8,428
-------- -------- --------
Total policyowner benefits $402,614 $365,820 $374,620
======== ======== ========
</TABLE>
Total policyowner benefits were $402.6 million in 1997 compared to $365.8
million in 1996 and $374.6 million in 1995. The 1997 amount included fourth
quarter benefits of acquired companies of $23.4 million consisting primarily of
interest credited to annuity account balances and other annuity benefits.
Traditional life insurance benefits increased by $18.8 million in 1997 compared
to a $7.3 million increase in 1996. The increase in 1997 was primarily due to
the growth and aging of the business in force and increased death benefits as a
result of higher mortality. The increase in traditional life insurance benefits
in 1996 was primarily due to the growth and aging of the business in force.
Universal life insurance benefits increased by $3.3 million in 1997 and by $2.5
million in 1996. The increased benefits in 1997 and 1996 were due to increased
interest credited to policyowner account balances and increased death benefits
due to higher mortality. While the weighted average crediting rate for AmerUs
Life's universal life liabilities decreased four basis points to 6.23% in 1997
from 6.27% in 1996, AmerUs Life's average liabilities increased by $33.7
million, resulting in the increased credited amounts in 1997. While the weighted
average crediting rate for AmerUs Life's universal life liabilities decreased 19
basis points to 6.27% in 1996 from 6.46% in 1995, AmerUs Life's average
liabilities increased $39.8 million from 1995 to 1996, resulting in the
increased interest credited amounts in 1996.
Annuity benefits, including the fourth quarter results of recent
acquisitions, were $117.6 million, an increase of $17.0 million compared to
1996. The annuity benefits of recent acquisitions amounted to $23.2 million
which were partially offset by a $6.2 million decrease in AmerUs Life's annuity
benefits to $94.4 million compared to $100.6 million in 1996. The decrease in
AmerUs Life's annuity benefits during 1997 was due to reduced interest credited
to policyowner account balances. The weighted average crediting rate for AmerUs
Life's individual deferred annuity liabilities decreased eleven basis points to
5.25% in 1997 compared to 5.36% in 1996 and AmerUs Life's average deferred
annuity liabilities decreased $119.1 million from 1996 to 1997, also
contributing to the lower interest credited amounts in 1997 for AmerUs Life.
Most annuity sales after May, 1996 have been recorded by the Ameritas Joint
Venture, resulting in a decrease in the average deferred annuity liabilities at
AmerUs Life. Annuity benefits decreased by $13.1 million in 1996 to $100.6
million compared to $113.7 million in 1995, primarily due to reduced interest
credited to policyowner account balances. The weighted average crediting rate
for AmerUs Life's individual deferred annuity liabilities decreased 80 basis
points to 5.36% in 1996 compared to 6.16% in 1995 and AmerUs Life's average
deferred annuity liabilities decreased by $71.0 million from 1995 to 1996, also
contributing to the lower interest credited amounts in 1996.
Miscellaneous benefits have decreased significantly over the past two years
primarily due to the Company's exit from several group life and long-term
disability reinsurance pools in 1995 and the sale of the Company's remaining
group life operation in 1996.
A summary of the Company's combined expenses, including expenses associated
with the Closed Block, follows:
<TABLE>
Year Ended December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Commission expense, net of deferrals $ 8,252 $ 7,892 $10,448
Other underwriting, acquisition and
insurance expenses, net of deferrals 50,014 49,934 40,461
Amortization of deferred policy
acquisition costs 52,457 58,572 50,239
-------- -------- --------
Total expenses $110,723 $116,398 $101,148
======== ======== ========
</TABLE>
The Company's commission expense, net of deferrals, increased by $0.4
million to $8.3 million in 1997 compared to $7.9 million in 1996, and $10.4
million in 1995. The increase in 1997 was primarily the result of the fourth
quarter commission expense, net of deferrals of the Company's recent
acquisitions. The reduction in 1996 was primarily due to a decrease in gross
commission expense as a result of lower life insurance sales in 1996 and the
transfer of new annuity sales to the Ameritas Joint Venture in May 1996. Other
underwriting, acquisition and insurance expenses, net of deferrals, were $50.0
million in 1997, compared to $49.9 million in 1996 and $40.5 million in 1995.
Included in the 1997 expenses were $4.1 million of fourth quarter expenses, net
of deferrals, attributable to the recently acquired companies.
Excluding recently acquired companies, other underwriting, acquisition and
insurance expenses, net of deferrals, decreased by $4.0 million to $45.9 million
in 1997. This decrease in expenses during 1997 was primarily due to the
establishment of a $5.0 million litigation reserve during 1996 in connection
with certain class action litigation, partially offset by a $1.3 million
write-off of expenses during 1997 related to the former bank credit facility
which was replaced by a new agreement in the fourth quarter of 1997. The
increase in expenses in 1996 was due to increased settlements and associated
legal fees of $4.7 million, primarily due to the $5.0 million class action
litigation reserve; expenses related to changing the name of the Company of $0.7
million; higher premium taxes of $1.1 million due to a one-time adjustment to
the amortization of the guaranty association asset and an increased accrual for
estimated future assessments; combined with a gain of $3.1 million recorded
against 1995 expenses resulting from the curtailment of the Company's defined
benefit pension plans effective December 31, 1995.
The amortization of deferred policy acquisition costs decreased by $6.1
million in 1997 and increased by $8.3 million in 1996. Deferred policy
acquisition costs are generally amortized in proportion to gross margins,
including capital gains. Higher death benefits and lower realized capital gains
in 1997, compared to 1996, contributed to lower gross margins in 1997 on
products for which deferred costs are amortized, resulting in the lower
amortization in 1997. The increased amortization in 1996 was primarily due to
higher gross margins, including increased realized capital gains in 1996, on
products for which deferred costs are amortized.
Dividends to policyowners increased by $5.7 million to $61.2 million in
1997 compared to $55.5 million in 1996 and $49.4 million in 1995. The increase
in dividends over each of the past two years was primarily the result of the
growth and aging of in force business. Traditional life reserves grew 7.7% from
the end of 1995 to the end of 1996 and an additional 8.1% to the end of 1997, to
$1.31 billion. The weighted average dividend interest rate credited to these
policies was 7.19% in 1997 compared to 7.17% and 7.14% in 1996 and 1995,
respectively.
Income from operations decreased by $25.7 million to $93.4 million in 1997
compared to $119.1 million in 1996, and $112.9 million in 1995. Recent
acquisitions added $3.3 million of income from operations during the fourth
quarter, however, the overall decrease in 1997 income from operations was
primarily due to the decrease in realized gains on investments in 1997. The
increase in 1996 resulted primarily from the increase in realized gains on
investments.
Interest expense increased by $12.9 million in 1997 to $15.0 million
compared to $2.1 million in 1996, and $2.4 million in 1995. The increase in
interest expense in 1997 was primarily due to the interest expense on the
capital securities issued by the Company during 1997 and interest expense on the
revolving line of credit. This added interest expense was largely offset by
investment of the borrowed funds which contributed to the growth in invested
assets and the higher investment earnings of 1997.
Income before income tax expense and equity in earnings of unconsolidated
subsidiary decreased by $38.6 million to $78.4 million in 1997 compared to
$117.0 million in 1996, and $110.5 million in 1995. While acquisitions added
$3.3 million of income before income tax expense during the fourth quarter, the
overall decrease in 1997 income resulted primarily from the decrease in realized
gains on investments in 1997. The increase in 1996 resulted primarily from the
increase in realized gains on investments.
Income tax expense decreased by $21.8 million in 1997 to $22.0 million
compared to $43.8 million in 1996, and $41.2 million in 1995. The decrease in
1997 was primarily due to the lower pre-tax income as a result of the lower
realized gains on investments, a $4.5 million provision for the equity add-on
tax included in the first half of 1996, and increased tax credits of $3.9
million in 1997. The increase in income taxes in 1996 was primarily the result
of the higher pre-tax income due primarily to the increased realized gains on
investments and the $4.5 million provision for the equity add-on tax in the
first half of 1996, partially offset by $2.7 million of low-income housing tax
credits. The equity add-on tax is applicable only to mutual life insurance
companies and the Company believes such tax is not applicable to the Company
after June 30, 1996 due to the conversion of AmerUs Life into a stock company.
Net income decreased by $16.1 million in 1997 to $58.1 million compared to
$74.2 million and $69.3 million in 1996 and 1995, respectively. Net income for
1997 included $1.8 million from acquisitions during the fourth quarter. The
overall lower net income for 1997 was primarily due to lower realized gains on
investments. The increase in net income from 1995 to 1996 was primarily due to
higher realized gains on investments.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company's cash flows from operations consist of dividends from
subsidiaries, if declared and paid, interest income on loans and advances to its
subsidiaries (including a surplus note issued to the Company by AmerUs Life),
investment income on assets held by the Company and fees which the Company
charges its subsidiaries and certain other of its affiliates for management
services, offset by the expenses incurred for debt service, salaries and other
expenses.
The Company intends to rely primarily on dividends and interest income from
its life insurance subsidiaries in order to make dividend payments to its
shareholders. The payment of dividends by its life insurance subsidiaries is
regulated under various state laws. Under Iowa law, AmerUs Life and Delta Life
may pay dividends only from the earned surplus arising from their respective
businesses and must receive the prior approval of the Iowa Commissioner to pay
any dividend that would exceed certain statutory limitations. The current
statutory limitation is the greater of (i) 10% of the respective company's
policyowners' surplus as of the preceding year end or (ii) the net gain from
operations for the previous calendar year. Iowa law gives the Iowa Commissioner
broad discretion to disapprove requests for dividends in excess of these limits.
Based on this limitation and 1997 results, AmerUs Life and Delta Life would be
able to pay approximately $58 million and $8 million, respectively, in dividends
in 1998 without obtaining the Iowa Commissioner's approval. The payment of
dividends by American and FBL is regulated under Kansas law, which has statutory
limitations similar to those in place in Iowa. Based on these limitations and
1997 results, AmVestors' subsidiaries could pay approximately $15 million in
dividends in 1998. On February 26, 1998, AmerUs Life paid the Company $5 million
in dividends. Based upon the cumulative limitations and 1997 results, the
Company's subsidiaries could pay an estimated $75 million in additional
dividends in 1998 without obtaining regulatory approval.
On October 23, 1997, the Company entered into a $250 million revolving
credit facility with a syndicate of lenders (the "Bank Credit Facility") to be
used to replace its then existing revolving credit facility, to finance the
acquisition of Delta, to finance permitted mergers and acquisitions and for
other general corporate purposes. The Bank Credit Facility is secured by a
pledge of approximately 49.9% of the outstanding common stock of AmerUs Life,
100% of the outstanding common stock of Delta and a $50 million 9% surplus note
payable to the Company by AmerUs Life. As of December 31, 1997, there was an
outstanding loan balance of $250 million under the facility. The Bank Credit
Facility provides for typical events of default and covenants with respect to
the conduct of the business of the Company and its subsidiaries and requires the
maintenance of various financial levels and ratios. Among other covenants, the
Company (a) cannot have a leverage ratio greater than 0.35:1.0 or an interest
coverage ratio less than 2.5:1.0, (b) is prohibited from paying cash dividends
on its common stock in excess of an amount equal to 3% of its consolidated net
worth as of the last day of the preceding fiscal year, and (c) must cause
certain of its subsidiaries including AmerUs Life and Delta Life to maintain
certain ratings from A.M. Best and certain levels of adjusted capital and
surplus and risk-based capital.
The Company may from time to time review other potential acquisition
opportunities. The Company anticipates that funding for any such acquisition may
be provided from available cash resources, from debt or equity financing or
stock-for-stock acquisitions. In the future, the Company anticipates that its
liquidity and capital needs will be met through interest and dividends from its
life insurance subsidiaries, accessing the public equity and debt markets
depending upon market conditions, or alternatively from bank financing.
LIFE INSURANCE SUBSIDIARIES
The cash flows of the Company's life insurance subsidiaries consist
primarily of premium income, deposits to policyowner account balances, income
from investments, sales, maturities and calls of investments and repayments of
investment principal. Cash outflows are primarily related to withdrawals of
policyowner account balances, investment purchases, payment of policy
acquisition costs, payment of policyowner benefits, income taxes and current
operating expenses. Life insurance companies generally produce a positive cash
flow from operations, as measured by the amount by which cash flows are adequate
to meet benefit obligations to policyowners and normal operating expenses as
they are incurred. The remaining cash flow is generally used to increase the
asset base to provide funds to meet the need for future policy benefit payments
and for writing new business.
Management anticipates that funds to meet its short-term and long-term
capital expenditures, cash dividends to shareholders and operating cash needs
will come from existing capital and internally generated funds. Management
believes that the current level of cash and available-for-sale and short-term
securities, combined with expected net cash inflows from operations, maturities
of fixed maturity investments, principal payments on mortgage-backed securities
and its insurance products, will be adequate to meet the anticipated short-term
cash obligations of the Company's life insurance subsidiaries.
The Company and its subsidiaries generated cash flows from operating
activities of $224.4 million, $147.6 million and $189.1 million for the years
ended December 31, 1997, 1996 and 1995, respectively. Excess operating cash
flows were primarily used to increase the Company's fixed maturity investment
portfolio.
Matching the investment portfolio maturities to the cash flow demands of
the type of insurance being provided is an important consideration for each type
of life insurance product and annuity. The Company continuously monitors
benefits and surrenders to provide projections of future cash requirements. As
part of this monitoring process, the Company performs cash flow testing of its
assets and liabilities under various scenarios to evaluate the adequacy of
reserves. In developing its investment strategy, the Company establishes a level
of cash and securities which, combined with expected net cash inflows from
operations, maturities of fixed maturity investments and principal payments on
mortgage-backed securities, are believed adequate to meet anticipated short-term
and long-term benefit and expense payment obligations. There can be no assurance
that future experience regarding benefits and surrenders will be similar to
historic experience since withdrawal and surrender levels are influenced by such
factors as the interest rate environment and the claims-paying and financial
strength ratings of the Company's life insurance subsidiaries.
The Company takes into account asset-liability management considerations in
the product development and design process. Contract terms for the Company's
interest-sensitive products include surrender and withdrawal provisions which
mitigate the risk of losses due to early withdrawals. These provisions generally
do one or more of the following: limit the amount of penalty-free withdrawals,
limit the circumstances under which withdrawals are permitted, or assess a
surrender charge or market value adjustment relating to the underlying assets.
The following table summarizes statutory liabilities for interest-sensitive life
products and annuities by their contractual withdrawal provisions at December
31, 1997 (dollars in millions):
<TABLE>
<S> <C>
Not subject to discretionary withdrawal $412.9
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (A) 4,546.9
Market value adjustments 1,319.2
--------
Subtotal 5,866.1
--------
Subject to discretionary withdrawal without adjustments 711.5
--------
Total $6,990.5
========
(A) Includes $1,674.3 million of statutory liabilities with a contractual
surrender charge of less than five percent of the account balance.
</TABLE>
Through its membership in the Federal Home Loan Bank ("FHLB") of Des
Moines, AmerUs Life is eligible to borrow on a line of credit available to
provide it additional liquidity. Interest is payable at a current rate at the
time of any advance. As of December 31, 1997, AmerUs Life had a $25.0 million
open secured line of credit against which there were no borrowings. In addition
to the line of credit, AmerUs Life has long-term advances from the FHLB
outstanding of $16.4 million at December 31, 1997.
The Company's life insurance subsidiaries may also obtain liquidity through
sales of investments or borrowings collateralized by their investment
portfolios. The Company's investment portfolio as of December 31, 1997 had a
carrying value of $8.9 billion, including Closed Block investments. As of
December 31, 1997, fixed maturity securities were $7.9 billion, or 88.9% of
invested assets, with public and private fixed maturity securities constituting
$7.5 billion, or 95.4%, and $0.4 million, or 4.6%, of total fixed maturity
securities, respectively.
At December 31, 1997, the statutory surplus of AmerUs Life, Delta Life,
American and FBL were approximately $325 million, $83 million, $112 million and
$41 million, respectively. The Company believes that these levels of statutory
capital are more than adequate as each life insurance subsidiary's risk-based
capital is significantly in excess of required levels.
In the future, in addition to their cash flows from operations and
borrowing capacity, the life insurance subsidiaries would anticipate obtaining
their required capital from the Company as the Company will have access to the
public debt and equity markets.
INVESTMENT PORTFOLIO
General
The Company maintains a diversified portfolio of investments which is
supervised by an experienced in-house staff of investment professionals. The
Company employs sophisticated asset management techniques in order to achieve
competitive yields, while maintaining risk at acceptable levels. The asset
portfolio is segmented by liability type, with tailored investment strategies
for specific product lines. Investment policies and significant individual
investments are subject to approval by the Investment Committee of the Board of
Directors of each of the life insurance companies and are overseen by the
Investment Committee of the Board of Directors of the Company. Management
regularly monitors individual assets and asset groups, in addition to monitoring
the overall asset mix. In addition, the insurance company boards and the
Investment Committee review investment guidelines and monitor internal controls.
Investment Strategy
The Company's investment philosophy is to employ an integrated
asset/liability management approach with separate investment portfolios for
specific product lines, such as traditional life, universal life and annuities,
to generate attractive risk-adjusted returns on capital. Essential to this
philosophy is coordinating investments in the investment portfolio with product
strategies, focusing on risk-adjusted returns and identifying and evaluating
associated business risks.
The Company's asset/liability management approach utilizes separate
investment portfolios for specific product lines, such as traditional life,
universal life and annuities. Investment policies and strategies have been
established based on the specific characteristics of each product line. The
portfolio investment policies and strategies establish asset duration, quality
and other guidelines. The Company utilizes analytical systems to establish an
optimal asset mix for each line of business. The Company seeks to manage the
asset/liability mismatch and the associated interest rate risk through active
management of the investment portfolio. Financial, actuarial, investment,
product development and product marketing professionals work together throughout
the product development, introduction and management phases to jointly develop
and implement product features, initial and renewal crediting strategies, and
investment strategies based on extensive modeling of a variety of factors under
a number of interest rate scenarios.
The objective of the Company's investment in mortgage backed securities
("MBS") is to provide incremental return, while maintaining reasonable liquidity
and cash flow stability. Each MBS is evaluated to determine its interest rate
sensitivity and average life variability. In general, the Company seeks
investments which provide improved cash flow stability through either implicit
or explicit prepayment protection. Investments with implicit prepayment
protection can take the form of pass-throughs or collateralized mortgage
obligations ("CMOs") backed by seasoned pools of loans which have already had
ample opportunity to refinance but have failed to do so. Explicit prepayment
protection can take the form of prepayment lockouts, yield maintenance
provisions or prepayment penalties, which are common features of multifamily
MBS, commercial MBS and FHA-insured project loans. At December 31, 1997 the
Company's MBS investment portfolio composition was approximately 54% fixed rate
pass-throughs backed by seasoned loan pools, 5% floating rate pass-throughs and
41% CMOs with some form of explicit prepayment protection. The Company has
established specific investment guidelines for the management of MBS. As a
general policy, the Company does not invest in interest-only and principal-only
or other similar leveraged derivative mortgage instruments.
<PAGE>
Invested Assets
The Company maintains a diversified portfolio of investments, including
public and private fixed maturity securities, commercial mortgage loans and
equity real estate. The Company's objective is to maintain a high-quality,
diversified fixed maturity securities portfolio that produces a yield and total
return that supports the various product line liabilities and the Company's
earnings goals.
In connection with the Reorganization, the Closed Block, was formed to give
certain policyowners additional assurances as to the dividend policies of the
Company. As a result of establishing the Closed Block on June 30, 1996 the
Company allocated certain assets from its investment portfolio to the Closed
Block (see Note 1 to the consolidated financial statements for further
discussion). The following table summarizes consolidated invested assets by
asset category as of December 31, 1997 and 1996 and sets forth the allocation of
such assets between the Closed Block and the general account. The remaining
information relating to the Company's investment portfolio presents information
about the investment portfolio on a combined basis (including invested assets in
both the Closed Block and the general account).
<TABLE>
Consolidated Invested Assets
December 31,
1997 1996
----------------------------- ----------------------------
Carrying Carrying Carrying Carrying
Value Value Value Value
Closed General % of Closed General % of
Block Account Combined Total Block Account Combined Total
----- ------- ------- ----- ----- ------- ------- -----
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity securities:
Public $894.2 $6,667.7$7,561.9 84.8% $730.4 $2,263.4 $2,993.8 75.7%
Private 158.9 206.7 365.6 4.1 170.9 151.4 322.3 8.2
------- ------- ------- ---- ------ -------- ------- ----
Subtotal 1,053.1 6,874.4 7,927.5 88.9 901.3 2,414.8 3,316.1 83.9
Equity securities - 61.4 61.4 .7 - 64.0 64.0 1.7
Mortgage loans - 462.5 462.5 5.2 - 225.7 225.7 5.7
Policy loans 168.4 117.8 286.2 3.2 166.8 65.2 232.0 5.9
Real estate:
Investments - 8.7 8.7 .1 - 4.6 4.6 .1
Foreclosures - - - - - - - -
------- ------- ------- ---- ----- -------- ------- ----
Subtotal - 8.7 8.7 .1 - 4.6 4.6 .1
Other invested assets 0.6 158.1 158.7 1.8 - 93.2 93.2 2.3
Short-term investments 0.6 12.6 13.2 .1 3.1 13.3 16.4 .4
------- ------- ------- ----- ------- -------- -------- -------
Total invested assets $1,222.7 $7,695.5$8,918.2 100.0% $1,071.2 $2,880.8 $3,952.1 100.0%
======= ======= ======= ===== ======== ======== ======== =====
</TABLE>
<PAGE>
Fixed Maturity Securities
The fixed maturity securities portfolio consists primarily of investment
grade corporate fixed maturity securities, high-quality MBS and United States
government and agency obligations. As of December 31, 1997 fixed maturity
securities were $7,927.5 million, or 88.9% of the carrying value of invested
assets with public and private fixed maturity securities constituting $7,561.9
million, or 95.4%, and $365.6 million, or 4.6%, of total fixed maturity
securities, respectively.
The following table summarizes the composition of the fixed maturity
securities by category as of December 31, 1997 and 1996:
<TABLE>
Composition of Fixed Maturity Securities
December 31, 1997 December 31, 1996
------------------- ------------------
Carrying % of Carrying % of
Value Total Value Total
------- ------ -------- ------
(Dollars in millions)
<S> <C> <C> <C> <C>
U.S. government/agencies $54.6 0.7% $46.2 1.4%
State and political subdivisions 9.6 0.1%
Foreign governments 76.6 1.0% 26.7 0.8%
Corporate 4,234.4 53.4% 1,938.4 58.4%
Redeemable preferred stocks 102.0 1.3% 73.2 2.2%
MBS:
U.S. government/agencies 2,793.6 35.2% 681.9 20.6%
Non-government/agencies 656.7 8.3% 549.7 16.6%
------- ----- ------- --------
Subtotal-MBS 3,450.3 43.5% 1,231.6 37.2%
------- ----- ------- --------
Total $7,927.5 100.0% $3,316.1 100.0%
======= ===== ======= ========
</TABLE
The following table summarizes fixed maturity securities by remaining
maturity as of December 31, 1997:
<PAGE>
</TABLE>
<TABLE>
Remaining Maturity of Fixed Maturity Securities
Carrying % of
Value Total
------- -----
(Dollars in millions)
<S> <C> <C>
Due:
In one year or less (1998) $ - - %
One to five years (1999-2003) 70.9 0.9%
Five to 10 years (2004-2008) 1,490.5 18.8%
10 to 20 years (2009-2018) 1,764.0 22.3%
Over 20 years (2019 and after) 1,151.8 14.5%
-------- ----
Subtotal 4,477.2 56.5%
MBS 3,450.3 43.5%
-------- ----
Total $7,927.5 100.0%
======== =====
</TABLE>
The Company's portfolio of investment grade fixed maturity securities is
diversified by number and type of issuer. As of December 31, 1997, investment
grade fixed maturity securities included the securities of over 617 issuers,
with 2,222 different issues of securities. No issuer represents more than 2.8%
of investment grade fixed maturity securities.
Below-investment grade fixed maturity securities as of December 31, 1997
included the securities of 49 issuers representing 2.4% of total invested
assets, with the largest being a $10.6 million investment.
As of December 31, 1997, 88.7% of total invested assets were investment
grade fixed maturity securities. The following table sets forth the credit
quality, by NAIC designation and Standard & Poor's rating equivalents, of fixed
maturity securities as of December 31, 1997:
<PAGE>
<TABLE>
FIXED MATURITY SECURITIES BY NAIC DESIGNATION
December 31, 1997
Standard Public Private Total
& Poor's -------------------- -------------- --------------------
NAIC Equivalent Carrying % of Carrying % of Carrying % of
Designation Designation Value Total Value Total Value Total
- ----------- ------------ ------ ------ ------ ------- ------- ------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
1 A- or Higher $7,399.2 97.9% $360.5 98.6% $7,759.7 97.9%
2 BBB- to BBB+ 147.4 1.9 4.1 1.1 151.5 1.9
-------- ---- ------- ---- -------- ----
Total investment grade 7,546.6 99.8 364.6 99.7 7,911.2 99.8
-------- ---- ------- ---- -------- ----
3 BB to BB+ 15.3 0.2 0.8 0.2 16.1 0.2
4 B 0.0 0.0 0.2 0.1 0.2 0.0
5 CCC or lower 0.0 0.0 0.0 0.0 0.0 0.0
In or near default 0.0 0.0 0.0 0.0 0.0 0.0
-------- ---- ------- ---- -------- -----
Total below investment grade $15.3 0.2% $1.0 0.3% $16.3 0.2%
-------- ---- -------- ---- -------- -----
Total $7,561.9 100.0% $365.6 100.0% $7,927.5 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
<PAGE>
MBS comprise a core position within the Company's fixed maturity securities
investments. MBS investments include residential, commercial MBS, home equity
loans (including home equity loans purchased from one of the Company's
affiliates), manufactured housing, FHA Title I and CMBS. Residential mortgage
pass-throughs and CMOs total $2,794.9 million or 31.8% of total invested
assets. As of December 31, 1997, MBS were $3,450.3 million or 38.7%, of total
invested assets of which $2,793.6 million, or 81.0% of MBS were guaranteed by
the United States government or an agency of the United States government.
Other MBS were $656.7 million, or 19.0%, of MBS as of December 31, 1997.
Management believes that the quality of assets in the MBS portfolio is
generally high, with 91.7% of such assets representing agency backed or "AAA"
rated securities.
The Company uses interest rate swaps and caps to reduce its exposure to
changes in interest rates and to manage duration mismatches. Although the
Company is subject to the risk that counterparties will fail to perform, credit
standings of counterparties are monitored regularly. The Company's policy is to
contract only with counterparties that are rated "AA" or higher; accordingly,
it is expected that counterparties will be able to satisfy their obligations
under such contracts. The Company is also subject to the risk associated with
changes in the value of contracts. However, such adverse changes in value
generally are offset by changes in the value of the items being hedged. The
notional principal amounts of the swaps and caps, which represent the extent of
the Company's involvement in such contracts but not the risk of loss, at
December 31, 1997, amounted to $1,100.2 million. The swaps had no carrying
value at December 31, 1997 and a fair value which amounted to a net payable
position of ($.1) million at December 31, 1997. The carrying value and fair
value of interest rate caps and swaptions amounted to $2.1 million and $2.0
million, respectively, and are reflected as "other investments" on the
Company's consolidated financial statements as of December 31, 1997. The net
amount payable or receivable from interest rate swaps and caps is accrued as an
adjustment to interest income.
Mortgage Loans
As of December 31, 1997, mortgage loans in the Company's investment
portfolio were $462.5 million, or 5.2% of the aggregate carrying value of
invested assets, including the Closed Block. As of December 31, 1997,
commercial mortgage loans and residential mortgage loans comprised 96.4% and
3.6%, respectively, of the mortgage loans in the Company's investment
portfolio.
<PAGE>
Commercial mortgage loans consist primarily of fixed-rate mortgage loans.
As of December 31, 1997, the Company held 435 individual commercial mortgage
loans with an average balance of $1.1 million.
As of December 31, 1997, only five loans aggregating $2.0 million, or .9%,
of the Company's loan portfolio (as measured by principal balance) were
classified as delinquent or in foreclosure. As of the same date, only
$4.4 million, or 0.9%, of the Company's loan portfolio (as measured by
principal balance) was classified as restructured. During 1997, the Company had
no foreclosures.
Equity Real Estate
In recent years the Company has significantly reduced its equity real
estate portfolio. As of December 31, 1997, the carrying value of investment
real estate, including the Closed Block, was $8.7 million.
Other
The Company held $286.2 million of policy loans on individual insurance
products as of December 31, 1997. Policy loans are permitted to the extent of a
policy's contractual limits and are fully collateralized by policy cash values.
As of December 31, 1997, the Company held equity securities of $61.5
million. The largest holding of equity securities, Federal Home Loan Bank, had
a carrying value of $62.2 million as of December 31, 1997.
The Company held $172.0 million of other invested assets (including
short-term investments) on December 31, 1997. Other invested assets consist
primarily of various joint venture and limited partnership investments.
EFFECTS OF INFLATION AND INTEREST RATE CHANGES
The Company does not believe that inflation has had a material effect on
its consolidated results of operations.
Interest rate changes may have temporary effects on the sale and
profitability of the annuities and life insurance products offered by the
Company. For example, if interest rates rise, competing investments (such as
annuities or life insurance products offered by the Company's competitors,
certificates of deposit, mutual funds, and similar instruments) may become more
attractive to potential purchasers of the Company's products until the Company
increases the interest rate credited to owners of its annuities and life
insurance products. In contrast, as interest rates fall, the Company attempts
to adjust its credited rates to compensate for the corresponding decline in
reinvestment rates. The Company monitors interest rates and sells annuities
and life insurance policies that permit flexibility to make interest rate
changes as part of its management of interest spreads. However, the
profitability of the Company's products is based upon persistency, mortality
and expenses, as well as interest rate spreads.
The Company manages its investment portfolio in part to reduce its
exposure to interest rate fluctuations. In general, the market value of its
fixed maturity portfolio increases or decreases in an inverse relationship with
fluctuations in interest rates, and net investment income increases or
decreases in a direct relationship with interest rate changes.
The Company has developed an asset/liability management approach with
separate investment portfolios for major product lines such as traditional
life, universal life and annuities. Investment policies and strategies have
been established based on the specific characteristics of each product line.
The portfolio investment policies and strategies establish asset duration,
quality and other guidelines. The Company utilizes analytical systems to
establish an optimal asset mix for each line of business. The Company seeks to
manage the asset/liability mismatch and the associated interest rate risk
through active management of the investment portfolio. Financial, actuarial,
investment, product development and product marketing professionals work
together throughout the product development, introduction and management phases
to jointly develop and implement product features, initial and renewal
crediting strategies, and investment strategies based on extensive modeling of
a variety of factors under a number of interest rate scenarios.
Inforce reserves and the assets allocated to each segment are modeled on a
regular basis to analyze projected cash flows under a variety of economic
scenarios. The result of this modeling is used to modify asset allocation,
investment portfolio duration and convexity and renewal crediting strategies.
The Company invests in CMOs as part of its basic portfolio strategy, but uses
other types of derivatives only as a hedge against the effects of interest
rate fluctuations or to synthetically alter the investment characteristics of
specific assets. For a further discussion and disclosure of the nature and
extent of the Company's use of derivatives, see Note 13 to the Consolidated
Financial Statements.
FEDERAL INCOME TAX MATTERS
Until February 3, 1997, the Company and its subsidiaries, with the
exception of American Vanguard Life Insurance Company, filed as part of a
consolidated United States federal income tax return with AMHC and its
subsidiaries. For the short tax year beginning February 4, 1997, the Company
and its subsidiaries will not file as part of a consolidated United States
federal income tax return with AMHC. Further, the Company and its subsidiaries
(including AmerUs Life, Delta and AmVestors) would not be eligible to file a
consolidated life/non-life United States federal income tax return until
January 1, 2003, subject to the other requirements of federal income tax law
relating to consolidation.
EMERGING ACCOUNTING MATTERS
SFAS 130
In June 1997, the FASB issued Statement 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and display of
comprehensive income and its components: revenues, expenses, gains, and
losses. All items that are required to be recognized under accounting
standards as components of comprehensive income, consisting of changes in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources, are to be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 is effective for financial statements beginning
after December 15, 1997. The provisions of SFAS 130 are of a reporting nature
and are not expected to have an impact on the financial position or results of
operations of the Company.
SFAS 131
In June 1997, the FASB issued Statement 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 establishes standards for
the way that public businesses report information about operating segments in
financial statements. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and
assess performance. Generally, financial information is required to be
reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997. The provisions of SFAS 131 are of a reporting nature and are not
expected to have an impact on the financial position or results of operations
of the Company as the life insurance and annuity operation is the Company's
only business segment.
SFAS 132
In February 1998, the FASB issued Statement 132, "Employer's Disclosure
about Pensions and Other Postretirement Benefits". SFAS 132 standardizes the
disclosure requirements for pensions and other postretirement benefits,
requires additional information on the benefit obligations and fair values of
plan assets and on changes in the benefit obligations and fair values of plan
assets and eliminates certain disclosures. SFAS 132 is effective for financial
statements for periods beginning after December 15, 1997. The provisions of
SFAS 132 are of a reporting nature and are not expected to have an impact on
the financial position or results of operations of the Company.
SOP 97-3
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." This statement provides
guidance on when an insurance or other enterprise should recognize a liability
for guaranty fund and other assessments and on how to measure such liability.
SOP 97-3 is effective for fiscal years beginning after December 15, 1998;
however, its adoption will not have a material impact on the financial position
or results of operations as the Company currently estimates assessment
liabilities when a determination of an insolvency has occurred.
Statutory Accounting Codification
The NAIC recently approved the codification of statutory accounting
practices, which constitutes "prescribed" statutory accounting practices.
Additional guidance on its implementation is being developed and is anticipated
to be effective January 1, 1999, resulting in changes to certain statutory
accounting practices. The codification may result in changes to the permitted
or prescribed accounting practices that the Company's insurance subsidiaries
use to prepare their statutory-basis financial statements.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate the date value "2000." Many existing application software products
were designed to only accommodate a two digit date position which represents
the year (e.g., the number "95" is stored on the system and represents the year
1995). As a result, the year 1999 (i.e., "99") is the maximum date value many
systems will be able to accurately process. The Company formed a year 2000
working group to address potential problems posed by this development to assure
that the Company is prepared for the year 2000. The Company has already made
significant progress in accomplishing the necessary modifications and
conversions to deal with year 2000 issues and anticipates that the majority of
the required efforts will be completed by the end of 1998. Management does not
anticipate that the Company will incur significant operating expenses or be
required to invest heavily in computer system improvements to address year 2000
issues. Total estimated costs are in a range of $4 to $6 million with
approximately $3 million to be incurred in 1998. However, if modifications and
conversions to deal with year 2000 issues are not completed on a timely basis
or are not fully effective, such issues may have a material adverse effect on
the operations of the Company. All cost associated with year 2000
modifications and conversions will be expensed as incurred.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements begin on page F-1.
Reference is made to the Index to Financial Statements on page F-1 herein.
Additional financial statement schedules are included on pages S-1 through
S-15 herein. Reference is made to the Index to Financial Statement Schedules
on page S-1 herein.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
The Notice of 1998 Annual Meeting of Shareholders and Proxy Statement,
which, when filed pursuant to Regulation 14A under the Securities Exchange Act
of 1934, are incorporated by reference in this Annual Report on Form 10-K
pursuant to General Instruction G(3) of Form 10-K, provides the information
required under Part III (Items 10. Directors and Executive Officers of the
Registrant, 11. Executive Compensation, 12. Security Ownership of Certain
Beneficial Owners and Management and 13. Certain Relationships and Related
Transactions).<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. Reference is made to the index on page F-1 of
the report.
2. Financial Statement Schedules. Reference is made to the Index on
page S-1 of the report.
3. Exhibits Reference is made to the Index to Exhibits on page 61 of the
report.
(b) Reports on Form 8-K
1. Form 8-K dated October 23, 1997, reporting the acquisition of Delta
Life Corporation.
2. Form 8-K/A dated October 23, 1997, as amended January 6, 1998,
including financial statements as follows:
(a) Delta Life Corporation (Unaudited) as of September 30, 1997 and
the nine months ended September 30, 1997 and 1996.
(b) Delta Life Corporation as of December 31, 1996 and 1995 and the
years ended December 31, 1996, 1995 and 1994.
(c) AmerUs Life Holdings, Inc. Unaudited Pro Forma Financial
Statements as of September 30, 1997 and for the nine months
ended September 30, 1997 and the year ended December, 1996.
3. Form 8-K dated December 19, 1997, reporting the acquisition of
AmVestors Financial Corporation.
4. Form 8-K/A dated December 19, 1997, as amended March 3, 1998,
including financial statements as follows:
(a) AmVestors Financial Corporation (Unaudited) as of September 30,
1997 and the nine months ended September 30, 1997 and 1996.
(b) AmVestors Financial Corporation as of December 31, 1996 and 1995
and the years ended December 31, 1996, 1995 and 1994.
(c) AmerUs Life Holdings, Inc. Unaudited Pro Forma Financial
Statements as of September 30, 1997 and for the nine months
ended September 30, 1997 and the year ended December, 1996.
<PAGE>
AMERUS LIFE HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1 Plan of Reorganization dated October 27, 1995, filed as Exhibit 2.1
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
2.2 Amended and Restated Agreement and Plan of Merger, dated as of
September 19, 1997 and as amended and restated as of October 8, 1997,
by and among the Registrant, AFC Corp. and AmVestors Financial
Corporation ("AmVestors"), filed as Exhibit 2.2 to the Registration
Statement of the Registrant on Form S-4, Registration Number 333-40065 is
hereby incorporated by reference.
2.3 Agreement and Plan of Merger, dated as of August 13, 1997 and as
amended as of September 5, 1997, among the Registrant, a wholly owned
subsidiary of the Registrant and Delta Life Corporation, filed as
Exhibit 2.2 to Form 8-K of the Registrant dated October 8, 1997, is
hereby incorporated by reference.
3.1 Amended and Restated Articles of Incorporation of the Registrant
filed as Exhibit 3.5 to the registration statement of the Registrant
on Form S-1, Registration Number 333-12239, are hereby incorporated
by reference.
3.2 Bylaws of the Registrant, filed as Exhibit 3.2 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
are hereby incorporated by reference.
4.1 Amended and Restated Trust Agreement dated as of February 3, 1997
among the Registrant, Wilmington Trust Company, as property trustee,
and the administrative trustees named therein (AmerUs Capital I
business trust), filed as Exhibit 3.6 to the registration statement
of the Registrant and AmerUs Capital I on Form S-1, Registration
Number 333-13713, is hereby incorporated by reference.
4.2 Indenture dated as of February 3, 1997 between the Registrant and
Wilmington Trust Company relating to the Company's 8.85% Junior
Subordinated Debentures, Series A, filed as Exhibit 4.1 to the
registration statement of the Registrant and AmerUs Capital I on Form
S-1, Registration Number, 333-13713, is hereby incorporated by
reference.
4.3 Guaranty Agreement dated as of February 3, 1997 between the
Registrant, as guarantor, and Wilmington Trust Company, as trustee,
relating to the 8.85% Capital Securities, Series A, issued by AmerUs
Capital I, filed as Exhibit 4.4 to the registration statement on Form
S-1, Registration Number, 333-13713, is hereby incorporated by
reference.
4.4 Common Stock Purchase Warrant, filed as Exhibit (10)(v) to Form 10-Q
of AmVestors Financial Corporation dated May 13, 1992, is hereby
incorporated by reference.
10.1 Amended and Restated Intercompany Agreement dated as of December 1,
1996, among American Mutual Holding Company, AmerUs Group Co. and the
Company. Filed as Exhibit 10.81 to the Registrant's registration
statement on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference
10.2* Joint Venture Agreement, dated as of June 30, 1996, between American
Mutual Insurance Company and Ameritas Life Insurance Corp.
10.3 Management and Administration Service Agreement, dated as of April 1,
1996, among American Mutual Life Insurance Company, Ameritas Variable
Life Insurance Company and Ameritas Life Insurance Corp., filed as
Exhibit 10.3 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.4 Agreement and Plan of Merger, dated as of August 24, 1994, among
Central Life Assurance Company and American Mutual Life Insurance
Company, filed as Exhibit 10.4 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.5 All*AmerUs Supplemental Executive Retirement Plan, effective January
1, 1996, filed as Exhibit 10.6 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.6 American Mutual Life Insurance Company Supplemental Pension Plan
(which was curtailed as of December 31, 1995), filed as Exhibit 10.7
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.7 Central Life Assurance Company Supplemental Pension Plan (which was
curtailed as of December 31, 1995), filed as Exhibit 10.8 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.8 Management Incentive Plan, filed as Exhibit 10.9 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.9 AmerUs Life Insurance Company Performance Share Plan, filed as
Exhibit 10.10 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.10 AmerUs Life Stock Incentive Plan, filed as Exhibit 10.11 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.11 AmerUs Life Non-Employee Director Stock Plan, filed as Exhibit 10.13
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.12 Modification of Real Estate Contract, dated as of July 1, 1996,
between AmerUs Life Insurance Company and AmerUs Properties, Inc.,
filed as Exhibit 10.14 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.13 Asset Management and Disposition Agreement, dated January 3, 1995,
between American Mutual Life Insurance Company and Central
Properties, Inc. (now AmerUs Properties, Inc.), filed as Exhibit
10.15 to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.14 Form of Indemnification Agreement executed with directors and certain
officers, filed as Exhibit 10.33 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.15 Amended and Restated Agreement and Certificate of Limited Partnership
of CPI Housing Partners I, L.P., dated as of September 1, 1995, among
AmerUs Properties, Inc., American Mutual Life Insurance Company and
American Mutual Affordable Housing Partners, L.P., filed as Exhibit
10.34 to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.16 Amended and Restated Agreement of Limited Partnership of American
Mutual Affordable Housing Partners, L.P., dated as of September 1,
1995, among GrA Partners Joint Venture, AmerUs Properties, Inc.,
American Mutual Life Insurance Company, NCC Polar Company and NCC
Orion Company, filed as Exhibit 10.35 to the registration statement
of the Registrant on Form S-1, Registration Number 333-12239, is
hereby incorporated by reference.
10.17 Amended and Restated Agreement and Certificate of Limited Partnership
of 65th & Vista, L.P., dated as of September 1, 1995, among AmerUs
Properties, Inc., American Mutual Life Insurance Company and American
Mutual Affordable Housing Partners, L.P., filed as Exhibit 10.36 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.18 Amended and Restated Agreement and Certificate of Limited Partnership
of 60th & Vista, L.P., dated as of September 1, 1995, among I.R.F.B.
Joint Venture, American Mutual Life Insurance Company and American
Mutual Affordable Housing Partners, L.P., filed as Exhibit 10.37 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.19 Certificate of Limited Partnership and Limited Partnership Agreement
of CPI Housing Partners II, L.P., dated March 27, 1995, between
Central Properties, Inc. (now AmerUs Properties, Inc.) and American
Mutual Life Insurance Company, filed as Exhibit 10.38 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.20 Amended and Restated Agreement and Certificate of Limited Partnership
of API Housing Partners III, L.P., dated as of March 1, 1996, among
AmerUs Properties, Inc., American Mutual Life Insurance Company,
American Mutual Affordable Housing Partners II, L.P. and AmerUs
Management, Inc., filed as Exhibit 10.39 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.21 Certificate of Limited Partnership and Limited Partnership Agreement
of API Housing Partners IV, L.P., dated as of June 1995, between
AmerUs Properties, Inc. and American Mutual Life Insurance Company,
filed as Exhibit 10.40 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.22 Amended and Restated Agreement and Certificate of Limited Partnership
of API Housing Partners V, L.P., dated as of March 1, 1996, among
AmerUs Properties, Inc., American Mutual Life Insurance Company,
American Mutual Affordable Housing Partners II, L.P. and AmerUs
Management, Inc., filed as Exhibit 10.41 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.23 Amended and Restated Agreement and Certificate of Limited Partnership
of API-Chimney Ridge Partners, L.P., dated as of March 1, 1996, among
AmerUs Properties, Inc., American Mutual Life Insurance Company,
American Mutual Affordable Housing Partners II, L.P. and AmerUs
Management, Inc., filed as Exhibit 10.42 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.24 Certificate of Limited Partnership and Limited Partnership Agreement
of API Housing Partners VI, L.P., dated as of October 10, 1995,
between AmerUs Properties, Inc. and American Mutual Life Insurance
Company, filed as Exhibit 10.43 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.25 Certificate of Limited Partnership and Limited Partnership Agreement
of 86th & Meredith Associates, L.P., dated as of February 14, 1995,
between Central Properties, Inc. (now AmerUs Properties, Inc.) and
American Mutual Life Insurance Company, filed as Exhibit 10.44 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.26 Certificate of Limited Partnership and Limited Partnership Agreement
of Altoona Meadows Investors, L.P., dated as of February 22, 1995,
between KPI Investments, Inc. and Dennis Galeazzi, filed as Exhibit
10.45 to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.27 First Amendment to the Certificate of Limited Partnership and Limited
Partnership Agreement of Altoona Meadows Investors, L.P., dated as of
September 28, 1995, between KPI Investments, Inc. and American Mutual
Life Insurance Company, filed as Exhibit 10.46 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.28 Loan Servicing Agreement, dated August 1, 1990, between Central Life
Assurance Company and Midland Financial Mortgages, Inc. (now AmerUs
Mortgage), filed as Exhibit 10.47 to the registration statement of
the Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.29 Construction Loan Servicing Agreement, dated November 20, 1995,
between American Mutual Life Insurance Company and AmerUs Properties,
Inc., filed as Exhibit 10.48 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.30 Loan Servicing Agreement, dated September 1, 1994, between Central
Life Assurance Company and Midland Savings Bank, FSB (now AmerUs
Bank), filed as Exhibit 10.50 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.31 Amendment to Service Agreement, dated as of May 1, 1996, between
American Mutual Life Insurance Company and AmerUs Bank, filed as
Exhibit 10.52 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.32 Data Processing Service Agreement, dated November 1, 1989, between
Central Life Assurance Company and Midland Financial Savings and Loan
Association (now AmerUs Bank), filed as Exhibit 10.29 to Central
Resource Group, Inc.'s registration statement on Form S-1,
Registration No. 33-48359, filed on June 4, 1992), filed as Exhibit
10.53 to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.33 First Amendment to Data Processing Service Agreement, dated as of
September 30, 1990, between Central Life Assurance Company and
Midland Savings Bank FSB (now AmerUs Bank), filed as Exhibit 10.54 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.34 Second Amendment to Data Processing Service Agreement, dated as of
May 1, 1991, between Central Life Assurance Company and Midland
Savings Bank FSB (now AmerUs Bank), filed as Exhibit 10.55 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.35 Third Amendment to Data Processing Service Agreement, dated as of
October 1, 1991, between Central Life Assurance Company and Midland
Savings Bank, FSB (now AmerUs Bank), filed as Exhibit 10.56 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.36 Fourth Amendment to Data Processing Service Agreement, dated as of
January 2, 1992, between Central Life Assurance Company and Midland
Savings Bank, (now AmerUs Bank), filed as Exhibit 10.57 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.37 Fifth Amendment to Data Processing Service Agreement, dated as of
June 1, 1993, between Central Life Assurance Company and Midland
Savings Bank FSB (now AmerUs Bank), filed as Exhibit 10.58 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.38 Sixth Amendment to Data Processing Service Agreement, dated as of
September 1, 1995, between American Mutual Life Company and AmerUs
Bank, filed as Exhibit 10.59 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.39 Seventh Amendment to Data Processing Service Agreement, dated as of
January 1, 1996, between American Mutual Life Insurance Company and
AmerUs Bank, filed as Exhibit 10.60 to the registration statement of
the Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.40 Data Processing Support Services Agreement, dated as of July 1, 1993,
between Central Life Assurance Company and Midland Savings Bank, FSB
(now AmerUs Bank), filed as Exhibit 10.61 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.41 Investment Management Agreement, dated as of August 15, 1992, between
Central Life Assurance Company and Midland Savings Bank FSB (now
AmerUs Bank), filed as Exhibit 10.63 to the registration statement of
the Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.42 Purchase Agreement, dated as of June 28, 1996, between AmerUs Life
Insurance Company and AmerUs Bank, filed as Exhibit 10.65 to the
registration statement of the Registrant on Form S-1, Registration
Number 333-12239, is hereby incorporated by reference.
10.43 Brokerage Contract dated January 1, 1995, among American Mutual Life
Insurance Company and Midland Investment Services, Inc. (now AmerUs
Investments, Inc.), filed as Exhibit 10.66 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.44 Servicing Agreement, dated March 1, 1992, between Central Life
Assurance Company and Midland Investment Services, Inc. (now AmerUs
Investments, Inc.), filed as Exhibit 10.67 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.45 Tax Allocation Agreement dated as of November 4, 1996, filed as
Exhibit 10.68 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.46 Limited Partnership Agreement of Theater Project Limited Partnership
dated March 15, 1985, among Tapp Management, Inc., Tapp Management
Co., Ltd., Michael Longley, Michael A. Hammond and Gary L. Wood along
with an Amendment to Certificate of Limited Partnership, dated August
22, 1986, and an Assignment of Limited Partnership Interest, dated
November 15, 1992, between F. Barry Tapp and Tapp Development Co.,
Ltd., and an Amended Certificate of Limited Partnership dated
December 24, 1992, filed as Exhibit 10.73 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.47 Assignment of Limited Partnership Interest of Theater Project Limited
Partnership, dated December 30, 1995, between American Mutual Life
Insurance Company and AmerUs Properties, Inc., filed as Exhibit 10.74
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by reference.
10.48 Certificate of Limited Partnership and Limited Partnership Agreement
of Lagos Vista Limited Partnership, dated August 10, 1994, between
Central Properties, Inc. (now AmerUs Properties, Inc.) and Central
Life Assurance Company, filed as Exhibit 10.75 to the registration
statement of the Registrant on Form S-1, Registration Number 333-12239,
is hereby incorporated by reference.
10.49 Revolving Credit and Term Loan Agreement, dated as of December 1996,
among the Registrant, certain Signatory Banks thereto and The Chase
Manhattan Bank, Note issued by the Registrant and Borrower Pledge
Agreement, filed as Exhibit 10.80 to the registration statement of
the Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.50 Agreement and Plan of Merger, dated as of August 13, 1997 and as
amended as of September 5, 1997, among the Registrant, a wholly-owned
subsidiary of the Registrant and Delta Life Corporation, filed as
Exhibit 2.2 to the Registrant's current report on Form 8-K on October
8, 1997, is hereby incorporated by reference.
10.51 Purchase Agreement between AmerUs Life and AmerUs Bank dated March 5,
1997 relating to the sale of certain loans , filed as Exhibit 10.82
to the registration statement of the Registrant on Form S-4,
Registration Number 333-40065, is incorporated by reference.
10.52 Letter Agreement dated as of March 1, 1997 between AmerUs Life and
AmerUs Mortgage relating to the purchase of residential mortgage
loans, together with an amendment thereto dated March 11, 1997 ,
filed as Exhibit 10.83 to the registration statement of the
Registrant on Form S-4, Registration Number 333-40065, is
incorporated by reference.
10.53 Credit Agreement, dated as of October 23, 1997, among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase Manhattan
Bank, as Administrative Agent , filed as Exhibit 10.84 to the
registration statement of the Registrant on Form S-4, Registration
Number 333-40065, is incorporated by reference.
10.54 Coinsurance Agreement, effective February 1, 1996, between Delta Life
and Annuity Company and London Life Reinsurance Company , filed as
Exhibit 10.85 to the registration statement of the Registrant on Form
S-4, Registration Number 333-40065, is incorporated by reference.
10.55 AmVestors Financial Corporation 1996 Incentive Stock Option Plan,
filed as Exhibit (4)(a) to Registration Statement of AmVestors
Financial Corporation on Form S-8, Registration Number 333-14571
dated October 21, 1996.
10.56 1989 Non-Qualified Stock Option Plan adopted March 17, 1989, filed as
Exhibit (10)(q) to Form 10-K of AmVestors Financial Corporation,
dated April 12, 1989, is hereby incorporated by reference.
10.57* Amended and Restated Miscellaneous Service Agreement, dated as of
July 21, 1997, among American Mutual Holding Company, Registrant,
AmerUs Life Insurance Company, AmerUs Group Co., AmerUs Bank, AmerUs
Mortgage, Inc., Iowa Realty Co., Inc., Iowa Title Company, AmerUs
Insurance, Inc., AmerUs Properties, Inc., AmerUs Direct, Inc.
10.58* Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and AmerUs Life Insurance Company, property 611
Fifth Avenue, Des Moines, Iowa.
10.59* First Amendment dated February 1, 1998 to Lease Agreement dated
December 1, 1996 between AmerUs Properties, Inc. and AmerUs Life
Insurance Company, property 611 Fifth Avenue, Des Moines, Iowa.
10.60* Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and AmerUs Life Insurance Company, 1213 Cherry
Street, Des Moines, Iowa.
10.61* Lease - Business Property, dated December 1, 1996, between AmerUs
Properties, Inc. and the Registrant, property 418 Sixth Avenue
Moines, Iowa.
10.62* Lease - Business Property, dated December 31, 1997, between AmerUs
Properties, Inc. and the Registrant property, 699 Walnut Street, Des
Moines, Iowa.
10.63* First Amendment dated February 1, 1998 to lease dated December 31,
1997 between AmerUs Properties and the Registrant.
10.64* Servicing Agreement, dated March 5, 1997, between AmerUs Life
Insurance Company and AmerUs Properties, Inc.
10.65* First Amended and Restated Articles of Limited Partnership of
Cotton Mill Limited Partnership, dated as of September 30, 1996,
among API-Cotton Mill Partners, L.P., Historic Restoration
Incorporated and AmerUs Management, Inc.
10.66* Articles of Organization of AmerUs-Blackstone, L.L.C. dated
July 8, 1997.
10.67* First Amended and Restated Articles of Limited Partnership of
Blackstone Hotel Partners L.P. dated as of July 23, 1997.
10.68* First Amended and Restated Limited Partnership Agreement of Briggs
Renewal Limited Partnership dated as of November 18, 1997.
10.69* Declaration of Operating Agreement of AmerUs-Blackstone, L.L.C.,
dated as of July 23, 1997.
10.70* Open Line of Credit Application and Terms Agreement, dated March 3,
1997, between Federal Home Loan Bank of Des Moines and AmerUs Life
Insurance Company.
10.71* Certificate of Limited Partnership Agreement of API Cottonmill
Partners, L.P., dated as of June 21, 1996, among AmerUs Management,
Inc. and AmerUs Properties, Inc..
12* Computation of Ratios of Earnings to Fixed Charges
21.1* List of Subsidiaries of the Registrant
23.1* Consent of KPMG Peat Marwick LLP
27.1* Financial Data Schedule
27.2* Financial Data Schedule
27.3* Financial Data Schedule
99.3 Employment Agreement, dated as of September 19, 1997, among Mark V.
Heitz, AmVestors Financial Corporation, American Investors Life
Insurance Company, Inc., AmVestors Investment Group, Inc. and
American Investors Sales Group, Inc., filed as Exhibit 99.3 to the
registration statement of the Registrant on Form S-4, Registration
Number 333-40065, is incorporated by reference.
99.4 Agreement of Sale, dated as of October 22, 1997, by and between R.
Rex Lee and AmerUs Group, Co., filed as Exhibit 99.4 to the
registration statement of the Registrant on Form S-4, Registration
Number 333-40065, is incorporated by reference.
- --------------------------
* filed with this annual report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMERUS LIFE HOLDINGS, INC.
/s/ Roger K. Brooks
Date: March 25, 1998 --------------------------------------
Roger K. Brooks
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of AmerUs Life Holdings, Inc.,
hereby severally and individually constitute and appoint Michael E. Sproule,
Michael G. Fraizer and James A. Smallenberger, and each of them, the true and
lawful attorneys and agents of each of us to execute in the name, place and
stead of each of us (individually and in any capacity stated below) any and all
amendments to this Annual Report on Form 10-K and all instruments necessary or
advisable in connection therewith and to file the same with the Securities and
Exchange Commission, each of said attorneys and agents to have the power to act
with or without the others and to have full power and authority to do and
perform in the name and on behalf of each of the undersigned every act
whatsoever necessary or advisable to be done on the premises as fully and to
all intents and purposes as any of the undersigned might or could do in person,
and we hereby ratify and confirm our signatures as they may be signed by or
said attorneys and agents or each of them to any and all such amendments and
instruments.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
/s/ Roger K. Brooks
- ------------------------------------ Chairman, President and Chief Executive
Roger K. Brooks Officer (principal executive officer)
and Director
/s/ Michael E. Sproule
- ------------------------------------ Executive Vice President and Chief
Michael E. Sproule Financial Officer (principal financial
officer)
/s/ Michael G. Fraizer
- ------------------------------------ Senior Vice President and Controller/
Michael G. Fraizer Treasurer (principal accounting
officer)
/s/ John R. Albers
<PAGE>
- ------------------------------------ Director
John R. Albers
/s/Malcolm Candlish
- ------------------------------------ Director
Malcolm Candlish
/s/ Maureen M. Culhane
- ------------------------------------ Director
Maureen M. Culhane
/s/ Thomas F. Gaffney
- ------------------------------------ Director
Thomas F. Gaffney
/s/ Ilene B. Jacobs
- ------------------------------------ Director
Ilene B. Jacobs
/s/ Sam C. Kalainov
- ------------------------------------ Director
Sam C. Kalainov
/s/ Ralph W. Laster, Jr.
- ------------------------------------ Director
Ralph W. Laster, Jr.
/s/ John W. Norris, Jr.
- ------------------------------------ Director
John W. Norris, Jr.
/s/ Jack C. Pester
- ------------------------------------ Director
Jack C. Pester
/s/ John A. Wing
- ------------------------------------ Director
John A. Wing
<PAGE>
AMERUS LIFE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Consolidated Balance Sheets as of
December 31, 1997 and 1996 F-3 through F-5
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 F-6 through F-7
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995 F-8 through F-9
Consoldiated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 F-10 through F-12
Notes to Consolidated Financial Statements F-13 through F-61
Separate financial statements of subsidiaries not consolidated and 50% or
less owned persons accounted for by the equity method have been omitted because
they do not individually constitute a signficiant subsidiary.<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AmerUs Life Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of AmerUs Life
Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AmerUs Life
Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
February 13, 1998
<PAGE>
<TABLE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(In thousands)
1997 1996
---- ----
<S> <C> <C>
Assets
Investments:
Securities available-for-sale at fair value: (note 2)
Fixed maturity securities $6,851,427 $2,414,807
Equity securities (note 5) 61,480 64,033
Short-term investments 12,595 13,288
Fixed maturity securities held for
trading purposes (note 2) 22,955 -
Mortgage loans on real estate (note 3) 462,473 225,743
Real estate 8,670 4,561
Policy loans 117,865 65,183
Other investments 158,073 93,228
--------- ---------
Total investments 7,695,538 2,880,843
Cash 58,081 1,814
Accrued investment income 84,713 30,792
Premiums and fees receivable 3,445 1,489
Reinsurance receivables 6,203 1,329
Deferred policy acquisition costs (note 4) 118,896 120,481
Value of business acquired (note 16) 266,014 -
Investment in unconsolidated subsidiaries 26,849 23,461
Goodwill (note 14) 220,250 -
Property and equipment 22,863 4,393
Other assets 359,308 49,459
Closed block assets 1,391,848 1,270,168
----------- ----------
Total assets $10,254,008 $4,384,229
=========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Policy reserves and policyowner funds:
Future life and annuity policy
benefits $7,074,444 $2,053,740
Policyowner funds 89,641 55,369
----------- ----------
7,164,085 2,109,109
Accrued expenses 39,095 14,227
Dividends payable to policyowners 1,575 -
Policy and contract claims 4,548 7,039
Income taxes payable 12,753 25,182
Deferred income taxes (note 6) 16,914 1,337
Other liabilities 111,180 64,173
Debt (note 5) 266,435 188,381
Closed block liabilities 1,623,432 1,517,271
----------- ----------
Total liabilities 9,240,017 3,926,719
----------- ----------
Company-obligated mandatorily redeemable
preferred capital securities of
subsidiary trust holding solely junior
subordinated debentures of the Company
(note 5) 86,000 -
----------- ----------
Stockholders' equity: (note 11)
Preferred stock, no par value,
20,000,000 shares authorized,
none issued - -
Common stock, Class A, no par value,
75,000,000 shares authorized;
issued and outstanding 29,734,918
shares in 1997 and 14,500,000 shares
in 1996 29,735 14,500
Common stock, Class B, no par value,
50,000,000 shares authorized;
5,000,000 shares issued and
outstanding 5,000 5,000
Unrealized appreciation of
available-for-sale securities(note 2) 55,747 35,300
Paid-in capital 383,686 -
Retained earnings 453,823 402,710
----------- ----------
Total stockholders' equity 927,991 457,510
----------- ----------
Commitments and contingencies (note 10)
Total liabilities and
stockholders' equity $10,254,008 $4,384,229
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Insurance premiums $48,127 $138,476 $244,087
Universal life and annuity product charges 43,441 49,347 57,370
Net investment income (note 2) 224,431 228,625 285,244
Realized gains on investments (note 2) 13,791 65,983 51,387
Contribution from the Closed Block 31,045 19,909 -
------- -------- -------
360,835 502,340 638,088
------- -------- --------
Benefits and expenses:
Policyowner benefits 193,237 261,869 374,620
Underwriting, acquisition, and insurance
expenses 51,663 54,857 50,909
Amortization of deferred policy acquisition
costs (note 4) 20,987 40,160 50,239
Dividends to policyowners 1,587 26,324 49,414
-------- -------- --------
267,474 383,210 525,182
-------- -------- --------
Income from operations 93,361 119,130 112,906
Interest expense 14,980 2,142 2,356
-------- ------- -------
Income before income tax expense and
equity in earnings of unconsolidated
subsidiary 78,381 116,988 110,550
Income tax expense (note 6) 22,022 43,859 41,202
------- ------- -------
Income before equity in earnings of
unconsolidated subsidiary 56,359 73,129 69,348
Equity in earnings of unconsolidated
subsidiary 1,700 1,044 -
------- ------- -------
Net income $58,059 $74,173 $69,348
======= ======= =======
Earnings per common share: (note 15)
Basic $2.47 $3.20 $2.99
==== ==== ====
Diluted $2.46 $3.20 $2.99
==== ==== ====
Weighted average common shares outstanding:
Basic 23,536,666 23,155,989 23,155,989
========== ========== ==========
Diluted 23,572,259 23,155,989 23,155,989
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
<TABLE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996, and 1995
(In thousands)
Unrealized
appreciation
(depreciation) of
available Total
Common Stock Additional for-sale stock-
------------- Paid in securities Retained holders'
Class A Class B Capital (Note 2) earnings equity
------- -------- -------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ - $- - $15,320 $403,003 $418,323
Net income - - - 69,348 69,348
Net unrealized appreciation - - - 93,394 - 93,394
Dividend to American
Mutual Holding Company
(note 8) - - - - (41,156) (41,156)
---- ---- ---- -------- -------- --------
Balance at December 31, 1995 - - - 108,714 431,195 539,909
Net income - - - - 74,173 74,173
Net unrealized depreciation - - - (73,414) - (73,414)
Dividend to American
Mutual Holding Company
(note 8) - - - - (4,158) (4,158)
Capital Contributions to
Affiliates (note 8) - - - - (79,000) (79,000)
Issuance of common stock 14,500 5,000 - (19,500) -
------ ------ ------- ------ ------- --------
Balance at December 31, 1996 14,500 5,000 - 35,300 402,710 457,510
Net income - - 58,059 58,059
Net unrealized appreciation - 20,447 - 20,447
Issuance of common stock 15,235 - 383,686 - - 398,921
Dividends declared on
common stock - - - - (6,946) (6,946)
------- ------ -------- ------- -------- --------
Balance at December 31, 1997 $29,735 $5,000 $383,686 $55,747 $453,823 $927,991
======= ====== ======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $58,059 $74,173 $69,348
Adjustments to reconcile net income to
net cash provided by operating
activities:
Policyowner assessments on universal
life and annuity products (43,441) (49,347) (57,370)
Interest credited to policyowner
account balances 127,066 109,457 123,360
Realized investment gains (13,791) (65,983) (51,387)
Change in:
Accrued investment income (351) 8,033 1,485
Reinsurance ceded receivables (1,548) (6,708) (223)
Deferred policy acquisition costs (30,366) (12,235) (7,491)
Liabilities for future policy benefits (21,448) 16,504 94,856
Policy and contract claims and other
policyowner funds (2,727) (9,578) 6,814
Income taxes:
Current (1,552) 6,422 3,298
Deferred 2,156 (7,181) (3,105)
Other, net 16,363 15,127 9,538
Change in Closed Block assets
and liabilities, net 135,970 68,870 -
------- ------- --------
Net cash provided by operating activities 224,390 147,554 189,123
------- ------ -------
Cash flows from investing activities:
Purchase of fixed maturities
available for sale (1,473,579)(1,423,268)(887,971)
Maturities, calls, and principal
reductions of fixed maturities
available for sale 1,361,312 1,362,115 595,879
Purchase of equity securities (53,850) (280,215) (117,345)
Proceeds from sale of equity securities 67,794 363,358 178,115
Proceeds from repayment and sale
of mortgage loans 171,082 119,061 112,484
Purchase of mortgage loans (137,222) (46,532) (37,328)
Purchase of real estate and other
invested assets (22,524) (59,119) (28,490)
Proceeds from sale of real estate and
other invested assets - 26,023 31,484
Change in policy loans, net (9,625) (6,630) (10,532)
Tax on capital gains (4,550) (22,255) (16,524)
Other assets, net 89,109 (73,735) 44,855
Acquisitions, net of cash acquired (153,798) - -
Change in Closed Block
investments, net (103,401) (69,550) -
Initial establishment of the
Closed Block - (22,925) -
--------- --------- --------
Net cash used in investing activities (269,252) (133,672) (135,373)
--------- --------- --------
Cash flows from financing activities:
Deposits to policyowner account balances 122,531 156,420 272,431
Withdrawals from policyowner account
balances (233,537) (293,521) (302,291)
Change in debt, net 78,054 160,642 (1,496)
Dividends to American Mutual
Holding Company - (4,158) (41,156)
Dividend to shareholders (6,946) - -
Issuance of company-obligated mandatory
redeemable capital securities 86,000 - -
Net proceeds from initial public stock
offering 55,027 - -
Capital contribution to affiliates - (36,071) -
-------- -------- -------
Net cash provided by (used in)
financing activities 101,129 (16,688) (72,512)
-------- -------- -------
Net (decrease) increase in cash 56,267 (2,806) (18,762)
Cash at beginning of period 1,814 4,620 23,382
-------- -------- -------
Cash at end of period $58,081 $1,814 $4,620
======== ======== =======
Supplemental disclosure of cash activities:
Interest paid $10,420 $2,224 $2,356
======== ======= =======
Income taxes paid $33,030 $45,417 $51,900
======== ======= =======
1997 1996 1995
---- ---- ----
Supplemental disclosure of non-cash
investing and financing activities:
Issuance of Class A and Class B
Common Stock related to the
Reorganization as a
reclassification of retained
earnings $ - $19,500 $ -
========== ======= =========
Details of acquisitions:
Fair value of assets acquired $5,744,191 $ - $ -
Liabilities assumed 5,190,829 - -
---------- ------- ------
Carrying value of acquisitions 553,362 - -
Common stock issued (343,894) - -
Warrants, options and SAR's
rolled over (23,184) - -
Payments made on liabilities
included above 25,800 - -
---------- -------- -------
Cash paid 212,084 - -
Less cash acquired 58,286 - -
---------- -------- -------
Net cash paid for acquisitions $153,798 $ - $ -
========== ======== =======
Capital Contribution to Affiliates:
Net transfer of invested assets:
Fixed maturities $ - $ 3,550 $ -
Real estate - 38,432 -
Mortgage loans - 9,309 -
Equity securities - 802 -
Debt assumed from affiliates - (9,164) -
---------- -------- -------
Total non-cash items contributed - 42,929 -
Cash contributed - 36,071 -
---------- -------- --------
$ - $79,000 $ -
========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Nature of Operations
AmerUs Life Holdings, Inc.'s (the "Company") operations consist primarily
of marketing, underwriting, and distributing life insurance, annuities, and
related products to individuals throughout the United States. The Company's
products are sold through a career general agency system, a personal producing
general agency system and national networks of independent agents. The life
insurance and annuity operation is the Company's only business segment.
Organization and Principles of Consolidation
The Company was formed on August 1, 1996 in conjunction with a plan of
reorganization (the "Reorganization") of the former American Mutual Life
Insurance Company ("American Mutual Life"). Pursuant to this Reorganization
which became effective on June 30, 1996, American Mutual Life was converted to
a mutual insurance holding company structure whereby American Mutual Holding
Company ("AMHC"), a mutual insurance holding company, was formed. Additionally,
American Mutual Life was converted to a stock life insurance company and
renamed AmerUs Life Insurance Company ("AmerUs Life"). All of the initial
shares of capital stock of AmerUs Life were issued to AMHC.
On August 1, 1996, AMHC contributed all of its shares of capital stock of
AmerUs Life to AmerUs Group Co. ("AmerUs Group"). On the same date, the Company
was formed and all of its shares of capital stock were issued to AmerUs Group.
As a result of the Reorganization, AMHC indirectly owned, through AmerUs
Group, 14,500,000 shares of Class A Common Stock and 5,000,000 shares of Class
B Common Stock of the Company. The Class B Common Stock must be held, directly
or indirectly, by AMHC. The Class B Common Stock is generally convertible on a
share-for-share basis for Class A Common Stock. Each share of Class A and
Class B Common Stock entitles its holder to one vote per share; however, the
voting rights of the Class B shares are adjusted to ensure that votes of the
Class B shares together with the votes of Class A shares held by the Class B
shareholders will always have a majority of the votes. AMHC must directly or
indirectly control a majority of the voting shares of the Company. In
addition, as long as the members of AMHC own directly or indirectly more than
50 percent of the voting power of the outstanding voting stock, AMHC is
entitled to equity purchase rights which provide for the Company to notify AMHC
in writing of a proposed sale of voting stock or any options, warrants, or
rights to acquire voting stock. AMHC has the right to purchase the same
proportionate number of shares being offered for sale as AMHC owns of the total
shares at the time of the registration.
In February 1997, AmerUs Group sold 2,793,489 shares of the Company's Class
A common stock to the public and the Company issued 3,655,989 shares of its
Class A common stock in an initial public offering for gross proceeds of $56.7
million.
On December 19, 1997, the Company acquired 100% of the outstanding common
stock of AmVestors Financial Corporation ("AmVestors") in exchange for
11,578,929 shares of the Company's Class A common stock valued at
approximately $350 million. After the transaction, AmerUs Group's ownership of
the Company was reduced to 50.04%.
AmVestors' principal operating subsidiaries are American Investors Life
Insurance Company, Inc. ("American"), a Kansas domiciled life insurance company
licensed in 48 states and the District of Columbia; and Financial Benefit Life
Insurance Company ("FBL"), which AmVestors acquired in April, 1996, a Kansas
domiciled life insurance company doing business in 40 states, the District of
Columbia, and the U.S. Virgin Islands. With the acquisition of AmVestors, the
Company assumed 710,543 currently outstanding warrants to acquire shares of
AmVestors common stock. As a result of the merger of the two companies,
AmVestors shareholders received .6724 shares of AmerUs stock for each share of
AmVestors stock. Applying the foregoing ratio, and upon payment of the
original exercise price of $16.42 per warrant, 704,338 of these warrants may be
exchanged for 473,596 shares of AmerUs stock. The remaining 6,205 warrants may
be exchanged pursuant to the same ratio for 4,171 shares of AmerUs stock upon
the payment of exercise prices between $2.36 and $3.72 per warrant.
On October 23, 1997, the Company acquired all of the outstanding capital
stock of Delta Life Corporation ("Delta") for approximately $165 million in
cash. Delta's principal wholly-owned subsidiary is Delta Life and Annuity
Company ("Delta Life"), an Iowa domiciled life insurance company formed in
1955. Delta Life is licensed in the District of Columbia and in all states
except New York, and specializes in the sale of individual single and flexible
premium deferred annuities through a network of independent agents.
Basis of Presentation
The accompanying consolidated financial statements of the Company and its
wholly-owned subsidiaries have been prepared in conformity with Generally
Accepted Accounting Principles ("GAAP") which, as to the insurance company
subsidiaries, differ from statutory accounting practices prescribed or
permitted by regulatory authorities.
<PAGE>
The accompanying consolidated financial statements include the accounts and
operations, after intercompany eliminations, of the Company and its wholly-owned
subsidiaries, principally, AmerUs Life, AmVestors and Delta.
The preparation of consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Certain balances for 1995 and 1996
have been reclassified to conform to the 1997 presentation format.
Closed Block
The Reorganization contained an arrangement, known as a closed block (the
"Closed Block"), to provide for dividends on policies that were in force
generally on June 30, 1996 and were within the classes of individual policies
for which AmerUs Life had a dividend scale in effect at the time of the
Reorganization. The Closed Block was designed to give reasonable assurance to
owners of affected policies that assets will be available to support such
policies, including maintaining dividend scales in effect at the time of the
Reorganization, if the experience underlying such scales continues. The assets,
including revenue therefrom, allocated to the Closed Block will accrue solely
to the benefit of the owners of policies included in the Closed Block until the
Closed Block is no longer in effect. The Company will not be required to
support the payment of dividends and interest credits on the Closed Block
policies from its general funds, although it could choose to provide such
support. The Company will continue to pay guaranteed benefits under all
policies, including policies included in the Closed Block, in accordance with
their terms.
The financial information of the Closed Block, while prepared on a GAAP
basis, reflects its contractual provisions and not its actual results of
operations and financial position. Many expenses related to the Closed Block
operations are charged to operations outside of the Closed Block; accordingly,
the contribution from the Closed Block does not represent the actual
profitability of the Closed Block operations. Operating costs and expenses
outside of the Closed Block are, therefore, disproportionate to the business
outside of the Closed Block.
Summarized financial information of the Closed Block as of December 31,
1997 and 1996 and for the year ended December 31, 1997 and for the six months
ended December 31, 1996, is as follows (in thousands):
<PAGE>
<TABLE>
December 31,
1997 1996
---- ----
<S> <C> <C>
Assets:
Fixed maturity securities, at fair value
(amortized cost of 1997 - $1,004,976;
1996 - $883,351) $1,053,066 $901,261
Short-term investments, at fair value 660 3,126
Policy loans 168,368 166,827
Other investments 591 -
Cash 21 3
Accrued Investment Income 12,617 10,798
Premiums and fees receivable 3,591 4,998
Deferred policy acquisition costs 143,765 175,235
Other assets 9,169 7,920
---------- ----------
$1,391,848 $1,270,168
========== ==========
Liabilities:
Future life and annuity policy benefits $1,448,725 $1,363,073
Policyowner funds 6,786 7,602
Accrued expenses 5,980 2,969
Dividends payable to policyowners 135,985 132,661
Policy and contract claims 5,966 4,765
Other liabilities 19,990 6,201
---------- ----------
$1,623,432 $1,517,271
========== ==========
Revenues and Expenses:
Insurance premiums $206,145 $108,315
Universal life and annuity product charges 17,465 9,324
Net investment income 113,759 56,329
Realized gains on investments 718 481
Policyowner benefits (209,377) (103,951)
Underwriting, acquisition, and insurance expenses (6,604) (2,969)
Amortization of deferred policy acquisition costs (31,470) (18,412)
Dividends to policyowners (59,591) (29,208)
---------- ----------
Contribution from the Closed Block before
income taxes $31,045 $19,909
========== =========
</TABLE>
Investments
Investments in fixed maturity and equity securities that are to be held for
indefinite periods of time are reported as securities available for sale.
Securities available for sale are reported in the accompanying consolidated
financial statements at fair value. Any valuation changes resulting from
changes in the fair value of these securities are reflected as a component of
stockholders' equity. These unrealized gains or losses in stockholders' equity
are reported net of taxes and adjustments to deferred policy acquisition costs.
Investments in debt securities which were purchased principally for the
purpose of selling such securities in the near term are classified as trading
securities and are carried at market. Unrealized gains (losses) are included
in earnings.
Premiums and discounts on fixed maturity securities are amortized or
accreted over the life of the related security as an adjustment to yield using
the effective interest method. Realized gains and losses are included in
earnings and are determined using the specific identification method. The
carrying value of investments is reduced to its estimated realizable value if a
decline in fair value is considered other than temporary with such reduction
charged to earnings.
Mortgage loans on real estate and other long-term investments are stated at
cost less amortized discounts and allowances for possible losses. Policy loans
are stated at their aggregate unpaid balances. Real estate acquired by
foreclosure is stated at the lower of cost or fair value less estimated costs
to sell.
Investments in real estate and mortgage loans on real estate are considered
impaired when the Company determines that collection of all amounts due under
the contractual terms is doubtful or carrying values exceed the fair value of
underlying collateral. The Company adjusts real estate and mortgage loans on
real estate to their estimated net realizable value at the point at which it
determines an impairment is other than temporary. Interest income on impaired
mortgage loans is recognized when cash is received. In addition, the Company
has established a valuation allowance for mortgage loans on real estate and
other invested assets. Valuation allowances for other than temporary
impairments in value are netted against the asset categories to which they
apply, and additions to valuation allowances are included in total investment
results.
Interest Rate Swaps, Caps, Swaptions and Options
The Company uses interest rate swaps, caps, and swaptions as part of its
overall interest rate risk management strategy for certain life insurance and
annuity products. The book values of the underlying hedged investments or
anticipated investment transactions are amortized over the remaining lives of
the hedged investments as adjustments to investment income. Certain agreements
hedge assets which are carried at fair value; accordingly, such underlying
hedged investments are also carried at fair value. Any unamortized gains or
losses are recognized when the underlying investments are sold.
Interest rate swap contracts are used to convert the interest rate
characteristics (fixed or variable) of certain investments to match those of
the related insurance liabilities that the investments are supporting. The net
interest effect of such swap transactions is reported as an adjustment of
interest income as incurred.
Interest rate caps are used to limit the effects of changing interest rates
on yields of variable rate or short-term assets or liabilities. The initial
cost of any such agreement is amortized to investment income over the life of
the agreement. Periodic payments that are receivable as a result of the
agreements are accrued as an adjustment of investment income.
Swaption agreements are used in conjunction with interest rate caps to
protect against rising rates. Swaption agreements involve the right to enter
into a swap transaction at a pre-specified price. The initial cost of a
swaption agreement is amortized to investment income over the life of the
agreement.
The Company has equity-indexed annuity products that guarantee the return
of principal to the customer and credits interest based on a percentage of the
gain in the S&P 500 Index -Registered Trademark-. A portion of the premium
from each customer is invested in investment grade fixed income securities to
cover the minimum guaranteed value due the customer at the end of the term. A
portion of the premium is used to purchase S&P 500 call options to hedge the
growth in interest credited to the customer as a direct result of increases in
the S&P 500 Index -Registered Trademark-. The call options provide the Company
the opportunity to participate in the increases of the S&P 500 Index -Registered
Trademark- if the market advances.
<PAGE>
Policy Acquisition Costs
Certain commissions, policy issue and underwriting costs, and other
variable costs incurred to acquire or renew traditional life insurance,
universal life insurance, and annuity products have been deferred. The method
of amortizing deferred policy acquisition costs for traditional life insurance
products varies, dependent upon whether the contract is participating or
non-participating. Participating contracts are those which are expected to pay
dividends to policyowners in proportion to their relative contribution to the
Company's surplus. Deferred policy acquisition costs for participating
traditional life insurance are amortized over the life of the policies
generally in proportion to the present value of estimated gross margins.
Non-participating traditional life insurance deferred policy acquisition costs
are amortized over the premium-paying period of the related policies in
proportion to the ratio of annual premium revenues to total anticipated premium
revenues using assumptions consistent with those used in computing policy
benefit reserves. For universal life insurance and annuity products, deferred
policy acquisition costs are amortized generally in proportion to the present
value of estimated gross margins from surrender charges and investment,
mortality, and expense margins. The amortization for participating traditional
life, universal life, and annuity products is adjusted retrospectively when
current or estimated future gross margins on the underlying policies vary from
previous estimates. The deferred policy acquisition cost asset is adjusted for
the impact on estimated gross profits of net unrealized gains and losses on
securities.
Value of Business Acquired
Value of Business Acquired ("VOBA") from insurance companies acquired
represents the portion of the purchase price allocated to the right to receive
future cash flows from insurance contracts existing at the date of the
acquisition. This cost of policies purchased represents the actuarially
determined present value of the projected future cash flows from the acquired
policies.
The expected future cash flows used in determining such value are based on
actuarially determined projections of future premium receipts, mortality,
surrenders, operating expenses, changes in insurance liabilities, investment
yields on the assets retained to support the policy liabilities and other
factors. These projections take into account all factors known or expected at
the valuation date, based on the judgment of management. The actual experience
on purchased business may vary from projections due to differences in renewal
premium, investment spread, investment gains or losses, mortality and morbidity
costs and other factors.
The discount rate used to determine the value of policies purchased is the
rate of return required in order to invest in the business being acquired.
Factors in determining this rate include the cost of capital required to fund
the acquisition; the acquired company's compatibility with other Company
activities that may impact future cash flows; the complexity of the acquired
company; and recent discount rates used by others to determine valuations to
acquire similar blocks of business.
VOBA is amortized based on the incidence of the expected cash flows using
the interest rate credited to the underlying policies. If cash flows differ
from expectations, the amortization of the VOBA is adjusted. Each year, the
recoverability of the VOBA is evaluated and if the evaluation indicates that
the existing insurance liabilities, together with the present value of future
net cash flows from the blocks of business acquired, is insufficient to recover
the VOBA, the difference is charged to expense as an additional write-off of
the VOBA.
Goodwill
Goodwill represents the excess of the amount paid to acquire a company over
the fair value of its net assets. Goodwill is amortized on a straight-line
basis over a thirty year period. The value of goodwill is monitored based on
the estimates of future earnings. If it is determined that future earnings do
not support the recoverability of goodwill, its carrying value is reduced by a
corresponding charge to expense.
Recognition of Revenues
Premiums for traditional life insurance products (including those products
with fixed and guaranteed premiums and benefits and which consist principally
of whole life insurance policies and certain annuities with life contingencies)
are recognized as revenues when due. For limited payment life insurance
policies, premiums are recorded as income when due with any excess profit
deferred and recognized over the expected lives of the contracts. Amounts
received as payments for universal life insurance policies and for annuity
products (including deferred annuities and annuities without life
contingencies) are not recorded as premium revenue. Revenues for such contracts
consist of policy charges for the cost of insurance, policy administration
charges, and surrender charges assessed against policyowner account balances
during the period. All insurance-related revenue is reported net of reinsurance
ceded.
Future Policy Benefits
The liability for future policy benefits for traditional life insurance is
computed using the net level method, utilizing the guaranteed interest and
mortality rates used in calculating cash surrender values as described in the
contracts. Reserve interest assumptions range from 2.00 percent to 7.25
percent. The weighted average assumed interest rate for all traditional life
policy reserves was 4.27 percent in 1997, 4.23 percent in 1996 and 4.20 percent
in 1995. Policy benefit claims are charged to expense in the period that the
claims are incurred. All insurance-related benefits, losses, and expenses are
reported net of reinsurance ceded.
Future policy benefit reserves for universal life insurance and annuity
products are computed under a retrospective deposit method and represent policy
account balances before applicable surrender charges. Policy benefits and
claims that are charged to expense include benefit claims incurred in the
period in excess of related policy account balances. The weighted average
interest crediting rates for universal life products were 6.23 percent in 1997,
6.27 percent in 1996 and 6.46 percent in 1995. The range of interest crediting
rates for annuity products excluding bonus interest payouts, were 4.50 to 6.70
percent in 1997, 4.50 to 6.15 percent in 1996 and 4.75 to 8.00 percent in 1995.
Participating Policies
Participating policies entitle the policyowners to receive dividends based
on actual interest, mortality, morbidity, and expense experience for the
related policies. These dividends are distributed to the policyowners through
an annual dividend using current dividend scales which are approved by the
board of directors. Nearly 100 percent of traditional life policies are
currently paying dividends and traditional life policies represent
approximately 59 percent of the Company's individual life policies in force.
Property and Equipment
Property and equipment is recorded at cost and is depreciated principally
under the straight-line method.
Stock-Based Compensation
SFAS 123, "Accounting for Stock-Based Compensation," requires increased
disclosure of compensation expense arising from stock compensation plans. SFAS
123 encourages rather than requires companies to adopt a new method of
accounting for stock compensation awards based on their estimated fair value at
the date they are granted. Companies are permitted to continue accounting under
APB Opinion 25 which requires compensation cost be recognized based on the
difference, if any, between the quoted market price of the stock on the date of
grant and the amount an employee must pay to acquire the stock. The Company
has elected to continue to apply APB Opinion 25 in its consolidated financial
statements and has disclosed pro forma net income and earnings per share
information.
Guaranty Fund Assessments
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyowners and claimants in the event of insolvency of
other life insurance companies. As of December 31, 1997, the Company has
accrued for the gross amount of guaranty fund assessments for known
insolvencies net of estimated recoveries of premium tax offsets.
Benefit Plan Costs
The Company recognizes pension costs for its defined benefit plans in
accordance with SFAS 87, "Employers' Accounting for Pensions." Pension costs
are funded according to regulations provided under the Internal Revenue Code.
Postretirement Benefits Other than Pensions
Under SFAS 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," the cost of postretirement benefits must be recognized on an
accrual basis as employees perform services to earn the benefits.
Income Taxes
The Company and its subsidiaries, with the exception of American Vanguard
Life, filed a consolidated federal income tax return with the non-life
insurance subsidiaries of AMHC through February 3, 1997. For the short tax
year beginning February 4, 1997 the Company and its subsidiaries, with the
exception of AmerUs Life and American Vanguard Life Insurance Company (which
file a consolidated life insurance federal income tax return), Delta, American
and FBL (which file separate federal income tax returns), file a consolidated
federal income tax return. The separate return method is used to compute the
Company's provision for federal income taxes. Deferred income tax assets and
liabilities are determined based on differences among the financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws.
Earnings Per Share
The Company adopted the provisions of SFAS 128, "Earnings per Share", which
had no effect on the Company's previously reported earnings per share
information for 1996 and 1995. Basic earnings per share of common stock are
computed by dividing net income by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share assumes the issuance
of common shares applicable to stock options and warrants calculated using the
treasury stock method.
Emerging Accounting Matters
SFAS 130
In June 1997, the FASB issued Statement 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and display of
comprehensive income and its components: revenues, expenses, gains, and
losses. All items that are required to be recognized under accounting
standards as components of comprehensive income, consisting of changes in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources, are to be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 is effective for financial statements beginning
after December 15, 1997. The provisions of SFAS 130 are of a reporting nature
and are not expected to have an impact on the financial position or results of
operations of the Company.
SFAS 131
In June 1997, the FASB issued Statement 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 establishes standards for the
way that public businesses report information about operating segments in
financial statements. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and
assess performance. Generally, financial information is required to be
reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997. The provisions of SFAS 131 are of a reporting nature and are not
expected to have an impact on the financial position or results of operations
of the Company, as the life insurance and annuity operation is the Company's
only business segment.
SFAS 132
In February 1998, the FASB issued Statement 132, "Employer's Disclosure
about Pensions and Other Postretirement Benefits". SFAS 132 standardizes an
employer's disclosures about pension and other postretirement benefit plans,
requires additional information on the benefit obligations and fair values of
plan assets and on changes in the benefit obligations and fair values of plan
assets and eliminates certain disclosures. SFAS 132 is effective for financial
statements for periods beginning after December 15, 1997. The provisions of
SFAS 132 are of a reporting nature and are not expected to have an impact on
the financial position or results of operations of the Company.
SOP 97-3
In December 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 97-3, "Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments." This statement provides
guidance on when an insurance or other enterprise should recognize a liability
for guaranty fund and other assessments and on how to measure such liability.
SOP 97-3 is effective for fiscal years beginning after December 15, 1998;
however, its adoption will not have a material impact on the financial position
or results of operations as the Company currently estimates assessment
liabilities when a determination of an insolvency has occurred.
Business Risks
The Company operates in a business environment which is subject to various
risks and uncertainties. Such risks and uncertainties include interest rate
risk, legal and regulatory changes, and default risk.
Interest rate risk is the potential for interest rates to change, which can
cause fluctuations in the value of investments. To the extent that fluctuations
in interest rates cause the duration of assets and liabilities to differ, the
Company may have to sell assets prior to their maturity and realize losses.
Interest rate exposure for the investment portfolio is managed through
asset/liability management techniques which attempt to match the duration of
the assets with the estimated duration of the liabilities. The Company also
utilizes derivative investment contracts to manage interest rate risk.
The potential also exists for changes in the legal or regulatory
environment in which the Company operates, which can create additional costs
and expenses not anticipated by the Company in pricing its products. In other
words, regulatory initiatives or new legal theories may create costs for the
Company beyond those recorded in the financial statements. The Company
mitigates this risk by operating in a geographically diverse area, which
reduces its exposure to any single jurisdiction, closely monitoring the
regulatory environment to anticipate changes, and by using underwriting
practices which identify and minimize the potential adverse impact of this
risk.
Default risk is the risk that issuers of securities owned by the Company
may default or that other parties, including reinsurers, may not be able to pay
amounts due the Company. The Company minimizes this risk by adhering to a
conservative investment strategy, holding a well diversified portfolio of
assets to minimize concentrations, maintaining sound reinsurance and credit and
collection policies, and providing allowances or reserves for any amounts
deemed uncollectible.
(2) Investments
The Company's investments at December 31, 1997 and 1996 are classified as
available-for-sale securities and trading securities and are summarized as
follows:
<PAGE>
<TABLE>
Gross Gross
Amortized UnrealizedUnrealized Fair
Cost Gains Losses Value
--------- ------------------- -----
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities
available-for-sale
at December 31, 1997:
Corporate bonds $3,513,858 $85,494 $2,347 $3,597,005
U.S. government bonds 49,058 555 11 49,602
State and political subdivisions 9,563 65 5 9,623
Foreign government bonds 68,592 4,048 1,469 71,171
Mortgage-backed bonds 3,002,523 33,897 1,669 3,034,751
Redeemable preferred stock 87,233 2,042 - 89,275
---------- -------- ------ ----------
Fixed maturities available for sale $6,730,827 $126,101 $5,501 $6,851,427
Fixed maturity securities held for
trading purposes:
Corporate bonds 22,799 - - 22,799
Redeemable preferred stock 156 - - 156
---------- -------- ------ ---------
Fixed maturities held for trading
purposes 22,955 - - 22,955
---------- -------- ------ ---------
Total fixed maturities $6,753,782 $126,101 $5,501 $6,874,382
========== ======== ====== ==========
Equity securities-available for sale $60,262 $1,218 $ - $61,480
======= ====== ====== =======
Short-term investments-available
for sale $12,595 $ - $ - $12,595
======= ====== ====== =======
</TABLE
</TABLE>
<TABLE>
Gross Gross
Amortized unrealized unrealized Fair
Cost gains losses value
-------- -------- --------- -------
(In thousands)
<S> <C> <C> <C> <C>
Available-for-sale securities at December 31, 1996:
Fixed maturity securities:
Corporate bonds $1,391,421 $60,164 $4,915 $1,446,670
U.S. government bonds 41,270 222 109 41,383
Foreign government bonds 20,114 1,638 78 21,674
Mortgage-backed bonds 819,264 22,751 2,054 839,961
Redeemable preferred stock 63,806 1,418 105 65,119
---------- ------- ------ ----------
$2,335,875 $86,193 $7,261 $2,414,807
========== ======= ====== ==========
Equity securities $60,247 $3,832 $46 $64,033
========== ======= ====== ==========
Short-term investments $13,288 $ - $ - $13,288
========== ======= ====== ==========
</TABLE>
The amortized cost and estimated fair value of investments in fixed
maturity securities at December 31, 1997, are summarized by stated maturity as
follows:
<TABLE>
Amortized Fair
Cost Value
---------- ---------
(In thousands)
<S> <C> <C>
Fixed maturity available for sale:
Due in 1998 $ 64,992 $ 65,305
Due in 1999 - 2003 1,337,084 1,358,847
Due in 2004 - 2008 1,495,019 1,526,514
Due after 2008 831,209 866,010
Mortgage-backed securities 3,002,523 3,034,751
---------- ----------
$6,730,827 $6,851,427
---------- ----------
<PAGE>
Fixed maturity trading:
Due in 1998 $ - $ -
Due in 1999 - 2003 1,455 1,455
Due in 2004 - 2008 18,500 18,500
Due after 2008 3,000 3,000
Mortgage-backed securities - -
----------- -----------
22,955 22,955
---------- ----------
Total $6,753,782 $6,874,382
========== ==========
</TABLE>
The foregoing data is based on the stated maturities of the securities.
Actual maturities will differ for some securities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
The ratings of the Company's fixed maturity securities at December 31,
1997, using Standard & Poor's rating service, are summarized as follows (in
thousands):
<TABLE>
<S> <C>
Treasuries and AAA $3,792,038
AA 983,380
A 921,431
BBB 964,924
BB 130,603
Less than BB 82,006
----------
$6,874,382
==========
</TABLE>
Major categories of investment income are summarized as follows:
<PAGE>
<TABLE>
Years ended December 31,
---------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $178,429 $195,073 $231,208
Equity securities 9,122 2,993 6,311
Mortgage loans on real estate 30,373 26,254 33,738
Real estate 1,048 6,891 9,729
Policy loans 5,215 9,426 14,043
Other 10,036 600 5,211
-------- -------- --------
Gross investment income 234,223 241,237 300,240
Investment expenses 9,792 12,612 14,996
-------- -------- --------
Net investment income $224,431 $228,625 $285,244
======== ======== ========
</TABLE>
Investment expenses include depreciation on real estate of $0.3 million,
$2.0 million and $2.9 million in the years ended December 31, 1997, 1996 and
1995, respectively.
The foregoing summarization does not include investment income attributable
to Closed Block investments of $113.8 million and $56.3 million for the year
ended December 31, 1997 and the six months ended December 31, 1996,
respectively.
Realized gains and losses on investments and provisions for losses are
summarized as follows:
<PAGE>
<TABLE>
Years ended December 31,
--------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities:
Gross realized gains $15,862 $21,088 $18,652
Gross realized losses (9,335) (13,331) (9,240)
Equity securities:
Gross realized gains 3,670 55,646 45,419
Gross realized losses (57) (451) (3,634)
Other investments 2,796 (998) 812
Net provision for (losses)recoveries-
mortgage loans on real estate 855 4,029 (622)
------- ------- -------
$13,791 $65,983 $51,387
======= ======= =======
</TABLE>
The unrealized appreciation on invested assets available-for-sale is
reported as a separate component of stockholders' equity, reduced by
adjustments to deferred acquisition costs and a provision for deferred income
taxes.
A summary of the components of the net unrealized appreciation on invested
assets carried at fair value is as follows:
<TABLE>
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Unrealized appreciation:
Fixed maturity securities $119,507 $78,932 $190,847
Equity securities 1,218 3,786 56,806
Short-term investments - - 77
Other investments 304 3,263 6,335
Closed Block investments 48,090 18,002 -
Deferred policy acquisition costs (83,426) (51,476) (88,039)
Deferred income taxes (29,946) (17,207) (57,312)
------- -------- ---------
$55,747 $35,300 $108,714
======= ======== ========
</TABLE>
The change in unrealized appreciation on fixed maturity securities was $41
million, ($112) million and $288 million for the years ended December 31, 1997,
1996 and 1995, respectively; the corresponding amounts for equity securities
were ($3) million, ($53) million and ($9) million, respectively.
At December 31, 1997, investments in fixed maturity securities with a
carrying amount of $4.0 million were on deposit with state insurance
departments to satisfy regulatory requirements.
No investment in any person or its affiliates exceeded 10 percent of
stockholders' equity at December 31, 1997.
(3) Mortgage Loans on Real Estate
Mortgage loans on real estate consist almost entirely of commercial
mortgage loan investments, substantially all of which are made on a full
recourse basis and consist primarily of fixed-rate first mortgages on completed
properties. The following table sets forth additions, reductions from payments,
and other charges and foreclosures related to the mortgage loan portfolio:
<TABLE> December 31,
-------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Commercial loans:
Beginning balance $234,002 $379,414 $504,034
Additions 18,618 21,760 39,933
Payments and miscellaneous charges (72,152) (113,764) (146,496)
Sales - (47,234) -
Foreclosed properties - (6,174) (18,057)
Acquisition of Delta 270,599 - -
Acquisition of AmVestors 9,524 - -
-------- -------- -------
Ending balance 460,591 234,002 379,414
Residential and other mortgage loans 17,166 3,363 4,250
Valuation allowance (15,284) (11,622) (30,067)
-------- -------- -------
Total mortgage loans $462,473 $225,743 $353,597
======== ======== ========
</TABLE>
The Company manages its credit risk associated with these loans by
diversifying its mortgage portfolio by property type and geographic location
and by seeking favorable loan to value ratios on secured properties. The
portfolio credit risk for mortgage loans was concentrated in the following
geographic regions:
<TABLE>
December 31,
-----------------------------------
1997 1996
Number Amount Number Amount
------ ------ ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial:
California 16 $27,995 20 $39,824
Colorado 8 11,520 8 11,937
Florida 61 95,498 4 15,375
Iowa 47 57,621 48 66,808
Kansas 9 11,480 11 20,934
Michigan 31 28,090 2 809
Tennessee 56 32,127 - -
Texas 82 75,429 6 21,521
Other 125 120,831 44 56,794
Residential 129 17,166 69 3,363
Valuation allowance (15,284) (11,622)
--- -------- --- --------
564 $462,473 212 $225,743
=== ======== === ========
</TABLE>
At December 31, 1997, the Company's investment in mortgage loans included
$22.4 million in loans that are considered to be impaired, for which the
related allowance for credit losses is $2.4 million. The average recorded
investment in impaired loans during the year ended December 31, 1997, was $23.7
million. For the year ended December 31, 1997, the Company recorded $2.1
million in interest income on those impaired loans.
No mortgage loan on any one individual property exceeded $13 million at
December 31, 1997.
Provisions for losses are summarized as follows:
<TABLE>
Years ended December 31,
---------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $11,622 $30,067 $65,549
Provisions for losses - mortgage loans (856) (4,029) 622
Provision on mortgages sold/transferred
to real estate (50) (14,416) (36,104)
------ ------- -------
Net decrease for year (906) (18,445) (35,482)
Provision for mortgages acquired 4,568 - -
------ ------- -------
Balance at end of year $15,284 $11,622 $30,067
======= ======= =======
</TABLE>
(4) Deferred Policy Acquisition Costs
A summary of the policy acquisition costs deferred and amortized are as
follows:
<TABLE>
Years ended December 31,
-------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $171,957 $355,750 $348,259
Deferred policy acquisition costs
associated with Closed Block
policies at formation of
Closed Block - (193,647) -
Policy acquisition costs deferred 51,352 50,014 57,730
Policy acquisition costs amortized (20,987) (40,160) (50,239)
------- -------- --------
202,322 171,957 355,750
Unrealized gain on
available-for-sale securities (83,426) (51,476) (88,039)
------- ------- --------
Balance at end of year $118,896 $120,481 $267,711
======== ========= =========
</TABLE>
The components of the deferred policy acquisition costs are as follows:
<TABLE>
December 31,
-------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Universal life insurance and
annuity products $157,455 $156,578 $203,949
Participating traditional life insurance 36,006 13,419 131,602
Non-participating traditional life insurance 8,861 1,960 20,199
------ ------ -------
$202,322 $171,957 $355,750
Unrealized gain on
available-for-sale securities (83,426) (51,476) (88,039)
------- -------- --------
$118,896 $120,481 $267,711
======== ======== ========
</TABLE>
Commissions represent approximately 84 percent of deferred policy acquisition
costs.
(5) Debt and Capital Securities
Debt consists of the following:
<PAGE>
<TABLE>
December 31,
--------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Federal Home Loan Bank community investment
long-term advances with a weighted average
interest rate of 6.35% at December 31, 1997
maturing at various dates through July 2010 (A) $16,435 $13,381
Revolving credit agreement bearing
interest at 6.6%(B) 250,000 -
Bank Credit Facility:(C)
Term loan - 100,000
Revolving credit loan - 75,000
-------- --------
$266,435 $188,381
======== ========
(A) The Company has multiple credit arrangements with the Federal Home Loan
Bank (FHLB). In addition to the long-term advances disclosed above, the
Company has a $25 million open secured line of credit and periodically,
the Company borrows amounts under repurchase agreements, of which no
amount was outstanding under either type of facility at December 31, 1997.
The carrying value of the securities pledged to the FHLB under all
agreements was $17.4 million at December 31, 1997.
(B) The revolving credit agreement provides for a maximum borrowing of $250
million with the balance maturing in October 2002. The interest rate is
variable, however, the Company may elect to fix the rate for periods from
30 days to six months. The loan agreement contains various financial and
operating covenants which, among other things, limit future indebtedness
and restrict the amount of future dividend payments. In addition, the
Company has pledged 49.9% of the stock of AmerUs Life, the stock of Delta
and a $50 million note payable to the Company by AmerUs Life.<PAGE>
(C) The bank credit facility was retired in 1997.
</TABLE>
Maturities of long-term debt are as follows for each of the five years
ending December 31:
<TABLE>
(In thousands)
-------------
<S> <C>
Year ending December 31:
1998 $ 384
1999 410
2000 437
2001 467
2002 250,498
Thereafter 14,239
--------
$266,435
========
</TABLE>
On February 3, 1997, the Company issued $86,000,000 of 8.85% Capital
Securities, Series A, through a wholly-owned subsidiary trust. The sole asset
of the trust is the junior subordinated debentures of the Company in the
principal amount of $88.66 million with interest at 8.85% maturing February 1,
2027. The Company has fully and unconditionally guaranteed the obligation of
the trust under the Capital Securities and is obligated to mandatorily redeem
the securities on February 1, 2027. The Company may prepay the securities at
anytime after February 1, 2007.
Interest expense on the debt and capital securities totaled $14.9 million,
$2.1 million and $2.4 million in the years ended December 31, 1997, 1996 and
1995, respectively.
(6) Income Taxes
Comprehensive federal income tax expense is summarized as follows:
<PAGE>
<TABLE>
Years ended December 31,
---------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income tax expense on:
Operations $22,022 $43,859 $41,202
Unrealized holding gains (losses) on
available-for-sale securities 12,739 (40,105) 50,246
------- ------- -------
$34,761 $3,754 $91,448
======= ======= =======
</TABLE>
The effective income tax rate on pre-tax income is higher than the
prevailing corporate federal income tax rate and is summarized as follows:
<TABLE>
Years ended December 31,
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Corporate federal income tax rate 35.00% 35.00% 35.00%
Differential earnings amount - 3.78 -
Tax-exempt investment income (.54) (.20) (.24)
Acquisitions costs and reorganization expenses .22 .30 .48
Goodwill amortization .39 .06 -
Net benefit of tax credits (7.88) (2.39) -
Other items, net .32 .61 2.03
----- ----- -----
Effective tax rate 27.51% 37.16% 37.27%
===== ===== =====
</TABLE>
The differential earnings amount is an equity add-on tax which mutual life
insurance companies are required to pay. The amount is determined annually and
is calculated by comparing the earnings rate of mutual life insurance companies
and certain stock life insurance companies. In 1995, the calculation resulted
in a negative adjustment with no additional tax amount to be paid. The Company
believes this tax is not applicable to the Company after June 30, 1996, due to
AmerUs Life's conversion to a stock life insurance company.
The Company's federal income tax expense (benefit) is summarized as
follows:
<TABLE>
Years ended December 31,
--------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current $19,866 $51,849 $44,307
Deferred 2,156 (7,990) (3,105)
------- ------- -------
Total federal income tax expense $22,022 $43,859 $41,202
======= ======= =======
</TABLE>
The significant components of net deferred income tax liabilities are
summarized as follows:
<TABLE>
December 31,
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Deferred income tax assets:
Policy reserves and policyholder funds $240,245 $99,137
Policy acquisition costs capitalized for tax 39,899 29,771
Deferred policy acquisition costs related to
unrealized appreciation 29,199 18,017
Deferred compensation 14,670 12,928
Other 34,348 18,651
-------- -------
Total gross deferred income tax asset 358,361 178,504
-------- ---------
Deferred income tax liabilities:
Deferred policy acquisition costs (120,536) (120,585)
Net unrealized appreciation on available-for-sale
securities (58,811) (36,394)
Net unrealized investment appreciation from
acquisitions (38,421) -
Reinsurance receivable (41,738) (14,686)
Value of business acquired (93,105) -
Other (22,664) (8,176)
------- --------
Total gross deferred tax liability (375,275) (179,841)
------- --------
Net deferred income tax liability $(16,914) $(1,337)
======= ========
</TABLE>
The Company is required to establish a "valuation allowance" for any
portion of the deferred tax asset that management believes will not be
realized. In the opinion of management, it is more likely than not that it
will realize the benefit of the deferred tax assets, and, therefore, no such
valuation allowance has been established.
Federal Income tax returns for the Company for years through 1989
are closed to further assessment of taxes. The Internal Revenue Service is
examining federal income tax returns of the Company for 1990 through 1994.
Management believes adequate provisions have been made for any additional taxes
which may become due with respect to open years.
Income taxes paid by the Company totaled $42.8 million, $45.4
million and $51.9 million in the years ended December 31, 1997, 1996 and 1995,
respectively.
(7) Employee Benefit Plans
Defined Benefit Plans
The Company has defined benefit pension plans which covered substantially
all of the Company's employees, as well as employees of certain other
subsidiary companies of AMHC. The plans provided for benefits based upon years
of service and the employee's compensation. The Company froze the defined
benefit pension plans effective December 31, 1995, and has recognized its
portion of a curtailment gain amounting to $6.2 million, or $3.1 million after
federal excise taxes. Effective January 1, 1996, the defined benefit pension
plans were replaced by a defined contribution savings and retirement plan which
also replaced the Company's defined contribution pension plans. The Company has
recorded a prepaid pension asset of $6,901,000 and $6,757,000 at December 31,
1997 and 1996, respectively. The Company's portion of net pension (benefit)
cost was ($951,000), ($954,000), and $696,000 for 1997, 1996 and 1995,
respectively. The Company had settlements under the defined benefit plan and
recognized a loss under SFAS 88 of approximately $796,000 in 1997.
<PAGE>
Defined Contribution Pension Plans
The Company had three defined contribution 401(k) plans which covered
substantially all employees. The Company's total contribution under the plans
amounted to $0.4 million in the year ended December 31, 1995. Effective
January 1, 1996, the defined contribution 401(k) plans together with the
defined benefit pension plans were replaced by a single defined contribution
savings and retirement plan to which total contributions from the Company
amounted to $3.7 million and $2.4 million in 1997 and 1996, respectively.
Nonqualified Pension Plan
The Company has a nonqualified pension plan covering substantially all of
AmerUs Life's career and general agents. Accumulated benefits of the plan are
unfunded and have been included in other liabilities at December 31, 1997, and
December 31, 1996, amounting to $16.7 million, and $13.9 million, respectively.
Postretirement Plans
The Company has postretirement benefit plans which provide certain eligible
participants and dependents with certain medical, dental, and life insurance
benefits. The Company's plan for medical and life insurance benefits is
combined with that of the subsidiaries of AMHC. The Company has accrued its
share of the postretirement benefit cost amounting to $7,532,000 and $7,140,000
as an other liability at December 31, 1997 and 1996, respectively. The
Company's portion of net periodic postretirement benefit expense was $392,000
in 1997 and $612,000 in 1996, respectively. As of January 1, 1996 the plan was
changed to provide a fixed monthly benefit for medical benefits; accordingly,
information for the health care cost trend rate is not applicable.
Leveraged Employee Stock Ownership Plan
The Company has a Leveraged Employee Stock Ownership Plan ("LESOP") which
was sponsored by AmVestors for all full-time employees with one year of
service. The LESOP acquired AmVestors stock, which was subsequently exchanged
for the Company's stock, through the proceeds of a note payable to American.
The note bears interest at 7.0% and is payable in annual installments through
December 30, 2002. The note had an unpaid principal balance of $2,290,693 at
December 31, 1997. The LESOP held 123,909 unallocated shares of the Company's
Class A Common Stock at December 31, 1997.<PAGE>
(8) Related Party Transactions
The Company made a capital contribution of $79 million to the non-life
insurance subsidiaries which were then distributed to AmerUs Group in 1996.
The following summarizes transactions of the Company with affiliates:
<TABLE>
Years ended December 31,
--------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Dividend to AmerUs Group $5,012 $4,158 $41,156
Management, administrative, data processing,
rent and other services fee
income from affiliates 10,983 7,640 10,423
Commissions paid to affiliates for the sale of
insurance products 1,833 521 1,259
Interest income from financings of affiliates 5,300 6,794 6,000
Investments in bonds and accrued
interest of affiliates - 7,648 12,868
Contribution of joint venture interests
and sale of partnership interests to
partnerships in which an affiliate has
an interest 10,979 1,638 10,957
Purchase of limited partnership interest
in which an affiliate has an interest - 2,160 -
Investments in partnerships and joint
ventures in which an affiliate has an
interest 11,987 18,557 9,625
Purchase of investments backed by the assets
of a trust which acquired loans from an
affiliate - 46,755 -
Investments in mortgage loans from
affiliated companies and joint ventures 46,004 62,372 63,977
Payable to an affiliate for
purchase of commercial mortgage loans at
December 31 - - 6,520
Transfer of partnership interests in
certain joint ventures to an affiliate - 1,697
Purchase of mortgage loans from affiliates 111,361 - -
Real estate management and mortgage
servicing fees charged by an affiliate 2,840 2,528 2,555
</TABLE>
(9) Reinsurance
At December 31, 1997, the Company's maximum retention limit for acceptance
of risk on life insurance was $1 million. The Company has indemnity reinsurance
agreements with various companies whereby insurance in excess of its retention
limits are reinsured. Insurance in-force ceded to nonaffiliated companies under
risk sharing arrangements at December 31, 1997, 1996 and 1995, totaled
approximately $4,102 million, $4,170 million and $2,917 million, respectively.
Total life premiums ceded amounted to $16.4 million, $14.8 million and
$14.2 million for the years ended December 31, 1997, 1996, and 1995,
respectively. Total life premiums assumed amounted to $1.4 million,
$1.5 million and $4.9 million, for the years ended December 31, 1997, 1996 and
1995, respectively.
At December 31, 1997, Delta Life reinsured 50% of its equity index annuity
reserves amounting to $76.9 million with an unaffiliated reinsurer.
The Company is contingently liable for the portion of the policies
reinsured under each of its existing reinsurance agreements in the event the
reinsurance companies are unable to pay their portion of any reinsured claim.
Management believes that any liability from this contingency is unlikely.
However, to limit the possibility of such losses, the Company evaluates the
financial condition of its reinsurers and monitors concentration of credit
risk.
(10) Commitments and Contingencies
The Company has agreed to make loans up to $3.5 million to newly formed
partnerships.
The Company has entered into agreements with various partnerships in which
a subsidiary of AMHC has an interest. Pursuant to these agreements the Company
is obligated to make future capital contributions to the partnerships of up to
$3,700,000.
At December 31, 1997, Delta has outstanding two commitments for
conventional mortgage loans. These commitments totaled $2,460,000 at rates of
8.1% to 8.5%. The Company also had commitments to purchase $11,033,769 of
securities at rates of 6.68% to 6.82%.
The Company is party to financial instruments in the normal course of
business to meet the financing needs of its customers having risk exposure not
reflected in the balance sheet. These financial instruments include commitments
to extend credit and standby letters of credit. Commitments to extend credit
are agreements to lend to customers. Commitments generally have fixed
expiration dates and may require payment of a fee. Since many commitments
expire without being drawn upon, the total amount of commitments does not
necessarily represent future cash requirements. At December 31, 1997,
outstanding commitments to extend credit totaled approximately $3.5 million.
AmerUs Life is a defendant in a class action lawsuit, Bhat V. Amerus Life
Insurance Company, which was filed in December 1996 in the United States
District Court for the Northern District of California. The complaint alleges
that AmerUs Life breached the terms of certain life and annuity policies,
breached certain other duties owed to policyowners and violated RICO, when it
allegedly passed an increase in its corporate income taxes (known as the
deferred acquisition costs, or DAC, tax) through to owners of those policies.
The plaintiff, an insured under a universal life policy issued by Central Life
(the predecessor of AmerUs Life), seeks unspecified actual and punitive damages
and injunctive relief on behalf of himself and all policyowners of AmerUs Life
with universal life, term and "blended" life insurance policies and annuities.
AmerUs Life denies the allegations contained in the complaint, including the
existence of a legitimate class. The litigation is in the discovery stage and
is being vigorously defended by AmerUs Life. A hearing on certification of the
class has not yet been scheduled. An earlier companion case filed in the same
court in June 1996 was dismissed in October 1997.
Despite the Company's vigorous defense of this class action lawsuit and its
denial of any wrongdoing, there can be no assurance that the outcome of this
type of lawsuit will not have a material adverse effect on the Company's
results of operations.
AmerUs Life settled a class action lawsuit which was filed in 1995 in the
District Court for Travis County, Texas. The complaint alleged that sales
presentations and policy illustrations misrepresented that premiums would
"vanish" after a stated number of years, without adequate disclosure of the
effect of changes in the policy dividends. Although AmerUs Life denied the
allegations contained in such complaint and denied any wrongdoing in connection
with such allegations, AmerUs Life and the plaintiffs entered into a nationwide
settlement of certain market conduct issues for a substantial block of AmerUs
Life's policies. On September 16, 1997, the court entered an order approving
the certification of the class and the fairness of the settlement. The
settlement is currently being implemented.
The eventual costs of any settlement cannot be precisely determined at this
time, but the Company believes that the costs will be within the initially
estimated range of loss of between five and eight million dollars. The Company
has a reserve of five million dollars for settlement of the case.
In the ordinary course of business, the Company and its subsidiaries are
also engaged in certain other litigation, none of which management believes is
material to the Company's results of operations.
(11) Stockholders' Equity
Generally, the stockholders' equity of the Company's insurance subsidiaries
available for distribution to the Company is limited to the amounts that the
insurance subsidiaries' net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements; however,
payments of such amounts as dividends may be subject to approval by regulatory
authorities. In 1998, the Company's insurance subsidiaries could distribute
approximately $80 million in the form of dividends to the Company without prior
approval of such regulatory authorities.
Stock Option Plans
The Company has adopted a stock incentive plan authorizing the issuance of
incentive and non-qualified stock options to employees and officers of the
Company. The option price per share may not be less than the fair value of the
Company's Class A Common Stock on the date of grant and the term of the option
may not be longer than ten years. All options have a three year vesting
schedule with one-third of the options granted vesting at the end of each of
the three years. The Company has reserved 1,400,000 shares and 150,000 shares
of Class A Common Stock for issuance under the Company's Stock Incentive Plan
and Non-Employee Director Stock Plan, respectively.
<PAGE>
A summary of the Company's stock option plan as of and for the year ended
December 31, 1997 follows:
<TABLE>
Weighted
Number Average
of Exercise
Shares Price
------- --------
<S> <C> <C>
Options outstanding,
beginning of year - $ -
Options granted 684,000 28.09
Conversion of AmVestors
nonqualified stock options 337,038 18.29
Conversion of AmVestors
incentive stock options 464,671 20.76
-------- -----
Options outstanding,
end of period 1,485,709 $23.57
========= ======
Options exercisable,
end of period 801,709
========
</TABLE>
The following table summarizes information about stock options outstanding
under the Company's option plan as of December 31, 1997:
<TABLE>
Weighted Weighted
Range of Remaining Average Average
Exercise Options Contractual Exercise
Prices Outstanding Life in Years Price
-------- ----------- ------------- ---------
<S> <C> <C> <C>
$13.01 - $15.80 150,287 6.25 $14.89
$16.73 - $18.82 31,602 5.61 $18.60
$19.15 - $20.08 365,832 8.25 $19.36
$23.24 253,988 4.32 $23.24
$27.88 664,000 9.58 $27.88
$35.00 20,000 9.97 $35.00
-------- ----- -----
1,485,709 7.94 $23.57
========== ==== =====
</TABLE>
The following table summarizes information about stock options exercisable
under the Company's option plans as of December 31, 1997:
<TABLE>
Weighted
Average
Options Exercise
Exercisable Price
----------- ------
<S> <C>
150,287 $14.89
31,602 18.60
365,832 19.36
253,988 23.24
---------- -------
801,709 $19.72
========== ========
</TABLE>
The estimated fair value of options granted in 1997 was $9.86 per share.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized for its option plans. Had
compensation expense for the Company's option plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method prescribed by SFAS 123, the Company's net earnings and diluted
earnings per share for the year ended December 31, 1997 would have been reduced
to the pro forma amounts indicated below:
<PAGE>
<TABLE>
<S> <C>
Net earnings (in thousands):
As reported $58,059
Pro forma 57,466
Diluted earnings per share:
As reported $2.46
Pro forma $2.44
</TABLE>
The fair value of options granted in 1997 was estimated on the date of
grant using the Black-Scholes pricing model and the following weighted average
assumptions: (i) expected volatility of 25.0%, (ii) risk-free interest rate of
5.56%, (iii) dividend yield of 1.79% and (iv) an expected life equal to the
contractual expiration.
Stock Appreciation Rights Plan
On September 15, 1996, the Board of Directors also adopted a Stock
Appreciation Rights Plan (the SAR Plan) and a Restricted Stock Plan. The SAR
Plan authorized the Board of Directors to grant stock appreciation rights to
employees and officers in tandem with stock options. A SAR can be exercised
only to the extent the option with respect to which it is granted is not
exercised, and is subject to the same terms and conditions as the option to
which it relates. Issuance of SAR's is made at the sole discretion of the
Board of Directors.
<TABLE>
For the
Year Ended
December 31, 1997
-----------------
<S> <C>
Rights outstanding, beginning of year -
Conversion of AmVestors rights 81,024
-------
Rights outstanding, end of year 81,024
=======
</TABLE>
The Company recorded no compensation expense relating to stock appreciation
rights for the year ended December 31, 1997.
Stock Warrants
In conjunction with the acquisition of AmVestors, the Company has
outstanding warrants to purchase 477,770 shares of the Company's Class A common
stock. The warrants are generally exercisable at $24.42 per share and expire
on April 2, 2002.
(12) Statutory Accounting Practices
The Company's insurance subsidiaries' statutory net income was $58.9
million, $62.4 million and $59.9 million in the years ended December 31, 1997,
1996, and 1995, respectively. The Company's insurance subsidiaries' statutory
surplus and capital was $572.3 million, $283.0 million and $276.3 million at
December 31, 1997, 1996 and 1995, respectively.
The Company's insurance subsidiaries are domiciled in Iowa and Kansas and
prepare their statutory-basis financial statements in accordance with
accounting practices prescribed or permitted by those respective state
insurance departments. Prescribed statutory accounting practices include state
laws, regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners (NAIC).
Permitted statutory accounting practices encompass all accounting practices
that are not prescribed; such practices may differ from state to state, may
differ from company to company within a state, and may change in the future.
The NAIC currently is in the process of codifying statutory accounting
practices, the result of which is expected to constitute the only source of
prescribed statutory accounting practices. Accordingly, that project, which is
expected to be effective in 1999, will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that insurance enterprises use to prepare their statutory
financial statements. The Company does not utilize any permitted practices in
the preparation of its statutory-basis financial statements which would have a
material impact on statutory surplus.
The respective insurance departments impose minimum risk-based capital
requirements on insurance enterprises that were developed by the NAIC. The
formulas for determining the amount of risk-based capital (RBC) specify various
weighting factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance is
determined by a ratio (the Ratio) of the enterprise's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level, RBC, as
defined by the NAIC. Enterprises below specific trigger points or ratios are
classified within certain levels, each of which requires specified corrective
action. The life insurance subsidiaries exceed the authorized control level RBC
requirements.
(13) Financial Instruments
The Company utilizes a variety of off-balance-sheet financial instruments
as part of its efforts to hedge and manage fluctuations in the market value of
its portfolio of available-for-sale securities, attributable to changes in
general interest rate levels, and to manage duration mismatch of assets and
liabilities. Those instruments include interest rate exchange agreements
(swaps, caps and swaptions) and involve elements of credit and market risks in
excess of the amounts recognized in the accompanying financial statements at a
given point in time. The contract or notional amounts of those instruments
reflect the extent of involvement in the various types of financial
instruments.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract. That
exposure includes settlement risk (i.e., the risk that the counterparty
defaults after the Company has delivered funds or securities under terms of the
contract) that would result in an accounting loss and replacement cost risk
(i.e., the cost to replace the contract at current market rates should the
counterparty default prior to settlement date). To limit exposure associated
with counterparty nonperformance on interest rate exchange agreements, the
Company enters into master netting agreements with its counterparties.
The credit risk on all financial instruments, whether on or off the balance
sheet, is controlled through an on-going credit review, approval, and
monitoring process. The Company determines, on an individual counterparty
basis, the need for collateral or other security to support financial
instruments with credit risk and establishes individual and aggregate
counterparty exposure limits.
The Company's outstanding derivative positions shown in notional or
contract amounts, along with their carrying value and estimated fair values,
are summarized as follows:
<PAGE>
<TABLE>
December 31, 1997
-------------------------------
Notional Carrying Fair
amount value value
-------- -------- ------
(In thousands)
<S> <C> <C> <C>
Interest rate caps $1,050,000 $2,117 $2,062
Pay 3 month LIBOR 50,000 - (144)
Options 160 643 643
Futures 2 - (2,402)
---------- ------ -----
$1,100,162 $2,760 $159
========== ====== =====
</TABLE
</TABLE>
<TABLE>
December 31, 1996
-----------------------------
Notional Carrying Fair
amount value value
-------- ------- -------
(In thousands)
<S> <C> <C> <C>
Interest rate caps $500,000 $4,056 $3,269
Swaptions 255,000 5,102 4,793
Received fixed 150,000 6,516 6,516
Pay fixed 75,000 (621) (621)
-------- ------- -------
$980,000 $15,053 $13,957
======== ======= =======
</TABLE>
Interest Rate Exchange Agreements
The Company enters into interest rate exchange agreements to reduce and
manage interest rate risk associated with individual assets and liabilities and
its overall aggregate portfolio. The interest rate swap agreement, which
expires in 2002, generally involves the exchange of fixed and floating rate
interest payments, without an exchange of the underlying principal. The
interest rate cap agreements, which expire between 2000 and 2003, involve the
payment of a maximum fixed interest rate when an indexed rate exceeds that
fixed rate. Swaption agreements involve the right to enter into a swap
transaction at a pre-specified price. These agreements are used in conjunction
with interest rate caps to protect against rising rates. The amounts to be
received or paid pursuant to those agreements are accrued and recognized in the
accompanying consolidated statements of income through an adjustment to
investment income over the life of the agreements. The net effect on income
from amortization and interest paid or received was a decrease of $0.5 million
in 1997, and increases of $0.9 million and $1.5 million for the years ended
December 31, 1996 and 1995, respectively. Gains or losses realized on closed
or terminated agreements accounted for as hedges are deferred and amortized to
investment income on a constant yield basis over the shorter of the life of the
agreements or the expected remaining life of the underlying assets or
liabilities.
The following table shows unrealized gains and losses on derivative
positions.
<TABLE> December 31, 1997
-----------------------
Net
Total unrealized
notional Unrealized Unrealized gains
value gains losses (losses)
--------- ---------- --------- -----
(In thousands)
<S> <C> <C> <C> <C>
Pay 3 month LIBOR $50,000 $ $144 $(144)
Interest rate caps 1,050,000 - 55 (55)
Options 160 - - -
Futures 2 - 2,402 (2,402)
---------- --- ------ --------
$1,100,162 $- $2,601 $(2,601)
========== === ====== ========
</TABLE>
<PAGE>
<TABLE>
December 31, 1996
-------------------------------------
Net
Total unrealized
notional UnrealizedUnrealized gains
value gains losses (losses)
------- -------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Received fixed $150,000 $4,744 $ $4,744
Pay fixed 75,000 - 62 (62)
Interest rate caps 500,000 1,566 (1,566)
Swaptions 255,000 - - -
-------- ------ ------ ------
$980,000 $4,744 $1,628 $3,116
======== ====== ====== ======
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap and interest rate swap agreements. The
Company does not anticipate nonperformance by any of these counterparties. The
credit risk associated with such agreements is minimized by purchasing such
agreements from financial institutions with long-standing, superior performance
records. The amount of such exposure is essentially their replacement cost,
which is approximated by the unrealized gains in such contracts.
The Company has no current exposure to the counterparty when a contract
contains an unrealized loss.
<PAGE>
<TABLE>
Maturity Schedule by Year for Derivative Products
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Pay fixed swaps:
Notional amount $- $- $- $- $50,000 $- $-
Weighted average:
Receive rate 5.988% 5.938% 5.938% 5.938% 5.938% -% -%
Pay rate (A) 5.875% 5.875% 5.875% 5.875% 5.875% -% -%
Interest rate caps:
Notional amount
(in thousands) $- $- $450,000 $- $- $600,000 $-
Options $- $- $- $- $- $- $160
Futures $2 $- $- $- $- $- $-
Total notional value of
swaps, caps and swaptions
(in thousands) $2 $- $450,000 $- $50,000 $600,000 $160
- -------------
(A) The actual variable rates in the agreements are based on three-month LIBOR, and the table assumes
that such rates will remain constant at December 31, 1997 levels. To the extent that actual rates
change, the variable interest rate information will change accordingly.
</TABLE>
<PAGE>
(14) Acquisitions
On October 23, 1997, the Company acquired all of the outstanding capital stock
of Delta in exchange for cash of approximately $165 million. The acquisition
was accounted for using the purchase method of accounting with goodwill of
$69.4 million established which is being amortized on a straight-line basis
over 30 years. The operations of Delta for the period from October 23, 1997
through December 31, 1997 have been included in the consolidated statement of
income of the Company.
On December 19, 1997, the Company acquired AmVestors in a stock exchange valued
at approximately $350 million. The acquisition was accounted for using the
purchase method of accounting with goodwill of $152.9 million established which
is being amortized on a straight-line basis over 30 years. The operations of
AmVestors for the period of December 19, 1997 through December 31, 1997 have
been included in the consolidated statement of income of the Company.
The following table sets forth certain pro forma operating data of the Company
for the years ended December 31, 1997 and 1996. This pro forma data assumes
the acquisitions of Delta and AmVestors occurred on January 1, 1997 and 1996,
respectively.
<PAGE>
<TABLE>
For the year ended December 31,
---------------------------------
1997 1996
------- ------
(In thousands, except per share data)
<S> <C> <C>
Pro forma operating data:
Total revenue $712,400 $859,700
Net income $75,000 $87,000
Diluted earnings per share of
common stock $2.14 $2.48
===== ======
</TABLE>
(15) Earnings per Share
<TABLE>
For the Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995
------------------------- ----------------------- ----------------------
Number Per Number Per Number Per
Net of Share Net of Share Net of Share
Income Shares Amount Income SharesAmount Income Shares Amount
-------------------------- ------------------------ --------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $58,059 23,537 $2.47 $74,173 23,156 $3.20 $69,348 23,156 $2.99
Effect of dilutive
securities
Options - 29 - - - - - - -
Warrants - 5 - - - - - - -
Stock appreciation
rights - 1 - - - - - - -
------- ------ ----- ------- ------ ----- ------- ------ ----
Diluted EPS $58,059 23,572 $2.46 $74,173 23,156 $3.20 $69,348 23,156 $2.99
======= ====== ===== ======= ====== ===== ======= ====== ====<PAGE>
</TABLE>
(16) Value of Business Acquired
(In thousands)
<TABLE>
<S> <C>
Balance, January 1, 1997 $ -
Value of business acquired during the year 268,804
Amortization of VOBA asset (2,790)
Balance, December 31, 1997 --------
$266,014
========
</TABLE>
Amortization is recognized in proportion to expected future gross profits
over a 20 year period and is based on the average interest crediting rates
which range from 4.1% to 6.0% for 1997 and over the next five years. The
estimated amortization for the next five years is as follows:
1998 28,064
1999 33,252
2000 31,764
2001 30,855
2002 27,336
(17)Fair Value of Financial Instruments
SFAS 107, "Disclosures about Fair Values of Financial Instruments,"
requires disclosures of fair value information about financial instruments,
whether recognized or not recognized in a company's balance sheet, for which it
is practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using discounted cash flow or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rates and estimates of the amount and
timing of future cash flows. SFAS 107 excludes certain insurance liabilities
and other non-financial instruments from its disclosure requirements. The fair
value amounts presented herein do not include an amount for the value
associated with customer or agent relationships, the expected interest margin
(interest earnings over interest credited) to be earned in the future on
investment-type products, or other intangible items. Accordingly, the aggregate
fair value amounts presented herein do not necessarily represent the underlying
value of the Company; likewise, care should be exercised in deriving
conclusions about the Company's business or financial condition based on the
fair value information presented herein.
The Company closely monitors the level of its insurance liabilities, the
level of interest rates credited to its interest sensitive products, and the
assumed interest margin provided for within the pricing structure of its other
products. Those amounts are taken into consideration in the Company's overall
management of interest rate risk that attempts to minimize exposure to changing
interest rates through the matching of investment maturities with amounts
expected to be due under insurance contracts. As such, the Company believes
that it has reduced the volatility inherent in its fair value adjusted
stockholders' equity, although such volatility will not be reduced completely.
The Company has used discount rates in the determination of fair values for its
liabilities that are consistent with market yields for related assets. The use
of the asset market yield is consistent with management's opinion that the
risks inherent in the Company's asset and liability portfolios are similar, and
the fact that fair values for both assets and liabilities generally will react
in much the same manner during periods of interest rate changes. However, that
assumption might not result in fair values that are consistent with values
obtained through an actuarial appraisal of the Company's business or values
that might arise in a negotiated transaction.
The following presentation reflects fair values for those instruments
specifically covered by SFAS 107, along with fair value amounts for those
traditional insurance liabilities for which disclosure is permitted but not
required; the fair values for all other assets and liabilities have been
reported at their carrying amounts.
Valuation Methods and Assumptions
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
<PAGE>
Cash, short-term investments, policy loans, accrued investment income: the
carrying amounts for these instruments approximate their fair values.
Fixed maturities and equity securities: fair values for bonds are based on
quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using values obtained from independent
pricing services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for preferred and common stocks are based on quoted market
prices.
Mortgage loans on real estate: for all performing fixed interest rate
loans, the estimated net cash flows to maturity were discounted to derive
an estimated market value. The discount rate used was based on the
individual loan's remaining weighted average life and a basis point spread
based on the market conditions for the type of loan and credit quality.
These spreads were over the December 31, 1997, United States treasury yield
curve. Performing variable rate commercial loans and residential loans were
valued at the current outstanding balance. Loans which have been
restructured, are in foreclosure, are significantly delinquent, or are to
affiliates were valued primarily at the lower of the estimated net cash
flows to maturity discounted at a market rate of interest or the current
outstanding principal balance.
Hedging instruments: fair values for derivative securities are based on
pricing models or formulas using current assumptions and are classified as
other assets or other liabilities.
Policy reserves: fair values of the Company's liabilities under contracts
not involving significant mortality or morbidity risks (principally,
annuities) are stated at the cost the Company would incur to extinguish the
liability; i.e., the cash surrender value.
Debt: fair values for debt are estimated using discounted cash flow
analysis based on the Company's current incremental borrowing rate for
similar types of borrowing arrangements.
The carrying amounts of other financial assets, dividends payable to
policyowners, and policy reserves including significant mortality or
morbidity risks approximate their fair values.
The estimated fair values of the Company's significant financial
instruments are as follows:
<TABLE>
December 31,
--------------------------------------------------
1997 1996
---------------------- --------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
--------- ----------- -------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Securities available-for-sale:
Fixed maturity $6,851,427 $6,851,427 $2,414,807 $2,414,807
========== ========== ========== ==========
Equity securities $61,480 $61,480 $64,033 $64,033
========== ========== ========== ==========
Short-term investments $12,595 $12,595 $13,288 $13,288
========== ========== ========== ==========
Fixed maturity securities
held for trading purposes $22,955 $22,955 $ - $ -
========== ========== ========== ==========
Mortgage loans on real
estate $462,473 $466,471 $225,743 $231,337
========== ========== ========== ==========
Interest rate swaps:
Net receivable position $- $- $6,516 $6,516
========== ========== ========== ==========
Net payable position $- $(144) $(621) $(621)
========== ========== ========== ==========
Interest rate caps $2,117 $2,062 $4,056 $3,269
========== ========== ========== ==========
Swaptions $- $- $5,102 $4,793
========== ========== ========== ==========
Options $643 $643 $ - $ -
========= ========== ========== ==========
Futures $- $(2,402) $ - $ -
========= ========== ========== ==========
Financial liabilities
policy reserves for
annuities $6,244,677 $6,130,925 $1,460,118 $1,428,141
========== ========== ========== ==========
Debt $266,435 $266,435 $188,381 $188,381
========== ========== ========== ==========
</TABLE>
(18) Quarterly Results (Unaudited)
1997 Quarter Data
<TABLE>
Quarter Ended
--------------------------------------
March 31 June 30 September 30 December 31
---------- -------- ----------- ------------
(dollars in thousands, except earnings per common share)
<S> <C> <C> <C> <C>
Total revenues (excluding
realized gains) $76,059 $75,452 $81,838 $113,695
Realized gains $5,259 $4,264 $4,987 $(719)
Total benefits and expenses $61,142 $59,908 $64,762 $96,642
Net income $14,580 $14,442 $16,475 $12,562
Weighted average number of
common shares
- basic 23,155,989 23,155,989 23,155,989 24,666,285
Weighted average number of
common shares
- diluted 23,155,989 23,155,989 23,155,989 24,774,973
Earnings per common share
- basic $0.63 $0.62 $0.71 $0.51
Earnings per common share
- diluted $0.63 $0.62 $0.71 $0.50
</TABLE
</TABLE>
<TABLE>
1996 Quarterly Data
Quarter Ended
----------------------------
March 31 June 30 September 30 December 31
---------- -------- ------------ -----------
(dollars in thousands, except earnings per common share)
<S> <C> <C> <C> <C>
Total revenues (excluding
realized gains) $150,350 $145,574 $68,074 $72,359
Realized gains (losses) $58,740 $5,669 $(1,854) $3,428
Total benefits and expenses $139,473 $131,857 $54,420 $59,602
Net income $44,790 $11,671 $6,483 $11,229
Weighted average number of
common share 23,155,989 23,155,989 23,155,989 23,155,989
Earnings per common share
- basic and diluted $1.93 $0.51 $0.28 $0.48
</TABLE>
AMERUS LIFE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule Page
- -------- ----
Independent Auditors' Report on Schedules S-2
I Summary of Investments - Other than Investments
in Related Parties S-3 through S-4
II Condensed Financial Information of Registrant S-5 through S-11
III Supplementary Insurance Information S-12
IV Reinsurance S-13 through S-14
V Valuation and Qualifying Accounts S-15
All other schedules are omitted for the reason that they are not required,
amounts are not sufficient to require submission of the schedule, or that the
equivalent information has been included in the consolidated financial
statements, and notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
The Board of Directors and Stockholders'
AmerUs Life Holdings, Inc.:
Under date of February 13, 1998 we reported on the consolidated balance
sheets of AmerUs Life Holdings, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, stockholder's
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, as contained in Part II, Item 8 of the annual report on Form
10-K for the year 1997
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Des Moines, Iowa
February 13, 1998
<PAGE>
AMERUS LIFE HOLDINGS, INC.
SCHEDULE I
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
<TABLE>
Amount at
which
Amortized Market Shown in the
Type of Investment Cost Value Balance Sheet
- ------------------ --------- -------- -----------
(In thousands)
<S> <C> <C> <C>
December 31, 1997
Fixed Maturities:
Bonds
United States Government and government
agencies and authorities $2,367,725 $2,389,292$2,389,292
States, municipalities and
political subdivisions 9,563 9,623 9,623
Foreign governments 68,592 71,171 71,171
Public utilities 395,271 409,452 409,452
Convertibles and bonds with
warrants attached - - -
All other corporate bonds 3,825,242 3,905,413 3,905,413
Redeemable preferred stock 87,389 89,431 89,431
---------- ---------- --------
Total fixed maturities $6,753,782 $6,874,382$6,874,382
Equity securities:
Common stocks
Public utilities $ 0 $ 0 $ 0
Banks, trust and insurance companies 33,633 33,633 33,633
Industrial, miscellaneous and all
other 4,930 4,930 4,930
Nonredeemable preferred stocks 21,699 22,917 22,917
------- ------- -------
Total equity securities $60,262 $61,480 $61,480
------- ------- -------
Mortgage loans on real estate $462,473 $462,473
Real estate 8,670 8,670
Policy loans 117,865 117,865
Other long-term investments 158,073 158,073
Short-term investments 12,595 12,595
---------- ----------
Total investments $7,573,720 $7,695,538
========== ==========
/TABLE
<PAGE>
AMERUS LIFE HOLDINGS, INC.
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(Parent Company)
December 31, 1997 and 1996
<TABLE>
<S> <C> <C>
Assets 1997 1996
------ ---- ----
(In thousands)
Investments:
Securities available-for-sale at fair value:
Fixed maturity securities $3,955 $ -
Investments in subsidiaries, at equity 1,230,664 582,451
Other investments 50,011 50,000
Cash 12,402 80
Accrued Investment income 4,759 259
Other assets 2,519 2,743
---------- --------
Total assets $1,304,310 $635,533
========== ========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Accrued expenses $ - $580
Income tax payable (2,155) -
Deferred income taxes - 32
Other liabilities 39,814 2,411
Debt (note 2) 338,660 175,000
-------- --------
Total liabilities 376,319 178,023
---------- --------
Stockholders' equity:
Preferred stock, no par value,
20,000,000 shares authorized,
none issued -
Common stock, Class A, no par value,
75,000,000 shares authorized, issued
and outstanding 29,734,918 shares
in 1997 and 14,500,000 shares in 1996 29,735 14,500
Common stock, Class B, no par value,
50,000,000 shares authorized,
5,000,000 shares issued and outstanding 5,000 5,000
Paid-in-capital 383,686 -
Retained earnings 453,823 402,710
Unrealized appreciation 55,747 35,300
---------- --------
Total stockholders' equity 927,991 457,510
---------- --------
Total liabilities and stockholders' equity $1,304,310 $635,533
========== ========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF INCOME
(Parent Company)
Years Ended December 31, 1997 and 1996
<TABLE>
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Revenues:
Equity in undistributed earnings of subsidiaries $60,942 $74,114
Net investment income 13,255 259
Other income 1,107 1,000
------- -------
75,304 75,373
Expenses:
Operating expenses 18,527 1,168
------- -------
18,527 1,168
------- -------
Income before income tax expense 56,777 74,205
Income tax benefit (expense) 1,282 (32)
------- -------
Net income $58,059 $74,173
======= =======
</TABLE>
See accompanying notes to condensed financial statements.<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE STATEMENT OF CASH FLOWS
(Parent Company)
Years ended December 31, 1997 and 1996
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $58,059 $74,173
Adjustments to reconcile net income to
net cash provided by operating activities
Equity in undistributed earnings (60,942) (74,114)
Change in:
Accrued investment income (4,500) (259)
Income taxes (2,187) 32
Other, net 10,701 248
-------- --------
Net cash used by operating activities 1,131 80
-------- --------
Cash flows from investing activities:
Purchase of other investments (3,966) (50,000)
Cash paid for acquisitions (212,084) -
-------- --------
Net cash used in investing activities (216,050) (50,000)
-------- --------
Cash flows from financing activities:
Change in debt, net 163,660 175,000
Capital contribution to subsidiaries - (125,000)
-------- --------
Dividends from subsidiary 15,000 -
Net proceeds from initial public
stock offering 55,027 -
Dividends paid to stockholders (6,446) -
Net cash provided by financing activities 227,241 50,000
Net increase in cash 12,322 80
Cash at beginning of period 80 -
--------- -------
Cash at end of period $12,402 $ 80
======== =======
</TABLE>
See notes to accompanying condensed financial statements.<PAGE>
AMERUS LIFE HOLDINGS, INC.
(Parent Company)
Notes to Condensed Financial Statements
(1) Basis of Presentation
AmerUs Life Holdings, Inc. (the "Company") is the parent company of its
primary subsidiaries, AmerUs Life Insurance Company ("AmerUs Life"), AmVestors
Financial Corporation ("AmVestors") and Delta Life Corporation ("Delta"). The
Company's investment in its subsidiaries is stated at cost plus equity in
undistributed earnings of the subsidiaries. The Company's share of net income
of its unconsolidated subsidiaries is included in income using the equity
method. These financial statements should be read in conjunction with AmerUs
Life Holdings, Inc. consolidated financial statements.
(2) Debt
Debt consists of the following (in thousands):
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Revolving Credit Agreement
bearing interest at 6.6%(A): $250,000 $ -
Junior Subordinated debentures bearing interest
at 8.85%(B): 88,660 -
Bank Credit Facility (C):
Term loan - 100,000
Revolving credit loan - 75,000
-------- --------
$338,660 $175,000
======== ========
(A) The revolving credit agreement provides for a maximum borrowing of $250
million with the balance maturing in October 2002. The interest rate is
variable, however, the Company may elect to fix the rate for periods from
30 days to six months. The loan agreement contains various financial and
operating covenants which, among other things, limit future indebtedness
and restrict the amount of future dividend payments. In addition, the
Company has pledged 49.9% of the stock of AmerUs Life, the stock of Delta
and a $50 million note payable to the Company by AmerUs Life.
(B) The Company issued $88.66 million of junior subordinated debentures to a
wholly-owned subsidiary trust in connection with capital securities issued
by the trust. The debentures bear interest at the rate of 8.85% and
mature February 1, 2027.
(C) The bank credit facility was retired in 1997.
</TABLE
Maturities of long-term debt are as follows for each of the five years
ending December 31:
</TABLE>
<TABLE>
Year ending December 31: (In thousands)
------------------------ --------------
<S> <C>
1998 $ -
1999 -
2000 -
2001 -
2002 250,000
Thereafter 88,660
--------
$338,660
========
/TABLE
<PAGE>
AMERUS LIFE HOLDINGS, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
Future
policy
benefits, Other Benefits,Amortization of
Deferred losses, Policy claims, deferred
policy claims & claims & Net in- losses & policy Other
acquisition loss Unearned benefits Premium vestment settlement acquis. operating Prem.
cost expenses(1) premiums payable(2) revenue income expenses costs expenses written
-------- ------- ------- ------- ------- ------- ---------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Segment
- --------
Life Insurance
12/31/97(3) $262,661 $8,757,156 - $10,514 $254,272 $338,190 $463,792 $52,457 $73,247 n/a
12/31/96(3) $295,716 $3,612,445 - $11,804 $246,791 $286,213 $421,352 $58,572 $62,894 n/a
12/31/95 $267,711 $3,621,537 - $16,617 $244,087 $285,244 $424,034 $50,239 $58,655 n/a
________________________
(1)Includes policy reserves, policyholder funds, and dividends payable
(2)Policy and contract claims
(3)Includes Closed Block amounts
/TABLE
<PAGE>
AMERUS LIFE HOLDINGS, INC.
SCHEDULE IV
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
Percentage
Ceded to Assumed of amount
Gross Other From Other Net assumed to
Amount Companies Companies Amount Net
------ ---------- ----------- ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Life insurance in
force $30,312,097 $4,102,216 $500,613 $26,710,494 1.85%
=========== ========== ======== =========== ====
Premiums
Life insurance premiums
and charges $106,909 16,716 1,375 91,568 0.44%
Accident and health
insurance 1,502 1,332 - 170 -%
-------- ------- ------ -------- ---
Total premiums $108,411 $18,048 $1,375 $91,738 0.44%
======== ======= ======= ======== ====
Year ended December 31, 1996
Life insurance in
force $29,456,101 $4,170,418 $446,785 $25,732,468 1.88%
=========== ========== ======== =========== ====
Premiums
Life insurance premiums
and charges $201,138 14,790 1,475 187,823 .48%
Accident and health
insurance 2,154 1,915 - 239 -%
-------- ------- ------ -------- ---
Total premiums $203,292 $16,705 $1,475 $188,062 .48%
======== ======= ====== ======== ====
<PAGE>
Year ended December 31, 1995
Life insurance in
force $29,654,671 $3,814,429 $56,226 $25,896,468 0.21%
=========== ========== ======= =========== ====
Premiums
Life insurance premiums
and charges $310,781 $14,186 $4,862 $301,457 1.61%
Accident and health
insurance 2,596 2,361 4 239 1.49%
-------- ------- ------ -------- ----
Total premiums $313,377 $16,547 $4,866 $301,696 1.61%
======== ======= ====== ======== ====
/TABLE
<PAGE>
AMERUS LIFE HOLDINGS, INC.
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
Charged to Deductions-
other provisions on
Balance at Charged toaccounts- mortgages Balance at
Description beginning of costs and mortgages sold end of
Mortgage Loans period expenses acquired transferred period
- -------------- ------------ --------------------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
1997 $11,622 $(856) $4,568 $(50) $15,284
1996 $30,067 $(4,029) $ - $(14,416) $11,622
1995 $65,549 $622 $ - $(36,104) $30,067
</TABLE>
AMERUS LIFE HOLDINGS, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIOS
RATIO OF EARNINGS FIXED CHARGES
Years Ended December 31,
-----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
Earnings:
Income before income taxes
and accounting changes $80,081 $118,032 $110,550 $26,131 $55,775
Add, Combined Fixed Charges 74,866 68,396 80,476 83,403 89,305
------- -------- -------- ------- -------
Adjusted Earnings 155,047 186,428 191,026 109,534 145,080
======= ======== ======== ======= =======
Fixed Charges:
Interest on indebtedness $7,961 $2,142 $2,356 $5,356 $6,991
Preferred stock dividends 7,019 - - - -
Interest credited to deferred
annuities 59,886 66,254 78,120 77,980 82,314
------- ------- ------- ------- -------
$74,866 $68,396 $80,476 $83,403 $89,305
======= ======= ======= ======= =======
Ratio of Earnings to
Combined Fixed
Changes and Preferred
Stock Dividends 2.07 2.73 2.37 1.31 1.62
JOINT VENTURE AGREEMENT
THIS AMENDED AND RESTATED JOINT VENTURE AGREEMENT (the "Agreement") is made
and entered into as of June 30, 1996 by and between AMERITAS LIFE INSURANCE
CORP., a Nebraska mutual life insurance company ("ALIC"), and AMERICAN MUTUAL
LIFE INSURANCE COMPANY, an Iowa mutual life insurance company ("AML").
R E C I T A L S:
A. ALIC has heretofore created a wholly owned subsidiary known as
Ameritas Variable Life Insurance Company ("AVLIC"), principally engaged in the
business of selling variable life and annuity insurance throughout the United
States.
B. In order to facilitate the sale of variable life and annuity insurance
by AVLIC, ALIC has heretofore created another wholly owned subsidiary known as
Ameritas Investment Corp. ("AIC"), a registered broker-dealer.
C. AML is now engaged in part in the business of selling various forms of
life and annuity insurance, including fixed annuities, throughout the United
States.
D. AML has developed a significant distribution force of approximately
1,800 agents, some of whom are career agents and some of whom are personal
producing general agents, as those terms are generally understood in the
insurance industry.
E. AML has investigated various methods of entering the variable life and
annuity insurance business.
F. ALIC has investigated various methods of expanding its distribution of
variable life and annuity insurance.
G. ALIC and AML have now determined that it is in their mutual best
interests to enter into a joint venture (the "Joint Venture") whereby ALIC and
AML shall combine their various resources, including the variable life and
annuity products currently sold by AVLIC and the distribution force currently
appointed by AML, to sell the variable life and annuity insurance issued by
AVLIC as well as the fixed annuities currently sold by AML.
H. The parties have determined to form a joint venture holding company
into which ALIC will transfer all of its interest in AVLIC and AIC. AML will,
in addition to making a capital investment as set forth herein, use all
reasonable efforts to encourage its distribution force to accept appointment
with AVLIC. Thereafter both parties will direct their sales efforts with
respect to variable life and annuity and fixed annuity products, except as
otherwise stated herein, only through AVLIC.
I. Each of the parties recognize that a minimum of five years will be
required to permit the Joint Venture to realize the benefits contemplated by
this Agreement, and therefore each of the parties commit, on the terms set forth
herein, to remain part of the Joint Venture and devote all reasonable efforts to
the success of the Joint Venture during the first five years, in order that the
Joint Venture is able to operate in an efficient and effective manner, in
accordance with good business practices and the terms and conditions of this
Agreement.
J. Each of the parties to this Agreement recognize that each party is
committing to the Joint Venture valuable resources and business which, once
committed to the Joint Venture, cannot easily be separated from the Joint
Venture without great difficulty and incalculable detriment to each party.
K. The parties commit to treat each other fairly and honestly in
connection with the governance of the Joint Venture as provided hereinafter to
the end that the business of the Joint Venture is promoted to the fullest
extent.
L. For the convenience of the parties and in consideration of the
premises and the mutual promises set forth herein and in the prior version of
this Agreement, this amended and restated Agreement is being executed, which
Agreement supersedes in their entirety the Joint Venture Agreement dated as of
March 8, 1996 and the First Amendment thereto dated as of April 1, 1996.
A G R E E M E N T S:
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises set forth in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
The capitalized terms used in this Agreement shall have the meanings set
forth below. Other terms are also defined in the text of the Agreement. Unless
the context otherwise requires, such capitalized terms shall include the
singular and plural and the conjunctive and disjunctive forms of the terms
defined.
1.1 "Acceptance Date" shall mean the date on which an offer to purchase
Shares pursuant to an Auction as provided in Section 2.6(b) hereof or to sell or
purchase Shares pursuant to a Unilateral Auction as provided in Section 2.6(e)
hereof is accepted or deemed accepted.
1.2 "Accounting Firm" shall mean Ernst & Young.
1.3 "Adjusted Value" shall mean Value, adjusted to exclude Extraordinary
Items.
1.4 "Affiliate" shall mean any Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with the Person specified.
1.5 "Aggregate Investment" shall mean, as of the Exercise Date for any
portion of the Option, the sum of (x) the Investment plus a charge equal to 5%
per annum on such amount from the Closing Date to the Exercise Date, plus (y)
the amount of any capital contribution(s) (not including any exercise price paid
in respect of any portion of the Option) made by AML after the Closing Date,
plus a charge equal to 5% per annum on each such amount(s) from the date of each
such contribution, respectively, to the Exercise Date.
1.6 "Agreement" shall mean this Agreement, together with the exhibits
attached hereto, the Disclosure Schedule and the Contracts and other documents
to be executed and delivered respectively by ALIC and/or AML pursuant hereto.
1.7 "AIC" shall mean Ameritas Investment Corp., a Nebraska corporation.
1.8 "AIC Statements" shall mean the audited GAAP Statements of AIC for the
year ended on December 31, 1994, and quarterly GAAP Statements of AIC for each
of the first three quarters of 1995 (and notes relating thereto).
1.9 "ALIC" shall mean Ameritas Life Insurance Corp., a Nebraska life
insurance company.
1.10 "AML" shall mean American Mutual Life Insurance Company, an Iowa
mutual life insurance company.
1.11 "AML Baseline Weighted Premium" shall be $5.5 million.
1.12 "AML Parent" shall mean any Person which at any time becomes the
direct record owner of all the issued and outstanding capital stock of AML and
is in turn a Subsidiary of a mutual insurance holding company authorized and
created under Iowa law.
1.13 "AML Sources" shall mean all members of AML's Distribution Force as of
the Closing Date together with any other Persons who are at any time thereafter
(a) appointed as insurance agents or otherwise employed by AML or any Affiliate
thereof (other than Holding Company and its Subsidiaries, except as provided in
clause (b) hereof) or (b) recruited or introduced by AML or any Affiliate
thereof (other than Holding Company and its Subsidiaries) to AVLIC or any other
Subsidiary of Holding Company.
1.14 "AML Weighted Premium" shall mean, for any calendar month, the sum of
the amounts, for all Product Categories, calculated by multiplying (x) the First
Year Earned Premium of AVLIC from AML Sources during the 12-month period ending
on the last day of such month (or, if shorter, the period elapsed from the
Closing Date to the last day of such month), for each such Product Category, by
(y) the Product Factor applicable to such Product Category; provided, however,
that the amount calculated in respect of the "Fixed Annuities" Product Category
by multiplying the amounts described in clauses (x) and (y) above shall be
adjusted, if necessary, so that such amount comprises not more than 25% of the
AML Weighted Premium for the period as to which the foregoing definition is
applied.
1.15 "Annual Statement" shall mean the annual SAP Statement of AVLIC and/or
the separate accounts thereof filed with or submitted to the insurance
regulatory authority in the state in which it is domiciled on forms prescribed
or permitted by such authority for the year ended on December 31, 1994.
1.16 "Assets and Properties" shall mean all assets or properties of every
kind, nature, character and description, whether real, personal or mixed,
whether tangible or intangible, whether absolute, accrued, contingent, fixed or
otherwise, and wherever situated, as now operated, owned or leased by a
specified Person, including without limitation cash, cash equivalents,
securities, accounts and notes receivable, real estate, equipment, furniture,
fixtures, insurance or annuities in force, goodwill and going-concern value.
1.17 "Auction" shall mean the process described in Section 2.6(b) hereof.
1.18 "Auction Notice" shall mean a written communication given by a
Noticing Party to the other party to this Agreement in order to initiate an
Auction as provided in Section 2.6(b) hereof.
1.19 "AVLIC" shall mean Ameritas Variable Life Insurance Company, a
Nebraska life insurance company.
1.20 "AVLIC or AIC Representative" shall mean any present or former
officer, director, employee, agent, consultant or other similar representative
of AVLIC, AIC or any predecessor thereof.
1.21 "AVLIC GAAP Statements" shall mean the audited GAAP Statements of
AVLIC for the year ended on December 31, 1994, and quarterly GAAP Statements of
AVLIC for each of the first three quarters of 1995 (and notes relating thereto).
1.22 "AVLIC SAP Statements" shall mean the Annual Statement and the
Quarterly Statements.
1.23 "Benefit Plans" shall mean all employee pension benefit plans, all
employee welfare benefit plans, all stock bonus, stock ownership, stock option,
stock purchase, stock appreciation rights, phantom stock and other stock plans
(whether qualified or non-qualified), and all other pension, welfare, severance,
retirement, bonus, deferred compensation, incentive compensation, insurance
(whether life, accident and health or other and whether key man, group, workers'
compensation or other), profit sharing, disability, thrift, day care, legal
services, leave of absence, layoff and supplemental or excess benefit plans,
severance benefit programs, and all other benefit Contracts, arrangements or
procedures having the effect of a plan, in each case existing on or before the
Closing Date under which AVLIC or AIC is or may hereafter become obligated in
any manner (including without limitation obligations to make contributions or
other payments) and which cover some or all of the AVLIC or AIC Representatives;
provided, however, that such term shall not include (a) routine employment
policies and procedures developed and applied in the ordinary course of business
and consistent with past practice, including without limitation sick leave,
vacation, and (b) directors and officers liability insurance.
1.24 "Books and Records" shall mean all accounting, financial reporting,
Tax, business, marketing, corporate and other files, documents, instruments,
papers, books and records of a specified Person, including without limitation
financial statements, budgets, projections, ledgers, journals, deeds, titles,
policies, manuals, minute books, stock certificates and books, stock transfer
ledgers, Contracts, franchises, permits, agency lists, policyholder lists,
supplier lists, reports, computer files, retrieval programs, operating data or
plans, and environmental studies or plans.
1.25 "Business Day" shall mean a day other than Saturday, Sunday or any day
on which the principal commercial banks located in New York, New York are
authorized or obligated to close.
1.26 "Business or Condition" shall mean the organization, existence,
authority, capitalization, business, licenses, condition (financial or
otherwise), cash flow, management, sales force, solvency, prospects, SAP results
of operations, insurance or annuities in force, SAP capital and surplus,
Liabilities, GAAP results of operation, GAAP income, GAAP book value, net
capital ratios or Assets and Properties of a specified Person.
1.27 "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, as amended.
1.28 "Closing" shall mean the closing of the transactions contemplated by
this Agreement as provided in Section 2.9 hereof.
1.29 "Closing Confirmation" shall mean the certificate, substantially in
the form attached hereto as Exhibit A, required to be executed and delivered by
each of ALIC and AML pursuant to Section 2.9(i) hereof which confirms that all
conditions to Closing have been satisfied or waived and that the Closing has
occurred as of the Closing Date specified therein.
1.30 "Closing Date" shall mean (a) the later of (i) the fifth Business Day
next following or (ii) the last Business Day of the month which includes, the
date upon which the last of the orders or approvals described in Sections 5.1,
5.2, 6.1 and 6.2 hereof has been obtained, including without limitation the
approvals under all applicable insurance holding company Laws, or (b) such other
date as AML and ALIC may mutually agree upon in writing.
1.31 "Closing Value" shall mean the sum of the Adjusted Value of AVLIC and
the Adjusted Value of AIC as of (i) December 31, 1995, if the Closing Date
occurs before April 2, 1996, or (ii) the last day of the last full calendar
quarter expiring prior to the Closing Date, if the Closing Date occurs on or
after April 2, 1996.
1.32 "Closing Value Financial Statements" shall mean (i) if the Closing
Date occurs before April 2, 1996, the audited 1995 year-end GAAP Statements of
AVLIC and AIC; and (ii) if the Closing Date occurs on or after April 2, 1996,
the unaudited Verified quarterly GAAP Statements of AVLIC and AIC, for the
calendar quarter described in clause (ii) of Section 1.30 hereof, together with
the audited 1995 year-end GAAP Statements of AVLIC and AIC.
1.33 "Code" shall mean the Internal Revenue Code of 1986, as amended
(including without limitation any successor code), and the rules and regulations
promulgated thereunder.
1.34 "Commission" shall mean the Securities and Exchange Commission or any
successor thereto.
1.35 "Contract" shall mean any agreement, lease, sublease, license,
sublicense, promissory note, evidence of indebtedness, insurance policy, annuity
or other commitment, whether written or oral.
1.36 "Corporate Transaction" shall mean any bona fide merger,
consolidation, acquisition of a substantial portion of the capital stock of
another Person, acquisition of a substantial portion of the business or assets
of another Person, or other similar transaction made or entered into by ALIC or
AML or any Affiliate of either (other than Holding Company and its
Subsidiaries), provided that such Person is engaged in the business of
insurance, has its own Distribution Force or other distribution system and was
not previously an Affiliate of such party.
1.37 "Damages" shall mean any and all monetary damages, liabilities, fines,
fees, penalties, interest obligations, deficiencies, losses and expenses,
including without limitation punitive, treble or other exemplary or extra
contractual damages, amounts paid in settlement, interest, court costs, costs of
investigation, fees and expenses of attorneys, accountants, actuaries and other
experts, and other expenses of litigation or of any claim, default or
assessment.
1.38 "Difference" shall mean 34/66 of the difference between the Closing
Value and the 12/31/94 Value.
1.39 "Disclosure Schedule" shall mean the bound record dated as of the date
of this Agreement, as amended, supplemented and revised in accordance with this
Agreement, furnished by ALIC to AML, and containing all lists, descriptions,
exceptions and other information and materials as are required to be included
therein pursuant to this Agreement.
1.40 "Disputed Issue" shall mean a question or decision which is not
expressly resolved by reference to an express provision of (i) this Agreement,
the Service Agreements, the Guaranties, as modified or amended from time to
time, or any other written Contract between ALIC and AML, or among ALIC, AML,
AVLIC, AIC or any of them, or (ii) any then effective plan of operation, annual
budget or business plan for Holding Company, AVLIC or AIC which has been
approved by a vote of its board of directors.
1.41 "Distribution Force" shall mean those Persons appointed by a life
insurance company to distribute life insurance and annuity products, including
without limitation career agents and personal producing general agents, as those
terms are generally understood in the life insurance industry; provided,
however, that this term shall not include those individuals described above who
are appointed by such life insurance company in connection with and
substantially contemporaneous with a Corporate Transaction occurring after the
Closing Date, or thereafter, if the party engaging in such Corporate Transaction
maintains a separate Distribution Force of the other party to such Corporate
Transaction.
1.42 "Environmental Laws" shall mean any federal, state or local law,
statute, ordinance or regulation pertaining to Hazardous Substances, health,
industrial hygiene or the environmental condition on or under any property
including, without limitation, CERCLA and the Toxic Substance Control Act, and
the rules and regulations thereunder.
1.43 "Exercise Date" shall mean the date on or as of which any portion of
the Option is exercised.
1.44 "Exercise Period" shall have the meaning ascribed to it in Section
2.5(c).
1.45 "Extraordinary Items" shall mean transactions, changes or effects
which are reflected on the Closing Value Financial Statements, the AVLIC GAAP
Statements and/or the AIC Statements and (a) which are not in the ordinary
course of business; (b) which are the result of changes in accounting principles
or estimation methods and procedures from those employed in preparation of the
closing balances on such GAAP Statements for the year ended December 31, 1994;
or (c) which are the result of realized or unrealized gains or losses on assets
held by AVLIC (other than in its separate accounts) or AIC arising from interest
rate fluctuations.
1.46 "First Year Earned Premiums" shall mean (a) all first year insurance
and annuity premiums actually received in respect of any insurance or annuity
Contracts issued by a specified Person during any calendar month (except to the
extent included in a prior month pursuant to clause (b) hereof) together with
(b) all first year premiums, if any, prospectively due and payable under such
Contracts for the ensuing eleven-month period.
1.47 "Fixed Annuities" shall mean annuity Contracts which are backed by the
general account of the issuing life insurance company, but shall not include the
annuities listed on Exhibit B hereto.
1.48 "GAAP" shall mean generally accepted accounting principles,
consistently applied throughout the specified period and in the immediately
prior comparable period.
1.49 "GAAP Statements" shall mean any and all annual, quarterly or other
interim financial statements prepared by or on behalf of a Person (and notes
related thereto), which include a balance sheet and a statement of income (and,
without limitation, any net capital reports filed with the NASD), whether
audited or unaudited, which were prepared in accordance with GAAP and satisfy
the standards set forth in Section 3.13(a) hereof.
1.50 "Guaranty" shall mean (i) that certain Guarantee Agreement of ALIC
dated as of July 8, 1991, a copy of which is attached hereto as Exhibit C;
and/or (ii) the separate guaranty, dated as of the Closing Date, to be executed
by AML and delivered to AVLIC, substantially in the form attached hereto as
Exhibit D; and/or any guaranty which may be executed by any AML Parent pursuant
to Section 2.8(j) hereof.
1.51 "Guaranty Payment" shall mean a payment made by ALIC, AML or any AML
Parent of any amount under its respective Guaranty.
1.52 "Hazardous Substance" shall mean (i) any and all hazardous, toxic or
dangerous waste, substance, pollutant, contaminant, radiation or material
defined as such in (or deemed as such for purposes of) CERCLA, at the Closing
Date, or any other Environmental Law and (ii) any petroleum or petroleum-based
products.
1.53 "Holding Company" shall mean AMAL Corporation, a Nebraska corporation
to be formed pursuant to Section 2.1 hereof.
1.54 "HSR Act" shall mean Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), as amended (including
without limitation any successor act), and the rules and regulations promulgated
thereunder.
1.55 "Initial Investment" shall mean $17.77 million in cash, which amount
shall be contributed by AML to Holding Company at the Closing as provided in
Section 2.1 hereof.
1.56 "Inside Director" shall mean a director of Holding Company, AVLIC or
AIC who is a full-time employee of ALIC, AML, Holding Company, AVLIC, AIC or any
Affiliate of any of the foregoing.
1.57 "Intercompany Liabilities" shall mean Liabilities between AVLIC or
AIC, on the one hand, and, on the other, ALIC or any other Affiliate of ALIC,
AVLIC or AIC or any officer or director of any of the foregoing or any Affiliate
or business venture (other than Holding Company and its Subsidiaries) in which
any of the foregoing have any material interest.
1.58 "Investment" shall mean the Initial Investment plus or minus the
Difference.
1.59 "Joint Venture" shall have the meaning ascribed to it in the Recitals
to this Agreement.
1.60 "JV Baseline Weighted Premium" shall mean the sum of the amounts, for
all Product Categories, calculated by multiplying (x) the First Year Earned
Premiums of AVLIC during 1995 in respect of Variable Products and the First Year
Earned Premiums of ALIC during 1995 in respect of Fixed Annuities by (y) the
Product Factor applicable to such Product Category.
1.61 "JV Weighted Premium" shall mean, for any month, the sum of the
amounts, for all Product Categories, calculated by multiplying (x) the First
Year Earned Premiums of AVLIC from all sources during the 12-month period ending
with the close of business on the last day of such month (or, if shorter, the
period elapsed from the Closing Date to the last day of such month), for each
such Product Category, by (y) the Product Factor applicable to such Product
Category.
1.62 "Knowledge of ALIC" shall mean the actual knowledge of any director,
officer, manager or supervisor of ALIC, AVLIC or AIC, or knowledge which should
have been obtained by any such individual in the normal course of performing the
duties attendant to his or her position.
1.63 "Knowledge of AML" shall mean the actual knowledge of any director,
officer, manager or supervisor of AML, or knowledge which should have been
obtained by any such individual in the normal course of performing the duties
attendant to his or her position.
1.64 "Laws" shall mean all laws, statutes, ordinances, regulations and
other pronouncements having the effect of law of the United States of America or
any state, commonwealth, city, county, municipality, territory, protectorate,
possession, court, tribunal, agency, government, department, commission,
arbitrator, board, bureau or instrumentality thereof.
1.65 "Liabilities" shall mean all debts, obligations and other liabilities
of a Person, whether absolute, accrued, contingent, fixed or otherwise, and
whether due or to become due, which are recognized as liabilities in accordance
with SAP (other than "Interest Maintenance Reserves" and "Asset Valuation
Reserves") and/or GAAP.
1.66 "Lien" shall mean any mortgage, pledge, assessment, security interest,
lease, sublease, lien, adverse claim, levy, charge or other encumbrance of any
kind, or any conditional sale Contract, title retention Contract or other
Contract to give or to refrain from giving any of the foregoing other than
Permitted Encumbrances.
1.67 "Low Load Products" shall mean Variable Products which pay de minimis
or no direct first year or renewal sales commissions and which are marketed as
"low load" products within the meaning of applicable Laws and as commonly
understood in the insurance and/or securities industries.
1.68 "Major Issue" shall mean a question or decision which, alone or in the
aggregate with related questions or decisions, would have or would reasonably be
expected to have a financial impact of more than $1,000,000 on the operations,
finances, capitalization or strategic direction of Holding Company or any of its
Subsidiaries, other than as set forth in any plan of operation or annual budget
or business plan which has been approved by the board of directors of Holding
Company.
1.69 "Material Issue" shall mean a question or decision which, alone or in
the aggregate with related questions or decisions,
(a) would have or would reasonably be expected to have a financial
impact of more than $1,000,000 on the operations, finances,
capitalization or strategic direction of Holding Company or any
of its Subsidiaries, other than as set forth in any plan of
operation or annual budget or business plan which has been
approved by the board of directors of Holding Company;
(b) would have or would reasonably be expected to have a significant
impact on the Distribution Force of AVLIC or on any regulatory
approvals or insurance ratings of AVLIC;
(c) involves the marketing by Holding Company or its Subsidiaries of
a new product line or through a new method of distribution;
(d) would or might involve Holding Company, AVLIC, AIC or any other
Subsidiary in any potential violation of applicable Law that
would or would reasonably be expected to have a material adverse
effect on Holding Company or any Subsidiary thereof; or
(e) is a matter which the board of directors has been unable to
resolve as provided in Section 2.6(a).
Except as otherwise agreed in writing at the time the question or decision
arises, a Material Issue shall not occur in relation to:
(1) any action reasonably attendant to the day to day operation of
Holding Company or any Subsidiary thereof; or
(2) any matter which is expressly resolved by reference to an express
provision of
a) this Agreement, the Service Agreements, the Guaranties or
any other written Contract between ALIC and AML, as modified
or amended from time to time,
b) any then effective plan of operation, annual budget or
business plan for Holding Company, AVLIC or AIC which has
been approved by a vote of its board of directors, or
c) any applicable resolution of the board of directors of
Holding Company, AVLIC or AIC (or action of the executive
committee of AVLIC or AIC) which has not been withdrawn and
has not been the subject of a subsequent vote in which the
board of directors (or executive committee) was unable to
resolve such matter.
1.70 "NASD" shall mean the National Association of Securities Dealers, Inc.
1.71 "Notice of Election" shall mean the written notice given to the
Selling Party by the other party to this Agreement as provided in Section
2.8(a)(2)(b) hereof.
1.72 "Noticing Party" shall mean a party to this Agreement who gives an
Auction Notice to the other party to this Agreement.
1.73 "Offering Party" shall mean a party who receives a Unilateral Auction
Notice.
1.74 "Option" shall have the meaning ascribed to it in Section 2.5 hereof.
1.75 "Option Period" shall mean the five-year period which begins on the
day following the Closing Date and ends at 11:59 p.m. on the fifth anniversary
of the Closing Date.
1.76 "Option Ratio" shall mean, for any calendar month, the ratio of the JV
Weighted Premium for such month to the JV Baseline Weighted Premium.
1.77 "Other Party" shall mean a party who receives an Offering Party's
offer in connection with a Unilateral Auction as provided in Section 2.6 hereof.
1.78 "Outside Director" shall mean a director of Holding Company, AVLIC or
AIC who may be a director of ALIC or AML, but who is not a full-time employee of
ALIC, AML, Holding Company, AVLIC or AIC or any Affiliate of any of the
foregoing.
1.79 "Permitted Encumbrances" shall mean the following encumbrances: (i)
Liens for Taxes, either not yet due and payable or to the extent that nonpayment
thereof is permitted by the terms of this Agreement; (ii) pledges or deposits
securing obligations under worker's compensation, unemployment insurance, social
security or public liability laws or similar legislation; (iii) pledges or
deposits securing bids, tenders, Contracts (other than Contracts for the payment
of money) or leases to which ALIC or any of its Affiliates is a party as lessee
made in the ordinary course of business, (iv) deposits securing public or
statutory obligations of ALIC or any of its Affiliates; (v) workers',
mechanics', suppliers', carriers', warehousemen's or other similar liens arising
in the ordinary course of business and securing indebtedness aggregating not in
excess of $100,000 at any time outstanding, to the extent not yet due and
payable; (vi) deposits securing or in lieu of surety, appeal or customs bonds in
proceedings to which ALIC or any of its Affiliates is a party; (vii) pledges or
deposits effected by ALIC or any of its Affiliates as a condition to obtaining
or maintaining any license of such Person; (viii) any attachment or judgment
lien, unless the judgment it secures shall not, within 60 days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall not have been discharged within 60 days after the expiration of any such
stay; (ix) zoning restrictions, easements, licenses or other restrictions on the
use of real property or other minor irregularities in title (including leasehold
title) thereto, so long as the same do not materially impair the use, value or
marketability of such real property, leases or leasehold estates; and (x) Liens
under the provisions of insurance policies and annuities in force and
reinsurance and coinsurance contracts in force.
1.80 "Person" shall mean any natural person, corporation, general
partnership, limited partnership, proprietorship, trust, union, association,
court, tribunal, agency, government, department, commission, self-regulatory
organization, arbitrator, board, bureau, instrumentality, or other entity,
enterprise, authority or business organization.
1.81 "Prime Rate" shall mean the highest prime rate or base rate of
interest publicly announced by any of Citibank, N.A., Chase Manhattan, N.A. or
Bank of America, N.A., or any successor to any of the foregoing.
1.82 "Product Categories" shall mean those types of insurance and annuity
products set forth in the definition of the term "Product Factor." These
categories are further defined to include the following premiums:
Variable annuities: Premiums paid in respect of all current and
future annuity contracts filed as Variable
Products by AVLIC and approved by the
Commission.
Variable life-repetitive: Premiums paid in respect of current and
future AVLIC life insurance contracts that
are Variable Products up to the premium
established and published by AVLIC as the
"target premium."
Variable life-dump ins: Premiums paid in respect of current and
future AVLIC life insurance contracts that
are Variable Products which are in excess of
the published "target premium."
Variable life-single premium: The single premium paid in respect of current
and future AVLIC single premium life
insurance Contracts that are Variable
Products.
Fixed annuities: Premiums paid in respect of Fixed Annuities
issued by AVLIC which are not filed with or
approved by the Commission.
1.83 "Product Factor" shall mean, for any Product Category, the percentage
set forth below:
Product Category Percentage
Variable annuities 1.8%
Variable life
--repetitive 35.0%
--dump ins 6.0%
--single premium 1.8%
Fixed annuities 1.5%
1.84 "Proposed Purchaser" shall mean a Third Party which is not an
Affiliate to whom ALIC or AML proposes to sell, assign or otherwise transfer its
Shares in a bona fide transaction pursuant to Section 2.8(a)(2) hereof.
1.85 "Quarterly Statement" shall mean the quarterly SAP Statements of AVLIC
and/or the separate accounts thereof filed with or submitted to the insurance
regulatory authority in the state in which it is domiciled on forms prescribed
or permitted by such authority for each of the first three quarters of 1995.
1.86 "Real Estate" shall mean any real property, fixtures and interests
therein, including without limitation leasehold interests.
1.87 "Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, leaching, dumping or other disposal,
or any escaping or migrating, in any amount into or onto the air, ground or
surface water, land or other parts of the environment, however caused, not
permitted by or in compliance with Environmental Laws.
1.88 "SAP" shall mean the accounting practices required or permitted by the
National Association of Insurance Commissioners and the insurance regulatory
authority in the state in which AVLIC is domiciled, consistently applied
throughout the specified period and in the immediately prior comparable period.
1.89 "SAP Statements" shall mean any and all annual, quarterly or other
interim financial statements prepared by or on behalf of a Person and/or its
separate accounts (and notes related thereto), which include a balance sheet and
a statement of income, whether audited or unaudited, which were prepared in
accordance with SAP and satisfy the standards set forth in Section 3.12 hereof.
1.90 "Selling Party" shall mean the party to this Agreement who proposes to
sell, assign or otherwise transfer its Shares to a Proposed Purchaser in a bona
fide transaction pursuant to Section 2.8(a)(2) hereof.
1.91 "Service Agreements" shall mean the (i) the Service Agreement dated as
of the Closing Date, among AVLIC, ALIC and AML, substantially in the form
attached hereto as Exhibit E; and (ii) the Service Agreement dated as of the
Closing Date between AIC and ALIC, substantially in the form attached hereto as
Exhibit F.
1.92 "Shares" shall mean all issued and outstanding shares, par value $1.00
per share, of the capital stock of Holding Company.
1.93 "Statement" shall mean the statement on Form A to be filed by AML
pursuant to Neb. Rev. Stat. Section 44-2126 with the Director of Insurance for
the State of Nebraska, which Statement shall seek approval of the full
implementation of this Agreement and acknowledge that immediately after the
Closing ALIC shall possess more than 50% of the equity interest in Holding
Company (and indirectly, in AVLIC), and that ALIC accordingly shall possess the
power as shareholder to exercise control over those entities.
1.94 "Subsidiary" shall mean each of those Persons, regardless of
jurisdiction of organization, of which a specified Person, directly or
indirectly through one or more Subsidiaries, owns beneficially securities having
more than 50% of the voting power in the election of directors (or Persons
fulfilling similar functions or duties) of such Person, without giving effect to
any contingent voting rights.
1.95 "Taxes" shall mean all taxes, charges, fees, levies, or other similar
assessments or liabilities, including without limitation income, gross receipts,
ad valorem, premium, excise, real property, personal property, windfall profit,
sales, use, transfer, licensing, withholding, employment, payroll and franchise
taxes imposed by the United States of America or any state, local or foreign
government, or any subdivision, agency or other similar Person of the United
States or any such government whether payable directly or by withholding and
whether or not requiring the filing of a return; and such term shall include any
interest, fines, penalties, assessments, or additions to tax resulting from,
attributable to or incurred in connection with any such tax or any contest or
dispute thereof.
1.96 "Tax Returns" shall mean any report, return or other information
required to be provided to or filed with a taxing or other governmental
authority in connection with Taxes.
1.97 "Third Party" shall mean a Person other than ALIC or AML.
1.98 "Transfer Notice" shall mean the notice describing the material terms
of the bona fide offer of a Proposed Purchaser to a Selling Party, which notice
shall be in reasonable detail and shall include, without limitation, the
proposed purchase price, the amount and kind of consideration to be paid and the
identity of the Proposed Purchaser.
1.99 "12/31/94 Value" shall mean the sum of the Value of AVLIC and the
Value of AIC, both as of December 31, 1994.
1.100 "Unilateral Auction" shall mean an auction in which one party to
this Agreement is required to submit an offer to the other party to this
Agreement specifying a price per Share at which it will either sell its Shares
or purchase the other party's Shares, in accordance with Section 2.6(e) hereof.
1.101 "Unilateral Auction Notice" shall mean a written communication given
by one party to this Agreement to the other party to invoke a Unilateral
Auction.
1.102 "Value" shall mean the book value of a specified Person as of a
specified date, measured in accordance with GAAP based on an audited GAAP
Statement or, if otherwise permitted herein, a Verified unaudited GAAP
Statement.
1.103 "Variable Products" shall mean life insurance policies and/or
annuities under which (i) the policyholder has the right to assume the
investment risk (including loss of principal), in whole or in part, and (ii) the
policyholder has the right to direct the manner in which the policy or annuity
funds shall be invested and the policyholder's options shall include at least
one separate account.
1.104 "Verified" shall mean accompanied by a representation that the
subject financial statement is prepared in accordance with GAAP and with all
applicable laws, and presents fairly, in all material respects, all the
information contained therein, including without limitation the assets,
Liabilities, and capital and surplus of the subject Person as of the date
thereof, and such Person's results of operations and cash flows for and during
the respective periods covered thereby, and is accompanied by a signed statement
to such effect by the chief financial officer of the subject Person.
1.105 "Work Papers" shall mean all summaries, calculations compilations
and similar written documentation derived from the Books and Records of AVLIC or
AIC and used or prepared by accountants in the process of computing the Value of
such companies.
ARTICLE II
FORMATION AND TERMS OF JOINT VENTURE
At the Closing, ALIC and AML shall enter into the Joint Venture on the
following terms and conditions, and at and following the Closing, the occurrence
of which shall be evidenced by the execution and delivery of the Closing
Confirmation, the provisions of this Article II together with the provisions of
Articles XII and XIII and any agreements or other documents executed pursuant to
this Article II shall survive and shall constitute the entirety of the parties'
agreements with respect to the Joint Venture.
2.0 Purpose of Joint Venture. The purpose of the Joint Venture shall be
to own and manage AVLIC and AIC as provided herein, and to acquire, manage,
transfer, dissolve and/or otherwise operate such other Persons and/or business
operations as the parties may determine from time to time. Holding Company
shall have such powers as are necessary or appropriate to carry out the purposes
of the Joint Venture, including without limitation the following powers:
(a) to own, form, manage, operate, sell, transfer and dissolve any
Subsidiary;
(b) to borrow money and to guarantee the obligations of any
Subsidiary for any business, object or purposes of the Joint Venture from time
to time, without limit as to amount, and to secure the payment thereof by the
creation of any Lien;
(c) to make such investments as the board of directors of Holding
Company or any Subsidiary thereof deems advisable;
(d) to open, maintain and close bank accounts, to draw checks and
other orders for the payment of money;
(e) to employ and dismiss from employment any and all employees,
agents or independent contractors;
(f) to sue and to defend suits and to prosecute, settle or compromise
claims by or against others;
(g) to enter into, make and perform all such Contracts as may be
necessary or advisable or incident to the carrying out of the foregoing
purposes;
(h) to exercise such additional powers as are granted by the Laws of
the State of Nebraska, including those powers granted to a Nebraska corporation
under the provisions of the Nebraska Business Corporation Act which are not
otherwise inconsistent with any specific provision of this Agreement; and
(i) to take such other actions as the board of directors of Holding
Company may deem necessary or advisable in connection with the business of the
Joint Venture, including the retention of agents, independent contractors,
attorneys, accountants and other experts selected by such board of directors on
behalf and at the expense of Holding Company, and in connection with the
preparation and filing of all Joint Venture Tax Returns.
2.1 Formation of Holding Company. Prior to the Closing, the parties shall
cause to be taken all actions necessary to form Holding Company, with 10,000
Shares of capital stock, par value $1.00 per Share, authorized for issuance.
The articles of incorporation of Holding Company shall be as set forth in
Exhibit H hereto. Prior to the Closing, the parties shall, as incorporators,
adopt Bylaws for Holding Company in the form attached hereto as Exhibit K, elect
the Directors nominated by the parties in accordance with Section 2.4(a) hereof,
and elect the initial officers of Holding Company as provided in Section 2.4(f)
hereof. At the Closing, ALIC shall contribute or cause to be contributed 100%
of the capital stock of AVLIC and AIC to Holding Company, free and clear of all
liens and encumbrances of any kind whatsoever, and AML shall contribute a cash
amount equal to the Initial Investment. One hundred Shares shall thereupon be
issued as follows: 66 to ALIC and 34 to AML, and such Shares shall constitute
all of the then issued and outstanding Shares of Holding Company.
2.2 Capitalization of Holding Company.
(a) Holding Company shall make a capital contribution to AVLIC equal
to the cash it receives on the Closing Date, less an amount sufficient to pay
expenses and any obligation of Holding Company pursuant to Section 2.10(b)
hereof.
(b) During the term of the Joint Venture, ALIC and AML shall fund
capital calls of Holding Company when necessary to permit Holding Company to
maintain AVLIC's and/or AIC's capital, as determined by action of the board of
directors of Holding Company declaring a capital call. Each party shall pay
that portion of the aggregate capital contribution which is equal to its
proportionate share of the then outstanding Shares of Holding Company.
(c) In the event any Guaranty Payment is made, then each of ALIC and
AML shall indemnify the other so that, after such indemnification payments are
made hereunder, the relative amounts paid with respect to such obligation by the
parties under their respective Guaranties and under this Section 2.2(c) are
proportionate to the parties' ownership of the Shares as of the date such
Guaranty Payment was made. For this purpose and for purposes of the following
sentence, any payments made by any AML Parent described in Section 2.8(j) hereof
under its separate Guaranty shall be treated as payments made by AML. In
accordance with the foregoing, following any transaction in which either ALIC or
AML becomes the owner of all of the Shares, such owner shall indemnify the other
party for the full amount of any payment made under such other party's Guaranty
following the closing of such purchase. The provisions of this Section 2.2(c)
shall survive termination of the Joint Venture.
(d) If and when Holding Company receives any amounts under Section
2.5 in respect of the exercise of any portion of the Option, Holding Company
shall, unless the board of directors of Holding Company otherwise determines,
make a capital contribution to AVLIC in an amount equal to 90% of such amount
received.
2.3 Distribution Efforts and Competition.
(a) Except as otherwise provided in Subsection (c) below, ALIC and
AML shall use all reasonable efforts and take all reasonable actions to
encourage their respective Distribution Forces, consistent with the requirements
of law and to the extent not prohibited by any other applicable Contract
executed prior to the date of this Agreement, to accept appointment by AVLIC and
to distribute the Variable Products and Fixed Annuities of AVLIC. More
specifically, AML shall commit to take the actions set forth in the marketing
plan set forth as Exhibit I to this Agreement.
(b) Except as otherwise provided in Subsection (c) below, while the
Joint Venture is in effect, neither AML nor ALIC nor any Affiliate of either
(other than Holding Company and its Subsidiaries) shall, directly or indirectly,
or in combination with any other Person, (i) sell, issue, sponsor or provide any
Variable Products or Fixed Annuities except Variable Products or Fixed Annuities
of AVLIC; or (ii) provide any incentive, value, inducement, recognition or other
reward for any member of its Distribution Force or any other agent, employee or
representative thereof for selling any Variable Products or Fixed Annuities
which are not AVLIC products; provided, however, that the foregoing limitation
shall not limit either party's right to distribute any Variable Product or Fixed
Annuity product of any Person other than AVLIC, or to provide any incentive
described in clause (ii) above, in any state until and unless AVLIC has obtained
all licenses and approvals necessary or appropriate to permit a comparable
product of AVLIC to be distributed in such state.
(c) The limitations in Sections 2.3(a) and (b) hereof shall not apply
to:
(1) the distribution by ALIC of its Low Load Products, which may
be sold through such marketing channels as ALIC may determine in its reasonable
discretion, including without limitation through non-commission-earning
financial planners and ALIC's Affiliate, Veritas Corp.; provided, however, that
ALIC's Low Load Products shall not be sold by or through ALIC's or AVLIC's
Distribution Force in any state in which AVLIC has obtained all licenses and
approvals necessary or appropriate to permit a comparable product of AVLIC to be
distributed in such state (but de minimis sales in violation of this clause
shall not be deemed a material breach of this Agreement);
(2) the distribution of group fixed annuities and group Variable
Products of ALIC, which may include an option to convert all or part of such
Contract to a Fixed Annuity or an annuity which is a Variable Product upon
retirement, sold by ALIC's pension department to group pension and retirement
plans or the individual members of such group pursuant to Sections 403(b) or 457
of the Code;
(3) the solicitation or acceptance by ALIC or AML of renewals,
replacements, or other continued or increased Fixed Annuity contributions by
Persons who have had annuity policies with such party on or prior to the Closing
Date;
(4) the distribution, following any Corporate Transaction of
ALIC, of Variable Products or Fixed Annuities through marketing channels which
do not include the Distribution Force of ALIC, or the distribution, following
any Corporate Transaction of AML, of Variable Products or Fixed Annuities
through marketing channels which do not include the Distribution Force of AML;
(5) the acquisition and servicing by either party of any
existing Variable Products or Fixed Annuity business originated by a Third
Party, and any associated renewals, replacements or other continued or increased
contributions by holders of such Variable Products or Fixed Annuities; or
(6) any distribution activities of any employees or agents of
AmerUs Bank or any of its subsidiaries; provided, however, that AML must employ
all reasonable efforts, in accordance with applicable law, to encourage the
employees or agents of AmerUs Bank who are registered representatives to accept
appointment with AVLIC and to distribute the Variable Products and Fixed
Annuities of AVLIC.
(d) While the Joint Venture is in effect and for a period of two
years thereafter, neither AML nor ALIC nor any Affiliate of either (other than
Holding Company and its Subsidiaries) shall, directly or indirectly, or in
combination with any other Person,
(1) knowingly appoint, employ, recruit or otherwise solicit or
engage as an employee or as a member of its Distribution Force any individual
who was, within two years prior to such appointment, a member of the
Distribution Force of the other party to this Agreement or any Affiliate thereof
(other than Holding Company and its Subsidiaries) or an employee of such other
party or any Affiliate thereof (other than Holding Company and its
Subsidiaries);
(2) except with the prior written agreement of the other party
to this Agreement, utilize, directly or indirectly, for any purpose other than
the business interests of the Joint Venture, any policyholder information,
customer lists or other proprietary material of or relating to Holding Company
or its Subsidiaries; provided, however, that any such action on the part of
individual members of a party's Distribution Force with respect to such
information shall not be deemed to violate this section; and provided further
that this provision shall not prevent either ALIC or AML or any of their
Affiliates (other than Holding Company and its Subsidiaries) from utilizing the
policyholder information, customer lists or other proprietary material which it
has developed with respect to any Person who is a customer of such Person or of
an Affiliate thereof (other than Holding Company or its Subsidiaries) and who is
also a customer of Holding Company or a Subsidiary thereof; or
(3) solicit policyholders and other customers of Holding Company
and/or its Subsidiaries for the purpose of attempting to replace any policy
issued by or other product sold by or through Holding Company and/or its
Subsidiaries with a policy issued by or product sold through such party or its
Affiliates; provided, however, that incidental violations of this limitation by
individual insurance agents shall not be deemed to violate this section absent
evidence that the violations resulted from a marketing plan, scheme or effort of
the party by which such agent is appointed.
(e) ALIC or AML or any Affiliate of either (other than Holding
Company and its Subsidiaries) may make and/or enter into such acquisitions,
divestitures, mergers, consolidations, reorganizations or other transactions
affecting its corporate structure as each may in its sole discretion determine;
provided that if any such transaction involves or constitutes a change of
control with respect to ALIC or AML, then the other party shall have the right
in its sole discretion to give, within thirty days after such party receives
notice of such change of control, a Unilateral Auction Notice to the party
engaging in such transaction. A "change of control" shall occur if a majority
of the board of directors of an entity or, if an ultimate parent exists at such
time, the board of directors of such ultimate parent, shall consist of
individuals who were not directors of such entity prior to such transaction or
who were not nominated for board membership by such directors.
(f) The parties intend that AVLIC shall develop and market its own
Low Load Product(s).
2.4 Governance and Control. The following provisions shall be implemented
as soon as practicable after the Closing, and the governance arrangements and
the agreements of ALIC and AML which are set forth in this Section 2.4 shall be
continuing obligations of the parties throughout the continuance of the Joint
Venture, except as otherwise expressly provided in this Agreement:
(a) The board of directors of Holding Company shall be comprised of
eight members, four of whom shall be selected by ALIC and four of whom shall be
selected by AML. Of the four directors selected by each party, two shall be
Inside Directors and two shall be Outside Directors.
(b) As soon as possible after the Closing, the parties shall take all
action necessary to cause Lawrence J. Arth to be elected as the Chief Executive
Officer of Holding Company and of AVLIC. The Chief Executive Officer's term of
office at both Holding Company and AVLIC shall continue for five years from the
Closing Date or until a successor is duly elected by a majority of the board of
directors of Holding Company at an earlier date.
(c) ALIC and AML shall cause the boards of directors of AVLIC and of
AIC to be comprised of six members, three of whom shall be selected by ALIC and
three of whom shall be selected by AML. All such directors shall be Inside
Directors.
(d) ALIC and AML shall cause the board of directors of each of AVLIC
and of AIC to form an executive committee consisting of two directors, one of
whom shall be selected by ALIC and one of whom shall be selected by AML;
provided that such selections must be mutually acceptable to both parties in
their reasonable discretion. As soon as possible after the Closing, ALIC shall
take all action necessary to select Kenneth C. Louis as its initial appointee to
each such executive committee, and AML shall take all action necessary to select
D T Doan as its initial appointee to each such executive committee, and the
parties agree that those selections are mutually acceptable. Any action of
either executive committee shall require the unanimous vote of both of its
members, and if one member is not present or is unable to vote on such matter,
or in the event of a vacancy, then the executive committee shall not take any
action until two members selected in accordance with this subsection (d) are
able to vote. The executive committees of AVLIC and AIC shall have such duties
as the respective board of directors may direct, but it is understood that the
Chief Executive Officer of each of AVLIC and AIC shall report to the executive
committee of such entity.
(e) ALIC and AML shall jointly cause to be selected an individual who
was not previously an employee of either party, and the parties shall cause such
individual to be elected as President of AVLIC. The President of AVLIC shall
report to the Chief Executive Officer of AVLIC.
(f) ALIC and AML shall jointly cause to be elected as the initial
officers of Holding Company, AVLIC and AIC those individuals as set forth on
Exhibit J hereto.
(g) The following provisions shall govern the boards of directors of
each of Holding Company, AVLIC and AIC:
(1) Any action of the board of directors shall require the
affirmative vote of a majority of the full number of directors specified in this
Agreement, whether or not each director is present and/or eligible to vote on
such matter, and whether or not any vacancy occurs with respect to one or more
seats on such board.
(2) Upon the express written direction of ALIC or AML, which may
be given at any time in the sole discretion of either party, with or without
cause, ALIC and AML shall together take such actions as may be necessary to
remove any director or committee member selected and/or appointed by the party
giving such direction, without prior notice or delay. In the event a vacancy
occurs, whether due to resignation, death, removal or other cause, then the
party which selected and/or appointed the director or committee member who
vacated such position shall promptly select and/or appoint a new director and/or
committee member, whom the parties shall promptly cause to be elected to fill
such vacancy.
(3) Any two members of the board of directors may, upon written
request directed to the Secretary or the Chairman of the corporation,
a) call a meeting of the board of directors;
b) place any matter on the agenda for any meeting of the
board of directors; and/or
c) call for a vote on any agenda item during any meeting
of the board of directors.
(4) To the extent not inconsistent with the specific provisions
set forth above, the board of directors may form such committees and elect such
officers as may be necessary or appropriate. Except as otherwise specifically
provided above, the term of office for any officer of Holding Company, AVLIC and
AIC shall be one year. Any office not filled by reelection or new election by
action of the board of directors shall remain vacant, provided, however, that
neither party may, without the consent of the other, arbitrarily cause the
directors appointed by it to refuse to vote in such election.
(h) As soon as possible after the Closing, the parties shall take all
action necessary to adopt the by-laws set forth as Exhibits K, L and M hereto as
the by-laws of Holding Company, AVLIC and AIC, respectively.
(i) In the event that any vote by the shareholder (Holding Company)
of AVLIC or AIC is required at any time, such vote shall be made only after and
in accordance with a vote of the Board of Directors of Holding Company.
(j) Any Contract of AVLIC with AIC, Holding Company, ALIC and/or AML
shall be effective only upon approval by the board of directors of AVLIC; any
Contract of AIC with AVLIC, Holding Company, ALIC and/or AML shall be effective
only upon approval by the board of directors of AIC; and any Contract of Holding
Company with AVLIC, AIC, ALIC and/or AML shall be effective only upon approval
by the board of directors of Holding Company. Until and unless such approval is
obtained, any such Contract shall be void ab initio.
2.5 Option. From and after the Closing, AML shall have the option to
acquire newly issued Shares of Holding Company which would, together with prior
issuances of Shares to AML, total up to 49% of the outstanding Shares of Holding
Company (the "Option"), on the terms and subject to the conditions set forth in
this Section 2.5.
(a) The Option shall not be exercisable pursuant to Sections 2.5(b)
and (c) hereof until and unless the AML Weighted Premium, for at least one
calendar month at any time during the Option Period, exceeds the AML Baseline
Weighted Premium.
(b) Subject to Section 2.5(a) hereof, the Option shall be exercisable
by AML in three portions, which may be exercised singly or sequentially with one
or both of the other portions, and shall be exercised in the order set forth
below. Each portion of the Option shall individually permit AML to acquire that
number of newly issued Shares which will, when added to AML's existing Shares,
increase AML's percentage ownership of the aggregate outstanding Shares by 5%.
If and to the extent that, in any calendar month, any of the Option Ratio
percentage(s) set forth below is(are) met or exceeded, then the corresponding 5%
portion(s) of the Option shall be exercisable, at the exercise price(s) which
are set forth below and are expressed as a percentage of the Aggregate
Investment. AML's aggregate percentage ownership of the Shares following its
exercise of each such portion of the Option shall be as set forth below.
Exercise Price
as a % of Post-Exercise
Option Ratio Alternate Investment Aggregate % of Shares
------------ -----------------------------------------
200% 24.1% 39%
300% 28.4% 44%
400% 34.0% 49%
(c) To the extent any portion(s) of the Option become(s) exercisable
in accordance with the provisions of this Section 2.5, AML shall, in order to
exercise such portion(s) of the Option, give ALIC written notice of AML's
intention to exercise such portion(s) of the Option within 30 days after the
parties determine that such portion(s) of the Option is (are) exercisable, and
shall consummate the exercise of such portion(s) of the Option within 60
additional days; provided, however, that if, in the opinion of counsel to AML,
the approval of the Director of Insurance of the State of Nebraska is required
to exercise such portion of the Option, then that 60 day period shall be
extended to one year for AML to secure such approval and exercise such portion
of the Option (as to any exercisable portion of the Option, the "Exercise
Period"). Prior to the expiration of the Exercise Period, AML shall designate a
time at which it shall consummate such exercise at the offices of Holding
Company and/or AVLIC in Lincoln, Nebraska or such other place as the parties may
reasonably agree. At such time and place, AML shall pay to Holding Company the
exercise price specified in Subsection 2.5(b) hereof, in cash or by wire
transfer of immediately available funds, and Holding Company shall cause to be
delivered the certificates representing the Shares purchased pursuant to such
exercise.
(d) Any failure by AML to exercise any portion(s) of the Option
during the Exercise Period applicable to such portion(s) shall cause the
following consequences, effective at the end of such Exercise Period:
(1) Such unexercised portion(s) of the Option and any and all
other portion(s) of the Option which have not previously been exercised shall
lapse and shall be of no further force or effect; and
(2) Sections 2.4(a), (c), (d) and (g)(1) of this Agreement shall
be null and void, and each of the shareholders of Holding Company shall
thenceforth be entitled to elect that portion of the directors of Holding
Company, AVLIC and AIC which corresponds to its then percentage ownership of the
Shares.
(e) To the extent the Option or any portion(s) thereof does(do) not
become exercisable during the Option Period in accordance with the provisions of
Sections 2.5(a) and (b) hereof, then ALIC may in its sole and absolute
discretion, at any time after the expiration of the Option Period, give notice
to AML that it is waiving all of the limitations in Sections 2.5(a) and (b) of
this Agreement which, by their terms, prevented the Option from becoming
exercisable, and AML shall thereupon be entitled to exercise the Option in
accordance with Subsection 2.5(c) hereof.
2.6 Dispute Resolution and Auction.
(a) If at any time during the continuation of the Joint Venture the
board of directors of AVLIC or AIC is unable to resolve any matter which has not
previously been agreed to or decided by a written agreement of the parties or by
a vote of such board of directors taken within the prior six months, then such
matter shall be referred to the board of directors of Holding Company. If the
board of directors of Holding Company is unable to resolve any matter which has
been the subject of a vote of the directors (whether referred from the board of
directors of AVLIC or AIC or otherwise), then:
(1) that matter shall be referred to the Outside Directors of
Holding Company, and the Outside Directors shall within 15 Business Days attempt
to resolve such matter using such means of communication or meetings as may be
appropriate under the circumstances; and
(2) if such matter remains unresolved at the end of the
15-Business Day period described in the foregoing paragraph, then the parties
shall within ten additional Business Days select a mediator mutually agreeable
to the parties or submit the disagreement to mediation under the Commercial
Mediation Rules of the American Arbitration Association. The mediator shall not
have authority to impose a settlement upon the parties, but will attempt to help
ALIC, AML and/or their respective appointees to the board of directors of
Holding Company work in good faith to reach a satisfactory resolution of the
disagreement. The mediator shall end the mediation whenever, in his or her
judgment, further efforts at mediation would not contribute to a resolution of
the submitted disagreement. Any fees and expenses related to such mediation
shall be paid one-half by ALIC and one-half by AML.
Until and unless the disputed matter is resolved in accordance with the
provisions of this Agreement, and after the Outside Directors have attempted and
have been unable to resolve such matter as provided above, no action shall be
taken by any officer of Holding Company or any Subsidiary thereof which would
affect the subject matter of the dispute. Such officers may, however, continue
to perform all of the duties of their respective offices with regard to any
other matters.
(b) After the expiration of five years from the Closing Date, in the
event that any Disputed Issue which is a Major Issue remains unresolved
following the efforts at resolution described in Section 2.6(a), then within 30
days after the conclusion of such efforts, either party may, by giving an
Auction Notice to the other, initiate an Auction, as described below:
(1) In the event the party receiving such Auction Notice
disputes that the question or decision is a Major Issue, such party must give
notice of such dispute to the other party within 15 days of its receipt of the
Auction Notice and, if such party fails to give such notice, the question or
decision shall be conclusively deemed to be a Major Issue and any claim or
argument to the contrary shall be waived. ALIC and AML agree that any disputes
arising out of or relating to the determination of whether a question or
decision constitutes a "Major Issue" shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association (the "AAA
Rules") and the Federal Arbitration Act. The determination of the arbitrator
shall be expedited to the fullest extent possible, consistent with the AAA
Rules, and such determination shall be deemed final. In the event arbitration
is invoked as provided herein, the time periods set forth below for the conduct
of the Auction shall not begin to run until after the arbitrator's decision is
received by the parties.
(2) In the event an Auction Notice is given in accordance with
this provision, then the Noticing Party shall, within 60 days after giving the
Auction Notice, deliver to the other party an offer specifying the per-share
price at which it would purchase the other party's Shares.
(3) Within 60 days after the date of the Auction Notice or, if
later, within ten days after the Noticing Party delivers the offer described in
subparagraph (2) above, the other party may deliver to the Noticing Party an
offer specifying the per-share price at which it would purchase the Noticing
Party's Shares.
(4) The Auction shall continue with the submission of subsequent
offers, if any, by each party within ten Business Days of receipt of the other
party's previous offer in accordance with the provisions of this Section 2.6(b),
until (x) any such ten-day period expires without the submission of an offer by
the party entitled to submit same and, in such event, the previous offer made by
the other party shall be deemed accepted immediately prior to the expiration of
such period; or (y) one party delivers to the other a written acceptance of the
other party's then present offer.
(5) Each offer submitted in accordance with this Section 2.6(b)
shall be in writing, shall be delivered by hand, courier service, overnight mail
or delivery service, or telecopy, and shall be effective at the addresses set
forth in Article XII hereof when duly given (pursuant to Article XII hereof)
within the time periods specified above, as such time periods are extended or
modified by written agreement of the parties. Each offer hereunder shall be an
unconditional offer (subject only to any required approval of the Director of
Insurance for the State of Nebraska) to purchase all, but not less than all, of
the other party's Shares, for an amount payable in cash at a closing in
accordance with this Section 2.6(b), and each offer must be at least one half of
one percent (0.5%) higher than the preceding offer, but in all events such
increase in the per-Share offer shall be an amount which, when multiplied by the
aggregate number of Shares outstanding, equals at least $500,000. Each offer
shall, once made, be irrevocable until the earlier of (x) the expiration of the
period within which the other party may submit its own offer; or (y) the other
party actually submits its own offer.
(6) The party whose offer is accepted as provided herein shall,
within one year after the Acceptance Date (or any shorter period as such party
may determine), or as otherwise provided in Section 2.6(b)(7) below, consummate
its purchase of all the Shares held by the other party. During the period prior
to the closing of the purchase and sale transaction, the seller shall cooperate
fully with the purchaser in all respects, including but not limited to full
cooperation and assistance in obtaining any necessary approvals from the
Director of Insurance for the State of Nebraska and all actions necessary to
facilitate such closing and to continue the operation of the business (provided,
however, that the seller shall not be required to undertake such cooperation,
assistance or actions which involve significant out-of-pocket costs of the
seller unless the purchaser agrees in advance to reimburse the seller for such
costs), but no action shall be taken by either party or any officer of Holding
Company or any Subsidiary thereof other than in the ordinary course of business
unless both ALIC and AML have agreed to such action or unless the purchaser has
provided an irrevocable letter of credit or other similar evidence reasonably
satisfactory to the seller of its ability to close such purchase and sale
transaction (or has placed the purchase price and accrued interest in trust as
provided in Section 2.6(b)(7)a) hereof), in which case the purchaser may (i)
immediately designate an individual whom the parties will immediately cause to
be elected as the Chief Executive Officer of Holding Company (and, at the
purchaser's discretion, AVLIC and/or AIC), and (ii) take such other actions as
the purchaser may reasonably determine. At the closing of the purchase and sale
of Shares, the purchaser shall pay to the other party the purchase price,
together with interest at a rate per annum equal to the Prime Rate plus 3% from
the Acceptance Date to the date of such closing, based on the actual number of
days elapsed from and including the Acceptance Date to the date of payment and
based on a 360-day year. At such closing the seller shall transfer its Shares
free and clear of any and all liens, mortgages, pledges, security interests or
other restrictions or encumbrances (other than any Liens arising out of
Contracts approved by the parties hereto), but the transfer shall otherwise be
made without representation or warranty of any kind. Upon consummation of any
such transaction, this Agreement shall be deemed terminated.
(7) Notwithstanding the foregoing, in the event that it is
necessary for the party described as the "purchaser" in Section 2.6(b)(6) above
to secure the approval of the Director of Insurance for the State of Nebraska
with respect to such transaction and such approval has not been received, then:
a) Such purchaser shall, within one year after the
Acceptance Date, place or cause to be placed the
purchase price, together with interest accrued to such
date as provided in Section 2.6(b)(6) hereof, in trust
for the benefit of the selling party, and the selling
party shall thereafter (until the release of such
funds) be entitled to receive the investment income
earned thereon in lieu of the interest provided in
Section 2.6(b)(6) hereof, and such trust shall continue
until a time as soon as reasonably practicable after
such approval has been obtained (or the Director of
Insurance for the State of Nebraska notifies the
purchaser of his or her determination that such
approval is unnecessary), at which time the closing
described in Section 2.6(b)(6) above shall occur, with
the purchase price being paid by a release of funds
from the trust created hereunder. In any event, if
such approval has not been obtained (and the Director
of Insurance has not notified the purchaser of any
determination that approval is unnecessary) on or
before the third anniversary of the Acceptance Date,
and provided that the selling party has continued to
fulfill its obligations under Section 2.6(b)(7)c)
hereof, all amounts held in such trust shall be
released to the selling party in return for a transfer
of its Shares to such purchaser in accordance with
Section 2.6(b)(6) hereof, or an agreement by the
selling party to hold such Shares in trust for the
benefit of such purchaser pending the approval of such
transfer as provided in Section 2.6(b)(6) hereof by the
Director of Insurance for the State of Nebraska.
b) Such purchaser may, at any time, assign to a Third
Party, without restriction, all or part of such
purchaser's rights under this Agreement, including
without limitation the right to purchase the Shares of
the selling party, and such Third Party shall
thereafter be deemed the "purchaser" and have all of
the purchaser's rights, including but not limited to
the right to purchase the selling party's Shares as
provided herein; provided, however, that no such
assignment shall relieve the purchaser of its
obligation (vis-a-vis the selling party) to cause such
purchase and sale transaction to be completed at the
times and as otherwise provided herein. No transfer of
the purchaser's rights shall extend or re-start the
time periods provided in this Section 2.6(b)(7).
c) At all times after the amounts described in Section
2.6(b)(7)a) are placed in trust for the benefit of the
selling party and prior to the closing of the purchase
and sale transaction, the selling party shall continue
to cooperate fully with the purchaser in all respects
as provided in Section 2.6(b)(6).
d) The parties agree that the rights and obligations of
the parties under this Section 2.6(b)(7) shall always
be construed in accordance with applicable law,
including limitations such as those set forth in Neb.
Rev. Stat. Section 44-2126, so that no party shall be
obligated to take any action in violation of law.
(c) Except for matters which are proposed by AML for a vote of the
shareholders of Holding Company, or matters as to which this Agreement directs
the votes of the parties as shareholders, if at any time after the Closing any
matter is determined by the vote by ALIC of its majority equity interest in
Holding Company without the concurring vote of AML, then, at any time within 60
days after such vote by ALIC, AML may in its sole discretion give a Unilateral
Auction Notice to ALIC.
(d) If at any time after the Closing the board of directors of
Holding Company is unable to resolve any Disputed Issue which has been the
subject of a vote of the directors and the Outside Directors have attempted to
and have been unable to resolve such Disputed Issue, then neither the Chief
Executive Officer of Holding Company nor of AVLIC shall take, or cause or permit
any other officer of Holding Company, AVLIC or AIC to take, any action which
would affect such Disputed Issue, other than routine actions consistent with a
course of action previously approved by the board of directors of Holding
Company, AVLIC or AIC.
(1) In the event of a breach of Subsection 2.6(d), or if a
Disputed Issue becomes the subject of a vote of the directors after the Chief
Executive Officer of Holding Company or AVLIC takes, or causes or permits
another officer of Holding Company, AVLIC or AIC to take, an action which would
have been prohibited by Subsection 2.6(d) had the directors' vote occurred
earlier, then the Chief Executive Officer shall promptly either:
a) Obtain ratification of such action by a vote of the
board of directors of Holding Company; or
b) Reverse such action and place Holding Company and its
Subsidiaries in the same position as if such action had
never occurred.
(2) If the requirements of Subsection 2.6(d)(1) are not met
within 15 Business Days after the vote of directors referred to in Subsection
2.6(d) or 2.6(d)(1) above, and
a) if the Disputed Issue is a Material Issue, or
b) if the prohibited action described in Section 2.6(d) or
Section 2.6(d)(1) occurred after the above-referenced
directors' vote and was not taken pursuant to a binding
and irrevocable commitment made prior to such
directors' vote (whether or not the Disputed Issue is a
Material Issue),
then, if such Chief Executive Officer is Mr. Arth or another individual who is
affiliated concurrently or who was, within two years prior to assuming his or
her position as Chief Executive Officer of Holding Company or AVLIC, affiliated
with ALIC, then AML may in its sole discretion give ALIC a Unilateral Auction
Notice, and if such Chief Executive Officer is an individual affiliated
concurrently or who was within two years prior to assuming his or her position
as Chief Executive Officer of Holding Company or AVLIC affiliated with AML, then
ALIC may in its sole discretion give AML a Unilateral Auction Notice. Any
Unilateral Auction Notice pursuant to this Section 2.6(d)(2) shall be given
within thirty days after the expiration of the 15-Business Day period specified
in the first clause of this Section 2.6(d)(2).
(e) If one party gives to the other a Unilateral Auction Notice, then:
(1) If any portion(s) of the Option remains in effect but
has(have) not yet been exercised, then AML shall have the immediate right to
exercise such portion(s) in accordance with Section 2.5(c) hereof (except that,
if inconsistent, the time periods for such exercise shall be as set forth
herein), irrespective of any restrictions on exercisability which are set forth
in Section 2.5(a) or 2.5(b) hereof. In such event, AML shall give notice of its
intent to exercise such portion(s) of the Option within 30 days of the date of
the Unilateral Auction Notice, and shall consummate the exercise of such
portion(s) of the Option prior to or concurrently with the closing of the
purchase and sale transaction described in Section 2.6(e)(4) below.
(2) Within 75 days of its receipt of a Unilateral Auction
Notice, the Offering Party shall deliver to the other party (using such means as
are specified in Section 2.6(b)(5)) an irrevocable offer specifying the
per-share price at which the Offering Party will either sell all its Shares of
Holding Company or purchase all the Shares of Holding Company which are then
owned by the other party. Such offer shall be unconditional (subject only to
any required approval of the Director of Insurance for the State of Nebraska)
and shall provide for the purchase price to be paid in cash at a closing in
accordance with this Section 2.6(e). The Offering Party's offer shall be
irrevocable for the 15-day period described in the following Section.
(3) The Other Party shall, within 15 days of its receipt of the
Offering Party's offer, accept, in writing, either the Offering Party's offer to
sell the Shares owned by the Offering Party or the Offering Party's offer to
purchase the Shares owned by the Other Party. If the Other Party does not
respond in writing within such 15-day period, then the Other Party shall be
deemed to have accepted the Offering Party's offer to sell its Shares
immediately prior to the expiration of such 15-day period.
(4) The purchase and sale of such Shares shall be consummated
within one year after the Acceptance Date (or any shorter period as such party
may determine), or as otherwise provided in Section 2.6(e)(5) below. During the
period prior to the closing of the purchase and sale transaction, the seller
shall cooperate fully with the purchaser in all respects, including but not
limited to full cooperation and assistance in obtaining any necessary approvals
from the Director of Insurance for the State of Nebraska and all actions
necessary to facilitate such closing and to continue the operation of the
business (provided, however, that the seller shall not be required to undertake
such cooperation, assistance or actions which involve significant out-of-pocket
costs of the seller unless the purchaser agrees in advance to reimburse the
seller for such costs), but no action shall be taken by either party or any
officer of Holding Company or any Subsidiary thereof other than in the ordinary
course of business unless both ALIC and AML have agreed to such action or unless
the purchaser has provided an irrevocable letter of credit or other similar
evidence reasonably satisfactory to the seller of its ability to close such
purchase and sale transaction (or has placed the purchase price and accrued
interest in trust as provided in Section 2.6(e)(5)a) hereof), in which case the
purchaser may (i) immediately designate an individual whom the parties will
immediately cause to be elected as the Chief Executive Officer of Holding
Company (and, at the purchaser's discretion, AVLIC and/or AIC), and (ii) take
such other actions as the purchaser may reasonably determine. At the closing
of the purchase and sale of Shares, the purchaser shall pay to the other party
the purchase price, together with interest at a rate per annum equal to the
Prime Rate plus 3% from the Acceptance Date to the date of such closing, based
on the actual number of days elapsed from and including the Acceptance Date to
the date of payment and based on a 360-day year. At such closing the seller
shall transfer its Shares free and clear of any and all liens, mortgages,
pledges, security interests or other restrictions or encumbrances (other than
any Liens arising out of Contracts approved by the parties hereto), but the
transfer shall otherwise be made without representation or warranty of any kind.
Upon consummation of any such transaction, this Agreement shall be deemed
terminated.
(5) Notwithstanding the foregoing, in the event that it is
necessary for the party described as the "purchaser" in Section 2.6(e)(4) above
to secure the approval of the Director of Insurance for the State of Nebraska
with respect to such transaction and such approval has not been received, then:
a) Such purchaser shall, within one year after the
Acceptance Date, place or cause to be placed the
purchase price, together with interest accrued to such
date as provided in Section 2.6(e)(4) hereof, in trust
for the benefit of the selling party, and the selling
party shall thereafter (until the release of such
funds) be entitled to receive the investment income
earned thereon in lieu of the interest provided in
Section 2.6(e)(4) hereof, and such trust shall continue
until a time as soon as reasonably practicable after
such approval has been obtained (or the Director of
Insurance for the State of Nebraska notifies the
purchaser of his or her determination that such
approval is unnecessary), at which time the closing
described in Section 2.6(e)(4) above shall occur, with
the purchase price being paid by a release of funds
from the trust created hereunder. In any event, if
such approval has not been obtained (and the Director
of Insurance has not notified the purchaser of any
determination that approval is unnecessary) on or
before the third anniversary of the Acceptance Date,
and provided that the selling party has continued to
fulfill its obligations under Section 2.6(e)(5)c)
hereof, all amounts held in such trust shall be
released to the selling party in return for a transfer
of its Shares to such purchaser in accordance with
Section 2.6(e)(4) hereof, or an agreement by the
selling party to hold such Shares in trust for the
benefit of such purchaser pending the approval of such
transfer as provided in Section 2.6(e)(4) hereof by the
Director of Insurance for the State of Nebraska.
b) Such purchaser may, at any time, assign to a Third
Party, without restriction, all or part of such
purchaser's rights under this Agreement, including
without limitation the right to purchase the Shares of
the selling party, and such Third Party shall
thereafter be deemed the "purchaser" and have all of
the purchaser's rights, including but not limited to
the right to purchase the selling party's Shares as
provided herein; provided, however, that no such
assignment shall relieve the purchaser of its
obligation (vis-a-vis the selling party) to cause such
purchase and sale transaction to be completed at the
times and as otherwise provided herein. No transfer of
the purchaser's rights shall extend or re-start the
time periods provided in this Section 2.6(e)(5).
c) At all times after the amounts described in Section
2.6(e)(5)a) are placed in trust for the benefit of the
selling party and prior to the closing of the purchase
and sale transaction, the selling party shall continue
to cooperate fully with the purchaser in all respects
as provided in Section 2.6(e)(4).
d) The parties agree that the rights and obligations of
the parties under this Section 2.6(e)(5) shall always
be construed in accordance with applicable law,
including limitations such as those set forth in Neb.
Rev. Stat. Section 44-2126, so that no party shall be
obligated to take any action in violation of law.
2.7 Termination and Default.
(a) The following shall constitute events of default under this
Agreement:
(1) A material breach by either party of any material provision
of this Agreement, or of any Contract between the parties which expressly states
that a breach thereof shall constitute a breach hereunder, which is not cured
within 30 days after the breaching party receives notice of such breach; or
(2) The institution of insolvency proceedings or the appointment
of a receiver with respect to a party or a substantial portion of its assets.
(b) If an event of default occurs under this Agreement, the remedies
of the non-breaching party shall include the following, which rights shall not
be exclusive but shall be cumulative and in addition to all other rights
available at law or in equity: (i) the institution of a suit for damages;
and/or (ii) the institution of a suit for specific performance. Without
limiting the generality of the foregoing, the parties expressly acknowledge that
certain terms and provisions of this Article II require the parties to engage,
in good faith, in certain governance- and auction-related processes and
activities, and that the failure of either party to perform the actions required
of it hereunder could lead to incalculable detriment to the other party and to
the Joint Venture, which detriment cannot be corrected with monetary damages.
Therefore, the parties agree that the remedy of specific performance shall be
available to a party following the other party's breach of its obligations under
this Article II.
(c) In the event the Joint Venture is terminated as provided in this
Article II, the covenants and agreements of the parties set forth in this
Agreement which, by their terms, extend beyond such termination shall survive
and shall be enforceable in accordance with their terms.
2.8 Other.
(a) Except as otherwise provided in this Section 2.8(a), neither
party shall sell, assign, pledge, hypothecate or otherwise transfer the Shares
of Holding Company owned by it to any Third Party without the prior written
consent of the other party, which consent may be given or withheld in the sole
and absolute discretion of such party.
(1) Each of the parties may at any time in its sole discretion
transfer all, but not less than all, of its Shares to any Affiliate (other than
Holding Company and its Subsidiaries), subject to insurance department approval,
if applicable; provided, however, that (x) the transferring party shall not be
relieved of any of its obligations hereunder except to the extent the other
party otherwise agrees, in writing; and (y) prior to the date on which such
transferee will cease to be an Affiliate of the transferor, the Shares held by
such transferee shall be transferred back to such transferor or to another
Affiliate of such transferor which is permitted to hold such Shares as described
in this provision.
(2) At any time after the expiration of the first five years
following the Closing Date, ALIC or AML, or any transferee thereof described in
Section 2.8(a)(1) hereof, may transfer all, but not less than all, of its Shares
to a Proposed Purchaser only upon compliance with the provisions of this Section
2.8(a)(2):
a) If the Selling Party proposes to sell, assign or
otherwise transfer its Shares to a Proposed Purchaser
in a bona fide transaction, then the Selling Party
shall give a Transfer Notice to the other party to this
Agreement.
b) The party receiving a Transfer Notice shall, by giving
a Notice of Election to the Selling Party within 60
days of receipt of such Transfer Notice, elect to
either:
i) permit all of the Selling Party's Shares be sold
to the Proposed Purchaser on the terms and
conditions specified in the Transfer Notice; or
ii) purchase all of the Selling Party's Shares on the
terms and conditions specified in the Transfer
Notice.
If such party fails to deliver its Notice of Election
within the 60-day period specified above, it shall be
deemed to have delivered a Notice of Election electing
clause i) above on the last day of such 60-day period.
c) The Selling Party shall attempt in good faith to cause
the transaction elected in the Notice of Election to be
consummated within 120 days of the date the Transfer
Notice is received on the terms and conditions set
forth in the Transfer Notice.
d) If the Notice of Election elects clause i) above, and
if the Selling Party does not close such transaction
within 120 days of the date the Transfer Notice is
received, then the Selling Party shall not transfer its
Shares unless or until it complies anew with the
provisions of this Section 2.8(a)(2).
e) If the Notice of Election elects clause ii) above, then
the Selling Party shall transfer its Shares to the
other party to this Agreement free and clear of any and
all liens, mortgages, pledges, security interests or
other restrictions or encumbrances, and shall make any
other representations or warranties contemplated under
the Transfer Notice, but the transfer shall otherwise
be made without representation or warranty of any kind.
If such transfer is not closed solely due to the
failure of the purchasing party to fulfill the terms
and conditions specified in the Transfer Notice, then
the Selling Party shall have 120 days after such
failure to sell its Shares to the Proposed Purchaser or
another unaffiliated Third Party on substantially the
same terms and conditions as were specified in the
Transfer Notice. If the Selling Party does not close
such transaction within such 120-day period (other than
as provided in Section 2.8(a)(2)(f) below), then the
Selling Party shall not transfer its Shares unless or
until it complies anew with the provisions of this
Section 2.8(a)(2).
f) Notwithstanding the foregoing, in the event that it is
necessary for a party to this Agreement which elects in
the Notice of Election to purchase the Selling Party's
Shares to secure the approval of the Director of
Insurance for the State of Nebraska with respect to
such transaction and such approval has not been
received, then:
(i) Such purchaser shall, at any time prior to the
expiration of the 120-day period described in
Section 2.8(c) hereof, place or cause to be placed
the purchase price in trust for the benefit of the
Selling Party, and the Selling Party shall
thereafter (until the release of such funds) be
entitled to receive the investment income earned
thereon, and such trust shall continue until a
time as soon as reasonably practicable after such
approval has been obtained (or the Director of
Insurance for the State of Nebraska notifies the
purchaser of his or her determination that such
approval is unnecessary), at which time the
closing described in Section 2.8(a)(2)(e) above
shall occur, with the purchase price being paid by
a release of funds from the trust created
hereunder. Following the deposit of such funds in
trust, the purchaser may (x) immediately designate
an individual whom the parties will immediately
cause to be elected as the Chief Executive Officer
of Holding Company (and, at the purchaser's
discretion, AVLIC and/or AIC), and (ii) take such
other actions with respect to the management of
Holding Company and its Subsidiaries as the
purchaser may reasonably determine. In any event,
if such approval has not been obtained (and the
Director of Insurance has not notified the
purchaser of any determination that approval is
unnecessary) on or before the second anniversary
of the date of the Notice of Election, and
provided that the Selling Party has continued to
fulfill its obligations under Section
2.8(a)(2)(f)(iii) hereof, all amounts held in such
trust shall be released to the Selling Party in
return for a transfer of its Shares to such
purchaser in accordance with Section 2.8(a)(2)(e)
hereof, or an agreement by the Selling Party to
hold such Shares in trust for the benefit of such
purchaser pending the approval of such transfer as
provided in Section 2.8(a)(2)(f) hereof by the
Director of Insurance for the State of Nebraska.
(ii) Such purchaser may, at any time, assign to a Third
Party, without restriction, all or part of such
purchaser's rights under this Agreement, including
without limitation the right to purchase the
Shares of the Selling Party, and such Third Party
shall thereafter be deemed the "purchaser" and
have all of the purchaser's rights, including but
not limited to the right to purchase the Selling
Party's Shares as provided herein; provided,
however, that no such assignment shall relieve the
purchaser of its obligations (vis-a-vis the
Selling Party) to cause such purchase and sale
transaction to be completed at the times and as
otherwise provided herein. No transfer of the
purchaser's rights shall extend or re-start the
time periods provided in this Section
2.8(a)(2)(f).
(iii) At all times after the amounts described in
Section 2.8(a)(2)(f)(i) are placed in trust for
the benefit of the Selling Party and prior to the
closing of the purchase and sale transaction, the
Selling Party shall cooperate fully with the
purchaser in all respects, including but not
limited to full cooperation and assistance in
obtaining any necessary approvals from the
Director of Insurance for the State of Nebraska
and all actions necessary to facilitate such
closing and to continue the operation of the
business (provided, however, that the Selling
Party shall not be required to undertake such
cooperation, assistance or actions which involve
significant out-of-pocket costs unless the
purchaser agrees in advance to reimburse the
Selling Party for such costs).
(iv) The parties agree that the rights and obligations
of the parties under this Section 2.8(a)(2)(f)
shall always be construed in accordance with
applicable law, including limitations such as
those set forth in Neb. Rev. Stat. Section 44-2126,
so that no party shall be obligated to take any
action in violation of law.
(b) Except for consideration paid under the Service Agreements, the
reinsurance treaty contemplated pursuant to Section 2.8(c) hereof and except as
provided below, to the extent either party or any Affiliate thereof (other than
Holding Company and its Subsidiaries) receives any fees, services, discounts,
concessions or other thing of any value whatsoever in respect of products issued
or sold by or through Holding Company or its Subsidiaries, such fee, service,
discount, concession or other thing, or the value thereof, shall be turned over
promptly to Holding Company or any Subsidiary thereof. AML may in writing from
time to time agree to except certain arrangements or Contracts from this Section
2.8(b) (and AML hereby agrees to so except that certain Administrative Service
Agreement dated as of November 30, 1995 between AIC and Neuberger & Berman
Management Incorporated and the corresponding agreement between ALIC and AIC
under which ALIC will perform all services required thereunder) but, to the
extent any such exception is made, ALIC agrees to indemnify, defend and hold
harmless AVLIC, AIC, Holding Company and AML and their respective officers,
directors, employees, agents, partners and controlling persons from and against
any and all expenses, losses, claims, Damages and Liabilities, including without
limitation reasonable attorneys' fees and expenses, caused by or in any way
resulting from or arising in connection with such arrangement or Contract from
any cause. The foregoing indemnity shall include all Damages and Liabilities
resulting from any claim of any Third Party but shall not otherwise include any
Damages incurred directly (and not vicariously) by AIC due to an action or
omission of an AIC employee, which action or omission was not also an action or
omission which was the responsibility of ALIC.
(c) The reinsurance business generated by AVLIC or any other
insurance company Subsidiary of Holding Company, in excess of (in the case of
AVLIC) the initial retention level of $100,000, shall be offered 50% to ALIC and
50% to AML for reinsurance by such party on a quota share basis and/or for
further offering to Third Parties as such party may reasonably direct; provided,
however, that reinsurance with respect to policies issued by AVLIC resulting
from the conversion of any term policy issued by either AML or ALIC shall be
offered in full to the party (AML or ALIC) which issued the original policy.
Each such Third Party shall have a rating of at least "Excellent" by A.M. Best,
Inc. The parties shall negotiate a reinsurance treaty among AVLIC, ALIC and AML
which would be effective at the Closing Date or as soon thereafter as may be
practicable, which treaty shall specify the parties' agreements with respect to
such reinsurance.
(d) The executive offices of Holding Company, and the executive
offices and home offices of AVLIC and AIC shall remain in Lincoln, Nebraska, and
AVLIC shall continue to be domiciled in the State of Nebraska, unless the board
of directors of Holding Company otherwise determines from time to time. As long
as the Service Agreements remain in force, AVLIC's variable operations shall be
carried out in Lincoln, Nebraska, and AVLIC's fixed annuity operations shall be
carried out in Des Moines, Iowa.
(e) At the beginning of the fifth year after the Closing Date, ALIC
and AML agree to and shall enter into discussion of the method and cost of
obtaining the services which are to be provided to AVLIC and AIC pursuant to the
Service Agreements. At such time, the parties shall consider obtaining such
services from other providers based on market conditions at that time, and shall
mutually cooperate in determining whether to terminate the Service Agreements,
or any portion of any of them, and whether to obtain such services from another
source.
(f) Holding Company and its Subsidiaries shall keep accurate, full
and complete Books and Records showing their assets and Liabilities, operations,
transactions and financial condition. All financial statements shall be
accurate in all material respects, shall present fairly the financial position
and results of Holding Company and its Subsidiaries and shall be prepared in
accordance with GAAP and, where required by Law, SAP. Except as otherwise
specifically provided, the boards of directors of each of Holding Company and
its Subsidiaries shall determine the methods to be used in the preparation of
financial statements and Tax Returns. Without limiting the generality of the
foregoing:
(1) As soon as practicable after the end of each fiscal year of
Holding Company and its Subsidiaries, respectively, a general accounting and,
unless otherwise determined by the board of directors of Holding Company, audit
shall be undertaken and made by the independent certified public accountants of
such Persons, covering its or their assets, properties, Liabilities and net
worth, and its or their dealings, transactions and operations during such fiscal
year, and all matters and things customarily included in such accounts and
audits. ALIC shall cause Holding Company, AVLIC and AIC to use their best
efforts to furnish such audited financial statements to each of ALIC and AML
within 80 days after the end of such fiscal year, followed by a report of the
audit scope and audit findings in the form of a report as described in Statement
of Audit Standards ("SAS") 61, and if required SAS 60, or such similar reports
established by the American Institute of Certified Public Accountants upon
revocation or amendment of SAS 60 and 61, within 120 days after the end of such
fiscal year. Unaudited quarterly financial statements of Holding Company and
its Subsidiaries shall be furnished to each of ALIC and AML within 30 days after
the end of each quarter of the fiscal year of each such Person.
(2) Each of ALIC and AML shall have access to and may inspect
and copy the Books and Records of Holding Company and of AVLIC and AIC at
reasonable times and upon reasonable notice.
(3) ALIC and/or AML may, at its option and its own expense,
conduct inspections and/or audits of the Books and Records of Holding Company,
AVLIC, AIC and, to the extent necessary to inspect and audit the fees and
expenses paid under the Service Agreements, the records of such other party
relating to services provided under any of the Service Agreements. Such
inspections and/or audits may be on a continuous or a periodic basis or both and
may be conducted by employees of such entity, or by employees of an Affiliate
thereof, or by an independent auditor retained by such Person.
(4) Holding Company shall make available to ALIC and AML such
information and financial statements in addition to the foregoing and/or at such
times as shall be required by either of them in connection with the preparation
of registration statements, current and periodic reports, proxy statements and
other documents required to be filed under federal or state laws, and shall
cooperate in the preparation of any such documents.
(5) The fiscal year of Holding Company shall be January 1
through December 31, unless the board of directors of Holding Company shall
approve any change thereto.
(g) In the event one party gives the other an Auction Notice, a
Unilateral Auction Notice or a Transfer Notice pursuant to this Agreement, then
both parties shall cause Holding Company and its Subsidiaries to provide each
other and their respective counsel, accountants, actuaries and other
representatives (including such representatives of any lender, potential venture
partner or other similar Person) with access, upon reasonable notice and during
normal business hours, to all facilities, officers, employees, agents,
accountants, actuaries, Assets and Properties, and Books and Records of Holding
Company, AVLIC and AIC, and will furnish such Persons during such period with
all such information and data (including without limitation copies of Contracts
and other Books and Records) concerning the business, operations and affairs of
Holding Company, AVLIC and AIC as such Persons shall reasonably request. Each
such Person which is not a party to this Agreement shall, agree to be subject to
and bound by the confidentiality provisions of Section 2.8(h) hereof.
(h) Each of ALIC and AML will hold, and will cause its respective
Affiliates and their respective officers, directors, employees, agents,
consultants, and other representatives to hold, in strict confidence, except as
may be necessary by reason of legal, accounting, regulatory or administrative
requirements, all confidential documents and confidential or proprietary
information concerning the other party, or concerning Holding Company or its
Subsidiaries, which is furnished to it in connection with this Agreement or in
the course of carrying out the Joint Venture established hereunder. No party
hereto will disclose or otherwise provide any such confidential or proprietary
documents or information to any other Person, except to either party's
respective auditors, actuaries, attorneys, financial advisors, other consultants
and advisors, unless such Person agrees to be subject to and bound by the
confidentiality provisions hereof. Nothing herein shall prohibit either party
from providing such information to any rating agency personnel as may be
necessary or appropriate.
(i) Except as otherwise expressly provided herein, any payment,
reimbursement or other amount due from one party to the other pursuant to this
Agreement shall be paid promptly. The provisions of this Section 2.8(i) shall
survive termination of the Joint Venture.
(j) It is understood that, prior to or after the Closing Date, AML
may be converted into a stock life insurance company to be known as "AmerUs Life
Insurance Company," which shall retain all the rights and obligations it had
prior to such conversion, including all the rights and obligations provided in
this Agreement. If at such time or thereafter during the continuation of the
Joint Venture any AML Parent shall be created, such AML Parent shall sign a
guaranty in substantially the same form as the Guaranty of AML.
2.9 Closing. Subject to the provisions of this Agreement, the Closing of
the transactions contemplated by this Agreement, including, without limitation,
the consummation of the Investment and issuance of the Shares, as provided in
Section 2.1 hereof, and the execution and delivery of the documents and
instruments specified in this Section 2.9, will take place at ALIC's offices in
Lincoln, Nebraska, at 10:00 a.m., local time, on the Closing Date. At the
Closing, the following actions shall be completed, with each document described
below to be in form and content reasonably satisfactory to ALIC and AML:
(a) The Service Agreements shall be executed and delivered by all
parties thereto.
(b) AML shall execute and deliver its Guaranty to AVLIC.
(c) ALIC and AML shall each deliver to the other the officer's
certificate required pursuant to Sections 7.3 and 8.3 hereof, respectively.
(d) ALIC and AML shall each deliver to the other the legal opinion
required pursuant to Sections 7.11 and 8.9 hereof, respectively.
(e) AML shall pay the Initial Investment to Holding Company in cash,
by wire transfer according to instructions determined by the parties in writing
at least three Business Days prior to the Closing Date.
(f) ALIC shall deliver the stock certificates and executed stock
powers necessary to transfer ownership of the stock of AVLIC and AIC to Holding
Company.
(g) ALIC shall cause certificates representing the Shares issued
pursuant to Section 2.1 hereof to be delivered to ALIC and AML.
(h) The parties shall execute and/or deliver all such other
Contracts, documents and/or things as may be provided herein to be delivered at
or prior to Closing, to the extent not previously delivered.
(i) ALIC and AML shall each execute and deliver the Closing
Confirmation.
Immediately upon completion of the Closing, ALIC and AML shall hold an initial
meeting of the shareholders of Holding Company, and as soon as practicable
thereafter, the Boards of Directors of Holding Company, AVLIC and AIC shall hold
their initial meetings.
2.10 Post-closing Adjustment.
(a) Within ten Business Days after completion of the Closing Value
Financial Statements, ALIC will determine and will deliver to AML written notice
setting forth ALIC's determination of the Closing Value, together with true and
complete copies of all Work Papers related thereto. Within fifteen Business
Days after the receipt by AML of such determination of the Closing Value, AML
shall deliver to ALIC written notice stating whether it agrees or disagrees with
such determination. If AML agrees with such determination and so notifies ALIC,
or does not notify ALIC that AML disagrees with such determination within such
fifteen Business Days, such determination shall be deemed to be the Closing
Value. If AML notifies ALIC within such fifteen Business Days that AML does not
agree with such determination of the Closing Value, ALIC and AML shall, for a
period of fifteen Business Days, attempt to negotiate, in good faith, a
determination of the Closing Value. If ALIC and AML fail to reach a
determination of the Closing Value within such fifteen Business Days, the
Closing Value shall be determined by the Accounting Firm. AML shall cause such
determination by the Accounting Firm and a statement of fees and expenses
incurred by the Accounting Firm in making such determination, together with true
and complete copies of all Work Papers related thereto, to be delivered to ALIC
as soon as practicable after AML's notice of disagreement. The parties hereto
agree and acknowledge that the determination of the Closing Value by the
Accounting Firm in accordance with this Section 2.10(a) shall be final and
binding on all parties. If the services of the Accounting Firm are used as
provided herein, all fees and expenses of the Accounting Firm shall be paid
one-half by ALIC and one-half by AML.
(b) Within ten Business Days of the final determination of the
Closing Value as provided in Section 2.10(a) hereof, then, if the Closing Value
is greater than the 12/31/94 Value, AML will pay to Holding Company, and if the
Closing Value is less than the 12/31/94 Value, ALIC and AML will cause Holding
Company to pay to AML, in cash, an amount equal to the Difference, plus interest
on the Difference at a rate per annum equal to the Prime Rate based on the
actual number of days elapsed from and including the Closing Date to the date of
payment and a 360-day year, provided, however, that if the Difference and
interest thereon due from one party to the other pursuant to this Section
2.10(b) remain unpaid past the 3Oth day after the day such amount was due, the
interest rate will be increased to the Prime Rate plus 3% for the period from
the Closing Date to the payment date.
(c) ALIC shall and shall cause AVLIC and AIC to cooperate fully with
the Accounting Firm and provide all information and access to all personnel it
reasonably requests in connection with its determination of the Closing Value.
Both parties shall be provided access to all Books and Records and Work Papers
used by the Accounting Firm in making its determination hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ALIC
ALIC hereby represents and warrants to AML as follows:
3.1 Organization of ALIC. ALIC is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Nebraska and has
the requisite corporate power and authority to enter into this Agreement and to
perform its obligations under this Agreement. ALIC is duly licensed, qualified
or admitted to do business and is in good standing in all jurisdictions in which
it is doing business and in which the failure to be so licensed, qualified or
admitted and in good standing, individually or in the aggregate with other such
failures, has or would reasonably be expected to have a material adverse effect
on the validity or enforceability of this Agreement, on the ability of ALIC to
perform its obligations under this Agreement, or on the Business or Condition of
AVLIC or AIC.
3.2 Authority of ALIC. The board of directors of ALIC has duly and
validly approved this Agreement and the transactions contemplated hereby. The
execution and delivery of this Agreement by ALIC and the performance by ALIC of
its obligations under this Agreement have been duly and validly authorized by
all necessary corporate action on the part of ALIC. This Agreement and the
Guaranty of ALIC constitute valid and binding obligations of ALIC and are
enforceable against ALIC in accordance with their terms, except to the extent
that (a) enforcement may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or similar Laws now or hereafter in effect relating
to or limiting creditors' rights generally and (b) the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court or other similar
Person before which any proceeding therefor may be brought.
3.3 Organization of AVLIC. AVLIC is a life insurance corporation duly
organized, validly existing and in good standing under the Laws of the State of
Nebraska. AVLIC is duly licensed, qualified or admitted to do business and is
in good standing in all jurisdictions in which it is doing business and in which
the failure to be so licensed, qualified or admitted and in good standing,
individually or in the aggregate with other such failures, has or would
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement or on the Business or Condition of AVLIC. ALIC
has furnished to AML true and complete copies of the current articles or
certificate of incorporation and the by-laws of AVLIC (certified by the
secretary of AVLIC), including all amendments thereto.
3.4 Organization of AIC. AIC is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Nebraska. AIC is
duly licensed, qualified or admitted to do business and is in good standing in
all jurisdictions in which it is doing business and in which the failure to be
so licensed, qualified or admitted and in good standing, individually or in the
aggregate with other such failures, has or would reasonably be expected to have
a material adverse effect on the validity or enforceability of this Agreement or
on the Business or Condition of AIC. ALIC has furnished to AML true and
complete copies of the articles or certificate of incorporation and the by-laws
of AIC (certified by the secretary of AIC), including all amendments thereto.
3.5 Authority for Joint Venture. On the Closing Date, the board of
directors of ALIC will have duly and validly approved the Joint Venture and the
transactions contemplated in connection therewith and hereby. On the entry into
the Joint Venture in accordance with this Agreement, the performance by ALIC of
its obligations in connection therewith will be duly and validly authorized by
all necessary corporate action on the part of ALIC.
3.6 Capital Stock. The authorized capital stock of AVLIC consists solely
of 50,000 shares of common stock with a par value of one hundred dollars
($100.00) per share, and an aggregate of 40,000 shares of such stock have been
issued and are owned beneficially and of record by ALIC, free and clear of all
Liens. The authorized capital stock of AIC consists solely of 500,000 shares of
common stock having a par value of ten cents ($.10) per share, and an aggregate
of 209,900 shares of such stock has been issued and shall be, on and as of the
Closing Date, owned beneficially and of record by ALIC, free and clear of all
Liens. All such issued shares of capital stock of AVLIC and AIC are duly
authorized, validly issued, outstanding, fully paid and nonassessable. Except
for such shares, no securities issued by AVLIC (other than Variable Products) or
AIC are held beneficially or of record by ALIC or any of its Affiliates. There
are no outstanding securities, obligations, rights, subscriptions, warrants,
options, phantom stock rights or (except for this Agreement) other Contracts of
any kind that give any Person the right to (a) purchase or otherwise receive or
be issued any shares of capital stock of AVLIC or AIC (or any interest therein)
or any security or Liability of any kind convertible into or exchangeable for
any shares of capital stock of AVLIC or AIC (or any interest therein) or (b)
receive any benefits or rights similar to any rights enjoyed by or accruing to a
holder of such shares, or any rights to participate in the equity, income or
election of directors or officers of AVLIC or AIC.
3.7 No Subsidiaries. Neither AVLIC nor AIC has or has had at any time any
Subsidiaries and neither controls (whether directly or indirectly, whether
through the ownership of securities or by agreement or proxy, and whether alone
or acting in concert with others) any corporation, partnership, business
organization or other similar Person. For purposes of this Section, "control"
shall mean the right to elect a majority of the board of directors or other
governing body of any such Person or otherwise manage, direct or govern the
business operations of such Person.
3.8 Securities Law Matters. AIC is duly registered as a broker dealer
pursuant to the federal securities Laws and is duly registered as such in each
state in which the nature of its business requires such registration. AIC is a
member in good standing of the NASD. AIC has filed on a timely basis all
reports required to be filed with the Commission, NASD and any state securities
authority. To the Knowledge of ALIC, or except as otherwise disclosed in
Section 3.8 of the Disclosure Schedule, all products sold by AVLIC and AIC have
been sold in accordance with all relevant federal and state Laws or, to the
extent any sale not in accordance with the foregoing has occurred, any
associated Damages have been fully and finally resolved and paid in full or are
barred by all applicable statutes of limitation.
3.9 Net Capital Requirements. AIC is subject to the net capital rules
under the federal securities Laws. As of December 31, 1995, AIC's actual net
capital and required net capital were $1,051,080 and $250,000, respectively, and
the ratio of aggregate indebtedness to net capital was 0.69 to 1.
3.10 No Conflicts or Violations. The execution and delivery of this
Agreement by ALIC does not, and the performance by ALIC of its obligations under
this Agreement will not:
(a) except as disclosed in Section 3.10(a) of the Disclosure
Schedule, subject to obtaining the approvals contemplated by Sections 5.1 and
5.2 and Sections 6.1 and 6.2 hereof, violate any term or provision of any Law
which materially affects the business, operations or financial condition of the
Holding Company or its Subsidiaries or any writ, judgment, decree, injunction or
similar order applicable to ALIC, AVLIC or AIC;
(b) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default under,
any of the terms, conditions or provisions of the articles or certificate of
incorporation or by-laws of ALIC, AVLIC or AIC;
(c) result in the creation or imposition of any Lien in favor of any
Person other than AVLIC or AIC upon any of the respective Assets and Properties
of AVLIC or AIC;
(d) result in a breach of, or constitute (with or without notice or
lapse of time or both) a default under, or give to any Person any right of
termination, cancellation, acceleration or modification in or with respect to,
any material Contract to which ALIC, AVLIC or AIC is a party or by which any of
their respective Assets and Properties may be bound; or
(e) require ALIC, AVLIC or AIC to obtain any consent, approval or
action of, or make any filing with or give any notice to, any Person except, in
either case, as contemplated in Section 5.1 or 5.2 hereof.
3.11 Books and Records. Except as disclosed in Section 3.11 of the
Disclosure Schedule (and to the Knowledge of ALIC, solely with respect to Books
and Records dated prior to January 1, 1987), the minute books and other similar
records of each of AVLIC and AIC contain a true and complete record, in all
material respects, of all actions taken at all meetings and by all written
consents in lieu of meetings of AVLIC's and AIC's stockholders, boards of
directors and each committee thereof. Except as disclosed in Section 3.11 of
the Disclosure Schedule, the Books and Records of AVLIC and AIC accurately
reflect in all material respects the Business or Condition of AVLIC and AIC and
have been maintained in all material respects in accordance with good business
and bookkeeping practices.
3.12 SAP Statements. ALIC has previously delivered to AML, or will have
delivered to AML upon completion, true and complete copies of the AVLIC SAP
Statements. Except as disclosed in Section 3.12 of the Disclosure Schedule, and
to the Knowledge of ALIC, each such SAP Statement complied or will comply in all
material respects with all applicable Laws when so filed, and all material
deficiencies known to ALIC or AVLIC with respect to any such SAP Statement have
been cured or corrected. Each such SAP Statement, including without limitation
each balance sheet and each of the statements of operations, capital and surplus
account and cash flow contained in the respective SAP Statement, was prepared in
accordance with SAP, is or will when filed be true and complete in all material
respects, and does or will present fairly, in all material respects, the
admitted assets, liabilities and capital and surplus of AVLIC as of the date
thereof and its results of operations and cash flows for and during the
respective periods covered thereby.
3.13 GAAP Statements. ALIC has previously delivered to AML, or will have
delivered to AML upon completion, true and complete copies of the AIC Statements
and the AVLIC GAAP Statements.
(a) Except as disclosed in Section 3.13 of the Disclosure Schedule,
and to the Knowledge of ALIC, each AIC Statement complied or will comply in all
material respects with all applicable laws when so filed and material
deficiencies known to ALIC with respect to any AIC Statement have been cured or
corrected. Each AIC Statement, including without limitation the reports to the
Commission pursuant to Section 17 of the Securities and Exchange Act of 1934 and
Rule 17a-5 thereunder was prepared in accordance with GAAP, is or will when
filed or provided be true and complete in all material respects, and does or
will fairly present, in all material respects, all of the information contained
therein, including without limitation the assets, liabilities, capital and
surplus, and results of operations of AIC as of the respective dates thereof or
periods covered thereby.
(b) Except as disclosed in Section 3.13 of the Disclosure Schedule,
and to the Knowledge of ALIC, each AVLIC GAAP Statement complied or will comply
in all material respects with all applicable laws when so filed and material
deficiencies known to ALIC with respect to any AVLIC GAAP Statement have been
cured or corrected. Each AVLIC GAAP Statement was prepared in accordance with
GAAP, is or will when provided be true and complete in all material respects,
and does or will fairly present, in all material respects, all of the
information contained therein, including without limitation the assets,
liabilities, capital and surplus, and results of operations of AVLIC as of the
respective dates thereof or periods covered thereby.
3.14 Reserves.
(a) Except as disclosed in Section 3.14 of the Disclosure Schedule,
all reserves and other Liabilities with respect to insurance and annuities and
for claims and benefits incurred but not reported (the "Reserve Liabilities"),
as established or reflected in the SAP Statements of AVLIC (including without
limitation the reserves and policy and contract liabilities to be reflected
respectively on Lines 1 through 11, 15, 21, 24.2, 24.3 and 24.6 of page 3 of the
Annual Statement of AVLIC (and the corresponding line numbers in the Annual
Statement of AVLIC's separate accounts)), were determined in accordance with
generally accepted actuarial standards consistently applied, are fairly stated
in accordance with sound actuarial principles, are based on actuarial
assumptions that are in accordance with those called for by the provisions of
the related insurance and annuity Contracts and in the related reinsurance,
coinsurance and other similar Contracts of AVLIC, and meet in all material
respects the requirements of the insurance Laws of its state of domicile.
Adequate provision for all such Reserve Liabilities have been made under
generally accepted actuarial principles consistently applied to cover the total
amount of all reasonably anticipated matured and unmatured benefits, dividends,
claims and other Liabilities of AVLIC under all insurance and annuity Contracts
under which AVLIC has any Liability, including without limitation any Liability
arising under or as a result of any reinsurance, coinsurance or other similar
Contract, on the date of each such SAP Statement based on then current
information regarding interest earnings, mortality and morbidity experience,
persistency and expenses. No warranty is made as to the ultimate adequacy of
the Reserve Liabilities to satisfy the Liabilities and obligations reserved
against. AVLIC owns assets that qualify as legal reserve assets under
applicable insurance laws in an amount at least equal to all such Reserve
Liabilities; and
(b) All reserves and accrued Liabilities for estimated losses,
settlements, costs and expenses from pending suits, actions and proceedings
included in the SAP Statements and described in Schedule 3.14(b) of the
Disclosure Schedule were determined in accordance with SAP and Statement of
Financial Accounting Standards No. 5 issued by the Financial Accounting
Standards Board. No warranty is made as to the ultimate adequacy of such
reserves and accrued Liabilities to satisfy the Liabilities and obligations
reserved against.
3.15 Absence of Changes. Since December 31, 1994, except as disclosed in
Section 3.15 of the Disclosure Schedule or in the Annual Statement or the
December 31, 1994 AIC Statement, or as specifically disclosed in the Quarterly
Statements of AVLIC or the 1995 quarterly AIC Statements, (i) there has not been
any loss or any change in any business practice or policy or, to the Knowledge
of ALIC, any event, action or condition or any agreement to do any of the
foregoing that individually or in the aggregate has or would reasonably be
expected to have a material adverse effect on the Business or Condition of AVLIC
or AIC, (ii) each of AVLIC and AIC has operated only in the ordinary course of
business and consistent with past practice, and (iii) without limiting the
generality of the foregoing, there has not been, occurred or arisen:
(a) any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of AVLIC or AIC or any direct
or indirect redemption, purchase or other acquisition by AVLIC or AIC of any
such stock or of any interest in or right to acquire any such stock;
(b) any employment, deferred compensation or other salary, wage or
compensation Contract entered into between AVLIC or AIC and any employee of
AVLIC or AIC, except for normal and customary Contracts with agents and
consultants in the ordinary course of business consistent with past practice;
(c) any issuance, sale or disposition by either AVLIC or AIC of any
debenture, note, stock or other security issued by AVLIC (other than any
Variable Product) or AIC, or a modification or amendment of any right of the
holder of any outstanding debenture, note, stock or other security issued by
AVLIC (other than any Variable Product) or AIC;
(d) any lien created on or in any of the Assets and Properties of
AVLIC or AIC or assumed by either of them with respect to any of such Assets and
Properties, in favor of any Person other than AVLIC or AIC, which lien relates
to Liabilities individually or in the aggregate exceeding $20,000;
(e) any Liability involving the borrowing of money by AVLIC or AIC,
except in the ordinary course of business and consistent with past practice;
(f) to the Knowledge of ALIC, any amendment, termination, waiver,
disposal or lapse of, or other failure to preserve, any license, permit or other
form of authorization of AVLIC or AIC, the result of which individually or in
the aggregate has or would reasonably be expected to have a material adverse
effect on the Business or Condition of AVLIC or AIC;
(g) any amendment to the articles of incorporation or by-laws of
either AVLIC or AIC;
(h) any termination, amendment or entering into by AVLIC as ceding or
assuming insurer of any reinsurance, coinsurance or other similar Contract or
any trust agreement or security agreement related thereto;
(i) any expenditure or commitment for additions to property, plant,
equipment or other tangible or intangible capital assets of AVLIC or AIC, in
excess of any budgeted amounts set forth in Section 3.15(i) of the Disclosure
Schedule, which expenditures or commitments exceed $200,000 in the aggregate; or
(j) any amendment or introduction by AVLIC of any insurance or
annuity Contract or product other than in the ordinary course of business
consistent with past practice.
3.16 No Undisclosed Liabilities. Except to the extent reflected in the
balance sheet included in the Annual Statement or the December 31, 1994 AIC
Statement, or except as disclosed in Section 3.15 or 3.16 of the Disclosure
Schedule, to the Knowledge of ALIC there were no Liabilities (other than
policyholder benefits payable in the ordinary course of business and consistent
with past practice) against, relating to or affecting AVLIC or AIC as of
December 31, 1994 exceeding $50,000 in the aggregate. Except to the extent
specifically reflected in the balance sheets included in the Annual Statement or
the December 31, 1994 AIC Statement, or except as disclosed in Section 3.16 of
the Disclosure Schedule, since December 31, 1994, to the Knowledge of ALIC
neither AVLIC nor AIC has incurred any Liabilities exceeding $50,000 in the
aggregate (other than policyholder benefits and other obligations payable in the
ordinary course of business and consistent with past practice).
3.17 [Reserved.]
3.18 Litigation. Except as disclosed in Section 3.18 of the Disclosure
Schedule, there are no actions, suits or proceedings pending, or threatened, at
law or in equity, and, to the Knowledge of ALIC, no investigation, event, fact
or circumstance has arisen or occurred that may reasonably be expected to result
in the commencement of the foregoing, against ALIC, AVLIC or AIC or any of their
Assets and Properties, in, before or by any Person that (i) to the extent
against AVLIC or AIC, individually involves a claim for Damages exceeding
$50,000 or an unspecified amount of Damages; or (ii) individually or in the
aggregate have or would reasonably be expected to have a material adverse effect
on the validity or enforceability of this Agreement, on the ability of ALIC to
perform its obligations under this Agreement, or on the Business or Condition of
AVLIC or AIC.
3.19 Compliance with Laws. Except as disclosed in Section 3.19 of the
Disclosure Schedule, to the Knowledge of ALIC neither AVLIC nor AIC has been or
is in violation (or with or without notice or lapse of time or both, would be in
violation) of any term or provision of any Law or any writ, judgment, decree,
injunction or similar order applicable to AVLIC or AIC or any of their
respective Assets and Properties, except for violations which have been cured,
which have been resolved or settled through agreements with applicable
governmental authorities or which are barred by all applicable statutes of
limitation. Neither AVLIC nor AIC has ever conducted business in any state,
country, province, or other jurisdiction other than in the United States and, to
the Knowledge of ALIC, no AVLIC or AIC Representative (while a representative of
AVLIC or AIC) has ever offered, marketed or sold any product of AVLIC or AIC
other than within the United States.
3.20 Employee Matters. Any Benefit Plan in effect prior to the Closing
Date with respect to any AVLIC or AIC Representative shall either (i) be amended
or terminated at or before Closing or (ii) be funded and/or managed, so as to
result in no Liabilities to AVLIC, AIC, Holding Company and/or AML after the
Closing Date. Neither AVLIC nor AIC have any plan or commitment, whether or not
legally binding, to create any Benefit Plan, and neither ALIC (except to the
extent such intention relates to the joint plans of ALIC and AML in connection
with the Joint Venture) nor any Affiliate of ALIC has any such plan or
commitment which would or could impose any Liabilities on AVLIC or AIC after the
Closing Date.
3.21 Properties. Except as disclosed in Section 3.21 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) Neither AVLIC nor AIC (and no predecessor of either): (i) owns,
operates, leases or subleases, or has ever owned, operated, leased or subleased
any Real Estate, except to the extent it has leased office space; (ii) is now or
has ever been the holder of any mortgage, pledge or other encumbrance on any
Real Estate; (iii) has ever engaged in any business, directly or indirectly,
involving the storage, treatment, generation, transportation, disposal or other
handling of any Hazardous Substance, or has ever caused or permitted any Release
of any Hazardous Substance on or from any Real Estate.
(b) AVLIC has good and valid title to all debentures, notes, stocks,
securities and other assets that are of a type required to be disclosed in
Schedules B through DB of its annual SAP Statements and that are owned by it,
free and clear of all Liens.
(c) None of the loans or other long term invested assets held by
AVLIC of the type required to be disclosed in Schedule B or BA of its annual SAP
Statements is or has been at any time since December 31, 1992 in default for
more than 60 days as to any payment of interest or principal due thereon and the
financial condition of any other party to such loan or asset is not so impaired
as to cause a default thereunder. There is no existing circumstance or
condition with respect to any such loan or asset or any property mortgaged or
pledged as collateral for the repayment thereof that would cause such loan to be
subject to imminent default. There is no valid right of offset, defense or
counterclaim to any such loan or asset.
(d) AIC has good and marketable title to all of the assets detailed
in the AIC Statements, subject to no encumbrances, mortgages, pledges, liens or
restrictions of any type.
(e) Each of AVLIC and AIC owns good and indefeasible title to, or has
a valid leasehold interest in or has a valid right under Contract to use, all
tangible personal property that is used in the conduct of its business,
operations or affairs, free and clear of all Liens. All such tangible personal
property is, except for reasonable wear and tear, in good operating condition
and repair and is suitable for its current uses.
(f) Each of AVLIC and AIC has and, immediately after the Closing will
have, the non-exclusive right to use, after the Closing, free and clear of any
royalty or other payment obligations (other than such obligations not exceeding
$5,000 in the aggregate), claims of infringement or alleged infringement or
other Liens, (i) all marks, names, trademarks, patents, patent rights, assumed
names, logos, trade secrets, copyrights, trade names and service marks that are
used in the conduct of its business, operations or affairs, and (ii) all
material computer software, programs and similar systems owned by or licensed to
AVLIC or AIC or used in the conduct of their respective business, operations or
affairs. Neither AVLIC nor AIC is in conflict with or in violation or
infringement of, nor has ALIC, AVLIC or AIC received any notice of any claimed
conflict with, or violation or infringement of (which claimed conflict,
violation or infringement has not been resolved), any asserted rights of any
other Person with respect to any intellectual property or any material computer
software, programs or similar systems.
3.22 Regulation. Except as disclosed in Section 3.22 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) To the Knowledge of ALIC, (i) AIC's business is being conducted
in compliance with each Law of any governmental entity, and in compliance with
the rules and regulations of the New York Stock Exchange, the American Stock
Exchange, the NASD, the Commodity Future Trading Corporation and any other stock
exchanges, commodities exchanges or self-regulatory organizations of which it is
a member on the date hereof, except for possible violations which either
singularly or in the aggregate do not have or will not have a material adverse
effect on the Business or Condition of AIC; and (ii) no investigation or review
by any governmental entity, securities or commodities exchange or
self-regulatory organization with respect to AIC is pending or threatened, nor
has any governmental entity, securities or commodities exchange or
self-regulatory organization indicated an intention to conduct same.
(b) Except for restrictions generally imposed by rule, regulation or
administrative policy on broker dealers generally, AIC is not under any
restriction or disqualification imposed by the New York Stock Exchange, the
NASD, the American Stock Exchange, the Commission, the Commodity Future Trading
Corporation or any other administrative agency or securities or commodities
exchange.
3.23 Purchase for Investment. The Shares to be acquired under the terms of
this Agreement will be acquired by ALIC for its own account for the purpose of
investment and not for the purpose of distribution. ALIC will refrain from
transferring or otherwise disposing of any of the Shares acquired by it, or any
interest therein, in such manner as to violate any registration provision of the
Securities Act of 1933, as amended, or of any applicable state securities Law
regulating the disposition thereof. ALIC agrees that the certificates
representing the Shares may bear legends to the effect that the Shares have not
been registered under the Securities Act of 1933, as amended, or such other
state securities Laws and that no interest therein may be transferred or
otherwise disposed of in violation of the provisions thereof.
3.24 Insurance Issued by AVLIC. Except as disclosed in Section 3.24 of the
Disclosure Schedule (with paragraph references corresponding to those set forth
below):
(a) To the Knowledge of ALIC, no outstanding insurance or annuity
Contract issued, reinsured or underwritten by AVLIC entitles the holder thereof
or any other Person to receive dividends, distributions or other benefits based
on the revenues or earnings of AVLIC or any other Person, except to the extent
any AVLIC Variable Product provides for the policyholder to receive the
dividends or other earnings on the investment of separate account assets.
(b) All outstanding insurance and annuity Contracts issued, reinsured
or underwritten by AVLIC are, to the extent required under applicable Laws, on
forms approved by the insurance regulatory authority of the jurisdiction where
issued or have been filed with and not objected to by such authority within the
period provided for objection.
(c) The underwriting standards utilized and ratings applied by AVLIC
with respect to any insurance or annuity Contract or by AVLIC and/or ALIC
pursuant to any reinsurance, coinsurance or other similar Contract with AVLIC
conform in all material respects to industry accepted practices and to the
standards and ratings required pursuant to the terms of the respective
reinsurance, coinsurance or other similar Contracts.
(d) Neither ALIC nor AVLIC has received any information which would
cause it to believe that the financial condition of any other party to any
reinsurance, coinsurance or other similar Contract with AVLIC is so impaired as
to be likely to result in a default thereunder, or that any amount payable under
any such Contract is not fully collectible.
(e) To the Knowledge of ALIC, each insurance agent, at the time such
agent wrote, sold or produced business for AVLIC at any time since December 31,
1990, was duly licensed as an insurance agent for the type of business written,
sold or produced by such insurance agent in the particular jurisdiction in which
such agent wrote, sold or produced such business. To the Knowledge of ALIC, no
such insurance agent violated (or with or without notice or lapse of time, or
both, would have violated) any term or provision of any Law or any writ,
judgment, decree, injunction or similar order applicable to the writing, sale or
production of business for AVLIC, except for violations which have been cured,
which have been resolved or settled through agreements with applicable
governmental authorities or which are barred by all applicable statutes of
limitation.
3.25 [Reserved.]
3.26 Licenses and Permits. Except as disclosed in Section 3.26 of the
Disclosure Schedule (with paragraph references corresponding to those set forth
below), and to the Knowledge of ALIC:
(a) each of AVLIC and AIC owns or validly holds, or will through the
Service Agreements be entitled to the benefits or protections afforded by, all
licenses, franchises, permits, approvals, authorizations, exemptions,
classifications, certificates, registrations and similar documents or
instruments that are required for its business, operation and affairs and that
the failure to so own or hold has or would reasonably be expected to have a
material adverse effect on the Business or Condition of AVLIC or AIC; and
(b) all such licenses, franchises, permits, approvals,
authorizations, exemptions, classifications, certificates, registrations and
similar documents or instruments are valid, binding and in full force and
effect.
3.27 [Reserved.]
3.28 Disclosure. Neither this Agreement nor any certificate required to be
furnished by ALIC to AML in connection with this Agreement or the transactions
contemplated hereby contains any untrue statement of a material fact concerning
AVLIC or AIC or omits to state a material fact concerning AVLIC or AIC necessary
to make the statements herein or therein not misleading in light of the
circumstances in which they were made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AML
AML hereby represents and warrants to ALIC as follows:
4.1 Organization of AML. AML is a corporation duly organized and validly
existing under the Laws of the State of Iowa and has the requisite power and
authority to enter into this Agreement and to perform its obligations under this
Agreement. AML is duly licensed, qualified or admitted to do business in all
jurisdictions in which the failure to be so licensed, qualified or admitted,
individually or in the aggregate with other such failures, has or would
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement, on the ability of AML to perform its
obligations under this Agreement or on the Business or Condition of AML.
4.2 Authority of AML. The board of directors of AML has duly and validly
approved this Agreement and the transactions contemplated hereby. The execution
and delivery of this Agreement by AML and the performance by AML of its
obligations under this Agreement have been duly and validly authorized by all
necessary action. This Agreement constitutes a valid and binding obligation of
AML and is enforceable against AML in accordance with its terms, except to the
extent that (a) enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium or similar Laws now or hereafter in
effect relating to or limiting creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court or
other similar Person before which any proceeding therefor may be brought.
4.3 Authority for Joint Venture. On the Closing Date, the Board of
directors of AML will have duly and validly approved the Joint Venture and the
transactions contemplated in connection therewith and hereby. On the entry into
the Joint Venture in accordance with this Agreement, the performance by AML of
its obligations in connection therewith will be duly and validly authorized by
all necessary corporate action on the part of AML.
4.4 No Conflicts or Violations. The execution and delivery of this
Agreement by AML do not, and the performance by AML of its obligations under
this Agreement will not:
(a) subject to obtaining the approvals contemplated by Sections 5.1
and 5.2 and Sections 6.1 and 6.2 hereof, violate any term or provision of any
Law which materially affects the business, operations or financial condition of
AML or any writ, judgment, decree, injunction or similar order applicable to
AML;
(b) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default under,
any of the terms, conditions or provisions of the articles or certificate of
incorporation or by-laws of AML;
(c) result in the creation or imposition of any Lien upon any of the
Assets and Properties of AML;
(d) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default under, or
give to any Person any right of termination, cancellation, acceleration or
modification in or with respect to, any Contract to which AML is a party or by
which any of its Assets and Properties may be bound; or
(e) require AML to obtain any consent, approval or action of, or make
any filing with or give any notice to, any Person except, in either case, as
contemplated in Section 6.1 or 6.2 hereof.
4.5 Litigation. There are no actions, suits, investigations or
proceedings against AML pending or threatened, and (to the Knowledge of AML) no
event, fact or circumstance has arisen or occurred that may reasonably be
expected to result in any action, suit, investigation or proceeding against AML
at law or in equity in, before or by any Person that individually or in the
aggregate have or would reasonably be expected to have a material adverse effect
on the validity or enforceability of this Agreement or on the ability of AML to
perform its obligations under this Agreement.
4.6 Purchase for Investment. The Shares to be acquired under the terms of
this Agreement will be acquired by AML for its own account for the purpose of
investment and not for the purpose of distribution. AML will refrain from
transferring or otherwise disposing of any of the Shares acquired by it, or any
interest therein, in such manner as to violate any registration provision of the
Securities Act of 1933, as amended, or of any applicable state securities Law
regulating the disposition thereof. AML agrees that the certificates
representing the Shares may bear legends to the effect that the Shares have not
been registered under the Securities Act of 1933, as amended, or such other
state securities Laws and that no interest therein may be transferred or
otherwise disposed of in violation of the provisions thereof.
4.7 Disclosure. Neither this Agreement nor any certificate required to be
furnished by AML to ALIC in connection with this Agreement or the transactions
contemplated hereby contains any untrue statement of a material fact concerning
AML or omits to state a material fact concerning AML necessary to make the
statements herein or therein not misleading in light of the circumstances in
which they were made.
ARTICLE V
COVENANTS OF ALIC
ALIC covenants and agrees with AML that, at all times after the date hereof
and before the Closing (or, with respect to the provisions of Section 5.16
hereof, both before and after the Closing Date), ALIC will comply with all
covenants and provisions of this Article V, except to the extent AML may
otherwise consent in writing, or to the extent otherwise required or permitted
by this Agreement.
5.1 Regulatory Approvals. ALIC will, and will cause AVLIC and AIC to, (a)
take all commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all commercially reasonable efforts to
obtain, as promptly as practicable, all approvals required by any applicable
Contract of ALIC or AVLIC or AIC, (b) take all commercially reasonable steps
necessary or desirable, and proceed diligently and in good faith and use all
commercially reasonable efforts to obtain, as promptly as practicable, all
approvals, authorizations and clearances of governmental and regulatory
authorities required for ALIC, AVLIC or AIC to permit ALIC to consummate the
transactions contemplated hereby, (c) provide such other information and
communications to such governmental and regulatory authorities as AML or such
authorities may reasonably request, and (d) cooperate with AML in obtaining, as
promptly as practicable, all approvals, authorizations and clearances of
governmental or regulatory authorities and others required for AML to consummate
the transactions contemplated hereby, including without limitation any required
approvals of the insurance regulatory authorities in the State of Nebraska.
5.2 HSR Filings. ALIC will, and will cause its Affiliates to, (a) take
promptly all actions necessary to make the filings required of ALIC or its
Affiliates under the HSR Act, (b) comply at the earliest practicable date with
any request for additional information received by ALIC or its Affiliates from
the Federal Trade Commission or Antitrust Division of the Department of Justice
pursuant to the HSR Act, (c) cooperate with AML in connection with AML's filings
under the HSR Act, and (d) request early termination of the applicable waiting
period.
5.3 Investigation by AML. ALIC will provide, and will cause AVLIC and AIC
to provide, (a) AML and its counsel, accountants, actuaries and other
representatives with access, upon reasonable notice and during normal business
hours, to all facilities, officers, employees, agents, accountants, actuaries,
Assets and Properties, and Books and Records of AVLIC and AIC and will furnish
AML and such other Persons during such period with all such information and data
(including without limitation copies of or information concerning all material
Contracts, Benefit Plans, market conduct and financial examinations, Tax
records, insurance coverage and other Books and Records) concerning the
business, operations and affairs of AVLIC and AIC, and all such additional
information and data with respect to the Tax records and Benefit Plans of ALIC,
as AML or any of such other Persons reasonably may request and (b) AML with
notice of and full access to all meetings (and all actions by written consent in
lieu thereof) of the respective boards of directors and stockholders of AVLIC
and AIC involving matters which are not in the ordinary course of business and
consistent with past practice of AVLIC or AIC, except such meetings as involve
only matters related to the consummation of the transactions contemplated
herein.
5.4 No Negotiations, etc. ALIC will not take, and will not permit AVLIC
or AIC or any other Affiliate of ALIC (or permit any other Person acting for or
on behalf of any of them) to take, directly or indirectly, any action, except as
permitted or required by this Agreement, (a) to seek or encourage any offer or
proposal from any Person to acquire any shares of capital stock or any other
securities of AVLIC or AIC or any interests therein or Assets and Properties
thereof or interests therein, (b) to merge, consolidate or combine, or to permit
any other Person to merge, consolidate or combine, with AVLIC or AIC, (c) in the
case of AVLIC or AIC, to acquire or agree to acquire blocks of business or all
or substantially all the Assets and Properties or capital stock or other equity
securities of any other Person, (d) to liquidate, dissolve or reorganize AVLIC
or AIC, (e) to acquire or transfer any Assets and Properties of AVLIC or AIC or
any interests therein, except as contemplated by the terms of this Agreement,
(f) to reach any agreement or understanding (whether or not such agreement or
understanding is absolute, revocable, contingent or conditional) for, or
otherwise to attempt to consummate, any such acquisition, transfer, merger,
consolidation, combination or reorganization with respect to AVLIC or AIC, (g)
to furnish or cause to be furnished any information with respect to AVLIC or AIC
to any Person (other than AML or as provided in Section 5.3) that ALIC, AVLIC or
AIC, or any other Affiliate of ALIC (or any Person acting for or on behalf of
any of them) knows or has reason to believe is in the process of attempting or
considering any such acquisition, transfer, merger, consolidation, combination,
liquidation, dissolution or reorganization with respect to AVLIC or AIC, or (h)
to enter into any other commitment (with respect to AVLIC or AIC or otherwise)
which would have a material adverse effect on ALIC's ability to perform its
obligations under this Agreement. If ALIC, AVLIC or AIC, or any other Affiliate
of ALIC, receives from any Person (other than AML) any offer, proposal or
informational request that is subject to this Section 5.4, ALIC will promptly
advise such Person, by written notice, of the terms of this Section 5.4 and will
promptly deliver a copy of such notice to AML. Nothing herein shall prohibit
ALIC from acquiring the Shares of AIC as agreed pursuant to Section 3.6 hereof.
5.5 Conduct of Business. ALIC will cause AVLIC and AIC to conduct their
business (including, without limitation, relationships with policyholders,
agents and service providers, conduct of marketing efforts, compliance with
Laws, maintenance of Books and Records and maintenance of licenses and
regulatory approvals) only in the ordinary course of business and consistent
with past practice, except as otherwise provided in this Agreement or except as
AML may otherwise consent in writing.
5.6 Financial Statements and Reports.
(a) As promptly as practicable (i.e., whether before or after the
Closing Date) after each calendar quarter or year ending after the third quarter
of 1995 and before the Closing Date, ALIC will deliver to AML true and complete
copies of the following:
(1) the SAP Statement filed by AVLIC for each quarter or year
then ended and each quarterly or annual GAAP Statement of AIC or AVLIC;
(2) presentations for AVLIC reflecting, as of the end of each
such quarter, the information of the type required by the line items set forth
on pages 2, 3, 4, 5, 8, 9, 12, 13 and 13.1 and on Schedules A through DB and S
of the Annual Statement of AVLIC (and the corresponding pages and Schedules of
the Annual Statement of AVLIC's separate account), which presentations shall be
prepared in accordance with SAP and will present fairly, in all material
respects, the admitted assets, Liabilities and capital and surplus of AVLIC as
of the date thereof and its results of operations and cash flows for and during
the respective periods covered thereby;
(3) with respect to the year ending on December 31, 1995,
audited GAAP Statements with respect to AVLIC and AIC; and
(4) with respect to the quarter ending on March 31, 1996,
Verified unaudited GAAP Statements with respect to AVLIC and AIC.
(b) As promptly as practicable, ALIC will deliver to AML true and
complete copies of such other material financial statements, reports or analyses
as may be prepared or received by ALIC, or any other Affiliate of ALIC (other
than AVLIC or AIC) and as relate to any of the business, operations or affairs
of AVLIC or AIC, including without limitation normal internal reports which
AVLIC or AIC prepares (such as those reflecting monthly premiums, claims and
cash flow) and special reports (such as those of financial consultants).
5.7 Employee and Agent Matters. ALIC will cause AVLIC and AIC to refrain
from directly or indirectly, without the consent of AML:
(1) hiring, employing, engaging, recruiting, or otherwise taking
on any employee other than in the ordinary course of business;
(2) adopting, entering into, amending, altering or terminating,
partially or completely, any agency, consultation or representation Contract,
other than in the ordinary course of business and in accordance with past
practice, that is, or had it been in existence on the date of this Agreement
would have been, required to be disclosed pursuant to Section 5.3 hereof;
(3) entering into, other than in the ordinary course of business
and in accordance with past practice, any Contract with any AVLIC or AIC
Representative that is not terminable by AVLIC or AIC, without penalty or other
Liability, upon not more than 30 calendar days' notice.
5.8 No Charter Amendments. ALIC will cause each of AVLIC and AIC to
refrain from amending its articles or certificate of incorporation or by-laws
and from taking any action with respect to any such amendment.
5.9 No Issuance of Securities. ALIC will cause each of AVLIC and AIC to
refrain from authorizing or issuing any shares of its capital stock or other
equity securities or entering into any Contract or granting any option, warrant
or right calling for the authorization or issuance of any such shares or other
equity securities, or creating or issuing any securities directly or indirectly
convertible into or exchangeable for any such shares or other equity securities,
or issuing any options, warrants or rights to purchase any such convertible
securities.
5.10 No Dividends. Except as set forth in Section 5.10 of the Disclosure
Schedule or except as ALIC otherwise informs AML, ALIC will cause each of AVLIC
and AIC to refrain from declaring, setting aside or paying any dividend or other
distribution in respect of its capital stock and from directly or indirectly
redeeming, purchasing or otherwise acquiring any of its capital stock or any
interest in or right to acquire any such stock.
5.11 No Disposal of Property. Except as set forth in Section 5.11 of the
Disclosure Schedule or as otherwise expressly provided in this Agreement, ALIC
will cause each of AVLIC and AIC to refrain from (a) disposing of any of its
Assets and Properties and from permitting any of its Assets and Properties to be
subjected to any Liens, except to the extent any such disposition or any such
Lien is made or incurred in the ordinary course of business and consistent with
past practice, (b) selling any material part of its insurance products,
operations or business to any Third Party (other than sales of insurance
products in the ordinary course of business consistent with past practice), (c)
entering into any Contracts obligating it to administer the insurance operations
of any other Person and (d) entering into any Contracts permitting any other
Person to administer its insurance operations.
5.12 No Breach or Default. ALIC will cause each of AVLIC and AIC to
refrain from violating, breaching or defaulting, and from taking or failing to
take any action that (with or without notice or lapse of time or both) would
constitute a material violation, breach or default, in any way under any term or
provision of any Contract to which it is a party or by which any of its Assets
and Properties is or may be bound.
5.13 No Indebtedness. Except in the ordinary course of business and
consistent with past practice and except for existing contractual obligations,
ALIC will cause AVLIC and AIC to refrain from creating, incurring, assuming,
guaranteeing or otherwise becoming liable for, and from canceling, paying,
agreeing to cancel or pay, or otherwise providing for a complete or partial
discharge in advance of a scheduled payment date with respect to, any Liability,
and from waiving any right to receive any direct or indirect payment or other
benefit under any Liability owing to it.
5.14 [Reserved.]
5.15 Intercompany Liabilities. At or prior to the Closing, all existing
Intercompany Liabilities owed by or to AVLIC or AIC shall have been paid or
accrued. Each Contract of AVLIC or AIC which shall remain in effect after the
Closing Date and, upon performance by any party thereto, give rise to any
Intercompany Liability shall be in writing, shall have been provided to AML
pursuant to Section 5.3 hereof, and shall be described in Section 5.15 of the
Disclosure Schedule.
5.16 Tax Matters. ALIC will refrain and will cause each of AVLIC and AIC
to refrain from making, filing, or entering into (whether before or after the
Closing) any election, consent or agreement with respect to any Tax matters
which would have any effect on AVLIC, AIC or any of their respective Assets and
Properties for any Tax period ending after the Closing Date.
5.17 Disclosure Schedule. ALIC shall deliver the Disclosure Schedule to
AML within 12 days after the date of this Agreement. Any matter disclosed under
one Section of the Disclosure Schedule shall be considered to be disclosed under
all other applicable Sections of the Disclosure Schedule from which it is
inadvertently omitted and, to the extent AML has actual knowledge of (or obtains
information sufficient to cause a reasonable person to make further inquiry with
respect to) any matter required to be disclosed by ALIC or its Affiliates
hereunder, such matter shall be deemed disclosed (but only to the extent of such
actual knowledge or such further reasonable inquiry).
5.18 Notice and Cure. ALIC will notify AML promptly in writing of, and
contemporaneously will provide AML with true and complete copies of any and all
information or documents relating to, and will use all commercially reasonable
efforts to cure before the Closing, any event, transaction or circumstance
occurring after the date of this Agreement that causes or will cause any
covenant or agreement of ALIC under this Agreement to be breached, or that
renders or will render untrue any representation or warranty of ALIC contained
in this Agreement as if the same were made on or as of the date of such event,
transaction or circumstance. ALIC also will use all commercially reasonable
efforts to cure, before the Closing, any violation or breach of any
representation, warranty, covenant or agreement made by it in this Agreement,
whether occurring or arising before or after the date of this Agreement.
ARTICLE VI
COVENANTS OF AML
AML covenants and agrees with ALIC that, at all times after the date hereof
and before the Closing, AML will comply with all covenants and provisions of
this Article VI, except to the extent ALIC may otherwise consent in writing, or
to the extent otherwise required or permitted by this Agreement.
6.1 Regulatory Approvals. AML will (a) take all commercially reasonable
steps necessary or desirable, and proceed diligently and in good faith and use
all commercially reasonable efforts to obtain, as promptly as practicable, all
approvals, authorizations and clearances of governmental and regulatory
authorities required of AML to consummate the transactions contemplated hereby,
including without limitation any required approvals of the insurance regulatory
authorities in the State of Nebraska, including but not limited to the approval
of the Director of Insurance for the State of Nebraska of AML's Statement; (b)
provide such other information and communications to such governmental and
regulatory authorities as ALIC or such authorities may reasonably request, and
(c) cooperate with ALIC, AVLIC and AIC in obtaining, as promptly as practicable,
all approvals, authorizations and clearances of governmental or regulatory
authorities required of ALIC, AVLIC or AIC to consummate the transactions
contemplated hereby.
6.2 HSR Filings. AML will (a) take promptly all actions necessary to make
the filings required of AML under the HSR Act, (b) comply at the earliest
practicable date with any request for additional information received by AML
from the Federal Trade Commission or Antitrust Division of the Department of
Justice pursuant to the HSR Act, (c) cooperate with ALIC in connection with
ALIC's filings under the HSR Act, and (d) request early termination of the
applicable waiting period.
6.3 Investigation by ALIC. AML will provide ALIC and its counsel,
accountants, actuaries and other representatives with access, upon reasonable
notice and during normal business hours, to its facilities, officers, employees,
agents, accountants, actuaries, Assets and Properties, and Books and Records and
will furnish ALIC and such other Persons during such period with all such
information and data (including without limitation copies of Contracts and other
Books and Records) concerning AML's Distribution Force and the operation of its
Fixed Annuity business as ALIC or any of such other Persons reasonably may
request.
6.4 No Negotiations, etc. AML will not take, and will not permit any
Affiliate of AML (or permit any other Person acting for or on behalf of any of
them) to take, directly or indirectly, any action, except as permitted or
required by this Agreement, (a) to seek or encourage any offer or proposal from
any Person by which AML or any Affiliate thereof would acquire a controlling
interest in any Person whose primary business is variable life insurance, (b) to
reach any agreement or understanding (whether or not such agreement or
understanding is absolute, revocable, contingent or conditional) for, or
otherwise to attempt to consummate, any such acquisition, transfer, merger,
consolidation, combination or reorganization, or (c) to enter into any other
commitment which would have a material adverse effect on AML's ability to
perform its obligations under this Agreement.
6.5 Notice and Cure. AML will notify ALIC promptly in writing of, and
contemporaneously will provide ALIC with true and complete copies of any and all
information or documents relating to, and will use all commercially reasonable
efforts to cure before the Closing, any event, transaction or circumstance
occurring after the date of this Agreement that causes or will cause any
covenant or agreement of AML under this Agreement to be breached, or that
renders or will render untrue any representation or warranty of AML contained in
this Agreement as if the same were made on or as of the date of such event,
transaction or circumstance. AML also will use all commercially reasonable
efforts to cure, before the Closing, any violation or breach of any
representation, warranty, covenant or agreement made by it in this Agreement,
whether occurring or arising before or after the date of this Agreement.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF AML
The obligations of AML hereunder are subject to the fulfillment, at or
before the Closing, of each of the following conditions (all or any of which may
be waived in whole or in part by AML in its sole discretion).
7.1 Representations and Warranties. On and as of the Closing Date there
shall not exist any breaches of representations and warranties made by ALIC in
this Agreement (which representations and warranties shall be deemed restated
and made on and as of the Closing Date), which breaches individually or in the
aggregate have or would reasonably be expected to have a material adverse effect
on the Business and Condition of AVLIC or AIC.
7.2 Performance. ALIC shall have performed and complied in all material
respects with all agreements, covenants, obligations and conditions required by
this Agreement to be so performed or complied with by ALIC at or before the
Closing, including those specifically referred to elsewhere in this Article VII.
7.3 Officer's Certificates. ALIC shall have delivered to AML a
certificate, dated the Closing Date in form reasonably acceptable to AML and
executed by the chief executive officer or chief financial officer of ALIC,
certifying (with respect to ALIC and, as appropriate, AVLIC and AIC) as to the
fulfillment of the conditions set forth in Sections 7.1, 7.2, 7.4, 7.5, 7.6, 7.8
and 8.7 hereof. In addition, ALIC shall have delivered to AML a certificate,
dated the Closing Date and executed by the secretary or any assistant secretary
of ALIC, certifying that ALIC has duly and validly taken all corporate action
necessary to authorize its execution and delivery of this Agreement and its
performance of its obligations under this Agreement and that the resolutions
(true and complete copies of which shall be attached to the certificate) of the
board of directors of ALIC with respect to this Agreement and the transactions
contemplated hereby have been duly and validly adopted and are in full force and
effect.
7.4 HSR Act Approval. All waiting periods applicable to this Agreement
and the transactions contemplated hereby under the HSR Act shall have expired or
been waived.
7.5 No Injunction. There shall not be in effect on the Closing Date any
writ, judgment, injunction, decree or similar order of any court or similar
Person restraining, enjoining or otherwise preventing consummation of any of the
transactions contemplated by this Agreement.
7.6 No Proceeding or Litigation. There shall not be instituted, pending
or (to the Knowledge of AML) threatened any action, suit, investigation or other
proceeding in, before or by any court, governmental or regulatory authority or
other Person to restrain, enjoin or otherwise prevent consummation of any of the
transactions contemplated by this Agreement or to recover any Damages or obtain
other relief as a result of this Agreement or any of the transactions
contemplated hereby or as a result of any Contract entered into in connection
with or as a condition precedent to the consummation hereof, which action, suit,
investigation or other proceeding would, in the opinion of AML, result in a
decision, ruling or finding that individually or in the aggregate has or would
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement, on the ability of ALIC or AML to perform its
obligations under this Agreement, or on the Business or Condition of AVLIC or
AIC. There shall not be in effect on the Closing Date any voluntary or
involuntary bankruptcy, receivership, conservatorship or similar proceeding with
respect to any one or more of AVLIC, AIC or ALIC.
7.7 Consents, Authorizations, etc. All orders, consents, permits,
authorizations, approvals and waivers of every Person necessary to permit AML to
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby and to permit AML to acquire its interest in the Joint
Venture pursuant to this Agreement (including without limitation any requisite
action of the insurance regulatory authorities in the State of Nebraska, in each
case without the abrogation or diminishment of the authority or license of AVLIC
or AIC or the imposition of significant restrictions upon the transactions
contemplated hereby) shall have been obtained and shall be in full force and
effect. The aforesaid consents include but are not limited to the written
approval of the Director of Insurance for the State of Nebraska of AML's
Statement, which approval shall provide AML with the right to enter into the
transactions contemplated in this Agreement and to exercise the Option and to
become the purchaser of all of the Shares of Holding Company at any Auction or
Unilateral Auction conducted in accordance with this Agreement or any related
Contract, all without further action of the Nebraska Director of Insurance.
7.8 No Adverse Change. Except (i) as disclosed in Section 3.12 of the
Disclosure Schedule or in the notes to the December 31, 1994 SAP Statements,
(ii) for changes or developments relating to the conduct of the business of
AVLIC or AIC after the date of this Agreement in conformity with the requests of
AML or as otherwise provided for in this Agreement, or (iii) for changes
affecting life insurance companies in general which do not have a material
adverse effect on the Business or Condition of AVLIC or AIC, since December 31,
1994, there shall not have been, occurred or arisen any change, event (including
without limitation any damage, destruction or loss whether or not covered by
insurance), condition or state of facts of any character that individually or in
the aggregate has or would reasonably be expected to have a material adverse
effect on the Business or Condition of AVLIC or AIC.
7.9 Contracts. ALIC shall have provided AML with copies or access to the
originals of all material Contracts to which AVLIC and AIC is a party or by
which it or its Assets and Properties are bound, including all reinsurance,
coinsurance or other similar Contracts, and AML shall have determined in its
reasonable discretion that such Contracts which will remain in force as of the
Closing Date are satisfactory as to form and substance. Except as otherwise
identified by ALIC, each such material Contract is in full force and effect and
constitutes a valid, binding and enforceable obligation of AVLIC or AIC and, to
the Knowledge of ALIC, of each other Person that is a party thereto in
accordance with its terms subject to equitable rights and the rights of
creditors, and neither AVLIC, AIC nor, to the Knowledge of ALIC, any other
Person who is a party to such Contract has materially breached or defaulted
under any such Contract.
7.10 Examinations. ALIC shall have provided AML with copies or access to
the originals of the two most recent market conduct and financial examinations
of AVLIC issued by any insurance regulatory authority, and AML shall have
determined in its reasonable discretion that the matters addressed in such
examinations have been resolved to the satisfaction of all applicable insurance
regulatory authorities.
7.11 Opinion of Counsel. ALIC shall have delivered to AML the opinion, in
form and substance reasonably acceptable to AML, dated the Closing Date, of
Norman M. Krivosha, Corporate General Counsel of ALIC, confirming and opining as
to (i) the representations set forth in Sections 3.1 through 3.7, 3.10, 3.18 and
3.19 hereof; (ii) satisfaction of the covenants set forth in Section 5.1 hereof;
and (iii) satisfaction of the conditions set forth in Sections 8.4 through 8.7
hereof.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF ALIC
The obligations of ALIC hereunder are subject to the fulfillment, at or
before the Closing, of each of the following conditions (all or any of which may
be waived in whole or in part by ALIC in its sole discretion).
8.1 Representations and Warranties. On and as of the Closing Date there
shall not exist any breaches of representations and warranties made by AML in
this Agreement (which representations and warranties shall be deemed restated
and made on and as of the Closing Date), which breaches individually or in the
aggregate have or would reasonably be expected to have a material adverse effect
on the Business and Condition of AVLIC or AIC.
8.2 Performance. AML shall have performed and complied in all material
respects with all agreements, covenants, obligations and conditions required by
this Agreement to be so performed or complied with by AML at or before the
Closing, including those specifically referred to elsewhere in this Article
VIII.
8.3 Officer's Certificates. AML shall have delivered to ALIC a
certificate, dated the Closing Date in form reasonably acceptable to ALIC and
executed by the chief executive officer or the chief financial officer of AML,
certifying the fulfillment of the conditions set forth in Sections 7.7, 8.1,
8.2, 8.4, 8.5 and 8.6 hereof. In addition, AML shall have delivered to ALIC a
certificate, dated the Closing Date and executed by the secretary or any
assistant secretary of AML certifying (as appropriate) that AML has duly and
validly taken all action necessary to authorize its execution and delivery of
this Agreement and its performance of its obligations under this Agreement, and
that the resolutions (true and complete copies of which shall be attached to the
certificate) of the board of directors of AML with respect to this Agreement and
the transactions contemplated hereby have been duly and validly adopted and are
in full force and effect.
8.4 HSR Act Approval. All waiting periods applicable to this Agreement
and the transactions contemplated hereby under the HSR Act shall have expired or
been waived.
8.5 No Injunction. There shall not be in effect on the Closing Date any
writ, judgment, injunction, decree or similar order of any court or similar
Person restraining, enjoining or otherwise preventing consummation of any of the
transactions contemplated by this Agreement.
8.6 No Proceeding or Litigation. There shall not be instituted, pending
or (to the Knowledge of ALIC) threatened any action, suit, investigation or
other proceeding in, before or by any court, governmental or regulatory
authority, or other Person, to restrain, enjoin or otherwise prevent
consummation of any of the transactions contemplated by this Agreement or to
recover any Damages or obtain other relief as a result of this Agreement or any
of the transactions contemplated hereby or as a result of any Contract entered
into in connection with or as a condition precedent to the consummation hereof,
which action, suit, investigation or other proceeding may, in the opinion of
ALIC, result in a decision, ruling or finding that individually or in the
aggregate has or would reasonably be expected to have a material adverse effect
on the validity or enforceability of this Agreement or on the ability of AML or
ALIC to perform its obligations under this Agreement. There shall not be in
effect on the Closing Date any voluntary or involuntary bankruptcy,
receivership, conservatorship or similar proceeding with respect to AML.
8.7 Consents, Authorizations, etc. All orders, consents, permits,
authorizations, approvals and waivers of every Person necessary to permit ALIC
to perform its obligations under this Agreement and to consummate the
transactions contemplated hereby shall have been obtained and shall be in full
force and effect.
8.8 Examinations. AML shall have provided ALIC with copies or access to
the originals of the two most recent market conduct and financial examinations
of AML issued by any insurance regulatory authority, and ALIC shall have
determined in its reasonable discretion that the matters addressed in such
examinations have been resolved to the satisfaction of all applicable insurance
regulatory authorities.
8.9 Opinion of Counsel. AML shall have delivered to ALIC the legal
opinion, in form and substance reasonably acceptable to ALIC, dated the Closing
Date, of Joseph K. Haggerty, General Counsel of AML, confirming and opining as
to (i) the representations set forth in Sections 4.1 through 4.4 hereof; (ii)
satisfaction of the covenants set forth in Section 6.1 hereof; and (iii)
satisfaction of the conditions set forth in Sections 7.4 through 7.7 hereof.
ARTICLE IX
SURVIVAL OF PROVISIONS; REMEDIES
9.1 Survival. Without limiting any other provision of this Agreement, the
representations, warranties, covenants and agreements respectively required to
be made by ALIC and AML in this Agreement, or in any certificate, respectively,
delivered by ALIC or AML pursuant to Section 7.3 or Section 8.3 hereof will
survive the Closing:
(a) until the expiration of all applicable statutes of limitations
(including all periods of extension, whether automatic or permissive) in the
case of (i) the representations and warranties of ALIC respectively set forth in
Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.20 and 3.21(a) hereof, (ii) the
representations and warranties of AML set forth in Sections 4.1, 4.2 and 4.5
hereof, and (iii) the indemnification agreements respectively set forth in
Sections 10.1, 10.2 and, to the extent necessary to enforce the representations
and warranties listed in clause (i) of this subparagraph (a), 10.3 hereof; and
(b) until December 31, 1998 in the case of all other representations,
warranties, covenants and agreements, except that covenants and agreements to be
performed after the Closing will survive the Closing in accordance with their
terms.
If a notice of any matter or claim as to which indemnity is sought hereunder is
given before expiration of the applicable time period referenced above, then
(notwithstanding such expiration) the representation, warranty, covenant or
agreement applicable to such claim shall survive until, but only for purposes
of, resolution of such claim.
9.2 Available Remedies. Each party expressly agrees that, consistent with
its intention and agreement to be bound by the terms of this Agreement and to
consummate the transactions contemplated hereby, subject only to the performance
or satisfaction of precedent conditions or of precedent requirements imposed
upon another party hereto, the remedy of specific performance shall be available
to a non-breaching and non- defaulting party to enforce performance of this
Agreement by a breaching or defaulting party, including, without limitation, to
require the consummation of the Closing on the Closing Date. The rights and
remedies provided for in this Agreement are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in equity;
provided, however, that except as otherwise provided in this Agreement after
Closing the sole and exclusive remedies of any party hereto with respect to all
claims for Damages arising out of any claimed breach of this Agreement shall be
as provided in Article X hereof. The rights and remedies of any party based
upon, arising out of or otherwise in respect of any breach of any
representation, warranty, covenant or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such breach is based may also
be the subject matter of any other representation, warranty, covenant or
agreement contained in this Agreement (or in any other agreement between the
parties) as to which there is no breach.
9.3 Survival of Joint Venture Provisions. Notwithstanding anything to the
contrary in this Article IX, the entirety of Article II hereof (and of Articles
XII and XIII as provided therein) shall survive the Closing and be effective
according to their terms.
ARTICLE X
INDEMNIFICATION
10.1 Special Indemnification. The parties acknowledge that ALIC is unable
to make affirmative representations and warranties as to certain tax matters and
other matters addressed in this Section 10.1, although it has no knowledge that
such representations are not true and correct. However, the parties have agreed
that, except for the items disclosed in Section 10.1(b) of the Disclosure
Schedule (which, if disclosed, shall relieve ALIC from any liability therefor),
ALIC shall make certain indemnifications with respect to such matters, as
provided in this Section 10.1.
(a) If any statement in Section 10.1(b) is not true and correct, and
if any of AVLIC, AIC, Holding Company or AML incur any Liabilities or Damages
which would not have been incurred if such statement had been true and correct,
then:
1) If a director, officer, manager or supervisor of ALIC, AVLIC
or AIC had actual knowledge, at or prior to the Closing
Date, that such statement was not true and correct, then
ALIC shall pay, and shall indemnify AVLIC, AIC, Holding
Company and AML in respect of, and hold each of them
harmless against, any and all such Liabilities and Damages.
2) If no director, officer, manager or supervisor of ALIC,
AVLIC or AIC had the actual knowledge described in the
foregoing paragraph, then ALIC shall pay, and shall
indemnify AVLIC, AIC, Holding Company and AML in respect of,
and hold each of them harmless against, any and all such
Liabilities and Damages, but only to the extent that the
cumulative total of all such Liabilities and Damages
exceeds, in the aggregate, $5,000,000.
It is understood and agreed that, to the extent that any Tax payment, deduction
or other calculation involves a Tax benefit to AVLIC or AIC which is
subsequently delayed but the benefit of which will ultimately be realized in
full, the Liability or Damage associated therewith which is indemnified
hereunder shall include only the time value of the amount of the benefit
delayed.
(b) The following statements are set forth solely for the purposes of
this Section 10.1, as explained above, and are not intended to serve as
representations or warranties of any party. Each of these statements shall be
deemed made as of the date of this Agreement and restated as of the Closing
Date:
(1) Except as set forth in Section 10.1(b)(1) of the Disclosure
Schedule, for all Tax periods ending on or prior to the Closing Date, each of
AVLIC and AIC, or ALIC on behalf of or with respect to AVLIC and/or AIC, has
within the time and manner prescribed by Law paid all Taxes that are due and
payable and has established reserves on the respective GAAP books of AVLIC or
AIC which are adequate for the full payment of all Taxes of AVLIC or AIC which
are not yet due and payable or which may otherwise be determined after Closing
to have been due.
(2) Except as set forth in Section 10.1(b)(2) of the Disclosure
Schedule, at the Closing, neither AVLIC nor AIC shall be a party to or be bound
by any Tax sharing Contract or arrangement which shall have any effect on AVLIC
or AIC for any Tax period after the Closing Date.
(3) Except as set forth in Section 10.1(b)(3) of the Disclosure
Schedule, from and after Closing, AVLIC and AIC shall not have any obligation
with respect to any period ending on or prior to the Closing Date for any Taxes
of any Person other than AVLIC or AIC.
(4) Except as set forth in Section 10.1(b)(4) of the Disclosure
Schedule, AVLIC and AIC shall not, for any reason other than a change after the
Closing Date in applicable Tax Laws, suffer, for any Tax period beginning after
the Closing Date, any reduction, elimination or other unavailability of any
deductions or other Tax benefits which are on the financial statements of AVLIC
and/or AIC as of December 31, 1995.
(5) Except as set forth in Section 10.1(b)(5) of the Disclosure
Schedule, the tax treatment under the Code of all insurance, annuity or
investment policies, plans or contracts; all financial products, employee
benefit plans, individual retirement accounts or annuities; and any similar or
related policy, contract, plan or product, whether individual, group or
otherwise, issued or sold by AVLIC, is and at all times has been in all material
respects the same or more favorable to the purchaser, policyholder or intended
beneficiaries thereof as the tax treatment under the Code for which such
contracts qualified or purported to qualify at the time of its issuance or
purchase, except for changes resulting from changes to the Code effective after
the date of such issuance or purchase. For purposes of this Section 10.1(b),
the provisions of the Code relating to the tax treatment of such Contracts shall
include, but not be limited to, Sections 72, 79, 89, 101, 104, 105, 106, 125,
130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 457, 501, 505, 817, 818, 7702
and 7702A of the Code.
(6) Except as set forth in Section 10.1(b)(6) of the Disclosure
Schedule, AVLIC neither offers nor sells any pension, profit sharing, defined
benefit, Code Section 401(k) and other retirement or employee benefit plan or
Contract (including, but not limited to, simplified employee pension plans, Code
Section 403(a), (b) and (c) annuities, Keogh plans and individual retirement
accounts and annuities) to, or for the benefit of any employees of, any other
Person; and neither AVLIC nor AIC provides administrative or other contractual
services for any such plan or Contract, including, but not limited to, any Third
Party administrative services for any Benefit Plan.
10.2 Benefit Plan Indemnification. ALIC agrees to indemnify AVLIC, AIC,
Holding Company and/or AML in respect of, and hold each of them harmless
against, any and all Damages resulting from or relating to any Benefit Plan to
which AVLIC and/or AIC was a party at any time prior to the Closing Date.
10.3 Other Indemnification.
(a) Subject to the provisions of Article IX and Sections 10.1 and
10.2 hereof, ALIC agrees to indemnify AVLIC, AIC, Holding Company and/or AML in
respect of and hold each of them harmless against any and all Damages resulting
from or relating to any misrepresentation, breach of warranty or failure to
perform any covenant or agreement on the part of ALIC made as a part of or
contained in this Agreement, or any certificate delivered by or for ALIC
pursuant to Section 7.3 hereof. Notwithstanding anything to the contrary in
this Section 10.3(a), ALIC shall not have any liability for any Damages under
this Section 10.3(a), except for Damages resulting from or relating to any
misrepresentation or breach of warranty contained in Section 3.6, 3.20 or
3.21(a) or any nonfulfillment of or failure to perform any covenant or agreement
on the part of ALIC contained in Article V of this Agreement or any certificate
delivered by or for ALIC in connection therewith, until and unless the
cumulative total of such Damages exceeds in the aggregate $50,000, it being
understood that after such Damages exceed in the aggregate $50,000, ALIC shall
be liable to AML for all such Damages including such $50,000; provided, however,
that the limitations of this sentence shall not apply to any Damages resulting
from ALIC's intentional, willful or reckless misrepresentations or breaches of
covenants or agreements made as a part of or contained in this Agreement.
(b) Subject to the provisions of Article IX, AML agrees to indemnify
AVLIC, AIC, Holding Company and/or ALIC in respect of, and hold ALIC harmless
against, any and all Damages resulting from or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of AML made as a part of or contained in
this Agreement or any certificate delivered by or for AML pursuant to Section
8.3 hereof. Notwithstanding anything to the contrary in this Section 10.3(b),
AML shall not have any liability for any Damages under this Section 10.3(b),
except for any nonfulfillment of or failure to perform any covenant or agreement
on the part of AML contained in Article V of this Agreement or any certificate
delivered by or for AML in connection therewith, until and unless the cumulative
total of such Damages exceeds in the aggregate $50,000, it being understood that
after such Damages exceed in the aggregate $50,000, AML shall be liable to ALIC
for all such Damages including such $50,000; provided, however, that the
limitations of this sentence shall not apply to any Damages resulting from AML's
intentional, willful or reckless misrepresentations or breaches of covenants or
agreements made as a part of or contained in this Agreement.
ARTICLE XI
TERMINATION
11.1 Termination. Prior to the Closing, this Agreement may be terminated,
and the transactions contemplated hereby may be abandoned, upon notice by the
terminating party to the other party:
(a) at any time before the Closing, by mutual written agreement of
ALIC and AML;
(b) by either party if the parties do not agree within 14 days of the
date hereof upon the terms of the Service Agreement to be attached hereto as
Exhibit G (which agreement shall be evidenced by the initials of a duly
authorized representative of each of the parties on the signature page of such
Exhibit G);
(c) at any time by ALIC if any of the covenants set forth in Article
VI shall have been breached or any of the conditions set forth in Article VIII
hereof shall not have been satisfied, performed or complied with, in any
material respect, at or before the Closing Date and such breach,
non-satisfaction, non-performance or non-compliance has not been cured or
eliminated within 30 days after notice thereof has been given to AML; provided
that at the time of such termination ALIC has neither breached any of the
covenants set forth in Article V nor failed to satisfy, perform or comply with
any of the conditions set forth in Article VII hereof, in any material respect;
(d) by AML if the Disclosure Schedule is not delivered to AML within
twelve (12) days after the date of this Agreement, but AML's right to terminate
this Agreement pursuant to this Section 11.1(d) shall end upon its receipt of
the Disclosure Schedule;
(e) at any time by AML if any of the covenants set forth in Article V
shall have been breached or any of the conditions set forth in Article VII
hereof shall not have been satisfied, performed or complied with, in any
material respect, before the Closing Date and such breach, non-satisfaction,
non-performance or non-compliance has not been cured or eliminated within six
(6) days after notice thereof has been given to ALIC, provided that at the time
of such termination AML has neither breached any of the covenants set forth in
Article VI nor failed to satisfy, perform or comply with any of the conditions
set forth in Article VIII hereof, in any material respect;
(f) by AML if the Disclosure Schedule or AML's investigation pursuant
to Section 5.3 hereof discloses, with respect to AVLIC or AIC, any material
event, trend, condition, Contract, Liability, action, suit, proceeding, claim,
circumstance or fact of any character that is not acceptable to AML, in its sole
discretion, and AML gives notice thereof to ALIC within eighteen (18) days after
the date of this Agreement, and such non-acceptable event, trend, condition,
Contract, Liability, action, suit, proceeding, claim, circumstance or fact has
not been cured or eliminated within six (6) days after notice thereof has been
given to ALIC;
(g) by ALIC if ALIC's investigation pursuant to Section 6.3 hereof
discloses, with respect to AML's Distribution Force or the operation of its
Fixed Annuity business, any material event, trend, condition, Contract,
Liability, action, suit, proceeding, claim, circumstance or fact of any
character that is not acceptable to ALIC, in its sole discretion, and ALIC gives
notice thereof to AML within eighteen (18) days after the date of this
Agreement, and such non-acceptable event, trend, condition, Contract, Liability,
action, suit, proceeding, claim, circumstance or fact has not been cured or
eliminated within six (6) days after notice thereof has been given to AML; or
(h) at any time after July 31, 1996, by ALIC or AML, if the
transactions contemplated by this Agreement have not been consummated on or
before such date and such failure to consummate is not caused by a breach of
this Agreement (or any representation, warranty, covenant or agreement included
herein) by the party electing to terminate pursuant to this clause (h);
provided, however, that either party may by notice to the other extend such date
to September 30, 1996 if the only conditions to Closing not satisfied as of July
31, 1996 are those set forth in Sections 7.4, 7.7, 8.4 or 8.7 hereof.
11.2 Effect of Termination. If this Agreement is validly terminated
pursuant to Section 11.1 hereof, this Agreement will forthwith become null and
void, and there will be no Liability on the part of ALIC or AML (or any of their
respective officers, directors, employees, agents, consultants or other
representatives), except that any such termination shall be without prejudice to
any claim which either party may have against the other for breach of this
Agreement (or any representation, warranty, covenant or agreement included
herein). All reasonable out-of-pocket expenses incurred in connection with this
Agreement and the transactions contemplated hereby by a non-breaching party who
terminates this Agreement upon a breach by the other under Section 11.1(c) or
(e) hereof will be reimbursed promptly by the breaching party.
11.3 Limited Effect. The provisions of this Article XI shall be effective
only prior to Closing, and may not be invoked to terminate the Joint Venture,
which shall be governed solely by Articles II, XII and XIII of this Agreement.
ARTICLE XII
NOTICES
12.1 All notices and other communications required or permitted under this
Agreement must be in writing and will be deemed to have been duly given when
tendered if delivered by hand, or when received if sent by telecopy, or on the
next Business Day if sent by overnight delivery service, or three Business Days
after mailing by certified mail, return receipt requested, with first class
postage prepaid, to the parties at the following addresses:
If to ALIC, to: Ameritas Life Insurance Corp.
One Ameritas Way
P.O. Box 81889
Lincoln, NE 68501-1889
Fax: (402) 467-7939
Attn.: President
with a copy to: Ameritas Life Insurance Corp.
One Ameritas Way
P.O. Box 81889
Lincoln, NE 68501-1889
Fax: (402) 467-7956
Attn.: General Counsel
If to AML, to: American Mutual Life Insurance Company
611 Fifth Avenue
Des Moines, IA 50309
Fax: (515) 283-3402
Attn.: Chief Executive Officer
with a copy to: American Mutual Life Insurance Company
611 Fifth Avenue
Des Moines, IA 50309
Fax: (515) 283-3402
Attn.: General Counsel
Any party from time to time may change its address for the purpose of notices to
that party by giving a similar notice specifying a new address, but no such
notice will be deemed to have been given until it is actually received by the
party sought to be charged with the contents thereof.
12.2 To the extent any action must be taken by one party hereunder within a
limited period of time after a notice or other document is deemed to have been
duly given by the other party pursuant to Section 12.1 hereof, then the period
within which such action must be taken shall not commence until such notice or
other document is actually received.
12.3 The parties agree that, with respect to any Contract, offer or other
document contemplated by this Agreement, the execution and transmittal of any
such document by facsimile as set forth herein shall be of the same binding
effect on the party so executing and transmitting the document as the delivery
of an original of such document bearing the handwritten execution of such party.
Each of the parties hereby agrees that it will promptly forward to the other an
executed original of any document transmitted by facsimile, but the failure to
do so or the absence of arrival thereof shall have no effect on the binding
nature of the document previously executed by facsimile.
ARTICLE XIII
MISCELLANEOUS
13.1 Entire Agreement. Except for documents executed by ALIC and AML
pursuant hereto, this Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter of this Agreement, and
this Agreement (including the exhibits hereto, the Disclosure Schedule and other
Contracts and documents delivered in connection herewith) contains the sole and
entire agreement between the parties hereto with respect to the subject matter
hereof. In consideration of the execution of this Agreement and the prior
version of this Agreement, the Joint Venture Agreement dated as of March 8, 1996
between the parties to this Agreement and the First Amendment thereto dated as
of April 1, 1996 are hereby superseded in their entirety by this Agreement.
13.2 Expenses. Except as otherwise expressly provided in this Agreement
(including without limitation as provided in Article X and Section 11.2 hereof),
each of ALIC and AML will pay its own costs and expenses in connection with this
Agreement and the transactions contemplated hereby.
13.3 Public Announcements. At all times at or before the Closing, ALIC and
AML will each consult with the other before issuing or making any reports,
statements or releases to the public with respect to this Agreement or the
transactions contemplated hereby and will use good faith efforts to agree on the
text of a joint public report, statement or release or will use good faith
efforts to obtain the other party's approval of the text of any public report,
statement or release to be made solely on behalf of a party. If ALIC and AML
are unable to agree on or approve any such public report, statement or release
and such report, statement or release is, in the opinion of legal counsel to a
party, required by Law or may be appropriate in order to discharge such party's
disclosure obligations, then such party may make or issue the legally required
report, statement or release. Any such report, statement or release approved or
permitted to be made pursuant to this Section 13.3 may be disclosed or otherwise
provided by ALIC or AML to any Person, including without limitation to any
employee or customer of either party hereto and to any governmental or
regulatory authority.
13.4 Further Assurances. ALIC and AML agree that, from time to time after
the Closing, upon the reasonable request of the other, they will cooperate and
will cause their respective Affiliates to cooperate with each other to effect
the orderly transition of the business, operations and affairs of AVLIC and AIC.
13.5 Waiver. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof; such waiver must be
in writing and must be executed by the chief executive officer or chief
financial officer of such party. A waiver on one occasion will not be deemed to
be a waiver of the same or any other breach on a prior or future occasion. All
remedies, either under this Agreement, or by Law or otherwise afforded, will be
cumulative and not alternative.
13.6 Amendment. This Agreement may be modified or amended only by a
writing duly executed by or on behalf of all parties hereto.
13.7 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
13.8 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of the parties hereto, and their
respective successors or assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other Person. Notwithstanding
the foregoing, it is understood that Holding Company, AVLIC and AIC are the
direct beneficiaries of the indemnification rights set forth in Article X hereof
and the parties' obligations pursuant to Article II hereof. The parties
expressly agree that Holding Company, AVLIC and/or AIC may enforce those rights
directly by and for themselves. Without limiting the foregoing, it is also
expressly agreed that ALIC and/or AML shall have the right independently to
enforce those rights against the other party to this Agreement (through a
lawsuit or otherwise) on behalf of Holding Company, AVLIC and/or AIC.
13.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Nebraska (without regard to such
State's conflicts of law provisions).
13.10 Binding Effect. This Agreement is binding upon and will inure to
the benefit of the parties and their respective successors and assignees.
13.11 Assignment Limited. Except as otherwise provided herein, this
Agreement or any right hereunder or part hereof may not be assigned by any party
to any Person who is not an Affiliate of such Person hereto without the prior
written consent of the other party hereto.
13.12 Headings, Gender, etc. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; (e) all references to "dollars" or "$" refer to
currency of the United States of America; and (f) parentheses are used in the
text hereof for ease of interpretation, and language set forth in parentheses
shall have the same force and effect as any other text. The parties hereto have
worked closely together in drafting, negotiating and reviewing this Agreement,
and therefore acknowledge and agree that any rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement.
13.13 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of ALIC or AML under this Agreement will not be materially
and adversely affected thereby, (a) such provision will be fully severable; (b)
this Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof; (c) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom; and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of ALIC and AML, effective as of the date first
written above.
AMERITAS LIFE INSURANCE CORP. AMERICAN MUTUAL LIFE
INSURANCE COMPANY
/s/ Lawrence J. Arth /s/ Roger K. Brooks
By: ------------------------- By: --------------------------
Chief Executive Officer Chief Executive Officer
Its: ------------------------ Its: -------------------------
Exhibit 10.57
AMENDED AND RESTATED
MISCELLANEOUS SERVICES AGREEMENT
This Amended and Restated Miscellaneous Services Agreement (the "Amended
Services Agreement") is made as of the 21st day of July, 1997, by and among
American Mutual Holding Company, an Iowa mutual insurance holding company having
its corporate offices at 611 Fifth Avenue, Des Moines, Iowa 50309 ("AMHC");
AmerUs Life Holdings, Inc., an Iowa corporation having its corporate offices at
611 Fifth Avenue, Des Moines, Iowa 50309 (the "Company"); AmerUs Life Insurance
Company, an Iowa corporation having its corporate offices at 611 Fifth Avenue
Des Moines, Iowa 50309 ("AmerUs Life"); AmerUs Group Co., an Iowa corporation
having its corporate offices at 418 Sixth Avenue, Des Moines, Iowa 50309
("AmerUs Group"); AmerUs Bank, a federal savings bank having its corporate
offices at 418 Sixth Avenue, Des Moines, Iowa 50309 (the "Bank"); AmerUs
Mortgage, Inc., an Iowa corporation having its corporate offices at 1516 35th
Street, Suite 200, West Des Moines, Iowa ("AmerUs Mortgage"); Iowa Realty
Company, Inc., an Iowa corporation having its corporate offices at 3501 Westown
Parkway, West Des Moines, Iowa 50265 ("Iowa Realty"); Iowa Title Company, an
Iowa corporation having its corporate offices at 100 Fourth Street, Des Moines,
Iowa 50309 ("Iowa Title"); AmerUs Insurance, Inc., an Iowa corporation having
its corporate offices at 4949 Westown Parkway, Suite 255, West Des Moines, Iowa
50266 ("AmerUs Insurance");AmerUs Properties, Inc., an Iowa corporation having
its corporate offices at 699 Walnut Street, Des Moines, Iowa 50309 ("AmerUs
Properties"); and AmerUs Direct, Inc., an Iowa corporation having its corporate
offices at 418 Sixth Avenue, Des Moines, Iowa 50309 ("AmerUs Direct")
(collectively, the "AmerUs Companies" and, individually, an "AmerUs Company").
WHEREAS, in the course of the operation and administration of the business
of the AmerUs Companies, an AmerUs Company may require certain services from
another AmerUs Company; and
WHEREAS, the AmerUs Companies desire to provide and receive such services
on the basis described in this Amended Services Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the AmerUs Companies do hereby
agree as follows:
<PAGE>
Article I. Services to be Provided
Section 1.01. For a period of up to twelve (12) months after the date
hereof (hereinafter referred to as the "Services Period") and from month to
month thereafter until terminated in accordance with the provisions contained in
Article V hereof, the AmerUs Companies identified in the schedules to this
Service Agreement, which are attached hereto and made a part hereof (the
"Schedules"), shall provide to each of the other AmerUs Companies (unless
otherwise specified) those services described in the appropriate Schedule.
Section 1.02. The parties agree that any ancillary or support services
necessary or, in the usual and customary manner and the normal course of
business, associated with the specific services described in the Schedules shall
be deemed to be included in, and governed by, this Amended Services Agreement
unless specifically excluded.
Section 1.03. The parties agree that on forty-five (45) days' prior
written notice to the AmerUs Companies affected thereby, any AmerUs Company
providing services hereunder may modify the services described in the Schedule
pertaining to such company, provided that:
(a) Such modified services shall be equivalent to or better than the
services being replaced; and
(b) Each affected AmerUs Company consents to the modified services, such
consent not to be unreasonably withheld.
Article II. Adequate Staff and Facilities
Section 2.01. During the Service Period, each AmerUs Company shall
maintain adequate staff, support services and facilities as may be necessary to
perform its responsibilities under this Amended Services Agreement.
Article III. Responsible Persons
Section 3.01. Each of the AmerUs Companies shall each appoint in writing
one or more individuals who shall serve as contact person(s) for purposes of the
carrying out of this Amended Services Agreement. Such contact person(s) shall
be authorized to act on behalf of their respective parties as to matters
pertaining to this Amended Services Agreement.
<PAGE>
Article IV. Compensation
Section 4.01. Except as otherwise provided in the Schedules, in connection
with the services to be performed under this Amended Services Agreement, the
AmerUs Companies shall compensate a service provider hereunder as set forth in
this Article IV.
Section 4.02. For each of the services described in the Schedules, the
parties agree to pay the compensation set forth for such services on the
appropriate Schedule.
Section 4.03. Unless otherwise agreed to, bills shall be rendered no later
than fifteen (15) business days after the first of the month and payment shall
be remitted no later than fifteen (15) business days after receipt of a proper
bill. If an AmerUs Company determines that the services performed hereunder
are not satisfactory or that the fees charged are in excess of those provided
for in this Amended Services Agreement, the affected AmerUs Company is hereby
authorized to withhold payment for such service until the matter in dispute is
resolved or the fees charged are substantiated or adjusted appropriately.
Adjustments for errors on previous billings and for a final settlement shall be
made no more than sixty (60) days after this Amended Services Agreement
terminates.
Article V. Term and Termination
Section 5.01. Unless this Amended Services Agreement is otherwise
terminated according to its provisions and except as may otherwise be provided
in the Schedules, each service provider shall be obligated to provide, and each
recipient of such services shall be obligated to pay for, the services described
in the Schedules during the Service Period.
Section 5.02. Except as otherwise provided in this Amended Services
Agreement, during the Service Period or any extension thereof, an AmerUs Company
may terminate with respect to itself this Amended Services Agreement at its
option, at any time, upon sixty (60) days' written notice to all of the other
AmerUs Companies. In addition, an AmerUs Company may terminate or substantially
reduce any one or more of the services to be furnished hereunder by it, but such
termination or reduction shall not be deemed to terminate this Amended Services
Agreement in its entirety.
Section 5.03. This Amended Services Agreement, or any service provided
hereunder, may be terminated or substantially reduced at an time by mutual
consent of the parties. The termination of any one or more, but less than all,
of the services provided hereunder by an AmerUs Company shall not be deemed to
terminate this Amended Services Agreement in its entirety.
Article VI. Miscellaneous
Section 6.01. This Amended Services Agreement is the complete and
exclusive statement of the agreement between the parties and supersedes all
prior agreements and representations between them relating to the subject matter
of this Amended Services Agreement, except as set forth in the Schedules.
Amendments to this Amended Services Agreement shall not be effective unless in
writing and signed by the duly authorized representative of the party against
whom enforcement of the amendment is sought.
Section 6.02. Any notice or other communication given pursuant to this
Amended Services Agreement shall be given in writing to the other party at the
address stated herein or at such other address as such party shall specify by
notice hereunder. Such notice shall be conclusively deemed to be served when
delivered personally or three (3) calendar days after sending by registered mail
or one (1) business day after sending by telecopy or telex or similar electronic
means.
Section 6.03. This Amended Services Agreement and the rights and duties of
the parties shall be governed by and construed in accordance with the laws of
the State of Iowa, without regard to principles of conflicts of laws.
Section 6.04. No delay or failure by any party to exercise any of its
rights or remedies hereunder shall operate as a waiver thereof. Each party
shall reimburse the other parties for all expenses, including reasonable
attorneys' fees, incurred by the other party in exercising any of its rights or
remedies hereunder, or resulting from any default by the reimbursing party.
Section 6.05. This Amended Services Agreement shall be binding upon the
parties and their respective successors and assigns and shall inure to the
benefit of the parties and to the benefit of their successors and assigns.
Section 6.06. Nothing herein contained is intended to confer upon any
person, other than the parties and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this Amended
Services Agreement.
<PAGE>
In Witness Whereof, the parties hereto have executed this Amend and
Restated Miscellaneous Services Agreement effective as of the day and year first
above written.
American Mutual AmerUs Group Co.
Holding Company
/s/ Roger K. Brooks /s/ Michael E. Sproule
By: ----------------------------- By: -----------------------------------
Roger K. Brooks, President Michael E. Sproule, Chief Financial
Officer
AmerUs Life AmerUs Life
Holdings, Inc. Insurance Company
/s/ Roger K. Brooks /s/ Gary McPhail
By: ----------------------------- By: ------------------------------------
Roger K. Brooks, President Gary McPhail, President
AmerUs Mortgage, Inc. AmerUs Bank
/s/ Thomas C. Godlasky /s/ Marcia S. Hanson
By: ----------------------------- By: ------------------------------------
Thomas C. Godlasky, President Marcia S. Hanson, President
Iowa Realty Company, Inc. AmerUs Properties, Inc.
/s/ R. Michael Knapp /s/ Diane M. Davidson
By: ----------------------------- By: ------------------------------------
R. Michael Knapp, President Diane M. Davidson, Secretary
<PAGE>
Iowa Title Company AmerUs Insurance, Inc.
/s/ Debra Johnson /s/ Diane M. Davidson
By: ------------------------------- By: ---------------------------------
Debra Johnson, Chief Financial Diane M. Davidson, Secretary
Officer
AmerUs Direct, Inc.
/s/ Jonna M. La Toure
By: -------------------------------
Jonna M. La Toure, Senior Vice
President
<PAGE>
SCHEDULE I
COMMUNICATIONS
Effective January 1, 1997
AmerUs Life Holdings, Inc. shall provide communications services. The
following are the hourly rates for services indicated:
COMMUNICATIONS (12512): Hourly Rate:
Communications Services $45.00
Writing
Graphic Design
Media/Public Relations
Project Coordination, etc.
Manager/Consultant Services $60.00
Printing Services COST
Production Services COST
Supplies COST
<PAGE>
SCHEDULE II
LAW DEPARTMENT
Effective January 1, 1997
AmerUs Life Holdings, Inc. shall provide legal services. The following are
the hourly rates for legal services provided by the positions (and individuals)
indicated below:
Position: Hourly Rate:
General Counsel (JKH) $145.00
Assistant General Counsel (DMD) $120.00
Assistant General Counsel (SMB) $118.00
Assistant General Counsel (DRT, LAS) $115.00
Counsel (MGH) $105.00
Counsel (TGF) $ 95.00
Counsel (EDS) $ 85.00
Legal Administrator $ 50.00
Legal Assistant (LA) $ 65.00
Legal Assistant (JSG) $ 55.00
Legal Assistant (RLC) $ 55.00
Legal Assistant (VSS) $ 50.00
Legal Assistant (ME) $ 45.00
Legal Assistant (DEH) $ 40.00
Legal Assistant (MKM) $ 40.00
<PAGE>
SCHEDULE III
TAX SERVICES
Effective January 1, 1997
The following information is for the services indicated:
1. The tax department (or its successor) of AmerUs Life Holdings, Inc. may
provide to all other AmerUs Group Companies such tax compliance; tax research,
planning, and consulting; benefit and pension services; and such other services
as may be required by applicable law or otherwise. These services will be
provided at cost recovery rates not to exceed the customary and reasonable
charges for such services as would be provided by other CPA's and Attorneys
specializing in such matters, together with all out-of-pocket expenses incurred.
2. For services appropriately measured on an hourly basis, the 1996 rates will
be as follows:
Position: Rate:
Vice President $ 90.00/hr
Directors and Managers $ 80.00/hr
Tax Supervisor $ 75.00/hr
Senior Tax Accountant $ 70.00/hr
Tax Accountant $ 60.00/hr
Administrative Support $ 35.00/hr
<PAGE>
SCHEDULE IV
ACCOUNTING DEPARTMENT
Effective January 1, 1997
The following are the hourly rates for accounting services other than as
further specified below provided to the AmerUs Companies by employees of AmerUs
Life Holdings, Inc. in the following positions:
Position: Hourly Rate:
Manager $65.00
Senior Accountant $50.00
Accountant $40.00
Clerk A $35.00
Clerk B $30.00
Clerk C $25.00
<PAGE>
SCHEDULE V
ADMINISTRATIVE SERVICES
Effective January 1, 1997
The following are the hourly rates for administrative services provided to
the AmerUs Companies by employees of AmerUs Life Holdings, Inc.:
Service
Description: Rate:
Printing Cost plus 15%
Purchasing Cost, Cost plus 4%
Purchasing Cost plus 8% (includes storage)
Mail Service Labor = $10.00 per hour
Postage .30 cents for 1st ounce
Postage .23 cents/ounce after first oz.
Check Handling .017 cents per item
Micrographics $10/hour plus materials
<PAGE>
SCHEDULE VI
DATA PROCESSING SERVICES
Effective July 1, 1997
Introductory Paragraph. The following are the rates for data processing
services provided by AmerUs Life Holdings, Inc. under the terms prescribed
herein.
A. BASIC PROCESSING CHARGES (For AmerUs Mortgage, Inc. and AmerUs Group,
Inc. Only)
a. Loans (AmerUs Mortgage, Inc. Only)
From To Monthly Rate
Per Loan
0 20,000 0.85
20,001 50,000 0.75
50,001 and above 0.55
b. Accounts or Loans (AmerUs Group, Inc. Only)
Customer Information Records
Monthly Rate
Per Account
0.01
For the fee described above, the processing services provided are the following:
1. Computer processing (On-line and Batch)
2. Disk input/output and storage
3. Magnetic Tape input/output and storage
4. Help Desk Telephone Support
5. Production Control Support
6. Storage Administration
7. Disaster/Recovery Services
The above fees cover total on-line transactions equal to a maximum of 2 million
transaction per month. American Mutual Life Corporate Services shall have the
right to bill Client and Client agrees to pay a fee as negotiated by both
parties for the number of transactions over and above the maximum number of
transactions.
Installation Monthly
c. Telecommunications Services Charge Charge
1. 19200 BPS limited distance at proposed $150
transmission line rate
2. Host Mainframe Access (Charge per user id) $ 10
Rate
Per
d. Printing Services Unit
1. Impact Printing per page .045
2. Laser Printing per page .031
3. Microfiche Printing per page .005
B. OPTIONAL PROCESSING AND SUPPORT SERVICES (For all the AmerUs
Companies)
1. Personnel and Related Rate Per Unit
a. CTS Director per hour 100.00
b. Data Center Supervisor per hour 55.00
c. Programming Director per hour 100.00
d. Systems Programmer per hour 75.00
e. Data Services Analyst per hour 55.00
f. Data Services Specialist per hour 50.00
g. Production Supp. Analyst per hour 50.00
h. Production Supp. Spec. per hour 45.00
i. Programming Supervisor per hour 65.00
j. Network/PC Manager per hour 100.00
k. Business Analyst per hour 58.00
l. Telecommunication Analyst per hour 90.00
m. Senior Programmer Analyst per hour 50.00
n. Programmer Analyst per hour 45.00
o. Senior Programmer per hour 37.00
p. Sr. Network Analyst per hour 60.00*
q. PC-Systems Analyst per hour 55.00*
r. PC-Progammer Analyst per hour 55.00*
s. PC-Info Systems Specialist per hour 44.00*
t. PC-Senior Programmer per hour 45.00*
u. Senior Systems Programmer per hour 90.00
v. Security Administrator per hour 55.00
w. Production Support Supervisor per hour 65.00
x. Computer Operator per hour 35.00
* Rates are higher to reflect additional overhead costs due to necessary
hardware and software.
2. Computer Processing
a. Tapes shipped out of house will be
billed to Client if not returned
within three months 25.00
b. Data file restore to magnetic disk 7.00
3. Special Processing and Services
a. Lewis System Delivery/per month 26.00
b. Tape Copiers/per copy 35.00
c. IIN Access/per month 60.00
-American Express, American Airlines
-ADP, Dow Jones, Dun & Bradstreet
-LOMA, LEXIS, WESTLAW
4. Media and Other
a. Special microfiche copies
. 1-25 copies 10.00
. 26 and above time & materials
b. Tape retrieval from offsite storage 20.00
c. Data Center report pickup at window 5.00
5. Network Usage
Rate Per
1000 Units
a. Usage will be calculated monthly in
1,000 units
For the fee described above, the network services provided are the
following:
1. Network wiring and access
2. Tape backup and recovery
3. Network maintenance, monitoring, tuning, trouble shooting
4. Network hardware and software (maintenance and upgrades)
5. Network administration(adding users, security, etc.)
6. Disk storage
b. The network hours of schedule availability will be as follows:
Sunday through Saturday, from 6:00 a.m. until 10:00 p.m.
<PAGE>
C. SYSTEM AVAILABILITY TIMES
1. AmerUs Life Corporate Services Systems Scheduled Availability
Day of Week Start-Time Stop-Time
Monday 07:00 23:00
Tuesday 07:00 23:00
Wednesday 07:00 23:00
Thursday 07:00 23:00
Friday 07:00 23:00
Saturday 07:00 23:00
Sunday 07:00 23:00
2. Exceptions to Normal On-line Systems Availability
a. Holiday Schedules:
1. New Years Day 2. Memorial Day
3. July 4th 4. Labor Day
5. Thanksgiving 6. Christmas
No support or regular systems processing will be made available
on the dates published until the following day. If Client observes additional
processing holidays, Client should notify AmerUs Life Corporate Services in
writing at least 15 days prior to scheduled holiday.
b. Preventative Maintenance. Occasionally, the systems may not be
available when AmerUs Life Corporate Services is making hardware/software
upgrades or changes. In such instances, AmerUs Life Corporate Services will
notify Client as soon as possible. However, every effort will be made to
perform maintenance outside the availability hours.
c. Year-End Processing. Client agrees to cooperate in meeting
special year-end processing schedules.
<PAGE>
SCHEDULE VII
HUMAN RESOURCES DEPARTMENT
Effective January 1, 1997
The following are monthly bulk rates for charges by AmerUs Life Holdings,
Inc. employees to AmerUs Group companies for payroll processing, payroll tax
filings, pension valuations, record-keeping and statement preparation, and
401(k) record-keeping services:
Company: Monthly Rate:
AmerUs Bank $51,767.17
AmerUs Direct $ 1,072.42
AmerUs Group $58,781.42
AmerUs Insurance $ 2,632.25
AmerUs Investments $ 1,559.83
AmerUs Life $37,180.00
AmerUs Mortgage $25,249.92
AmerUs Properties $ 4,368.33
Edina Financial Services $ 3,333.33
Iowa Realty $30,806.83
Iowa Title $ 6,044.33
Iowa Realty Commercial Brokers (through June 30, 1997) $ 1,462.33
<PAGE>
SCHEDULE VIII
TELEPHONE SERVICES
Effective January 1, 1997
AmerUs Life Holdings, Inc. shall provide communications services. The
following are the hourly rates for services indicated:
Local Telephone Service 40.00/Month per Station
Phone Mail Box 4.00/Month per Station
Analog Modem/Fax Line 100.00/Month
Call Processing Box 150.00/Month
ACD Group 200.00/Call
Local Information .50/Call
Long Distance Information .85/Call
Inbound Long Distance .18/Minute
Outbound Long Distance .15/Minute
Analyst/Technician 30.00/Hour
Clerical/Switchboard 10.00/Hour
Additional telephone equipment beyond
initial installation COST
Hourly charges for installation/
maintenance of additional
equipment COST
<PAGE>
SCHEDULE IX
BILLING RATES
AS OF JANUARY 2, 1997
OVERALL BILLING PRACTICES
- - Billing practice is to price AmerUs Direct services at cost. Income above
basic operating expenses is generated from commission/transfer price paid
by lines of business for sales made by AmerUs Direct.
- - Time is measured in quarter-hour increments.
- - Most projects are assigned a Job Number, and most internal and external
service providers generate billing which references the Job Number.
- - Services/products purchased externally are billed at cost. Mileage and
travel expenses are billed at cost. For local driving trips, time is
measured from departure to arrival. If longer distance travel were
required, the full travel time would not be fully billable.
- - Target is to have 80% of employees' hours billable.
- - Billing is prepared on the 21st of each month, to aid in timely month-end
billing.
- - Hourly rates reflect all fixed costs of each business function (e.g. the
database hourly rate reflects the cost of building and maintaining the
database).
BILLING RATES
FUNCTION HOURLY RATE
Program Management $85.00
Telemarketing Management, Reporting $75.00
Telemarketers (Outbound and Inbound)
Licensed for insurance $55.00
Unlicensed/general sales $35.00-45.00 (quoted by job)
Database Services $105.00
(Reports, Lists, Campaign Analysis,
Market Reporting, etc.)
Financial Analysts $75.00
(Product Profitability, Product
Repricing Analysis, etc.)
Marketing Strategic Planning $125.00
<PAGE>
SCHEDULE X
INVESTMENT SERVICES
EFFECTIVE JANUARY 1, 1997
The following are the rates for investment services provided to the
specified AmerUs Companies by employees of the AmerUs Life Holdings, Inc.:
A. AmerUs Bank is charged a rate of nine basis points on the value of invested
assets under management for general asset management and reporting services
that it receives.
B. AmerUs Life Insurance Company is charged a rate of thirty basis points on
the value of invested assets under management for the following services:
(1) general asset management and reporting; (2) extensive credit and
interest rate analysis; (3) management of assets in other classes (High
Yield, Emerging Markets, Private Placements, Equities, and Asset-Backed);
(4) management of commercial mortgage portfolio; and (5) preparation of
information for filings with regulatory and rating agencies.
Exhibit 10.58
Lease-BUSINESS PROPERTY - SHORT FORM
THIS AGREEMENT, made and entered into this 1st day of December, 1996, by
and between AmerUs Properties, Inc., ("Landlord"), whose address, for the
purpose of this lease, is: 4949 Westown Parkway, Suite 245, West Des Moines,
Iowa 50266, and AmerUs Life Insurance Company. ("Tenant"), whose address for the
purpose of this lease is: 611 5th Avenue, Des Moines, Iowa 50309.
The parties agree as follows:
1. PREMISES AND TERM. Landlord leases to Tenant the following real
estate, situated in Polk County, Iowa:
Ground Floor, First Floor, Third Floor and Fourth Floor of the AmerUs Life
Building located at 611 5th Avenue, Des Moines, Iowa. Total square footage
is 83,795.
together with all improvements thereon, and all rights, easements and
appurtenances thereto belonging, for a term beginning on the 1st day of
December, 1996, and ending on the 30th day of November, 2001 upon the condition
that Tenant performs as provided in this lease.
2. RENT. Tenant agrees to pay Landlord as rent $99,157.00 per month, in
advance commencing on the 1st day of December, 1996 and on the 1st day of each
month thereafter, during the term of this lease. Rent for any partial month
shall be prorated as additional rent.
All sums shall be paid at the address of Landlord, or at such other place
as Landlord may designate in writing. Delinquent payments shall draw interest
at 12% per annum.
3. POSSESSION. Tenant shall be entitled to possession on the first day
of the lease term, and shall yield possession to Landlord at the termination of
this lease. SHOULD LANDLORD BE UNABLE TO GIVE POSSESSION ON SAID DATE, TENANT'S
ONLY DAMAGES SHALL BE A PRO RATA ABATEMENT OF RENT.
4. USE. Tenant shall use the premises only for general office use.
5. CARE AND MAINTENANCE. (a) Tenant takes the premises as is, except as
herein provided.
(b) Landlord shall keep the following in good repair: (roof) (exterior
walls) (foundation) (sewer) (plumbing) (heating) (wiring) (air conditioning)
(plate glass) (windows and window glass) (parking area) (driveways) (sidewalks)
(exterior decorating) (interior decorating) and provide the following services:
janitorial, snow removal, security, elevator maintenance, trash pick up, window
washing, pest control and landscaping except when the same area occasioned by
the misuse or negligence of Tenant, its agents, employees or invitees. Landlord
shall not be liable for failure to make any repairs or replacements unless
Landlord fails to do so within a reasonable time after written notice from
Tenant.
(c) Landlord shall maintain the premises in a reasonable care,
serviceable, clean and presentable condition. Tenant shall make ALL CHANGES,
ALTERATIONS OR ADDITIONS ORDERED BY ANY LAWFULLY CONSTITUTED GOVERNMENT
AUTHORITY DIRECTLY RELATED TO TENANT'S USE OF THE PREMISES. Tenant shall make
no structural changes or alterations without the prior written consent of
Landlord.
6. UTILITIES AND SERVICES. Landlord shall pay for all utilities and
services which may be used on the premises, except the following to be furnished
by Tenant: telephone. Landlord shall not be liable for damages for failure to
perform as herein provided, or for any stoppage for needed repairs or for
improvements or arising from causes beyond the control of Landlord, provided
Landlord uses reasonable diligence to resume such services.
7. SURRENDER. Upon the termination of this lease, Tenant will surrender
the premises to Landlord in good and clean condition, except for ordinary wear
and tear or damage without fault or liability of Tenant. Continued possession,
beyond the term of this lease and the acceptance of rent by Landlord shall
constitute a month-to-month extension of this lease.
8. ASSIGNMENT AND SUBLETTING. No assignment or subletting, either
voluntary or by operation of law, shall be effective without the prior written
consent of Landlord, which consent shall not unreasonably be withheld.
9. PROPERTY INSURANCE. (a) Tenant will not do or omit the doing of any
act which would invalidate any insurance, or increase the insurance rates in
force on the premises.
(b) To the extent of all insurance collectible for damage to property, and
to the extent permitted by their respective policies of fire and extended
coverage insurance, each party hereby waives rights of subrogation against the
other, regardless of fault.
10. INDEMNITY AND LIABILITY INSURANCE. Except for any negligence of
Landlord, Tenant will protect, defend, and indemnify Landlord from and against
any and all loss, costs, damage and expenses occasioned by, or arising out of,
any accident or other occurrence causing or inflicting injury or damage to any
person or property, happening or done in, upon or about the premises, or due
directly or indirectly to the tenancy, use or occupancy thereof, or any part
thereof by Tenant or any person claiming through or under Tenant. Tenant will
procure and maintain liability insurance in amounts not less than $1 Million for
any person injured, and $2 Million for any one accident.
11. DAMAGE. In the event of damage to the premises, so that Tenant is
unable to conduct business on the premises, this lease may be terminated at the
option of either party. Such termination shall be effected by notice of one
party to the other within twenty days after such notice; and both parties shall
thereafter be released from all future obligations hereunder.
12. MECHANICS' LIENS. Neither Tenant, nor anyone claiming by, through, or
under Tenant, shall have the right to file any mechanic's lien against the
premises. Tenant shall give notice in advance to all contractors and
subcontractors who may furnish, or agree to furnish, any material, service or
labor for any improvement on the premises.
13. TERMINATION UPON DEFAULT OF TENANT. Upon default in payment of rent,
abandonment of the premises, or upon any other default by Tenant of the terms of
this lease, this lease may, at the option of Landlord, and without prejudice to
any other rights or remedies afforded Landlord by law, be cancelled and
forfeited; PROVIDED, HOWEVER, before any such cancellation and forfeiture,
Landlord shall give Tenant notice specifying the default, or defaults, and
stating that this lease will be cancelled and forfeited ten days after notice,
unless such default or defaults are remedied within such period.
14. SIGNS. Landlord, during the last ninety days of this lease, shall
have the right to maintain on the premises either or both a "For Rent" or "For
Sale" sign. Tenant will permit prospective tenants or buyers to enter and
examine the premises.
15. NOTICES AND DEMANDS. All notices shall be given to the parties hereto
at the addresses designated unless either party notifies the other, in writing,
of a different address. Without prejudice to any other method of notifying a
party in writing or making a demand or other communication, such notice shall be
considered given under the terms of this lease when it is deposited in the U.S.
Mail, registered or certified, properly addressed, return receipt requested, and
postage prepaid.
16. PROVISIONS BINDING. Each and every covenant and agreement herein
contained shall extend to and be binding upon the respective successors, heirs,
administrators, executors and assigns of the parties hereto.
<PAGE>
17. ADDITIONAL PROVISIONS.
AmerUs Properties, Inc. AmerUs Life Insurance Co.
Landlord Tenant
By: /s/ James A. McClurnon By: /s/ D. T. Doan
Printed: James A. McClurnon Printed: D. T. Doan
Title: Vice President Title: President
EXHIBIT 10.59
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT, made this 1st day of February,
1998, by and between AMERUS PROPERTIES, INC. (hereinafter called "Landlord") and
AMERUS LIFE INSURANCE COMPANY (hereinafter called "Tenant").
W I T N E S S E T H:
WHEREAS, by Lease dated December 1, 1996, Landlord did lease and demise
unto Tenant those certain premises, therein more particularly described, for
such rentals and upon such terms as more particularly set forth therein
(hereinafter the "Lease"); and
WHEREAS, Tenant desires to lease 19,400 square feet of additional space
consisting of the entire second floor of the remaining term of the Lease at
$14.20 per square foot; and
WHEREAS, Landlord is in agreement to lease the additional space on the
terms contained herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, it is
mutually agreed to amend the Lease as follows:
1. The definition of Premises shall include 19,400 square feet on the
second floor of the AmerUs Life Building.
2. Additionally, the rent under the additional 19,400 square feet will be
at the same rate ($14.20/s.f.) as the balance of the leased square
footage. Therefore, additional rent of Twenty-two Thousand Nine
Hundred Fifty-six and 67/100 Dollars ($22,956.67) will be due and
payable the first day of February, 1998 and on the first day of each
month until the expiration of the term of the Lease on November 30,
2001.
3. Except as set forth herein, said Lease shall remain unchanged and in
full force and effect as originally written.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed by their duly authorized representative on the day and year first above
written.
LANDLORD: TENANT:
AMERUS PROPERTIES, INC. AMERUS LIFE INSURANCE COMPANY
By: /s/ Roger W. Langpaul By: /s/ Thomas C. Godlasky
Roger W. Langpaul, Vice President Thomas C. Godlasky
Executive Vice President
EXHIBIT 10.60
LEASE-BUSINESS PROPERTY - SHORT FORM
THIS AGREEMENT, made and entered into this 1st day of December, 1996, by and
between AmerUs Properties, Inc., ("Landlord"), whose address, for the purpose of
this lease, is:
4949 Westown Parkway, Suite 245
West Des Moines, Iowa 50266
and AmerUs Life Insurance Company
("Tenant"), whose address for the purpose of this lease is:
611 5th Avenue
Des Moines, Iowa 50309
The parties agree as follows:
1. PREMISES AND TERM. Landlord leases to Tenant the following real
estate, situated in Polk County, Iowa.
The building located at 1213 Cherry Street, Des Moines, Iowa.
Square footage is approximately 17,000.
together with all improvements thereon, and all rights, easements and
appurtenances thereto belonging, for a term beginning on the 1st day of
December, 1996, and ending on the 30th day of November, 2001 upon the condition
that Tenant performs as provided in this lease.
2. RENT. Tenant agrees to pay Landlord as rent $5,667.00 per month, in
advance commencing on the 1st day of December, 1996 and on the 1st day of each
month thereafter, during the term of this lease. Rent for any partial month
shall be prorated as additional rent. Tenant shall also pay: all expenses of
operating the Building including, but not limited to, insurance, property taxes,
repairs and maintenance, management fees and utilities. This base rent amount
of $5,667.00 is net of all operating expenses.
All sums shall be paid at the address of Landlord, or at such other place
as Landlord may designate in writing. Delinquent payments shall draw interest
at 12% per annum.
3. POSSESSION. Tenant shall be entitled to possession on the first day of
the lease term, and shall yield possession to Landlord at the termination of
this lease. SHOULD LANDLORD BE UNABLE TO GIVE POSSESSION ON SAID DATE, TENANT'S
ONLY DAMAGES SHALL BE A PRO RATA ABATEMENT OF RENT.
4. Use. Tenant shall use the premises only for office, printing and
storage.
5. CARE AND MAINTENANCE. (a) Tenant takes the premises as is, except as
herein provided.
(b) Tenant shall keep the following in good repair: (roof) (exterior walls)
(foundation) (sewer) (plumbing) (heating) (wiring) (air conditioning) (plate
glass) (windows and window glass) (parking area) (driveways) (sidewalks)
(exterior decorating) (interior decorating)
(c) Tenant shall maintain the premises in a reasonable safe, serviceable,
clean and presentable condition, and except for the repairs and replacements
provided to be made by Landlord in subparagraph (b) above, shall make all
repairs, replacements and improvements to the premises, INCLUDING ALL CHANGES,
ALTERATIONS OR ADDITIONS ORDERED BY ANY LAWFULLY CONSTITUTED GOVERNMENT
AUTHORITY DIRECTLY RELATED TO TENANTS'S USE OF THE PREMISES. Tenant shall make
no structural changes or alterations without the prior written consent of
Landlord. Unless otherwise provided, and if the premises include the ground
floor, Tenant agrees to remove all snow and ice and other obstructions from the
sidewalk on or abutting the premises.
6. UTILITIES AND SERVICES. Tenant shall pay for all utilities and
services which may be used on the premises, except the following to be furnished
by Landlord:
Landlord shall not be liable for damages for failure to perform as herein
provided, or for any stoppage for needed repairs or for improvements or arising
from causes beyond the control of Landlord, provided Landlord uses reasonable
diligence to resume such services.
7. SURRENDER. Upon the termination to this lease, Tenant will surrender
the premises to Landlord in good and clean condition, except for ordinary wear
and tear or damage without fault or liability of Tenant. Continued possession,
beyond the term of this Lease and the acceptance of rent by Landlord shall
constitute a month-to-month extension of this lease.
8. ASSIGNMENT AND SUBLETTING. No assignment or subletting, either
voluntary or by operation of law, shall be effective without the prior written
consent of Landlord, which consent shall not unreasonably be withheld.
9. PROPERTY INSURANCE. (a) Tenant will not do or omit the doing of any
act which would invalidate any insurance, or increase the insurance rates in
force on the premises.
(b) To the extent of all insurance collectible for damage to property, and to
the extent permitted by their respective policies of fire and extended coverage
insurance, each party hereby waives rights of subrogation against the other,
regardless of fault.
10. INDEMNITY AND LIABILITY INSURANCE. Except for any negligence of
Landlord, Tenant will protect, defend, and indemnity Landlord from and against
any and all loss, costs, damage and expenses occasioned by, or arising out of,
any accident or other occurrence causing or inflicting injury or damage to any
person or property, happening or done in, upon or about the premises, or due
directly or indirectly to the tenancy, use of occupancy thereof, or any part
thereof by Tenant or any person claiming through or under Tenant. Tenant will
procure and maintain liability insurance in amounts not less that $1 million for
any person injured, $2 million for any one accident, and with the limits of $1
million for property damage, which names Landlord as an insured.
11. DAMAGE. In the event of damage to the premises, so that Tenant is
unable to conduct business on the premises, this lease may be terminated at the
option of either party. Such termination shall be effected by notice of one
party to the other within twenty days after such notice; and both parties shall
thereafter be released from all future obligations hereunder.
12. MECHANICS' LIENS. Neither Tenant, nor anyone claiming by, through, or
under Tenant, shall have the right to file any mechanic's lien against the
premises. Tenant shall give notice in advance to all contractors and
subcontractors who may furnish, or agree to furnish, any material, service or
labor for any improvement on the premises.
13. TERMINATION UPON DEFAULT OF TENANT. Upon default in payment of rent,
abandonment of the premises, or upon any other default by Tenant of the terms of
this lease, this lease may, at the option of Landlord, and without prejudice to
any other rights or remedies afforded Landlord by law, be cancelled and
forfeited; PROVIDED, HOWEVER, before any such cancellation and forfeiture,
Landlord shall give Tenant notice specifying the default, or defaults, and
stating that this Lease will be cancelled and forfeited ten days after notice,
unless such default or defaults are remedied within such period.
14. SIGNS. Landlord, during the last ninety days of this lease, shall
have the right to maintain on the premises either or both a "For Rent" or "For
Sale" sign. Tenant will permit prospective tenants or buyers to enter and
examine the premises.
15. NOTICES AND DEMANDS. All notices shall be given to the parties hereto
at the addresses designated unless either party notifies the other, in writing,
of a different address. Without prejudice to any other method of notifying a
party in writing or making a demand or other communication, such notice shall be
considered given under the terms of this lease when it is deposited in the U.S.
Mail, registered or certified, properly addressed, return receipt requested, and
postage prepaid.
16. PROVISIONS BINDING. Each and every covenant and agreement herein
contained shall extend to and be binding upon the respective successors, heirs,
administrators, executors and assigns of the parties hereto.
17. ADDITIONAL PROVISIONS.
AmerUs Properties, Inc. AmerUs Life Insurance Co.
Landlord Tenant
By: James A. McClarnon By: D T Doan
Vice President President
EXHIBIT 10.61
Lease-BUSINESS PROPERTY - SHORT FORM
THIS AGREEMENT, made and entered into this 1st day of December, 1996, by
and between AmerUs Properties, Inc., ("Landlord"), whose address, for the
purpose of this lease, is: 4949 Westown Parkway, Suite 245, West Des Moines,
Iowa 50266, and AmerUs Life Holdings, Inc. ("Tenant"), whose address for the
purpose of this lease is: 418 6th Avenue, Des Moines, Iowa 50309.
The parties agree as follows:
1. PREMISES AND TERM. Landlord leases to Tenant the following real
estate, situated in Polk County, Iowa:
Space in the Liberty Building at 418 6th Avenue, Des Moines, Iowa as
follows:
Basement - partial
First Floor - partial
Sixth Floor - partial
Seventh Floor - partial
Ninth Floor - partial
Eleventh Floor - full
Twelfth Floor - full
Total Square Footage: 38,836
together with all improvements thereon, and all rights, easements and
appurtenances thereto belonging, for a term beginning on the 1st day of
December, 1996, and ending on the 30th day of November, 2001 upon the condition
that Tenant performs as provided in this lease.
2. RENT. Tenant agrees to pay Landlord as rent $43,691.00 per month, in
advance commencing on the 1st day of December, 1996 and on the 1st day of each
month thereafter, during the term of this lease. Rent for any partial month
shall be prorated as additional rent.
All sums shall be paid at the address of Landlord, or at such other place
as Landlord may designate in writing. Delinquent payments shall draw interest
at 12% per annum.
3. POSSESSION. Tenant shall be entitled to possession on the first day
of the lease term, and shall yield possession to Landlord at the termination of
this lease. SHOULD LANDLORD BE UNABLE TO GIVE POSSESSION ON SAID DATE, TENANT'S
ONLY DAMAGES SHALL BE A PRO RATA ABATEMENT OF RENT.
4. USE. Tenant shall use the premises only for general office use.
5. CARE AND MAINTENANCE. (a) Tenant takes the premises as is, except as
herein provided.
(b) Landlord shall keep the following in good repair: (roof) (exterior
walls) (foundation) (sewer) (plumbing) (heating) (wiring) (air conditioning)
(plate glass) (windows and window glass) (parking area) (driveways) (sidewalks)
(exterior decorating) (interior decorating) except when the same area occasioned
by the misuse or negligence of Tenant, its agents, employees or invitees.
Landlord shall not be liable for failure to make any repairs or replacements
unless Landlord fails to do so within a reasonable time after written notice
from Tenant.
(c) Tenant shall maintain the premises in a reasonable care, serviceable,
clean and presentable condition, and except for the repairs and replacements
provided to be made by Landlord in subparagraph (b) above, shall make all
repairs, replacements and improvements to the premises, INCLUDING ALL CHANGES,
ALTERATIONS OR ADDITIONS ORDERED BY ANY LAWFULLY CONSTITUTED GOVERNMENT
AUTHORITY DIRECTLY RELATED TO TENANT'S USE OF THE PREMISES. Tenant shall make
no structural changes or alterations without the prior written consent of
Landlord. Unless otherwise provided, and if the premises include the ground
floor, Tenant agrees to remove all snow and ice and other obstructions from the
sidewalk on or abutting the premises.
6. UTILITIES AND SERVICES. Landlord shall pay for all utilities and
services which may be used on the premises, except the following to be furnished
by Tenant: telephone. Landlord shall not be liable for damages for failure to
perform as herein provided, or for any stoppage for needed repairs or for
improvements or arising from causes beyond the control of Landlord, provided
Landlord uses reasonable diligence to resume such services.
7. SURRENDER. Upon the termination of this lease, Tenant will surrender
the premises to Landlord in good and clean condition, except for ordinary wear
and tear or damage without fault or liability of Tenant. Continued possession,
beyond the term of this lease and the acceptance of rent by Landlord shall
constitute a month-to-month extension of this lease.
8. ASSIGNMENT AND SUBLETTING. No assignment or subletting, either
voluntary or by operation of law, shall be effective without the prior written
consent of Landlord, which consent shall not unreasonably be withheld.
9. PROPERTY INSURANCE. (a) Tenant will not do or omit the doing of any
act which would invalidate any insurance, or increase the insurance rates in
force on the premises.
(b) To the extent of all insurance collectible for damage to property, and
to the extent permitted by their respective policies of fire and extended
coverage insurance, each party hereby waives rights of subrogation against the
other, regardless of fault.
10. INDEMNITY AND LIABILITY INSURANCE. Except for any negligence of
Landlord, Tenant will protect, defend, and indemnify Landlord from and against
any and all loss, costs, damage and expenses occasioned by, or arising out of,
any accident or other occurrence causing or inflicting injury or damage to any
person or property, happening or done in, upon or about the premises, or due
directly or indirectly to the tenancy, use or occupancy thereof, or any part
thereof by Tenant or any person claiming through or under Tenant. Tenant will
procure and maintain liability insurance in amounts not less than $1 Million for
any person injured, and $2 Million for any one accident.
11. DAMAGE. In the event of damage to the premises, so that Tenant is
unable to conduct business on the premises, this lease may be terminated at the
option of either party. Such termination shall be effected by notice of one
party to the other within twenty days after such notice; and both parties shall
thereafter be released from all future obligations hereunder.
12. MECHANICS' LIENS. Neither Tenant, nor anyone claiming by, through, or
under Tenant, shall have the right to file any mechanic's lien against the
premises. Tenant shall give notice in advance to all contractors and
subcontractors who may furnish, or agree to furnish, any material, service or
labor for any improvement on the premises.
13. TERMINATION UPON DEFAULT OF TENANT. Upon default in payment of rent,
abandonment of the premises, or upon any other default by Tenant of the terms of
this lease, this lease may, at the option of Landlord, and without prejudice to
any other rights or remedies afforded Landlord by law, be cancelled and
forfeited; PROVIDED, HOWEVER, before any such cancellation and forfeiture,
Landlord shall give Tenant notice specifying the default, or defaults, and
stating that this lease will be cancelled and forfeited ten days after notice,
unless such default or defaults are remedied within such period.
14. SIGNS. Landlord, during the last ninety days of this lease, shall
have the right to maintain on the premises either or both a "For Rent" or "For
Sale" sign. Tenant will permit prospective tenants or buyers to enter and
examine the premises.
15. NOTICES AND DEMANDS. All notices shall be given to the parties hereto
at the addresses designated unless either party notifies the other, in writing,
of a different address. Without prejudice to any other method of notifying a
party in writing or making a demand or other communication, such notice shall be
considered given under the terms of this lease when it is deposited in the U.S.
Mail, registered or certified, properly addressed, return receipt requested, and
postage prepaid.
16. PROVISIONS BINDING. Each and every covenant and agreement herein
contained shall extend to and be binding upon the respective successors, heirs,
administrators, executors and assigns of the parties hereto.
17. ADDITIONAL PROVISIONS.
AmerUs Properties, Inc. AmerUs Life Holdings, Inc.
Landlord Tenant
By: /s/ James A. McClurnon By: /s/ Michael G. Fraizer
Printed: James A. McClurnon Printed: Michael G. Fraizer
Title: Vice President Title: Senior Vice President
EXHIBIT 10.62
Lease-BUSINESS PROPERTY - SHORT FORM
THIS AGREEMENT, made and entered into this 31st day of December, 1997, by
and between AmerUs Properties, Inc., ("Landlord"), whose address, for the
purpose of this lease, is: 699 Walnut Street, Suite 1700, Des Moines, Iowa
50309-3945, and AmerUs Life Holdings, Inc.. ("Tenant"), whose address for the
purpose of this lease is: 699 Walnut Street, Suite 2000, Des Moines, Iowa 50309.
The parties agree as follows:
1. PREMISES AND TERM. Landlord leases to Tenant the following real
estate, situated in Polk County, Iowa:
Space in The Hub Tower as follows:
Third Floor: 19,603 rentable sq. ft.
Thirteenth Floor: 500 rentable sq. ft.
Seventeenth Floor: 15,518 rentable sq. ft.
Nineteenth Floor: 1,595 rentable sq. ft.
Twentieth Floor: 15,518 rentable sq. ft.
together with all improvements thereon, and all rights, easements and
appurtenances thereto belonging, for a term beginning on the 1st day of January,
1998, and ending on the 31st day of December, 2004 upon the condition that
Tenant performs as provided in this lease.
2. RENT. Tenant agrees to pay Landlord as rent $86,538.00 per month, in
advance commencing on the 1st day of November, 1997 and on the 1st day of each
month thereafter, during the term of this lease. Rent for any partial month
shall be prorated as additional rent. The above monthly rental is calculated at
$17.50 per square foot per annum plus the amortized cost of tenant improvements
of $581,869.00 over the term of the lease at nine percent (9%) per annum
interest.
All sums shall be paid at the address of Landlord, or at such other place
as Landlord may designate in writing. Delinquent payments shall draw interest
at 12% per annum.
3. POSSESSION. Tenant shall be entitled to possession on the first day
of the lease term, and shall yield possession to Landlord at the termination of
this lease. SHOULD LANDLORD BE UNABLE TO GIVE POSSESSION ON SAID DATE, TENANT'S
ONLY DAMAGES SHALL BE A PRO RATA ABATEMENT OF RENT.
<PAGE>
4. USE. Tenant shall use the premises only for general office and
related business use.
5. CARE AND MAINTENANCE. (a) Tenant takes the premises as is, except as
herein provided.
(b) Landlord shall keep the following in good repair: (roof) (exterior
walls) (foundation) (sewer) (plumbing) (heating) (wiring) (air conditioning)
(plate glass) (windows and window glass) (parking area) (driveways) (sidewalks)
(exterior decorating) (interior decorating) except when the same area occasioned
by the misuse or negligence of Tenant, its agents, employees or invitees.
Landlord shall not be liable for failure to make any repairs or replacements
unless Landlord fails to do so within a reasonable time after written notice
from Tenant.
(c) Tenant shall maintain the premises in a reasonable care, serviceable,
clean and presentable condition, and except for the repairs and replacements
provided to be made by Landlord in subparagraph (b) above, shall make all
repairs, replacements and improvements to the premises, INCLUDING ALL CHANGES,
ALTERATIONS OR ADDITIONS ORDERED BY ANY LAWFULLY CONSTITUTED GOVERNMENT
AUTHORITY DIRECTLY RELATED TO TENANT'S USE OF THE PREMISES. Tenant shall make
no structural changes or alterations without the prior written consent of
Landlord. Unless otherwise provided, and if the premises include the ground
floor, Tenant agrees to remove all snow and ice and other obstructions from the
sidewalk on or abutting the premises.
6. UTILITIES AND SERVICES. Landlord shall pay for all utilities and
services which may be used on the premises, except the following to be furnished
by Tenant: Communication Systems. Landlord shall not be liable for damages for
failure to perform as herein provided, or for any stoppage for needed repairs or
for improvements or arising from causes beyond the control of Landlord, provided
Landlord uses reasonable diligence to resume such services.
7. SURRENDER. Upon the termination of this lease, Tenant will surrender
the premises to Landlord in good and clean condition, except for ordinary wear
and tear or damage without fault or liability of Tenant. Continued possession,
beyond the term of this lease and the acceptance of rent by Landlord shall
constitute a month-to-month extension of this lease.
8. ASSIGNMENT AND SUBLETTING. No assignment or subletting, either
voluntary or by operation of law, shall be effective without the prior written
consent of Landlord, which consent shall not unreasonably be withheld. Landlord
acknowledges that 445 rentable square feet of premises will be occupied by
Tenant's parent, AmerUs Group Co.
9. PROPERTY INSURANCE. (a) Tenant will not do or omit the doing of any
act which would invalidate any insurance, or increase the insurance rates in
force on the premises.
(b) To the extent of all insurance collectible for damage to property, and
to the extent permitted by their respective policies of fire and extended
coverage insurance, each party hereby waives rights of subrogation against the
other, regardless of fault.
10. INDEMNITY AND LIABILITY INSURANCE. Except for any negligence of
Landlord, Tenant will protect, defend, and indemnify Landlord from and against
any and all loss, costs, damage and expenses occasioned by, or arising out of,
any accident or other occurrence causing or inflicting injury or damage to any
person or property, happening or done in, upon or about the premises, or due
directly or indirectly to the tenancy, use or occupancy thereof, or any part
thereof by Tenant or any person claiming through or under Tenant. Tenant will
procure and maintain liability insurance in amounts not less than $1,000,000.00
for any person injured, and $2,000,000.00 for any one accident, which names
Landlord as an insured.
11. DAMAGE. In the event of damage to the premises, so that Tenant is
unable to conduct business on the premises, this lease may be terminated at the
option of either party. Such termination shall be effected by notice of one
party to the other within twenty days after such notice; and both parties shall
thereafter be released from all future obligations hereunder.
12. MECHANICS' LIENS. Neither Tenant, nor anyone claiming by, through, or
under Tenant, shall have the right to file any mechanic's lien against the
premises. Tenant shall give notice in advance to all contractors and
subcontractors who may furnish, or agree to furnish, any material, service or
labor for any improvement on the premises.
13. TERMINATION UPON DEFAULT OF TENANT. Upon default in payment of rent,
abandonment of the premises, or upon any other default by Tenant of the terms of
this lease, this lease may, at the option of Landlord, and without prejudice to
any other rights or remedies afforded Landlord by law, be cancelled and
forfeited; PROVIDED, HOWEVER, before any such cancellation and forfeiture,
Landlord shall give Tenant notice specifying the default, or defaults, and
stating that this lease will be cancelled and forfeited ten days after notice,
unless such default or defaults are remedied within such period.
14. SIGNS. Landlord, during the last ninety days of this lease, shall
have the right to maintain on the premises either or both a "For Rent" or "For
Sale" sign. Tenant will permit prospective tenants or buyers to enter and
examine the premises.
15. NOTICES AND DEMANDS. All notices shall be given to the parties hereto
at the addresses designated unless either party notifies the other, in writing,
of a different address. Without prejudice to any other method of notifying a
party in writing or making a demand or other communication, such notice shall be
considered given under the terms of this lease when it is deposited in the U.S.
Mail, registered or certified, properly addressed, return receipt requested, and
postage prepaid.
16. PROVISIONS BINDING. Each and every covenant and agreement herein
contained shall extend to and be binding upon the respective successors, heirs,
administrators, executors and assigns of the parties hereto.
17. ADDITIONAL PROVISIONS.
Within ten (1) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
that this Lease is unmodified and in full force and effect, or is in full force
and effect as modified and stating the modifications; the amount of rent and the
date to which rent has been paid in advance; and that Landlord is not in default
hereunder or if Landlord is in default, stating the nature of the claimed
default. Any such statement may be relied upon by a purchaser or lender.
AmerUs Properties, Inc. AmerUs Life Holdings, Inc.
Landlord Tenant
By: /s/ Roger W. Langpaul By: /s/ Thomas C. Godlasky
Roger W. Langpaul, Vice President Thomas C. Godlasky
Executive Vice President
EXHIBIT 10.63
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT, made this 1st day of February,
1998, by and between AMERUS PROPERTIES, INC. (hereinafter called "Landlord") and
AMERUS LIFE HOLDINGS, INC. (hereinafter called "Tenant").
W I T N E S S E T H:
WHEREAS, by Lease dated December 31, 1997, Landlord did lease and demise
unto Tenant those certain premises, therein more particularly described, for
such rentals and upon such terms as more particularly set forth therein
(hereinafter the "Lease"); and
WHEREAS, Tenant desires to delete the third floor from the Lease until such
time as Tenant has a need for such space; and
WHEREAS, Landlord is in agreement to delete the third floor all on the
terms contained herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, it is
mutually agreed to amend the Lease as follows:
1. The definition of Premises shall exclude the 19,603 square feet on the
third floor.
2. Additionally, the rent under the Lease shall be reduced to $57,212.00
per month during the term of the Lease.
3. Except as set forth herein, said Lease shall remain unchanged and in
full force and effect as originally written.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed by their duly authorized representative on the day and year first above
written.
LANDLORD: TENANT:
AMERUS PROPERTIES, INC. AMERUS LIFE HOLDINGS, INC.
By: /s/ Roger W. Langpaul By: /s/ Thomas C. Godlasky
Roger W. Langpaul, Vice President Thomas C. Godlasky
Executive Vice President
EXHIBIT 10.64
AMERUS LIFE INSURANCE COMPANY
AND AMERUS PROPERTIES, INC. SERVICING AGREEMENT
THIS AGREEMENT is made and entered into this 5th day March, 1997, by and
between AMERUS LIFE INSURANCE COMPANY, an Iowa corporation, with its principal
office at 611 Fifth Avenue, Des Moines, Iowa 50309 (hereinafter "ALIC"), and
AMERUS PROPERTIES, INC., an Iowa corporation, with its principal office at 699
Walnut Street, Suite 1700, Des Moines, Iowa, 50309-3945 (hereinafter "API").
W I T N E S S E T H:
WHEREAS, ALIC desires to have API service certain commercial loans now
owned by ALIC which fall or may fall during the term of this Agreement within
the categories described in Article 4 ("Mortgages"), and to have API perform
asset management services on real estate described on Exhibit "A" ("Real
Estate"); and
WHEREAS, API is prepared to provide such services to ALIC on the basis
described in this Agreement.
NOW, THEREFORE, in consideration of mutual promises, covenants and
agreements herein contained, and for valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1. LOAN SERVICES
API will provide the following services relating to mortgages held by ALIC
as investments, and relating to those agreements where ALIC has contracted to
service commercial mortgage loans for external investors:
1. Ensure compliance with mortgage loan documents: API will monitor all
mortgages to ensure that ALIC's collateral position is not diminished
and that all borrowers are in compliance with the loan documents.
This will include monitoring that P&I is received in a timely manner,
tax payments are current, insurance coverage is in force and that UCC
filings are current. API will deliver written notices to borrowers
regarding adjustments of mortgage loan terms in accordance with the
loan documents relating to interest rate changes and loan defaults.
In the event that a mortgage loan comes into, and continues to be in
default or bankruptcy, API will undertake the necessary legal remedies
on behalf of and in the name of ALIC.
2. Ensure compliance with the various servicing agreements: API will
ensure that ALIC is in compliance with all requirements of the various
servicing agreements with external investors. This includes the
Pooling and Servicing Agreements ("PSA's") relating to the various
Real Estate Mortgage Investment Conduits ("REMIC's") that were issued
by ALIC.
3. Portfolio Management: API will be responsible for handling the
portfolio management for the commercial mortgages owned and serviced
by ALIC, including property inspections, analysis of operating
statements, rent rolls, and handling loan maturities. Additionally,
API will be responsible for mortgage refinancing, loan workouts, sale
transactions, and foreclosures.
4. Accounting & Reporting: API will handle all collections,
distributions, accounting and reporting as it relates to commercial
mortgages serviced on behalf of ALIC. This will include payments for
principal and interest, tax and insurance escrows, maturities and
fees. API will be responsible for all statutory reporting for mortgage
loans. Additionally, API will be responsible for providing ALIC with
the requested mortgage information for credit rating reviews, and for
internal management reporting.
ARTICLE 2. TERM.
The term of this Agreement will commence January 1, 1997, and will renew
annually, unless upon sixty (60) days prior written notice, one party notifies
the other of its election to terminate this Agreement.
ARTICLE 3. AMERUS PROPERTIES, INC.'s CONTROL
API will have uninterrupted control over the day-to-day operation of the
Mortgages and Real Estate, and will manage them in the best interest of ALIC.
ARTICLE 4. LOAN SERVICING COMPENSATION
ALIC will pay for the services provided under this Agreement by the tenth
(10th) day of each month for the current month's services. Calculation of
compensation and other reimbursable amounts are as follows:
Monthly Servicing Fees:
Current month servicing fee equal to one-twelfth (1/12th) of an amount
equal to the sum of the following, calculated as of the first (1st)
day of the month for which such payment is to be made:
Internal Watch List 15 bp X Book Value
Other Loans
External Watch List Loans 25 bp X Book Value
Problem Loans
Delinquency greater than 60 days 50 bp X Book
Value
In the Process of Foreclosure 75 bp X Book Value
Performing and Restructured Loans A Flat Monthly Fee of
$31,000.00
Refinancing/Extension Fees
100% of fees collected by any affiliated company
Late Fees
50% of fees collected
Other Reimbursable Amounts:
Direct payments made by API on behalf of ALIC to taxing
authorities, insurance companies, inspection or appraisal
firms, reasonable travel expenses of API staff, legal fees,
etc.
ARTICLE 5. REMEDIES.
If API or ALIC fail to perform under this Agreement, either party, upon five
(5) days written notice, may terminate this Agreement and are entitled to
utilize any and all remedies and actions at law or in equity available to them
and will be entitled to obtain a judgment for costs and attorney fees as
permitted by law.
ARTICLE 6. NOTICES.
All notices, demands, consents or requests which are either required or
desired to be given or furnished hereunder will be in writing and will be deemed
to have been properly given if delivered personally, by overnight commercial
carrier or sent by United States registered or certified mail, postage paid,
return receipt requested, to the address of the party's hereinabove set out.
By notice, in complying with this section, each party may from time to time
change the address to be subsequently applicable to it for the purpose of this
section. Such notice will be effective on receipt if by personal delivery or
by overnight commercial courier, and on the earlier of actual receipt or three
(3) days following mailing if sent by mail.
ARTICLE 7. RELATIONSHIP, AUTHORITY AND FURTHER ACTION.
API and ALIC will not be construed as joint venturers or partners of each
other and neither will have the power to bind nor obligate the other except as
set forth in this Agreement. API is, however, clothed with and granted such
additional authority and powers as may be necessary to carry out the spirit and
intent of this Agreement.
API is authorized to make, enter into and perform in the name of, for the
account of, on behalf of and at the expense of ALIC, any contracts and
agreements deemed necessary by API to carry out and place in effect the terms
and conditions of this Agreement except API will have no right to encumber the
title of the Real Estate or enter into any contract or agreement in excess of
Fifteen Thousand and No/100 Dollars ($15,000.00), without the express prior
written approval of ALIC.
API and ALIC agree to take all reasonable actions necessary to comply with
the provisions of this Agreement and the intent hereof.
ARTICLE 8. APPLICABLE LAW.
The interpretation, validity and performance of this Agreement will be
governed by the laws of the State of Iowa. If any of the terms and provisions
hereof will be held invalid or unenforceable for any reason, such validity or
unenforceability will in no event affect any of the other terms or provisions
hereof, all such other terms and provisions to be valid and enforceable to the
fullest extent commended by law; provided, however, if in any event any material
part of ALIC's obligations under this Agreement will be declared invalid or
unenforceable, API will have the option of terminating this Agreement.
ARTICLE 9. SUCCESSORS AND ASSIGNS.
All provisions hereof will inure to and bind the respective successors and
assigns of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement effective the day and year first above written.
AmerUs Life Insurance Company
/s/ Thomas C. Godlasky
By: --------------------------------------------
Thomas C. Godlasky, Executive Vice President
and Chief Investment Officer
AmerUs Properties, Inc.
/s/ Roger W. Langpaul
By: --------------------------------------------
Roger W. Langpaul, Vice President
ACKNOWLEDGMENTS
STATE OF IOWA )
) SS.:
COUNTY OF POLK )
On this 5th day of March, 1997, before me, a Notary Public in and for the
State of Iowa, personally appeared Thomas C. Godlasky, to me personally known,
who, being by me duly sworn, did say that he is the Executive Vice President and
Chief Investment Officer of AmerUs Life Insurance Company, an Iowa corporation,
and he acknowledged to me that he executed the same for purposes and
consideration therein expressed, in the capacity therein stated, and as the
voluntary act and deed of said corporation.
-----------------------------------------
------------------------, Notary Public
in and for the State of Iowa.
STATE OF IOWA )
) SS.:
COUNTY OF POLK )
On this 5th day of March, 1997, before me, a Notary Public in and for the
State of Iowa, personally appeared Roger W. Langpaul, to me personally known,
who, being by me duly sworn, did say that he is a Vice President of AmerUs
Properties, Inc., an Iowa corporation, and he acknowledged to me that he
executed the same for the purposes and consideration therein expressed, in the
capacity therein stated, and as the voluntary act and deed of said corporation.
--------------------------------------
------------------------, Notary Public
in and for the State of Iowa.
Exhibit 10.65
COTTON MILL LIMITED PARTNERSHIP
A LOUISIANA LIMITED PARTNERSHIP
FIRST AMENDED AND RESTATED
ARTICLES OF LIMITED PARTNERSHIP
DATED AS OF SEPTEMBER 30, 1996
<PAGE>
FIRST AMENDED AND RESTATED
ARTICLES OF LIMITED PARTNERSHIP
OF
COTTON MILL LIMITED PARTNERSHIP
FIRST AMENDED AND RESTATED ARTICLES OF LIMITED PARTNERSHIP (this
"Agreement") is made as of the 30th day of September, 1996, by and among
HISTORIC RESTORATION, INCORPORATED, a Louisiana corporation, as General Partner;
A. THOMAS LEONHARD, JR., a resident of Jefferson Parish, Louisiana, as
Withdrawing Limited Partner, API-COTTON MILL PARTNERS L.P., an Iowa limited
partnership, as Investor Limited Partner; and AMERUS MANAGEMENT, INC., an Iowa
corporation, as Special Limited Partner. The General Partner, the Investor
Limited Partner, and the Special Limited Partner are hereinafter collectively
referred to as the "Partners."
Recitals:
Cotton Mill Limited Partnership (the "Partnership") was formed as a limited
partnership under the laws of the State of Louisiana pursuant to Articles of
Limited Partnership dated as of August 9, 1996, (the "Original Articles"),
recorded with the Secretary of State of the State of Louisiana (the "Filing
Office") on August 9, 1996 (the Original Articles being referred to herein as
the "Original Agreement").
The purposes of this amendment and restatement to the Original Agreement are
to (i) to provide for the withdrawal of the Withdrawing Limited Partner as an
original limited partner, (ii) provide for the admission of API-Cotton Mill
Partners L.P. as the Investor Limited Partner and AmerUs Management, Inc. as the
Special Limited Partner, and (iii) set forth more fully the rights, obligations
and duties of the General Partner, the Investor Limited Partner, and the Special
Limited Partner, and amend the Original Agreement in its entirety.
NOW, THEREFORE, it is hereby agreed as follows:
SECTION 1: DEFINITIONS
The capitalized terms used in this Agreement shall have the meanings
ascribed to them in this Section 1.
Accountants. Reznick, Fedder & Silverman of Bethesda, Maryland or such
other firm of certified public accountants as may be engaged by the General
Partner in accordance with the provisions of Section 9.1H.
Act. Title XI of Book III (Articles 2801 et seq.) of the Louisiana Civil
Code, as amended.
Adjusted Capital Account Deficit. With respect to any Partner, the deficit
balance, if any, in such Partner's Capital Account as of the end of a
Partnership Fiscal Year, after giving effect to the following adjustments:
(i) Such Capital Account shall be increased by the amount of any
Deficit Restoration Obligation of such Partner.
(ii) Such Capital Account shall be decreased by the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the
Allocation Regulations.
The foregoing definition of Adjusted Capital Account Deficit and the
application of such term in the manner provided in Section 6.5E hereof is
intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the
Allocation Regulations and shall be interpreted consistently therewith.
Adjusted Capital Contribution. An amount equal to the aggregate Capital
Contributions theretofore made by a Partner to the Partnership minus any
Distributions theretofore made by the Partnership to such Partner.
Admission Date. The date on which this Agreement is executed and the
Investor Limited Partner and Special Limited Partner are admitted to the
Partnership.
Adverse Consequences. All actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses and fees, including court costs and reasonable attorneys' fees and
expenses.
Affiliate. With respect to a specified Person, (i) any Person directly or
indirectly controlling, controlled by or under common control with the Person
specified, (ii) any Person owning or controlling ten (10%) percent or more of
the outstanding voting securities or beneficial interests of the Person
specified, (iii) any officer, director, partner, trustee or member of the
immediate family of the Person specified, (iv) if the Person specified is an
officer, director, general partner or trustee, any corporation, partnership or
trust for which that Person acts in that capacity or (v) any Person who is an
officer, director, general partner, trustee or holder of ten (10%) percent or
more of outstanding voting securities or beneficial interests of any Person
described in clauses (i) through (iv). The term "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Agency. As applicable, the City, HUD, and/or any other Governmental
Authority having jurisdiction over the particular matter to which reference is
being made.
Agreement. These First Amended and Restated Articles of Limited
Partnership.
Allocation Regulations. The Treasury Regulations issued under Sections
704(b) and 752 of the Code, as the same may be modified or amended from time to
time. In the event that the Allocation Regulations are revised or amended
subsequent to the date of this Agreement, references herein to sections or
paragraphs of the Allocation Regulations shall be deemed to be references to the
applicable sections or paragraphs of the Allocation Regulations as then in
effect.
Architectural Agreement. The architectural agreement to be executed by and
between the Partnership and HCI.
Assignee. A Person who has acquired from a Partner, in accordance with the
terms of this Agreement, a beneficial interest in the Partnership's Profits,
Losses, Tax Credits or Distributions, but who is not a substituted Partner.
Assignment of Right to Purchase Real Property. That certain Assignment of
the Purchase Agreement dated September 26, 1996 by and between HRI and the
Partnership whereunder HRI has assigned to the Partnership the right to purchase
Parcel One and Parcel Two upon the terms and conditions set forth therein.
Best Knowledge. In the case of a specified Person, (i) actual knowledge or
(ii) that knowledge which a prudent business person (including, in the case of
an Entity, the general or managing partners, officers, directors and key
employees of such Entity) should have obtained in the management of his or her
business affairs after making due inquiry and exercising due diligence with
respect thereto. In connection therewith, the knowledge (both actual and
constructive) of any general or managing partner, director, officer or key
employee of an Entity shall be deemed to be the knowledge of the Entity.
Budget. The budget for the Project which has been prepared by the Developer
and has been approved by the General Partner and the Investor Limited Partner
and is attached to the Development Agreement as Exhibit A.
Building Loan Agreement. The loan agreement to be executed by and between
the Construction Lender and the Partnership.
Capital Account. An individual capital account maintained for each Partner
in accordance with the provisions of Section 5.
Capital Contribution. The total amount of cash and the Gross Asset Value of
any property contributed or agreed to be contributed to the Partnership by each
Partner pursuant to the terms of this Agreement (minus any liabilities secured
by such contributed property that the Partnership assumes or takes subject to).
Any reference in this Agreement to the Capital Contribution of a then Partner
shall include a Capital Contribution previously made by any prior Partner in
respect to the Partnership Interest of such then Partner.
Capital Proceeds. The proceeds of a Capital Transaction.
Capital Transaction. Any transaction the proceeds of which are not
includable in determining Cash Flow, including, without implied limitation, Sale
Proceeds and Refinancing Proceeds, but excluding loans to the Partnership (other
than a refinancing of the Mortgage Loans) and contributions of capital to the
Partnership by the Partners.
Cash Flow. The excess of Cash Receipts over Project Expenses. Cash Flow
shall be determined separately for each Fiscal Year or portion thereof.
Cash Receipts. All Gross Revenues and net insurance recoveries (other than
proceeds from title insurance recoveries). In addition, the net reduction in
any Fiscal Year in the amount of any escrow account or Partnership Reserves
maintained by or for the Partnership shall be considered a cash receipt of the
Partnership for such year.
Certificate of Occupancy. The certificate issued by the appropriate
Governmental Authority authorizing the use and occupancy of the Project as a
multi-family residential complex.
Certificate of Occupancy Date. The date by which the Partnership has
received a Certificate of Occupancy for each building which comprises the
Project.
City. The City of New Orleans, Louisiana.
Code. The Internal Revenue Code of 1986, as amended, and the treasury
regulations promulgated thereunder, and any published rulings, procedures and
notices thereunder.
Completion Date. The date which is the last day of the twenty first (21st)
month after the month in which the Admission Date occurs unless such date has
been extended by Events of Force Majeure.
Condominium Declaration. The condominium declaration to be executed by the
Partnership pursuant to the Louisiana Condominium Act, La. R.S. 9:1121.101, et
seq., imposing the Condominium Regime upon the Project.
Condominium Owners. The Partnership which will own the condominium unit
consisting of the Existing Improvements which will be rehabilitated and
converted into two hundred seventy-eight (278) apartment units and the
purchasers of the Penthouses.
Condominium Regime. The condominium regime established by the Condominium
Declaration consisting of twenty (20) condominium units, one (1) of which will
consist of the Existing Improvements and the other eighteen (18) of which shall
consist of the Penthouses.
Consent of the Investor Limited Partner. The prior written consent or
approval of the Investor Limited Partner. Unless otherwise specifically
provided herein, any such Consent shall not be unreasonably withheld.
Construction Administration Agreement. The construction administration
agreement to be executed by and between the Partnership and the Inspecting
Consultant.
Construction Contract. The construction contract to be executed by and
between the Partnership and the Contractor.
Contractor. HCI.
Deed. The act of cash sale to be executed by Seller in favor of the
Partnership pursuant to which the Partnership will acquire title to Parcel One
and Parcel Two.
Deficit Restoration Obligation. For each Partner, the sum of (i) any
amounts which such Partner is obligated to restore to the Partnership in
accordance with the provisions of Sections 1.704-1(b)(2)(ii)(c),
1.704-1(b)(2)(ii)(h) or any other applicable provisions of the Allocation
Regulations, (ii) such Partner's Share of Partnership Minimum Gain if any, and
(iii) such Partner's Share of Partner Nonrecourse Debt Minimum Gain, if any.
Depreciation. For the Fiscal Year or other period, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such year or other period, except that if the Gross
Asset Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year or other period bears to such beginning adjusted tax basis.
Designated Net Worth Standard. As of the date of determination, such
standards or criteria (relating to net worth or other characteristics) as may be
(i) set forth in Revenue Procedure 89-12 or any other regulations, memoranda,
published ruling or revenue procedure of the IRS for classification of the
Partnership for Federal income tax purposes as a partnership rather than an
association taxable as a corporation, or (ii) sufficient to support the issuance
by Special Counsel of an opinion to the same effect.
Designated Interest Rate. Eight (8%) percent per annum.
Developer. HRI.
Development Agreement. The development agreement to be executed by and
between the Developer and the Partnership.
Development Fee. The development fee payable to the Developer pursuant to
the terms of the Development Agreement.
Development Guarantors. Pres Kabacoff and Edward B. Boettner.
Development Guaranty Agreement. The guaranty agreement to be executed by
the Development Guarantors in favor of the Partnership guaranteeing the
obligations of the Developer under the Development Agreement and the obligation
of the General Partner to make a Project Loan pursuant to Sections 5.7 and 5.11
hereof.
Development Guaranty Escrow Agreement. The agreement to be executed by and
among Highland Mortgage Company of Alabama, as escrow agent, the Development
Guarantors, and the Partnership whereunder the Development Guarantors deposit
the sum of Three Hundred Thousand and No/100 ($300,000.00) Dollars into escrow
to secure their obligations under the Development Guaranty Agreement.
Distribution. Any cash or property which the Partnership distributes to a
Partner (in its capacity as a Partner) without consideration, including, without
limitation, distributions of Cash Flow, Capital Proceeds and the proceeds of any
Capital Contributions.
Entity. Any general partnership, limited partnership, corporation, joint
venture, trust, limited liability company, business trust, cooperative or
association.
Event of Bankruptcy or Bankruptcy. As to a specified Person:
(a) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of such Person in an involuntary
case under the federal bankruptcy laws, as now or hereafter constituted,
or any other applicable federal or state bankruptcy, insolvency or other
similar law, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of such Person or for any
substantial part of his property, or ordering the winding-up or
liquidation of his affairs and the continuance of any such decree or
order unstayed and in effect for a period of sixty (60) consecutive
days; or
(b) the commencement by such Person of a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other
similar law, or the consent by him to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or similar official) of such Person or for any substantial
part of his property, or the making by him of any assignment for the
benefit of creditors, or the taking of action by the Person in
furtherance of any of the foregoing.
Event of Force Majeure or Force Majeure. Any event or occurrence which
prevents, interrupts, or delays the performance of an obligation on the part of
the General Partner, Developer, and Contractor which are beyond the reasonable
control of the party in question, including but not restricted to strike,
lockout, action of labor unions, riots, hurricane, storm, flood, explosion, acts
of God or of the public enemy, acts of government, war, invasion, insurrection,
mob, violence, sabotage, malicious mischief, inability (notwithstanding good
faith and diligent efforts) to procure, or general shortage of labor, equipment,
facilities, materials or supplies in the open market, failure of transportation,
fires, epidemics, quarantine restrictions, freight embargoes, unusually severe
weather, inability (notwithstanding good faith and diligent efforts) to obtain
governmental permits or approvals or delays of subcontractors of the General
Partner, Developer, and Contractor due to such causes.
Existing Improvements. The seven (7) buildings which comprise the improved
portion of Parcel One as of the date hereof, and which will be converted into
two hundred seventy-eight (278) apartment units.
Facade Donation. The act of donation of perpetual real rights to be
executed between the Partnership and Preservation Alliance of New Orleans,
Incorporated d/b/a Preservation Resource Center of New Orleans whereby the
Partnership will donate the facade of the Project to the Preservation Resource
Center of New Orleans.
Facade Donation Appraisal. An appraisal of the Facade Donation by an
appraiser selected by the General Partner with the Consent of the Investor
Limited Partner.
Facade Donation Documents. The Facade Donation, and any and all other
documents executed in connection with the facade donation intended to preserve
the historic character of the Project and to afford certain federal income tax
benefits.
Filing Office. The Office of the Secretary of State of the State.
Final Determination. The earliest to occur of (i) the date on which a
decision, judgment, decree or other order has been issued by any court of
competent jurisdiction, which decision, judgment, decree or other order has
become final (i.e., all allowable appeals requested by the parties to the action
have been exhausted), (ii) the date on which the IRS has entered into a binding
agreement with the Partnership with respect to such issue or on which the IRS
has reached a final administrative or judicial determination with respect to
such issue which, whether by law or agreement, is not subject to appeal,
(iii) the date on which the time for instituting a claim for refund has expired,
or if a claim was filed the time for instituting suit with respect thereto has
expired with no such suit having been filed, or (iv) the date on which the
applicable statute of limitations for raising an issue regarding a Federal
income tax matter with respect to the Partnership has expired with such issue
not having been raised.
Final Endorsement. Shall have the meaning ascribed to such term in the Loan
Documents.
Fiscal Year. The twelve-month period which begins on the first day of
January and ends on the thirty-first day of December of each calendar year (or
ends on the date of final dissolution for the year in which the Partnership is
wound up and dissolved).
GAAP. Generally accepted accounting principles consistently applied as in
effect from time to time.
General Partner. HRI and any other General Partner appointed or admitted in
accordance with the terms of this Agreement. If at any time the Partnership has
more than one General Partner, the term "General Partner" shall mean and include
all the General Partners.
Governmental Authority. Any Agency, the State, the City, or any other
federal, state or local governmental agency or authority having jurisdiction
over the particular matter to which reference is being made.
Gross Asset Value. With respect to any asset, the adjusted basis of such
asset for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the contributing Partner and the Partnership;
(ii) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined
by the General Partner[s], as of the following times: (a) the acquisition
of an additional interest in the Partnership by any new or existing Partner
in exchange for more than a de minimis Capital Contribution; (b) the
distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership property as consideration for an interest in the
Partnership; and (c) the liquidation of the Partnership within the meaning
of Section 1.704-1(b)(2)(ii)(g) of the Allocation Regulations; provided,
however, that the adjustments pursuant to clauses (a) and (b) above shall be
made only if the General Partner reasonably determines that such adjustments
are necessary or appropriate to reflect the relative economic interests of
the Partners in the Partnership;
(iii) The Gross Asset Value of any Partnership asset distributed to
any Partner shall be the gross fair market value of such asset on the date
of distribution; and
(iv) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Allocation
Regulations and Section 4.3 hereof; provided, however, that Gross Asset
Values shall not be adjusted pursuant to this clause (iv) to the extent the
General Partner determines that an adjustment pursuant to clause (ii) hereof
is necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this clause (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to Section (i), (ii) or (iv) hereof, such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits or Losses.
Gross Revenues. All revenues of the Partnership, including but not limited
to, the amounts actually collected by the Manager as rents or other charges for
use, services, and occupancy of apartment units.
Hazardous Material. The collective meanings given to the terms "hazardous
material," "hazardous substances" and "hazardous wastes" in the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601 et seq., as amended, and also any meanings given to such
terms in any similar state or local statutes, ordinances, regulation or by-laws.
Without limiting the generality of the foregoing, the term "Hazardous Material"
shall include oil and any other substance known to be hazardous, such as
hazardous waste, lead-based paint, asbestos, methane gas, urea formaldehyde
insulation, oil, underground storage tanks, polychlorinated biphenyls (PCBs),
toxic substances or other pollutants.
Hazardous Substance Laws. Any local, state or federal law or regulation
relating to the use or disposition of Hazardous Material, including, without
limitation, the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act, the Toxic Substance Control Act, the Safe Drinking Water
Control Act, the Comprehensive Environmental Response Compensation and Liability
Act, the Hazardous Materials Transportation Act, and the Occupational Safety and
Health Act, as the same may be amended from time to time.
HCI. Historic Construction Incorporated, a Louisiana corporation, doing
business as HCI Construction and Design, and its successors.
Historic Rehabilitation Credit. The tax credit allowable pursuant to
Section 47 of the Code for rehabilitation expenditures incurred in connection
with the certified rehabilitation of the Project.
HRI. Historic Restoration, Incorporated, a Louisiana corporation, and its
successors.
HRIM. HRI Management Corporation, a Louisiana corporation, and its
successors.
HUD. The Department of Housing and Urban Development of the United States
of America.
Incentive Management Agreement. The agreement between the Partnership and
HRI described in Section 7.5B.
Incentive Management Fee. The fee payable by the Partnership to the General
Partner pursuant to the Incentive Management Agreement.
Initial Endorsement. Shall have the meaning ascribed to such term in the
Loan Documents.
Initial Operating Period. The 5-year period commencing on the Completion
Date.
Inspecting Consultant. A. Gerrard Raymond, Architect.
Installment. An installment of the Capital Contribution of the Investor
Limited Partner to the Partnership.
Investment Banking Fee. The fee in the amount of eighty one thousand
dollars ($81,000.00) Dollars payable by the Partnership to Howard, Weil,
Labouisse, Friedrichs Incorporated.
Investment Servicing Fee. An annual servicing fee in the amount of Ten
Thousand and No/100 ($10,000.00) Dollars payable by the Partnership to the
Special Limited Partner.
Investor Limited Partner. API-Cotton Mill Partners L.P., an Iowa limited
partnership, or any other Person who is admitted to the Partnership and shown on
the books and records of the Partnership as a substituted Investor Limited
Partner at the time of reference thereto.
IRS. The Internal Revenue Service.
Lease and Parking Agreement. The agreement entered into by and between the
Partnership and HRI, whereunder the Partnership will lease Parcel Two to HRI and
HRI will be obligated to offer to lease to the Partnership's tenants and the
Condominium Owners parking spaces constructed on Parcel Two and Parcel Three
pursuant to the terms and conditions set forth therein.
Lease Pledge. The collateral assignment of leases and rents to be executed
by the Partnership, as pledgor, and the Lender, as pledgee.
Lender. Highland Mortgage Company, a Alabama corporation, and its
successors and assigns.
Letter of Credit (Operating Deficit). A standby letter of credit in the
amount of five hundred forty six thousand ($546,000) Dollars issued in favor of
the Partnership by a financial institution satisfactory to the Partnership at
the Initial Endorsement to be used to fund any Operating Deficit.
Letter of Credit (Working Capital). A standby letter of credit in the
amount of four hundred fifty four thousand dollars ($454,000) Dollars issued in
favor of the Partnership by a financial institution satisfactory to the
Partnership at the Initial Endorsement to be used to fund the working capital
requirements of the Project.
Letters of Credit. The Letter of Credit (Operating Reserve) and the Letter
of Credit (Working Capital).
Limited Partner(s). The Investor Limited Partner and/or any other Person
admitted to the Partnership from time to time as a limited partner in accordance
with the terms of this Agreement.
Limited Partnership Interest. The Partnership Interest of a Limited Partner
in its capacity as such.
Loan Documents. Mortgage Note, Mortgage, Regulatory Agreement, Building
Loan Agreement, Lease Pledge, Security Agreement, and any other documents
required by HUD in connection with the Mortgage Loan.
Manager. HRI Management Corporation and any successor property manager
designated or appointed from time to time.
Management Agreement. The agreement to be entered into between the
Partnership and the Manager providing for property management services to the
Project.
Management Fee. The management fee payable to the Manager pursuant to the
terms of the Management Agreement.
Managing General Partner. Any Person designated as such in accordance with
the provisions of Section 7.3B.
Marketing Reserve. The reserve in the initial amount of Two Hundred Fifty
Thousand and No/100 ($250,000.00) Dollars to be initially funded from the
proceeds of the First Installment and to be used for marketing expenses
with respect to the Project.
Material Default. The occurrence of any of the following events:
(i) a material breach by the General Partner (or any of its
Affiliates) in the performance of any of its obligations under this
Agreement;
(ii) a Terminating Event as to the General Partner or an Event of
Bankruptcy as to the Partnership;
(iii) a material violation by the General Partner of its fiduciary
duties as a General Partner of the Partnership;
(iv) a violation by the General Partner of any law, regulation or
order applicable to the Partnership which has or may have a material adverse
effect on the Partnership or the Project;
(v) a material breach by the Partnership or the General Partner
under any Project Document or other material agreement or document affecting
the Partnership or the Project, which material breach affords a remedy
against the Partnership or its assets;
(vi) the failure of the Certificate of Occupancy Date to occur on or
before the Completion Date,; or
(vii) the inability of the General Partner to deliver a Payment
Certificate under Section 5.2 which continues for a period of six (6) months
following the date on which an Installment is otherwise due.
Mortgage. The Mortgage granted by the Partnership to the Lender to secure
the obligations evidenced by the Mortgage Note.
Mortgage Loan. A loan to be made by the Lender to the Partnership to
finance the acquisition and rehabilitation of the Project and to provide term
financing for the Project.
Mortgage Note. A promissory note in the amount of Twenty-two Million Five
Hundred Thousand and 00/100 ($22,500,000.00) Dollars made by the Partnership in
favor of the Lender representing the Partnership's indebtedness to the Lender
pursuant to the Building Loan Agreement.
Nonrecourse Debt or Nonrecourse Liability. Any indebtedness for which none
of the Partners has any economic risk of loss other than through his or its
interest in the Partnership Property securing such indebtedness, as defined in
Section 1.704-2(b)(3) of the Allocation Regulations.
Nonrecourse Deductions. The meaning set forth in Section 1.704-2(b)(1) of
the Allocation Regulations.
Operating Deficit. For any specified period of time, the amount by which
Cash Receipts is less than the amount necessary to pay all Project Expenses
(excluding the Investment Servicing Fee.)
Operating Deficit Loan(s). A loan(s) made by the General Partner to the
Partnership to fund the payment of the Negative Adjustment and Loss Adjustment
pursuant to Section 5.4 hereof or to fund an Operating Deficit pursuant to
Section 5.8A hereof or a loan(s) made by the Investor Limited Partner to fund an
Operating Deficit pursuant to Sections 5.8B hereof. Such loans, which bear
interest at an annual rate equal to the Designated Interest Rate (in the case of
a loan made by the Investor Limited Partner pursuant to Section 5.8B at the
Designated Interest Rate plus Seven (7%) percent) and shall be evidenced by
unsecured, nontransferable promissory notes of the Partnership. Such loans
shall be repaid only as provided in Section 6 hereof, and no recourse for the
payment hereof may be had against any other property of the Partnership or
against any Partner. Payments of principal and interest on Operating Deficit
Loans shall be applied in the same order in which such Operating Deficit Loans
are made (i.e., on a first-in, first-out basis).
Operating Profits or Losses. For any Fiscal Year means the Profits or
Losses of the Partnership for that year as determined for federal income tax
purposes by the Accountants, excluding Profits or Losses from a Capital
Transaction and determined without regard to any adjustments to basis pursuant
to Sections 734 or 743 of the Code.
Operating Reserve. The reserve in the initial amount of five hundred forty
six thousand dollars and No/100 ($546,000) Dollars to be funded from the second
Installment of the Investor Limited Partner's Capital Contribution and to be
used to fund any Operating Deficit.
Parcel One. The real property to be acquired by the Partnership upon which
the Project is or will be located, or which benefits or is otherwise necessary
for the operation of the Project, and which is described in Exhibit A attached
to, and incorporated by reference into, this Agreement.
Parcel Three. The tract leased by HRI from Richard M. Cahn located in
Square No. 121 in the City of New Orleans, which tract is more particularly
described in that certain Memorandum of Lease dated March 14, 1994 and recorded
at COT No. 85799 in the conveyance records of Orleans Parish, Louisiana.
Parcel Two. The tract acquired by the Partnership from Seller located in
Square No. 121 in the City of New Orleans and leased to HRI pursuant to the
Lease and Parking Agreement, which tract is more particularly described in that
certain Act of Cash Sale dated September 30, 1996 by Seller in favor of HRI and
recorded in the conveyance records of Orleans Parish, Louisiana.
Partner. Any General Partner or Limited Partner.
Partner Nonrecourse Debt. The meaning set forth in Section 1.704-2(b)(4) of
the Allocation Regulations.
Partner Nonrecourse Debt Minimum Gain. The meaning set forth in Sections
1.704-2(i)(2) and (3) of the Allocation Regulations.
Partner Nonrecourse Deductions. The meaning set forth in Section 1.704-2(i)
(1) of the Allocation Regulations.
Partnership. The limited partnership created by this Agreement.
Partnership Interest. The interest of a Partner in the Partnership,
including, without limitation, his or its interest in the assets, capital,
Profits or Losses, Distributions and Tax Credits of the Partnership.
Partnership Minimum Gain. The meaning set forth in Section 1.704-2(d) of
the Allocation Regulations.
Partnership Property. All real and personal property owned by the
Partnership.
Partnership Reserves. Reserves maintained by the Partnership for working
capital, capital improvements and similar contingencies, including, without
limitation, the Marketing Reserve, the Operating Reserve, the Working Capital
Reserve, and the Replacement Reserve. Any funds held in the Partnership
Reserves which are no longer required for the purposes for which they were set
aside shall be distributed to the Partners pursuant to the provisions of
Section 6.2, as the case may be.
Penthouses. The penthouse living units described in the Plans and
Specifications and to be constructed on the roof of the Existing Improvements.
Person. Any individual or Entity, and the heirs, executors, administrators,
legal representatives, successors and assigns of such Person where the context
so admits; and, unless the context otherwise requires, the singular shall
include the plural, and the masculine gender shall include the feminine and the
neuter and vice versa.
Plans and Specifications. The plans and specifications dated August 12,
1996 for the Rehabilitation of the Project approved by the Construction Lender,
including, without limitation, specifications for materials, and all amendments
and modifications thereof.
Profits or Losses. For each Fiscal Year or other period, an amount equal to
the Partnership's taxable income or loss for such Fiscal Year or period,
determined in accordance with Section 703(a) of the Code (for this purpose, all
items of income, gain, loss, or deduction required to be stated separately
pursuant to Section 703(a)(1) of the Code shall be included in taxable income or
loss), with the following adjustments:
(i) Any items described in Sections 705(a)(1)(B) and 705(a)(1)(C) of
the Code which are not otherwise taken into account in computing Profits or
Losses shall be added to such taxable income or loss.
(ii) Any expenditures of the Partnership described in Section
705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures
pursuant to Section 1.704-1(b)(2)(iv)(i) of the Allocation Regulations, and
not otherwise taken into account in computing Profits or Losses, shall be
subtracted from such taxable income or loss.
(iii) Gain or loss resulting from any disposition of Partnership
Property with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value.
(iv) In the event of a distribution of Partnership assets to a
Partner (whether in connection with a liquidation or otherwise), or in the
event the Gross Asset Value of any Partnership asset is adjusted upon the
acquisition of an additional interest in the Partnership, unrealized income,
gain, loss and deduction inherent in such distributed or adjusted assets
(not previously reflected in Capital Accounts) shall be allocated pursuant
to Section 6.1 hereof as if there had been a taxable disposition of such
distributed or adjusted assets at fair market value.
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Fiscal Year or
other period, computed in accordance with the definition of "Depreciation"
set forth herein.
(vi) Notwithstanding any other provision of this definition, any
items which are specially allocated pursuant to Section 6.5 hereof shall be
taken into account in computing Profits or Losses only if the Accountants
determine that such items should be so reflected.
Profits or Losses from a Capital Transaction. The Profits or Losses, if
any, recognized by the Partnership as a result of a Capital Transaction, as
determined for federal income tax purposes by the Accountants, but without
regard to any adjustments to basis pursuant to Section 734 and 743 of the Code.
Project. A multi-family residential complex known as the Cotton Mill and
located on Parcel One bearing municipal number 910 Poeyfarre Street, New
Orleans, Louisiana.
Project Documents. The Assignment of Right to Purchase Real Property, the
Deed, the Lease and Parking Agreement, the Loan Documents, the Development
Agreement, the Construction Contract, the Management Agreement, the Facade
Donation Documents, the Incentive Management Agreement, and all other documents
relating to the Project which are required by, or have been executed in
connection with, any of the foregoing documents.
Project Expenses. All operating and other costs and expenses of the
Partnership determined on an accrual basis during the Fiscal Year (excluding
Distributions to Partners), including, without limitation, payment of operating
expenses, payment of principal and interest of the Partnership's indebtedness
(excluding payments of principal and interest on Operating Deficit Loans),
mortgage insurance premiums (if any), cost of repair, replacement and
restoration of the Project, amounts allocated to Partnership Reserves, payment
of the Investment Servicing Fee, and any other costs or expenses designated
herein as "Project Expenses." In addition, the net increase during the year in
any escrow account or reserve maintained by or for the Partnership shall be
considered to be a Project Expense during the year.
Projections. The projections dated September 28, 1996 which have been
furnished to the Investor Limited Partner and the Special Limited Partner.
Project Cost Loan(s). The loans which the General Partner is obligated to
make to the Partnership pursuant to Sections 5.7 and 7.5A hereof.
Purchase Agreement. That certain Agreement to Purchase and Sell, dated
November 23, 1995, by and between Seller and HRI whereunder the Seller has
agreed to sell Parcel One and Parcel Two to HRI upon the terms and conditions
set forth therein.
Recapture Event. A disposition or other event causing recapture of all or
any portion of the Historic Rehabilitation Credit pursuant to the provisions of
Section 50 of the Code.
Refinancing Proceeds. The gross proceeds available to the Partnership from
a refinancing of any of the Mortgage Loans or any other secured or unsecured
indebtedness of the Partnership.
Regulations. The rules and regulations applicable to the Project or the
Partnership of the Agency, the City, and any other Governmental Authority having
jurisdiction.
Regulatory Agreement. The agreement to be executed by and between HUD and
the Partnership.
Regulatory Allocations. The allocations set forth in Sections 6.5A through
6.5G hereof.
Rehabilitation. The development, construction, renovation, and
rehabilitation work on the Project described in the Plans and Specifications.
Related Person. The meaning set forth in Section 1.752-4(b) of the
Allocation Regulations.
Replacement Reserve. The reserve to be funded as required by the Permanent
Lender but in no event shall such reserve be less than One Hundred Seventy Five
and No/100 ($175.00) Dollars per apartment unit per year.
Requisite Approvals. The approval or consent of the City, the State, the
Construction or Permanent Lender, or any Governmental Authority having
jurisdiction over the Partnership or the Project, to the extent required
pursuant to the terms of any of the Project Documents.
Sale Proceeds. The gross proceeds available to the Partnership from the
sale or other disposition of all or any portion of the Project or the
Partnerships's other assets, or any proceeds realized from a condemnation,
insured casualty or insured title defect, but excluding proceeds from rental
interruption insurance, if any. The term "Sale Proceeds" shall not include any
casualty insurance proceeds received by the Partnership if and to the extent
that such proceeds are applied for repair or reconstruction.
Schedule. The Schedule attached hereto.
Security Agreement. The security agreement to be executed by the
Partnership and Highland Mortgage Company.
Seller. Favrot Realty Partnership, a Louisiana general partnership.
Share of Partner Nonrecourse Debt Minimum Gain. For each Partner, an amount
equal to such Partner's "share of partner nonrecourse debt minimum gain,"
determined in accordance with the provisions of Section 1.704-2(i)(5) of the
Allocation Regulations.
Share of Partnership Minimum Gain. For each Partner, an amount equal to
such Partner's "share of partnership minimum gain," determined in accordance
with the provisions of Section 1.704-2(g) of the Allocation Regulations.
Site. The meaning given to it in the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Sec. 9601 et seq.,
as amended, and any meaning given to it in any similar state or local statutes,
ordinances, regulations or by-laws.
Special Class Limited Partner. The meaning set forth in Sections 10.4B and
10.4C.
Special Counsel. Elkins & Associates, A Professional Law Corporation, of
New Orleans, Louisiana.
Special Limited Partner. AmerUs Management, Inc., an Iowa corporation, or
any other Person who is admitted to the Partnership and shown on the books and
records of the Partnership as a substituted Special Limited Partner at the time
of reference thereto.
State. The State of Louisiana.
Syndication Expenses. All expenditures classified as syndication expenses
pursuant to Treasury Regulation Section 1.709-2(b). Syndication Expenses shall
be taken into account under this Agreement at the time they would be taken into
account under the Partnership's method of accounting if they were deductible
expenses.
Tax Credits. Any credit(s) permitted under the Code against the federal
income tax liability of any Partner as a result of activities or expenditures of
the Partnership including, without limitation, the Historic Rehabilitation
Credit.
Terminating Capital Transaction. A Capital Transaction resulting in or
involving the termination and winding up of the business of the Partnership or
any other event resulting in the "liquidation" of the Partnership within the
meaning of Section 1.704-1(b)(2)(ii)(g) of the Allocation Regulations.
Terminating Event. The death or permanent disability of, or an adjudication
of insanity or incompetence as to, an individual General Partner (unless the
Consent of the Investor Limited Partner to a substitute General Partner is
received, and such substitute General Partner is admitted to the Partnership by
the first to occur of (i) the sixtieth day following such event or (ii) such
earlier date as is necessary to prevent a dissolution of the Partnership under
the Act), the Bankruptcy or dissolution of a General Partner, the Transfer of
its Partnership Interest by a General Partner, or the voluntary or involuntary
withdrawal of a General Partner from the Partnership. For purposes of the
foregoing, an individual General Partner shall be deemed to be permanently
disabled if he or she becomes disabled during the term of this Agreement through
any illness, injury, accident or condition of either a physical or psychological
nature and, as a result, is unable to perform substantially all of his or her
duties and responsibilities hereunder for one hundred twenty (120) days during
any period of three hundred sixty-five (365) consecutive calendar days.
Involuntary withdrawal shall occur whenever a General Partner may no longer
continue as a General Partner by law or pursuant to any terms of this Agreement.
Title Policy. The owner's policy of title insurance to be issued to the
Partnership by First American Title Insurance Company in the amount of twenty
eight million, seven hundred twenty one thousand dollars and No/100
($28,721,000) Dollars (not including special coverage endorsements).
Transfer. Any sale, exchange, assignment, encumbrance, hypothecation,
pledge, foreclosure, conveyance in trust, gift or other transfer of any kind,
whether direct or indirect, voluntary or involuntary other than as a direct
consequence of a Terminating Event. When used as a verb, such term shall mean,
voluntarily or involuntarily, to sell, exchange, assign, encumber, hypothecate,
pledge, foreclose, convey in trust, give or otherwise transfer.
Vessel. The meaning given to it in the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Sec. 9601 et seq.,
as amended, and any meaning given to it in any similar state or local statutes,
ordinances, regulations or by-laws.
SECTION 2: FORMATION
Section 2.1 Formation
The Partners hereby agree to continue the limited partnership known as
Cotton Mill Limited Partnership formed pursuant to the provisions of the Act.
Section 2.2 Name and Office
The Partnership shall continue to be conducted under the name and style set
forth in Section 2.1. The principal office of the Partnership shall be c/o
Historic Restoration, Incorporated, 210 Baronne Street, Suite 1717, New Orleans,
Louisiana 70112. The General Partner may at any time change the location of
such office and shall give due notice of any such change to each Limited
Partner.
Section 2.3 Purpose
The purpose of the Partnership is to acquire, rehabilitate, develop,
improve, maintain, own, operate, lease, dispose of and otherwise deal with the
Project in accordance with the Project Documents, any applicable Regulations,
and the provisions of this Agreement. The Partnership shall not engage in any
other business or activity.
Section 2.4 Authorized Acts
In furtherance of its purposes, but subject to all other provisions of this
Agreement including, but not limited to, Section 3 and Section 7, the
Partnership is hereby authorized:
(i) To acquire by purchase, lease or otherwise any real or personal
property which may be necessary, convenient or incidental to the
accomplishment of the purposes of the Partnership;
(ii) To construct, reconstruct, rehabilitate, operate, maintain,
finance and improve, and to own, sell, convey, assign, mortgage or lease any
real estate and any personal property necessary, convenient or incidental to
the accomplishment of the purposes of the Partnership;
(iii) To borrow money and issue evidences of indebtedness in
furtherance of any or all of the purposes of the Partnership, and to secure
the same by mortgage, pledge or other lien on the Project or any other
assets of the Partnership, to the extent permitted by the Project Documents;
(iv) To pay in whole or in part, refinance, recast, increase, modify
or extend the Mortgage Loan or any other mortgage loans affecting the
Project and in connection therewith to execute any extensions, renewals, or
modifications of the Mortgage Loan or any such other loans on the Project;
(v) To enter into, perform and carry out, contracts of any kind,
including contracts with Affiliates of a Partner, necessary to, in
connection with or incidental to, the accomplishment of the purposes of the
Partnership, specifically including, but not limited to, the execution and
delivery of the Development Agreement, Architect Agreement, Construction
Contract, Management Agreement, and Incentive Management Agreement, and all
other agreements, certificates, instruments or documents required by any
Governmental Authority in connection with the Project Documents and the
acquisition, construction, rehabilitation, development, improvement,
maintenance and operation of the Project;
(vi) To execute the Condominium Declaration and all other agreements,
certificates, instruments, or documents in connection with the Condominium
Regime and to revoke the Condominium Declaration in the General Partner's
sole judgment and discretion.
(vii) To execute leases of any or all of the rentable space in the
Project;
(viii) To enter into the Lease and Parking Agreement;
(ix) To execute any and all notes, mortgages and security agreements
(including a confession of judgment, waiver of appraisal and consent to
executory process) in order to secure loans from any Lender and any and all
other documents (including but not limited to the Loan Documents) required
by the Lender in connection with the Mortgage and the Mortgage Loan and the
acquisition, development, improvement, maintenance and operation of the
Project, or otherwise required by any Lender in connection with the Project;
(x) To employ any Person, including an Affiliate, to perform
services for, or to sell goods to, the Partnership (including without
limitation, management services) and to pay for such goods and services;
provided that (except with respect to any contract specifically authorized
by this Agreement) the terms of any such transaction with an Affiliate shall
not be less favorable to the Partnership than would be arrived at by
unaffiliated parties dealing at arms' length, and shall be subject to any
applicable Regulations;
(xi) To modify or amend the terms of any agreement or contract which
the General Partner is authorized to enter into on behalf of the
Partnership; provided, however, that such terms as amended shall not (i)
have a material adverse effect on the Partnership or the Investor Limited
Partner, or (ii) be in contravention of any of the terms or conditions of
this Agreement or the Project Documents;
(xii) To execute contracts with any Lender, Agency and/or other
Governmental Authority;
(xiii) To execute and deliver the Loan Documents and the other Project
Documents and any notices, documents or instruments required to be executed
or delivered in connection therewith;
(xiv) To employ or engage such engineers, architects, technicians,
managers, accountants, lawyers and other Persons, including any Affiliate as
may be necessary, convenient or incidental to the accomplishment of the
purposes of the Partnership; and
(xv) To enter into any kind of activity and to perform and carry out
contracts of any kind necessary to, or in connection with, or incidental to,
the accomplishment of the purposes of the Partnership, so long as said
activities and contracts may be lawfully carried on or performed by a
partnership under the laws of the State.
Section 2.5 Term and Dissolution
A. The Partnership shall continue in full force and effect until March 31,
2093, except that the Partnership shall be dissolved prior to such date upon the
happening of any of the following events:
(i) The sale or other disposition of all or substantially all the
assets of the Partnership;
(ii) The occurrence of a Terminating Event unless the business of the
Partnership is continued pursuant to the provisions of Section 10;
(iii) The election to dissolve the Partnership made in writing by the
General Partner with the Consent of the Investor Limited Partner and, if
required, any Requisite Approvals; or
(iv) The entry of a final decree of dissolution of the Partnership by
a court of competent jurisdiction.
B. Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to the provisions of Section 10), the General
Partner (or its trustees, receivers, successors or legal representatives) shall
liquidate the Partnership assets and apply and distribute the proceeds thereof
in accordance with Section 6.3.
SECTION 3: ACQUISITION, FINANCING, REHABILITATION, AND DISPOSITION OF
PROPERTY
3.1 Acquisition.
A. The Assignment of Right to Purchase Real Property is hereby approved,
confirmed, and ratified by the Partnership. The Partnership shall acquire
Parcel One and Parcel Two by virtue of the Deed and shall execute and record the
Condominium Declaration in the conveyance records of Orleans Parish, Louisiana.
B. The General Partner is specifically authorized, for and on behalf of the
Partnership, to execute the Deed and the Condominium Declaration. Subsequent to
the execution of said documents, the General Partner is, subject to the
limitations set forth herein, specifically authorized, for and on behalf of the
Partnership, to execute such other documents as the General Partner deems
necessary in connection with the acquisition of Parcel One and Parcel Two and
the imposition of the Condominium Regime upon Parcel One.
<PAGE>
3.2 Financing.
A. The Partnership shall be authorized to borrow from the Lender whatever
amounts may be required, subject to the provisions hereof, in connection with
the acquisition, development, rehabilitation and construction, and permanent
financing of the Project and to meet the expenses of operating the Project
(including, without limitation, any items for which the Lender may provide
funds) and secure the same by the Mortgage and any other Loan Documents, as
defined in the Building Loan Agreement.
B. The General Partner is specifically authorized, for and on behalf of the
Partnership, to execute the Loan Documents. Subsequent to the execution of said
documents, the General Partner is, subject to the limitations set forth herein,
specifically authorized, for and on behalf of the Partnership, to execute such
other documents as the General Partner deems necessary in connection with the
financing of the Project. Any documents so executed by the General Partner may
include a waiver of appraisal, confession of judgment and consent to executory
process. Each Mortgage shall provide that no Partner or Related Person shall
have any economic risk of loss for the payment of all or any part of the
Mortgage Loan secured thereby.
C. Each General Partner and the Partnership shall be bound by the terms of
the Loan Documents. Any incoming General Partner shall as a condition of
receiving any interest in the Partnership agree to be bound by the Loan
Documents. Upon any dissolution of the Partnership or any transfer of the
Project while the Loan is outstanding, no title or right to the possession and
control of the Project and no right to collect the rents therefrom shall pass to
any Person who is not, or does not become, bound in a manner satisfactory to the
Lender, to the Loan Documents and the provisions of this Agreement. The Loan
Documents shall be binding upon and shall govern the rights and obligations of
the Partners, their heirs, executors, administrators, successors and assigns as
long as the Mortgage Loan is outstanding.
D. Subject to the terms of the Loan Documents and the other Project
Documents, the Partnership may refinance the Loan, including any required
transfer or conveyance of the Partnership assets for security or mortgage
purposes, may execute mortgages, notes, and any other documents necessary for
such a refinancing; provided, however, that the terms of any such refinancing
must receive the Consent of the Investor Limited Partner (which, except as
hereinafter provided, may be given or withheld with or without cause in its sole
discretion) before such transaction shall be binding on the Partnership.
Notwithstanding the foregoing, the Consent of the Investor Limited Partner to
any refinancing of the Mortgage Loan shall not be unreasonably withheld provided
that the terms of the new loan are no less favorable than the terms of the
existing Mortgage Loan.
3.3 Rehabilitation.
A. The Partnership shall be authorized to enter into the Development
Agreement, the Architectural Agreement, the Construction Contract, the
Management Agreement, and the Incentive Management Agreement.
B. The General Partner is specifically authorized, for and on behalf of the
Partnership, to execute the Development Agreement, the Architectural Agreement,
the Construction Contract, the Management Agreement, and the Incentive
Management Agreement.
C. In connection with any proposed sale of the Project, the Investor
Limited Partner (or its designee), shall have the right to receive and review
copies of all documents relating to the proposed sale.
3.4 Disposition.
A. The Partnership shall be authorized to enter into the Lease and Parking
Agreement, to lease apartments in the Project, and to sell the Penthouses in the
normal course of operations upon terms and conditions determined in the sole
judgment and discretion of the General Partner. In the event that the General
Partner determines in its sole judgment and discretion that the number of
contingent sales of Penthouses prior to Final Endorsement are insufficient to
justify the Condominium Regime, the Partnership shall be authorized to revoke
the Condominium Declaration.
B. The General Partner is specifically authorized, for and on behalf of
the Partnership, to execute the Lease and Parking Agreement, the apartment
leases, all documents relating to the sales of the Penthouses, and a revocation
of the Condominium Declaration.
SECTION 4: PARTNERS AND CAPITAL ACCOUNTS
Section 4.1 General Partner
The General Partner of the Partnership is Historic Restoration,
Incorporation, its address and Capital Contribution are set forth in the
Schedule.
Section 4.2 Limited Partners
A. API-Cotton Mill Partners L.P. and AmerUs Management, Inc. are the
Investor Limited Partner and Special Limited Partner, respectively, of the
Partnership; their addresses and Capital Contributions are set forth in the
Schedule. The payment of their Capital Contributions is governed by Section 5.1.
B. The Withdrawing Limited Partner hereby withdraws as a Limited Partner
and acknowledges that he has no further claims against the Partnership in
respect of his Limited Partnership Interest.
Section 4.3 Partnership Capital and Capital Accounts
A. The capital of the Partnership shall be the aggregate amount of the
cash, the Gross Asset Value of property and the value of any services
contributed by the General Partner and the Investor Limited Partner as set forth
in the Schedule. Except as specifically set forth herein, no Partner shall have
any right to make voluntary Capital Contributions to the Partnership. No
interest shall be paid by the Partnership on any Capital Contribution to the
Partnership. The Schedule shall be amended from time to time to reflect the
withdrawal or admission of Partners, any changes in the Partnership Interests
held by a Partner arising from the transfer of a Partnership Interest to or by
such Partner, and any change in the amounts to be contributed or agreed to be
contributed by any Partner.
B. An individual Capital Account shall be established and maintained for
each Partner, including any additional or substituted Partner who shall
hereafter receive an interest in the Partnership. The Capital Account of each
Partner shall be maintained in accordance with the following provisions:
(i) To each Partner's Capital Account there shall be credited such
Partner's Capital Contributions, such Partner's distributive share of
Profits, and any items in the nature of income or gain that are specially
allocated pursuant to Section 6.4 hereof, and the amount of any Partnership
liabilities that are assumed by such Partner or that are secured by any
Partnership Property distributed to such Partner;
(ii) To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership Property
distributed to such Partner pursuant to any provision of this Agreement,
such Partner's distributive share of Losses, and any items in the nature of
expenses or losses that are specially allocated pursuant to Section 6.4
hereof, and the amount of any liabilities of such Partner that are assumed
by the Partnership or that are secured by any property contributed by such
Partner to the Partnership.
In the event that the Gross Asset Values of Partnership assets are adjusted
pursuant to this Agreement, the Capital Accounts of all Partners shall be
adjusted simultaneously to reflect the aggregate net adjustment as if the
Partnership recognized gain or loss equal to the amount of such aggregate net
adjustment.
C. The original Capital Account established for any substituted Partner
shall be in the same amount as, and shall replace, the adjusted Capital Account
of the Partner which such substituted Partner succeeds, and, for the purposes of
the Agreement, such substituted Partner shall be deemed to have made the Capital
Contribution, to the extent actually paid in, of the Partner which such
substituted Partner succeeds. The term "substituted Partner," as used in this
paragraph, shall mean a Person who shall become entitled to receive a share of
the Profits, Losses, Tax Credits and Distributions of the Partnership by reason
of such Person succeeding to the Partnership Interest of a Partner by assignment
of all or any part of a Partnership Interest. To the extent a substituted
Partner receives less than one hundred (100%) percent of the Partnership
Interest of a Partner, his Capital Account and Capital Contribution shall be in
proportion to the Partnership Interest he receives, and the Capital Account and
Capital Contribution of the Partner who retains a partial interest in the
Partnership shall continue, and not be replaced, in proportion to the
Partnership Interest he retains.
D. The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of the Capital Accounts are intended to comply with
the Allocation Regulations, and shall be interpreted and applied in a manner
consistent with such Allocation Regulations. In the event that the General
Partner shall determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto, are computed in order to
comply with the Allocation Regulations, the General Partner may make such
modification, subject to the provisions of Section 6.3D. The General Partner
shall adjust the amounts debited or credited to Capital Accounts with respect to
(i) any property contributed to the Partnership or distributed to the Partners,
and (ii) any liabilities that are secured by such contributed or distributed
property that are assumed by the Partnership or the Partners, in the event the
General Partner shall determine such adjustments are necessary or appropriate
pursuant to Section 1.704-1(b)(2)(iv) of the Allocation Regulations. Subject to
the provisions of Section 6.3D, the General Partner also shall make any
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with the Allocation Regulations.
Section 4.4 Withdrawal of Capital
A Partner shall not have the right to withdraw from the Partnership all or
any part of its Capital Contribution. No Partner shall have any right to demand
and receive property of the Partnership in return for its Capital Contribution,
except as may be specifically provided in this Agreement. No Partner shall be
entitled to demand a redemption or repurchase of his or its Partnership
Interest. Any return of Capital Contributions to the Partners pursuant to this
Agreement shall be solely from Partnership assets, and the General Partner shall
not be personally liable for any such return.
Section 4.5 Liability of Limited Partner
No Limited Partner shall be liable for any debts, liabilities, contracts, or
obligations of the Partnership. A Limited Partner shall be liable only to make
payments of its Capital Contributions as and when due hereunder. After its
Capital Contributions shall be fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or payments or lend any funds to the Partnership.
Section 4.6 Additional Limited Partners
A. The General Partner may admit additional Limited Partners only
(i) with the Consent of the Investor Limited Partner or (ii) as permitted by
Section 11.
B. Any incoming Limited Partner shall, by its execution of this Agreement
and as a condition of receiving any interest in the Partnership's property,
agree to be bound by the Project Documents to the same extent and on the same
terms as the other Limited Partners.
C. Upon the admission of any additional Limited Partners, an amendment to
the Agreement reflecting such admission, shall, to the extent required by law,
be filed with the Filing Office and/or any other appropriate Governmental
Authority. Such amendment, if required, shall amend the Schedule to reflect the
names, addresses and Capital Contributions of such additional Limited Partners,
and shall set forth the agreement of such additional Limited Partners to be
bound by all the provisions of this Agreement.
SECTION 5: CAPITAL CONTRIBUTIONS OF INVESTOR LIMITED PARTNER
AND SPECIAL LIMITED PARTNER; PROJECT OPERATING DEFICIT LOANS;
LETTERS OF CREDIT AND REPURCHASE RIGHT
Section 5.1 Capital Contributions of Investor Limited Partner and
Special Limited Partner
A. Subject to the provisions of Sections 5.3, 5.4 and 5.5 below, the
Investor Limited Partner's Capital Contribution shall be in the amount of five
million nine hundred eighty seven thousand dollars and No/100 ($5,987,000)
Dollars, of which three million three hundred fifty thousand thirty seven
dollars and No/100 ($3,350,037) Dollars (the "First Installment") shall be paid
upon the Admission Date and two million two hundred thirty six thousand nine
hundred sixty three dollars and No/100 ($2,236,963) Dollars (the "Second
Installment") shall be paid on the date by which all of the following events
shall have occurred: (i) the Completion Date; (ii) determination by Reznick,
Fedder & Silverman of Bethesda, Maryland of the aggregate amount of the Historic
Rehabilitation Credit; (iii) the Facade Donation Appraisal has been received by
the Partnership; and (iv) the escrow established pursuant to the Development
Guaranty Escrow Agreement has been funded. If the Completion Date occurs in
1998, then the amount of the Second Installment shall be decreased by an amount
equal to the product of twenty (20%) percent multiplied by the First
Installment.
B. The Special Limited Partner's Capital Contribution shall be in the
amount of One Hundred and No/100 ($100.00) Dollars and shall be paid to the
Partnership in full in cash o n the Admission Date.
Section 5.2 Conditions to Payment of Second Installment
At least twenty (20) days before the Second Installment is due, and as a
condition thereto, the General Partner shall notify the Investor Limited Partner
in writing of the payment amount due (and, if applicable, the impact of any
adjustments to such payments made pursuant to Sections 5.3, 5.4 or 5.5) and
where the payment should be sent and shall provide a written statement to the
Investor Limited Partner (a "Payment Certificate") certifying that (i) the
Completion Date has occurred, (ii) no foreclosure proceedings have been
commenced with respect to the Project, and (iii) no Event of Bankruptcy has
occurred with respect to the General Partner.
Section 5.3 Adjuster Provisions
The parties acknowledge that the amount of the Investor Limited Partner's
Capital Contribution is based on the amount of the Historic Rehabilitation
Credit and the charitable deduction attributable to the Facade Donation
Documents allocable to the Investor Limited Partner shown in the Projections.
If the amount of the Historic Rehabilitation Credit and such charitable
deduction is less or greater than the amounts shown in the Projections, the
provisions of this Sections 5.4 and 5.5 shall apply.
Section 5.4 Historic Credit Adjuster
Notwithstanding anything to the contrary contained herein, if, for any
reason other than a change in the law having a retroactive impact on the tax
benefits allocable to the Investor Limited Partner hereunder, the Accountants
shall determine or there shall be a Final Determination that the aggregate
amount of Historic Rehabilitation Credit allocated to the Investor Limited
Partner is an amount other than four million eight hundred forty one thousand
one hundred and fifty five and No/100 ($4,841,155) Dollars, the following shall
occur (such determination shall be referred to herein as the "Historic Credit
Determination"):
(i) After the Historic Credit Determination is made, the Accountants
shall calculate the difference between the aggregate amount of Historic
Rehabilitation Credit projected to be allocated to the Investor Limited
Partner and the amount in fact allocated. The resulting amount shall be
referred to in this Section 5.4 as the "Negative Historic Credit Difference"
if the projected amount is greater than the amount in fact allocated and as
the "Positive Historic Credit Difference" if the projected amount is less
than the amount in fact allocated.
(ii) If there is a Negative Historic Credit Difference, the amount of
the remaining Capital Contribution Installment(s) to be paid by the Investor
Limited Partner after the Historic Credit Determination has been made shall
be reduced by the product of 1.07874 multiplied by the Negative Historic
Credit Difference (the "Negative Adjustment"). If the Negative Adjustment
exceeds the size of any such remaining Capital Contribution Installments of
the Investor Limited Partner, the General Partner shall pay to the Investor
Limited Partner an amount equal to the difference between the Negative
Adjustment and the Capital Contribution Installment in question, together
with interest on such amount at a rate of fifteen (15%) percent per annum,
from any Distributions of Cash Flow pursuant to Section 6.2 hereof. If such
amount is not paid in full within twelve (12) months of the date on which
the Capital Contribution Installment was due, the General Partner shall make
an Operating Deficit Loan to the Partnership.
(iii) If there is a Negative Historic Credit Difference, and the
Historic Credit Determination is made after the Investor Limited Partner has
paid in all of its Capital Contribution Installments to the Partnership, the
General Partner shall pay to the Investor Limited Partner an amount equal to
the Negative Adjustment, together with interest on such amount at a rate of
fifteen (15%) percent per annum from any Distributions of Cash Flow pursuant
to Section 6.2 hereof. If such amount is not paid in full within twelve
(12) months of the date on which the Capital Contribution Installment was
due, the General Partner shall make an Operating Deficit Loan to the
Partnership.
(iv) If there is a Positive Historic Credit Difference, then the
Capital Contributions of the Investor Limited Partner shall be increased by
$1.02737 for each $1.00 of such Positive Historic Credit Difference (the
product of $1.02737 and the Positive Historic Credit Difference being
referred to herein as the "Increase"). The Increase shall be paid to the
Partnership by the Investor Limited Partner on the date on which the Second
Installment is due, or if the Second Installment has been made, then within
thirty (30) days after the Historic Credit Determination has been made.
Section 5.5 Facade Donation Adjuster
A. If for any reason other than a change in the law having a retroactive
impact on the tax benefits allocable to the Investor Limited Partner hereunder,
the charitable deduction allocable to the Investor Limited Partner as a result
of the execution and delivery of the Facade Donation Documents is less than the
amount shown in the Projections, the amount of such shortfall shall be
multiplied by .2975 (the resulting amount being referred to herein as the "Loss
Adjustment"). The amount of any Capital Contribution Installments remaining to
be paid by the Investor Limited Partner after the amount of the Loss Adjustment
has been calculated shall be reduced by the Loss Adjustment. If the Loss
Adjustment is made after the Investor Limited Partner has paid in all of its
Capital Contribution Installments to the Partnership, the General Partner shall
pay to the Investor Limited Partner an amount equal to the Loss Adjustment,
together with interest on such amount at a rate of fifteen (15%) percent per
annum from any Distributions of Cash Flow pursuant to Section 6.2 hereof. If
such amount is not paid in full within twelve (12) months of the date on which
the Capital Contribution Installment was due, the General Partner shall make an
Operating Deficit Loan to the Partnership.
B. If the charitable deduction allocable to the Investor Limited Partner as
a result of the execution and delivery of the Facade Donation is greater than
the amount shown in the Projections, the amount of such excess shall be
multiplied by .2975 (the "Positive Adjustment"). The amount of any Capital
Contribution Installments remaining to be paid by the Investor Limited Partner
after the Positive Adjustment has been calculated shall be increased by the
Positive Adjustment. If the Positive Adjustment is determined after the
Investor Limited Partner has paid all of its Capital Contribution Installments
to the Partnership, the Investor Limited Partner shall pay the Partnership the
amount of the Positive Adjustment within thirty (30) days of the date of its
determination.
Section 5.6 IRS Claims
A. In the event that a claim is made by the IRS (a "Claim") upon audit
which, if successful, would result in an adjustment to the Capital Contributions
of the Investor Limited Partner or any payments pursuant to Sections 5.4 or 5.5,
the General Partner, in its capacity as the TMP, shall, within thirty (30) days
after receiving notice of such Claim, notify the Investor Limited Partner of the
Claim (such notice being referred to as a "Claim Notice") and request that the
Investor Limited Partner notify the Partnership of its intention either to
contest such Claim or to accept the same. If the Investor Limited Partner
elects to contest such Claim, the TMP shall take such action in contesting such
Claim on behalf of the Partnership and the Investor Limited Partner as it
reasonably deems necessary. In such event, all third party costs and expenses
incurred by the TMP in connection with such matter shall be borne by the
Partnership and/or the Partners in accordance with the provisions of Section
7.9. The failure of the Investor Limited Partner, within thirty (30) days after
the date of the Claim Notice, to notify the Partnership of its intention to
contest such Claim shall be deemed to be a decision to accept the same.
B. In the event that the Investor Limited Partner elects to accept such
Claim, the General Partner may nevertheless contest the Claim by appropriate
proceedings, provided, however, that if, following the contesting of such Claim
by the General Partner, all or a portion of the Claim is sustained in a Final
Determination, then there shall be added to the adjustments referred to in
Sections 5.4 and 5.5 an amount equal to the interest assessed against the
Investor Limited Partner for the period commencing on the date of the Claim
Notice and ending on the date of the Final Determination on the underpayment of
tax determined in such Final Determination.
C. If, following a decision by the General Partner to contest a Claim, more
than fifty (50%) percent of the tax deficiency amount specified in the Claim is
sustained in a Final Determination, the costs and expenses of contesting the
Claim shall be borne solely by the General Partner. If such Final Determination
results in less than fifty (50%) of the tax deficiency amount specified in the
Claim being upheld, the costs and expenses of contesting the Claim shall be
borne by the Partnership and/or the Partners in accordance with the provisions
of Section 7.9.
Section 5.7 Project Cost Loans
In the event that the cost of the Project exceeds the total project cost set
forth in the Budget, the General Partner shall make a project cost loan to the
Partnership in the amount of the excess. Such loan or loans, which shall bear
interest at an annual rate equal to the Designated Interest Rate, shall be
evidenced by unsecured, nontransferable promissory notes of the Partnership and
are referred to herein as "Project Cost Loans." Any Project cost Loans shall be
repaid only as provided in Section 6, and no recourse for payment thereof may be
had against any other property of the Partnership or against any Partner.
Section 5.8 Operating Deficit Loans
A. If at any time during the Initial Operating Period, the Partnership
requires funds to eliminate an Operating Deficit, the General Partner shall use
the Operating Reserve to fund such Operating Deficit. If the Operating Reserve
is depleted during the Initial Operating Period, the General Partner shall make
an Operating Deficit Loan to the Partnership in the amount of the funds
required; provided, however, that except to pay the Management Fee of a Manager
which is not an Affiliate of the General Partner, the General Partner shall not
be required to make Operating Deficit Loans to the Partnership in an amount
which exceeds Six Hundred Thousand and No/100 ($600,000.00) Dollars in the
aggregate.
B. In the event (i) during the Initial Operating Period the Operating
Revenue is depleted and the General Partner either fails to make an Operating
Deficit Loan or is not required to make an Operating Deficit Loan pursuant to
Section 5.8A hereof or (ii) there is an Operating Deficit after the expiration
of the Initial Operating Period, the Investor Limited Partner may, but shall not
be obligated to make an Operating Deficit Loan to the Partnership.
Section 5.9 Third-Party Rights in Operating Deficit Loans
The obligation of the General Partner to make Operating Deficit Loans
pursuant to Section 5.8A is for the benefit of the Partnership and the Partners
and shall not inure to the benefit of any creditor of the Partnership other than
a Partner, notwithstanding any pledge or assignment by the Partnership of this
Agreement or any rights hereunder.
Section 5.10 No Third-Party Rights in Capital
The obligations or rights of the Partnership or of Partners to make or
require any Capital Contribution under this Agreement or the Investor Notes
shall not grant any rights to, or confer any benefits upon, any Person who is
not a Partner. The making of a nonrecourse loan to the Partnership shall not
make the lender a Partner.
Section 5.11 Letters of Credit.
At the Initial Endorsement, the Investor Limited Partner shall cause the
Letters of Credit to be issued in favor of the Partnership. The Partnership
shall reimburse the reasonable costs of obtaining the Letters of Credit to the
Investor Limited Partner and shall pay the Investor Limited Partner a fee equal
to fifty (50) basis points of the aggregate amount of the Letters of Credit.
Section 5.12 Investor Limited Partner's Right to Require Repurchase
In the event that (i) the Partnership is in default under the Construction
Mortgage Loan and the Construction Lender has accelerated the Construction
Mortgage Loan, or (ii) the Certificate of Occupancy Date does not occur on or
before the Completion Date, or (iii) the Negative Historic Credit Difference is
greater than fifteen (15%) percent of the Historic Rehabilitation Credit to be
allocated to the Investor Limited Partner set forth in the Projections, the
General Partner shall, within thirty (30) days after the occurrence thereof,
notify the Investor Limited Partner and Special Limited Partner of such event
and shall offer to purchase their Partnership Interests at a price equal to the
amount of the Capital Contribution which each Limited Partner has made as of the
date of such event. If either the Investor Limited Partner or the Special
Limited Partner elects to require the General Partner to repurchase its
Partnership Interest, it shall notify the General Partner whereupon the General
Partner shall have thirty (30) days of receipt of such notice to pay the
Investor Limited Partner or the Special Limited Partner the purchase price.
SECTION 6: PROFITS AND LOSSES; CREDITS; DISTRIBUTIONS
Section 6.1 Profits and Losses
A. After giving effect to the special allocation provisions of Section 6.5,
Operating Profits and Losses and Tax Credits for any Partnership Fiscal Year
shall be allocated one (1%) percent to the General Partner and ninety nine (99%)
percent to the Investor Limited Partner.
B. After giving effect to the special allocation provisions of Section 6.5,
Profits and Losses from a Capital Transaction in any Partnership Fiscal Year
shall be allocated to and among the Partners as follows:
As to Profits:
First, an amount of Profits equal to the aggregate negative balances (if
any) in the Capital Accounts of all Partners having negative balance Capital
Accounts shall be allocated to such Partners in proportion to their negative
Capital Account balances until all such Capital Accounts have zero balances; and
Second, an amount of Profits shall be allocated to each of the Partners
until the positive balance in the Capital Account of each Partner equals the
amount of cash which would be distributed to such Partner if such Profits were
available to be distributed in accordance with the provisions of Clauses Twelfth
and Thirteenth of Section 6.2C.
As to Losses:
First, an amount of Losses equal to the aggregate positive balances (if
any) in the Capital Accounts of all Partners having positive balance Capital
Accounts shall be allocated to such Partners in proportion to their positive
Capital Account balances until all such Capital Accounts have zero balances;
provided, however, that if the amount of Losses so to be allocated is less than
the sum of the positive balances in the Capital Accounts of those Partners
having positive balances in their Capital Accounts, then such Losses shall be
allocated to the Partners in such proportions and in such amounts so that the
Capital Account balances of each Partner shall equal, as nearly as possible, the
amount such Partner would receive if an amount equal to the excess of (i) the
sum of all Partners' balances in their Capital Accounts computed prior to the
allocation of Losses under this clause First over (ii) the aggregate amount of
Losses to be allocated to the Partners pursuant to this clause First were
distributed to the Partners in accordance with the provisions of Clauses Twelfth
and Thirteenth of Section 6.2C; and
Second, the balance, if any, of such Losses shall be allocated to each
of the Partners if such balance were distributed to the Partners in accordance
with the provisions of Clauses Twelfth and Thirteenth of Section 6.2C.
Section 6.2 Distributions Prior to Dissolution
A. Distribution of Cash Flow
(i) Pre-Certificate of Occupancy Date. Subject to the terms of the
Project Documents, any Cash Flow generated in or with respect to any Fiscal Year
which ends prior to the Certificate of Occupancy Date shall be used by the
General Partner to fund the excess cost of any item in the Budget or to enhance
the Project.
(ii) Post-Certificate of Occupancy Date. Subject to the terms of the
Project Documents, any Cash Flow generated in or with respect to any Fiscal Year
shall be distributed or applied from time to time as required within ninety (90)
days after the end of each Fiscal Year in the following order of priority:
First, to pay any unpaid Management Fees to HRIM;
Second, to pay any unpaid Investment Servicing Fees to the Special Limited
Partner;
Third, to pay any unpaid Negative Adjustment determined in accordance with
Section 5.4 hereof and any unpaid Loss Adjustment determined in accordance with
Section 5.5 hereof to the Investor Limited Partner;
Fourth, to pay any unpaid Operating Deficit Loans or Project Cost Loans to
the General Partner or the Investor Limited Partner, as the case may be; and
Fifth, (i) so long as any portion of the Development Fee remains unpaid,
eighty five (85%) percent of the balance of Cash Flow shall be applied to
payment of the unpaid portion of the Development Fee, and fifteen (15%) percent
of such balance shall be distributed as follows: one (1%) percent to the
General Partner and ninety nine (99%) percent to the Investor Limited Partner,
and (ii) after payment in full of the Development Fee, seventy (70%) percent of
the balance of Cash Flow shall be paid to HRI as an Incentive Management Fee and
thirty (30%) percent of such balance shall be distributed as follows: one (1%)
percent to the General Partner and ninety nine (99%) percent to the Investor
Limited Partner.
B. Distributions of Refinancing Proceeds
Refinancing Proceeds shall be distributed in the following order of
priority:
First, to the payment of any expenses associated with the transaction
generating such Refinancing Proceeds, including, without limitation, prepayment
penalties, brokerage fees, legal fees and application fees;
Second, to discharge, the debts and obligations of the Partnership owed
to the holder of the Mortgage;
Third, to fund reserves for contingent or unforeseen liabilities or
obligations of the Partnership to the extent deemed reasonable by the General
Partner;
Fourth, to pay any unpaid Management Fees to HRIM;
Fifth, to pay any outstanding Operating Deficit Loans made by the
Investor Limited Partner, with payments to be applied first to accrued but
unpaid interest and then to principal;
Sixth, to pay any unpaid Negative Adjustment determined in accordance
with Section 5.4 hereof and unpaid Loss Adjustment determined in accordance with
Section 5.5 hereof;
Seventh, to pay any unpaid portion of the Development Fee;
Eighth, to pay any outstanding Operating Deficit Loans made by the
General Partner, with payments to be applied first to accrued but unpaid
interest and then to principal;
Ninth, to pay any outstanding Project Cost Loans or any other loans made
by the General Partner to the Partnership, with payments to be applied, first to
accrued but unpaid interest and then to principal;
Tenth, to the Investor Limited Partner in an amount equal to the product
of the negative balance of the Investor Limited Partner's Capital Account
multiplied by 53.85% (the "Priority Amount");
Eleventh, to the General Partner in an amount equal to the Priority
Amount; and
Twelfth, the balance to be distributed as follows: seventy (70%)
percent to the General Partner and thirty (30%) percent to the Investor Limited
Partner.
C. Distributions of Sale Proceeds
Subject to the terms of the Project Documents and to the provisions of
Section 6.3 below, any Sale Proceeds shall be distributed in the following
amounts and order of priority:
First, to discharge, to the extent required by the documents relating to
the First Mortgage Loan, the debts and obligations of the Partnership owed to
the holder of the First Mortgage;
Second, to the payment of any expenses associated with the transaction
generating such Sale Proceeds, including, without limitation, prepayment
penalties, brokerage fees, legal fees and application fees;
Third, to fund reserves for contingent or unforeseen liabilities or
obligations of the Partnership to the extent deemed reasonable by the General
Partner (other than items listed in the other clauses of this Section 6.2C);
Fourth, to pay any unpaid Management Fees to HRIM;
Fifth, to pay any outstanding Operating Deficit Loans made by the
Investor Limited Partner, with payments to be applied first to accrued but
unpaid interest and then to principal;
Sixth, to pay any unpaid Negative Adjustment determined in accordance
with Section 5.4 hereof and unpaid Loss Adjustment determined in accordance with
Section 5.5 hereof;
Seventh, to pay any unpaid portion of the Development Fee;
Eighth, to pay any outstanding Operating Deficit Loans made by the
General Partner, with payments to be applied first to accrued but unpaid
interest and then to principal;
Ninth, to pay any outstanding Project Cost Loans or any other loans made
by the General Partner to the Partnership, with payments to be applied, first to
accrued but unpaid interest and then to principal;
Tenth, to the Investor Limited Partner in an amount equal to the product
of the negative balance of the Investor Limited Partner's Capital Account
multiplied by 53.85% (the "Priority Amount");
Eleventh, to the General Partner in an amount equal to the Priority
Amount; and
Twelfth, the balance to be distributed as follows: seventy (70%)
percent to the General Partner and thirty (30%) percent to the Investor Limited
Partner.
Section 6.3 Liquidation
A. Upon the liquidation and dissolution of the Partnership, unless the
business of the Partnership is continued pursuant to the provisions of Section
2.5 or Section 10.2 hereof, the General Partner shall liquidate the assets of
the Partnership and cause the business of the Partnership to be wound up in
accordance with the Act.
B. Subject to the provisions of Section 6.3C below, any Capital Proceeds
from a Terminating Capital Transaction remaining after payment of, or adequate
provision for, the debts and obligations of the Partnership shall be distributed
to those Partners with positive Capital Account balances (after taking into
account all Capital Account adjustments for the Partnership taxable year).
C. Except as hereinafter specifically provided, if following the
"liquidation" of a Partner's interest in the Partnership (as defined in Section
1.704-1(b)(2)(ii)(g) of the Allocation Regulations) or the dissolution of the
Partnership and the distribution or liquidation of its assets in accordance with
the foregoing provisions of this Section 6.3, the Partner whose interest is
being liquidated (or, in the case of the liquidation and dissolution of the
Partnership, any Partner) has a negative balance in its Capital Account after
adjusting such Capital Account to reflect the allocations and distributions
required under Sections 6.1 and 6.2 above (including, without limitation, the
allocation to such Partner of his or its Share of Partnership Minimum Gain
and/or Share of Partner Nonrecourse Debt Minimum Gain), the amount of such
negative balance shall be contributed by such Partner to the Partnership on the
first to occur of (i) the date which is ten (10) days after the delivery to such
Partner of a certificate of the Accountants, prepared in good faith and at the
expense of the Partnership, setting forth the calculation of such Partner's
negative Capital Account balance, or (ii) the later of (A) the last day of the
taxable year of the Partnership in which such liquidation occurs, or (B) 90 days
after the date of the liquidation. Any such amount shall be distributed to
those Partners having positive Capital Account balances in proportion to, and to
the extent necessary to eliminate such positive balances, or in such other
manner as may be required under Section 1.704-1(b)(2)(ii)(b)(3) of the
Allocation Regulations.
D. The parties intend that, as a result of the application of the
allocation and distribution provisions contained in this Section 6, any Sale
Proceeds from a Terminating Capital Transaction will be distributed in the same
manner as Sale Proceeds are distributed under the provisions of Section 6.2C.
If the Partnership is advised at any time by the Accountants or counsel to the
Partnership that an actual distribution of Sale Proceeds at the end of any
Fiscal Year in accordance with the provisions of Section 6.3C would not result
in each Partner receiving the amount that it would have received if Section 6.2C
rather than Section 6.3B applied to such distribution, the General Partner shall
so notify the Investor Limited Partner and, with the Consent of the Investor
Limited Partner, is authorized and empowered to amend the provisions of this
Section 6 relating to the allocation of Profits and Losses (other than the
Regulatory Allocations) for such Fiscal Year (and for subsequent Fiscal Years if
necessary) to cure such defect consistent with the principles set forth in the
first sentence of this Section 6.3D.
Section 6.4 Special Distribution Provisions
A. Notwithstanding anything to the contrary contained herein, in no event
shall the General Partner receive as an aggregate distribution under Sections
6.2 or 6.3 hereof less than one (1%) percent of the aggregate amounts
distributed to all the Partners under Sections 6.2 or 6.3 hereof. In order to
carry the immediately preceding sentence into effect, in the event that any
aggregate distribution to the General Partner would, but for the provisions of
this paragraph, fail to equal or exceed one (1%) percent of the aggregate amount
distributable to all the Partners, then the amounts otherwise distributable to
all the Partners under Sections 6.2 or 6.3 hereof shall be reduced and
reallocated to the General Partner in order to assure the General Partner of its
one (1%) percent share.
B. Except as otherwise specifically provided in this Section 6.4, if the
funds available for any Distribution to the Partners are insufficient to
distribute to any class of Partners the maximum amount which otherwise would be
distributable to such class under the applicable provision(s) of this Section 6,
the amount available for distribution shall be distributed pro rata to the
members of such class in proportion to their respective paid-in Capital
Contributions.
Section 6.5 Special Allocation Provisions
Notwithstanding anything to the contrary contained herein:
A. Nonrecourse Deductions shall be allocated ninety nine (99%) percent to
the Investor Limited Partner and one (1%) percent to the General Partner.
B. Partner Nonrecourse Deductions shall be allocated to and among the
Partners in the manner provided in the Allocation Regulations.
C. Subject to the provisions of Section 6.5R, if there is a net decrease in
Partnership Minimum Gain for a Partnership Fiscal Year, the Partners shall be
allocated items of Partnership income and gain in accordance with the provisions
of Section 1.704-2(f) of the Allocation Regulations.
D. Subject to the provisions of Section 6.5R, if there is a net decrease in
Partner Nonrecourse Debt Minimum Gain for a Partnership Fiscal Year, then any
Partner with a Share of such Partner Nonrecourse Debt Minimum Gain shall be
allocated items of Partnership income and gain in accordance with the provisions
of Section 1.704-2(i)(4) of the Allocation Regulations.
E. Subject to the provisions of Sections 6.5A through 6.5D above, in the
event that any Limited Partner (who is not also a General Partner) unexpectedly
receives any adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Allocation Regulations, items of
Partnership income and gain shall be specially allocated to each such Limited
Partner in an amount and manner sufficient to eliminate, to the extent required
by the Allocation Regulations, the Adjusted Capital Account Deficit of such
Limited Partner as quickly as possible. This Section 6.5E is intended to
constitute a "qualified income offset" provision within the meaning of the
Allocation Regulations and shall be interpreted consistently therewith.
F. Subject to the provisions of Sections 6.5A through 6.5E above, in no
event shall the Limited Partner be allocated Losses which would cause him to
have an Adjusted Capital Account Deficit as of the end of any Partnership Fiscal
Year. Any Losses which are not allocated to a Limited Partner by reason of the
application of the provisions of this Section 6.5F shall be allocated to the
General Partner.
G. Subject to the provisions of Sections 6.5A through 6.5F above, in the
event that any Limited Partner (who is not also a General Partner) has an
Adjusted Capital Account Deficit at the end of any Partnership Fiscal Year,
items of Partnership income and gain shall be specially allocated to each such
Limited Partner in the amount of such Adjusted Capital Account Deficit as
quickly as possible.
H. Without limiting the generality of Section 6.5B above, (i) if the
General Partner makes Project Expense Loans or (ii) if the Partnership incurs
recourse obligations to fund the payment of deductible items which are not
anticipated to be paid in the ordinary course of business (Project Expense
Loans, obligations and losses under clauses (i), and (ii) being referred to
herein collectively as "Excess Expenses") in respect of any Fiscal Year, then
the calculation and allocation of Losses shall be adjusted as follows: first,
an amount of deductions equal to such Excess Expenses for the Fiscal Year in
question shall be allocated to the General Partner; and second, the balance of
such deductions and all gross income shall be allocated as provided in
Section 6.1A. Nothing in this Section 6.5H shall prevent the Partnership from
recovering an extraordinary loss from a General Partner who is liable therefor
by law or under this Agreement. If any Excess Expenses shall be repaid by the
Partnership during any Fiscal Year, then the allocation of Profit and Losses
under Section 6.1A for such Fiscal Year shall be adjusted as follows: first,
the General Partner shall be allocated an amount of the gross income of the
Partnership equal to the amount of the Excess Expenses repaid in such Fiscal
Year; and second, the balance of such gross income and all deductions shall be
allocated as provided in Section 6.1A.
I. In accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account of any variation between the
adjusted basis of such property to the Partnership for federal income tax
purposes and its initial Gross Asset Value. In the event that the Gross Asset
Value of any Partnership Property is adjusted pursuant to the terms of this
Agreement, subsequent allocations of income, gain, loss, and deduction with
respect to such asset shall take account of any variation between the adjusted
basis of such asset for federal income tax purposes and its Gross Asset Value in
the same manner as under Code Section 704(c) and the Treasury Regulations
thereunder. Any elections or other decisions relating to such allocations shall
be made by the General Partner in any manner that reasonably reflects the
purpose and intention of this Agreement. Allocations pursuant to this Section
6.5I are solely for purposes of federal, state, and local taxes and shall not
affect, or in any way be taken into account in computing, any Partner's Capital
Account or share of Profits, Losses, other items, or distributions pursuant to
any provision of this Agreement.
J. For purposes of determining the Profits, Losses, Tax Credits or any
other items allocable to any period, Profits, Losses, Tax Credits and any such
other items shall be determined on a daily, monthly, or other basis, as
determined by the General Partner using any permissible method under Code
Section 706 and the Treasury Regulations thereunder.
K. To the extent that interest on loans (or other advances which are deemed
to be loans) made by any General Partner to the Partnership is determined to be
deductible by the Partnership in excess of the amount of interest actually paid
by the Partnership, such additional interest deduction(s) shall be allocated
solely to such General Partner.
L. If the IRS successfully disallows the deduction of all or any part of
any fee paid by the Partnership to a General Partner or its Affiliates by
recharacterizing such fee as a Distribution to such General Partner, there shall
be, to the extent permitted by the Code, a special allocation of gross income to
such General Partner for the Fiscal Year with respect to which such disallowed
deduction was claimed by the Partnership in the amount of such disallowed
deduction.
M. Except as otherwise specifically provided in this Section 6, all
Profits, Losses and Tax Credits allocated to each class of Partners shall be
shared by the respective Partners in such class in the ratio which the paid-in
Capital Contribution of each Partner in such class bears to the aggregate paid-
in Capital Contributions of all Partners in such class.
N. Notwithstanding anything to the contrary contained herein, the General
Partner (or, if there is more than one General Partner, all of the General
Partners as a group) shall be allocated not less than one (1%) percent of each
material item of Partnership income, gain, loss, deduction and credit
("Partnership Items") at all times during the existence of the Partnership,
provided, however, that temporary non-conformance with the provisions of this
Section 6.5N shall be permitted to the extent permitted by Revenue Procedure
89-12 or any successor provisions. Subject to the foregoing, in the event that
there is no allocation of a material Partnership Item to the General Partner(s)
hereunder or if the amount of any material Partnership Item allocable to the
General Partner(s) hereunder shall not equal one (1%) percent of the aggregate
amount allocable to all the Partners without giving effect to this provision,
then the amount of such Partnership Item(s) otherwise allocable to the Limited
Partner hereunder shall be correspondingly reduced in order to assure the
General Partner(s) of its or their one (1%) percent share. Any such reduction
shall be applied to reduce the shares of all classes of Limited Partners in
proportion to their respective percentage interests.
O. For purposes of determining each Partner's proportionate share of the
excess Nonrecourse Liabilities of the Partnership pursuant to Section
1.752-3(a)(3) of the Allocation Regulations, the Investor Limited Partner shall
be deemed to have a ninety nine (99%) percent interest in Profits, and the
General Partner shall be deemed to have a one (1%) percent interest in Profits.
P. Any recapture of any Historic Rehabilitation Tax Credit shall be
allocated to and among the Partners in the same manner in which the Partners
share the expenditures giving rise to such Historic Rehabilitation Tax Credit.
Q. In the event the adjusted tax basis of any investment credit property
that has been placed in service by the Partnership is increased pursuant to
Section 50(c) of the Code, such increase shall be allocated among the Partners
(as an item in the nature of income or gain) in the same proportions as the
investment tax credit that is recaptured with respect to such property is shared
among the Partners. Any reduction in the adjusted tax basis (or cost) of
Partnership investment credit property pursuant to Section 50(c) of the Code
shall be allocated among the Partners (as an item in the nature of expenses or
losses) in the same proportions as the basis (or cost) of such property is
allocated pursuant to Treasury Regulation Section 1.46-3(f)(2)(i).
R. The basis (or cost) of any Partnership investment credit property shall
be allocated among the Partners in accordance with Treasury Regulation Section
1.46-3(f)(2)(i). All Historic Rehabilitation Tax Credits shall be allocated
among the Partners in accordance with applicable law. In the event Partnership
investment credit property is disposed of during any taxable year, Profits for
such taxable year (and, to the extent such Profits are insufficient, Profits for
subsequent taxable years) in an amount equal to the excess, if any, of (i) the
reduction in the adjusted tax basis (or cost) of such property pursuant to
Section 50(c) of the Code, over (ii) any increase in the adjusted tax basis of
such property, shall be allocated among the Partners in proportion to their
respective shares of such excess determined pursuant to Section 6.5Q hereof. In
the event that more than one item of such property is disposed of by the
Partnership, the foregoing sentence shall apply to such items in the order in
which they are disposed of by the Partnership, so that Profits equal to the
entire amount of such excess with respect to the first such property disposed of
shall be allocated prior to any allocations with respect to the second such
property disposed of, etc.
S. If for any Fiscal Year the application of the minimum gain chargeback
provisions of Section 6.5C or Section 6.5D would cause a distortion in the
economic arrangement among the Partners and it is not expected that the
Partnership will have sufficient other income to correct that distortion, the
General Partner may request a waiver from the Commissioner of the IRS of the
application in whole or in part of Section 6.5C or Section 6.5D in accordance
with Section 1.704-2(f)(4) of the Allocation Regulations. Furthermore, if
additional exceptions to the minimum gain chargeback requirements of the
Allocation Regulations have been provided through revenue rulings or other IRS
pronouncements, the General Partner is authorized to cause the Partnership to
take advantage of such exceptions if to do so would be in the best interest of a
majority in interest of the Partners.
T. If for any Fiscal Year the application of the minimum gain chargeback
provisions of Section 6.5C or Section 6.5D would cause a distortion in the
economic arrangement among the Partners and it is not expected that the
Partnership will have sufficient other income to correct that distortion, the
General Partner may request a waiver from the Commissioner of the IRS of the
application in whole or in part of Section 6.5C or Section 6.5D in accordance
with Section 1.704-2(f)(4) of the Allocation Regulations. Furthermore, if
additional exceptions to the minimum gain chargeback requirements of the
Allocation Regulations have been provided through revenue rulings or other IRS
pronouncements, the General Partner is authorized to cause the Partnership to
take advantage of such exceptions if to do so would be in the best interest of a
majority in interest of the Partners.
U. Except as otherwise specifically provided in this Agreement, all items
of Partnership income, gain, loss, deduction and other items not specifically
provided for shall be allocated to and among the Partners in the same manner as
Profits and Losses are allocated pursuant to the provisions of Section 6.1.
Allocations pursuant to this Section 6.5U are solely for purposes of federal,
state and local taxes and shall not affect, or in any way be taken into account
in computing, any Partner's Capital Account or share of Profits, Losses, Tax
Credits or Distributions pursuant to any other provisions of this Agreement.
Section 6.6 Order of Application
The provisions of this Section 6 shall be applied in the order required by
the applicable provisions of the Allocation Regulations or if no such order is
specified, in the manner determined by the Accountants.
SECTION 7: RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER
Section 7.1 Restrictions on Authority
A. Notwithstanding any other provisions of this Agreement, the General
Partner shall have no authority to perform any act in respect of the Partnership
or the Project in violation of (i) the Regulations or any other applicable law
and regulations, or (ii) any agreement between the Partnership and the Lender.
With respect to the execution of the Loan Documents and the Project Documents,
however, violation of the preceding sentence shall result only in liability of
the General Partner to the Partnership and the other Partners, and shall not
invalidate or cause the Partnership not to be bound by any of said documents
except that any agreement between the Partnership and the General Partner or its
Affiliates may be rejected if the Consent of the Investor Limited Partner is not
obtained.
B. Except as provided in Sections 3 and 5.7, the General Partner shall not
have any authority to do any of the following acts without the consent of the
Special Limited Partner (which, in the case of a refinancing of the Mortgage
Loan or a sale, and except as provided in Section 3 and Section 5.7, may be
given or withheld with or without cause in its sole discretion) and, if
required, any Requisite Approvals:
(i) to incur indebtedness for money borrowed on the general credit
of the Partnership; or
(ii) to make a material change to the Plans and Specifications; or
(iii) following the Certificate of Occupancy, to construct any new
capital improvements, or to replace any existing capital improvements if
construction or replacement would substantially alter the character or use
of the Project or expand the Project; or
(iv) to acquire any real property in addition to Parcel One and
Parcel Two (other than easements or similar rights necessary or convenient
for the operation of the Project); or
(v) to cause the Partnership to make any loan or advance to any
Person except as provided in Section 2.4(iii) (for purposes of this clause,
accounts receivable in the ordinary course of business from Persons other
than the General Partner or its Affiliates shall not be deemed to be
advances or loans); or
(vi) to take any action which would cause a Recapture Event; or
(vii) to sell all or substantially all of the Partnership Property; or
(viii) to refinance the Mortgage Loan; or
(ix) to appoint a new Manager; or
(x) to appoint new Accountants; or
(xi) to admit a Person as a Limited Partner, except as provided in
this Agreement.
Section 7.2 Personal Services and Competition
A. The General Partner shall receive no compensation for its services as
General Partner except as specifically provided in this Agreement.
B. The General Partner may be engaged in other activities and occupations
unrelated to the Partnership, and the General Partner shall be required to
devote only so much of its time as shall be necessary to the proper conduct of
the affairs of the Partnership. Any Partner may engage in and have an interest
in other business ventures of every nature and description, independently or
with others, including, but not limited to, the ownership, financing, leasing,
operation, construction, rehabilitation, renovation, improvement, management and
development of real property whether or not such real property is directly or
indirectly in competition with the Project. Neither the Partnership nor any
other Partner shall have any rights by virtue of this Agreement in and to such
independent ventures or the income or profits derived therefrom, regardless of
the location of such real property and whether or not such venture was presented
to such Partner as a direct or indirect result of its connection with the
Partnership or the Project.
Section 7.3 Business Management and Control; Designation of Managing
General Partner
A. The General Partner shall have the exclusive right to manage the
business of the Partnership and, except as otherwise specifically provided
herein, shall have all of the rights and powers granted to general partners
pursuant to the provisions of the Act. No Limited Partner (except one who may
also be a General Partner, and then only in its capacity as a General Partner)
shall (i) have any authority or right to act for or bind the Partnership, or
(ii) except as required by law, participate in or have any control over the
Partnership business. The Limited Partners hereby consent to the exercise by
the General Partner of the powers conferred on it by this Agreement. Any action
required or permitted to be taken by a corporate General Partner hereunder may
be taken by such of its proper officers or agent as it may validly designate for
such purpose.
B. If at any time there is more than one General Partner, the powers and
duties of the General Partners hereunder shall be exercised in the first
instance by the Managing General Partner who, subject to the terms and
provisions of this Agreement, shall manage the business and affairs of the
Partnership. Each Managing General Partner is hereby authorized to execute and
deliver in the name and on behalf of the Partnership all such documents and
papers (including any required by any Agency or Lender) as such Managing General
Partner deems necessary or desirable in carrying out such duties hereunder. HRI
is hereby designated as the initial Managing General Partner; in the event that
it shall become unable to serve in such capacity or shall cease to be a General
Partner, the remaining General Partners (if any) may from time to time designate
from among themselves by consent one or more substitute or additional Managing
General Partners subject to the consent of the Special Limited Partner. If for
any reason no designation is in effect, the powers of the Managing General
Partners shall be exercised by the majority consent of any remaining General
Partners. Any action required or permitted to be taken by a corporate General
Partner hereunder may be taken by such of its proper officers or agents as it
shall validly designate for such purpose.
C. In the event that a Material Default occurs, and in addition to any
other rights granted to the Special Limited Partner hereunder, including,
without limitation, its right to remove and replace the General Partner pursuant
to the provisions of Section 8 hereof, the Special Limited Partner may, at its
election, proceed to exercise its rights under this Section 7.3 by giving notice
of such Material Default to the General Partner, except in the case of a
Terminating Event with respect to a sole General Partner, in which case no
notice to the General Partner shall be required and the rights of the Special
Limited Partner set forth in this Section shall be immediately exercisable. If
such default is not cured within ten (10) business days of such notice (or cured
within a reasonable time in the event that it is impossible to cure such default
within such 10-day period, provided that the General Partner is diligently and
in good faith seeking to cure such default and there has been no assignment of
or institution of proceedings to foreclose any Mortgage), the Special Limited
Partner may elect to become, or to designate another Person to become, an
additional General Partner with all the rights and privileges of a General
Partner. Upon such election by the Special Limited Partner, the Special Limited
Partner or such other Entity shall automatically become and shall be deemed to
be a General Partner and each Partner hereby irrevocably appoints the Special
Limited Partner (with full power of substitution) as the attorney-in-fact of
such Partner for the purpose of executing, acknowledging, swearing to, recording
and/or filing any amendment to this Agreement necessary or appropriate to
confirm the foregoing. If the Special Limited Partner or such other Person
shall become an additional General Partner as herein stated, its interest in the
Partnership shall not be increased as a result thereof. In the event of the
admission of the Special Limited Partner or such Person as a General Partner
pursuant to this Section 7.3C, and if there are then any other General Partners,
the Special Limited Partner or such other Person shall have managerial rights,
authority and voting rights of fifty one (51%) percent on any matters to be
decided or voted upon by the General Partners or the Managing General Partner,
as the case may be, and the rights and authority of the remaining General
Partners or the Managing General Partner, as the case may be, shall be deemed
equally divided among them.
Section 7.4 Duties and Obligations of the General Partner
A. The General Partner shall use reasonable efforts to carry out the
purposes, business and objectives of the Partnership referred to in Section 2.3,
and shall devote to Partnership business such time and effort as shall be
reasonably required, in its sole discretion, for the Partnership's welfare and
success, including, without limitation, such of its time as may be necessary to
(i) supervise the activities of the Manager, (ii) make inspections of the
Project to determine if the Project is being properly maintained and that
necessary repairs are being made thereto (and to take, or to cause the Manager
to take, such steps as are necessary to effectuate such repairs), (iii) prepare
or cause to be prepared all reports of operations which are to be furnished to
the Partners or which are required by any Lender or HUD, and all taxing bodies
or any other appropriate Governmental Authorities, (iv) subject to any
additional requirements imposed by the Project Documents, cause the Project to
be insured against fire and other risks covered by such insurance in the manner
specified in Exhibit E, (v) obtain and keep in force during the term of the
Partnership business or rental interruption, worker's compensation (if
applicable) and public liability insurance for the benefit of the Partnership
and its Partners in amounts which satisfy the requirements specified in
Exhibit E, (vi) enforce all contracts entered into for the benefit of the
Partnership, and (vii) do all other things which may be necessary to manage the
affairs and business of the Partnership. All of the insurance policies required
by this Section 7.4A shall satisfy the requirements specified in Exhibit E. In
addition, the General Partner shall promptly provide the Special Limited Partner
or its representatives with copies of such insurance policies upon request from
time to time. The General Partner shall review regularly all of the Partnership
and Project insurance coverage to insure that it is adequate and that it
complies with the provisions of Exhibit E. Without limiting the generality of
the foregoing, the General Partner shall review at least annually the insurance
coverage required by Exhibit E to insure that it is in an amount at least equal
to the then current full replacement value of the Project. Further, in the
event of any casualty, to the extent required by this Agreement, and provided
that the insurance proceeds shall be made available therefor, the General
Partner shall repair any damage to the Project which was caused by such event,
so as to restore the Project (as nearly as possible) to the condition and market
value thereof immediately prior to such occurrence.
B. The General Partner shall operate the Project in accordance with the
terms of this Agreement and (i) the Project Documents, (ii) all applicable
statutes, rules and regulations with respect to the Project, and (iii) any other
agreement relating to the Project.
C. The General Partner shall use reasonable efforts consistent with sound
management practice and with the terms of the Project Documents to maximize the
Cash Flow available for distribution to the Partners.
D. The General Partner will use reasonable efforts to take all necessary
actions to ensure that the Project will constitute a "certified historic
structure" within the meaning of Section 47(c)(3)(A) of the Code and, upon
completion of the Rehabilitation, will qualify as a "qualified rehabilitated
building" within the meaning of Section 47(c)(1)(A) of the Code.
E. The General Partner will use its best efforts to take all necessary
actions to ensure that the rehabilitation expenditures incurred in connection
with the Project will constitute "qualified rehabilitation expenditures" within
the meaning of Section 47(g)(2) of the Code, and the Partnership will make the
elections and otherwise comply with the provisions of Sections 46, 47(g), 49 and
168 of the Code and the Treasury Regulations promulgated thereunder.
F. The General Partner will execute and deliver the Facade Donation
Documents and will take such action, and execute and deliver such additional
documents, instruments, certificates or agreements as may be necessary or
desirable to effectuate the terms and intent of the Facade Donation Documents.
G. The General Partner agrees that, except as provided in or contemplated
by the Project Documents, neither it nor any Related Person will at any time
bear the economic risk of loss for payment of any Mortgage Loan. The General
Partner agrees that it will not cause any Limited Partner at any time to bear
the economic risk of loss for payment or performance under the Mortgage Loans;
provided, however, that the Investor Limited Partner shall be liable for the
performance of its obligations set forth in this Agreement.
H. The General Partner shall (i) not store (except in compliance with all
laws, ordinances, and regulations pertaining thereto), or dispose of any
Hazardous Material at the Project, or at or on any other Site or Vessel owned,
occupied, or operated either by any General Partner, any Affiliate of a General
Partner, or any Person for whose conduct any General Partner is or was
responsible; (ii) neither directly nor indirectly transport or arrange for the
transport of any Hazardous Material (except in compliance with all laws,
ordinances, and regulations pertaining thereto); (iii) provide the Investor
Limited Partner with written notice (x) upon any General Partner's obtaining
knowledge of any potential or known release, or threat of release, of any
Hazardous Material at or from the Project or any other Site or Vessel owned,
occupied, or operated by any General Partner, any Affiliate of a General Partner
or any Person for whose conduct any General Partner is or was responsible or
whose liability may result in a lien on the Project; (y) upon any General
Partner's receipt of any notice to such effect from any Federal, state, or other
Governmental Authority; and (z) upon any General Partner's obtaining knowledge
of any incurrence of any expense or loss by any such Governmental Authority in
connection with the assessment, containment, or removal of any Hazardous
Material for which expense or loss any General Partner may be liable or for
which expense or loss a lien may be imposed on the Project.
I. If the General Partner becomes aware of the presence of levels of
Hazardous Material at (or in connection with the operations of) the Project, in
concentrations and under conditions deemed detrimental to human health under any
applicable Hazardous Substance Laws, and/or in quantities or proportions that
exceed safe limits for such substance established by any such Hazardous
Substance Laws, the General Partner shall (i) notify all Partners of such
situation and (ii) take all actions necessary to correct such situation as
expeditiously as possible and to prevent the Project from being in violation of
any Hazardous Substance Laws, provided, however, that the General Partner may
use Partnership funds for such purposes and shall not be required by the
provisions hereof to use its own personal funds, except as may be required
pursuant to the terms of this Agreement.
J. The General Partner represents that it has a net worth sufficient to
satisfy the Designated Net Worth Standard. The General Partner covenants that
(i) during the Initial Operating Period, it will maintain a new worth equal to
or greater than Four Million and No/100 ($4,000,000.00) Dollars determined in
accordance with GAAP and (ii) it will not, without the Consent of the Special
Limited Partner, reduce its net worth including, but not limited to, by making
distributions to any of its principals or other owners of a beneficial interest
in the General Partner, by way of payment of dividends to stockholders,
increasing salaries paid to officers, making any other distributions to
stockholders, officers or directors of an Entity comprising the General Partner,
or taking any other action which would reduce the net worth of the General
Partner below that required to meet the Designated Net Worth Standard.
K. Except as otherwise specifically provided herein, neither the General
Partner, nor any director, employee or agent of any General Partner, its
subcontractors or vendors, shall give to or receive from any director, employee,
agent or other Affiliate of the Investor Limited Partner, any gift or
entertainment of significant value or any commission, fee or rebate in
connection with the organization, business or operations of the Partnership. In
addition, neither the General Partner nor any director, employee, agent or other
Affiliate of any General Partner, nor its subcontractors or vendors, shall enter
into any business arrangement with any director, employee, agent or other
Affiliate of the Investor Limited Partner and the Special Limited Partner who is
not acting as a representative of the Investor Limited Partner or the Special
Limited Partner, or their Affiliates, with prior written notification thereof to
them. Any representatives authorized by the Investor Limited Partner and the
Special Limited Partner may audit any and all records of the General Partner and
the Partnership, and any subcontractors or vendors of either for the sole
purpose of determining whether there has been compliance with the provisions of
this Section 7.4K.
L. In operating the Project, the General Partner shall use reasonable
efforts to obtain all contracts, materials, supplies, utilities and services
required by the Project on the most advantageous terms available to the Project.
The General Partner shall secure and credit to the Partnership, and not receive
or retain for itself, its agents, employees or Affiliates, any discounts,
compensation, rebates or commissions obtainable with respect to any and all
purchases, service contracts, and all other transactions affecting the Project,
including with limitation, any compensation received from the assignment or
transfer of any contracts affecting the Project.
M. The General Partner shall complete or cause to be completed the
rehabilitation and development activities of the Project in a timely and
workmanlike manner in accordance with (x) all applicable requirements of the
Project Documents, (y) all applicable requirements of all appropriate
Governmental Authorities, and (z) the Plans and Specifications.
N. The General Partner or any Affiliates thereof shall have the right to
contract or otherwise deal with the Partnership for the sale of goods or
services to the Partnership in addition to those set forth herein, if (i) the
compensation paid or promised for such goods or services is reasonable (i.e., at
fair market value) and is paid only for goods or services actually furnished to
the Partnership, (ii) the goods or services to be furnished shall be reasonable
for and necessary to the Partnership, (iii) the fees, terms and conditions of
such transaction are at least as favorable to the Partnership as would be
obtainable in an arm's-length transaction, and (iv) no agent, attorney,
accountant or other independent consultant or contractor who also is employed on
a full-time basis by the General Partner or any Affiliate shall be compensated
by the Partnership for his services. Any contract covering such transactions
shall be in writing and shall be terminable without penalty on sixty (60) days
notice. Any payment made to the General Partner or any Affiliate for such goods
or services shall be fully disclosed to the Limited Partners in the reports
required under Section 9. Neither the General Partner nor any Affiliate shall,
by the making of lump-sum payments to any other Person for disbursement by such
other Person, circumvent the provisions of this Section 7.4N.
Section 7.5 Certain Payments to the Developer and its Affiliates
A. As a fee for its services in connection with the development of the
Property, the Developer shall receive a fee (the "Development Fee") in the
amount set forth in the Development Agreement. If the Development Fee has not
been fully paid by the fifteenth anniversary of the Certificate of Occupancy
Date, the General Partner shall make a Project Cost Loan to the Partnership in
an amount sufficient to enable the Partnership to pay any unpaid portion of the
Development Fee.
B. The Partnership also shall enter into the Incentive Management Agreement
with HRI under which HRI shall agree to provide consultative services to the
Partnership and Project, to undertake to perform such bookkeeping, financial and
reporting services to be performed under Section 9 (other than those to be
performed by the Accountants) as the Partnership may request, and to perform the
other services provided in the Incentive Management Agreement. The Incentive
Management Agreement shall provide that the sole compensation payable to HRI for
such services shall be the Incentive Management Fee if and to the extent funds
are available for the payment thereof out of Cash Receipts of the Partnership,
which fees for each Fiscal Year shall be calculated in the manner specified in
the Incentive Management Agreement.
Section 7.6 Fiduciary Duty of General Partner
The General Partner shall have a fiduciary responsibility to the Limited
Partners for the safekeeping and use of all Partnership Property, whether or not
in its immediate possession or control, and shall not use of or dispose of
Partnership Property in any manner except for the Partnership's exclusive
benefit. The General Partner shall not contract away its fiduciary duties under
the common law of agency.
Section 7.7 Indemnification
A. No General Partner or Affiliate of a General Partner shall have any
liability to the Partnership or to any Partner for any loss suffered by the
Partnership which arises out of any action or inaction of such General Partner
or such Affiliate if such General Partner or Affiliate, in good faith,
determined that such course of conduct was in the best interest of the
Partnership and such course of conduct did not constitute gross negligence or
wilful misconduct of such General Partner or such Affiliate. To the full extent
permitted by law, each General Partner and his or its Affiliates shall be
indemnified by the Partnership against any losses, judgments, liabilities,
expenses and amounts paid in settlement of any claims sustained by it in
connection with the Partnership, provided that the same were not the result of
gross negligence or wilful misconduct on the part of such General Partner or
such Affiliate and were the result of a course of conduct which such General
Partner or Affiliate, in good faith, determined was in the best interest of the
Partnership. Any indemnity under this Section 7.7 shall be provided out of and
to the extent of Partnership assets only, and no Limited Partner shall have any
personal liability on account thereof.
B. Notwithstanding the provisions of Section 7.7A, no General Partner, no
Person acting as a broker-dealer, nor any Affiliate thereof, shall be
indemnified for any losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws unless (i) there has been
a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the court approves
indemnification of litigation costs, or (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee and the court approves indemnification of litigation
costs, or (iii) a court of competent jurisdiction approves a settlement of the
claims against a particular indemnitee and finds that indemnification of the
settlement and related costs should be made.
C. The Partnership shall not incur the costs of that portion of any
insurance, other than public liability insurance, which insures any party
against any liability as to which such party is herein prohibited from being
indemnified. Nothing contained in this Section 7.7, however, shall restrict the
right of the Partnership to (i) indemnify unaffiliated parties who will be
performing services on behalf of the Partnership, including but not limited to
consultants, engineers and experts, pursuant to any contract entered into by a
General Partner on behalf of the Partnership in order to carry out the
objectives of the Partnership, or (ii) apply Partnership funds, including,
without limitation, proceeds of public liability insurance in favor of the
Partnership, to cover damage to property or personal injuries to unaffiliated
parties.
Section 7.8 Liability of General Partner to Limited Partners
Except as otherwise specifically provided in this Agreement, no General
Partner or Affiliate thereof shall be liable, responsible or accountable for
damages or otherwise to any Limited Partner for any act performed within the
scope of the authority conferred by this Agreement, except for acts of gross
negligence or wilful misconduct or for damages arising from any material
misrepresentation or breach of any covenant or warranty set forth herein. In
any instance in which a General Partner or Affiliate thereof is in doubt as to
the propriety of any proposed action or omission under the terms of this
Agreement, such General Partner or Affiliate may, but shall not be under any
duty to, seek the ratification of such action or omission by the Consent of the
Investor Limited Partners; if such Consent of the Investor Limited Partner is
obtained thereto, such General Partner or Affiliate shall be fully protected in
relying thereon, and actions or omissions in reliance thereon shall not be
deemed to be a breach of any provisions of this Agreement.
Section 7.9 Tax Matters Partner
A. The Tax Matters Partner ("TMP") for the Partnership shall be the General
Partner (or, if there is a Managing General Partner, the Managing General
Partner) serving in such capacity from time to time.
B. The TMP shall have the right to resign as the TMP by giving thirty (30)
days written notice to each Partner, provided there is another General Partner
willing to serve in such capacity. Upon the resignation, death, legal
incompetency or Bankruptcy of the Person serving as the TMP, any successor to
the interest of the TMP pursuant to the applicable provisions of this
Section 7.9 shall be designated as the successor TMP, but such designee shall
not become the TMP until the designation of such Person has been approved by the
Consent of the Investor Limited Partners, which consent shall not be
unreasonably withheld or delayed.
C. The TMP shall employ experienced tax counsel to represent the
Partnership in connection with any audit or investigation of the Partnership by
the IRS, and in connection with all subsequent administrative and judicial
proceedings arising out of such audit. The fees and expenses of such counsel
shall be a Partnership expense and shall be paid by the Partnership. Such
counsel shall be responsible for representing the Partnership; it shall be the
responsibility of the General Partner and of the Investor Limited Partner, at
their expense, to employ tax counsel to represent their respective separate
interests.
D. The TMP shall keep the Partners informed of all administrative and
judicial proceedings, as required by Section 6623(g) of the Code, and shall
furnish to each Partner who so requests in writing, a copy of each notice or
other communication received by the TMP from the IRS (except such notices or
communications as are sent directly to such requesting Partner by the IRS). All
third party costs and expenses incurred by the TMP in serving as the TMP shall
be Partnership expenses and shall be paid by the Partnership, provided, however,
that if the Partnership does not have sufficient funds to pay such costs and
expenses, the Partners shall make additional Capital Contributions to the
Partnership to pay such costs and expenses, pro rata in accordance with their
respective interests in Operating Profits and Losses, within 15 days after
notice from the General Partner.
E. The TMP shall not have the authority, unless such action has been
approved by the Consent of the Investor Limited Partner, to do all or any of the
following:
(i) to enter into a settlement agreement with the IRS which purports
to bind partners other than the TMP,
(ii) to file a petition as contemplated in Section 6226(a) or 6228 of
the Code,
(iii) to intervene in any action as contemplated in Section 6226(b) of
the Code,
(iv) to file any request contemplated in Section 6227(b) of the Code,
or
(v) to enter into an agreement extending the period of limitations
as contemplated in Section 6229(b)(1)(B) of the Code.
F. The relationship of the TMP to the Investor Limited Partner is that of a
fiduciary, and the TMP has a fiduciary obligation to perform its duties in such
manner as will serve the best interests of the Partnership and the Investor
Limited Partner.
G. The Partnership shall indemnify the TMP (including the officers and
directors of a corporate TMP) against judgments, fines, amounts paid in
settlement, and expenses (including attorneys' fees) reasonably incurred by them
in any civil, criminal or investigative proceeding in which they are involved or
threatened to be involved by reason of being the TMP, provided that the TMP
acted in good faith, within what is reasonably believed to be the scope of its
authority and for a purpose which it reasonably believed to be in the best
interests of the Partnership or the Partners. The TMP shall not be indemnified
under this provision against any liability to the Partnership or its Partners to
any greater extent than the indemnification allowed by Section 7.7 of this
Agreement. The indemnification provided hereunder shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any
applicable statute, agreement, vote of the Partners, or otherwise.
Section 7.10 Access and Reports
The General Partner shall permit the Investor Limited Partner and Special
Limited Partner and their representatives to have access to the Project at all
reasonable times during normal business hours and to examine all agreements and
plans and specifications relating to the Project and shall deliver copies and
such reports as may reasonably be required by them. The General Partner shall
promptly provide the Investor Limited Partner and Special Limited Partner with
copies of all correspondence, notices and reports sent pursuant to and received
under the Project Documents or from any Governmental Authority with respect to
the Project, together with copies of all other correspondence which a prudent
investor would wish to examine in connection with a similar transaction.
Section 7.11 Representations and Warranties of the General Partner
The General Partner hereby represents, warrants and covenants to and with
the Partnership and the Investor Limited Partner and Special Limited Partner
that as of the date of this Agreement:
A. The Partnership shall be a duly organized limited partnership validly
existing under the laws of the State and will comply with all recording
requirements with the proper authorities in the State necessary to establish the
limited liability of the Investor Limited Partner and Special Limited Partner as
provided herein.
B. The General Partner is a duly organized corporation validly existing
under the laws of the State and has full power and authority to perform its
obligations under the Development Agreement and the Project Documents and/or
this Agreement, as the case may be.
C. No litigation, demand, investigation, claim or proceeding against the
Partnership or the General Partner or any other litigation or proceeding
directly affecting the Project is pending or, to the Best Knowledge of the
General Partner, threatened, before any court, administrative agency or other
Governmental Authority which would, if adversely determined, have a material
adverse effect on the Partnership or the General Partner, or their respective
business or operations.
D. No default by the General Partner or any Affiliate thereof having any
relationship with the Project, or the Partnership, in any material respect has
occurred or is continuing (nor has there occurred any continuing event which,
with the giving of notice or the passage of time or both, would constitute such
a default in any material respect) under any of the Project Documents, and the
Project Documents are in full force and effect (except to the extent fully
performed in accordance with their respective terms).
E. No Partner or Related Person thereof directly or indirectly bears the
economic risk of loss with respect to the payment of principal and interest on
the Mortgage Loan.
F. All material building, zoning, health, safety, business and other
applicable certificates, permits and licenses necessary to permit the
construction, use, occupancy and operation of the Project have been or will, at
the time required, be obtained and maintained (other than, prior to completion
of the construction or rehabilitation of the Project or a specified portion
thereof, such as are issuable only on the completion of the construction or
rehabilitation of the Project or such specified portion thereof); and neither
the Partnership nor any General Partner has received any notice or has any
knowledge of any violation with respect to the Project of any law, rule,
regulation, order or decree of any Governmental Authority having jurisdiction
which would have a material adverse effect on the Project or the construction,
use or occupancy thereof, except for violations which have been cured and
notices or citations which have been withdrawn or set aside by the issuing
agency or by an order of a court of competent jurisdiction.
G. The Partnership has good and marketable title to the Project, free and
clear of any liens, charges or encumbrances other than the Mortgages, matters
set forth in the Title Policy, encumbrances the Partnership is permitted to
create under the terms of this Agreement, and mechanics' or other liens which
have been bonded against in such a manner as to preclude the holder of such lien
from having any recourse to the Property or the Partnership for payment of any
debt secured thereby.
H. The execution and delivery of all instruments and the performance of all
acts heretofore or hereafter made or taken or to be made or taken, pertaining to
the Partnership or the Project by the General Partner have been or will be duly
authorized by all necessary action, and the consummation of any such
transactions with or on behalf of the Partnership will not constitute a breach
or violation of, or a default under, the articles of organization or operating
agreement of the limited liability company or any agreement by which the limited
liability company or any of its properties is bound, nor constitute a violation
of any law, administrative regulation or court decree.
I. No Material Default has occurred and/or is continuing.
J. No Event of Bankruptcy has occurred as to the General Partner.
K. The General Partner satisfies the Designated Net Worth Standard.
L. The General Partner has disclosed all material facts related to the
Project and all material transactions in connection with the Project to the
Investor Limited Partner.
M. To the Best Knowledge of the General Partner, on the Certificate of
Occupancy Date the Project will have no material design, maintenance or
construction defects.
N. There are no mechanic's liens recorded against the Project or the
Property, and, to the Best Knowledge of the General Partner, no Person has
threatened to assert or record any such mechanic's lien.
O. Other than obligations incurred in the ordinary course of business, as
of the date hereof, the Partnership has no material outstanding obligations
except for the Mortgage, the Mortgage Loan, the Development Agreement, the
Architectural Agreement, the Construction Contract, the Management Agreement,
the Incentive Management Agreement, and the other material obligations reflected
in the Project Documents and this Agreement.
P. The Partnership, except to the extent that it is protected by insurance
and excluding any risk borne by the Lender, bears the sole risk of loss if the
Project is destroyed or condemned or there is a diminution in the value of the
Project.
Q. The Partnership has not been notified by a federal, state or municipal
agency that it is in Material Violation of any Hazardous Substance Laws and that
such Material Violation is continuing, nor to the Best Knowledge of the General
Partner does such a Material Violation exist, nor is the General Partner aware
of a condition which should, in the exercise of due diligence, cause it to
investigate the existence of an environmental condition of such a nature as
described above. As used in this section, the term "Material Violation" means
any violation of a Hazardous Substance Law (1) which jeopardizes or could
jeopardize the ability of the Partnership to develop, own, or operate the
Project for its intended purposes, and (2) the correction of which will require
the Partnership to spend funds beyond those likely to be available to the
Partnership for such purpose in the ordinary course of events.
R. No General Partner, Affiliate of a General Partner or Person for whose
conduct any General Partner is or was legally responsible has ever: (A) owned,
occupied, or operated a Site or Vessel on which any Hazardous Material was or is
stored (except if such storage was or is at all times in substantial compliance
with all laws, ordinances and regulations pertaining thereto); (B) caused or was
legally responsible for any release or threat of release of any Hazardous
Material; or (C) received notification from any federal, state or other
Governmental Authority of (x) any potential, known, or threat of release of any
Hazardous Material from the Project or any other Site or Vessel owned, occupied,
or operated either by any General Partner, Affiliate of a General Partner, or
other Person for whose liability any General Partner, Affiliate or other Person
is or was legally responsible which may result in a lien on the Project; or
(y) the incurrence of any expense or loss by any such Governmental Authority or
by any other Person in connection with the assessment, containment, or removal
of any release or threat of release of any Hazardous Material from the Project
or any such Site.
S. To the Best Knowledge of the General Partner, and except as described in
Comprehensive Environment Report and the Phase I environmental survey for the
Project, true and accurate copies of which have been furnished to the Investor
Limited Partner, no Hazardous Material was ever or is now stored on (except to
the extent any such storage was at all times in substantial compliance with all
laws, ordinances, and regulations pertaining thereto), transported, or disposed
of on the Property.
T. The Partnership has no employees other than those working at the Project
and shall have no others.
U. As of the Admission Date, all accounts of the Partnership required to be
maintained under the terms of the Project Documents, including, without
limitation, any Partnership Reserves, are currently funded to levels required by
any Governmental Authority with jurisdiction over the Partnership or the
Project.
Section 7.12 Indemnification
A. In the event that the General Partner breaches any of its
representations, warranties or covenants contained in Section 7.11 above, the
General Partner shall indemnify and hold the Investor Limited Partner harmless
from and against any and all Adverse Consequences which the Investor Limited
Partner suffers or incurs, or to which the Investor Limited Partner becomes
subject, resulting from, arising out of, relating to, in the nature of or caused
by such breach, provided, however, that the General Partner shall not have any
obligation to indemnify the Investor Limited Partner from and against any
Adverse Consequences resulting from, arising out of, relating to, in the nature
of or caused by the breach of any such representations, warranties, or covenants
unless and until the Investor Limited Partner has suffered aggregate losses by
reason of all such breaches in excess of Twenty Five Thousand and No/100
($25,000.00) Dollars, at which point the General Partner shall be obligated to
indemnify the Investor Limited Partner from and against all such aggregate
losses (including losses relating back to the first dollar of loss).
B. If any third party shall notify the Investor Limited Partner with
respect to any matter which may give rise to a claim for indemnification against
any General Partner under this Section 7.12, the Investor Limited Partner shall
notify the General Partner thereof promptly; provided, however, that no delay on
the part of the Investor Limited Partner in notifying the General Partner shall
relieve the General Partner from any liability or obligation hereunder unless
(and then solely to the extent) the General Partner thereby is damaged. In the
event that the General Partner notifies the Investor Limited Partner within
fifteen (15) days after the Investor Limited Partner has given notice of the
matter that the General Partner is assuming the defense thereof, (i) the General
Partner will defend the Investor Limited Partner against the matter with counsel
of its choice reasonably satisfactory to the Investor Limited Partner, (ii) the
Investor Limited Partner may retain separate co-counsel at its sole cost and
expense (except that the General Partner will be responsible for the fees and
expenses of the separate co-counsel to the extent that the Investor Limited
Partner concludes reasonably that the counsel the General Partner has selected
has a conflict of interest), (iii) the General Partner will not consent to the
entry of any judgment or enter into any settlement with respect to the matter
without the Consent of the Investor Limited Partner, which shall not be
unreasonably withheld or delayed, and (iv) the General Partner will not consent
to the entry of any judgment with respect to the matter, or enter into any
settlement which does not include a provision whereby the plaintiff or claimant
in the matter releases the Investor Limited Partner from all liability with
respect thereto, without the Consent of the Investor Limited Partner, which
shall not be unreasonably withheld or delayed. In the event that the General
Partner does not notify the Investor Limited Partner within fifteen (15) days
after the Investor Limited Partner has given notice of the matter that the
General Partner is assuming the defense thereof, however, the Investor Limited
Partner may defend against, or enter into any settlement with respect to, the
matter in any manner it reasonably may deem to be appropriate.
SECTION 8: REMOVAL OF THE GENERAL PARTNER
Section 8.1 General
In addition to any other rights granted to the Investor Limited Partner
hereunder, the Special Limited Partner shall have the right to remove and
replace the General Partner in accordance with the provisions of Section 8.3 if
a Material Default occurs.
Section 8.2 Sole Recourse
Except as otherwise provided in Section 7.12, the removal of the General
Partner in accordance with the provisions of Section 8.3 shall be the sole
recourse of the Special Limited Partner in the event of a Material Default. Any
such removal and replacement shall be subject to the applicable provisions of
the Project Documents and to the receipt of any Requisite Approvals.
Section 8.3 Removal of the General Partner
A. In the event that the Special Limited Partner determines to remove the
General Partner pursuant to Section 8.1, the Special Limited Partner shall
notify the General Partner in writing, within five (5) days after such
determination, of the Material Default that is the cause for the removal of the
General Partner. The General Partner shall have thirty (30) days from receipt
of the notice to cure the Material Default; provided, however, that if a
Material Default, other than a monetary default, cannot be reasonably cured
within thirty (30) days, it shall be sufficient if the General Partner commences
the cure within thirty (30) days and proceeds to cure diligently thereafter. If
the General Partner fails to cure within the specified time period, the Special
Limited Partner shall notify the General Partner of the effective date of its
removal promptly after the cure period has expired. Each Partner hereby
irrevocably appoints the Special Limited Partner (with full power of
substitution) as the attorney-in-fact of such Partner for the purpose of
executing, acknowledging, swearing to, recording and/or filing any amendment to
this Agreement necessary or appropriate to confirm the foregoing.
B. If the General Partner is removed pursuant to this Section 8.3, the
Partnership shall pay to the General Partner an amount equal to the sum of
(i) any fees earned through the date of removal due to the General Partner or
its Affiliates under Section 7.5, (ii) an amount equal to the General Partner's
positive Capital Account balance, if any, following a deemed sale of the Project
and a deemed liquidation of the Partnership (but prior to any deemed
distributions upon liquidation), and (iii) the principal balance and any accrued
but unpaid interest on any Operating Deficit Loans and Project Cost Loans, minus
an amount equal to any loss or damage suffered by the Partnership or the
Investor Limited Partner as a result of the Material Default creating the right
of the Special Limited Partner to remove the General Partner pursuant to this
Section 8.3.
C. For purposes of this Section 8.3C, the net proceeds from a deemed sale
of the Project shall be equal to the fair market value of the Project plus the
fair market value of all other Partnership property, including but not limited
to cash and cash equivalents, less (i) a sales commission equal to three (3%)
percent of the fair market value of the Project which shall be deemed to be
payable to a third party and (ii) the outstanding balance of the Mortgage Loan
and any other obligations of the Partnership to third parties.
D. The fair market value of the Project shall be determined as follows. As
soon as practicable and in any event within thirty (30) days following the
notice from the Special Limited Partner to the General Partner specified in the
penultimate sentence of Section 8.3A above, the General Partner and the Special
Limited Partner shall select a mutually acceptable independent MAI appraiser.
In the event the parties are unable to agree upon an appraiser within such
thirty (30) day period, the General Partner and the Special Limited Partner
shall each select an appraiser. If the difference between the two appraisals is
within ten (10%) percent of the lower of the two appraisals, the fair market
value shall be the average of the two (2) appraisals. If the difference between
the two (2) appraisals is greater than ten (10%) percent of the lower of the two
(2) appraisals, then the two appraisers shall jointly select a third appraiser
whose determination of fair market value shall be deemed binding on all parties.
If the two (2) appraisers are unable jointly to select a third appraiser, either
the General Partner or the Special Limited Partner may, upon written notice to
the other, apply to the individual who is, at the time, the most senior in
service, active Judge of the United States District Court for the Eastern
District of Louisiana for the selection of the third appraiser who shall then
participate in such appraisal proceeding, and who shall be selected from a list
of names of M.A.I. appraisers submitted by the General Partner and the Special
Limited Partner. Each list of names of appraisers shall be submitted within ten
(10) written days after the date on which the appraisal proceeding is invoked,
or will be disregarded and the appraiser shall be selected from the list
provided. The Partnership shall pay the cost of any appraiser(s) selected
pursuant to this Section 8.3D.
E. In the event of the removal of the General Partner pursuant to the
provisions of this Section 8.3, any amounts due to the General Partner pursuant
to the provisions of Section 8.3B above shall be payable from Cash Flow prior to
any other distributions or payments to the Partners under Section 6 hereof. The
obligation of the Partnership to make such payments shall be evidenced by a
recourse non-interest bearing promissory note issued by the Partnership and
secured by a security interest in the Partnership Interest(s) of the continuing
General Partner(s) and the Investor Limited Partner.
F. Upon the removal of the General Partner, the General Partner shall be
relieved of all of its future obligations to the Partnership, and the
Partnership shall provide the removed General Partner with a written release
confirming such release.
G. In the event that the General Partner is removed pursuant to this
Section 8.3, then the Special Limited Partner may designate a Person or Persons
to become the successor General Partner or Partners replacing the removed
General Partner, with the approval of any Person required under the Project
Documents and provided that any such successor General Partner or Partners shall
agree to be bound by the Project Documents, and any other documents required in
connection therewith and by the provisions of this Agreement, to the same extent
and on the same terms as any other General Partner(s).
SECTION 9: BOOKS AND REPORTING, ACCOUNTING, TAX ELECTIONS, ETC.
Section 9.1 Books and Reporting
A. The General Partner shall keep or cause to be kept for the term of the
Partnership a complete and accurate set of books and supporting documentation of
transactions with respect to the conduct of the Partnership's business. The
books of the Partnership shall be kept on the accrual basis and shall at all
times be maintained at the principal office of the Partnership. Each of the
Partners and its duly authorized representatives shall have the right to examine
the books of the Partnership and all other records and information concerning
the operation of the Project, from time to time without prior notice during
regular business hours provided that such examination shall not unreasonably
disrupt or interfere with the Partnership's business or operations.
B. The books of the Partnership shall be examined in accordance with
generally accepted auditing standards annually as of the end of each Fiscal Year
of the Partnership by the Accountants. The General Partner shall determine and
prepare a balance sheet as of the end of each such Fiscal Year and statements of
income, partners' equity and changes in financial position for such Fiscal Year.
Said balance sheet and statements shall be accompanied by the opinion of the
Accountants that said balance sheet and statements have been prepared in
accordance with generally accepted accounting principles applied consistently
with prior periods, identifying any matters to which the Accountants take
exception and stating, to the extent practicable, the effect of each such
exception on such financial statements. As a note to such financial statements,
the General Partner shall prepare (or shall cause to have prepared) a schedule
of all loans to the Partnership, setting forth the section of this Agreement
under which such debt was incurred and the purpose for which such loan was
applied by the Partnership and such schedule will be reviewed by the
Accountants. Such schedule shall demonstrate that loans have been made, used,
carried on the books of the Partnership (and repaid, if applicable) in
accordance with the provisions of this Agreement. In addition, after the first
Fiscal Year in which the Accountants examine the financial statements of the
Partnership after the Completion Date, the depreciation schedule for that Fiscal
Year and all future Fiscal Years, together with the depreciation worksheet,
shall be prepared by the General Partner or its designee, reviewed by the
Accountants and furnished to the Investor Limited Partner. The General Partner
shall, promptly upon receipt of such balance sheet and statements and in any
event within sixty (60) days after the end of each Fiscal Year, transmit to the
Investor Limited Partner a copy thereof.
C. The Accountants also shall review and sign the federal and state income
tax returns of the Partnership. The General Partner or its designee shall
complete the books of the Partnership in such time as will allow the
Accountants to complete such tax returns within ninety (90) days after the end
of such Fiscal Year. The General Partner shall cause such tax returns to be
filed within such time periods and shall immediately upon the filing thereof
transmit to the Investor Limited Partner a copy of the complete federal
Partnership tax return (i.e., Form 1065 and all accompanying schedules,
including Form K-l) and all state income tax returns. In the event that any
such items will not be delivered within the time limits set forth herein, the
General Partner shall immediately notify the Investor Limited Partner, and shall
furnish it with copies of any extensions.
D. The reports and estimates described in this Section 9.1 shall clearly
indicate the methods under which they were prepared and shall be made at the
expense of the Partnership.
E. An annual pro forma operating budget shall be prepared by the General
Partner and furnished to the Investor Limited Partner within ninety (90) days
after the beginning of each Fiscal Year. In addition, the General Partner shall
prepare and furnish to the Investor Limited Partner an estimate of the Profits
and Losses of the Partnership for Federal tax purposes for the current Fiscal
Year not later than September 30 of each year.
F. The General Partner shall send to the Investor Limited Partner no later
than forty-five (45) days following the close of each calendar quarter a
financial report providing the following information (which need not be
audited): (i) a balance sheet as at the end of such quarter; and (ii) a
statement of income for such quarter.
G. The General Partner may from time to time change the Accountants for the
Partnership to another firm of certified independent accountants; provided,
however, that unless (i) the proposed new Accountants are a firm of nationally
recognized standing, and (ii) prior to any such change the General Partner shall
have delivered to the Investor Limited Partner a certificate to the effect that
such change has not been brought about as a result of any dispute over
Partnership accounting practices and procedures, such change in Accountants
shall require the Consent of the Investor Limited Partner, which Consent shall
not be unreasonably withheld or delayed.
<PAGE>
Section 9.2 Bank Accounts
The bank accounts of the Partnership shall be maintained in such banking
institutions authorized to do business in the State or, subject to any Requisite
Approvals, such other states as the General Partner shall determine, except that
the bank account for the Operating Reserve and all Reserves required by the
Building Loan Agreement shall be maintained at First National Bank of Commerce,
and withdrawals shall be made on such signature or signatures as the General
Partners shall determine, with the Consent of the Investor Limited Partner. The
Partnership's funds shall not be commingled with the funds of any other Person
and shall not be used except for the business of the Partnership. All deposits
(including security deposits and other funds required by any Lender to be placed
in escrow and other funds not needed in the operation of the Partnership's
business) shall be deposited, to the extent permitted under the Project
Documents, in interest-bearing accounts or invested in obligations of or
guaranteed by the United States, any state thereof, or any agency, municipality
or other political subdivision of any of the foregoing, commercial paper
(investment grade), certificates of deposit and time deposits in commercial
banks with unencumbered capital and surplus in excess of $50,000,000 and in
mutual (money market) funds investing in any or all of the foregoing; provided,
however, that any funds required to be placed in escrow by any Lender shall be
controlled by such Lender and the General Partner shall not be permitted to make
any withdrawal from such funds without the express written consent of such
Lender to the extent required.
Section 9.3 Tax Elections
Subject to the provisions of Section 9.4, all elections required or
permitted to be made by the Partnership under the Code shall be made by the
General Partner in such manner as it considers to be most advantageous to the
Investor Limited Partner.
Section 9.4 Special Adjustments
A. In the event of a Transfer of all or any part of the Partnership
Interest of any Partner, the Partnership shall elect, pursuant to Section 754
of the Code (or corresponding provisions of succeeding law) to adjust the basis
of Partnership assets. Any adjustments made pursuant to Section 754 shall
affect only the successor in interest to the transferring Partner. Each Partner
will furnish the Partnership with all information necessary to give effect to
such election.
B. If, as a result of an adjustment made by the IRS and accepted by the
Partnership any item shall be capitalized, then the depreciation or cost
recovery for the amount so capitalized shall be appropriately allocated, as
determined by the Accountants, to those Partners affected by the adjustment.
Section 9.5 Fiscal Year
The Fiscal Year of the Partnership shall be the calendar year, or such other
year as may be required by the Code.
SECTION 10: WITHDRAWAL OF A GENERAL PARTNER;
NEW GENERAL PARTNERS
Section 10.1 Voluntary Withdrawal
A. The General Partner shall not have the right to withdraw voluntarily
from the Partnership or otherwise to Transfer all or a portion of its
Partnership Interest without the Consent of the Investor Limited Partner.
B. Notwithstanding the foregoing, a General Partner may at any time propose
to the Investor Limited Partner a Person to serve as his or its successor, or if
at such time there be more than one General Partner, to serve as a successor to
one or more of the General Partners desiring to withdraw. If the Consent of the
Investor Limited Partner is obtained, and all Requisite Approvals are obtained
to such withdrawal and the admission of such successor, all Partners hereby
agree that this Agreement shall be appropriately amended to effect such
withdrawal and admission.
Section 10.2 Obligation to Continue
In the event of the occurrence of a Terminating Event with respect to any
General Partner, the remaining General Partners, if any, and any successor
General Partner, shall have the obligation to elect to continue the business of
the Partnership employing its assets and name, all as contemplated by the laws
of the State. Within ten (10) days after the occurrence of such Terminating
Event, the remaining General Partners, if any, shall notify the Investor Limited
Partner and the Special Limited Partner thereof.
Section 10.3 Successor General Partner
A. Upon the occurrence of any Terminating Event referred to in
Section 10.2, the remaining General Partners may (but are not required to)
designate a Person to become a successor General Partner to the General Partner
as to whom such event shall have occurred. Any Person so designated, subject to
the Consent of the Investor Limited Partner (and, if required by the Act or any
other applicable law, the consent of any other Partner so required), shall
become a successor General Partner upon its written agreement to be bound by the
Project Documents and by the provisions of this Agreement.
B. If any Terminating Event referred to in Section 10.2 shall occur at a
time when there is no remaining General Partner and no successor becomes a
successor General Partner pursuant to the preceding provisions of this Section
10.3, then the Investor Limited Partner shall have the right to designate a
Person to become a successor General Partner upon his or its written agreement
to be bound by the Project Documents and by the provisions of this Agreement.
C. If the Investor Limited Partner elects to reconstitute the Partnership
pursuant to this Section 10.3 and admit a successor General Partner pursuant to
this Section 10.3, the relationship of the parties in the reconstituted
Partnership shall be governed by this Agreement.
Section 10.4 Interest of Predecessor General Partner
A. Except as provided in Section 10.3, no assignee or transferee of all or
any part of the Partnership Interest of a General Partner shall have any
automatic right to become a General Partner. Upon the designation of a
successor General Partner (if any) pursuant to Section 10.3, such Partner shall
have the option to acquire the predecessor General Partner's Partnership
Interest by paying to such General Partner or its representatives the fair
market value of such Partnership Interest (provided that if the predecessor
General Partner is in violation of any of the covenants or undertakings
contained in this Agreement, or has violated any representation or warranty
contained herein, the designated successor General Partner may pay such amount
into escrow until such violation has been corrected). Any dispute as to such
fair market value or as to the final disposition of such amount shall be settled
by Arbitration.
B. If no successor General Partner is designated or if the designated
successor General Partner of the predecessor General Partner does not desire to
purchase the Partnership Interest of the predecessor General Partner, such
Partnership Interest of the predecessor General Partner shall be deemed to be
that of a Special Class Limited Partner and the holder thereof shall be entitled
only to such rights as the assignee of a Limited Partnership Interest may have
as such under the provisions of Section 11.4 hereof, the Act and other
applicable laws of the State.
C. Upon the occurrence of a Terminating Event as to any General Partner,
such General Partner (the "Retired General Partner") shall be deemed to have
automatically Transferred to the remaining General Partners, in proportion to
their respective General Partnership interests, or, if there shall be no
remaining General Partners, then to the Partnership for the benefit of the
remaining Partners, all or such portion of the General Partnership Interest of
such Retired General Partner which, when aggregated with the existing General
Partnership Interests of all such remaining General Partners, if any, will be
sufficient to assure such remaining General Partners and any successor General
Partner a one (1%) percent interest in all Profits, Losses, Tax Credits and
Distributions of the Partnership under Section 6 hereof. No documentation shall
be necessary to effectuate such Transfer, which shall be automatic. That
portion of the General Partnership Interest of the Retired General Partner which
shall not have been Transferred pursuant to this Section 10.4C shall be retained
by such Retired General Partner (or pass to legal representatives of a deceased
General Partner) who or which shall have the status of a Special Class Limited
Partner, with the right to receive that share of the Profits, Losses, Tax
Credits, and Distributions of the Partnership to which the Retired General
Partner as such, would have been entitled had such Terminating Event not
occurred, reduced to the extent of the General Partnership Interest transferred
hereunder, but such Retired General Partner (or his legal representatives in the
case of a deceased General Partner) shall not be considered to be a Limited
Partner for the purpose of sharing the benefits allocated to the Limited
Partners under Section 6 hereof and shall not participate in the votes or
consents of the Limited Partners hereunder. No consideration shall be paid to
such Retired General Partner by the remaining General Partners or the
Partnership in the event of a Transfer pursuant to this Section 10.4C.
D. For the purposes of Section 6 hereof, the effective date of the Transfer
pursuant to the provisions of Section 10.4C of the Partnership Interest of a
Retired General Partner shall be deemed to be the date on which such Terminating
Event occurs.
E. Anything herein contained to the contrary notwithstanding, any General
Partner who withdraws voluntarily in violation of Section 10.1 shall remain
liable for all of its obligations under this Agreement, for its obligations
under the Project Documents, for all its other obligations and liabilities
hereunder incurred or accrued prior to the date of its withdrawal and for any
loss or damage which the Partnership or any of its Partners may incur as a
result of such withdrawal, except for any loss or damage attributable to the
activities of the remaining and/or successor General Partners subsequent to such
withdrawal.
F. The estate (which term, for purposes of this Section 10.4F, shall
include the heirs, distributees, estate, executors, administrators, guardian,
committee, trustee or other personal representative) of a General Partner who is
a natural person as to whom a Terminating Event has occurred shall be and remain
liable for all his liabilities and obligations hereunder, except as provided in
this Section 10.4F. In the event of the death, insanity or incompetency of a
General Partner who is a natural person, his estate shall remain liable for all
his obligations and liabilities hereunder incurred or accrued prior to the date
of such event, and for any damages arising out of any breach of this Agreement
by him, but his estate shall not have any obligation or liability on account of
the business of the Partnership or the activities of the other General Partners
after his death, insanity or incompetency unless it elects to become a General
Partner pursuant to Section 10.3A.
Section 10.5 Designation of New General Partners
A. The General Partner may, with the written consent of all Partners, at
any time designate one or more new General Partners with such General
Partnership Interest(s) as the General Partner may specify.
B. Any new General Partner shall, as a condition to its admission to
the Partnership and of receiving any interest in Partnership Property, agree to
comply with the terms of the Project Documents and by the provisions of this
Agreement to the same extent and on the same terms as any other General Partner.
Section 10.6 Amendment of Agreement; Approval of Certain Events
A. Upon the admission of a new General Partner, pursuant to the preceding
provisions of this Section 10, the Schedule shall be amended to reflect such
admission and an amendment to the Agreement, also reflecting such admission,
shall be filed in the manner and to the extent required by the Act.
B. Each Partner hereby consents to and authorizes any admission or
substitution of a General Partner or any other transaction, including, without
limitation, the continuation of the Partnership business, which has been
authorized by the requisite percentage of Partners under the provisions of this
Agreement, subject to the provisions of Section 10.7, and hereby ratifies and
confirms each amendment of this Agreement necessary or appropriate to give
effect to any such transaction.
Section 10.7 Admission of a General Partner
Notwithstanding any other provisions of this Agreement, no Person shall be
admitted as an additional or successor General Partner without the written
approval of all Partners unless prior to consummation of such transaction the
Limited Partners shall have received an opinion of Special Counsel to the effect
that the consummation of such transaction will not cause (i) the Partnership to
be treated as an "association" for Federal income tax purposes, or (ii) the
Limited Partners to be deemed to be taking part in the control of the business
of the Partnership within the meaning of the Act.
SECTION 11: TRANSFER OF LIMITED PARTNERSHIP INTERESTS
Section 11.1 Right to Assign
A. Except by operation of law, no Limited Partner shall have the right to
Transfer its Partnership Interest, or any other interest which it has in the
capital, assets or property of the Partnership, or to enter into any agreement
as a result of which any Person shall become interested with it in the
Partnership, without the written consent of the General Partner, which may be
given or withheld in the sole discretion of the General Partner for any reason
or for no reason whatsoever.
B. Notwithstanding the provisions of Section 11.1A, the Investor Limited
Partner may at any time designate an Affiliate of the Investor Limited Partner,
or a partnership in which an Affiliate of the Investor Limited Partner serves as
a General Partner, to replace the Investor Limited Partner of the Partnership,
in which case the Investor Limited Partner shall automatically assign its
interest to such Entity and withdraw from the Partnership, and such Entity will
be admitted to the Partnership as the substitute Investor Limited Partner.
Section 11.2 Restrictions
A. No Transfer of the Limited Partnership Interest of any Person shall be
made if such Transfer would violate the provisions of Section 13.1.
B. In no event shall all or any part of a Limited Partnership Interest be
Transferred to a minor or to an incompetent.
C. The General Partner may require as a condition to any Transfer of a
Limited Partnership Interest, that the assignor or assignee (i) assume all costs
incurred by the Partnership in connection therewith, and (ii) furnish it with an
opinion of counsel satisfactory to counsel to the Partnership that such Transfer
complies with applicable Federal and state securities laws.
D. Any Transfer in contravention of any of the provisions of Section 11.1
or this Section 11.2 shall be void and ineffectual and shall not bind, or be
recognized by, the Partnership.
Section 11.3 Substitute Limited Partners
A. Except as provided in Section 11.1B above, no Limited Partner shall have
the right to substitute an Assignee as a Limited Partner in its place. The
General Partner, however, may in its exclusive discretion permit any such
Assignee to become a Substitute Limited Partner and any such permission by the
General Partner shall be binding and conclusive without the consent or approval
of any other Person. Any Substitute Limited Partner shall, as a condition of
receiving any interest in the Partnership, agree to be bound (to the same extent
as its assignor was bound) by the Project Documents and by the provisions of
this Agreement.
B. Upon the admission of a Substitute Limited Partner, the Schedule shall
be amended to reflect the name and address of such Substitute Limited Partner
and to eliminate the name and address of its assignor, and an amendment to the
Agreement reflecting such admission shall be filed, if required by the Act, in
accordance with the applicable provisions of the Act. Each Substitute Limited
Partner shall execute such instrument or instruments as shall be required by the
General Partner to signify such Substitute Limited Partner's agreement to be
bound by all the provisions of this Agreement.
Section 11.4 Assignees
A. In the event of the death or incapacity of any Limited Partner who is a
natural person, his legal representatives shall have such rights as are afforded
them by the Act. The death of a Limited Partner shall not dissolve the
Partnership.
B. An Assignee of a Limited Partner who does not become a Substitute
Limited Partner in accordance with Section 11.3 shall, if such assignment is in
compliance with the terms of this Agreement, have the right to receive the same
share of Profits, Losses, Tax Credits and Distributions of the Partnership to
which the assigning Limited Partner would have been entitled if no such
assignment had been made by such Limited Partner but, except as otherwise
required under the Act, shall have no other rights granted to the Limited
Partners under this Agreement.
C. Any Limited Partner who shall assign all of its Limited Partnership
Interest shall cease to be a Limited Partner of the Partnership, and shall no
longer have any rights or privileges or obligations of a Limited Partner except
that, unless and until the Assignee of such Limited Partner is admitted to the
Partnership as a Substitute Limited Partner in accordance with Section 11.3,
said assigning Limited Partner shall retain the statutory rights and be subject
to the statutory obligations of an assignor limited partner under the Act as
well as the obligation to make the Capital Contributions attributable to the
Limited Partnership Interest in question, if any portion thereof remains unpaid.
D. In the event of any assignment of a Limited Partnership Interest, there
shall be filed with the Partnership a duly executed and acknowledged counterpart
of the instrument making such assignment; such instrument must evidence the
written acceptance of the Assignee to all the terms and provisions of this
Agreement; and if such an instrument is not so filed, the Partnership need not
recognize any such assignment for any purpose.
E. An Assignee of a Limited Partnership Interest who does not become a
Substitute Limited Partner as provided in Section 11.3 and who desires to make a
further assignment of its Limited Partnership Interest shall be subject to the
provisions of this Section 11 to the same extent and in the same manner as any
Limited Partner desiring to make an assignment of its Limited Partnership
Interest.
SECTION 12: MANAGEMENT AGREEMENT
Section 12.1 General
The General Partner shall engage the Manager to manage the Project pursuant
to the Management Agreement. The Manager shall receive a Management Fee of
those amounts payable from time to time by the Partnership to the Manager for
management services in accordance with a reasonable and competitive fee
arrangement. The initial Manager shall be HRI Management Corporation. From and
after the Admission Date, the Partnership shall not enter into any Management
Agreement or modify or extend any Management Agreement unless the General
Partner shall have obtained the prior written consent of the Special Limited
Partner to the identity of the Manager.
Section 12.2 Management Fee
Should the General Partner or an Affiliate thereof perform property
management services for the Partnership, property management, rent-up or leasing
fees shall be paid the General Partner or such Affiliate only for services
actually rendered and shall be in an amount not to exceed four and one-half
(4.5%) percent of Gross Revenues.
Section 12.3 Removal and Replacement
If (i) the Manager is a General Partner or an Affiliate of a General
Partner, and (a) the Project shall be subject to a substantial building code
violation which shall not have been cured within six (6) months after notice
from a Governmental Authority or (b) an Operating Deficit has occurred for any
twelve (12) consecutive month period, or (ii) the Manager shall commit willful
misconduct or gross negligence in its conduct of its duties and obligations
under the Management Agreement, then, upon request by the Special Limited
Partner, the General Partner shall cause the Partnership to terminate the
Management Agreement with the Manager and appoint a new Manager.
SECTION 13: GENERAL PROVISIONS
Section 13.1 Restrictions on Transfer
A. No Transfer of any Partnership Interest may be made except in compliance
with the Regulations. The General Partner may require as a condition of any
transfer of such Partnership Interest that the transferor furnish an opinion of
counsel reasonably satisfactory to the General Partner that the proposed
transfer will comply with applicable Federal and state securities laws.
B. Any Transfer in contravention of any of the provisions of this
Section 13.1 shall be void and ineffective, and shall not bind or be recognized
by the Partnership.
Section 13.2 Notices
Except as otherwise specifically provided herein, all notices, demands or
other communications hereunder shall be in writing and shall be deemed to have
been given when the same are (i) deposited in the United States mail and sent by
certified or registered mail, postage prepaid, (ii) delivered to a nationally
recognized overnight delivery service, (iii) sent by telecopier or other
facsimile transmission, answerback requested, or (iv) delivered personally, in
each case, to the parties at the addresses set forth below or at such other
addresses as such parties may designate by notice to the Partnership:
(a) If to the Partnership, at the principal office of the
Partnership set forth in Section 2.
(b) If to a Partner, at his address set forth in the Schedule, with
copies to John P. Simon, Esq., Sidley & Austin, One First National Plaza,
Chicago, Illinois 60603, and Gary J. Elkins, Esq., Elkins & Associates, A
Professional Law Corporation, Place St. Charles, Suite 3700, 201 St. Charles
Avenue, New Orleans, Louisiana 70170.
Section 13.3 Word Meanings
The words such as "herein," "hereinafter," "hereof," and "hereunder" refer
to this Agreement as a whole and not merely to a subdivision in which such words
appear unless the context otherwise requires. The singular shall include the
plural and the masculine gender shall include the feminine and neuter, and vice
versa, unless the context otherwise requires. Any references to "Sections" or
"Articles" are to Sections or Articles of this Agreement, unless reference is
expressly made to a different document.
Section 13.4 Binding Provisions
The covenants and agreements contained herein shall be binding upon, and
inure to the benefit of, the heirs, legal representatives, successors and
assignees of the respective parties hereto, except in each case as expressly
provided to the contrary in this Agreement.
Section 13.5 Applicable Law
This Agreement shall be construed and enforced in accordance with the
internal laws of the State.
Section 13.6 Counterparts
This Agreement may be executed in several counterparts and all so executed
shall constitute one agreement binding on all parties hereto, notwithstanding
that all the parties have not signed the original or the same counterpart,
except that no counterpart shall be binding unless signed by the General
Partner.
Section 13.7 Paragraph Titles
Paragraph titles and any table of contents herein are for descriptive
purposes only, and shall not control or alter the meaning of this Agreement as
set forth in the text.
Section 13.8 Separability of Provisions
Each provision of this Agreement shall be considered separable and (a) if
for any reason any provision or provisions herein are determined to be invalid
and contrary to any existing or future law, such invalidity shall not impair the
operation of or affect those portions of this Agreement which are valid, or (b)
if for any reason any provision or provisions herein would cause the Limited
Partners to be bound by the obligations of the Partnership under the laws of the
State as the same may now or hereafter exist, such provision or provisions shall
be deemed void and of no effect.
Section 13.9 Effective Date of Admission
Subject to the provisions of Section 6.5K, the Investor Limited Partner
shall be deemed to have been admitted as of the first day of the calendar month
in which the Admission Date occurs, for all purposes of this Agreement,
including the allocation of Profits, Losses and Tax Credits under Section 6
hereof.
Section 13.10 Amendment Procedure
A. This Agreement may be amended by the General Partner with the Consent of
the Investor Limited Partner and the prior written consent of the Special
Limited Partner.
B. Notwithstanding any agreement to the contrary contained in this
Agreement, no amendment will be made to this Agreement which will affect the
rights of any Lender or the Agency under the terms of the Project Documents, or
any other agreement between any Lender and/or the Agency and the Partnership,
without the prior written approval of the Lender and/or the Agency, as the case
may be.
Section 13.11 Consent of Partners
Each Partner, by signing this Agreement, has signified its consent to the
specific consent provisions set forth herein. However, whenever the applicable
laws of the State require a higher percentage of consent than those specified in
this Agreement, and if the consent evidenced by the signing of this Agreement is
insufficient under the laws of the State to satisfy such requirement, such
higher percentage of consent shall be obtained.
IN WITNESS WHEREOF, each of the Partners has executed this Agreement as of
the date first written above.
GENERAL PARTNER: HISTORIC RESTORATION,
INCORPORATED
/s/ Pres Kabacoff
By: -----------------------------
Pres Kabacoff
Its: President
INVESTOR LIMITED PARTNER: API-COTTON MILL PARTNERS L.P.
By: AmerUs Management, Inc.
Its: General Partner
/s/ Gene Harris
By: ---------------------------
Sr. Vice President
Its: ------------------------
<PAGE>
SPECIAL LIMITED PARTNER: AMERUS MANAGEMENT, INC.
/s/ Gene Harris
By: ------------------------------
Sr. Vice President
Its: ---------------------------
WITHDRAWING LIMITED PARTNER:
/s/ A. Thomas Leonard, Jr.
---------------------------------------
A. THOMAS LEONHARD, JR.
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
On this 30th day of September, 1996, before me appeared Pres Kabacoff, to
me personally known, who, being by me duly sworn, did say that he is the
President of Historic Restoration, Incorporated, a Louisiana corporation, that
the foregoing instrument was signed and sealed in behalf of the corporation by
authority of its Board of Directors, that M. Pres Kabacoff acknowledged the
instrument to be the free act and deed of the corporation, and that the
corporation has no corporate seal.
------------------------------------
NOTARY PUBLIC
<PAGE>
ACKNOWLEDGMENT
STATE OF IOWA
COUNTY/PARISH OF POLK
On this 30th day of September, 1996, before me appeared Gene Harris, to me
personally known, who, being by me duly sworn, did say that he is the Sr. Vice
President of AmerUs Properties, Inc., an Iowa corporation, the General Partner
of API-Cotton Mill Partners L.P., that the foregoing instrument was signed and
sealed in behalf of the corporation by authority of its Board of Directors, that
Gene Harris acknowledged the instrument to be the free act and deed of the
corporation, and that the corporation has no corporate seal.
-------------------------------
NOTARY PUBLIC
<PAGE>
ACKNOWLEDGMENT
STATE OF IOWA
COUNTY/PARISH OF POLK
On this 30th day of September, 1996, before me appeared Gene Harris, to me
personally known, who, being by me duly sworn, did say that he is the Vice
President of AmerUs Management, Inc., that the foregoing instrument was signed
and sealed in behalf of the corporation by authority of its Board of Directors,
that ----------------- acknowledged the instrument to be the free act and deed
of the corporation, and that the corporation has no corporate seal.
--------------------------------
NOTARY PUBLIC
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
On this 30th day of September, 1996, before me appeared A. Thomas Leonhard,
Jr., to me personally known, who, being by me duly sworn, did say that he is the
Withdrawing Limited Partner of Cotton Mill Limited Partnership, a Louisiana
limited partnership, that the foregoing instrument was signed and sealed in
behalf of the partnership, and that A. Thomas Leonhard, Jr., acknowledged the
instrument to be the free act and deed of the partnership.
----------------------------
NOTARY PUBLIC
<PAGE>
Exhibit 10.66
State of Iowa ... Office of Secretary of State
Paul D. Pate, Secretary of State
Hoover Building, 2nd Floor Des Moines, IA. 50319
Corporations Division
Articles of Organization
(Submit in duplicate with filing fee of $50.00)
The undersigned, acting as the person forming the limited liability company
under the Iowa Limited Liability Company Act, Chapter 490A, Code of Iowa, hereby
adopts the following Articles of Organization:
1. The name of the limited liability company is: AmerUs-Blackstone, L.L.C.
2. The purpose(s) for which the limited liability company is organized: To
own a limited partnership interest and act as a limited partner in
Blackstone Hotel Partners, L.P., a Louisiana limited partnership and shall
include engaging in and doing any lawful act concerning any or all lawful
business for which limited liability companies may be formed under Iowa
law.
3. The name and address of the limited liability company's registered agent in
Iowa are AmerUs Life Insurance Company, 699 Walnut, Suite 1700, Des Moines,
Iowa 50309-3945.
4. The management of the limited liability company is vested in the sole
Member.
5. The latest date on which the limited liability company is to dissolve is
upon the dissociation of the sole remaining member.
6. The name(s) and address(es) of each organizer are Matthew G. Haney, c/o
AmerUs Properties, Inc., 699 Walnut, Suite 1700, Des Moines, Iowa
50309-3945.
7. For tax purposes, is the limited liability company considered a
corporation? / / Yes /x/ No
IN AFFIRMATION THEREOF, THE FACTS STATED ABOVE ARE TRUE:
DATED this 8th day of July, 1997.
/s/ Matthew G. Haney
- ----------------------------------
Matthew G. Haney, Organizer
<PAGE>
STATE OF IOWA )
)SS
COUNTY OF POLK )
BE IT REMEMBERED, that on this 8th day of July, 1997, before me, a Notary
Public in and for said County and State, personally appeared Matthew G. Haney,
to me personally known to be the person who executed the foregoing instrument
and duly acknowledged having executed the same as his free voluntary act for the
purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year last above written.
/s/ Linda Andreini
-----------------------------------
Notary Public Linda Andreini
Printed Name: --------------------
My commission expires:
- --------------------------
Exhibit 10.67
BLACKSTONE HOTEL PARTNERS, L.P.
A LOUISIANA LIMITED PARTNERSHIP
FIRST AMENDED AND RESTATED
ARTICLES OF LIMITED PARTNERSHIP
DATED AS OF July 23, 1997
<PAGE>
TABLE OF CONTENTS
SECTION 1: DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Adjusted Capital Account Deficit. . . . . . . . . . . . . . . . . . . . 2
Admission Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Admission Date Conditions . . . . . . . . . . . . . . . . . . . . . . . 2
Adverse Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Allocation Regulations. . . . . . . . . . . . . . . . . . . . . . . . . 2
Architectural/Engineering Agreement . . . . . . . . . . . . . . . . . . 3
Assignee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Assignment of Architectural/Engineering Agreement.. . . . . . . . . . . 3
Assignment of Construction Agreement, Plans and Property Agreements . . 3
Assignment of Design Agreements.. . . . . . . . . . . . . . . . . . . . 3
Assignment of Interior Design Agreement.. . . . . . . . . . . . . . . . 3
Assignment of Purchase Agreement. . . . . . . . . . . . . . . . . . . . 3
Base Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Best Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Bill of Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Bridge Loan.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Building Loan Agreement . . . . . . . . . . . . . . . . . . . . . . . . 4
Capital Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Capital Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Capital Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Capital Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Cash Collateral Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Cash Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Certificate of Occupancy. . . . . . . . . . . . . . . . . . . . . . . . 5
Charitable Deduction Determination. . . . . . . . . . . . . . . . . . . 5
City. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
City Tax Abatement Agreement (Tangible Personal Property).. . . . . . . 6
City Tax Exemption Agreement. . . . . . . . . . . . . . . . . . . . . . 6
Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Claim Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Completion Adjuster . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Completion Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consent of Special Limited Partner. . . . . . . . . . . . . . . . . . . 6
Construction and Design Contract. . . . . . . . . . . . . . . . . . . . 6
Construction Consulting and Management Fee. . . . . . . . . . . . . . . 6
Contractor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
County. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
County Tax Exemption Agreement. . . . . . . . . . . . . . . . . . . . . 7
Debt Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Debt Service Coverage Loan. . . . . . . . . . . . . . . . . . . . . . . 7
Debt Service Deficiency Loan. . . . . . . . . . . . . . . . . . . . . . 7
Deed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Deed of Trust Note. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Deficit Restoration Obligation. . . . . . . . . . . . . . . . . . . . . 7
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Design Agreements.. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Designated Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . 8
Developer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Development Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 8
Development Budget. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Development Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Development Fee Note. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Development Fee Note Assignment . . . . . . . . . . . . . . . . . . . . 8
Development Guarantors. . . . . . . . . . . . . . . . . . . . . . . . . 9
Development Guaranty Agreement. . . . . . . . . . . . . . . . . . . . . 9
Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Engineer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Entity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Environmental Indemnity Agreement.. . . . . . . . . . . . . . . . . . . 9
Event of Bankruptcy or Bankruptcy . . . . . . . . . . . . . . . . . . . 9
Event of Force Majeure or Force Majeure . . . . . . . . . . . . . . . . 10
Excess Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Excess Adjustment Loan(s) . . . . . . . . . . . . . . . . . . . . . . . 10
Excess Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Facade Donation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Facade Donation Appraisal . . . . . . . . . . . . . . . . . . . . . . . 10
Facade Donation Documents . . . . . . . . . . . . . . . . . . . . . . . 11
Facilities and Maintenance Agreement. . . . . . . . . . . . . . . . . . 11
Filing Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Final Determination . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
First Installment . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Gap Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Gap Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Gap Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Gap Loan Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Gap Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Garage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General Partner Pledge. . . . . . . . . . . . . . . . . . . . . . . . . 12
Governmental Authority. . . . . . . . . . . . . . . . . . . . . . . . . 12
Gross Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Gross Hotel Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Guaranty Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Hazardous Material. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Hazardous Substance Laws. . . . . . . . . . . . . . . . . . . . . . . . 13
HCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Historic Credit Determination . . . . . . . . . . . . . . . . . . . . . 14
Historic Rehabilitation Credit. . . . . . . . . . . . . . . . . . . . . 14
Hospital Tax Exemption Agreement. . . . . . . . . . . . . . . . . . . . 14
Hotel.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Hotel Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
HRI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Incentive Hotel Management Fee. . . . . . . . . . . . . . . . . . . . . 14
Incentive Partnership Management Agreement. . . . . . . . . . . . . . . 14
Incentive Partnership Management Fee. . . . . . . . . . . . . . . . . . 14
Initial Operating Period. . . . . . . . . . . . . . . . . . . . . . . . 14
Installment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Interior Design Agreement.. . . . . . . . . . . . . . . . . . . . . . . 14
Investor Limited Partner. . . . . . . . . . . . . . . . . . . . . . . . 15
Investor Limited Partner Loan(s). . . . . . . . . . . . . . . . . . . . 15
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Lender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Letter of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
LIBOR.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Limited Partner(s). . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Limited Partnership Interest. . . . . . . . . . . . . . . . . . . . . . 16
Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Management Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Management Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Managing General Partner. . . . . . . . . . . . . . . . . . . . . . . . 16
Material Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Material Violation. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Mortgage Loan Closing . . . . . . . . . . . . . . . . . . . . . . . . . 19
Mortgage Loan Extension Privilege . . . . . . . . . . . . . . . . . . . 19
Negative Charitable Adjustment. . . . . . . . . . . . . . . . . . . . . 19
Negative Charitable Deduction Difference. . . . . . . . . . . . . . . . 19
Negative Historic Adjustment. . . . . . . . . . . . . . . . . . . . . . 19
Negative Historic Credit Difference . . . . . . . . . . . . . . . . . . 19
Net Hotel Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Net Restaurant Lease Rent.. . . . . . . . . . . . . . . . . . . . . . . 19
Nonrecourse Debt or Nonrecourse Liability . . . . . . . . . . . . . . . 19
Nonrecourse Deductions. . . . . . . . . . . . . . . . . . . . . . . . . 20
Operating Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Operating Deficit Loan(s) . . . . . . . . . . . . . . . . . . . . . . . 20
Operating Deficit Loan Maximum. . . . . . . . . . . . . . . . . . . . . 20
Operating Profits or Losses . . . . . . . . . . . . . . . . . . . . . . 20
Operating Projection. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Operating Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Partner Nonrecourse Debt. . . . . . . . . . . . . . . . . . . . . . . . 21
Partner Nonrecourse Debt Minimum Gain . . . . . . . . . . . . . . . . . 21
Partner Nonrecourse Deductions. . . . . . . . . . . . . . . . . . . . . 21
Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Partnership Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Partnership Interest. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Partnership Items . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Partnership Minimum Gain. . . . . . . . . . . . . . . . . . . . . . . . 21
Partnership Property. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Partnership Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Payment Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Placed-in-Service Date. . . . . . . . . . . . . . . . . . . . . . . . . 21
Plans and Specifications. . . . . . . . . . . . . . . . . . . . . . . . 22
Positive Historic Adjustment. . . . . . . . . . . . . . . . . . . . . . 22
Positive Historic Credit Difference . . . . . . . . . . . . . . . . . . 22
Primary Tax Financing Documents . . . . . . . . . . . . . . . . . . . . 22
Priority Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Profits or Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Profits or Losses from a Capital Transaction. . . . . . . . . . . . . . 23
Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Project Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Project Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Put Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Recapture Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Refinancing Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Regulatory Allocations. . . . . . . . . . . . . . . . . . . . . . . . . 24
Rehabilitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Related Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Replacement Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Repurchase Event. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Requisite Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Restaurant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Restaurant Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Restaurant Lease Expenses . . . . . . . . . . . . . . . . . . . . . . . 24
Restaurant Lease Rent . . . . . . . . . . . . . . . . . . . . . . . . . 25
Sale Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Second Installment. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Secondary Tax Financing Documents . . . . . . . . . . . . . . . . . . . 25
Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Share of Partner Nonrecourse Debt Minimum Gain. . . . . . . . . . . . . 25
Share of Partnership Minimum Gain . . . . . . . . . . . . . . . . . . . 25
Site. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Special Class Limited Partner . . . . . . . . . . . . . . . . . . . . . 25
Special Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Special Limited Partner . . . . . . . . . . . . . . . . . . . . . . . . 25
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Subordinated Partner Loan(s). . . . . . . . . . . . . . . . . . . . . . 25
Substitute Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Tax Financing Documents . . . . . . . . . . . . . . . . . . . . . . . . 26
Temporary Certificate of Occupancy Date . . . . . . . . . . . . . . . . 26
Terminating Capital Transaction . . . . . . . . . . . . . . . . . . . . 27
Terminating Event . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Third Mortgage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Title Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
TMP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Vessel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Voluntary General Partner Loan. . . . . . . . . . . . . . . . . . . . . 27
Working Capital Reserve . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2: CONTINUATION. . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.1 Continuation . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.2 Name and Office. . . . . . . . . . . . . . . . . . . . . 28
Section 2.3 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.4 Authorized Acts. . . . . . . . . . . . . . . . . . . . . 29
Section 2.5 Term and Dissolution . . . . . . . . . . . . . . . . . . 30
SECTION 3: ACQUISITION, FINANCING, REHABILITATION, AND DISPOSITION OF
PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 3.1 Acquisition. . . . . . . . . . . . . . . . . . . . . . . 31
Section 3.2 Financing. . . . . . . . . . . . . . . . . . . . . . . . 31
Section 3.3 Rehabilitation . . . . . . . . . . . . . . . . . . . . . 33
Section 3.4 Management and Disposition . . . . . . . . . . . . . . . 33
SECTION 4: PARTNERS AND CAPITAL ACCOUNTS . . . . . . . . . . . . . . . . 33
Section 4.1 General Partner. . . . . . . . . . . . . . . . . . . . . 33
Section 4.2 Limited Partners . . . . . . . . . . . . . . . . . . . . 33
Section 4.3 Partnership Capital and Capital Accounts . . . . . . . . 34
Section 4.4 Withdrawal of Capital. . . . . . . . . . . . . . . . . . 35
Section 4.5 Liability of Limited Partner . . . . . . . . . . . . . . 35
Section 4.6 Additional Limited Partners. . . . . . . . . . . . . . . 36
SECTION 5: CAPITAL CONTRIBUTIONS OF INVESTOR LIMITED PARTNER AND
SPECIAL LIMITED PARTNER; OPERATING DEFICIT LOANS; INVESTOR
LIMITED PARTNER LOANS; LETTER OF CREDIT; REPURCHASE RIGHT . . 36
Section 5.1 Capital Contributions of Investor Limited Partner and
Special Limited Partner. . . . . . . . . . . . . . . . . 36
Section 5.2 Conditions to Payment of Second Installment. . . . . . . 37
Section 5.3 Adjuster Provisions: Generally; Completion Adjuster. . . 40
Section 5.4 Historic Rehabilitation Credit Adjuster. . . . . . . . . 41
Section 5.5 Facade Donation Adjuster . . . . . . . . . . . . . . . . 42
Section 5.6 IRS Claims . . . . . . . . . . . . . . . . . . . . . . . 43
Section 5.7 Project Cost Overruns. . . . . . . . . . . . . . . . . . 44
Section 5.8 Operating Deficits and Operating Deficit Loans; Use of
Operating Deficit Reserve; and Cash Collateral Fund. . . 44
Section 5.9 No Third-Party Rights in Operating Deficit Loans . . . . 45
Section 5.10 No Third-Party Rights in Capital . . . . . . . . . . . . 46
Section 5.11 Letter of Credit.. . . . . . . . . . . . . . . . . . . . 46
Section 5.12 Limited Partners' Right to Require Repurchase. . . . . . 46
Section 5.13 Repayment to Investor Limited Partner of Excess
Adjustment . . . . . . . . . . . . . . . . . . . . . . . 47
Section 5.14 Subordinated Partner Loans.. . . . . . . . . . . . . . . 48
Section 5.16 Negative Capital Account Restoration.. . . . . . . . . . 50
Section 5.17 Bridge Loan. . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 6: PROFITS AND LOSSES; CREDITS; DISTRIBUTIONS. . . . . . . . . . 51
Section 6.1 Profits and Losses . . . . . . . . . . . . . . . . . . . 51
Section 6.2 Distributions Prior to Dissolution . . . . . . . . . . . 52
A. Distribution of Cash Flow. . . . . . . . . . . . . . . . 52
B. Distributions of Refinancing Proceeds. . . . . . . . . . 53
C. Distributions of Sale Proceeds . . . . . . . . . . . . . 54
Section 6.3 Liquidation. . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.4 Special Distribution Provisions. . . . . . . . . . . . . 56
Section 6.5 Special Allocation Provisions. . . . . . . . . . . . . . 57
Section 6.6 Order of Application . . . . . . . . . . . . . . . . . . 60
SECTION 7: RIGHTS, POWERS AND DUTIES OF GENERAL PARTNER. . . . . . . . . 60
Section 7.1 Restrictions on Authority. . . . . . . . . . . . . . . . 60
Section 7.2 Personal Services and Competition. . . . . . . . . . . . 62
Section 7.3 Business Management and Control; Designation of
Managing General Partner . . . . . . . . . . . . . . . . 62
Section 7.4 Duties and Obligations of General Partner. . . . . . . . 64
Section 7.5 Certain Payments to the Developer and Developer's
Affiliates . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.6 Fiduciary Duty of General Partner. . . . . . . . . . . . 68
Section 7.7 Indemnification. . . . . . . . . . . . . . . . . . . . . 68
Section 7.8 Liability of General Partner to Limited Partners . . . . 69
Section 7.9 Tax Matters Partner. . . . . . . . . . . . . . . . . . . 69
Section 7.10 Access and Reports . . . . . . . . . . . . . . . . . . . 71
Section 7.11 Representations and Warranties of General Partner. . . . 71
Section 7.12 Indemnification. . . . . . . . . . . . . . . . . . . . . 74
SECTION 8: REMOVAL OF GENERAL PARTNER. . . . . . . . . . . . . . . . . . 75
Section 8.1 General. . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 8.2 Set Off. . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 8.3 Removal of General Partner . . . . . . . . . . . . . . . 76
SECTION 9: BOOKS AND REPORTING, ACCOUNTING, TAX ELECTIONS, ETC.. . . . . 78
Section 9.1 Books and Reporting. . . . . . . . . . . . . . . . . . . 78
Section 9.2 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . 80
Section 9.3 Tax Elections. . . . . . . . . . . . . . . . . . . . . . 81
Section 9.4 Special Adjustments. . . . . . . . . . . . . . . . . . . 81
Section 9.5 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 10: WITHDRAWAL OF A GENERAL PARTNER; NEW GENERAL PARTNERS . . . . 81
Section 10.1 Voluntary Withdrawal . . . . . . . . . . . . . . . . . . 81
Section 10.2 Obligation to Continue . . . . . . . . . . . . . . . . . 82
Section 10.3 Successor General Partner. . . . . . . . . . . . . . . . 82
Section 10.4 Interest of Predecessor General Partner. . . . . . . . . 83
Section 10.5 Designation of New General Partners. . . . . . . . . . . 84
Section 10.6 Amendment of Agreement; Approval of Certain Events . . . 85
Section 10.7 Admission of a General Partner . . . . . . . . . . . . . 85
SECTION 11: TRANSFER OF LIMITED PARTNERSHIP INTERESTS . . . . . . . . . . 85
Section 11.1 Right to Assign. . . . . . . . . . . . . . . . . . . . . 85
Section 11.2 Restrictions . . . . . . . . . . . . . . . . . . . . . . 85
Section 11.3 Substitute Limited Partners. . . . . . . . . . . . . . . 86
Section 11.4 Assignees. . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 12: MANAGEMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . 88
Section 12.1 General. . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 12.2 Management Fee Paid to General Partner and an Affiliate. 88
SECTION 13: GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 88
Section 13.1 Restrictions on Transfer . . . . . . . . . . . . . . . . 88
Section 13.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 13.3 Word Meanings. . . . . . . . . . . . . . . . . . . . . . 89
Section 13.4 Binding Provisions . . . . . . . . . . . . . . . . . . . 89
Section 13.5 Applicable Law . . . . . . . . . . . . . . . . . . . . . 89
Section 13.6 Exhibits and Schedules . . . . . . . . . . . . . . . . . 89
Section 13.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . 90
Section 13.8 Paragraph Titles . . . . . . . . . . . . . . . . . . . . 90
Section 13.9 Separability of Provisions . . . . . . . . . . . . . . . 90
Section 13.10 Effective Date of Admission. . . . . . . . . . . . . . . 90
Section 13.11 Amendment Procedure. . . . . . . . . . . . . . . . . . . 90
<PAGE>
FIRST AMENDED AND RESTATED
ARTICLES OF LIMITED PARTNERSHIP
OF
BLACKSTONE HOTEL PARTNERS, L.P.
FIRST AMENDED AND RESTATED ARTICLES OF LIMITED PARTNERSHIP (this
"Agreement") is made as of the 23rd day of July, 1997, by and among HISTORIC
RESTORATION, INCORPORATED, a Louisiana corporation, as General Partner; A.
THOMAS LEONHARD, JR., a resident of Jefferson Parish, Louisiana, as Withdrawing
Limited Partner; AMERUS-BLACKSTONE, L.L.C., an Iowa limited liability company,
as Investor Limited Partner; and AMERUS MANAGEMENT, INC., an Iowa corporation,
as Special Limited Partner. General Partner, Investor Limited Partner, and
Special Limited Partner are hereinafter collectively referred to as the
"Partners".
Recitals:
Blackstone Hotel Partners, L.P. (the "Partnership") was formed as a limited
partnership under the laws of the State of Louisiana pursuant to Articles of
Limited Partnership dated as of May 15, 1997 (the "Original Articles"), recorded
with the Secretary of State of the State of Louisiana (the "Filing Office") on
May 19, 1997 (the Original Articles being referred to herein as the "Original
Agreement").
The purposes of this amendment and restatement to the Original Agreement
are to (i) provide for the withdrawal of the Withdrawing Limited Partner as the
original limited partner, (ii) provide for the admission of Amerus-Blackstone,
L.L.C. as Investor Limited Partner and AmerUs Management, Inc. as Special
Limited Partner, (iii) set forth more fully the rights, obligations and duties
of General Partner, Investor Limited Partner, and Special Limited Partner, and
(iv) amend, restate and supersede the Original Agreement in its entirety.
NOW, THEREFORE, it is hereby agreed as follows:
SECTION 1: DEFINITIONS
The capitalized terms used in this Agreement shall have the meanings
ascribed to them in this Section 1.
Accountants. Reznick, Fedder & Silverman of Bethesda, Maryland, or such
other firm of certified public accountants as may be engaged by General Partner
in accordance with the provisions of Section 9.1H.
Act. Title XI of Book III (Articles 2801 et seq.) of the Louisiana Civil
Code, as amended.
Adjusted Capital Account Deficit. With respect to any Partner, the deficit
balance, if any, in such Partner's Capital Account as of the end of a
Partnership Fiscal Year, after giving effect to the following adjustments:
(i) Such Capital Account shall be increased by the amount of any
Deficit Restoration Obligation of such Partner.
(ii) Such Capital Account shall be decreased by the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6) of the
Allocation Regulations.
The foregoing definition of Adjusted Capital Account Deficit and the
application of such term in the manner provided in Section 6.5E are intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Allocation
Regulations and shall be interpreted consistently therewith.
Admission Date. The date on which this Agreement is executed, all of the
Admission Date Conditions have been satisfied, and Investor Limited Partner and
Special Limited Partner are admitted to the Partnership.
Admission Date Conditions. The matters listed on Exhibit A attached to
this Agreement.
Adverse Consequences. All actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses and fees, including court costs and reasonable attorneys' fees and
expenses.
Affiliate. With respect to a specified Person, (i) any Person directly or
indirectly controlling, controlled by or under common control with the Person
specified, (ii) any Person owning or controlling 10% or more of the outstanding
voting securities or beneficial interests of the Person specified, (iii) any
officer, director, partner, trustee or member of the immediate family of the
Person specified, (iv) if the Person specified is an officer, director, general
partner or trustee, any corporation, partnership or trust for which that Person
acts in that capacity then such corporation, partnership or trust, or (v) any
Person who is an officer, director, general partner, trustee or holder of 10% or
more of outstanding voting securities or beneficial interests of any Person
described in clauses (i) through (iv). The term "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Agreement. These First Amended and Restated Articles of Limited
Partnership.
Allocation Regulations. The Treasury Regulations issued under Sections
704(b) and 752 of the Code, as the same may be modified or amended from time to
time.
Architectural/Engineering Agreement. That certain "Agreement between Owner
and Architect with Descriptions of Designated Services and Terms and Conditions"
dated February 6, 1997 by and between HCI, as owner, and Engineer, as architect.
Assignee. A Person who has acquired from a Partner, in accordance with the
terms of this Agreement, a beneficial interest in the Partnership's Profits,
Losses, Tax Credits or Distributions, but who is not a Substitute Partner.
Assignment of Architectural/Engineering Agreement. That certain "Assign-
ment" dated February 6, 1997, of the Architectural/Engineering Agreement by HCI
in favor of the Partnership to which assignment the Engineer has consented.
Assignment of Construction Agreement, Plans and Property Agreements. The
"Assignment" dated July 23rd, 1997 of ------ by the Partnership in favor of the
Lender.
Assignment of Design Agreements. That certain "Assignment" dated July 11,
1997 of the Design Agreements by HRI in favor of the Partnership to which
assignment the Engineer has consented.
Assignment of Interior Design Agreement. That certain "Assignment" dated
July 11, 1997 of the Interior Design Agreement by HRI in favor of the
Partnership.
Assignment of Purchase Agreement. That certain Assignment of the Purchase
Agreement dated July 23, 1997 by and between HRI and the Partnership,
whereunder HRI has assigned all of its right, title, and interest in and to the
Purchase Agreement to the Partnership.
Base Management Fee. The base management fee payable to the Manager
pursuant to the Management Agreement.
Best Knowledge. In the case of a specified Person, (i) actual knowledge or
(ii) that knowledge which a prudent business person (including, in the case of
an Entity, the general or managing partners, officers, directors, members and
key employees of such Entity) should have obtained in the management of such
person's business affairs after making due inquiry and exercising due diligence
with respect thereto. In connection therewith, the knowledge (both actual and
constructive) of any general or managing partner, director, officer or key
employee of an Entity shall be deemed to be the knowledge of the Entity.
Bill of Sale. The bill of sale to be executed by Seller in favor of the
Partnership pursuant to which the Partnership will acquire the Personal
Property.
Bridge Loan. The loan to be made by the General Partner to the
Partnership pursuant to Section 5.17. Such loan shall bear interest at an
annual rate equal to the Designated Rate plus 7%. The principal portion of the
Bridge Loan shall be repaid from the proceeds of the Second Installment and, at
such time as the principal portion is so repaid, the accrued interest on the
Bridge Loan shall be added to the principal portion of the General Partner's
Subordinated Partner Loan, if any, or if the General Partner has not then made a
Subordinated Partner Loan, such accrued interest shall be deemed a Voluntary
General Partner Loan. No recourse for the payment of the Bridge Loan may be had
against any other property of the Partnership or against any Partner.
Building Loan Agreement. The loan agreement to be executed by and between
the Lender and the Partnership.
Capital Account. An individual capital account maintained for each Partner
in accordance with the provisions of Section 4.
Capital Contribution. The total amount of cash and the Gross Asset Value
of any property contributed or agreed to be contributed to the Partnership by
each Partner pursuant to the terms of this Agreement (minus any liabilities
secured by such contributed property that the Partnership assumes or takes
subject to). Any reference in this Agreement to the Capital Contribution of a
then Partner shall include a Capital Contribution previously made by any
predecessor-in-interest in respect to the Partnership Interest held by such then
Partner.
Capital Proceeds. The proceeds of a Capital Transaction.
Capital Transaction. Any transaction the proceeds of which are not
includable in determining Cash Flow, including, without limitation, Sale
Proceeds and Refinancing Proceeds, net insurance recoveries (other than proceeds
from rental interruption insurance), and title insurance recoveries, but
excluding (i) loans to the Partnership (other than a refinancing of the Mortgage
Loan) and (ii) Capital Contributions.
Cash Collateral Fund. The fund in the initial amount of $250,000, to be
created by General Partner, from funds of General Partner, simultaneously with
payment of the Second Installment, which is to be used to fund Operating
Deficits. The Cash Collateral Fund shall be held jointly in the name of the
General Partner and Special Limited Partner and in interest- bearing accounts
which are fully insured by the Federal Deposit Insurance Corporation, or in such
other investments as Special Limited Partner may approve. Interest earned on
such funds will be earned in the name of General Partner and will be retained in
the Cash Collateral Fund and will be used for the same purposes as other funds
held in the Cash Collateral Fund. General Partner and Special Limited Partner
shall be joint signatories on the accounts in which the Cash Collateral Funds
are held; provided, however, that Special Limited Partner shall have the right
to withdraw funds from such accounts without the joinder of the General Partner
in the event the Special Limited Partner determines that the General Partner has
failed to take action to withdraw funds therefrom when General Partner is
required to do so under this Agreement. General Partner shall have the right to
withdraw any funds remaining in the accounts in which the Cash Collateral Fund
is held upon the earlier of (i) the expiration of the Initial Operating Period,
or (ii) the delivery of a letter of credit, in form, amount, and substance
satisfactory to the Special Limited Partner in its sole discretion, by the
General Partner in favor of the Partnership; provided, however, that, in the
event such letter of credit is so issued, such letter of credit shall be drawn
upon, in whole or in part, to the same extent and as such times as if such drawn
funds were held in the Cash Collateral Fund. Any such draw on the letter of
credit shall be deemed, for all purposes of this Agreement, as a withdrawal from
the Cash Collateral Fund, and the Cash Collateral Fund shall not be deemed to
have been fully disbursed unless and until the aggregate draws under such letter
of credit equal the sum of $250,000 less the aggregate amount the General
Partner is required to restore to the Cash Collateral Fund pursuant to Section
5.8A(iii).
Cash Flow. Cash Receipts less payment of the (i) Project Expenses, (ii)
Debt Service, (iii) Debt Service Deficiency Loan, and (iv) Incentive Hotel
Management Fee for the applicable period of time.
Cash Receipts. All gross receipts by the Partnership, including, Net Hotel
Revenues, Net Restaurant Lease Rent, net insurance recoveries from business
interruption insurance, the net reduction in any Fiscal Year in the amount of
any escrow account or Partnership Reserves maintained by or for the Partnership
which is caused by withdrawal from such escrow account or Partnership Reserve(s)
made in accordance with the terms of this Agreement and, to the extent not
otherwise included in the determination of Cash Receipts, any receipts under the
Facilities and Maintenance Agreement and any receipts from the operation of the
Garage; provided, however, Cash Receipts shall not include Capital Proceeds.
Certificate of Occupancy. The final, permanent certificate of occupancy
issued by the appropriate Governmental Authority authorizing the use and
occupancy of the entire Project as the Hotel, Garage, and Restaurant in
accordance with the Plans and Specifications, as contemplated by this Agreement;
provided, however, that, in the event that (i) the tenant improvements on the
portion of the Project shown as the approximate 2,700 square feet of commercial
space on the corner of Fifth and Main in the Plans and Specifications are not
completed prior to the issuance of the final, permanent certificate of occupancy
by the Governmental Authority with respect to the remaining portion of the
Project, and (ii) the General Partner is unable to finish out such premises or
find, in the exercise of due diligence and subject to the Consent of the Special
Limited Partner, a suitable tenant to complete such improvements and operate
such premises in accordance with its intended use as a tavern or bar prior to
such time the permanent certificate of occupancy with respect to the remaining
portion of the Project is issued by the Governmental Authority, then the
issuance of the final, permanent certificate of occupancy issued by the
appropriate Governmental Authority authorizing the use and occupancy of the
remaining portion of the Project as the Hotel, Garage, and Restaurant in
accordance with the Plans and Specifications, as contemplated by this Agreement
shall constitute the final, permanent certificate of occupancy for purposes of
this Agreement.
Charitable Deduction Determination. Is defined in Section 5.5.
City. The City of Fort Worth, Texas.
City Tax Abatement Agreement (Tangible Personal Property). The tax
abatement agreement (tangible personal property only) to be executed by and
between the City and the Partnership and to which the County has agreed to
become a party to and participate in pursuant to a "Resolution" adopted by the
County on December 3, 1996.
City Tax Exemption Agreement. The tax exemption agreement to be executed
by and between the City and the Partnership.
Claim. Is defined in Section 5.6A.
Claim Notice. Is defined in Section 5.6A.
Code. The Internal Revenue Code of 1986, as amended, and the treasury
regulations promulgated thereunder, and any published public rulings, procedures
and notices thereunder.
Completion Adjuster. Is defined in Section 5.3B.
Completion Date. December 31, 1998, unless such date has been extended by
Events of Force Majeure.
Consent of Special Limited Partner. The prior written consent or approval
of Special Limited Partner. The approval of Special Limited Partner to the form
of the Project Documents, the approval of Special Limited Partner to the
Development Budget, the approval of Special Limited Partner of the identity of
the appraiser to make the Facade Donation Appraisal and the form and sufficiency
of the Facade Donation Appraisal, the approval of the Special Limited Partner to
the Transfer of all or any portion of the General Partner's Partnership Interest
and the admission of any additional or successor General Partner may be withheld
in Special Limited Partner's sole and absolute discretion. Except as set forth
above and elsewhere in this Agreement, where this Agreement requires the prior
written consent or approval of Special Limited Partner, such consent or approval
shall not be unreasonably withheld or delayed.
Construction and Design Contract. The construction and design contract to
be executed by and between the Partnership and the Contractor, in the form which
has been approved by Special Limited Partner.
Construction Consulting and Management Fee. A fee in the amount of
$75,000.00 to be paid to Investor Limited Partner at the Mortgage Loan Closing
for the performance of hotel feasibility studies and for the review and analysis
of the Management Agreement and Plans and Specifications.
Contractor. HCI.
County. Tarrant County, Texas.
County Tax Exemption Agreement. The tax exemption agreement to be executed
by and between the County and the Partnership.
Debt Service. The monthly installment or, if then due, any balloon
payment, of accrued interest and repayment of principal (including any
penalties, fees or expenses attributable thereto and/or the pay down of the
Mortgage Loan in connection with the exercise of the Mortgage Loan Extension
Privilege) which the Partnership is obligated to make to Lender under the Deed
of Trust Note and/or the Gap Note.
Debt Service Coverage Loan. Defined in Section 3.2E.
Debt Service Deficiency Loan. A loan made by the Manager to the
Partnership pursuant to Section 3.02A of the Management Agreement, such loan to
be used by the Partnership to pay Debt Service; provided, however, that any
decision to cause the Partnership to incur a Debt Service Deficiency Loan in an
amount that is less than $20,000.00 shall be made by the General Partner only
with the Consent of the Special Limited Partner.
Deed. The special warranty deed to be executed by Seller in favor of the
Partnership pursuant to which the Partnership will acquire title to the Real
Property.
Deed of Trust. The "First Deed of Trust, Assignment of Leases and Profits,
Security Agreement and Fixture Filing" granted by the Partnership to the Lender
to secure the obligations evidenced by the Deed of Trust Note.
Deed of Trust Note. The promissory note in the amount of $15,455.000 made
by the Partnership in favor of the Lender representing the Partnership's
indebtedness to the Lender pursuant to the Building Loan Agreement.
Deficit Restoration Obligation. For each Partner, the sum of (i) any
amounts which such Partner is obligated to restore to the Partnership in
accordance with the provisions of Sections 1.704-1(b)(2)(ii)(c),
1.704-1(b)(2)(ii)(h) or any other applicable provisions of the Allocation
Regulations, (ii) such Partner's Share of Partnership Minimum Gain, if any,
(iii) such Partner's Share of Partner Nonrecourse Debt Minimum Gain, if any, and
(iv) any amounts which such Partner is obligated to restore to the Partnership
under Section 5.16 of this Agreement.
Depreciation. For the Fiscal Year or other period, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year or other period, except that if the
Gross Asset Value of an asset differs from the adjusted basis of such asset for
federal income tax purposes at the beginning of such Fiscal Year or other
period, Depreciation shall be an amount which bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such Fiscal Year or other
period bears to such beginning adjusted tax basis.
Design Agreements. The design agreements entered into between HRI and
Engineer as reflected in that certain letter dated March 19, 1997, from HRI to
Engineer relating to the interior design construction document services for the
guest rooms and for the public space, including the lobby and corridors; the
letter dated March 12, 1997 from Engineer to HRI relating to the guest rooms
which was accepted by HRI; the letter dated March 12, 1997 from Engineer to HRI
relating to the public space which was accepted by HRI and attachment; and the
Engineer's Confirmation of Work Authorization dated April 8, 1997, which was
approved by HRI on April 13, 1997.
Designated Net Worth Standard. As of the date of determination, such
standards or criteria (relating to net worth or other characteristics) as may be
(i) set forth in Revenue Procedure 89-12 or any other regulations, memoranda,
published ruling or revenue procedure of the IRS for classification of the
Partnership for federal income tax purposes as a partnership rather than an
association taxable as a corporation, or (ii) sufficient to support the issuance
by Special Counsel of an opinion to the same effect.
Designated Interest Rate. 8% per annum.
Developer. HRI.
Development Agreement. The Development Agreement to be executed by and
between the Developer and the Partnership, in the form which has been approved
by Special Limited Partner.
Development Budget. The development budget for the Project which budget
has been prepared by the Developer, approved by General Partner and Special
Limited Partner, and attached to the Development Agreement as Exhibit B.
Development Fee. The development fee payable to the Developer pursuant to
the terms of the Development Agreement.
Development Fee Note. The promissory note executed by the Partnership,
payable to Developer, in the form which has been approved by Special Limited
Partner and attached to the Development Agreement as Exhibit A, evidencing the
Partnership's obligation to pay the deferred portion of the Development Fee
pursuant to the terms of the Development Agreement.
Development Fee Note Assignment. The assignment and pledge agreement of
the Development Fee Note, in the form which has been approved by Special Limited
Partner, made by the Developer in favor of Special Limited Partner and Investor
Limited Partner pursuant to which the Developer pledges the Development Fee Note
to Special Limited Partner and Investor Limited Partner to secure, among other
things, the Developer's obligations under the Development Agreement, the
Development Guarantors' obligations under the Development Guaranty Agreement,
and the General Partner's obligation under Section 5.11.
Development Guarantors. Pres Kabacoff and Edward B. Boettner.
Development Guaranty Agreement. The guaranty agreement to be executed by
the Development Guarantors in favor of the Partnership, in the form which has
been approved by Special Limited Partner, guaranteeing the "Loan Obligations"
(as defined therein), the obligations of the Developer under the Development
Agreement and the obligation of General Partner to make payments relating to
construction cost overruns pursuant to Section 5.7, to make payments relating to
the Completion Adjuster pursuant to Section 5.3B, and to make reimbursement
payments pursuant to Section 5.11.
Distribution. Any cash or property which the Partnership distributes to a
Partner (in such Person's capacity as a Partner) without consideration,
including, without limitation, distributions of Cash Flow and Capital Proceeds.
Engineer. Huit-Zollers, Inc., its successors and assigns.
Entity. Any general partnership, limited partnership, corporation, joint
venture, trust, limited liability company, business trust, cooperative or
association.
Environmental Indemnity Agreement. The environmental indemnity agreement
to be executed by and between the Lender and the Partnership, HRI and HRI
Blackstone Corporation, a Louisiana corporation.
Event of Bankruptcy or Bankruptcy. As to a specified Person:
(a) the entry of a decree or order for relief by a court
asserting jurisdiction in the premises in respect of such Person in
any case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of
such Person or for any substantial part of such Person's property, or
ordering the winding-up or liquidation of such Person's affairs; or
(b) the commencement by such Person of a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy, insolvency or other
similar law, or the consent by such Person to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or similar official) of such Person or for
any substantial part of such Person's property, or the making by such
Person of any assignment for the benefit of creditors, or the taking
of action by such Person in furtherance of any of the foregoing; or
(c) the commencement against such Person of an involuntary case
under the federal bankruptcy laws, as now constituted or hereafter
amended, or any other applicable federal or state bankruptcy,
insolvency or other similar law, which has not been dismissed within
60 days.
Event of Force Majeure or Force Majeure. Any of the following events or
occurrences: strike; lockout; action of labor unions; riots; hurricane; storm;
flood; explosion; acts of God or of the public enemy; acts of government, war,
invasion, insurrection, mob, violence, sabotage, or malicious mischief;
inability (notwithstanding good faith and diligent efforts) to procure, or
general shortage of labor, equipment, facilities, materials or supplies in the
open market; failure of transportation; fires; epidemics; quarantine
restrictions; freight embargoes; unusually severe weather; inability
(notwithstanding good faith and diligent efforts) to obtain governmental permits
or approvals or delays of subcontractors of General Partner, Developer, or
Contractor due to such causes, or any other similar event or occurrence which
prevents, interrupts, or delays the performance of an obligation on the part of
General Partner, Developer, or Contractor and which is beyond the reasonable
control of the party in question, provided, however, any of the foregoing which
is caused by the lack of funds of the Person claiming an Event of Force Majeure
shall not constitute an Event of Force Majeure.
Excess Adjustment. Means the amount by which any Negative Historic
Adjustment or any Negative Charitable Adjustment exceeds the amount (if any) of
Investor Limited Partner's unpaid Capital Contribution as of the date on which
such Negative Historic Adjustment or Negative Charitable Adjustment, as
applicable, is determined, as described in Sections 5.4 and 5.5. Excess Adjust-
ment will be repaid to Investor Limited Partner in accordance with Section 5.13.
Excess Adjustment Loan(s). A loan(s) made by General Partner to the
Partnership to fund Excess Adjustments pursuant to Section 5.13. Such loans,
which shall bear interest at an annual rate equal to the Designated Interest
Rate, shall be evidenced by unsecured, nontransferable promissory notes of the
Partnership. Such loans shall be repaid only as provided in Section 6, and no
recourse for the payment hereof may be had against any other property of the
Partnership or against any Partner. Payments of principal and interest on
Excess Adjustment Loans shall be applied in the same order in which such Excess
Adjustment Loans are made (i.e., on a first-in, first-out basis).
Excess Expenses. Is defined in Section 6.5H.
Exhibits. Is defined in Section 13.6A.
Facade Donation. The donation of the facade of the Improvements to
Historic Fort Worth, Inc. prior to Rehabilitation.
Facade Donation Appraisal. An appraisal of the Facade Donation by an
appraiser selected by General Partner with the Consent of Special Limited
Partner.
Facade Donation Documents. The facade easement to be executed between the
Partnership and Historic Fort Worth, Inc., which document is in the form which
has been approved by Special Limited Partner, and all other documents executed
in connection with the Facade Donation intended to preserve the historic
character of the Project and to afford certain federal income tax benefits to
the Partnership.
Facilities and Maintenance Agreement. The facilities and maintenance
agreement to be executed by and between the City and the Partnership.
Filing Office. The Office of the Secretary of State of the State.
Final Determination. The earliest to occur of (i) the date on which a
decision, judgment, decree or other order has been issued by any court of
competent jurisdiction, which decision, judgment, decree or other order has
become final (i.e., all allowable appeals requested by the parties to the action
have been exhausted), (ii) the date on which the IRS has entered into a binding
agreement with the Partnership with respect to such issue, in accordance with
this Agreement, or on which the IRS has reached a final administrative or
judicial determination with respect to such issue which, whether by law or
agreement, is not subject to appeal, (iii) the date on which the time for
instituting a claim for refund has expired, or if a claim was filed the time for
instituting suit with respect thereto has expired with no such suit having been
filed provided that such expired time period absolutely precludes any suit with
respect to such claim from being filed, or (iv) the date on which the applicable
statute of limitations for raising an issue regarding a federal income tax
matter with respect to the Partnership has expired with such issue not having
been raised.
Fiscal Year. The twelve-month period which begins on the first day of
January and ends on the 31st day of December of each calendar year (or ends on
the date of final dissolution for the year in which the Partnership is wound up
and dissolved).
First Installment. Is defined in Section 5.1A.
GAAP. Generally accepted accounting principles, consistently applied, as
in effect from time to time.
Gap Deed of Trust. The "Second Deed of Trust, Assignment of Leases and
Profits, Security Agreement and Fixture Filing" granted by the Partnership to
the Lender to secure the obligations evidenced by the Gap Note.
Gap Loan. The loan to be made by the Lender to the Partnership evidenced
by the Gap Note and secured by the Gap Deed of Trust which is made to provide
short-term financing for the acquisition and Rehabilitation of the Project.
Gap Loan Documents. The Gap Note, Gap Deed of Trust and any other document
required by Lender in connection with the Gap Loan.
Gap Loan Closing. The date on which the Gap Loan Documents become
effective between the Lender and the Partnership.
Gap Note. The promissory note in the amount of $2,572,700.00 made by the
Partnership in favor of the Lender representing the Partnership's indebtedness
to the Lender pursuant to the Gap Loan.
Garage. The parking garage, which will consist of approximately 120 valet
parking spaces, to be located in the Improvements after the Rehabilitation.
General Partner. HRI and any other General Partner appointed or admitted
in accordance with the terms of this Agreement, including Special Limited
Partner if Special Limited Partner becomes General Partner as provided in this
Agreement. If at any time the Partnership has more than one General Partner,
the term "General Partner" shall mean and include all General Partners.
General Partner Pledge. The assignment and pledge agreement of General
Partner, in the form which has been approved by Special Limited Partner, made by
General Partner in favor of Investor Limited Partner or an Affiliate of Investor
Limited Partner as designated by Investor Limited Partner, pursuant to which
General Partner pledges all of General Partner's rights and interests under the
Partnership Agreement, including, but not limited to, all of General Partner's
Partnership Interest, to Investor Limited Partner or to such Affiliate to secure
General Partner's obligations under Sections 5.11, 5.12, 5.13 and 5.14.
Governmental Authority. The State, the County, the City, the State of
Texas, or any other federal, state or local governmental agency, instrumentality
or authority asserting jurisdiction over the particular matter to which
reference is being made.
Gross Asset Value. With respect to any asset, the adjusted basis of such
asset for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the contributing Partner and the Partnership and as
approved by Special Limited Partner;
(ii) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined
by General Partner with the approval of Special Limited Partner, as of the
following times: (a) the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis Capital Contribution; (b) the distribution by the Partnership to a
Partner of more than a de minimis amount of Partnership property as
consideration for an interest in the Partnership; and (c) the liquidation
of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of
the Allocation Regulations; provided, however, that the adjustments
pursuant to clauses (a) and (b) above shall be made only if General Partner
reasonably determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners in the Partnership
or are otherwise required under the Allocation Regulations;
(iii) The Gross Asset Value of any Partnership asset distributed
to any Partner shall be the gross fair market value of such asset on the
date of distribution; and
(iv) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Section 1.704-1(b)(2)(iv) (m) of the
Allocation Regulations and Section 4.3; provided, however, that Gross Asset
Values shall not be adjusted pursuant to this clause (iv) to the extent
General Partner determines that an adjustment pursuant to clause (ii)
hereof is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this clause (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to Section (i), (ii) or (iv) above, such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits or Losses.
Gross Hotel Revenues. Is defined in Section 12.01 of the Management
Agreement as "Gross Revenues." So long as the Garage is operated by the Manager
or its Affiliate, the term "Gross Hotel Revenues" includes revenue from the
Garage as well as from the Hotel.
Guaranty Agreement. The payment and performance guaranty to be executed by
HRI and the Development Guarantors in favor of the Lender.
Hazardous Material. The collective meanings given to the terms "hazardous
material," "hazardous substances" and "hazardous wastes" in the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601 et seq., as amended, and also any meanings given to such
terms in any similar state or local statutes, ordinances, regulation or by-laws.
Without limiting the generality of the foregoing, the term "Hazardous Material"
shall include oil and any other substance known to be hazardous, such as
hazardous waste, lead-based paint, asbestos, methane gas, urea formaldehyde
insulation, oil, underground storage tanks, polychlorinated biphenyls (PCBs),
toxic substances or other pollutants.
Hazardous Substance Laws. Any local, state or federal law or regulation
relating to the use or disposition of Hazardous Material, including, without
limitation, the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act, the Toxic Substance Control Act, the Safe Drinking Water
Control Act, the Comprehensive Environmental Response Compensation and Liability
Act, the Hazardous Materials Transportation Act, and the Occupational Safety and
Health Act, as the same may be amended from time to time.
HCI. Historic Construction Incorporated, a Louisiana corporation, doing
business as HCI Construction and Design, and its successors.
Historic Credit Determination. Is defined in Section 5.4.
Historic Rehabilitation Credit. The tax credit allowable pursuant to
Section 47 of the Code for qualified rehabilitation expenditures incurred in
connection with the certified rehabilitation of the Project.
Hospital Tax Exemption Agreement. The "Tax Exemption Agreement" dated
January 23, 1997, executed by and between Tarrant County Hospital District and
the Partnership.
Hotel. The hotel facility to be located in the Improvements after the
Rehabilitation which will consist of no fewer that 203 guest rooms, and
approximately 2,092 feet of meeting space and to be operated as a Courtyard by
Marriott.
Hotel Expenses. Is defined in Section 12.01 of the Management Agreement as
"Deductions." The term "Hotel Expenses" includes, inter alia, payment of the
Base Management Fee and transfers to the Replacement Reserve, but it does not
include Debt Service.
HRI. Historic Restoration, Incorporated, a Louisiana corporation, and its
successors.
Improvements. All of the buildings, structures, fixtures and other
improvements now or hereafter located on the Land.
Incentive Hotel Management Fee. The incentive management fee payable to
the Manager pursuant to the Management Agreement.
Incentive Partnership Management Agreement. The agreement between the
Partnership and the General Partner described in Section 7.5B, in the form which
has been approved by Special Limited Partner.
Incentive Partnership Management Fee. The fee payable by the Partnership
to General Partner pursuant to the Incentive Partnership Management Agreement.
Initial Operating Period. The 5 year period commencing on the Placed-in-
Service Date.
Installment. An installment of the Capital Contribution of Investor
Limited Partner to the Partnership.
Interior Design Agreement. The "Proposal for Professional Design Services
for the Blackstone Hotel" dated January 24, 1997 by and between Millican & Co.
and HRI.
Investment Servicing Fee. An annual servicing fee in the amount of
$10,000.00 payable by the Partnership to Special Limited Partner.
Investor Limited Partner. Amerus-Blackstone, L.L.C., an Iowa limited
liability company, or any other Person who is admitted to the Partnership in
accordance with the terms of this Agreement and is shown on the books and
records of the Partnership as a Substitute Investor Limited Partner at the time
of reference thereto.
Investor Limited Partner Loan(s). A loan(s) made by Investor Limited
Partner to the Partnership to fund the payment of the an Operating Deficit
pursuant to Section 5.8B or a Debt Service Coverage Loan. Such loans shall bear
interest at an annual rate equal to the lesser of the Designated Interest Rate
plus 7% or the highest rate permitted by law, and shall, if Investor Limited
Partner so requests, be evidenced by unsecured, transferable promissory notes of
the Partnership, in form and substance satisfactory to Investor Limited Partner,
provided that any such Investor Limited Partner Loan need not be evidenced by
such a note. If Investor Limited Partner requests such a promissory note,
General Partner will execute on behalf of the Partnership such a promissory note
and deliver such executed promissory note to Investor Limited Partner within
three business days after such request. If General Partner fails to execute and
deliver such a promissory note within such time, Special Limited Partner is
authorized to execute such a promissory note on behalf of the Partnership and to
deliver such promissory note to Investor Limited Partner. Investor Limited
Partner Loans shall be repaid as provided in Section 6, and no recourse for the
payment thereof may be had against any other property of the Partnership or
against any Partner, provided that such limitation on recourse will not limit or
reduce any obligation of General Partner. In addition, General Partner shall
have the right to make a Voluntary General Partner Loan to enable the
Partnership to repay any Investor Limited Partner Loan at any time. Payments of
principal and interest on Investor Limited Partner Loans shall be applied in the
same order in which such Investor Limited Partner Loans are made (i.e., on a
first-in, first-out basis). No Investor Limited Partner Loan will cure any
default by General Partner which may otherwise exist or which may relate to such
Investor Limited Partner Loan, and Investor Limited Partner shall retain all of
Investor Limited Partner's rights and remedies with respect to any such default
by General Partner.
IRS. The Internal Revenue Service.
Land. The land located in the Original Town of Fort Worth Addition,
fronting on the northeastern side of Main Street between Fifth and Sixth
Streets, more particularly described on Exhibit B attached hereto.
Lender. GMAC Commercial Mortgage Corporation, a California corporation,
and its successors and assigns, and any lender whose loan is made to refinance
the Deed of Trust Loan in accordance with this Agreement.
Letter of Credit. An unconditional, irrevocable letter of credit in the
amount of $2,250,000.00 (which, with renewals thereof, shall have a term
coextensive with the term of the Gap Loan) issued by Federal Home Loan Bank of
Des Moines or a financial institution satisfactory to the Partnership, at the
request of Investor Limited Partner or an Affiliate of Investor Limited Partner,
in favor of the Lender, and issued at the Mortgage Loan Closing. The Letter of
Credit will be used solely to satisfy the condition of the Mortgage Loan that
the Partnership have equity of $5,675,000 at the Gap Loan Closing. The Letter
of Credit shall be in "sight draft" form and may be drawn upon by the Lender or
released as provided in the Loan Documents.
LIBOR. Is defined in Section 2(b) of the Deed of Trust Note.
Limited Partner(s). Investor Limited Partner, Special Limited Partner,
and/or any other Person admitted to the Partnership from time to time as a
limited partner in accordance with the terms of this Agreement.
Limited Partnership Interest. The Partnership Interest of a Limited
Partner in such Partner's capacity as such.
Loan Documents. First Deed of Trust Note, Deed of Trust, Building Loan
Agreement, Guaranty Agreement, Environmental Indemnity Agreement, Assignment of
Construction Agreements, Plans and Property Agreements, and any other documents
required by Lender in connection with the Mortgage Loan.
Manager. Courtyard Management Corporation, a Delaware corporation, and any
successor property manager designated or appointed from time to time in
accordance with the terms of this Agreement.
Management Agreement. The "Management Agreement" dated July 13, 1997 by
and between the Partnership and the Manager pursuant to which the Manager will
manage and operate the Hotel and the Garage on the terms and conditions set
forth therein, which terms and conditions have been approved by Special Limited
Partner.
Management Fee. The Base Management Fee and the Incentive Hotel Management
Fee payable to the Manager pursuant to the terms of the Management Agreement.
Managing General Partner. Any Person designated as such in accordance with
the provisions of Section 7.3B.
Material Default. The occurrence of any of the following events:
(i) a material breach by General Partner (or any of General Partner's
Affiliates) in the performance of any of such Person's material obligations
under this Agreement (including a failure to meet its monetary obligations
under Sections 5.11, 5.12, 5.13 and/or 5.14) or under any other agreement
which breach materially adversely affects or could materially adversely
affect either of the Limited Partners, provided that the inability of the
Partnership to pay the Mortgage Loan or any other financial obligation of
the Partnership to any party other than the Limited Partners under the
Project Documents shall not be deemed a Material Default, provided,
however, that the foregoing proviso will not limit Partnership's
obligations to the Limited Partners under this Agreement and the other
Project Documents;
(ii) a Terminating Event as to General Partner, or an Event of
Bankruptcy as to General Partner or as to the Partnership; provided,
however, if the Operating Deficit Reserve and the Cash Collateral Fund have
all been fully disbursed, and General Partner has fully satisfied all of
General Partner's obligations to make Operating Deficit Loans, and if
Investor Limited Partner has not made Investor Limited Partner Loans to
fund Operating Deficits so that at such time all Operating Deficits have
been funded, then General Partner, at General Partner's election, upon
written notice to Special Limited Partner, may cause the Partnership to
file for a reorganization under Chapter 11 of the United States Bankruptcy
Code (or a similar proceeding under any substitute law) provided that such
proceeding does not threaten any action which could cause a recapture of
any portion of the Historic Rehabilitation Credit, and such act by General
Partner or the Partnership will not constitute a Material Default;
(iii) a violation by General Partner or any Affiliate of General
Partner of such Person's fiduciary duties to the Partnership;
(iv) a violation by General Partner or any Affiliate of General
Partner of any law, regulation or order applicable to the Partnership which
has or may have a material adverse effect on either of the Limited
Partners, which violation is not cured or remedied within any applicable
period provided with respect to such law, regulation, or order;
(v) a material breach by the Partnership, General Partner in its
capacity as general partner of the Partnership, or any Affiliate of General
Partner under any Project Document (other than the Secondary Tax Financing
Documents) or other material agreement or document benefitting the
Partnership or either of the Limited Partners which breach materially,
adversely affects or could materially, adversely affect either of the
Limited Partners; provided, however, that the inability of the Partnership
or General Partner in its capacity as the general partner of the
Partnership to pay the Mortgage Loan or any other financial obligation of
the Partnership to any party other than the Limited Partners under the
Project Documents shall not be deemed a Material Default, provided,
however, that the foregoing proviso will not limit General Partner's
obligations to the Limited Partners under this Agreement and the other
Project Documents;
(vi) the failure of the Temporary Certificate of Occupancy Date to
occur on or before the Completion Date;
(vii) the inability of General Partner to deliver a Payment
Certificate under Section 5.2 which continues for a period of 6 months
following the date on which the Second Installment would otherwise be due
(or, if earlier, April 1, 1999);
(viii) any representation or warranty relating to the Project, the
Partnership, or to the Limited Partners' admission into the Partnership
which is made to the Partnership or to either Limited Partner by General
Partner, the Development Guarantors, or any Affiliate of General Partner,
whether made in this Agreement, or in the Development Guaranty Agreement,
or in any other document which this Agreement contemplates to be executed
or delivered, proves to be untrue in any material respect as of the date
such representation or warranty was issued or made and which has or could
have a material adverse effect on the Partnership or either of the Limited
Partners;
(ix) the Development Guaranty Agreement ceases to be in full force
and effect for any reason other than pursuant to the terms thereof, or
either or both of the Development Guarantors denies that such guarantor has
any further liability under the Development Guaranty Agreement or gives
notice of such effect or asserts (other than in good faith and based upon a
reasonable acknowledged legal basis) any defense to liability under the
Development Guaranty Agreement;
(x) General Partner's failure to execute any promissory note
evidencing an Investor Limited Partner Loan in accordance with the terms of
this Agreement;
(xi) General Partner's failure to withdraw funds from the Operating
Reserve, or the Cash Collateral Fund, as applicable, to pay Operating
Deficits in accordance with Section 5.8A;
(xii) HRI's failure, at any time during the Initial Operating Period,
to maintain a net worth equal to or greater than $4,000,000.00 determined
in accordance with GAAP;
(xiii) any material default under the Development Guaranty Agreement;
(xiv) General Partner's failure to reimburse Investor Limited Partner
for any amount drawn against the Letter of Credit as provided in Section
5.11, provided that, if at the time that such reimbursement is due, either
all of the conditions precedent to payment of the Second Installment have
been satisfied, including the expiration of any applicable time periods,
and Investor Limited Partner has failed to pay all of the amount of the
Second Installment (as such amount may be reduced for any right of offset
available to Investor Limited Partner under the terms of this Agreement),
or all of the conditions precedent to funding of the Subordinated Partner
Loan by the Investor Limited Partner have been satisfied, including the
expiration of any applicable time periods, and Investor Limited Partner has
failed to fund its share of the Subordinated Partner Loans (as such funding
obligation may be reduced for any right of offset available to Investor
Limited Partner under the terms of this Agreement), then General Partner
shall have the right to offset and apply such reimbursements for and on
behalf of Investor Limited Partner as payment of such Second Installment or
funding of such share of the Subordinated Partner Loan, as applicable, in
an amount equal to the amount which Investor Limited Partner failed to pay
or fund, and such offset and application of such funds in payment of the
Second Installment or funding of the Subordinated Partner Loan, as
applicable, shall (to the extent of the amount thereof) not constitute a
Material Default so long as General Partner otherwise complies with the
requirements of Section 5.11; or
(xv) the occurrence of an Event of Default under the Put Loan
Documents.
Material Violation. Is defined in Section 7.11Q.
Mortgage Loan. The loan to be made by the Lender to the Partnership
evidenced by the Deed of Trust Note and secured by the Deed of Trust, which is
made to finance the acquisition and Rehabilitation of the Project and to provide
term financing for the Project.
Mortgage Loan Closing. The date on which the Loan Documents become
effective between the Lender and the Partnership.
Mortgage Loan Extension Privilege. The Partnership's option to extend the
term of the Mortgage Loan for an additional 12 month period on the terms and
conditions set forth in the Loan Documents.
Negative Charitable Adjustment. Is defined in Section 5.5.
Negative Charitable Deduction Difference. Is defined in Section 5.5.
Negative Historic Adjustment. Is defined in Section 5.4.
Negative Historic Credit Difference. Is defined in Section 5.4.
Net Hotel Revenues. The excess of Gross Hotel Revenues over Hotel Expenses
for the applicable period of time. The term "Net Hotel Revenues" has the same
meaning as "Operating Profit" in the Management Agreement.
Net Restaurant Lease Rent. The excess of Restaurant Lease Rent over
Restaurant Lease Expenses for the applicable period of time.
Nonrecourse Debt or Nonrecourse Liability. Any indebtedness for which none
of the Partners has any economic risk of loss other than through such Partner's
interest in the Partnership Property securing such indebtedness, as defined in
Section 1.704-2(b)(3) of the Allocation Regulations.
Nonrecourse Deductions. The meaning set forth in Section 1.704-2(b)(1) of
the Allocation Regulations.
Operating Deficit. For any specified period of time, the amount by which
the sum of (i) Hotel Expenses, (ii) Restaurant Lease Expenses, (iii) Project
Expenses, and (iv) Debt Service (only after the Manager has made any of the Debt
Service Deficiency Loans required of Manager under the Management Agreement or
Manager defaults in making a Debt Service Deficiency Loan) for such period
exceeds Cash Receipts.
Operating Deficit Loan(s). A loan(s) made by General Partner to the
Partnership to fund Operating Deficits pursuant to Section 5.8A and/or to pay
down the Mortgage Loan in connection with the exercise of the Mortgage Loan
Extension. Such loans, which shall bear interest at an annual rate equal to the
Designated Interest Rate, shall be evidenced by unsecured, nontransferable
promissory notes of the Partnership. Such loans shall be repaid only as
provided in Section 6, and no recourse for the payment hereof may be had against
any other property of the Partnership or against any Partner. Payments of
principal and interest on Operating Deficit Loans shall be applied in the same
order in which such Operating Deficit Loans are made (i.e., on a first-in,
first-out basis).
Operating Deficit Loan Maximum. The maximum principal amount of Operating
Deficit Loans which General Partner is obligated to have outstanding at any
time, which is the amount equal to $1,250,000 minus the initial aggregated
amount(s) of the Operating Reserve and the Working Capital Reserve.
Operating Profits or Losses. For any Fiscal Year means the Profits or
Losses of the Partnership for that Fiscal Year as determined for federal income
tax purposes by the Accountants, excluding Profits or Losses from a Capital
Transaction and determined without regard to any adjustments to basis pursuant
to Sections 734 or 743 of the Code.
Operating Projection. The annual operating projection for the Project as
prepared by the Manager pursuant to Section 4.04 of the Management Agreement.
Operating Reserve. The reserve in the initial amount of $468,800.00, to be
funded from the Mortgage Loan, which is to be used to fund Operating Deficits.
The Operating Reserve will be held in interest bearing accounts which are fully
insured by the Federal Deposit Insurance Corporation, or in such other
investments as Special Limited Partner may approve. Interest earned on such
funds will be retained in the Operating Reserve and will be used for the same
purposes as other funds held in the Operating Reserve. In the event of the sale
of the Project at a time when funds are held in the Operating Reserve, such
funds will be treated as additional Sales Proceeds and will be applied as
provided in Section 6.2C.
Partner. Any General Partner or Limited Partner.
Partner Nonrecourse Debt. The meaning set forth in Section 1.704-2(b)(4)
of the Allocation Regulations.
Partner Nonrecourse Debt Minimum Gain. The meaning set forth in Sections
1.704-2(i)(2) and (3) of the Allocation Regulations.
Partner Nonrecourse Deductions. The meaning set forth in Section
1.704-2(i)(1) of the Allocation Regulations.
Partnership. The limited partnership created by this Agreement.
Partnership Counsel. Elkins, P.L.C., of New Orleans, Louisiana.
Partnership Interest. The interest of a Partner in the Partnership,
including, without limitation, such Partner's interest in the assets, capital,
Profits or Losses, Distributions and Tax Credits of the Partnership.
Partnership Items. Is defined in Section 6.5M.
Partnership Minimum Gain. The meaning set forth in Section 1.704-2(d) of
the Allocation Regulations.
Partnership Property. All real and personal property owned by the
Partnership.
Partnership Reserves. Reserves maintained by the Partnership for working
capital, capital improvements and similar contingencies, including, without
limitation, the Operating Reserve, the Working Capital Reserve, and the
Replacement Reserve. Except as expressly provided in this Agreement any funds
held in the Partnership Reserves which are no longer required for the purposes
for which they were set aside shall be distributed to the Partners pursuant to
the provisions of Section 6.2A.
Payment Certificate. Is defined in Section 5.2E.
Person. Any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits; and, unless the context otherwise requires, the
singular shall include the plural, and the masculine gender shall include the
feminine and the neuter and vice versa.
Placed-in-Service Date. The earliest date that the entire site upon which
the Project is located is "placed in service" for federal income tax purposes
under Section 47 of the Code; provided, however, that, in the event that (i) the
tenant improvements on the portion of the Project shown as the approximate 2,700
square feet of commercial space on the corner of Fifth and Main in the Plans and
Specifications prior to the date the remaining portion of the Project is "placed
in service" under Section 47 of the Code, and (ii) the General Partner is unable
to finish out such premises or find, in the exercise of due diligence and
subject to the Consent of the Special Limited Partner, a suitable tenant to
complete such improvements and operate such premises in accordance with its
intended use as a tavern or bar prior to the date the remaining portion of the
Project is "placed in service" under Section 47 of the Code, then the date such
remaining portion is so "placed in service" shall be deemed to be the date the
entire site upon which the Project is located is so "placed in service" for
purposes of this Agreement.
Plans and Specifications. The drawings dated May 14, 1997, and the
specifications dated May 15, 1997 for the Rehabilitation of the Project approved
by the Lender and Special Limited Partner, including, without limitation,
specifications for materials, and all amendments and modifications thereof,
provided, however, that no amendment or modification may be made to such plans
and specifications which would affect the availability of the Historic
Rehabilitation Credit, or which would materially affect the amount of the
Historic Rehabilitation Credit or the cost of the construction and
Rehabilitation of the Project, or which would otherwise materially affect the
Project.
Positive Historic Adjustment. Is defined in Section 5.4.
Positive Historic Credit Difference. Is defined in Section 5.4.
Primary Tax Financing Documents. The Facilities Maintenance Agreement and
the City Tax Exemption Agreement.
Priority Amount. Is defined in Section 6.2B, Clause Twelfth.
Profits or Losses. For each Fiscal Year or other period, an amount equal
to the Partnership's taxable income or loss for such Fiscal Year or other
period, determined in accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments:
(i) Any items described in Sections 705(a)(1)(B) and 705(a)(1)(C) of
the Code which are not otherwise taken into account in computing Profits or
Losses shall be added to such taxable income or loss.
(ii) Any expenditures of the Partnership described in Section
705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures
pursuant to Section 1.704-1(b)(2)(iv)(i) of the Allocation Regulations, and
not otherwise taken into account in computing Profits or Losses, shall be
subtracted from such taxable income or loss.
(iii) Gain or loss resulting from any disposition of Partnership
Property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value
of the property disposed of, notwithstanding that the adjusted tax basis of
such property differs the Gross Asset Value of such property.
(iv) In the event of a distribution of Partnership assets to a
Partner (whether in connection with a liquidation or otherwise), or in the
event the Gross Asset Value of any Partnership asset is adjusted upon the
acquisition of an additional interest in the Partnership, unrealized
income, gain, loss and deduction inherent in such distributed or adjusted
assets (not previously reflected in Capital Accounts) shall be allocated
pursuant to Section 6.1 as if there had been a taxable disposition of such
distributed or adjusted assets at fair market value.
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Fiscal Year
or other period, computed in accordance with the definition of
"Depreciation" set forth herein.
(vi) Notwithstanding any other provision of this definition, any
items which are specially allocated pursuant to Section 6.5 shall be taken
into account in computing Profits or Losses only if the Accountants
determine that such items should be so reflected.
Profits or Losses from a Capital Transaction. The Profits or Losses, if
any, recognized by the Partnership as a result of a Capital Transaction, as
determined for federal income tax purposes by the Accountants, but without
regard to any adjustments to basis pursuant to Section 734 and 743 of the Code.
Project. The Rehabilitation of the Land and Improvements into, and the
operation of, the Hotel, Garage, and Restaurant.
Project Documents. The Assignment of the Purchase Agreement, the Deed, the
Loan Documents, the Gap Loan Documents, the Tax Financing Documents, the
Development Agreement, the Construction and Design Contract, the Management
Agreement, the Facade Donation Documents, the Incentive Partnership Management
Agreement, and all other documents relating to the Project which are required
by, or have been executed in connection with, any of the foregoing documents.
Project Expenses. All operating and other costs and expenses of the
Partnership determined on an accrual basis during the Fiscal Year, other than
Incentive Hotel Management Fee, Investment Servicing Fee, Incentive Partnership
Management Fee, and operating and other costs and expenses included in the
determination of Hotel Expenses, Restaurant Lease Expenses or Debt Service.
Projections. The economic projections dated July 23, 1997, which
have been submitted to, and approved by, Special Limited Partner.
Purchase Agreement. That certain Commercial Improved Property Earnest
Money Contract, dated May 28, 1997, by and between Seller and HRI whereunder the
Seller has agreed to sell the Real Property to HRI upon the terms and conditions
set forth therein.
Put Loan Documents. That certain "Loan Agreement" between HRI and AmerUs
Life Insurance Company and the "Loan Documents" (as that term is defined in such
Loan Agreement) referred to therein.
Real Property. The Land and Improvements, before and after the
Rehabilitation.
Recapture Event. A disposition or other event causing recapture of all or
any portion of the Historic Rehabilitation Credit pursuant to the provisions of
Section 50 of the Code.
Refinancing Proceeds. The gross proceeds available to the Partnership from
a refinancing of any of the Mortgage Loan or any other secured or unsecured
indebtedness of the Partnership.
Regulations. The rules and regulations applicable to the Project or the
Partnership of any Governmental Authority asserting jurisdiction over the matter
in question.
Regulatory Allocations. The allocations set forth in Sections 6.5A through
6.5G.
Rehabilitation. The development, construction, renovation, and
rehabilitation work on the Project described in the Plans and Specifications.
Related Person. The meaning set forth in Section 1.752-4(b) of the
Allocation Regulations.
Replacement Reserve. The replacement reserve as required by the Manager.
Repurchase Event. Is defined in Section 5.12A.
Requisite Approvals. The approval or consent of the Lender or any
Governmental Authority asserting jurisdiction over the Partnership or the
Project, to the extent required pursuant to the terms of any of the Project
Documents.
Restaurant. The restaurant facility to be located in the Improvements
after the Rehabilitation consisting of approximately 2,700 square feet.
Restaurant Lease. The lease agreement, and any amendment thereto, relating
to the Restaurant; the form and substance of which lease agreement and the
tenant thereunder shall be subject to Consent of the Special Limited Partner.
Restaurant Lease Expenses. Expenses payable by the Partnership related to
the Restaurant Lease.
Restaurant Lease Rent. Rent payable to the Partnership under the
Restaurant Lease.
Retired General Partner. Is defined in Section 10.4C.
Sale Proceeds. The gross proceeds available to the Partnership from the
sale or other disposition of all or any portion of the Project or the
Partnership's other assets, or any proceeds realized from a condemnation,
insured casualty (in excess of the amount of such proceeds used for repair or
reconstruction of the Project), or insured title defect, but excluding proceeds
from rental interruption insurance, if any.
Schedule. Schedule A attached hereto.
Second Installment. Is defined in Section 5.1A.
Secondary Tax Financing Documents. The City Tax Abatement Agreement, the
Hospital Tax Exemption Agreement and the County Tax Exemption Agreement.
Seller. Mark P. Thomas and Michael D. Ball.
Share of Partner Nonrecourse Debt Minimum Gain. For each Partner, an
amount equal to such Partner's "share of partner nonrecourse debt minimum gain,"
determined in accordance with the provisions of Section 1.704-2(i)(5) of the
Allocation Regulations.
Share of Partnership Minimum Gain. For each Partner, an amount equal to
such Partner's "share of partnership minimum gain," determined in accordance
with the provisions of Section 1.704-2(g) of the Allocation Regulations.
Site. The meaning given to such term in the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sec.
9601 et seq., as amended, and any meaning given to such term in any similar
state or local statutes, ordinances, regulations or by-laws.
Special Class Limited Partner. The meaning set forth in Sections 10.4B and
10.4C.
Special Counsel. Elkins, P.L.C. of New Orleans, Louisiana.
Special Limited Partner. AmerUs Management, Inc., an Iowa corporation, or
any other Person who is admitted to the Partnership and shown on the books and
records of the Partnership as a substituted Special Limited Partner at the time
of reference thereto.
State. The State of Louisiana.
Subordinated Partner Loan(s). Loans which General Partner and Investor
Limited Partner are obligated to make to the Partnership pursuant to Section
5.14. Such loans shall bear interest at an annual rate equal to the Designated
Rate plus 7%, shall be evidenced by unsecured, non-negotiable promissory notes
of the Partnership, and shall be repaid as provided in Section 6; PROVIDED,
HOWEVER, in the event the Completion Date has not occurred on or before April 1,
1999, all principal and accrued interest on such loans shall become then due and
payable. No recourse for the payment thereof may be had against any other
property of the Partnership or against any Partner.
Substitute Limited Partner. Any Person admitted into the Partnership as
Substitute Limited Partner as provided in Section 11.3.
Substitute Partner. A Person who shall become entitled to receive a share
of the Profits, Losses, Tax Credits and Distributions of the Partnership by
reason of such Person succeeding to the Partnership Interest of a Partner by
assignment of all or any part of a Partnership Interest.
Tax Credits. Any credit(s) permitted under the Code against the federal
income tax liability of any Partner as a result of activities or expenditures of
the Partnership including, without limitation, the Historic Rehabilitation
Credit.
Tax Financing Documents. The Primary Tax Financing Documents and the
Secondary Tax Financing Documents.
Temporary Certificate of Occupancy. The temporary certificate of occupancy
issued by the appropriate Governmental Authority authorizing the use and
occupancy of the entire Project as the Hotel, Garage, and Restaurant in
accordance with the Plans and Specifications, provided, however, that the only
work remaining to be done is of a nature which would not impair the permanent
occupancy of any portion of the Project and General Partner has delivered to
Special Limited Partner the Second Installment Payment Certificate of General
Partner in the form attached to this Agreement as Exhibit C; further, provided,
that, in the event that the tenant improvements on the portion of the Project
shown as the approximate 2,700 square feet of commercial space on the corner of
Fifth and Main in the Plans and Specifications prior to the issuance of such a
temporary certificate of occupancy by the Governmental Authority and the General
Partner is unable to finish out such premises or find, in the exercise of due
diligence and subject to the Consent of the Special Limited Partner, a suitable
tenant to complete such improvements and operate such premises in accordance
with its intended use as a tavern or bar prior to such time such a temporary
certificate of occupancy with respect to the remaining portion of the Project is
issued by the Governmental Authority, the issuance of such a temporary
certificate of occupancy by the appropriate Governmental Authority authorizing
the use and occupancy of the remaining portion of the Project as the Hotel,
Garage, and Restaurant in accordance with the Plans and Specifications, as
contemplated by this Agreement shall constitute the temporary certificate of
occupancy for purposes of this Agreement.
Temporary Certificate of Occupancy Date. The date on which the Partnership
has received a Temporary Certificate of Occupancy, in accordance with the
requirements of the definition of Temporary Certificate of Occupancy.
Terminating Capital Transaction. A Capital Transaction resulting in or
involving the termination and winding up of the business of the Partnership or
any other event resulting in the "liquidation" of the Partnership within the
meaning of Section 1.704-1(b)(2)(ii)(g) of the Allocation Regulations.
Terminating Event. The death or permanent disability of, or an
adjudication of insanity or incompetence as to, an individual General Partner
(unless the Consent of Special Limited Partner to a substitute General Partner
is received, which Consent may be withheld or granted in Special Limited
Partner's sole and absolute discretion, and such substitute General Partner is
admitted to the Partnership by the first to occur of (i) the 60th day following
such event or (ii) such earlier date as is necessary to prevent a dissolution of
the Partnership under the Act), the Bankruptcy or dissolution of a General
Partner, the Transfer of a General Partner's Partnership Interest by such
General Partner, or the voluntary or involuntary withdrawal of a General Partner
from the Partnership. For purposes of the foregoing, an individual General
Partner shall be deemed to be permanently disabled if he or she becomes disabled
during the term of this Agreement through any illness, injury, accident or
condition of either a physical or psychological nature and, as a result, is
unable to perform substantially all of such Person's duties and responsibilities
hereunder for 120 days during any period of 365 consecutive calendar days.
Involuntary withdrawal shall occur whenever a General Partner may no longer
continue as a General Partner by law or pursuant to any terms of this Agreement.
Third Mortgage. The "Deed of Trust, Assignment of Leases and Rents, and
Security Agreement" between the Partnership and Marriott International, Inc.
Title Policy. The owner's policy of title insurance to be issued to the
Partnership by Chicago Title Insurance Company in the amount of $21,130,000.00
(not including special coverage endorsements).
TMP. Is defined in Section 7.9A.
Transfer. Any sale, exchange, assignment, encumbrance, hypothecation,
pledge, foreclosure, conveyance in trust, gift or other transfer of any kind,
whether direct or indirect, voluntary or involuntary, other than as a direct
consequence of a Terminating Event. When used as a verb, such term shall mean,
voluntarily or involuntarily, to sell, exchange, assign, encumber, hypothecate,
pledge, foreclose, convey in trust, give or otherwise transfer.
Vessel. The meaning given to such term in the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sec.
9601 et seq., as amended, and any meaning given to such term in any similar
state or local statutes, ordinances, regulations or by-laws.
Voluntary General Partner Loan. Any loan made by General Partner to the
Partnership to pay Project Expenses which General Partner voluntarily makes and
is not obligated to make under this Agreement. Operating Deficit Loans and
Excess Adjustment Loans are not Voluntary General Partner Loans. Such loans
shall bear interest at an annual rate equal to the lesser of the Designated
Interest Rate plus 7%, or the highest rate permitted by law, and shall be
evidenced by unsecured, nontransferable promissory notes of the Partnership, in
form and substance satisfactory to General Partner and Special Limited Partner.
Voluntary General Partner Loans shall be repaid as provided in Section 6, and no
recourse for the payment hereof may be had against any other property of the
Partnership or against any Partner. Payments of principal and interest on
Voluntary General Partner Loans shall be applied in the same order in which such
Voluntary General Partner Loans are made (i.e., on a first-in, first-out basis).
Working Capital Reserve. The reserve in the initial amount of $81,200.00,
to be funded from the Mortgage Loan, which is to be used and applied to cover
Operating Deficits. The Working Capital Reserve will be held in interest-
bearing accounts which are fully insured by the Federal Deposit Insurance
Corporation, or in such other investments as Special Limited Partner may
approve. Interest earned on such funds will be retained in the Working Capital
Reserve and will be used by Manager in accordance with the Management Agreement
for the same purposes as other funds held in the Working Capital Reserve. In
the event of the sale of the Project at a time when funds are held in the
Working Capital Reserve, such funds will be applied as provided in the
Management Agreement, with any excess applied as provided in Section 6.2C.
SECTION 2: CONTINUATION
Section 2.1 Continuation
The Partners hereby agree to continue the limited partnership known as
Blackstone Hotel Partners, L.P. formed pursuant to the provisions of the Act and
the Original Agreement.
Section 2.2 Name and Office
The Partnership shall continue to be conducted under the name and style set
forth in Section 2.1. The principal office of the Partnership shall be c/o
Historic Restoration, Incorporated, 210 Baronne Street, Suite 1717, New Orleans,
Louisiana 70112. General Partner may at any time change the location of such
office and shall give due notice of any such change to each Limited Partner and
make all requisite filings to reflect such change with applicable Governmental
Authority.
Section 2.3 Purpose
The purpose of the Partnership is to acquire, rehabilitate, develop,
improve, maintain, own, operate, lease, dispose of and otherwise deal with the
Project in accordance with the Project Documents, any applicable Regulations,
and the provisions of this Agreement. The Partnership shall not engage in any
other business or activity.
Section 2.4 Authorized Acts
In furtherance of the purposes of the Partnership, but subject to all other
provisions of this Agreement including, but not limited to, Section 3 and
Section 7, the Partnership is hereby authorized:
(i) To acquire by purchase, lease or otherwise, any real or personal
property which may be necessary, convenient or incidental to the
accomplishment of the purposes of the Partnership;
(ii) To construct, reconstruct, rehabilitate, operate, maintain,
finance and improve, and to own, sell, convey, assign, mortgage or lease
any real estate and any personal property necessary, convenient or
incidental to the accomplishment of the purposes of the Partnership;
(iii) To borrow money and issue evidences of indebtedness in
furtherance of any or all of the purposes of the Partnership, and to secure
the same by mortgage, pledge or other lien on the Project or any other
assets of the Partnership, to the extent permitted by the Project
Documents;
(iv) To pay in whole or in part, refinance, recast, increase, modify
or extend the Mortgage Loan, the Gap Loan, the Third Mortgage, or any other
mortgage loans affecting the Project and in connection therewith to execute
any extensions, renewals, or modifications of the Mortgage Loan or any such
other loans on the Project;
(v) To enter into, perform and carry out, contracts of any kind,
including contracts with Affiliates of a Partner, necessary to, in
connection with or incidental to, the accomplishment of the purposes of the
Partnership, specifically including, but not limited to, the execution and
delivery of the Management Agreement and the Development Agreement,
Construction and Design Contract, and Incentive Partnership Management
Agreement, and all other agreements, certificates, instruments or documents
required by any Governmental Authority in connection with the Project
Documents and the acquisition, construction, Rehabilitation, development,
improvement, maintenance and operation of the Project;
(vi) To execute leases of any or all of the rentable space in the
Project, specifically including, but not limited to, the Restaurant Lease;
(vii) To execute any and all notes, mortgages and security agreements
(including a confession of judgement, waiver of appraisal) in order to
secure loans from the Lender and any and all other documents (including but
not limited to the Loan Documents, the Third Mortgage and the Gap Loan
Documents) required by the Lender in connection with the Deed of Trust,
the Mortgage Loan, the Third Mortgage, the Gap Deed of Trust, the Gap Loan
and the acquisition, development, improvement, maintenance and operation of
the Project, or otherwise required by the Lender in connection with the
Project;
(viii) To employ any Person, including an Affiliate or any Partner,
to perform services for, or to sell goods to, the Partnership (including
without limitation, management services) and to pay for such goods and
services; provided that (except with respect to any contract specifically
authorized by this Agreement) the terms of any such transaction with an
Affiliate or a Partner shall not be less favorable to the Partnership than
would be arrived at by unaffiliated parties dealing at arms' length, and
shall be subject to any applicable Regulations;
(ix) To modify or amend the terms of any agreement or contract which
General Partner is authorized to enter into on behalf of the Partnership;
provided, however, that such terms as amended shall not (i) have a material
adverse effect on the Partnership or either of the Limited Partners, or
(ii) be in contravention of any of the terms or conditions of this
Agreement or the Project Documents;
(x) To execute contracts with the Lender and/or any Governmental
Authority;
(xi) To execute and deliver the Loan Documents, the Gap Loan
Documents and the other Project Documents and any notices, documents or
instruments required to be executed or delivered in connection therewith;
(xii) To employ or engage such engineers, architects, technicians,
managers, accountants, lawyers and other Persons, including any Affiliate
of a Partner as may be necessary, convenient or incidental to the
accomplishment of the purposes of the Partnership; and
(xiii) To enter into any kind of activity and to perform and carry
out contracts of any kind necessary to, or in connection with, or
incidental to, the accomplishment of the purposes of the Partnership, so
long as said activities and contracts may be lawfully carried on or
performed by a partnership under the laws of the State and are not in
contravention with the terms of this Agreement.
Section 2.5 Term and Dissolution
A. The Partnership shall continue in full force and effect until December
31, 2046, except that the Partnership shall be dissolved prior to such date upon
the happening of any of the following events:
(i) The sale or other disposition of all or substantially all the
assets of the Partnership;
(ii) The occurrence of a Terminating Event unless the business of the
Partnership is continued pursuant to the provisions of Section 10;
(iii) The election to dissolve the Partnership made in writing by
General Partner with the Consent of Special Limited Partner, which Consent
may be withheld or granted in Special Limited Partner's sole and absolute
discretion, and, if required, any Requisite Approvals; or
(iv) The entry of a final decree of dissolution of the Partnership by
a court of competent jurisdiction.
B. Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to the provisions of Section 10), General
Partner, unless such dissolution is caused by a Terminating Event as to General
Partner, shall liquidate the Partnership's assets and apply and distribute the
proceeds thereof in accordance with Section 6.3. If such dissolution is caused
by a Terminating Event as to General Partner, then Special Limited Partner shall
liquidate the Partnership's assets and apply and distribute the proceeds thereof
in accordance with Section 6.3.
SECTION 3: ACQUISITION, FINANCING, REHABILITATION, AND DISPOSITION OF
PROPERTY
Section 3.1 Acquisition.
A. The Assignment of the Purchase Agreement is hereby approved,
confirmed, and ratified by the Partnership. The Partnership shall acquire the
Land and Improvements by virtue of the Deed.
B. General Partner is specifically authorized, for and on behalf of the
Partnership, to execute the Deed. Subsequent to the execution of said
documents, General Partner is, subject to the limitations set forth in this
Agreement, specifically authorized, for and on behalf of the Partnership, to
execute such other documents as General Partner reasonably deems necessary in
connection with the acquisition of the Land and Improvements, provided such
documents are consistent with and in accordance with the terms of this
Agreement.
Section 3.2 Financing.
A. The General Partner shall be authorized to cause the Partnership to
borrow (i) the Mortgage Loan from the Lender, which Mortgage Loan will be in the
maximum amount of $15,455,000.00, will provide for payments of interest only for
a period of 24 months after Mortgage Loan Closing and thereafter payments of
principal using an annual rate of interest of 10 percent based upon a 25-year
amortization period with a term of 5 years, and interest with an actual annual
interest rate of 3.25% over 30-day LIBOR adjusted monthly, and (ii) the Gap
Loan, which Gap Loan shall be in the maximum amount of $2,572,700.00, have a
maturity date not to exceed 18 months from the date of the Gap Loan Closing and
provide for payments of interest only until such maturity.
B. General Partner is specifically authorized, for and on behalf of the
Partnership, to execute the Loan Documents, The Third Mortgage, and the Gap Loan
Documents; the form and substance of which shall be subject to the Consent of
Special Limited Partner. Subsequent to the execution of such documents, General
Partner is, subject to the limitations set forth in this Agreement, specifically
authorized, for and on behalf of the Partnership, to execute such other
documents as General Partner deems necessary in connection with the Mortgage
Loan, the Third Mortgage, and/or Gap Loan provided that such documents are
consistent with the terms of the original Loan Documents, the Third Mortgage, or
the Gap Loan Documents, as the case may be, and with the provisions and
restrictions contained in this Agreement. To the extent that any such document
is inconsistent with the terms of the original Loan Documents, the Third
Mortgage, the Gap Loan Documents or this Agreement, General Partner may execute
such document only with the prior Consent of Special Limited Partner.
C. The General Partner and the Partnership shall be bound by the terms of
the Loan Documents, the Third Mortgage, and the Gap Loan Documents. Any
incoming General Partner shall as a condition of receiving any interest in the
Partnership agree to be bound by the Loan Documents, the Third Mortgage, and the
Gap Loan Documents. Upon any dissolution of the Partnership or any transfer of
the Project while the Mortgage Loan or the Third Mortgage is outstanding, no
title or right to the possession and control of the Project and no right to
collect the revenues therefrom shall pass to any Person who is not, or does not
become, bound in a manner satisfactory to the Lender, to the Loan Documents, the
Gap Loan Documents, and the provisions of this Agreement. The Loan Documents
and the Gap Loan Documents shall be binding upon and shall govern the rights and
obligations of the Partners, their heirs, executors, administrators, successors
and assigns as long as the Mortgage Loan or Gap Loan, as the case may be, is
outstanding.
D. Subject to the terms of the Loan Documents, the Third Mortgage, and
the other Project Documents, the Partnership may refinance the Mortgage Loan,
including any required transfer or conveyance of the Partnership assets for
security or mortgage purposes, may execute mortgages, notes, and any other
documents necessary for such a refinancing; provided, however, that the terms of
any such refinancing must receive the Consent of Special Limited Partner, to be
withheld or granted in Special Limited Partner's sole and absolute discretion,
before such transaction shall be binding on the Partnership.
E. In the event the Partnership desires to exercise the Mortgage Loan
Extension Privilege but has insufficient funds available from Partnership
Reserves and Operating Deficit Loans to pay down the Mortgage Loan to the debt
service coverage ratio required to obtain such extension, the General Partner
shall have the option of making a Voluntary General Partner Loan to the
Partnership for the purpose of paying down the Mortgage Loan to achieve such
debt service coverage ratio; provided, however, if the General Partner elects
not to make such Voluntary General Partner Loan for any reason, the Investor
Limited Partner shall have option of making an Investor Limited Partner Loan for
the purpose of enabling the Partnership to so pay down the Mortgage Loan (a
"Debt Service Coverage Loan"). A Debt Service Coverage Loan shall be treated as
an Investor Limited Partner Loan for all purposes of this Agreement.
F. In the event that the Mortgage Loan is not a Nonrecourse Debt as of
December 31, 1999, the General Partner shall pay the Investor Limited Partner a
$50,000 fee on December 31, 1999 and, subsequently, on each December 31st if the
Mortgage Loan is not a Nonrecourse Debt as of each such subsequent payment date.
Section 3.3 Rehabilitation.
General Partner is specifically authorized, for and on behalf of the
Partnership, to execute the Development Agreement, and the Construction and
Design Contract.
Section 3.4 Management and Disposition.
A. The execution and delivery of the Management Agreement by the
Partnership is hereby authorized, ratified and approved. The General Partner is
hereby authorized, for and on behalf of the Partnership, to execute the
Incentive Partnership Management Agreement.
B. The Partnership may not sell all or any portion of or an interest in
the Project nor enter into a contract relating to any such sale without the
prior Consent of Special Limited Partner, which Consent may be withheld or
granted in Special Limited Partner's sole and absolute discretion. All
documents to be executed by the Partnership with respect to any such sale are
subject to the prior review of and Consent by Special Limited Partner.
SECTION 4: PARTNERS AND CAPITAL ACCOUNTS
Section 4.1 General Partner
General Partner of the Partnership is HRI. Its address and Capital
Contribution are set forth in the Schedule.
Section 4.2 Limited Partners
A. Amerus-Blackstone, L.L.C. and AmerUs Management, Inc. are hereby
admitted into the Partnership as Investor Limited Partner and Special Limited
Partner, respectively, of the Partnership; their addresses and Capital
Contributions are set forth in the Schedule. The payment of their Capital
Contributions is governed by Section 5.1.
B. The Withdrawing Limited Partner hereby withdraws from the Partnership
as a Limited Partner and acknowledges that the Withdrawing Limited Partner has
no further interest in or claims against the Partnership in respect of the
Withdrawing Limited Partner's Limited Partnership Interest or otherwise and
shall not be considered a Limited Partner for purposes of this Agreement.
Section 4.3 Partnership Capital and Capital Accounts
A. The capital of the Partnership shall be the aggregate amount of the
cash, the Gross Asset Value of property and the value of any services
contributed by General Partner and Investor Limited Partner as set forth in the
Schedule. Except as specifically set forth herein, no Partner shall have any
right to make voluntary Capital Contributions to the Partnership. No interest
shall be paid by the Partnership on any Capital Contribution to the Partnership.
The Schedule shall be amended from time to time to reflect the withdrawal or
admission of Partners, any changes in the Partnership Interests held by a
Partner arising from the Transfer of a Partnership Interest to or by such
Partner, and any change in the amounts to be contributed or agreed to be
contributed by any Partner and the General Partner shall make all requisite
filings with any applicable Governmental Authority to reflect such matters.
B. An individual Capital Account shall be established and maintained for
each Partner, including any additional or Substitute Partner who shall hereafter
receive an interest in the Partnership in accordance with the terms of this
Agreement. The Capital Account of each Partner shall be maintained in
accordance with the following provisions:
(i) To each Partner's Capital Account there shall be credited such
Partner's Capital Contributions, such Partner's distributive share of
Profits, and any items in the nature of income or gain that are specially
allocated pursuant to Section 6, and the amount of any Partnership
liabilities that are assumed by such Partner or that are secured by any
Partnership Property distributed to such Partner;
(ii) To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership Property
distributed to such Partner pursuant to any provision of this Agreement,
such Partner's distributive share of Losses, and any items in the nature of
expenses or losses that are specially allocated pursuant to Section 6, and
the amount of any liabilities of such Partner that are assumed by the
Partnership or that are secured by any property contributed by such Partner
to the Partnership.
In the event that the Gross Asset Values of Partnership assets are adjusted
pursuant to this Agreement, the Capital Accounts of all Partners shall be
adjusted simultaneously to reflect the aggregate net adjustment as if the
Partnership recognized gain or loss equal to the amount of such aggregate net
adjustment.
C. The original Capital Account established for any Substitute Partner
shall be in the same amount as, and shall replace, the adjusted Capital Account
of the Partner which such Substitute Partner succeeds, and, for the purposes of
this Agreement, such Substitute Partner shall be deemed to have made the Capital
Contribution, to the extent actually paid in, of the Partner which such
Substitute Partner succeeds. To the extent a Substitute Partner receives less
than 100% of the Partnership Interest of a Partner, such Substitute Partner's
Capital Account and Capital Contribution shall be in proportion to the
Partnership Interest such Substitute Partner receives, and the Capital Account
and Capital Contribution of the Partner who retains a partial interest in the
Partnership shall continue, and not be replaced, in proportion to the
Partnership Interest such Partner retains.
D. The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of the Capital Accounts are intended to comply with
the Allocation Regulations, and shall be interpreted and applied in a manner
consistent with such Allocation Regulations. In the event that General Partner
determines that the Partnership is required to modify the manner in which the
Capital Accounts, or any debits or credits thereto, are computed in order to
comply with the Allocation Regulations, General Partner shall, with the Consent
of the Special Limited Partner, make such modification, in such a manner as to
cause the Partners' Capital Accounts to be maintained in such manner as may be
necessary to give effect to the manner the Partners have agreed to share
Distributions as provided in Section 6.2 and to maximize the amount of Historic
Rehabilitation Credit (and the charitable deductions attributable to the Facade
Donation) allocable to the Limited Partners. General Partner shall adjust the
amounts debited or credited to Capital Accounts with respect to (i) any property
contributed to the Partnership or distributed to the Partners, and (ii) any
liabilities that are secured by such contributed or distributed property that
are assumed by the Partnership or the Partners, in the event General Partner
shall determine such adjustments are necessary or appropriate pursuant to
Section 1.704-1(b)(2)(iv) of the Allocation Regulations. Subject to the
provisions of Section 6.3C, General Partner also shall make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with the Allocation Regulations.
Section 4.4 Withdrawal of Capital.
A Partner shall not have the right to withdraw from the Partnership all or
any part of such Partner's Capital Contribution. No Partner shall have any
right to demand or receive property of the Partnership in return for such
Partner's Capital Contribution, except as may be specifically provided in this
Agreement. No Partner shall be entitled to demand a redemption or repurchase of
such Partner's Partnership Interest, except as may be specifically provided in
this Agreement. Any return of Capital Contributions to the Partners pursuant to
this Agreement shall be solely from Partnership assets, and General Partner
shall not be personally liable for any such return.
Section 4.5 Liability of Limited Partner
No Limited Partner shall be liable for any debts, liabilities, contracts,
or obligations of the Partnership. A Limited Partner shall be liable only to
make payments of its Capital Contributions as and when due hereunder and any
Subordinated Partner Loan, if and as required hereunder. After a Limited
Partner's Capital Contributions are fully paid and any Subordinated Partner
Loans are made, such Limited Partner shall not be required to make any further
Capital Contributions or payments or lend any funds to the Partnership.
Section 4.6 Additional Limited Partners
A. General Partner may admit additional Limited Partners only with the
Consent of Special Limited Partner, which Consent may be withheld or granted in
Special Limited Partner's sole and absolute discretion, and only in accordance
with the provisions of Section 11.
B. Any incoming Limited Partner shall, by execution of this Agreement and
as a condition of receiving any interest in the Partnership Property, agree to
be bound by the Project Documents to the same extent and on the same terms as
the other Limited Partners.
C. Upon the admission of any additional Limited Partners, an amendment to
this Agreement reflecting such admission, shall, to the extent required by law,
be filed with the Filing Office and/or any other appropriate Governmental
Authority. Such amendment, if required, shall amend the Schedule to reflect the
names, addresses and Capital Contributions of such additional Limited Partners,
and shall set forth the agreement of such additional Limited Partners to be
bound by all the provisions of this Agreement.
SECTION 5: CAPITAL CONTRIBUTIONS OF INVESTOR LIMITED PARTNER AND
SPECIAL LIMITED PARTNER; OPERATING DEFICIT LOANS; INVESTOR
LIMITED PARTNER LOANS; LETTER OF CREDIT; REPURCHASE RIGHT;
DEFICIT RESTORATION OBLIGATIONS
Section 5.1 Capital Contributions of Investor Limited Partner and
Special Limited Partner
A. Subject to the provisions of Sections 5.3, 5.4 and 5.5, Investor
Limited Partner's Capital Contribution shall be in the amount of $3,576,900,
which Capital Contribution will be paid in two installments as follows:
(i) $3,219,200 (the "First Installment") shall be paid after
satisfaction of all of the Admission Date Conditions, as set forth on Exhibit A,
which Admission Date Conditions will be satisfied on or before the Admission
Date.
(ii) $357,700 (the "Second Installment") shall be paid 10 days after
the date by which all of the following events shall have occurred: (1) either
the Temporary Certificate of Occupancy or Certificate of Occupancy has been
issued; (2) the written determination by the Accountants of the aggregate amount
of the Historic Rehabilitation Credit; (3) the Cash Collateral Fund has been
funded or will be funded contemporaneously therewith; (4) either a final Part
III Historic Application issued by the Department of the Interior with respect
to the Historic Rehabilitation Credit, or both (x) a certificate of General
Partner in which General Partner certifies that General Partner believes that a
Part III Historic Application with respect to the Project will be issued by the
Department of the Interior in customary course and that General Partner intends
to include the Historic Rehabilitation Credit in the Partnership's tax return
for the year in which such certificate is issued, or has included the Historic
Rehabilitation Credit in the Partnership's tax return for an earlier year, and
(y) a certificate of HCI, reasonably satisfactory to Special Limited Partner, to
the effect that in HCI's professional judgement the Project has been completed
in accordance with the conditions relating to the Historic Rehabilitation Credit
and that a Part III Historic Application with respect to the Project will be
issued by the Department of the Interior in customary course; and (5) all of the
matters and conditions described in Section 5.2 have been satisfied.
Notwithstanding the foregoing, if the requirement of Section 5.1A(ii)(1) is
satisfied by the delivery of a Temporary Certificate of Occupancy, then Investor
Limited Partner shall have the right to fund a portion of the Second Installment
in an amount equal to the reasonably anticipated costs yet to be incurred by the
Partnership in obtaining a Certificate of Occupancy into an escrow account held
by an escrow agent and pursuant to escrow instructions reasonably satisfactory
to Special Limited Partner and General Partner. The amounts held in such escrow
account shall be released to the Partnership upon completion of all such work
and upon the issuance of a Certificate of Occupancy.
(iii) Notwithstanding the foregoing but subject to Section 5.3 below,
Investor Limited Partner will have the right, at Investor Limited Partner's
election, but not the obligation, to pay all or a portion of the Second
Installment to obtain a release of the Letter of Credit and/or to any third
party to which the Partnership then owes an obligation which is then due and
payable or to make any payment to any Person which would cure any Material
Default, provided that Investor Limited Partner has given General Partner at
least 5 days' prior notice of Investor Limited Partner's intent to make such
payment and General Partner has failed, within 5 days after such notice, to
contest, settle, or otherwise satisfy or discharge the obligation which
underlies the payment that Investor Limited Partner has notified General Partner
of, in a manner which prevents the Person to which such obligation is owed from
enforcing such obligation or otherwise harming the Partnership with respect to
such obligation; any such payment made by Investor Limited Partner will be
deemed to be made on behalf of the Partnership and, to the extent of such
payment, the Second Installment will be deemed to have been paid. No such
payment by Investor Limited Partner will be deemed to be a waiver of any
Material Default or will relieve General Partner of any of General Partner's
obligations under this Agreement, including, but not limited to, matters which
were cured by such payment.
B. Special Limited Partner's Capital Contribution shall be in the amount
of $100.00 and shall be paid to the Partnership in full in cash on the Admission
Date.
Section 5.2 Conditions to Payment of Second Installment
The following are conditions precedent (which must, in any event, occur on
or before April 30, 1999) to payment of the Second Installment by Investor
Limited Partner:
A. All of the conditions precedent to the Admission Date have been and
remain satisfied.
B. No Material Default has occurred, and no event has occurred which with
the passage of time or the giving of notice would constitute a Material Default,
and neither Investor Limited Partner nor Special Limited Partner has delivered a
notice of a Material Default which is currently being contested by General
Partner.
C. The Temporary Certificate of Occupancy Date has occurred and the
Project is not subject to any liens, claims or encumbrances other than the Deed
of Trust, or other matters set forth in the title insurance policy delivered to
Special Limited Partner at the Mortgage Loan Closing pursuant to this Agreement.
D. Intentionally Omitted.
E. General Partner has delivered a written certification to Investor
Limited Partner (a "Payment Certificate") in the form attached to this Agreement
as Exhibit C.
F. General Partner must deliver each of the following to Special Limited
Partner:
(i) A copy of the Temporary Certificate of Occupancy, together with
evidence that the nature of the work remaining to be done is of a nature which
would not impair the permanent occupancy of any portion of the Project, which
evidence is reasonably satisfactory to Special Limited Partner.
(ii) A copy of a lien waiver executed by the Contractor, dated not
more than 30 days prior to the date on which the Second Installment is due;
which lien waiver must show that all amounts due through the date of such waiver
have been paid.
(iii) A "date-down" endorsement to the title insurance policy
required under this Agreement, which is to be issued concurrently with payment
of the Second Installment, dating the policy as of the date on which the Second
Installment is paid, which endorsement must not contain any exception relating
to any liens of record not previously set forth on the title insurance policy
issued at the Mortgage Loan Closing.
(iv) Such estoppel certificate(s), in form and substance approved by
the Special Limited Partner, from the appropriate Governmental Authority that
the Partnership is not in default under the Primary Tax Financing Documents to
which such Governmental Authority is a party and the Primary Tax Financing
Documents are in full force and effect; provided, however, that if the General
Partner is unable (in the exercise of good faith and reasonable and diligent
efforts) to obtain such estoppel certificates in a timely manner solely as a
result of the inability of the applicable Governmental Authority to provide such
an estoppel within the time period in which all of the other provisions in this
Section 5.2 are satisfied, the General Partner shall provide written
notification to Investor Limited Partner setting forth a representation that the
General Partner is using and will continue to use such reasonable and diligent
efforts to obtain such estoppel certificates.
(v) An estoppel certificate, dated not more than 30 days before the
date on which the Second Installment is due, from the General Partner, in the
form attached to this Agreement as Exhibit D.
(vi) Evidence of written instructions from the Partnership delivered
to the Lender contemporaneously with the payoff of the Gap Loan and requiring
the original Letter of Credit to be marked "CANCELLED" by Lender and delivered
to Investor Limited Partner.
G. If requested by Special Limited Partner, an opinion of the
Partnership Counsel, or such other counsel satisfactory to Special Limited
Partner, relating to the authority of General Partner, and any Affiliate of
General Partner which may be providing services to the Partnership, and to the
enforceability of this Agreement and the other Project Documents, which opinion
must be reasonably satisfactory to Special Limited Partner. The cost of such
opinion will be borne by the Partnership.
H. If requested by Special Limited Partner, an opinion of the
Partnership Counsel, or such other tax counsel satisfactory to Special Limited
Partner, which shall include opinions relating to the federal income tax
classification of the Partnership, the availability of the Historic
Rehabilitation Credit and charitable deduction relating to the Facade Donation,
the allocation of 99% of such credit and charitable deduction to the Limited
Partners in accordance with this Agreement, and the status of Limited Partners
as "limited partners" under the Act notwithstanding the taking of any action or
exercise of any and all rights, approvals and directives by Limited Partner in
accordance with the terms of this Agreement, which opinion must be reasonably
satisfactory to Special Limited Partner. The cost of such opinion will be borne
by the Partnership.
I. A certificate, in form and substance approved by the Special
Limited Partner, from the Developer that the Project has been developed in
accordance with the Plans and Specifications and the Primary Tax Financing
Documents.
J. The financial statements of General Partner (which need not be
audited), obtained at the expense of General Partner, dated no earlier than 90
days prior to the date on which the Second Installment is due (or if dated more
than 90 days prior to such date, in addition, a certificate of General Partner
that there has been no material adverse change to General Partner's financial
condition since the date of such financial statements).
K. The financial statements of HRI (which need not be audited),
obtained at the expense of HRI, dated no earlier than 90 days prior to the date
on which the Second Installment is due (or if dated more than 90 days prior to
such date, in addition, a certificate of HRI that there has been no material
adverse change to HRI's financial condition since the date of such financial
statements), showing that there has been no material adverse change from the
financial statements submitted to Special Limited Partner in connection with
Investor Limited Partner's entrance into this Agreement and also showing that
HRI's net worth is equal to or greater than $4,000,000.00 determined in
accordance with GAAP.
L. Insurance certificates evidencing all insurance policies required
under this Agreement and/or the Management Agreement are paid for and in full
force and effect as of the date on which the Second Installment is due.
M. Copies of such other documents, permits, certificates, reports or
other items relating to the Project as Special Limited Partner may reasonably
request.
Section 5.3 Adjuster Provisions: Generally; Completion Adjuster
A. The parties acknowledge that the amount of Investor Limited Partner's
Capital Contribution is based on the amount of the charitable deduction
attributable to the Facade Donation Documents allocable to Investor Limited
Partner as shown in the Projections and an amount of Historic Rehabilitation
Credit allocable to Investor Limited Partner under the terms of this Agreement
of $3,752,690.00. If the amount of the Historic Rehabilitation Credit allocable
to Investor Limited Partner under the terms of this Agreement is less than
$3,752,690.00, and/or such charitable deduction allocable to Investor Limited
Partner under the terms of this Agreement is less or greater than the amounts
shown in the Projections, the provisions of Sections 5.4 and 5.5 shall apply;
provided, however, that in the event a Negative Historic Adjustment and/or a
Negative Charitable Adjustment results in a reduction of Investor Limited
Partner's Capital Contribution Installments or an offset to any amounts
otherwise distributable or payable to the General Partner or to General
Partner's Affiliates or a payment by General Partner to Investor Limited Partner
pursuant to Sections 5.4, 5.5 or 5.13, as the case may be, then such payment
shall nevertheless be deemed for all purposes to be a return of Investor Limited
Partner's Capital Contribution Installments, in the inverse order in which such
Installments were made.
B. If the Placed-In-Service Date has not occurred on or prior to December
31, 1998, General Partner shall indemnify the Investor Limited Partner (for the
General Partner's failure to timely complete the Project) in an amount (the
"Completion Adjuster") equal to the sum of (i) the product of 20% multiplied by
the First Installment, plus (ii) interest on the amount specified in the
preceding clause (i) at an annual rate equal to the lesser of the Designated
Interest Rate plus 7%, or the highest rate permitted by law from the December
31, 1998 until such Completion Adjuster is paid in full; which amount shall be
paid by General Partner, in cash, on or before January 31, 1999; provided,
however, that for all purposes of this Agreement, any amount so paid to Investor
Limited Partner by General Partner shall not constitute a loan nor contribution
of capital to the Partnership by General Partner, and General Partner shall not
be entitled to receive any repayment or other compensation or consideration with
respect to such amount. The Investor Limited Partner shall have the right to
offset any amounts due from Investor Limited Partner under the Second
Installment or its Subordinated Partner Loan against amounts due from the
General Partner to Investor Limited Partner pursuant to this Section 5.3B;
provided, however, for purposes of all allocations, distributions and payments
under this Agreement, the Investor Limited Partner shall be treated as having
made the full amount of its Second Installment and Subordinated Partner Loan
notwithstanding such offset and such offset shall not constitute a loan nor
contribution of capital to the Partnership by General Partner, nor shall the
General Partner be entitled to receive any repayment or other compensation or
consideration with respect to such offset amount.
Section 5.4 Historic Rehabilitation Credit Adjuster
Notwithstanding anything to the contrary contained herein, if, for any
reason other than a change in the law having a retroactive impact on the tax
benefits allocable to Investor Limited Partner hereunder, (x) the written
determination by the Accountants of the aggregate amount of the Historic
Rehabilitation Credit is such that, or (y) the Partnership shall file a federal
income tax return showing that, or (z) there shall be a Final Determination
that, the aggregate amount of Historic Rehabilitation Credit allocated to
Investor Limited Partner is an amount less or greater than $3,752,690.00 (such
determination shall be referred to herein as the "Historic Credit
Determination"), then the Accountants shall calculate the difference between the
aggregate amount of Historic Rehabilitation Credit projected to be allocated to
Investor Limited Partner and the amount in fact allocated; if the aggregate
amount of Historic Rehabilitation Credit projected to be allocated to Investor
Limited Partner is greater than the amount in fact allocated, such amount shall
be referred to as the "Negative Historic Credit Difference"; if the aggregate
amount of Historic Rehabilitation Credit projected to be allocated to Investor
Limited Partner is less than the amount in fact allocated, such amount shall be
referred to as the "Positive Historic Credit Difference". In the event a
Historic Credit Determination is made that results in either a Negative Historic
Adjustment or a Positive Historic Adjustment, all subsequent Historic Credit
Determinations will be made on the basis of the initial amount of the Historic
Rehabilitation Credit allocated to the Investor Limited Partner as adjusted for
any prior Negative Historic Adjustment(s) and Positive Historic Adjustment(s).
(i) If there is a Negative Historic Credit Difference, the Negative
Historic Credit Difference will be multiplied by 89.25% and the resulting
product shall be the "Negative Historic Adjustment".
(ii) If there is a Positive Historic Credit Difference, the Positive
Historic Credit Difference will be multiplied by 85% and the resulting
product shall be the "Positive Historic Adjustment".
(iii) If at the time that a Negative Historic Adjustment is
determined Investor Limited Partner has not paid all of the Installments of
Investor Limited Partner's Capital Contributions, then the amount of the
remaining Capital Contribution Installment(s) to be paid by Investor
Limited Partner shall be reduced by the Negative Historic Adjustment. If
the Negative Historic Adjustment exceeds the aggregate of such remaining
Capital Contribution Installments, such excess shall constitute Excess
Adjustment and shall be repaid to Investor Limited Partner in accordance
with the terms of Section 5.13.
(iv) If at the time that a Negative Historic Adjustment is determined
Investor Limited Partner has paid in all of Investor Limited Partner's
Capital Contribution Installments, then the entire amount of such Negative
Historic Adjustment shall constitute an Excess Adjustment and shall be
repaid to Investor Limited Partner in accordance with the terms of Section
5.13.
(v) If at the time that a Positive Historic Adjustment is determined
Investor Limited Partner has not paid all of the Installments of Investor
Limited Partner's Capital Contributions, then the amount of the Second
Installment shall be increased by the amount of the Positive Historic
Adjustment.
(vi) If at the time that a Positive Historic Adjustment is determined
Investor Limited Partner has paid all of Investor Limited Partner's Capital
Contribution Installments, then Investor Limited Partner will make an
additional Capital Contribution to the Partnership in the amount of the
Positive Historic Adjustment within 30 days after Special Limited Partner's
receipt of notice from General Partner that such amount is payable and
documentation evidencing same.
In the event of a Positive Historic Adjustment, the first $150,000.00 of
any Capital Contribution (or portion thereof) made by Investor Limited Partner
that is attributable to such Positive Historic Adjustment shall be deposited in
the Operating Reserve and any remaining portion of such Capital Contribution
shall be paid or applied as provided in Section 5.7 and/or the Development
Agreement.
Section 5.5 Facade Donation Adjuster
Notwithstanding anything to the contrary contained herein, if, for any
reason other than a change in the law having a retroactive impact on the tax
benefits allocable to Investor Limited Partner hereunder, (w) the written
determination by the Accountants (the form and substance of which shall be
approved with the Consent of the Special Limited Partner (with the prior
approval of its legal counsel)) of the amount the charitable deduction relating
to the Facade Donation is such that, or (x) based on the amount of the Facade
Donation Appraisal is determined by General Partner and Special Limited Partner
(with the prior approval of its legal counsel) that, or (y) the Partnership
shall file a federal income tax return showing that, or (z) there shall be a
Final Determination that, the charitable deduction allocable to Investor Limited
Partner as a result of the execution and delivery of the Facade Donation
Documents is less than the amount shown in the Projections (such determination
shall be referred to herein as the "Charitable Deduction Determination"), then
the Accountants shall calculate the difference between the aggregate amount of
the charitable deduction allocable to Investor Limited Partner as a result of
the execution and delivery of the Facade Donation Documents projected to be
allocated to Investor Limited Partner and the amount in fact allocated based on
(w), (x), (y) or, when applicable, (z) above; if the aggregate amount of such
charitable deduction projected to be allocated to Investor Limited Partner is
greater than the amount in fact allocated, such amount shall be referred to as
the "Negative Charitable Deduction Difference." In the event a Charitable
Deduction Determination is made which results in a Negative Charitable
Adjustment, any subsequent Charitable Deduction Determination will be made
taking into consideration all previous Negative Charitable Adjustment(s).
(i) If there is a Negative Charitable Deduction Difference, the
Negative Charitable Deduction Difference will be multiplied by 18.375% and
the resulting product shall be the "Negative Charitable Adjustment".
(ii) If at the time that a Negative Charitable Adjustment is
determined Investor Limited Partner has not paid all of the Installments of
Investor Limited Partner's Capital Contributions, then the amount of the
remaining Capital Contribution Installment(s) to be paid by Investor
Limited Partner shall be reduced by the Negative Charitable Adjustment. If
the Negative Charitable Adjustment exceeds the aggregate of such remaining
Capital Contribution Installments, such excess shall constitute Excess
Adjustment and shall be repaid to Investor Limited Partner in accordance
with the terms of Section 5.13.
(iii) If at the time that a Negative Charitable Adjustment is
determined Investor Limited Partner has paid in all of Investor Limited
Partner's Capital Contribution Installments, then the entire amount of such
Negative Charitable Adjustment shall constitute an Excess Adjustment and
shall be repaid to Investor Limited Partner in accordance with the terms of
Section 5.13.
Section 5.6 IRS Claims
A. In the event that a claim is made by the IRS (a "Claim") upon audit
which, if successful, would result in an adjustment to the Capital Contributions
of Investor Limited Partner or any payments pursuant to Sections 5.4, 5.5 or
5.13, General Partner, in General Partner's capacity as the TMP, shall, within
30 days after receiving notice of such Claim, notify Investor Limited Partner
and Special Limited Partner of the Claim (such notice being referred to as a
"Claim Notice") and request that Investor Limited Partner notify the Partnership
of Investor Limited Partner's intention either to contest such Claim or to
accept the same. If Investor Limited Partner elects to contest such Claim, the
TMP shall take such action in contesting such Claim on behalf of the Partnership
and Investor Limited Partner as the TMP reasonably deems necessary or as
directed by Special Limited Partner. In such event, all third party costs and
expenses incurred by the TMP in connection with such matter shall be borne by
the Partnership and/or the Partners in accordance with the provisions of Section
7.9. The failure of Special Limited Partner, within 30 days after the date of
the Claim Notice, to notify the Partnership of Investor Limited Partner's
intention to contest such Claim shall be deemed to be a decision to accept the
same.
B. In the event that Investor Limited Partner elects to accept such
Claim, General Partner may nevertheless contest the Claim by appropriate
proceedings, provided, however, that (i) General Partner elects to contest such
Claim, and in fact commences such contest, within any applicable period of
limitations, (ii) prior to contesting any such Claim, General Partner delivers
to Special Limited Partner security, satisfactory to Special Limited Partner,
securing General Partner's potential obligations under Section 5.4, 5.5, 5.13
and this Section 5.6, (iii) General Partner diligently prosecutes such contest,
and (iv) if, following the contest of such Claim by General Partner, all or a
portion of the Claim is sustained in a Final Determination, then there shall be
added to the adjustments referred to in Sections 5.4 and 5.5 an amount equal to
the interest, penalties, or any other amount assessed against Investor Limited
Partner for the period commencing on the date of the Claim Notice and ending on
the date of such Final Determination.
C. If, following a decision by General Partner to contest a Claim under
Section 5.6B above, 50% or more of the tax deficiency amount specified in the
Claim is sustained in a Final Determination, the costs and expenses of
contesting the Claim shall be borne solely by General Partner. If such Final
Determination results in less than 50% of the tax deficiency amount specified in
the Claim being upheld, the costs and expenses of contesting the Claim shall be
borne by the Partnership and/or the Partners in accordance with the provisions
of Section 7.9.
Section 5.7 Project Cost Overruns
In the event that the cost of construction, development, and Rehabilitation
of the Project exceeds the total project cost set forth in the Development
Budget, General Partner shall pay to the Partnership the amount of such excess.
Such payment or payments shall be made at such times as may be necessary to
assure that the costs of construction, development, and Rehabilitation of the
Project are timely paid. Except as provided in this Section 5.7, such payments
by General Partner shall not constitute loans nor contributions of capital to
the Partnership by General Partner, and General Partner will not be entitled to
receive any repayment or other compensation or consideration with respect to
such amounts. Notwithstanding the foregoing, to the extent that Investor
Limited Partner's Capital Contributions are increased under Section 5.4 as a
result of the cost of construction, development, and Rehabilitation of the
Project exceeding the total project cost set forth in the Development Budget,
then the Partnership will reimburse General Partner for amounts paid by General
Partner under this Section 5.7, or will reimburse a Development Guarantor for
amounts paid by such Development Guarantor under the Development Guaranty
Agreement, upon receipt by the Partnership of Investor Limited Partner's
increased Capital Contribution, but such reimbursement shall not exceed the
excess of (i) amount of such increase in Investor Limited Partner's Capital
Contribution over (ii) the sum of $150,000.00. If the increase in Investor
Limited Partner's Capital Contribution is less than the aggregate of the amounts
paid by General Partner under this Section 5.7 and amounts paid by the
Development Guarantors under the Development Guaranty Agreement, then the
proceeds of Investor Limited Partner's increased Capital Contribution in excess
of $150,000.00 will be allocated between General Partner and the Development
Guarantors as determined by General Partner; provided, however, the Limited
Partners shall have no duty to determine the reasonableness of such allocation
or oversee the application of such funds by the General Partner to the General
Partner and/or the Development Guarantors.
Section 5.8 Operating Deficits and Operating Deficit Loans; Use of
Operating Deficit Reserve; and Cash Collateral Fund
A. (i) If at any time during the Initial Operating Period, the
Partnership requires funds to eliminate an Operating Deficit, then General
Partner shall use funds from the Operating Reserve, as may be necessary to
eliminate such Operating Deficit, until the Operating Reserve is depleted.
(ii) If, at any time during the Initial Operating Period after the
Operating Reserve is depleted, the Partnership requires funds to eliminate an
Operating Deficit, then such shortfall shall be funded by General Partner making
an Operating Deficit Loan to the Partnership. Such Operating Deficit Loan shall
be funded 1/2 from the Cash Collateral Fund (to the extent funds are available),
and 1/2 from General Partner (provided that to the extent that funds are not
available in the Cash Collateral Fund to pay the full 1/2 portion of such
shortage, General Partner will pay the difference as necessary, subject to the
Operating Deficit Loan Maximum). Notwithstanding the foregoing, General Partner
shall not be required to make an Operating Deficit Loan to the Partnership to
the extent that the outstanding principal amount of Operating Deficits Loans
equals or exceeds the Operating Deficit Loan Maximum. To the extent that the
principal amount of any Operating Deficit Loan is repaid to General Partner, the
amount of such repayment shall be credited against the aggregate amount of the
outstanding advances made by General Partner under this Section 5.8A(ii), and
the amount so repaid shall be available again for future Operating Deficit Loans
during the Initial Operating Period (e.g. the Operating Deficit Loans will be
"revolving" loans which have a maximum outstanding principal amount of the
Operating Deficit Loan Maximum). General Partner acknowledges that the maximum
aggregate principal amounts of the Operating Deficit Loans under this Section
5.8A(ii) will remain at the Operating Deficit Loan Maximum throughout the
Initial Operating Period.
(iii) In the event that during the Initial Operating Period the
Operating Reserve is depleted and General Partner fails to make an Operating
Deficit Loan as required under this Section 5.8A, then Special Limited Partner
may withdraw the amount which General Partner was required to loan to the
Partnership as a Operating Deficit Loan from the Cash Collateral Fund and use
such amounts to fund such Operating Deficit. No such withdrawal from the Cash
Collateral Fund by Special Limited Partner will be deemed to cure General
Partner's default with respect to the failure to make an Operating Deficit Loan,
and General Partner shall be required, in addition to all other obligations
under this Agreement, to restore to the Cash Collateral Fund the amount so
withdrawn, together with interest on such amount at the Designated Interest Rate
plus 7% from the date so withdrawn by Special Limited Partner until so restored.
B. In the event (i) during the Initial Operating Period the Operating
Reserve and the Cash Collateral Fund are each depleted and General Partner
either fails to make an Operating Deficit Loan or is not required to make an
Operating Deficit Loan pursuant to Section 5.8A, or (ii) there is an Operating
Deficit after the expiration of the Initial Operating Period, Investor Limited
Partner may, but shall not be obligated to, make an Investor Limited Partner
Loan to the Partnership.
Section 5.9 No Third-Party Rights in Operating Deficit Loans
The obligation of General Partner to make Operating Deficit Loans pursuant
to Section 5.8 is for the benefit of the Partnership and the Partners and shall
not inure to the benefit of any creditor of the Partnership other than a
Partner, notwithstanding any pledge or assignment by the Partnership of this
Agreement or any rights hereunder.
Section 5.10 No Third-Party Rights in Capital
The obligations or rights of the Partnership or of the Partners to make or
require any Capital Contribution under this Agreement shall not grant any rights
to, or confer any benefits upon, any Person who is not a Partner. The making of
a nonrecourse loan to the Partnership shall not make the lender a Partner.
Section 5.11 Letter of Credit.
At the Gap Loan Closing, Investor Limited Partner shall cause the Letter of
Credit to be issued in favor of the Lender. The Partnership shall reimburse the
Investor Limited Partner for the reasonable costs of obtaining the Letter of
Credit. In the event that the Lender draws upon the Letter of Credit, General
Partner shall immediately reimburse Investor Limited Partner, (or, if such
Letter of Credit was issued at the request of an Affiliate of Investor Limited
Partner, such Affiliate), for the amount so drawn together with any liability or
cost which Investor Limited Partner or such Affiliate may incur with respect to
such draw. The Letter of Credit shall be cancelled and released upon General
Partner and Investor Limited Partner making the Subordinated Partner Loans to
the Partnership. General Partner's obligations under this Section 5.11 will be
secured by the Development Guaranty Agreement, the Development Fee Note
Assignment, and the General Partner Pledge.
Section 5.12 Limited Partners' Right to Require Repurchase
A. In the event (a "Repurchase Event") that (i) the Partnership is in
default under the Mortgage Loan and the Lender has accelerated the Mortgage Loan
prior to the later of the date the Mortgage Loan becomes a Nonrecourse Liability
or prior to issuance of the Certificate of Occupancy, or (ii) the Temporary
Certificate of Occupancy Date does not occur on or before December 31, 1998, or
(iii) the Certificate of Occupancy Date and all conditions set forth in Section
5.2 do not occur on or before April 1, 1999, or (iv) the Negative Historic
Credit Difference is greater than 15% of the Historic Rehabilitation Credit to
be allocated to Investor Limited Partner set forth in the Projections, or (v)
the Partnership is in default under the Management Agreement prior to the later
of date the Mortgage Loan becomes a Nonrecourse Liability or the date of
issuance of the Temporary Certificate of Occupancy, then General Partner shall,
within 30 days after the occurrence of such Repurchase Event, notify Investor
Limited Partner and Special Limited Partner of such event. If such notice is
required by a Repurchase Event described in clauses (i), (ii), (iii) or (iv),
the Special Limited Partner shall have the option to require General Partner to
purchase the Special Limited Partner's and the Investor Limited Partner's
Partnership Interests at a price equal to (x) the amount of the Capital
Contribution which such Limited Partners have made, plus (y) Subordinated
Partner (including interest thereon) Loans and other amounts loaned or advanced
to the Partnership by the Limited Partners, plus (z) any reasonable out of
pocket costs or expenses incurred by Investor Limited Partner or Special Limited
Partner with respect to this Agreement (including, without limitation, any
penalties and interest attributable to a recapture of the Historic Rehabilita-
tion Credit), the Partnership, the Project, or General Partner's repurchase of
such Partnership Interests. If such notice is required by a Repurchase Event
described in clause (v), the Special Limited Partner shall reasonably determine
whether Manager may seek to terminate the Management Agreement and shall notify
General Partner of such determination. If General Partner fails to provide
Investor Limited Partner and Special Limited Partner within 15 days of receipt
of such notice from the Special Limited Partner with (a) evidence reasonably
satisfactory to them that Manager will not terminate the Management Agreement,
(b) evidence of the Partnership's cure of such default, or (c) a copy of suit
filed by the Partnership challenging the alleged default described in clause (v)
and evidence of reasonable diligence in prosecuting such challenge, the Special
Limited Partner shall then have the option to require the General Partner to
purchase the Partnership Interests of Investor Limited Partner and Special
Limited Partner at the price set forth above; provided, however, if the General
Partner provides such evidence and pleadings relating to the prosecution of such
challenge and subsequently fails to diligently prosecute such challenge or does
not prevail on such challenge for any reason, the Special Limited Partner shall
then have the option to require the General Partner to purchase the Partnership
Interests of Investor Limited Partner and Special Limited Partner at the price
set forth above.
B. If either Investor Limited Partner or Special Limited Partner elects to
require General Partner to repurchase such Partner's Partnership Interest, such
Partner shall notify General Partner whereupon General Partner shall, within 30
days of receipt of such notice, pay Investor Limited Partner or Special Limited
Partner, as applicable, the purchase price in cash or immediately available
funds. Upon such payment by General Partner, Investor Limited Partner or
Special Limited Partner, as applicable, shall be released from any further
obligations under this Agreement, the Project Documents, or otherwise relating
to the Partnership or the Project, and, to the full extent permitted by law,
Investor Limited Partner and Special Limited Partner, and each of Investor
Limited Partner's and Special Limited Partner's Affiliates, shall be indemnified
by General Partner against any losses, judgments, liabilities, expenses and
amounts paid in settlement of any claims sustained by such Person in connection
with the Partnership or the Project.
Section 5.13 Repayment to Investor Limited Partner of Excess Adjustment
Any and all Excess Adjustments shall be repaid as provided in this Section
5.13. The Investor Limited Partner shall have the right to offset any or all of
the unpaid portion of the Second Installment and/or its Subordinated Partner
Loan up to the full amount of the Excess Adjustments. So long as there is any
Excess Adjustment outstanding, Distributions of Cash Flow to the General Partner
or its Affiliates will be allocated and distributed to Investor Limited Partner
and payments of the Developer Fee and/or payments on the Deferred Development
Note shall be applied in repayment of such Excess Adjustment prior to allocation
or distribution of any Cash Flow to General Partner or to General Partner's
Affiliates and or payments of the Developer Fee and/or payment on the Deferred
Development Note, until such time as funds have been so distributed or applied
to Investor Limited Partner under this Section in an amount equal to (i) the
Excess Adjustment, plus (ii) interest on such amount at a rate of 15% per annum
calculated from the date on which Investor Limited Partner's Capital
Contribution containing such amount was made until all of the Excess Adjustment
and all interest thereon is so repaid. Any amount so distributed or applied to
Investor Limited Partner under this Section shall be first applied to the
payment of interest, then to the payment of the Excess Adjustment. If the
Excess Adjustment and all interest thereon are not paid in full within 12 months
after the date on which such Excess Adjustment was determined, General Partner
shall pay to Investor Limited Partner the amount necessary to repay all amounts
then owing to Investor Limited Partner with respect to the Excess Adjustment and
all interest thereon and such payment by General Partner will be treated as an
Excess Adjustment Loan which will be repaid as provided in Section 6.2.
Section 5.14 Subordinated Partner Loans.
A. After the earlier of the date (i) the Gap Loan matures (other than by
reason of a default thereunder) or (ii) the Second Installment is made, and upon
satisfaction of the conditions precedent in Section 5.14B, the Investor Limited
Partner shall lend funds to the Partnership (a "Subordinated Partner Loan") in
the aggregate amount of $2,098,000.00 at any time within 5 days after the
General Partner gives notice to the Investor Limited Partner, of the need for
such funds; provided, however, that the Investor Limited Partner shall have the
right, exercisable by at least 3 days prior written notice to the General
Partner, to require the General Partner to participate in the funding of such
Subordinated Partner Loan by means of a Subordinated Partner Loan from the
General Partner up to an aggregate amount of $799,000.00, and in the event the
General Partner is so required to make such Subordinated Partner Loan, the
amount of the Investor Limited Partner's Subordinated Partner Loan shall be
reduced by the amount of the Subordinated Partner Loan the General Partner is so
required to make and the tender of such Subordinated Partner Loan by the
Investor Limited Partner to the Partnership, shall be conditioned on the receipt
by the Partnership of such required Subordinated Partner Loan from the General
Partner. General Partner's obligation to make a Subordinated Partner Loan as
provided in this Section 5.14A is conditioned on AmerUs Life Insurance Company
fulfilling its obligations under the Put Loan Documents.
B. The following are conditions precedent (which must, in any event,
occur on or before April 30, 1999) to funding of the Subordinated Partner Loan
by Investor Limited Partner:
(i) All of the conditions precedent to the Admission Date have been
and remain satisfied.
(ii) No Material Default has occurred, and no event has occurred which
with the passage of time or the giving of notice would constitute a
Material Default, and neither Investor Limited Partner nor Special Limited
Partner has delivered a notice of a Material Default which is currently
being contested by General Partner.
(iii) General Partner must deliver each of the following to
Special Limited Partner:
(a) Such estoppel certificate(s), in form and substance approved
by the Special Limited Partner, from the appropriate Governmental
Authority that the Partnership is not in default under the Primary Tax
Financing Documents to which such Governmental Authority is a party
and such Tax Financing Documents are in full force and effect;
provided, however, that if the General Partner is unable (in the
exercise of good faith and reasonable and diligent efforts) to obtain
such estoppel certificates in a timely manner solely as a result of
the inability of the applicable Governmental Authority to provide such
an estoppel within the time period in which all of the other
provisions in this Section 5.14B are satisfied, the General Partner
may provide a certificate setting forth a representation that the
General Partner is using and will continue to use such reasonable
diligent efforts to obtain such estoppel certificates.
(b) An estoppel certificate, dated not more than 30 days before
the date on which the Subordinated Partner Loan is due, from the
General Partner, in form the form attached to this Agreement as
Exhibit D.
(c) Evidence of written instructions from the Partnership
delivered to the Lender contemporaneously with the payoff of the Gap
Loan and requiring the original Letter of Credit to be marked
"CANCELLED" by Lender and delivered to Investor Limited Partner.
Section 5.15 Default By Investor Limited Partner
If Investor Limited Partner fails to pay an Installment of its Capital
Contribution when due and fails to pay such Installment within 10 days after
receipt of written notice from General Partner to Investor Limited Partner and
Special Limited Partner that Investor Limited Partner is in default, then
Investor Limited Partner will be in default under this Agreement. At any time
prior to the expiration of such 10 day period after receipt of such notice,
Investor Limited Partner will have the right to either (i) cure such default by
paying to the Partnership such past due amount, and, upon such cure, Investor
Limited Partner will be reinstated in good standing in the Partnership and the
rights of the Partnership and General Partner under this Section 5.15 with
respect to such default will terminate, or (ii) contest whether such a default
occurred by giving notice of such contest to General Partner within such 10 day
period, and if Investor Limited Partner so contests such default General
Partner's rights under this Section 5.15 will be tolled until it is determined
that such a default has occurred, provided, however, that unless General Partner
and Investor Limited Partner agree to a resolution of such contest within 30
days after Investor Limited Partner's notice of such contest, or unless General
Partner has instituted an appropriate action relating to such default with a
court of appropriate jurisdiction within such 30 day period, then such a default
will not be deemed to have occurred. If Investor Limited Partner fails to cure
or contest as provided above, then: (A) the Partnership Interests of Investor
Limited Partner and Special Limited Partner shall each be deemed to be those of
a Special Class Limited Partner and the holders thereof shall be entitled only
to such rights as an assignee of a Limited Partnership Interest may have as such
under the provisions of Section 11.4 of this Agreement, the Act, and other
applicable laws of the State; (B) Investor Limited Partner's share of
Partnership Items, Cash Flow, Refinancing Proceeds, and Sale Proceeds shall be
recalculated by multiplying Investor Limited Partner's share of such items had
Investor Limited Partner not defaulted under this Section 5.14 by a fraction,
the numerator of which is the Capital Contributions actually made by Investor
Limited Partner, and the denominator of which is the total Capital Contribution
which Investor Limited Partner would otherwise have been required to make under
this Agreement; and (C) Investor Limited Partner shall have no further
obligation to make any additional Capital Contributions under this Agreement.
Section 5.16 Negative Capital Account Restoration.
A. Notwithstanding anything to the contrary contained in this Agreement,
if, immediately following the "liquidation of a Partner's interest in the
Partnership" (within the meaning of Treasury Regulations Section 1.704-
1(b)(2)(ii)(g)) with respect to a Partner, and in all events after giving effect
to (1) all allocations of income, gain, deduction, loss, tax credits and items
thereof pursuant to Article VI hereof through the date of such liquidation, (2)
any revaluation of Partnership Property or any part thereof pursuant to the
provisions hereof, (3) the foregoing capital contribution obligation provisions
of this Section 5 (which are in no way overridden by the provisions of this
Section 5.16), and (4) the distributions (including liquidating distributions)
made pursuant to the provisions of this Agreement, there is a negative balance
in the Capital Account of a Partner, such Partner shall contribute in cash to
the Partnership, within 30 days after the date of such liquidation, the amount
of its respective negative Capital Account balance (if any); PROVIDED, HOWEVER,
that the maximum aggregate amount the Limited Partners (as a group) shall be
obligated to restore pursuant to this Section 5.16 shall in no event exceed the
sum of $4,000,000.00 less, to the extent not previously taken into account under
clause (1) above, the amount of the Limited Partners' Share of Partner
Nonrecourse Debt Minimum Gain and Share of Partnership Minimum Gain.
B. All amounts contributed to the Partnership in accordance with
Paragraph (B) above shall first be used to satisfy any amounts then owing by the
Partnership to Recourse Creditors of the Partnership. Any portion of such
amounts not used to satisfy amounts owing to Recourse Creditors shall be
distributed to the Partner or Partners then having a positive balance in its or
their respective Capital Account(s) up to the aggregate of such positive Capital
Account balances (with such amounts distributed to such Partners in the ratio of
their positive Capital Account balances if more than one Partner's Capital
Account shall have a positive balance). For purposes of this Section 5.16,
"Recourse Creditors" means creditors of the Partnership that may enforce against
a general partner (in its capacity as a general partner) liability owed such
creditors by the Partnership, and nothing in this Section 5.16 shall be
construed to create any rights in creditors to any funds contributed to the
Partnership pursuant to this Section 5.16.
Section 5.17 Bridge Loan. In the event the Partnership has insufficient
funds available from Subordinate Partner Loans made pursuant to Section 5.14
and/or additional draws on the Mortgage Loan, to pay off the Gap Loan at
maturity, the General Partner shall make a loan to the Partnership in the amount
of such insufficiency (the "Bridge Loan") to enable the Partnership to pay off
the Gap Loan at maturity.
SECTION 6: PROFITS AND LOSSES; CREDITS; DISTRIBUTIONS
Section 6.1 Profits and Losses
A. After giving effect to the special allocation provisions of Section
6.5, Operating Profits and Losses and Tax Credits for any Partnership Fiscal
Year shall be allocated 1% to General Partner, 98.99% to Investor Limited
Partner, and 0.01% to Special Limited Partner.
B. After giving effect to the special allocation provisions of Section
6.5 and subject to Section 6.3C, Profits and Losses from a Capital Transaction
in any Partnership Fiscal Year shall be allocated to and among the Partners as
follows:
As to Profits:
First, an amount of Profits equal to the aggregate negative balances
(if any) in the Capital Accounts of all Partners having negative balance Capital
Accounts shall be allocated to such Partners in proportion to their negative
Capital Account balances until all such Capital Accounts have zero balances; and
Second, an amount of Profits shall be allocated to each of the
Partners until the positive balance in the Capital Account of each Partner
equals the amount of cash which would be distributed to such Partner if such
Profits were available to be distributed in accordance with the provisions of
Clauses Eleventh, Twelfth, Thirteenth and Fourteenth of Section 6.2C.
As to Losses:
First, an amount of Losses equal to the aggregate positive balances
(if any) in the Capital Accounts of all Partners having positive balance Capital
Accounts shall be allocated to such Partners in proportion to their positive
Capital Account balances until all such Capital Accounts have zero balances;
provided, however, that if the amount of Losses so to be allocated is less than
the sum of the positive balances in the Capital Accounts of those Partners
having positive balances in their Capital Accounts, then such Losses shall be
allocated to the Partners in such proportions and in such amounts so that the
Capital Account balances of each Partner shall equal, as nearly as possible, the
amount such Partner would receive if an amount equal to the excess of (i) the
sum of all Partners' balances in their Capital Accounts computed prior to the
allocation of Losses under this clause First over (ii) the aggregate amount of
Losses to be allocated to the Partners pursuant to this clause First were
distributed to the Partners in accordance with the provisions of Clauses
Eleventh, Twelfth and Thirteenth of Section 6.2C; and
Second, the balance, if any, of such Losses shall be allocated to each
of the Partners if such balance were distributed to the Partners in accordance
with the provisions of Clauses Eleventh, Twelfth and Thirteenth of Section 6.2C.
Section 6.2 Distributions Prior to Dissolution
A. Distribution of Cash Flow
Subject to the terms of the Project Documents, any Cash Flow generated
in or with respect to any Fiscal Year shall be distributed or applied from time
to time as required within 90 days after the end of each Fiscal Year in the
following order of priority:
First, to pay the Investment Servicing Fee for such Fiscal Year and
any unpaid Investment Servicing Fee accrued from prior Fiscal Years;
Second, to pay any unpaid Excess Adjustment;
Third, to the repayment of any unpaid Investor Limited Partner Loans,
together with all interest on such Investor Limited Partner Loans, and any
unpaid Voluntary General Partner Loans, together with all interest on such
Voluntary General Partner Loans, such amounts to be paid on a pari passu, pro
rata basis based on the outstanding amounts of such loans;
Fourth, to pay accrued interest on the Subordinated Partner Loans,
such amounts to be paid on a pari passu, pro rata basis based on the outstanding
amounts of such loans;
Fifth, The next $100,000 of Cash Flow generated in or with respect to
any Fiscal Year shall be applied to repayment of the Subordinate Partner Loan(s)
until such time as an aggregate amount equal to $498,000.00 shall be applied to
such loan(s) under the provisions of this clause FIFTH; PROVIDED, HOWEVER, in
the event the General Partner is required to make a Subordinated Partner Loan as
provided in Section 5.14, then amounts applied in repayment to Subordinate
Partner Loans as provided in this clause FIFTH shall be applied in the ratio of
60% and 40% to repayment of the Investor Limited Partner's Subordinate Partner
Loan and the General Partner's Subordinate Partner Loan, respectively;
Sixth, to pay any unpaid Operating Deficit Loans;
Seventh, to the payment of any outstanding Excess Adjustment Loans,
with payments to be applied first to accrued but unpaid interest, and then to
principal;
Eighth, so long as any portion of the Development Fee remains unpaid,
85% of the balance of Cash Flow shall be applied to payment of the unpaid
portion of the Development Fee, and the remaining 15% of such balance shall be
distributed as follows: 1% to General Partner, 98.99% to Investor Limited
Partner, and 0.01% to Special Limited Partner;
Ninth, after payment in full of the Development Fee, if no Debt
Service Coverage Loan has theretofore been made, then 70% of the balance of Cash
Flow shall be applied to the payment of the Incentive Partnership Management Fee
and 30% of such balance shall be distributed as follows: 1% to General Partner,
98.99% to Investor Limited Partner, and 0.01% to Special Limited Partner; and
Tenth, after payment in full of the Development Fee, if a Debt Service
Coverage Loan has theretofore been made, then 21% of the balance of Cash Flow
shall be applied to the payment of the Incentive Partnership Management Fee, 49%
of such balance shall be distributed to the Investor Limited Partner, and the
remaining 30% of such balance shall be distributed as follows: 1% to General
Partner, 98.99% to Investor Limited Partner, and 0.01% to Special Limited
Partner.
B. Distributions of Refinancing Proceeds
Refinancing Proceeds shall be distributed in the following order of
priority:
First, to the payment of any reasonable and customarily expenses
associated with the transaction generating such Refinancing Proceeds, including,
without limitation, prepayment penalties, brokerage fees, legal fees and
application fees;
Second, to discharge, the debts and obligations of the Partnership
owed to the holder of the Deed of Trust;
Third, if the customary loan brokerage and origination fees
attributable to the loan resulting in the Refinancing Proceeds are less than
1.5% of the initial outstanding principal balance of such loan, to the General
Partner in an amount equal to the excess of (i) 1.5% of the initial outstanding
principal balance of such loan, over (ii) the aggregate amount of such loan
brokerage and origination fees incurred with respect to such loan;
Fourth, to fund reserves for contingent or unforeseen liabilities or
obligations of the Partnership to the extent deemed reasonable by General
Partner;
Fifth, to the payment of any unpaid Investment Servicing Fee;
Sixth, to pay any unpaid Excess Adjustment;
Seventh, to the repayment of any unpaid Investor Limited Partner
Loans, together with all interest on such Investor Limited Partner Loans, and
any unpaid Voluntary General Partner Loans, together with all interest on such
Voluntary General Partner Loans, such amounts to be paid on a pari passu, pro
rata basis based on the outstanding amounts of such loans;
Eighth, to the repayment of the Subordinated Partner Loans, together
with all interest on such Subordinated Partner Loans, such amounts to be paid on
a pari passu, pro rata basis based on the outstanding amounts of such
Subordinated Partner Loans;
Ninth, to pay any unpaid portion of the Development Fee and the
outstanding balance of the Development Fee Note;
Tenth, to pay any outstanding Operating Deficit Loans, with payments
to be applied first to accrued but unpaid interest and then to principal;
Eleventh, to the payment of any outstanding Excess Adjustment Loans,
with payments to be applied first to accrued but unpaid interest and then to
principal;
Twelfth, if Investor Limited Partner's Capital Account has a negative
balance before the transaction giving rise to the Refinancing Proceeds, to
Investor Limited Partner in an amount equal to the product of the negative
balance of Investor Limited Partner's Capital Account multiplied by 53.85% (the
"Priority Amount");
Thirteenth, if a payment was made to Investor Limited Partner under
Clause Twelfth immediately above, then to General Partner, in an amount equal to
the Priority Amount;
Fourteenth, if no Debt Service Coverage Loan has theretofore been
made, the balance to be distributed as follows: 70% to General Partner, 29.99%
to Investor Limited Partner, and 0.01% to Special Limited Partner; and
Fifteenth, if a Debt Service Coverage Loan has theretofore been made,
the balance to be distributed as follows: 21% to General Partner, 78.99% to
Investor Limited Partner, and 0.01% to Special Limited Partner.
C. Distributions of Sale Proceeds
Subject to the terms of the Project Documents and to the provisions of
Section 6.3, any Sale Proceeds shall be distributed in the following amounts and
order of priority:
First, to discharge, to the extent required by the documents relating
to the Mortgage Loan, the debts and obligations of the Partnership owed to the
holder of the Mortgage;
Second, to the payment of any unpaid Project Expenses and any
expenses associated with the transaction generating such Sale Proceeds,
including, without limitation, prepayment penalties, brokerage fees, legal fees
and application fees;
Third, to fund reserves for contingent or unforeseen liabilities or
obligations of the Partnership to the extent deemed reasonable by General
Partner;
Fourth, to the payment of any unpaid Investment Servicing Fee;
Fifth, to pay any unpaid Excess Adjustment;
Sixth, to the repayment of any unpaid Investor Limited Partner Loans,
together with all interest on such Investor Limited Partner Loans, and any
unpaid Voluntary General Partner Loans, together with all interest on such
Voluntary General Partner Loans, such amounts to be paid on a pari passu, pro
rata basis based on the outstanding amounts of such loans;
Seventh, to the repayment of the Subordinated Partner Loans, together
with all interest on such Subordinated Partner Loans, such amounts to be paid on
a pari passu, pro rata basis based on the outstanding amounts of such
Subordinated Partner Loans;
Eighth, to pay any unpaid portion of the Development Fee and the
outstanding balance of the Development Fee Note;
Ninth, to pay any outstanding Operating Deficit Loans, with payments
to be applied first to accrued but unpaid interest and then to principal;
Tenth, to the payment of any outstanding Excess Adjustment Loans, with
payments to be applied first to accrued but unpaid interest and then to
principal;
Eleventh, if Investor Limited Partner's Capital Account has a negative
balance prior to the transaction giving rise to the Sale Proceeds, to Investor
Limited Partner in an amount equal to the Priority Amount;
Twelfth, if a payment was made to Investor Limited Partner under
Clause Eleventh immediately above, then to General Partner, in an amount equal
to the Priority Amount;
Thirteenth, if no Debt Service Coverage Loan has theretofore been
made, the balance to be distributed as follows: 70% to General Partner, 29.99%
to Investor Limited Partner, and 0.01% to Special Limited Partner; and
Fourteenth, if a Debt Service Coverage Loan has theretofore been made,
the balance to be distributed as follows: 21% to General Partner, 78.99% to
Investor Limited Partner, and 0.01% to Special Limited Partner.
Section 6.3 Liquidation
A. Upon the liquidation and dissolution of the Partnership, unless the
business of the Partnership is continued pursuant to the provisions of Section
10, General Partner shall liquidate the assets of the Partnership and cause the
business of the Partnership to be wound up in accordance with the Act.
B. Subject to the provisions of Section 6.3C, any Capital Proceeds from a
Terminating Capital Transaction remaining after payment of, or adequate
provision for, the debts and obligations of the Partnership shall be distributed
to those Partners with positive Capital Account balances (after taking into
account all Capital Account adjustments for the Partnership taxable year).
C. The parties intend that, as a result of the application of the
allocation and distribution provisions contained in this Section 6, any Sale
Proceeds from a Terminating Capital Transaction will be distributed in the same
manner as Sale Proceeds are distributed under the provisions of Section 6.2C.
If the Partnership is advised at any time by the Accountants or counsel to the
Partnership that an actual distribution of Sale Proceeds at the end of any
Fiscal Year in accordance with the provisions of Section 6.3B would not result
in each Partner receiving the amount that such Partner would have received if
Section 6.2C rather than Section 6.3B applied to such distribution, General
Partner shall so notify Special Limited Partner and, with the Consent of Special
Limited Partner, shall amend the provisions of this Section 6 relating to the
allocation of Profits and Losses (other than the Regulatory Allocations) for
such Fiscal Year (and for subsequent Fiscal Years if necessary) to cure such
defect consistent with the principles set forth in the first sentence of this
Section 6.3C.
Section 6.4 Special Distribution Provisions
A. Notwithstanding anything to the contrary contained herein, to the
extent required (to maintain the Partnership's tax classification as a
partnership for federal income tax purposes) by Revenue Procedure 89-12 or any
successor provisions with respect thereto, General Partner shall receive, as an
aggregate distribution under Sections 6.2 or 6.3, not less than 1% of the
aggregate amounts distributed to all the Partners, in their status as such,
under Sections 6.2 or 6.3. In order to carry the immediately preceding sentence
into effect, in the event that any aggregate distribution to General Partner
would, but for the provisions of this paragraph, fail to equal or exceed 1% of
the aggregate amount distributable to all the Partners in their status as such,
then the amounts otherwise distributable to all the Partners, in their status as
such, under Sections 6.2 or 6.3 shall be reduced and reallocated to General
Partner in order to assure General Partner of General Partner's 1% share.
B. Except as otherwise specifically provided in this Section 6.4, if the
funds available for any Distribution to the Partners are insufficient to
distribute to any class of Partners the maximum amount which otherwise would be
distributable to such class under the applicable provision(s) of this Section 6,
the amount available for distribution shall be distributed pro rata to the
members of such class in proportion to the aggregate amount that would be
distributed to them under such provision(s) if the Partnership hypothetically
had the minimum amount of funds to make the required distribution under such
provision in full.
Section 6.5 Special Allocation Provisions
Notwithstanding anything to the contrary contained herein:
A. Nonrecourse Deductions shall be allocated 98.99% to Investor Limited
Partner, 0.01% to Special Limited Partner, and 1% to General Partner.
B. Partner Nonrecourse Deductions shall be allocated to and among the
Partners in the manner provided in the Allocation Regulations.
C. Subject to the provisions of Section 6.5R, if there is a net decrease
in Partnership Minimum Gain for a Partnership Fiscal Year, the Partners shall be
allocated items of Partnership income and gain in accordance with the provisions
of Section 1.704-2(f) of the Allocation Regulations.
D. Subject to the provisions of Section 6.5R, if there is a net decrease
in Partner Nonrecourse Debt Minimum Gain for a Partnership Fiscal Year, then any
Partner with a Share of such Partner Nonrecourse Debt Minimum Gain shall be
allocated items of Partnership income and gain in accordance with the provisions
of Section 1.704-2(i)(4) of the Allocation Regulations.
E. Subject to the provisions of Sections 6.5A through 6.5D, in the event
that any Limited Partner (who is not also a General Partner) unexpectedly
receives any adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Allocation Regulations, items of
Partnership income and gain shall be specially allocated to each such Limited
Partner in an amount and manner sufficient to eliminate, to the extent required
by the Allocation Regulations, the Adjusted Capital Account Deficit of such
Limited Partner as quickly as possible. This Section 6.5E is intended to
constitute a "qualified income offset" provision within the meaning of the
Allocation Regulations and shall be interpreted consistently therewith.
F. Subject to the provisions of Sections 6.5A through 6.5E, in no event
shall the Limited Partner be allocated Losses which would cause the Limited
Partner to have an Adjusted Capital Account Deficit as of the end of any
Partnership Fiscal Year. Any Losses which are not allocated to a Limited
Partner by reason of the application of the provisions of this Section 6.5F
shall be allocated to General Partner.
G. Subject to the provisions of Sections 6.5A through 6.5F, in the event
that any Limited Partner (who is not also a General Partner) has an Adjusted
Capital Account Deficit at the end of any Partnership Fiscal Year, items of
Partnership income and gain shall be specially allocated to each such Limited
Partner in the amount of such Adjusted Capital Account Deficit as quickly as
possible.
H. Without limiting the generality of Section 6.5B, if the Partnership
incurs recourse obligations to fund the payment of deductible items which are
not anticipated to be paid in the ordinary course of business (such obligations
and losses being referred to herein collectively as "Excess Expenses") in
respect of any Fiscal Year, then the calculation and allocation of Profits and
Losses shall be adjusted as follows: first, an amount of deductions equal to
such Excess Expenses for the Fiscal Year in question shall be allocated to
General Partner; and second, the balance of such deductions and all items of
gross income shall be allocated as provided in Section 6.1A. Nothing in this
Section 6.5H shall prevent the Partnership from recovering an extraordinary loss
from a General Partner who is liable therefor by law or under this Agreement.
If any Excess Expenses shall be repaid to the Partnership during any Fiscal
Year, then the allocation of Profit and Losses under Section 6.1A for such
Fiscal Year shall be adjusted as follows: first, General Partner shall be
allocated an amount of the gross income of the Partnership equal to the amount
of the Excess Expenses repaid in such Fiscal Year; and second, the balance of
such gross income and all items of deductions shall be allocated as provided in
Section 6.1A.
I. In accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account of any variation between the
adjusted basis of such property to the Partnership for federal income tax
purposes and such property's initial Gross Asset Value. In the event that the
Gross Asset Value of any Partnership Property is adjusted pursuant to the terms
of this Agreement, subsequent allocations of income, gain, loss, and deduction
with respect to such asset shall take account of any variation between the
adjusted basis of such asset for federal income tax purposes and such asset's
Gross Asset Value in the same manner as under Code Section 704(c) and the
Treasury Regulations thereunder. Any elections or other decisions relating to
such allocations shall be made by General Partner in any manner that reasonably
reflects the purpose and intent of this Agreement. Allocations pursuant to this
Section 6.5I are solely for purposes of federal, state, and local taxes and
shall not affect, or in any way be taken into account in computing, any
Partner's Capital Account or share of Profits, Losses, other items, or
distributions pursuant to any provision of this Agreement.
J. For purposes of determining the Profits, Losses, Tax Credits or any
other items allocable to any period, Profits, Losses, Tax Credits and any such
other items shall be determined on a daily, monthly, or other basis, as
determined by General Partner using any permissible method under Code Section
706 and the Treasury Regulations thereunder.
K. If the IRS successfully disallows the deduction of all or any part of
any fee paid by the Partnership to General Partner or to General Partner's
Affiliates by recharacterizing such fee as a Distribution to General Partner,
there shall be, to the extent permitted by the Code, a special allocation of
gross income to such General Partner for the Fiscal Year with respect to which
such disallowed deduction was claimed by the Partnership in the amount of such
disallowed deduction.
L. Except as otherwise specifically provided in this Section 6, all
Profits, Losses and Tax Credits allocated to each class of Partners shall be
shared by the respective Partners in such class in the ratio which the paid-in
Capital Contribution of each Partner in such class bears to the aggregate
paid-in Capital Contributions of all Partners in such class.
M. Notwithstanding anything to the contrary contained herein, to the
extent required (to maintain the Partnership's tax classification as a
partnership for federal income tax purposes) by Revenue Procedure 89-12 or any
successor provisions with respect thereto, General Partner (or, if there is more
than one General Partner, all of General Partners as a group) shall be allocated
not less than 1% of each material item of Partnership income, gain, loss,
deduction and credit ("Partnership Items") at all times during the existence of
the Partnership, provided, however, that temporary non-conformance with the
provisions of this Section 6.5M shall be permitted to the extent permitted by
Revenue Procedure 89-12 or any successor provisions. Subject to the foregoing,
in the event that there is no allocation of a material Partnership Item to
General Partner(s) hereunder or if the amount of any material Partnership Item
allocable to General Partner(s) hereunder shall not equal 1% of the aggregate
amount allocable to all the Partners without giving effect to this provision,
then the amount of such Partnership Item(s) otherwise allocable to the Limited
Partners hereunder shall be correspondingly reduced in order to assure General
Partner(s) of General Partner's 1% share. Any such reduction shall be applied
to reduce the shares of all classes of Limited Partners in proportion to their
respective percentage interests.
N. For purposes of determining each Partner's proportionate share of the
excess Nonrecourse Liabilities of the Partnership pursuant to Section
1.752-3(a)(3) of the Allocation Regulations, Investor Limited Partner shall be
deemed to have a 98.99% interest in Profits, Special Limited Partner shall be
deemed to have a 0.01% interest in Profits, and General Partner shall be deemed
to have a 1% interest in Profits.
O. Any recapture of any Historic Rehabilitation Credit shall be allocated
to and among the Partners in the same manner and proportions in which the
Historic Rehabilitation Credit was allocated to such Partners.
P. In the event the adjusted tax basis of any investment credit property
that has been placed in service by the Partnership is increased pursuant to
Section 50(c) of the Code, such increase shall be allocated among the Partners
(as an item in the nature of income or gain) in the same proportions as the
investment tax credit that is recaptured with respect to such property is shared
among the Partners. Any reduction in the adjusted tax basis (or cost) of
Partnership investment credit property pursuant to Section 50(c) of the Code
shall be allocated among the Partners (as an item in the nature of expenses or
losses) in the same proportions as the basis (or cost) of such property is
allocated pursuant to Treasury Regulation Section 1.46-3(f)(2)(i).
Q. The basis (or cost) of any Partnership investment credit property
shall be allocated among the Partners in accordance with Treasury Regulation
Section 1.46-3(f)(2)(i). In the event Partnership investment credit property is
disposed of during any taxable year, Profits for such taxable year (and, to the
extent such Profits are insufficient, Profits for subsequent taxable years) in
an amount equal to the excess, if any, of (i) the reduction in the adjusted tax
basis (or cost) of such property pursuant to Section 50(c) of the Code, over
(ii) any increase in the adjusted tax basis of such property, shall be allocated
among the Partners in proportion to their respective shares of such excess
determined pursuant to Section 6.5P. In the event that more than one item of
such property is disposed of by the Partnership, the foregoing sentence shall
apply to such items in the order in which they are disposed of by the
Partnership, so that Profits equal to the entire amount of such excess with
respect to the first such property disposed of shall be allocated prior to any
allocations with respect to the second such property disposed of, etc.
R. If for any Fiscal Year the application of the minimum gain chargeback
provisions of Section 6.5C or Section 6.5D would cause a distortion in the
economic arrangement among the Partners and it is not expected that the
Partnership will have sufficient other income to correct that distortion,
General Partner shall, if requested by the Special Limited Partner, request a
waiver from the Commissioner of the IRS of the application in whole or in part
of Section 6.5C or Section 6.5D in accordance with Section 1.704-2(f)(4) of the
Allocation Regulations. Furthermore, if additional exceptions to the minimum
gain chargeback requirements of the Allocation Regulations have been provided
through revenue rulings or other IRS pronouncements, General Partner is
authorized to cause the Partnership to take advantage of such exceptions if to
do so would be in the best interest of the Investor Limited Partner.
S. Except as otherwise specifically provided in this Agreement, all items
of Partnership income, gain, loss, deduction and other items not specifically
provided for shall be allocated to and among the Partners in the same manner as
Profits and Losses are allocated pursuant to the provisions of Section 6.1.
Allocations pursuant to this Section 6.5S are solely for purposes of federal,
state and local taxes and shall not affect, or in any way be taken into account
in computing, any Partner's Capital Account or share of Profits, Losses, Tax
Credits or Distributions pursuant to any other provisions of this Agreement.
Section 6.6 Order of Application
The provisions of this Section 6 shall be applied in the order required by
the applicable provisions of the Allocation Regulations or if no such order is
specified, in the manner determined by the Accountants with the Consent of the
Special Limited Partner to be necessary to cause the allocations to have
"substantial economic effect" given the manner and relative priorities in which
the Partners have agreed to share in distributions of Net Cash Flow, Refinancing
Proceeds, Sale Proceeds and liquidation proceeds under Section 6 and to maximize
the amount of the (i) charitable deduction attributable to the Facade Donation
and (ii) the Historic Rehabilitation Credit, allocable to the Limited Partners.
SECTION 7: RIGHTS, POWERS AND DUTIES OF GENERAL PARTNER
Section 7.1 Restrictions on Authority
A. Notwithstanding any other provisions of this Agreement, General
Partner shall have no authority to perform any act in respect of the Partnership
or the Project in violation of (i) the Regulations or any other applicable law
and regulations, (ii) any agreement to which the between the Partnership and the
Lender relating to the Project, or (iii) this Agreement. With respect to the
execution of the Loan Documents and the Project Documents, however, violation of
the preceding sentence shall result only in liability of General Partner to the
Partnership and the other Partners, and shall not invalidate or cause the
Partnership not to be bound by any of said documents except that any agreement
between the Partnership and General Partner or General Partner's Affiliates may
be rejected without liability to the Partnership if the Consent of Special
Limited Partner is not obtained.
B. Except as provided in Section 3, General Partner shall not have any
authority to do any of the following acts without the Consent of Special Limited
Partner (which, except as provided in Section 3, may be given or withheld with
or without cause in Special Limited Partner's sole discretion) and, if required,
any Requisite Approvals:
(i) to incur indebtedness for money borrowed on the general credit of
the Partnership; or
(ii) to make a material change to the Plans and Specifications; or
(iii) following the Certificate of Occupancy, any expenditure to
construct any new capital improvements, or to replace any existing capital
improvements for an amount in excess of $25,000; or
(iv) to acquire by purchase or lease any real property in addition to
the Real Property (other than easements or similar rights necessary or
convenient for the operation of the Project); or
(v) to cause the Partnership to make any loan or advance to any
Person (for purposes of this clause, accounts receivable incurred and paid
in the ordinary course of business from Persons other than General Partner
or General Partner's Affiliates shall not be deemed to be advances or
loans); or
(vi) to take any action which would cause a Recapture Event; or
(vii) to sell all or substantially all of the Partnership
Property; or
(viii) to refinance the Mortgage Loan or the Gap Loan; or
(ix) to terminate or appoint a new Manager; or
(x) to terminate or appoint new Accountants; or
(xi) to incur a Debt Service Deficiency Loan in an amount which is
less than $20,000.00; or
(xii) to make Partnership decisions under Section 5.02 and 5.03 of
Management Agreement; or
(xiii) to admit a Person as a Partner, except as provided in this
Agreement.
Section 7.2 Personal Services and Competition
A. General Partner shall receive no compensation for General Partner's
services as General Partner except as specifically provided in the Incentive
Partnership Management Agreement.
B. General Partner may be engaged in other activities and occupations
unrelated to the Partnership, and General Partner shall be required to devote
only so much of General Partner's time as shall be necessary to the proper
conduct of the affairs of the Partnership. Any Partner may engage in and have
an interest in other business ventures of every nature and description, indepen-
dently or with others, including, but not limited to, the ownership, financing,
leasing, operation, construction, rehabilitation, renovation, improvement,
management and development of real property whether or not such real property is
directly or indirectly in competition with the Project. Neither the Partnership
nor any other Partner shall have any rights by virtue of this Agreement in and
to such independent ventures or the income or profits derived therefrom,
regardless of the location of such real property and whether or not such venture
was presented to such Partner as a direct or indirect result of such Partner's
connection with the Partnership or the Project.
Section 7.3 Business Management and Control; Designation of Managing
General Partner
A. Except as otherwise provided in this Agreement, General Partner shall
have the exclusive right to manage the business of the Partnership and, except
as otherwise specifically provided herein, shall have all of the rights and
powers granted to general partners pursuant to the provisions of the Act. No
Limited Partner (except one who may also be a General Partner, and then only in
such Partner's capacity as a General Partner) shall (i) have any authority or
right to act for or bind the Partnership, or (ii) except as required by law,
participate in or have any control over the Partnership business. Any action
required or permitted to be taken by a corporate General Partner hereunder may
be taken by such of corporate General Partner's properly authorized officers or
agent as such corporate General Partner may validly designate for such purpose.
B. If at any time there is more than one General Partner, the powers and
duties of General Partners hereunder shall be exercised in the first instance by
the Managing General Partner who, subject to the terms and provisions of this
Agreement, shall manage the business and affairs of the Partnership. Each
Managing General Partner is hereby authorized to execute and deliver in the name
and on behalf of the Partnership all such documents and papers (including any
required by any Governmental Authority or the Lender) as such Managing General
Partner deems necessary or desirable in carrying out such duties hereunder,
provided such documents and papers are consistent with the terms of this
Agreement. HRI is hereby designated as the initial Managing General Partner.
In the event that HRI shall become unable to serve in such capacity or shall
cease to be a General Partner, or shall have been removed or replaced by Special
Limited Partner as provided in this Agreement, Special Limited Partner may
designate another General Partner, if there is then another General Partner, as
Managing General Partner, and HRI shall take such actions and execute such
documents as Special Limited Partner may reasonably request to reflect such
removal or replacement and the appointment of such other General Partner as
Managing General Partner. Any action required or permitted to be taken by a
corporate General Partner hereunder may be taken by such of corporate General
Partner's proper officers or agents as such corporate General Partner shall
validly designate for such purpose.
C. In the event that a Material Default occurs, and in addition to any
other rights granted to Investor Limited Partner or Special Limited Partner
hereunder, including, without limitation, Special Limited Partner's right to
remove and replace General Partner pursuant to the provisions of Section 8,
Special Limited Partner may, at Special Limited Partner's election, proceed to
exercise Special Limited Partner's rights under this Section 7.3 by giving
notice of such Material Default to General Partner, except in the case of a
Terminating Event with respect to a sole General Partner, in which case no
notice to General Partner shall be required and the rights of Special Limited
Partner set forth in this Section shall be immediately exercisable. If such
default is not cured within 10 business days of such notice (and, with respect
to defaults other than those which relate to the payment of money and which by
the nature of such default cannot be cured within such ten day period, no
default will be deemed to have occurred under this Section if General Partner,
within such ten day period, in good faith commences actions which are likely to
cure such default and diligently prosecutes such cure to completion, and, in any
event, there has been no assignment of or institution of proceedings to
foreclose under the Deed of Trust), Special Limited Partner may elect to become,
or to designate another Person to become, an additional General Partner with all
the rights and privileges of a General Partner. Upon such election by Special
Limited Partner, Special Limited Partner or such other Person shall
automatically become and shall be deemed to be a General Partner and the
Managing General Partner, if Special Limited Partner so elects, and each Partner
hereby irrevocably appoints Special Limited Partner (with full power of
substitution) as the attorney-in-fact of such Partner for the purpose of
executing, acknowledging, swearing to, recording and/or filing any amendment to
this Agreement necessary or appropriate to confirm the foregoing but the
foregoing appointment of an attorney-in-fact shall not relieve the defaulting
General Partner from its duty to take such action and execute such documents as
Special Limited Partner may reasonably request to reflect such election by the
Special Limited Partner. If Special Limited Partner shall become an additional
General Partner as provided in this Section, Special Limited Partner's
Partnership Interest shall not be increased as a result thereof. In the event
of the admission of Special Limited Partner or such Person as a General Partner
pursuant to this Section, and if there are then any other General Partners,
Special Limited Partner or such other Person, shall have all managerial rights,
authority and all voting rights on any matters to be decided or voted upon by
General Partners or the Managing General Partner, as the case may be.
Section 7.4 Duties and Obligations of General Partner
A. General Partner shall its best efforts to carry out the purposes,
business and objectives of the Partnership referred to in Section 2.3, provided,
however, that except as otherwise required by this Agreement, "best efforts"
shall not obligate General Partner to expend its own funds. General Partner
shall devote to Partnership business such time and effort as shall be reasonably
required for the Partnership's welfare and success, including, without
limitation, such of General Partner's time as may be necessary to (i) supervise
the activities of the Manager, (ii) make inspections of the Project to determine
if the Project is being properly maintained and that necessary repairs are being
made thereto (and to take, or to cause the Manager to take, such steps as are
necessary to effectuate such repairs), (iii) prepare or cause to be prepared all
reports of operations which are to be furnished to the Partners or which are
required by the Lender, and all taxing bodies or any other appropriate
Governmental Authorities, (iv) subject to any additional requirements imposed by
the Project Documents, cause the Project to be insured against fire and other
risks covered by such insurance and cause the Manager to obtain and keep in
force during the term of the Partnership business or rental interruption and
worker's compensation (if applicable), in the manner specified in Section 6.01A
of the Management Agreement, (v) cause the Partnership to obtain and maintain,
either directly or pursuant to the Management Agreement, public liability
insurance and casualty insurance for the benefit of the Partnership and the
Partners in amounts specified in Section 6.01.A.4 of the Management Agreement,
(vi) enforce all contracts entered into for the benefit of the Partnership, and
(vii) do all other things which may be necessary to manage the affairs and
business of the Partnership. In addition, General Partner shall promptly
provide Special Limited Partner or Special Limited Partner's representatives
with copies of such insurance policies upon request from time to time. General
Partner shall review regularly all of the Partnership and Project insurance
coverage to insure that such coverage is adequate and that such coverage
complies with the provisions of the Management Agreement and/or this Section.
Further, in the event of any casualty, to the extent required by this Agreement,
and provided that the insurance proceeds shall be made available therefor,
General Partner shall repair any damage to the Project which was caused by such
event, so as to restore the Project (as nearly as possible) to the condition and
market value thereof immediately prior to such occurrence.
B. General Partner shall operate the Project and cause the Project to be
developed in accordance with the terms of this Agreement and (i) the Project
Documents, (ii) all applicable statutes, rules and regulations with respect to
the Project, and (iii) any other agreement relating to the Project.
C. General Partner shall use reasonable efforts consistent with sound
management practice and with the terms of the Project Documents and the
Management Agreement to maximize the Cash Flow available for distribution to the
Partners.
D. General Partner will use its best efforts to take all necessary
actions to ensure that the Project will constitute a "certified historic
structure" within the meaning of Section 47(c)(3)(A) of the Code and, upon
completion of the Rehabilitation, will qualify as a "qualified rehabilitated
building" within the meaning of Section 47(c)(1)(A) of the Code.
E. General Partner will use General Partner's best efforts to take all
necessary actions to ensure that the Rehabilitation expenditures incurred in
connection with the Project will constitute "qualified rehabilitation
expenditures" within the meaning of Section 47(g)(2) of the Code, and the
Partnership will make the elections and otherwise comply with the provisions of
Sections 46, 47(g), 49 and 168 of the Code and the Treasury Regulations
promulgated thereunder.
F. General Partner will execute and deliver the Facade Donation Documents
and will take such action, and execute and deliver such additional documents,
instruments, certificates or agreements as may be necessary or desirable to
effectuate the terms and intent of the Facade Donation Documents.
G. General Partner agrees that, except as provided in or contemplated by
the Project Documents, neither General Partner nor any Related Person will at
any time bear the economic risk of loss for payment of the Mortgage Loan or the
Gap Loan. General Partner agrees that General Partner will not cause any
Limited Partner at any time to bear the economic risk of loss for payment or
performance under the Mortgage Loan or the Gap Loan.
H. General Partner shall (i) not store (except in compliance with all
laws, ordinances, and regulations pertaining thereto), or dispose of any
Hazardous Material at the Project, or at or on any other Site or Vessel owned,
occupied, or operated either by any General Partner, any Affiliate of a General
Partner, or any Person for whose conduct any General Partner is or was
responsible; (ii) neither directly nor indirectly transport or arrange for the
transport of any Hazardous Material (except in compliance with all laws,
ordinances, and regulations pertaining thereto); (iii) provide Limited Partners
with written notice (x) upon any General Partner's obtaining knowledge of any
potential or known release, or threat of release, of any Hazardous Material at
or from the Project or any other Site or Vessel owned, occupied, or operated by
any General Partner, any Affiliate of a General Partner or any Person for whose
conduct any General Partner is or was responsible or whose liability may result
in a lien on the Project; (y) upon any General Partner's receipt of any notice
to such effect from any federal, state, or other Governmental Authority; and (z)
upon any General Partner's obtaining knowledge of any incurrence of any expense
or loss by any such Governmental Authority in connection with the assessment,
containment, or removal of any Hazardous Material for which expense or loss any
General Partner may be liable or for which expense or loss a lien may be imposed
on the Project.
I. If General Partner becomes aware of the presence of levels of
Hazardous Material at (or in connection with the operations of) the Project, in
concentrations and under conditions deemed detrimental to human health under any
applicable Hazardous Substance Laws, and/or in quantities or proportions that
exceed safe limits for such substance established by any such Hazardous
Substance Laws, General Partner shall (i) notify all Partners of such situation
and (ii) take all actions necessary to correct such situation as expeditiously
as possible and to prevent the Project from being in violation of any Hazardous
Substance Laws, provided, however, that General Partner may use Partnership
funds for such purposes and shall not be required by the provisions hereof to
use General Partner's own personal funds, except as may be required pursuant to
the terms of this Agreement.
J. General Partner represents that General Partner has a net worth
sufficient to satisfy the Designated Net Worth Standard. HRI covenants that (i)
during the Initial Operating Period, HRI will maintain a net worth equal to or
greater than $4,000,000.00 determined in accordance with GAAP and (ii) HRI will
not, without the Consent of Special Limited Partner, which Consent may be
withheld or granted in Special Limited Partner's sole and absolute discretion,
reduce HRI's net worth including, but not limited to, by making distributions to
any of HRI's principals or other owners of a beneficial interest in HRI, by way
of payment of dividends to stockholders, increasing salaries paid to officers,
making any other distributions to stockholders, officers or directors of an
Entity comprising HRI, or taking any other action which would reduce the net
worth of HRI below that required to meet the Designated Net Worth Standard.
K. Except as otherwise specifically provided herein, neither General
Partner, nor any director, employee or agent of any General Partner, or of
General Partner's subcontractors or vendors, shall give to or receive from any
director, employee, agent or other Affiliate of Investor Limited Partner or
third party, any gift or entertainment of significant value or any commission,
fee, rebate or other compensation in connection with the organization, business,
sale or operations of the Partnership. In addition, neither General Partner
nor any director, employee, agent or other Affiliate of any General Partner, nor
any subcontractors or vendors of General Partner or any Affiliate of General
Partner, shall enter into any business arrangement with any director, employee,
agent or other Affiliate of Investor Limited Partner and Special Limited Partner
who is not acting as a representative of Investor Limited Partner or Special
Limited Partner, or their Affiliates, with prior written notification thereof to
them. Any representatives authorized by Investor Limited Partner and Special
Limited Partner may audit any and all records of General Partner and the
Partnership, and any subcontractors or vendors of either for the sole purpose of
determining whether there has been compliance with the provisions of this
Section 7.4K. In the event the General Partner or its Affiliates engage in
transactions with third parties in which any monetary benefit is derived by the
General Partner (other than in its status as General Partner) or its Affiliates
with respect to other interests or properties or interests held by the General
Partner and/or Affiliate, the General Partner shall fully disclose the terms of
such dealings and the compensation derived thereby to the Special Limited
Partner.
L. In operating the Project, General Partner shall use reasonable efforts
to obtain all contracts, materials, supplies, utilities and services required by
the Project on the most advantageous terms available to the Project. General
Partner shall secure and credit to the Partnership, and not receive or retain
for itself, General Partner's agents, employees or Affiliates, any discounts,
compensation, rebates or commissions obtainable with respect to any and all
purchases, service contracts, and all other transactions affecting the Project,
including without limitation, any compensation received from the assignment or
transfer of any contracts affecting the Project.
M. General Partner shall complete or cause to be completed the
Rehabilitation and development activities of the Project in a timely and
workmanlike manner in accordance with (x) all applicable requirements of the
Project Documents, (y) all applicable requirements of all appropriate
Governmental Authorities, and (z) the Plans and Specifications.
N. General Partner or any Affiliates thereof shall have the right to
contract or otherwise deal with the Partnership for the sale of goods or
services to the Partnership in addition to those set forth herein, if (i) the
compensation paid or promised for such goods or services is reasonable (i.e., at
fair market value) and is paid only for goods or services actually furnished to
the Partnership, (ii) the goods or services to be furnished shall be reasonable
for and necessary to the Partnership, (iii) the fees, terms and conditions of
such transaction are at least as favorable to the Partnership as would be
obtainable in an arm's-length transaction, and (iv) no agent, attorney,
accountant or other independent consultant or contractor who also is employed on
a full-time basis by General Partner or any Affiliate shall be compensated by
the Partnership for such Person's services; provided, however, that the validity
of any transaction, agreement or payment involving the Partnership and the
General Partner or any Affiliate of the General Partner otherwise permitted
hereunder shall not be affected by reason of the relationship between such
Person and the Partnership or any of its partners. Any contract covering such
transactions shall be in writing and shall be terminable without penalty on 60
days' notice. Any payment made to General Partner or any Affiliate pursuant to
such contracts and transaction shall be fully disclosed to the Limited Partners
in the reports required under Section 9 and the Special Limited Partner shall
have the right, exercisable in its sole discretion, to direct the General
Partner to enforce, settle or prosecute and, upon and, in accordance with such
direction, the General Partner shall enforce, settle and prosecute, any and all
of the Partnership's rights, claims or causes of action under or pursuant to
such transactions or contracts (including, but not limited to, the Construction
and Design Contract and the Development Agreement). Neither General Partner nor
any Affiliate or General Partner shall, by the making of lump-sum payments to
any other Person for disbursement by such other Person or otherwise, circumvent
the provisions of this Section 7.4N.
Section 7.5 Certain Payments to the Developer and Developer's Affiliates
A. As a fee for the Developer's services in connection with the
development of the Property in accordance with the Development Agreement, the
Developer shall receive a fee (the "Development Fee") in the amount set forth in
the Development Agreement. The Partnership acknowledges that Developer shall
have earned 60% of the Development Fee as of the Admission Date and that the
Developer shall have earned the remaining 40% of the Development Fee based on
the percentage of completion of the Rehabilitation. If the Development Fee has
not been fully paid by the fifteenth anniversary of the Temporary Certificate of
Occupancy Date, General Partner shall make a payment to the Partnership in an
amount sufficient to enable the Partnership to pay any unpaid portion of the
Development Fee, and the Partnership shall so pay such fee. Such payment by
General Partner shall not constitute a loan nor contribution of capital to the
Partnership by General Partner, and General Partner will not be entitled to
receive any repayment or other compensation or consideration with respect to
such amounts.
B. The Partnership also shall enter into the Incentive Partnership
Management Agreement with the General Partner under which the General Partner
shall agree to provide consulting services to the Partnership and Project, to
undertake to perform such bookkeeping, financial and reporting services to be
performed under Section 9 (other than those to be performed by the Accountants)
as the Partnership may request, and to perform the other services provided in
the Incentive Partnership Management Agreement. The Incentive Partnership
Management Agreement shall provide that the sole compensation payable to the
General Partner for such services shall be the Incentive Partnership Management
Fee if and to the extent funds are available for the payment thereof out of Cash
Receipts of the Partnership, which fees for each Fiscal Year shall be calculated
in the manner specified in the Incentive Partnership Management Agreement.
Section 7.6 Fiduciary Duty of General Partner
The relationship of General Partner to the Limited Partners is that of a
fiduciary, and General Partner has a fiduciary obligation to perform General
Partner's duties in such manner as will serve the best interests of the
Partnership and the Limited Partners, provided, however, that General Partner
shall have the right to develop and operate other hotel projects in the City in
competition with the Project. General Partner shall not have the right to
contract away of General Partner's fiduciary duties under the common law of
agency, and General Partner shall not attempt to enter into any such contract,
and if, notwithstanding the foregoing, General Partner nonetheless attempts to
enter into such a contract, such a contract will be void and of no force or
effect.
Section 7.7 Indemnification
A. No General Partner shall have any liability to the Partnership or to
any Partner for any loss suffered by the Partnership which arises out of any
action or inaction of such General Partner if such General Partner, in good
faith, determined that such course of conduct was in accordance with the terms
of this Agreement and in the best interest of the Partnership and such course of
conduct did not constitute negligence or wilful misconduct of such General
Partner. To the full extent permitted by law, each General Partner shall be
indemnified by the Partnership against any losses, judgments, liabilities,
expenses and amounts paid in settlement of any claims sustained by such Person
in connection with the Partnership, provided that the same were not the result
of negligence or wilful misconduct on the part of such General Partner and were
the result of a course of conduct which such General Partner, in good faith,
determined was in accordance with the terms of this Agreement and in the best
interest of the Partnership. Any indemnity under this Section 7.7 shall be
provided out of and to the extent of Partnership assets only, and no Limited
Partner shall have any personal liability on account thereof.
B. Notwithstanding the provisions of Section 7.7A, no General Partner, no
Person acting as a broker-dealer, nor any Affiliate thereof, shall be
indemnified for any losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws unless (i) there has been
a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the court approves
indemnification of litigation costs, or (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee and the court approves indemnification of litigation
costs, or (iii) a court of competent jurisdiction approves a settlement of the
claims against a particular indemnitee and finds that indemnification of the
settlement and related costs should be made.
C. The Partnership shall not incur the costs of that portion of any
insurance, other than public liability insurance, which insures any Person
against any liability as to which such Person is herein prohibited from being
indemnified. Nothing contained in this Section 7.7, however, shall restrict the
right of the Partnership to (i) indemnify unaffiliated Persons who will be
performing services on behalf of the Partnership, including but not limited to
consultants, engineers and experts, pursuant to any contract entered into by a
General Partner on behalf of the Partnership in order to carry out the
objectives of the Partnership, or (ii) apply Partnership funds, including,
without limitation, proceeds of public liability insurance in favor of the
Partnership, to cover damage to property or personal injuries to unaffiliated
Persons.
Section 7.8 Liability of General Partner to Limited Partners
Except as otherwise specifically provided in this Agreement, no General
Partner shall be liable, responsible or accountable for damages or otherwise to
any Limited Partner for any act which such Person, in good faith, determined to
be in accordance with the terms of this Agreement and within the scope of the
authority conferred by this Agreement, except for acts of breaches of fiduciary
duty, negligence, or wilful misconduct or for damages arising from any material
misrepresentation or breach of any covenant or warranty set forth herein. In
any instance in which a General Partner is in doubt as to the propriety of any
proposed action or omission under the terms of this Agreement, such General
Partner may, but shall not be under any duty to, seek the ratification of such
action or omission by the Consent of Special Limited Partners. If such Consent
of Special Limited Partner is obtained thereto, such General Partner shall be
fully protected in relying thereon, and actions or omissions in reliance thereon
shall not be deemed to be a breach of any provisions of this Agreement.
Section 7.9 Tax Matters Partner
A. The Tax Matters Partner ("TMP") for the Partnership shall be General
Partner (or, if there is a Managing General Partner, the Managing General
Partner) serving in such capacity from time to time.
B. The TMP shall have the right to resign as the TMP by giving 30 days'
written notice to each Partner, provided there is another General Partner
willing to serve in such capacity; if there is no other General Partner then
willing to service in such capacity, the TMP will continue to serve in such
capacity until such time as another General Partner agrees to become the TMP.
Upon the resignation, death, legal incompetency or Bankruptcy of the Person
serving as the TMP, any successor to the interest of the TMP pursuant to the
applicable provisions of this Section 7.9 shall be designated as the successor
TMP, but such designee shall not become the TMP until the designation of such
Person has been approved by the Consent of Special Limited Partner.
C. The TMP shall employ experienced tax counsel to represent the
Partnership in connection with any audit or investigation of the Partnership by
the IRS, and in connection with all subsequent administrative and judicial
proceedings arising out of such audit. The fees and expenses of such counsel
shall be a Partnership expense and shall be paid by the Partnership. Such
counsel shall be responsible for representing the Partnership. General Partner
and Limited Partners, at their respective expense, shall be responsible to pay
the tax counsel employed by such Partner to represent their respective separate
interests.
D. The TMP shall keep the Partners informed of all administrative and
judicial proceedings, as required by Section 6623(g) of the Code, and shall
furnish to each Partner a copy of each notice or other communication received by
the TMP from the IRS (except such notices or communications as are sent directly
to such Partner by the IRS). All third party costs and expenses incurred by the
TMP in serving as the TMP shall be Partnership expenses and shall be paid by the
Partnership, provided, however, that if the Partnership does not have sufficient
funds to pay such costs and expenses, General Partners shall make additional
Capital Contributions to the Partnership to pay such costs and expenses.
E. The TMP shall not have the authority, unless such action has been
approved by the Consent of Special Limited Partner, which Consent may be
withheld or granted in Special Limited Partner's sole and absolute discretion,
to do all or any of the following:
(i) to enter into a settlement agreement with the IRS which purports
to bind Partners other than the TMP,
(ii) to file a petition as contemplated in Section 6226(a) or 6228 of
the Code,
(iii) to intervene in any action as contemplated in Section
6226(b) of the Code,
(iv) to file any request contemplated in Section 6227(b) of the Code,
or
(v) to enter into an agreement extending the period of limitations as
contemplated in Section 6229(b)(1)(B) of the Code.
F. The relationship of the TMP to Limited Partners is that of a
fiduciary, and the TMP has a fiduciary obligation to perform the TMP's duties in
such manner as will serve the best interests of the Partnership and Limited
Partners.
G. The Partnership shall indemnify the TMP (including the officers and
directors of a corporate TMP) against judgments, fines, amounts paid in
settlement, and expenses (including attorneys' fees) reasonably incurred by them
in any civil, criminal or investigative proceeding in which they are involved or
threatened to be involved by reason of being the TMP, provided that the TMP
acted in good faith, within what is reasonably believed to be the scope of the
TMP's authority and for a purpose which the TMP reasonably believed to be in the
best interests of the Partnership or the Partners. The TMP shall not be
indemnified under this provision against any liability to the Partnership or the
Partners to any greater extent than the indemnification allowed by Section 7.7.
The indemnification provided hereunder shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any applicable
statute, agreement, vote of the Partners, or otherwise.
Section 7.10 Access and Reports
General Partner shall permit Investor Limited Partner and Special Limited
Partner and their representatives to have access to the Project at all
reasonable times during normal business hours and to examine all agreements and
the Plans and Specifications relating to the Project and shall deliver copies
and such reports as may reasonably be required by them. General Partner shall
promptly provide Investor Limited Partner and Special Limited Partner with
copies of all correspondence, notices and reports sent pursuant to and received
under the Project Documents or from any Governmental Authority with respect to
the Project, together with copies of all other correspondence which a prudent
investor would wish to examine in connection with a similar transaction.
Section 7.11 Representations and Warranties of General Partner
General Partner hereby represents, warrants and covenants to and with the
Partnership and Investor Limited Partner and Special Limited Partner that as of
the date of this Agreement:
A. The Partnership is and will be a duly organized limited partnership
validly existing under the laws of the State, has and will maintain all
requisite filings and recordings required by any Governmental Authority to
validly transact business in the State of Texas as a foreign limited
partnership, and complies with and will comply with all recording and filing
requirements with the proper authorities in the State and the State of Texas
necessary to establish and maintain the limited liability of Investor Limited
Partner and Special Limited Partner as provided herein.
B. General Partner is and will remain a duly organized corporation
validly existing under the laws of the State of Louisiana, and has and will
maintain all requisite filings required by any Governmental Authority to validly
transact business in the State of Texas as a general partner of a foreign
limited partnership, and has and will have full power and authority to perform
General Partner's obligations under the Development Agreement and the Project
Documents and/or this Agreement, as the case may be.
C. No litigation, demand, investigation, claim or proceeding against the
Partnership or General Partner or any other litigation or proceeding directly
affecting the Project is pending or, to the Best Knowledge of General Partner,
threatened, before any court, administrative agency or other Governmental
Authority which would, if adversely determined, have a material adverse effect
on the Partnership or General Partner, or their respective business or
operations.
D. No default by General Partner or any Affiliate thereof having any
relationship with the Project or the Partnership, in any material respect has
occurred or is continuing (nor has there occurred any continuing event which,
with the giving of notice or the passage of time or both, would constitute such
a default in any material respect) under any of the Project Documents, and the
Project Documents are in full force and effect (except to the extent fully
performed in accordance with their respective terms).
F. All material building, zoning, health, safety, business and other
applicable certificates, permits and licenses necessary to permit the
construction, use, occupancy and operation of the Project have been or will, at
the time required, be obtained and maintained (other than, prior to completion
of the construction or Rehabilitation of the Project or a specified portion
thereof, such as are issuable only on the completion of the construction or
Rehabilitation of the Project or such specified portion thereof); and neither
the Partnership nor General Partner has received any notice or has any knowledge
of any violation with respect to the Project of any law, rule, regulation, order
or decree of any Governmental Authority asserting jurisdiction which would have
a material adverse effect on the Project or the construction, use or occupancy
thereof, except for violations which have been cured and notices or citations
which have been withdrawn or set aside by the issuing agency or by an order of a
court of competent jurisdiction.
G. The Partnership has good and marketable title to the Project, free and
clear of any liens, charges or encumbrances other than the Facade Donation
easement, Deed of Trust, Gap Deed of Trust, matters set forth in the Title
Policy issued at the Mortgage Loan Closing, encumbrances the Partnership is
permitted to create under the terms of this Agreement, and mechanics' and
materialmen's liens.
H. The execution and delivery of all instruments and the performance of
all acts heretofore or hereafter made or taken or to be made or taken,
pertaining to the Partnership or the Project by General Partner have been or
will be duly authorized by all necessary action, and the consummation of any
such transactions with or on behalf of the Partnership will not constitute a
breach or violation of, or a default under, General Partner's articles of
incorporation, by-laws, or any agreement by which General Partner or any of
General Partner's properties is bound, nor constitute a violation of any law,
administrative regulation or court decree.
I. No Material Default has occurred and/or is continuing.
J. No Event of Bankruptcy has occurred as to General Partner or the
Development Guarantors.
K. General Partner satisfies the Designated Net Worth Standard.
L. General Partner has disclosed all material facts related to the
Project and all material transactions in connection with the Project to Investor
Limited Partner.
M. To the Best Knowledge of General Partner, on the date on which the
Certificate of Occupancy is issued the Project will have no material design,
maintenance or construction defects.
N. There are no mechanic's or materialmen's liens recorded against the
Project or the Property, and, to the Best Knowledge of General Partner, no
Person has threatened to assert or record any such mechanic's or materialmen's
lien.
O. Other than obligations incurred in the ordinary course of business, as
of the date hereof, the Partnership has no material outstanding obligations
except for the Loan Documents, the Gap Loan Documents, the Development
Agreement, the Construction and Design Contract, the Management Agreement, the
Incentive Partnership Management Agreement, and the other material obligations
reflected in the Project Documents and this Agreement.
P. The Partnership, except to the extent that the Partnership is
protected by insurance and excluding any risk borne by the Lender, bears the
sole risk of loss if the Project is destroyed or condemned or there is a
diminution in the value of the Project.
Q. The Partnership has not been notified by a federal, state or municipal
agency that the Partnership is in Material Violation of any Hazardous Substance
Laws and that such Material Violation is continuing, nor to the Best Knowledge
of General Partner does such a Material Violation exist, nor is General Partner
aware of a condition which should, in the exercise of due diligence, cause
General Partner to investigate the existence of an environmental condition of
such a nature as described above. As used in this section, the term "Material
Violation" means any violation of a Hazardous Substance Law (1) which
jeopardizes or could jeopardize the ability of the Partnership to develop, own,
or operate the Project for its intended purposes, and (2) the correction of
which will require the Partnership to spend funds beyond those likely to be
available to the Partnership for such purpose in the ordinary course of events.
R. No General Partner, Affiliate of a General Partner, or Person for
whose conduct General Partner is or was legally responsible has ever:
(A) owned, occupied, or operated a Site or Vessel on which any Hazardous
Material was or is stored (except if such storage was or is at all times in
substantial compliance with all laws, ordinances and regulations pertaining
thereto); (B) caused or was legally responsible for any release or threat of
release of any Hazardous Material; or (C) received notification from any
federal, state or other Governmental Authority of (x) any potential, known, or
threat of release of any Hazardous Material from the Project or any other Site
or Vessel owned, occupied, or operated either by General Partner, any Affiliate
of General Partner, or other Person for whose liability General Partner, any
Affiliate of General Partner, or any other Person for whose conduct General
Partner is or was legally responsible which may result in a lien on the Project;
or (y) the incurrence of any expense or loss by any such Governmental Authority
or by any other Person in connection with the assessment, containment, or
removal of any release or threat of release of any Hazardous Material from the
Project or any such Site.
S. To the Best Knowledge of General Partner, and except as described in
the Phase 1 Environmental Site Assessment from G&E Engineering dated May, 1997,
a true and accurate copy of which has been furnished to Investor Limited
Partner, no Hazardous Material was ever or is now stored on (except to the
extent any such storage was at all times in substantial compliance with all
laws, ordinances, and regulations pertaining thereto), transported, or disposed
of on the Property.
T. The Partnership has no employees other than those working at the
Project and shall have no others.
Section 7.12 Indemnification
A. In the event that General Partner breaches any of General Partner's
representations, warranties or covenants contained in Section 7.11, or if
General Partner acts in bad faith or exceeds the authorities granted to General
Partner under this Agreement, or if General Partner breaches General Partner's
fiduciary duties to the Partnership or to the Limited Partners, General Partner
shall indemnify and hold Limited Partners harmless from and against any and all
Adverse Consequences which either Limited Partner suffers or incurs, or to which
either Limited Partner becomes subject, resulting from, arising out of, relating
to, in the nature of or caused by such breach (including, without limitation,
any recapture of the Historic Rehabilitation Credit occasioned by such action or
omission by the General Partner).
B. If any third party shall notify either Limited Partner with respect to
any matter which may give rise to a claim for indemnification against any
General Partner under this Section 7.12, such Limited Partner shall notify
General Partner thereof promptly; provided, however, that no delay on the part
of such Limited Partner in notifying General Partner shall relieve General
Partner from any liability or obligation hereunder unless (and then solely to
the extent) General Partner thereby is damaged. In the event that General
Partner notifies such Limited Partner within 15 days after such Limited Partner
has given notice of the matter that General Partner is assuming the defense
thereof, (i) General Partner will defend such Limited Partner against the matter
with counsel of General Partner's choice, satisfactory to such Limited Partner,
(ii) such Limited Partner may retain separate co-counsel at such Limited
Partner's sole cost and expense (except that General Partner will be responsible
for the fees and expenses of the separate co-counsel to the extent that such
Limited Partner concludes reasonably that the counsel General Partner has
selected has a conflict of interest), (iii) General Partner will not consent to
the entry of any judgment or enter into any settlement with respect to the
matter without the Consent of such Limited Partner, which Consent, except as
provided below, may be withheld or granted in such Limited Partner's sole and
absolute discretion, provided that the Consent of such Limited Partner to any
proposed judgement or settlement which includes a provision whereby the
plaintiff or claimant in the matter fully releases the Limited Partners from all
liability with respect thereto will not be unreasonably withheld by such Limited
Partner. In the event that General Partner does not notify such Limited Partner
within 15 days after such Limited Partner has given notice of the matter that
General Partner is assuming the defense thereof, such Limited Partner may defend
against, or enter into any settlement with respect to, the matter in any manner
such Limited Partner reasonably may deem to be appropriate and General Partner
shall indemnify such Limited Partner with respect to such matter in accordance
with Section 7.12A.
SECTION 8: REMOVAL OF GENERAL PARTNER
Section 8.1 General
In addition to any other rights granted to Investor Limited Partner
hereunder, Special Limited Partner shall have the right to remove and replace
General Partner in accordance with the provisions of Section 8.3, or to replace
General Partner as Managing General Partner in accordance with the provisions of
Section 7.3C, or to take both such actions in such manner or sequence as Special
Limited Partner determines in its absolute discretion, if a Material Default
occurs.
Section 8.2 Set Off
The Partnership, Investor Limited Partner, and Special Limited Partner will
have a right of setoff against any amount due or owing from the Partnership,
Investor Limited Partner, or Special Limited Partner, as applicable, to General
Partner or any Affiliate of General Partner with respect to any obligation of
General Partner or any Affiliate of General Partner under this Agreement or the
Project Documents. All rights of setoff may be exercised without notice or
demand to General Partner or any Affiliate of General Partner. No right of
setoff will be deemed to have been waived by any act or conduct on the part of
the Partnership, Investor Limited Partner, or Special Limited Partner, or by any
neglect to exercise such right of setoff, or by any delay in doing so. Every
right of setoff will continue in full force and effect until specifically waived
or released by an instrument in writing executed by the Partnership and Special
Limited Partner. Notwithstanding the foregoing, neither the Partnership,
Investor Limited Partner, nor Special Limited Partner may exercise any right of
setoff unless the Partnership, Investor Limited Partner, or Special Limited
Partner, as applicable, at least 10 days prior to the exercise of the right of
setoff, has delivered written notice of such claimed right of setoff to General
Partner, which notice will specify in reasonable detail the basis of the claimed
right of setoff. If General Partner disagrees with the claimed right of setoff,
then, prior to the end of the 10 day period referred to above, General Partner
will deliver to the Partnership, Investor Limited Partner, and Special Limited
Partner written notice setting forth in reasonable detail the reasons why the
claimed right of setoff is not available. If General Partner delivers such
notice, the right of set-off with respect to such contested matter will be
tolled until such contest is settled, provided, however, that unless General
Partner and Special Limited Partner agree to a resolution of such contest within
30 days after the notice by General Partner of such contest, or unless General
Partner has instituted an appropriate action relating to such contest with a
court of appropriate jurisdiction within such 30 day period, then such right of
set off with respect to such contested matter may be exercised as of the end of
such 30 day period.
Section 8.3 Removal of General Partner
A. In the event that Special Limited Partner determines to remove General
Partner pursuant to Section 8.1, Special Limited Partner shall notify General
Partner in writing, within 5 days after such determination, of the Material
Default that is the cause for the removal of General Partner. General Partner
shall have 30 days from receipt of the notice to cure the Material Default;
provided, however, that if a Material Default, other than a monetary default,
cannot be reasonably cured within such 30 days, Special Limited Partner will not
have the right to remove General Partner under 8.1 provided that within such 30
day period General Partner in good faith commences actions which are likely to
cure such Material Default and diligently prosecutes such cure to completion.
If General Partner fails to cure within the specified time period, Special
Limited Partner shall notify General Partner of the effective date of General
Partner's removal promptly after the cure period has expired; provided, however,
in the event the General Partner is removed pursuant to this Section 8.3, the
General Partner shall take such actions and execute such documents as the
Special Limited Partner may reasonably request to reflect such removal. Each
Partner hereby irrevocably appoints Special Limited Partner (with full power of
substitution) as the attorney-in-fact of such Partner for the purpose of
executing, acknowledging, swearing to, recording and/or filing any amendment to
this Agreement necessary or appropriate to confirm the foregoing.
B. If General Partner is removed pursuant to this Section 8.3, the
Partnership shall, subject to Section 8.2, pay to General Partner an amount
equal to (i) the sum of (a) any fees earned and unpaid through the date of
removal due to General Partner or General Partner's Affiliates under
Section 7.5, (b) an amount equal to the General Partner's positive Capital
Account balance, if any, following a deemed sale of the Project and a deemed
liquidation of the Partnership, and (c) the principal balance and any accrued
but unpaid interest on the General Partner's Subordinated Partner Loan, any
Operating Deficit Loans, and any Voluntary General Partner Loans (but prior to
any deemed distributions upon liquidation), minus (ii) an amount equal to the
sum of (x) the amount, as of the date of removal, of any then outstanding
Investor Limited Partner Loans, together with interest on such amounts as of the
date of removal, (y) any indebtedness or amount(s) owed by the General Partner
or any Affiliate of General Partner to any Limited Partner or Affiliate of a
Limited Partner, and (z) any loss or damage suffered by the Partnership or
Limited Partners as a result of the Material Default creating the right of
Special Limited Partner to remove General Partner pursuant to this Section 8.3
other than any such loss or damage which is accounted for pursuant to subsection
(x) above. Within 30 days after the date the General Partner is removed
pursuant to this Section 8.3, or, if later, within 10 days after the date the
fair market value of the Project is determined pursuant to Section 8.3D below,
the General Partner shall pay the amount, if any, by which the aggregate amount
described in (ii)(x), (y) and (z) above exceeds the aggregate amount described
in (i)(a), (b) and (c) above.
C. For purposes of this Section 8.3C, the net proceeds from a deemed sale
of the Project shall be equal to 95% of the fair market value of the Project
plus 97% of the fair market value of all other Partnership property, including
but not limited to cash and cash equivalents as of the date of removal, less the
outstanding balance of the Deed of Trust Loan and any other obligations of the
Partnership to third parties as of the date of removal.
D. The fair market value of the Project as of the date of removal shall
be determined as follows: If the Special Limited Partner and the General
Partner are unable to mutually agree on the fair market value of the Project,
then as soon as practicable and in any event within 30 days following the notice
from Special Limited Partner to General Partner specified in the penultimate
sentence of Section 8.3A above, General Partner and Special Limited Partner
shall select a mutually acceptable independent MAI appraiser to act as a single
appraiser. If the parties are unable to agree upon such an appraiser within
such 30 day period, then, within 30 days following the end of such 30 day
period, General Partner and Special Limited Partner shall each select an MAI
appraiser who has at least 10 years' experience is appraising properties similar
to the Project in the Dallas/Fort Worth metropolitan area. If either General
Partner or Special Limited Partner fails to appoint such an appraiser within
such time and if the other party has appointed such an appraiser within such
time, then the appraiser so appointed will be deemed to be a mutually acceptable
appraiser to act as a single appraiser. If two appraisers are so appointed,
each appraiser shall estimate the fair market value of the Project. If the
difference between the two appraisals is within 10% of the lower of the two
appraisals, the fair market value shall be the average of the two appraisals.
If the difference between the two appraisals is greater than 10% of the lower of
the two appraisals, then the two appraisers shall jointly select a third
similarly qualified appraiser whose determination of fair market value shall be
deemed binding on all parties. If the two appraisers are unable jointly to
select a third appraiser, either General Partner or Special Limited Partner may,
upon written notice to the other, apply to the individual who is, at the time,
the most senior in service, active Judge of the United States District Court for
the Northern District of Texas for the selection of the third appraiser who
shall then participate in such appraisal proceeding, and who shall be selected
from a list of names of M.A.I. appraisers submitted by General Partner and
Special Limited Partner. Each list of names of appraisers shall be submitted in
writing within 10 days after the date on which the appraisal proceeding is
invoked, or will be disregarded and the appraiser shall be selected from the
list provided. The Partnership shall pay the cost of any appraisers selected
pursuant to this Section 8.3D.
E. In the event of the removal of General Partner pursuant to the
provisions of this Section 8.3, any amounts due to General Partner pursuant to
the provisions of Section 8.3B shall be payable solely from the distribution
Refinancing Proceeds which would otherwise have been paid to General Partner as
and when provided under Section 6.2B., Clause Fourteenth or Fifteenth (as the
case may be) and from Sale Proceeds which would otherwise have been paid to
General Partner as and when provided under Section 6.2C., Clause Thirteenth or
Fourteenth (as the case may be). In addition, in the event of such removal,
with respect to any amounts due to General Partner pursuant to the provisions of
Section 8.3B with respect to the Subordinated Partner Loan made by General
Partner, Voluntary General Partner Loans, and Operating Deficit Loans, such
amounts will also be repaid out of Cash Flow as and when provided in Clauses
Third, Fourth, Fifth, Sixth, and Seventh of Section 6.2.A., respectively.
F. Upon the removal of General Partner, General Partner shall be relieved
of all of General Partner's obligations to the Partnership relating to matters
occurring after the effective date of such removal; provided that General
Partner and General Partner's Affiliates shall remain fully liable for all
matters which relate to any act which occurred prior to the effective date of
such removal.
G. In the event that General Partner is removed pursuant to this Section
8.3, then Special Limited Partner may designate a Person or Persons to become
the successor General Partner or Partners replacing the removed General Partner,
with the approval of any Person required under the Project Documents and
provided that any such successor General Partner or Partners shall agree to be
bound by the Project Documents, and any other documents required in connection
therewith.
SECTION 9: BOOKS AND REPORTING, ACCOUNTING, TAX ELECTIONS, ETC.
Section 9.1 Books and Reporting
A. General Partner shall keep or cause to be kept for the term of the
Partnership a complete and accurate set of books and supporting documentation of
transactions with respect to the conduct of the Partnership's business. The
books of the Partnership shall be kept on the accrual basis and shall at all
times be maintained at the principal office of the Partnership. Each of the
Partners and such Partner's duly authorized representatives shall have the right
to examine the books of the Partnership and all other records and information
concerning the operation of the Project, from time to time without prior notice
during regular business hours provided that such examination shall not unreason-
ably disrupt or interfere with the Partnership's business or operations.
B. General Partner shall prepare a balance sheet as of the end of each
such Fiscal Year and statements of income, Partners' equity, and changes in
financial position for such Fiscal Year. Such balance sheet and statements
shall be prepared in accordance with GAAP applied consistently with prior
periods. In addition, after the first Fiscal Year after the Completion Date,
the depreciation schedule for that Fiscal Year and all future Fiscal Years,
together with the depreciation worksheet, shall be prepared by General Partner
or General Partner's designee and furnished to Investor Limited Partner.
Provided that the Manager has timely performed its obligation to provide an
accounting to the Partnership under the Management Agreement, General Partner
shall, promptly upon completion of such balance sheet and statements and in any
event within 120 days after the end of each Fiscal Year, transmit to Special
Limited Partner a copy thereof. In the event the Manager has not timely
performed its obligation to provide an accounting to the Partnership under the
Management Agreement, the General Partner shall, within 15 days after receipt of
such accounting from the Manager, complete such balance sheet and statements and
transmit a copy thereof to the Special Limited Partner. If such financial
statements are not submitted to Special Limited Partner within 120 days after
the end of each Fiscal Year and the Manager has timely performed its obligations
to provide an accounting to the Partnership under the Management Agreement or if
the Manager has not timely performed its obligations to provide an accounting to
the Partnership under the Management Agreement and the General Partner has not
submitted such financial statements within 15 days after the accounting is
received from the Manager, General Partner shall pay to Investor Limited Partner
liquidated damages in the amount of $250 for each day such submittal is late.
At the request of Special Limited Partner, General Partner shall cause the books
of the Partnership to be examined in accordance with generally accepted auditing
standards as of the end of the Fiscal Year for which such request was received
by the Accountants.
C. Provided that the Manager has timely performed its obligation to
provide an accounting to the Partnership under the Management Agreement, General
Partner or General Partner's designee shall complete the books of the
Partnership in such time as to prepare and complete such tax returns and submit
them to the Special Limited Partner for its review and approval at least 21 days
prior to the date such returns are required to be filed under applicable law.
The Special Limited Partner shall notify the General Partner of the completion
of its review of such tax returns and any comments or concerns thereon within 14
days of its receipt thereof. In the event there is any dispute as to matters
set forth in such tax returns, the General Partner and the Special Limited
Partner shall, within 5 days after receipt by the General Partner of such timely
notification by the Special Limited Partner, resolve such comments and concerns,
as provided in Section 9.3 and applicable law; provided, however, upon the
request of Special Limited Partner, the Partnership shall obtain from Special
Counsel or the Accountants, an opinion as to the position taken on such tax
returns with respect to the matters subject to such disagreement between the
General Partner and Special Limited Partner. In the event the Special Limited
Partner and the General Partner are unable to resolve Special Limited Partner's
comments and concerns with respect to such tax returns and/or obtain an opinion
thereon as provided in this Section 9.1C prior to the date such returns are
required to be filed under applicable law or, the Manager has failed to perform
its obligation to provide an accounting to the Partnership under the Management
Agreement in a timely manner, the General Partner shall file an extension with
the applicable Governmental Authority with respect to such tax returns to allow
the parties sufficient time to (i) obtain the requisite information from the
Manager to prepare such returns or (ii) resolve such comments and concerns
and/or obtain such opinion with respect thereto. In any event, General Partner
shall cause such tax returns to be filed within the time periods required by law
(including extensions as provided in this Section 9.1C), forward copies of such
tax returns to the Special Limited Partner for its review and comment as
provided in this Section 9.1(C) no later than 21 days prior to the date such
returns are required to be filed, and shall immediately upon the filing thereof
transmit to the Limited Partners a copy of the complete federal Partnership tax
return (i.e., Form 1065 and all accompanying schedules, including Form K-l) and
all state income tax returns. In the event that any such items will not be
delivered within the time limits set forth herein and the Manager has timely
performed its obligation to provide an accounting to the Partnership under the
Management Agreement, General Partner shall immediately notify the Limited
Partners, shall furnish the Limited Partners with copies of any extensions, and
shall pay to Investor Limited Partner liquidated damages in the amount of $250
for each day such delivery is late.
D. The reports and estimates described in this Section 9.1 shall clearly
indicate the methods under which they were prepared and shall be made at the
expense of the Partnership.
E. General Partner shall provide Special Limited Partner with a copy of
the Operating Projection received from the Manager within 10 days after receipt
of same.
F. General Partner shall send to Special Limited Partner no later than 10
days following receipt by General Partner of the monthly accounting from the
Manager under the Management Agreement a financial report providing the
following information (which need not be audited): (i) a balance sheet of the
Partnership as of the end of such month; and (ii) a statement of income of the
Partnership for such month.
G. During the Initial Operating Period, no later than 90 days following
the end of each Fiscal Year, General Partner shall deliver to Special Limited
Partner a balance sheet and statement of income for General Partner, prepared in
accordance with GAAP, dated as of end of such Fiscal Year, which balance sheet
must show a net worth equal to or greater than $4,000,000.00.
H. With the Consent of the Investor Limited Partner, General Partner may
from time to time change the Accountants for the Partnership to another firm of
certified independent accountants; provided, however, that prior to any such
change General Partner shall have delivered to Special Limited Partner a
certificate as to whether such change has been brought about as a direct or
indirect result of any dispute over Partnership accounting practices and
procedures.
Section 9.2 Bank Accounts
The bank accounts of the Partnership shall be maintained in such banking
institutions authorized to do business in the State the accounts of which are
insured by the Federal Deposit Insurance Corporation, or, subject to any
Requisite Approvals and to the Consent of Special Limited Partner, in such other
states as General Partner shall determine, except that the bank account for all
funds held by the Manager on behalf of the Partnership and all Reserves required
by the Lender and the Manager shall be maintained at a bank designated by the
Manager. The Partnership's funds shall not be commingled with the funds of any
other Person and shall not be used except for the business of the Partnership.
All deposits (including funds required by the Lender to be placed in escrow and
other funds not needed in the operation of the Partnership's business) shall be
deposited, to the extent permitted under the Project Documents, in
interest-bearing accounts which are insured by the Federal Deposit Insurance
Corporation, or invested in obligations of or guaranteed by the United States,
any state thereof, or any agency, municipality or other political subdivision of
any of the foregoing, commercial paper (investment grade), certificates of
deposit and time deposits in commercial banks with unencumbered capital and
surplus in excess of $50,000,000 and in mutual (money market) funds investing in
any or all of the foregoing; provided, however, that any funds required to be
placed in escrow by the Lender shall be controlled by the Lender and General
Partner shall not be permitted to make any withdrawal from such funds without
the express written consent of the Lender to the extent required and any funds
required to be placed in escrow by the Manager shall be controlled by the
Manager and General Partner shall not be permitted to make any withdrawal from
such funds without the express written consent of the Manager to the extent
required
Section 9.3 Tax Elections
Subject to the provisions of Section 9.4, all elections required or
permitted to be made by the Partnership under the Code shall be made by General
Partner in such manner as General Partner considers to be most advantageous to
Investor Limited Partner.
Section 9.4 Special Adjustments
A. In the event of a Transfer of all or any part of the Partnership
Interest of any Partner, the Partnership shall elect, pursuant to Section 754
of the Code (or corresponding provisions of succeeding law) to adjust the basis
of Partnership assets. Any adjustments made pursuant to Section 754 shall
affect only the successor in interest to the transferring Partner. Each Partner
will furnish the Partnership with all information necessary to give effect to
such election.
B. If, as a result of an adjustment made by the IRS and accepted by the
Partnership any item shall be capitalized, then the depreciation or cost
recovery for the amount so capitalized shall be appropriately allocated, as
determined by the Accountants, to those Partners affected by the adjustment.
Section 9.5 Fiscal Year
The Fiscal Year of the Partnership shall be the calendar year, or such
other year as may be required by the Code.
SECTION 10: WITHDRAWAL OF A GENERAL PARTNER; NEW GENERAL PARTNERS
Section 10.1 Voluntary Withdrawal
A. General Partner shall not have the right to withdraw voluntarily from
the Partnership, Transfer all or a portion of General Partner's Partnership
Interest or permit the transfer of an ownership interest in the General Partner,
without the Consent of Special Limited Partner, which Consent may be withheld or
granted in Special Limited Partner's sole and absolute discretion. Except with
respect to any damages incurred by the Partnership or the other Partners or
purchase or default rights expressly granted to the Partnership or the other
Partners under the terms of this Agreement, any such Transfer or voluntary
withdrawal or purported Transfer or voluntary withdrawal shall be void and
ineffectual and shall not bind, or be recognized by the Partnership.
B. Notwithstanding the foregoing, a General Partner may at any time
propose to Special Limited Partner a Person to serve as such General Partner's
successor, or if at such time there be more than one General Partner, to serve
as a successor to one or more of General Partners desiring to withdraw. If the
Consent of Special Limited Partner is obtained, and all Requisite Approvals are
obtained to such withdrawal and the admission of such successor, all Partners
hereby agree that this Agreement shall be appropriately amended to effect such
withdrawal and admission.
Section 10.2 Obligation to Continue
In the event of the occurrence of a Terminating Event with respect to any
General Partner, the remaining General Partners, if any, and any successor
General Partner, shall have the obligation to elect to continue the business of
the Partnership employing the Partnership's assets and name, all as contemplated
by the laws of the State, unless otherwise directed by Special Limited Partner.
Within 10 days after the occurrence of such Terminating Event, the General
Partner subject to such Terminating Event and any remaining General Partners
shall notify Investor Limited Partner and Special Limited Partner thereof.
Section 10.3 Successor General Partner
A. Upon the occurrence of any Terminating Event referred to in
Section 10.2, the remaining General Partners may (but are not required to)
designate a Person to become a successor General Partner to General Partner as
to whom such event shall have occurred. Any Person so designated, subject to
the Consent of Special Limited Partner, which Consent may be withheld or granted
in Special Limited Partner's sole and absolute discretion (and, if required by
the Act or any other applicable law, the consent of any other Partner so
required), shall become a successor General Partner upon such Person's written
agreement to be bound by the Project Documents and by the provisions of this
Agreement.
B. If any Terminating Event referred to in Section 10.2 shall occur at a
time when there is no remaining General Partner and no successor becomes a
successor General Partner pursuant to the preceding provisions of this Section
10.3, then Special Limited Partner shall have the right to either become a
successor General Partner or to designate a Person to become a successor General
Partner upon such Person's written agreement to be bound by the Project
Documents and by the provisions of this Agreement.
C. If Special Limited Partner elects to reconstitute the Partnership
pursuant to this Section 10.3 and admit a successor General Partner pursuant to
this Section 10.3, the relationship of the parties in the reconstituted
Partnership shall be governed by this Agreement as the same may be amended by
the then Partners in the Partnership.
Section 10.4 Interest of Predecessor General Partner
A. Except as provided in Section 10.3, no assignee or transferee of all
or any part of the Partnership Interest of a General Partner shall have any
automatic right to become a General Partner. Upon the designation of a
successor General Partner (if any) pursuant to Section 10.3, such successor
General Partner shall have the option to acquire the predecessor General
Partner's Partnership Interest by paying to such General Partner or General
Partner's representatives (i) the fair market value of such Partnership
Interest, if such predecessor General Partner was not in violation of any of the
covenants or undertakings contained in this Agreement, or has violated any
representation or warranty contained herein, or, (ii) if such predecessor
General Partner was in violation of any of the covenants or undertakings
contained in this Agreement, or has violated any representation or warranty
contained herein, by paying the amount, if any, due to such predecessor General
Partner under Section 8.3B.
B. If no successor General Partner is designated or if the designated
successor General Partner of the predecessor General Partner does not desire to
purchase the Partnership Interest of the predecessor General Partner, such
Partnership Interest of the predecessor General Partner shall automatically and
without the need for any confirmatory documentation therefor be converted into
that of a Special Class Limited Partner and the holder thereof shall be entitled
only to such rights as the assignee of a Limited Partnership Interest may have
as such under the provisions of Section 11.4, the Act and other applicable laws
of the State.
C. Upon the occurrence of a Terminating Event (other than a Terminating
Event which constitutes a Material Default) as to any General Partner, such
General Partner (the "Retired General Partner") shall be deemed to have
automatically Transferred to the remaining General Partners, in proportion to
their respective General Partnership interests, or, if there shall be no
remaining General Partners, then to the Partnership for the benefit of the
remaining Partners, all or such portion of General Partnership Interest of such
Retired General Partner which, when aggregated with the existing General
Partnership Interests of all such remaining General Partners, if any, will be
sufficient to assure such remaining General Partners and any successor General
Partner a 1% interest in all Profits, Losses, Tax Credits and Distributions of
the Partnership under Section 6. No documentation shall be necessary to
effectuate such Transfer, which shall be automatic. That portion of General
Partnership Interest of the Retired General Partner which shall not have been
Transferred pursuant to this Section 10.4C shall be retained by such Retired
General Partner (or pass to legal representatives of a deceased General Partner)
who or which shall have the status of a Special Class Limited Partner, with the
right to receive that share of the Profits, Losses, Tax Credits, and
Distributions of the Partnership to which the Retired General Partner as such,
would have been entitled had such Terminating Event not occurred, reduced to the
extent of General Partnership Interest transferred hereunder, but such Retired
General Partner (or such Retired General Partner's legal representatives in the
case of a deceased General Partner) shall not be considered to be a Limited
Partner for the purpose of sharing the benefits allocated to the Limited
Partners under Section 6 and shall not participate in the votes or consents of
the Limited Partners hereunder. No consideration shall be paid to such Retired
General Partner by the remaining General Partners or the Partnership in the
event of a Transfer pursuant to this Section 10.4C.
D. For the purposes of Section 6, the effective date of the Transfer
pursuant to the provisions of Section 10.4C of the Partnership Interest of a
Retired General Partner shall be deemed to be the date on which such Terminating
Event occurs.
E. Anything herein contained to the contrary notwithstanding, any General
Partner who withdraws voluntarily in violation of Section 10.1 or who is removed
by Special Limited Partner as provided in this Agreement shall remain liable for
all of such General Partner's obligations under this Agreement, for all of such
General Partner's obligations under the Project Documents, and for all of such
General Partner's other obligations and liabilities hereunder incurred or
accrued prior to the date of such General Partner's withdrawal and for any loss
or damage which the Partnership or any of the Partners may incur as a result of
such withdrawal, except for any loss or damage attributable to the activities of
the remaining and/or successor General Partners subsequent to such withdrawal.
F. The estate (which term, for purposes of this Section 10.4F, shall
include the heirs, distributees, estate, executors, administrators, guardian,
committee, trustee or other personal representative) of a General Partner who is
a natural person as to whom a Terminating Event has occurred shall be and remain
liable for all such General Partner's liabilities and obligations hereunder,
except as provided in this Section 10.4F. In the event of the death, insanity
or incompetency of a General Partner who is a natural person, such General
Partner's estate shall remain liable for all such General Partner's obligations
and liabilities hereunder incurred or accrued prior to the date of such event,
and for any damages arising out of any breach of this Agreement by such General
Partner, but such General Partner's estate shall not have any obligation or
liability on account of the business of the Partnership or the activities of the
other General Partners after such General Partner's death, insanity or
incompetency unless such General Partner's estate elects to become a General
Partner pursuant to Section 10.3A.
Section 10.5 Designation of New General Partners
A. General Partner may, with the written consent of all Partners which
may be given or withheld in such Partners' absolute discretion, at any time
designate one or more new General Partners with such General Partnership
Interest(s) as General Partner may specify.
B. Any new General Partner shall, as a condition to such Person's
admission to the Partnership and of receiving any interest in Partnership
Property, agree to comply with the terms of the Project Documents and by the
provisions of this Agreement to the same extent and on the same terms as any
other General Partner.
Section 10.6 Amendment of Agreement; Approval of Certain Events
A. Upon the admission of a new General Partner or the withdrawal (for any
reason) of a General Partner, pursuant this Section 10, the Schedule shall be
amended to reflect such admission and/or withdrawal, as the case may be, and the
Managing General Partner shall file an amendment to this Agreement reflecting
such admission and/or withdrawal, as the case may be, in the manner and to the
extent required by the Act and all filings to reflect such admission and/or
withdrawal, as the case may be, in the manner and to the extent required under
the laws of the State of Texas.
B. Each Partner hereby consents to and authorizes any admission or
substitution of a General Partner or any other transaction, including, without
limitation, the continuation of the Partnership business, which has been
authorized by the requisite Partners under the provisions of this Agreement,
subject to the provisions of Section 10.7, and hereby ratifies and confirms each
amendment of this Agreement necessary or appropriate to give effect to any such
transaction.
Section 10.7 Admission of a General Partner
Notwithstanding any other provisions of this Agreement, no Person (other
than Special Limited Partner pursuant to exercise of Special Limited Partner's
rights under this Agreement) shall be admitted as an additional or successor
General Partner without the written approval of all Persons who are then
Partners.
SECTION 11: TRANSFER OF LIMITED PARTNERSHIP INTERESTS
Section 11.1 Right to Assign
A. Subject to Section 11.2, the Limited Partner shall have the right to
Transfer such Limited Partner's Partnership Interest, or any other interest
which such Limited Partner has in the capital, assets or property of the
Partnership, or to enter into any agreement as a result of which any Person
shall become interested with such Limited Partner in the Partnership, without
the written consent of General Partner.
B. Investor Limited Partner may at any time designate an Affiliate of
Investor Limited Partner, or a partnership in which an Affiliate of Investor
Limited Partner serves as a General Partner, to replace Investor Limited Partner
as the Investor Limited Partnership of the Partnership, in which case Investor
Limited Partner shall automatically assign Investor Limited Partner's interest
to such Entity and withdraw from the Partnership, and such Entity will be
admitted to the Partnership as the substitute Investor Limited Partner.
Section 11.2 Restrictions
A. No Transfer of the Limited Partnership Interest of any Person shall be
made if such Transfer would violate the provisions of Section 13.1 or the terms
of the Management Agreement.
B. In no event shall all or any part of a Limited Partnership Interest be
Transferred to a minor or to an incompetent.
C. General Partner may require as a condition to any Transfer of a
Limited Partnership Interest, that the assignor or assignee (i) assume all costs
incurred by the Partnership in connection therewith, and (ii) furnish General
Partner with an opinion of counsel satisfactory to counsel to the Partnership
that such Transfer complies with applicable federal and state securities laws.
D. Any voluntary Transfer in contravention of any of the provisions of
Section 11.1 or this Section 11.2 shall be void and ineffectual and shall not
bind, or be recognized by, the Partnership.
Section 11.3 Substitute Limited Partners
A. The Limited Partner shall have the right to substitute an Assignee as a
Limited Partner in such Limited Partner's place. Any Substitute Limited Partner
shall, as a condition of receiving any interest in the Partnership, agree to be
bound (to the same extent as such Assignee's assignor was bound) by the Project
Documents and by the provisions of this Agreement.
B. Upon the admission of a Substitute Limited Partner, the Schedule shall
be amended to reflect the name and address of such Substitute Limited Partner
and to eliminate the name and address of such Substitute Limited Partner's
assignor, and an amendment to this Agreement reflecting such admission shall be
filed, if required by the Act, in accordance with the applicable provisions of
the Act. Each Substitute Limited Partner shall execute such instrument or
instruments as shall be required by General Partner to signify such Substitute
Limited Partner's agreement to be bound by all the provisions of this Agreement.
Section 11.4 Assignees
A. In the event of the death or incapacity of any Limited Partner who is a
natural person, such Limited Partner's legal representatives shall have such
rights as are afforded them by the Act. The death of a Limited Partner shall
not dissolve the Partnership.
B. An Assignee of a Limited Partner who does not become a Substitute
Limited Partner in accordance with Section 11.3 shall, if such assignment is in
compliance with the terms of this Agreement, have the right to receive the same
share of Profits, Losses, Tax Credits and Distributions of the Partnership to
which the assigning Limited Partner would have been entitled if no such
assignment had been made by such Limited Partner but, except as otherwise
required under the Act, shall have no other rights granted to the Limited
Partners under this Agreement.
C. Any Limited Partner who shall assign all of such Limited Partner's
Limited Partnership Interest shall cease to be a Limited Partner of the
Partnership, and shall no longer have any rights or privileges or obligations of
a Limited Partner except that, unless and until the Assignee of such Limited
Partner is admitted to the Partnership as a Substitute Limited Partner in
accordance with Section 11.3, said assigning Limited Partner shall retain the
statutory rights and be subject to the statutory obligations of an assignor
limited partner under the Act as well as the obligation to make the Capital
Contributions attributable to the Limited Partnership Interest in question, if
any portion thereof remains unpaid.
D. In the event of any assignment of a Limited Partnership Interest, there
shall be filed with the Partnership a duly executed and acknowledged counterpart
of the instrument making such assignment; such instrument must evidence the
written acceptance of the Assignee to all the terms and provisions of this
Agreement; and if such an instrument is not so filed, the Partnership need not
recognize any such assignment for any purpose.
E. An Assignee of a Limited Partnership Interest who does not become a
Substitute Limited Partner as provided in Section 11.3 and who desires to make a
further assignment of such Assignee's Limited Partnership Interest shall be
subject to the provisions of this Section 11 to the same extent and in the same
manner as any Limited Partner desiring to make an assignment of such Limited
Partner's Limited Partnership Interest.
Section 11.5. Right of First Offer.
(A) If either Limited Partner (the "Selling Party") desires to sell all or
any part of its Limited Partnership Interest to an person not an Affiliate of a
Limited Partner, the Selling Party shall give notice (the "Offer Notice") to the
General Partner describing that portion or all of the Limited Partnership
Interest to be sold (such whole or partial Limited Partnership Interest, as the
case may be, to be hereinafter referred to as the "Offered Interest"). The
General Partner shall have the option (the "Option") to purchase all of the
Offered Interest for the price set forth in the Offer Notice (the "Withdrawal
Price").
(B) The General Partner may elect to exercise the Option by giving written
notice of its election to the Selling Party at any time within 15 days after the
date of the Offer Notice (the "Election Date"). The General Partner's notice of
its election shall set forth a closing date (the "Closing Date") for the
purchase, which shall not be more than 30 days after the date of General
Partner's notice. If the General Partner elects to exercise the Option, the
Withdrawal Price shall be paid in cash on the Closing Date.
(C) If the General Partner fails to exercise the Option, the Selling Party
shall be permitted to offer and sell the Offered Interest to any non-Affiliate
for a period of 180 days after the Election Date at a price not less than the
Withdrawal Price. If the Selling Party does not sell the Offered Interest
within such period, the Selling Party's right to sell the Offered Interest
pursuant to this Section shall cease and terminate and the provisions of this
Section shall began anew with respect to any subsequent sale to which this
Section applies.
SECTION 12: MANAGEMENT AGREEMENT
Section 12.1 General
General Partner shall engage the Manager to manage the Project pursuant to
the Management Agreement. The Manager shall receive a Management Fee of those
amounts payable from time to time by the Partnership to the Manager for
management services. The initial Manager shall be Courtyard Management
Corporation. From and after the Admission Date, the Partnership shall not enter
into any Management Agreement or modify or extend any Management Agreement
unless General Partner shall have obtained the Consent of Special Limited
Partner to such Management Agreement, modification or extension, as the case may
be.
Section 12.2 Management Fee Paid to General Partner and an Affiliate
Should General Partner or an Affiliate thereof perform hotel management
services for the Partnership, hotel management fees shall be paid General
Partner or such Affiliate only for services actually rendered and shall be in a
reasonable and competitive amount.
SECTION 13: GENERAL PROVISIONS
Section 13.1 Restrictions on Transfer
A. No Transfer of any Partnership Interest may be made except in
compliance with the Regulations. General Partner may require as a condition of
any transfer of such Partnership Interest that the transferor furnish an opinion
of counsel reasonably satisfactory to General Partner that the proposed transfer
will comply with applicable federal and state securities laws.
B. Any voluntary Transfer in contravention of any of the provisions of
this Section 13.1 shall be void and ineffective, and shall not bind or be
recognized by the Partnership.
Section 13.2 Notices
Except as otherwise specifically provided herein, all notices, demands or
other communications hereunder shall be in writing and shall be deemed to have
been given on (i) the first business day after delivery to a nationally
recognized overnight delivery service, (ii) the business day on which such is
sent by telecopier or other facsimile transmission, answerback requested, if
such transmission is sent during customary business hours of the recipient and
if the sender telephonically confirms with the recipient receipt of such
transmission, or if sent otherwise, then on the first business following such
transmission on which the sender telephonically confirms with the recipient
receipt of such transmission, or (iii) when delivered personally if such is
delivered during customary business hours of the recipient, or if delivered
otherwise, then on the first business following such delivery, in each case, to
the parties at the addresses set forth below or at such other addresses as such
parties may designate by notice to the Partnership:
(a) If to the Partnership, at the principal office of the Partnership
set forth in Section 2.
(b) If to a Partner, at such Partner's address set forth in the
Schedule, with copies to Dale G. Schedler, Esq., Lewis, Rice & Fingersh, L.C.,
1010 Walnut Street, Suite 500, Kansas City, Missouri 64106, and Gary J. Elkins,
Esq., Elkins, P.L.C., Suite 3700, 201 St. Charles Avenue, New Orleans, Louisiana
70170.
Section 13.3 Word Meanings
The words such as "herein," "hereinafter," "hereof," and "hereunder" refer
to this Agreement as a whole and not merely to a subdivision in which such words
appear unless the context otherwise requires. The singular shall include the
plural and the masculine gender shall include the feminine and neuter, and vice
versa, unless the context otherwise requires. Any references to "Sections" are
to Sections of this Agreement, unless reference is expressly made to a different
document.
Section 13.4 Binding Provisions
The covenants and agreements contained herein shall be binding upon, and
inure to the benefit of, the heirs, legal representatives, successors and
assignees of the respective parties hereto, except in each case as expressly
provided to the contrary in this Agreement.
Section 13.5 Applicable Law
This Agreement shall be construed and enforced in accordance with the
internal laws of the State.
Section 13.6 Exhibits and Schedules
A. The Partners acknowledge that the following constitute the exhibits
(the "Exhibits") to this Agreement:
A Admission Date Conditions
B Legal Description of Land
C Second Installment Payment Certificate
D Form of General Partner's Estoppel Certificate
B. The Partners acknowledge that the following constitutes the Schedule
to this Agreement:
A Capital Contributions
Section 13.7 Counterparts
This Agreement may be executed in several counterparts and all so executed
counterparts shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the original or the same
counterpart.
Section 13.8 Paragraph Titles
Paragraph titles and any table of contents herein are for descriptive
purposes only, and shall not control or alter the meaning of this Agreement as
set forth in the text.
Section 13.9 Separability of Provisions
Each provision of this Agreement shall be considered separable and (a) if
for any reason any provision or provisions herein are determined to be invalid
and contrary to any existing or future law, such invalidity shall not impair the
operation of or affect those portions of this Agreement which are valid, or (b)
if for any reason any provision or provisions herein would cause the Limited
Partners to be bound by the obligations of the Partnership under the laws of the
State as the same may now or hereafter exist, such provision or provisions shall
be deemed void and of no effect.
Section 13.10 Effective Date of Admission
Subject to the provisions of Section 6.5J, Investor Limited Partner shall
be deemed to have been admitted as of the first day of the calendar month in
which the Admission Date occurs, for all purposes of this Agreement, including
the allocation of Profits, Losses and Tax Credits under Section 6.
Section 13.11 Amendment Procedure
A. This Agreement may be amended by General Partner with the Consent of
Special Limited Partner.
B. Notwithstanding any agreement to the contrary contained in this
Agreement, no amendment will be made to this Agreement which will affect the
rights of the Lender or a Governmental Authority under the terms of the Project
Documents, or any other agreement between the Lender and/or a Governmental
Authority and the Partnership, without the prior written approval of the Lender
and/or the Governmental Authority, as the case may be.
IN WITNESS WHEREOF, each of the Partners has executed this Agreement as of
the date first written above.
COUNTERPART SIGNATURE PAGES FOLLOW THIS PAGE
<PAGE>
COUNTERPART SIGNATURE PAGE TO FIRST AMENDED AND RESTATED ARTICLES OF LIMITED
PARTNERSHIP OF BLACKSTONE HOTEL PARTNERS, L.P.
GENERAL PARTNER: HISTORIC RESTORATION,
INCORPORATED
/s/ A. Thomas Leonhard, Jr.
By: -----------------------------
A. Thomas Leonhard, Jr.
Its: Vice President
<PAGE>
COUNTERPART SIGNATURE PAGE TO FIRST AMENDED AND RESTATED ARTICLES OF LIMITED
PARTNERSHIP OF BLACKSTONE HOTEL PARTNERS, L.P.
INVESTOR LIMITED PARTNER: AMERUS-BLACKSTONE, L.L.C.
By: AmerUs Life Insurance Company
Its: Member
/s/ Gene Harris
By: ---------------------------
Gene Harris
Name: ------------------------
Sr. Vice President
Title: -----------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO FIRST AMENDED AND RESTATED ARTICLES OF LIMITED
PARTNERSHIP OF BLACKSTONE HOTEL PARTNER, L.P.
SPECIAL LIMITED PARTNER: AMERUS MANAGEMENT, INC.
/s/ Gene Harris
By: ---------------------------------
Gene Harris
Its: Senior Vice President
<PAGE>
COUNTERPART SIGNATURE PAGE TO FIRST AMENDED AND RESTATED ARTICLES OF LIMITED
PARTNERSHIP OF BLACKSTONE HOTEL PARTNERS, L.P.
WITHDRAWING LIMITED PARTNER:
/s/ A. Thomas Leonard, Jr.
-----------------------------------
A. THOMAS LEONHARD, JR.
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
On this 23rd day of July, 1997, before me appeared A. Thomas Leonhard, Jr.,
to me personally known, who, being by me duly sworn, did say that he is a Vice
President of Historic Restoration, Incorporated, a Louisiana corporation, that
the foregoing instrument was signed and sealed on behalf of the corporation by
authority of its Board of Directors, that A. Thomas Leonhard, Jr. acknowledged
the instrument to be the free act and deed of the corporation, and that the
corporation has no corporate seal.
----------------------------------
NOTARY PUBLIC
<PAGE>
ACKNOWLEDGMENT
STATE OF IOWA
COUNTY OF POLK
On this 19th day of July, 1997, before me appeared Gene Harris, to me
personally known, who, being by me duly sworn, did say that he is the Sr. Vice
President of AmerUs Life Insurance Company, an Iowa corporation who is the sole
Member of AmerUs-Blackstone, L.L.C., an Iowa limited liability company, that the
foregoing instrument was signed on behalf of the corporation by authority of its
Board of Directors, that Gene Harris in such capacity acknowledged the
instrument to be the free act and deed of the limited liability company.
----------------------------------------
NOTARY PUBLIC
<PAGE>
ACKNOWLEDGMENT
STATE OF IOWA
COUNTY OF POLK
On this 19th day of July, 1997, before me appeared Gene Harris, to me
personally known, who, being by me duly sworn, did say that he is the Senior
Vice President of AmerUs Management, Inc., that the foregoing instrument was
signed on behalf of the corporation by authority of its Board of Directors, that
Gene Harris as such Senior Vice President acknowledged the instrument to be the
free act and deed of the corporation, and that the corporation has no corporate
seal.
-----------------------------------------
NOTARY PUBLIC
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
On this 23rd day of July, 1997, before me appeared A. Thomas Leonhard, Jr.,
to me personally known, who, being by me duly sworn, did say that he is the
Withdrawing Limited Partner of Blackstone Hotel Partners, L.P., that the
foregoing instrument was signed and sealed on behalf of the partnership, and
that A. Thomas Leonhard, Jr., acknowledged the instrument to be the free act and
deed of the partnership.
---------------------------------------
NOTARY PUBLIC
<PAGE>
SCHEDULE A
Capital Contributions
Name and Address of Partners Capital Contribution
HRI Blackstone Corporation $100.00
210 Baronne Street
Suite 1717
New Orleans, LA 70112
Attention: Pres Kabacoff
Telephone Number: (504) 566-0204
Facsimile Number: (504) 525-3932
AmerUs-Blackstone, L.L.C. $3,577,000.00
699 Walnut, Suite 1700
Des Moines, Iowa 50309-3945
Attention: Gene Harris
Telephone Number: (515) 362-3600
Facsimile Number: (515) 362-3631 or (515) 362-3632
AmerUs Management, Inc. $100.00
699 Walnut, Suite 1700
Des Moines, Iowa 50309-3945
Attention: Gene Harris
Telephone Number: (515) 362-3600
Facsimile Number: (515) 362-3631 or (515) 362-3632
<PAGE>
EXHIBIT A
Admission Date Conditions
Copy Of Document Follows This Page<PAGE>
EXHIBIT B
Legal Description of Real Estate
Copy Of Document Follows This Page<PAGE>
EXHIBIT C
Second Installment Payment Certificate
Copy Of Document Follows This Page
<PAGE>
EXHIBIT D
Form of Lender's Estoppel Certificate
Copy Of Document Follows This Page
<PAGE>
EXHIBIT E
Insurance Requirements
Copy Of Document Follows This Page
Exhibit 10.68
BRIGGS RENEWAL LIMITED PARTNERSHIP
A DELAWARE LIMITED PARTNERSHIP
FIRST AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF NOVEMBER 18, 1997
<PAGE>
TABLE OF CONTENTS
SECTION 1: DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . .. 1
SECTION 2: CONTINUATION. . . . . . . . . . . . . . . . . . . . . . . . .. 28
Section 2.1 Continuation . . . . . . . . . . . . . . . . . . . . . .. 28
Section 2.2 Name and Office; Registered Agent and Office . . . . . .. 28
Section 2.3 Purpose. . . . . . . . . . . . . . . . . . . . . . . . .. 28
Section 2.4 Authorized Acts. . . . . . . . . . . . . . . . . . . . .. 28
Section 2.5 Term and Dissolution . . . . . . . . . . . . . . . . . .. 30
SECTION 3: ACQUISITION, FINANCING, REHABILITATION, AND DISPOSITION OF
PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . .. 31
Section 3.1 Acquisition. . . . . . . . . . . . . . . . . . . . . . .. 31
Section 3.2 Financing. . . . . . . . . . . . . . . . . . . . . . . .. 31
Section 3.3 Rehabilitation . . . . . . . . . . . . . . . . . . . . .. 33
Section 3.4 Management and Disposition . . . . . . . . . . . . . . .. 33
SECTION 4: PARTNERS AND CAPITAL ACCOUNTS . . . . . . . . . . . . . . . .. 33
Section 4.1 General Partner. . . . . . . . . . . . . . . . . . . . .. 33
Section 4.2 Limited Partners . . . . . . . . . . . . . . . . . . . .. 34
Section 4.3 Partnership Capital and Capital Accounts . . . . . . . .. 34
Section 4.4 Withdrawal of Capital. . . . . . . . . . . . . . . . . .. 35
Section 4.5 Liability of Limited Partner . . . . . . . . . . . . . .. 36
Section 4.6 Additional Limited Partners. . . . . . . . . . . . . . .. 36
SECTION 5: CAPITAL CONTRIBUTIONS OF INVESTOR LIMITED PARTNER AND
SPECIAL LIMITED PARTNER; OPERATING DEFICIT LOANS; INVESTOR
LIMITED PARTNER LOANS; LETTER OF CREDIT; REPURCHASE RIGHT . .. 36
Section 5.1 Capital Contributions of Investor Limited Partner and
Special Limited Partner. . . . . . . . . . . . . . . . .. 36
Section 5.2 Conditions to Payment of Second Installment. . . . . . .. 38
Section 5.3 Adjuster Provisions: Generally; Completion Adjuster. . .. 40
Section 5.4 Historic Rehabilitation Credit Adjuster. . . . . . . . .. 41
Section 5.5 Balloon Adjuster . . . . . . . . . . . . . . . . . . . .. 43
Section 5.6 IRS Claims . . . . . . . . . . . . . . . . . . . . . . .. 43
Section 5.7 Project Cost Overruns. . . . . . . . . . . . . . . . . .. 44
Section 5.8 Operating Deficits and Operating Deficit Loans; Use of
Operating Deficit Reserve; and Cash Collateral Fund. . .. 44
Section 5.9 No Third-Party Rights in Operating Deficit Loans . . . .. 45
Section 5.10 No Third-Party Rights in Capital . . . . . . . . . . . .. 46
Section 5.11 Letters of Credit. . . . . . . . . . . . . . . . . . . .. 46
Section 5.12 Limited Partners' Right to Require Repurchase. . . . . .. 46
Section 5.13 Repayment to Investor Limited Partner of Excess
Adjustment . . . . . . . . . . . . . . . . . . . . . . .. 47
Section 5.14 Subordinated Partner Loans.. . . . . . . . . . . . . . .. 48
Section 5.16 Negative Capital Account Restoration.. . . . . . . . . .. 50
Section 5.17 Bridge Loan. . . . . . . . . . . . . . . . . . . . . . .. 51
SECTION 6: PROFITS AND LOSSES; CREDITS; DISTRIBUTIONS. . . . . . . . . .. 51
Section 6.1 Profits and Losses . . . . . . . . . . . . . . . . . . .. 51
Section 6.2 Distributions Prior to Dissolution . . . . . . . . . . .. 52
A. Distribution of Cash Flow. . . . . . . . . . . . . . . .. 52
B. Distributions of Refinancing Proceeds. . . . . . . . . .. 53
C. Distributions of Sale Proceeds . . . . . . . . . . . . .. 54
Section 6.3 Liquidation. . . . . . . . . . . . . . . . . . . . . . .. 56
Section 6.4 Special Distribution Provisions. . . . . . . . . . . . .. 56
Section 6.5 Special Allocation Provisions. . . . . . . . . . . . . .. 57
Section 6.6 Order of Application . . . . . . . . . . . . . . . . . .. 60
SECTION 7: RIGHTS, POWERS AND DUTIES OF GENERAL PARTNER. . . . . . . . .. 61
Section 7.1 Restrictions on Authority. . . . . . . . . . . . . . . .. 61
Section 7.2 Personal Services and Competition. . . . . . . . . . . .. 62
Section 7.3 Business Management and Control; Designation of
Managing General Partner . . . . . . . . . . . . . . . .. 63
Section 7.4 Duties and Obligations of General Partner. . . . . . . .. 64
Section 7.5 Certain Payments to the Developer and Developer's
Affiliates . . . . . . . . . . . . . . . . . . . . . . .. 68
Section 7.6 Fiduciary Duty of General Partner. . . . . . . . . . . .. 69
Section 7.7 Indemnification. . . . . . . . . . . . . . . . . . . . .. 69
Section 7.8 Liability of General Partner to Limited Partners . . . .. 70
Section 7.9 Tax Matters Partner. . . . . . . . . . . . . . . . . . .. 70
Section 7.10 Access and Reports . . . . . . . . . . . . . . . . . . .. 72
Section 7.11 Representations and Warranties of General Partner. . . .. 72
Section 7.12 Indemnification. . . . . . . . . . . . . . . . . . . . .. 75
SECTION 8: REMOVAL OF GENERAL PARTNER. . . . . . . . . . . . . . . . . .. 76
Section 8.1 General. . . . . . . . . . . . . . . . . . . . . . . . .. 76
Section 8.2 Set Off. . . . . . . . . . . . . . . . . . . . . . . . .. 76
Section 8.3 Removal of General Partner . . . . . . . . . . . . . . .. 76
SECTION 9: BOOKS AND REPORTING, ACCOUNTING, TAX ELECTIONS, ETC.. . . . .. 79
Section 9.1 Books and Reporting. . . . . . . . . . . . . . . . . . .. 79
Section 9.2 Bank Accounts. . . . . . . . . . . . . . . . . . . . . .. 81
Section 9.3 Tax Elections. . . . . . . . . . . . . . . . . . . . . .. 82
Section 9.4 Special Adjustments. . . . . . . . . . . . . . . . . . .. 82
Section 9.5 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . .. 82
SECTION 10: WITHDRAWAL OF A GENERAL PARTNER; NEW GENERAL PARTNERS . . . .. 82
Section 10.1 Voluntary Withdrawal . . . . . . . . . . . . . . . . . .. 82
Section 10.2 Obligation to Continue . . . . . . . . . . . . . . . . .. 83
Section 10.3 Successor General Partner. . . . . . . . . . . . . . . .. 83
Section 10.4 Interest of Predecessor General Partner. . . . . . . . .. 84
Section 10.5 Designation of New General Partners. . . . . . . . . . .. 85
Section 10.6 Amendment of Agreement; Approval of Certain Events . . .. 86
Section 10.7 Admission of a General Partner . . . . . . . . . . . . .. 86
SECTION 11: TRANSFER OF LIMITED PARTNERSHIP INTERESTS . . . . . . . . . .. 86
Section 11.1 Right to Assign. . . . . . . . . . . . . . . . . . . . .. 86
Section 11.2 Restrictions . . . . . . . . . . . . . . . . . . . . . .. 86
Section 11.3 Substitute Limited Partners. . . . . . . . . . . . . . .. 87
Section 11.4 Assignees. . . . . . . . . . . . . . . . . . . . . . . .. 87
SECTION 12: MANAGEMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . .. 89
Section 12.1 General. . . . . . . . . . . . . . . . . . . . . . . . .. 89
Section 12.2 Management Fee Paid to General Partner and an Affiliate.. 89
SECTION 13: GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . .. 89
Section 13.1 Restrictions on Transfer . . . . . . . . . . . . . . . .. 89
Section 13.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . .. 89
Section 13.3 Word Meanings. . . . . . . . . . . . . . . . . . . . . .. 90
Section 13.4 Binding Provisions . . . . . . . . . . . . . . . . . . .. 90
Section 13.5 Applicable Law . . . . . . . . . . . . . . . . . . . . .. 90
Section 13.6 Exhibits and Schedules . . . . . . . . . . . . . . . . .. 90
Section 13.7 Counterparts . . . . . . . . . . . . . . . . . . . . . .. 91
Section 13.8 Paragraph Titles . . . . . . . . . . . . . . . . . . . .. 91
Section 13.9 Separability of Provisions . . . . . . . . . . . . . . .. 91
Section 13.10 Effective Date of Admission. . . . . . . . . . . . . . .. 91
Section 13.11 Amendment Procedure. . . . . . . . . . . . . . . . . . .. 91
<PAGE>
FIRST AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
BRIGGS RENEWAL LIMITED PARTNERSHIP
FIRST AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (this
"Agreement") is made as of the 18th day of November, 1997, by and among HRI
BRIGGS CORPORATION, a Louisiana corporation, as General Partner; A. THOMAS
LEONHARD, JR., a resident of Jefferson Parish, Louisiana, as Withdrawing Limited
Partner; AMERUS-BLACKSTONE, L.L.C., an Iowa limited liability company, as
Investor Limited Partner; and AMERUS MANAGEMENT, INC., an Iowa corporation, as
Special Limited Partner (General Partner, Investor Limited Partner, and Special
Limited Partner are hereinafter collectively referred to as the "Partners").
Recitals:
Briggs Renewal Limited Partnership (the "Partnership") was organized as a
limited partnership pursuant to Articles of Limited Partnership dated as of July
31, 1997 (the "Original Agreement"), and formed under the laws of the State of
Delaware pursuant to a "Certificate of Limited Partnership of Briggs Renewal
Limited Partnership" recorded with the Secretary of State of the State of
Delaware (the "Filing Office") on August 1, 1997.
The purposes of this amendment and restatement to the Original Agreement
are to (i) provide for the withdrawal of the Withdrawing Limited Partner as the
original limited partner, (ii) provide for the admission of Amerus-Blackstone,
L.L.C. as Investor Limited Partner and AmerUs Management, Inc. as Special
Limited Partner, (iii) set forth more fully the rights, obligations and duties
of General Partner, Investor Limited Partner, and Special Limited Partner, and
(iv) amend, restate and supersede the Original Agreement in its entirety.
NOW, THEREFORE, it is hereby agreed as follows:
SECTION 1: DEFINITIONS
The capitalized terms used in this Agreement shall have the meanings
ascribed to them in this Section 1.
"Accountants." Reznick, Fedder & Silverman of Bethesda, Maryland, or such
other firm of certified public accountants as may be engaged by General Partner
in accordance with the provisions of Section 9.1H.
"Act." The Delaware Revised Uniform Limited Partnership Act, Del. Code
Ann. tit. 6, Section17-101 to 17-1109, as amended.
"Adjusted Capital Account Deficit." With respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of a
Partnership Fiscal Year, after giving effect to the following adjustments:
(i) Such Capital Account shall be increased by the amount of any
Deficit Restoration Obligation of such Partner.
(ii) Such Capital Account shall be decreased by the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6) of the
Allocation Regulations.
The foregoing definition of Adjusted Capital Account Deficit and the
application of such term in the manner provided in Section 6.5E are intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Allocation
Regulations and shall be interpreted consistently therewith.
"Admission Date." The date on which this Agreement is executed, all of the
Admission Date Conditions have been satisfied, and Investor Limited Partner and
Special Limited Partner are admitted to the Partnership.
"Admission Date Conditions." The matters listed on Exhibit A attached to
this Agreement.
"Adverse Consequences." All actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses and fees, including court costs and reasonable attorneys' fees and
expenses.
"Affiliate." With respect to a specified Person, (i) any Person directly
or indirectly controlling, controlled by or under common control with the Person
specified, (ii) any Person owning or controlling 10% or more of the outstanding
voting securities or beneficial interests of the Person specified, (iii) any
officer, director, partner, trustee or member of the immediate family of the
Person specified, (iv) if the Person specified is an officer, director, general
partner or trustee, any corporation, partnership or trust for which that Person
acts in that capacity then such corporation, partnership or trust, or (v) any
Person who is an officer, director, general partner, trustee or holder of 10% or
more of outstanding voting securities or beneficial interests of any Person
described in clauses (i) through (iv). The term "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement." This First Amended and Restated Limited Partnership
Agreement.
"Allocation Regulations." The Treasury Regulations issued under Sections
704(b) and 752 of the Code, as the same may be modified or amended from time to
time.
"Assignee." A Person who has acquired from a Partner, in accordance with
the terms of this Agreement, a beneficial interest in the Partnership's Profits,
Losses, Tax Credits or Distributions, but who is not a Substitute Partner.
"Assignment of Construction Agreement, Plans and Property Agreements." The
"Assignment" dated November 18, 1997 of certain of the Project Documents by the
Partnership in favor of the Lender as collateral security for the Mortgage Loan.
"Assignment of Redevelopment Agreement." That certain "Assignment" dated
November 18, 1997 of the Redevelopment Agreement by HRI in favor of the
Partnership.
"Assignment of Interior Design Agreement." That certain "Assignment" dated
November 18, 1997 of the Interior Design Agreement by HRI in favor of the
Partnership.
"Assignment of Purchase Agreement." That certain Assignment of the
Purchase Agreement dated November 18, 1997 by and between HRI and the
Partnership, whereunder HRI has assigned all of its right, title, and interest
in and to the Purchase Agreement to the Partnership.
"Bank." The First National Bank of Omaha or its successors and assigns as
holders of the TIF Advance Note.
"Base Management Fee." The base management fee payable to the Manager
pursuant to the Management Agreement.
"Best Knowledge." In the case of a specified Person, (i) actual knowledge
or (ii) that knowledge which a prudent business person (including, in the case
of an Entity, the general or managing partners, officers, directors, members and
key employees of such Entity) should have obtained in the management of such
person's business affairs after making due inquiry and exercising due diligence
with respect thereto. In connection therewith, the knowledge (both actual and
constructive) of any general or managing partner, director, officer or key
employee of an Entity shall be deemed to be the knowledge of the Entity.
"Bill of Sale." The bill of sale to be executed by Seller in favor of the
Partnership pursuant to which the Partnership will acquire the Personal
Property.
"Bridge Loan." Defined in Section 5.17.
"Building Loan Agreement." The loan agreement to be executed by and
between the Lender and the Partnership.
"Capital Account." An individual capital account maintained for each
Partner in accordance with the provisions of Section 4.
"Capital Contribution." The total amount of cash and the Gross Asset Value
of any property contributed or agreed to be contributed to the Partnership by
each Partner pursuant to the terms of this Agreement (minus any liabilities
secured by such contributed property that the Partnership assumes or takes
subject to). Any reference in this Agreement to the Capital Contribution of a
then Partner shall include a Capital Contribution previously made by any
predecessor-in-interest in respect to the Partnership Interest held by such then
Partner.
"Capital Proceeds." The proceeds of a Capital Transaction.
"Capital Transaction." Any transaction the proceeds of which are not
includable in determining Cash Flow, including, without limitation, Sale
Proceeds and Refinancing Proceeds, net insurance recoveries (other than proceeds
from rental interruption insurance), and title insurance recoveries, but
excluding (i) loans to the Partnership (other than a refinancing of the Mortgage
Loan) and (ii) Capital Contributions.
"Cash Collateral Fund." The fund in the initial amount of $200,000.00, to
be created by General Partner, from funds of General Partner, simultaneously
with payment of the Second Installment, which is to be used to fund Operating
Deficits. The Cash Collateral Fund shall be held jointly in the name of the
General Partner and Special Limited Partner and in interest- bearing accounts
which are fully insured by the Federal Deposit Insurance Corporation, or in such
other investments as Special Limited Partner may approve. Interest earned on
such funds will be earned in the name of General Partner and will be retained in
the Cash Collateral Fund and will be used for the same purposes as other funds
held in the Cash Collateral Fund. General Partner and Special Limited Partner
shall be joint signatories on the accounts in which the Cash Collateral Funds
are held; provided, however, that Special Limited Partner shall have the right
to withdraw funds from such accounts without the joinder of the General Partner
in the event the Special Limited Partner determines that the General Partner has
failed to take action to withdraw funds therefrom when General Partner is
required to do so under this Agreement. General Partner shall have the right to
withdraw any funds remaining in the accounts in which the Cash Collateral Fund
is held upon the earlier of (i) the expiration of the Initial Operating Period,
or (ii) the delivery of a letter of credit in the amount of the then outstanding
balance of the Cash Collateral Fund (the initial amount of $200,000.00 as
adjusted for any additions thereto or withdrawals therefrom), in form and
substance satisfactory to the Special Limited Partner in its sole discretion, by
the General Partner in favor of the Partnership; provided, however, that, in the
event such letter of credit is so issued, such letter of credit shall be drawn
upon, in whole or in part, to the same extent and as such times as if such drawn
funds were held in the Cash Collateral Fund and the amount thereof shall be
increased from time to time to the extent the General Partner would be required
to restore amounts to the Cash Collateral Fund pursuant to Section 5.8A.(iii).
Any such draw on the letter of credit shall be deemed, for all purposes of this
Agreement, as a withdrawal from the Cash Collateral Fund, and the Cash
Collateral Fund shall not be deemed to have been fully disbursed unless and
until the aggregate draws under such letter of credit equal the sum of
$200,000.00 less the aggregate amount the General Partner is required to restore
to the Cash Collateral Fund pursuant to Section 5.8A(iii).
"Cash Flow." Cash Receipts less payment of the (i) Project Expenses, (ii)
Debt Service, (iii) Debt Service Deficiency Loan, and (iv) Incentive Hotel
Management Fee for the applicable period of time.
"Cash Receipts." All gross receipts by the Partnership, including, Net
Hotel Revenues, Net Commercial Space Lease Rent, net insurance recoveries from
business interruption insurance, the net reduction in any Fiscal Year in the
amount of any escrow account or Partnership Reserves maintained by or for the
Partnership which is caused by withdrawal from such escrow account or
Partnership Reserve(s) made in accordance with the terms of this Agreement and,
to the extent not otherwise included in the determination of Cash Receipts, any
receipts of debt service or proceeds under the Redevelopment Note and any
receipts from the operation of the Parking Facility and/or the Off-Site Parking
Facility; provided, however, Cash Receipts shall not include Capital Proceeds.
"Certificate of Occupancy." The final, permanent certificate of occupancy
issued by the appropriate Governmental Authority authorizing the use and
occupancy of the entire Project as the Hotel, Parking Facility, Off-Site Parking
Facility and Commercial Space in accordance with the Plans and Specifications,
as contemplated by this Agreement; provided, however, that, in the event that
(i) the tenant improvements on the portion of the Project shown as the
approximate 7,600 square feet of commercial space located on the ground floor of
the Hospe Building in the Plans and Specifications are not completed prior to
the issuance of the final, permanent certificate of occupancy by the Governmen-
tal Authority with respect to the remaining portion of the Project, and (ii) the
General Partner is unable to finish out such premises or find, in the exercise
of due diligence and subject to the Consent of the Special Limited Partner, a
suitable tenant to complete such improvements and operate such premises prior to
such time the permanent certificate of occupancy with respect to the remaining
portion of the Project is issued by the Governmental Authority, then the
issuance of the final, permanent certificate of occupancy issued by the
appropriate Governmental Authority authorizing the use and occupancy of the
remaining portion of the Project as the Hotel, Off-Site Parking Facility and
Parking Facility in accordance with the Plans and Specifications, as
contemplated by this Agreement shall constitute the final, permanent certificate
of occupancy for purposes of this Agreement.
"City." The City of Omaha, a Nebraska municipal corporation.
"City Leases." Those certain "Lease Agreement(s)" for Lease No. 25368 and
for the lease to be executed after the Rehabilitation by and between the City
and the Partnership relating to those portions of the Project (shown as the
existing loading dock and the proposed loading dock on the western facade of the
Hospe Building on the Plans and Specifications) located and encroaching on City
property.
"City Lease Bond". The "Lease on Use of Public Property Bond(s)" executed
by the Partnership in favor of the City wherein the Partnership posts a
$10,000.00 bond for each of the City Leases to secure the Partnership's
obligations under the City Leases.
"Claim." Is defined in Section 5.6A.
"Claim Notice." Is defined in Section 5.6A.
"Code." The Internal Revenue Code of 1986, as amended, and the treasury
regulations promulgated thereunder, and any published public rulings, procedures
and notices thereunder.
"Commercial Space." The retail commercial space consisting of
approximately 7,600 square feet to be located on the ground floor of the Hospe
Building portion of the Improvements after the Rehabilitation.
"Commercial Space Expenses." Expenses payable by the Partnership related
to the Commercial Space Lease.
"Commercial Space Lease." The lease agreement, and any amendment thereto,
relating to the Commercial Space, the form and substance of which lease
agreement and the tenant thereunder shall be subject to Consent of the Special
Limited Partner.
"Commercial Space Lease Rent." Rent payable to the Partnership under the
Commercial Space Lease. If the Off-Site Parking Facility is operated by the
tenant(s) or its Affiliate under the Commercial Space Lease, "Commercial Space
Lease Rent" includes revenue from the Off-Site Parking Facility as well as from
the Commercial Space.
"Completion Date." June 30, 1999, unless such date has been extended by
Events of Force Majeure.
"Consent of Special Limited Partner." The prior written consent or
approval of Special Limited Partner. The approval of Special Limited Partner to
the form of the Project Documents, the approval of Special Limited Partner to
the Development Budget and the approval of the Special Limited Partner to the
Transfer of all or any portion of the General Partner's Partnership Interest and
the admission of any additional or successor General Partner may be withheld in
Special Limited Partner's sole and absolute discretion. Except as set forth
above and elsewhere in this Agreement, where this Agreement requires the prior
written consent or approval of Special Limited Partner, such consent or approval
shall not be unreasonably withheld or delayed.
"Construction and Design Contract." The "Standard Form of Agreement
between Owner and Design/Builder (Parts 1 and 2)" dated October 21, 1997,
effective November 13, 1997 by and between the Partnership and the Contractor,
in the form which has been approved by Special Limited Partner.
"Construction Consulting and Management Fee." A fee in the amount of
$75,000.00 to be paid to Investor Limited Partner at the Mortgage Loan Closing
for the performance of hotel feasibility studies and for the review and analysis
of the Management Agreement and Plans and Specifications.
"Contractor." HCI.
"County." Douglas County, Nebraska.
"Debt Service." The monthly installment or, if then due, any balloon
payment, of accrued interest and repayment of principal (including any
penalties, fees or expenses attributable thereto and/or the pay down of the
Mortgage Loan in connection with the exercise of the Mortgage Loan Extension
Privilege) which the Partnership is obligated to make to Lender under the Deed
of Trust Note, the Gap Note and/or to the Bank under the TIF Advance Note.
"Debt Service Coverage Loan." Defined in Section 3.2E.
"Debt Service Deficiency Loan." A loan made by the Manager to the
Partnership pursuant to Section 3.02A of the Management Agreement, such loan to
be used by the Partnership to pay Debt Service; provided, however, that any
decision to cause the Partnership to incur a Debt Service Deficiency Loan in an
amount that is less than $20,000.00 shall be made by the General Partner only
with the Consent of the Special Limited Partner.
"Deed." The special warranty deed to be executed by Seller in favor of the
Partnership pursuant to which the Partnership will acquire title to the Real
Property.
"Deed of Trust." The "First Deed of Trust, Assignment of Leases and
Profits, Security Agreement and Fixture Filing" granted by the Partnership to
the Lender to secure the obligations evidenced by the Deed of Trust Note.
"Deed of Trust Note." The promissory note in the amount of $14,175,000.00
made by the Partnership in favor of the Lender representing the Partnership's
indebtedness to the Lender pursuant to the Building Loan Agreement.
"Deficit Restoration Obligation." For each Partner, the sum of (i) any
amounts which such Partner is obligated to restore to the Partnership in
accordance with the provisions of Sections 1.704-1(b)(2)(ii)(c),
1.704-1(b)(2)(ii)(h) or any other applicable provisions of the Allocation
Regulations, (ii) such Partner's Share of Partnership Minimum Gain, if any,
(iii) such Partner's Share of Partner Nonrecourse Debt Minimum Gain, if any, and
(iv) any amounts which such Partner is obligated to restore to the Partnership
under Section 5.16 of this Agreement.
"Depreciation." For the Fiscal Year or other period, an amount equal to
the depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year or other period, except that if the
Gross Asset Value of an asset differs from the adjusted basis of such asset for
federal income tax purposes at the beginning of such Fiscal Year or other
period, Depreciation shall be an amount which bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such Fiscal Year or other
period bears to such beginning adjusted tax basis.
"Designated Net Worth Standard. As of the date of determination, such
standards or criteria (relating to net worth or other characteristics) as may be
(i) set forth in Revenue Procedure 89-12 or any other regulations, memoranda,
published ruling or revenue procedure of the IRS for classification of the
Partnership for federal income tax purposes as a partnership rather than an
association taxable as a corporation, or (ii) sufficient to support the issuance
by Special Counsel of an opinion to the same effect.
"Designated Interest Rate." 8% per annum.
"Developer." HRI.
"Development Agreement." The Development Agreement to be executed by and
between the Developer and the Partnership, in the form which has been approved
by Special Limited Partner.
"Development Budget." The development budget for the Project which budget
has been prepared by the Developer, approved by General Partner and Special
Limited Partner, and attached to the Development Agreement as Exhibit B.
"Development Fee." The development fee payable to the Developer pursuant
to the terms of the Development Agreement.
"Development Fee Note." The promissory note executed by the Partnership,
payable to Developer, in the form which has been approved by Special Limited
Partner and attached to the Development Agreement as Exhibit A, evidencing the
Partnership's obligation to pay the deferred portion of the Development Fee
pursuant to the terms of the Development Agreement.
"Development Fee Note Assignment." The assignment and pledge agreement of
the Development Fee Note, in the form which has been approved by Special Limited
Partner, made by the Developer in favor of Special Limited Partner and Investor
Limited Partner pursuant to which the Developer pledges the Development Fee Note
to Special Limited Partner and Investor Limited Partner to secure, among other
things, the Developer's obligations under the Development Agreement, the
Development Guarantors' obligations under the Development Guaranty Agreement,
and the General Partner's obligation under Section 5.11.
"Development Guarantors." Pres Kabacoff and Edward B. Boettner.
"Development Guaranty Agreement." The guaranty agreement to be executed by
the Development Guarantors in favor of the Partnership, in the form which has
been approved by Special Limited Partner, guaranteeing the obligations of the
Developer under the Development Agreement and the obligation of General Partner
to make payments relating to construction cost overruns pursuant to Section 5.7,
to make payments relating to the Completion Adjuster pursuant to Section 5.3B,
and to make reimbursement payments pursuant to Section 5.11.
"Distribution." Any cash or property which the Partnership distributes to
a Partner (in such Person's capacity as a Partner) without consideration,
including, without limitation, distributions of Cash Flow and Capital Proceeds.
"Entity." Any general partnership, limited partnership, corporation, joint
venture, trust, limited liability company, business trust, cooperative or
association.
"Environmental Indemnity Agreement." The environmental indemnity agreement
to be executed by and between the Lender and the Partnership and HRI-Briggs.
"Event of Bankruptcy" or "Bankruptcy. As to a specified Person:
(a) the entry of a decree or order for relief by a court
asserting jurisdiction in the premises in respect of such Person in
any case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of
such Person or for any substantial part of such Person's property, or
ordering the winding-up or liquidation of such Person's affairs; or
(b) the commencement by such Person of a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy, insolvency or other
similar law, or the consent by such Person to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or similar official) of such Person or for
any substantial part of such Person's property, or the making by such
Person of any assignment for the benefit of creditors, or the taking
of action by such Person in furtherance of any of the foregoing; or
(c) the commencement against such Person of an involuntary case
under the federal bankruptcy laws, as now constituted or hereafter
amended, or any other applicable federal or state bankruptcy,
insolvency or other similar law, which has not been dismissed within
60 days.
"Event of Force Majeure" or "Force Majeure." Any of the following events
or occurrences: strike; lockout; action of labor unions; riots; hurricane;
storm; flood; explosion; acts of God or of the public enemy; acts of government,
war, invasion, insurrection, mob, violence, sabotage, or malicious mischief;
inability (notwithstanding good faith and diligent efforts) to procure, or
general shortage of labor, equipment, facilities, materials or supplies in the
open market; failure of transportation; fires; epidemics; quarantine
restrictions; freight embargoes; unusually severe weather; inability
(notwithstanding good faith and diligent efforts) to obtain governmental permits
or approvals or delays of subcontractors of General Partner, Developer, or
Contractor due to such causes, or any other similar event or occurrence which
prevents, interrupts, or delays the performance of an obligation on the part of
General Partner, Developer, or Contractor and which is beyond the reasonable
control of the party in question, provided, however, any of the foregoing which
is caused by the lack of funds of the Person claiming an Event of Force Majeure
shall not constitute an Event of Force Majeure.
"Excess Adjustment." Means the amount by which any Negative Historic
Adjustment exceeds the amount (if any) of Investor Limited Partner's unpaid
Capital Contribution as of the date on which such Negative Historic Adjustment
is determined, as described in Section 5.4. Excess Adjustment will be repaid to
Investor Limited Partner in accordance with Section 5.13.
"Excess Adjustment Loan(s)." A loan(s) made by General Partner to the
Partnership to fund Excess Adjustments pursuant to Section 5.13. Such loans,
which shall bear interest at an annual rate equal to the Designated Interest
Rate, shall be evidenced by unsecured, nontransferable promissory notes of the
Partnership. Such loans shall be repaid only as provided in Section 6, and no
recourse for the payment hereof may be had against any other property of the
Partnership or against any Partner. Payments of principal and interest on
Excess Adjustment Loans shall be applied in the same order in which such Excess
Adjustment Loans are made (i.e., on a first-in, first-out basis).
"Excess Expenses." Is defined in Section 6.5H.
"Exhibits." Is defined in Section 13.6A.
"Filing Office." The Office of the Secretary of State of the State.
"Final Determination." The earliest to occur of (i) the date on which a
decision, judgment, decree or other order has been issued by any court of
competent jurisdiction, which decision, judgment, decree or other order has
become final (i.e., all allowable appeals requested by the parties to the action
have been exhausted), (ii) the date on which the IRS has entered into a binding
agreement with the Partnership with respect to such issue, in accordance with
this Agreement, or on which the IRS has reached a final administrative or
judicial determination with respect to such issue which, whether by law or
agreement, is not subject to appeal, (iii) the date on which the time for
instituting a claim for refund has expired, or if a claim was filed the time for
instituting suit with respect thereto has expired with no such suit having been
filed provided that such expired time period absolutely precludes any suit with
respect to such claim from being filed, or (iv) the date on which the applicable
statute of limitations for raising an issue regarding a federal income tax
matter with respect to the Partnership has expired with such issue not having
been raised.
"Fiscal Year." The twelve-month period which begins on the first day of
January and ends on the 31st day of December of each calendar year (or ends on
the date of final dissolution for the year in which the Partnership is wound up
and dissolved).
"First Installment." Is defined in Section 5.1A.
"GAAP." Generally accepted accounting principles, consistently applied, as
in effect from time to time.
"Gap Deed of Trust." The "Second Deed of Trust, Assignment of Leases and
Profits, Security Agreement and Fixture Filing" granted by the Partnership to
the Lender to secure the obligations evidenced by the Gap Note.
"Gap Loan." The loan to be made by the Lender to the Partnership evidenced
by the Gap Note and secured by the Gap Deed of Trust which is made to provide
short-term financing for the acquisition and Rehabilitation of the Project.
"Gap Loan Documents." The Gap Note, Gap Deed of Trust and any other
document required by Lender in connection with the Gap Loan.
"Gap Loan Closing." The date on which the Gap Loan Documents become
effective between the Lender and the Partnership.
"Gap Note." The promissory note in the amount of $2,064,000.00 made by the
Partnership in favor of the Lender representing the Partnership's indebtedness
to the Lender pursuant to the Gap Loan.
"General Partner." HRI-Briggs and any other General Partner appointed or
admitted in accordance with the terms of this Agreement, including Special
Limited Partner if Special Limited Partner becomes General Partner as provided
in this Agreement. If at any time the Partnership has more than one General
Partner, the term "General Partner" shall mean and include all General Partners.
"General Partner Pledge." The assignment and pledge agreement of General
Partner, in the form which has been approved by Special Limited Partner, made by
General Partner in favor of Investor Limited Partner or an Affiliate of Investor
Limited Partner as designated by Investor Limited Partner, pursuant to which
General Partner pledges all of General Partner's rights and interests under the
Partnership Agreement, including, but not limited to, all of General Partner's
Partnership Interest, to Investor Limited Partner or to such Affiliate to secure
General Partner's obligations under Sections 5.11, 5.12, 5.13 and 5.14.
"Governmental Authority." The State, the County, the City, or any other
federal, state or local governmental agency, instrumentality or authority
asserting jurisdiction over the particular matter to which reference is being
made.
"Gross Asset Value." With respect to any asset, the adjusted basis of such
asset for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the contributing Partner and the Partnership and as
approved by Special Limited Partner;
(ii) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined
by General Partner with the approval of Special Limited Partner, as of the
following times: (a) the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis Capital Contribution; (b) the distribution by the Partnership to a
Partner of more than a de minimis amount of Partnership property as
consideration for an interest in the Partnership; and (c) the liquidation
of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of
the Allocation Regulations; provided, however, that the adjustments
pursuant to clauses (a) and (b) above shall be made only if General Partner
reasonably determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners in the Partnership
or are otherwise required under the Allocation Regulations;
(iii) The Gross Asset Value of any Partnership asset distributed
to any Partner shall be the gross fair market value of such asset on the
date of distribution; and
(iv) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Section 1.704-1(b)(2)(iv) (m) of the
Allocation Regulations and Section 4.3; provided, however, that Gross Asset
Values shall not be adjusted pursuant to this clause (iv) to the extent
General Partner determines that an adjustment pursuant to clause (ii)
hereof is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this clause (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to Section (i), (ii) or (iv) above, such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits or Losses.
"Gross Hotel Revenues." Is defined in Section 12.01 of the Management
Agreement as "Gross Revenues." If the Parking Facility is operated by the
Manager or its Affiliate, the term "Gross Hotel Revenues" includes revenue from
the Parking Facility as well as from the Hotel.
"Guaranty Agreement." The payment and performance guaranty to be executed
by HRI and the Development Guarantors in favor of the Lender.
"Hazardous Material." The collective meanings given to the terms
"hazardous material," "hazardous substances" and "hazardous wastes" in the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 "et seq., as amended, and also any meanings given
to such terms in any similar state or local statutes, ordinances, regulation or
by-laws. Without limiting the generality of the foregoing, the term "Hazardous
Material" shall include oil and any other substance known to be hazardous, such
as hazardous waste, lead-based paint, asbestos, methane gas, urea formaldehyde
insulation, oil, underground storage tanks, polychlorinated biphenyls (PCBs),
toxic substances or other pollutants.
"Hazardous Substance Laws." Any local, state or federal law or regulation
relating to the use or disposition of Hazardous Material, including, without
limitation, the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act, the Toxic Substance Control Act, the Safe Drinking Water
Control Act, the Comprehensive Environmental Response Compensation and Liability
Act, the Hazardous Materials Transportation Act, and the Occupational Safety and
Health Act, as the same may be amended from time to time.
"HCI." Historic Construction Incorporated, a Louisiana corporation, doing
business as HCI Construction and Design, and its successors.
"Historic Credit Determination." Is defined in Section 5.4.
"Historic Rehabilitation Credit." The tax credit allowable pursuant to
Section 47 of the Code for qualified rehabilitation expenditures incurred in
connection with the certified rehabilitation of the Project.
"Hotel." The hotel facility to be located in the Improvements after the
Rehabilitation which will consist of meeting space and no fewer that 181 guest
rooms and be operated as a Courtyard by Marriott.
"Hotel Expenses." Is defined in Section 12.01 of the Management Agreement
as "Deductions." The term "Hotel Expenses" includes, inter alia, payment of the
Base Management Fee and transfers to the Replacement Reserve, but it does not
include Debt Service.
"HRI." Historic Restoration, Incorporated, a Louisiana corporation, and
its successors.
"HRI-Briggs." HRI Briggs Corporation, a Louisiana corporation that is a
wholly-owned subsidiary of HRI and serves as the initial General Partner of the
Partnership.
"Improvements." All of the buildings, structures, fixtures and other
improvements now or hereafter located on the Land.
"Incentive Hotel Management Fee." The incentive management fee payable to
the Manager pursuant to the Management Agreement.
"Incentive Partnership Management Agreement." The agreement between the
Partnership and the General Partner described in Section 7.5B, in the form which
has been approved by Special Limited Partner.
"Incentive Partnership Management Fee." The fee payable by the Partnership
to General Partner pursuant to the Incentive Partnership Management Agreement.
"Initial Operating Period." The 5 year period commencing on the Placed-in-
Service Date.
"Installment." An installment of the Capital Contribution of Investor
Limited Partner to the Partnership.
"Interior Design Agreement." The "Design Proposal" dated August 11, 1997
by and between Compass Design Limited and HRI.
"Investment Servicing Fee." A servicing fee in the amount of $10,000.00
payable by the Partnership to Special Limited Partner on May 1st of each whole
or partial Fiscal Year beginning after December 31, 1998.
"Investor Limited Partner." Amerus-Blackstone, L.L.C., an Iowa limited
liability company, or any other Person who is admitted to the Partnership in
accordance with the terms of this Agreement and is shown on the books and
records of the Partnership as a Substitute Investor Limited Partner at the time
of reference thereto.
"Investor Limited Partner Loan(s)." A loan(s) made by Investor Limited
Partner to the Partnership to fund the payment of the an Operating Deficit
pursuant to Section 5.8B or a Debt Service Coverage Loan. Such loans shall bear
interest at an annual rate equal to the lesser of the Designated Interest Rate
plus 7% or the highest rate permitted by law, and shall, if Investor Limited
Partner so requests, be evidenced by unsecured, transferable promissory notes of
the Partnership, in form and substance satisfactory to Investor Limited Partner,
provided that any such Investor Limited Partner Loan need not be evidenced by
such a note. If Investor Limited Partner requests such a promissory note,
General Partner will execute on behalf of the Partnership such a promissory note
and deliver such executed promissory note to Investor Limited Partner within
three business days after such request. If General Partner fails to execute and
deliver such a promissory note within such time, Special Limited Partner is
authorized to execute such a promissory note on behalf of the Partnership and to
deliver such promissory note to Investor Limited Partner. Investor Limited
Partner Loans shall be repaid as provided in Section 6, and no recourse for the
payment thereof may be had against any other property of the Partnership or
against any Partner, provided that such limitation on recourse will not limit or
reduce any obligation of General Partner. In addition, General Partner shall
have the right to make a Voluntary General Partner Loan to enable the
Partnership to repay any Investor Limited Partner Loan at any time. Payments of
principal and interest on Investor Limited Partner Loans shall be applied in the
same order in which such Investor Limited Partner Loans are made (i.e., on a
first-in, first-out basis). No Investor Limited Partner Loan will cure any
default by General Partner which may otherwise exist or which may relate to such
Investor Limited Partner Loan, and Investor Limited Partner shall retain all of
Investor Limited Partner's rights and remedies with respect to any such default
by General Partner.
"IRS." The Internal Revenue Service.
"Land." The land bordered by Tenth Street, Ninth Street, Dodge Street and
Douglas Street, Block 100, in the City of Omaha, County of Douglas, State of
Nebraska, and the land comprised of a portion of Lots 7 and 8, Block 101, in the
City of Omaha, County of Douglas, State of Nebraska, all as more particularly
described on Exhibit B attached hereto.
"Lender." GMAC Commercial Mortgage Corporation, a California corporation,
and its successors and assigns, and any lender whose loan is made to refinance
the Deed of Trust Loan in accordance with this Agreement.
"Letter of Credit." An unconditional, irrevocable letter of credit in the
amount of $2,064,000.00 (which, with renewals thereof, shall have a term
coextensive with the term of the Gap Loan) issued by Federal Home Loan Bank of
Des Moines or a financial institution satisfactory to the Partnership, at the
request of Investor Limited Partner or an Affiliate of Investor Limited Partner,
in favor of the Lender, and issued at the Mortgage Loan Closing. The Letter of
Credit will be used solely to satisfy the condition of the Mortgage Loan that
the Partnership have equity of $5,550,000.00 (which amount includes the TIF
Advance Loan proceeds and the Partners' obligations to make additional capital
contributions or Subordinate Partner Loans) at the Gap Loan Closing. The Letter
of Credit shall be in "sight draft" form and may be drawn upon by the Lender or
released as provided in the Loan Documents.
"LIBOR." Is defined in Section 2(b) of the Deed of Trust Note.
"Limited Partner(s)." Investor Limited Partner, Special Limited Partner
and/or any other Person admitted to the Partnership from time to time as a
limited partner in accordance with the terms of this Agreement.
"Limited Partnership Interest." The Partnership Interest of a Limited
Partner in such Partner's capacity as such.
"Loan Documents." Deed of Trust Note, Deed of Trust, Building Loan
Agreement, Guaranty Agreement, Environmental Indemnity Agreement, Assignment of
Construction Agreements, Plans and Property Agreements, and any other documents
required by Lender in connection with the Mortgage Loan.
"Manager." Courtyard Management Corporation, a Delaware corporation, and
any successor property manager designated or appointed from time to time in
accordance with the terms of this Agreement.
"Management Agreement." The "Management Agreement" dated November 7, 1997
by and between the Partnership and the Manager pursuant to which the Manager
will manage and operate the Hotel and the Parking Facility on the terms and
conditions set forth therein, which terms and conditions have been approved by
Special Limited Partner.
"Management Fee." The Base Management Fee and the Incentive Hotel
Management Fee payable to the Manager pursuant to the terms of the Management
Agreement.
"Managing General Partner." Any Person designated as such in accordance
with the provisions of Section 7.3B.
"Material Default." The occurrence of any of the following events:
(i) a material breach by General Partner (or any of General Partner's
Affiliates) in the performance of any of such Person's material obligations
under this Agreement (including a failure to meet its monetary obligations
under Sections 5.11, 5.12, 5.13 and/or 5.14) or under any other agreement
which breach materially adversely affects or could materially adversely
affect either of the Limited Partners, provided that the inability of the
Partnership to pay the Mortgage Loan or any other financial obligation of
the Partnership to any party other than the Limited Partners under the
Project Documents shall not be deemed a Material Default, provided,
however, that the foregoing proviso will not limit Partnership's
obligations to the Limited Partners under this Agreement and the other
Project Documents;
(ii) a Terminating Event as to General Partner, or an Event of
Bankruptcy as to General Partner or as to the Partnership; provided,
however, if (a) the Operating Deficit Reserve and the Cash Collateral Fund
have all been fully disbursed, and General Partner has fully satisfied all
of General Partner's obligations to make Operating Deficit Loans, and if
Investor Limited Partner has not made Investor Limited Partner Loans to
fund Operating Deficits so that at such time all Operating Deficits have
been funded, and (b) the Partnership is not then indebted to the Investor
Limited Partner (or its Affiliates) with respect to any Investor Limited
Partner Loans, then General Partner, at General Partner's election, upon
written notice to Special Limited Partner, may cause the Partnership to
file for a reorganization under Chapter 11 of the United States Bankruptcy
Code (or a similar proceeding under any substitute law) provided that such
proceeding does not threaten any action which could cause a recapture of
any portion of the Historic Rehabilitation Credit, and such act by General
Partner or the Partnership will not constitute a Material Default;
(iii) a violation by General Partner or any Affiliate of General
Partner of such Person's fiduciary duties to the Partnership;
(iv) a violation by General Partner or any Affiliate of General
Partner of any law, regulation or order applicable to the Partnership which
has or may have a material adverse effect on either of the Limited
Partners, which violation is not cured or remedied within any applicable
period provided with respect to such law, regulation, or order;
(v) a material breach by the Partnership, General Partner in its
capacity as general partner of the Partnership, or any Affiliate of General
Partner under any Project Document or other material agreement or document
benefitting the Partnership or either of the Limited Partners which breach
materially, adversely affects or could materially, adversely affect either
of the Limited Partners; provided, however, that the inability of the
Partnership or General Partner in its capacity as the general partner of
the Partnership to pay the Mortgage Loan or any other financial obligation
of the Partnership to any party other than the Limited Partners under the
Project Documents shall not be deemed a Material Default, provided,
however, that the foregoing proviso will not limit General Partner's
obligations to the Limited Partners under this Agreement and the other
Project Documents;
(vi) the failure of the Temporary Certificate of Occupancy Date to
occur on or before the Completion Date;
(vii) the inability of General Partner to deliver a Payment
Certificate under Section 5.2 which continues for a period of 6 months
following the date on which the Second Installment would otherwise be due
(or, if earlier, December 31, 1999);
(viii) any representation or warranty relating to the Project, the
Partnership, or to the Limited Partners' admission into the Partnership
which is made to the Partnership or to either Limited Partner by General
Partner, the Development Guarantors, or any Affiliate of General Partner,
whether made in this Agreement, or in the Development Guaranty Agreement,
or in any other document which this Agreement contemplates to be executed
or delivered, proves to be untrue in any material respect as of the date
such representation or warranty was issued or made and which has or could
have a material adverse effect on the Partnership or either of the Limited
Partners;
(ix) the Development Guaranty Agreement ceases to be in full force
and effect for any reason other than pursuant to the terms thereof, or
either or both of the Development Guarantors denies that such guarantor has
any further liability under the Development Guaranty Agreement or gives
notice of such effect or asserts (other than in good faith and based upon a
reasonable acknowledged legal basis) any defense to liability under the
Development Guaranty Agreement;
(x) General Partner's failure to execute any promissory note
evidencing an Investor Limited Partner Loan in accordance with the terms of
this Agreement;
(xi) General Partner's failure to withdraw funds from the Operating
Reserve, or the Cash Collateral Fund, as applicable, to pay Operating
Deficits in accordance with Section 5.8A;
(xii) HRI's failure, at any time during the Initial Operating Period,
to maintain a net worth equal to or greater than $4,000,000.00 determined
in accordance with GAAP;
(xiii) any material default under the Development Guaranty Agreement;
(xiv) General Partner's failure to reimburse Investor Limited Partner
for any amount drawn against the Letter of Credit and/or TIF Letter of
Credit as provided in Section 5.11, provided that, if at the time that such
reimbursement is due, either all of the conditions precedent to payment of
the Second Installment have been satisfied, including the expiration of any
applicable time periods, and Investor Limited Partner has failed to pay all
of the amount of the Second Installment (as such amount may be reduced for
any right of offset available to Investor Limited Partner under the terms
of this Agreement), or all of the conditions precedent to funding of the
Subordinated Partner Loan by the Investor Limited Partner have been
satisfied, including the expiration of any applicable time periods, and
Investor Limited Partner has failed to fund its share of the Subordinated
Partner Loans (as such funding obligation may be reduced for any right of
offset available to Investor Limited Partner under the terms of this
Agreement), then General Partner shall have the right to offset and apply
such reimbursements for and on behalf of Investor Limited Partner as
payment of such Second Installment or funding of such share of the
Subordinated Partner Loan, as applicable, in an amount equal to the amount
which Investor Limited Partner failed to pay or fund, and such offset and
application of such funds in payment of the Second Installment or funding
of the Subordinated Partner Loan, as applicable, shall (to the extent of
the amount thereof) not constitute a Material Default so long as General
Partner otherwise complies with the requirements of Section 5.11; or
(xv) the occurrence of an Event of Default under the Put Loan
Documents.
"Material Violation." Is defined in Section 7.11Q.
"Mortgage Loan." The loan to be made by the Lender to the Partnership
evidenced by the Deed of Trust Note and secured by the Deed of Trust, which is
made to finance the acquisition and Rehabilitation of the Project and to provide
term financing for the Project.
"Mortgage Loan Closing." The date on which the Loan Documents become
effective between the Lender and the Partnership.
"Mortgage Loan Extension Privilege." The Partnership's option to extend
the term of the Mortgage Loan for an additional 12 month period on the terms and
conditions set forth in the Loan Documents.
"Negative Completion Adjuster." Is defined in Section 5.3B.
"Negative Historic Adjustment." Is defined in Section 5.4.
"Negative Historic Credit Difference." Is defined in Section 5.4.
"Net Hotel Revenues." The excess of Gross Hotel Revenues over Hotel
Expenses for the applicable period of time. The term "Net Hotel Revenues" has
the same meaning as "Operating Profit" in Section 12.01 of the Management
Agreement.
"Net Commercial Space Lease Rent." The excess of Commercial Space Lease
Rent over Commercial Space Lease Expenses for the applicable period of time.
"Nonrecourse Debt or Nonrecourse Liability." Any indebtedness for which
none of the Partners has any economic risk of loss other than through such
Partner's interest in the Partnership Property securing such indebtedness, as
defined in Section 1.704-2(b)(3) of the Allocation Regulations.
"Nonrecourse Deductions." The meaning set forth in Section 1.704-2(b)(1)
of the Allocation Regulations.
"Off-Site Parking Facility." The parking facility, which will consist of
approximately 50 parking spaces, located on that portion of the Land situated on
Lots 7 and 8, Block 101, in the City.
"Operating Deficit." For any specified period of time, the amount by which
the sum of (i) Hotel Expenses, (ii) Commercial Space Lease Expenses, (iii)
Project Expenses, and (iv) Debt Service (only after the Manager has made any of
the Debt Service Deficiency Loans required of Manager under the Management
Agreement or Manager defaults in making a Debt Service Deficiency Loan) for such
period exceeds Cash Receipts.
"Operating Deficit Loan(s)." A loan(s) made by General Partner to the
Partnership to fund Operating Deficits pursuant to Section 5.8A and/or to pay
down the Mortgage Loan in connection with the exercise of the Mortgage Loan
Extension. Such loans, which shall bear interest at an annual rate equal to the
Designated Interest Rate, shall be evidenced by unsecured, nontransferable
promissory notes of the Partnership. Such loans shall be repaid only as
provided in Section 6, and no recourse for the payment hereof may be had against
any other property of the Partnership or against any Partner. Payments of
principal and interest on Operating Deficit Loans shall be applied in the same
order in which such Operating Deficit Loans are made (i.e., on a first-in,
first-out basis).
"Operating Deficit Loan Maximum." The maximum principal amount of
Operating Deficit Loans which General Partner is obligated to have outstanding
at any time, which is the amount equal to $1,125,000 minus the initial
aggregated amount(s) of the Operating Reserve and the Working Capital Reserve.
"Operating Profits or Losses." For any Fiscal Year means the Profits or
Losses of the Partnership for that Fiscal Year as determined for federal income
tax purposes by the Accountants, excluding Profits or Losses from a Capital
Transaction and determined without regard to any adjustments to basis pursuant
to Sections 734 or 743 of the Code.
"Operating Projection." The annual operating projection for the Project as
prepared by the Manager pursuant to Section 4.04 of the Management Agreement.
"Operating Reserve." The reserve in the initial amount of $382,600.00, to
be funded from the Mortgage Loan, which is to be used to fund Operating
Deficits. The Operating Reserve will be held in interest bearing accounts which
are fully insured by the Federal Deposit Insurance Corporation, or in such other
investments as Special Limited Partner may approve. Interest earned on such
funds will be retained in the Operating Reserve and will be used for the same
purposes as other funds held in the Operating Reserve. In the event of the sale
of the Project at a time when funds are held in the Operating Reserve, such
funds will be treated as additional Sales Proceeds and will be applied as
provided in Section 6.2C.
"Parking Facility." The parking facility, which will consist of
approximately 140 parking spaces, to be located on that portion of the Land
situated between Tenth Street, Ninth Street, Dodge Street and Douglas Street
after the Rehabilitation.
"Partner." Any General Partner or Limited Partner.
"Partner Nonrecourse Debt." The meaning set forth in Section 1.704-2(b)(4)
of the Allocation Regulations.
"Partner Nonrecourse Debt Minimum Gain." The meaning set forth in Sections
1.704-2(i)(2) and (3) of the Allocation Regulations.
"Partner Nonrecourse Deductions." The meaning set forth in Section 1.704-2
(i)(1) of the Allocation Regulations.
"Partnership." The limited partnership created by this Agreement.
"Partnership Counsel." Elkins, P.L.C., of New Orleans, Louisiana.
"Partnership Interest." The interest of a Partner in the Partnership,
including, without limitation, such Partner's interest in the assets, capital,
Profits or Losses, Distributions and Tax Credits of the Partnership.
"Partnership Items." Is defined in Section 6.5M.
"Partnership Minimum Gain." The meaning set forth in Section 1.704-2(d) of
the Allocation Regulations.
"Partnership Property." All real and personal property owned by the
Partnership.
"Partnership Reserves." Reserves maintained by the Partnership for working
capital, capital improvements and similar contingencies, including, without
limitation, the Operating Reserve, the Working Capital Reserve, and the
Replacement Reserve. Except as expressly provided in this Agreement any funds
held in the Partnership Reserves which are no longer required for the purposes
for which they were set aside shall be distributed to the Partners pursuant to
the provisions of Section 6.2A.
"Payment Certificate." Is defined in Section 5.2E.
"Person." Any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits; and, unless the context otherwise requires, the
singular shall include the plural, and the masculine gender shall include the
feminine and the neuter and vice versa.
"Personal Property." Those items of tangible or intangible personal
property, including, any permits, licenses, signs, containers and equipment,
located on or associated with the Land and to be acquired from the Seller.
"Placed-in-Service Date." The earliest date that the entire site upon
which the Project is located is "placed in service" for federal income tax
purposes under Section 47 of the Code; provided, however, that, in the event
that (i) the tenant improvements on the portion of the Project shown as the
approximate 7,600 square feet of commercial space located on the ground floor of
the Hospe Building in the Plans and Specifications prior to the date the
remaining portion of the Project is "placed in service" under Section 47 of the
Code, and (ii) the General Partner is unable to finish out such premises or
find, in the exercise of due diligence and subject to the Consent of the Special
Limited Partner, a suitable tenant to complete such improvements and operate
such premises prior to the date the remaining portion of the Project is "placed
in service" under Section 47 of the Code, then the date such remaining portion
is so "placed in service" shall be deemed to be the date the entire site upon
which the Project is located is so "placed in service" for purposes of this
Agreement.
"Plans and Specifications." The drawings dated October 1, 1997, and the
specifications last revised October 1, 1997 for the Rehabilitation of the
Project approved by the Lender and Special Limited Partner, including, without
limitation, specifications for materials, and all amendments and modifications
thereof, provided, however, that no amendment or modification may be made to
such plans and specifications which would affect the availability of the
Historic Rehabilitation Credit, or which would materially affect the amount of
the Historic Rehabilitation Credit or the cost of the construction and
Rehabilitation of the Project, or which would otherwise materially affect the
Project.
"Positive Completion Adjuster." Is defined in Section 5.3B.
"Positive Historic Adjustment." Is defined in Section 5.4.
"Positive Historic Credit Difference." Is defined in Section 5.4.
"Priority Amount." Is defined in Section 6.2B, Clause Twelfth.
"Profits or Losses." For each Fiscal Year or other period, an amount equal
to the" Partnership's taxable income or loss for such Fiscal Year or other
period, determined i"n accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments:
(i) Any items described in Sections 705(a)(1)(B) and 705(a)(1)(C) of
the Code which are not otherwise taken into account in computing Profits or
Losses shall be added to such taxable income or loss.
(ii) Any expenditures of the Partnership described in Section
705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures
pursuant to Section 1.704-1(b)(2)(iv)(i) of the Allocation Regulations, and
not otherwise taken into account in computing Profits or Losses, shall be
subtracted from such taxable income or loss.
(iii) Gain or loss resulting from any disposition of Partnership
Property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value
of the property disposed of, notwithstanding that the adjusted tax basis of
such property differs the Gross Asset Value of such property.
(iv) In the event of a distribution of Partnership assets to a
Partner (whether in connection with a liquidation or otherwise), or in the
event the Gross Asset Value of any Partnership asset is adjusted upon the
acquisition of an additional interest in the Partnership, unrealized
income, gain, loss and deduction inherent in such distributed or adjusted
assets (not previously reflected in Capital Accounts) shall be allocated
pursuant to Section 6.1 as if there had been a taxable disposition of such
distributed or adjusted assets at fair market value.
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Fiscal Year
or other period, computed in accordance with the definition of
"Depreciation" set forth herein.
(vi) Notwithstanding any other provision of this definition, any
items which are specially allocated pursuant to Section 6.5 shall be taken
into account in computing Profits or Losses only if the Accountants
determine that such items should be so reflected.
"Profits or Losses from a Capital Transaction." The Profits or Losses, if
any, recognized by the Partnership as a result of a Capital Transaction, as
determined for federal income tax purposes by the Accountants, but without
regard to any adjustments to basis pursuant to Section 734 and 743 of the Code.
"Project." The Rehabilitation of the Land and Improvements into, and the
operation of, the Hotel, Parking Facility, Off-Site Parking Facility and
Commercial Space.
"Project Documents." The Assignment of the Purchase Agreement, the Deed,
the Loan Documents, the Gap Loan Documents, the Tax Financing Documents, the
Development Agreement, the Construction and Design Contract, the Management
Agreement, the Incentive Partnership Management Agreement, the City Leases and
all other documents relating to the Project which are required by, or have been
executed in connection with, any of the foregoing documents.
"Project Expenses." All operating and other costs and expenses of the
Partnership determined on an accrual basis during the Fiscal Year, other than
Incentive Hotel Management Fee, Investment Servicing Fee, Incentive Partnership
Management Fee, and operating and other costs and expenses included in the
determination of Hotel Expenses, Commercial Space Lease Expenses or Debt
Service.
"Projections." The economic projections dated November 17, 1997, which
have been submitted to, and approved by, Special Limited Partner and attached
hereto as Exhibit E.
"Purchase Agreement." That certain "Agreement to Purchase and Sell," dated
September 9, 1996, by and between Seller and HRI, as amended by that "Amendment
to Agreement to Purchase and Sell" dated September 5, 1997, whereunder the
Seller has agreed to sell the Real Property to HRI or its assigns upon the terms
and conditions set forth therein.
"Put Loan Documents." That certain "Loan Agreement" between HRI and AmerUs
Life Insurance Company and the "Loan Documents" (as that term is defined in such
Loan Agreement) referred to therein.
"Real Property." The Land and Improvements, before and after the
Rehabilitation.
"Recapture Event." A disposition or other event causing recapture of all
or any portion of the Historic Rehabilitation Credit pursuant to the provisions
of Section 50 of the Code.
"Redevelopment Agreement." The "Redevelopment Agreement" dated October 8,
1997 by and between the City and HRI entered into pursuant to the Downtown
Northeast Redevelopment Plan adopted by the City to implement the
Rehabilitation.
"Redevelopment Note" The "Redevelopment Promissory Note" in the amount of
$1,519,000.00 made by City in favor of the Partnership representing the City's
indebtedness for tax increment financing to the Partnership pursuant to the
Redevelopment Agreement.
"Refinancing Proceeds." The gross proceeds available to the Partnership
from a refinancing of any of the Mortgage Loan or any other secured or unsecured
indebtedness of the Partnership.
"Regulations." The rules and regulations applicable to the Project or the
Partnership of any" Governmental Authority asserting jurisdiction over the
matter in question.
"Regulatory Allocations." The allocations set forth in Sections 6.5A
through 6.5G.
"Rehabilitation." The development, construction, renovation, and
rehabilitation work on the Project described in the Plans and Specifications.
"Reimbursement Agreement." That certain "Reimbursement Agreement" dated
November 18, 1997 by and between the Partnership and Marriott International,
Inc., a Delaware corporation.
"Related Person." The meaning set forth in Section 1.752-4(b) of the
Allocation Regulations.
"Replacement Reserve." The replacement reserve as required by the Manager
pursuant to Section 5.02 of the Management Agreement.
"Repurchase Event." Is defined in Section 5.12A.
"Requisite Approvals." The approval or consent of the Lender or any
Governmental Authority asserting jurisdiction over the Partnership or the
Project, to the extent required pursuant to the terms of any of the Project
Documents.
"Retired General Partner." Is defined in Section 10.4C.
"Sale Proceeds." The gross proceeds available to the Partnership from the
sale or other disposition of all or any portion of the Project or the
Partnership's other assets, or any proceeds realized from a condemnation,
insured casualty (in excess of the amount of such proceeds used for repair or
reconstruction of the Project), or insured title defect, but excluding proceeds
from rental interruption insurance, if any.
"Schedule." Schedule A attached hereto.
"Second Installment." Is defined in Section 5.1A.
"Seller." Briggs, Inc. of Omaha, a Nebraska corporation.
"Share of Partner Nonrecourse Debt Minimum Gain." For each Partner, an
amount equal to such Partner's share of partner nonrecourse debt minimum gain,"
determined in accordance with the provisions" of Section 1.704-2(i)(5) of the
Allocation Regulations.
"Share of Partnership Minimum Gain." For each Partner, an amount equal to
such Partner's "share of partnership minimum gain," determined in accordance
with the provisions of Section 1.704-2(g) of the Allocation Regulations."
"Site." The meaning given to such term in the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sec.
9601 et seq., as amended, and any meaning given to such term in any similar
state or local statutes, ordinances, regulations or by-laws.
"Special Class Limited Partner." The meaning set forth in Sections 10.4B
and 10.4C.
"Special Counsel." Elkins, P.L.C. of New Orleans, Louisiana.
"Special Limited Partner." AmerUs Management, Inc., an Iowa corporation,
or any other Person who is admitted to the Partnership and shown on the books
and records of the Partnership as a substituted Special Limited Partner at the
time of reference thereto.
"State." The State of Nebraska.
"Subordinated Partner Loan(s)." Loans which General Partner and Investor
Limited Partner are obligated to make to the Partnership pursuant to Section
5.14. Such loans shall bear interest at an annual rate equal to the Designated
Rate plus 7%, shall be evidenced by unsecured, non-negotiable promissory notes
of the Partnership, and shall be repaid as provided in Section 6; PROVIDED,
HOWEVER, in the event the conditions set forth in Section 5.2 have not occurred
on or before December 31, 1999, all principal and accrued interest on such loans
shall become then due and payable. No recourse for the payment thereof may be
had against any other property of the Partnership or against any Partner.
"Substitute Limited Partner." Any Person admitted into the Partnership as
Substitute Limited Partner as provided in Section 11.3.
"Substitute Partner." A Person who shall become entitled to receive a
share of the Profits, Losses, Tax Credits and Distributions of the Partnership
by reason of such Person succeeding to the Partnership Interest of a Partner by
assignment of all or any part of a Partnership Interest.
"Tax Credits." Any credit(s) permitted under the Code against the federal
income tax liability of any Partner as a result of activities or expenditures of
the Partnership including, without limitation, the Historic Rehabilitation
Credit.
"Tax Financing Documents." The TIF Loan Documents, the Redevelopment
Agreement and any other documents required by the City or the Bank in connection
with the tax increment financing on the Project.
"Temporary Certificate of Occupancy." The temporary certificate of
occupancy issued by the appropriate Governmental Authority authorizing the use
and occupancy of the entire Project as the Hotel, Parking Facility, Off-Site
Parking Facility and Commercial Space in accordance with the Plans and
Specifications, provided, however, that the only work remaining to be done is of
a nature which would not impair the permanent occupancy of any portion of the
Project and General Partner has delivered to Special Limited Partner the Second
Installment Payment Certificate of General Partner in the form attached to this
Agreement as Exhibit C; further, provided, that, in the event that the tenant
improvements on the portion of the Project shown as the approximate 7,600 square
feet of commercial space located on the ground floor of the Hospe Building in
the Plans and Specifications prior to the issuance of such a temporary
certificate of occupancy by the Governmental Authority and the General Partner
is unable to finish out such premises or find, in the exercise of due diligence
and subject to the Consent of the Special Limited Partner, a suitable tenant to
complete such improvements and operate such premises prior to such time such a
temporary certificate of occupancy with respect to the remaining portion of the
Project is issued by the Governmental Authority, the issuance of such a
temporary certificate of occupancy by the appropriate Governmental Authority
authorizing the use and occupancy of the remaining portion of the Project as the
Hotel, Off-Site Parking Facility and Parking Facility in accordance with the
Plans and Specifications, as contemplated by this Agreement shall constitute the
temporary certificate of occupancy for purposes of this Agreement.
"Temporary Certificate of Occupancy Date." The date on which the
Partnership has received a Temporary Certificate of Occupancy, in accordance
with the requirements of the definition of Temporary Certificate of Occupancy.
"Terminating Capital Transaction." A Capital Transaction resulting in or
involving the termination and winding up of the business of the Partnership or
any other event resulting in the "liquidation" of the Partnership within the
meaning of Section 1.704-1(b)(2)(ii)(g) of the Allocation Regulations.
"Terminating Event." The occurrence of an event of withdrawal described in
Section 17-402 of the Act with respect to General Partner.
"Third Deed of Trust." The "Deed of Trust, Assignment of Leases and Rents,
and Security Agreement" between the Partnership and Marriott International, Inc.
"TIF Advance Loan." The loan to be made by the Bank to the Partnership
pursuant to the TIF Loan Agreement and evidenced by the TIF Advance Note and
secured by the TIF Letter of Credit and a pledge of the Redevelopment Note,
which loan is made to finance the acquisition and Rehabilitation of the Project
and to provide term financing for the Project.
"TIF Advance Loan Closing." The date on which the TIF Loan Documents
become effective between the Lender and the Partnership.
"TIF Advance Note." The promissory note in the amount of $1,519,000.00
made by the Partnership in favor of the Bank representing the Partnership's
indebtedness to the Bank pursuant to the TIF Loan Agreement, .
"TIF Letter of Credit." A standby irrevocable letter of credit in the
amount of $1,720,000.00 (which, with renewals thereof, shall expire on the later
of the issuance of the Certificate of Occupancy or the opening of the Hotel for
business to the public) issued by the Federal Home Loan Bank of Des Moines or a
financial institution satisfactory to the Partnership, at the request of
Investor Limited Partner or an Affiliate of Investor Limited partner, in favor
of the Bank and issued at the TIF Advance Loan Closing.
"TIF Loan Agreement." The loan agreement to be executed by and between the
Bank and the Partnership.
"TIF Loan Documents." The TIF Loan Agreement, TIF Advance Note, the TIF
Letter of Credit and such other documents, instruments, environmental indemnity
agreements and pledges as may be required by the Bank in connection with the TIF
Advance Loan.
"Title Policy." The owner's policy of title insurance to be issued to the
Partnership by First American Title Insurance Company in the amount of
$19,725,000.00 (not including special coverage endorsements).
"TMP." Is defined in Section 7.9A.
"Transfer." Any sale, exchange, assignment, encumbrance, hypothecation,
pledge, foreclosure, conveyance in trust, gift or other transfer of any kind,
whether direct or indirect, voluntary or involuntary, other than as a direct
consequence of a Terminating Event. When used as a verb, such term shall mean,
voluntarily or involuntarily, to sell, exchange, assign, encumber, hypothecate,
pledge, foreclose, convey in trust, give or otherwise transfer.
"Vessel." The meaning given to such term in the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sec.
9601 et seq., as amended, and any meaning given to such term in any similar
state or local statutes, ordinances, regulations or by-laws.
"Voluntary General Partner Loan." Any loan made by General Partner to the
Partnership to pay Project Expenses which General Partner voluntarily makes and
is not obligated to make under this Agreement. Operating Deficit Loans and
Excess Adjustment Loans are not Voluntary General Partner Loans. Such loans
shall bear interest at an annual rate equal to the lesser of the Designated
Interest Rate plus 7%, or the highest rate permitted by law, and shall be
evidenced by unsecured, nontransferable promissory notes of the Partnership, in
form and substance satisfactory to General Partner and Special Limited Partner.
Voluntary General Partner Loans shall be repaid as provided in Section 6, and no
recourse for the payment hereof may be had against any other property of the
Partnership or against any Partner. Payments of principal and interest on
Voluntary General Partner Loans shall be applied in the same order in which such
Voluntary General Partner Loans are made (i.e., on a first-in, first-out basis).
"Working Capital Reserve." The reserve in the initial amount of
$72,400.00, to be funded from the Mortgage Loan, which is to be used and applied
to cover Operating Deficits. The Working Capital Reserve will be held in
interest-bearing accounts which are fully insured by the Federal Deposit
Insurance Corporation, or in such other investments as Special Limited Partner
may approve. Interest earned on such funds will be retained in the Working
Capital Reserve and will be used by Manager in accordance with the Management
Agreement for the same purposes as other funds held in the Working Capital
Reserve. In the event of the sale of the Project at a time when funds are held
in the Working Capital Reserve, such funds will be applied as provided in the
Management Agreement, with any excess applied as provided in Section 6.2C.
SECTION 2: CONTINUATION
Section 2.1 Continuation
The Partners hereby agree to continue the limited partnership known as
Briggs Renewal Limited Partnership formed pursuant to the provisions of the Act
and the Original Agreement.
Section 2.2 Name and Office; Registered Agent and Office
The Partnership shall continue to be conducted under the name and style set
forth in Section 2.1. The principal office of the Partnership shall be c/o
Historic Restoration, Incorporated, 210 Baronne Street, Suite 1717, New Orleans,
Louisiana 70112. The name of the Partnership's registered agent and its
registered office for service of process in Nebraska shall be Douglas S. Lash,
Esq., 2027 Dodge Street, Omaha, Nebraska 68102. The General Partner may at any
time change the location of its principal office, registered office and/or
registered agent and shall give due notice of any such change(s) to each Limited
Partner and make all requisite filings to reflect such change(s) with applicable
Governmental Authority.
Section 2.3 Purpose
The business and purpose of the Partnership shall consist solely of the
acquisition, rehabilitation, development, improvement, maintenance, ownership,
operation, leasing and disposition of the Project in accordance with the Project
Documents, any applicable Regulations, and the provisions of this Agreement and
such other activities as are necessary, incidental or appropriate in connection
therewith. The Partnership shall not engage in any other business or activity.
Section 2.4 Authorized Acts
In furtherance of the purposes of the Partnership, but subject to all other
provisions of this Agreement including, but not limited to, Section 3 and
Section 7, the Partnership is hereby authorized:
(i) To acquire by purchase, lease or otherwise, any real or personal
property which may be necessary, convenient or incidental to the
accomplishment of the purposes of the Partnership;
(ii) To construct, reconstruct, rehabilitate, operate, maintain,
finance and improve, and to own, sell, convey, assign, mortgage or lease
any real estate and any personal property necessary, convenient or
incidental to the accomplishment of the purposes of the Partnership;
(iii) To borrow money and issue evidences of indebtedness in
furtherance of any or all of the purposes of the Partnership, and to secure
the same by mortgage, pledge or other lien on the Project or any other
assets of the Partnership, to the extent permitted by the Project
Documents;
(iv) To pay in whole or in part, refinance, recast, increase, modify
or extend the Mortgage Loan, the Gap Loan, the TIF Advance Loan, the Third
Mortgage, or any other mortgage loans affecting the Project and in
connection therewith to execute any extensions, renewals, or modifications
of the Mortgage Loan or any such other loans on the Project;
(v) To enter into, perform and carry out, contracts of any kind,
including contracts with Affiliates of a Partner, necessary to, in
connection with or incidental to, the accomplishment of the purposes of the
Partnership, specifically including, but not limited to, the execution and
delivery of the Management Agreement and the Development Agreement,
Construction and Design Contract, and Incentive Partnership Management
Agreement, and all other agreements, certificates, instruments or documents
required by any Governmental Authority in connection with the Project
Documents and the acquisition, construction, Rehabilitation, development,
improvement, maintenance and operation of the Project;
(vi) To execute leases of any or all of the rentable space in the
Project, specifically including, but not limited to, the Commercial Space
Lease and the City Leases;
(vii) To execute any and all notes, mortgages and security agreements
(including a confession of judgement, waiver of appraisal) in order to
secure loans from the Lender and any and all other documents (including but
not limited to the Loan Documents, Tax Financing Documents, the Third
Mortgage and the Gap Loan Documents) required by the Lender in connection
with the Deed of Trust, the Mortgage Loan, the Third Mortgage, the Gap Deed
of Trust, the Gap Loan, the Tax Financing Documents and the acquisition,
development, improvement, maintenance and operation of the Project, or
otherwise required by the Lender in connection with the Project;
(viii) To employ any Person, including an Affiliate or any Partner,
to perform services for, or to sell goods to, the Partnership (including
without limitation, management services) and to pay for such goods and
services; provided that (except with respect to any contract specifically
authorized by this Agreement) the terms of any such transaction with an
Affiliate or a Partner shall not be less favorable to the Partnership than
would be arrived at by unaffiliated parties dealing at arms' length, and
shall be subject to any applicable Regulations;
(ix) To modify or amend the terms of any agreement or contract which
General Partner is authorized to enter into on behalf of the Partnership;
provided, however, that such terms as amended shall not (i) have a material
adverse effect on the Partnership or either of the Limited Partners, or
(ii) be in contravention of any of the terms or conditions of this
Agreement or the Project Documents;
(x) To execute contracts with the Lender and/or any Governmental
Authority;
(xi) To execute and deliver the Loan Documents, the Gap Loan
Documents, the TIF Loan Documents and the other Project Documents and any
notices, documents or instruments required to be executed or delivered in
connection therewith;
(xii) To employ or engage such engineers, architects, technicians,
managers, accountants, lawyers and other Persons, including any Affiliate
of a Partner as may be necessary, convenient or incidental to the
accomplishment of the purposes of the Partnership; and
(xiii) To enter into any kind of activity and to perform and carry
out contracts of any kind necessary to, or in connection with, or
incidental to, the accomplishment of the purposes of the Partnership, so
long as said activities and contracts may be lawfully carried on or
performed by a partnership under the laws of the State and are not in
contravention with the terms of this Agreement.
Section 2.5 Term and Dissolution
A. The Partnership shall continue in full force and effect until December
31, 2046, except that the Partnership shall be dissolved prior to such date upon
the happening of any of the following events:
(i) The sale or other disposition of all or substantially all the
assets of the Partnership;
(ii) The occurrence of a Terminating Event unless the business of the
Partnership is continued pursuant to the provisions of Section 10;
(iii) The election to dissolve the Partnership made in writing by
General Partner with the Consent of Special Limited Partner, which Consent
may be withheld or granted in Special Limited Partner's sole and absolute
discretion, and, if required, any Requisite Approvals; or
(iv) The entry of a final decree of dissolution of the Partnership by
a court of competent jurisdiction.
B. Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to the provisions of Section 10), General
Partner, unless such dissolution is caused by a Terminating Event as to General
Partner, shall liquidate the Partnership's assets and apply and distribute the
proceeds thereof in accordance with Section 6.3. If such dissolution is caused
by a Terminating Event as to General Partner, then Special Limited Partner shall
liquidate the Partnership's assets and apply and distribute the proceeds thereof
in accordance with Section 6.3.
SECTION 3: ACQUISITION, FINANCING, REHABILITATION, AND DISPOSITION OF
PROPERTY
Section 3.1 Acquisition.
A. The Assignment of the Purchase Agreement is hereby approved,
confirmed, and ratified by the Partnership. The Partnership shall acquire the
Land and Improvements by virtue of the Deed.
B. General Partner is specifically authorized, for and on behalf of the
Partnership, to execute the Deed. Subsequent to the execution of said
documents, General Partner is, subject to the limitations set forth in this
Agreement, specifically authorized, for and on behalf of the Partnership, to
execute such other documents as General Partner reasonably deems necessary in
connection with the acquisition of the Land and Improvements, provided such
documents are consistent with and in accordance with the terms of this
Agreement.
Section 3.2 Financing.
A. The General Partner shall be authorized to cause the Partnership to
borrow (i) the Mortgage Loan from the Lender, which Mortgage Loan will be in the
maximum amount of $14,175,000.00 with a term of 5 years (subject to the Mortgage
Loan Extension Privilege), will provide for payments of interest only for a
period of 24 months after Mortgage Loan Closing and thereafter payments of
principal based upon a 25-year amortization period using an annual rate of
interest of 10 percent, and interest with an actual annual interest rate of
3.25% over 30-day LIBOR adjusted monthly, (ii) the Gap Loan, which Gap Loan
shall be in the maximum amount of $2,064,000.00, have a maturity date not to
exceed 18 months from the date of the Gap Loan Closing and provide for payments
of interest only until such maturity; and (iii) the TIF Advance Loan which shall
be in the maximum amount of $1,519,000.00, provided for payments of interest at
a maximum rate of 8.75% (compounded through December 31, 1998 and subject to
adjustment on June 1 in the years 2000, 2003, 2006 and 2009 to 250 basis points
over the three year Treasury Constant Maturities Rate) until June 1, 2001 and
thereafter semi-annual payments of principal and interest sufficient to fully
amortize the loan over a 12 1/2 year period ending on June 1, 2012.
B. General Partner is specifically authorized, for and on behalf of the
Partnership, to execute the Loan Documents, the Reimbursement Agreement, the
Third Mortgage, the TIF Loan Documents and the Gap Loan Documents; the form and
substance of which shall be subject to the Consent of Special Limited Partner.
Subsequent to the execution of such documents, General Partner is, subject to
the limitations set forth in this Agreement, specifically authorized, for and on
behalf of the Partnership, to execute such other documents as General Partner
deems necessary in connection with the Mortgage Loan, the Third Mortgage, the
TIF Advance Loan, and/or Gap Loan provided that such documents are consistent
with the terms of the original Loan Documents, the Third Mortgage, TIF Loan
Documents or the Gap Loan Documents, as the case may be, and with the provisions
and restrictions contained in this Agreement. To the extent that any such
document is inconsistent with the terms of the original Loan Documents, the
Third Mortgage, the TIF Loan Documents, the Gap Loan Documents or this
Agreement, General Partner may execute such document only with the prior Consent
of Special Limited Partner.
C. The General Partner and the Partnership shall be bound by the terms of
the Loan Documents, the Reimbursement Agreement, the Third Mortgage, the TIF
Loan Documents and the Gap Loan Documents. Any incoming General Partner shall
as a condition of receiving any interest in the Partnership agree to be bound by
the Loan Documents, the Reimbursement Agreement, the Third Mortgage, the TIF
Loan Documents, and the Gap Loan Documents. Upon any dissolution of the
Partnership or any transfer of the Project while the Mortgage Loan, the TIF
Advance Loan or the Third Mortgage is outstanding, no title or right to the
possession and control of the Project and no right to collect the revenues
therefrom shall pass to any Person who is not, or does not become, bound in a
manner satisfactory to the Lender, to the Loan Documents, the Gap Loan
Documents, the TIF Loan Documents and the provisions of this Agreement. The
Loan Documents, the TIF Loan Documents and the Gap Loan Documents shall be
binding upon and shall govern the rights and obligations of the Partners, their
heirs, executors, administrators, successors and assigns as long as the Mortgage
Loan or Gap Loan, as the case may be, is outstanding.
D. Subject to the terms of the Loan Documents, the TIF Loan Documents the
Third Mortgage, and the other Project Documents, the Partnership may refinance
the Mortgage Loan, including any required transfer or conveyance of the
Partnership assets for security or mortgage purposes, may execute mortgages,
notes, and any other documents necessary for such a refinancing; provided,
however, that the terms of any such refinancing must receive the Consent of
Special Limited Partner, to be withheld or granted in Special Limited Partner's
sole and absolute discretion, before such transaction shall be binding on the
Partnership.
E. In the event the Partnership desires to exercise the Mortgage Loan
Extension Privilege but has insufficient funds available from Partnership
Reserves and Operating Deficit Loans to pay down the Mortgage Loan to the debt
service coverage ratio required to obtain such extension, the General Partner
shall have the option of making a Voluntary General Partner Loan to the
Partnership for the purpose of paying down the Mortgage Loan to achieve such
debt service coverage ratio; provided, however, if the General Partner elects
not to make such Voluntary General Partner Loan for any reason, the Investor
Limited Partner shall have option of making an Investor Limited Partner Loan for
the purpose of enabling the Partnership to so pay down the Mortgage Loan (a
"Debt Service Coverage Loan"). A Debt Service Coverage Loan shall be treated as
an Investor Limited Partner Loan for all purposes of this Agreement.
F. In the event that the Mortgage Loan is not a Nonrecourse Debt as of
December 31, 2000, the General Partner shall pay the Investor Limited Partner a
$50,000 fee on December 31, 2000 and, subsequently, on each December 31st if the
Mortgage Loan is not a Nonrecourse Debt as of each such payment date.
Section 3.3 Rehabilitation.
General Partner is specifically authorized, for and on behalf of the
Partnership, to execute the Development Agreement, and the Construction and
Design Contract.
Section 3.4 Management and Disposition.
A. The execution and delivery of the Management Agreement by the
Partnership is hereby authorized, ratified and approved. The General Partner is
hereby authorized, for and on behalf of the Partnership, to execute the
Incentive Partnership Management Agreement.
B. The Partnership may not sell all or any portion of or an interest in
the Project nor enter into a contract relating to any such sale without the
prior Consent of Special Limited Partner, which Consent may be withheld or
granted in Special Limited Partner's sole and absolute discretion. All
documents to be executed by the Partnership with respect to any such sale are
subject to the prior review of and Consent by Special Limited Partner.
SECTION 4: PARTNERS AND CAPITAL ACCOUNTS
Section 4.1 General Partner
General Partner of the Partnership is HRI-Briggs. Its address and Capital
Contribution are set forth in the Schedule.
Section 4.2 Limited Partners
A. Amerus-Blackstone, L.L.C. and AmerUs Management, Inc. are hereby
admitted into the Partnership as Investor Limited Partner and Special Limited
Partner, respectively, of the Partnership; their addresses and Capital
Contributions are set forth in the Schedule. The payment of their Capital
Contributions is governed by Section 5.1.
B. The Withdrawing Limited Partner hereby withdraws from the Partnership
as a Limited Partner and acknowledges that the Withdrawing Limited Partner has
no further interest in or claims against the Partnership in respect of the
Withdrawing Limited Partner's Limited Partnership Interest or otherwise and
shall not be considered a Limited Partner for purposes of this Agreement.
Section 4.3 Partnership Capital and Capital Accounts
A. The capital of the Partnership shall be the aggregate amount of the
cash, the Gross Asset Value of property and the value of any services
contributed by General Partner and Investor Limited Partner as set forth in the
Schedule. Except as specifically set forth herein, no Partner shall have any
right to make voluntary Capital Contributions to the Partnership. No interest
shall be paid by the Partnership on any Capital Contribution to the Partnership.
The Schedule shall be amended from time to time to reflect the withdrawal or
admission of Partners, any changes in the Partnership Interests held by a
Partner arising from the Transfer of a Partnership Interest to or by such
Partner, and any change in the amounts to be contributed or agreed to be
contributed by any Partner and the General Partner shall make all requisite
filings with any applicable Governmental Authority to reflect such matters.
B. An individual Capital Account shall be established and maintained for
each Partner, including any additional or Substitute Partner who shall hereafter
receive an interest in the Partnership in accordance with the terms of this
Agreement. The Capital Account of each Partner shall be maintained in
accordance with the following provisions:
(i) To each Partner's Capital Account there shall be credited such
Partner's Capital Contributions, such Partner's distributive share of
Profits, and any items in the nature of income or gain that are specially
allocated pursuant to Section 6, and the amount of any Partnership
liabilities that are assumed by such Partner or that are secured by any
Partnership Property distributed to such Partner;
(ii) To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership Property
distributed to such Partner pursuant to any provision of this Agreement,
such Partner's distributive share of Losses, and any items in the nature of
expenses or losses that are specially allocated pursuant to Section 6, and
the amount of any liabilities of such Partner that are assumed by the
Partnership or that are secured by any property contributed by such Partner
to the Partnership.
In the event that the Gross Asset Values of Partnership assets are adjusted
pursuant to this Agreement, the Capital Accounts of all Partners shall be
adjusted simultaneously to reflect the aggregate net adjustment as if the
Partnership recognized gain or loss equal to the amount of such aggregate net
adjustment.
C. The original Capital Account established for any Substitute Partner
shall be in the same amount as, and shall replace, the adjusted Capital Account
of the Partner which such Substitute Partner succeeds, and, for the purposes of
this Agreement, such Substitute Partner shall be deemed to have made the Capital
Contribution, to the extent actually paid in, of the Partner which such
Substitute Partner succeeds. To the extent a Substitute Partner receives less
than 100% of the Partnership Interest of a Partner, such Substitute Partner's
Capital Account and Capital Contribution shall be in proportion to the
Partnership Interest such Substitute Partner receives, and the Capital Account
and Capital Contribution of the Partner who retains a partial interest in the
Partnership shall continue, and not be replaced, in proportion to the
Partnership Interest such Partner retains.
D. The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of the Capital Accounts are intended to comply with
the Allocation Regulations, and shall be interpreted and applied in a manner
consistent with such Allocation Regulations. In the event that General Partner
determines that the Partnership is required to modify the manner in which the
Capital Accounts, or any debits or credits thereto, are computed in order to
comply with the Allocation Regulations, General Partner shall, with the Consent
of the Special Limited Partner, make such modification, in such a manner as to
cause the Partners' Capital Accounts to be maintained in such manner as may be
necessary to give effect to the manner the Partners have agreed to share
Distributions as provided in Section 6.2 and to maximize the amount of Historic
Rehabilitation Credit allocable to the Limited Partners. General Partner shall
adjust the amounts debited or credited to Capital Accounts with respect to (i)
any property contributed to the Partnership or distributed to the Partners, and
(ii) any liabilities that are secured by such contributed or distributed
property that are assumed by the Partnership or the Partners, in the event
General Partner shall determine such adjustments are necessary or appropriate
pursuant to Section 1.704-1(b)(2)(iv) of the Allocation Regulations. Subject to
the provisions of Section 6.3C, General Partner also shall make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with the Allocation Regulations.
Section 4.4 Withdrawal of Capital.
A Partner shall not have the right to withdraw from the Partnership all or
any part of such Partner's Capital Contribution. No Partner shall have any
right to demand or receive property of the Partnership in return for such
Partner's Capital Contribution, except as may be specifically provided in this
Agreement. No Partner shall be entitled to demand a redemption or repurchase of
such Partner's Partnership Interest, except as may be specifically provided in
this Agreement. Any return of Capital Contributions to the Partners pursuant to
this Agreement shall be solely from Partnership assets, and General Partner
shall not be personally liable for any such return.
Section 4.5 Liability of Limited Partner
No Limited Partner shall be liable for any debts, liabilities, contracts,
or obligations of the Partnership. A Limited Partner shall be liable only to
make payments of its Capital Contributions as and when due hereunder and any
Subordinated Partner Loan, if and as required hereunder. After a Limited
Partner's Capital Contributions are fully paid and any Subordinated Partner
Loans are made, such Limited Partner shall not be required to make any further
Capital Contributions or payments or lend any funds to the Partnership.
Section 4.6 Additional Limited Partners
A. General Partner may admit additional Limited Partners only with the
Consent of Special Limited Partner, which Consent may be withheld or granted in
Special Limited Partner's sole and absolute discretion, and only in accordance
with the provisions of Section 11.
B. Any incoming Limited Partner shall, by execution of this Agreement and
as a condition of receiving any interest in the Partnership Property, agree to
be bound by the Project Documents to the same extent and on the same terms as
the other Limited Partners.
C. Upon the admission of any additional Limited Partners, an amendment to
this Agreement reflecting such admission, shall, to the extent required by law,
be filed with the Filing Office and/or any other appropriate Governmental
Authority. Such amendment, if required, shall amend the Schedule to reflect the
names, addresses and Capital Contributions of such additional Limited Partners,
and shall set forth the agreement of such additional Limited Partners to be
bound by all the provisions of this Agreement.
SECTION 5: CAPITAL CONTRIBUTIONS OF INVESTOR LIMITED PARTNER AND
SPECIAL LIMITED PARTNER; OPERATING DEFICIT LOANS; INVESTOR
LIMITED PARTNER LOANS; LETTER OF CREDIT; REPURCHASE RIGHT;
DEFICIT RESTORATION OBLIGATIONS
Section 5.1 Capital Contributions of Investor Limited Partner and
Special Limited Partner
A. Subject to the provisions of Sections 5.3 and 5.4, Investor Limited
Partner's Capital Contribution shall be in the amount of $2,810,000.00, which
Capital Contribution will be paid in two installments as follows:
(i) The sum of $1,967,000.00 (the "First Installment") shall be paid
after satisfaction of all of the Admission Date Conditions, as set forth on
Exhibit A, which Admission Date Conditions will be satisfied on or before the
Admission Date.
(ii) The sum of $843,000.00, which sum is subject to reduction as
provided in Section 5.4 and/or under the proviso in this Section 5.1A(ii) (as so
reduced the "Second Installment") shall be paid 10 days after the date by which
all of the following events shall have occurred: (1) either the Temporary
Certificate of Occupancy or Certificate of Occupancy has been issued; (2) the
written determination by the Accountants of the aggregate amount of the Historic
Rehabilitation Credit; (3) the Cash Collateral Fund has been funded or will be
funded contemporaneously therewith; (4) either a final Part III Historic
Application issued by the Department of the Interior with respect to the
Historic Rehabilitation Credit, or both (x) a certificate of General Partner in
which General Partner certifies that General Partner believes that a Part III
Historic Application with respect to the Project will be issued by the
Department of the Interior in customary course and that General Partner intends
to include the Historic Rehabilitation Credit in the Partnership's tax return
for the year in which such certificate is issued, or has included the Historic
Rehabilitation Credit in the Partnership's tax return for an earlier year, and
(y) a certificate of HCI, reasonably satisfactory to Special Limited Partner, to
the effect that in HCI's professional judgement the Project has been completed
in accordance with the conditions relating to the Historic Rehabilitation Credit
and that a Part III Historic Application with respect to the Project will be
issued by the Department of the Interior in customary course; and (5) all of the
matters and conditions described in Section 5.2 have been satisfied.
Notwithstanding the foregoing, (a) the amount of the Second Installment shall in
no event exceed the difference between $3,420,500.00 less the sum of the First
Installment, the aggregate amount of any draws on the Letter of Credit and/or
the TIF Letter of Credit, and the aggregate amount of any Subordinated Partner
Loan made by the Investor Limited Partner, and (b) if the requirement of Section
5.1A(ii)(1) is satisfied by the delivery of a Temporary Certificate of
Occupancy, then Investor Limited Partner shall have the right to fund a portion
of the Second Installment in an amount equal to the reasonably anticipated costs
yet to be incurred by the Partnership in obtaining a Certificate of Occupancy
into an escrow account held by an escrow agent and pursuant to escrow
instructions reasonably satisfactory to Special Limited Partner and General
Partner. The amounts held in such escrow account shall be released to the
Partnership upon completion of all such work and upon the issuance of a
Certificate of Occupancy.
(iii) Notwithstanding the foregoing but subject to Section 5.3 below,
Investor Limited Partner will have the right, at Investor Limited Partner's
election, but not the obligation, to pay all or a portion of the Second
Installment to obtain a release of the Letter of Credit, the TIF Letter of
Credit and/or to any third party to which the Partnership then owes an
obligation which is then due and payable or to make any payment to any Person
which would cure any Material Default, provided that Investor Limited Partner
has given General Partner at least 5 days' prior notice of Investor Limited
Partner's intent to make such payment and General Partner has failed, within 5
days after such notice, to contest, settle, or otherwise satisfy or discharge
the obligation which underlies the payment that Investor Limited Partner has
notified General Partner of, in a manner which prevents the Person to which such
obligation is owed from enforcing such obligation or otherwise harming the
Partnership with respect to such obligation; any such payment made by Investor
Limited Partner will be deemed to be made on behalf of the Partnership and, to
the extent of such payment, the Second Installment will be deemed to have been
paid. No such payment by Investor Limited Partner will be deemed to be a waiver
of any Material Default or will relieve General Partner of any of General
Partner's obligations under this Agreement, including, but not limited to,
matters which were cured by such payment.
B. Special Limited Partner's Capital Contribution shall be in the amount
of $100.00 and shall be paid to the Partnership in full in cash on the Admission
Date.
Section 5.2 Conditions to Payment of Second Installment
The following are conditions precedent (which must, in any event, occur on
or before the Completion Date) to payment of the Second Installment by Investor
Limited Partner:
A. All of the conditions precedent to the Admission Date have been and
remain satisfied.
B. No Material Default has occurred, and no event has occurred which with
the passage of time or the giving of notice would constitute a Material Default,
and neither Investor Limited Partner nor Special Limited Partner has delivered a
notice of a Material Default which is currently being contested by General
Partner.
C. The Temporary Certificate of Occupancy Date has occurred and the
Project is not subject to any liens, claims or encumbrances other than the Deed
of Trust, or other matters set forth in the title insurance policy delivered to
Special Limited Partner at the Mortgage Loan Closing pursuant to this Agreement.
D. Intentionally Omitted.
E. General Partner has delivered a written certification to Investor
Limited Partner (a "Payment Certificate") in the form attached to this Agreement
as Exhibit C.
F. General Partner must deliver each of the following to Special Limited
Partner:
(i) A copy of the Temporary Certificate of Occupancy, together with
evidence that the nature of the work remaining to be done is of a nature which
would not impair the permanent occupancy of any portion of the Project, which
evidence is reasonably satisfactory to Special Limited Partner.
(ii) A copy of a lien waiver executed by the Contractor, dated not
more than 30 days prior to the date on which the Second Installment is due;
which lien waiver must show that all amounts due through the date of such waiver
have been paid.
(iii) A "date-down" endorsement to the title insurance policy
required under this Agreement, which is to be issued concurrently with payment
of the Second Installment, dating the policy as of the date on which the Second
Installment is paid, which endorsement must not contain any exception relating
to any liens of record not previously set forth on the title insurance policy
issued at the Mortgage Loan Closing.
(iv) An estoppel certificate, dated not more than thirty (30) days
before the date on which the Second Installment is due, from the City that the
Redevelopment Agreement has not been modified and is in full force and effect
(or if there have been modifications, that the Redevelopment Agreement is in
full force and effect as modified and setting forth the modifications), and
whether, to the best knowledge of the City, the Partnership is or is not in
default of the Redevelopment Agreement, and, if so, specifying the default;
provided, however, in the event the City fails to provide such estoppel
certificate, the General Partner shall provide a evidence that the City received
a written request for such estoppel certificate and a representation by the
General Partner that the City failed to respond to such request within twenty
(20) days and that the Redevelopment Agreement has not been modified, is in full
force and effect and that the Partnership is not in default under the terms
thereof.
(v) An estoppel certificate from the Bank that the TIF Loan Documents
have not been modified and are in full force and effect (or if there have been
modifications, that the TIF Loan Documents are in full force and effect as
modified and setting forth the modifications), and whether, to the best
knowledge of the City, the Partnership is or is not in default of the TIF Loan
Documents.
(vi) An estoppel certificate from the Manager that the Management
Agreement has not been modified an is in full force and effect (or there has
been modification, that the Management Agreement is in full force and effect as
modified and setting forth the modifications), whether or not there has been a
default under the terms of the Management Agreement (and, if so, specifying the
default), and a representation that the Hotel is open for business to the
public.
(vii) An estoppel certificate, dated not more than 30 days before the
date on which the Second Installment is due, from the General Partner, in the
form attached to this Agreement as Exhibit D.
(viii) Evidence of written instructions from the Partnership
delivered to the Lender contemporaneously with the payoff of the Gap Loan and
requiring the original Letter of Credit to be marked "CANCELLED" by Lender and
delivered to Investor Limited Partner.
G. If requested by Special Limited Partner, an opinion of the
Partnership Counsel, or such other counsel satisfactory to Special Limited
Partner, relating to the authority of General Partner, and any Affiliate of
General Partner which may be providing services to the Partnership, and to the
enforceability of this Agreement and the other Project Documents, which opinion
must be reasonably satisfactory to Special Limited Partner. The cost of such
opinion will be borne by the Partnership.
H. If requested by Special Limited Partner, an opinion of the
Partnership Counsel, or such other tax counsel satisfactory to Special Limited
Partner, which shall include opinions relating to the federal income tax
classification of the Partnership, the availability of the Historic
Rehabilitation Credit, the allocation of 99% of such credit to the Limited
Partners in accordance with this Agreement, and the status of Limited Partners
as "limited partners" under the Act notwithstanding the taking of any action or
exercise of any and all rights, approvals and directives by Limited Partner in
accordance with the terms of this Agreement, which opinion must be reasonably
satisfactory to Special Limited Partner. The cost of such opinion will be borne
by the Partnership.
I. A certificate, in form and substance approved by the Special
Limited Partner, from the Developer that the Project has been developed in
accordance with the Plans and Specifications and the Tax Financing Documents.
J. The financial statements of General Partner (which need not be
audited), obtained at the expense of General Partner, dated no earlier than 90
days prior to the date on which the Second Installment is due (or if dated more
than 90 days prior to such date, in addition, a certificate of General Partner
that there has been no material adverse change to General Partner's financial
condition since the date of such financial statements).
K. The financial statements of HRI (which need not be audited),
obtained at the expense of HRI, dated no earlier than 90 days prior to the date
on which the Second Installment is due (or if dated more than 90 days prior to
such date, in addition, a certificate of HRI that there has been no material
adverse change to HRI's financial condition since the date of such financial
statements), showing that there has been no material adverse change from the
financial statements submitted to Special Limited Partner in connection with
Investor Limited Partner's entrance into this Agreement and also showing that
HRI's net worth is equal to or greater than $4,000,000.00 determined in
accordance with GAAP.
L. Insurance certificates evidencing all insurance policies required
under this Agreement and/or the Management Agreement are paid for and in full
force and effect as of the date on which the Second Installment is due.
M. Copies of such other documents, permits, certificates, reports or
other items relating to the Project as Special Limited Partner may reasonably
request.
Section 5.3 Adjuster Provisions: Generally; Completion Adjuster
A. The parties acknowledge that the amount of Investor Limited Partner's
Capital Contribution is based on an amount of Historic Rehabilitation Credit
allocable to Investor Limited Partner under the terms of this Agreement of
$3,193,740.00. If the amount of the Historic Rehabilitation Credit allocable to
Investor Limited Partner under the terms of this Agreement is less or greater
than $3,193,740.00, the provisions of Section 5.4 shall apply; provided,
however, that in the event a Negative Historic Adjustment results in a reduction
of Investor Limited Partner's Capital Contribution Installments or an offset to
any amounts otherwise distributable or payable to the General Partner or to
General Partner's Affiliates or a payment by General Partner to Investor Limited
Partner pursuant to Sections 5.4 or 5.13, as the case may be, then such payment
shall nevertheless be deemed for all purposes to be a return of Investor Limited
Partner's Capital Contribution Installments, in the inverse order in which such
Installments were made. In the event any payments by the General Partner to the
Investor Limited Partner pursuant to Sections 5.3, 5.4 or 5.13, as the case may
be, is includable in the Investor Limited Partner's gross income for Federal
income tax purposes, then the amount of any such payment(s) by the General
Partner to the Investor Limited Partner shall be increased by 53.85%.
B. If the Placed-In-Service Date has not occurred on or prior to December
31, 1999, General Partner shall indemnify the Investor Limited Partner (for the
General Partner's failure to timely complete the Project) in an amount (the
"Negative Completion Adjuster") equal to the sum of (i) the product of 20%
multiplied by the First Installment, plus (ii) interest on the amount specified
in the preceding clause (i) at an annual rate equal to the lesser of the
Designated Interest Rate plus 7%, or the highest rate permitted by law from the
December 31, 1999 until such Negative Completion Adjuster is paid in full; which
amount shall be paid by General Partner, in cash, on or before January 31, 2000;
provided, however, that for all purposes of this Agreement, any amount so paid
to Investor Limited Partner by General Partner shall not constitute a loan nor
contribution of capital to the Partnership by General Partner, and General
Partner shall not be entitled to receive any repayment or other compensation or
consideration with respect to such amount. If the Placed-In-Service Date has
occurred on or before December 31, 1998, the Investor Limited Partner shall make
an additional Capital Contribution (the "Positive Completion Adjuster") to the
Partnership in an amount equal to $100,000.00; which amount shall be paid by the
Investor Limited Partner, in cash, on or before January 31, 1999 and, upon
receipt by the Partnership, shall be used and applied by the Partnership to pay
down on the Subordinate Partner Loans. The Investor Limited Partner shall have
the right to offset any amounts due from Investor Limited Partner under the
Second Installment or its Subordinated Partner Loan against any Negative
Completion Adjuster due from the General Partner to Investor Limited Partner
pursuant to this Section 5.3B; provided, however, for purposes of all alloca-
tions, distributions and payments under this Agreement, the Investor Limited
Partner shall be treated as having made the full amount of its Second
Installment and Subordinated Partner Loan notwithstanding such offset and such
offset shall not constitute a loan nor contribution of capital to the
Partnership by General Partner, nor shall the General Partner be entitled to
receive any repayment or other compensation or consideration with respect to
such offset amount.
Section 5.4 Historic Rehabilitation Credit Adjuster
Notwithstanding anything to the contrary contained herein, if, for any
reason other than a change in the law having a retroactive impact on the tax
benefits allocable to Investor Limited Partner hereunder, (x) the written
determination by the Accountants of the aggregate amount of the Historic
Rehabilitation Credit is such that, or (y) the Partnership shall file a federal
income tax return showing that, or (z) there shall be a Final Determination
that, the aggregate amount of Historic Rehabilitation Credit allocated to
Investor Limited Partner is an amount less or greater than $3,193,740.00 (such
determination shall be referred to herein as the "Historic Credit
Determination"), then the Accountants shall calculate the difference between the
aggregate amount of Historic Rehabilitation Credit projected to be allocated to
Investor Limited Partner and the amount in fact allocated; if the aggregate
amount of Historic Rehabilitation Credit projected to be allocated to Investor
Limited Partner is greater than the amount in fact allocated, such amount shall
be referred to as the "Negative Historic Credit Difference"; if the aggregate
amount of Historic Rehabilitation Credit projected to be allocated to Investor
Limited Partner is less than the amount in fact allocated, such amount shall be
referred to as the "Positive Historic Credit Difference." In the event a
Historic Credit Determination is made that results in either a Negative Historic
Adjustment or a Positive Historic Adjustment, all subsequent Historic Credit
Determinations will be made on the basis of the initial amount of the Historic
Rehabilitation Credit allocated to the Investor Limited Partner as adjusted for
any prior Negative Historic Adjustment(s) and Positive Historic Adjustment(s).
(i) If there is a Negative Historic Credit Difference, the Negative
Historic Credit Difference will be multiplied by 92.4% and the resulting
product shall be the "Negative Historic Adjustment."
(ii) If there is a Positive Historic Credit Difference, the Positive
Historic Credit Difference will be multiplied by 88% and the resulting
product shall be the "Positive Historic Adjustment."
(iii) If at the time that a Negative Historic Adjustment is
determined Investor Limited Partner has not paid all of the Installments of
Investor Limited Partner's Capital Contributions, then the amount of the
remaining Capital Contribution Installment(s) to be paid by Investor
Limited Partner shall be reduced by the Negative Historic Adjustment. If
the Negative Historic Adjustment exceeds the aggregate of such remaining
Capital Contribution Installments, such excess shall constitute Excess
Adjustment and shall be repaid to Investor Limited Partner in accordance
with the terms of Section 5.13.
(iv) If at the time that a Negative Historic Adjustment is determined
Investor Limited Partner has paid in all of Investor Limited Partner's
Capital Contribution Installments, then the entire amount of such Negative
Historic Adjustment shall constitute an Excess Adjustment and shall be
repaid to Investor Limited Partner in accordance with the terms of Section
5.13.
(v) If at the time that a Positive Historic Adjustment is determined
Investor Limited Partner has not paid all of the Installments of Investor
Limited Partner's Capital Contributions, then the amount of the Second
Installment shall be increased by the amount of the Positive Historic
Adjustment.
(vi) If at the time that a Positive Historic Adjustment is determined
Investor Limited Partner has paid all of Investor Limited Partner's Capital
Contribution Installments, then Investor Limited Partner will make an
additional Capital Contribution to the Partnership in the amount of the
Positive Historic Adjustment within 30 days after Special Limited Partner's
receipt of notice from General Partner that such amount is payable and
documentation evidencing same.
Section 5.5 Balloon Adjuster
If Recapture Event occurs as a result of a foreclosure (or similar
event) of the Mortgage Loan, the TIF Advance Loan or any refinancing thereof, on
or before the end of the five year period beginning on the Place-in-Service
Date, General Partner shall indemnify the Limited Partners for such Recapture
Event in an amount (the "Balloon Adjuster") equal to the sum of (i) the amount
of Historic Rehabilitation Credit which is required to be recaptured by the
Limited Partners (i.e. 20% for each year less than 5 full years of the Historic
Rehabilitation Credit properly allocated to the Limited Partners) in connection
with such Recapture Event, plus (ii) any additional tax, penalties and interest
incurred by the Limited Partners as a result of such Recapture Event. In the
event the payment of the Balloon Adjuster by the General Partner is includible
in the Limited Partners' gross income for federal income tax purposes, then the
amount of such payment shall be increased by 53.85%. The Balloon Adjuster shall
be due and payable, in cash, within 30 days after such Recapture Event.
Section 5.6 IRS Claims
A. In the event that a claim is made by the IRS (a "Claim") upon audit
which, if successful, would result in an adjustment to the Capital Contributions
of Investor Limited Partner or any payments pursuant to Sections 5.3, 5.4 or
5.13, General Partner, in General Partner's capacity as the TMP, shall, within
30 days after receiving notice of such Claim, notify Investor Limited Partner
and Special Limited Partner of the Claim (such notice being referred to as a
"Claim Notice") and request that Investor Limited Partner notify the Partnership
of Investor Limited Partner's intention either to contest such Claim or to
accept the same. If Investor Limited Partner elects to contest such Claim, the
TMP shall take such action in contesting such Claim on behalf of the Partnership
and Investor Limited Partner as the TMP reasonably deems necessary or as
directed by Special Limited Partner. In such event, all third party costs and
expenses incurred by the TMP in connection with such matter shall be borne by
the Partnership and/or the Partners in accordance with the provisions of Section
7.9. The failure of Special Limited Partner, within 30 days after the date of
the Claim Notice, to notify the Partnership of Investor Limited Partner's
intention to contest such Claim shall be deemed to be a decision to accept the
same.
B. In the event that Investor Limited Partner elects to accept such
Claim, General Partner may nevertheless contest the Claim by appropriate
proceedings, provided, however, that (i) General Partner elects to contest such
Claim, and in fact commences such contest, within any applicable period of
limitations, (ii) prior to contesting any such Claim, General Partner delivers
to Special Limited Partner security, satisfactory to Special Limited Partner,
securing General Partner's potential obligations under Section 5.3, 5.4, 5.13
and this Section 5.6, (iii) General Partner diligently prosecutes such contest,
and (iv) if, following the contest of such Claim by General Partner, all or a
portion of the Claim is sustained in a Final Determination, then there shall be
added to the adjustments referred to in Section 5.4, an amount equal to the
interest, penalties, or any other amount assessed against Investor Limited
Partner for the period commencing on the date of the Claim Notice and ending on
the date of such Final Determination.
C. If, following a decision by General Partner to contest a Claim under
Section 5.6B above, 50% or more of the tax deficiency amount specified in the
Claim is sustained in a Final Determination, the costs and expenses of
contesting the Claim shall be borne solely by General Partner. If such Final
Determination results in less than 50% of the tax deficiency amount specified in
the Claim being upheld, the costs and expenses of contesting the Claim shall be
borne by the Partnership and/or the Partners in accordance with the provisions
of Section 7.9.
Section 5.7 Project Cost Overruns
In the event that the cost of construction, development, and Rehabilitation
of the Project exceeds the total project cost set forth in the Development
Budget, General Partner shall pay to the Partnership the amount of such excess.
Such payment or payments shall be made at such times as may be necessary to
assure that the costs of construction, development, and Rehabilitation of the
Project are timely paid. Except as provided in this Section 5.7, such payments
by General Partner shall not constitute loans nor contributions of capital to
the Partnership by General Partner, and General Partner will not be entitled to
receive any repayment or other compensation or consideration with respect to
such amounts. Notwithstanding the foregoing, to the extent that Investor
Limited Partner's Capital Contributions are increased under Section 5.4 as a
result of the cost of construction, development, and Rehabilitation of the
Project exceeding the total project cost set forth in the Development Budget,
then the Partnership will reimburse General Partner for amounts paid by General
Partner under this Section 5.7, or will reimburse a Development Guarantor for
amounts paid by such Development Guarantor under the Development Guaranty
Agreement, upon receipt by the Partnership of Investor Limited Partner's
increased Capital Contribution. If the increase in Investor Limited Partner's
Capital Contribution is less than the aggregate of the amounts paid by General
Partner under this Section 5.7 and amounts paid by the Development Guarantors
under the Development Guaranty Agreement, then the proceeds of Investor Limited
Partner's increased Capital Contribution will be allocated between General
Partner and the Development Guarantors as determined by General Partner;
provided, however, the Limited Partners shall have no duty to determine the
reasonableness of such allocation or oversee the application of such funds by
the General Partner to the General Partner and/or the Development Guarantors.
Section 5.8 Operating Deficits and Operating Deficit Loans; Use of
Operating Deficit Reserve; and Cash Collateral Fund
A. (i) If at any time during the Initial Operating Period, the
Partnership requires funds to eliminate an Operating Deficit, then General
Partner shall use funds from the Operating Reserve, as may be necessary to
eliminate such Operating Deficit, until the Operating Reserve is depleted.
(ii) If, at any time during the Initial Operating Period after the
Operating Reserve is depleted, the Partnership requires funds to eliminate an
Operating Deficit, then such shortfall shall be funded by General Partner making
an Operating Deficit Loan to the Partnership. Such Operating Deficit Loan shall
be funded 30% from the Cash Collateral Fund (to the extent funds are available),
and 70% from General Partner (provided that to the extent that funds are not
available in the Cash Collateral Fund to pay the full 30% portion of such
shortage, General Partner will pay the difference as necessary, subject to the
Operating Deficit Loan Maximum). Notwithstanding the foregoing, General Partner
shall not be required to make an Operating Deficit Loan to the Partnership to
the extent that the outstanding principal amount of Operating Deficits Loans
equals or exceeds the Operating Deficit Loan Maximum. To the extent that the
principal amount of any Operating Deficit Loan is repaid to General Partner, the
amount of such repayment shall be credited against the aggregate amount of the
outstanding advances made by General Partner under this Section 5.8A(ii), and
the amount so repaid shall be available again for future Operating Deficit Loans
during the Initial Operating Period (e.g. the Operating Deficit Loans will be
"revolving" loans which have a maximum outstanding principal amount of the
Operating Deficit Loan Maximum). General Partner acknowledges that the maximum
aggregate principal amounts of the Operating Deficit Loans under this Section
5.8A(ii) will remain at the Operating Deficit Loan Maximum throughout the
Initial Operating Period.
(iii) In the event that during the Initial Operating Period the
Operating Reserve is depleted and General Partner fails to make an Operating
Deficit Loan as required under this Section 5.8A, then Special Limited Partner
may withdraw the amount which General Partner was required to loan to the
Partnership as a Operating Deficit Loan from the Cash Collateral Fund and use
such amounts to fund such Operating Deficit. No such withdrawal from the Cash
Collateral Fund by Special Limited Partner will be deemed to cure General
Partner's default with respect to the failure to make an Operating Deficit Loan,
and General Partner shall be required, in addition to all other obligations
under this Agreement, to restore to the Cash Collateral Fund the amount so
withdrawn, together with interest on such amount at the Designated Interest Rate
plus 7% from the date so withdrawn by Special Limited Partner until so restored.
B. In the event (i) during the Initial Operating Period the Operating
Reserve and the Cash Collateral Fund are each depleted and General Partner
either fails to make an Operating Deficit Loan or is not required to make an
Operating Deficit Loan pursuant to Section 5.8A, or (ii) there is an Operating
Deficit after the expiration of the Initial Operating Period, Investor Limited
Partner may, but shall not be obligated to, make an Investor Limited Partner
Loan to the Partnership.
Section 5.9 No Third-Party Rights in Operating Deficit Loans
The obligation of General Partner to make Operating Deficit Loans pursuant
to Section 5.8 is for the benefit of the Partnership and the Partners and shall
not inure to the benefit of any creditor of the Partnership other than a
Partner, notwithstanding any pledge or assignment by the Partnership of this
Agreement or any rights hereunder.
Section 5.10 No Third-Party Rights in Capital
The obligations or rights of the Partnership or of the Partners to make or
require any Capital Contribution under this Agreement shall not grant any rights
to, or confer any benefits upon, any Person who is not a Partner. The making of
a nonrecourse loan to the Partnership shall not make the lender a Partner.
Section 5.11 Letters of Credit.
Investor Limited Partner shall cause the Letter of Credit to be issued in
favor of the Lender at the Gap Closing Loan Closing and the TIF Letter of Credit
to be issued to the Bank at the TIF Advance Loan Closing. The Partnership shall
reimburse the Investor Limited Partner for the reasonable costs of obtaining the
Letter of Credit and the TIF Letter of Credit. In the event that the Lender
draws upon the Letter of Credit or the Bank draws on the TIF Letter of Credit,
General Partner shall immediately reimburse Investor Limited Partner (or, if
such Letter of Credit or the TIF Letter of Credit, as applicable, was issued at
the request of an Affiliate of Investor Limited Partner, such Affiliate), for
the amount so drawn together with any liability or cost which Investor Limited
Partner or such Affiliate may incur with respect to such draw. The Letter of
Credit shall be cancelled and released upon General Partner and Investor Limited
Partner making the Subordinated Partner Loans to the Partnership. The TIF
Letter of Credit shall be cancelled and released upon the later of the date of
the issuance of the Certificate of Occupancy or the date the Hotel is open for
business to the public. General Partner's obligations under this Section 5.11
will be secured by the Development Guaranty Agreement, the Development Fee Note
Assignment, and the General Partner Pledge.
Section 5.12 Limited Partners' Right to Require Repurchase
A. In the event (a "Repurchase Event") that (i) the Partnership is in
default under the Mortgage Loan and the Lender has accelerated the Mortgage Loan
prior to the later of the date the Mortgage Loan becomes a Nonrecourse Liability
or prior to issuance of the Certificate of Occupancy, or (ii) the Temporary
Certificate of Occupancy Date does not occur on or before June 30, 1999, or
(iii) the Certificate of Occupancy Date and all conditions set forth in Section
5.2 do not occur on or before December 31, 1999, or (iv) the Negative Historic
Credit Difference is greater than 15% of the Historic Rehabilitation Credit to
be allocated to Investor Limited Partner set forth in Section 5.4A, or (v) the
Partnership is in default under the Management Agreement prior to the later of
date the Mortgage Loan becomes a Nonrecourse Liability or the date of issuance
of the Temporary Certificate of Occupancy, then General Partner shall, within 30
days after the occurrence of such Repurchase Event, notify Investor Limited
Partner and Special Limited Partner of such event. If such notice is required
by a Repurchase Event described in clauses (i), (ii), (iii) or (iv), the Special
Limited Partner shall have the option to require General Partner to purchase the
Special Limited Partner's and the Investor Limited Partner's Partnership
Interests at a price equal to (x) the amount of the Capital Contribution which
such Limited Partners have made, plus (y) Subordinated Partner Loans (including
interest thereon) and other amounts loaned or advanced to the Partnership by the
Limited Partners, plus (z) any reasonable out of pocket costs or expenses
incurred by Investor Limited Partner or Special Limited Partner with respect to
this Agreement (including, without limitation, any penalties and interest
attributable to a recapture of the Historic Rehabilitation Credit), the
Partnership, the Project, or General Partner's repurchase of such Partnership
Interests. If such notice is required by a Repurchase Event described in clause
(v), the Special Limited Partner shall reasonably determine whether Manager may
seek to terminate the Management Agreement and shall notify General Partner of
such determination. If General Partner fails to provide Investor Limited
Partner and Special Limited Partner within 15 days of receipt of such notice
from the Special Limited Partner with (a) evidence reasonably satisfactory to
them that Manager will not terminate the Management Agreement, (b) evidence of
the Partnership's cure of such default, or (c) a copy of suit filed by the
Partnership challenging the alleged default described in clause (v) and evidence
of reasonable diligence in prosecuting such challenge, the Special Limited
Partner shall then have the option to require the General Partner to purchase
the Partnership Interests of Investor Limited Partner and Special Limited
Partner at the price set forth above; provided, however, if the General Partner
provides such evidence and pleadings relating to the prosecution of such
challenge and subsequently fails to diligently prosecute such challenge or does
not prevail on such challenge for any reason, the Special Limited Partner shall
then have the option to require the General Partner to purchase the Partnership
Interests of Investor Limited Partner and Special Limited Partner at the price
set forth above.
B. If either Investor Limited Partner or Special Limited Partner elects to
require General Partner to repurchase such Partner's Partnership Interest, such
Partner shall notify General Partner whereupon General Partner shall, within 30
days of receipt of such notice, pay Investor Limited Partner or Special Limited
Partner, as applicable, the purchase price in cash or immediately available
funds. Upon such payment by General Partner, Investor Limited Partner or
Special Limited Partner, as applicable, shall be released from any further
obligations under this Agreement, the Project Documents, or otherwise relating
to the Partnership or the Project, and, to the full extent permitted by law,
Investor Limited Partner and Special Limited Partner, and each of Investor
Limited Partner's and Special Limited Partner's Affiliates, shall be indemnified
by General Partner against any losses, judgments, liabilities, expenses and
amounts paid in settlement of any claims sustained by such Person in connection
with the Partnership or the Project.
Section 5.13 Repayment to Investor Limited Partner of Excess Adjustment
Any and all Excess Adjustments shall be repaid as provided in this Section
5.13. The Investor Limited Partner shall have the right to offset any or all of
the unpaid portion of the Second Installment and/or its Subordinated Partner
Loan up to the full amount of the Excess Adjustments. So long as there is any
Excess Adjustment outstanding, Distributions of Cash Flow to the General Partner
or its Affiliates will be allocated and distributed to Investor Limited Partner
and payments of the Developer Fee and/or payments on the Deferred Development
Note shall be applied in repayment of such Excess Adjustment prior to allocation
or distribution of any Cash Flow to General Partner or to General Partner's
Affiliates and or payments of the Developer Fee and/or payment on the Deferred
Development Note, until such time as funds have been so distributed or applied
to Investor Limited Partner under this Section in an amount equal to (i) the
Excess Adjustment, plus (ii) interest on such amount at a rate of 15% per annum
calculated from the date on which Investor Limited Partner's Capital
Contribution containing such amount was made until all of the Excess Adjustment
and all interest thereon is so repaid. Any amount so distributed or applied to
Investor Limited Partner under this Section shall be first applied to the
payment of interest, then to the payment of the Excess Adjustment. If the
Excess Adjustment and all interest thereon are not paid in full within 12 months
after the date on which such Excess Adjustment was determined, General Partner
shall pay to Investor Limited Partner the amount necessary to repay all amounts
then owing to Investor Limited Partner with respect to the Excess Adjustment and
all interest thereon and such payment by General Partner will be treated as an
Excess Adjustment Loan which will be repaid as provided in Section 6.2.
Section 5.14 Subordinated Partner Loans.
A. After the earlier of the date (i) the Gap Loan matures (other than by
reason of a default thereunder) or (ii) the Second Installment is made, and upon
satisfaction of the conditions precedent in Section 5.14B, the Investor Limited
Partner and the General Partner shall each lend funds to the Partnership (a
"Subordinated Partner Loan") up to the aggregate amount of $610,500.00 at any
time within 5 days after the General Partner gives notice to the Investor
Limited Partner, of the need for such funds to pay off the Gap Loan; provided,
however, the tender of such Subordinated Partner Loan by the Investor Limited
Partner to the Partnership, shall be conditioned on the receipt by the
Partnership of such required Subordinated Partner Loan from the General Partner.
The Investor Limited Partner's obligation to make a Subordinated Partner Loan
under this Section 5.14A shall be conditioned on the receipt by the Partnership
of the proceeds of the Subordinated Partner Loan to be made under this Section
by the General Partner. The General Partner's obligation to make a Subordinated
Partner Loan in excess of $115,000.00 under this Section 5.14A is conditioned on
AmerUs Life Insurance Company fulfilling its obligations under the Put Loan
Documents.
B. The following are conditions precedent (which must, in any event,
occur on or before June 30, 1999) to funding of the Subordinated Partner Loan by
Investor Limited Partner:
(i) All of the conditions precedent to the Admission Date have been
and remain satisfied.
(ii) No Material Default has occurred, and no event has occurred which
with the passage of time or the giving of notice would constitute a
Material Default, and neither Investor Limited Partner nor Special Limited
Partner has delivered a notice of a Material Default which is currently
being contested by General Partner.
(iii) General Partner must deliver each of the following to
Special Limited Partner:
(a) An estoppel certificate, dated not more than thirty (30)
days before the date on which the Second Installment is due, from the
City that the Redevelopment Agreement has not been modified and is in
full force and effect (or if there have been modifications, that the
Redevelopment Agreement is in full force and effect as modified and
setting forth the modifications), and whether, to the best knowledge
of the City, the Partnership is or is not in default of the
Redevelopment Agreement, and, if so, specifying the default; provided,
however, in the event the City fails to provide such estoppel
certificate, the General Partner shall provide a evidence that the
City received a written request for such estoppel certificate and a
representation by the General Partner that the City failed to respond
to such request within twenty (20) days and that the Redevelopment
Agreement has not been modified, is in full force and effect and that
the Partnership is not in default under the terms thereof.
(b) An estoppel certificate from the Bank that the TIF Loan
Documents have not been modified and are in full force and effect (or
if there have been modifications, that the TIF Loan Documents are in
full force and effect as modified and setting forth the
modifications), and whether, to the best knowledge of the City, the
Partnership is or is not in default of the TIF Loan Documents.
(c) An estoppel certificate from the Manager that the Management
Agreement has not been modified an is in full force and effect (or
there has been modification, that the Management Agreement is in full
force and effect as modified and setting forth the modifications),
whether or not there has been a default under the terms of the
Management Agreement (and, if so, specifying the default), and a
representation that the Hotel is open for business to the public.
(d) An estoppel certificate, dated not more than 30 days before
the date on which the Subordinated Partner Loan is due, from the
General Partner, in form the form attached to this Agreement as
Exhibit D.
(e) Evidence of written instructions from the Partnership
delivered to the Lender contemporaneously with the payoff of the Gap
Loan and requiring the original Letter of Credit to be marked
"CANCELLED" by Lender and delivered to Investor Limited Partner.
Section 5.15 Default By Investor Limited Partner
If Investor Limited Partner fails to pay an Installment of its Capital
Contribution when due and fails to pay such Installment within 10 days after
receipt of written notice from General Partner to Investor Limited Partner and
Special Limited Partner that Investor Limited Partner is in default, then
Investor Limited Partner will be in default under this Agreement. At any time
prior to the expiration of such 10 day period after receipt of such notice,
Investor Limited Partner will have the right to either (i) cure such default by
paying to the Partnership such past due amount, and, upon such cure, Investor
Limited Partner will be reinstated in good standing in the Partnership and the
rights of the Partnership and General Partner under this Section 5.15 with
respect to such default will terminate, or (ii) contest whether such a default
occurred by giving notice of such contest to General Partner within such 10 day
period, and if Investor Limited Partner so contests such default General
Partner's rights under this Section 5.15 will be tolled until it is determined
that such a default has occurred, provided, however, that unless General Partner
and Investor Limited Partner agree to a resolution of such contest within 30
days after Investor Limited Partner's notice of such contest, or unless General
Partner has instituted an appropriate action relating to such default with a
court of appropriate jurisdiction within such 30 day period, then such a default
will not be deemed to have occurred. If Investor Limited Partner fails to cure
or contest as provided above, then: (A) the Partnership Interests of Investor
Limited Partner and Special Limited Partner shall each be deemed to be those of
a Special Class Limited Partner and the holders thereof shall be entitled only
to such rights as an assignee of a Limited Partnership Interest may have as such
under the provisions of Section 11.4 of this Agreement, the Act, and other
applicable laws of the State; (B) Investor Limited Partner's share of
Partnership Items, Cash Flow, Refinancing Proceeds, and Sale Proceeds shall be
recalculated by multiplying Investor Limited Partner's share of such items had
Investor Limited Partner not defaulted under this Section 5.14 by a fraction,
the numerator of which is the Capital Contributions actually made by Investor
Limited Partner, and the denominator of which is the total Capital Contribution
which Investor Limited Partner would otherwise have been required to make under
this Agreement; and (C) Investor Limited Partner shall have no further
obligation to make any additional Capital Contributions under this Agreement.
Section 5.16 Negative Capital Account Restoration.
A. Notwithstanding anything to the contrary contained in this Agreement,
if, immediately following the "liquidation of a Partner's interest in the
Partnership" (within the meaning of Treasury Regulations Section 1.704-1(b)
(2)(ii)(g)) with respect to a Partner, and in all events after giving effect to
(1) all allocations of income, gain, deduction, loss, tax credits and items
thereof pursuant to Article VI hereof through the date of such liquidation, (2)
any revaluation of Partnership Property or any part thereof pursuant to the
provisions hereof, (3) the foregoing capital contribution obligation provisions
of this Section 5 (which are in no way overridden by the provisions of this
Section 5.16), and (4) the distributions (including liquidating distributions)
made pursuant to the provisions of this Agreement, there is a negative balance
in the Capital Account of a Partner, such Partner shall contribute in cash to
the Partnership, within 30 days after the date of such liquidation, the amount
of its respective negative Capital Account balance (if any); PROVIDED, HOWEVER,
that the maximum aggregate amount the Limited Partners (as a group) shall be
obligated to restore pursuant to this Section 5.16 shall in no event exceed the
sum of $2,000,000.00 less, to the extent not previously taken into account under
clause (1) above, the amount of the Limited Partners' Share of Partner
Nonrecourse Debt Minimum Gain and Share of Partnership Minimum Gain. FURTHER,
PROVIDED, that if at any time after the Fiscal Year in which the Placed-In-
Service Date occurs, the amount of the Limited Partners' Share of Partner
Nonrecourse Debt Minimum Gain and Share of Partnership Minimum Gain exceeds the
Investor Limited Partner's Negative Capital Account balance (if any, ) after
giving effect to clauses (1)-(5) above, neither Special Limited Partner nor
Investor Limited Partner shall thereafter have any further obligations under
this Section 5.16.
B. All amounts contributed to the Partnership in accordance with
Paragraph (B) above shall first be used to satisfy any amounts then owing by the
Partnership to Recourse Creditors of the Partnership. Any portion of such
amounts not used to satisfy amounts owing to Recourse Creditors shall be
distributed to the Partner or Partners then having a positive balance in its or
their respective Capital Account(s) up to the aggregate of such positive Capital
Account balances (with such amounts distributed to such Partners in the ratio of
their positive Capital Account balances if more than one Partner's Capital
Account shall have a positive balance). For purposes of this Section 5.16,
"Recourse Creditors" means creditors of the Partnership that may enforce against
a general partner (in its capacity as a general partner) liability owed such
creditors by the Partnership, and nothing in this Section 5.16 shall be
construed to create any rights in creditors to any funds contributed to the
Partnership pursuant to this Section 5.16.
Section 5.17 Bridge Loan. In the event the Partnership has insufficient
funds available from Subordinate Partner Loans made pursuant to Section 5.14
and/or additional draws on the Mortgage Loan, to pay off the Gap Loan at
maturity, the General Partner shall make a loan to the Partnership in the amount
of such insufficiency (the "Bridge Loan") to enable the Partnership to pay off
the Gap Loan at maturity.
SECTION 6: PROFITS AND LOSSES; CREDITS; DISTRIBUTIONS
Section 6.1 Profits and Losses
A. After giving effect to the special allocation provisions of Section
6.5, Operating Profits and Losses and Tax Credits for any Partnership Fiscal
Year shall be allocated 1% to General Partner, 98.99% to Investor Limited
Partner, and 0.01% to Special Limited Partner.
B. After giving effect to the special allocation provisions of Section
6.5 and subject to Section 6.3C, Profits and Losses from a Capital Transaction
in any Partnership Fiscal Year shall be allocated to and among the Partners as
follows:
As to Profits:
First, an amount of Profits equal to the aggregate negative balances
(if any) in the Capital Accounts of all Partners having negative balance Capital
Accounts shall be allocated to such Partners in proportion to their negative
Capital Account balances until all such Capital Accounts have zero balances; and
Second, an amount of Profits shall be allocated to each of the
Partners until the positive balance in the Capital Account of each Partner
equals the amount of cash which would be distributed to such Partner if such
Profits were available to be distributed in accordance with the provisions of
Clauses Eleventh, Twelfth, Thirteenth and Fourteenth of Section 6.2C.
As to Losses:
First, an amount of Losses equal to the aggregate positive balances
(if any) in the Capital Accounts of all Partners having positive balance Capital
Accounts shall be allocated to such Partners in proportion to their positive
Capital Account balances until all such Capital Accounts have zero balances;
provided, however, that if the amount of Losses so to be allocated is less than
the sum of the positive balances in the Capital Accounts of those Partners
having positive balances in their Capital Accounts, then such Losses shall be
allocated to the Partners in such proportions and in such amounts so that the
Capital Account balances of each Partner shall equal, as nearly as possible, the
amount such Partner would receive if an amount equal to the excess of (i) the
sum of all Partners' balances in their Capital Accounts computed prior to the
allocation of Losses under this clause First over (ii) the aggregate amount of
Losses to be allocated to the Partners pursuant to this clause First were
distributed to the Partners in accordance with the provisions of Clauses
Eleventh, Twelfth and Thirteenth of Section 6.2C; and
Second, the balance, if any, of such Losses shall be allocated to each
of the Partners if such balance were distributed to the Partners in accordance
with the provisions of Clauses Eleventh, Twelfth and Thirteenth of Section 6.2C.
Section 6.2 Distributions Prior to Dissolution
A. Distribution of Cash Flow
Subject to the terms of the Project Documents, any Cash Flow generated
in or with respect to any Fiscal Year shall be distributed or applied from time
to time as required within 90 days after the end of each Fiscal Year in the
following order of priority:
First, to pay the Investment Servicing Fee for such Fiscal Year and
any unpaid Investment Servicing Fee accrued from prior Fiscal Years;
Second, to pay any unpaid Excess Adjustment;
Third, to pay accrued interest on the Investor Limited Partner Loans
and the Voluntary General Partner Loans, such amounts to be paid on a pari
passu, pro rata amounts of such Loans;
Fourth, to the repayment of any unpaid Investor Limited Partner Loans
and any unpaid Voluntary General Partner Loans, such amounts to be paid on a
pari passu, pro rata basis based on the outstanding amounts of such loans;
Fifth, to pay accrued interest on the Subordinated Partner Loans, such
amounts to be paid on a pari passu, pro rata basis based on the outstanding
amounts of such loans;
Sixth, to pay any unpaid Operating Deficit Loans;
Seventh, to the payment of any outstanding Excess Adjustment Loans,
with payments to be applied first to accrued but unpaid interest, and then to
principal;
Eighth, so long as any portion of the Development Fee remains unpaid,
85% of the balance of Cash Flow shall be applied to payment of the unpaid
portion of the Development Fee, and the remaining 15% of such balance shall be
distributed as follows: 1% to General Partner, 98.99% to Investor Limited
Partner, and 0.01% to Special Limited Partner;
Ninth, after payment in full of the Development Fee, if no Debt
Service Coverage Loan has theretofore been made, then 70% of the balance of Cash
Flow shall be applied to the payment of the Incentive Partnership Management Fee
and 30% of such balance shall be distributed as follows: 1% to General Partner,
98.99% to Investor Limited Partner, and 0.01% to Special Limited Partner; and
Tenth, after payment in full of the Development Fee, if a Debt Service
Coverage Loan has theretofore been made, then 21% of the balance of Cash Flow
shall be applied to the payment of the Incentive Partnership Management Fee, 49%
of such balance shall be distributed to the Investor Limited Partner, and the
remaining 30% of such balance shall be distributed as follows: 1% to General
Partner, 98.99% to Investor Limited Partner, and 0.01% to Special Limited
Partner.
B. Distributions of Refinancing Proceeds
Refinancing Proceeds shall be distributed in the following order of
priority:
First, to the payment of any reasonable and customarily expenses
associated with the transaction generating such Refinancing Proceeds, including,
without limitation, prepayment penalties, brokerage fees, legal fees and
application fees;
Second, to discharge, the debts and obligations of the Partnership
owed to the holder of the Deed of Trust;
Third, if the customary loan brokerage and origination fees
attributable to the loan resulting in the Refinancing Proceeds are less than
1.5% of the initial outstanding principal balance of such loan, to the General
Partner in an amount equal to the excess of (i) 1.5% of the initial outstanding
principal balance of such loan, over (ii) the aggregate amount of such loan
brokerage and origination fees incurred with respect to such loan;
Fourth, to fund reserves for contingent or unforeseen liabilities or
obligations of the Partnership to the extent deemed reasonable by General
Partner;
Fifth, to the payment of any unpaid Investment Servicing Fee;
Sixth, to pay any unpaid Excess Adjustment;
Seventh, to the repayment of any unpaid Investor Limited Partner
Loans, together with all interest on such Investor Limited Partner Loans, and
any unpaid Voluntary General Partner Loans, together with all interest on such
Voluntary General Partner Loans, such amounts to be paid on a pari passu, pro
rata basis based on the outstanding amounts of such loans;
Eighth, to the repayment of the Subordinated Partner Loans, together
with all interest on such Subordinated Partner Loans, such amounts to be paid on
a pari passu, pro rata basis based on the outstanding amounts of such
Subordinated Partner Loans;
Ninth, to pay any unpaid portion of the Development Fee and the
outstanding balance of the Development Fee Note;
Tenth, to pay any outstanding Operating Deficit Loans, with payments
to be applied first to accrued but unpaid interest and then to principal;
Eleventh, to the payment of any outstanding Excess Adjustment Loans,
with payments to be applied first to accrued but unpaid interest and then to
principal;
Twelfth, if Investor Limited Partner's Capital Account has a negative
balance before the transaction giving rise to the Refinancing Proceeds, to
Investor Limited Partner in an amount equal to the product of the negative
balance of Investor Limited Partner's Capital Account multiplied by 53.85% (the
"Priority Amount");
Thirteenth, if a payment was made to Investor Limited Partner under
Clause Twelfth immediately above, then to General Partner, in an amount equal to
the Priority Amount;
Fourteenth, if no Debt Service Coverage Loan has theretofore been
made, the balance to be distributed as follows: 70% to General Partner, 29.99%
to Investor Limited Partner, and 0.01% to Special Limited Partner; and
Fifteenth, if a Debt Service Coverage Loan has theretofore been made,
the balance to be distributed as follows: 21% to General Partner, 78.99% to
Investor Limited Partner, and 0.01% to Special Limited Partner.
C. Distributions of Sale Proceeds
Subject to the terms of the Project Documents and to the provisions of
Section 6.3, any Sale Proceeds shall be distributed in the following amounts and
order of priority:
First, to discharge, to the extent required by the documents relating
to the Mortgage Loan, the debts and obligations of the Partnership owed to the
holder of the Mortgage;
Second, to the payment of any unpaid Project Expenses and any
expenses associated with the transaction generating such Sale Proceeds,
including, without limitation, prepayment penalties, brokerage fees, legal fees
and application fees;
Third, to fund reserves for contingent or unforeseen liabilities or
obligations of the Partnership to the extent deemed reasonable by General
Partner;
Fourth, to the payment of any unpaid Investment Servicing Fee;
Fifth, to pay any unpaid Excess Adjustment;
Sixth, to the repayment of any unpaid Investor Limited Partner Loans,
together with all interest on such Investor Limited Partner Loans, and any
unpaid Voluntary General Partner Loans, together with all interest on such
Voluntary General Partner Loans, such amounts to be paid on a pari passu, pro
rata basis based on the outstanding amounts of such loans;
Seventh, to the repayment of the Subordinated Partner Loans, together
with all interest on such Subordinated Partner Loans, such amounts to be paid on
a pari passu, pro rata basis based on the outstanding amounts of such
Subordinated Partner Loans;
Eighth, to pay any unpaid portion of the Development Fee and the
outstanding balance of the Development Fee Note;
Ninth, to pay any outstanding Operating Deficit Loans, with payments
to be applied first to accrued but unpaid interest and then to principal;
Tenth, to the payment of any outstanding Excess Adjustment Loans, with
payments to be applied first to accrued but unpaid interest and then to
principal;
Eleventh, if Investor Limited Partner's Capital Account has a negative
balance prior to the transaction giving rise to the Sale Proceeds, to Investor
Limited Partner in an amount equal to the Priority Amount;
Twelfth, if a payment was made to Investor Limited Partner under
Clause Eleventh immediately above, then to General Partner, in an amount equal
to the Priority Amount;
Thirteenth, if no Debt Service Coverage Loan has theretofore been
made, the balance to be distributed as follows: 70% to General Partner, 29.99%
to Investor Limited Partner, and 0.01% to Special Limited Partner; and
Fourteenth, if a Debt Service Coverage Loan has theretofore been made,
the balance to be distributed as follows: 21% to General Partner, 78.99% to
Investor Limited Partner, and 0.01% to Special Limited Partner.
Section 6.3 Liquidation
A. Upon the liquidation and dissolution of the Partnership, unless the
business of the Partnership is continued pursuant to the provisions of Section
10, General Partner shall liquidate the assets of the Partnership and cause the
business of the Partnership to be wound up in accordance with the Act.
B. Subject to the provisions of Section 6.3C, any Capital Proceeds from a
Terminating Capital Transaction remaining after payment of, or adequate
provision for, the debts and obligations of the Partnership shall be distributed
to those Partners with positive Capital Account balances (after taking into
account all Capital Account adjustments for the Partnership taxable year).
C. The parties intend that, as a result of the application of the
allocation and distribution provisions contained in this Section 6, any Sale
Proceeds from a Terminating Capital Transaction will be distributed in the same
manner as Sale Proceeds are distributed under the provisions of Section 6.2C.
If the Partnership is advised at any time by the Accountants or counsel to the
Partnership that an actual distribution of Sale Proceeds at the end of any
Fiscal Year in accordance with the provisions of Section 6.3B would not result
in each Partner receiving the amount that such Partner would have received if
Section 6.2C rather than Section 6.3B applied to such distribution, General
Partner shall so notify Special Limited Partner and, with the Consent of Special
Limited Partner, shall amend the provisions of this Section 6 relating to the
allocation of Profits and Losses (other than the Regulatory Allocations) for
such Fiscal Year (and for subsequent Fiscal Years if necessary) to cure such
defect consistent with the principles set forth in the first sentence of this
Section 6.3C.
Section 6.4 Special Distribution Provisions
A. Notwithstanding anything to the contrary contained herein, to the
extent required (to maintain the Partnership's tax classification as a
partnership for federal income tax purposes) by Revenue Procedure 89-12 or any
successor provisions with respect thereto, General Partner shall receive, as an
aggregate distribution under Sections 6.2 or 6.3, not less than 1% of the
aggregate amounts distributed to all the Partners, in their status as such,
under Sections 6.2 or 6.3. In order to carry the immediately preceding sentence
into effect, in the event that any aggregate distribution to General Partner
would, but for the provisions of this paragraph, fail to equal or exceed 1% of
the aggregate amount distributable to all the Partners in their status as such,
then the amounts otherwise distributable to all the Partners, in their status as
such, under Sections 6.2 or 6.3 shall be reduced and reallocated to General
Partner in order to assure General Partner of General Partner's 1% share.
B. Except as otherwise specifically provided in this Section 6.4, if the
funds available for any Distribution to the Partners are insufficient to
distribute to any class of Partners the maximum amount which otherwise would be
distributable to such class under the applicable provision(s) of this Section 6,
the amount available for distribution shall be distributed pro rata to the
members of such class in proportion to the aggregate amount that would be
distributed to them under such provision(s) if the Partnership hypothetically
had the minimum amount of funds to make the required distribution under such
provision in full.
Section 6.5 Special Allocation Provisions
Notwithstanding anything to the contrary contained herein:
A. Nonrecourse Deductions shall be allocated 98.99% to Investor Limited
Partner, 0.01% to Special Limited Partner, and 1% to General Partner.
B. Partner Nonrecourse Deductions shall be allocated to and among the
Partners in the manner provided in the Allocation Regulations.
C. Subject to the provisions of Section 6.5R, if there is a net decrease
in Partnership Minimum Gain for a Partnership Fiscal Year, the Partners shall be
allocated items of Partnership income and gain in accordance with the provisions
of Section 1.704-2(f) of the Allocation Regulations.
D. Subject to the provisions of Section 6.5R, if there is a net decrease
in Partner Nonrecourse Debt Minimum Gain for a Partnership Fiscal Year, then any
Partner with a Share of such Partner Nonrecourse Debt Minimum Gain shall be
allocated items of Partnership income and gain in accordance with the provisions
of Section 1.704-2(i)(4) of the Allocation Regulations.
E. Subject to the provisions of Sections 6.5A through 6.5D, in the event
that any Limited Partner (who is not also a General Partner) unexpectedly
receives any adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Allocation Regulations, items of
Partnership income and gain shall be specially allocated to each such Limited
Partner in an amount and manner sufficient to eliminate, to the extent required
by the Allocation Regulations, the Adjusted Capital Account Deficit of such
Limited Partner as quickly as possible. This Section 6.5E is intended to
constitute a "qualified income offset" provision within the meaning of the
Allocation Regulations and shall be interpreted consistently therewith.
F. Subject to the provisions of Sections 6.5A through 6.5E, in no event
shall the Limited Partner be allocated Losses which would cause the Limited
Partner to have an Adjusted Capital Account Deficit as of the end of any
Partnership Fiscal Year. Any Losses which are not allocated to a Limited
Partner by reason of the application of the provisions of this Section 6.5F
shall be allocated to General Partner.
G. Subject to the provisions of Sections 6.5A through 6.5F, in the event
that any Limited Partner (who is not also a General Partner) has an Adjusted
Capital Account Deficit at the end of any Partnership Fiscal Year, items of
Partnership income and gain shall be specially allocated to each such Limited
Partner in the amount of such Adjusted Capital Account Deficit as quickly as
possible.
H. Without limiting the generality of Section 6.5B, if the Partnership
incurs recourse obligations to fund the payment of deductible items which are
not anticipated to be paid in the ordinary course of business (such obligations
and losses being referred to herein collectively as "Excess Expenses") in
respect of any Fiscal Year, then the calculation and allocation of Profits and
Losses shall be adjusted as follows: first, an amount of deductions equal to
such Excess Expenses for the Fiscal Year in question shall be allocated to
General Partner; and second, the balance of such deductions and all items of
gross income shall be allocated as provided in Section 6.1A. Nothing in this
Section 6.5H shall prevent the Partnership from recovering an extraordinary loss
from a General Partner who is liable therefor by law or under this Agreement.
If any Excess Expenses shall be repaid to the Partnership during any Fiscal
Year, then the allocation of Profit and Losses under Section 6.1A for such
Fiscal Year shall be adjusted as follows: first, General Partner shall be
allocated an amount of the gross income of the Partnership equal to the amount
of the Excess Expenses repaid in such Fiscal Year; and second, the balance of
such gross income and all items of deductions shall be allocated as provided in
Section 6.1A.
I. In accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account of any variation between the
adjusted basis of such property to the Partnership for federal income tax
purposes and such property's initial Gross Asset Value. In the event that the
Gross Asset Value of any Partnership Property is adjusted pursuant to the terms
of this Agreement, subsequent allocations of income, gain, loss, and deduction
with respect to such asset shall take account of any variation between the
adjusted basis of such asset for federal income tax purposes and such asset's
Gross Asset Value in the same manner as under Code Section 704(c) and the
Treasury Regulations thereunder. Any elections or other decisions relating to
such allocations shall be made by General Partner in any manner that reasonably
reflects the purpose and intent of this Agreement. Allocations pursuant to this
Section 6.5I are solely for purposes of federal, state, and local taxes and
shall not affect, or in any way be taken into account in computing, any
Partner's Capital Account or share of Profits, Losses, other items, or
distributions pursuant to any provision of this Agreement.
J. For purposes of determining the Profits, Losses, Tax Credits or any
other items allocable to any period, Profits, Losses, Tax Credits and any such
other items shall be determined on a daily, monthly, or other basis, as
determined by General Partner using any permissible method under Code Section
706 and the Treasury Regulations thereunder.
K. If the IRS successfully disallows the deduction of all or any part of
any fee paid by the Partnership to General Partner or to General Partner's
Affiliates by recharacterizing such fee as a Distribution to General Partner,
there shall be, to the extent permitted by the Code, a special allocation of
gross income to such General Partner for the Fiscal Year with respect to which
such disallowed deduction was claimed by the Partnership in the amount of such
disallowed deduction.
L. Except as otherwise specifically provided in this Section 6, all
Profits, Losses and Tax Credits allocated to each class of Partners shall be
shared by the respective Partners in such class in the ratio which the paid-in
Capital Contribution of each Partner in such class bears to the aggregate paid-
in Capital Contributions of all Partners in such class.
M. Notwithstanding anything to the contrary contained herein, to the
extent required (to maintain the Partnership's tax classification as a
partnership for federal income tax purposes) by Revenue Procedure 89-12 or any
successor provisions with respect thereto, General Partner (or, if there is more
than one General Partner, all of General Partners as a group) shall be allocated
not less than 1% of each material item of Partnership income, gain, loss,
deduction and credit ("Partnership Items") at all times during the existence of
the Partnership, provided, however, that temporary non-conformance with the
provisions of this Section 6.5M shall be permitted to the extent permitted by
Revenue Procedure 89-12 or any successor provisions. Subject to the foregoing,
in the event that there is no allocation of a material Partnership Item to
General Partner(s) hereunder or if the amount of any material Partnership Item
allocable to General Partner(s) hereunder shall not equal 1% of the aggregate
amount allocable to all the Partners without giving effect to this provision,
then the amount of such Partnership Item(s) otherwise allocable to the Limited
Partners hereunder shall be correspondingly reduced in order to assure General
Partner(s) of General Partner's 1% share. Any such reduction shall be applied
to reduce the shares of all classes of Limited Partners in proportion to their
respective percentage interests.
N. For purposes of determining each Partner's proportionate share of the
excess Nonrecourse Liabilities of the Partnership pursuant to Section
1.752-3(a)(3) of the Allocation Regulations, Investor Limited Partner shall be
deemed to have a 98.99% interest in Profits, Special Limited Partner shall be
deemed to have a 0.01% interest in Profits, and General Partner shall be deemed
to have a 1% interest in Profits.
O. Any recapture of any Historic Rehabilitation Credit shall be allocated
to and among the Partners in the same manner and proportions in which the
Historic Rehabilitation Credit was allocated to such Partners.
P. In the event the adjusted tax basis of any investment credit property
that has been placed in service by the Partnership is increased pursuant to
Section 50(c) of the Code, such increase shall be allocated among the Partners
(as an item in the nature of income or gain) in the same proportions as the
investment tax credit that is recaptured with respect to such property is shared
among the Partners. Any reduction in the adjusted tax basis (or cost) of
Partnership investment credit property pursuant to Section 50(c) of the Code
shall be allocated among the Partners (as an item in the nature of expenses or
losses) in the same proportions as the basis (or cost) of such property is
allocated pursuant to Treasury Regulation Section 1.46-3(f)(2)(i).
Q. The basis (or cost) of any Partnership investment credit property
shall be allocated among the Partners in accordance with Treasury Regulation
Section 1.46-3(f)(2)(i). In the event Partnership investment credit property is
disposed of during any taxable year, Profits for such taxable year (and, to the
extent such Profits are insufficient, Profits for subsequent taxable years) in
an amount equal to the excess, if any, of (i) the reduction in the adjusted tax
basis (or cost) of such property pursuant to Section 50(c) of the Code, over
(ii) any increase in the adjusted tax basis of such property, shall be allocated
among the Partners in proportion to their respective shares of such excess
determined pursuant to Section 6.5P. In the event that more than one item of
such property is disposed of by the Partnership, the foregoing sentence shall
apply to such items in the order in which they are disposed of by the
Partnership, so that Profits equal to the entire amount of such excess with
respect to the first such property disposed of shall be allocated prior to any
allocations with respect to the second such property disposed of, etc.
R. If for any Fiscal Year the application of the minimum gain chargeback
provisions of Section 6.5C or Section 6.5D would cause a distortion in the
economic arrangement among the Partners and it is not expected that the
Partnership will have sufficient other income to correct that distortion,
General Partner shall, if requested by the Special Limited Partner, request a
waiver from the Commissioner of the IRS of the application in whole or in part
of Section 6.5C or Section 6.5D in accordance with Section 1.704-2(f)(4) of the
Allocation Regulations. Furthermore, if additional exceptions to the minimum
gain chargeback requirements of the Allocation Regulations have been provided
through revenue rulings or other IRS pronouncements, General Partner is
authorized to cause the Partnership to take advantage of such exceptions if to
do so would be in the best interest of the Investor Limited Partner.
S. Except as otherwise specifically provided in this Agreement, all items
of Partnership income, gain, loss, deduction and other items not specifically
provided for shall be allocated to and among the Partners in the same manner as
Profits and Losses are allocated pursuant to the provisions of Section 6.1.
Allocations pursuant to this Section 6.5S are solely for purposes of federal,
state and local taxes and shall not affect, or in any way be taken into account
in computing, any Partner's Capital Account or share of Profits, Losses, Tax
Credits or Distributions pursuant to any other provisions of this Agreement.
Section 6.6 Order of Application
The provisions of this Section 6 shall be applied in the order required by
the applicable provisions of the Allocation Regulations or if no such order is
specified, in the manner determined by the Accountants with the Consent of the
Special Limited Partner to be necessary to cause the allocations to have
"substantial economic effect" given the manner and relative priorities in which
the Partners have agreed to share in distributions of Net Cash Flow, Refinancing
Proceeds, Sale Proceeds and liquidation proceeds under Section 6 and in either
case, to maximize the amount of the Historic Rehabilitation Credit allocable to
the Limited Partners.
SECTION 7: RIGHTS, POWERS AND DUTIES OF GENERAL PARTNER
Section 7.1 Restrictions on Authority
A. Notwithstanding any other provisions of this Agreement, General
Partner shall have no authority to perform any act in respect of the Partnership
or the Project in violation of (i) the Regulations or any other applicable law
and regulations, (ii) any agreement to which the between the Partnership and the
Lender relating to the Project, or (iii) this Agreement. With respect to the
execution of the Loan Documents and the Project Documents, however, violation of
the preceding sentence shall result only in liability of General Partner to the
Partnership and the other Partners, and shall not invalidate or cause the
Partnership not to be bound by any of said documents except that any agreement
between the Partnership and General Partner or General Partner's Affiliates may
be rejected without liability to the Partnership if the Consent of Special
Limited Partner is not obtained.
B. Except as provided in Section 3, General Partner shall not have any
authority to do any of the following acts without the Consent of Special Limited
Partner (which, except as provided in Section 3, may be given or withheld with
or without cause in Special Limited Partner's sole discretion) and, if required,
any Requisite Approvals:
(i) to incur indebtedness for money borrowed on the general credit of
the Partnership; or
(ii) to make a material change to the Plans and Specifications; or
(iii) following the Certificate of Occupancy, any expenditure to
construct any new capital improvements, or to replace any existing capital
improvements for an amount in excess of $25,000; or
(iv) to acquire by purchase or lease any real property in addition to
the Real Property (other than easements or similar rights necessary or
convenient for the operation of the Project); or
(v) to cause the Partnership to make any loan or advance to any
Person (for purposes of this clause, accounts receivable incurred and paid
in the ordinary course of business from Persons other than General Partner
or General Partner's Affiliates shall not be deemed to be advances or
loans); or
(vi) to take any action which would cause a Recapture Event; or
(vii) to sell any material portion of the Partnership Property; or
(viii) to refinance or materially modify the Mortgage Loan, the TIF
Advance Loan or the Gap Loan; or
(ix) to terminate or appoint a new Manager; or
(x) to terminate or appoint new Accountants; or
(xi) to incur a Debt Service Deficiency Loan in an amount which is
less than $20,000.00; or
(xii) to make Partnership decisions under Section 5.02 and 5.03 of
Management Agreement;
(xiii) to admit a Person as a Partner, except as provided in this
Agreement;
(xiv) amend this Agreement or the Certificate of Limited
Partnership filed on behalf of the Partnership;
(xv) so long as any obligation secured by the Mortgage Loan is
outstanding, file a voluntary petition or otherwise initiate
proceedings to have the Partnership adjudicated bankrupt or
insolvent, or consent to the institution of bankruptcy or
insolvency proceedings against the Partnership, or file a
petition seeking or consenting to reorganization or relief of the
Partnership as debtor under any applicable federal or state law
relating to bankruptcy, insolvency, or other relief for debtors
with respect to the Partnership; or seek or consent to the
appointment of any trustee, receiver, conservator, assignee,
sequestrator, custodian, liquidator (or other similar official)
of the Partnership or of all or any substantial part of the
properties and assets of the Partnership, or make any general
assignment for the benefit of creditors of the partnership, or
admit in writing the inability of the Partnership to pay its
debts generally as they become due or declare or effect a
moratorium on the Partnership debt or take any action in
furtherance of any such action; or
(xvi) merge or consolidate with any other entity.
Section 7.2 Personal Services and Competition
A. General Partner shall receive no compensation for General Partner's
services as General Partner except as specifically provided in the Incentive
Partnership Management Agreement.
B. The sole purpose of General Partner is to act as General Partner of
the Partnership and to do any and all acts necessary or incidental to that
purpose. General Partner shall not engage in any other business or activity.
C. Any Limited Partner may engage in and have an interest in other
business ventures of every nature and description, independently or with others,
including, but not limited to, the ownership, financing, leasing, operation,
construction, rehabilitation, renovation, improvement, management and
development of real property whether or not such real property is directly or
indirectly in competition with the Project. Neither the Partnership nor any
other Partner shall have any rights by virtue of this Agreement in and to such
independent ventures or the income or profits derived therefrom, regardless of
the location of such real property and whether or not such venture was presented
to such Limited Partner as a direct or indirect result of such Limited Partner's
connection with the Partnership or the Project.
Section 7.3 Business Management and Control; Designation of Managing
General Partner
A. Except as otherwise provided in this Agreement, General Partner shall
have the exclusive right to manage the business of the Partnership and, except
as otherwise specifically provided herein, shall have all of the rights and
powers granted to general partners pursuant to the provisions of the Act. No
Limited Partner (except one who may also be a General Partner, and then only in
such Partner's capacity as a General Partner) shall (i) have any authority or
right to act for or bind the Partnership, or (ii) except as required by law,
participate in or have any control over the Partnership business. Any action
required or permitted to be taken by a corporate General Partner hereunder may
be taken by such of corporate General Partner's properly authorized officers or
agent as such corporate General Partner may validly designate for such purpose.
B. If at any time there is more than one General Partner, the powers and
duties of General Partners hereunder shall be exercised in the first instance by
the Managing General Partner who, subject to the terms and provisions of this
Agreement, shall manage the business and affairs of the Partnership. Each
Managing General Partner is hereby authorized to execute and deliver in the name
and on behalf of the Partnership all such documents and papers (including any
required by any Governmental Authority, the Bank or the Lender) as such Managing
General Partner deems necessary or desirable in carrying out such duties
hereunder, provided such documents and papers are consistent with the terms of
this Agreement. HRI-Briggs is hereby designated as the initial Managing General
Partner. In the event that HRI-Briggs shall become unable to serve in such
capacity or shall cease to be a General Partner, or shall have been removed or
replaced by Special Limited Partner as provided in this Agreement, Special
Limited Partner may designate another General Partner, if there is then another
General Partner, as Managing General Partner, and HRI-Briggs shall take such
actions and execute such documents as Special Limited Partner may reasonably
request to reflect such removal or replacement and the appointment of such other
General Partner as Managing General Partner. Any action required or permitted
to be taken by a corporate General Partner hereunder may be taken by such of
corporate General Partner's proper officers or agents as such corporate General
Partner shall validly designate for such purpose.
C. In the event that a Material Default occurs, and in addition to any
other rights granted to Investor Limited Partner or Special Limited Partner
hereunder, including, without limitation, Special Limited Partner's right to
remove and replace General Partner pursuant to the provisions of Section 8,
Special Limited Partner may, at Special Limited Partner's election, proceed to
exercise Special Limited Partner's rights under this Section 7.3 by giving
notice of such Material Default to General Partner, except in the case of a
Terminating Event with respect to a sole General Partner, in which case no
notice to General Partner shall be required and the rights of Special Limited
Partner set forth in this Section shall be immediately exercisable. If such
default is not cured within 10 business days of such notice (and, with respect
to defaults other than those which relate to the payment of money and which by
the nature of such default cannot be cured within such ten day period, no
default will be deemed to have occurred under this Section if General Partner,
within such ten day period, in good faith commences actions which are likely to
cure such default and diligently prosecutes such cure to completion, and, in any
event, there has been no assignment of or institution of proceedings to
foreclose under the Deed of Trust) or if a Terminating Event shall occur with
respect to the General Partner then, in the case of such a Terminating Event,
the Investor Limited Partner and the Special Limited Partner may elect to
continue the Partnership and, in the case of any Material Default and/or
Terminating Event with respect to the General Partner pursuant to which the
Limited Partners have so elected to continue the Partnership, the Special
Limited Partner may elect to become, or to designate another Person to become,
an additional General Partner with all the rights and privileges of a General
Partner. Upon such election by Special Limited Partner, Special Limited Partner
or such other Person shall automatically become and shall be deemed to be a
General Partner and the Managing General Partner, if Special Limited Partner so
elects, and each Partner hereby irrevocably appoints Special Limited Partner
(with full power of substitution) as the attorney-in-fact of such Partner for
the purpose of executing, acknowledging, swearing to, recording and/or filing
any amendment to this Agreement or the Certificate of Limited Partnership
necessary or appropriate to confirm the foregoing but the foregoing appointment
of an attorney-in-fact shall not relieve the defaulting General Partner from its
duty to take such action and execute such documents as Special Limited Partner
may reasonably request to reflect such election by the Special Limited Partner.
If Special Limited Partner shall become an additional General Partner as
provided in this Section, Special Limited Partner's Partnership Interest shall
not be increased as a result thereof. In the event of the admission of Special
Limited Partner or such Person as a General Partner pursuant to this Section,
and if there are then any other General Partners, Special Limited Partner or
such other Person, shall have all managerial rights, authority and all voting
rights on any matters to be decided or voted upon by General Partners or the
Managing General Partner, as the case may be.
Section 7.4 Duties and Obligations of General Partner
A. General Partner shall its best efforts to carry out the purposes,
business and objectives of the Partnership referred to in Section 2.3, provided,
however, that except as otherwise required by this Agreement, "best efforts"
shall not obligate General Partner to expend its own funds. General Partner
shall devote to Partnership business such time and effort as shall be reasonably
required for the Partnership's welfare and success, including, without
limitation, such of General Partner's time as may be necessary to (i) supervise
the activities of the Manager, (ii) make inspections of the Project to determine
if the Project is being properly maintained and that necessary repairs are being
made thereto (and to take, or to cause the Manager to take, such steps as are
necessary to effectuate such repairs), (iii) prepare or cause to be prepared all
reports of operations which are to be furnished to the Partners or which are
required by the Lender, and all taxing bodies or any other appropriate
Governmental Authorities, (iv) subject to any additional requirements imposed by
the Project Documents, cause the Project to be insured against fire and other
risks covered by such insurance and cause the Manager to obtain and keep in
force during the term of the Partnership business or rental interruption and
worker's compensation (if applicable), in the manner specified in Section 6.01A
of the Management Agreement, the Loan Documents, the Gap Loan Documents and the
TIF Loan Documents, (v) cause the Partnership to obtain and maintain, either
directly or pursuant to the Management Agreement, public liability insurance and
casualty insurance for the benefit of the Partnership and the Partners in
amounts specified in Section 6.01.A.4 of the Management Agreement, the Loan
Documents, the Gap Loan Documents and the TIF Loan Documents, (vi) enforce all
contracts entered into for the benefit of the Partnership, and (vii) do all
other things which may be necessary to manage the affairs and business of the
Partnership. In addition, General Partner shall promptly provide Special
Limited Partner or Special Limited Partner's representatives with copies of such
insurance policies upon request from time to time. General Partner shall review
regularly all of the Partnership and Project insurance coverage to insure that
such coverage is adequate and that such coverage complies with the provisions of
the Management Agreement and/or this Section. Further, in the event of any
casualty, to the extent required by this Agreement, and provided that the
insurance proceeds shall be made available therefor, General Partner shall
repair any damage to the Project which was caused by such event, so as to
restore the Project (as nearly as possible) to the condition and market value
thereof immediately prior to such occurrence.
B. General Partner shall operate the Project and cause the Project to be
developed in accordance with the terms of this Agreement and (i) the Project
Documents, (ii) all applicable statutes, rules and regulations with respect to
the Project, and (iii) any other agreement relating to the Project.
C. General Partner shall use reasonable efforts consistent with sound
management practice and with the terms of the Project Documents and the
Management Agreement to maximize the Cash Flow available for distribution to the
Partners.
D. General Partner will use its best efforts to take all necessary
actions to ensure that the Project will constitute a "certified historic
structure" within the meaning of Section 47(c)(3)(A) of the Code and, upon
completion of the Rehabilitation, will qualify as a "qualified rehabilitated
building" within the meaning of Section 47(c)(1)(A) of the Code.
E. General Partner will use General Partner's best efforts to take all
necessary actions to ensure that the Rehabilitation expenditures incurred in
connection with the Project will constitute "qualified rehabilitation
expenditures" within the meaning of Section 47(g)(2) of the Code, and the
Partnership will make the elections and otherwise comply with the provisions of
Sections 46, 47(g), 49 and 168 of the Code and the Treasury Regulations
promulgated thereunder.
F. [LEFT INTENTIONALLY BLANK]
G. General Partner agrees that, except as provided in or contemplated by
the Project Documents, neither General Partner nor any Related Person will at
any time bear the economic risk of loss for payment of the Mortgage Loan, or the
Gap Loan. General Partner agrees that General Partner will not cause any
Limited Partner at any time to bear the economic risk of loss for payment or
performance under the Mortgage Loan, the TIF Advance Loan or the Gap Loan.
H. General Partner shall (i) not store (except in compliance with all
laws, ordinances, and regulations pertaining thereto), or dispose of any
Hazardous Material at the Project, or at or on any other Site or Vessel owned,
occupied, or operated either by any General Partner, any Affiliate of a General
Partner, or any Person for whose conduct any General Partner is or was
responsible; (ii) neither directly nor indirectly transport or arrange for the
transport of any Hazardous Material (except in compliance with all laws,
ordinances, and regulations pertaining thereto); (iii) provide Limited Partners
with written notice (x) upon any General Partner's obtaining knowledge of any
potential or known release, or threat of release, of any Hazardous Material at
or from the Project or any other Site or Vessel owned, occupied, or operated by
any General Partner, any Affiliate of a General Partner or any Person for whose
conduct any General Partner is or was responsible or whose liability may result
in a lien on the Project; (y) upon any General Partner's receipt of any notice
to such effect from any federal, state, or other Governmental Authority; and (z)
upon any General Partner's obtaining knowledge of any incurrence of any expense
or loss by any such Governmental Authority in connection with the assessment,
containment, or removal of any Hazardous Material for which expense or loss any
General Partner may be liable or for which expense or loss a lien may be imposed
on the Project.
I. If General Partner becomes aware of the presence of levels of
Hazardous Material at (or in connection with the operations of) the Project, in
concentrations and under conditions deemed detrimental to human health under any
applicable Hazardous Substance Laws, and/or in quantities or proportions that
exceed safe limits for such substance established by any such Hazardous
Substance Laws, General Partner shall (i) notify all Partners of such situation
and (ii) take all actions necessary to correct such situation as expeditiously
as possible and to prevent the Project from being in violation of any Hazardous
Substance Laws, provided, however, that General Partner may use Partnership
funds for such purposes and shall not be required by the provisions hereof to
use General Partner's own personal funds, except as may be required pursuant to
the terms of this Agreement.
J. General Partner represents that General Partner has a net worth
sufficient to satisfy the Designated Net Worth Standard and covenants that (i)
during the Initial Operating Period, it will cause HRI to maintain a net worth
equal to or greater than $4,000,000.00 determined in accordance with GAAP and
(ii) HRI will not, without the Consent of Special Limited Partner, which Consent
may be withheld or granted in Special Limited Partner's sole and absolute
discretion, reduce HRI's net worth including, but not limited to, by making
distributions to any of HRI's principals or other owners of a beneficial
interest in HRI, by way of payment of dividends to stockholders, increasing
salaries paid to officers, making any other distributions to stockholders,
officers or directors of an Entity comprising HRI, or taking any other action
which would reduce the net worth of HRI below that required to meet the
Designated Net Worth Standard.
K. Except as otherwise specifically provided herein, neither General
Partner, nor any director, employee or agent of any General Partner, or of
General Partner's subcontractors or vendors, shall give to or receive from any
director, employee, agent or other Affiliate of Investor Limited Partner or
third party, any gift or entertainment of significant value or any commission,
fee, rebate or other compensation in connection with the organization, business,
sale or operations of the Partnership. In addition, neither General Partner
nor any director, employee, agent or other Affiliate of any General Partner, nor
any subcontractors or vendors of General Partner or any Affiliate of General
Partner, shall enter into any business arrangement with any director, employee,
agent or other Affiliate of Investor Limited Partner and Special Limited Partner
who is not acting as a representative of Investor Limited Partner or Special
Limited Partner, or their Affiliates, with prior written notification thereof to
them. Any representatives authorized by Investor Limited Partner and Special
Limited Partner may audit any and all records of General Partner and the
Partnership, and any subcontractors or vendors of either for the sole purpose of
determining whether there has been compliance with the provisions of this
Section 7.4K. In the event the General Partner or its Affiliates engage in
transactions with third parties in which any monetary benefit is derived by the
General Partner (other than in its status as General Partner) or its Affiliates
with respect to other interests or properties or interests held by the General
Partner and/or Affiliate, the General Partner shall fully disclose the terms of
such dealings and the compensation derived thereby to the Special Limited
Partner.
L. In operating the Project, General Partner shall use reasonable efforts
to obtain all contracts, materials, supplies, utilities and services required by
the Project on the most advantageous terms available to the Project. General
Partner shall secure and credit to the Partnership, and not receive or retain
for itself, General Partner's agents, employees or Affiliates, any discounts,
compensation, rebates or commissions obtainable with respect to any and all
purchases, service contracts, and all other transactions affecting the Project,
including without limitation, any compensation received from the assignment or
transfer of any contracts affecting the Project.
M. General Partner shall complete or cause to be completed the
Rehabilitation and development activities of the Project in a timely and
workmanlike manner in accordance with (x) all applicable requirements of the
Project Documents, (y) all applicable requirements of all appropriate
Governmental Authorities, and (z) the Plans and Specifications.
N. General Partner or any Affiliates thereof shall have the right to
contract or otherwise deal with the Partnership for the sale of goods or
services to the Partnership in addition to those set forth herein, if (i) the
compensation paid or promised for such goods or services is reasonable (i.e., at
fair market value) and is paid only for goods or services actually furnished to
the Partnership, (ii) the goods or services to be furnished shall be reasonable
for and necessary to the Partnership, (iii) the fees, terms and conditions of
such transaction are at least as favorable to the Partnership as would be
obtainable in an arm's-length transaction, and (iv) no agent, attorney,
accountant or other independent consultant or contractor who also is employed on
a full-time basis by General Partner or any Affiliate shall be compensated by
the Partnership for such Person's services; provided, however, that the validity
of any transaction, agreement or payment involving the Partnership and the
General Partner or any Affiliate of the General Partner otherwise permitted
hereunder shall not be affected by reason of the relationship between such
Person and the Partnership or any of its partners. Any contract covering such
transactions shall be in writing and shall be terminable without penalty on 60
days' notice. Any payment made to General Partner or any Affiliate pursuant to
such contracts and transaction shall be fully disclosed to the Limited Partners
in the reports required under Section 9 and the Special Limited Partner shall
have the right, exercisable in its sole discretion, to direct the General
Partner to enforce, settle or prosecute and, upon and, in accordance with such
direction, the General Partner shall enforce, settle and prosecute, any and all
of the Partnership's rights, claims or causes of action under or pursuant to
such transactions or contracts (including, but not limited to, the Construction
and Design Contract and the Development Agreement). Neither General Partner nor
any Affiliate or General Partner shall, by the making of lump-sum payments to
any other Person for disbursement by such other Person or otherwise, circumvent
the provisions of this Section 7.4N.
Section 7.5 Certain Payments to the Developer and Developer's Affiliates
A. As a fee for the Developer's services in connection with the
development of the Property in accordance with the Development Agreement, the
Developer shall receive a fee (the "Development Fee") in the amount set forth in
the Development Agreement. The Partnership acknowledges that Developer shall
have earned 60% of the Development Fee as of the Admission Date and that the
Developer shall have earned the remaining 40% of the Development Fee based on
the percentage of completion of the Rehabilitation. If the Development Fee has
not been fully paid by the fifteenth anniversary of the Temporary Certificate of
Occupancy Date, General Partner shall make a payment to the Partnership in an
amount sufficient to enable the Partnership to pay any unpaid portion of the
Development Fee, and the Partnership shall so pay such fee. Such payment by
General Partner shall not constitute a loan nor contribution of capital to the
Partnership by General Partner, and General Partner will not be entitled to
receive any repayment or other compensation or consideration with respect to
such amounts.
B. The Partnership also shall enter into the Incentive Partnership
Management Agreement with the General Partner under which the General Partner
shall agree to provide consulting services to the Partnership and Project, to
undertake to perform such bookkeeping, financial and reporting services to be
performed under Section 9 (other than those to be performed by the Accountants)
as the Partnership may request, and to perform the other services provided in
the Incentive Partnership Management Agreement. The Incentive Partnership
Management Agreement shall provide that the sole compensation payable to the
General Partner for such services shall be the Incentive Partnership Management
Fee if and to the extent funds are available for the payment thereof out of Cash
Receipts of the Partnership, which fees for each Fiscal Year shall be calculated
in the manner specified in the Incentive Partnership Management Agreement.
Section 7.6 Fiduciary Duty of General Partner
The relationship of General Partner to the Limited Partners is that of a
fiduciary, and General Partner has a fiduciary obligation to perform General
Partner's duties in such manner as will serve the best interests of the
Partnership and the Limited Partners. General Partner shall not have the right
to contract away of General Partner's fiduciary duties under the common law of
agency, and General Partner shall not attempt to enter into any such contract,
and if, notwithstanding the foregoing, General Partner nonetheless attempts to
enter into such a contract, such a contract will be void and of no force or
effect.
Section 7.7 Indemnification
A. No General Partner shall have any liability to the Partnership or to
any Partner for any loss suffered by the Partnership which arises out of any
action or inaction of such General Partner if such General Partner, in good
faith, determined that such course of conduct was in accordance with the terms
of this Agreement and in the best interest of the Partnership and such course of
conduct did not constitute negligence or wilful misconduct of such General
Partner. To the full extent permitted by law, each General Partner shall be
indemnified by the Partnership against any losses, judgments, liabilities,
expenses and amounts paid in settlement of any claims sustained by such Person
in connection with the Partnership, provided that the same were not the result
of negligence or wilful misconduct on the part of such General Partner and were
the result of a course of conduct which such General Partner, in good faith,
determined was in accordance with the terms of this Agreement and in the best
interest of the Partnership. Any indemnity under this Section 7.7 shall be
provided out of and to the extent of Partnership assets only, and no Limited
Partner shall have any personal liability on account thereof.
B. Notwithstanding the provisions of Section 7.7A, no General Partner, no
Person acting as a broker-dealer, nor any Affiliate thereof, shall be
indemnified for any losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws unless (i) there has been
a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the court approves
indemnification of litigation costs, or (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee and the court approves indemnification of litigation
costs, or (iii) a court of competent jurisdiction approves a settlement of the
claims against a particular indemnitee and finds that indemnification of the
settlement and related costs should be made.
C. The Partnership shall not incur the costs of that portion of any
insurance, other than public liability insurance, which insures any Person
against any liability as to which such Person is herein prohibited from being
indemnified. Nothing contained in this Section 7.7, however, shall restrict the
right of the Partnership to (i) indemnify unaffiliated Persons who will be
performing services on behalf of the Partnership, including but not limited to
consultants, engineers and experts, pursuant to any contract entered into by a
General Partner on behalf of the Partnership in order to carry out the
objectives of the Partnership, or (ii) apply Partnership funds, including,
without limitation, proceeds of public liability insurance in favor of the
Partnership, to cover damage to property or personal injuries to unaffiliated
Persons.
Section 7.8 Liability of General Partner to Limited Partners
Except as otherwise specifically provided in this Agreement, no General
Partner shall be liable, responsible or accountable for damages or otherwise to
any Limited Partner for any act which such Person, in good faith, determined to
be in accordance with the terms of this Agreement and within the scope of the
authority conferred by this Agreement, except for acts of breaches of fiduciary
duty, negligence, or wilful misconduct or for damages arising from any material
misrepresentation or breach of any covenant or warranty set forth herein. In
any instance in which a General Partner is in doubt as to the propriety of any
proposed action or omission under the terms of this Agreement, such General
Partner may, but shall not be under any duty to, seek the ratification of such
action or omission by the Consent of Special Limited Partners. If such Consent
of Special Limited Partner is obtained thereto, such General Partner shall be
fully protected in relying thereon, and actions or omissions in reliance thereon
shall not be deemed to be a breach of any provisions of this Agreement.
Section 7.9 Tax Matters Partner
A. The Tax Matters Partner ("TMP") for the Partnership shall be General
Partner (or, if there is a Managing General Partner, the Managing General
Partner) serving in such capacity from time to time.
B. The TMP shall have the right to resign as the TMP by giving 30 days'
written notice to each Partner, provided there is another General Partner
willing to serve in such capacity; if there is no other General Partner then
willing to service in such capacity, the TMP will continue to serve in such
capacity until such time as another General Partner agrees to become the TMP.
Upon the resignation, death, legal incompetency or Bankruptcy of the Person
serving as the TMP, any successor to the interest of the TMP pursuant to the
applicable provisions of this Section 7.9 shall be designated as the successor
TMP, but such designee shall not become the TMP until the designation of such
Person has been approved by the Consent of Special Limited Partner.
C. The TMP shall employ experienced tax counsel to represent the
Partnership in connection with any audit or investigation of the Partnership by
the IRS, and in connection with all subsequent administrative and judicial
proceedings arising out of such audit. The fees and expenses of such counsel
shall be a Partnership expense and shall be paid by the Partnership. Such
counsel shall be responsible for representing the Partnership. General Partner
and Limited Partners, at their respective expense, shall be responsible to pay
the tax counsel employed by such Partner to represent their respective separate
interests.
D. The TMP shall keep the Partners informed of all administrative and
judicial proceedings, as required by Section 6623(g) of the Code, and shall
furnish to each Partner a copy of each notice or other communication received by
the TMP from the IRS (except such notices or communications as are sent directly
to such Partner by the IRS). All third party costs and expenses incurred by the
TMP in serving as the TMP shall be Partnership expenses and shall be paid by the
Partnership, provided, however, that if the Partnership does not have sufficient
funds to pay such costs and expenses, General Partners shall make additional
Capital Contributions to the Partnership to pay such costs and expenses.
E. The TMP shall not have the authority, unless such action has been
approved by the Consent of Special Limited Partner, which Consent may be
withheld or granted in Special Limited Partner's sole and absolute discretion,
to do all or any of the following:
(i) to enter into a settlement agreement with the IRS which purports
to bind Partners other than the TMP,
(ii) to file a petition as contemplated in Section 6226(a) or 6228 of
the Code,
(iii) to intervene in any action as contemplated in Section
6226(b) of the Code,
(iv) to file any request contemplated in Section 6227(b) of the Code,
or
(v) to enter into an agreement extending the period of limitations as
contemplated in Section 6229(b)(1)(B) of the Code.
F. The relationship of the TMP to Limited Partners is that of a
fiduciary, and the TMP has a fiduciary obligation to perform the TMP's duties in
such manner as will serve the best interests of the Partnership and Limited
Partners.
G. The Partnership shall indemnify the TMP (including the officers and
directors of a corporate TMP) against judgments, fines, amounts paid in
settlement, and expenses (including attorneys' fees) reasonably incurred by them
in any civil, criminal or investigative proceeding in which they are involved or
threatened to be involved by reason of being the TMP, provided that the TMP
acted in good faith, within what is reasonably believed to be the scope of the
TMP's authority and for a purpose which the TMP reasonably believed to be in the
best interests of the Partnership or the Partners. The TMP shall not be
indemnified under this provision against any liability to the Partnership or the
Partners to any greater extent than the indemnification allowed by Section 7.7.
The indemnification provided hereunder shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any applicable
statute, agreement, vote of the Partners, or otherwise.
Section 7.10 Access and Reports
General Partner shall permit Investor Limited Partner and Special Limited
Partner and their representatives to have access to the Project at all
reasonable times during normal business hours and to examine all agreements and
the Plans and Specifications relating to the Project and shall deliver copies
and such reports as may reasonably be required by them. General Partner shall
promptly provide Investor Limited Partner and Special Limited Partner with
copies of all correspondence, notices and reports sent pursuant to and received
under the Project Documents or from any Governmental Authority with respect to
the Project, together with copies of all other correspondence which a prudent
investor would wish to examine in connection with a similar transaction.
Section 7.11 Representations and Warranties of General Partner
General Partner hereby represents, warrants and covenants to and with the
Partnership and Investor Limited Partner and Special Limited Partner that as of
the date of this Agreement:
A. The Partnership is and will be a duly organized limited partnership
validly existing under the laws of the State of Delaware, has and will maintain
all requisite filings and recordings required by any Governmental Authority to
validly transact business in the State of Nebraska as a foreign limited
partnership, and complies with and will comply with all recording and filing
requirements with the proper authorities in the State of Delaware and the State
of Nebraska necessary to establish and maintain the limited liability of
Investor Limited Partner and Special Limited Partner as provided herein.
B. General Partner is and will remain a duly organized corporation
validly existing under the laws of the State of Louisiana, and has and will
maintain all requisite filings required by any Governmental Authority to validly
transact business in the State of Nebraska as a general partner of a foreign
limited partnership, and has and will have full power and authority to perform
General Partner's obligations under the Project Documents and/or this Agreement,
as the case may be.
C. No litigation, demand, investigation, claim or proceeding against the
Partnership or General Partner or any other litigation or proceeding directly
affecting the Project is pending or, to the Best Knowledge of General Partner,
threatened, before any court, administrative agency or other Governmental
Authority which would, if adversely determined, have a material adverse effect
on the Partnership or General Partner, or their respective business or
operations.
D. No default by General Partner or any Affiliate thereof having any
relationship with the Project or the Partnership, in any material respect has
occurred or is continuing (nor has there occurred any continuing event which,
with the giving of notice or the passage of time or both, would constitute such
a default in any material respect) under any of the Project Documents, and the
Project Documents are in full force and effect (except to the extent fully
performed in accordance with their respective terms).
F. All material building, zoning, health, safety, business and other
applicable certificates, permits and licenses necessary to permit the
construction, use, occupancy and operation of the Project have been or will, at
the time required, be obtained and maintained (other than, prior to completion
of the construction or Rehabilitation of the Project or a specified portion
thereof, such as are issuable only on the completion of the construction or
Rehabilitation of the Project or such specified portion thereof); and neither
the Partnership nor General Partner has received any notice or has any knowledge
of any violation with respect to the Project of any law, rule, regulation, order
or decree of any Governmental Authority asserting jurisdiction which would have
a material adverse effect on the Project or the construction, use or occupancy
thereof, except for violations which have been cured and notices or citations
which have been withdrawn or set aside by the issuing agency or by an order of a
court of competent jurisdiction.
G. The Partnership has good and marketable title to the Project, free and
clear of any liens, charges or encumbrances other than the Deed of Trust, Gap
Deed of Trust, Redevelopment Agreement a notice of management agreement filed by
Manager, matters set forth in the Title Policy issued at the Mortgage Loan
Closing, encumbrances the Partnership is permitted to create under the terms of
this Agreement, and mechanics' and materialmen's liens.
H. The execution and delivery of all instruments and the performance of
all acts heretofore or hereafter made or taken or to be made or taken,
pertaining to the Partnership or the Project by General Partner have been or
will be duly authorized by all necessary action, and the consummation of any
such transactions with or on behalf of the Partnership will not constitute a
breach or violation of, or a default under, General Partner's articles of
incorporation, by-laws, or any agreement by which General Partner or any of
General Partner's properties is bound, nor constitute a violation of any law,
administrative regulation or court decree.
I. No Material Default has occurred and/or is continuing.
J. No Event of Bankruptcy has occurred as to General Partner or the
Development Guarantors.
K. General Partner satisfies the Designated Net Worth Standard.
L. General Partner has disclosed all material facts related to the
Project and all material transactions in connection with the Project to Investor
Limited Partner.
M. To the Best Knowledge of General Partner, on the date on which the
Certificate of Occupancy is issued the Project will have no material design,
maintenance or construction defects.
N. There are no mechanic's or materialmen's liens recorded against the
Project or the Property, and, to the Best Knowledge of General Partner, no
Person has threatened to assert or record any such mechanic's or materialmen's
lien.
O. Other than obligations incurred in the ordinary course of business, as
of the date hereof, the Partnership has no material outstanding obligations
except for the Loan Documents, the Gap Loan Documents, the TIF Loan Documents,
the Development Agreement, the Construction and Design Contract, the Management
Agreement, the Incentive Partnership Management Agreement, and the other
material obligations reflected in the Project Documents and this Agreement.
P. The Partnership, except to the extent that the Partnership is
protected by insurance and excluding any risk borne by the Lender, bears the
sole risk of loss if the Project is destroyed or condemned or there is a
diminution in the value of the Project.
Q. The Partnership has not been notified by a federal, state or municipal
agency that the Partnership is in Material Violation of any Hazardous Substance
Laws and that such Material Violation is continuing, nor to the Best Knowledge
of General Partner does such a Material Violation exist, nor is General Partner
aware of a condition which should, in the exercise of due diligence, cause
General Partner to investigate the existence of an environmental condition of
such a nature as described above. As used in this section, the term "Material
Violation" means any violation of a Hazardous Substance Law (1) which
jeopardizes or could jeopardize the ability of the Partnership to develop, own,
or operate the Project for its intended purposes, and (2) the correction of
which will require the Partnership to spend funds beyond those likely to be
available to the Partnership for such purpose in the ordinary course of events.
R. No General Partner, Affiliate of a General Partner, or Person for
whose conduct General Partner is or was legally responsible has ever:
(A) owned, occupied, or operated a Site or Vessel on which any Hazardous
Material was or is stored (except if such storage was or is at all times in
substantial compliance with all laws, ordinances and regulations pertaining
thereto); (B) caused or was legally responsible for any release or threat of
release of any Hazardous Material; or (C) received notification from any
federal, state or other Governmental Authority of (x) any potential, known, or
threat of release of any Hazardous Material from the Project or any other Site
or Vessel owned, occupied, or operated either by General Partner, any Affiliate
of General Partner, or other Person for whose liability General Partner, any
Affiliate of General Partner, or any other Person for whose conduct General
Partner is or was legally responsible which may result in a lien on the Project;
or (y) the incurrence of any expense or loss by any such Governmental Authority
or by any other Person in connection with the assessment, containment, or
removal of any release or threat of release of any Hazardous Material from the
Project or any such Site.
S. To the Best Knowledge of General Partner, and except as described in
the Phase 1 Environmental Site Assessment from G&E Engineering dated November,
1997, and the Phase II Environmental Site Assessment dated October, 1997
prepared by Woodward-Clyde, true and accurate copies of which has been furnished
to Investor Limited Partner, no Hazardous Material was ever or is now stored on
(except to the extent any such storage was at all times in substantial
compliance with all laws, ordinances, and regulations pertaining thereto),
transported, or disposed of on the Property.
T. The Partnership has no employees other than those working at the
Project and shall have no others.
Section 7.12 Indemnification
A. In the event that General Partner breaches any of General Partner's
representations, warranties or covenants contained in Section 7.11, or if
General Partner acts in bad faith or exceeds the authorities granted to General
Partner under this Agreement, or if General Partner breaches General Partner's
fiduciary duties to the Partnership or to the Limited Partners, General Partner
shall indemnify and hold Limited Partners harmless from and against any and all
Adverse Consequences which either Limited Partner suffers or incurs, or to which
either Limited Partner becomes subject, resulting from, arising out of, relating
to, in the nature of or caused by such breach (including, without limitation,
any recapture of the Historic Rehabilitation Credit occasioned by such action or
omission by the General Partner).
B. If any third party shall notify either Limited Partner with respect to
any matter which may give rise to a claim for indemnification against any
General Partner under this Section 7.12, such Limited Partner shall notify
General Partner thereof promptly; provided, however, that no delay on the part
of such Limited Partner in notifying General Partner shall relieve General
Partner from any liability or obligation hereunder unless (and then solely to
the extent) General Partner thereby is damaged. In the event that General
Partner notifies such Limited Partner within 15 days after such Limited Partner
has given notice of the matter that General Partner is assuming the defense
thereof, (i) General Partner will defend such Limited Partner against the matter
with counsel of General Partner's choice, satisfactory to such Limited Partner,
(ii) such Limited Partner may retain separate co-counsel at such Limited
Partner's sole cost and expense (except that General Partner will be responsible
for the fees and expenses of the separate co-counsel to the extent that such
Limited Partner concludes reasonably that the counsel General Partner has
selected has a conflict of interest), (iii) General Partner will not consent to
the entry of any judgment or enter into any settlement with respect to the
matter without the Consent of such Limited Partner, which Consent, except as
provided below, may be withheld or granted in such Limited Partner's sole and
absolute discretion, provided that the Consent of such Limited Partner to any
proposed judgement or settlement which includes a provision whereby the
plaintiff or claimant in the matter fully releases the Limited Partners from all
liability with respect thereto will not be unreasonably withheld by such Limited
Partner. In the event that General Partner does not notify such Limited Partner
within 15 days after such Limited Partner has given notice of the matter that
General Partner is assuming the defense thereof, such Limited Partner may defend
against, or enter into any settlement with respect to, the matter in any manner
such Limited Partner reasonably may deem to be appropriate and General Partner
shall indemnify such Limited Partner with respect to such matter in accordance
with Section 7.12A.
SECTION 8: REMOVAL OF GENERAL PARTNER
Section 8.1 General
In addition to any other rights granted to Investor Limited Partner
hereunder, Special Limited Partner shall have the right to remove and replace
General Partner in accordance with the provisions of Section 8.3, or to replace
General Partner as Managing General Partner in accordance with the provisions of
Section 7.3C, or to take both such actions in such manner or sequence as Special
Limited Partner determines in its absolute discretion, if a Material Default
occurs.
Section 8.2 Set Off
The Partnership, Investor Limited Partner, and Special Limited Partner will
have a right of setoff against any amount due or owing from the Partnership,
Investor Limited Partner, or Special Limited Partner, as applicable, to General
Partner or any Affiliate of General Partner with respect to any obligation of
General Partner or any Affiliate of General Partner under this Agreement or the
Project Documents. All rights of setoff may be exercised without notice or
demand to General Partner or any Affiliate of General Partner. No right of
setoff will be deemed to have been waived by any act or conduct on the part of
the Partnership, Investor Limited Partner, or Special Limited Partner, or by any
neglect to exercise such right of setoff, or by any delay in doing so. Every
right of setoff will continue in full force and effect until specifically waived
or released by an instrument in writing executed by the Partnership and Special
Limited Partner. Notwithstanding the foregoing, neither the Partnership,
Investor Limited Partner, nor Special Limited Partner may exercise any right of
setoff unless the Partnership, Investor Limited Partner, or Special Limited
Partner, as applicable, at least 10 days prior to the exercise of the right of
setoff, has delivered written notice of such claimed right of setoff to General
Partner, which notice will specify in reasonable detail the basis of the claimed
right of setoff. If General Partner disagrees with the claimed right of setoff,
then, prior to the end of the 10 day period referred to above, General Partner
will deliver to the Partnership, Investor Limited Partner, and Special Limited
Partner written notice setting forth in reasonable detail the reasons why the
claimed right of setoff is not available. If General Partner delivers such
notice, the right of set-off with respect to such contested matter will be
tolled until such contest is settled, provided, however, that unless General
Partner and Special Limited Partner agree to a resolution of such contest within
30 days after the notice by General Partner of such contest, or unless General
Partner has instituted an appropriate action relating to such contest with a
court of appropriate jurisdiction within such 30 day period, then such right of
set off with respect to such contested matter may be exercised as of the end of
such 30 day period.
Section 8.3 Removal of General Partner
A. In the event that Special Limited Partner determines to remove General
Partner pursuant to Section 8.1, Special Limited Partner shall notify General
Partner in writing, within 5 days after such determination, of the Material
Default that is the cause for the removal of General Partner. General Partner
shall have 30 days from receipt of the notice to cure the Material Default;
provided, however, that if a Material Default, other than a monetary default,
cannot be reasonably cured within such 30 days, Special Limited Partner will not
have the right to remove General Partner under 8.1 provided that within such 30
day period General Partner in good faith commences actions which are likely to
cure such Material Default and diligently prosecutes such cure to completion.
If General Partner fails to cure within the specified time period, Special
Limited Partner shall notify General Partner of the effective date of General
Partner's removal promptly after the cure period has expired; provided, however,
in the event the General Partner is removed pursuant to this Section 8.3, the
General Partner shall take such actions and execute such documents as the
Special Limited Partner may reasonably request to reflect such removal. Each
Partner hereby irrevocably appoints Special Limited Partner (with full power of
substitution) as the attorney-in-fact of such Partner for the purpose of
executing, acknowledging, swearing to, recording and/or filing any amendment to
this Agreement necessary or appropriate to confirm the foregoing.
B. If General Partner is removed pursuant to this Section 8.3, the
Partnership shall, subject to Section 8.2, pay to General Partner an amount
equal to (i) the sum of (a) any fees earned and unpaid through the date of
removal due to General Partner or General Partner's Affiliates under
Section 7.5, (b) an amount equal to the General Partner's positive Capital
Account balance, if any, following a deemed sale of the Project and a deemed
liquidation of the Partnership, and (c) the principal balance and any accrued
but unpaid interest on the General Partner's Subordinated Partner Loan, any
Operating Deficit Loans, and any Voluntary General Partner Loans (but prior to
any deemed distributions upon liquidation), minus (ii) an amount equal to the
sum of (x) the amount, as of the date of removal, of any then outstanding
Investor Limited Partner Loans, together with interest on such amounts as of the
date of removal, (y) any indebtedness or amount(s) owed by the General Partner
or any Affiliate of General Partner to any Limited Partner or Affiliate of a
Limited Partner, and (z) any loss or damage suffered by the Partnership or
Limited Partners as a result of the Material Default creating the right of
Special Limited Partner to remove General Partner pursuant to this Section 8.3
other than any such loss or damage which is accounted for pursuant to subsection
(x) above. Within 30 days after the date the General Partner is removed
pursuant to this Section 8.3, or, if later, within 10 days after the date the
fair market value of the Project is determined pursuant to Section 8.3D below,
the General Partner shall pay the amount, if any, by which the aggregate amount
described in (ii)(x), (y) and (z) above exceeds the aggregate amount described
in (i)(a), (b) and (c) above. Amounts paid or credited to the General Partner
pursuant to clause 8.3.B(i)(a) above that are attributable to a fee earned and
unpaid with respect to an Affiliate of the General Partner shall be treated for
all purposes as having been paid to such Affiliate.
C. For purposes of this Section 8.3C, the net proceeds from a deemed sale
of the Project shall be equal to 95% of the fair market value of the Project
plus 97% of the fair market value of all other Partnership property, including
but not limited to cash and cash equivalents as of the date of removal, less the
outstanding balance of the Deed of Trust Loan and any other obligations of the
Partnership to third parties as of the date of removal.
D. The fair market value of the Project as of the date of removal shall
be determined as follows: If the Special Limited Partner and the General
Partner are unable to mutually agree on the fair market value of the Project,
then as soon as practicable and in any event within 30 days following the notice
from Special Limited Partner to General Partner specified in the penultimate
sentence of Section 8.3A above, General Partner and Special Limited Partner
shall select a mutually acceptable independent MAI appraiser to act as a single
appraiser. If the parties are unable to agree upon such an appraiser within
such 30 day period, then, within 30 days following the end of such 30 day
period, General Partner and Special Limited Partner shall each select an MAI
appraiser who has at least 10 years' experience is appraising properties similar
to the Project in the Omaha metropolitan area. If either General Partner or
Special Limited Partner fails to appoint such an appraiser within such time and
if the other party has appointed such an appraiser within such time, then the
appraiser so appointed will be deemed to be a mutually acceptable appraiser to
act as a single appraiser. If two appraisers are so appointed, each appraiser
shall estimate the fair market value of the Project. If the difference between
the two appraisals is within 10% of the lower of the two appraisals, the fair
market value shall be the average of the two appraisals. If the difference
between the two appraisals is greater than 10% of the lower of the two
appraisals, then the two appraisers shall jointly select a third similarly
qualified appraiser whose determination of fair market value shall be deemed
binding on all parties. If the two appraisers are unable jointly to select a
third appraiser, either General Partner or Special Limited Partner may, upon
written notice to the other, apply to the individual who is, at the time, the
most senior in service, active Judge of the United States District Court for the
District of Nebraska for the selection of the third appraiser who shall then
participate in such appraisal proceeding, and who shall be selected from a list
of names of M.A.I. appraisers submitted by General Partner and Special Limited
Partner. Each list of names of appraisers shall be submitted in writing within
10 days after the date on which the appraisal proceeding is invoked, or will be
disregarded and the appraiser shall be selected from the list provided. The
Partnership shall pay the cost of any appraisers selected pursuant to this
Section 8.3D.
E. In the event of the removal of General Partner pursuant to the
provisions of this Section 8.3, any amounts due to General Partner pursuant to
the provisions of Section 8.3B shall be payable solely from the distribution
Refinancing Proceeds which would otherwise have been paid to General Partner as
and when provided under Section 6.2B., Clause Thirteenth, Fourteenth or
Fifteenth (as the case may be) and from Sale Proceeds which would otherwise have
been paid to General Partner as and when provided under Section 6.2C., Clause
Twelfth, Thirteenth or Fourteenth (as the case may be). In addition, in the
event of such removal, with respect to any amounts due to General Partner
pursuant to the provisions of Section 8.3B with respect to the Subordinated
Partner Loan made by General Partner, Voluntary General Partner Loans, and
Operating Deficit Loans, such amounts will also be repaid out of Cash Flow as
and when provided in Clauses Third, Fourth, Fifth, Sixth, and Seventh of Section
6.2.A., respectively.
F. Upon the removal of General Partner, General Partner shall be relieved
of all of General Partner's obligations to the Partnership relating to matters
occurring after the effective date of such removal; provided that General
Partner and General Partner's Affiliates shall remain fully liable for all
matters which relate to any act which occurred prior to the effective date of
such removal.
G. In the event that General Partner is removed pursuant to this Section
8.3, then Special Limited Partner may designate a Person or Persons to become
the successor General Partner or Partners replacing the removed General Partner,
with the approval of any Person required under the Project Documents and
provided that any such successor General Partner or Partners shall agree to be
bound by the Project Documents, and any other documents required in connection
therewith.
SECTION 9: BOOKS AND REPORTING, ACCOUNTING, TAX ELECTIONS, ETC.
Section 9.1 Books and Reporting
A. General Partner shall keep or cause to be kept for the term of the
Partnership a complete and accurate set of books and supporting documentation of
transactions with respect to the conduct of the Partnership's business and all
Partnership information required to be kept pursuant to the Act or any
Governmental Authority. The books of the Partnership shall be kept on the
accrual basis and shall at all times be maintained at the principal office of
the Partnership. Each of the Partners and such Partner's duly authorized
representatives shall have the right to examine the books of the Partnership and
all other records and information concerning the operation of the Project, from
time to time without prior notice during regular business hours provided that
such examination shall not unreasonably disrupt or interfere with the
Partnership's business or operations. The books, records and banks accounts of
the Partnership shall be maintained separate from those of any other Person and
in such a manner that it is not costly or difficult to identify or ascertain
such assets. All property owned by the Partnership shall be owned by the
Partnership in its own name.
B. General Partner shall prepare a balance sheet as of the end of each
such Fiscal Year and statements of income, Partners' equity, and changes in
financial position for such Fiscal Year. Such balance sheet and statements
shall be prepared in accordance with GAAP applied consistently with prior
periods. In addition, after the first Fiscal Year after the Completion Date,
the depreciation schedule for that Fiscal Year and all future Fiscal Years,
together with the depreciation worksheet, shall be prepared by General Partner
or General Partner's designee and furnished to Investor Limited Partner.
Provided that the Manager has timely performed its obligation to provide an
accounting to the Partnership under the Management Agreement, General Partner
shall, promptly upon completion of such balance sheet and statements and in any
event within 120 days after the end of each Fiscal Year, transmit to Special
Limited Partner a copy thereof. In the event the Manager has not timely
performed its obligation to provide an accounting to the Partnership under the
Management Agreement, the General Partner shall, within 15 days after receipt of
such accounting from the Manager, complete such balance sheet and statements and
transmit a copy thereof to the Special Limited Partner. If such financial
statements are not submitted to Special Limited Partner within 120 days after
the end of each Fiscal Year and the Manager has timely performed its obligations
to provide an accounting to the Partnership under the Management Agreement or if
the Manager has not timely performed its obligations to provide an accounting to
the Partnership under the Management Agreement and the General Partner has not
submitted such financial statements within 15 days after the accounting is
received from the Manager, General Partner shall pay to Investor Limited Partner
liquidated damages in the amount of $250 for each day such submittal is late.
At the request of Special Limited Partner, General Partner shall cause the books
of the Partnership to be examined in accordance with generally accepted auditing
standards as of the end of the Fiscal Year for which such request was received
by the Accountants.
C. Provided that the Manager has timely performed its obligation to
provide an accounting to the Partnership under the Management Agreement, General
Partner or General Partner's designee shall complete the books of the
Partnership in such time as to prepare and complete such tax returns and submit
them to the Special Limited Partner for its review and approval at least 21 days
prior to the date such returns are required to be filed under applicable law.
The Special Limited Partner shall notify the General Partner of the completion
of its review of such tax returns and any comments or concerns thereon within 14
days of its receipt thereof. In the event there is any dispute as to matters
set forth in such tax returns, the General Partner and the Special Limited
Partner shall, within 5 days after receipt by the General Partner of such timely
notification by the Special Limited Partner, resolve such comments and concerns,
as provided in Section 9.3 and applicable law; provided, however, upon the
request of Special Limited Partner, the Partnership shall obtain from Special
Counsel or the Accountants, an opinion as to the position taken on such tax
returns with respect to the matters subject to such disagreement between the
General Partner and Special Limited Partner. In the event the Special Limited
Partner and the General Partner are unable to resolve Special Limited Partner's
comments and concerns with respect to such tax returns and/or obtain an opinion
thereon as provided in this Section 9.1C prior to the date such returns are
required to be filed under applicable law or, the Manager has failed to perform
its obligation to provide an accounting to the Partnership under the Management
Agreement in a timely manner, the General Partner shall file an extension with
the applicable Governmental Authority with respect to such tax returns to allow
the parties sufficient time to (i) obtain the requisite information from the
Manager to prepare such returns or (ii) resolve such comments and concerns
and/or obtain such opinion with respect thereto. In any event, General Partner
shall cause such tax returns to be filed within the time periods required by law
(including extensions as provided in this Section 9.1C), forward copies of such
tax returns to the Special Limited Partner for its review and comment as
provided in this Section 9.1(C) no later than 21 days prior to the date such
returns are required to be filed, and shall immediately upon the filing thereof
transmit to the Limited Partners a copy of the complete federal Partnership tax
return (i.e., Form 1065 and all accompanying schedules, including Form K-l) and
all state income tax returns. In the event that any such items will not be
delivered within the time limits set forth herein and the Manager has timely
performed its obligation to provide an accounting to the Partnership under the
Management Agreement, General Partner shall immediately notify the Limited
Partners, shall furnish the Limited Partners with copies of any extensions, and
shall pay to Investor Limited Partner liquidated damages in the amount of $250
for each day such delivery is late.
D. The reports and estimates described in this Section 9.1 shall clearly
indicate the methods under which they were prepared and shall be made at the
expense of the Partnership.
E. General Partner shall provide Special Limited Partner with a copy of
the Operating Projection received from the Manager within 10 days after receipt
of same.
F. General Partner shall send to Special Limited Partner no later than 10
days following receipt by General Partner of the monthly accounting from the
Manager under the Management Agreement a financial report providing the
following information (which need not be audited): (i) a balance sheet of the
Partnership as of the end of such month; and (ii) a statement of income of the
Partnership for such month.
G. During the Initial Operating Period, no later than 90 days following
the end of each Fiscal Year, General Partner shall deliver to Special Limited
Partner a balance sheet and statement of income for General Partner and its
parent HRI, prepared in accordance with GAAP, dated as of end of such Fiscal
Year, which balance sheet must show a combined net worth equal to or greater
than $4,000,000.00.
H. With the Consent of the Investor Limited Partner, General Partner may
from time to time change the Accountants for the Partnership to another firm of
certified independent accountants; provided, however, that prior to any such
change General Partner shall have delivered to Special Limited Partner a
certificate as to whether such change has been brought about as a direct or
indirect result of any dispute over Partnership accounting practices and
procedures.
Section 9.2 Bank Accounts
The bank accounts of the Partnership shall be maintained in such banking
institutions authorized to do business in the State the accounts of which are
insured by the Federal Deposit Insurance Corporation, or, subject to any
Requisite Approvals and to the Consent of Special Limited Partner, in such other
states as General Partner shall determine, except that the bank account for all
funds held by the Manager on behalf of the Partnership and all Reserves required
by the Lender and the Manager shall be maintained at a bank designated by the
Manager. The Partnership's funds shall not be commingled with the funds of any
other Person and shall not be used except for the business of the Partnership.
All deposits (including funds required by the Lender to be placed in escrow and
other funds not needed in the operation of the Partnership's business) shall be
deposited, to the extent permitted under the Project Documents, in
interest-bearing accounts which are insured by the Federal Deposit Insurance
Corporation, or invested in obligations of or guaranteed by the United States,
any state thereof, or any agency, municipality or other political subdivision of
any of the foregoing, commercial paper (investment grade), certificates of
deposit and time deposits in commercial banks with unencumbered capital and
surplus in excess of $50,000,000 and in mutual (money market) funds investing in
any or all of the foregoing; provided, however, that any funds required to be
placed in escrow by the Lender shall be controlled by the Lender and General
Partner shall not be permitted to make any withdrawal from such funds without
the express written consent of the Lender to the extent required and any funds
required to be placed in escrow by the Manager shall be controlled by the
Manager and General Partner shall not be permitted to make any withdrawal from
such funds without the express written consent of the Manager to the extent
required
Section 9.3 Tax Elections
Subject to the provisions of Section 9.4, all elections required or
permitted to be made by the Partnership under the Code shall be made by General
Partner in such manner as General Partner considers to be most advantageous to
Investor Limited Partner.
Section 9.4 Special Adjustments
A. In the event of a Transfer of all or any part of the Partnership
Interest of any Partner, the Partnership shall elect, pursuant to Section 754
of the Code (or corresponding provisions of succeeding law) to adjust the basis
of Partnership assets. Any adjustments made pursuant to Section 754 shall
affect only the successor in interest to the transferring Partner. Each Partner
will furnish the Partnership with all information necessary to give effect to
such election.
B. If, as a result of an adjustment made by the IRS and accepted by the
Partnership any item shall be capitalized, then the depreciation or cost
recovery for the amount so capitalized shall be appropriately allocated, as
determined by the Accountants, to those Partners affected by the adjustment.
Section 9.5 Fiscal Year
The Fiscal Year of the Partnership shall be the calendar year, or such
other year as may be required by the Code.
SECTION 10: WITHDRAWAL OF A GENERAL PARTNER; NEW GENERAL PARTNERS
Section 10.1 Voluntary Withdrawal
A. General Partner shall not have the right to withdraw voluntarily from
the Partnership, Transfer all or a portion of General Partner's Partnership
Interest or permit the transfer of an ownership interest in the General Partner,
without the Consent of Special Limited Partner, which Consent may be withheld or
granted in Special Limited Partner's sole and absolute discretion. Except with
respect to any damages incurred by the Partnership or the other Partners or
purchase or default rights expressly granted to the Partnership or the other
Partners under the terms of this Agreement, any such Transfer or voluntary
withdrawal or purported Transfer or voluntary withdrawal shall be void and
ineffectual and shall not bind, or be recognized by the Partnership.
B. Notwithstanding the foregoing, a General Partner may at any time
propose to Special Limited Partner a Person to serve as such General Partner's
successor, or if at such time there be more than one General Partner, to serve
as a successor to one or more of General Partners desiring to withdraw. If the
Consent of Special Limited Partner is obtained, and all Requisite Approvals are
obtained to such withdrawal and the admission of such successor, all Partners
hereby agree that this Agreement shall be appropriately amended to effect such
withdrawal and admission.
Section 10.2 Obligation to Continue
In the event of the occurrence of a Terminating Event with respect to any
General Partner, the remaining General Partners, if any, and any successor
General Partner, shall have the obligation to elect to continue the business of
the Partnership employing the Partnership's assets and name, all as contemplated
by the laws of the State of Delaware, unless otherwise directed by Special
Limited Partner. Within 10 days after the occurrence of such Terminating Event,
the General Partner subject to such Terminating Event and any remaining General
Partners shall notify Investor Limited Partner and Special Limited Partner
thereof.
Section 10.3 Successor General Partner
A. Upon the occurrence of any Terminating Event referred to in
Section 10.2, the remaining General Partners may (but are not required to)
designate a Person to become a successor General Partner to General Partner as
to whom such event shall have occurred. Any Person so designated, subject to
the Consent of Special Limited Partner, which Consent may be withheld or granted
in Special Limited Partner's sole and absolute discretion (and, if required by
the Act or any other applicable law, the consent of any other Partner so
required), shall become a successor General Partner upon such Person's written
agreement to be bound by the Project Documents and by the provisions of this
Agreement.
B. If any Terminating Event referred to in Section 10.2 shall occur at a
time when there is no remaining General Partner and no successor becomes a
successor General Partner pursuant to the preceding provisions of this Section
10.3, then Special Limited Partner shall have the right to either become a
successor General Partner or to designate a Person to become a successor General
Partner upon such Person's written agreement to be bound by the Project
Documents and by the provisions of this Agreement.
C. If Special Limited Partner elects to reconstitute the Partnership
pursuant to this Section 10.3 and admit a successor General Partner pursuant to
this Section 10.3, the relationship of the parties in the reconstituted
Partnership shall be governed by this Agreement as the same may be amended by
the then Partners in the Partnership.
Section 10.4 Interest of Predecessor General Partner
A. Except as provided in Section 10.3, no assignee or transferee of all
or any part of the Partnership Interest of a General Partner shall have any
automatic right to become a General Partner. Upon the designation of a
successor General Partner (if any) pursuant to Section 10.3, such successor
General Partner shall have the option to acquire the predecessor General
Partner's Partnership Interest by paying to such General Partner or General
Partner's representatives (i) the fair market value of such Partnership
Interest, if such predecessor General Partner was not in violation of any of the
covenants or undertakings contained in this Agreement, or has violated any
representation or warranty contained herein, or, (ii) if such predecessor
General Partner was in violation of any of the covenants or undertakings
contained in this Agreement, or has violated any representation or warranty
contained herein, by paying the amount, if any, due to such predecessor General
Partner under Section 8.3B.
B. If no successor General Partner is designated or if the designated
successor General Partner of the predecessor General Partner does not desire to
purchase the Partnership Interest of the predecessor General Partner, such
Partnership Interest of the predecessor General Partner shall automatically and
without the need for any confirmatory documentation therefor be converted into
that of a Special Class Limited Partner and the holder thereof shall be entitled
only to such rights as the assignee of a Limited Partnership Interest may have
as such under the provisions of Section 11.4, the Act and other applicable laws
of the State.
C. Upon the occurrence of a Terminating Event (other than a Terminating
Event which constitutes a Material Default) as to any General Partner and a
continuation of the Partnership, such General Partner (the "Retired General
Partner") shall be deemed to have automatically Transferred to the remaining
General Partners, in proportion to their respective General Partnership
interests, or, if there shall be no remaining General Partners, then to the
Partnership for the benefit of the remaining Partners, all or such portion of
General Partnership Interest of such Retired General Partner which, when
aggregated with the existing General Partnership Interests of all such remaining
General Partners, if any, will be sufficient to assure such remaining General
Partners and any successor General Partner a 1% interest in all Profits, Losses,
Tax Credits and Distributions of the Partnership under Section 6. No
documentation shall be necessary to effectuate such Transfer, which shall be
automatic. That portion of General Partnership Interest of the Retired General
Partner which shall not have been Transferred pursuant to this Section 10.4C
shall be retained by such Retired General Partner (or pass to legal
representatives of a deceased General Partner) who or which shall have the
status of a Special Class Limited Partner, with the right to receive that share
of the Profits, Losses, Tax Credits, and Distributions of the Partnership to
which the Retired General Partner as such, would have been entitled had such
Terminating Event not occurred, reduced to the extent of General Partnership
Interest transferred hereunder, but such Retired General Partner (or such
Retired General Partner's legal representatives in the case of a deceased
General Partner) shall not be considered to be a Limited Partner for the purpose
of sharing the benefits allocated to the Limited Partners under Section 6 and
shall not participate in the votes or consents of the Limited Partners
hereunder. No consideration shall be paid to such Retired General Partner by
the remaining General Partners or the Partnership in the event of a Transfer
pursuant to this Section 10.4C.
D. For the purposes of Section 6, the effective date of the Transfer
pursuant to the provisions of Section 10.4C of the Partnership Interest of a
Retired General Partner shall be deemed to be the date on which such Terminating
Event occurs.
E. Anything herein contained to the contrary notwithstanding, any General
Partner who withdraws voluntarily in violation of Section 10.1 or who is removed
by Special Limited Partner as provided in this Agreement shall remain liable for
all of such General Partner's obligations under this Agreement, for all of such
General Partner's obligations under the Project Documents, and for all of such
General Partner's other obligations and liabilities hereunder incurred or
accrued prior to the date of such General Partner's withdrawal and for any loss
or damage which the Partnership or any of the Partners may incur as a result of
such withdrawal, except for any loss or damage attributable to the activities of
the remaining and/or successor General Partners subsequent to such withdrawal.
F. The estate (which term, for purposes of this Section 10.4F, shall
include the heirs, distributees, estate, executors, administrators, guardian,
committee, trustee or other personal representative) of a General Partner who is
a natural person as to whom a Terminating Event has occurred shall be and remain
liable for all such General Partner's liabilities and obligations hereunder,
except as provided in this Section 10.4F. In the event of the death, insanity
or incompetency of a General Partner who is a natural person, such General
Partner's estate shall remain liable for all such General Partner's obligations
and liabilities hereunder incurred or accrued prior to the date of such event,
and for any damages arising out of any breach of this Agreement by such General
Partner, but such General Partner's estate shall not have any obligation or
liability on account of the business of the Partnership or the activities of the
other General Partners after such General Partner's death, insanity or
incompetency unless such General Partner's estate elects to become a General
Partner pursuant to Section 10.3A.
Section 10.5 Designation of New General Partners
A. General Partner may, with the written consent of all Partners which
may be given or withheld in such Partners' absolute discretion, at any time
designate one or more new General Partners with such General Partnership
Interest(s) as General Partner may specify.
B. Any new General Partner shall, as a condition to such Person's
admission to the Partnership and of receiving any interest in Partnership
Property, agree to comply with the terms of the Project Documents and by the
provisions of this Agreement to the same extent and on the same terms as any
other General Partner.
Section 10.6 Amendment of Agreement; Approval of Certain Events
A. Upon the admission of a new General Partner or the withdrawal (for any
reason) of a General Partner, pursuant this Section 10, the Schedule shall be
amended to reflect such admission and/or withdrawal, as the case may be, and the
Managing General Partner shall file an amendment to this Agreement reflecting
such admission and/or withdrawal, as the case may be, in the manner and to the
extent required by the Act and all filings to reflect such admission and/or
withdrawal, as the case may be, in the manner and to the extent required under
the laws of the State of Nebraska.
B. Each Partner hereby consents to and authorizes any admission or
substitution of a General Partner or any other transaction, including, without
limitation, the continuation of the Partnership business, which has been
authorized by the requisite Partners under the provisions of this Agreement,
subject to the provisions of Section 10.7, and hereby ratifies and confirms each
amendment of this Agreement necessary or appropriate to give effect to any such
transaction.
Section 10.7 Admission of a General Partner
Notwithstanding any other provisions of this Agreement, no Person (other
than Special Limited Partner pursuant to exercise of Special Limited Partner's
rights under this Agreement) shall be admitted as an additional or successor
General Partner without the written approval of all Persons who are then
Partners.
SECTION 11: TRANSFER OF LIMITED PARTNERSHIP INTERESTS
Section 11.1 Right to Assign
A. Subject to Section 11.2, the Limited Partner shall have the right to
Transfer such Limited Partner's Partnership Interest, or any other interest
which such Limited Partner has in the capital, assets or property of the
Partnership, or to enter into any agreement as a result of which any Person
shall become interested with such Limited Partner in the Partnership, without
the written consent of General Partner.
B. Investor Limited Partner may at any time designate an Affiliate of
Investor Limited Partner, or a partnership in which an Affiliate of Investor
Limited Partner serves as a General Partner, to replace Investor Limited Partner
as the Investor Limited Partnership of the Partnership, in which case Investor
Limited Partner shall automatically assign Investor Limited Partner's interest
to such Entity and withdraw from the Partnership, and such Entity will be
admitted to the Partnership as the substitute Investor Limited Partner.
Section 11.2 Restrictions
A. No Transfer of the Limited Partnership Interest of any Person shall be
made if such Transfer would violate the provisions of Section 13.1 or the terms
of the Management Agreement.
B. In no event shall all or any part of a Limited Partnership Interest be
Transferred to a minor or to an incompetent.
C. General Partner may require as a condition to any Transfer of a
Limited Partnership Interest, that the assignor or assignee (i) assume all costs
incurred by the Partnership in connection therewith, and (ii) furnish General
Partner with an opinion of counsel satisfactory to counsel to the Partnership
that such Transfer complies with applicable federal and state securities laws.
D. Any voluntary Transfer in contravention of any of the provisions of
Section 11.1 or this Section 11.2 shall be void and ineffectual and shall not
bind, or be recognized by, the Partnership.
Section 11.3 Substitute Limited Partners
A. The Limited Partner shall have the right to substitute an Assignee as a
Limited Partner in such Limited Partner's place. Any Substitute Limited Partner
shall, as a condition of receiving any interest in the Partnership, agree to be
bound (to the same extent as such Assignee's assignor was bound) by the Project
Documents and by the provisions of this Agreement.
B. Upon the admission of a Substitute Limited Partner, the Schedule shall
be amended to reflect the name and address of such Substitute Limited Partner
and to eliminate the name and address of such Substitute Limited Partner's
assignor, and an amendment to this Agreement reflecting such admission shall be
filed, if required by the Act, in accordance with the applicable provisions of
the Act. Each Substitute Limited Partner shall execute such instrument or
instruments as shall be required by General Partner to signify such Substitute
Limited Partner's agreement to be bound by all the provisions of this Agreement.
Section 11.4 Assignees
A. In the event of the death or incapacity of any Limited Partner who is a
natural person, such Limited Partner's legal representatives shall have such
rights as are afforded them by the Act. The death of a Limited Partner shall
not dissolve the Partnership.
B. An Assignee of a Limited Partner who does not become a Substitute
Limited Partner in accordance with Section 11.3 shall, if such assignment is in
compliance with the terms of this Agreement, have the right to receive the same
share of Profits, Losses, Tax Credits and Distributions of the Partnership to
which the assigning Limited Partner would have been entitled if no such
assignment had been made by such Limited Partner but, except as otherwise
required under the Act, shall have no other rights granted to the Limited
Partners under this Agreement.
C. Any Limited Partner who shall assign all of such Limited Partner's
Limited Partnership Interest shall cease to be a Limited Partner of the
Partnership, and shall no longer have any rights or privileges or obligations of
a Limited Partner except that, unless and until the Assignee of such Limited
Partner is admitted to the Partnership as a Substitute Limited Partner in
accordance with Section 11.3, said assigning Limited Partner shall retain the
statutory rights and be subject to the statutory obligations of an assignor
limited partner under the Act as well as the obligation to make the Capital
Contributions attributable to the Limited Partnership Interest in question, if
any portion thereof remains unpaid.
D. In the event of any assignment of a Limited Partnership Interest, there
shall be filed with the Partnership a duly executed and acknowledged counterpart
of the instrument making such assignment; such instrument must evidence the
written acceptance of the Assignee to all the terms and provisions of this
Agreement; and if such an instrument is not so filed, the Partnership need not
recognize any such assignment for any purpose.
E. An Assignee of a Limited Partnership Interest who does not become a
Substitute Limited Partner as provided in Section 11.3 and who desires to make a
further assignment of such Assignee's Limited Partnership Interest shall be
subject to the provisions of this Section 11 to the same extent and in the same
manner as any Limited Partner desiring to make an assignment of such Limited
Partner's Limited Partnership Interest.
Section 11.5. Right of First Offer.
(A) If either Limited Partner (the "Selling Party") desires to sell all or
any part of its Limited Partnership Interest to an person not an Affiliate of a
Limited Partner, the Selling Party shall give notice (the "Offer Notice") to the
General Partner describing that portion or all of the Limited Partnership
Interest to be sold (such whole or partial Limited Partnership Interest, as the
case may be, to be hereinafter referred to as the "Offered Interest"). The
General Partner shall have the option (the "Option") to purchase all of the
Offered Interest for the price set forth in the Offer Notice (the "Withdrawal
Price").
(B) The General Partner may elect to exercise the Option by giving written
notice of its election to the Selling Party at any time within 15 days after the
date of the Offer Notice (the "Election Date"). The General Partner's notice of
its election shall set forth a closing date (the "Closing Date") for the
purchase, which shall not be more than 30 days after the date of General
Partner's notice. If the General Partner elects to exercise the Option, the
Withdrawal Price shall be paid in cash on the Closing Date.
(C) If the General Partner fails to exercise the Option, the Selling Party
shall be permitted to offer and sell the Offered Interest to any non-Affiliate
for a period of 1 year after the Election Date at a price not less than the
Withdrawal Price. If the Selling Party does not sell the Offered Interest
within such period, the Selling Party's right to sell the Offered Interest
pursuant to this Section shall cease and terminate and the provisions of this
Section shall began anew with respect to any subsequent sale to which this
Section applies.
SECTION 12: MANAGEMENT AGREEMENT
Section 12.1 General
General Partner shall engage the Manager to manage the Project pursuant to
the Management Agreement. The Manager shall receive a Management Fee of those
amounts payable from time to time by the Partnership to the Manager for
management services. The initial Manager shall be Courtyard Management
Corporation. From and after the Admission Date, the Partnership shall not enter
into any Management Agreement or modify or extend any Management Agreement
unless General Partner shall have obtained the Consent of Special Limited
Partner to such Management Agreement, modification or extension, as the case may
be.
Section 12.2 Management Fee Paid to General Partner and an Affiliate
Should General Partner or an Affiliate thereof perform hotel management
services for the Partnership, hotel management fees shall be paid General
Partner or such Affiliate only for services actually rendered and shall be in a
reasonable and competitive amount.
SECTION 13: GENERAL PROVISIONS
Section 13.1 Restrictions on Transfer
A. No Transfer of any Partnership Interest may be made except in
compliance with the Regulations. General Partner may require as a condition of
any transfer of such Partnership Interest that the transferor furnish an opinion
of counsel reasonably satisfactory to General Partner that the proposed transfer
will comply with applicable federal and state securities laws.
B. Any voluntary Transfer in contravention of any of the provisions of
this Section 13.1 shall be void and ineffective, and shall not bind or be
recognized by the Partnership.
Section 13.2 Notices
Except as otherwise specifically provided herein, all notices, demands or
other communications hereunder shall be in writing and shall be deemed to have
been given on (i) the first business day after delivery to a nationally
recognized overnight delivery service, (ii) the business day on which such is
sent by telecopier or other facsimile transmission, answerback requested, if
such transmission is sent during customary business hours of the recipient and
if the sender telephonically confirms with the recipient receipt of such
transmission, or if sent otherwise, then on the first business following such
transmission on which the sender telephonically confirms with the recipient
receipt of such transmission, or (iii) when delivered personally if such is
delivered during customary business hours of the recipient, or if delivered
otherwise, then on the first business following such delivery, in each case, to
the parties at the addresses set forth below or at such other addresses as such
parties may designate by notice to the Partnership:
(a) If to the Partnership, at the principal office of the Partnership
set forth in Section 2.
(b) If to a Partner, at such Partner's address set forth in the
Schedule, with copies to Dale G. Schedler, Esq., Lewis, Rice & Fingersh, L.C.,
1010 Walnut Street, Suite 500, Kansas City, Missouri 64106, and Gary J. Elkins,
Esq., Elkins, P.L.C., Suite 3700, 201 St. Charles Avenue, New Orleans, Louisiana
70170.
Section 13.3 Word Meanings
The words such as "herein," "hereinafter," "hereof," and "hereunder" refer
to this Agreement as a whole and not merely to a subdivision in which such words
appear unless the context otherwise requires. The singular shall include the
plural and the masculine gender shall include the feminine and neuter, and vice
versa, unless the context otherwise requires. Any references to "Sections" are
to Sections of this Agreement, unless reference is expressly made to a different
document.
Section 13.4 Binding Provisions
The covenants and agreements contained herein shall be binding upon, and
inure to the benefit of, the heirs, legal representatives, successors and
assignees of the respective parties hereto, except in each case as expressly
provided to the contrary in this Agreement.
Section 13.5 Applicable Law
This Agreement shall be construed and enforced in accordance with the
internal laws of the State of Delaware.
Section 13.6 Exhibits and Schedules
A. The Partners acknowledge that the following constitute the exhibits
(the "Exhibits") to this Agreement:
A Admission Date Conditions
B Legal Description of Land
C Second Installment Payment Certificate
D Form of General Partner's Estoppel Certificate
E Final Projections
B. The Partners acknowledge that the following constitutes the Schedule
to this Agreement:
A Capital Contributions
Section 13.7 Counterparts
This Agreement may be executed in several counterparts and all so executed
counterparts shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the original or the same
counterpart.
Section 13.8 Paragraph Titles
Paragraph titles and any table of contents herein are for descriptive
purposes only, and shall not control or alter the meaning of this Agreement as
set forth in the text.
Section 13.9 Separability of Provisions
Each provision of this Agreement shall be considered separable and (a) if
for any reason any provision or provisions herein are determined to be invalid
and contrary to any existing or future law, such invalidity shall not impair the
operation of or affect those portions of this Agreement which are valid, or (b)
if for any reason any provision or provisions herein would cause the Limited
Partners to be bound by the obligations of the Partnership under the laws of the
State as the same may now or hereafter exist, such provision or provisions shall
be deemed void and of no effect.
Section 13.10 Effective Date of Admission
Subject to the provisions of Section 6.5J, Investor Limited Partner shall
be deemed to have been admitted as of the first day of the calendar month in
which the Admission Date occurs, for all purposes of this Agreement, including
the allocation of Profits, Losses and Tax Credits under Section 6.
Section 13.11 Amendment Procedure
A. This Agreement may be amended by a written document signed by all of
the Partners.
B. Notwithstanding any agreement to the contrary contained in this
Agreement, no amendment will be made to this Agreement which will affect the
rights of the Lender or a Governmental Authority under the terms of the Project
Documents, or any other agreement between the Lender and/or a Governmental
Authority and the Partnership, without the prior written approval of the Lender
and/or the Governmental Authority, as the case may be.
IN WITNESS WHEREOF, each of the Partners has executed this Agreement as of
the date first written above.
COUNTERPART SIGNATURE PAGES FOLLOW THIS PAGE
<PAGE>
COUNTERPART SIGNATURE PAGE TO FIRST AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT OF BRIGGS RENEWAL LIMITED PARTNERSHIP
GENERAL PARTNER: HRI BRIGGS CORPORATION,
a Louisiana corporation
/s/ Thomas V. Crumley
Duly Authorized Agent
By: ---------------------------
Print Name
Its: Vice President
<PAGE>
COUNTERPART SIGNATURE PAGE TO FIRST AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT OF BRIGGS RENEWAL LIMITED PARTNERSHIP
INVESTOR LIMITED PARTNER: AMERUS-BLACKSTONE, L.L.C.
By: AmerUs Life Insurance Company
Its: Member
/s/ Diane Davidson
By: ----------------------------
Diane Davidson
Name: -------------------------
Assistant Secretary
Title: ------------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO FIRST AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT OF BLACKSTONE HOTEL PARTNER, L.P.
SPECIAL LIMITED PARTNER: AMERUS MANAGEMENT, INC.
/s/ Gene Harris
By: ----------------------------
Gene Harris
Its: Senior Vice President
<PAGE>
COUNTERPART SIGNATURE PAGE TO FIRST AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT OF BRIGGS RENEWAL LIMITED PARTNERSHIP
WITHDRAWING LIMITED PARTNER:
/s/ A. Thomas Leonhard, Jr.
-----------------------------------
A. THOMAS LEONHARD, JR.
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
On this 12th day of November, 1997, before me appeared A. Thomas Leonhard,
Jr., to me personally known, who, being by me duly sworn, did say that he the
Withdrawing Limited Partner of Blackstone Hotel Partners, L.P. of HRI Briggs
Corporation, a Delaware corporation, that the foregoing instrument was signed
and sealed on behalf of the corporation by authority of its Board of Directors,
that ------------ acknowledged the instrument to be the free act and deed of the
corporation, and that the corporation has no corporate seal.
------------------------------
NOTARY PUBLIC
<PAGE>
ACKNOWLEDGMENT
STATE OF IOWA
COUNTY OF POLK
On this 19th day of November, 1997, before me appeared Diane Davidson, to me
personally known, who, being by me duly sworn, did say that he is the Assistant
Secretary of AmerUs Life Insurance Company, an Iowa corporation who is the sole
Member of AmerUs-Blackstone, L.L.C., an Iowa limited liability company, that the
foregoing instrument was signed on behalf of the corporation by authority of its
Board of Directors, that Diane Davidson in such capacity acknowledged the
instrument to be the free act and deed of the limited liability company.
-----------------------------------------
NOTARY PUBLIC
<PAGE>
ACKNOWLEDGMENT
STATE OF IOWA
COUNTY OF POLK
On this 14th day of November, 1997, before me appeared Gene Harris, to me
personally known, who, being by me duly sworn, did say that he is the Senior
Vice President of AmerUs Management, Inc., that the foregoing instrument was
signed on behalf of the corporation by authority of its Board of Directors, that
Gene Harris as such Senior Vice President acknowledged the instrument to be the
free act and deed of the corporation, and that the corporation has no corporate
seal.
--------------------------------
NOTARY PUBLIC
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
On this 12th day of November, 1997, before me appeared A. Thomas Leonhard,
Jr., to me personally known, who, being by me duly sworn, did say that he is the
Withdrawing Limited Partner of Blackstone Hotel Partners, L.P., that the
foregoing instrument was signed and sealed on behalf of the partnership, and
that A. Thomas Leonhard, Jr., acknowledged the instrument to be the free act and
deed of the partnership.
----------------------------
NOTARY PUBLIC
<PAGE>
SCHEDULE A
Capital Contributions
Name and Address of Partners Capital Contribution
HRI Briggs Corporation $100.00
210 Baronne Street
Suite 1717
New Orleans, LA 70112
Attention: Pres Kabacoff
Telephone Number: (504) 566-0204
Facsimile Number: (504) 525-3932
AmerUs-Blackstone, L.L.C. $2,810,000.00
699 Walnut, Suite 1700
Des Moines, Iowa 50309-3945
Attention: Gene Harris
Telephone Number: (515) 362-3600
Facsimile Number: (515) 362-3631 or (515) 362-3632
AmerUs Management, Inc. $100.00
699 Walnut, Suite 1700
Des Moines, Iowa 50309-3945
Attention: Gene Harris
Telephone Number: (515) 362-3600
Facsimile Number: (515) 362-3631 or (515) 362-3632
<PAGE>
EXHIBIT A
Admission Date Conditions
Exhibit A
Document Status
A. LOAN DOCUMENTS
1. Loan Application/Commitment between GMAC
and BRLP
2. Building Loan Agreement between GMAC and BRLP
3. First Deed of Trust Note by BRLP to GMAC and UCC's
4. Second Deed of Trust Note by BRLP to GMAC
5. First Deed of Trust, Assignment of Lease
and Profits, Security Agreement and Fixture
Filing by BRLP in favor of GMAC
6. Second Deed of Trust, Assignment of Leases
and Profits, Security Agreement and Fixture
Filing by BRLP in favor of GMAC
7. First Guaranty Agreement
8. Second Guaranty Agreement
9. Environmental Indemnity Agreement by BRLP
for benefit of GMAC
10. Assignment of Leases and Profits by BRLP
in favor of GMAC
11. Letter of Credit in favor of GMAC (To Be Delivered Post-Closing)
12. Assignment of Construction Agreements, Plans
and Property Agreements by BRLP to GMAC
13. Design/Builder's Consent to Assignment of
Design/Builder's Contract by HCI
14. Assignment of Licenses, Permits, Approvals and
Warranties by BRLP to GMAC
15. Opinion of Borrower's/Guarantor's Counsel
16. Opinion of Borrower's/Guarantor's Local Counsel
17. Loan Closing Statement
18. Construction Escrow with Title Company between
GMAC and TIC
19. Construction Loan Disbursement Agreement
A. Subsequent Draw Request
B. Sworn Owner's Affidavit
20. Side Letter re: FF&E
21. Architect's Certificate
22. Engineer's Certificate
23. Contractor's Certificate
24. Reimbursement Agreement between Marriott and BRLP
25. Deed of Trust by BRLP in favor of Marriott
26. Side Letter re AmerUs LOC Loan
27. Side Letter re Developer Fee
B. TIF LOAN DOCUMENTS
28. Ordinance enacted by the City of Omaha
29. Redevelopment Agreement between City of
Omaha and HRI
30. Assignment of Redevelopment Agreement from
HRI to BRLP
31. Promissory Note by City of Omaha in favor of BRLP
32. Loan Commitment issued by FNB to BRLP
33. TIF Loan Agreement between FNB and BRLP
34. Promissory Note by BRLP to FNB
35. Letter of Credit in favor of FNB (To be Issued Post Closing)
36. Collateral Assignment and Pledge
Agreement by BRLP in favor to FNB
37. Security and Pledge Agreement by BRLP to FNB
38. Guaranty of Payment
39. UCC-1 Financing Statement (TIF Funds)
40. Opinion of Assistant City Attorney
41. Side Letter Agreement
C. TITLE INSURANCE/SURVEY MATTERS
42. Commitment for Title Insurance issued by FATIC
to BRLP, GMAC, and Marriott
43. Lender's Title Insurance Policy effective November 17, 1997 issued by
FATIC in favor of GMAC
44. Lender's Title Insurance Policy effective Movember 17, 1997 issued
by FATIC in favor of Marriott
45. Owner's Title Insurance Policy dated November 17, 1997 issued by
FATIC in favor of BRLP
46. Affidavit of Possession by Seller
47. Certificate of Authority from Nebraska
Secretary of State with respect to Seller
48. Survey prepared by Registered
Professional Land Surveyor
49. Construction Funding/Down Date Agreement
50. Copy of current Property Tax Statement
51. Settlement Statement
D. MATTERS RELATING TO BORROWER, GENERAL PARTNER AND HRI
Briggs Renewal Limited Partnership
52. Articles of Limited Partnership of BRLP
53. Certificate of Limited Partnership of BRLP
54. Letter of Intent between HRI and API
55. Delaware and Nebraska Certificates of Good Standing
56. First Amended and Restated Articles of
Limited Partnership of BRLP by and among
HRI-Briggs, ABL, and AMI
57. Application/Certification for Registration to
Qualify BRLP as a Foreign Limited Partnership
in Nebraska
58. Tax Opinion Letter from Elkins, P.L.C.
Historic Restoration, Incorporated
59. Omnibus Certificate of Secretary of HRI
60. Application for Registration to Qualify HRI
to Transact Business in Nebraska
61. Louisiana and Nebraska Certificates of Good Standing
62. Resolutions and Authorizations for Project
HRI Briggs Corporation
63. Omnibus Certificate of Secretary of HRI-Briggs
64. Application for Registration to Qualify HRI-Briggs
to transact business in Nebraska
65. Louisiana and Nebraska Certificates of Good Standing
66. Certified Resolutions of AMI
67. Organizational documents re ABL
68. Opinion of Borrower's Counsel
69. Guaranty Agreement (General Partner Payment and Performance) HRI to
BRLP, AmerUs-Blackstone, L.L.C. and AmerUs Management, Inc.
70. Security Agreement (General Partner Performance) HRI Briggs
Corporation to AmerUs Management, Inc. and AmerUs-Blackstone, L.L.C.
71. Incentive Partnership Management Agreement between BRLP and HRI
Briggs Corporation
72. Financial Statements from Pres Kabacoff, Edward Boettner and HRI
Briggs Corporation
73. Resolutions and Authorizations for Project
AmerUs Management, Inc.
74. Resolutions and Authorizations for Project
AmerUs-Blackstone, L.L.C.
75. Authorizations and Approvals
E. PROPERTY ACQUISITION AND DISPOSITION
76. Agreement to Purchase and Sell dated
by and between Briggs, Inc. of Omaha
("Seller") and HRI, as amended
77. Assignment of Purchase Agreement by
HRI to BRLP
78. Special Warranty Deed from Seller to BRLP
79. Bill of Sale from Seller to BHP
80. Corporate Resolution of Seller
81. Certification of Nonforeign Status by Seller
82. Seller's Closing Statement
83. "City" Leases
84. Purchaser's Closing Statement
85. Purchaser's Certificate
F. CONSTRUCTION, DEVELOPMENT, AND MANAGEMENT DOCUMENTS
86. Building Permit No. 5776, issued to
YBRLP by the City
87. Construction Contract by and between BRLP
AND HCI
88. Performance Bond Dual - Obligee executed by
HCI and an AGI insurance company
89. Payment Bond executed by HCI and an AGI
insurance company
<PAGE>
90. Development Agreement by and between BRLP
and HRI
91. Development Fee Note by BHP in favor of HRI
92. Development Fee Note Assignment by HRI in
favor of API entity
93. Development Guaranty Agreement by Kabacoff
and Boettner in favor of AmerUs
94. Incentive Partnership Management Agreement by
and between BHP and HRI
95. Insurance Certificates
96. Final Projections
G. MATTERS RELATING TO DEVELOPMENT (DUE DILIGENCE)
97. Final Management Agreement by and between BHP and
Courtyard, including all exhibits and amendments
A.Third Mortgage(See 25 above)
B.Reimbursement Agreement(See 24 above)
C.Subordination, Nondisturbance & Attornment Agmt
98. Parts 1 and 2 of National Park Service
Application for Historic Tax Credit
H. PUT LOAN DOCUMENTS
99. Loan Agreement between HRI and AmerUs Life Insurance Company
100. Guaranty Agreement (Subordinate Partner Loans) between President
Kabacoft and Ed Boettner and ALIC
101. Security Agreement (Put Loan) between HRIB and ALIC
102. UCC Filings (Secured Party-AmerUs Life Ins. Co.)
103. Counsel Letter re Pending Lawsuits
104. Acknowledgment of Receipt, Consent and Waiver
I. AMERUS LOC LOAN DOCUMENTS
105. Loan Agreement between Briggs and AmerUs Life Ins. Co.
106. Promissory Note ($2,064,000 GAP)
107. Promissory Note ($1,519,000 TIF)
108. Guaranty Agreement between HRI and AmerUs Life Ins. Co.
109. Security and Pledge Agreement between Briggs & AmerUs Life Ins. Co.
<PAGE>
EXHIBIT B
Legal Description of Real Estate
THAT PART OF LOTS 7 AND 8, BLOCK 101, ORIGINAL CITY OF OMAHA AS SURVEYED AND
LITHOGRAPHED IN OMAHA, DOUGLAS COUNTY, NEBRASKA, DESCRIBED AS BEGINNING AT THE
SOUTHEAST CORNER OF BLOCK 101; THENCE S89DEG.56'52" W (ASSUMED BEARING) ON THE
SOUTHERLY LINE OF SAID BLOCK 101 A DISTANCE OF 101.54 FEET TO A POINT OF SAID
SOUTH LINE; THENCE N00DEG.01'52"W A DISTANCE OF 132.70 FEET TO A POINT ON THE
NORTH LINE OF LOT 7 IN SAID BLOCK 101; THENCE N89DEG.58'05"E ON SAID NORTH LINE
A DISTANCE OF 110.50 FEET TO A POINT ON THE EAST SIDE OF SAID BLOCK 101; THENCE
S00DEG.02'41"E ON SAID EAST LINE A DISTANCE OF 132.66 FEET TO THE POINT OF
BEGINNING; CONTAINING A COMPUTED AREA OF 0.337 SQUARE ACRES MORE OR LESS.
AND
BLOCK 100, THE VACATED ALLEY, PART OF 10TH, AND 9TH STREETS, ORIGINAL CITY OF
OMAHA, AS SURVEYED AND LITHOGRAPHED IN OMAHA, DOUGLAS COUNTY, NEBRASKA,
DESCRIBED AS BEGINNING AT THE SOUTHWEST CORNER OF BLOCK 100, THENCE
N00DEG.02'43"W (ASSUMED BEARING), ON THE WEST LINE OF SAID BLOCK, A DISTANCE OF
151.08 FEET; THENCE N89DEG.50'22"W A DISTANCE OF 3.00 FEET; THENCE
N00DEG.02'43"W A DISTANCE OF 67.00 FEET; THENCE S89DEG.58'48"E A DISTANCE OF
3.00 FEET, TO A POINT ON THE WEST LINE OF BLOCK 100; THENCE N00DEG.02'43"W, ON
SAID WEST LINE, A DISTANCE OF 67.15 FEET TO THE NORTHWEST CORNER OF BLOCK 100;
THENCE N89DEG.59'18"E, ON THE NORTH LINE OF SAID BLOCK, A DISTANCE OF 285.45
FEET, THENCE S00DEG.04'42"E A DISTANCE OF 132.52 FEET; THENCE S89DEG.58'05"W A
DISTANCE OF 20.33 FEET TO A POINT ON THE EAST LINE OF BLOCK 100; THENCE
S00DEG.04'42"E, ON SAID EAST LINE, A DISTANCE OF 107.53 FEET TO A POINT ON THE
NORTHERLY RIGHT-OF-WAY LINE OF DOUGLAS STREET; THENCE S44DEG.56'05"W, ON SAID
RIGHT-OF-WAY LINE, A DISTANCE OF 7.07 FEET; THENCE CONTINUING ON SAID RIGHT-OF-
WAY LINE, S72DEG.11'50"W, A DISTANCE OF 49.34 FEET; THENCE S81DEG.26'59"W, A
DISTANCE OF 148.58 FEET; THENCE S00DEG.03'08"E, A DISTANCE OF 3.00 FEET TO A
POINT ON THE SOUTH LINE OF BLOCK 100; THENCE S89DEG.56'52"W, ON SAID SOUTH LINE,
A DISTANCE OF 66.32 FEET TO THE POINT OF BEGINNING; CONTAINING A COMPUTED AREA
OF 1.716 ACRES, MORE OR LESS.
VACATED 10TH STREET:
THAT PART OF 10TH STREET, ORIGINAL CITY OF OMAHA, AS SURVEYED AND LITHOGRAPHED
IN OMAHA, DOUGLAS COUNTY, NEBRASKA, DESCRIBED AS COMMENCING AT THE SOUTHWEST
CORNER OF BLOCK 100, THENCE N00DEG.02'43"W (ASSUMED BEARING), ON THE WEST LINE
OF SAID BLOCK 100, A DISTANCE OF 151.08 FEET TO THE POINT OF BEGINNING, THENCE
N89DEG.50'22"W A DISTANCE OF 3.00 FEET; THENCE N00DEG.02.43"W A DISTANCE OF
67.00 FEET; THENCE S89DEG.58'48"E A DISTANCE OF 3.00 FEET TO A POINT ON THE WEST
LINE OF BLOCK 100; THENCE S00DEG.02'43"E, ON SAID WEST LINE, 67.00 FEET TO THE
POINT OF BEGINNING; CONTAINING A COMPUTED AREA OF 0.005 ACRES, MORE OR LESS.
VACATED 9TH STREET:
THAT PART OF 9TH STREET, ORIGINAL CITY OF OMAHA, AS SURVEYED AND LITHOGRAPHED IN
OMAHA, DOUGLAS COUNTY, NEBRASKA, DESCRIBED AS BEGINNING AT THE NORTHEAST CORNER
OF BLOCK 100, THENCE N89DEG.59'18" E (ASSUMED BEARING), ON THE NORTH LINE OF
SAID BLOCK 100, A DISTANCE OF 20.33 FEET; THENCE S00DEG.04'42"E A DISTANCE OF
132.52 FEET; THENCE S89DEG.58'05"W A DISTANCE OF 20.33 FEET TO A POINT ON THE
EAST LINE OF BLOCK 100; THENCE N00DEG.04'42"W, ON SAID EAST LINE A DISTANCE OF
132.52 FEET TO THE POINT OF BEGINNING; CONTAINING A COMPUTED AREA OF 0.062
ACRES, MORE OR LESS.
<PAGE>
EXHIBIT C
Second Installment Payment Certificate
<PAGE>
EXHIBIT D
Form of Estoppel Certificate
ESTOPPEL CERTIFICATE
------------------, 19---
AmerUs-Blackstone, L.L.C.
c/o AmerUs Management, Inc.
699 Walnut, Suite 1700
Des Moines, Iowa 50309-3945
Gentlemen:
The undersigned, as the sole General Partner (the "General Partner")
of Briggs Renewal Limited Partnership, a Delaware limited partnership (the
"Partnership") operating pursuant to a "First Amended and Restated Limited
Partnership Agreement" dated November ---, 1997 (the "Partnership Agreement").
The Partnership is currently indebted to GMAC Commercial Mortgage Corporation
("Lender") as the holder of a promissory note in the original principal amount
of $14,175,000 (the "Note"), which is secured by a mortgage, deed of trust and
security agreement dated November ---, 1997, and recorded in the office for the
recording of such documents in Douglas County, Nebraska in Volume -----------,
at page ------------ (the "First Mortgage"). The First Mortgage encumbers the
property situate as Block 100 and a portion of lots 7 and 8, Block 101, in
downtown Omaha, Nebraska (the "Property"). The Note, First Mortgage and all
other instruments and documents evidencing, securing or supporting the loan
evidenced by the Note (the "Lender's Loan") are collectively called the
"Lender's Loan Documents." The Partnership is currently indebted to First
National Bank of Omaha under the "TIF Loan Documents" (as that term is defined
in the Partnership Agreement".
Pursuant to the terms of Section 5.1 [5.14] of the Partnership Agreement,
you are making the [Second Installment of your Capital Contribution] [a
Subordinated Partner Loan] to the Partnership in the original principal amount
of $--------------- on the terms and conditions set forth therein (the "Capital
Transaction").
In connection with the Capitol Transaction, General Partner hereby certifies
to Limited Partner that as of the date hereof:
1.There does not presently exist any default or event of default under the
Note, First Mortgage or any of the Lender's Loan Documents, nor has any event or
circumstance occurred which, with the giving of notice or lapse of time, or
both, would constitute such a default or event of default.
2.There have been no amendments to the First Mortgage or the Note as of the
date hereof.
3.The outstanding principal balance of the Note as of -----------------,
199--, is $--------------------.
4.Interest on the Note has been paid through -----------------, 199--.
5.There does not presently exist any default or event of default under the
TIF Loan Documents, nor has any event or circumstance occurred which, with the
giving of notice or lapse of time, or both, would constitute such a default or
event of default.
6.There have been no amendments to the TIF Loan Documents as of the date
hereof.
7.No default by the General Partner in any material respect has occurred
under the Partnership Agreement or is continuing (nor has there occurred any
continuing event which, with the giving of notice or the passage of time or
both, would constitute such a default by the General Partner or its Affiliates
in any material respect under any document relating to the Project.
8.To the best knowledge of the undersigned, no default by any Limited
General Partner in any material respect has occurred under the Partnership
Agreement or is continuing (nor has there occurred any continuing event which,
with the giving of notice or the passage of time or both, would constitute such
a default by a Limited Partner or its Affiliates in any material respect under
any document relating to the Project and the Partnership Agreement is in full
force and effect according to the terms thereof.
9.All conditions precedent to the making of the Capital Transaction as
specified in Section [5.2] [5.14] of the Partnership Agreement have been
satisfied as evidenced by the exhibits attached hereto.
This letter shall inure to the benefit of each Limited Partner and its
successors and assigns and shall be binding upon the Partnership, the General
Partner, their successors and assigns. Each Limited Partner may rely upon this
letter in extending the funds comprising the Capital Transactions.
HRI Briggs Corporation, a Louisiana corporation
By:--------------------------------------
Title:-----------------------------------
"GENERAL PARTNER"
<PAGE>
EXHIBIT E
Projections
Copy Of Document Follows This Page
<PAGE>
Index of Defined Terms
Page
Defined Term Number
Accountants . . . . . . . . . . . . . . . . . . . . . . . . .1
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Adjusted Capital Account Deficit. . . . . . . . . . . . . . .2
Admission Date. . . . . . . . . . . . . . . . . . . . . . . .2
Admission Date Conditions . . . . . . . . . . . . . . . . . .2
Adverse Consequences. . . . . . . . . . . . . . . . . . . . .2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . .2
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .2
Allocation Regulations. . . . . . . . . . . . . . . . . . . .2
Any . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Assignee. . . . . . . . . . . . . . . . . . . . . . . . . . .3
Assignment of Construction Agreement, Plans and Property Agree3
Assignment of Interior Design Agreement . . . . . . . . . . .3
Assignment of Purchase Agreement. . . . . . . . . . . . . . .3
Assignment of Redevelopment Agreement . . . . . . . . . . . .3
Base Management Fee . . . . . . . . . . . . . . . . . . . . .3
Best Knowledge. . . . . . . . . . . . . . . . . . . . . . . .3
Bill of Sale. . . . . . . . . . . . . . . . . . . . . . . . .3
Bridge Loan . . . . . . . . . . . . . . . . . . . . . . . . .3
Building Loan Agreement . . . . . . . . . . . . . . . . . . .3
Capital Account . . . . . . . . . . . . . . . . . . . . . . .3
Capital Contribution. . . . . . . . . . . . . . . . . . . . .4
Capital Proceeds. . . . . . . . . . . . . . . . . . . . . . .4
Capital Transaction . . . . . . . . . . . . . . . . . . . . .4
Cash Collateral Fund. . . . . . . . . . . . . . . . . . . . .4
Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . .5
Cash Receipts . . . . . . . . . . . . . . . . . . . . . . . .5
Certificate of Occupancy. . . . . . . . . . . . . . . . . . .5
City. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
City Lease. . . . . . . . . . . . . . . . . . . . . . . . . .5
City Lease Bond . . . . . . . . . . . . . . . . . . . . . . .5
Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Claim Notice. . . . . . . . . . . . . . . . . . . . . . . . .6
Closing Date. . . . . . . . . . . . . . . . . . . . . . . . 88
Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Commercial Space. . . . . . . . . . . . . . . . . . . . . . .6
Commercial Space Expenses . . . . . . . . . . . . . . . . . .6
Commercial Space Lease. . . . . . . . . . . . . . . . . . . .6
Commercial Space Lease Rent . . . . . . . . . . . . . . . . .6
Completion Date . . . . . . . . . . . . . . . . . . . . . . .6
Consent of Special Limited Partner. . . . . . . . . . . . . .6
Construction and Design Contract. . . . . . . . . . . . . . .6
Construction Consulting and Management Fee. . . . . . . . . .6
Contractor. . . . . . . . . . . . . . . . . . . . . . . . . .7
County. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Dated . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Debt Service. . . . . . . . . . . . . . . . . . . . . . . . .7
Debt Service Coverage Loan. . . . . . . . . . . . . . . . . .7
Debt Service Deficiency Loan. . . . . . . . . . . . . . . . .7
Deed. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . .7
Deed of Trust Note. . . . . . . . . . . . . . . . . . . . . .7
Deficit Restoration Obligation. . . . . . . . . . . . . . . .7
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . .7
Designated Interest Rate. . . . . . . . . . . . . . . . . . .8
Developer . . . . . . . . . . . . . . . . . . . . . . . . . .8
Development Agreement . . . . . . . . . . . . . . . . . . . .8
Development Budget. . . . . . . . . . . . . . . . . . . . . .8
Development Fee . . . . . . . . . . . . . . . . . . . . . . .8
Development Fee Note. . . . . . . . . . . . . . . . . . . . .8
Development Fee Note Assignment . . . . . . . . . . . . . . .8
Development Guarantors. . . . . . . . . . . . . . . . . . . .8
Development Guaranty Agreement. . . . . . . . . . . . . . . .8
Distribution. . . . . . . . . . . . . . . . . . . . . . . . .9
Election Date . . . . . . . . . . . . . . . . . . . . . . . 88
Entity. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Environmental Indemnity Agreement . . . . . . . . . . . . . .9
Event of Bankruptcy . . . . . . . . . . . . . . . . . . . . .9
Event of Force Majeure. . . . . . . . . . . . . . . . . . . .9
Excess Adjustment . . . . . . . . . . . . . . . . . . . . . 10
Excess Adjustment Loan(s) . . . . . . . . . . . . . . . . . 10
Excess Expenses . . . . . . . . . . . . . . . . . . . . . . 10
Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Filing Office . . . . . . . . . . . . . . . . . . . . . . . 10
Final Determination . . . . . . . . . . . . . . . . . . . . 10
First Installment . . . . . . . . . . . . . . . . . . . . . 10
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . 10
Force Majeure . . . . . . . . . . . . . . . . . . . . . . . .9
GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Gap Deed of Trust . . . . . . . . . . . . . . . . . . . . . 11
Gap Loan. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Gap Loan Closing. . . . . . . . . . . . . . . . . . . . . . 11
Gap Loan Documents. . . . . . . . . . . . . . . . . . . . . 11
Gap Note. . . . . . . . . . . . . . . . . . . . . . . . . . 11
General Partner . . . . . . . . . . . . . . . . . . . . . . 11
General Partner Pledge. . . . . . . . . . . . . . . . . . . 11
Governmental Authority. . . . . . . . . . . . . . . . . . . 11
Gross Asset Value . . . . . . . . . . . . . . . . . . . . . 11
Gross Hotel Revenues. . . . . . . . . . . . . . . . . . . . 12
Guaranty Agreement. . . . . . . . . . . . . . . . . . . . . 12
Hazardous Material. . . . . . . . . . . . . . . . . . . . . 12
Hazardous Substance Laws. . . . . . . . . . . . . . . . . . 13
HCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Historic Credit Determination . . . . . . . . . . . . . . . 13
Historic Rehabilitation Credit. . . . . . . . . . . . . . . 13
Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Hotel Expenses. . . . . . . . . . . . . . . . . . . . . . . 13
HRI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
HRI-Briggs. . . . . . . . . . . . . . . . . . . . . . . . . 13
Improvements. . . . . . . . . . . . . . . . . . . . . . . . 13
Incentive Hotel Management Fee. . . . . . . . . . . . . . . 13
Incentive Partnership Management Agreement. . . . . . . . . 13
Incentive Partnership Management Fee. . . . . . . . . . . . 14
Initial Operating Period. . . . . . . . . . . . . . . . . . 14
Installment . . . . . . . . . . . . . . . . . . . . . . . . 14
Interior Design Agreement . . . . . . . . . . . . . . . . . 14
Investment Servicing Fee. . . . . . . . . . . . . . . . . . 14
Investor Limited Partner. . . . . . . . . . . . . . . . . . 14
Investor Limited Partner Loan(s). . . . . . . . . . . . . . 14
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Lender. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Letter of Credit. . . . . . . . . . . . . . . . . . . . . . 15
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Limited Partner(s). . . . . . . . . . . . . . . . . . . . . 15
Limited Partnership Interest. . . . . . . . . . . . . . . . 15
Loan Documents. . . . . . . . . . . . . . . . . . . . . . . 15
Management Agreement. . . . . . . . . . . . . . . . . . . . 15
Management Fee. . . . . . . . . . . . . . . . . . . . . . . 16
Manager . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Managing General Partner. . . . . . . . . . . . . . . . . . 16
Material Default. . . . . . . . . . . . . . . . . . . . . . 16
Material Violation. . . . . . . . . . . . . . . . . . . . . 18
Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . 18
Mortgage Loan Closing . . . . . . . . . . . . . . . . . . . 18
Mortgage Loan Extension Privilege . . . . . . . . . . . . . 18
Negative Completion Adjuster. . . . . . . . . . . . . . . . 18
Negative Historic Adjustment. . . . . . . . . . . . . . . . 18
Negative Historic Credit Difference . . . . . . . . . . . . 18
Net Hotel Revenues. . . . . . . . . . . . . . . . . . . . . 18
Net Restaurant Lease Rent . . . . . . . . . . . . . . . . . 19
Nonrecourse Debt or Nonrecourse Liability . . . . . . . . . 19
Nonrecourse Deductions. . . . . . . . . . . . . . . . . . . 19
Off-Site Parking Facility . . . . . . . . . . . . . . . . . 19
Offered Interest. . . . . . . . . . . . . . . . . . . . . . 88
Operating Deficit . . . . . . . . . . . . . . . . . . . . . 19
Operating Deficit Loan Maximum. . . . . . . . . . . . . . . 19
Operating Deficit Loan(s) . . . . . . . . . . . . . . . . . 19
Operating Profits or Losses . . . . . . . . . . . . . . . . 19
Operating Projection. . . . . . . . . . . . . . . . . . . . 19
Operating Reserve . . . . . . . . . . . . . . . . . . . . . 20
Option. . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Parking Facility. . . . . . . . . . . . . . . . . . . . . . 20
Partner . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Partner Nonrecourse Debt. . . . . . . . . . . . . . . . . . 20
Partner Nonrecourse Debt Minimum Gain . . . . . . . . . . . 20
Partner Nonrecourse Deductions. . . . . . . . . . . . . . . 20
Partnership . . . . . . . . . . . . . . . . . . . . . . . . 20
Partnership Counsel . . . . . . . . . . . . . . . . . . . . 20
Partnership Interest. . . . . . . . . . . . . . . . . . . . 20
Partnership Items . . . . . . . . . . . . . . . . . . . . . 20
Partnership Minimum Gain. . . . . . . . . . . . . . . . . . 20
Partnership Property. . . . . . . . . . . . . . . . . . . . 20
Partnership Reserves. . . . . . . . . . . . . . . . . . . . 20
Payment Certificate . . . . . . . . . . . . . . . . . . . . 21
Person. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Personal Property . . . . . . . . . . . . . . . . . . . . . 21
Placed-in-Service Date. . . . . . . . . . . . . . . . . . . 21
Plans and Specifications. . . . . . . . . . . . . . . . . . 21
Positive Completion Adjuster. . . . . . . . . . . . . . . . 21
Positive Historic Adjustment. . . . . . . . . . . . . . . . 21
Positive Historic Credit Difference . . . . . . . . . . . . 21
Priority Amount . . . . . . . . . . . . . . . . . . . . . . 21
Profits or Losses . . . . . . . . . . . . . . . . . . . . . 22
Profits or Losses from a Capital Transaction. . . . . . . . 22
Project . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Project Documents . . . . . . . . . . . . . . . . . . . . . 23
Project Expenses. . . . . . . . . . . . . . . . . . . . . . 23
Projections . . . . . . . . . . . . . . . . . . . . . . . . 23
Purchase Agreement. . . . . . . . . . . . . . . . . . . . . 23
Put Loan Documents. . . . . . . . . . . . . . . . . . . . . 23
Real Property . . . . . . . . . . . . . . . . . . . . . . . 23
Recapture Event . . . . . . . . . . . . . . . . . . . . . . 23
Redevelopment Agreement . . . . . . . . . . . . . . . . . . 23
Redevelopment Note. . . . . . . . . . . . . . . . . . . . . 23
Refinancing Proceeds. . . . . . . . . . . . . . . . . . . . 23
Regulations . . . . . . . . . . . . . . . . . . . . . . . . 24
Regulatory Allocations. . . . . . . . . . . . . . . . . . . 24
Rehabilitation. . . . . . . . . . . . . . . . . . . . . . . 24
Reimbursement Agreement . . . . . . . . . . . . . . . . . . 24
Related Person. . . . . . . . . . . . . . . . . . . . . . . 24
Replacement Reserve . . . . . . . . . . . . . . . . . . . . 24
Repurchase Event. . . . . . . . . . . . . . . . . . . . . . 24
Requisite Approvals . . . . . . . . . . . . . . . . . . . . 24
Restaurant Lease Rent . . . . . . . . . . . . . . . . . . . .6
Retired General Partner . . . . . . . . . . . . . . . . . . 24
Sale Proceeds . . . . . . . . . . . . . . . . . . . . . . . 24
Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Second Installment. . . . . . . . . . . . . . . . . . . . . 24
Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Share of Partner Nonrecourse Debt Minimum Gain. . . . . . . 24
Share of Partnership Minimum Gain . . . . . . . . . . . . . 25
Site. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Special Class Limited Partner . . . . . . . . . . . . . . . 25
Special Counsel . . . . . . . . . . . . . . . . . . . . . . 25
Special Limited Partner . . . . . . . . . . . . . . . . . . 25
State . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Subordinated Partner Loan(s). . . . . . . . . . . . . . . . 25
Substitute Limited Partner. . . . . . . . . . . . . . . . . 25
Substitute Partner. . . . . . . . . . . . . . . . . . . . . 25
Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . 25
Tax Financing Documents . . . . . . . . . . . . . . . . . . 25
Temporary Certificate of Occupancy. . . . . . . . . . . . . 26
Temporary Certificate of Occupancy Date . . . . . . . . . . 26
Terminating Capital Transaction . . . . . . . . . . . . . . 26
Terminating Event . . . . . . . . . . . . . . . . . . . . . 26
The . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Third Deed of Trust . . . . . . . . . . . . . . . . . . . . 26
TIF Advance Loan. . . . . . . . . . . . . . . . . . . . . . 26
TIF Advance Loan Closing. . . . . . . . . . . . . . . . . . 26
TIF Letter of Credit. . . . . . . . . . . . . . . . . . . . 27
TIF Loan Agreement. . . . . . . . . . . . . . . . . . . . . 27
TIF Loan Documents. . . . . . . . . . . . . . . . . . . . . 27
Title Policy. . . . . . . . . . . . . . . . . . . . . . . . 27
TMP . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . 27
Vessel. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Voluntary General Partner Loan. . . . . . . . . . . . . . . 27
Withdrawal Price. . . . . . . . . . . . . . . . . . . . . . 88
Working Capital Reserve . . . . . . . . . . . . . . . . . . 28
Exhibit 10.69
DECLARATION OF
OPERATING AGREEMENT
OF
AMERUS-BLACKSTONE, L.L.C.
DATED: JULY 23, 1997
Lewis, Rice & Fingersh, L.C.
One Petticoat Lane Building
1010 Walnut, Suite 500
Kansas City, Missouri 64106
Phone: (816) 421-2500
Telecopy: (816) 472-2500
<PAGE>
DECLARATION OF OPERATING AGREEMENT OF
AMERUS-BLACKSTONE, L.L.C.
THIS DECLARATION OF OPERATING AGREEMENT is made as of the 23rd day of
July, 1997 (the "Effective Date"), by AMERUS LIFE INSURANCE COMPANY, an Iowa
corporation ("ALI"), as the sole member.
RECITALS
(A) ALI desires to organize a limited liability company to (1) acquire the
limited partner interest as the "Investor Limited Partner" (the "Investment
Interest") in Blackstone Hotel Partners, L.P., a limited partnership (the
"Partnership") organized under the laws of the State of Louisiana on May 19,
1997 for the purpose of acquiring, rehabilitating, owning and operating the
Blackstone Hotel located in downtown Fort Worth, Tarrant County, Texas,
(2) negotiate, execute and deliver a "First Amended and Restated Articles
of Limited Partnership of Blackstone Hotel Partners, L.L.P." and any
amendments thereto as the same may be so amended, (the "Partnership
Agreement"), and (3) to thereafter act and serve as a limited partner of the
Partnership with all of the rights, benefits and duties of an "Investor
Limited Partner" under the terms of the Partnership, and (4) engage in all
activities in connection therewith.
(B) This Agreement sets forth ALI's declaration with respect to the
organization and operation of the limited liability company and the scope
and conduct of its business.
NOW, THEREFORE, in consideration of the receipt of all of the outstanding
interests in the limited liability company, ALI hereby declares as follows:
ARTICLE I. ORGANIZATION
Section 1.1. Formation of the Company. ALI hereby declares itself to be
the sole member of the Company, with all of the rights of a member in a
limited liability company formed under the provisions of the Iowa Limited
Liability Company Act (the "Act") for the limited purposes set forth in this
Agreement. The Member has filed in the appropriate governmental office
"Articles of Organization" which conform to the requirements of the Act in
order to constitute the Company as a valid Iowa limited liability company
under the Act, effective as of the Effective Date.
Section 1.2. Name. The Business of the Company shall be conducted solely
under the name of "AmerUs-Blackstone, L.L.C.," and such name shall be used
at all times in connection therewith.
Section 1.3. Term. The term of the Company shall commence as of the
Effective Date and shall continue until the winding up and liquidation of
the Company following a Dissociation Event, as provided in Article VIII.
Section 1.4. Character of Business; Powers. The business of the Company
(the "Business") is to (1) acquire, own and operate the Business Property,
(2) negotiate, execute and deliver the Partnership Agreement and all
documents referred to therein to which ALI is a party, (3) to act and serve
as a limited partner of the Partnership with all of the rights, duties and
benefits inuring on the "Investor Limited Partner" under the terms of the
Partnership Agreement; and (4) exercise all rights and powers and engage in
all activities related or ancillary to the foregoing which a limited liability
company may legally exercise pursuant to the Act.
Section 1.5. Address of the Member; Company Principal Place of Business.
The mailing address and the principal place of business of ALI and the
Company are 699 Walnut, Suite 1700, Des Moines, Iowa 50309.
Section 1.6. Domestic Registered Agent and Registered Office. The name of
the Company's registered agent for service of process in Iowa and its
registered office in Iowa shall be AmerUs Life Insurance Company, 699 Walnut,
Suite 1700, Des Moines, Iowa 50309 (subject to change by the Member at any
time by making all appropriate filings).
Section 1.7. Certain Definitions. As used herein, the following terms have
the following meanings:
(A) "Agreement" means this Agreement, as amended, restated or supplemented
from time to time as herein provided.
(B) "Business Property" means all property, assets and interests (whether
real or personal, tangible or intangible) owned or held from time to time by
the Company, including the Investment Interest.
(C) "Company" means this limited liability company.
(D) "Member" means ALI.
(E) "Operating Proceeds" for the applicable period means all gross cash
receipts of the Company during such period (excluding Dissolution Proceeds)
plus the amount of any reductions in funded reserves occurring during such
period, less the following costs and expenses paid during such period (to the
extent not paid from reserves): (1) cash operating expenses (including
capital contributions and loans to the Partnership), (2) interest and
principal payments on any indebtedness of the Company, and (3) any reasonable
additions to Company operating or capital reserves which the Member
causes the Company to make.
(F) "Person" means an individual, partnership, corporation, limited liability
company, trust, or other association.
Section 1.8. Additional Definitions. The definitions in Section 1.7 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun used herein shall include the
corresponding masculine, feminine and neuter forms. The words "include,"
"includes," and "including" shall be deemed to be followed by the phrase
"without limitation." The words "herein," "hereof," "hereunder," and similar
terms shall refer to this Agreement, unless the context otherwise requires.
ARTICLE II. CAPITAL CONTRIBUTIONS
Section 2.1. Initial Capital Contribution. The Member shall initially
contribute $3,221,000.00 to the capital of the Company. When the Company is
required under the terms of the Partnership Agreement to make the "Second
Installment" to the Investment Partnership, the Member shall contribute the
sum of $357,700.00, in cash to the capital of the Company.
Section 2.2. No Additional Capital Contributions. The Member shall not be
required to make any additional capital contributions or loans to the Company
or be personally liable for the payment of any debts of the Company.
ARTICLE III. DISTRIBUTIONS
Section 3.1. Distributions of Operating Proceeds. The Company's Operating
Proceeds shall be distributed to the Member at such times as the Member shall
determine.
ARTICLE IV. ALLOCATION OF PROFITS AND LOSSES
Section 4.1. Profits and Losses. The Company's income, gains, losses,
deductions and credits (and items thereof), for each fiscal year of the
Company, shall be allocated to and reported by the Member.
ARTICLE V. ACCOUNTING
Section 5.1. Accounting Methods; Company Records.
(A) The Company's books and records shall be prepared in accordance with
generally accepted accounting practices, consistently applied. All Federal,
state and local statements and records of the Company shall be prepared by a
firm of certified public accountants selected by the Member.
(B) The Member shall cause the Company to comply with all record keeping
requirements imposed by the Act.
Section 5.2. Fiscal Year. The fiscal year of the Company shall be the
calendar year.
Section 5.3. Bank Accounts; Title to Business Property. The funds of the
Company shall be deposited in such bank accounts, or invested in such
interest-bearing or noninterest-bearing investments in the Company's name,
as shall be determined by the Member. The funds of the Company shall not be
commingled with the funds of the Member or any other Person and the Member
shall not employ, or permit any other Person to employ, such funds in any
manner except for the benefit of the Company. Title to the Business Property
shall be held, and conveyances thereof, as permitted hereunder, shall be
made, in the name of the Company. In no event shall any property or assets
held by the Member, in its separate individual capacity, or any affiliate
of the Member (other than the Company) be deemed to be Company property
nor shall the Company have any interest therein.
Section 5.4. Tax Status. Notwithstanding any provision of this Agreement
to the contrary, it is the intention of the Member that the Company be
disregarded solely for Federal and state income tax purposes. Accordingly,
the Company shall not apply for any tax identification number or prepare or
file any Federal, state or local income tax return. The Company shall, as
soon as is practicable after the end of each fiscal year, prepare a statement
setting forth each item of income, gain, loss, deduction and credit and
forward the same to the Member who shall report each such item on its income
tax return. Nothing in this Section shall not be construed to extend the
purposes or expand the obligations or liabilities of the Company or the
Member.
ARTICLE VI. POWERS, RIGHTS AND DUTIES OF THE MEMBER
Section 6.1. Management Authority and Duties of Member. The overall
management and control of the Company and the Business shall be vested in
the Member who shall have the exclusive right, authority, and responsibility
to participate in the management of the business and affairs of the Company
and to enter into transactions on behalf of the Company within the scope of
the Business; PROVIDED, HOWEVER, that the Member may delegate to third parties
ministerial authority to conduct or participate in the day-to-day operations
of the Company. Pursuant to the foregoing and subject to the other
provisions hereof, the Member shall have all of the rights and powers of a
member as provided under the Act and as otherwise provided by law. Any duly
authorized officer of the Member shall be entitled to act on behalf of
Member under the terms of this Agreement.
Section 6.2. Liability and Indemnification of the Member and Affiliates.
(A) Neither the Member nor any affiliate of the Member shall be liable,
responsible or accountable in damages or otherwise to the Company or to the
Member for any action taken or failure to act on behalf of the Company unless
such action or omission was an constituted gross negligence, bad faith or
wanton or willful misconduct (collectively, "Misconduct").
(B) Except with respect to Misconduct, the Company shall, to the fullest
extent permitted under the Act, indemnify and hold harmless the Member and
its affiliates from any loss, damage, liability or expense incurred or sustained
by them by reason of any act performed or any omission for or on behalf of the
Company or in furtherance of the interests of the Company, including any
judgment, award, settlement, reasonable attorneys' fees and other costs and
expenses (which may be advanced by the Company) incurred in connection with
the defense of any actual or threatened action, proceeding or claim.
Section 6.3. Reimbursement of the Member. The Company shall reimburse the
Member and the Winding-Up Person (as defined in Section 7.2) for all
reasonable out-of-pocket expenses incurred by their in connection with the
discharge of their duties under this Agreement.
Section 6.4. Liability for Company Debts and Obligations. The Member shall
not be personally liable for any of the expenses, liabilities or obligations
of the Company except to the extent expressly provided in an agreement
executed by the Member evidencing its agreement to be personally liable for
such expense, liability or obligation and specifically its intention to
become liable as Member.
ARTICLE VII. DISSOLUTION OF THE COMPANY
Section 7.1. Dissociation Events. No act, thing, occurrence, event or
circumstance shall cause or result in the dissolution of the Company except
(1) the occurrence of any event (each, a "Dissociation Event") described in
Section 490A.1301.3 of the Act occurring with respect to the Member, or (2)
upon a written determination by Member to dissolve and terminate the Company.
Section 7.2. Distribution of Proceeds on Dissolution; Winding Up; Reserves.
(A) Upon the occurrence of a Dissolution Event, the Company shall continue
solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and the
Member, and the Member shall not take any action that is inconsistent with,
or not necessary to or appropriate for, winding up the Company's business and
affairs. To the extent not inconsistent with the foregoing, all covenants
and obligations in this Agreement shall continue in full force and effect
until such time as the Dissolution Proceeds have been distributed pursuant
to this Section and the Company has filed articles of dissolution.
(B) The Member or, if there is no Member, the Member's successor-in-interest
(in either case, the "Winding-Up Person"), shall be responsible for overseeing
the winding up and liquidation of the Company. As soon as reasonably
practical after the occurrence of a Dissociation Event, the Winding-Up
Person shall file a notice of winding up and take such other actions as are
required under the Act to dispose or make provision for the known and unknown
claims against the Company. After filing the notice of winding-up, the
Winding-Up person shall take full account of the Company's liabilities
and the Business Property, cause the Business Property to be liquidated
as promptly as is consistent with obtaining the fair value thereof, and shall
cause the proceeds therefrom and any other assets and funds of the Company
(collectively, the "Dissolution Proceeds"), to the extent sufficient
therefor, to be applied and distributed in the following order:
(1) First, to the payment of all unpaid secured indebtedness of the Company
to the extent of the lesser of the value of the secured property or the amount
of the secured indebtedness;
(2) Second, to the payment of the Company's then outstanding indebtedness
with respect to which the Member is subject to personal liability as a
guarantor or under a master lease or similar agreement, but if the amount
available therefor shall be insufficient, then pro rata on account thereof;
and
(3) Third, to the payment of the Company's remaining indebtedness
(excluding liabilities for distributions to the Member), but if the amount
available therefor shall be insufficient, then pro rata on account thereof;
and
(4) Fourth, the balance, if any, less such reserves ("Dissolution
Reserves") as the Winding-Up Person reasonably determines are necessary or
appropriate for anticipated or contingent expenses of the Company, shall be
distributed to the Member.
(C) To the extent the Winding-Up Person subsequently determines Dissolution
Reserves (or any part thereof) to be unnecessary for Company expenses,
she/he/it shall cause such amounts to be distributed or paid to the Member,
or other Persons who would have received the proceeds comprising such
Dissolution Reserves under this Section as if such proceeds had not been used
to fund Dissolution Reserves.
(D) When all of the Company's property and assets have been applied and
distributed as provided in this Section, the Winding-Up Person shall file
articles of dissolution as provided in the Act and take such other actions
as may be necessary to cause the Company to withdraw from all jurisdictions
where the Company is then authorized to transact business.
(E) The Winding-Up Person shall not receive any compensation for any
services performed pursuant to this Section.
ARTICLE VIII. GENERAL
Section 8.1. Amendments. This Agreement may be amended only by agreement
executed by the Member.
Section 8.2. Miscellaneous. This Agreement and the rights of the Member
hereunder shall be governed by and interpreted in accordance with the laws
of the State of Iowa. Except as herein otherwise specifically provided,
this Agreement shall be binding upon and inure to the benefit of the Member
and its legal representatives, successors and assigns. Captions contained
in this Agreement in no way define, limit or extend the scope or intent of
this Agreement. If any provision of this Agreement, or the application
of any such provision to any Person or circumstance shall be held to be
illegal, invalid or unenforceable under present or future laws effective
during the term hereof, the remainder of this Agreement or the application
of such provision to any other Persons or circumstances, shall not be
affected thereby and shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof.
In lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as a part hereof a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable. Every exhibit, schedule, and other appendix
attached to this Agreement and referred to herein is incorporated in this
Agreement by reference.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first above written.
AMERUS LIFE INSURANCE COMPANY, an Iowa Corporation
/s/ Gene Harris
By: --------------------------------------
Gene Harris
Name: ------------------------------------
Vice President
Title: ------------------------------------
<PAGE>
ACKNOWLEDGMENT
STATE OF ---------------
COUNTY OF --------------
On this ----- day of ----------, 1997, before me appeared ----------------,
to me personally known, who, being by me duly sworn, did say that he is the
- -------------- of AmerUs Life Insurance Company, that the foregoing instrument
was signed and sealed on behalf of the corporation by authority of its Board
of Directors, that ---------------- acknowledged the instrument to be the
free act and deed of the corporation, and that the corporation has no corporate
seal.
-------------------------------
NOTARY PUBLIC
EXHIBIT 10.70
FEDERAL
HOME LOAN BANK
Des Moines
OPEN LINE OF CREDIT APPLICATION AND TERMS AGREEMENT
APPLICATION
AmerUs Life Insurance Company ("Member") hereby applies to the Federal Home Loan
Bank of Des Moines ("Bank") for an Open Line of Credit commitment beginning on
the date of approval and ending one year from the date of approval, ("Ending
Date") in the amount of $25,000,000.
TERMS
1. Members, through its authorized representative may request funds by
telephone advice up to the approved Open Line of Credit limit. Funds will
be available upon advice.
2. The interest rate on advances funded under the Open Line of Credit will be
set and charged daily on the outstanding advance amount. The interest
amount will be deducted daily by the Bank from the member's demand account.
3. Advances funded under the Open Line of Credit will be available after the
approval date and will mature on the Ending Date.
4. Member represents and warrants that the Open Line of Credit amount
requested does not exceed 15% of assets.
5. The Bank shall have no obligation to make any advance under the Open Line
of Credit unless the Bank is satisfied as to Member's continued
creditworthiness and compliance with the terms of the Agreement for
Advances, Pledge and Security Agreement ("AAPSA"). If adverse facts
develop which make the member ineligible for Bank advances, the member must
provide the Bank with immediate written notification of its ineligibility
and the Bank may cancel this commitment.
6. The fee for this Open Line of Credit commitment equals .05% times the
amount of the commitment. This fee will be charged to the member's demand
account on the date this application is approved by the Bank.
7. This Application and Terms Agreement, if approved by the Bank, will
constitute the Agreement between Member and Bank as to the Open Line of
Credit and will be wholly incorporated into and become a part of the AAPSA.
By signing this agreement, member hereby accepts the terms hereof.
AmerUs Life Insurance Company Date: March 3, 1997
Member
By: /s/ Michael G. Fraizer By: /s/ Thomas C. Godlasky
Typed Name of Signer: Typed Name of Signer:
Michael G. Fraizer Thomas C. Godlasky
Title: Senior Vice President Title: Executive Vice President and
and Controller/Treasurer Chief Investment Officer
FOR FHLB USE
Date Approved: FEDERAL HOME LOAN BANK OF DES MOINES
Expiration Date: By:
Amount Approved: By:
Commitment Number:
Commitment Fee:
Exhibit 10.71
CERTIFICATE OF LIMITED PARTNERSHIP
AND LIMITED PARTNERSHIP AGREEMENT OF
API-COTTONMILL PARTNERS, L.P.
THIS CERTIFICATE OF LIMITED PARTNERSHIP AND LIMITED PARTNERSHIP AGREEMENT OF
API-COTTONMILL PARTNERS, L.P., executed and entered into by and among AmerUs
Management, Inc., an Iowa corporation ("general partner" or "AMI") and AmerUs
Properties, Inc., an Iowa corporation ("AmerUs") and any other persons
(collectively herein-after referred to as "limited partners") executing and
delivering to the general partner this Agreement or a subscription agreement and
upon filing of an amendment to this Certificate so showing.
W I T N E S E T H:
The general partner and the limited partners agree as follows:
1. ORGANIZATION OF PARTNERSHIP.
Pursuant to the Iowa Uniform Limited Partnership Act (hereinafter referred to as
the "Act"), the general partner and the limited partners hereby form a limited
partnership (hereinafter referred to as the "Partnership").
2. NAME OF PARTNERSHIP.
The name of the Partnership shall be API-Cottonmill Partners, L.P.
Its federal identification number is 42-1457852.
3. BUSINESS OF THE PARTNERSHIP.
The business of the Partnership shall be to invest as a partner in partnerships
to own real estate and to enter into any and all contracts, leases, mortgages,
loans and agreements incident thereto.
4. PRINCIPAL PLACE OF BUSINESS, OFFICE, AGENT FOR SERVICE OF PROCESS AND
BUSINESS ADDRESSES.
The principal place of business and the office of the Partnership shall be 4949
Westown Parkway, Suite 245 West Des Moines, Iowa 50266-1066. The agent for
service of process on the Partnership shall be Diane M. Davidson, whose address
is 4949 Westown Parkway, Suite 245, West Des Moines, Iowa 50266-1066.
The business address of the AMI is 4949 Westown Parkway, Suite 245, West Des
Moines, Iowa 50266-1066. The business address of AmerUs is 4949 Westown
Parkway, Suite 245, West Des Moines, Iowa 50266-1066. The business addresses of
those partners subsequently becoming limited partners by the execution of a
subscription agreement shall be as set forth opposite their names at the end of
such subscription agreement.
5. DEFINITIONS.
(a) Credited Capital Contribution. The term "credited capital
contribution" shall mean the amount credited to a partner's capital account
for the partner's contribution to the capital of the Partnership as set
forth in paragraph 6. Such amount shall be the amount of cash contributed
and the adjusted basis of any property contributed (net of any liabilities
assumed by the Partnership or any liabilities to which such property is
subject). Solely for purposes of making allocations and distributions under
paragraphs 7, 8 and 9, a partner shall be credited with the amount of
capital the partner is required to have contributed under paragraph 6(b),
even if not yet contributed.
(b) Capital Account. The term "capital account" shall mean the sum of:
(1) Each partner's credited capital contributions; and
(2) Any net profits or non-taxable income allocated to the partner's
account under paragraph 7,
less the sum of:
(3) Any net losses or unallowable deductions allocated to the partner's
account under paragraph 7; and
(4) The amount of any previous cash distributions and the Partnership's
adjusted basis in any previous property distributions (net of liabilities
assumed by such partner or liabilities to which such property is subject)
to the partner.
These provisions are intended to be consistent with United States Treasury
Regulations Section 1.704-1(b)(2)(iv) governing capital accounts.
(c) Net Profits And Losses. The terms "net profits" and "net losses"
shall mean the taxable income or taxable loss of the Partnership determined
for purposes of preparing the Partnership information return for federal
income tax purposes.
(d) Non-Taxable Income And Unallowable Deductions. The terms "non-taxable
income" and "unallowable deductions" shall mean any items of income or
deduction properly treated as income or deductions by the Partnership for
financial accounting purposes but not includable as income or allowable as a
deduction for federal income tax purposes, and expenditures described in
Section 705(a)(2)(B) of the Internal Revenue Code.
(e) Cash Flow. The term "cash flow" shall mean the excess of cash
receipts over cash disbursements for the applicable period; provided,
however, cash flow shall not include any cash received pursuant to the
dissolution and termination of the Partnership.
(f) Distributable Cash. The term "distributable cash" shall mean cash
flow for the applicable period reduced (or increased) by such amounts which
are determined by the general partner to be reasonably necessary (or not
longer necessary) to be expended or held as reserves for the conduct of
partnership business, including expansion thereof, capital improvements, and
future payments of anticipated obligations and liabilities.
(g) Partner. The term "partner" shall mean the general partner and each
of the limited partners.
(h) Majority In Interest Of The Limited Partners. The term "majority in
interest of the limited partners" shall refer to those limited partners
credited with more than fifty percent (50%) of the limited partners'
credited capital contributions of those limited partners referred to.
(i) "Applicable Rate" shall mean the lesser of: (1) a per annum rate
which is two percent (2%) higher than the corporate base interest rate
announced by Citibank, N.A. (or its successor) during the period the
indebtedness in question is outstanding, as such corporate base interest
rate changes from time to time; or (2) the maximum interest that may be
charged on such indebtedness under the applicable usury law (if any).
6. CREDITED CAPITAL CONTRIBUTIONS.
(a) Initial Capital Contributions. The general partner shall contribute
as a general partner Ten Dollars ($10.00) to the capital of the Partnership,
which amount shall be credited as a capital contribution and become a part
of the capital account of the general partner on the date of contribution.
Each limited partner's capital contribution to the Partnership shall be in
the amount set forth opposite such partner's name in this Agreement or in
the subscription agreement executed by such limited partner, which amount
shall be credited as a capital contribution and become a part of the capital
account of the limited partner on the date of contribution. A general
partner may contribute as a limited partner to the Partner-ship, which
contribution shall be treated as any other limited partner's contribution.
(b) Contribution Upon Certificate Filing. Upon filing of the certificate
of limited partnership the credited capital contributions of the partners
are as follows:
General Partner:
AMI $ 10.00
Limited Partner:
AmerUs $ 990.00
(c) Additional Capital Contributions. If the general partner, with the
consent of a majority in interest of the limited partners, determines in its
best judgement that additional capital contributions are required to meet
anticipated Partnership expenditures then the general partner and the
limited partners shall contribute the additional capital required in the
ratios of their credited capital contributions or, if a partner declines to
make such a contribution, such partner shall have its interest in the
partnership diluted as provided in the next paragraph below. Such amounts
shall be contributed in cash or cash equivalents or by wire transfer of
immediately available funds to the bank account established in the name of
the Partnership within thirty (30) business days of notification by the
general partner to the limited partners.
If a partner fails to make or declines to make its required additional
capital contributions within such thirty (30) day period then the defaulting
partner's credited capital contribution shall cease to include the amount of
the contribution default and neither the Partnership nor any other person
shall have any further rights with respect to such unpaid capital
contribution. In addition, the nondefaulting partner or partners may loan
the Partnership the amount of such unpaid capital contribution in accordance
with paragraph 17 of this Agreement.
7. PROFITS, LOSSES AND CREDITS.
(a) Accounting Period And Method. The Partnership shall adopt a calendar
year as its taxable year and shall use the accrual method of accounting.
(b) Allocations Of Accounting Income And Credits. Net profits, net
losses, non-taxable income, unallowable deductions and credits shall be
computed for each period and shall be allocated among the partners in
accordance with their credited capital contributions as of the end of such
period; provided, however, upon the sale or disposition of any property,
other than cash, contributed to the Partnership any gain attributable to the
excess of the fair market value of such property credited to the capital of
the Partnership at the time of such contribution over its basis to the
Partnership at such time shall be allocated to the Partner making such
contribution.
(c) Limited On Limited Partner Liability. Although losses may be
allocated to a limited partner, no limited partner shall be liable for
losses of the Partnership beyond the contribution or obligated contribution
of such partner to the capital of the Partnership.
8. DISTRIBUTIONS OF DISTRIBUTABLE CASH.
Distributable cash shall be distributed among the partners in accordance with
their credited capital contributions as of such distribution.
Except as provided in this paragraph 8 and paragraph 9, no partner shall be
entitled to withdraw any amount from the partner's capital account.
9. TERMINATION PROCEEDS.
In the event of the dissolution and termination of the Partnership under
paragraph 11(e) the proceeds shall be allocated as follows:
First, in payment of all accrued but unpaid debts and liabilities of the
Partnership (including debts or liabilities to partners) requiring payment
in order of priority; and
Second, to expenses of sale of dissolution, including customary brokerage
fees;
Third, to provide such reserves as the dissolving manager deems advisable
for contingent liabilities of the Partnership (which reserves will be held
in escrow); and
Fourth, to all of the partners in accordance with their capital accounts
after all allocations made to such capital accounts under paragraph 5(b) or
paragraph 7.
Each partner shall look solely to the assets of the Partnership for the return
of such partner's capital contribution and if the Partnership property remaining
after the payment or discharge of the prior debts, liabilities and distributions
of the Partnership is insufficient to return such capital contribution no
partner shall have any recourse against any other partner.
10. POWERS, RIGHTS AND DUTIES OF THE GENERAL PARTNER.
(a) Authority Of The General Partner. The general partner shall
diligently apply itself in and about the business of the Partnership.
Except as specifically otherwise set forth in this Agreement the general
partner shall have full, exclusive and complete authority and discretion in
the management and control of the Partnership business and shall make all
decisions affecting the Partnership business. The general partner shall
manage and control the affairs of the Partnership to the best of its
abilities and shall use its best efforts to carry out the Partnership
business. The rights, powers and duties of the general partner include, but
are not limited to, the following:
(1) To expend the capital and revenues of the Partnership in
furtherance of the Partnership business and to invest Partnership funds.
(2) To borrow money for any Partnership business or purpose, and in
connection therewith, issue debt securities and hypothecate all or any
part of the assets of the Partnership to secure repayment of the borrowed
sums, obtain replacement of, refinance, increase, prepay, modify,
consolidate or extend, in whole or in part, any obligation for borrowed
money or any other obligation, mortgage, encumbrance, pledge or other
security device of the Partnership or affecting its property or
investments.
(3) To cause to be maintained the books and records required by this
Agreement and to cause income tax returns to be prepared and reports to
be furnished to limited partners.
(4) To make elections under the tax laws as to the treatment of items
of Partnership income, gain, loss, deduction and credit and as to all
other relevant matters as it believes advisable, including elections to
adjust the basis of Partnership property and to serve as "tax matters
partner"; provided, however, the general partner shall not have the power
to enter into any agreement extending the time for the assessment of
federal income tax against any partner.
(5) To employ and pay agents to assist in the Partnership business, and
to pay and be reimbursed by the Partnership for locally reasonable
expenses and fees incurred by the general partner in connection with the
organization, operation and dissolution of the Partnership, including,
without limitation, legal, accounting and consultant fees and expenses,
including such fees of in-house counsel or accountants, and including
fees and expenses for such services provided by an affiliate or employee
of an affiliate or any partner, including the general partner.
(6) To arrange to prosecute, defend, settle or compromise actions at
law or in equity and to satisfy any judgment, decree, decision or
settlement in connection therewith.
(7) To perform any other acts customary or incident to the acquisition,
ownership, management, operation, improvement, development, leasing or
disposition of interests in any Partnership property, including sale of
all or any portion of Partnership property and to enter into all
contracts, leases and agreements incident to such acquisition, ownership,
management, operation, improvement, development, leasing or disposition
and specifically to enter into such contracts, leases and agreements with
any partner, including the general partner, or any entity or person
related to or affiliated with any partner, including the general partner.
(8) To delegate by contract, power of attorney, or otherwise, all or
any part of its duties under this Agreement to an entity chosen by the
general partner, including an entity affiliated with, related to or owned
by the general partner, and compensate such entity for the performance of
such duties, provided that such delegation shall not relieve the general
partner of its responsibilities under this Agreement.
(9) To exercise such other rights and powers of general partners of
limited partnerships authorized or permitted under the laws of the State
of Iowa, except to the extent any of such rights or powers may be limited
or restricted by the express provisions of this Agreement.
(b) Majority In Interest Of Limited Partners. Without the written
agreement of a majority in interest of the limited partners, the general
partner shall not have the authority to:
(1) sell all or substantially all of the assets of the Partnership;
(2) liquidate the Partnership, except as permitted in paragraph 11(a)
of this Agreement;
(3) borrow in the aggregate in excess of One Hundred Thousand Dollars
($100,000.00) in the name of the Partnership;
(4) mortgage or convey or agree to mortgage or convey Partnership
property or any portion of the Partnership property;
(5) prosecute any claim, counterclaim or cross claim, or settle or
confess judgment on any matter for an amount in excess of One Hundred
Thousand Dollars ($100,000.00).
(c) Indemnification Of Partners. The partners (including any directors,
officers and employees of each partner) shall not be liable to each other or
the Partnership for amounts paid upon settlement or judgment and expenses
(including attorney's fees) of claims arising out of their activities as or
for the Partnership resulting from errors in judgment or any acts or
omissions, whether or not disclosed, which do not constitute willful
misconduct, fraud or gross negligence provided such persons acted in good
faith for the benefit of the Partnership. The general partner shall be
liable to the limited partners and the Partnership respectively, for their
willful misconduct, fraud or gross negligence, in the performance of its
duties as general partner. To the extent of Partnership assets, the
Partnership shall indemnify a partner or a director, officer or employee or
a partner for liability arising out of activities for the Partnership
(including reasonable attorney's fees) resulting from errors in judgment or
any acts or omissions, whether or not disclosed, which do not constitute
willful misconduct, fraud or gross negligence provided such persons acted in
good faith for the benefit of the Partnership.
(d) Debts And Obligations Of Partnership. No partner, other than the
general partner, shall make, accept, or endorse any bill of exchange,
promissory note, or other engagement for the payment of money, or guarantee
any debt or account on behalf of the Partnership, or pledge the credit of
the Partnership in any way.
(e) Competition. Any partner may compete with the Partnership without
limitation.
(f) Meetings. The partners shall meet annually and shall meet at such
other times as requested by any partners holding ten percent (10%) or more
of the partners' credited capital contributions upon five (5) prior business
days written notice, unless such prior notice is expressly waived by the
other partners. These meetings shall be held at such time, date and place
as designated by the general partner. At such meetings, the partners shall
review the operations of the Partnership and transact such other business as
may properly be brought before the meeting.
11. TERM, DISSOLUTION AND TERMINATION OF PARTNERSHIP.
(a) Term And Dissolution Of Partnership. The term of the Partnership
shall commence upon filing for record of the certificate of limited
partnership in the Office of the Secretary of State, and shall continue
until the earliest of the following (each of which shall be called a
"dissolving event") upon which the Partnership shall be dissolved:
(1) The sale, expiration, abandonment or other disposition of all
Partnership assets;
(2) Dissolution of the Partnership by judicial decree;
(3) At such time as the general partner ceases to be a general partner
by reason of:
(a) In the case of an individual, the death or adjudication of
incompetency of the individual; or, in the case of a corporation, the
filing of a certificate of dissolution or the revocation of its
charter;
(b) Upon such person's making an assignment for the benefit of
creditors, filing a voluntary petition in bankruptcy or adjudication
of bankruptcy or insolvency;
(c) Upon such person's filing a petition, answer or other pleading
seeking, or failing to contest material allegations in a petition
seeking, for such person reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any
statute, law or regulation or upon 120 days after the commencement of
such proceeding if not dismissed within such time; or
(d) If such person seeks, consents to, or acquiesces in the
appointment of a trustee, receiver, or liquidator of all or a
substantial part of such person's properties, or 90 days after the
appointment, without such person's consent, of such as trustee,
receiver, or liquidator, unless such appointment is vacated within
such time or within 90 days after any stay of such appointment within
such time; or
(4) December 31, 2030 or by the decision of the general partner with
the written agreement of a majority in interest of the limited partners.
(b) No Dissolution Or Withdrawal As A Result Of Certain Other Events. The
Partnership shall not be dissolved by any event not set forth in paragraph
11(a), including, but not limited to: (1) the death, incompetency,
bankruptcy, insolvency, dissolution or other cessation to exist as a legal
entity of any limited partner; (2) the assignment by any partner of the
partner's interest in the Partnership; or (3) the admission of a new
partner. No event except as set forth in paragraph 11(a) shall entitle a
partner or the partner's estate or representative to withdraw from the
Partnership or to a return of capital.
(c) Winding Up, Liquidation, Distribution Of Assets And Termination. If
there is a dissolving event under paragraph 11(a) then:
(1) The general partner, or if there is none, any person selected by a
majority in interest of the limited partners (such partner or person
called the "dissolving manager") shall wind up the affairs of the
Partnership, sell or otherwise liquidate or dispose of or abandon all of
the Partnership assets in a manner consistent with attempting to obtain
the fair market value thereof; and shall terminate the Partnership.
(2) The proceeds from such disposition shall be distributed under
paragraph 9.
12. NO AUTHORITY OF PARTNERSHIP RECORDS.
The limited partners shall take no part in the control and management of the
Partnership business. The limited partners shall transact no business or
otherwise act in any manner for or on behalf of the Partnership. The limited
partners shall have no power to sign for or bind the Partnership.
13. INSPECTION OF PARTNERSHIP RECORDS.
The Partnership shall keep at its office books and records setting forth a
current list of the full name and last known business address of each partner, a
copy of the Certificate of Limited Partnership and all amendments together with
any executed powers of attorney, copies of the Partnership's federal and state
income tax returns, if any, for the three most recent years, and copies of any
written partnership agreements and of any financial statements of the
Partnership for the three (3) most recent years. Any partner may inspect and
copy such records provided that the partner's request to inspect and copy is
reasonable and is done at the partner's expense.
14. ANNUAL REPORTS AND BUDGET.
The general partner shall cause an annual report, which need not be audited,
unless a majority in interest of the limited partners shall otherwise determine,
to be sent to the limited partners not later than seventy-five (75) days after
the close of each taxable year, which report shall include a balance sheet,
operating statement, cash flow statement and statement of distribution of funds
to the partners for such year and a proposed budget for the upcoming year.
15. SUBSTITUTIONS, ASSIGNMENTS AND ADMISSION OF ADDITIONAL PARTNERS.
(a) New Or Substituted General Partners. The general partner shall not
substitute a general partner in its respective place without the written
consent of a majority in interest of the limited partners. No assignment,
sale, transfer, pledge or hypothecation of its general partner's interest in
the Partnership is authorized nor will it be binding upon or accepted by the
Partnership unless the general partner obtains the prior written consent of
a majority in interest of the limited partners.
(b) Additional Limited Partners. The general partner may admit additional
limited partners upon receipt of such persons' capital contributions to the
Partnership.
(c) Assignment Of Limited Partner Interest. No assignment, sale,
transfer, pledge or hypothecation of a limited partner's interest in the
Partnership is authorized nor will the same be binding upon or accepted by
the Partnership unless the transferor obtains the prior written consent of
the general partner (provided, however, such restriction shall not apply to
any transfer by reason of the death, incompetency or bankruptcy of a limited
partner, provided that the transferee thereunder shall be bound by the terms
and provisions of this agreement), which consent shall be in the absolute
discretion of the general partner and which consent shall in no event be
granted if, in the opinion of the general partner or of the counsel for the
Partnership, such assignment, sale, transfer, pledge or hypothecation could
either: (1) jeopardize the partnership status of the Partnership for
federal income tax purposes; or (2) violate or cause the Partnership to
violate, any state or federal securities law or any other applicable law or
governmental rule or regulation; or (3) adversely affect the availability
of any federal and state securities law exemption pursuant to which the
interest in the Partnership were originally offered and sold to the limited
partners.
(d) Substituted Limited Partner. In connection with a permissible
assignment of a limited partner's interest, the assignor shall have the
power and right to substitute the assignee as the limited partner as to such
interest if all of the following are satisfied:
(1) A duly executed and acknowledged written instrument in form
satisfactory to the general partner is submitted to the Partnership
setting forth the intention of the limited partner that the assignee
become a substituted limited partner.
(2) The limited partner and assignee execute and acknowledge such other
instruments as the general partner deems desirable to effect such
admission, including the written acceptance and adoption by the assignee
of all the provisions of this Agreement.
(3) The general partner shall have consented to substitution of such
assignee as the limited partner, which consent shall not be unreasonably
withheld. A person shall become a substituted limited partner only upon
the recording of an amended certificate of limited partnership in which
such person is designated as a limited partner.
Upon the death, legal incompetency or dissolution of a limited partner, such
partner's legal representative or successor shall have all the rights such as
the partner possessed to constitute his or her successor as an assignee and to
join with the assignee in making application to substitute such assignee as
limited partner.
16. SIGNATURES.
Any check, draft, contract, evidence of indebtedness, deed, mortgage, deed of
trust, lease, contract of sale, bill of sale, certificate of limited
partnership, or other similar document shall be executed for the Partnership by
the general partner and no other signatures shall be required.
17. LOANS.
Loans by a partner to the Partnership shall not constitute a contribution of
capital to the Partnership or be credited to the capital account of the lending
partner or entitle such partner to any increase in such partner's share of any
allocation or distribution. Such loans shall be a debt due from the Partnership
to such lending partner and the principal and accrued interest then due thereon
shall be paid in full prior to any other distribution to the partners in respect
of their interest in the Partnership. Except as otherwise provided in this
paragraph, the partners shall be given the opportunity to loan in proportion to
their credited capital contributions any amount to be borrowed by the
Partnership from partners before a partner may loan the entire amount, and each
partner shall be deemed to have rejected such opportunity unless it agrees to
loan its respective share within fifteen (15) days after the written request to
participate in such loan. Loans by any one or more of the partners to the
Partnership shall bear interest at the Applicable Rate.
18. DESIGNATION.
Each Partner who is not an individual shall designate and each partner who is an
individual may designate ("designating partner") one or more persons
("designated person"), any one of whom shall have full and complete authority
and discretion to act in all matters on behalf of the designating partner as
between the partners with respect to the Partnership. Each decision, agreement,
consent or other undertaking of the designated person with respect to the
Partnership, shall be binding on the designating partner as between the partners
and may be relied upon by the other partners without further investigation or
determination of authority.
19. POWER OF ATTORNEY.
(a) Grant of Power. Each of the limited partners irrevocably constitutes
and appoints the general partner as true and lawful attorney in such limited
partner's name, place and stead to make, swear to, execute, acknowledge and
file:
(1) Any certificates of the Partnership and any amendments thereto
required by the Act, including amendments required for the admission of
additional limited partners and the substitution of a limited partner.
(2) Any certificate or other instrument and any amendments thereto
required to accomplish the business and purposes of the Partnership or
otherwise permitted under this Agreement, including any business
certificate or assumed name certificate.
(3) Any cancellation of such certificates of Partnership and any
documents required upon the dissolution and termination of the
Partnership.
(4) New or amended certificates of limited partnership and any
documents and instruments required to effectuate the continuation of the
business of the Partnership.
If a limited partner assigns his interest as permitted in paragraph 15(c), the
foregoing power of attorney shall survive the delivery of the instruments
effecting such assignment for the purpose of enabling the general partner to
sign, swear to, execute, acknowledge and file any amendments to the certificate
of limited partnership and other instruments and documents to effectuate the
substitution of the assignee as a limited partner.
(b) Limit On Power. It is expressly intended that the foregoing power of
attorney under this paragraph 19 is coupled with an interest, and the
general partner shall not exercise the same in any manner which would: (1)
remove the general partner; (2) enlarge any obligation or liability of a
limited partner; or (3) affect any Partnership allocations in a manner
adverse to the limited partners.
20. NO PRIORITY AMONG LIMITED PARTNERS.
No present or future limited partner shall have any priority over any other
limited partner as to contributions and compensation by way of income or
otherwise.
21. NO RIGHT OF LIMITED PARTNERS TO RECEIVE PROPERTY OTHER THAN CASE IN RETURN
FOR CONTRIBUTIONS.
No limited partner shall have any right to demand or receive property other than
cash in return for his or her contribution to the capital of the Partnership;
provided, however, a distribution upon dissolution and termination of the
Partnership may, as provided in this Agreement or as required by law, be in a
form other than cash.
22. COVENANT NOT TO CAUSE DISSOLUTION.
To the extent Section 402(1) or Section 602 of the Act is construed to grant
the general partner the power to cause the dissolution or termination of the
Partnership; notwithstanding such provision, the general partner hereby
covenants and agrees not to cause the dissolution or termination of the
Partnership by such partner's voluntary action pursuant to such provision and,
should such partner cause the Partnership to be dissolved or terminated, prior
to the occurrence of any event of dissolution or termination otherwise provided
for herein, such partner shall be liable to all other partners for all damages
thereby occasioned.
23. AMENDMENTS.
Amendments to this Agreement may be proposed by the general partner or by any
limited partners holding ten percent (10%) or more of the partners' credited
capital contributions. Following such proposal, the general partner shall
submit to the limited partners a verbatim statement of any proposed amendment
and the general partner shall include in any such submission a recommendation as
to the proposed amendment. The general partner shall seek the written vote of
the partners on the proposed amendment. A proposed amendment shall be adopted
and be effective as an amendment hereto if it receives in writing the
affirmative vote of the general partner and of a majority in interest of the
limited partners excluding the general partner.
Notwithstanding the foregoing paragraph, this Agreement shall not be amended
without the consent of each person adversely affected if such amendment would:
(i) remove the general partner; (ii) enlarge any obligation or liability of a
limited partner; or (iii) affect any Partnership allocations in a manner
adverse to any partner.
24. NOTICES.
Notices to the partners or to the Partnership to be furnished hereunder shall be
deemed to have been given on the date received at the address provided for in
paragraph 4 if personally delivered or on the date sent by certified or
registered mail in the United States of America unless there has been a notice
of change of address previously given in writing by the addressee in which case
the address shall be that shown on the most recent change of address notice.
25. BINDING EFFECT.
This agreement shall inure to and bind all of the parties, their estates, heirs,
personal representatives, successors and assigns.
IN WITNESS WHEREOF, the general partner and the limited partners have executed
this Limited Partnership Agreement as of the 21st day of June, 1996.
AMERUS MANAGEMENT, INC.,
General Partner
/S/ William C. Knapp II
By: ---------------------------------
William C. Knapp II, President
AMERUS PROPERTIES, INC.,
Limited Partner
/s/ Gene Harris
By: ----------------------------------
Gene Harris, Senior Vice President
EXHIBIT 21.1
LIST OF SUBSIDIARIES
NAME JURISDICTION
---- -------------
AmerUs Life Insurance Company Iowa
Delta Life Corporation Delaware
Delta Life Annuity Company Iowa
AmVestors Financial Corporation Kansas
AmVestors Acquisition Subsidiary, Inc. Kansas
AmVestors CBO II, Inc. Kansas
Annuity International Marketing Corporation Florida
Financial Benefit Life Insurance Company Kansas
The Insurance Mart, Inc. Florida
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AmerUs Life Holdings, Inc.:
We consent to incorporation by reference in the Registration Statement Nos.
333-32201, 333-32203, 333-40065, 333-20907, and 333-20905 on Form S-8 of our
reports dated February 13, 1998, relating to the consolidated balance sheets of
AmerUs Life Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996,
and related consolidated statements of income, stockholders' equity, and cash
flows and related schedules for each of the years in the three-year period ended
December 31, 1997, which appears in the December 31, 1997, annual report on Form
10-K of AmerUs Life Holdings, Inc.
KPMG Peat Marwick LLP
Des Moines, Iowa
March 25, 1998
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 6,851,427
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 61,480
<MORTGAGE> 462,473
<REAL-ESTATE> 8,670
<TOTAL-INVEST> 7,695,538
<CASH> 58,081
<RECOVER-REINSURE> 3,445
<DEFERRED-ACQUISITION> 118,896
<TOTAL-ASSETS> 10,254,008
<POLICY-LOSSES> 7,074,444
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 4,548
<POLICY-HOLDER-FUNDS> 89,641
<NOTES-PAYABLE> 266,435
86,000
0
<COMMON> 34,735
<OTHER-SE> 893,256
<TOTAL-LIABILITY-AND-EQUITY> 10,254,008
91,568
<INVESTMENT-INCOME> 224,431
<INVESTMENT-GAINS> 13,791
<OTHER-INCOME> 0
<BENEFITS> 193,237
<UNDERWRITING-AMORTIZATION> 20,987
<UNDERWRITING-OTHER> 51,663
<INCOME-PRETAX> 93,361
<INCOME-TAX> 22,022
<INCOME-CONTINUING> 58,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,059
<EPS-PRIMARY> 2.47
<EPS-DILUTED> 2.46
<RESERVE-OPEN> 0
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<PROVISION-PRIOR> 0
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</TABLE>
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 2,414,807
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 64,033
<MORTGAGE> 225,743
<REAL-ESTATE> 4,561
<TOTAL-INVEST> 2,880,843
<CASH> 1,814
<RECOVER-REINSURE> 1,489
<DEFERRED-ACQUISITION> 120,481
<TOTAL-ASSETS> 4,384,229
<POLICY-LOSSES> 2,053,740
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 7,039
<POLICY-HOLDER-FUNDS> 55,369
<NOTES-PAYABLE> 188,381
0
0
<COMMON> 19,500
<OTHER-SE> 438,010
<TOTAL-LIABILITY-AND-EQUITY> 4,384,229
187,823
<INVESTMENT-INCOME> 228,625
<INVESTMENT-GAINS> 65,983
<OTHER-INCOME> 0
<BENEFITS> 261,869
<UNDERWRITING-AMORTIZATION> 40,160
<UNDERWRITING-OTHER> 54,857
<INCOME-PRETAX> 119,130
<INCOME-TAX> 43,859
<INCOME-CONTINUING> 74,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,173
<EPS-PRIMARY> 3.20
<EPS-DILUTED> 3.20
<RESERVE-OPEN> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
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<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<DEBT-HELD-FOR-SALE> 2,376,246 2,405,580 2,338,050
<DEBT-CARRYING-VALUE> 0 0 0
<DEBT-MARKET-VALUE> 0 0 0
<EQUITIES> 64,089 63,008 52,964
<MORTGAGE> 236,644 230,368 303,263
<REAL-ESTATE> 4,495 4,417 4,331
<TOTAL-INVEST> 2,843,182 2,854,029 2,900,991
<CASH> 1,437 7,752 0
<RECOVER-REINSURE> 1,808 1,964 1,476
<DEFERRED-ACQUISITION> 164,392 138,455 128,515
<TOTAL-ASSETS> 4,412,047 4,450,501 4,483,699
<POLICY-LOSSES> 2,021,234 1,999,838 1,986,065
<UNEARNED-PREMIUMS> 0 0 0
<POLICY-OTHER> 6,009 5,412 5,391
<POLICY-HOLDER-FUNDS> 60,078 66,004 65,510
<NOTES-PAYABLE> 79,325 81,548 61,527
86,000 86,000 86,000
0 0 0
<COMMON> 23,156 23,156 23,156
<OTHER-SE> 480,414 511,830 553,658
<TOTAL-LIABILITY-AND-EQUITY> 4,412,047 4,450,501 4,483,699
18,205 41,215 64,263
<INVESTMENT-INCOME> 48,548 96,856 149,774
<INVESTMENT-GAINS> 5,259 9,523 14,510
<OTHER-INCOME> 0 0 0
<BENEFITS> 44,374 83,875 126,125
<UNDERWRITING-AMORTIZATION> 5,057 10,973 16,767
<UNDERWRITING-OTHER> 8,643 20,068 35,514
<INCOME-PRETAX> 23,093 45,915 70,958
<INCOME-TAX> 5,739 11,586 17,694
<INCOME-CONTINUING> 14,580 29,022 45,497
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 14,580 29,022 45,497
<EPS-PRIMARY> .63 1.25 1.96
<EPS-DILUTED> .63 1.25 1.96
<RESERVE-OPEN> 0 0 0
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<PAYMENTS-CURRENT> 0 0 0
<PAYMENTS-PRIOR> 0 0 0
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